This is an attempt to introduce a regular update on general tendencies of crisis development in India – motivated by Greek shock-waves, naked shorts and potential spillovers. Apart from short glimpses on the macro-level of things we focus on general trends in agriculture and automobile sector: the current demise of the past and the toxicity of the future.
The Crisis in July and August 2010 – A Summary
Tension between short-term influx and growing internal debts
The months of July and August 2010 confirmed the picture of the economy in India being in a waiting-loop of crisis. The government is able to announce that GDP growth is still on 8 percent-growth-path and that, after the massive outflow of 20 billion USD of short-term invested capital after the ‘Greek-Shockwaves’ in May 2010, money is flowing in again since June – mainly as short-term portfolio investment. These ‘good news’ are in contrast with the probably more substantial worries expressed during the last two months:
- the association of industrialists Assocham expects inflation to increase to 15 per cent in the coming months; the general inflation, which is in double digits for the fifth consecutive month, stood at 10.55 percent June – July 2010;
- the current trade deficit, which is a measure of higher imports of goods and services over exports, has already risen 50 per cent to 21.7 billion USD during April-May 2010 from around 14.4 billion USD a year ago; the trade deficit of the January – March quarter was the biggest since 1981;
- bank credit is growing at an annual pace of around 22 per cent while deposits grow at a 15 percent; the credit-deposit ratio has widened to 73.44 percent in July 2010 from around 70 percent at the start of this year, climbing above the monthly average of the past five years of 69 percent;
- 50 per cent of the 2009-10 foreign currency reserves growth is due to appreciation of the Rs in relation to the US-Dollar; the Rupee has proven to be a rather volatile currency, meaning that there is a big scope for depletion of the reserves in case the Rupee plunges
- according to a Reserve Bank of India report from August 2010, `total factor productivity’ has dropped from 2.6 per cent in ’92-97 to 1.7 per cent in ’97-2005; while productivity in agriculture has slipped from 3 per cent to -0 .2 per cent, that in industry has dropped from 3.1 per cent to 1.4 per cent
Total GDP 2009: 1,367 Billion USD
Total Export 2009: 165 Billion USD
Trade Deficit 2010-11: 120 Billion USD
Total FDI 2009: 39 Billion USD
External Debts 2009: around 200 Billion USD
Public debts of GDP 2009: 60 per cent
Fiscal Deficit: 5 per cent
Share in global merchandise trade in 2008: 1.5 per cent
Tension over Inflation between Finance and Fiscal Managers
The major concern, the high inflation, causes increasing tensions between the ‘political class’ and their financial managers, e.g. in the form of the Reserve Bank of India. While the government still claims that the general inflation is mainly due to high food prices and that ‘a good monsoon’ will sort things out, the Reserve Bank of India (RBI) announced in July that two-thirds of May inflation was contributed by non-food items. The RBI gives credits to the banking sector, the interest rates of these credits have been hiked four times since March 2010 in small steps of 25 basis points. Each of these interest hikes were accompanied by major public controversy whether the danger of inflation or the danger of ‘smothering the boom’ is more pronounced. “We will tell them [the government] that if inflation expectations solidify, it will push up government bond yields, loan rates will go up, and there will be a spiralling impact economy wide,” an RBI source said in August 2010. The interest hikes of the RBI have been passed on to consumers via the State Bank of India in August 2010. The SBI is the country’s largest lender. In August the SBI raised benchmark lending rate by 50 basis points to 12.25 per cent, making home, vehicle and other corporate loans linked with the rate costlier to middle-class consumers – and will very likely reverberate within the micro-finance sector of rural poverty, see below.
