UPA GOVERNMENT: DRIFT AND DECEPTION

Prakash Karat

THE spectre of corruption continues to haunt the government. Nine months after the breakthrough in the 2G spectrum case, the UPA government has been hit by one corruption scandal after another. At each and every stage, the image of the Manmohan Singh government has been dented. The latest being the Supreme Court’s censure that the government is not showing seriousness in bringing back black money stashed away abroad and constituting a Special Investigation Team headed by a retired Supreme Court judge in place of the high level committee constituted by the government.

A curious political situation has been prevailing. The UPA government, which marked its completion of two years in office in May, is seen to be drifting devoid of any direction. Faced with one corruption scandal after another, the government has tied itself up-in-knots – first in trying to evade the issue and then improvising to somehow limit the damage.

That the government is in trouble and adrift is recognised by even its greatest supporters. The big business and its lobbies bemoan the fact that the government has failed to push ahead with neo-liberal reforms. There are dark mutterings about the loss of investor confidence. The corporate media has been voicing the criticism that the prime minister is indecisive and ineffective, that there is a discord between what the government and the party is thinking and doing. Some commentators have gone to the extent of saying that at this rate, the government will be a lame duck one even before it completes its third year in office.

CORRUPTION: WAGES OF NEO-LIBERALISM

While the loss of direction is a fact, the situation is curious because there are no obvious factors for instability. As far as the government is concerned, there is no political threat which has emerged. None of the allies in the UPA have deserted them nor have any of the parties which have extended support to it from outside withdrawn their support. Why then is the government appearing to be weak and beleaguered? The answer to this has to be found essentially in the way high level corruption has been engendered threatening the very integrity and credibility of the government. The wages of neo-liberalism are the corruption and the loot of public resources. The government has been acting as the handmaiden and facilitator of this process. The 2G spectrum case has dramatically exposed the nexus between big business-ruling politicians and bureaucrats, which itself is an outcome of the neo-liberal order. The prime minister and the union cabinet is at the heart of this process. That is why the architect of liberalisation is now directly feeling the heat of these corruption scandals which are endemic to the policies and the framework that he has pioneered.

Representatives of all the three sections of the nexus are today lodged in Tihar jail – from big business, there are the CEOs and top executives of companies involved in the bribery case; from the ruling politicians, there is the former minister, Raja; and from the bureaucrats, there are the former secretary of the telecom ministry and other officials.

The “paralysis” in the government is precisely because the systemic nature of corruption, i e, the suborning of the State by big business, has been brought out into the open. The credibility of the executive has been further dented by the way the higher judiciary has come into play to check the cancer of corruption which threatens to undermine the whole system. At the political level, we saw how the issue of corruption played out in parliament during the 2010 winter session on the issue of the constitution of the joint parliamentary committee and the subsequent popular movements against corruption.

The inability of the Congress leadership and the UPA government to politically address the issue of corruption stems from the fact that it is inherent in the economic regime which it has instituted. We saw the eruption of high level corruption earlier under the NDA government with the same economic regime.

Whatever firefighting tactics are adopted by the Congress-led government, the issue of high level systemic corruption will not go away. Two union ministers, Dayanidhi Maran and Murli Deora are under the scanner. The KG gas field affair looms ahead with the CAG report awaited. That the prime minister and the Congress leadership are airing their criticism about the role of the CAG and criticising judicial encroachment in the sphere of the executive shows how desperate they have become. The demand for an effective Lokpal legislation has found widespread support among the people. One may not agree with all the proposals for the Lokpal set out by the Anna Hazare group but the predominant feeling is that the government is bent upon diluting and whittling down the Lokpal to make it an ineffective body.

