The triumph of neo-liberalism

By Achin Vanaik

NEO-LIBERALISM AS ideology has triumphed when it becomes impervious to refutation by empirical evidence. The hosannas for this year's budget are a measure of just how complete this victory is amongst the Indian elite. The budget simply consolidates and extends the neo-liberal project of the 1990s despite the fact that by all reasonable standards this project has been a comprehensive failure. Before assessing the scale of this failure let us look at the main, ideologically driven thrusts of this budget.

There are major tax giveaways to the corporate sector. But neo- liberalism demands as much - give more money to those in the private sector who already have the most because they are the true ``heroes'' of your economy, the ones whom you must rely upon to ``lead'' the economy by investing and producing more. Unfortunately, the ratio of tax revenues to GDP, which was 10.1 per cent in 1990-91 has come down to 8.8 per cent in 1999-2000 falsifying all prognostications about how lower tax rates would actually raise this ratio. But lowering direct taxes on the well off and making the tax structure even more regressive in its impact is still the right thing to do because ``good'' economics (i.e. neo-liberal orthodoxy) tells us so.

There is a real problem of the fiscal deficit, we are told. Actually the problem is not the fiscal deficit but the revenue deficit. But ideology demands that the former be made into the real ``sinner'' because you can reduce the fiscal deficit without reducing the latter. Simply raise capital receipts (disinvest in PSUs) and reduce public investment and social sector spending, i.e. progressively diminish the role of the state in the economy regardless of its human and other consequences because neo- liberal orthodoxy insists that public capital expenditure essentially ``crowds out'' private investment when all evidence in India has pointed to the opposite conclusion. Since the revenue deficit has not progressively declined, all claims by neo-liberal economists that the reforms of the 1990s would result in a progressively declining fiscal deficit have been belied.

Instead, the fiscal deficit has simply hovered between a low of 4 per cent and a high of 7 per cent since 1992-93 with the revenue deficit hovering between 2.4 per cent and 3.7 per cent. But if you are going to keep on lowering direct taxes (and there is a limit to how much you can increase indirect taxes which already constitute such a huge proportion of total tax revenues) and constantly increase defence expenditure then it is hardly surprising that with interest payments being what they are, the revenue deficit stubbornly refuses to fall as much as it should. But then defence expenditure is a ``hard'' item, not like ``soft'' and ``unproductive'' social sector spending.

Over the coming financial year, the budget proposes to privatise 27 PSUs with the BALCO privatisation providing something of a model. All evidence from South Korea to Europe shows that public sector firms can be as efficient as private ones and also meet their distinctive burden of fulfilling certain ``social requirements'' provided they have sufficient autonomy from Government interference, i.e. that ownership patterns in themselves have little effect on efficiency. However, neo- liberalism demands total privatisation of even profit-making PSUs. Public sector privatisation is an ideological imperative disguised as an economic necessity. According to a study by the Standing Conference of Public Enterprises (SCOPE) in conjunction with the Centre for Commercial and Industrial Research, the top 50 PSUs in 1997-98 earned a net return of 13 per cent as against 12 per cent for the top 50 private sector companies, and the ratio of net profit after tax of net worth for basic PSUs (excluding nationalised sick industries) at 5.4 is substantially higher than the 4.7 ratio of the domestic private sector.

The budget also traverses new ground in seeking to amend the Industrial Disputes Act and the existing laws on contract labour. The purpose is to make it easier for employers to `hire and fire' workers because neo-liberal orthodoxy demands greater `labour flexibility'. This simply means that at the bottom organised workers, i.e. trade unions, and not anyone else are really to blame for unemployment or poorly paid employment in industry because their `unreasonable' wage demands or equally `unreasonable' demands for job security undermine the economy and prevent it from flourishing. So please give more powers to the `suffering' (even if much richer) employers and capital-owners. So now enterprises with less than 1,000 employees no longer require Government approval before getting rid of workers provided they meet enhanced severance pay requirements.

Actually it is the firms which have between 100 and 300 workers that most want the freedom to fire. The budget proposal is really the first move in a bargaining process that is now in motion. Severance pay requirements will be reduced significantly to please employers and the limit for freedom to fire will be lowered from 1,000 but will definitely remain over 300 in an apparent gesture at pleasing the unions. The overall result, of course, will greatly favour capital and cause considerable suffering to workers in an economy where industrial employment in the organised sector is declining.

But then, these measures are great because they will maintain the supposedly higher growth trajectory of the 1990s. This neo- liberal obsession with high growth rates is, of course, ideologically motivated. It serves as justification for ever increasing inequalities of wealth and income under the false assumption that this is necessary for benefiting all. The average annual growth rate for the 1990s was 5.7 per cent which is not a statistically significant increase over the 5.6 per cent annual average growth rate of the 1980s.

As for the other indicators of economic progress such as poverty, employment and inequalities the evidence is there for all who are willing to see. The less said about the statistical- methodological mess up of the 55th National Sample Survey Round which gives the absurd (non- comparable) figure of a 26 per cent poverty rate, the better. The most honest and serious of economic journalists and commentators have already explained why this figure cannot be taken seriously, especially since even neo- liberal economists claim that the key determinants of poverty decline are agricultural growth rates (which have declined in the second half of the 1990s relative to the past) and food prices, which in real terms have not behaved so as to support those claiming a significant poverty decline. As for employment, the 1990s even more than the 1980s were the decade of jobless growth.

As for inequalities, whether these are measured across the rural- urban divide, classes or States, these have all grown. Rural per capita income as a ratio of urban per capita income which improved between 1970-71 and 1980-81 went down from 42 per cent in 1980-81 to 38 per cent in 1993-94 and has continued downwards. Between 1985-86 and 1996-97 the share of wages in value-added (current prices) fell from 35 per cent to 20 per cent while the profit share (before tax but after depreciation and interest) went up by 15 percentage points. But the hosannas for the budget and for India's general neo-liberal direction will continue.

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