An analysis of the Economy of the Indian Social Republic

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.
=Labour Market=
The Indian labour market is fixed. Control over wages prevents competition between employers for the best workers, and likewise prevents rational selection of careers on the basis of wages or salaries. For this reason, India practices a form of labour conscription. Upon leaving secondary education, an Indian, is dispatched to the Indian National Labour Service. After Labour Service, an Indian can go on to the military, or university for the most gifted. However, for most Indians is the need to join the Indian Labor Front. The Indian Labor Front controls all labour under the National Labor Consolidation Act of 1955. Employers submit requests to the ILF for workers of particular skill, and experience, and the ILF compulsorily places workers on those requests. In practice, the system is extremely corrupt. Politically connected companies, especially defence contractors, and parastatals, get preference. Money often changes hands in order to secure workers, even though if caught all parties are subject to a mandatory death sentence. Some European socialists point to the system as providing job security, however while a worker is secure in his job (it is in fact impossible to remove a worker in India without the explicit orders of the ILF), he is also bound to it as a Medieval serf is to his master’s land. The ILF practices control mainly through the Work Book system. This book lists the worker’s details, skills, experience (Indian propagandists call it the “Pocket Resume”), as well as comments from previous employers. A worker in India cannot be legally employed without a Work Book, which the Employer holds for the duration of the worker’s employment. The National Labor Police Task Force ensures compliance to the Work Book system, but Indian defectors have made it clear that the force, which is vast, almost as large as the Navy, is becoming corrupt, its officers being bribed to look the other way while labour infractions are taking place. The corruption has even reached the extent of turning a blind eye to the illegal employment of children in mines. 
=Currency=
India’s currency, the Rupee, was originally commodity money, being based on silver (11.66 grams at 91.7% silver by weight). Since the rise to power of the Fascists, India has had a fiat money system. The Reserve Bank of India is nominally independent, but however in practice is controlled by the Fascist rulers. The government’s tax policy has always resulted in falling revenues in real terms, so the government has always financed its expenditure through public works. The new money that has resulted from printing Rupees by the truckload has taken the place of savings as the principle type of capital in India. This has meant that in practice, India has been consuming its capital stock. After sixty years of Fascism, it is possible that India’s economic system is about to collapse under the weight of thousands of tons of worthless paper. There is almost no foreign investment in India. What little there is comes from the governments of other totalitarian states keen to show their solidarity with India. The vast English investments in India have been largely destroyed by the Fascists. The official exchange rate for the Rupee is about 98 to the Australian Dollar; however defectors report that the black market rate (which is a somewhat free market, and therefore reflects the real exchange rate) is well over five thousand. This must be regarded as the verge of hyperinflation. When hyperinflation takes hold, the Indian economic system will tailspin. Food shortages will reach the point of starving large portions of the population. This may lead to a breakout of disorder among the Indian people and a concurrent crackdown by the authorities. India will cease to be able to import what it needs, unless it can somehow beg its allies for what it needs. India may of course attempt to turn to conquest to take what it needs, but this will only forestall the inevitable, and India does not have the ability to sustain a major war.
Some authorities have suggested that India will move from a Reserve Bank of India-fixed exchange rate, to fixing the rupee against the Australian dollar. However it should be pointed out that the Reserve Bank (according to the best estimates) does not have the reserves to keep the real value of the Rupee at its current level, let alone fix it to one of the stongest currencies in the world. If India attempted to fix the rupee to the Australian Dollar (or any hard currency), it would have to do so at a ratio that would expose the rupee's worthlessness (current estimates say about 5500 rupees to the dollar). If it did otherwise, the deflationary effects would send the Indian economy into a massive depression. Pegging the rupee at a correct ratio would produce enourmous political instability, particular in India's environment of price controls. Massive shortages would ensue, with the inevitable results of civil disorder, which would either increase the government's power, or break it in a bloody revolt. Either way, pegging the rupee to the Australian Dollar is a recipe for disaster.
=Labour Productivity=
Labour productivity in India is relatively low. This is due to several factors. The first is the extremely low real wages. The wages of Indian workers are lowered by the government, which dictates low wages, levies confiscatory taxes, and debases the Rupee to the point that even middle class Indians are dependent on some form of state welfare to live. Low levels of education also contribute to low productivity, as well as the fixed labour market. Lack of foreign investment has retarded technological progress in India leading to a further reduction in productivity. 
=State involvement=
India’s massive public sector is one of the least productive in the world, with most requiring continual injections of cash from the state. These state monopolies infest most sectors of the economy including energy, airlines, coal, aluminium, railways, steel, armaments, ship building, and aviation. These corporations have never been able to export goods for the simple reason that the goods offered are of lower quality and higher price. Their main purpose is to create unproductive jobs in politically sensitive parts of the country, and provide highly paid sinecures to people with political connections.
=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.
=Conclusion=
India has a well educated, low cost, hard working work force, many of whom are fluent in English. India has plentiful natural resources, and used to have good universities. India’s poverty has a single cause: the Indian Government. If India had a non-interventionist government that practiced free trade, open and accountable governance, sound money policies, and free market policies, India could be very wealthy in a short time. India’s economy can only be saved if its Fascist regime falls, leaving a free market liberal democracy in its place.
Category:Economy of the Indian Social Republic