Tension between Central and State Government
The government’s take on the inflation problem is highly contradictive. After the central government has fuelled inflation by its reform to free-float petrol prices – causing considerable price hikes in June 2010 – Finance Minister Pranab Mukherjee now asks the state governments to cut taxes on petroleum products, “a move that would help tame the current double-digit inflation”. According to Rupe Report from August 2010 on subsidies – click HERE [http://www.rupe-india.org/49/subsidies.html] – state taxes on petrol in India are significantly higher than average: “While India’s petrol and diesel retail prices are lower than those in many developed countries, they are higher than US prices as of May 2010, solely on account of taxes. The ex-tax prices of petrol and diesel were, respectively, 7 cents and 11 cents lower in India than in the US; yet the retail prices of petrol and diesel in India (i.e., including tax) were, respectively, 36 cents and 6 cents higher than in the US.” So basically the ‘state subsidies’ for the petrol or fertilizer sector are actually a ‘ slight lowering of taxation from a very high basis’. A similar point of tension between central and state governments is the implementation of the new goods and services tax (GST) across the country next year. State governments fear that the new tax will shift taxation power further towards the centre – increasing the problems of the debt-ridden state budgets. Terming the new tax as “anti-democratic, anti-poor and anti-farmer,” Madhya Pradesh finance minister Raghavji said in August that the new tax regime is aimed at divesting the states of their financial freedom. The proposed new indirect tax, which will subsume all the major levies like excise, sales tax, VAT and other local levies like octroi, is anti-democratic as the proposed GST Council will not be accountable to Parliament as well as to the state assemblies and through it the power of the states to levy tax on sale and purchase will be taken away. After the implementation of the GST regime, Madhya Pradesh will lose revenue to the tune of 2,200-2,500 crore RS per year. The Finance Minister’s answer does not require any further comments: “The gain from GST will propel the country from one-trillion dollar economy to two trillion-dollar economy in a short span of time,” he said while addressing a meeting of the industry chamber Ficci.
Tension over International Markets
Apart from re-shifting debt burdens the state in India is up for selling more assets. This time we don’t talk about mobile-phone licenses, but about the real stuff: coal, oil. In August 2010 the central government announced plans to list its state-owned coal mining company Coal India by October 2010 and to sell an additional stake in its national oil company. The Indian government gave the mandate for the offering for Coal India shares to Deutsche Bank, Enam Securities, Morgan Stanley, Citigroup, Bank of America Merrill Lynch and Kotak Mahindra Capital. Coal India claims to be the largest coal producer in the world, accounting for 85 per cent of Indian output. Question remains if this partial opening will ease the general tension concerning foreign investment in the Indian market, particularly the retail, defence and agricultural sector. In August 2010 US Trade Representatives engaged in a diplomatic clash when announcing that they will be “exploring all options, including legal tools, to force India to open up its agriculture market”. “We are exceptionally frustrated. I will tell you it’s generally not our practice to comment publicly as to whether we are going to take legal action, but I would tell you we are exploring every alternative and every enforcement tool available to us to get India to open up their markets on a number of agriculture issues, the dairy sector in particular,” the US Trade Representative, Ron Kirk, told the US lawmakers in early August. During his visit to India in late July 2010 David Cameron aimed at a similar direction: Business Secretary Vince Cable has announced the government will allow the export of British civil nuclear technology to India for the first time. In return Mr Cameron is expected to call on India to reduce trade barriers in banking, insurance, defence manufacturing and legal services. A £500 million deal for BAE systems, Britain’s biggest defence contractor, to supply Hawk jet trainers to India is expected to be among “a string of high-profile contracts” to be signed during Prime Minister David Cameron’s visit. During the same visit immigration minister Damian Green made clear that in future only ‘high-class’-migration to the UK is wanted: “I’m convinced that we can achieve our objective of reducing migration to the UK, whilst driving forward our commitment to trade and inward investment. We can do both. We want to encourage to come the UK the brightest and most talented workers, entrepreneurs and investors”. He said Britain is now working more closely with Indian police and educational bodies to clamp down on unscrupulous agents who use fake qualifications to get student visas for customers and those behind bogus colleges.
Tension in some of the multi-national industrial core sectors
Obviously there are dozens of union mobilisations each day – click HERE for daily up-dates on LabourStart. At this point we only want to mention certain apparent parallels between mobilisations at multi-nationals in China and India. While the Honda strike in China was paralleled by a dispute at Hyundai in India in spring 2010, now Foxconn workers in India entered the sad stage of victimisation after their Chinese brothers and sisters. The strike at Hyundai was followed by a similar ‘open’ dispute at Volvo, while unions at Apollo tyre maker agreed to employment of temp-workers and workload increase after two months of lock-out.
- 500 Foxconn workers stage protest
Workers who came under exposure of mysterious gas leak at Foxconn factory in Sriperumbudur were admitted to Hospital with complaints of giddiness, nausea and breathlessness. About 500 workers from the factory with the support of unions in neighbouring industrial units went on a sit-in protest in front of the Foxconn factory. However, the protest was called off later on as authorities and management promised action. Meanwhile, there was no operation in the company, which assembles handsets for Nokia.
