The Indian boom: Illusion and reality

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The Indian part of the world capitalist economy is growing in a dazzling manner, the world and Indian bourgeoisie and its scholars tell us. There is of course some reality behind this dazzling glow. It is growing at a very impressive rate of 9.6% according to 2006/2007 estimates in the CIA World Fact Book. This is almost equal to the rate of growth of the Chinese economy. According to a report in "main booming areas for India are IT, ITES, BPOs, pharmaceuticals, technology, real estate, retail industry and even chemical and food sector. Mall culture, multiplexes, hypermarkets, and retail sector are growing in India and retail brands from all over the world are showing their keen interest to even set up their manufacturing plants in India". According to a report in Business World, a widely circulated, popular, authentic journal of the Indian bourgeoisie,   (12.03.07): "growth of manufacturing and services was above 11% in 2006\2007. Agriculture grew at just 2-3 per cent". The most important role in this growth has been played by the services sector which accounted for more than half of India's GDP. It is also the fastest growing sector of the Indian economy. Business services (IT, ITES - Information Technology Enabled Service -  and BPO - Business Processing Outsourcing) are among the fastest growing, contributing to 1/3 of the total output of services. The IT  industry accounts for 1% of GDP or 1/50th of the services.  According to the CIA World Fact Book, the services sector had largest share in GDP (55% ) in 2007 up from 15% in 1950. This sector employs 23% of the total workforce. According to the same source agriculture and allied sectors like fishing, forestry, logging etc. accounted for 16.6% per cent of the GDP in 2007 and employed 60% of the total workforce. This report states that factory output constituted 27.6% of the GDP in the same year and employed 17% of the total workforce.

If the growth of world GDP is compared with this growth of the Indian GDP, the latter of course presents a very dazzling sight compared to the fading average world growth, which is estimated to be around 3.7/ 3.8 per cent in 2008/2009. A report in Business World of 5th May, 2008 states that "the latest estimates of 3.7 or 3.8 per cent projected world growth for 2008\2009 are lower by a full percentage point since January this year (2008)". Thus in this quite pessimistic global backdrop the Indian growth in recent times cannot but seem to be very dazzling to everyone.

There has been very rapid growth in the automobiles and two wheeler sectors also. India has also achieved growth in areas such as auto components, chemicals, clothes, pharmaceuticals and jewellery. Remarkable development has also taken place in the construction, real estate and housing sector. There has been considerable infrastructure development and railway network expansion. Lots of modern highways and expressways have been constructed in recent times.

Causes of growth

1. Influx of foreign capital

According to the chief economist of Kotak Mahindra Bank as reported in Business World on 12.02.07, "A large part of India's recent growth has been driven by liquidity provided by FII (foreign institutional investors) inflows"This viewpoint is strengthened by the assertion of a top boss of Morgan Stanley's Indian operations, according to which a key factor in this accelerating growth has been the sharp rise in capital flows in response to global risk appetite. He asserts: "Over the past 5 years households and government have lapped up this liquidity, increasing India's debt to GDP ratio by 20 percentage points which has supported the acceleration in GDP growth". FDI (Foreign Direct Investment) inflows in India have reached a record 19.5 billion US dollar in fiscal 2006/2007. This was more than double than in the last fiscal. The FDI inflow in 2007/2008 has been reported to be 25 billion US dollars.  

Industrial policy reforms in the nineties have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. The upward moving growth curve of the real estate sector owes much to a booming economy and liberalised FDI regime. In March, 2005 government has allowed 100% FDI in the construction business.  The liberalised FDI policy has allowed 100% FDI stake in various other ventures as well.

