Note on India’s external trade
May 2, 2013 Leave a comment
The press and government are both screaming their lungs out about the current account deficit and fiscal deficit. The preceding budget session showed the trend that will best characterize the coming years in terms of how India’s bourgeoisie wants to overcome the crisis. Cuts to subsidies and vicious attacks on public companies paving the way for their eventual privatization.
But why is the current account deficit suddenly so important ? To understand this we must understand the nature of the growth of the Indian economy especially in the past 20 or so years. The basic trend of the economy was oriented towards internal expansion. Fostering a large internal market, and a large internal industrial base. This meant goods produced in India would be sold primarily in India and not exported. However, the feverish ‘market driven’ dynamic of this growth meant a huge imbalance between demand and supply.
This ultimately led to heavy reliance on importing energy products and raw materials to sustain the high growth of industries and infrastructure, and this was the true beginning of the present current account deficit. A prerequisite for sustaining the growth of IT industries was investing in skills and manpower, education and specialization, while accelerating the growth of the industrial reserve army of the unemployed to to keep wages down. The ranks of unemployed proletarians — people with nothing to live on but the sale of their labour power — were swollen by the process of proletarianization by which poor peasants and petty producers are ruined by debt, forced away from their land and livelihoods by rich farmers, banks and agribusiness, and end up destitute in the big city slums. In addition to this great numbers of well-educated and skilled graduates were forced over from independent professional life into the fold of corporate exploitation or unemployment or worse, sub-standard self-employment in workshops !
Expanding industry and infrastructure required a large inflow of energy products to power growth. As a result the mining and energy sectors which are dominated to a considerable degree by state owned companies grew enormously. State protection aided the growth of these companies helping some of them, like ONGC and OIL, become multi-national corporations.
When the IT boom fizzled out and the chaos of the ‘sudden’ opening of the Indian economy subsided, both large state corporations and oligarchical conglomerates (like the Tatas and Birlas) moved in to dominate the new areas which prospered as a result of the ‘opening’ of the Indian economy. Their later growth into international conglomerates proved that the opening up of the Indian economy was not undertaken reluctantly in response to irresistible dictates by the West (and in particular the IMF) but rather in accordance with the needs and desires of Indian capital as a whole and as a response to an internal crisis of India’s statist economy.
Throughout this period India maintained trade deficits to power the economy and expand the proletarianization process in the countryside as rapidly as possible. Together with this it started purchasing huge amounts of gold internationally for strengthening it’s currency reserves and acquired vast mining interests internationally to improve its energy security. This in addition to the trajectory of economic development created conditions for the trade deficit to keep compounding. An increasingly enriched bourgeoisie and petty bourgeoisie in addition to an increasingly better-off ‘middle class’ labor aristocracy created the conditions for a ‘consumption driven economy’. As part of the accelerating process of proletarianization the increasing penetration of big capital into the countryside speeded up the mass pauperization of the rural populace.
Some of the social pressures generated were relieved a little by the export of some of the surplus proletarian population into the gulf countries. This and the integration of India’s non-resident foreign population into the national economy through dual citizenship ensured a steady stream of foreign currency inflows through remittances and repatriation to sustain this internal expansion and eventually aided in India’s external expansion.
In addition to this, the inflow of foreign capital *( a large portion of which later on become rerouted black money by Indian capitalists ) added to the forex reserves further defending India’s growth fundamentals. So we see a three layer shield protecting the health of India’s proletarianizing economy and creating what is often called “The India growth story”, namely :
1) State intervention in protecting an internal sphere for Indian capital to exploit the labour power of the Indian masses. In addition to that creating a viable external asset base to defend the national economy.
2) The export of unemployment — the surplus proletarian population from India earns large sums through drawing in wages and foreign assets into the Indian economy.
3) Inflow of foreign capital through managing concessions to foreign capital in strengthening the indian proletarianization mechanisms and adding to external currency reserves.
The third point is the most difficult in relation to the question of the current account deficit. On the one hand, indian capitalism has historically been very cautious in its maneuvering between making concessions to foreign capital and defending the independence of its own capitalists. Whilst on the other hand, it has admitted it’s dependence on advances in production processes of imperialist metros as well as it’s finances to develop it’s own capitalism.
After 1947 it successfully fought off foreign capital using the protective shield of the USSR to nullify political subordination to the USA and UK. After the fall of the USSR, it actively expanded the interests of its own big monopolies and conglomerates. Creating a dominant sphere in the subcontinent and carving out a niche in Sub-Saharan Africa has further helped India to resist the pressure from the West. In boom times it was possible to grow by ‘free riding’ if you will, along with world imperialism. As long as the circulation of capital proceeded smoothly there was no unmanageable competition attacking India from America or Europe, and Indian capital could manage the existing competition between Indian monopolies and foreign ones relatively smoothly. This is no longer the case in the current situation of world crisis, where competition is rapidly becoming more aggressive and brutal.
During boom periods, India has hitherto been successful at keeping foreign capital at bay. Only during crisis periods has foreign capital been successful in wrenching some space for itself in the Indian market, conceding political subordination in return for economic benefits. This was the case with the opening of the economy in the 1990s. In the present period of crisis, although India’s internal fundamentals remain firm, its external dynamics stand shaken. The flow of funds from foreign countries appears to be slowing down and perennially on the verge of drying up as foreign capital prefers to hoard cash rather than expand into fresh but uncertain and not very profitable markets. Markets which have been developing with extreme rapidity like India seem to be slowing down and approaching saturation akin to advanced imperial economies. However, India has never deviated from its general course since independence, namely that of an expanding economy based on the expropriation and proletarianization of its vast and impoverished rural population. This meant that the basic needs of this economy have remained the same along with the appearance of a ‘consumption driven economy’.
