Indian Economy and the Pandemic: Marxist Perspectives

June 19, 2020

We present two recent articles on the state of India’s economy and the government’s response to Covid-19. The first, from the Research Unit for Political Economy, establishes the point that the Indian government’s spending to ease mass suffering in the wake of the pandemic has been one of the lowest in the world. It locates this refusal to spend to the strong opposition of foreign investors to government spending and imminent threats of a credit rating downgrade. The second article, by Michael Roberts, identifies the current crisis as an immense supply shock and attempts to place it within the overall falling rate of profit in many capitalist societies.  – ed.

  1. The Impact of the Lockdown in India’s Conditions – Aspects of India’s Economy
  2. Lock down and economic slump – Michael Roberts

The Impact of the Lockdown in India’s Conditions

By Aspects of India’s Economy [RUPE, original here]

The Indian rulers’ response to Covid-19 has been to ‘lock down’ the entire country for at least 54 days (or more, if the lockdown is extended on May 17). This is an action without historical parallel. It finds few comparisons globally even in these times of a ‘pandemic’; the New York Times called India’s lockdown “the largest and one of the most severe anywhere”. It has been backed by punitive measures, left to the imaginative coercion of local authorities and the police in different regions.

As Jean Dreze notes, the word ‘lockdown’ does not capture what India has done: “it’s more like a curfew, or an attempted curfew.” A staggering 114 million lost their jobs/livelihoods in the month of April 2020. Locked out of their jobs, with negligible savings after months of labour, millions tried to return to their villages, many of them walking hundreds of kilometres, some of them attacked by the police on the way. Those who were forced to stay back in the cities were trapped in slum rooms or tiny tenements, starving, many forced to line up for food hand-outs. Agricultural supply chains were disrupted, agricultural markets stopped functioning and cultivators made huge losses on perishable crops. More than 5 lakh trucks were reported to be stalled at state borders. All this, and many other aspects, are now well-known.

At the same time, the Government has spent next to nothing to ease the pain of this measure. London’s Financial Times notes: “While other countries have rolled out massive relief packages to cushion families and businesses from the economic shock of coronavirus, New Delhi has largely left the population to fend for itself as it frets about its own finances, already weakened by the previous two years of a protracted economic slowdown.”

It appears that India is a global leader in inflicting policy-based pain on its citizensin response to Covid-19. This is brought out in two charts.

Chart 1 below is from the International Labour Organization (ILO). It shows the condition of informal workers under lockdown and other covid-19 containment measures. The bubble representing India is at the top of the chart, showing that the share of informal workers in total employment is much higher in India than in the rest of the world. These are low-income workers without security or benefits, who will be worst hit by any lockdown. Secondly, the size of the bubble shows that the absolute number of such workers in India is also the highest in the world. Thirdly, the bubble is to the far right of the chart, showing that India has implemented the most draconian lockdown in the world.

Chart 1: Informal workers under lockdown and other containment measures 

Screen Shot 2020-05-10 at 4.24.12 PM

Source: ILO

The ILO remarks:

In India, with a share of almost 90 per cent of people working in the informal economy, about 400 million workers in the informal economy are at risk of falling deeper into poverty during the crisis. Current lockdown measures in India, which are at the high end of the University of Oxford’s COVID-19 Government Response Stringency Index,have impacted these workers significantly, forcing many of them to return to rural areas.

Chart 2 is from the Economist. This repeats one measure from the above chart (albeit here on the horizontal axis), namely, the stringency of Government response: India’s response is the most draconian in the world. The other axis in the Economist’s chart, the vertical axis, reflects the size of the government fiscal stimulus, as a percentage of the GDP of each country. In other words, it measures how far different governments worldwide have increased their spending in order to cushion the terrible impact of these containment measures on their citizens. At present, the Indian government’s stimulus is among the least in the world, officially at 0.8 per cent of GDP, which is why India is to the left of Chart 2.

Chart 2: Government fiscal stimulus as a percentage of GDP, different countries

Screen Shot 2020-05-10 at 4.26.19 PM

Actually, the scale of India’s proposed spending is even lower than the official estimate of Rs 1.7 lakh crore. Almost half of what is labeled ‘expenditure’ under the scheme consists of window-dressing.[1] Once we adjust for such window-dressing, the package shrinks from Rs 1.7 lakh crore to about Rs 92,000 crore, or 0.4 per cent of projected GDP for 2020-21.[2] India’s package is thus perhaps the most miserly in the world.

Further, the single most important relief in the package – distribution of additional foodgrains for free through the public distribution system for three months – actually costs the Government nothing at all, since its godowns are groaning with 56 million tonnes of excess foodgrain stocks, and more grains are to be procured in April-May from the latest harvest.

