FOUR YEARS OF NARASIMHA RAO

Sitaram Yechury

In these columns in the preceding weeks we have seen the effects of Narasimha Rao’s new economic policies both on the people and the country.

To summarise the conclusions : These policies are on the one hand further squeezing the vast millions of working Indian people resulting in a decline in purchasing power, accompa¬nied by deterioration on health and other social indices. On the other hand the country and its assets are being mortgaged unscrupulously. Thus both the health and wealth of the Indian people are getting rapidly eroded.

But, then, who gains from all this? If these were so why were these new economic policies embarked upon, to begin with? The official explanation given has been that by the beginning of the nineties India’s foreign trade deficit had become so acute that we did not have enough foreign exchange reserves to meet the essential imports like petroleum etc. Further, because of continuous borrowings of the previous years In¬dia’s commercial rating was so low that no international bank was willing to lend to India. Thus the country was told there is no alternative (the famous TINA factor) but to take re¬course to an IMF loan, fully accepting its conditionalities. (We had earlier discussed these conditionalities.) What followed from this was the logical unfolding of the new economic policy of unbridled liberalisation and privatisa¬tion. But, is there in fact no alternative? In a short term there indeed were alternatives but these were repeatedly rejected by the government in the interests of the Indian ruling classes. In fact an alternative package was outlined in these columns which consisted of the following:

(a) Drastic reduction in unessential imports (luxury con¬sumption goods). A couple of months before, when this was practiced in April 1991 the imports in dollar terms fell by 6.8 per cent compared to the corresponding period. But taking recourse to such an alternative would have meant disappoint¬ing that very social base which is patronised by the ruling classes.

(b) The vast amounts of black money that is running a paral¬lel economy in the country could have been unearthed, at least partially to realise vast sums of money.

(c) Effective measures to target non-resident Indians to invest and open bank accounts in the country. That the government refused to take recourse to all these or any of these relates precisely to the specific class interests of the Indian ruling classes. In order to clarify this, a little historical account of the pattern of economic development since independence is necessary.

HISTORICAL PATTERN

At the outset it must be noted that the path of capitalist development in India was embarked upon by the Indian bour¬geoisie under the leadership of the big bourgeoisie in alliance with the feudal remnants. Both historically as well as scientifically capitalism never flourished thoroughly until all vestiges of feudalism were shattered. But in India these vestiges could not be shattered precisely because the feudal elements were partners in the ruling class alliance and hence could not be eliminated. It is this very nature of the class alliance that defines the contours of economic development as well.

This alliance with feudal elements meant two things. First, agriculture continued to remain under the yoke of feudal exploitation to a large extent, thus unable to release fully the productive forces in agriculture and its potential. Secondly, vast masses of Indian people (over three-fourth of the population) who are dependent on agriculture, who are subject to feudal exploitation maintained themselves at very low levels of economic existence. This, in other words, meant that the purchasing power of this vast mass always remained very low, thus restricting the domestic Indian market.

In the initial years, utilising the state at its command, through a degree of protectionism and by creating the public sector, the bourgeoisie laid the basis for industrial in¬frastructure in the country to maximise its profits. Here the point to be emphasised is that the very path of economic development, chosen in alliance with feudal elements, had an inherent constraint, that of the restricted domestic market — one of the prerequisites for capitalist development since it is on the basis of a growing market that capitalist production grows.

BASIC CONSTRAINT AND ITS EFFECTS

By the beginning of the eighties, as the summation of these decades of development, the Indian big bourgeoisie had amassed massive assets which grew, in case of the top ten monopoly houses, from Rs 312.63 crore in 1951 to 34,538.14 crore in 1990. With this massive growth of capital at their command and unable to employ it within the country due to the restricted domestic market with people unable not buy what they could produce, the Indian ruling classes were looking for alternative avenues. Table I and II show that during the eighties their assets continued to grow at a significant rate while the rate of profit, both on the assets as well as the sales, declined sharply by 1989-90. This clearly indi¬cates that while amassing wealth and capital they could not put it to use in order to sustain their earlier profit rates. They needed an alternative.

