Modi rules, Harvard doesn’t

The overwhelming victory of the governing BJP in key Indian states last weekend seems to have cemented the rule of India’s prime minister Narendra Modi.  In the world’s largest capitalist democracy, Modi’s Hindu nationalist BJP swept the board in Uttar Pradesh state, the most populated in India with 220m voters.  The BJP won 312 seats out of 403 and took just under 40% of the vote, slightly less than Modi achieved when winning the 2014 general election with the biggest parliamentary majority in 30 years.

Similarly, the Uttar Pradesh result gave the BJP the biggest majority in any state for one party since 1977. Modi’s BJP now heads the government in states where more than half of Indians live, while the Congress party, which has ruled India for most of the 70 years since independence, leads in regions covering less than 8 percent of the population.

The result came five months after the shock move last November by the Modi government to abolish high-denomination banknotes. The government claimed the aim was to flush out ill-gotten gains by rich Indians hiding their earnings in cash to avoid tax.  Some Western economists like Harvard’s Larry Summers, Nobel Prize winner Amartya Sen and the opposition Congress party claimed that it would squeeze credit and destroy consumer spending and lower growth.

Well, Modi appears to have been vindicated, at least by the electorate.  His barbed attack on ‘Harvard University economists’ during the election campaign scored.  “On one hand, there are these intellectuals who talk about Harvard, and on the other, there is this son of a poor mother, who is trying to change the economy of the country through hard work. In fact, hard work is much more powerful than Harvard.” The Hindu poor, in the rural areas particularly, where the ‘demonetisation’ was supposed to hurt the most, voted BJP.  The reality is that, while many transactions are conducted ‘informally’ ie not through the banking system, most rural poor never see the sight of large bank notes.  They are held by richer merchants, farmers and the urban elite to avoid paying tax.  So Modi’s move was popular.

But it was not only that which gave the BJP victory.  The party, formerly based on the fascist RSS, continued with its communally divisive propaganda to get people to vote on caste and religious lines. Its state leader Amit Sha promised to construct a Hindu temple on a razed mosque site and ban the slaughter of cows, worshipped by millions of Hindus.

Modi may have won the vote but the ‘demonetisation’ of 86% of circulated banknotes may still have economic repercussions.  In the short term, it caused lengthy queues at ATMs, when the government failed to provide sufficient amounts of new banknotes, stalling credit and transactions, with limits placed on cash withdrawals.  Those limits are only being removed next week, some five months later.  The demonetisation was supposed to attack corruption and tax evasion, but it seems to have had little effect on that.  Indeed, lots of rich Indians made ‘private arrangements’ to obtain new bank notes and avoid having to declare monies into bank accounts.

India has the largest ‘informal’ sector among the main so-called emerging economies.   Government tax revenues are low because Indian companies pay little tax and rich individuals even less.  It may be that demonetisation was invoked to reduce corruption and tax scams, but it was also a move that would strengthen the banking system’s control over people’s money in an undemocratic way.  A completely bank accounting transaction system would put big business and the banks in the driving seat for credit and liquidity, however, more efficient.  But for the rural poor, so far, that argument means little when you don’t have cash to withdraw anyway. Two-thirds of Indian workers are employed in small businesses with less than ten workers – most are paid on a casual basis and in cash rupees.

Modi may claim that the government’s November move has proved to have no long-term effect on the economy, but that is not true.  There has been a significant fall in consumer spending and business investment that has meant India can no longer be the fastest growing major economy over the likes of China.  The IMF reckons that India grew 6.6% in 2016 compared with China’s 6.7% and has lowered its forecasts for this year.

Moreover, India’s figures for real GDP are to be no more trusted that those in the past provided for China, or for that matter for Ireland in the last year.  Back in 2015, India’s statistical office suddenly announced revised figures for GDP.  That boosted GDP growth by over 2% pts a year overnight.  It seems nominal growth in national output was now being ‘deflated’ into real terms by a price deflator based on wholesale production prices and not on consumer prices in the shops, so that the real GDP figure rose by some way.  Moreover, this revision was not applied to the whole economic series, so nobody knows how the current growth figure compares with before 2015.  Also the GDP figures are not ‘seasonally adjusted’ to take into account any changes in the number of days in a month or quarter or weather etc.  Seasonal adjustment would have shown India’s real GDP growth as slowing towards the end of last year to about 5.7%, well below the official figure of 7.5%.

Real GDP growth may look strong on official data, but industrial output does not.  India’s industrial sector is hardly growing.

Business investment is stagnating, as Indian companies are overwhelmed by large debt burdens; and these debts put a lot of pressure on the banking system.  The Modi government, in contradiction with its neoliberal agenda, is trying to overcome the stagnation in business investment with government spending, but this is limited to defence and transport.  Ironically, the BJP government plans to strengthen the state energy sector through mergers of its 13 state-controlled relatively small oil companies.

The real problem for Indian capitalism is the falling profitability of its business sector.  The rate of profit is high by international standards, like many ‘emerging economies’ that have masses of cheap labour brought in from rural areas.  But, over the decades, investment in capital equipment relative to labour has started to create a reserve army of labour alongside falling profitability.