2. Service sector growth

The exceptional growth in the services sector led by very striking development in the IT, ITES and BPO sector has been fuelled by increased demand from foreign consumers interested in India's service exports and those looking to outsource their operations. "India has emerged as an important ‘back office' destination for global outsourcing of customer services and technical support" (BW 12.02.07). According to a study published in The Statesman of 06.10.08, India is the top outsourcing destination in the world:  "India, home to six of the world's top eight outsourcing hubs, continues to be a major global IT and BPO outsourcing destination amid a determined bid by China to give it a tough competition in the field". As the services sector accounts for more than half of the total GDP(53 to 55%) and the IT, ITES and BPO play the most important role in the growth in the services sector, the recent Indian boom owes a significant amount to the phenomenal growth of the global ‘information technology revolution' This has made the former CEO of Procter and Gamble India assert that "the Indian growth path is unique. That is really scary because we are not following a proven model.' (BW, 12.02.07). According to the director of global markets research, Deutsche Bank, "India's growth trajectory has been unique. The traditional Asian path has been to start with low technology products like toys and readymade garments and then work up the value chain to products like automobiles and electronics. India's trajectory has used the skills of the educated middle class to boost services-software, airlines, banking, hotels, telecommunications and so on". (BW 12.02.07) Various explanations are being put forward by well-established and well-placed economists. A chief economist at Crisil has pointed out that when East Asia started developing there was no significant outlet for the export of services, and so the countries of that part of the world had to put more emphasis on manufacturing. According to this economist India missed that bus and opened up its economy when the demand for services was growing. "The emphasis on services was the result of serendipity and there was no planned growth strategy to increase the share of services", he says. (ibid). This is very significant in understanding the quite sudden explosion of growth in the services sector which may be said to have played the role of the locomotive of Indian growth.  The economic advisory council to the prime minister of India has contrasted the Indian and Chinese growth  by asserting that "China's growth was driven by an expansion of manufactures which were largely exported and a large part of the incremental income was saved and invested in infrastructure. India's growth on the other hand was fuelled by services  while also benefiting from buoyant external demand" (BW 20.02.07).

The economist in the field of global markets at Standard Chartered Bank has pointed out that the lack of infrastructure has been a factor which has induced entrepreneurs to prefer services to manufacture. According to her "the private sector discovered  they could do better in services". This is also very important for understanding the actual inner reality of the Indian economy and its dazzling boom.

This may lead some people to think that these striking developments and the higher share of services in the GDP heralds the advent of a developed economy; and some sectors of the Indian bourgeoisie and political apparatus also subscribe to this complacent attitude and consequent self-confidence and arrogance. But the economic advisor of the Tata Group trashes such ideas. According to him "the expansion of the share of services sector does not indicate that the economy is an evolved one. The share of services in Bangladesh is 52% and for Senegal, 66%." (BW 12.02.07)

Skilled, efficient but cheap labor power is at the root of this boom in the sphere of export of services and outsourcing. Otherwise there would have been no need for the outsourcing of business operations by various companies in the developed countries. This is also at the root of the growing demand for software, IT, ITES services from various foreign countries; and India now has a competitive advantage in this sphere.

In the sphere of manufacturing also the "ability to produce small cars at prices far lower than in Korea helped Hyundai Motor India's Chennai plant become Hyundai Motor's global hub for its Santro.  Maruti Suzuki has established itself as a cost effective car producer and is exporting products like Alto and Swift to Europe and other world markets" (BW 20.08.07). This clearly indicates the availability of a reservoir of skilled, efficient and cheap labor in India; this is luring foreign capital to come and exploit this source of extraction of so much surplus value as it will make them competitive and highly profitable. According to the managing director and CEO of ICICI bank "a parallel trend is the growing number of international companies choosing India as a global manufacturing and sourcing hub. They have clearly seen India's advantage as a manufacturing base. While these growth engines are still at a nascent stage, these are not the only sectors that will provide the growth momentum going forward" (BW 20.08.07). He assets further that  "the important feature of our economic development is the emergence of knowledge capital as the key growth driver.......this is a key economic reality and has resulted in rising household incomes and has stimulated growth in consumer demand which in turn has provided the impetus to industrial production". This strengthens further the above formulation of the availability of a vast pool of skilled and cheap labor which is at the root of this dazzling growth and boom in this part of the world.  A similar viewpoint is expressed in the CIA World Fact Book which asserts that the size of the middle class population at 300 million represents a powerful consumer market. It adds that India has a large pool of skilled managerial and technical expertise. This has been an important factor in the very impressive high growth curve and boom in the housing sector.  

