Notes on the Indian Economy

Notes on the Indian economy part 2 - Focussing on the role of foreign Capital

Whilst part 1 of the study explained the dynamics empowering Big capital in India and what role the informal sector and proletarianization plays in that regard, part 2 is intended to understand the role and nature of foreign capital in India and what role it plays, both social , political and economical in the Indian context. To begin with , I would like to state, that the dynamics of Capitalism and imperialism are such that though it may be moribund, and destructive in essence, it is not undynamic, nor are imperial relations static. Equally so, just as there cannot be a single monopolist corporation determining the entire economy on a local or regional or even national basis, there cannot be a single monopolist imperialist country that assumes all of imperialism unto itself. This is an impossibility at least under Capitalism. The imperialist system, at least in the understanding in the Leninist sense, does not undo competition but distorts and degenerates it. The earlier liberal capital is now totally wiped out and replaced by monopoly capitalism which forms the main body of Capitalism in our epoch. With the end of liberal Capitalism we saw between the period of the last half of the 19th century to the first half of the 20th century, an end to Colonial capitalism.

Colonial Capitalism is distinguishable from its successor, imperialist capital, in that the former is solely based on trade and productivity, whilst the latter is based more and more on Export of Capitalism, and the predominance of Finance Capitalism. In the epoch of Colonial Capitalism, the main imperialist countries would construct a foreign policy that hinged on opening more and more markets for trading of goods. Here, the free exchange of Capital (Which is a definitive feature of Capitalism in any form) would take place through the freeing up of trade by creating direct colonies or in some cases spheres of influence. Competition between rival imperialists would then for the most part be determined by which imperialist possesses how many colonies and how well they can hold on to these colonies. With the advent of imperialist capitalism and the predominance of finance capital and the export of capital gaining greater and greater importance, this most outmoded form of colonial imperialism would be eclipsed in totality. Two cases highlight the drawbacks of Colonial capitalism in the epoch of imperialism, one is the Spanish colony of Cuba which even though a colony of Spain, was economically dominated by Germany and America. The other would be the British Colony of India oddly named the "Empire of India" where 95% of British investments into India were diverted to maintaining the bureaucracy and the armed forces. Both these examples reveal perfectly how Colonialism had outlived its utility. America which is the dominant imperialist of our times, emerged to this position without having to construct a colonial empire unlike Britain. What it lacked in an external empire was compensated for by a rich and massive internal sphere which remains strong till today.

America's rise to imperialism is a reflection of the dynamics of our present epoch i.e. the epoch of imperialism. In our epoch, that is the epoch of imperial capital, the free exchange of capital compels countries to adopt policies which hinge on opening more and more markets for the export of Capital as it is this exportation of Capital which assumes primacy over trade. Whilst, trade in goods is not undone by this and in fact never will be undone by this, it does serve to subordinate the trade of goods and its dynamics. This is done by either subordinating, the trade in goods to the need for financing this trade *( often this would mean financing large trade deficits ) whilst on the other hand, it would be done by attaining direct control of the chain of trade through direct or indirect investments across borders. What this means is, unlike the direct political and territorial capture of power under Colonialism, modern imperialism behaves in a much more indirect and often surreptitious manner to create what we understand as semi-colonies. The semi-colony is distinguishable from a direct colony in that it does not require for the imperial country to rule over these countries directly but it would be enough for them to rule indirectly, often through favored proxies be it within a democratic parliamentary framework or by the destruction of the same and the imposition of dictatorships. Both regimes display nearly the same degree of harshness in curbing the proletariat of these countries.

