Protecting Indian People from the Global Economic Crisis

Protecting Indian People from the Global Economic Crisis

Introduction

It is clear by now that the global financial crisis has graduated into a global economic crisis of serious proportions. The advanced economies are set to experience a protracted recession and the developing countries across the world, including the Indian economy, will also be adversely affected.

The UPA Government’s responses to this evolving situation, however, have been extremely disappointing. Ever since the Government has come out of its initial state of denial, the measures adopted by it reflect on the one hand a sheer lack of comprehension of the causes behind and the proportions of the current crisis and on the other hand a proclivity towards appeasing myriad financial interests and corporate lobbies. The fact that the UPA Government is relying upon only one policy instrument, namely the interest rate, to both control inflation as well as reverse the growth slowdown betrays the illogic behind its policy paradigm. It is a rudimentary lesson in economic theory that two policy goals cannot be achieved using a single policy instrument.

The UPA Government has so far chosen to meet only the corporate bigwigs and bankers in order to discuss policy responses; neither have the State Governments nor other political parties, trade unions, farmers’ organisations and other organisations representing crucial stakeholders been consulted. It is indeed strange that at a time when the neoliberal vision of putting corporate profits over peoples’ interest and relying upon ‘trickle down economics’ is getting discredited across the world, the economic managers of the UPA Government are clinging on to it. In this backdrop, the CPI (M) is putting forward a set of concrete suggestions in order to tackle the adverse impact of the global recession on the Indian economy and protect the interests of the people.

Broad-based Growth through Fiscal Stimulus

v A special fiscal package should be announced by the Central Government directed at increasing public expenditure in ways which increases the income and consumption of the working people, especially the vulnerable sections, and ensure broad-based growth.

v This is an appropriate time to expand the fiscal deficit not only by the Central Government, but also the State Governments. The FRBM Act should be scrapped and a comprehensive debt relief scheme for the State Governments adopted to encourage them to adopt expansionary fiscal stances.

Protecting Existing Jobs

v Protection of domestic jobs must be the priority of the Government in the backdrop of the global recession.

v The Government should announce a moratorium on job or wage cuts in the organised sector, in the interest of the national economy, since such job or wage cuts would further depress demand and aggravate the situation. The extant labour laws should be duly invoked by the State Governments to prevent retrenchments and lay offs.

v The burden of cost adjustment should first fall on profits and executive pay, which have ballooned during the recent period. India requires an Inco3mes Policy whereby executive pay is linked to prices and the minimum wage earned by workers.

Specific Measures to Boost the Real Economy

v The Government has to undertake massive public investment directed at sectors which are employment intensive and capable of creating employment demand for those likely to lose jobs in the export-oriented sectors.

v Employment Guarantee: The NREGA should be strengthened and extended to the urban areas. Extending the period of guaranteed employment beyond 100 days should also be considered.

v Agriculture: Foodgrains production has to be encouraged and public procurement operations expanded for all major crops across the country. The allocations for the Food Security Mission and the Rashtriya Krishi Vikas Yojana should be enhanced substantially. Public investment in irrigation also needs to be stepped up substantially. For cash crops like cotton and oilseeds, import protection should be accorded through higher tariffs. Protection should also be extended to cash crops like rubber, cashew etc. to prevent sharp falls in prices.

v Food and Fuel Prices: The hikes in the prices of diesel and petrol by Rs.4 and Rs.2 respectively, must be withdrawn without further delay, in view of the sharp fall in international oil prices (which have fallen below $60 per barrel). The PDS needs to be universalized and strengthened drastically by reducing the issue price so that subsidised foodgrains can reach every settlement in the country. This is essential for boosting consumption demand in the economy.

v Retail Trade: With slower growth in consumption, the businesses of small and unorganised retailers are bound to be hit, affecting their livelihood. In this backdrop, allowing big organised retailers to expand their businesses and capture greater market shares would only aggravate the situation. A policy to strictly regulate the operations of domestic corporate retailers and restrict their unbridled expansion is urgently required.

v Small-Scale Industries: Crisis affecting the small-scale industries would cause massive job losses and affect livelihoods on a massive scale. The Government needs to devise sector specific relief packages, especially for export-oriented and labour intensive sectors like garments and leather, keeping the interests of the small-scale industries and their workers in mind. The relief packages should include rescheduling of bank credit as well as direct subsidies and should also incentivise job protection.

v Tariff Protection: In order to ensure that the demand injected into the economy through public investment does not leak out through increased imports, increasing customs duties should be considered. Further tariff concessions under NAMA or entering into structurally unequal trade agreements like the proposed EU-India FTA should be ruled out.