That the government is losing the battle for winning the minds of the people for its version of fighting corruption is resulting in the Congress leadership spinning the web of a conspiracy. Recently, Pranab Mukherjee, the number two in the government and the senior most Congress leader, has accused the BJP and the CPI(M) of ganging up to “support self-appointed messiahs” like Anna Hazare and Ramdev. He alleged that the CPI(M) was helping their attacks on the parliamentary democratic system. We should be grateful that the Congress leader has not added the Comptroller and Auditor General and the Supreme Court of India as partners in this conspiracy. As for parliamentary democracy, it is Pranab Mukherjee and his colleagues who have repeatedly displayed contempt for parliament. The latest instance being the postponement of the monsoon session of parliament by two weeks. Already, the budget session of parliament had been cut short by nearly a month due to the assembly elections in some states.

If Congress leadership thinks it can sidetrack the issue of high level corruption by raising the worn-out bogey of the BJP and the Left combining to attack it, it will find no response from the people. The Congress-led government is in the dock because it has instituted the neo-liberal regime which spawns crony capitalism and high level corruption.

As for the BJP, its chief minister in Karnataka, Yedyurappa, thought of a novel way to tackle the serious charges of corruption against him. He does not believe in the Lok Ayukta or the courts to decide the matter. Yedyurappa wanted to visit the temple in Dharmasthala and let Lord Manjunatha deliver the verdict! If the Congress has become a byword for corruption, the Hindutva style of fighting corruption has become farcical.

PETROLEUM TAXES: FUELLING INFLATION

There are two other issues which have come up recently which illustrate the gap between the government and the people and how our rulers resort to deception and maneouvres to pursue their ill-conceived policies. The UPA government has inflicted yet another price hike of petroleum products. This time, in the prices of diesel, kerosene and cooking gas, while announcing the increase, the government also withdrew the customs duty of 5 per cent on crude oil and other petroleum products. This is being heralded as a step to give relief to the people. It should be recalled that the 5 per cent additional tax was levied in the union budget of 2010-11. The prices of petrol and diesel instantly went up. At that time, the Left parties and the entire opposition had opposed this additional tax. At the initiative of the Left parties, all the secular opposition parties gave a call for an all-India strike against this price increase. Subsequently, the opposition moved a cut motion on the finance bill for removing this 5 per cent tax. The government refused to do so and earned additional revenue by heaping this unwarranted burden on the people. Now the government is withdrawing this increased tax without really making any basic changes in the tax structure which is highly iniquitous.

As pointed out in the editorial in People’s Democracy last week, the government earned Rs 1,36,000 crore from the petroleum sector in the year 2010-11. Of this, the government spent Rs 40,000 crore as subsidy and oil bonds issue to the public sector marketing companies which is 20 per cent of the total contribution from the petroleum sector. So, out of every Rs 100 earned as taxes and duties, only Rs 20 goes as subsidy, the rest is pocketed by the government. The tax structure for petroleum products illustrates how government policy is instrumental in fuelling inflation and price rise.

NUCLEAR DEAL PUNCTURED

The third event which has occurred is the puncturing of the illusions fostered by the Manmohan Singh government about the Indo-US nuclear deal. The Nuclear Suppliers Group (NSG) comprising 45 countries which met in June has adopted new guidelines about the export of enrichment and reprocessing technologies. The NSG has decided that such sensitive technology cannot be exported to non-NPT countries. So India, which is a non-NPT signatory, cannot import these technologies. The Left parties had strongly opposed the Indo-US nuclear deal. One of the major reasons for the opposition was that this agreement would not lead to India getting technology for the full nuclear fuel cycle and will not result in full civilian nuclear cooperation. Much before the Indo-US nuclear deal was signed, the United States adopted the Hyde Act in the US Congress. This Act specifically prohibited the transfer of enrichment and reprocessing technology to India.

This went totally against the assurance given by the prime minister in parliament on August 17, 2006 where in he said : “We seek the removal of restrictions on all aspects of cooperation and technology transfers pertaining to civil nuclear energy – ranging from nuclear fuel, nuclear reactors, to re-processing spent fuel, i e, all aspects of a complete nuclear fuel cycle.”

