Industrial accidents are a necessary condition of the capitalist economy, that is, their possibility is an integral part of capitalist life. Their occurrence can be avoided to some extent by legal-administrative reforms and vigilance. There are limits to these reforms, however. The Mundka incident, on the one hand, exemplifies corruption and non-compliance of the law (which attracts the most attention of the well-wishers), and on the other, it is primarily a manifestation of the organic brutality of capitalist industrial life. This brutality reflects the dispensability of individuated workers in an environment of continuous surplusing.
The Nobel prize to Abhijit Banerjee seems to have given a fresh lease of life to the embattled identities of JNUites and Bengali intellectuals, even for many leftists who are caught up in dystopic existentialism, and hence are unable to see beyond immediacies. The general secretary of the biggest communist party in India said:
He again twits:
Another erudite general secretary of a radical communist party twitted:
However, Banerjee himself is busy dissociating himself from any political tag quite vocally and finds himself to be a mere surgeon who will cut into anything that comes on his table (or a mere plumber who will make this table!)- it is not about right and left. In fact, he has been working with all sorts of governments. Just because he was a JNUite or he criticised the Modi government’s particular policies, he is being celebrated by the anti-Modi forces, whether rightist, leftist or centrist. Of course, the Modi ministers themselves are becoming jittery at the wake of the deepening economic crisis, and are losing sanity by disowning people like Manmohan Singh, Banerjee & co (a point made by none other than Parakala Prabhakar, India’s Finance Minister Nirmala Sitharaman’s husband). And leftists too caught up in the cycle of reaction along with official rightists have lost all tactfulness.
Politically, the awarding of the Nobel prize in economics this year is a recognition by bourgeois (finance capital) internationalism and its agencies that rightist neoliberal etatist minimalism that has emerged globally, if left to itself, will not be able to contain and sublimate the growing discontentment in societies towards serving the bourgeois interests. As a result, the states might collapse or will start going beyond policing usurping the domain of the economic. The global corporate social responsibility (CSR) institutions must take over the task through the networks of NGOs throughout the globe and palliate the soaring social injuries, while productivising them for the benefit of capitalist expansion.
Abhijit Banerjee and his colleagues have been at the forefront of creating a model of treating poverty as a disease. They have been involved with states and corporate institutions in this regard for a very long time. And, we know, a disease is not just itself, it is a great industrial opportunity too (the booming hospital and pharmaceutical industries are clear examples). The Nobel laureates of this year have shown through randomized controlled trials how to dynamically customise strategies to recognise symptoms and provide palliatives or incentives to integrate the poor in the mainstream network of commodity market and finance. This capitalist inclusiveness is what Negri called differential inclusion. It is undoubtedly an effective tactic to encourage capitalist accumulation from below within a post-fordist neoliberal frame that allows heterogeneity in entrepreneurial forms (by including pakodawallahs, chaiwallahs etc), while networking them through finance.
Whether we recognise it or not, demonetisation and GST in India have at least created the digitised infrastructure to put such an effort in place. As Marxists we know, this will never be able to save capitalism from crisis, but it may have the impact of deferring the collapse.
So, comrades, is this a cause enough to celebrate?
I think what intensified bovine politics in India is achieving is a sort of primitive accumulation in the livestock industry. It goes remarkably well with the concentration and centralisation of money and tax economies through the more formal measures like GST and demonetisation. These measures kill the autonomy of dispersed economic structures and fit them to the suction nodes of the neoliberal net of finance capital. The liberal and Keynesian economists have criticised many of these measures on the ground that they will destroy local economies and federal autonomy. Same well-meaning experts are criticising the way livestock policies have recently been formulated. The fascistic nature of their implementation is quite evident. However, the tangible structural change that is being effected through these measures are lost sight of in the overpowering moralism in these criticisms.
In a recent article in The Mint, some relevant statistics have been brought together. The authors rightly contends,
“It emerges that economics rather than religion drives cattle ownership in India. After adjusting for wealth inequality, cattle ownership shows a similar pattern across religions. Expectation of milk yields is what drives cattle ownership in India.”
They provide pertinent facts about the livestock economy and the negative impacts that the new policies and bovine politics have made on this economy.
