And yet, far from taking retaliatory action, the Indian authorities have not even criticised Trump’s actions on any of these questions, from deportations to trade. They confine themselves to saying that they are studying the US actions and that they are negotiating a bilateral trade deal with the US. By contrast, as commentators have pointed out, the US has no such inhibitions about commenting on India even as it negotiates a deal with India; nor do other countries negotiating with the US have such inhibitions.
Indeed, India’s response stands out among that of major countries worldwide. India’s rulers have chosen this moment to move even closer to the US, both in the sphere of the economy and strategic alignment. Ruling class circles in India, far from being apprehensive about the implications of Trump’s actions, are agog with speculation that India may actually gain thereby, by being targeted less than other countries. The Indian media are awash with articles about a potential boom in Indian exports, in particular of Apple’s iPhones assembled in India. The stock market has surged, with the Bombay Stock Exchange’s Sensex rising from 73,138 on April 7 to 80,502 on May 2.
All this optimism is based on unreal assumptions. Unreal assumptions are daily fare for the stock markets, but one would expect any serious economic analyst to be more cautious about such fanciful projections. How does one understand the Indian rulers’ response? One can only do so by looking at the Indian ruling classes in class and historical terms.
Let us first look at the Indian rulers’ actions and the arguments they advance for those actions.
‘New India’
In recent years, Indian leaders have tried to project a muscular image; and some otherwise knowledgeable commentators have got carried away with this image. India’s External Affairs Minister, Subrahmanyam Jaishankar, symbolised this new, assertive stance, dealing out sharp retorts to western audiences and defending what he claimed to be the single-minded pursuit of India’s national interest. India, it was said, was an emerging global power in a multipolar world; it refused to be part of a US alliance-system on the lines of NATO (“That kind of NATO mentality has never been India’s”, declared Jaishankar); it is a founding member of the intergovernmental organisation BRICS (initially composed of Brazil, Russia, India, China, and South Africa, but now containing an additional five members), which is often talked of as a powerhouse of the Global South, an emerging superpower, etc.
In the economic sphere, the Indian government was said to be following a project of national self-reliance (‘Atmanirbhar’), by boosting Indian national champions in industry with subsidies and slapping tariffs on imports. India’s tycoon Adani defied attacks by the influential billionaire George Soros, the US equity research firm Hindenburg, and the US Justice department, and emerged little-scathed. India continued to import Russian oil in large quantities despite periodic verbal reprimands from the US. India’s central bank, the Reserve Bank of India (RBI), introduced a mechanism for bilateral trade in the rupee, and it said in 2021 that “Looking ahead, the emergence of [the Indian rupee] as an international currency appears inevitable.”
It was, we were told, India’s time. The Wall Street Journal interviewed Modi in 2023, and came away with the “overall” message that “from India’s role in global politics to its contributions to the world economy—the country’s time has come.” Nothing could stop India’s ascent, said Jaishankar: “Today, India is taking its place in the world and that is something which all Indians should be very proud of…. we are very clear, the rise of India is unstoppable.”
India’s leading capitalists declared it to be India’s time. Mukesh Ambani was “supremely hopeful and confident about the Rise of New India. I can see that the spirit of India is more resurgent than ever before…. one thing is absolutely predictable: India’s time has come.” His fellow tycoon, Gautam Adani, agreed: “A democracy whose time has come cannot be stopped and India’s time has arrived.” Not satisfied with it being merely India’s “time”, Anand Mahindra declared that “This could be India’s century”. The US consulting firm, McKinsey, confirmed that “it will not only be India’s decade, but India’s century”. The London-based Centre for Economics and Business Research informed us that India will become the “world’s largest economic superpower” by the end of the century, a prediction that can be verified 75 years from now.
Thus India’s Prime Minister was not alone when he declared, in September 2024, that “today the entire world feels India is the best bet for the 21st century”. Indeed, not only the 21st century: India, he said, is “preparing a base for the next 1,000 years and not focusing on just reaching the top, but to sustain at that position”.
This was the new India.
All this has evaporated suddenly.
