Indian economy seen from Mexico

Economist Alejandro Nadal writes in La Jornada (found at La Haine) about the Indian miracle, its horrors and limitations. I translate here the whole text because I feel it is very worth reading.

The economy of India keeps high rates of growth since some years ago and for many it is an example to follow. It is said that the experience of the subcontinent is evidence that Neoliberalism can work. Reality is very different: the evolution of Indian economy is a pathological process that feeds on social inequality and environmental destruction.

India kept a modest growth after independence in 1947. The project of industrialization sustained a reduced but stable expansion (4%) between 1950 and 1980. The income per capita increased an average of 1.3% yearly in that period. The commercial balance remained with a permanent deficit and the economy was closed to the trade and capital flows.

The global debt crisis in the 1980s submitted India to the dictates of the International Monetary Fund and in the 1990s neoliberal style reforms were imposed, what meant a radical turn in economic policy. In the last ten years India had an average annual growth of 6.8%. International press has presented this as an economical miracle.

In these years inequality and poverty have worsened in India. Today 42% of that country's people (1.173 billion) lives with less than one dollar per day. 75% lives with two dollars a day and the economic model is not going to revert such an unequal structure.

In spite of the growth rates of 6-7%, the increase of formal unemployment in India is minimal and does not go beyond a yearly 1% growth. By the way, that means that economic expansion is built on most important productivity increases. This is related to the strategy of orienting investment towards exports, what requires bringing salary costs down to minimums in order to be able to compete. For that reason the rationalization of productive chains is accompanied of strong cuts in employment.

In spite of the miracle in growth rates, India keeps a chronic deficit in its external accounts and needs to finance it. For that purpose it has chosen to receive capital flows, both in form of direct foreign investment as portfolio investments (short term capital). But this implies an enormous cost: macroeconomic policies must respect game rules that have nothing to do with the needs of the Indian people.

Monetary policy is dominated by the need to attract capital to the Indian economic space. This implies keeping high interest rates. Besides, only the privileged ones have access to credit, all this imprinting a regressive hue to distribution of wealth by privileging the active portfolio of the wealthiest strata and deepening inequality. That is why it is irrelevant: what matters is to keep the flow of capital that allows financing the external deficit.

All this implies that India has now the highest reserves in history (some 230 billion dollars). In this it resembles China, but the difference is that the latter has a huge surplus in its trade balance while India suffers a chronic deficit. Indian reserves are not such: they are a resource that can evaporate at any moment.

Fiscal policy is ruled by the dogma of balanced budget and, as capital owners must not be incommoded in order not to affect investments, the fiscal balance is achieved cutting social expenditure and reducing the amount of resources for environmental preservation.

The opening to foreign investment is done by giving concessions to extractive, lumber and touristic industries. This causes the expropriation of the lands in which the minerals are found (iron in Chattisgarh, bauxite in Orissa, etc.) or which are covered by dense forests, which are easily accessible commercial wealth. Many of those lands are the home of aboriginal peoples or adivasi (Sanskrit word meaning first inhabitants of the forest). The adivasi are less than 8% of Indian population but they are 40% of the people deprived from valleys, hills and river basins. The cession of their lands to the megacorporations in extractive and touristic industries is one of the most violent traits of the neoliberal miracle in India.

Economist Amit Badhuri, professor emeritus of the Jawaharlal Nehru University in New Delhi, has described this process as predatory growth. It must be said it is not any metaphor: it is in effect a complex economical and political process in which the losers give their way of life to a growth that privileges only a few and cannot raise the level of life of the majority.

The parallel with Mexico is extraordinary. Actually the only different thing are growth rates. All the rest is identical: the same model, the same injustice.