In the second half of the eighties, under the stewardship of Rajiv Gandhi and his slogan of marching towards the twenty¬first century, policies of economic liberalisation were ushered in, which meant the relaxation of import controls. In other words import of foreign technology was allowed rela¬tively less unhindered in order to increase the profit levels of the big bourgeoisie. The result is revealed in a study conducted by the Industrial Development Bank of India (IDBI) which shows that between 1985-86 and 1989-90 the net loss due to this liberalisation was to the tune of Rs 5751 crore. With such a drain on the foreign exchange reserves, by the year 1990 India was virtually on the verge of bankruptcy.

Often the political turmoil in the country at that particular moment is offered as the excuse for the economic situation. However on the contrary, this situation was in the making over the past several decades and was sharply accentuated in the second half of the eighties.

But, then, why was such a policy of liberalisation initiated in 1985 at all? As we saw earlier, given the constraints of the domestic market, the Indian ruling classes had before them only two options in order to grow as well as sustain their profit rates. One was to cater to export markets and the other, to cater to the demand of the rich of the coun¬try. Both these, i.e. production of goods for export markets and production of luxury consumption goods, require higher levels of technology than what is available in India. Fur¬ther, in order to compete in the export markets India had to face the challenge of Japan and the South Asian ‘tigers.’

But this technology comes at a price. It has to be bought in foreign exchange and in return for the economic resources and markets in our country. Where could the ruling class find this foreign exchange? From the ruling class point of view, therefore, going to the IMF was the only option.

In the passing it must be noted that the cry for profits that has become vogue in the last few years is precisely because of the vast amounts of capital today in the hands of the Indian big bourgeoisie which needs deployment. Four decades ago the same bourgeoisie who could not invest such large amounts or, even if they could, it would not wait for the long gestation periods (time taken for profits to be made) that these public sector units entailed. Thus having utilised the state for their purpose, they are today clamouring for precisely the privatisation because today they have the capital they did not have earlier. But importantly, it is this public sector that stood as a bulwark against imperial¬ist attempts to subjugate India economically. Hence, any attempt to dilute it today would only mean making India more vulnerable to imperialist designs and, hence, will have to be resisted tooth and nail.

Returning to this new economic dispensation under Narasimha Rao, we had seen earlier that these policies have already mortgaged India to such an extent that every new born baby in the country is born with a loan of atleast Rs 10,000 on its head. But, then, during these five years who has gained?

GROWTH OF BIG COMPANIES

Table III and IV show clearly, on the basis of a survey conducted by The Economic Times of 500 top companies in the country, that while the country is being mortgaged these companies have been making immense profits. The Economic Times has ranked companies in terms of their gross sales. The Business Standard has also conducted a survey of 1000 compa¬nies in the country but on a different ranking based on net sales. But the conclusions of both is unmistakable. These five years have been years of bonanza for the big companies and it is they who have thus been reaping all the benefits flowing from these policies.

For the sake of convenience, we have just picked on The Economic Times classification and given the figures for the top ten companies in the country.

Since the new economic policies have come into force, the MRTP (Monopoly Restrictions and Trade Practices) Act has virtually been abolished. Hence it is no longer possible to get figures for industrial houses as a whole which could have given a clearer picture of the economic domination of the few who control India’s economy. We therefore have to rely on the data for individual companies many of which belong to the same industrial houses. In Tables III and IV one can notice at least two such companies belonging to the house of Tatas and similarly that of the Birla.

UNBRIDLED LOOT OF PUBLIC RESOURCES

Apart from the perceptible benefits that have been provided to the corporate world through continued cut in direct taxes like profit tax, taxes on turn-over, capital gains, wealth tax and income tax etc, the new regime has also crated an environment of unbridled loot of the country’s resources which has been institutionalised in corruption. The three biggest scandals of independent India — securities scandal, sugar scam and the privatisation of the public sector units — all occurring within a span of two years under Narasimha Rao, have looted the country of an officially admitted more than Rs. 25,000 crore. Both Rao and Manmohan Singh were pleading that we had to borrow from the IMF because we do not have enough money in the country. May we ask them from where did this money come from? India has enough resources. But India’s resources today are being channeled into the hands of the wheelerdealers-brokers-politicians-bureaucratsnexus. On top of all this is now coming the scandalous sale of the Bailadila mines, one of the richest iron ore mines in the country.