While the economy’s needs have remained intact and continued to expand in many ways, India has lost a great deal of potential export revenue from foreign markets with the crisis in the EU, North America and East Asia. This has forced India to aggressively search for other markets in Africa and Latin America while zealously defending trade relations with new partners like central Asia and the Middle East particularly Iran. Forced to exploit the home market more harshly to compensate for the loss of revenues from the advanced economies, India’s capitalists resorted to investing in core sector areas like fuel, foods and energy thus contributing to an inflationary situation which has meant intolerable price increases in basic necessities. Particularly in foods and fuels.
Indian finance capital has also expanded its reach to foster the new drive for consumption. Among other things the inflationary situation has resulted in an increased hoarding of gold by Indian families in order to withstand the effects of inflation in essential commodities. Paradoxically, given the hopes placed in rising consumption, internal demand has been eroded to a considerable degree with the traditional demand base of the ‘stable’ middle middle class and rising peasantry becoming poorer. This inflationary situation has been made worse by a weakening currency necessitated by the need to keep a ‘healthy’ export level. It is precisely at this point that we find the core problem with foreign capital inflows into India.
With a widening trade deficit, and Indian capitalism’s desire and need to continue running an economy based on proletarianization, the risk of dependence on foreign capital has again become a viable threat! India now faces the challenge of having to concede to foreign capital without losing the political and strategic ground previously gained in the course of building its proletarianizing economic base. The finance minister’s statement that $75 bn dollars of foreign funds would be needed to finance the trade deficit in the next two years reveals the dilemma facing Indian sub-imperialism today. The problem is not only that foreign capitalists may no longer be in an economic position to make such an investment in India, but also that if they do, it might lead to indian capitals losing their dominant role in the home economy.
The only answer that the bourgeoisie can give in this situation is to tighten bureaucratic barriers under the pretext of maintaining ‘regulation’, and cartelize state finance corporations so as to secure the commanding heights of the economy and favour Indian companies as far and as widely as possible. In addition to this, it is attempting to expand as rapidly as possible into the advanced markets of Europe and do whatever it can to spruce up the failing economy of the EU by contributing to bail-out packages when required. All the while, of course, it continues to fleece the people of India and South Asia as harshly as possible to get through the world crisis in the short to mid term.
However, this deficit economy is not sustainable in the long run. The three major commodities contributing to an inflated import bill are oil/natural gas (needed for industries, transport and individual consumption), coal (needed for industrial production, transport and energy) and gold (as a result of consumer spending to combat inflation ). They are mostly sourced from the Middle East or central Asia, south-east Asia and Africa. A runaway trade deficit scenario in which India is eventually unable to meet its trade obligations might finally lead to default, and this will bring India into direct confrontation with its creditors in these regions. This would be an extremely serious turn of events leading to tensions that in the current world situation of nervous instability could well escalate into war!
If India feels threatened by the oil-exporting monarchies of the Gulf (where a considerable portion of the population is Indian and south Asian), and if these nations try to pressurize India too far, then it could most certainly resort to warfare in order to secure its economic interests. What is more, all of these regions are within the range of India’s nuclear weapons. The biggest obstacle to the use of military force would not be the nations directly involved, but the prospect of US finance capital (which controls global oil trade through OPEC and the petro-dollar) resorting to an equally aggressive response if its interests were threatened by Indian capital. If either side opts for the military solution, the result will unquestionably be world devastation.
It is clear that the world needs to keep its eyes on the Indian economy. Most importantly, to understand and grasp the course of Indian capitalism as it continues to expand both economically and militarily at a feverish pitch!
The core of our concern however, must be the working class and its political response to the expansion of Indian capital and power. It is not an exaggeration to call India’s current situation sub-imperialist. It is striving to elbow its way into the tiny group of big imperialist countries that control the world economy. It can do this because it has successfully protected and nurtured Indian industrial and finance capital since independence. And it controls a huge reserve of “fresh” labour in the hundreds of millions of poor farmers being thrown off their land and into the great industrial cities, so it has its “own” source of surplus value and profit and doesn’t have to rely on fighting every other imperialist country to grab a share of labour that is already in the toils of capitalist exploitation.
All nationalist jingoism which talks about India’s (illusory) subordination to foreign capital must be exposed as infantile and even suicidal for the struggle of the Indian masses. In particular, the politics of the Stalinists and Maoists who have been the best agents of the imperial designs of Indian capitalism. They have been at the forefront of subordinating the working class to a nationalist programme in the interests of the indian bourgeoisie and rally them around from time to time to defend the ‘autonomy’ of India’s foreign policy. The very same foreign policy which has contributed most to the present disaster facing the indian workers and peasants. It has been doubly damaging in bringing about the isolation of the Indian workers from the world working class and rendering the great force of class struggle as a weapon of the Indian bourgeois !
A solid socialist programme must be drawn up to mobilize the working class for the revolutionary overthrow of the Indian bourgeoisie. This bourgeoisie is without any question the dominant social and economic force, the ruling class, in India and the main enemy of the Indian workers and peasants. It is not a tool of US or European imperialism. They are part of the world imperialist system, but run their own show and fight for their own interests. Stopping them directly and refusing them any and every assistance against their foreign competitors and rivals will be the greatest contribution the Indian working class and its allies in the countryside can possibly make to creating a socialist world where the working people manage production and wealth by and for themselves in the interests of all humanity.
The present situation of crisis opens up numerous golden opportunities for bringing about the mobilization of the masses in India around a programme which declares the defeat of the Indian bourgeoisie as a cornerstone. This cannot be achieved unless we wrench the leaderships of the workers and peasants from the misleading Stalinist leaders.