“Female animals under two years would be expected to grow into milk-giving cattle. Breeding cows are still in their milk cycle. Everything else apart from these two categories can be described as non-milk animals. Only 15% of households own non-milk animals in India. This is half of the overall cattle ownership figure of 30%. Again, the figures are not very different across religions. One does not need to be a rocket scientist to guess where the non-milk bovines end up. They are the supply for India’s multi-billion dollar beef industry. It has been an unacknowledged but convenient arrangement. Most owners sell their non-milk cattle without asking questions about the end use. This is why the local cattle trade is crucial for India’s livestock economy. A government ban on sale of animals for slaughter in local markets, and vigilante mobs attacking those transporting cattle in the name of gau raksha, can destroy this arrangement. Everybody with stakes in the livestock economy would suffer as costs go up due to a pile-up of non-milk animals.”
However, the destruction of this existing arrangement is bound to proliferate new arrangements in the livestock industry. The unconcentrated dispersed cattle ownership based industry might lead to a greater degree of concentration and centralisation. The “local” cattle trade and meat businesses may give space to a more centralised livestock, meat and milk industry.
Hence, if till now it was economics, not religion that shaped cattle ownership and trade, then we must admit that it continues to be so. The economics behind restrictions, banning and lynchings must be recognised and revealed.
“…it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results. The country that is more developed industrially only shows, to the less developed, the image of its own future.” – Karl Marx (1)
“We do not think or plan in piecemeal, but in full-scale design. It is just that we are revealing our cards gradually…” – Narendra Modi (2)
The left-liberal intelligentsia in India is clearly in a quite precarious state, if it finds ex-Prime Minister Manmohan Singh’s criticism of demonetisation as the most competent response to the Modi Government’s move. The daily peddling by left social media activists of the criticisms that mainstream economists are making of demonetisation is a symptom of the Indian left’s lost confidence (if it ever had any). Even those who have come up with more erudite responses are lost in the grammar of the move — its immediate performance and effects — and have concluded that demonetisation is poor, bad and ignorant economics. Coming from a chaiwala, what else can it be!!!
In our view, Modinomics is a legitimate successor to Manmohanomics — it is a continuity entrenched in the dynamic needs of capitalist accumulation. Post 1990, India has seen governments of all colours, but the coherence of the Indian state has rarely faltered on the economic front. The rulers with all their electoral compulsions have succeeded in maintaining, if not accelerating, the neoliberal regime. However, this does not mean the political shade is merely external and cosmetic — politics in an electoral democracy is all about reshuffling social anxieties and interests in a manner that allows the state system to self-reproduce.(3)
Financial Expropriation and the Emergence of a Debtfare State
Demonetisation is a misnomer. It is not an attack on money by demonetising economies. Rather, it is a spectacular yet momentary unravelling and strengthening of the adamantine chain around so-called economic independence and growth in capitalism. In fact, it is a heightened expansion of money as financial and political-economic control. It is an effort to assess and consolidate the expanse of economic activities and transactions and thwart any possibility of parallel economic regimes. Delegitimising particular denominations of currency becomes a means to reclaim those activities, and reassert money as a universal measure of value, not as a means to autonomise particular levels of economy, by treating it as a mere facilitator of exchange or a means of hoarding. Money creates boundaries only to expand and cross them. Money measures the immeasurable, it equalises the most unequal. It institutes hidden connections between phenomena quite remote from one another — the vertical control however is revealed only at particular junctures of economic development through the action of state. In our opinion, demonetisation is an assertion of the universality of “universal equivalence”, i.e., money. This means consolidation of the linkages between layers of social relationships in the economy — strengthening of the neoliberal concentration and centralisation of capital.
There are two chief processes that define the neoliberal regime of capitalist accumulation, and demonetisation is remarkably connected with both of them. These processes are financialisation and informalisation, which in the present heat of the demonetisation debate, have been popularly dubbed as cashlessness and black/parallel economy respectively.