■ In February 2025, shackled Indian immigrants were hustled by US troops into a military plane and dumped in India. The US Border Patrol posted a video of the shackled deportees on the social media, accompanied by the words, “If you cross illegally, you will be removed.” India’s Jaishankar steadfastly refused to criticise the US action in any way, in the face of an uproar in Parliament. He even referred to the shackling of Indian deportees as “standard operating procedure”. (By contrast, Colombia, Brazil and Mexico roundly criticised similar US conduct with their citizens.) The Indian Prime Minister visited the US shortly thereafter, and merely stated tautologically: “Those who stay in other countries illegally do not have any legal right to be there.”
■ Trump has long warned that countries who dared opt for an alternative to the dollar as international currency would face devastating consequences. On February 13, just hours before Narendra Modi’s arrival in Washington, Trump mocked and threatened BRICS:
BRICS was put there for a bad purpose…I told them if they want to play games with the dollar, then they are going to be hit by a 100 percent tariff. The day they mention that they want to do it, they will come back and say ‘we beg you, beg you.’ BRICS is dead since I mentioned that….
He repeated these statements thereafter, further hiking his threatened tariffs (e.g., on February 21: “Brics states were trying to destroy our dollar. They wanted to create a new currency. So when I came in, the first thing I said was any Brics state that even mentions the destruction of the dollar will be charged a 150 per cent tariff, and we don’t want your goods and the Brics states just broke up.”)
It is bizarre that two nations, say ‘A’ and ‘B’, can be terrorised into using the currency of a particular third country ‘C’ to trade amongst themselves. But the Indian Prime Minister altogether refrained from responding to Trump’s gangster statements. In March Jaishankar told an audience in London that India had no wish to replace the dollar, that it differed with other BRICS countries on the matter, and that its priority was to work with the US:
where the role of the dollar is concerned, I think we are very realistic about it. We have never had a problem with the dollar. Our relations with the U.S. are probably the best ever that they have been. So we have absolutely no interest in undermining the dollar at all…. I don’t think there’s any policy on our part to replace the dollar. As I said, at the end of the day, the dollar as the reserve currency is the source of international economic stability….
I would also say in all honesty, I don’t think there is a unified BRICS position on this. I think BRICS members—and now that we have more members—have very diverse positions on this matter….
For us right now, we think that the United States has really, in many ways, clearly the largest economy in the world. In many ways, almost the fulcrum or the key player in the global international architecture. Our own relationship is growing. It’s very positive. We do believe today that working with the United States and strengthening the international financial system, economic system is actually what should be the priority. (emphases added)
■ Trump has repeatedly branded India a “tariff king”. Surprisingly, we can find no official Indian rebuttal of this claim, implying that the Indian government does not contest it. (By contrast, the Chinese government has published a detailed refutation of US claims regarding China.)
In the run-up to the Prime Minister’s visit to Washington in February, the Indian government took certain steps apparently aimed at appeasing the US President. The 2025-26 Union Budget, presented at end-January 2025, announced that the Indian government would amend existing legal provisions in order to free suppliers of nuclear reactors from any liability for accidents. This benefits US and other foreign firms, who are interested in selling reactors to India without bearing even minimal liability for accidents. (The outgoing US ambassador to India recently indicated that he had lobbied both the ruling party and the parliamentary opposition to get the law amended.) India also quietly slashed duties on imported motorcycles, satellite ground installations, US whiskey, and other items imported from the US.
Later, in April, India made another unilateral concession when it scrapped what is called the ‘Google tax’, an (exceedingly mild) 6 per cent tax on digital advertising revenues earned by foreign companies which do not have a physical presence in India, but receive over Rs one lakh crore (Rs one trillion) payments by Indian businesses for online ads. The beneficiaries of the scrapping are global giants Google and Facebook (Meta), which dominate online advertising in India; online advertising is now the largest component of advertising revenues in India. This scrapping was not done as part of a negotiation, but was a unilateral concession by the Indian government – a pure gift to US corporations. Note that this has nothing to do with physical trade, which is purportedly what Trump is agitated about. But Google and Facebook are known to be prominent backers of Trump; hence gifts to Trump’s backers are perhaps seen as a way of winning Trump’s heart.