Together, the two charts show that:

(i) in India, measures such as sweeping lockdowns without warning or preparation can have a particularly devastating impact, since nine-tenths of the workforce is informal; yet

(ii) the Government imposed the most draconian lockdown in the world; and

(iii) provided the least material succour or compensation in the world to those hit by these measures.

In effect, the Government neither let people earn their livelihood, nor compensated them for their loss of earning. The effects of the lockdown were predictable, yet the Government hardly budged an inch to help those affected. N.K. Singh, BJP leader and chairman of the Fifteenth Finance Commission, proudly declares:

This current political leadership will not give in to the macroeconomic temptation for fiscal profligacy. It is quite conscious of our vulnerabilities, and how these things can get out of hand. Maintenance of macroeconomic stability must be the cardinal principle. (emphasis added)

The rulers’ conception of “macroeconomic stability” appears to be compatible with devastation of the vast majority of people.

We will not go into the details of the devastation and suffering actually caused during the lockdown. These have been widely reported. Our intention in presenting the above two charts is simply to show that (i) the suffering could have been anticipated by anyone familiar with the structure of India’s economy; (ii) it was not merely the handiwork of some lower-level functionaries, but the outcome of a considered policy of the Government, pursuing its “cardinal principle” of “macroeconomic stability”.

So extreme has been the Government’s callousness that even the IMF, the international high priest of fiscal austerity, has signalled that the Government can loosen its purse-strings a bit more than it has done. No doubt the Government will come forward with another stimulus package shortly, but it is hesitating and dragging its feet. Why? We address this question below.

What Explains the Government’s Refusal to Spend?

The second stimulus package has since been announced on May 12. While it talks of a sum of 10 per cent of GDP, it turns out to be virtually devoid of expenditure by the Government. At best there are some schemes for extending credit to different sections, which will be of little use in addressing the unprecedented depression we are now witnessing.

In order to understand the Government’s policy, let us look at three questions:

(i) Why does the Government fear increasing its expenditure even in the face of an unprecedented crisis?

(ii) What is the Government’s alternative growth strategy, since it has ruled out any significant increase in spending?

(iii) What accounts for the political confidence of the Government in embarking on a policy which has caused such upheaval and may spark mass unrest?

The Indian government’s policy of restraining expenditure is broadly in line with other underdeveloped countries worldwide. No doubt, there are some special features of the Indian government’s response, which bear the stamp of India’s present rulers: sweeping autocratic edicts, indifference to mass misery, monumental mismanagement, widespread coercion and a single-minded focus on ‘event management’ (summarised in the footnote[3]). These features greatly intensified, even multiplied, the misery and despair experienced by millions.

However, more fundamentally, the extraordinary tight-fistedness of the Government’s policy is not on account of the specific traits of India’s rulers. Rather, it flows from the Government’s anxiety to conciliate and woo foreign financial investors, who are opposed in general to increased government spending by Third World countries. This reality is bluntly stated by the most authoritative sources, as we see below.

Clear division
Before proceeding, we need to remember that global finance makes a clear division: there is a handful of powerful countries that dominate the world economy; and there are weak economies, like India’s, which account for the bulk of the world’s population. (The latter countries are no doubt rich sources of cheap sweated labour and precious resources, but through a long historical process that wealth has been devalued, and continues to be further devalued.) In the world of global finance, no one pays attention to the breathless claims that India is a rising power and imminent developed country. They simply see it as a poor and weak country, a source of rich pickings in good times, but one that can be dumped in bad times.

The currencies of powerful countries, ‘hard currencies’ (or ‘reserve currencies’), are accepted as payment between countries, i.e., world money. The leading currency is still the US dollar. The US can thus unilaterally expand the supply of dollars and make payments to others in its own currency, but in the present world order India cannot do the same

India’s rulers have long adopted a development path which hitches India’s economy to inflows of foreign capital, and this has deepened over the years. According to conventional accounting, India’s net foreign liabilities were $427 billion by December 2019. Capital that has flowed in can also flow out, particularly in the case of purely financial investments (in the stockmarket and the debt market), which are not tied down in physical assets here. If foreign financial investors decided to rapidly withdraw their investments, the stockmarket would crash (as it has done in the past), and the exchange rate of the rupee would plummet.