Tightening Financial Regulation and Reviving Development Finance

v Regulation should be strengthened in the financial sector and state control over finance need to be reasserted in order to revive development finance. While curbing reckless flow of credit to fuel elite consumption and asset price bubbles, credit should be directed towards employment intensive sectors like agriculture and small-scale industries.

v Capital Account Convertibility: Measures undertaken to liberalize the capital account as per the Tarapore Committee recommendations need to be reversed and strict controls reimposed on the outflow and inflow of capital.

v Participatory Notes: PNs, which are non-transparent derivative instruments used by the FIIs to invest money in the Indian capital market on behalf of undisclosed entities and individuals, should be prohibited. Allowing speculative hedge funds and other dubious entities to invest in Indian markets without any adherence to disclosure norms is the antithesis of prudential regulation.

v Banking and Insurance Sector Deregulation: The Government should abandon the moves to further deregulate the banking and insurance sectors through legislation like the Banking Regulation (Amendment) Bill, the State Bank of India (Amendment) Bill and increasing the FDI cap in the insurance sector from the present 26% to 49%.

v Pension Reforms: Pension reforms should be abandoned by the UPA Government and the PFRDA Bill scrapped. The Pension Scheme for Government employees should be reworked to ensure minimum guaranteed pension.

Obama's victory sparks cheers

PARIS (AP): The election of Barack Obama as the first black man in the White House unleashed a global tide of admiration, hopes for change, and even renewed love for the United States after years of dwindling good will during the Bush administration.

In Europe on Wednesday, some likened Obama's stunning ascent power to Neil Armstrong's first steps on the moon, the release of Nelson Mandela and the fall of the Berlin Wall as a turning point for humanity. The president of Kenya declared a public holiday in Obama's honor, and people across Africa stayed up all night or woke before dawn Wednesday to watch U.S. election history being made.

In London, a young boy on his way to school punched the air and cried 'OB-A-MA! OB-A-MA!' In the town of Obama, Japan, dancers cheered in delight when their namesake's victory was declared.

Yet celebrations were often also tempered by sobering concerns that a 47-year-old man with limited experience of government faces global challenges as momentous as the hopes his campaign inspired _ wars in Iraq and Afghanistan, the nuclear ambitions of Iran, the elusive hunt for peace in the Middle East and a global economy in turmoil.

In the Muslim world, skepticism remained high that Obama would make much difference. Many elsewhere expressed hope for a more balanced, less confrontational America, but said they also expect Obama to put U.S. interests first.

As they savored the moment, some people were prepared to temporarily forget the difficulties ahead for Obama and even forgive American voters for the Bush years, when U.S. ties with many countries grew strained. In countries where the idea of a minority member being elected leader is unthinkable, people expressed amazement and satisfaction that the United States overcame centuries of racial strife to elect an African-American president _ and one with Hussein as a middle name. Some said that U.S. voters had blazed a trail that minorities elsewhere could follow.

``This is the fall of the Berlin Wall times 10,'' Rama Yade, France's black junior minister for human rights, told French radio. ``America is rebecoming a New World.''

``On this morning, we all want to be American so we can take a bite of this dream unfolding before our eyes,'' she said.

In Britain, The Sun newspaper borrowed from Armstrong's 1969 Moon landing to describe Obama's election as ``one giant leap for mankind.''

In Rio, Brazilians partied on the beach. Akihiko Mukohama, the lead singer of a band that traveled to Obama, Japan, to perform, gushed that Obama's election ``is going to change the world.'' In Indonesia, where Obama lived as a child, hundreds of students at his former elementary school cheered when he was declared winner and poured into the courtyard where they hugged each other, danced in the rain and chanted ``Obama! Obama!''