When the UPA government could not deny that such prohibition existed in the Hyde Act, they went on to claim that the `clean waiver’ provided by NSG would enable India to access such technology from other countries. When India got exemption from the NSG to import nuclear reactors and fuel, it was claimed that we had a `clean waiver’ that would enable India to access all technologies for different stages of the nuclear cycle. Prior to the NSG clearance, it was known that the United States had initiated along with the G-8 a proposal for a fresh guideline in the NSG to prohibit transfer of sensitive technologies to non-NPT countries which includes India. Even then the prime minister and the government kept insisting that what they have got is a `clean waiver’.

With the NSG now passing the new guideline, the deception has been nailed. It was amusing to see the outgoing US Ambassador Roemer indulging in double speak when he claimed that the United States “strongly and vehemently” supports the NSG `clean waiver’ for India. He cited the 123 agreement as evidence for this support but scrupulously avoided stating that the United States will supply enrichment and reprocessing technology to India.

What the Manmohan Singh government has done is to tie India into an iniquitous deal. We have to buy American nuclear reactors and we can import fuel with certain conditions. We can provide billions of dollars business for the American nuclear industry. But here too, after Fukushima, no one in their right senses would go in for imported nuclear plants. But then, the Manmohan Singh government cannot be expected to do something so elementary as to safeguard India’s interests when it comes to dealings with the United States.

Courtesy: People’s Democracy

FROM 2G TO KG – INDIA, MEGA SCAMS & NEO-LIBERALISM

Prabir Purkayastha

AS we discussed in the June 19 issue of People’s Democracy, there are various dimensions to the KG Basin Gas scam. In this article, we will focus on two issues – one is the impact of share of revenue due to inflating of capital costs, the other one specific item of the increase to indicate how the books have been cooked to benefit Reliance.

As we had noted earlier, the Production Sharing Contract (PSC) has many elements to it. One area is how much of the exploration area that the private party getting the production license can retain; the other is how the profits are to be shared after taking out the costs. We have already seen how Reliance retained the entire exploration area in violation of the PSC. In this section, we will see how Reliance increased its share of profits by manipulating the capital costs.

In the PSC, the petroleum (or gas) produced is specified as cost petroleum or profit petroleum. The cost petroleum is composed of unrecovered cost of exploration and development, royalty and production cost. If this is more than 90 per cent of the total petroleum produced, then cost petroleum is capped at 90 per cent and the rest 10 per cent is considered as profit petroleum. As the capital cost is recovered, the share of profit petroleum increases till all the capital costs are recovered. After this phase, cost petroleum is restricted to royalty and production costs, unless new capital costs are incurred.

The profit share of Reliance and the government is determined by a number called the investment multiple. This is the ration of cumulative net income to cumulative capital investment in the project. Obviously, as cumulative revenue increases over time, as the capital investment becomes constant, this ratio increases as more petroleum is produced. The PSC asked for bids from different parties for the profit share they were offering to the government based on the Investment Multiple (IM). Reliance had committed the following in its bid:

Investment Multiple (IM)	Reliance Share	Government Share
IM <1.5	90%	10%
1.5<IM<2	84%	16%
2<IM<2.5	72%	28%
2.5<IM	15%	85%

The government's share in profit for any year would depend on the IM of the previous year; if Reliance could manipulate the IM such that it increases slowly, then it would retain the major share of the profits.

The capital cost increase that Reliance did – from $2.5 billion to 8.8 billion for increasing gas output from 40 MMSCD to 80 MMSCD – almost three and a half times increase for only a doubling of output does precisely this. It lowers the IM as the denominator has increased by three and a half times now while the numerator has only doubled – it skews the IM making it come down far more slowly than in the original bid and changes the profit share between Reliance and the government completely. It also makes the original bid evaluation a complete farce as the basic parameters of evaluation change completely with such a change in the IM.

If we rework the original figures of the profit with the revised capital cost and IM, the contrast is quite startling. For doubling of production, obviously the revenue also doubles. After taking out the inflated capital cost of $8.8 billion, the profit petroleum (assuming a 12 year life) also almost doubles. However, Reliance gets almost three times its original share while the government's share increases marginally. Even worse, as the government's share is received later, the net present value of such future earnings (using the usual discounting method and a discount factor of 10 per cent) remains virtually the same.

