Fudging the Report Card: Disastrous Neoliberal Path of UPA II – Venkatesh Athreya



In an elaborate public relations exercise, the UPA government has presented a report card for 2011-12 in which tall claims are made concerning the “inclusive” character of economic policy under UPA II. What is the real record of three years of UPA II in the field of economic policy and its consequences? Let us take a look.

We may begin with the fact that, beginning with the minority government of Narasimha Rao formed in 1991, successive regimes at the Centre –and most state governments, with the exception of the Left-led ones –have been pursuing neoliberal policies –popularly referred to as LPG policies, LPG being the abbreviation for ‘ liberalization, privatization and globalization’.[1]Having said that, it must also be noted that between 2004 and 2009, the tenure of the UPA I government, the fact that the central government depended on the support of the Left Partiesfrom outside the government, enabled the Left to defend the interests of the people against the harmful consequences of these policies to a limited extent. Our concern in this article is, however, primarily with the economic policies of UPA II and its consequences.

In recent weeks, an orchestrated campaign has been unleashed in the media that the pace of neoliberal reforms has greatly slowed down under UPA II, quite contrary to the expectation that it would, in fact, accelerate, since the UPA II was not constrained by any need to deal with a numerically significant Left presence in parliament that could block neoliberal reforms requiring parliamentary approval. While it is a fact that, unlike the politically consistent Left, the present allies of the Congress in the UPA II government are far more unpredictable and may seek to extract various ‘benefits’ in return for supporting the government at the Centre, the claim that reforms have slowed is completely misleading. In fact, the present UPA government has been pursuing neoliberal policies with zeal and consistency, unhampered and unchecked by the kind of credible, pro-people pressure that they had had to face from the Left between 2004 and 2008. The four budgets of the present Union government have all involved huge tax concessions to the corporate sector and the wealthy. In the quaint language of the Union budget documents, the ‘tax expenditures’ – meaning tax revenue foregone by the government on account of tax concessions given in these four budgets and the tax benefitsfrom SEZ and other schemes in existence -  exceed Rs 20 lakh crores over the last four years. The recipients of the overwhelming share of this largesse of the central government have been the large corporate entities, domestic and foreign and very wealthy individuals. As against the generous tax concessions doled out to these sections who constitute a very tiny minority, the economic policies of the present UPA government, both through the budgets and through other measures, especially those relating to prices of essential commodities, input and output prices for farm produce, and energy prices, have severely eroded the real incomes of the bulk of the population. As even official spokespersons are sometimes forced to concede, there has been a significant increase in income and wealth inequality dramatically illustrated by the rise in the numbers of ‘dollar billionaires’ in India from 13 in 2003 to 55 by the end of 2011.

The cutbacks in subsidies pertaining to food, fertilizer and energy in real terms have been a key feature of the fiscal regime of the present UPA government. While the government, in the name of a stimulus following the global economic slowdown that hit the headlines in September 2008 following the collapse of Lehman Brothers, gave generous tax breaks to the corporate sector and the wealthy, it reduced subsidies to the poor and to agriculture as well as allocations to various welfare and social sector programmes in relative terms. Over the period 2008-2012, subsidies have been on the average well below 2 per cent of GDP. On the other hand, interest payments by the government have varied between 3.5 and 4 per cent of GDP. In effect, what this means is that by refusing to tax the rich appropriately and by financing its expenditures by borrowing from them instead, the government is essentially transferring resources from the poor to the rich through the instruments of fiscal policy. After all, the poor pay a significant share of indirect taxes which continue to account for around 65 % of the combined tax revenue of the Centre and the States. It is from out of these tax revenues that the government pays interest to holders of government debt. The latter are certainly not the poor of the country.

It is not just that fiscal policies and budgetary measures have been overwhelmingly in favour of the well-to-do under UPA II. The present government has been so desperate to attract foreign investment that it has offered enormous concessions to the transnational entities.[2]In a global context where aggressive metropolitan capital is targeting the natural resources of the developing world, be it land or minerals such as coal, iron, oil and so on, the present government has been playing a proactive role in enabling global and domestic big capital to acquire these resources as cheaply as possible. Through the Special Economic Zones Act of 2006, through the utterly anti-people Act of 1894 pertaining to land acquisitions and through a variety of administrative measures, the central government – and, it must be added, with the enthusiastic cooperation of many of the state governments – has been playing a key role in the alienation of land and natural resources from our peasantry to the corporates, domestic and foreign.[3]The draft Land Acquisition, Rehabilitation and Resettlement Bill 2011proposed by the UPA government seeks to open up tribal lands for exploitation by large foreign and domestic capital and fails to provide adequate protection to the peasantry and the tribal population against corporate land grab.