Trump has steadfastly ignored all such attempts at appeasement. In February, during his joint press conference with Modi, Trump claimed that India’s tariffs on US imports were a
big problem, I must say. India imposes a 30 to 40 to 60 and even 70 percent tariff on so many of the goods and, in some cases, far more than that.
Trump claimed, incorrectly, that the US trade deficit with India was $100 billion (in fact it was less than half that figure in 2024). He later claimed that India levied tariffs of 52 per cent on US imports. All these nonsensical claims went uncontested.
Instead of rebutting Trump, Modi projected that Trump’s plans were in consonance with India’s. “When America and India work together, this MAGA plus MIGA becomes a ‘mega partnership for prosperity’ and it is this mega spirit that gives new scale and scope to our objectives,” Modi said. Trump did not respond.
■ In his meeting with the US President, the Indian Prime Minister made several extraordinary commitments:
(1) India-US trade would be raised to $500 billion by 2030 (from $120 billion today). The joint statement announced high-speed negotiations for a bilateral trade deal: “Recognizing that this level of ambition would require new, fair-trade terms, the leaders announced plans to negotiate the first tranche of a mutually beneficial, multi-sector Bilateral Trade Agreement (BTA) by fall of 2025.” The two sides would work toward “increasing market access, reducing tariff and non-tariff barriers, and deepening supply chain integration.” No details are yet known of the US-India BTA, on which negotiations are proceeding at a remarkable pace, but the implications could be severe for the Indian economy.
(2) India would increase purchases of arms from the US; Trump announced that “We’ll be increasing military sales to India by many billions of dollars. We’re also paving the way to ultimately provide India with the F-35 stealth fighters.” This, despite a clear reluctance on the part of the Indian air force to acquire these aircraft.
(3) The India-US joint statement says that the two countries would work to “establish the United States as a leading supplier of crude oil and petroleum products and liquified natural gas to India.”
(4) India would “unlock plans to build large U.S.-designed [nuclear] reactors and enable collaboration to develop, deploy and scale up nuclear power generation with advanced small modular reactors.”
All these measures are intended principally to bring down or eliminate the US’s trade deficit with India by increasing US exports to India, in line with Trump’s stated mission.
■ India is the country most eager to sign a bilateral trade agreement with the US, and is reported to have made the greatest progress in negotiating such a deal. On April 8, Trump told an audience in Washington D.C.: “These countries are calling us up, kissing my ass, they are dying to make a [trade] deal … ‘please, please sir, make a deal, I’ll do anything, I’ll do anything sir’”. “This time around we are certainly geared up with a very high degree of urgency,” said Jaishankar on April 11. When asked pointedly about Trump’s insulting characterisation, India’s Ministry of External Affairs spokesperson instead affirmed that India was busy negotiating:
The other question regarding President Trump’s remarks, etc. We are engaged bilaterally for having concluding a Bilateral Trade Agreement and we look forward to that. And as I told you that we have a comprehensive strategic partnership with the United States and we are committed to further strengthening it.
■ The unbalanced US-India power equations, and the attempt by India to please Trump’s backers, were on display when India’s Prime Minister met Elon Musk. Musk, the world’s richest man, heads the Trump administration’s new Department of Government Efficiency. It is as yet unclear in what capacity Modi and Musk met. On Modi’s side of the room sat External Affairs Minister Jaishankar, National Security Advisor Ajit Doval, and India’s ambassador to the US Vinay Kwatra; on Musk’s side sat his partner and their children. The Indian Prime Minister gave Musk’s children presents.
Musk has important business interests in India, including a pending license application for satellite-based internet services (Starlink) and for sale of electric vehicles (Tesla). The following month, the two leading Indian telecom firms, Jio and Airtel, which had been opposing the entry of Starlink into India, did an about-face and entered into near-simultaneous deals to offer Starlink services to customers in India. (We are not discussing here the serious negative implications of this deal.) In the same month, the Indian government announced a new electric vehicle (EV) policy, by which companies setting up new manufacturing plants for EVs in India would also be allowed to import 8,000 completely built units a year at a concessional tariff of 15 per cent. (On April 18, Modi is said to have spoken to Musk by phone; on the following day, it was reported that Tesla is preparing to ship a few thousand electric vehicles to a port near Mumbai in the coming months.)