If we now look at the gas pricing issue, it is clear that Reliance had a two-fold strategy. If only gas price had increased, this would also have benefited the government, as its share would have gone up in the profit petroleum. It might still have had to shell out large amounts in fertiliser and power subsidies, but at least on this contract, would have made much more money. The second part of Reliance strategy was to increase the capital cost, by which the share of Reliance profits increases but not that of the government. From the increased about $ 14 billion of extra revenue, Reliance receives almost $ 12 billion, while the government gets a measly $ 2 billion. If we consider the Net Present Value (discounted value) of the earnings, the governments' share is almost constant at $ 5.5 billion, while Reliance's goes up by about $6.5 billion – the entire increase in Net Present Value terms.

In the above calculations, we are not talking about grabbing extra money through sweetheart deals – inflating capital costs and then receiving a part of this increase in under-hand ways. We are only talking about what happens to the share of the profits between Reliance and the government after taking out the inflated capital costs. What the table below shows is that the Production Sharing Contract has a built-in, perverse incentive to pad capital costs. Even if there are no sweetheart deals, placing orders at a higher capital costs help Reliance in getting a larger share of the profits.

	Capital Costs $ Billion	Production Volume MMSCD	Total Profits $ Billion	RIL's Share $ Billion	Govt's Share $ Billion	Discounted RIL Share $ Billion	Discounted Govt's Share $Billion
Original	2.5	40	17.2	5.9	11.4	4.1	5.5
Revised	8.8	80	31.2	17.5	13.7	10.7	5.6

The CAG report has pointed out that the production sharing contract completely distorts the revenue sharing arrangement. Not only does Reliance not benefit by controlling costs, it actually is helped greatly by increasing costs. As can be seen from the above, even without any kick-backs and only through inflation of capital costs, Reliance gains greatly – it gets almost the entire increased production as its share of revenue.

The CAG has suggested that the existing Production Sharing Contract be scrapped and a new method of sharing revenue should be worked out. Looking at the figures, it is clear that these contracts are completely against the interests of the Indian people and must be scrapped immediately.

INFLATING CAPITAL COSTS

The CAG draft report has not done any detailed calculations of how the costs have been inflated but has pointed out that various contracts have been arrived at completely arbitrarily. It has indicated that it will do a second round of audit where it will examine the capital costs of various packages. In this article, we will only examine one element of cost in Reliance's capital costs.

The most flagrant cooking of cost figures by Reliance is that for a Floating Production Vessel for the MA oilfield. It appears that this was a $26 million tanker, converted to a Floating Production and Storage Vessel and taken by Reliance on a 10-year bare-boat lease for 1.1 billion plus another 200 million for operating costs. Let us look at what a production vessel is and what are its costs.

Floating Production Storage and Offloading Vessels can be either manufactured entirely from scratch or converted from a tanker. In this case, Aker Floating Production converted a tanker --188,697 Ton tanker, the ST. Polar Alaska, -- it bought for $ 26 million to what it calls as a Aker SMART 1 FPSO Vessel. The question is what was the cost of this conversion?

Jurong Shipyard, Singapore, in a press release dated May 18, 2007 had given the combined cost of conversion of the oil tanker that Aker bought and another vessel as $88 million. That means that the cost of conversion of the tanker is at best two thirds of this cost – the maximum cost of this conversion would have been around $60 million. The press release indicates that the conversion included all the equipment and refurbishment required for converting the tanker. It stated, “Modification works on the FPSO Aker Smart 1 involves the installation of an internal turret, three units of 5MW steam turbine generators and another three units of 5MV gas turbine generators and new process facilities, which include crude separation and gas compression and the upgrading of the entire piping and electrical systems.” We cannot see any other major cost that would be incurred in conversion of a tanker to a FPSO.

It is clear from the above that the total cost of this conversion of the tanker to an FPSO vessel was less than $100 million. So why did Reliance shell out $1.1 billion for a 10-year lease of this vessel?