``What an inspiration. He is the first truly global U.S. president the world has ever had,'' said Pracha Kanjananont, a 29-year-old Thai sitting at a Starbuck's in Bangkok. ``He had an Asian childhood, African parentage and has a Middle Eastern name. He is a truly global president.''

Hopes were high that Obama would act as an antidote to the anger felt toward Bush, perceived by many as a go-it-alone president who ignored international opposition in going to war in Iraq. Many said they expected that an Obama victory would herald a more inclusive, internationally cooperative U.S. approach. Many cited the Iraq war as a type of blunder Obama was unlikely to repeat. Callers to French radio RTL said how pleased they were to see Bush leave and Obama arrive.

``We hated Bush so much and we wanted so much to love America _ and now, again, we can,'' said Dominique Moisi, one of France's foremost foreign policy analysts.

Europe, where Obama is overwhelmingly popular, is one region that looked eagerly to an Obama administration for a revival in warm relations.

``At a time when we have to confront immense challenges together, your election raises great hopes in France, in Europe and in the rest of the world,'' French President Nicolas Sarkozy said in a congratulations letter to Obama.

Poland's Foreign Minister Radek Sikorski spoke of ``a new America with a new credit of trust in the world.''

The magnitude and emotion of the world reaction illustrated the international character of the U.S. presidency. It also showed how many still look to Washington as the place where global issues of war and peace, prosperity or crisis, are decided.

``This is an enormous outcome for all of us,'' said John Wood, the former New Zealand ambassador to the U.S. ``We have to hope and pray that President Obama can move forward in ways which are constructive and beneficial to all of us.''

Skepticism, however, was high in the Muslim world, where the Bush administration alienated many with the Iraq war, the treatment of prisoners at the U.S. detention center for terrorism suspects at Guantanamo Bay, Cuba, and inmates at Iraq's Abu Ghraib prison.

Some Iraqis said they would believe positive change when they saw it.

``Obama's victory will do nothing for the Iraqi issue nor for the Palestinian issue,'' said Muneer Jamal, a Baghdad resident. ``I think all the promises Obama made during the campaign will remain mere promises.''

In Pakistan, a country vital to the U.S.-led war on the al-Qaida terrorist network and neighbor to Afghanistan, many hoped Obama would bring some respite from rising militant violence that many blame on Bush.

Still, Mohammed Arshad, a 28-year-old schoolteacher in the capital, Islamabad, doubted Obama's ability to change U.S. foreign policy dramatically.

``It is true that Bush gave America a very bad name. He has become a symbol of hate. But I don't think the change of face will suddenly make any big difference,'' he said.

Obama also faced skepticism on the other side of the Mideast divide, in Israel.

Shoshana Bair, 27, an Orthodox Jewish woman who runs a medical not-for-profit group in Jerusalem, was fearful that Obama's allegiance would lie with the Palestinians and that Israel would be pushed into ``land concessions without receiving anything in return, and the division of Jerusalem,'' the holy city that both Jews and Palestinians claim as their capital.

The economy is another challenge of international concern. Many expressed hope that Obama would help reverse the punishing financial meltdown and said they expected that fixing the U.S. economy would be his first priority. But some in Asia, a region heavily dependent on exports to the U.S. market, worried the Democrat would try to protect American producers at their expense.

The huge weight of responsibilities on Obama's shoulders was also a worry for some. French former Prime Minister Dominique de Villepin said Obama's biggest challenge would be managing a punishing agenda of various crises in the United States and the world. ``He will need to fight on every front,'' he said.

Still, many around the world found Obama's international roots compelling and attractive. That a country where blacks were segregated when Obama was a child now voted him into power was an inspiration to many beyond U.S. shores.

The leader of Nigeria, Africa's most-populous nation, hailed the dawn of ``a totally and completely new era.''

Obama's election, said President Umaru Yar'Adua, ``has finally broken the greatest barrier of prejudice in human history.''