that the economic slowdown is truly upon us, and the
government is no longer in complete denial about the
vulnerability of the economy, the discussion is dominated
by the possible effectiveness of the policy measures
that have been announced to deal with it. But this depends
upon two different features: first, what has caused
the recession in the first place; and second, how it
will affect different economic agents.
By both counts, the measures announced so far appear
to be lacking. On the first count, there is an official
presumption that this is simply an imported crisis.
And there is an associated blindness to important lessons
about the regulation of finance that are coming from
the developed world. Unlike possibly any other government
in the world today, the Indian government is going in
for more financial liberalisation, even when the results
of such deregulation in terms of creating unsustainable
bubbles and spawning major crises are there for all
to see. While this may provide some immediate relief
by propping up the rupee and stopping the bleeding of
foreign exchange reserves, it will create the conditions
for a much worse country-specific financial crisis in
the near future.
On the second count, the policy response thus far is
deficient because it seems to have ignored most of the
people who are likely to be badly affected, in favour
of a few who happen to be more well-connected. This
particular economic crisis, because it has both financial
and real economic aspects, is going to affect different
people very differently. The financial sector is clearly
hit. Stock market investors have lost (at least nominally)
huge amounts, and the credit crunch is adversely affecting
both large corporates and smaller businesses.
This inevitably has knock-on effects on the real sector,
adding reduced domestic demand to the problem of depressed
export markets. And so real economic activity, in both
tradeables and non-tradeables, is affected and this
directly translates into employment losses.
Most of the government’s measures are designed to ease
the credit crunch and revive the stock market and investor
confidence: by lowering interest rates, by propping
up the banking system through promises of fresh capitalisation,
by injecting new liquidity through relaxed credit norms.
Clearly all this will not be enough in the current liquidity
trap conditions, but at least it will directly benefit
some large banks, corporate houses, builders and export
units. The idea is that this will in turn benefit those
who are employed by such agents, and therefore prevent
job losses that would otherwise occur.
Yet in all this the government is ignoring two major
groups of workers who are already directly hit, and
who together account for the majority of the workers
in the country: farmers and migrant labourers. Cultivators
in India have already been through more than a decade
of agrarian crisis, which persisted even through the
period of rising international crop prices. They have
then been on a complete roller coaster in price terms
in the past year, as world trade prices of most crops
doubled and then collapsed within a few months, and
by the end of the year came to settle at levels below
those of two years ago.
Many cash crop cultivators, who had begun their sowing
operations on the basis of crop prices determined by
the relative prices of just a few months ago, now find
that their cultivation will simply be financially unviable
at prevailing input and output prices. With particular
regions of the country, including some of the fragile
dry land areas, increasingly dominated by such cash
crop cultivation (such as cotton, groundnuts, soya beans)
it is not difficult to imagine what will happen to livelihoods
in such cases.
This is a major economic catastrophe that is not just
waiting to happen - it is already unfolding. So a series
of monetary and fiscal packages that does not even mention,
let alone address, the inevitable problems of cash crop
cultivation, is bizarre to say the least.
The other major group that is already negatively affected
is of those workers who are employed on casual contracts,
who now find that even their fragile jobs no longer
exist. Many of these are migrant workers, often short-term
migrants whose very existence tends to be ignored by
our official statistics. The economic boom of the past
decade relied heavily on such workers. This was very
obviously true in the construction industry. But it
was also the case in some labour-intensive services,
such as cleaning, maintenance, private security, driving
and related services, that catered to the requirements
of the expanding corporate sector, and in effect subsidised
it by providing a cheap and flexible external labour
force. A lot of manufacturing, especially in those sectors
such as garments, leather goods, gems and jewellery
and metal products where exports have been seriously
hit by the world recession, have also increasingly relied
on informal contract workers, who could be hired and
fired at will.
Many of these workers have already been laid off and
many more will now indeed be fired, or at any rate lose
their jobs at least temporarily. And so they will be
forced either to stay in precarious conditions in the
urban areas, or go back to their places of origin -
villages or smaller towns. They will change from becoming
providers of remittance incomes to their households,
to becoming dependents of these households, even as
these households face more fragile material circumstances
than before. And so the negative multiplier effects
will permeate geographically.
The potential for social and political upheaval caused
by such economic changes should not be underestimated.
The heat will be felt by state governments, who (despite
the paltry provision of more borrowing facility announced
most recently) will also be reeling under the pressure
of coping with reduced tax revenues and increase salary
expenditure because of the recent Pay Commission award.
So state governments will not be in a position to deal
with the consequences, unless explicit provision is
made by the Centre for them to cope with these new and
This has significant implications, because many of these
migrant workers, for obvious reasons, come from the
most depressed and backward regions of the country,
where there is currently little potential for productive
income generation. These are often also the regions
of dry land agriculture, where remittance incomes play
a vital role in sheer survival. They are also - no surprise!
- the regions where extremist Maoist activity is widely
prevalent, because of the anger bred by persistent backwardness
and rising inequalities.
So the economic geography of this unfolding crisis is
likely to have huge political fallout. Because we live
in an electoral democracy, it might be expected that
the government - or at least the political parties involved
who know they have to face the people in a general election
in just a few months - would take note of these negative
effects on the majority of voters. It is both extraordinary
and alarming to realise that thus far nothing in the
policy pronouncements suggests that the welfare of such
people - cultivators and migrant workers - is at all
a consideration for the central government. Their future
is being sacrificed because our rulers seem unable to
stop paying homage to a different type of mobility at
the altars of international finance capital, however
discredited this might be in the present global scenario.