CAG draft report has pointed out that in this case, that this order was placed well before the submission for approval of the Field Development Plan, let alone its approval. CAG has also pointed out numerous problems in award of this contract including that Aker Floating Production seems to have been incorporated by the parent company just for this contract and did not meet any of the qualifying requirements set out in the specification.

As we have noted earlier, the capital cost issue is not merely that of skimming off the top by incurring fictitious or inflated capital expenditure. It changes the revenue share completely. The problem is that what happens if the government, which is supposed to protect its interest, starts colluding with the private contractor?

There are some mechanisms in place for some protection of people’s interests. However, as the CAG has pointed out, they are weak and partial. There is officially a management committee in which the government has 50 per cent nominees (2 out of 4). They are supposed to oversee all major decisions. However, they seem to have been either in collusion or sleeping at the wheel when Reliance was doing such major cooking of the books. Further, any major expenditure should be a part of the Field Development Plan and needs to be approved by the DGH and the ministry. Again, not only this did not happen, both DGH and the ministry seems to have allowed Reliance to take capital investment decisions without getting these approved. They not only did give post facto approval of decisions that Reliance had already taken, but did so with just a cursory examination.

CAG's draft report has also held that the Production Sharing Contact being followed by the government of India has much weaker controls on the capital costs, unlike for example, Bangladesh, where a similar management committee, which has 50 per cent government nominees as in India, has to approve any expenditure above $500,000. Such controls are entirely lacking in the Indian Production Sharing Contract.

All this goes to show that the existing production sharing contracts are heavily skewed in favour of the private players. The CAG draft report has shown similar problems in the Cairns Rajasthan contract as also the Panna Mukta Tapti contract. Instead of making any attempt to redress the problems raised by CAG, the government is in its familiar 2G mode – blanket denial anything is wrong and acting as spokespersons of the private parties.

The question of fighting corruption and corporate loot is not just that of a Lokpal Act. Undoubtedly, a strong Lokpal law would help. But even without this, people need to come together to force the government to act. It should force this government to expedite the probe against the former DGH VK Sibal, against whom CBI already has gathered evidence. There needs to be an immediate demand to scrap the production sharing contracts and a thorough probe into the fancy capital costs claimed by Reliance, Cairns and others. The time has come to clear the Aegean stables in the ministry of petroleum. Otherwise, India's quest for self-reliance in hydro-carbons would turn into that of only Reliance.

Courtesy: People’s Democracy

AIKS TO RESIST ANTI-PEASANT POLICIES

MEETING at New Delhi on July 2 and 3, with members from across the country attending it, the Central Kisan Committee (CKC) of the All India Kisan Sabha (AIKS) discussed the serious agrarian situation in the country and concluded that the Congress-led UPA government’s policies are further deepening the agrarian crisis. The CKC highlighted the burning issue of corporate land grab taking place across the country. Lakhs of acres of land are being acquired across the country and millions of people are getting affected by such acquisition. The meeting stressed the need of building strong resistance against such moves. The CKC also decided to launch struggles to protect the rights of the peasantry in the case of unjust land acquisition. Greater efforts will be made to intervene effectively on this matter.

The CKC condemned the violence perpetrated by the Trinamul Congress-Maoist combine on the Left activists and Kisan Sabha cadre after the assembly elections in West Bengal. The CKC unanimously adopted a resolution, titled “Stand with the Battle against State Repression in West Bengal,” against the brutal attacks by the Trinamul-Maoist combine and members from across the country expressed solidarity with the fighting people of Bengal who are resisting these attacks on democracy.

The CKC also discussed the issue of very important legislations like the Land Acquisition Act Amendment Bill, Rehabilitation and Resettlement Bill, Seed Bill, Food Security Legislation, Biotech Regulatory Authority Bill, and Pesticide Management Bill which have been pending in the parliament for long. Many of these bills pose serious problems and are aimed at promoting corporate interests at the expense of the peasantry. There are also many free trade agreements (FTAs) in the pipeline. Many rounds of negotiations on the India-EU FTA have been held but no text is in the public domain and the parliament as well as the state governments have been kept in the dark about the content of these agreements. These legislations and FTAs that are pending may come up posing a serious threat to the interests of the peasantry. The CKC called upon the peasantry to be vigilant and build up enough pressure to ensure that these legislations are not passed in their present form.