Source: Extended Penn World tables and Penn World Tables 9.0, author’s calculations.

The Modi government remains optimistic that the Indian economy is going to pick up even faster this year and onwards, based on ‘Modinomics’, which boil down to privatisation, cuts in food and fuel subsidies and a new sales tax, a tax that is the most regressive way to get revenue as it hits the poor the most.  The aim here, as it always is with neoliberal economic policy, is to raise the rate of exploitation of labour so that the profitability of capital is boosted and thus provide an incentive to invest, something Indian capital is refusing to do right now.  Now that Modi has triumphed and looks set to win the next general election in 2019, India’s big business and foreign investors will expect Modinomics to be accelerated.

This can only increase inequality.  Already, India is one of the most unequal societies in the world.  The richest 1% of Indians now own 58.4% of the country’s wealth, according to the latest data on global wealth from Credit Suisse Group.  The share of the top 1% is up from 53% last year. In the last two years, the share of the top 1% has increased at a cracking pace, from 49% in 2014 to 58.4% in 2016. The richest 10% of Indians have increased their share of the pie from 68.8% in 2010 to 80.7% by 2016.  In sharp contrast, the bottom half of the Indian people own a mere 2.1% of the country’s wealth.

This inequality is not down to the Modi government alone.  Previous Congress-led governments perpetuated this inequality too – indeed, under the corrupt Gandhi dynasty, made it worse.  No wonder India’s poor won’t vote for the Gandhis any more.  Just as in 2014, India’s electorate in the state elections were faced with a choice between a corrupt, family-run party backed by big business and landholder interests and an extreme nationalist party (with increasing backing from big business and foreign investors).  For the moment, Modi wins their vote.

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23 Responses to “Modi rules, Harvard doesn’t”

  1. Daniel Rocha Says:

    It seems Russian inequality, measured by the 1% ration to the bottom 50% is far worse than India.

    http://www.independent.co.uk/news/world/politics/credit-suisse-global-wealth-world-most-unequal-countries-revealed-a7434431.html

    Can you comment on that?

  2. jlowrie Says:

    We should avoid designating India or any other capitalist state as a democracy . They are oligarchies i.e. states where the rich rule as opposed to democracies where the poor or unpropertied rule. As Aristotle notes in his ”Politics” it is quite inadequate to define democracies as the rule of the majority and oligarchy as the rule of the few; it is rather that the poor are many and the rich few, which is why he notes that the mark of a democracy is selection by lot, that of an oligarchy election by ballot , which the rich will usually win. The bourgeoisie have misappropriated the term, but there is no reason Marxists should continue to perpetuate this intellectual fraud.

    • Kier Says:

      Correct. Only in India, the politicians are quasi criminals and abjectly corrupt. Even for a highway to be built requires payoffs to the constituency MLA (never mind that the highway is supposed to be a beneficial public good).

    • Charles Says:

      Aristotle: “Even if they have no share in office, the poor, provided only that they are not outraged or deprived of their property, will be quiet enough.” … “prevent the lower from getting more; they must be kept down, but not ill-treated. … Friendship [among members of the ruling class] we believe to be the greatest good of states and the preservative of them against revolutions.”

    • Wal Buchenberg Says:

      India is as good a democracy as the Netherlands or the USA.
      “Democracy” does not mean that “the majority of people” prevails. (Representative) democracy means only that the government is elected. Nowhere in the world has a democratic government really been elected by the majority of people. Donald Trump did not even have the majority of the votes cast – let alone the majority of the electorate. Modi is not chosen by the majority of the Indians. This is how democracy works.
      If Jlowrie says that India is not a democracy, then he applies his personal – and therefore irrelevant – concept of democracy.

      Wal Buchenberg

      • jlowrie Says:

        “Democracy” does not mean that “the majority of people” prevails. (Representative) democracy means only that the government is elected. ”

        There is no such thing as ‘representative democracy’ ; democracy is either direct democracy or it is oligarchy. This can be verified empirically: look at the mother of all parliaments, Westminster. Historically it has overwhelmingly consisted of members who attended Oxford, Cambridge or private schools. Where are the members who were plumbers, drivers or hairdressers? Between 1900 and 1960 1/3 of the ministers of the crown had attended a single school, Eton. Anything more unrepresentative would be hard to find!

        The concept I hold of democracy is not my personal one but that of the people who first introduced it. Aristotle, an anti-democrat, outlines the features that constitute a democracy. You should acquaint yourself with his ”Politics”; or are you content simply to propagate the bourgeoisie’s misuse of the term. Consider how bourgeois political theorists contrast democracy with its supposed opposite,dictatorship. But democracy is a a Greek term of the 5th century BC, while dictatorship is a Latin term of later provenance. It is absurd to identify the exercise of the right to vote with the exercise of real political power.

      • Wal Buchenberg Says:

        Hi Jlowrie,
        Even if you rely on Aristotle – his democracy was a rule of a minority that excluded both women and slaves and strangers from the power of his state.

        It may well be meant what you say, but you do not use the relevant words as the great majority use them. That is why the great majority can not possibly understand you.