As a result, it is foreign investors who hold the whip hand, and can shape the policies of the Indian government. Foreign investors’ interests are ably represented by ‘credit ratings agencies’ – Moody’s, Standard and Poor, and Fitch Ratings. These agencies rate the ability of an entity to service its debts, and the chances that it will default. They assign borrowers grades, not unlike the grades schoolmasters give children in school, such as ‘AAA’ or ‘BBB+’ and so on. Not only companies, but sovereign countries too are rated in this fashion. Their access to overseas credit, and the interest rate at which they borrow, depend on the ratings assigned by these three agencies. Indeed, if a country is ‘downgraded’, not only will it find it harder to borrow, but foreign investors may withdraw their investments in the country to one extent or the other.

A “junk” rating means that there is a high chance of the borrower defaulting, and accordingly the interest rate is higher on these borrowings. Fitch and Standard & Poor both rate India one grade above a junk rating, while Moody’s Investors Service more generously rates it two grades above junk. Accordingly, a ratings downgrade would have large consequences for the present set-up of India’s economy, which is addicted to inflows of capital.

Clear warning
The present chief economic advisor to the Government has warned that countries with a credit rating similar to India’s have given small stimulus packages, and India would have to do similarly. Indeed, Fitch Ratings has already raised the alarmregarding India’s fiscal deficit in the wake of Covid-19: “The country has limited fiscal space to respond to the challenges posed by the health crisis… Further deterioration in the fiscal outlook as a result of lower growth or fiscal easing could pressure the sovereign rating in light of the limited fiscal headroom India had when it entered this crisis.”

Government officials involved in preparing the Government’s Covid-19 economic package told the news agency Reuters quite bluntly: “We have to be cautious as downgrades have started happening for some countries and rating agencies treat developed nations and emerging markets very differently…. We have already done 0.8 per cent of GDP, we might have space for another 1.5 per cent-2 per cent GDP.” (emphasis added) This statement fits very closely the actual expenditures now being announced by the Government, contrary to the grander and vaguer pronouncements about “10 per cent of GDP”.

The last three governors of India’s central bank (the Reserve Bank of India) have recently weighed in with their views. All three explicitly draw the line between the developed world and countries like India. In London’s Financial Times, ex-governor D. Subbarao sternly warns that India must restrict itself to a fixed amount of additional borrowing and plan to reverse the action once the crisis blows over:

Global markets are much less forgiving of unconventional policies by emerging market central banks. Rich countries can afford to throw the kitchen sink at the crisis [i.e., do whatever it takes] because they have the firepower and they issue debt in currencies that others crave…. emerging markets don’t have that luxury.

Ex-governor Urjit Patel warns similarly that

Hardly any emerging market economy (EME), with the possible exception of China, can match what developed countries like the US, UK and Germany, for instance, have announced. These countries have basically set out, at least in the short run, to offset, through generous direct government entitlements to large sections of the population and extraordinary central bank activism, the adverse demand shock following the primary negative supply shock of the pandemic. Countries that can issue reserve currencies have much more elbow room. EMEs, like India, obviously don’t have this luxury. (emphasis added)

What would happen if India tried to imitate the developed countries, and took substantial measures to cushion its  population from shock? Foreign investors, he warns, would get “spooked”:

[I]f the fiscal and monetary responses are overdone, the likelihood of non-trivial consequences for macroeconomic stability increases…. Foreign portfolio investment in Indian equity and bonds is about US$ 300 billion. US$ 15 billion exited last month, and that is not a surprise…. . Our macroeconomic management should not be the driver to spook investors…

In a crisis, he points out, “there is a flight to safety, essentially investment in US government bonds, with home country bias also coming into play when global risks flare up. The exorbitant privilege of the US dollar not only endures, it is reinforced during crisis.”

While Raghuram Rajan spares a few more words for “spending on the needy”, he too is blunt about the limits:

Unlike the United States or Europe, which can spend 10 per cent more of GDP without fear of a ratings downgrade, we already entered this crisis with a huge fiscal deficit, and will have to spend yet more. A ratings downgrade coupled with a loss of investor confidence could lead to a plummeting exchange rate and a dramatic increase in long term interest rates in this environment, and substantial losses for our financial institutions.

Rajan proposes to give foreign investors a guarantee that any immediate increase in spending will be followed by a reduction in spending, enforced by an “independent fiscal council”. In other words, he suggests that future fiscal control be taken out of the hands of the government of the day, and put in the hands of an ‘independent’ body effectively taking its cues from foreign investors.[4]

Note that the former governors do not estimate the size of stimulus on the basis of the projected loss of GDP, and the need for Government spending in that light. They simply, and quite frankly, say that only such-and-such amount will be allowedby the credit rating agencies. In this way, they make it quite explicit that domestic economic policy is not essentially framed domestically, but abroad, without any involvement of the Indian people.