Financialisation has three main features. First, non-financial corporations increasingly financialise themselves, relying on retained profits and open financial markets for investments, rather than on banks. Even their wage bill “is frequently financed through the issuing of commercial paper in open markets.” Second, there is a restructuring of the banking operations by re-orienting them towards mediating “in open markets to earn fees, commissions and profits from trading”, on the one hand, and towards individuals/households “to obtain profits from lending but also from handling savings and financial assets”, on the other. With the active help of state through legislative measures and encouragement, the banks mobilise personal savings for peddling in stock markets.(4)
Lastly, and most importantly, in recent years “the personal revenue of workers and households across social classes” has been increasingly financialised. On the one hand, this specifically signifies that there has been a substantial increase in personal and household debts for various life needs – consumption, housing, health, education, etc. On the other hand, it shows there has been an expansion in the range of financial asset holdings — for medical and life insurance, pension and old-age benefits, various short- and long-term money market investments, etc. This relates obviously to a withdrawal of state-supported public provisions in the form of subsidies and direct benefits, and hence their privatisation. So, we find a tremendous increase in the involvement of banking and other financial institutions in mediating household consumption, while they have obtained a full freedom to channel “household savings to financial markets, thus extracting financial profits”.
Profiteering through financial transactions between banks and households has a predatory character. Profit here is not raised in the sphere of production, but through “the systematic extraction of financial profits out of the revenue of workers and other social layers”. This is what has been termed as “financial expropriation”. (5)
The current demonetisation move is nothing less than a full-scale financial expropriation in operation. The move has in one go forced small and big cash hoarders run to line up in the queue to reveal and officialise their savings. The government is not allowing these savers to exchange and repossess the whole amount of their savings in cash. This is not simply due to any unpreparedness or erratic behaviour on the part of the Indian state and Reserve Bank of India, as many have alleged. In fact, it is a remarkable move to institutionalise a financialised relationship between the banks and households. Of course, it is too early to judge if demonetisation has really succeeded in altering “nation’s conduct”. But its motive is pretty clear, as finance minister Arun Jaitley has time and again pronounced: “This one decision that has ensured that a lot of money has come into the banking system, a lot of informal savings have become formal now, and therefore, the tendency to invest these more formal savings in instruments that you keep an eye on is also increasing.” Demonetisation is a kind of encouragement to “ordinary citizens to channelise their savings into the market which indirectly would then contribute to the process of national development rather than be blocked only in dead assets”.(6)
Demonetisation is clearing the ground for a systematisation of “cannibalistic capitalism” in India by proliferating secondary forms of exploitation which are not directly linked to production but are financial mechanisms to expropriate. The Indian economy is massively based upon underemployed and under-waged surplus population that constitute the unorganised and informal labour relations. This makes it a very fertile ground for cannibalism that marked the US economy, which was based on the proliferation of various financial mechanisms of expropriation — nay, a financial inclusion of the hitherto excluded. In fact, we see in this move of demonetising specific denominations of the currency an emergence of the debtfare state.
Susan Soederberg defines a debtfare state as one that “legitimates, normalizes, depoliticizes and mediates the tensions emerging from cannibalistic capitalism”. It deregulates finance and provides legal machinery to protect and strengthen banks, thus facilitating an intensification and expansion of “forms of predatory practices.” The debtfare state enhances “the social power of money by legally and morally permitting credit card issuers (banks) to generate enormous amounts of income from uncapped interest rates and by continually extending plastic money to those who fall within Marx’s category of the surplus population: the partially employed (underemployed) or wholly unemployed”. The impact on the labour regime is also significant as “surplus workers” are subjected “to the disciplinary requirements of the market, such as compelling them to find and accept any form of work to continue to be “trustworthy” creditors”.(7)
Demonetisation in 2016 might mark a drastic emergence of a full-scale debtfare state by financially including the massive community of unbanked individuals and households through mobile, e-payment and plastic money. However, this has not happened suddenly. The insistence of the subsequent governments to profile Indian citizens through a unique identification system called AADHAAR and linking it with their everyday economic activities, despite the Indian judiciary pronouncing such moves illegitimate, was already an indication towards building a panopticon, which will make everybody useful and watched under the system. The banking and tax institutions had already started utilising this data. With demonetisation, now that the banks have acquired a full command over the finance of Indian households, a grand system of financial discipline and punishment can be effectively generated. With the proliferation of plastic and mobile/e-connections, our consumption and activities will be regulated, and we will pay for our own regulation.
