Opening doors wider to Foreign Direct Investment is a Dangerous Course

Statement of the Central Committee of Communist Ghadar Party of India, 16th July, 2014

BJP led NDA government is gambling with the fate of our country to serve the imperialist drive of Indian capital to join the global big power club

Presenting the first budget of the BJP-led NDA Government, Finance Minister Shri Arun Jaitley announced the decision to permit 49% foreign ownership in the production of armaments and other supplies for the armed forces, and in insurance business. He claimed that foreign capital investors were being invited in sectors where they would create jobs or fill a “capital shortage”.

Foreign direct investment is one of the forms in which foreign capital enters our country. It is a form of investment through which foreign capitalists gain a controlling share of ownership of the assets of a company that operates in our country. They gain the power to exploit Indian labour and keep pocketing a steady stream of profits for as long as they wish. (See the Box below for other forms of foreign capital inflow).

A foreign partner who owns 49% of a company effectively exercises control as the biggest shareholder. The remaining 51% would generally be distributed between an Indian capitalist partner, one or more financial institutions and numerous individual shareholders.

The previous Congress Party-led UPA Government had opened up various sectors for foreign direct investment (FDI) including mobile telephone industry, automobile manufacturing, power generation and BPO services. There was a boom in FDI inflows from US$ 8.9 billion (Rs. 35,000 crore) in 2005-06 to US$ 34 billion (Rs. 1,53,000 crore) in 2007-08, until the global financial crisis broke out. Foreign investments slowed down in the immediate aftermath of the global crisis.

Forms of Foreign Capital Inflows

Foreign capital enters India in the form of foreign direct investment (FDI), portfolio investment, commercial credit, corporate bonds, inter-bank deposits and official loans to the government. Portfolio investments are mostly of a short-term speculative nature; foreign banks and companies park their capital temporarily in the Indian stock market, without always seeking control. It is a channel that can also be used by foreign companies to acquire controlling shares of existing Indian companies, whereas FDI generally refers to the creation of new assets through new investment projects.

In the early decades after India’s independence from colonial rule, international finance capital flowed into our country mainly in the form of official aid and credits, through bilateral and multilateral agencies, led by the World Bank. Starting in the decade of the nineties, portfolio investments, FDI and other forms have grown rapidly. Private capital inflow is by now larger than the official loans and credits.

The attempt of the UPA Government to open up multi-brand retail trade for FDI led to widespread opposition among workers, peasants, shopkeepers and small-scale manufacturers, whose livelihood was threatened. There was also opposition among sections of capitalist merchants and large-scale farmers, leading to deep division within Parliament. Against this backdrop, the present government is keen to show that it can do better than the previous one in terms of opening the doors to foreign capital in several strategic sectors.

Endangering National Sovereignty

Permitting foreign ownership and control of vital parts of the means of social production and exchange in our country means to give foreign capitalists the power to influence the course of the Indian economy. Control over banking, insurance and a military-industrial complex could give foreign powers a vital handle over the fate of India.

Experience of the past two decades shows how foreign investment has already impinged on national sovereignty. The Government of India has not only submitted to the conditions imposed by the World Trade Organisation but also entered into regional trade agreements, such as with the countries of South-East Asia. Lakhs of workers and peasants have suffered the loss of their source of livelihood as a result of the sudden surge in imports resulting from such agreements.

India has signed bilateral investment promotion and protection agreements with 82 countries since 1994. Foreign multinational companies have frequently invoked these agreements to drag the Government of India to international arbitration tribunals. This arbitration mechanism was set up by the World Bank and other western imperialist agencies. It is biased towards protecting the interests and claims of capitalist investors.

The Supreme Court’s ruling to cancel the 2G spectrum licences of 122 private licensees has been challenged by two multinational telecom companies, which have invoked the provisions of treaties India had signed with the governments of Russia and Singapore. Vodafone, a multinational company based in Britain, has through its Dutch subsidiary invoked the provisions of the India-Netherlands investment treaty to challenge the tax demand of the Government of India.

The so-called investment promotion and protection agreements violate the right of the Indian State to lay down the law applicable to all investors in the country, Indian and foreign. Instead of learning the lesson and fighting to cancel or change these agreements, Government of India is going further down the road of laying out the red carpet to foreign profiteering companies.