        Wal

      • jlowrie Says:

        Wal,

        When Aristotle discusses democracy as the rule of the poor, by which he meant those who had to labour for their existence, he meant poor citizens. Women, slaves etc did not count as citizens.

        By your argument when did the US become a democracy? I seem to remember that women, slaves and Indians did not enjoy the franchise there either. In fact, the early ideologues were quite aware that America was not a democracy, at that time a dirty word, which is why they called it a republic after the Roman model.

        There is no such thing as ‘bourgeois democracies’. They are in Aristotle’s analysis moderate oligarchies. It is no accident that the term oligarchy is becoming more and more current, as more and more citizens realise that elections are a mode of legitimising capitalist rule. You should appreciate that political parties are a product of the capitalist mode of production, and that where a political party rules a state, it is invariably an oligarchy. This is why even communist ones end up embracing capitalism, the mode of production most appropriate to a modern oligarchy.

    • johncmcleod Says:

      So, jlowrie, there are only two types of governments in the world today, dictatorship and oligarchy? And even then, why aren’t the dictatorships ‘oligarchies’ themselves?

      The term ‘democracy’ is useful because when talking about politics we sometimes separate governments into two categories: those that hold ‘fair’ elections (ie no fraud), and those that don’t. While both forms of government, in practice, are oligarchies, every nation in the world is an oligarchy, to a certain extent. There often are significant differences in the behavior of the governments that are elected fairly and those that aren’t, so this conceptualization is a useful one. Yes, all of the world’s “democracies” are in reality democratic republics, but I can’t imagine how a true democracy could function in the modern age. I try to refer to them as ‘democratic republics’ in speech and in writing, but sometimes I’m lazy and just say “democracy” because it’s one word shorter and everyone knows what I’m talking about.

      • jlowrie Says:

        Hi, John! You say, ”The term ‘democracy’ is useful because when talking about politics we sometimes separate governments into two categories….and ” say ‘democracy’ because it’s one word shorter and everyone knows what I’m talking about.” Well, to be brutally honest, I don’t know what the devil you ARE talking about. ”While both forms of government, in practice, are oligarchies, every nation in the world is an oligarchy, to a certain extent. There often are significant differences……all of the world’s “democracies” are in reality democratic republics”. So all the world’s democracies in practice are oligarchies. This does not make sense.I assert, following the the analysis of Aristotle, that an oligarchy is the rule of the rich, and democracy the rule of the unpropertied. Now, demonstrate to me where in the world, outside Cuba for the moment, that the unpropertied rule? Everywhere the rich or their hirelings rule.

        John, please exclude me from your royal ‘we.’

      • johncmcleod Says:

        So it’s just like I said. Every country in the world is an oligarchy and no country is a democracy, by your definitions of those words. I’m merely explaining to you why we’ve chosen the nomenclature that we have. It makes things a lot easier, e.g. when we want to distinguish between countries that hold elections and those that don’t.

  3. Kier Says:

    I can only double down and say that this MADMAN will himself now double down on his madness and ruin the country’s economy completely; Highly probable elections in 3rd world may not be proper; heck! US elections aren’t proper.

  4. Sergey Nikolaenko Says:

    Hello. I have one questions, but it isn’t on the theme of this post. Can you answer on my mail: a.serij12@gmail.com?
    In Petersburg there is our small group studying political economy.

    I and my comrades start reading the book about imperialism: M. Probsting The robbery if the South. The book has your figure which shows the huge increase of global Foreign Direct
    Investment in relation to the annual output measured as GDP.

    The figure is taken from the article “A world rate of profit. Globalisation and the world economy” (2012), p. 2, http://
    thenextrecession.files.wordpress.com/2012/07/roberts_michael-a_world_rate_of_profit.pdf

    Global FDI flows as percent total GDP in 2000 years is 90%.

    Though according to World Bank Global FDI flows (outward) accounts for 5 per cent of total GDP in those years.

    What data is correspond with the reality? or What data is real?

  5. Sergey Nikolaenko Says:

    I’m interesting this figure: https://scontent-frt3-1.xx.fbcdn.net/v/t1.0-9/17362819_10212585611541150_3895698902179350823_n.jpg?oh=bd969c355a18339af8593a0ae851b97a&oe=5961BE0F

  6. Kier Says:

    Is it entirely possible that the aim of demonetisation was to de-fund solely the opposition party slush funds they use in electioneering whilst allowing the incumbent party to renew their slush funds? (in both cases, said slush funds are of gray/black provenance, shall we say…)

  7. thakurabhishek795 Says:

    Indian communist are reformist that’s why there is no difference between him and other parties……..

  8. Brad Says:

    In relative terms India is considerably more “democratic” than, say, the USA. The USA is not democratic even by bourgeois standards. It is a quasi-Bonapartist oligarchy. Its formerly democratic component – the colonial settler farmers – disappeared a long time ago. The institutions that they once influenced – the states legislatures – are now easy captives of oligarchs, especially in the more low density rural states.

    That’s why the USA ranks just above South Africa and, irony of ironies, Mexico, in concentration of wealth. That’s why we gotta build that wall!

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