Imminent danger
The three governors cannot be faulted for saying that foreign investors may punish India for expanding its Government spending by withdrawing their capital, and that there would be a crisis as a result, given the present nature of the Indian economy. We may differ with the prescription that flows from their analysis, but not with their contention that India’s situation is perilous.

Foreign investors have already withdrawn $83 billion from what are termed “emerging” markets globally since the beginning of the crisis, the largest capital outflow ever recorded; they withdrew $16 billion from India’s “emerging” equity and debt markets in March alone – the highest ever for a single month, and the highest for any country that month.

At first glance, it seems that India should have nothing to fear from a flight of foreign investors, since it has huge foreign exchange reserves: $479.6 billion as on April 17, 2020. However, these reserves are not as impressive as they look, since they have been built not through current account surpluses (i.e., not by earning more foreign exchange than we spend), but by increasing the sum we oweforeigners – foreign debt and foreign investments. These liabilities impose a drain on the country in ‘normal’ times, yet at times of crisis do not necessarily protect the country from ruin. (One study indeed termed the foreign exchange reserves not a “shield of comfort”, but an “albatross” around the neck of India.) As we describe in an Endnote, India’s foreign exchange reserves can be rapidly depleted in case of a grave crisis. Of course, such crises are exceedingly rare, but when they take place, they can have devastating consequences if our rulers render us defenceless.

The growth model: Relying on aggressive ‘reforms’ and privatisation to arouse the animal spirits of private investors
As we have seen above, the reason for the Government’s refusal to spend is that it is keenly aware of the power of foreign investors. It tailors domestic economic policy to that reality. (There is an alternative to this surrender, as we shall see later in this article, but that alternative is ruled out in the present set-up.)

In these circumstances, the Government knows that demand is going to remain depressed, and as a result private investment would be low. Where will growth come from then? Evidently, the Government’s plans for stimulating growth are focussed on arousing the ‘animal spirits’ of private capital, by carrying out what are nowadays called ‘reforms’. That is, the corporate sector is promised higher returns by reduction of wages, subsidising land,  and subsidising loans. This the real content of the Prime Minister’s special package of May 12:

In order to prove the resolve of a self-reliant India, Land, Labor, Liquidity and Laws all have been emphasized in this package.

Of course, the costs of this stimulation of the animal spirits of private capital will be borne by workers, who are to be more severely exploited and even physically endangered; peasants, whose lands are to be forcibly acquired; and all working people, as bank capital is concentrated further in the corporate sector.

The chief economic advisor spells out the growth model: “Land and labour are really factor market reforms because these are factor inputs that really affect the cost of doing business and you have seen a lot of changes on these recently at state level. Uttar Pradesh, Madhya Pradesh and Gujarat have announced fundamental labour reforms and other states are also in line to follow up…. Karnataka had just gone ahead and changed the regulation on acquisition of land for business. Land can now be directly bought from farmers in the state and other states will also imbibe the model.” The old land reform law in Karnataka prevented direct acquisition of land by private business, in order to protect peasants from force and fraud. The scrapping of this protection has been immediately welcomed by big business.

Similarly, the Finance Minister’s announcement of ‘reforms’ for agriculture were not addressed to the peasantry, but to the corporate sector, to enable it to penetrate agriculture more freely. There is not a word about public procurement at remunerative prices, which is what the peasantry have been demanding. Instead the Finance Minister has presented a plan for capitalists – processors, aggregators, large retailers, exporters – to procure directly from the peasants.

As we finalise this article comes the latest instalment of Sitharaman’s five-day marathon presentation of the economic package. The latest instalment contains no word of Government expenditure; as such it does not even pretend to stimulate demand. It is composed solely of the unbridled privatisation of everything – coal, minerals, defence production (where ‘self-reliance’ is to be achieved by raising the limit of foreign investment from 49 per cent to 74 per cent), civil aviation, power distribution, atomic energy and space.

The refusal of the rulers to spend, and the aggressive ‘reforms’ they are now embarking on, may kindle unrest and resistance by sections of the people. What then gives them the confidence to proceed on their present course?

Evidently, they have assured themselves that their physical force and ideological hegemony over the people are sufficient for them to sail through the crisis. In this, the recently exacerbated communal divisions, which always existed but have taken particularly disturbing forms in the last six years, play an important role.

The rulers do not require the support of a majority of the people to exercise effective control; it is sufficient that they have the support of a sizeable, vocal, and assertive social bloc. When properly mobilised, for example through demonstrations of support such as thali-beating and lamp-lighting, this bloc can convey a sense of overwhelming strength and instil fear in weak and disorganised opponents of their policies. The prevailing atmosphere of panic and isolation can set the stage for more ominous political changes. The rulers have tested the waters over the past few weeks, and they foresee no real obstacles to their plans.

