march 22, 2014

Threat of a Sudden Stop

Can the new government stop bowing to the pressures of international capital?

he stock market is riding high as investors eagerly await a business-friendly National Democratic Alliance government. But the outcome of the elections is far from certain and the market is notoriously ckle. Moodys the credit rating agency recently warned that if a third front comes to power in New Delhi after the elections, foreign capital will ee the country. It said, If a coalition of smaller, regional parties without a common economic reform agenda were to take the helm, it would likely (sic) provoke further capital ight, thereby increasing borrowing costs and weakening the Indian rupee, and delaying economic recovery. Surely, such a not-very-subtle dictate from the international credit rating agency and it is not the only one to hand one down is something the champions of nancial globalisation who have worked assiduously for a quicker and tighter embrace of international capital and have vociferously argued that such a policy is entirely in national interest, should ponder about. As the United States Federal Reserve (US Fed) pumped an unprecedented amount of liquidity into the global economy after the nancial crisis of 2007, foreign capital poured into India with greater vigour in search of higher returns and the private corporate sector resumed borrowing abroad at low interest rates. This is evident in the saving and investment gures: while the gross capital formation as a proportion of the gross domestic product (GDP) plummeted from 38% in 2007-08 to about 30% in 2012-13, the share of net capital inows in gross xed capital formation went up over the same period from 1.3% to 5%. Policymakers hailed the return of foreign capital inow as a sign of global condence in Indias growth story. Alas! The acclaim evaporated quickly as growth plummeted after 2010-11, export growth declined and ination remained persistent, sending the current account decit (CAD) to the unprecedented level of close to 5% of the GDP in 2012-13. The stark reality is that in 2012-13, 56% of CAD was nanced by ckle short-term ows and portfolio investments, which could leave at the slightest hint of an adverse change in the return relative to perceived risk and the returns in competing markets. Currency traders depend on signals from the rating agencies that not only look at nancial returns but also factor in the potential political risk to global investors. What happened in May-June 2013 is a case in point. When the US Fed hinted at tapering off quantitative easing, the rupee nosedived by about 20% in a matter of days as short-term capital ed for the safety of the dollar. India was quickly consigned to
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the Fragile Five emerging market economies (EMEs) that are now considered the most risky markets. After the high tide of the nancial ows receded, India found itself literally swimming naked now completely exposed to the dark side of the nancialisation. The factors that were argued as reducing risk and sustaining a high growth dependence on foreign capital of all kinds were precisely those that placed the economy in such dire straits. Not surprisingly, the nance minister for the past two years has been very worried about the mood of Moodys and Standard and Poors, and not about the well-being of the Indian citizen. The crisis of mid-2013 has passed and the CAD has since been brought down (at least temporarily). But the underlying uncertainties have not disappeared and India remains highly dependent on the inow of foreign capital to nance its CAD. Last month when the Reserve Bank of India Governor Raghuram Rajan mildly reprimanded the developed nations for ignoring the plight that would befall the EMEs on account of the tapering by the Fed, and reminded them of their responsibility for ensuring global nancial stability, the nancial press sharply rebuked the governor that the Fed was accountable only to US interests. The impending domestic political uncertainty is not just about who or which political grouping will form the government. The real threat of foreign capital eeing is, as Moodys statement has underscored, if political uncertainty is combined with action on corruption that takes a toll on the business and political elite the signicant beneciaries of nancialisation. Then the threat of foreign creditors placing a sudden stop on the ow of funds to India may become a reality, bringing India to its knees. This is no scaremongering: foreign institutional investors now apparently control 75% of Indias free-oating stocks valued at some $250 billion. A threat to sell even a tiny fraction of these holdings could send the stock market and the currency crashing. Are we then prepared for such an eventuality, if the nexus between foreign capital and big business is questioned by a new political order after the elections? How should the nation respond if the currency falls steeply due to a sudden decline of capital inows, as happened in Thailand or Indonesia during the Asian nancial crisis? Is the political class prepared to protect domestic interests and jettison the fair-weather friends from global nance, and their well-heeled compatriots (comprador?) among the domestic capitalists? 7

Economic & Political Weekly

march 22, 2014

vol xlix no 12

EDITORIALS

There is an urgent need to mobilise public and intellectual opinion against bowing to the pressures of international capital. This requires a concerted effort to gradually reduce the dependence on short-term inows to nance the CAD and take calibrated moves to delink the external nancial markets from the domestic economy so as to insulate the real sector. In the medium to long term,

this calls for a national strategy to reduce import dependence by expanding domestic production by offering suitable incentives and restricting luxury consumption (which by all accounts have grown phenomenally). All of this calls for political statesmanship and intellectual imagination to safeguard economic sovereignty and securing the economic future of 1.2 billion Indians.