Linked to these policies is the phenomenon of scams which has especially been associated in the public mind with the present government. Whether it is the allocation of a scarce resource like spectrum or the lease of mines or the pricing of energy resources purchased by the government from large private players, or many other similar exercises, almost always, the corporate-politician-bureaucrat nexus has been at work under the neoliberal regime. Every one of these scams has involved a large-scale loot of public resources.

Spokespersons for the government constantly refer to the impressive growth rates of GDP as evidence of the success of the economic policies of the government. It is true that, even allowing for over estimation biases, the rates of growth of GDP in India have been significantly higher than those of the advanced capitalist countries as well as many other countries for several years now, though they have been distinctly lower than the rates of growth of the Chinese economy. But it is also true that the relatively high rates of growth of GDP have made little dent on the key problems of poverty and unemployment. As per the data from the national sample survey organization (NSSO), employment grew at an estimated annual rate of 2.7 % between 1999-2000 and 2004-05. But this rate fell sharply to 0.8 % between 2004-05 and 2009-10. Of equal importance is the evidence on the quality of employment. Both between 1999-2000 and 2004-05 and between 2004-05 and 2009-10, the overwhelming proportion of the increase in employment, which includes both self and wage/salaried employment, occurred in non-formal employment that provides no legal benefits or protection for the employed person. Average annual earnings in self-employment were extremely low and real wage rates were low as well, being well below minimum wages in a significant proportion of cases. In the organized manufacturing sector, there has been a continuing decline in absolute numbers employed, accompanied by a large increase in the share of value added going to profits. This trend has been in evidence for over two decades now, and has continued during the regime of UPA II.

 Even going by the absurdly defined official poverty line, the proportion of people below the poverty line remains unconscionably high. On the other hand, if one goes by the original definition of poverty in terms of calorie intake per capita per day, which is also no more than a bare survival norm, the proportion of rural population unable to access the norm of 2400 kilocalories per capita per day is far higher than the official figures of the proportion of people below the poverty line put out by the government. The same holds true for the urban population as well, using the norm of 2100 kilocalories per capita per day.

Let us note that the three years of UPA II have seen little let-up in the severity of the agrarian crisis. Though the government is currently highlighting the ‘record’ output of food grains this year at over 250 million tonnes, the state of food insecurity remains severe in both rural and urban India. All nutritional indicators, be it anaemia among women and children or the percentage of under-weight children in the age group of 0 to 5 years or any other standard indicator, point to what has been called ‘a state of permanent nutritional emergency’. Yet, the government refuses to recognize the need for a universal system of food grain as well as nutritional entitlements. The much touted draft Food Security Bill in fact takes away benefits already enjoyed by citizens in over ten states. It centralizes the public distribution system, even while keeping it narrowly targeted. It is a deeply flawed Bill whose sole objective seems to be to reduce the ‘fiscal burden’ on the central government.

Perhaps the most distinctive feature of the present regime has been the high rates of inflation that have continued throughout the period from May 2009 till now. In fact, the food price inflation rate has been over 10 per cent over a period of 38 months between September 2008 and October 2011. Besides food, prices of all essential goods and services have increased hugely since May 2009. Even while the rates of price increase have moderated in the international economy over the last four years of the on-going Great Recession, this has not happened in India. The most striking instance is the sustained rise in the prices of petrol and diesel. These have had far less to do with global market developments, as often wrongly asserted, but have instead been the outcome of deliberate policy. Over the last three years, petrol prices have increased by close to 90 per cent. Diesel price increases have not lagged much behind this either. The so-called deregulation of petroleum prices has of course been simply a ruse to keep increasing them periodically. Though the price of petrol is said to be no longer administratively set, but left to the oil marketing companies to decide, it is clear that the government calls the shots and decides on the price increases. The most recent savage increase in petrol price, by around seven rupees and fifty paise per litre was effected immediately after the budget session of parliament ended, leaving no one in any doubt about the fact that it was a policy decision by the government. The reason put forward by official defenders of this increase is the sharp decline in the value of the rupee in relation to the U.S.dollar, which brings us to the crisis facing the Indian economy at the moment.

