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Economic Sovereignty

Mainstream, VOL LI, No 29, July 6, 2013

Oppose IMF Way, Defend 
Economic Sovereignty

Sunday 7 July 2013

The following is the statement issued by the Convention in Defence of Economic Sovereignty, sponsored by the Left parties, in New Delhi on July 19, 1991. —Editor

The Convention in Defence of Economic Sovereignty, sponsored by the Left parties, categorically rejects the series or policy decisions announced by the Narasimha Rao Government to tackle the serious economic crisis facing the country. The two-step devaluation of the rupee by more than 20 per cent; the new trade policy measures; the proposed industrial policy resolution that is expected to dilute the MRTP Act and FERA, open the doors to multinational corporations and indiscriminately privatise the public sector; and the likely imposition on the working people of the burden of adjustment necessary to correct the balance of payments problem caused by the foreign exchange profligacy of the rich, are all being pursued without informing Parliament and the people. Despite repeated demands in Parliament and elsewhere, the government has not yet brought out a White Paper on the precise nature and causes of the foreign exchange crunch, and the compulsions facing the country.

This shroud of secrecy over its effort to fulfill the stringent conditionalities set out by the International Monetary Fund, from which the Indian Government is seeking a loan of $ 5-7 billion, goes together with statements by the government spokesmen and measures, like the export of gold by the Reserve Bank of India, which clearly create a sense of panic and bolster the view that borrowing from the IMF is “inevitable”. There is no other reason why gold, which is presumably being pledged for short term assistance, should be airlifted and lodged in the vaults of the Bank of England, rather than retained within the country. Unfortunately, in the process, the government is further eroding the confidence of international investors, particularly NRI investors/depositors, aggravating the liquidity crunch it faces, and undermining its ngotiating stance in international capital markets.

The Convention rejects the argument that there is no way out for the country but to go in for an IMF loan and accept conditionalities that are not merely severe but also kept a secret till implemented. The failure of policies adopted in the wake of the Extended Fund Facility loan taken in 1981 to stabilise India’s balance of payments belies statements by the government that a second loan would provide the where-withal to correct the structural imbalances characterising India’s external accounts. The Convention reminds the people that it was in fact the path of liberalisation pursued during the period of the Rajiv Government, and not controls and regulations, which is the root cause for the current serious crisis in imports that fed an elitist and import-intensive production structure, as well as all kinds of non-commercial government imports. These imports were financed by indiscriminate international borrowing, which included large short term loans that accounted for almost 50 per cent of additional borrowing in 1988 and 1989.

Given this background to the crisis, the Convention rejects the path of development recommended by the IMF and World Bank for India. While promising little in terms of balance of payments adjustment, that path seeks to place the burden of whatever adjustment occurs on the poor: through cuts in food subsidies and other welfare measures; by dismantling the public distribution system; indiscriminately privatising public sector units; through engineered inflation which would erode the real wages and incomes of the working people; through policies of wage-freeze that prevent efforts to offset that erosion; and through growing unemployment resulting from the recessionary conditions generated by devaluation, import liberalisation and cuts in public investment.

The government spokesmen purvey the illusion that the devaluation of the rupee and subsequent changes in trade policy would soon lead to an increase in exports and a fall in imports and would thereby ease the trade balance. However, past experience suggests that while the volume of most exports from Indian and other Third World countries is not too responsive to price changes, in some cases direct efforts to raise the volume of exports actually adversely affect foreign exchange earnings. In fact, by the new trade policy measures announced, the government is discouraging a whole host of manufactured exports and encouraging precisely those traditional exports whose export potential is either limited or where volume increases are accompanied by a fall in exchange earnings. Indeed, tea prices have already declined substantially in London, while garment exporters have complained that importers abroad are now demanding that contracts be based on rupee prices, adversely affecting foreign exchange receipts. As compared with this, with a liberal import regime in place and import duty reductions likely, India’s import bill would in all probability rise sharply in the coming year. In the net, a worsening of the trade balance in the short run is likely unless imports are curbed directly.

Despite these indications, recent evidence suggests that the Finance Minister’s assurance that the value of the rupee would stabilise after the two-step devaluation has been belied, with the rupee sliding relative to major currencies. This only creates expectations of a further decline, aggravating the tendency towards capital flight seen in recent months. In short, while the IMF loan may provide access to liquidity in the short run, the IMF package would only worsen the balance of payments difficulties, especially when repayments become due after three years. This is the logic of the debt trap.