Holding Up Half the Sky

Women are voting in ever larger numbers, will it reect in policies?
ndias political parties, long given to getting by with tokenism and condescension towards mothers and sisters during elections were forced into a different realisation following the public protests and media outcry after the 16 December 2012 gang rape in Delhi. This is not to say that signicant laws (there are 42 such) and schemes for women have not been enacted and instituted over the decades but many of them have been out of political compulsions. Perhaps the most serious charge that can be laid against almost all the parties, with a few honourable exceptions, is that there has been no attempt to engage with women to know their real issues or to give them the opportunities to participate and grow politically. The build-up to the forthcoming Lok Sabha elections reects the newfound interest in women voters but does it mean a change in attitude and a desire to look at womens issues from the latters perspective? Or is it only motivated by the fact that women now constitute 47.73% of the electorate for the rst time and that between the conventional and social media women have gained greater visibility? Starting with a couple of general elections ago, non-governmental organisations (NGOs) and womens groups have been bringing out womens charters and asking for their inclusion in the party manifestos. This time around too, such charters have been drawn up on the issues that need urgent and long-term attention. These range from passage of the long-pending Womens Reservation Bill to measures to improve the child sex ratio, inclusion of womens self-help groups as part of priority sector credit outlays and regulation of micronance institutions and moneylending to greater access to public services, promoting the interests of women farmers and a host of economic, educational and gender justice categories (see the EPW website for details). The 15th Lok Sabha ensured the Criminal Law (Amendment) Act, 2013 and the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. But it failed to pass the Womens Reservation Bill. The controversial Marriage Laws (Amendment) Bill (a number of mens organisations are protesting that it is blatantly unfair to men while giving women a share in the husbands property and not vice versa besides contributing to the destruction of the traditional family due to increased divorce rate) and the signicant amendment to the Indecent Representation of Womens Act (which takes into account the internet, satellite and cable television) were not passed. Had the Womens Reservation Bill been passed into law, 181 seats in 8

Parliament and 2,060 seats in the various state assemblies would have had to be set aside for women. Parties that support the Reservation Bill do not show the same alacrity in elding women candidates. Neither do women constitute a sizeable presence in the hierarchies and decisive posts of these parties including those headed by women leaders. More reprehensible and cynical is the elding of women candidates in areas/seats where the partys chances of winning are poor or next to impossible. The 47.73% electoral base has led to some jubilant discussion in the public discourse. But how far will this matter in actual terms to womens issues and their representation in government? Take the example of Mizoram. Women voters not only outnumber their male counterparts in the electoral rolls (51%) but also in the actual turnouts. Yet, Mizorams legislative assembly does not have a single woman since 1984. Neither is the picture any better in the elding of candidates by parties in that state. In 17 out of the 22 states that held elections since 2010, women voters came out in larger numbers than men, including Uttar Pradesh (UP) in 2012 where the gures were 60.29% and 58.82%, respectively. On the electoral rolls too in a number of other states like Rajasthan and Madhya Pradesh, women outnumber the men. Yet, this does not necessarily translate into an engagement with womens issues in these states by political parties. Women are even now seen as being answerable to the political afliations of the menfolk in the family or the community. Therefore, political parties continue to primarily focus on the men and shift attention temporarily when an atrocity against women dominates public and media attention. Even in a majority of such cases, the parties tend to be reactive and regressive rather than proactive and progressive. A study by Mudit Kapoor and Shamika Ravi, published in this issue, shows that the proportion of women voters has been rising even though the percentage of missing female voters remains high. The sex ratio in the electorate is worse than that in the population and this will mean continuance of gender-biased policies even with growing women voters participation. Issues like sanitation, for example, affect womens health and safety to a much larger extent than is appreciated at present, yet it is simply not given the kind of attention it deserves. While the immediate need is to ensure that political parties include the different issues raised in womens charters, in the long run women must come to share political power and have a deciding say in political parties.
march 22, 2014 vol xlix no 12
EPW Economic & Political Weekly