However, in a situation of great upheaval and misery, the rulers’ confidence may be ill-judged. Conscious sections may emerge as an organised opposition to the current drive of the Government. Starting precisely from the experience of the Covid-19 crisis, they may demand a roll-back of privatisation, the nationalisation of different services addressed to people’s needs, and the addressing of a range of basic needs. If these spark a broader response among the people, developments may take a very different turn.

Unanswered question
What we have discussed above is the reasons for the rulers’ refusal to spend, and their confidence that they can sustain their rule despite an unprecedented economic crisis. The frame, as we saw, is set by the opposition of foreign investors to Government spending. The question remains: why do foreign investors oppose Government spending?

On this question the RBI governors and the present and past chief economic advisors are silent. Sometimes silences are more revealing than what is said. [For further discussion of this question, please go here – ed.]

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Lock down and economic slump

By Michael Roberts [original here]

We are currently in a lock down and a slump. We just had figures earlier this week showing the United States down around about 5% in the first quarter and we have not even gone into this quarter which is going to be much worse. Europe too is down by 3 – 5 % depending on the country and we are going to see even worse figures. 2.7 billion workers are now affected by full or partial lock down measure, representing around 81% of the world’s 3.3 billion workforce, and they are now facing a massive reduction in their income and employment. Any sort of measure we have had from the IMF, World Bank, OECD and the private forecasters are projecting anywhere around a 5% reduction in the global GDP this year which will be way more than the global recession of 2008.

That was called the Great Recession, this will be even greater in its damage to the world economy. Outputs in most sectors will fall by 25% or more according to OECD, and the lock down will directly affect sectors amounting up to one third of GDP in the major economies. For each month of lock down, there will be a loss of 2% in annual GDP growth. This short could exceed any collapse in global output that we have seen in the last 150 years!  IMF projects that over 170 countries would experience negative per capita income growth this year. This is how severe the situation is.

Of course, the hope is that the collapse will only be short. Just a couple of quarters and then everything will be brought into control and we can recover and go back forward. The stock market in the US is rocketing upwards for two reasons; i) US Federal Reserve has intervened to inject humongous amounts of credit through buying up bonds and financial instruments so that banks and institutions can keep their heads above water and, ii) they believe that this lock down will be over soon and then world economy will recover and it will be back to business as usual. We will see whether that turns out to be the case over the next few months. This is in stark contrast with the figures we are seeing about the collapse in the real economy in terms of national output, investment and employment, in all sectors. But the stock market thinks things will soon be fine and they are looking over the drop into the next mountain hoping everything will be up and away again.

The current situation is one of a huge supply shock. The following figure shows (Fig. 4) that this is not a financial collapse of the banks and the financial institutions like we had in the Great Recession. It starts on the other end, as a supply collapse. We have this so-called exogenous shock. I don’t think it is a shock because we should have predicted these pandemics and done something about it, but it led to a shutdown of normal life and manufacturing. This huge supply shock has now spread to demand because if you are locked down at home, you cannot spend any money or perhaps you haven’t got any money to spend. This demand shock could feed through eventually into a financial collapse with companies that cannot sell going bust and then banks who lend them money also getting into trouble.  At the moment the central banks are trying to shore-up that bottom block (on financial shock) in this figure. But they have not been able to do anything about the demand shock or the supply shock which exist.

Fig. 4: Anatomy of a Crisis

Above all, what this demonstrates, to bring a short quote from Marx, is that what matters in an economy is the workers working. As Marx said: “Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish” (Marx to Kugelmann, London, July 11, 1868). This is obvious now.

I live in the UK and work in the financial circles and I was trying to ask myself what are the important things that make our economy work and keep us going forward? Who are the workers that matter? Workers that matters are the health workers, the teachers, the drivers, the manufacturing workers, service workers of all sorts, retail shops and so forth. What occupations do not matter?  Finance executives, real estate executives, hedge fund managers, advertising executives and marketing executives. When all these people stop work, we would not even notice. But when the workers that matters stop work, we really do notice. It is something worth remembering when you are thinking about who creates the value in our world, in order to provide for the things, we need and the services we require.

As mentioned, we have this massive lock down across the world and a huge loss in production in most countries if not all. The red section in the below graph indicates the loss of production that is taking place now. Even if the economy starts recovering in 2021, this loss can never be recovered. Once you have that loss of output, employment and incomes, the gap remains permanently. It is like digging a hole in a ground that you can never fill again. You just have to climb over to the other side and the hole is still there. All those resources are being lost to people around the world particularly the people who needed it the most, the poorest people.