This connects to the second aspect of neoliberalism, i.e. the process of informalisation, or the generalisation of informality destroying its sectoral and transitional character.
Informalisation and Consolidation
“With the junking of the old high-value currency, the parallel economy has become part of the formal system” – Arun Jaitley (8)
Everybody is talking about the impact of demonetisation on the informal sector, which is heavily dependent on cash transactions. But there is scarcely any analysis that shows how it is shaping the location of informality in the whole economy. Is it an end of informality — of the exploitation of cheap labour? Certainly not. It is an increase in the real subsumption of informality — it is a revelation that sectoral dualism sustained through segmented economies, if not fully illusory, is merely at the levels of appearance and form. The indirect exploitation of surplus population as cheap labour by capitalist firms by accepting the relative autonomy or sectoralisation of informality perhaps needs regimentation today to further expand capital accumulation. Through the so-called demonetization move, capital is arguably seeking to consolidate itself by vertically integrating the horizontalised relationship between formal and informal. It exposes the vulnerabilities of particular capitals seeking to hide their localised parallel levels accounted for in the official bookkeeping only as leakages in the system.
Managing money circulation is about networking and facilitating economic activities and transactions — production and circulation. The left-liberal intelligentsia, including many “Marxists”, are only talking about the impact of demonetisation as immediately experienced. At best, they are prognosticating a dampening of activities and demands, which will have adverse effects on growth. They are only remotely touching on the policy’s essential connection with the changing contours of the regime of accumulation. Leftists are right in noting the impact of demonetisation on the informal sector, but they have been unable to account for how it is shaping the regime in which informalisation is central.
It has been frequently noted, and quite rightly, that under neoliberalism the economy moves towards informalisation. The formal sector and employment are not growing, while informality is increasingly being embedded in the supply chains of the economy. That is why the informalisation of work processes is considered among the chief characteristics of the neoliberal economy.
As the informal sector has always thrived on surplus population exploited as cheap labour, “hiring-and-firing” is the norm there. What the pre-neoliberal phase had done was to secure an organised labour force that through its demand stability could sustain the domestic market. In many regions, however, a vast rural and urban informal sector was allowed to develop to reproduce surplus population. But the economic planning was avowedly geared towards formalisation. This vast surplus of labour and an increase in the organic composition of capital led to a crisis of the prolonged interregnum of planned capitalism, and a decline in the profitability rate. Technological transformations found the stable workforce in the so-called formal sector over-skilled and a hindrance to further accumulation. The formal sector was increasingly considered to be exclusionary unable to accommodate the growing surplus population allowing over-exploitative hidden economies to flourish. This led to an ascendancy of neoliberal market fundamentalism, which essentially attacked the formal-informal duality by legitimising informality. The aim was to take advantage of overpopulated living labour and utilise technological innovations that made skills redundant and required equi-skilled cogs in the wheel. Through initial structural adjustment programmes these surplus population-based informal sectors were linked with the formal corporate structures in the supply chain. In this scenario, instruments like the time-tested putting-out system, which capitalised and destroyed the old guild system, started becoming handy once again. It was through these instruments that cheap labour arrangements and regimes that existed locally were subsumed to avoid costlier and inflexible labour regimes that pre-neoliberal planning had generated.
However, despite the obvious hierarchical relationship between transnational corporate structures and local industrial set-ups that mobilised surplus labour, this relationship remained externalised becoming barriers to capitalist consolidation — concentration and centralisation of capital. Local laws that were promulgated to stabilise the labour force in the earlier regime became hurdles for capital mobility and accumulation in labour surplus economies. It was to avoid these hurdles that smaller and informal units were networked, but informalisation now has to be internalised and these units must be incorporated to survive intense competition. The parcellised production and distribution is not permanently beneficial. Also needed is “the concentration of already formed capitals, the destruction of their individual independence, the expropriation of capitalist by capitalist, the transformation of many small capitals into a few large ones”.(9)
Banking and finance that institutionalise the power of money facilitate the concentration and centralisation of capital today by regimenting individual capitals — big and small — and compel them to submit to the general needs of capitalist accumulation. The multiple layers of industrial forms — formal and informal — generate clogs in the real-time mobility of financialised capital. The informal set-up provides many smaller units with legal and trans-legal comparative advantages allowing them a kind of relative autonomy from legitimate competition. Being based on cash transactions they become autonomous from the institutionalised finance and public credit, while fully utilising the currency issued by these institutions. It was only through monetary and banking reforms that these economies could be contained within the structure.