3. Use of debt

Lowering of interest rates by the Reserve Bank (the central bank of the Indian government) from 12/12.5 in 2001 to 8.5 in 2004/2005 accelerated the demand for house-building and house-purchasing loans, and also loans for the purchase of consumer durables like refrigerators, motor cars, motor bikes, and many other kinds of automobile two wheelers.  It is a well known fact that when there is lack of sufficient demand for capitalist products, indicating an impending crisis, the capitalist state intervenes in the economy  with various measures like making loans cheaper or dearer, bailing out important financial corporations from collapsing through the provision of a huge amount of cheap loans from the central banks, changing the exchange rates of currencies, the implementation of various Keynesian prescriptions etc.  Artificial creation of demand through cheap debts is a means which is very widely used in these days of the decadence of the system. The growth of the US economy in the last few years has been predominantly propped up by debts both of private households and the government. The Indian government has also followed in the footsteps of the US bourgeoisie and other developed bourgeoisies in the heartland of capital.  This resort to cheap loans has played an important role in the growth of demand and consequently the growth of the economy. Enhancement of state expenditure both in the developmental and non developmental spheres contributes to the further enlargement of the consumer base. In the last few years the Indian government has spent huge amounts of money in the infrastructure development sector. According to some reports non-development expenditure has increased ten fold since 1985/1986 and military expenditure has increased fourfold in the same period. In the current financial year the Indian government has announced a debt relief of about 700, 000 million rupees or about 15.6 billion US dollars for the peasants for political/economic considerations. All  this has of course added to the size of the market but has also added to the size of the budget deficit year after year. This has resulted in the increase of India's public debt which "today is 31,070,510 million rupees (or 690.5 billion US dollars). That is about 83% of the GDP- a figure that's uncomfortably high for a developing nation...It could balloon into a debt crisis sometime in the foreseeable future" (BW 20.08.07). According to a professor of economics in the most prestigious and elite university of India "the country finds itself today in a debt trap (where most of its borrowing is towards payment of interest and not the principal)"(BW 04.06.07). Thus however dazzling and impressive this growth of the Indian economy is, it is very different from the nature of the growth of the capitalist economy in all countries in the nineteenth century.

 Aggressive marketing policies by the companies producing consumer durables, and allowing purchase through affordable installments, have also been a factor in the boosting of demand which in turn led to the further acceleration of growth. All the above constitutes quite a massive market and all national and international fractions of capital are involved in cut-throat competition to exploit this market.

The size of the Indian retail market is 10,120,000 million rupees which is equivalent to 230 billion US dollars (BW 09.04.07). In the current year this figure is 13,300,000 million rupees or 295.6 billion dollars. According to a report in The Statesman of 29.09.08, "the country's retail sector is projected to grow to 700 billion dollar by 2010, while organized business is expected to be 20 per cent of the total market by 2010". Big corporations, national as well as multinational, are leaving no stone unturned to make their presence felt and dominate this market. Confrontations between the retailers and the big corporations are increasing. The overwhelming majority of people engaged in this retail trade all over India are small petty bourgeois owners of shops and stores, and they constitute a sizable market for capitalist products.

4. Expansion into rural markets

Moreover rural India has a population of 700 million. According to a report in the BW of 20.08.07 "the ability to do business in rural India is improving dramatically. Villages are getting connected through shifts in technology of agricultural and related production". There has been almost wholesale integration of and interdependence between industry, financial service and agriculture. Agricultural production has now become predominantly pre-capitalist commodity production. Rural infrastructure development and integration with urban commercial centers is increasing. The Indian government has put special emphasis on the construction of metal roads in the rural areas. The government has directed banks to provide very cheap agricultural loans and has been implementing employment guarantee schemes for people in the rural areas.  The director of global market research at Deutsche Bank has advised businesses  "to think rural beauty parlor and public transport project rather than cutting edge animation software" (BW 12.02.07). The importance of the rural market which is predominantly pre-capitalist has been grasped by the  capitalist scholars and elite.

Moreover there is a growing number of agents of big capitalist corporations in the insurance, banking, pharmaceutical and other sectors. According to some estimates there are about 1.1 million agents in the Life Insurance Corporation of India alone. There are lots of medical and sales representatives. Lots of people earn their livelihood from the transport service as pre-capitalist producers and sellers of services. There are huge numbers of lawyers who have a petty bourgeois mode of existence. There are lots of brokers both in the stock market and in other markets  such as real estate, finding and getting rented house in the urban centers etc. All these together constitute quite a considerable market for the capitalist sector. The total available market inside Indian national borders as enumerated above has played a very important role  in the actual reality of the Indian boom.

Some economists and economic researchers have asserted that much of the demand in east  Asian countries comes from exports to the developed world, while in India most demand is based on  domestic consumption growth. According to the World Bank report on world development indicators, India's export of goods and services  constituted only 19% of the GDP while that for China was 34% and for Korea was 44%.