No Indian can afford to forget the consequences of the firman issued by Emperor Jehangir about 400 years ago, permitting the British East India Company to set up shop on the territory of Hindustan. They came as merchants and over time they became occupiers and rulers of our land and society. They dictated what would be produced in the country and for which market, suited to maximise their own profits. It took hundreds of years of struggle, with lakhs of patriots sacrificing their lives, for India to gain freedom from colonial enslavement. Why should foreign capitalists once again be invited to own the means of social production and exchange in our country? Why should Government of India be laying down the red carpet for foreigners to reap maximum profits from insurance and defence supplies, in addition to banking and industry?

The fact that BJP is marching vigorously along the same dangerous path traversed by the Congress Party, despite all its promises of change, confirms once again that both these parties represent the same class interest. They both represent the interest and aim of the Indian monopoly capitalists to achieve rapid rates of growth in their capital and join the global big power club. They care more about the rate of growth of capitalist wealth than about national sovereignty. They deploy different slogans to promote one and the same program of globalisation of capital and production, through liberalisation and privatisation. They are willing and eager to gamble with the fate of India to serve the imperialist drive of Indian capital to attain global big power status

Imperialist offensive in this period

The disintegration of the Soviet Union was engineered and utilised by the imperialist powers, headed by the United States, to get out of the deep crisis in which the global capitalist system was caught at that time. The monopoly capitalists of the world were desperate to find new avenues for raking in maximum profits. The former republics of the Soviet Union and the countries of Eastern Europe provided them with such avenues.

Since the decade of the eighties of the 20th century, US imperialism, at the head of world capital, started advocating the elimination of all barriers to the free flow of capital across national boundaries. The theory that free trade and capital flows would benefit all nations of the world is referred to as the Washington Consensus. It was concocted in the offices of the World Bank and IMF and spread throughout the world. Ronald Reagan in the US and Margaret Thatcher in Britain championed the launch of liberalisation and privatisation policies under the banner of “free market” reforms, while Gorbachov in the Soviet Union promoted a similar capitalist reform program under the signboard of glasnost and perestroika. The countries of Latin America were among the first victims of this offensive, with many of them caught in a deep debt crisis by the end of the eighties.

With the final disintegration of the Soviet Union, the leading imperialist powers headed by the US signed a declaration called the Paris Charter. They declared that market oriented economic reforms, multi-party representative democracy and the old European bourgeois definitions of civil liberties and “human rights” would be the yardstick to judge if any national government was acceptable or to be branded as a rogue state. The US began to openly disregard the principles such as mutual respect for the right of nations to self-determination and non-interference in the internal affairs of sovereign states, principles that had been internationally accepted after the end of the Second World War.

The majority of governments in the world have come under pressure in this period to open up their economies to international trade and capital flows. New institutions and mechanisms have been created, including the World Trade Organisation, to break down national boundaries and interfere in the internal affairs of sovereign states. Those states that resist this pressure are being targeted with sanctions and presented in the media as if they are demons.

The global experience of the past three decades shows that far from all-round benefits to all nations and peoples, it is the capitalist monopolies of the more developed imperialist countries that have cornered the lion’s share of the benefits from international trade and investment flows. Globalisation has accelerated the process of concentration of wealth in fewer and fewer hands at one pole, and the intensification of exploitation, insecurity and poverty at the other pole.

Nobody is able to hide the reality that in this 21st century, the concentration of wealth and inequality of incomes have grown to an unprecedented degree all over the capitalist world.

Nobody can hide, either, that the lowering of barriers to the flow of capital and commodities, under the banner of globalisation and “free trade”, has served US imperialism to (i) strengthen its dominant positions in Canada, Mexico and several central and south American countries; (ii) penetrate Eastern Europe and the former republics of the Soviet Union; and (iii) implement its diabolical plans for the conquest of Asia.

Free flow of finance capital has been accompanied by blatant imperialist interference in the internal affairs of sovereign states. This includes outright aggression and military occupation as in Afghanistan and Iraq, as well as incitement of civil war to topple regimes that are not suitable for US imperialism, as in Libya and Ukraine. Imperialist powers have not only brought down elected governments but also broken up existing states and formed new ones suited to their hegemonic aims, as in Yugoslavia in the nineties and currently being attempted in Syria and Iraq.

Many peoples and governments in Latin America, Africa and Asia are waging a just struggle to prevent foreign multinational companies from controlling and plundering their crude oil, minerals and other natural resources. Working people and youth within the US are protesting against the wrecking of their national economy through militarisation and wars leading to an unprecedented level of public debt. All over the world, more and more nations, peoples and governments are questioning the wisdom of lowering all barriers to the flow of finance capital.

Large sections of workers, peasants, women, youth, scientists, environmental groups and others in India have been persistently opposing the privatisation and liberalisation measures. However, the rulers of India are continuing to propagate the imperialist theory of globalisation, claiming that opening all doors to foreign capital would enable India to develop rapidly.