We would do well to remember that one of the major battles capital has had to wage time and again is that of labour reforms. At the present juncture, especially in countries like India, numerous legal “number filters” have been imposed that grant smaller industrial units a freedom to disregard minimal labour standards, which bigger units have to at least legally maintain. Only by coordinating with these smaller units and utilising a labour contractual system the corporate sector could evade the imposition and draw the benefits. There has been a continuous demand to remove these filters, so that the benefits that the informal sector has — to openly exploit surplus population as cheap labour — could be generalised. Only through such generalisation can the processes of concentration and centralisation become effective.
Of course, the formal sector incorporated informal entities and relationships to evade the hazards of regulation. The way cheap labour-power was bought and exploited in the informal sector was an object of envy and is the benchmark for the formal sector entities to model the labour regime and demand for deregulation from the state. The state and the formal industrial regime have been long trying to achieve this. Despite being able to utilise informality to their advantage, the formal sector has been subject to humiliating bargaining tactics of smaller entities in the informal sector. The diverse local industrial regimes in which these entities function create difficulties for formal and bigger players in the value chains. Moreover, the ancillary interests are able to effectively compete with the corporate interests on the basis of their lower technical capabilities and cheap labour, thus leading to difficulties in the consolidation and centralisation of capital.
As labour reforms become more conflictual, with increasing defensive struggles of workers in the formal sector, monetary policies like demonetisation go a long way in regimenting “informal” and “small” capitalist interests. The wages of the unbanked population whom these entities have over exploited are all paid in cash. Demonetisation attempts to mobilise the advantages of these entities, which will now be totally subservient to formal processes. It is self-evident that any monetary tactic that affects cash flows would have an immediate effect on the cash-based informal economy. Amartya Sen is correct when he says, “At one stroke the move declares all Indians — indeed all holders of Indian currency — as possibly crooks, unless they can establish they are not.” (10) However, it is not totally wrong to say that a large section of this economy is always black as transactions and contracts there are not formally accounted for, and a substantial portion of income generated remains untaxed. But does this mean demonetisation will lead towards formality?
The notion of (in)formality is loaded with all kinds of connotations. And it is pretty confusing when we dichotomise formal and informal. In the production and distribution networks that define today’s economy we find this dichotomy resolved very efficiently. If legal systems tend to dampen flexible transactional and contractual relationships, informality (beyond the regulated formal relationships) seeps in to transcend rigidity. As a system, the formal-informal relationships constitute enormous value chains. However, if we discretise these relationships, it is not difficult to find clear examples of dichotomies in them, which actually define an intense competitive regime within the value chains — intra- and inter-sectoral competition. The entities in the informal zones of the value chain compete among themselves and also with entities in the formal zone.
Through demonetisation a process of verticalisation has been effectuated and the formal nodes would now act as concentration and centralisation of informal advantages. The state acting on behalf of capital in general is disciplining the devious and particularising nature of informality. Neoliberalism is a project to look after the general needs of capital in today’s conjuncture. Demonetisation is a decisive step in that direction.
“…the magnitude of the global economic crisis at times is not felt in India because of strong (parallel) economy of black money.” – Akhilesh Yadav (11)
Post-2007-08, countries throughout the globe have been struggling to set their respective houses in order. That the so-called parallel cash-based economies in India cushioned the impact of the global crisis at the national level, acting as clogs that minimised the strains of the impact, is a strange truth. However, in order to sustain a higher growth these economies with their particularities will have to be incorporated into the formal system, and their comparative advantages annulled through their generalisation. What we see today is the neoliberal urge to mainstream and generalise informality and make it a ground for systematic capital accumulation, with concentration and centralisation as its vehicle. Hence, it is in this regard that the moves like demonetisation become effective instruments. But this would destroy the clogging effects of local and parallel economies. Hence, it would eventually minimise their ability to cushion against global vulnerabilities.