Capitalism's inbuilt limits    

The world capitalist system can increase production as much as it likes but it can not increase the indispensable market in the same way and at the same rate. Marx has asserted that production increases in geometric progression but the market expands in arithmetic progression. So there is always  a gap between the volume of capitalist production and the volume of the available capitalist market.  Capitalism is unable intrinsically to fill this gap itself. The surrounding pre-capitalist environment provides capitalism the indispensable succor. But as capitalism advances it gobbles up the pre-capitalist sectors in one domain after another, and thus like the old fable cuts the very branch on which it sits. In the course of this forward march of world capitalism the whole world market becomes divided among the major developed capitalist powers, provoking imperialist war for re- alignment of the international imperialist configuration and re-division of the world market. This has been the motive force behind the two world wars. Vigorous efforts for the further exploitation of the remaining pre-capitalist markets are also made but in the course of time the market becomes relatively saturated, which has been the case since the late sixties when the permanent crisis of the world capitalist system in its inevitable phase of decadence raised its head again after remaining suppressed for about quarter of a century after the 2nd world war.

Capitalist production is directed solely for market, profit and accumulation. But the indispensable market becomes more and more unable to absorb the total global capitalist production. This leads inevitably to further intensification of competition and conflicts among all the national fractions of global capital. Every capitalist country without any exception becomes compelled to be imperialist for its survival as a fraction of capital. Every country resorts to various state capitalist measures to stay afloat: public and private debts, cheating the law of value, controlling market forces, manipulating the money supply, the lending rates of banks, the exchange rates, etc. More recently, the major capitalist powers clamoured for and imposed globalisation on the developing world to open their markets for their products, technology and capital. The creation of the WTO and its activities show clearly the intensity of the crisis, the consequent conflict and scramble for the available markets. On the other hand the developed countries, the major capitalist powers, using one pretext or another, imposed various restrictions on the export of commodities from the developing world to the developed world. Every capitalist country is being compelled according to its strength and capacity to resort to all possible political, military, diplomatic and economic measures to ensure for itself the indispensable market for its products and thus its own survival as a capitalist fraction at the cost of others. Every country, every capitalist corporation is making the utmost efforts to be more competitive than others. Cost-effective production has become the watchword of present day capitalism and this helps us see clearly the real inner essence of world capitalism in this advanced phase of decadence.

The very nature of capital is to fly to that sector and that part of the world where there is the possibility of maximum profit. So in these days of ‘political globalisation'(in contrast to the ‘normal' globalization of the late 19th century) various fractions of world capital are taking frequent flights to those sectors and places which assures the maximum and quickest profit. Thus frequent forays are being made to the stock markets and foreign exchange  markets  all over the world. Capitalism is more and more becoming a casino economy. The amount of such ‘flying capital' moving rapidly from one country to another wherever there is the possibility of quickest and maximum profit is increasing more and more,  and is becoming predominant over the capital employed in the production of industrial, agricultural commodities and other socially necessary services.  It is trying to be more involved in the insurance and banking service sectors in various parts of the world. There is also a clear preference for the information technology related service sector. In this sphere the developed fractions of global capital have found India as a very profitable destination. Various factions of Indian capital as well, like Tata Consultancy Services, Reliance etc, are trying to reap maximum profit from this. On account of the particular elitist educational policy pursued by the Indian capitalist state, putting more emphasis on tertiary education than on primary and secondary education, India possesses a large, well-educated, skilled workforce quite fluent in English speaking. This labour power is also rather cheap in comparison to the developed world. So the factions of international and national capital became bent on exploiting this cheap source of skilled, efficient youthful  labour when the global  demand for IT, ITES and BPO services became very high for the maximization of profit. This gave rise to a quick boom in the information technology related service sector.

We have already seen that the global manufacturing giants and the big Indian corporations are also trying their best to exploit this large pool of technologically equipped, youthful, cheap manpower, raw materials and components and  make India a manufacturing hub for being competitive in the world market and reaping maximum possible profit. A world giant in mobile phone handset manufacturing,  Nokia, has already set up a large production base near Chennai airport and a large number of its global suppliers have also opened their production facilities in the privately owned large SEZ of Nokia. Nokia products are meant for both Indian and foreign consumers. Hyundai Motors, Maruti Suzuki etc. are also doing the same thing. All these have given a big boost to the relocation of industrial activities and outsourcing of services and technical support. Industrial establishments and service centers are being closed in the heartlands and being re-established in countries like India and China. This is leading inevitably to de-industrialization in the heartlands of capital. This is the peculiarity of the growth pattern of world capital in this historical phase of decadence and is fundamentally different from that in the ascendant phase.