Fig. 5: Output Losses

In particular, it is the so-called emerging markets that are taking a real tumble. For the first time, since records have begun, the total amount what is called the emerging markets or developing markets in the world are going to see a slump, on average across the board.  That includes China and India, for the first time. If we take out China and India out of the emerging markets, we get a relatively low growth rate. But now even including them, we are going to have a slump in this year coming through as a result of this collapse in the world economy and lock downs.

There has been a massive flight of capital away from the poorer countries (Fig. 6) who depend, in the capitalist system, on the inflow of capital from the big companies and financial institutions. The investors have taken all their money back to where they brought it from and something like a 100 billion dollars have disappeared from the emerging economies. This means they have no credit and facilities in order to expand and it adds to the danger of their own currencies, financial institutions and companies collapsing as a result of flight of the private capital, which is not being replaced by any public capital. The IMF and the World Bank is giving some money, but on the whole, there is no international coordination from the richer countries to help the poor counties in this crisis. They have just been left to fend for themselves and indeed the only way they get some money is by taking out more debt and loans which could put them in even more difficult problem later on as we shall see.

Fig. 6: Capital Flight

Millions of jobs have disappeared globally according to the ILO. The COVID-19 crisis is expected to wipe out 6.7% of working hours globally in the second quarter of 2020 – an equivalent of 195 million full time workers. The labour income loss is around 3.5 trillion dollars (maximum) in 2020. Hence, huge amounts of people are going to be pushed back into poverty. According to Oxfam, under the most serious scenario – a 20% contraction in income – the number of people living in extreme poverty would rise by 434 million to 932 million worldwide. The same scenario would see the number of people living below the US$ 5.50/day threshold rise by 548 million people to nearly 4 billion. Even at more acute level, we are entering a real danger of millions of people just being hungry, starving to death, in a way that should not happen in 21st century. It happens anyway as we have seen in years before (Fig. 7), but we are going to see a doubling of the number of people who are basically in a position of starvation over the next year or so.

Fig. 7: Food Crisis

There are some who argue that the lock down is solely to blame for the economic crisis. But we ought to realise that the capitalist economy on a global scale was not doing very well even before we got to this pandemic. It was on a sharp slowdown. Europe was more or less stagnant, Japan was in recession, many important economies in the global south like Argentina, Mexico, Turkey and South Africa were in a slump already and even the US was beginning to slow down to a very low rate.

It has been the longest expansion in the history of the US economy since the Great Recession ended in 2009 but it has also been the weakest expansion. Growth has hardly been more than 2% in the US, less in Europe and Japan, and only the emerging economies like India and China has had a reasonable growth rate. Most emerging economies have also had a very poor growth rate compared to the position before 2009. So this has been a very weak growth and it was beginning to come to an end.  It was on a cliff edge.

From the graph (Fig. 8) we see that growth was beginning to slowdown, both in emerging and advanced economies, and then we had the pandemic and now it has just dived off the edge of that cliff. But it was already reaching there. I want to make that point because some claim that it was all just a bolt out of the blue. It is not, as most economies were getting weaker and they were not ready to deal with this pandemic.

Fig. 8: Global Growth Trend

If we take the US, something like a 10% fall in GDP over the next year or so as a result of the pandemic would happen at the minimum. That will be the largest decline since 1930’s and way more than anything seen even in the Great Recession of 2008-09 (Fig. 8).

Fig. 9: US GDP Decline

Why have most major economies been weak? The answer in my view, something which I am always trying to bring home to people in my work, is that underneath the movement of outputs and incomes, the key question for a capitalist economy is whether it is profitable to produce, invest and employee people.  That is the only reason they produce things. The big motor car companies around the world do not produce cars just because people want them, but they only produce if it makes profit for them to do so. That is the nature of the capitalist economy. They compete with each other to get a bigger share of the market and bigger amount of profit and they use their workforce to try and keep the cost production down as much as possible in order to make a profit, to accumulate that profit, partly to reproduce new things but also to have a good life and be a billionaire.

So, profitability is key to capitalism. Below figure (Fig. 10), shows the profitability of major economies over the last 50-70 years. You can see that on the whole profitability is really quite low compared to what it was back in the 1960’s. There was a big fall followed by some recovery during the last 30 years and workers really had to take a hit for it.

Fig. 10: IRR on Capital

Now profitability was extremely weak as we led up to this crisis, and it suggests that they were in no position to cope with a major collapse in the health systems and economies.  In fact, if we look at total global corporate profits (Fig. 11)and not just the amount of profits per investment (i.e. profitability), we see that the total amount of profits had ground to a halt in the major economies as we entered the pandemic. The world economy was already about to enter a slump of some proportion but now of course the pandemic has worsened the slump.