India’s response to the Trump tariffs: “Opportunity of a lifetime”
The tariffs finally imposed by the US on Indian goods on April 2, Trump’s ‘Liberation Day’, bore no relation to actual Indian tariffs imposed on US goods. They were calculated by a completely arbitrary formula based on the extent of the US trade deficit with India.
When Trump imposed his ‘Liberation Day’ tariffs, India did not make a single critical comment, let alone take counter-action. Rather, the Ministry of Commerce said that it was “carefully examining the implications of the various measures / announcements made by the President of the USA…. The Department is also studying the opportunities that may arise due to this new development in the US trade policy.” An unnamed ministry official said that “It is a mixed bag and not a setback for India.”
Indeed, Indian officials have presented Trump’s policy in positive terms for India. On the issue of reciprocal tariffs, Minister for Commerce Goyal encouraged exporters to adopt a forward-looking approach and move beyond a “protectionist mindset.” According to Goyal, “We stand at a moment in history where India is well poised to convert the current situation into an opportunity. We have the opportunity of a lifetime.” (emphasis added)
What does this opportunity consist of? There are two arguments made by those who consider this an opportunity.
Firstly, while the tariffs levied by Trump on Indian goods are high, they may be lower than those on India’s competitors in different commodities. So India may be able to displace other countries exporting to the US. Moreover, India is scrambling to be first in line in negotiating a bilateral trade agreement with the US, which might give it a further edge over its competitors and thereby strengthen its foothold in the US market.
Secondly, since the principal target of Trump’s campaign is China, multinational firms (including US multinationals) exporting to the US might shift their production base from China to India, and even prefer India to Southeast Asia, since the latter is quite integrated with China.
Implications
The problem with the first argument is glaring. The explicit and non-negotiable purpose of Trump’s actions is to eliminate the sizeable US trade deficit with India. US exports to India were $42 billion last year; to close the US trade deficit with India, their exports to India would have to more than double. Unlike most trade agreements, which at least in theory aim to maximise the two-way trade between two countries, in a manner seen as mutually beneficial in the net, the explicit purpose of the bilateral agreement being negotiated between India and the US at present is to close the gap by increasing US exports to India, or reducing Indian exports to the US, or both. That is, there is no pretence on the US part that it will be mutually beneficial; it is explicitly designed to “make America great again”. It is only India that is making out that such a deal will be beneficial to it.
Hence this deal will most likely require a large expansion of US exports to India, and correspondingly a large displacement of Indian producers from the Indian market. If, due to the difference in tariffs levied on, say, India and China, India’s exports to the US do go up, India’s imports from the US too would have to rise to an even greater extent to ensure that the US does not have a trade deficit with India; and if imports from the US do not sufficiently grow, India will face increased punitive measures by the US. If, as the Indian authorities hope, a bilateral treaty is signed with the US, it is meant to ensure precisely such an outcome. To celebrate a possible rise in exports from India to the US as a result of a bilateral trade agreement is mindless, as it also means an even greater required rise in imports from the US to India.
India has already been facing an acute employment crisis, and any such opening to US imports will worsen that crisis. For example, The US is pushing hard for India to import US agricultural output, including dairy and cereals (the US massively subsidises its own agricultural producers). Nearly half of India’s workforce is directly employed in agriculture, and even a small increase in imports of such commodities will displace millions of Indian agrarian producers.
Moreover, once these producers were displaced by highly subsidised US producers, India might remain dependent on imports of essential food commodities (e.g. foodgrains and dairy products) from the US. India had more or less achieved self-reliance in edible oilseeds by the mid-1990s, but with its joining the World Trade Organisation, it opened itself to imports of edible oil; and now imports of edible oil account for more than half of India’s consumption. Mexico, the original home of corn (maize), is now dependent on imports of US corn. Thus the opening up of India to US agricultural imports is fraught with peril for employment, food security and national sovereignty.
