Left is never right – Proponent’s view

Proponent’s view

As the proponent, let me first clearly set out the key terms and the scope of this debate. By ‘Left’, I mean the group of political parties in India that are popularly classed as subscribing to a communist ideology, the most important (in terms of the number of seats held in the previous election) of which are the CPI(M) and the CPI. Also, I interpret ‘right’ in the moral/ethical sense of ‘right or wrong’. Moreover, as this debate is to be held in the context of the current Lok Sabha elections, and due to lack of writing space, I restrict the scope of the debate to the economic policies that the Left parties propose to enact if voted into power. I must also note at the very beginning the word ‘never’ in the motion. It is impossible to propose the motion with this, as it is too extreme. I don’t contest that in certain circumstances and on certain issues, the Left may have got it right; rather I believe that the sum total of their policies will do more harm than good. I will thus try to prove the Left, with regards to its desired economic policy, is generally not right. In doing so, I shall focus on increased state intervention, inflation control and industrial policy.

In its manifesto, the CPI(M) states that it wishes to enhance state intervention by increasing Plan Expenditure to 10% of GDP (currently below 5%). This is in line with the Marxist ideology, of course. The only problem is that to spend money, you need to raise it first. What is the Left’s solution? The CPI(M) believes in ‘scrapping the Fiscal Responsibility … and raising borrowing limits of State Governments’ (p.14). Right. So we let the fiscal deficit spiral out of control. I wonder if the Left is familiar with the terms ‘debt crisis’, ‘Latin America’ and ‘the 1980s’. If we are to avoid a crisis, we will have to increase tax receipts. There are some proposals (p.15) like the Capital-Gains Tax and increased Wealth Tax for the rich, but the potential increase in tax receipts due to these are very small. A quick look at any budget document will confirm that the primary source of tax receipts is income tax in developed countries, and commodity tax (like sales and excise taxes) in developing countries. So raising 10% of GDP in taxes would necessarily involve jacking up income and commodity taxation, something which will clearly increase the burden on the aam aadmi that the Left so fervently claims it fights for.

On price rise (p.17), the CPI(M) proposes to cut petroleum products prices by lowering excise and customs duties on petroleum. This will reduce tax receipts and add to the fiscal deficit. It also favours price regulation via the public distribution system. India’s experience with both these pre-1992 is enough to show that the PDS in India is extremely inefficient and corrupt, and that price regulation leads only to hoarding and black-marketing. Moreover, the Left also wants to abolish pay cuts and strengthen unions, which would lead to wage increases. This will increase the purchasing power of people without a corresponding increase in goods and services, which means that the prices of goods and services must rise – inflation!

On industry (p.18), the main themes are stalling disinvestment and privatization, increasing protection via tariffs, restricting FDI and doing away with SEZs.

1. Stalling privatization is strange, considering it is a well known fact that the private sector can run operations much more efficiently than the public sector. This is due to many reasons, foremost among which is that the management in a private firm has a vested interest in the firm doing well, as they are usually major shareholders and can be fired if they do not perform, whereas in a public sector there is no incentive to perform. Employees cannot be fired, so the worst that could happen is a transfer. There are other problems as well, like the organizational framework of most PSUs, which are usually headed by a minister with no practical industry experience.
2. Increasing tariffs again reduces efficiency, by artificially raising prices of foreign goods. India’s entire argument in the WTO talks on agriculture have been that developed countries subsidise their agriculture, thus making their products artificially cheap, which hurts the agricultural produce of developing countries. If India artificially raises prices of foreign goods, our trade partners are sure to retaliate by doing the same. Imagine if we had to pay even more for oil!
3. Restricting FDI and doing away with SEZs also makes no sense, as it sets up business units that assist in job and income creation. The fact is we don’t have the resources to invest in those projects. In the absence of FDI, those jobs and that income would not be generated at all.
4. SEZs again attract foreign capital that helps setting up job and income generating business enterprises.

Lastly, let me now provide some empirical evidence from our own country. Through the 1950s, 60s and 70s, India has followed economic policies involving a large public sector, high tariffs, price regulation and restriction of foreign capital. Contrast this with the last decade and a half where we have embraced globalization, liberalization and the market economy. It is well documented that in the era of Left leaning policy, India’s real GDP grew at rates well below 5% per annum, sometimes turning negative. Since the 1992 reforms, we have consistently grown at well over 5% per annum. The investment rate has increased from 10-15% of GDP to 20-26%. Also, the Left’s claim that the benefits of growth have been restricted to the rich is plainly false, as a quick Indiastat search reveals that before 1980, the proportion of Indians living below the poverty line was consistently over 50%, whereas after the economic reforms, it has decreased from 35% in 1993 to 21% in 2005.

I thus rest my case, and look forward to the opponent’s response.