While such corruption continues to grow unabated and in fact sanctioned and patronised, as reflected in Rao’s attitude towards the findings of the joint parliamentary committee and his refusal to take action against the guilty, there has also been taking place surreptitious “official”. A large number of bank loans amounting to crores of rupees (see Table V) have been siphoned off by the Indian business from the nationa¬lised banks. In fact if one examines this table one finds a sharp increasein the number of loans that were either written off or treated technically unreturnable between 1990 and 1991, i.e., the year the reforms began. All this money which is being siphoned off in clandestine fashionactually belongs to the common man. The individual savings that a working person in India, groaning under economic pressures, maintains for his future or for his children are being si¬phoned off for such activities while the interest paid to these working people is virtually minimal.

Thus, by all counts, what we see as a result of these new economic policies is not only the mortgaging of our economy, not only the squeezing and starvation of millions of Indians but also an unscrupulous and capricious loot of this country and its people by the ruling classes, bartering away India’s body and soul. Their drumboys of course are always ready to orchestrate in chorus “a dream of the prime minister” through newspapers and the Doordarshan.

WHAT THE ALTERNATIVE IS

But is there really no alternative to this course? There is, as has been pointed out earlier. This entire course of eco¬nomic reform has been undertaken because of the specific manner in which capitalist development took place in India in compromise with feudalism. The solution lies not in the course adopted by the ruling classes but in expanding the domestic market in the country which alone can catalyse India’s industrial development to fulfil the needs of its people. In fact various estimates show that if people below the poverty line have enough money to purchase one saree or a dhoti each, the demand generated for cotton textiles would be many times more than the entire capacity of our textile industries today. Yet what we see is the closure of NTC mills throwing on roads nearly a lakh of its employees.

Now, how can one expand the domestic market? Very simply, by undertaking radical land reforms and putting in the hands of the vast Indian peasantry the economic wherewithal and foun¬dations for their development which in itself will lead to a greater domestic demand and expand the market. This is precisely what the ruling classes cannot do because of alliance with feudal elements with whom they share power.

The future of the country and its people will have to be shaped today by the working men and women of the country. Will they allow this unbridled exploitation and loot by the ruling classes?

35/Tue/F

TABLE I

Assets & Profits of Top 20 Industrial Houses

Statement showing the assets, total income (including turn-over) and profit before tax in 1989-90 and assets in 1980 of companies regis¬tered under section 26 of the MRTP Act and belonging to the top twenty industrial houses ranked according to their assets in 1989-90.

(Rs. crore)

Sl. Industrial 1989-90 1980 1980-89
No. House
——————————– ——- ——
Assets Total Income Profit Assets Growth
(Including Before of
Turnover) Tax assets

%

  1. Tata 8530.93 8079.80 594.42 1538.97 554.0
  2. Birla 8473.35 8417.41 439.55 1431.99 590.0
  3. Reliance 3600.27 1901.11 87.36 166.33 2164.5
  4. Thapar 2177.15 2280.59 109.78 348.06 625.5
  5. J.K. Singhania 2139.00 1786.93 35.74 412.72 518.7
  6. Larsen & Toubro 1681.52 1128.26 62.47 216.03 778.4
  7. Modi 1399.37 2009.35 23.09 198.82 703.8
  8. Bajaj 1391.06 1907.87 133.88 179.26 776.0
  9. Mafatlal 1343.55 1765.84 85.58 427.54 314.3
  10. M.A.Chidambaram 1273.35 1161.47 38.78 43.81 2906.5
  11. Hindustan Lever 1209.46 2396.60 203.73 219.30 551.2
  12. United Breweries 1189.24 1227.50 36.63 96.90 1227.3
  13. T.V.S. Iyenger 1177.10 1388.41 59.80 188.64 624.0
  14. I.T.C. 965.13 2749.70 122.88 156.29 617.5
  15. Shri Ram 933.93 1445.40 20.99 241.00 387.5
  16. A.C.C. 902.72 1223.38 2.07 274.51 328.8
  17. Oswal Agro 870.34 417.33 35.75 New group —
  18. Mahindra &
    Mahindra 773.55 1022.45 20.07 186.03 415.8
  19. Essar 756.49 244.35 34.82 New group —