The Indian authorities are also trying to reduce India’s trade surplus with the US by replacing imports from other countries with goods from the US. India’s Ministry of Commerce and Industry has “urged Indian industry players to explore areas where imports from China and other countries could be substituted with goods sourced from the United States”. There are obvious problems with this strategy.
Firstly, Indian importers have chosen to import from other countries for purely commercial reasons, such as price and availability. A large range of Chinese goods cost less than those made in other countries, which is why India imports them. (There may also be problems in getting the required goods in adequate quantities from the US.) Oil from Russia costs less than oil from the US, even if US oil were available in adequate quantities for India. An even more expensive energy source would be liquefied natural gas (LNG) from the US. The US is pushing India to sign long term deals for LNG. Costly inputs from the US would also increase the cost of production in India using those inputs.
Secondly, such trade diversion may invite retaliation from the countries whose imports into India will be displaced by US imports. And the retaliation may not be restricted to the specific commodities which are displaced. Once India collaborates with the US in throwing overboard all existing international trade agreements and international law, it opens itself to any type of retaliatory action. Already there are signs that China may restrict certain certain exports to India. There is hardly any field in which Indian goods are critical to China, but China is a critical supplier to India in a number of areas. For example, India is heavily dependent on China for bulk drugs (from which India makes formulations). Any disruption of bulk drug imports from China would not only disrupt India’s own requirements of drugs, but also its exports of pharmaceutical formulations, which are one of the most important exports from India.
In brief, in carrying out such a substitution, there are many uncertainties; all that is certain is that India’s trade surplus with the US, at present $46 billion, will get reduced or eliminated. Is there any likelihood of India running up a trade surplus of $46 billion with other countries to compensate? If not, it means that India’s overall level of demand will decline.
While the US was India’s single largest export destination in 2023-24, it constituted only 18 per cent of India’s exports. For the sake of this 18 per cent, it appears the Indian government is ready to disrupt trade with the remaining countries, with unpredictable consequences.
Such an approach, even otherwise stupid, is even stupider at the present juncture. UNCTAD’s latest (April 16, 2025) Trade and Development Report, Under pressure – uncertainty reshapes global economic prospects points out, “The international trading system is facing its most serious challenge since the Second World War”, due to the US’s actions. At the same time, it points out, the Group of Seven rich countries (the US, UK, Germany, France, Japan, Italy and Canada) are all undertaking major cuts in Government spending, driving down global demand. So UNCTAD suggests that developing countries step up trade amongst themselves, and particularly within their respective regions, to moderate the impact of the fall in demand from the wealthy countries. India’s rulers, however, appear to be focussed principally, even exclusively, on the US market.
Attracting investment by US corporations
The second ‘opportunity’ about which India’s corporate sector and government are excited is the prospect of large investments by multinational corporations shifting base from China to India, in order to cater to the US market. That is, setting aside the question of whether India gains in terms of net exports (which is what contributes to national income), Indian businessmen and their political representatives are enthused by the promise of a rise in the rate of corporate investment.
Indeed, India’s private corporate investment has been in the doldrums since about 2011, and has actually declined as a percentage of GDP over the last decade. Strenuous pleas to big business by the Finance Minister, the Reserve Bank of India, and so on have fallen on deaf ears, because the private corporate sector does not see adequate consumer demand to justify fresh investment.
In this situation, the authorities have been hunting for some way to revive private corporate investment, and they now believe that investment by foreign corporations shifting from China will do the trick. Thus Goyal pointed to the upside of Trump’s policies: “as far as India is concerned, there is a potential for an increase in manufacturing and the creation of additional jobs because it can attract big players in the global supply chain as India has been able to establish itself as a trusted and reliable partner and with a predictable business-friendly destination.”