When we take all of this into consideration a picture emerges of the imperialist world economy which is far more anarchic, far more competitive, and overall 'freer' than its predecessor of colonial capital where territorial fetters would isolate trading blocs and inter-imperialist conflicts would take place with a much more tangible territorial dynamic. In our epoch, this territoriality is lost. What is also lost is the linear relation where metropolitan trading countries with superior financial or manufacturing prowess could effect a clear cut exploitation of agricultural countries through colonizing them. Modern imperialist capital having attained far greater flexibility and having completed the task of effecting free exchange of capitals throughout the world, exploits not only the people of agricultural countries but of all countries anywhere and everywhere. Thus, emerges the tendency of imperialist capital to move towards areas of other imperialist capital within the same nation. In many cases, Imperialist countries in their sub-imperialist phase invite the forces of foreign capital to aid in the process of accumulation and opening up large internal markets. Whilst colonial capitalism fettered and often subjugated its colonies to backwardness and technological isolation, imperialist capital opens up markets to higher ever greater technical advances and opens the way for the flooding of the markets with its capital. However, both serve the almost identical ends in that they tend subjugate the markets they enter into to their own capitals and fulfill the domination of those markets thereby destroying or driving out of competition or marginalizing domestic capital be it petty or large. This becomes difficult or almost impossible to accomplish when Imperial capital enters the sphere of other like capitals. With this dynamic in mind we may now see the role of foreign capital in the Indian context.

When considering India's development of Capitalism, several unique features emerge particularly in its post colonial history but also in its colonial history. India was perhaps the first major Asian power to be opened up to the full force of foreign capital and was in fact the first country to be subjugated by it. In historic terms what this would represent is the worldwide victory of the bourgeois-capitalist mode of production over feudal or quasi-feudal modes of production. India had till 1757 in fact, controlled 70% of the world's trade and had a GDP many times larger than Capitalist Britain ! however, India had not undergone a revolution, neither had it revolutionized the means of production, therefore, this fantastic control of wealth which it had was destined to melt away when faced with the decidedly superior forces of bourgeois-capitalist modes of production. And it was no less than Britain, the most powerful of the European countries which was also the first European power to undergo a bourgeois revolution successfully, which carried out this task. Marx had cited a dual role for the English East India company which had come to rule over India eventually. The two aspects of its rule over India was both destructive ( destruction of the native pre-capitalist economy and polity and society ) as well as creative ( the creation of a capitalist economy, polity and society replacing its pre-capitalist predecessor ) . However, Marx had also noted that in his notes on India, that it has always seen convulsive political changes without requisite social change. British colonialism was the first force to attempt to consciously try to end this dichotomy and achieve it partially.

However, the peculiar nature of colonial capital with its focus on control over trade, meant that competition would focus more on destroying the potential for its erstwhile pre-capitalist economic superior rather than creating a new base for Capitalism to flourish. The destruction of Indian polity and economy was thorough, but the destruction of India society's structure was slow. The result was the loss of the old world without a gain of the new. The reactionary burden of the old society would be preserved and concretized by economic and political subjugation and impoverishment. Nevertheless, the creative aspects did in fact develop as slow as they did, and Indian society was in course of time morphed to suit more advanced Imperialist exploitation, but the vast colonial economy which the Empire had created in India and on the basis of which lay the enslavement of the whole of the Asian continent, would not be undone so easily. The colonial fetters remained and continued to slow down and distort the entry of imperial capital into India, till the point of time where it became unbearable for the colonial masters. The creation of a native Indian bourgeois was one of the consequences of British colonialism, but even this in time grew too large and influential for the decaying and dying British Capital to control. The two world wars of the last century were the death knell to the old Empire and paved the way for new empires to take its place. The United States of America would be the foremost gainer of this destruction, being unfettered and unburdened by colonialism and having conveniently escaped the destruction of its European counterparts, and possessing a vast internal market of its own, and having vanquished both the great powers of Germany and Japan, it had a formidable military apparatus as well! The contraction of European Capital from the world stage left a huge area of the world out of the bound of imperial capital which in most cases would be kept out by the revolutions in Asia and eastern Europe, Latin America and Africa. Whilst, the presence of the Soviet Union and China served to limit the penetration of imperial capital in Asia, the overbearing presence of America and Europe over Latin America and Africa would do the opposite allowing in time for the complete domination of these continents by the forces of imperialist capital. India however, managed to withstand this onslaught by virtue of sheer historical circumstance as well as the cunning of the Indian bourgeois. In addition to this, the inheritance of British colonialism gave India access to a large sphere of influence around its own neighborhood as well as an armed force to defend it. In course of time, India managed to crowbar its way onto becoming a centre of Big capital gaining quite recently, the ability to export Capital as well. But this ability has come at a price, costing both in terms of economic sovereignty as well as social and political destruction and degeneration.