28% of the Indian population is engaged in the services sector (CIA Fact Book)  and the contribution of the services sector to the Indian GDP was 53.6% in 2005, according to the Asian Development Bank report. From this we can easily have an idea of the relatively higher income of a considerable number of those employed in the services sector. This is true for the manufacturing sector also which contributes 27.4% of the GDP (ADB report) and employs 12% of the population (CIA Fact Book). Thus both these sectors have constituted a market of about 300 million within India. In addition to this there is still now a quite large extra-capitalist market  as asserted above. This overall demand cannot but attract both indigenous and foreign capital to enlarge their productive activities and establishments here.  

But this is the creation of a particular historical phase in the life of world capitalism. In this phase demand and growth in certain parts take place at the cost of the same in other parts, more particularly in the heartlands of capital. We have already seen that whereas the growth in India have neared a two digit figure in the last few years and that in China has recorded a two digit growth for a considerable period, growth in the heartlands of capital cuts a very sorry figure, as a result of which the growth in world GDP is estimated to be 3.7 to 3.8% in 2008/2009. This great difference in the rate of growth between the developed heartlands and the developing periphery speaks volumes for the health of global capital in this historical phase of the decadence of capital. This anomalous, abnormal growth in certain peripheral parts at the cost of similar growth in the central parts of the system must be recognised as a cancerous growth, signifying the diseased, senile state of the system.  

People are very often inclined to be taken in by the howling of the world bourgeoisie about the dazzling growth and boom of the Indian economy. The bourgeoisie is bent on mystifying and convincing the working class all over the world, particularly the working class in the heartlands of capital, by singing hymns of praise for the growth of India and China. They have the strategic aim to convince the working class that everything is fine with the capitalist system, that it possesses remarkable powers of resilience  and can get back to normal whatever the crisis and financial explosions at times. But we must assert forcefully that in spite of all the drumbeats about Indian growth and boom, India's participation in world trade is still now a meager 1.2% according to a report of the WTO on world trade in 2006 (CIA Fact Book). Thus it makes little dent in the decreasing and much lower rate of growth in the heartlands of capital and the average very low GDP growth rate in the world as a whole.

On the one hand there is all this growth, a growing market of more than 300 million consumers. On the other hand there is unlimited poverty and misery.  A 2007 report by the National Commission For Enterprises in the Unorganized Sector (NCEUS) found that 65% of Indians, or 750 million people, lived on less than 20 rupees or a little less than ½ a US dollar per day with most acting in the "informal labour sector with no job or social security, living in abject poverty" (CIA Fact Book) We have also seen that 60% of the total workforce is employed in agriculture and allied sectors, contributing only 16.6% of the GDP. It can easily be understood that the level of income of the general masses of the agricultural workforce can only be very low. In the last few years about 25,000 small and medium peasants committed suicide as they did not get remunerative prices for their commodities. The rate of suicide among the peasantry is increasing. Many bourgeois economists and scholars have also admitted that there is serious underemployment and disguised unemployment in the agricultural sector. This growth and boom has failed to reduce drastically the percentage of the workforce employed in agriculture. Thus the Indian economy is thousands of miles away from having evolved into a developed economy, having the same level of development as that of the heartlands of capital. The World Bank has classified India as a low income country.

Of course a large number of educated and skilled youth has been employed in the IT, ITES and BPO sector and has constituted quite a large and effective consumer base for capital, but there has been no lessening of the problem of unemployment, which stood at 7.6% in 2006 according to the CIA Fact Book. On the contrary the percentage of unemployed people is increasing with each passing day. As in the developed world, here also the general capitalist practice is to curtail the number of the employed workforce and freeze new employment. Even the vacant places due to retirement are not being filled by new recruits and the workload of the remaining workforce is being constantly increased.  It is a generally agreed fact in the camp of bourgeois economists, scholars and politicians that this is a jobless growth. As such it is totally different from growth in the ascendant phase of the system when the system integrated more and more people into productive activity as it grew more and more. But today, however dazzling the growth is, it is excluding people in increasing numbers. The recent Indian growth is no exception to this general rule of this phase of capital.