Meanwhile, the devaluation of the rupee, together with the price increases engineered by cuts in subsidies and increases in indirect taxes and administered prices, which (rather than direct taxes) are likely to be the government’s major efforts at reducing the fiscal deficit, are bound to spur inflation and erode the living standards of the people. And, the recession generated by the factors mentioned above, together with the “exit policies” likely to be incorporated in the new industrial policy, would imply the loss of jobs for thousands of workers in existing sick units and those which would opt for closure as part of the IMF-type “structural adjustment”.

If despite all this the new policy measures are being wholeheartedly welcomed by the organisations of big business and the Chambers of Commerce, it is because the IMF-type adjustment works in their interest and against that of the working people, though the latter in no way contributed to the foreign exchange crisis in the first place. Not surprisingly, a propaganda campaign has been launched through much of the official and private media, to disinform and convince the people that there is no alternative to going the IMF way.

The Convention stresses that the IMF path offers no solution to the present crisis.

The experience of countries which have been forced to accept the IMF’s structural adjustment and stabilisation policies underlines this danger. Argentina, Brazil, Jamaica, and a lot of other countries have been convulsed politically and socially by the adjustment policies which have cut back on welfare measures and left the people defenceless in the face of inflation and growing unemployment. There is not a single instance of a significant Third World country that has undergone the IMF dictated “structural adjustment” and emerged at the end of it either with any degree of economic success, or, with its sovereignty and democratic institutions intact.

The Convention reiterates that an alternative path exists which can help overcome the present crisis and safeguard our economic sovereignty. The import restrictions in place over the last few months have already had a favourable effect on the trade deficit. The period of austerity requires stricter curbs on non-essential imports, the postponement of import-intensive and low priority investment projects, and the rescheduling (and, if necessary, pruning) of defence linked imports. This should be accompanied by a crash programme of exports, that relies on strategic placement and marketing rather than just price adjustment. Further, efforts should be launched to obtain fresh loans on a medium-term basis from Indian workers abroad (who should be provided with special concessions) and other NRI investors, and the conversion of some current short-term loans into medium-term ones. The government should also take steps to bring back to the country unrepatriated export earnings (with punitive steps if necessary), which alone reportedly amount to $ 1 billion. A combination of such measures should restrain foreign exchange outflow and ensure adequate inflow to meet the immediate shortfall of $ 2-3 billion, and ease the foreign exchange shortage.

Reforms in the economy are essential. But these need not and should not be along IMF dictated lines. The main means to bring down the fiscal deficit should be direct taxation and the reduction in inessential and wasteful government expenditure. There has to be an increase in direct taxation, a curtailment of overt and covert subsidies to big business and more effective tax enforcement measures to realise tax revenues. Loopholes in the tax laws should be plugged and black money generation curbed through punitive measures. Further, there is no reason whatsoever for not imposing wealth taxes and the large monopoly houses that have built up huge assets should be brought into this net. The adoption of measures of this kind will not only help reduce the revenue and fiscal deficit but also reverse the trend of relying on indirect taxes and administered price hikes to garner additional revenues at the expense of the common people.

On the industrial front, the disciplining of capital, which has a range of freedoms shrouded by the chorus against state intervention, is crucial. Those responsible for rendering industrial units sick through mismanagement, conscious or otherwise, should be penalised and their personal assets seized. The proposal that workers should be handed over the concern with adequate credit should be seriously considered.

The government must intervene actively to ensure that private industry makes appropriate technological choices, maintains capital equip-ment, invests in R&D, upgrades technology, and modernises and competes in the international market. The policy of indiscriminate imports of capital goods and technology for luxury goods production must end, while imports of techno-logy in vital sectors in which modernisation is essential must be given priority.

The public sector must continue to be given prominence in the key strategic industries. Steps must be taken to eliminate inefficiency and bureaucratic management. Allocations to the public sector must be governed by an order of priorities which will enable it to play a key role in the economy, while avoiding non-essential sectors. The intensified privatisation drive which is expected to be announced in the new Industrial Policy Statement should be halted, as it would only have the effect of demoralising the management of the public sector.

In the medium-term, the focus should be on implementation of land reforms. Such reforms have been the basis on which even South Korea and Taiwan—the success stories held up by the World Bank and IMF—have launched on successful industrialisation. The conspiracy of silence regarding implementation of land reforms must therefore end. This together with rural employment guarantee schemes, that offer employment to the rural masses, while mobilising their labour to strengthen rural infrastructure and raise agricultural growth, are the basic steps needed to expand the home market.