The CKC noted with concern the reports that the kharbooz (musk melon) has been patented by Monsanto. Kharbooz was one of the 190 crops that were removed from the purview of the Biodiversity Act by the UPA government and the AIKS had then warned of the implications of this act. This threat looms large over the remaining crops also and we should stall any move to loot our biological resources.

The CKC resolved to intensify struggles against the anti-peasant policies of the UPA government.

RESOLUTION ON

BENGAL ATTACKS

This meeting of the Central Kisan Committee (CKC) condemns the attacks that have been unleashed against the agrarian and wider Left and democratic movements by the ruling classes and ruling combine in West Bengal in the months following the elections to the Assembly and the formation of the Trinamul Congress-led government in the state.

With these attacks, the ruling combine has attempted to effectively demobilise the Left across wide areas of the state.

The attacks include:

1) 21 CPI (M) and Left Front activists and supporters murdered, thus taking the murder toll to 405 since the 2009 Lok Sabha elections.

2) 3 cases of forcing comrades – as a result of physical and mental torture – to commit suicide

3) More than 1000 Left workers and supporters injured, with 643 having suffered grievous injuries. An uncounted number of injured workers have been prevented from seeking medical aid or filing police complaints.

4) 7 cases of rape of women supporters of the Left; one of whom was killed.

5) 186 incidents of molestation, including physical torture, of women comrades.

6) 628 CPI(M) offices attacked and ransacked.

7) 193 CPI(M) offices captured and occupied.

8) 702 offices of mass organisations of the Left captured and occupied.

9) 55 offices of elected student unions captured and occupied.

10) About 40,000 comrades forced to leave their homes and residential areas, of whom 11,457 are now in temporary shelters organised by the CPI (M).

11) More than 100 leading comrades arrested on false and fabricated charges.

12) 354 recorded sharecroppers (bargadars) and vested land allottees prevented from ploughing their land.

13) More than 20,000 acres of agricultural land currently under litigation but in the possession of landless farmers under threat of being reoccupied by landlord claimants who had been displaced by land reform.

14) Crores of rupees (our current estimate is 25 crore or 250 million rupees) extorted by goons of the ruling combine from villages as “penalty” (a large share of that money has been extorted from schoolteachers, other professionals and peasants).

15) 11 major incidents of trumped-up “arms recovery” cases against the CPI (M). In addition there have been innumerable smaller incidents of such false cases.

16) Hundreds of Left-controlled village panchayats forced out of office. This has been done in three ways: by forcing resignations, by forcing defections, or by coercing the panchayat chairpersons to follow the illegal diktats of the local representatives of the ruling combine.

17) Hundreds of representative institutions, from cooperative societies to elected university bodies, have been captured, made defunct and denied their rights.

18) The pioneering Left daily Ganashakti is under severe attack. Hawkers and distributors are being threatened, and bundles of newspapers are being burnt.

19) The state government is now – vindictively and mala fide -- reviving cases against Left leaders that were disposed of more than 40 years ago.

20) The two major institutional achievements of the Left Front, land reform and panchayati raj, are sought to be undermined and destroyed by the ruling classes and ruling combine.

The CKC warns that this attack represents a grievous offensive against the hard-earned rights of the working people in one of the most advanced outposts of the democratic movement in the country. It is a historic fact that the attacks will be against not only the political representatives of the Left, but also against all toilers and the democratic rights of the people at large. History has shown, as have the early signs from the new dispensation that even those who voted for the ruling combine will not be spared.

The CKC recognises the historic mission of the West Bengal peasantry and agricultural workers and other democratic sections in this difficult period and in the years to come. The tasks of restoring democracy, civil rights and the right to decent livelihoods rest on them. Our experience is that, in times of such repression and trial, our movement and organisation are steeled, and emerge stronger.