India having entered its independence, with numerous colonial and even pre-colonial burdens would naturally have to resort to the most drastic measures to allow the development of Capitalism. However, this has had to be balanced with the need to pacify its immediate class enemy in the form of the Indian working class and peasantry. India's polity thus emerged both bonapartist as well as bourgeois democratic! Completing neither the one nor the other. Colonial Capital's shared destructive characteristic with imperial capitalism is seen in the manner they destroy weaker forms of capital and how larger more technically advanced capitalism dominates over technologically less advanced forms. Indian Capital has been no different in this regard. the destruction of the countryside which was initiated by the British was exacerbated and intensified under the rule of the Indian bourgeois which being now surrounded by two very powerful but opposing forces of global Stalinism in the Soviet union and world imperialism through the US-UK alliance, has had to exploit and defend its internal sphere aggressively. The result of this was statism. This statism was both a consequence of monopoly capital as well as an arbitrary reaction to external and internal pressure and a product of the weaknesses of Indian capitalism owing to a hundred years of fettered Colonialism. However, as Statism grew and consolidated reaching a high point with the nationalization of banks and 'Indianization' of foreign companies, it consolidated the sub-continental sphere for Indian capitalism to dominate over. However, India's statism was not absolute nor did it end the existence of foreign capital and in fact as early as 1950s, foreign capital was still being invited through joint ventures to aid Indian capital in developing itself. But balancing this with the prevalence of the state in the economic life of India, meant that these foreign capitals could exist only through political protection and cover accorded by the bourgeois and its political formations in particular through that of the congress party. Another area for the penetration of foreign capital in these early years had been through state based construction or power projects and as ancillaries to defense where vital technologies in India's armed forces were still lacking. In time the wall of statism and its consequent welfarism ultimately became a drain for the Indian bourgeois and an unwanted fetter for the development of Capital. All along however, this retained legitimacy through the continued existence of the threat of foreign capital as well as a steam valve to pacify the working class. The Nationalized corporations of India as well as the welfare measures they supported were and are corrupted and exploited to suit the ends of the bourgeois often through extra legal means and in a most brazen manner. The existence of Bonapartism in India adds to this crude form of exploitation of the working class. The statist economy which India had created however, could only survive the external pressures of imperialism with the preponderant protection of the Soviet Union.

After 1991, this protection would be lost. With it would also be lost a tremendous fortress of the working class and a great negative wave of reaction would ensue where imperial capital would find it easier to move into areas previously untouched by it, as well as intensification of the exploitation of the areas where it was already present. This was accompanied by the expansion of the export of Capital and the further domination of finance capital over other capitals. All of this was a sign of the rate of profits falling back and returning to pre-world war trajectories of imperialism, only without its colonial - territorial fetters. The Indian bourgeois would now have to adjust to a new world order where statist subsistence could no longer hold against imperialism, and where the domestic bourgeois had itself consolidated a large enough internal sphere to survive in competition against foreign businesses. The dismantling of statism had thus begun in the 1990s and with it, a massive penetration of foreign capital into India, the like of which had not been seen in the 40 years preceding it. But this opening up of capital was not a one way affair, no sooner, than a massive inflow of capital began, an equally robust development of capital exports began to take off from India which soon surpassed capital imports! The fate of the capitals which had already invested in India would now be determined by fierce competition with new foreign rivals and an empowered domestic capitalist class equipped with greater access to the world markets as well as technologically developed. The earlier privileged positions would now be naturally challenged as the Indian bourgeois opened up the Indian markets to World Capitalism. Along with these external pressures, foreign capital and domestic private capital *( In particular small to middle private capitals ) still had to deal with a vast State sphere which continues to exist in India and takes an increasingly active role in building and consolidating a base for Indian capitalism to develop and expand further till it becomes a major global player as a fully imperialist country. This is naturally contingent upon the completion of Capitalist domination over the rural countryside and over petty capital sectors in urban India. This has by and large been achieved in the urban sphere through the penetration of financial capital which is still statized considerably but has yet to complete its penetration into the countryside. Additionally, the dominance of services and manufacturing over petty capital remains unfinished. Furthermore, big Indian capital is still a new player in the world stage and in comparison with its foreign peers is still a junior in terms of high technology and financial support. This warrants the continued existence of the state in the economic life of the country, not to mention the continued albeit weakened threat from the working class which still requires statism and welfarism to handle.