Over the last two decades, and especially over the eight years of the two UPA governments, there has been a sustained opening up of the Indian economy, not just in terms of liberalisation of imports and exports of goods and services, but most crucially in terms of allowing external capital flows both into and out of India with practically no regulation. There has also been substantial liberalisation on the capital account relating to Indian corporate entities, allowing them to export capital as well as to borrow from abroad on commercial terms, without any obligation to earn foreign exchange. In the hope of attracting foreign investments, especially in infrastructure, financial liberalization relating to banking, insurance, pension funds and operation of private foreign entities in India’s financial markets has been accelerated. One measure of the increased exposure of the Indian economy to the global economy and therefore to global economic shocks is the share of the sum of India’s merchandise exports and imports to GDP. This has risen from hardly 14 % in 1991 to around one-half now. If one adds services, and the amounts of portfolio capital of ‘hot money’flowing into and out of the country in a year, this far exceeds the GDP itself. A particularly vulnerable aspect of neoliberal growth in India has been the increasing gap between our exports of merchandise and our imports. To some extent, this gap had been reduced by our export earnings by way of IT and IT-enabled services and, equally importantly, by remittances of Indians working overseas to their families in India. These factors had helped contain the current account deficit to some extent in the past, but that is no longer the case. With the crisis in the metropolitan world, our export growth is expected to decline significantly. Even if imports grow more slowly than before, the balance of payments is expected to get worse. Currently, it is anticipated that the current account deficit this year may be as high as 3.6 % of GDP or even higher. One underlying factor here is, as admitted by the Prime Minister’s Economic Advisory Council, increased outgo on investment incomes, which in plain English means that foreign investors are taking ever larger amounts home as profits on their investments, adding to our foreign exchange woes. Now, with the Eurozone in serious crisis and the situation in the USA not much better, foreign investment is also declining. In particular, footloose portfolio capital is exiting India on a substantial scale. This has also added to our balance of payments problems, which are being compounded by the need to repay large amounts of external loans taken increasingly on private account. The financial media highlight the fact of ‘large’ fiscal deficits as the cause for exit of foreign institutional investors from India. In line with the neoliberal policy framework, the government talks about the need to reduce the fiscal deficit so as to retain the confidence of the foreign investor. The prime minister has been talking of the need for ‘austerity’ and reining in subsidies. Their talk of ‘tough measures’ has, in the most recent instance, been implemented by a savage rise in the price of petrol with strong hints that similar increases in the price of diesel, cooking gas and electricity are on the anvil. The duplicity and hypocrisy of the regime is obvious. On top of concessions in the previous budgets to the corporates and the wealthy, the finance minister gave further tax concessions to the rich in the 2012-13 budget which was passed by the parliament only a few days ago. Instead of raising tax revenues by eliminating numerous exemptions and ensuring tax collection, the government looks to bridge its fiscal deficit by selling public sector assets. The fact that this budget provides for disinvestment of the order of 30,000 crore rupees even while the reserve funds with central public sector undertakings is in the neighbourhood of 6 lakh crore rupees shows the determination of UPA II to privatise the economy and hand it over to the corporates, foreign and domestic. The fact that the Prime Minister’s Office is reported as intervening on behalf of a very large business house against the view of the concerned ministry of the government is an indication of a very disturbing state of affairs, though not a great surprise.

The neoliberal economic policy framework of UPA II rests on the premise that the fiscal deficit has to be brought down at all costs and that this has to be achieved primarily by cutting down expenditure. On the other hand, attempts to mobilize resources by taxing the well-to-do, eliminating black money and seizing illegally acquired wealth stashed away abroad are all seen as disincentives to private investment which is seen as almost the sole engine of growth. Given the large gap between our exports and our much larger imports, attracting foreign financial flows into the country by offering foreign investors all sorts of concessions and gearing economic policies to keep them happy is seen as inevitable. But this is, even within the framework of neoliberalism, a losing proposition. When risk perceptions worsen, especially against the background of a deepening global economic crisis, none of the concessions that the Indian government is offering is going to generate inward capital flows nor will it arrest capital outflows.

On the contrary, given the disastrous consequences of neoliberal economic policies for the overwhelming majority of the Indian people, what is needed is a complete reversal of neoliberal policies. If agriculture is to recover from its crisis, if employment is to be increased rapidly and with appropriate quality, if food security of the people of India is to be ensured and if adequate public investments in agriculture education, health, infrastructure and key industries are to be made, the neoliberal policy framework has to be jettisoned. Mobilising the working people deeply negatively affected by neoliberal policies is a key political task before progressive forces in India.