Notes and References
(1) Karl Marx, “Preface to the First German Edition,” Capital I, Collected Works, Volume 35, Progress Publishers, Moscow, p. 9.
(2) “Indira Gandhi lacked courage to demonetise, we are paying for it: Modi to his party MPs”, Indian Express (Dec 17, 2016).
(3) The political institutional ascendancy of rightwing jingoistic assertions is not any return to protectionism, rather it mobilises and productivises the general precarity to restrengthen neoliberalisation. By a reactionary generalisation of fear and terror that the mobility of capital and its crisis creates, it helps the system to reconsolidate its base against any radical statism and revolutionary anti-statism. The phenomena of Modi, Brexit, Le Pen and Trump will actually help in the final dismantling of the vestiges of older protectionist labour regimes in the name of making local economies and labour markets competitive, so that capital finds the locality docile for investment.
(4) Costas Lapavitsas (2013), “The financialization of capitalism: ‘Profiting without producing’”, City, Vol. 17 No. 6, pp 792–805.
(6) “Demonetisation is changing nation’s conduct: Jaitley“, The Hindu (Dec 24, 2016).
(7) Susan Soederberg (2013)The US Debtfare State and the Credit Card Industry: Forging Spaces of Dispossession, Antipode Vol. 45 No. 2, pp 493–512.
(8) “Digital payments will help lower fiscal deficit: Arun Jaitley”, LiveMint (Dec 25, 2016).
(9) Karl Marx, op cit, p. 621.
(10) “Interview: Demonetisation move declares all Indians as possible crooks, unless they can establish otherwise, says Amartya Sen”, Indian Express (Nov 26 2016).
(11) “Black money helped Indian economy during global recession: Akhilesh Yadav”, Indian Express (Nov 15 2016).
Costas Lapavitsas in his new book, Profiting without Producing (2013) gives an interesting theoretical account of the effects of crisis on the credit economy – the growth in NPAs, bad loans, aggravating the crisis further.
The starting point of Marx’s analysis is trade credit, which is assumed to expand in the course of a boom, creating large volumes of bills of exchange and thereby stretching production and trade. As the boom unfolds, however, banking credit enters strongly into play: banks discount bills of exchange, thus supplying loanable money capital that covers the needs of capitalists for liquid funds. At the later stages of the boom, financial speculation begins to occur on a large scale mostly by creating bills of exchange purely to be discounted by banks. Such bills are often tenuously related, or even completely unrelated to productive activity. The overextension of credit (both trade and banking) contributes to overaccumulation and overproduction, resulting in inventory accumulation and excess supply in commodity markets. Given the difficulty of sales, the expansion begins to unravel and a commercial crisis emerges.
For Marx, the appearance of commercial crisis has a decisive impact on the overextended mechanisms of credit. Inability to sell finished output implies inability to honour maturing bills of exchange on the part of borrowing capitalists. Consequently banks begin to accumulate non-performing assets. As the quality of bank assets falls and the creditworthiness of borrowers declines, banks become reluctant to lend. The restriction of banking credit occurs at a moment when liquid money capital is heavily demanded by functioning capitalists pressed by the difficulty of selling. Gradually banks become reluctant to lend even to each other, with the result that the money market becomes extremely tight and interest rates rise rapidly. That is, an absolute shortage of liquidity begins to emerge.
Faced with a liquidity shortage, capitalists no longer demand money capital to sustain or expand the circuit of productive capital. Rather, they are under pressure to obtain plain money to settle bills and other loans that fall due. Maturing loans would have been incurred during the upswing in the expectation that liquidity would be easily available at the time of settlement from banks, or elsewhere. But the destruction of confidence among banks implies that fresh funds are not forthcoming; the banks (and other participants in the money market) prefer to hoard money. In a liquidity crisis, cash becomes king and promises to pay among private capitalists are devalued. In a remarkable turn of phrase, Marx claimed that in a capitalist crisis there is ‘a sudden transformation of the credit system into monetary system’.