The CKC sends its revolutionary greetings to the West Bengal unit of the Kisan Sabha and to all fighting people of the state. It calls on all its state units to organise -- independently and with other democratic organisations and individuals -- protests and demonstrations against state repression in West Bengal.

Courtesy: People’s Democracy

“BRINGING BACK” BLACK MONEY

Prabhat Patnaik

THERE have been periodic demands, the latest being from Baba Ramdev, that “black money” from India which is stashed in Swiss banks should be “brought back” and used for development purposes. This money of course does not have to be physically brought back; all that is required is a nationalisation of those deposits, ie, a change in the ownership of deposits in certain accounts in Swiss banks from their current holders to the government of India. When the government obtains ownership over those deposits then it will have to transfer this ownership to the Reserve Bank of India (since the deposits are in foreign exchange) and obtain rupees in return, which it can spend as it likes.

But as is obvious from this process, there is no difference in terms of macroeconomic consequences, apart from just one which will be discussed shortly, between the government’s spending money acquired from the Swiss Banks and its spending money freshly printed by the RBI against government securities (or what is called “deficit financing”). The one and only difference between the two cases is that Swiss bank deposits are in foreign exchange, and hence they will be available with the RBI for future imports, while the government securities against which deficit financing is undertaken, are incapable of financing any imports.

True, these securities too can be converted into foreign exchange: if the government floats an equivalent amount of securities in foreign financial markets and uses the foreign exchange proceeds to draw down the securities it has with the RBI, then it would have substituted foreign exchange in the place of government securities in the RBI’s portfolio. But even in this situation, a difference between the two cases will still remain, since the foreign exchange acquired from Swiss Banks will be the government’s own property, while the foreign exchange obtained by floating government securities abroad will be only borrowed money.

If the government does acquire this foreign exchange from Swiss Banks in a crackdown on black money, then the situation is exactly analogous to its obtaining reparations from a foreign government, like Britain and France had got from Germany after the first world war. The rupees obtained by the government against this foreign exchange, which it will sell to the RBI, are available with it for development expenditure. When they are spent they increase aggregate demand in the economy. On the other hand this foreign exchange lying with the RBI can be used for imports; or putting it differently, domestic nationals can go to the RBI with rupees, purchase foreign exchange with them and use them for importing, which would augment supplies in the economy.

The money obtained from Swiss Banks therefore can boost both aggregate demand and aggregate supply, which is why it need not aggravate inflationary pressures in the economy. By contrast, if government expenditure had been met through deficit financing, that would have raised only aggregate demand, and unless the economy was demand-constrained to start with (so that an increase in demand would itself bring forth supplies), inflationary pressures would have got aggravated.

Money obtained from Swiss Banks thus would appear to be a sound source of financing development expenditure. There are however certain problems even in this case that one must reckon with. The best way to appreciate what is a basic problem here is to imagine that the commodity for which demand increases as a result of increased development expenditure is one that cannot be imported because its supplies are meagre in the world market itself. In such a case, even while the use of the Swiss bank money for development expenditure increases demand for this commodity in the economy, its supply cannot increase, despite foreign exchange being available; this would aggravate inflationary pressures in the economy. Swiss Bank money in this case will be no different in its inflationary consequences from deficit financing.

REVERSE DISINCENTIVES FOR PEASANT PRODUCTION

In reality, there is indeed one such commodity, namely foodgrains. The expenditure of Swiss Bank money, if undertaken in a manner, as it should be, that puts purchasing power in the hands of the working people, will increase the demand for foodgrains. In the world market however not only are foodgrain stocks low, thanks to heavy US diversion of foodgrains for bio-fuels, but foodgrain prices are also rising rapidly. What is more, if India approaches the world market for imports, then this very fact will give a boost to speculation and send world foodgrain prices skyrocketing. The use of Swiss Bank money in this case, other things remaining the same, will only aggravate the already acute food price inflation in the country.

To say this is not to suggest that Swiss Bank money should not be used for development expenditure for the benefit of the people, but that other things must not remain the same. In particular, if Swiss Bank money is used for development expenditure, then there must be appropriate supply management measures for foodgrains that ensure that the people are not hit by any aggravation of food price inflation.