Fig. 11: Trend in Global Corporate Profits

A part of the problem to overcome the low profitability was that the companies were borrowing more, increasing their debt, taking loans from the bank and trying to keep going particularly the smaller companies which had to take a lot of debt compared to the sales that they were making in order to keep moving. And that has increased the weight of burden on them. If anything should go wrong, they are left with huge amounts of debt. They have to pay and if they default, not only these companies will be in trouble but also the lenders. Emerging markets have seen a dramatic increase in debts while the growth has been slowing down. The point where the two curves intersect in the (Fig. 12) shows that most emerging economies are in serious trouble as a result of the pandemic.

Fig. 12: Debt Vs Growth

Figures for India (Fig. 13) shows a sharp drop in profitability of Indian capitalist sector post-independence till the early 80’s followed by a recovery through globalisation and expansion of neoliberal policies. But also, since the Great Recession, levels of profitability have been generally depressed although in the first couple of years of the Modi administration there was a recovery as they applied measures to try and boost capitalist profitability at the expense of workers. But on the whole, the profitability is nowhere near as it used to be in the 1960s in India.

Fig. 13: Profitability – India

This means that even a country like India, which has been one of the more successful expansive emerging economies, has faced the same difficulties when it comes to profitability. We see that in the dramatic slump in the growth rate from 6-7% claimed by the government back in 2016-17 – although many argue these figures are not accurate. But now, even in the official figures growth just before the pandemic had dropped quite significantly to 4.7%, a very low figure by Indian standards over the last 10-15 years.

Here is a measure by the IMF only this last week (Fig. 14) where they expect India’s growth rate of 4.2% in 2019 to drop to 1.9% this year. I think that is probably optimistic but nevertheless that is a demonstration of how severe the effect of the pandemic, lock down and the collapse of the global economy is hitting India. Of course, they expect a recovery in 2021 but one has to wait and watch how it turns out. The green line in the graph shows how much has been already lost in the Indian economy as a result of this crisis.

Fig. 14: India’s GDP Forecast

Risk for India

The risk for India from COVID-19, according to me, still persists. Yes, it may be less than in other countries but even so, if 65 percent of the population gets infected without any vaccine or a lock down, even with a lower death rate (assuming 0.3% similar to Germany) because of the younger population, still 2 million people could die from this pandemic. Remember, only 0.8% of the population may be above 80 (nearly 75% are below 40), but they still face the real dangers of the pandemic. When people are so poor, it increases the likelihood that they will be infected and suffer severe illness or death from the disease.  Many Indians, although young, if they are poor and are unable to have good diets or maintain a healthy distance, then they are also liable to be severely impacted by the virus. The rate of heart diseases in India is almost twice that of Italy and the prevalence of respiratory diseases is one of the highest in the world. India is also home to one-sixth of the total diabetic population in the world which increases its vulnerability of Indians.

Thus, India is not safe from the pathogen and anyone who says otherwise is not looking at the facts. Latest figures on the daily COVID-19 deaths in India shows that it is not really coming down at the moment. There is gradual increase in the number of infections and deaths per day and it is well up from where they were a month ago. There has been no mass testing in India and there are very few respiratory systems (40,000 for a total population of 1.3 billion), isolation beds (1 per 84,000 people), doctors (1 per 11,600 patients) and hospital beds (1 per 1826 people). Therefore, things are not under control in India yet.

India’s and upper-middle-class may be comfortably barricaded inside their capacious homes but the poorest and most vulnerable slum-dwellers live cheek-by jowl and are extremely vulnerable to contracting the infection. Not just the slum-dwellers but also the ordinary working people in Indian cities who have to live and work in small spaces are also at severe risk or catching the virus or losing their jobs. Sky high urban real estate prices mean plenty of working-class families, even those with two earning members, can only afford the tiniest of homes. India is one of the most unequal countries in the world when it comes to wealth.

Top 1% own more than 50% of the India’s personal wealth, and the top 10% hold almost 80%, which is only beaten by countries like Russia and Thailand on this list. India is more unequal in terms of wealth compared to the US which is the worst of the advanced capitalist countries. Number of people living in slums is over 100 million which is way more compared to other countries in South and Southeast Asia.  This population is at risk at all times in this crisis.

