*** The Failing ‘Kingdom of Dreams’: The Global Crunch and the Local Crisis of Real Estate –
In the last month we could observe how two very ‘finance’ sensitive sectors slowly, but surely crunched under lack of liquidity – the airlines and the real estate sector. These are ‘early symptoms’, hinting at the condition of the general economy, the root of the problem lying not in ‘sector specific issues’, but in the general squeeze: rising costs of credits vs. lower expectations of future profits.
The fiscal deficit of the state in India increased after the 2008 bail-out, subsequently the state finances its debts by selling state bonds to ‘private local’ banks (‘domestic market borrowing’). The share of ‘domestic market borrowing’ in financing the federal states’ fiscal deficits increased from around 15 per cent in the 1990s to around 75 per cent today – the ‘domestic market’ share for the central state’s borrowing is currently at about 85 per cent. Like in the global north we can see a close interdependence between ‘state’ and ‘financial sector’: the state bails-out ‘the banks’, not in order to ‘stuff the bankers’, but because its own deficit largely depends on ‘market borrowings’. Behind this we can see the need of the ruling class to ‘centralise’ the global command over the credit system, BUT to maintain the bourgeois appearance of separate economic and political spheres – they have seen how quickly ‘state power’ gets under fire nowadays once it is seen not only as a form of political oppression, but also the source of economic misery.
Through the ‘bailout’ the fiscal deficit increases. The regime forecasts a fiscal deficit of 4.6 per cent of GDP for this fiscal year, but their own officials question this: “It is quite clear that it will be very significantly worse. I can’t quantify,” Montek Singh Ahluwalia, deputy chairman of planning commission, said in an interview in mid January. Conservative estimates foresee a deficit of 6 per cent plus – in 1990, before the declaration of state bankruptcy, the fiscal deficit was around 3 per cent. The ‘trust’ in the government as a guarantor for financial stability is eroded: Indian government bonds are among the 10 riskiest in the world, according to a study issued by BlackRock in December 2011. Thereby the ‘general costs’ for borrowing increases: interests on the benchmark 10-year ‘Indian’ government securities jumped to above 9 per cent by end of 2011, an annual increase of more than 1 per cent. These costs trickle down into the wider economy.
At the same time the ‘expectations of future profits’ on the global markets look rather bleak – a global market which the ‘Indian economy’ is increasingly integrated in: India’s (foreign) trade to GDP ratio increased from 20 per cent in 1993 to 45 per cent in 2007; ratio of foreign assets and liabilities to GDP increased from 43 per cent in 1993 to 85 per cent in 2007. The global slow down translates directly into a slow down in the ‘Indian’ market. The request by the Indian government that the state-owned companies should stop “sitting on piles of cash”, and instead spend it on investment in ‘infrastructure’ seems like a rather helpless appeal.
The ‘credit crunch’ at this point leaves the sphere of figures and percentages, the realm of mathematics and regulations, and reveals its origin: the ‘real antagonism’ in the ‘the real capitalist world’. Here certain ‘finance’ sensitive sectors become ‘precursors’, e.g. airlines (global situation, oil prices, ‘state finance’) and real estate sector.
In autumn 2008, the financial trouble of ‘Indian Airlines’ – treated as a symbol of the booming subcontinent – became the stage-show for the state bail-out, a ‘proof of trust’. In October 2008 Jet Airlines had announced the dismissal of 1,900 workers. We then were shown some symbolic protests by the unions, fiery speeches by various political representatives, a state intervention, a repenting general manager and the public reinstatement of the workers. The state guaranteed financial support. Three years later the trouble returns. Kingfisher Airline is close to bankrupt, five of six main Indian Airlines declared losses in 2011. In mid-January 2012, pilots and cabin crews of Air India went on a wildcat one-day strike, protesting non-payment of their wages. The back-log of allowance payments had reached four months.
The situation is similar in the real estate sector, which makes up around 10 per cent of the Indian GDP (including construction, real estate related financial services etc.). Interest rates for mortgages and other real estate credits are high: The central bank’s repurchase rate, currently 8.5 per cent, is the highest level since 2008. The costs for interest payments for real estate developers increased by around 10 per cent on average during 2011, e.g. India’s biggest developer and ‘neo-liberal founder’ of New Gurgaon, DLF paid a record 5.26 billion Rs of interest in the third quarter of 2011, up from 4.96 billion Rs in the prior period. Combined net debt of the 11 biggest Indian developers rose 19 per cent in 2011. The pace of new project launches has severely been crippled in 2011 – a decline of about 50 per cent. Of the total housing inventory pertaining to the under construction projects, 39 per cent are lying unsold. Of the total office stock of 367 million square feet in the major cities, around a quarter remains vacant at the end of 2011.
