An Attack on India's Sovereignty


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History of Foreign Penetration in India

              (i) Pre-Globalisation Period

              (ii) Seeds of Globalisation

              (iii) The Big Leap


The modus opperandi of this AXIS, in this period of globalisation, is simple: impoverish the poor and middle-classes to the maximum and enrich the wealthy to the maximum. This may look too simplistic, but it has an economic logic. By impoverishing the poor and middle-classes with the payment of the lowest possible wages it, the AXIS, is able to maximize profits through the extraction of greater and greater surplus value, but leading to the shrinkage of the home market for goods. No doubt, with the enrichment of the wealthy it is able to create some market for goods, yet, the nature of the goods produced will now change, from necessities to luxury items. But, as this market is bound to be exceedingly limited due to the small number of wealthy and limits to their expenditure (the very rich will spend more on foreign goods, foreign travel, etc. which will add little to the home market), a major focus in market creation is towards exports. So, the new mantra of this AXIS is ‘export at any cost’.

So, globalisation has restructured the economy wherein: the market is dependent on foreign trade; where capital is dependent on foreign investment; where technology is dependent on the hi-tech foreign variety; where finance is dependent of global inputs and speculation; where the stock exchanges index pricing is controlled by international speculators; where commodity prices (including agriculture) is determined by international rates; where even the currency, the rupee, is determined by the dollar and its rate of flow into the country; and where even banking, insurance, savings, are all gradually coming under foreign control.

It amounts to total strangulation of the Indian economy by foreign capital. Of course its sponsors say that this dependence has a liberating effect — liberated from the license-permit raj, and free to do business internationally with no controls. They also claim that it is better for the consumer as foreign goods help competition and so make available a better product. As far as the latter goes, a few fancy goods for the elite, cannot make up for the millions of sub-standard articles and food products still purchased by the masses. Whether it strangulates the economy or helps freedom to grow, we shall analyse later; but first let us analyse the socio-economic background within the country that facilitated this major offensive by foreign capital in the globalisation-period.

i) Pre-Globalisation Period

Foreign investments have always been a key factor in India’s economy, from 1947 itself. Till the 1990s it mostly took the form of FDI and large amounts of loan capital, given in the name of ‘aid’. What foreign capital (primarily British) existed in the colonial period continued untouched.

In India’s very First Plan (1951 to 56), of the total Plan outlay, a large percentage comprised foreign ‘aid’, chiefly from the US. So, we find that in 1953 nearly half the net assets of the organized sectors of mining, trade and banking, were owned or controlled by foreigners. At the same time loan capital from the World Bank began to control basic services and infrastructure, including railways. FDI came in the form of new investments and collaborations with India’s comprador big bourgeoisie.

Yet, in semi-colonial India, with the impact of the freedom struggle and the fear of the raging national liberation struggles all over the world, and the powerful socialist camp, the imperialists were frightened and had to give some concessions, particularly to the comprador bourgeoisie. So we find that the route of joint ventures was combined with direct investments, taking the Indian compradors as collaborators in their new enterprises. This was reflected in the Second Plan (1957 to 61), which introduced the Nehru-Mahalanobis Model, of so-called import substitution. This was promoted by the imperialists themselves and encouraged by the Kruschovian revisionists (and their CPI tail in India) as the so-called "non-capitalist path of development". Dependence on the imperialists continued, with the compradors growing in strength due to a growing number of collaboration agreements. The Monopolies Commission pointed out, in 1965, that a mere 75 big business houses owned 47% of the assets of all the non-government companies; and just two families, Tata and Birla, controlled 20% of the private capital stock in Indian companies. Besides, in 1966, of the largest 112 corporations in India (by assets), 62 were foreign owned or controlled. TNC capital continued apace having increased six-fold in the first two decades after the transfer of power, from Rs 265 crores in 1948 to Rs 1,543 crores in 1968. Michael Kidron estimated that during the 1948-1961 period the foreign investors had taken out of the country three times as much as they directly contributed.1

So, FDI and aid were the twin weapons of the imperialists in those days to continue their domination over the country and its economy.

Between 1948 and 1958 the number of collaborations approved were at the rate of 50 per year; in 1959 it was 150; in 1960 it was 380; and an average of 400 per annum in the 1960s. ‘Import substitution’ meant replacing imports with foreign goods (maybe with Indian names) produced locally by the TNCs or in collaboration with the compradors.

Western ‘aid’ also continued, and in fact increased. In fact, to promote this, the Aid India Consortium was set up by the World Bank in 1958. In the Second and Third (1962 to 1966) Plans, of the total outlay 30% was comprised by foreign capital; of which, the US comprised the maximum. From a position of zero foreign debt in 1951, when planning began, the accumulated foreign debt rose to Rs 1,073 crores by 1961 and, in the next 5 years doubled to Rs 2,341 crores.