- Employees at Indian Volvo bus plant strike over pay
The two week long strike at Volvo Bus factory in Hoskote near Bangalore has ended with both the management and workers union coming to a mutual agreement on wage revision. Management has agreed to revise salaries of workers with retrospective effect from April 1 last for three years. Management, however, declined to reveal the exact rise in compensation for the workers. This was the first ever strike at Volvo’s bus plant in India. The strike lasted for two weeks, but a labour conflict which has slowed down production has been going on for about three months, he added. Four of the plant’s employees were suspended following a dispute at the plant in April, during which they allegedly physically assaulted a manager. During the three month labour conflict some employees have worked less or not at all in protest. The conflict has set the plant’s production pace back 60 buses, Johansson said. The factory rolled out 535 buses last year.
- Lockout at Apollo Tyre plant ends
End of August 2010
The two-month lockout at Apollo Tyres Ltd.’s Perambra, India, plant has ended as the company and two unions have come to a resolution. The parties have agreed to raise the plant’s daily capacity from 308 tons to 340 tons. Meanwhile, Apollo will hire an additional 200 people, and unions have conceded that the company can use “secondary manpower” at certain times. “The increase in capacity, manpower and the use of secondary labor are all progressive steps,” says Satish Sharma, chief of Apollo’s India operations. The Perambra factory produces light truck, medium truck, bus and agricultural tires.
The Rural Crisis
The news items we collected for July and August relate about growing farmers’ debts in Maharashtra and Punjab and the announcement of the state to claim land from bankrupt farmers, if necessary with the help of force. The rulers and their social managers also presented solutions to crisis-ridden farmers: the bad fix of micro-credits, micro-electronics, and, if necessary, re-location to African bloody soils of civil war. In the long-term the rural crisis might be fought out in the cities: “On a conservative estimate, 45 per cent of Indians would be living in towns and cities by 2050. This means that 379 million people may be added to the urban space over the next 40 years,” the National Council of Applied Economic Research (NCAER) said in its report ‘How India Earns Spends and Saves’ in August 2010. Urbanisation is a process of concentration: While nearly 25 per cent of urban population in India lived in cities with a population of one lakh in 1901, the number increased to 45 per cent in 1951 and 69 per cent in 2001.
To cater to this growth, India needs to invest $1.2 trillion in capital expenditure, mainly infrastructure, over that period, an eight-fold increase of current spending levels, MGI said. India now spends 17 USD per capita on urban infrastructure, compared to rival China’s 116 USD. What ‘state-management’ of urbanisation also means was revealed in mid-August in Bangalore: concentration-camps. From a BBC report: “Officials in the Indian city of Bangalore are investigating a spate of deaths at a camp for beggars. At least 100 inmates have died in the government-run camp on the outskirts of the southern city this year, 27 of them in the past week. Activists accuse the state government of negligence and say conditions in the camp are appalling. More than 2,500 inmates live in squalor at the camp and diseases there are rife, correspondents say. There are just two toilets for every 500 inmates.”
Foreclosures in Maharashtra
Scores of farmers mired in debt in the arid cotton belt of Vidarbha in Maharashtra are close to losing their property rights, as the state-controlled Land Development Bank has kick-started the process to recover dues from them. A top revenue ministry official said the process to recover loans by selling off land belonging to those farmers who have defaulted is “definitely on” and could start as early as July 23. It is now a well-accepted fact that mega loan amnesty schemes, such as the ` 71,000-crore waiver announced by the central government and the state’s ` 6,240-crore loan waiver, excluded many farmers in the state. The waiver was applicable only for loans contracted from a government-backed institution. But in the hinterland, most farmers borrow from money-lenders. Many of them could not avail of the amnesty schemes, as the eligibility was restricted to those having two hectares or below. More-than-half of Vidarbha’s 35-lakh farmers own more than two hectares and, therefore, according to the government scheme, can only obtain a loan waiver of 25 per cent of their outstanding loan instead of a total write-off. Now, the state government wants to recover the remaining 75% of the loans that have not been paid back until now. “According to rules, the Land Development Bank needs to recover loans within five years from disbursement. More delay than the stipulated time makes it mandatory for the bank to recover its dues by selling the immovable assets, in this case, the land,” an official associated with the exercise told ET. He said necessary orders to take over the properties of farmers have been issued and the powers to take possession of defaulters’ land have been vested with the respective district deputy registrars. “These officials have demanded police protection. This is being extended to complete the process,” a Nagpur-based government official said.