The credit crunch translates itself back into the ‘real world’ in form of urban deserts – in particular in Gurgaon. The pillars of three symbols of the neo-liberal boom in Gurgaon are shaken: DLF itself, the Reliance SEZ and the ‘Kingdom of Dreams’. DLF stared a sell-out of assets to bring down its debt of Rs 22,500 crore in September 2011. In December 2011, DLF sold its 60 per cent share in a Pune SEZ, DLF also exited from Noida IT Park and sold real estate land in Gurgaon.
In January 2012 the Haryana government announced that it would take back 1,383 acres previously sold to Reliance Industries in Gurgaon. RIL and the Haryana government had entered into a deal in 2006 for setting up the multi-product SEZ, at the time hailed as ‘Asia’s biggest SEZ’ and showcased as a key achievement of the Congress government in the state. Chief Minister Hooda had, on the day of the signing, claimed that the project would create jobs for 500,000 people and that the state would earn Rs 10000 crore from the projects. Six years later, in January 2012 he said: “Yes, we are in talks with Reliance (with regard to handover of the Gurgaon land to the state government) because it has not been able to set up the SEZ.
In January 2012, also the ‘Kingdom of Dreams’, a Bollywood entertainment mall, in Gurgaon started failing. The Haryana Urban Development Authority (HUDA) announced “to give one last chance to the city’s entertainment hub, Kingdom of Dreams (KoD), to pay up the Rs 9 crore it owes to HUDA. If KoD fails to comply this time, it faces closure.” HUDA and Great Indian Nautanki Company had signed an agreement in February 2008. According to the agreement, the firm had to pay Rs 36 lakh per month as rent. The first two notices were issued in June 2011 – the pending rent amount increased to Rs 7.63 crore by November.
We will see how the crisis of the ‘kingdom of nightmares’ will impact on the wider working class reality, on the industrial companies closely linked to the real estate bubble…
*** Middle-Class is Revolting –
The fact that the iron fix-points of society – money, commodity, state power, professional advancement etc. – slowly turn into sand-castles, leaves its impact on the mind not only of workers, but also of the middle-waged classes. Recently Gurgaon witnessed some outbreaks of ‘middle class anger’ towards the commodity-form. ‘Middle class’ people who lose more time in traffic jams on the National Highway, than the new highway would allow them to ‘win’ by speed, forcibly opened the toll gates which are meant to ‘finance’ the highway. Young ‘middle-class’ people came to see ‘Metallica’ in Gurgaon – a band, which is known for their arsehole attitude towards ‘free music downloads or sharing’ on the data highway. After the announcement that the concert would be postponed, people smashed the concert venue. Two short news items on pent-up anger…
On 28th of October 2011 Metallica was supposed to play in Gurgaon. More than 25,000 fans flocked to the venue ‘Leisure Valley’, with some paying more than 10,000 Rs for tickets (current monthly average wage for industrial workers around 5,000 Rs). After the news of postponement was announced on stage, disappointed fans vandalised the venue ‘Leisure Valley’, which can seat around 30,000 people. They broke barriers, climbed on stage and tore posters, smashed loudspeakers and equipment. “The show was cancelled with no prior information to the ticket buyers or [to] the district administration – which could have caused [a] law and order problem,” explained a government spokesman.
On 2nd of January 2012, protesters, who have been demanding the removal of two toll plazas on Gurgaon Expressway, forcibly opened the toll gates at Kherki Dhaula plaza for an hour or longer. The incident took place after villagers from nearby areas held a meeting to plan their future course of action. Almost a month ago, on December 4, the same group had forcibly opened the toll gates of the 32-lane plaza. On Monday, the demonstration by the Toll Hatao Samiti and some of the residents’ organizations also received support from the local Hindu-Nationalist BJP and INLD. “Gurgaon is the only city where two toll plazas have been allowed within 20km of municipal limits. The private company is doing nothing to improve road infrastructure,” said one of the ‘leaders’. The private developer, Delhi-Gurgaon Super Connectivity Limited (DGSCL), has sought financial compensation from the Haryana. At least 190,000 cars pass through the 32-lane toll plaza every working day.