Not By Unregulated Capitalism

Many had thought that the 1994 crisis in Mexico would take the steam out of this world-wide thrust. But that was not to be. Even though some socialist stragglers are still fighting from the trenches, they have lost the war. They are in utter intellectual confusion. They speak in two voices, one used in public, the other in private. Socialism has failed because it couldn't generate wealth on a sustained basis. Yet, basic socialist concerns about poverty and inequalities have still not disappeared.

Only in those countries which combined a strong interventionist approach with capitalism, have the problems of poverty and inequalities been moderated. In most cases, the leaders who pursued an innovative strategy of combining capitalism with State intervention had leftist roots. It is not certain whether the new prime minister will play an activist role in fashioning the economic strategy or will leave it to P Chidambaram who will be rejoining as the finance minister with increased moral and political stature. Mr Chidambaram is extremely brilliant. He was catapulted to the national stage by Rajiv Gandhi. Both shared the social outlook of the insulated upper middle class with a not-so-hidden contempt for the illiterate mass of the people. They thought that they were born to rule. Thus, Mr Chidambaram too enthusiastically piloted the ill-fated anti-defamation bill. He is the author of a statement that food prices were of no consequence, people are interested in two-wheelers, TVs etc. His raison d'etre of

 

reforms was that Indians too were entitled to the good things in life.

Like Rajiv Gandhi, Mr Chidambaram didn't carry any Nehruvian baggage. He was, in short, a natural leader of the new era ushered in with a bang by Manmohan Singh. Last year, he didn't have the time to put his distinctive mark on the budget. This year he did. To begin with, Dr Singh showed the zeal of a new convert. He preached and practiced his new faith that the market is God. Later, he somewhat mellowed down, when the political and social reality of India asserted itself. Thus, Mr Chidambaram's 1997 budget stands out as a big leap forward.

Dr Singh showed some caution in ushering in capitalism. But Mr Chidambaram has thrown all caution to the wind. He has lowered the level of personal and corporate tax to an extent which even industry and business, out of a sense of social courtesy, had not asked for. India will now be one of the least taxed countries in the world. It will be one those few countries where there will be no difference between earned and unearned income. India will be one of the few countries where there will be no tax on dividends. What a windfall it will be for the super rich ! Nearly 56 per cent of the shares in companies are held by 500 families. There will be drastic reduction in the incidence of tax on this class of super rich. The budget will increase inequalities in income in a big way. The biggest gainers will be the top 2 per cent, or even less, of the population.

The initial results of liberalisation show increasing inequalities all along the line. For instance, the male workforce employed in agriculture has stabilised around 58.5 per cent, whereas real income in agriculture has grown by about 3 per cent against 8-9 per cent in non-agricultural sectors. In the urban areas, the percentage of regular employees is declining and the percentage of casual workers is increasing, indicating widening income inequalities.

The taxation package of Mr Chidambaram's budget will not-so-gradually erode the resource base of the State. This will weaken the interventionist capacity of the State to reduce inequalities or even alleviate primary poverty. China's inegalitarian capitalist strategy started on an egalitarian base. India's inegalitarian capitalist strategy has started on a pre-existing inegalitarian base.

Mr Chidambaram has protested: I may not wear my heart on my sleeves, but my heart is in the right place. But neither Mr Chidambaram's past nor the inbuilt strategy of his budget vindicate his protestation. He has sought to provide a lollipop to the Left by increasing the outlays on social sectors, but has made sure that as in the last year he will not spend the allocated money.

If Mr Chidambaram has his way, it will be primarily because the Left has allowed itself to be outmaneouvred. It is, of course, true, that the weakened voice of the Left would ensure speedy liberalisation. But a strong Left would have ensured that unregulated capitalism doesn't ride roughshod over social and political sensitivities. Middle class-oriented politics will not become viable in India for years to come. Let's make no mistake, politics can create an economic deadlock in the medium term.