20. Kirloskar 735.51 985.46 45.36 220.37 333.8

Notes:- 1. The assets of industrial house of M.A. Chidambaram at Sl.
No. 10 include those of Southern Petrochemical Industries
Corporation Ltd since 1985.

     2.  The assets of industrial house of Hindustan Lever at Sl. 
         No. 11 include those of the erstwhile Brooke Bond indus¬
         trial house since 1986-87.

     3.  The assets of United Breweries Industrial House at Sl. 
         No. 12 include those of the erstwhile Best & Crompton
         industrial house since 1988-89.

Source: Statement referred to in reply to parts (a) to (c) of Lok Sabha unstarred question No. 3137 for answer on 17.3.1993.

35/Tue/G

TABLE II

Combined Assets & Profits of Top 20
Industrial Houses

Top 20 Industrial
Houses 1980 1989-90

(excluding two new groups)

Assets (Rs. crore) 6546.57 39896.19
(609.42%)
Profit % to assets 8.07 5.32
Profit % to total income

including turn-over 5.79 4.95

Source: For Row 1, as in Table I
For Row 2, part (d) of the same answer in Lok
Sabha as in Table I.
Figure in bracket is the percentage growth of
assets in 1989-90 over 1980.

Note:- Despite the massive growth of assets of these 18 groups their percentage rate of profit to assets and per¬centage rate of profit to total income have significantly reduced. The minister in the same reply concludes that this is due to unutilised capacity which in other words means that the demand generated in the country was not sufficient for the industry to use its full capacity. It could also mean that if the full capacity were utilised, the products would have glutted the market resulting in a drastic fall in prices leading to the ruination of the industrial houses. In any case, by the end of 1980’s these business houses could not maintain their profit levels and produce at full capaci¬ty unless they adopted a new strategy of economic reforms.

35/Tue/H

TABLE III

Growth of Assets of 10 Largest Business Firms

(Rs. crore)

Gross Assets 1994 1990 % change

  1. ITC 1865 670 278.35
  2. Reliance 8121 2553 318.09
  3. Tata Iron & Steel
    (TISCO) 7342 2957 248.29
  4. Telco 3401 1508 225.53
  5. Larsen & Toubro 4785 2118 225.92
  6. Hindustan Lever Ltd 1074 597 179.89
  7. Grasim (Birlas) 2767 1123 246.39
  8. Mahindra & Mahindra 1281 706 181.44
  9. ACC 1569 647 242.50

10. Bajaj Auto 1095 695 157.55

Source: Compiled from Economic Times, Special Study on 500 companies. (As ranked by Economic Times).

35/Tue/I

TABLE IV

Growth of Gross Profits of 10 Largest Business Firms

(Rs. crore)

Company 1994 1990 % change

  1. ITC 376 99 379.79
  2. Reliance 831 252 329.76
  3. TISCO 359 295 121.69
  4. TELCO 196 151 129.80
  5. Larsen & Toubro 316 99 319.19
  6. Hindustan Lever 245 106 231.13
  7. Grasim 316 128 246.87
  8. Mahindra & Mahindra 118 30 393.33
  9. ACC 96 57 168.42

10. Bajaj Auto 329 158 208.22

35/Tue/J

TABLE V

Amount of Money Technically Written off by 27
Nationalised Banks
(Rs. lakh)

  31.3.90                 31.3.91            31.3.94

24,358.09 40,961.76 1,40,002.50

Amount of Money Actually Written off as Bad Debts
by 27 Nationalised Banks

  31.3.90                31.3.91              31.3.94

9,354.90 14,389.95 1,62,324.89

Source: Rajya Sabha unstarred question No. 1020 dated August 8, 1995.