While austerity is called for in the face of the serious economic situation, the burden of this austerity must be primarily borne by big business, the landlords and affluent sections of society. The measures to provide relief to the poor in this period of economic difficulty must be emphasised. The public distribution system covering essential commodities of daily life must be expanded and targeted particularly for the rural poor. There has to be a sizeable expansion of schemes for employment generation and poverty alleviation. Programmes for expanding primary education, literacy and health for the people are a priority. These measures can be effectively put into action only by greater decentralisation of powers—from the Centre to the States, and down below upto the Panchayat level—so that the people become active partici-pants in bettering their living standards.

The Narasimha Rao Government, in the space of less than a month, has rejected all alternative proposals. The latest instance being its summary rejection of the alternative policy framework put to it by the West Bengal Left Front Government which would have helped in laying the basis for avoiding the IMF-dictated path.

The Convention demands of the Government of India that it place the terms and conditions being negotiated for the IMF loan before Parliament. There should be no repetition of the circumstances of the 1981 loan when the then government tried to hide the conditionalities and refused to make them public. The people must be taken into confidence regarding the conditions attached to the IMF negotiations as this has a vital bearing on the country’s economic and political future.

The headlong rush to meet the IMF prescriptions portend serious danger to India’s economic sovereignty. Compromising economic sovereignty will have vital repercussions on political sovereignty.

The goals set in our freedom struggle to attain self-reliant growth and build up a strong and prosperous economy are imperilled by the bankrupt economic policies pursued by successive govenments who have lacked the political will and the determination to live up to the ideals of the independence movement. The economic regime sought to be introduced under the auspices of the IMF will endanger the democratic political system, erode our independent foreign policy and open the doors for the growing sway of multinational capital. Pressures will build up, such as the threat of the Super 301 clause by the USA, to open new sectors to foreign capital—banking, insurance, service sector, and surrender on patents and intellectual property rights at the GATT negotiations.

This is a grave threat which must concern all patriotic Indians. Every citizen who cherishes India’s independence and seeks to preserve our democratic values must come forward to oppose this disastrous path being imposed by a government which does not command majority support in Parliament.

The Convention calls upon all sections—the trade unions, mass organisations of the working people, progressive intellectuals and democratic circles—to oppose the IMF way. They must unite to mobilise all patriotic sections of the people, particularly the working people, to resist these policies and to build up a powerful movement for alternative economic policies. The task before us today is no less than the defence of the country’s economic, and thereby its political, sovereignty.

Prominent among signatories to the statement:

Indrajit Gupta, Harkishan Singh Surjeet, Chitta Basu, Chaturanan Mishra, E. Balanandan, Tridib Chowdhuri, Prof Prabhat Patnaik (JNU), Dr Ashok Mitra (former Finance Minister, West Bengal), G. Balachandran, Prof Krishna Bharadwaj (JNU), Dr R.R. Krishnan, Prof Sunanda Sen (JNU), Dr Arun Ghosh (former Member, Planning Commission), N. Ram (Editor, Frontline), Prof Ustsa Patnaik (JNU), Prof K.N. Kabra (IIPA), R.C. Dutt, Dr Abhijit Sen (JNU), Prof G.P. Deshpande (JNU), Balraj Mehta, Indradeep Sinha, Dr Pulin Nayak (Delhi University), Geeta Mukherjee, MP, Prakash Karat, Subrata Banerjee, Sitaram Yechury, Dr Kamal Mitra Chenoy (JNU), Unnikrishnan, S. Ramachandran Pillai, M.K. Pandhe (CITU), R. Ramachandran, D.D. Shastri, M.M.P. Singh (Delhi University), Dr S.S. Srivastava (AIPSO), Somnath Chatterjee, MP, Dr Girish Sharma, Prof Dalip S. Swamy (Delhi University), Sumit Chakravartty, Dr Santosh Mehrotra, B.K. Keala, Ved Gupta, K.L. Mahendra (AITUC), Sukomal Sen, MP, Kumaresh Chakravarty, Chitta Biswas, K. Ashok Rao, D.P. Bhatia, M.A. Baby, MP, P.K. Tandon, Dr Praveen Jha (Delhi University), D.K. Abrol, Usha Menon, Mahinder Singh, Suneet Chopra, A. Vijaya-raghavan, Joginder Sharma.

(Mainstream, August 3, 1991)

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