With the restoration of capitalism in the USSR and the Soviet Union turning into an imperialist country by the late 1960s (and later a contending superpower), the comprador big bourgeoisie got more bargaining ability with the West; so, while many restriction were brought in for western foreign capital, the public sector began to dominate the economy, built with Soviet ‘aid’. It is in this period that we find the introduction of the Indian Patent Act, FERA (which required foreign companies to dilute their foreign shareholding to 40%), Hathi Commission Report (price control on pharmaceuticals), cap in FDI, restriction of entry of western capital in certain sectors, etc., all of which further helped the growth of comprador bureaucrat capitalism. Besides, through these measures, existing TNCs operating in the country were also protected from competition. This brought some restrictions on western capital, during the 1970s, thereby allowing Soviet social-imperialism to control the commanding heights of the economy. This process began to be reversed in the 1980s after the first IMF loan in 1981.

In the 1970s, both western capital and Soviet capital competed for domination, with the later gaining the upper edge (not in quantum, but in the control it exercised). The public sector grew to giant size, and so did the comprador big bourgeoisie. The nationalization of banks, oil, coal, heavy industry, etc. and the entry of the public sector in all spheres of production, from cloth to hotels, created a monolith that lived off doles from the treasury (i.e. people’s taxed monies).

The nationalized industries are no ‘socialist’ sector as the revisionist CPI and CPM would have us believe. It is nothing but state capitalism. It was initially promoted by the imperialists/compradors themselves (i.e. the Bombay Plan) to utilize public funds for capital-intensive projects to provide big business cheap raw materials and a subsidised infrastructure. From the late sixties, with growing Soviet influence, it spread to all sectors. With accountability to no one, and monopoly domination of Indian markets, it turned into a white elephant, being milked by ministers and bureaucrats, turning out huge losses and sub-standard goods. Incompetence, inefficiency, corruption, was all rewarded in return for favours handed out to the political bosses. Well before the Soviet Union crashed under the weight of such an unproductive monolith, the Indian economy went into a deep crisis.

ii) Seeds of Globalisation

Caught in a severe debt trap, and drained of foreign exchange by the two oil shocks (which quadrupled the price of oil imports), it was in 1981 that the government for the first time turned to the IMF for a bailout. On the eve of the IMF loan, India’s total foreign debt was Rs 22,764 crores ($28 billion). Already in 1966 the imperialists had forced a 57% devaluation of the Indian rupee. With the $5 billion (roughly Rs 4,000 crores) IMF Loan, came yet another devaluation of 23%, taking the exchange rate to Rs 9.70 to the dollar. It was the largest ever loan that the IMF had ever given till then. This was accompanied by a series of stringent conditionalities — part of the IMF’s Structural Adjustment Programme.

The first step towards so-called globalisation had been taken. With the seed planted, and a gestation period of another decade; it was after the collapse of the Soviet Union in 1989, the Balance of Payments crisis in 1991 2 and the second IMF loan in the same year, that the full-fledged onslaught of ‘globalalisation’ began in India. This, of course, was facilitated by the large structural changes that were taking place in the imperialist economies themselves and the leaps in the info-tech revolution.

From 1981 itself the process of opening out the economy began with the government bowing to IMF conditionalities. In 1983 itself, MRTP (Monopoly and Restrictive Trade Practices Act) and the FERA (Foreign Exchange Regulation Act) were diluted, while anti-people black laws like ESMA, were brought in.

The New Economic Policy of Rajiv Gandhi in 1985 was the real inauguration of the process of ‘globalisation’. The era of liberalization and privatization initiated by Indira Gandhi herself, and given a major push by Rajiv Gandhi, laid the grounds for the big leap to come in 1991. The government increased the number of industrial areas where TNCs could invest; in export-technology oriented units 100% foreign equity was allowed; tax concessions were introduced for TNCs; etc. There was a virtual stampede of TNCs entering the country, like Suzuki, DuPont, Goodyear, Seiko, Xerox, Westinghouse, United Technologies, Honeywell, etc.