With the opening of the Indian markets, the Indian bourgeois has in fact strengthened not only itself, but also the world bourgeois by giving it access to a huge market of yet unproletarianized populations of peasants and petty bourgeoisie with a strong and able state apparatus which most African and South east Asian countries can't boast of. However, they have also subjected the entrant foreign capitals to domestic competition compelling them to resort to more exploitative practices than their domestic rivals. What this also entails for foreign capital investing in India is a need to avail the advantages of scale, to compete with more established and naturalized domestic capitals. Thus, it has been seen that most of the foreign capital that has entered in the form of direct investments have been through big investments and made by big corporations. And in most cases, the foreign capitals which continue to hold dominating positions remain the very corporations who had managed to buy or deal their privileged positions before the complete opening of the Indian market to World Imperialism. This gives the foreign corporations a much more organized form, as well as exploitative characteristic. The proletarians employed in these companies particularly in the manufacturing sector would be subjected to harsh management practices many a times in conflict with labor laws, (their privileged status allowing them to flout labor laws at will and gaining the protection of the state for the same) as well as focused attacks on any attempt to organize in resistance or agitation. The best example of the contradictions of foreign capital are revealed through the Maruti-Suzuki corporation in India, where the Suzuki motor corporation itself grew by the blessings of the Indian bourgeois and in particular the blessing of its political leadership in the Congress party, which ironically uses the blessing hand as its symbol! The workers organized in these sectors face the most advantageous position in terms of communist organization *( owing to the large organized nature of foreign capitalist concerns ) as well as the worst conditions of work *( owing to the need for foreign capital to cut down on labor costs to compete with more well entrenched national rivals ) . From the ranks of these workers a vanguard can very well emerge in India, however, the trajectory of their struggle is limited in that it does not expropriate the main enemy of the Indian working class which is the Indian bourgeois. Nor do these struggles aim at securing state corporations away from the serpentine grip of the Indian bourgeois making them organizations of the working class which is what they should be ! The vanguard of the working class would therefore, come from both these ranks organizing and struggling in unison and coordination with each other against a shared enemy which is the Indian bourgeois.

Notes on the Indian Economy

From now on I will be updating the blog with my notes on the Indian economy. I basically deal with the Indian economy in its social and political content and the consequences of these dynamics which may have in the global context and especially in terms of developing revolutionary political work. I would particularly like it if readers would give me their feedback on the postings.