The imperialist context

We have already mentioned that according to the chief economist of Crisil, the emphasis on services was the result of serendipity. This implies that coincidence and chance factors have played a very important role in this growth of the Indian bourgeoisie. India started opening up its economy around 1991/1992. Economic reform policies began to be  implemented at that point. This historical juncture is of crucial importance. International relations among the capitalist states all over the world were going through a phase of violent disruption. The  prolonged world imperialist order dominated by the two imperialist blocs, led by the US and the erstwhile USSR, came to pieces after the collapse of the eastern bloc and the USSR. This engendered a new world disorder, a situation of instability and indiscipline. The remaining one superpower, the US, found it more and more difficult to preserve its unquestioned hegemony. This led to the process of its weakening. In such an international imperialist situation, the tendency of everybody for himself and each against all began to be more and more predominant. This heralded the advent of the advanced phase of the decadence or decomposition of the system. The weaker bourgeoisies of the developing world also began to disregard the dictates of the militarily most powerful US bourgeoisie. This is the international backdrop of the recent Indian growth and boom.

The political and strategic aspect of economic development has assumed new proportions in the context of this advanced phase of decadence. Economic rationality and the prospect of enormous profits played a predominant role in the wars of the ascendant phase of capitalism. But the concern for political and strategic gain plays a predominant role in the wars breaking out in the phase of decadence.  Similarly the drive for super profits in itself is not the determining factor in the movement and investment of capital, technology, relocation of industry  etc. We know of the Marshall Plan after the unprecedented devastation of the 2nd world war and its important contribution to the remarkable economic development of Germany, France and other European countries in the post-war period. US participation in the development of Japan and Korea was also very significant. But the motive force behind this active US participation was the imperialist, political strategic interest of the US in the new imperialist world order that emerged out of the war.

In the new imperialist world order arising out of the collapse of the imperialist blocs, new political, military and strategic alliances have formed. In such a historical phase the political and strategic importance of the Indian bourgeoisie was grasped by the bourgeoisies of the USA and western Europe. The Indian bourgeoisie also became aware of its weight, strength and confidence. It began to get away from the long cherished Stalinist model of state capitalist development and began to embark on a policy of economic reforms and opening of the economy. It began to move more towards the democratic  form of state capitalism.  

On the other hand the necessity to contain the rising political, military and economic power of China made the US and other western powers realise the need to use and develop India as a counterweight. This obliged the bourgeoisies of those countries to resort to all possible steps to push  forward the economic development of India. Its legal, political and judicial set-up might also have been thought favourable by them. The economic causes mentioned above are of course  important but in today's world political and strategic factors play a very important role. Capital from any part of the world is not as free as it was in the phase of ascendance to move to any other part. It depends also on the nation state of that part of the world to which it wants to move. The latter is also guided not only by economic calculations but above all by political and strategic calculations. This is necessarily the case in these days of intensifying imperialist conflict between each and every country without any exception. Any capitalist corporation engaged in the production of sensitive military equipment cannot go and set up its production unit without the permission of its state of origin. According to reports in some bourgeois journals, some American companies were not allowed by the US government to sell supercomputers to China. In such cases the political, strategic relations and perspectives play not only a very important but determining role. So the geo-strategic position, the political and military weight of the Indian bourgeoisie in the ‘international community' in the nineties and afterwards has been very important factor in its evolution as a favorable destination for foreign investment.

India's growth and the working class

According to a long time member of the Indian parliament and leftist trade union leader, "attacks on the Indian working masses have dangerously and diabolically intensified in the recent period. Economic reform is not only intended to advance industrialisation, it also encourages use of rigorous methods to squeeze the working class  and deny its basic entitlements... about 97% of the workforce is in the unorganized sector. Lamentably most of them are outside the pale of any social security scheme and are left to the mercy of ruthless exploiters.  Contractualisation and outsourcing of work have grossly affected working conditions.  While working hours have been increased to more than 10 hours a day in small and medium industries, particular in the ‘new wave' factories... the wage is generally below the minimum without any statutory benefits... All this to substantially cut labour costs and maximise corporate profits... Downsizing is the order of the day... productivity  has improved but the labor force has been significantly reduced... On the one hand there is a striking increase in profit for selected units... on the other hand... the average real wage has declined" (The Statesman of 5th September, 2008) It may be mentioned here that the "small and medium industries account for 40% of India's industrial output and 45% of its exports" (BW 20.08.07). "Small and Medium Enterprises that had been growing at 35% in the last two years would register a 40% growth rate... and would contribute to manufacturing output to an extent of 46%... India's small and medium enterprises' contribution to the GDP is likely to touch 22% by 2012, a study by Associated Chambers of Commerce and Industry has said" (The Statesman 29.09.08) This sector is growing very fast and becoming more and more important to the big corporations, which are outsourcing their various productive activities to these SMEs. These SMEs don't care a straw for the labour laws of the state: these are the real sweat shops based on maximum possible exploitation and repression against which working class explosions have already broken out in several places.