In fact, this has been India’s effort since at least 2020, when India-China tensions rose in tandem with US-China tension. Amid the Covid-19 lockdown, Prime Minister Narendra Modi held a meeting with top ministerial colleagues to “capture a part of the supply chain that is expected to move out of China as global corporations look to diversify their production base in the aftermath of Covid-19”. India’s transport minister Nitin Gadkari viewed China’s weakened global position in the wake of Covid-19 as a “blessing in disguise” for India to attract more investment. India readied a land pool for such investment, and contacted an estimated 1,000 US multinationals. A Ministry of Commerce paper said the “ongoing COVID-19 crisis presents a golden opportunity for India and Japan to boost their already successful relationship.” The US pushed to create an alliance of “trusted partners”, including India, which it dubbed the “Economic Prosperity Network”.
The promised bonanza of foreign investment did not materialise (see Chart above), although Apple did shift a significant part of the last stage of its iPhone assembly to India. Those who view the Trump tariffs as an opportunity for India believe that bonanza will come now. A member of the Prime Minister’s Economic Advisory Council (PMEAC) says that US-China tensions represent India’s best chance, and India must seize the moment to attract foreign investors:
The regional trade diversion, which is likely to result from US actions, represents India’s best chance to better integrate into global value chains. The continual ratcheting up of US-China trade tensions is bound to accentuate “China Plus One” impulses, pushing both multinational companies and Chinese foreign direct investment (FDI) to look for additional homes in the region…. Countries like India, which are less integrated with the Chinese value chain, may be seen as more attractive regional havens to invest in to better access US markets…. Export buoyancy, in turn, could be just the tonic that India’s demand-constrained private investment is craving. None of this will be easy or fast. But the opportunity is presenting itself. The payoff from doubling down on reforms at this moment — when everything is up for grabs globally — could be very high. India must seize the moment.
Mark that not all foreign investment will be welcome in India: Goyal recently reiterated that the Chinese auto giant BYD may not be allowed to make cars in India with an Indian partner: “We will have to be cautious on whom we allow to invest in the country. We have to be cautious about our strategic and security interests”. (Large investment proposals by BYD and another Chinese auto giant, Great Wall Motors, were rejected by the Indian government in 2023.)
Emerging scenario
Let us spell this out a bit more clearly. The Indian rulers evidently see the world as dividing into rival trade and currency blocs, which are likely to also be strategic/military alliances. They see the US as heading one of these blocs; and they wish to sign up for it. They envision the growth of India’s economy as part of the growth of the US-led bloc. This also implies that India may be shut out of other blocs to one extent or the other.
Indeed, rival blocs do appear to be emerging at a global plane, though the situation is still so fluid that it would be hazardous at present to say what shape they will finally take. By the nature of blocs, each of these blocs would erect barriers to other blocs’ goods. This implies that, compared to the last 30 years or so, overall international trade would be depressed. As a consequence of the current chaotic developments, the US itself is sliding into a recession. Given the already poor state of the world economy; the worldwide havoc created by Trump’s tariffs; and the importance of US demand in the world economy, it is very likely that the world economy too will slump into a recession. Add to this the division of the world into rival blocs and the prospects seem very grim.
In such a great winter of global demand the notion that India can export its way to growth, even if it gets special access to US markets, is a fantasy. Let us set aside the fact that the contributor to growth is net exports, i.e., exports minus imports, and that figure is set to decline with the impending trade deal with Trump. Let us look solely at the scope for increased exports to the US. Since the US economy may itself may be entering a recession or even a depression, it is not going to provide a stimulus to India’s growth. Meanwhile India may shut itself out of other markets.
Irrationality or class rationality?
There is much else to be said on the apparent irrationality of India’s position on Trump. However, what is irrational for India is not necessarily irrational for the Indian ruling classes. The Indian ruling classes were initially shaped under the British raj, and the end of colonial rule did not take the form of a revolutionary break and a change in property relations. Rather, despite much turmoil in the preceding period, India saw a peaceful handover of power marked much more by continuity in Indian society than change. The class forces that came into power maintained the status quo in Indian society, in the main. While the agrarian sector underwent slow changes over the years, suffocating rural social structures kept the bulk of the vast peasantry in an oppressed condition and mired in various types of retrogressive thinking. Lack of thoroughgoing land reforms in favour of the primary producers stunted the rural market and fostered a culture of submission to authority and a lack of social dynamism.