This entails at least two things: first, the increase in development expenditure that Swiss Bank money would enable the government to undertake, must be so planned that it raises foodgrain output in the country within a short period. In other words, the projects financed by this money must have as their primary objective a rapid increase in the country’s foodgrain output, for which a whole range of disincentives for peasant production that have been created during the neo-liberal era must be reversed. Secondly, since an increase in foodgrain output will take time, no matter how quick-yielding the new projects may be, in the very short run inflationary pressures have to be handled through the use of domestic stocks, which in turn requires, both for this purpose, as well as for the long-run, an extensive procurement-cum-public distribution system to be put in place.

In short, even if the government obtained Swiss Bank money through a nationalisation of the deposits of black money-holders, it would not ipso facto be in a position to spend that money with impunity, unless it took a number of steps undoing the damage to the peasant economy, and to the foodgrain economy in particular that the neo-liberal regime it has been promoting has inflicted. And if it does take those steps, then it need not even wait for Swiss Bank money; deficit financing too will not have any greater inflationary consequences than Swiss Bank money in such a case.

The fact that the government does not have the least intention of either revamping the peasant economy or ensuring food security for the people is obvious from its actions. Throughout the current period of rapid food price increase, the government has resorted to foodgrain exports and continues to hold substantial stocks, which are rotting in the open, rather than distributing them among the famished poor, despite strictures from the Supreme Court. In 2008 for instance, when food prices were escalating steeply, 14 million tones of foodgrains were exported from India and another 17 million tones were added to government stocks! A total of 31 million tonnes in short were withdrawn from domestic availability in a year of acute inflation! With such an attitude on the part of the government, even if Swiss Bank money is obtained for expenditure, it will only end up aggravating the inflationary crisis.

RETREAT FROM NEO-LIBERALISM, CRUCIAL

Putting the matter differently, the “bringing back” of black money and its use for the purpose of development presupposes, on the part of the government, not only the courage and political will required for such “bringing back”; it also presupposes a retreat from neo-liberalism in crucial spheres. Baba Ramdev and his supporters talk only about “bringing back” black money; they never talk about the whole set of complementary measures, involving a retreat from neo-liberalism, that must be put in place if this “brought back” black money is to be used for development. To be sure, “bringing back” black money itself will require a degree of State activism that will be frowned upon by international finance capital; but making use of the “brought back” black money will require additional measures of State activism which are further anathema for it. But precisely for that reason, anyone who is serious about the confiscation of black money accounts in Swiss Banks, must also ask for complementary measures, so that this demand for confiscation does not remain just hot air.

Government expenditure on development, incidentally, is never held up for the lack of something called “money”. Resource mobilisation by the government does not consist simply in the mobilisation of “money”. When “money” is raised through taxation, the presumption is that real resources are being released in the process. The command over such resources is coming into the hands of the government which can then use them as it deems fit. But it is these real resources that actually matter, not something called “money”. Because of this, Michal Kalecki, the renowned Polish Marxist economist had said: “the financial problem of resource mobilisation is nothing else but the real problem of raising foodgrain output”.

When we talk of “bringing back” Swiss Bank “money” we must not fall into the error of looking at “money” as if it was the real resource. True, it represents command over real resources, but translating this command into actual real resources in the case of certain crucial commodities like foodgrains may be problematical, which is why State activism in foodgrain management may become necessary. The real obstacle to putting in place such a regime of foodgrain management lies in neo-liberalism. Overcoming neo-liberal constraints, rather than obtaining “money” as such, lies at the heart of the problem of increasing development expenditure. If these constraints can be overcome, then deficit financing too can generate the “money” for such expenditure, even if Swiss Banks yield nothing.

To be sure, tax evaders, black money holders, and all those who flout the law of the land, must be punished through a confiscation of their illegal wealth. But making proper use of this wealth will require an economic regime that breaks out of the neo-liberal straitjacket.

Courtesy: People’s Democracy

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