Through the 1980s, with the government having put the rupee on a floating exchange rate, the rupee was continuously devalued dropping from Rs 9.70 to the dollar in 1982/83 to Rs 18 to the dollar in 1990/91.3 With a worsening terms of trade due to devaluation, the trade deficit (i.e. excess of imports over exports) increased nearly three fold in the decade from Rs 6,211 crores in 1980/81 to Rs 15,600 in 1990/91.4 This drain on foreign exchange was coupled with the huge rise in debt servicing charges (i.e. interest payments plus the repayment of capital) on the foreign debt during the decade of the 1980s. Further entangled in the debt trap due to the IMF loan, the foreign debt increased three-fold in dollar terms during the decade from $28 billion to $83.7 billion 5 between the two IMF loan-periods. Looked at in rupees terms the situation was even more disastrous considering the devaluation of the rupee. Looked at thus, the foreign debt increased from Rs 22,764 crores at the time of the first IMF loan to a gigantic Rs 1,50,691 crores at the time of the second IMF loan in 1991 — that is a 54-fold increase. Not only that, while before 1981 the bulk of the loans were at concessional rates of interest, after the IMF loan a major portion were commercial loans at high interest rates. Debt servicing charges grew by 8% every year since 1985.

It was this scenario that led to the second BoP crisis in 1990/91, resulting in the sale of gold abroad and the second IMF loan of about Rs 3,200 crores, used mainly to pay off the international bankers. And it was after this loan that the seeds of globalisation planted in the 1980s began to sprout under the new P.V. Narsimharao government, and has now engulfed the entire country; much like the Congress Grass, which swamped entire fields overnight that had come through PL-480 grains sent by America. ‘Economic reforms’ began to strangulate the economy and the country as never before. If earlier imperialist penetration had a debilitating effect on the economy, it now began destroying every sphere, every aspect and undermining even the nominal independence gained in 1947.

Let us now see, how in the mere course of a decade, foreign capital had extended its octopus like grip over every aspect of the economy of the country.

iii) The Big Leap

The massive leap in foreign investments in the 1990s, compared to the earlier four decades can be seen from a few facts. Of course, its impact goes well beyond this quantitative increase, once we go into the details. But first lets look at this major leap of the 1990s.

In the 1970s net foreign investments in India averaged $45million a year; in the 1980s it was $146 million per year; while in the period 1993 to 2001 it was $4,443 million a year. 6

If one looks at the number of collaboration approvals a year, we get a similar picture. In 1980 the number of collaborations approved was 526 amounting to Rs 9 crores ($11 million). In 1990 the approvals were 666 amounting to Rs 128 crores ($71 million). In the 1992-99 period the number of approvals per year averaged 2,000 amounting to a huge Rs 26,153 crores ($7,054 million). 7

If one looks at the foreign debt it has jumped from $85 billion in 1992 to roughly $110 billion today (inclusive of the NRI deposits, which were defacto converted into part of the foreign debt in the 2002 budget, when they were made convertible on capital account). Looked at in rupee terms the increase was nearly three-fold, due to a continuous devaluation in the rupee — i.e. from under rupees 2 lakh crore in 1992 to well over rupees 5 lakh crores today.

In this period of globalisation the value of the rupee has been devalued from Rs18 to the dollar to roughly Rs 49 to the dollar today — i.e. the rupee is barely worth one-third of its value in the international markets, having a disastrous impact on India’s external terms of trade.

And with this huge offensive of foreign capital, leading to the mass impoverisation of the people, came the increase in the onslaught on the people through gigantic increases in expenditure on police and defence, in this period of so-called liberalization. Expenditure on the police (State & Centre) witnessed an over four-fold increase, from Rs 5,186 crores in 1990/91 to Rs 22,624 crores in 1999/2000. Defense expenditures (official) skyrocketed, also four times, from Rs 16,347 crores to Rs 65,000 crores in the budget of 2002/03.

It mattered little which party was in power. With the introduction of ‘economic reforms’ there was an urgency to bring in the changes with great speed. Whether it was the Congress(I) government from 1991 to 1996; or the UF government, including the so-called ‘left’, from 1996 to 1998; or the current BJP-led government at the Centre — all acted with haste, each trying to outdo the other in the speed of implementing ‘reforms’. Even in the States, regional parties sought to compete in giving concessions to the imperialists to attract foreign capital. Servility to imperialism reached new peaks in this period.

Let us now look at the policies of the various governments since 1991, which promoted, facilitated and encouraged this massive leap in penetration of foreign capital.




1. Nehru to Rao: India’s Plunge to the debt trap by P.J.James

2. A Balance of Payment crisis arises when the out-flow of foreign exchange is more than the in-flow, and India has no foreign exchange to meet its international liabilities — like payment of interest on the foreign debt, imports of vital equipment, etc.

3. Economic survey by GOI; various issues

4. RBI Bulletins; various issues

5. Tata Year Book; 2000-2001

6. EPW; Sept. 15, 2001; Economic Times; Aug. 28, 2001

7. Tata Year Book; 2000-2001



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