Debts in Punjab
Central Punjab has been the food basket of the state and the country since the 70s when the Green Revolution brought bumper wheat and paddy crops in its wake. A quarter century later, farmers of the area continue with the same foodgrain rotation but at a heavy price. A steep fall in water table is forcing farmers to dig deeper in search of water fanning the start of an agrarian crisis. Farmers of these districts are not only digging deeper borewells for water every few passing years but also digging themselves into debt from which they have a little hope of climbing out. Amar Singh from Khairpur Jattan village in the Ghanaur block of Patiala says 95 per cent of its residents are under debt. Amar Singh, who owns 16 acres of land and has two grown up sons and their extended families to feed, says 10 years ago, the family irrigated their land with 60-ft deep borewells. He says he dug his first deep borewell in 2002. At present, he is replacing an older borewell, which had become defunct with 375-ft deep borewell. Ironically, he has not struck sweet water even now. The story of Harmesh Singh of is similar. Harmesh’s march towards debt stated five years ago when he installed a 225-ft borewell. He took a loan of Rs 1.85 lakh from a bank to do so. He also purchased a tractor shortly afterwards so as to reap the rewards of mechanised farming. However, whatever he earned was offset by continuous expenditure on his borewell. The farmer started off with a 5-brake horsepower (bhp) motor, upgraded to 7.5 bhp and finally installed a 15 bhp motor over a year ago. With a debt of Rs 4 lakh now and minus the tractor that he has sold off, Harmesh is now indifferent towards life. When asked about his loan repayment schedule, he says, “Sometimes I give it (instalment), sometimes I don’t.”
Bad Fix One: Microcredits
Microcredits became big business in India. The sudden credit crunch after October 2008 global banking crisis has shown how close the remote Indian villages are to Bombay financial district or the Wall Street – in financial terms. According to their own sources the microfinance sector growth 80 to 100 per cent a year. Around 70 to 80 million small farmers depend on micro-credits. There are reports that small ‘self-aid groups, e.g. women who buy a hand-loom together, turn against their members once they are unable to pay back their share of instalment. The microfinance sector has to grow quickly in order to dish out credits, in order to grow. So far the microfinance companies had to take loans from normal banks, paying about 12.5 per cent interest. They passed the interest on to the small farmers, who have to pay around 25 per cent interest. These farmers cannot obtain credit from ‘normal banks’, because they cannot show the required securities. Microfinance is placed between the official financial sector and the money-lenders. While before the crash US banks used to grant people mortgages 120 per cent above what they were able to show as security, the microfinance institutes in India still lend credits around 150 per cent above the value of the small farmers’ property. In order to attract more capital from global streams they have to show growth rates of the mentioned 80 per cent – the sector is overheating. International Groups like the German Allianz or real estate developer Larsen and Toubro entered the market. Using the argument that the sector has to get financial sources independent from the official banks – in order to lower the interest rates for the farmers – microfinance companies started to issue shares on the stock-market. SKS Microfinance is one of these companies. Within three years this company increased the number of ‘clients’ 20-times – now around 5.3 million people depend on loans from SKS. In June 2010 188 million shares of SKS were sold on the market. A boom similar to the IT bubble, but the crash will have much more severe social consequences.
Bad Fix Two: Microelectronics
In the 1870s the colonial state promised that the telegraph system will prevent further famines in India, given that the information about the lack of foodgrain can be circulated quicker. The famines in the 1890s were even worse – partly because of the telegraph-system resulting in even quicker speculation. History does not repeat itself, it move in a social-technological spiral. A study about ‘agricultural productivity increase through mobile-phone services’ concludes in August 2010: “Among the states studied, small farmers from Maharashtra (income between Rs 12-17,000/month) reported the highest use of their phones to access information, leading to diverse benefits. These included yield improvements, price realisation and better adjustment of supply to market demand. Ideally, market price information is valuable in deciding where and when to sell, but also in deciding the cropping pattern. On the ground, there was some marginal evidence that the bargaining power with traders (who used mobile services widely) improved when farmes were armed with market price information”.