What is the Indian government doing about this crisis? Here is a quick look at the figures from IMF (Fig. 15)which shows how much each country is spending both in providing loans and equity injections to banks and companies (in grey) and how much it spends in providing support for the households and health systems (in orange)India is right down at the bottom in terms of government spending. Only South Africa which is in a serious economic situation is lower than India in this graph according to the IMF.

Fig. 15: Expenditure by Countries

The Modi government is spending little on the emergency. It has a combined state and central fiscal deficit hitting 10% of the GDP as against the budgeted 6.5% and is unwilling to borrow any more for emergency funds. That is because there is a huge debt to GDP ratio and at 70%, this is about the highest in its peer group. After this crisis you can expect the government to attempt to squeeze back the increase in debt that has taken place. The government needs to spend more but it is spending less than 1% of GDP currently on the crisis. I would leave this to you whether Kerala is doing better in terms of healthcare because it is what we are hearing in the Western media. According to reports the state is has the best healthcare system in the country and they have kept the mortality rate low and recovery rate high.

What is to be expected?

Finally, I would like to discuss what is going to happen. Are we going to return to normal after a few quarters as the stock exchange in the US believes? Here (Fig. 16) is an indication of how far away now the US economy is from its previous trends in the 20th century. When the Great Recession hit in 2008-09, the real GDP per capita fell and the recovery was much slower than the trend and there is no sign that it returned to trend at all during the period 2010-2020.

Fig. 16: US Economy – Historical Trend Vs Current

Similar trends were reported by the World Trade Organization (Fig. 17) which show that the trajectory of world trade fell after 2008 and after the slump they set on a new trajectory which was lower and weaker than the original trajectory. And with this pandemic we are going to slump again and quite like will have new even lower trajectory of world trade. When we come out of this crisis many economies, particularly those that depend on world trade – manufacturing and, selling commodities and services – would be severely affected and if there is no restoration of the global value chains, there will be no return to normal trajectory and we could remain on this low trajectory forever or at least till the foreseeable future.

Fig. 17: World Trade

That is why I consider the last ten years before the virus as a long depression as it was marked by low growth, low productivity and low wages in many countries. It looks as though we are about to enter another leg of this long depression. In the 19th century there was a long depression that lasted for about 20 years from 1870’s to the 1890’s (Fig. 18).It seems to me that we are about to enter another leg of depression that could last for another 10 years with low productivity, suppressed wages, weak growth, low investment, lack of jobs and training, and low income. The public sector will be under tremendous pressure to be squeezed by capitalism to pave a way out of this pandemic. That is the situation we are likely to enter in the next period.

Fig. 18: A Long Depression

The Lessons

To sum up just a few lessons we have learned.

First, it is capitalism that has generated this crisis and not nature as such.  It is a combination of industrial farming, climate change and all the other things that have produced this pandemic.

Second, the market has failed to cope with this pandemic. Everywhere governments based on capitalist markets have failed abysmally, whether it is their pharmaceutical companies or their health systems marked by fund cuts. They have had to interfere in the most emergency and direct ways rather than prepare for this.

Third, COVID-19 has exposed that it is the workers who are most exposed to this infection. It is those workers whose jobs that are most undervalued by this system who we rely on the most, and not the ones making money on the stock market.

Fourth, with the total failure of private healthcare and big pharma, what we need around the world is coordinated free public health system, with mass public investment in research and production of medicines and vaccines, to ensure that these pandemics when they come again can be dealt in a much more efficient way with minimal loss of life.

Fifth, instead of bailouts of big business and banks, which is what the big economies around the world are starting to do, we need to take over these companies and plan them so that they don’t go back to the “normal’ of being driven solely by profitability.

Sixth, it is staggering to me that a company like Amazon, which is now making huge amounts of money, ten thousand dollars a second by delivering things around the vast economies is not publicly owned. This is a company that requires control by democratic decisions of the people. Besides, key services like mail, broadband, and social media should be public operated to meet the need of the people and not just make profits for the few.

Finally, above all, the debts of poor economies should be cancelled and profits from tax havens should be moved out in to governments so that profits of big MNCs can be used to improve and maintain public services.

These are the lessons we can learn from this crisis. This is not going to be an easy period and we are not going to come out of it very quickly. We in the labour movements and working people must recognise the things that we need to do and struggle for, once the lock downs and the pandemic is over, as capitalism will try to return to business as usual.

1 Comment »

One Response to “Indian Economy and the Pandemic: Marxist Perspectives”

  1. K SHESHU BABU Says:
    July 2nd, 2020 at 12:26

    The impact of pandemic on working class and the vicious nature of capitalism well exposed. The crises of economic and social upheaval may take longer period to settle down. Till then, the poorer section of society may have to endure suffering due to lack of basic amenities may

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