The rulers of India are wedded to the path of globalisation of capital because they themselves are on an imperialist course. Indian monopoly capitalists are today engaged in a race with the monopoly capitalists of other countries. They want barriers to be lowered for the investment of Indian capital in foreign lands.

As of 31st March, 2012, Reserve Bank of India estimated the accumulated stock of Indian direct investment abroad at $112 billion (roughly Rs. 5.5 lac crore). The accumulated FDI stock in India on that date was $220 billion (roughly Rs. 11 lac crore). In other words, Indian capitalists’ investments abroad are half as much as foreign capitalist investments in India!

When colonial rule came to an end in 1947, there was widespread sentiment among our people against foreign companies and against imperialist interference and domination. The big capitalists of India wanted to avoid competition from foreign capitalists at that time. They wanted to first build up their industrial base and establish their own domination over the home market. For all these reasons, they decided to restrict the space for foreign controlled companies to a few sectors where they were already well entrenched. A state-owned heavy industry and infrastructure sector was built; high import duties were levied on goods that Indian private companies could produce; and entry was restricted or closed for any new private foreign company.

Foreign capital did play a role in shaping India’s development in the early decades after independence, but it was mainly in the form of official aid and credits. There was negligible flow of foreign capital through private channels, either as FDI or as portfolio investment.

The policy of protecting the home market from foreign capital and foreign-made consumer goods, and the development of a state monopoly sector of industry and finance served the big capitalists to become bigger and achieve their aim of becoming an industrial power. It was presented to the people as a “self-reliant” path and a “socialistic pattern of society”.

By the decade of the eighties, this path of developing capitalism had entered a period of all-round crisis. Workers, peasants and other oppressed sections of the people were angry that the “socialistic pattern” had not fulfilled their needs and aspirations. The big capitalists needed new avenues for their expansion, having already established their domination over the state monopoly sector and the protected home market. The slogan of modernizing India in preparation for the 21stcentury was advanced by Prime Minister Rajiv Gandhi. Steps were taken to lower import barriers, gradually devalue the Rupee and extend more export incentives.

The first phase of the liberalisation and privatisation program was decisively launched in 1991, with a one-time 25% devaluation in the Rupee and lifting of licensing requirements for capitalist investors. It was launched by the minority coalition government led by Congress Party and headed by then Prime Minister Shri Narasimha Rao. It showed that international finance capital, headed by US imperialism and operating through the World Bank and IMF, had succeeded in winning over a section of the Indian big bourgeoisie to begin the process of opening up India for maximum imperialist plunder.

Over the past two decades, the Washington Consensus and associated policy prescriptions have permeated from the centre down to the level of state governments and their bureaucrats. The World Bank has extended numerous policy-linked loans to state governments, towards aligning all policies and regulations to suit foreign capitalist investors.

The bourgeois class has in the main united behind the program of globalisation through liberalisation and privatisation. State institutions, rules and regulations have been restructured to suit the requirements of global and Indian multinational companies and big banks. Some new institutions have been created, including so-called independent regulatory commissions in various sectors to deal with private players delivering public goods and services.

Indian capitalists view foreign capital as a factor that can accelerate their own growth and global expansion. By expanding access of foreign capitalists to various lucrative markets in our country, Indian capitalists hope to gain access to foreign markets. They want to keep taking out massive amounts of capital every year to invest abroad, and want massive amounts of foreign capital to steadily flow into the country every year.

In the case of armaments and weapons production, Indian monopoly houses are hoping to become arms exporters by collaborating with foreign arms manufacturers. In the case of insurance, foreign monopolies backed by their respective imperialist states have been pushing for this sector to be opened up, viewing it as a massive potential market which is largely still to be tapped. Private hospitals are looking for enormous benefits from the expansion of capitalist health insurance.

On the world scale, the rising productivity of human labour is resulting in the tendency for the average rate of return on capital to decline over time, as predicted by the theory of Karl Marx. Not satisfied with anything less than the maximum rate of profit, finance capital is finding ways to counteract the tendency for the average rate of return to decline. One of these ways is to shift capital to areas where it is possible to achieve exceptionally high degrees of exploitation of labour, loot of natural resources or robbery of people’s hard-earned savings.

Thus, for instance, Indian companies find it highly profitable to invest in mining and food processing in African countries where land is extremely cheap compared to our country. American and European companies find it highly profitable to invest in the Indian financial services sector, retail trade, automobiles and telecom sectors, largely because of the availability of cheap skilled labour power and the large size of the population and our savings.