Bad Fix Three: Relocation
African nations offering land for free to Indian farmers
11 Aug 2010, 1551 hrs IST,PTI
Some African countries are offering land on lease for 99 years for free to overseas farmers and India should grab the opportunity, industry body Assocham said today. The countries that were in the forefront trying to attract agriculturists were Sudan and Ethopia, he said. Several Chinese farmers have already accepted the offer and begun cultivation of land, said Tyagi.
Bad Fix Four: Pre-emptive Counterinsurgency
Currently the state in India is undertaking a major operation to enforce identity cards, which means photographing, fingerprinting, and iris-scanning every resident of India, plus issuing of digital files, the so-called UID System. Combined with the ID-card is a supposed reform of the ‘Below-Poverty-Line’-food program. The idea is to not ‘guarantee’ minimum prices for the ‘officially poor’ anymore, but to issue food coupons. The definition of who is poor and changes in the households composition or income is supposed to be combined with the ID-drive. From an official document: “Since the Unique Identification will not, in itself, have information on people’s poverty status, these kinds of tailoring of information will need to be added to the UID System. Further, since households do move in and out of BPL status there has to be provision for updating of information.” This again is added to the ‘job-card-regime’ of the National Rural Employment Guarantee Scheme (NREGS), which only grants paid employment to locally registered people, often requiring a bank account. The state is blatant about the ‘counterinsurgency’-character of NREGS:
“India battles Maoist influence with jobs scheme – BBC July 2010
Also called the Mahatma Gandhi National Rural Employment Guarantee Act, it is being used to kick-start much needed development work in the area. Kaushik Lohar is a fortuitous beneficiary of a sudden rush of development work to keep the rebels away from his village. “If the Maoists were not at our door, all this wouldn’t have happened,” said Mr Lohar. “We have been waiting for development for decades.” He said he earns up to 3,000 rupees a month working on the dam, much more than what he used to earn as a daily wage worker.”
The “3,000 rupees a month” is the utter exemption. Not even 1 per cent households in Bengal got the promised 100 days’ work under the National Rural Employment Guarantee Act (NREGA) in 2009, the latest report of the rural development ministry has revealed in August 2010. Out of the total 31,15,422 households, only 19,163 got 100 days’ employment. Households on an average got 32 days of work. Seventy-two per cent of eligible households got merely 15 days of employment, the report said. The figure for most other states hovers around 5-6 per cent. Not only do people get less than 100 days, they also tend to get much less than the minimum wage. Reported in August 2010: “For 11 days, 99 people toiled to dig a check-dam under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in Tonk district of Rajasthan. But when it came to wages, they were paid only Rs 11 – Rs 1 for each day of labour. The Rs 11-payment was decided by a Junior Engineer who inspected the work site. Gudaliya residents protested, calling it a cruel joke, and appealed to the district administration. To no avail. For Gudaliya residents, this is not a lone case. For four jobs between April and June, they have reportedly been paid Re 1, Rs 7, Rs 12 and Rs 25. These wages have only increased their ire against the government. Incidentally, details of the payments are available on the MGNREGS website but have failed to move the authorities.”
Obviously, NREGS plays a role for poor people’s income, particularly for women – around 40 per cent of NREGS workers are women. A recent study – click HERE [upload pdf]- on NREGS impact on women says that although NREGS wages in the studied areas formed only 15 per cent of the total households income, it formed a significant income for the female members.
The state can not rely on the violence of structure and control alone, please read the fact-finding team’s press release about the killing of comrades Azad and Pandey from the 22nd of August 2010.
The Automobile Crisis
We have little to say about the automobile crisis this month, just three news article snippets about Maruti: More Sales, Less Profits, More Debts!
- “The country’s largest car maker, Maruti Suzuki India, reported 29.18 per cent jump in sales for July 2010 at 1,00,857 units.”
- “Maruti Suzuki’s July Profit Unexpectedly Falls 20 per cent as Raw Material Costs Swell”
- “Maruti Suzuki is among carmakers to have introduced waiting lists in India as a lack of parts including tires, bumpers and batteries damps vehicle production. Local components makers have struggled to expand because of debt levels that are twice as high as Asian suppliers. India’s 133 listed makers of components and tires have an average debt-to-equity ratio of 138 percent, according to data compiled by Bloomberg. The average for the 73 companies in the Bloomberg Asia Pacific Auto Parts & Equipment Index is 58 percent