Part - 1

Proletarianization and the Manufacturing Sector in the Informal Sector

I would like to begin by stating a well known fact of Marxist analysis of the Law of Value. Capitalism works ultimately to suck out surplus from the labor intensive, low tech sectors to sectors where high tech capital intensive operations take place. This is what was at the heart of the destruction of the Indian handicraft industry in the colonial period as well as the rise of British manufacturing on a global scale. In the scenario that a nation develops capitalism fully, it is reflected through the marginalization of the contribution of the 'intermediate classes' of small proprietors ( Peasants and petty bourgeois ) . In areas where capitalism is plentiful we see this has already happened. Here the social and political significance of small proprietors is either insignificant or non-existent in totality. In areas where capital is scarce, the intermediate classes of small / petty proprietors are existent to the greatest degree. By and large you may characterize the third world in this way. This half of the world where capital is scarce in relation to the total population would include South Asia, Sub-Saharan Africa, South East Asia, and parts of Latin America and Eastern Europe. These are areas which have a large base of peasants and petty bourgeois which have yet to be proletarianized. As such they present extremely attractive markets for big capital particularly from imperialist countries. For most countries which have such a large and substantial peasant-pb base and having scarce availability of capital they are generally not strong enough to develop a powerful bourgeois on their own and become dependent on the entry of foreign capital to aid them with vital technology and infrastructure and in many cases in actively securing their political power. However, this is not a stringent rule and in some cases, there are such 'third world' countries where capital is scarce which manage to develop their own bourgeoisie and need little or no help to maintain their authority internally. Not only that but at least 3 countries throughout history have been able to emerge as capital exporting countries without any recognizable strategic or economic impairments despite the scarcity of capitalist development. These four countries are : 1) Tsarist Russia till 1917, 2) Imperial Japan till 1945 , 3) India 1947 - present.

As a post-war example India contains many unique features of a country undergoing rapid capital accumulation having emerged from a colonial yoke. Among these features, is the continuing scarcity of Capital in India in relation to its large population, as well as the proliferation of its urban population as a part and parcel of proletarianization. But is this proletarianization concentrated and organized ? In Tsarists Russia during its period of industrialization, similar efforts were taken by the then existing government to liberalize the agrarian sector allowing for massive transfers of populations from the countryside to the city. In India, far more sophistic methods are used to achieve roughly the same end. But there's a difference here in the consequence of the action. It has been reported that manufacturing in India has stagnated. This has resulted in two things for the masses of rural migrants when they enter into Indian cities. On the one hand, organized large scale manufacturing is stagnating in terms of absorption of new proletarians into its fold, whilst on the other a channel is created for very sub-standard employment either in certain government jobs(cleaners, sweepers etc) or as is in the majority of the cases, into the informal sector. This informal sector is characterized by the existence of micro organizations employing not more than 9 people in it, with very limited capital requirements where the government imposes restrictions on the total capital invested. The Law of Value tells us that these are sectors where the workers involved are *exceptionally* exploited by their owners for the reason that they are forced to competing with the forces of big capital with very limited means. In India's case a large number of these small 'informal' businesses are in fact family owned stores and organizations. The profits would be shared by the family and each member of the family takes part in the business, even though women are found to be in a minority for the most part. *( Surveys reveal they represent not more than 20% of the total employment in the unorganized and informal sectors) .The unfavorable economic realities of small proprietorship is compounded by the fact that labor laws and protective coverage hardly ever reaches to these areas. Which means, the employment of child labor among other things is found mostly in this area. This speaks of the situation of labor in the urban centers, but what of the rural sector ?