India’s large capitalist class never entirely shed its roots in trading activities, i.e., it never became thoroughly industrial. Its narrow mercantile tendency was reflected in its lack of interest either in developing its own home market by ousting parasitic forces in agriculture, or in developing its independent technological capability. It remained focussed on a relatively narrow market of the better-off, which it catered to with repetitive imports of technology from suppliers from the developed world. Rather than enter into dangerous contention with the dominant international corporations, India’s large capitalists preferred to accommodate them; the profits forgone in this manner could always be made up through cornering various subsidies and outright gifts of assets, thanks to its intimate ties with the Indian State machinery. International capital did not view the Indian large capitalist class as a rival, but, in a sense, as a facilitator of its entry into India, through a class skilled in handling and manipulating the local political-economic environment. (We presented a portrait of one such Indian tycoon, Gautam Adani, in a recent article on this blog.)
It is in these conditions that the Indian ruling classes have decided to hitch their wagon to US imperialism, even in the present chaotic and crisis-ridden situation. This is the concrete form taken by “India’s time”, “India’s century”, and so on.
End of the export model
It is true that for some decades, several countries in East Asia, most importantly China, have managed to use foreign direct investment and exports as part of an overall industrial policy. As an essential part of this strategy, these countries carried out extensive State intervention and regulation of the private sector, undertook expenditure on education and research, and invested in infrastructure. All these countries had earlier undergone thorough land reforms. The productive forces of these countries, including the capabilities of their people, developed considerably over the course of these years. Their economies are surely some form of capitalism, with private capitalists owning vast wealth, and a large mass of working class which creates that wealth through its labour. But these are not neoliberal, ‘free-market’ economies. Their ruling classes and political structures have displayed a measure of strategic thinking.
India has not undertaken any of the pre-requisites for such development, neither land reforms nor the capability to regulate the private sector. Besides, the scope in the global economy for that type of export-oriented growth is rapidly closing now, or has closed. The Indian government’s plans for export-oriented growth are a pipe dream. Shaped by their historical origins and development, India’s ruling classes have not displayed the capacity for strategic thinking.
India no doubt needs some foreign trade. It needs to carry out some exports, as it also needs to make imports. But, (1) the present drive to increase trade with the US and other wealthy countries will lead to a dead end; and (2) most importantly, exports cannot be the crux of India’s growth strategy. That growth strategy must be focussed on the development of the home market: the growth of productive employment, and consequent demand for the ordinary goods and services which working people need.
The home market
At one time, 40 to 50 years ago, serious discussions on India’s development path gave a central role to the question of the home market. This question never lost its real significance, even as it was sidelined by the clever economists who have dominated the field since the 1980s. Now the home market is more relevant than ever.
In an export-oriented growth strategy, the home market gets suppressed in order to maximise exports. Wage growth must be kept down to make exports competitive – for example, if the wages of garment workers in India rise, international clothing brands will choose to produce from other countries. Domestic demand must be kept down, for if it rises, prices may rise, and make exports uncompetitive. For this reason, Government spending should be kept down. Taxation of corporate sector profits must be kept low, in order to attract foreign investment; and so the burden of taxation has to fall on consumption by the masses. Property rights too must be sacred, in order to reassure foreign investors of the safety of their assets.
However, the development of the home market requires the contrary processes, such as the growth of wages, increase in Government spending, and thereby domestic demand. Changes in property relations to remove parasitic forces in the agrarian sector, changes which have been pending since the end of colonial rule, are critical. A vast range of small producers, from self-employed persons to small industry, need protection, support and promotion. The potential market from this pattern of development is much larger than the export markets of which the Indian ruling classes are dreaming. Such demand would be much more dispersed, and for cheap items of mass consumption, with low profit margins. It would be unattractive to India’s big capitalists. Addressing this demands calls for the emergence of very different class forces.
The Indian ruling classes are not in a position to conceive of such a path of development for the country. What they hope to do is to pursue their own growth to the extent possible, if necessary trading away the interests of common Indians.