Throughout the difficult times of the ongoing economic crisis, Indian policy makers were talking about the robust banking sector that sustained the economy. Pranab Mukherjee when he was the Finance Minister used to boast about “a robust banking sector working under an efficient regulatory framework”, which other economies affected by the crisis didn’t have. But the scene doesn’t seem to be so good with “Rising bad debt hit[ting] PSU banks’ health”, on the one hand and financial sharks calling for trade in debts, on the other…
For several quarters analysts and bankers have warned about the deteriorating financial health of state-run banks. But policymakers have maintained that the worst was over, and that things would improve as the economy gathers steam. Drastic measures to nurse the banks to sound health are rarely talked about and the preference is for short-term steps to paper over the wounds.
“Indian banks are unlikely to reduce their problem loan ratios in 2015-16 but the new non-performing loans will probably decline,” Moody’s Investors Service said, based on findings of a poll.
For the banking sector as a whole the NPA situation is as bad as it was more than a decade ago when some radical steps – from one-time settlement to setting up asset reconstruction companies – were initiated. The global economic boom and the rapid growth in India too helped banks clean up their books. The economic slowdown and the failure of several projects to take off have once again hurt the asset quality in banks. The problem is more acute in public sector banks as they had to lend to companies and restructure loans after the 2008 financial crisis when the private sector virtually walked out of the market.
The rising levels of NPAs and capital constraints, along with low demand for loans, have forced these lenders to be very selecting in lending, something that may not augur very well for overall economic growth. “Public sector banks are facing multiple challenges. They have asset quality issues, require huge amount of capital and there are management issues. The huge recapitalization requirement has led to risk aversion and they are not growing their balance sheet significantly. Going forward we expect them to lose business because of this,” said an analyst at a leading brokerage.
Although bankers would tell you that they don’t have to deal with calls from the finance ministry any longer, the pressure of lending to various target groups and pushing government schemes is enormous. And, they have limited operational freedom. For instance, in April, HDFC Bank sold its loans of Rs 550 crore extended to Essar Steel at a 40% discount, something that an executive at a state-run bank can’t even think about. “The moment we do something there will be a CBI enquiry or a vigilance case,” said a banker.
What is economics, if not an art of huckstering? It “came into being as a natural result of the expansion of trade, and with its appearance elementary, unscientific huckstering was replaced by a developed system of licensed fraud, an entire science of enrichment” (Engels). Montek S Ahluwalia or even Manmohan Singh for that matter are good Economists, in the sense that they make a good support team for modern-day huckstering. But remember huckstering does not rely on truth, but speculations. They speculate on everything, then why not on poverty? What more do we expect from these “modern bagmen of free trade”? They regard “the proletarian (aam aadmi)… like a horse” (Marx), and there are enough horses around to replace one, so why bother feeding them well?
Greenpeace finds the financial sector particularly (among the “for-profit sectors”) very sensitive to its concerns. And they pat themselves for gathering in insurance companies and banks to support their cause. In fact, it all depends on how you talk to these people – these moneywallahs. Mind your language, they will come with you:
“Greenpeace framed discussions about global climate change as a hard-headed matter of risk management rather than only as a soft-hearted matter of protecting fragile ecospheres. With this approach it succeeded in attracting the banking and insurance industry to participate in the negotiations….”
“As Paul Hohnen argues in his case study, Greenpeace was able to achieve a coup in international climate change negotiations by engaging private insurance companies and motivating them to speak out.”
“By bringing in the insurance industry, Greenpeace was able to tip the balance of power within the negotiations by exploiting intrasectoral differences between the fossil fuels industry and the insurance industry.”
For details, browse the following:
This is a draft report that I submitted to an organisation early last year on the need to develop a labour perspective on India’s rising overseas investment in other developing economies. The report mainly analyses investments in Africa (esp Kenya and Sudan). It’s nothing great, but at least it grasps the urgency of developing such a perspective. It urges us to move beyond postcolonial anxiety and complexes in our understanding of India’s political economic location in global capitalism. At least, people in our neighbourhood and in economies far off, where Indian intervention has reached and increased, are beginning to understand the myth of third world homogeneity. See our interview with a prominent Bangladeshi Marxist, Anu Muhammad.
Download the report
For my earlier take on the issue,
Bush’s Passage to India: Why Does India Carry His Water? (Counterpunch, Feb 2006)