The situation is actually worse in the rural sector with big capitalist farming holding a minority of land *( large estates in India are considered to be 5 hectares and above ) whilst their relative share in the total number of rural households are few. In addition they monopolize the best technologies available and are able to employ large numbers of agricultural proletariat to till their crops. This section of the agricultural population actually accounts for the bulk of the farm output in India and are concentrated for the most part in the wheat belt of India, in Punjab-Haryana-Western UP region whilst in Maharashtra and Gujarat there is the influential "Sugar lobby" based mostly around Western and Central Maharashtra. The marginal farmers and the landless rural households have only two choices in the villages, either leave to work in the cities, or to work in another's farm. But since, most holdings are either small, marginal or medium the scope for generating rural employment for this landless populace is bleak. *( 30% of all rural households are landless ) they have no other choice but to go to the cities, or die. Here again we have yet another phenomena in the villages, with the existence of village money lenders and pawn brokers. This class of usurious people are present in the cities as well and are considerably more exploitative and consequentially richer in most cases than the money lenders in the villages, however, the destruction to livelihood caused by village money lenders is considerably greater when comparing the relative standards of the urban and rural poor. In most cases it is this debt that drives the migration from countryside to city. There are of course other factors too if one considers, direct state repression of peoples in Central India. For the forces of Big Capital what this would mean, is the massive availability of dirt cheap labor as a result of migration from the villages to the cities. Additionally, what this could mean if we consider the steadily rising unemployment and underemployment of peoples is the creation of a vast reserve army of the unemployed. the proliferation and steady expansion of this means, that the Indian bourgeois finds a ready and seemingly 'natural' mechanism for the dampening of wages across the board. The prevalence of statism in India means *( figures suggest that even now 38% of all goods produced in India and almost 50% of the GDP output and 75% of all banking in India by volumes belong to State owned corporations ) that the Indian bourgeois and particularly the big Indian bourgeois need not worry about the entry of foreign capital who would not have the upper edge in terms of exploiting this vast pool of exploitable human labor.

The initial stages of protectionism in that case would stand to mean that an internal sphere had already been secured by State fiat, something which Russia and Japan both invested in heavily but not to the extent of Italy or Germany. Statism, however, could not and will not last forever. The bourgeois does not see state control as an end in itself but merely as a means to an end. The end envisaged here is that Big Indian capital should be readied and nurtured enough to be able to compete aggressively with its more technically sophisticated big imperialist rivals in the west and in the far east. A facet of this development has been noticed in the stagnancy of employment generation in manufacturing sector which contributes to around 14% of the total employment *( Note this includes small and micro level manufacturing as well ) but contributes nearly 30% of the total GDP and this contribution is rising. In fact, Indian manufacturing sector has reached to such an extent that it presently has assumed the lead role in exporting Capital outside India. The main targets of this export has predictably been in the advanced countries where the best technologies exist as well as providing a sort of backroom access to outlying markets in other countries. This success of course, is limited to only a few family based conglomerates and households who control the bulk of the output in the country along with of course the government. But this still hides the perplexing fact that the Indian economy for its boom and accumulation shows enormous and seemingly mysterious disequilibrium. One example of this is the fact of micro and small scale firms accounting for 40- 55% of the GDP in India *( the higher estimate takes into consideration the size of unorganized or informal sector to be 9 per organization, whilst the lower estimate is based on labor output ) . To the largest extent they are represented by small traders in the city and peasant households in the countryside, but also include various services and small manufacturing *( Small manufacturing has a unique feature of having a relatively small output compared to its manpower employed ) . This sorry state of affairs has a parallel with Indian agriculture which has a similar adverse relation between productivity and labor employed. The spurt in growth of Indian manufacturing post 1991 has taken place in only the last 6-7 years of this century and this period saw the emergence of India as a *Major* Capital exporting country which achieved the distinction of exporting more capital than it imported around 2007 when the Tatas acquired CORUS. Before this it was the IT sector which emerged as top dog. What i feel may have happened during this phase was the IT sector losing its distinctive position in India owing to a market determined shift of labor from the IT sector to Manufacturing which has spurred on this growth of Indian manufacturing. Over and above that it has been helped enormously by the infusion of foreign capital in this period as well as acquisitions made abroad which has given it access to new technologies and an expanding investment into research and development. This impetus was previously absent owing to the natural cover provided by Statism in India. Despite these changes, India's manufacturing has yet to catch up the levels of its nearest rivals China. What these contradictions in part shows is the validity of our argument for India's sub-imperialist status as well as its characterization as an economy driven by enforced proletarianization. In India it is the politics of India's sub-imperialism which maintains the social dynamics at the rural level that holds more importance than the economics of sub-imperialism. But the one only exposes the latter and vice-versa.