[1]The Congress government of 1991 manufactured a majority later through various means, but when it began implementing neoliberal policies, it did not have a majority. Nor were neoliberal reforms a part of the Congress manifesto in the 1991 Lok Sabha elections. Thus, not just in their processes and consequences, even in their origin, neoliberal policies in India were fundamentally divorced from democratic norms.

[2]Domestic corporates have also been showered with tax and other concessions, in the name of ‘incentivising investment’.

[3] It may be noted that protests by people against land acquisition for SEZs and for corporates took place in over 40districts in 17 states in the past three years.

+�e X���Y�exports and imports in the Indian economy in India’s GDP was only 14 % in 1991. It is now practically 50 per cent of GDP. In addition, because the reforms allowed free entry and exit of foreign finance capital, there is a much greater degree of instability in the economy, with foreign institutional investors bringing money into the country to make quick and huge profits in Indian stock markets and taking them out quickly. While foreign capital makes huge profits in this manner by foreign capital, there is no benefit to the Indian economy as no wealth is created by trading mostly in already existing shares. But the unregulated entry and exit of foreign finance capital only causes great instability in the financial and currency markets and the integration of India’s economy through trade and capital flows makes us far more vulnerable to external shocks emanating from any part of the world capitalist economy.

All evidence, from the national sample surveys, the national family health surveys and various other surveys done across the country, shows that the reforms have not made a significant impact on the depth and severity as well as the wide spread of poverty, even though the government often claims the contrary. There has been no significant reduction in malnutrition, and the indicators even show a worsening in some parts of the country and among socially and economically vulnerable sections.

With the current global economic crisis showing no sign of ending soon, the Indian economy is in for rough weather. Neoliberal policies of the last two decades have made the economy more vulnerable to the global crisis. We have seen the value of the rupee in relation to the US dollar fall rapidly in recent months. The global recession has led to India’s export growth halted. Meanwhile the rapid rate of import liberalization since 1991 is causing a serious trade deficit. With remittances from Indians abroad not growing to make up the gap, and with footloose finance capital exiting India rapidly, the global capitalist crisis has already led to a slowing down of the growth rate. In panic, our rulers want to offer more and more incentives to foreign finance capital to attract them into the country. What does the future hold?

It is here that the events in the advanced capitalist countries become very relevant. Following the financial crisis of 2008, governments in the West bailed out the big financial firms, the very firms that had been at least partly responsible for the financial meltdown. While this saved the financial giants, the governments became heavily indebted in the process. Today, several countries in Europe –Greece, Ireland, Spain, Italy, Portugal and so on, the list is growing –are imposing severe austerity on their working people to repay financiers who had lent them money to bail out the banks earlier. In the US, the long crisis has led to real (not the official) unemployment rates well into double digits. It is much worse in countries like Greece and Spain, with youth unemployment rates close to 50 % in Greece. All this is causing massive protests by working people.

The period since the onset of the current global crisis has seen increasing anger among working people in the developed capitalist countries against the financial elite and the governments seen as pampering them. People’s protests have taken different forms. In recent months, a spectacular protest movement has emerged: The Occupy Movement. It began initially in New York where protesters occupied the headquarters of global finance capital: Wall Street, demanding that investment banks and other financial corporations who had caused the financial crisis of 2008 with their reckless operations and speculative gambles should be brought to book and not rewarded with bail-out funds as had happened in the US. The movement then rapidly expanded, not only geographically, but also in terms of its agenda and its demands. From ‘Occupy Wall Street’ (OWS), it became a more general Occupy movement. The movement spread not only to many cities and smaller towns in the US and elsewhere, but attracted an entire cross section of society, including students facing severe loan repayment problems on educational loans, home owners facing foreclosures on their home mortgages, unemployed persons laid off in the wake of the economic crisis, poor people of all races protesting cutbacks in welfare benefits and so on. The anger of the people was not only at their own plight because of the nature of the economic system that had forced them into unemployment or unsustainable debt or giving up their desire to pursue formal education. It was also at the fact that those who had been responsible for the financial and economic crisis in the first instance – the banks and the financial speculators – were being rewarded with bail-outs and tax cuts for the super- rich were continuing, even while the resulting budgetary deficits were cited as undesirable and as a reason for cutting back on welfare programmes. The OWS/Occupy movement has come up with a brilliantly catchy slogan that sharply highlights the increasing inequality and injustice under the neoliberal economy and the patently undemocratic nature of the system: ‘We are the 99 per cent’! This helped focus attention on the blatantly unequal, unjust and plutocratic nature of the neoliberal capitalist economy and the unresponsiveness of the government to the demands of the overwhelming majority – the 99 % – of the population. The slogan has captured in an exceptionally sharp manner the fact that the system serves the interests of a tiny minority and not that of the ordinary working people or even the so-called middle class.