Inflation has been inseparably linked with India's growth and has reached a 16 year high level.  The ‘Black' economy, government policy on money supply and lending rates, the creation of artificial demand through cheap debts, increasing government deficit, enormous military expenditure, the arms race, the political necessity of subsidies and other state capitalist measures aimed at cheating the law of value - all these serve as important factors behind the recent growth and are pushing the inflation further forward. It is now more than 12%. It is making the living condition of the working class much more precarious. It is indirectly adding to the already intensified exploitation of the working class. Government measures have failed so far to result in any significant decrease in the rate of inflation. The government is afraid to take very stringent measures lest these should violently shake and slacken the rate of growth.

This Indian growth, which is based to a significant extent on the relocation and outsourcing, leading to de-industrialisation, factory closures  and increasing attacks on the working class in the heartlands of capital, is giving rise to conflict and disunity among different sectors of the international working class; and the political apparatus and trade unions of the left and right of capital are doing their best to provoke this still further as was seen in the Seattle movement led by US trade unions to keep the class confined to the capitalist terrain. The effect of the decadence and decomposition of the system is thus being utilised against the working class.

The Indian and the Chinese growth has now been a very powerful weapon of mystification of the world bourgeoisie. It is sending a false message to the global working class - that in spite of the repeated crises and financial collapses the system is in good health and there is light at the end of the tunnel. They did the same with the Asian tigers before their bubble burst. They are doing the same thing with the new Asian growth. A global and historical outlook is essential to understand the actual reality of this abnormal growth. This growth in the phase of capitalist decomposition is in essence laying and developing a serious trap for the global working class, politically, ideologically and economically.               


The capitalist system is a system full of contradictions. The apparent external glory and glow hides the ugly inner inhuman reality. This is not and cannot be otherwise with the Indian or Chinese growth and boom.  This is very clear from the assertions of a former governor of the most politically and militarily disturbed province of India, in an article entitled ‘New tryst with destiny', published in The Statesman of 15th August 2008.  In his opinion "we continue to nurse illusions and derive satisfaction from short term gains and outward glitter. These days one often hears about India's impressive foreign exchange reserves, her outstanding  performance in the area of information technology.....  But comparatively little is said or done about her ever widening income gap between the rich and the poor, worsening problems of unemployment and underemployment, continuance of acute poverty and malnutrition, rapid increase in the number of squatters and slum dwellers in cities and sharp deterioration in both rural and urban environment. .....India today has the largest number of poor, the largest number of illiterate and the largest number of malnourished people in the world. On account of low purchasing power over 250 million men, women, and children go to bed hungry everyday. One out of three Indian women is underweight.  About 40% of the total low birth weight babies, under the age of 5 years, in the world are Indian. Fifty seven million children of this age group are undernourished; its percentage (48%) in this regard is even worse than that of Ethiopia(47%). Six out of seven Indian women are illiterate. In the cities the slums and squatters' settlements have been proliferating, growing 250% faster than the overall population.  Mumbai with about 12 million living in such settlements has become the global capital of slum dwellings. India is still reckoned as one of the most corrupt nations in the world".

This ugly reality behind the outward glow of impressive growth and boom is further darkened by the fact that "the ‘black' economy is about half the size of the official economy ...and the loads of cash it generates play a huge role in fuelling inflation. ...Much of the money coming to India as foreign investment is also nothing but rerouted ‘black' money"(BW editorial 04.06.07). According to a professor of economics at JNU, India's most elitist university in New Delhi, India's black economy is worth an astonishing 500 billion US dollars.

However bright the glow of recent economic growth in India and elsewhere, it is based on the further intensification of exploitation and worsening of living and working conditions in the working class, not only in India but in all other parts of the world.

Communist Internationalist

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