An analysis of the Economy of the Indian Social Republic
From Roach Busters
By George Reisman, University of Queensland
India's economic system is a form of state socialism. The fascist government effectively controls the economy through firstly its control over prices and wages. My paper will show that India’s economic system does not work, and even if India were not ruled by Fascists, its economic system would still require a totalitarian state.
At the apex of the Indian Economy is the National Social Co-operative Council. It combines the government, the Bank of India, the industrial cartels, the Indian Labor Front, and the largest companies.
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Contents |
Cartelisation
All Indian companies are required to join industry cartels. In theory, these exist to regulate and coordinate the industry concerned. In reality, they exist to facilitate state control, and keep new players out of the industry. Cartel dues are massive, and almost constitute a serious source of revenue for the government. The cartels also prevent businessmen conspiring against the government by keeping them at each other's throats.
Bureaucracy
India’s massive bureaucracy infests the business world. An Indian defector reported that producing car tyres (from the tyre company acquiring the rubber to placing the tyres on the finished cars at the factory) could take over fourteen months, involving hundreds of separate processes and forms, and the intervention of a dozen agencies. Another defector reported that over 60% of the communications of a large Indian private sector company were to various government agencies. In Australia, the same process would take a matter of a few days, the main time factor being transport. Australian companies typically have little communication with the government. Setting up a company in India costs the equivalent of 2 million Australian dollars, and can take three years. In Australia, the cost can be as little as $50 and takes a single day for official processes.
Corruption
India's vast bureaucracy feeds corruption. It is estimated that the equivalent of $6 billion is fed into corrruption each year. Corruption permeates every facet of life in India. As one defector said "it is impossible to do anything in India, everyone has his hand out". Even though there is a mandatory death sentence for corruption, and the government maintain an "Official Anti-Corruption Police Force" together with a flying court authorised to give death sentences (the "Public Integrity Court"), corruption is massive and growing. It has even permeated the very forces specifically assigned to stop it! This corruption has prevented any streamlining of India's vast, and Byzantine bureaucracy because it benefits so many officials and politicians.
Trade policy
India’s tariff policies have had some financial benefit to producers, but these have been more than offset by losing the potential gains from international trade. Indian consumers must contend with overpriced, shoddy goods. The average Indian family car (an upper middle class luxury) costs the equivalent of $73,000 (as a factor of the average annual wage in Australia, the exchange rate conversion produces the cost of $5,000). The car itself is an Indian version of a late 1950’s English design (the Morris Oxford produced as the Hindustan Ambassador), and by modern standards has poor performance, horrendous fuel consumption, poor reliability, and is unsafe to the point of being dangerous. By contrast, the average Australian family car, the Ford Falcon costs $34,880, is accessible to the lower middle, and even working class, has excellent performance, economic fuel consumption, high reliability, and is extremely safe.
Reforms
The Keshav regime has announced that it will undertake several reforms. The first thing to say about these reforms is that one should look at the government proposing them. In this light, the reforms will probably not be implemented, and if they are it will be done to the extent that it benefits the ruling classes in India. The land reforms are difficult to pigeon hole, as they largely consist of taking land from people who had no right to it, and giving it to people who have no right to it. Without seeing the reform bills in detail, it is impossible to predict exactly the mechanism by which this will happen, however from India's pattern, it is clear that the reforms will target those not sufficiently loyal or supportive of the regime for the giving of land, with political supporters targetted for its receipt.
Tariff reductions will be welcomed, however import quotas remain thus reducing their effect to a moderate price reduction in imported goods. It is important to note that subsidies for agriculture will remain, and India's imports are mostly agricultural products.
Privatisation will not produce meaningful reforms, and seems to be the main way in which Keshav will buy the support of those who are best placed to provide it. Keshav's regime is increasingly insecure, and the privatisations give him considerable patronage to dispense to maintain support. Shares in privatised state firms can therefore be expected to go to friends of the regime, with "creative" financial arrangements made to considerable reduce the prices paid. It must also be noted that although their monopolies will be abolished in theory, they will most likely remain in practice as the monopoly model moves from straight prohibition of competition to more subtle prohibition of competition.
The abolition of price controls is a welcome option economically, however it will hurt the government politically as the distortions inflicted on the Indian economy by the government so devastated that the removal of the controls will lead to populist unrest against the government.
Doubling of the minimum wage will have one of two effects, it will force smaller Indian firms out of business with crushing wage demands, or it will increase unemployment (and consequent moves into state jobs such as public works).
The promise of a market-directed credit sector is particularly absurd. Though the formal controls will be lifted, the Reserve Bank of India will still effectively set the rates, while leaving the banks to compete within those bounds. In practice it will take some political pressure off the government while putting it on the banks.
The social reforms are beyond the scope of this paper except to note that they all entail vast increases in public spending. With the reductions of taxation this increase in spending will make the Indian deficit worse, causing more inflation of the currency as the Indian governent prints its liabilities away. This may be the final step before hyperinflation of the rupee, the destruction of India's economy, and the destruction of its government.