For more than two years now, the Greek working class, under the militant leadership of the Communist Party of Greece, has battled the attempts of the Greek government and international finance capital to impose huge burdens on the working people of Greecein the wake of an economic crisis for which the Greek workers were in no way responsible.[5] As neoliberal governments have been slashing welfare provisions, privatizing pensions, reducing unemployment benefits and attacking hard won rights of working people, ever since the collapse of socialist regimes in Eastern Europe and the USSR, working class struggles have been on the rise in Europe. However, what is distinctive about the struggles since the economic crisis that began in 2008, and especially in recent months, has been the scope and width of these struggles and their spread to segments of the working population not involved in a big way in struggles earlier. Whether it was the struggle of French students who fought back, with the help of the entire working class movement, a legislation that would have made it easy for employers to dismiss them in their first employment or the struggles of workers in practically all the European  countries on the pension issue or the recent sustained struggles of the Greek workers and mass mobilizations against the austerity programmes imposed by a pliant Greek government under the diktats of finance  capital and the bigger European powers, Germany and France, or the historic strike of public sector employees in Britain as recently as November 30, 2011, it is increasingly clear that we are entering a period of working class militancy in the developed capitalist world. Such struggles, in themselves, do not of course guarantee the strengthening of progressive forces, and can in fact be utilized by the right wing ‘parties of order’ against working people and to promote xenophobia and fascism. But, given that neoliberal policies are increasingly discredited, having had a free run for over two decades now, there is certainly a better prospect of a more progressive shift in the balance of political forces in these countries.

In a series of elections in France, Greece, urban Italy and a German province, the electorate has voted massively against the austerity policies of the ruling classes. While, in some instances, the right wing parties have been able to capitalize on the crisis, the trend has on the whole been to the Left.

 These developments are most encouraging for the progressive forces in India opposing neoliberal policies. Just as the ruling class policies over the last two decades have made the Indian economy more vulnerable to global shocks, the global upsurge against neoliberal policies can strengthen the fight in India against these policies, rendering the ruling classes vulnerable in turn.

The Left-led Indian working class movement and the peasant movement as well as movements taking up the demands of women, dalits, tribals, students and youth, have all consistently fought LPG policies for over two decades. During some periods, such as when the first UPA government was dependent for its survival on the support of the Left parties, it was possible to stop moves towards further liberalization to some extent. It was also possible to secure some gains in the form of the NREGA and the Forest Rights Act. But things have grown much worse under the present UPA regime, which is pursuing neoliberal policies vigorously at a time when they are being discarded in many other parts of the world. The working class, which has led the struggle against neoliberal policies and in defence of the public sector, not only in the areas of industry and finance, but more generally, across all sectors including in education, health and so on, has an important role to play in the coming period in the struggle against neoliberal policies.

Most importantly, the future holds the possibility of developing international solidarity among working people and their movements in the global fight against neoliberal capitalism, in the wake of the militant upsurge of working people in Europe, North America and the rising tide of struggles here in India as well.


[1]Recall Pershing and Cruise missiles and the star wars called by the misleading name of ‘strategic defense initiative’.

[2]It must be clarified that the collapse of the socialist regimes of Eastern Europe and the USSR was due to many complex factors, and the internal ones were of course most important. The point being made here is that the rise of finance capital and of the neoliberal regimes of Reagan and Thatcher also had a role to play in the collapse.

[3] For a clear exposition of the implication of changes in the international economy with the rise to dominance of finance capital for the development strategy adopted by the ruling classes in India, see C.P.Chandrasekhar and Jayati Ghosh (2004), The Market that failed, LeftWord Publications, New Delhi

[4] It is interesting to note that the programme of the Communist Party of India (Marxist) characterizes the State in India as the state of the bourgeoisie and the landlords, led by the big bourgeoisie, increasingly collaborating with foreign finance capital

[5]For a lucid exposition of the Eurozone crisis, see the excellent article by C.P.Chandrasekhar entitled ‘End of Europe’ on the website http://www.networkideas.org/news/nov2011/news30_Europe.htm

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