The result of the global inter-connectedness, driven by the unlimited greed of finance capital, Indian and foreign, is a rise in the degree of exploitation and plunder, a rise in the degree of foreign interference and control and an extremely skewed and uneven development of the economy of our country.

On the one hand, there are investments that have taken place or soon to take place to produce and export all kinds of modern weapons, automobiles, mobile phones, IT services for export markets, etc. On the other hand there is no increase in the production and availability of pulses, fish and meat. Such sources of protein have become unaffordable and there is massive and widespread malnutrition among the population of our country.

Eliminating all barriers to the free flow of capital has not contributed to solving the problems of the economy of any country. On the contrary, it leads to the wrecking of national economies. This is what the historical experience shows. Growth in foreign investment leads to more rapid concentration of capital and higher degree of monopoly power in the hands of the biggest private profiteers. It leads to wholesale destruction of human productive forces and livelihoods. It accentuates the destruction of the natural environment and eco-systems.

Necessity for Change in Orientation

The main problem with the economy of our country is that it is oriented towards profit maximisation. Both private and public sector companies and banks are engaged in the pursuit of maximising profits for the capitalist class.

Instead of the social surplus being put back into the economy to create employment and to fulfil human needs, massive amounts of capital lie idle or are invested in speculation. Massive amounts are exported to earn profits in markets abroad.

Capital, which is nothing but accumulated surplus value created by human labour, is not being deployed where it is most essentially required. It is being deployed only in such ventures that will yield maximum financial returns. When those in control of finance capital are not assured of maximum profits from productive investments, they deploy their capital for purely speculative ventures, as well as for corrupt, criminal and destructive ventures including militarisation and war.

Solution to the problems of the Indian economy requires a fundamental change in its orientation. Maximisation of private profits of capitalists has to be replaced by the maximisation of the degree of fulfilment of the rising needs of the entire population, as the overriding orientation of the entire economy. This is the change, the parivartan, which is actually required.

This change in economic orientation cannot come about merely by the replacement of one party by another through the existing electoral process. It can only come about if the working class unites around this aim and single-mindedly fights for it, rallying the toiling peasants and other exploited and oppressed sections in the struggle.

The working class has to lead the struggle to change the class nature of political power. The electoral process itself has to be changed as also the system of forming governments and exercising political power. The rule of the capitalist class must be replaced by workers’ and peasants’ rule. New political institutions and a new fundamental law are needed to ensure that the fulfilment of human needs according to a scientific plan becomes the goal and orientation of the economy; and to ensure that no private profiteering interest is allowed to come in the way.

Under workers’ and peasants’ rule, all available resources will be invested to produce adequate food, clothing, shelter, education, health care, safe drinking water, transport, electricity and other essential goods and services for all members of society. All available hands will be employed to achieve the enormous increase in production required to provide for all. Every person of working age will be guaranteed full-time remunerative employment.

The workers’ and peasants’ state will take immediate steps to ensure that all available financial resources are deployed for investing to raise the living standards of the toiling majority and fulfilling the basic needs of all. This includes steps to prevent banks and insurance companies from playing with the nation’s savings to reap maximum profits. It also includes steps to prevent the surplus produced by the toil of Indians from being invested abroad in pursuit of private profits.

The workers’ and peasants’ state will firmly shut the door to any new foreign investments in banking, insurance and other financial services. It will immediately nationalise the existing foreign and Indian private banks and insurance companies. It will take steps to orient the nationalised banks and insurance companies, old and new, to serve the general interests of society.

Foreign trade must complement the efforts of our own workers and peasants to produce all the goods and services we need. Imports and exports must be centralised and managed by the state in the general interests of our society. It must be for mutual benefit of the trading partners. It must not impinge on the sovereignty of any state to set its own internal policies. These are the principles that would govern the policy towards external trade under workers’ and peasants’ rule.

Foreign capital investments must not be permitted except in very few exceptional cases, such as when there is no better way to acquire some specific technology. However, the total exposure to foreign ownership of capital must be kept strictly within tight limits. On no account must workers’ rights or national sovereignty be violated to satisfy foreign investors. These will be the principles governing the policy towards foreign capital under workers’ and peasants’ rule.

Modernisation of the productive base and the transport, storage and distribution infrastructure will all be undertaken by the new state with the motive of fulfilling the needs of the entire population. A new direction will be set for society, based on a planned, self-reliant economy.

Systematically, the social surplus will be taken out of the hands of profiteering capitalists and brought under the control of the workers’ and peasants’ state power. The means of production will be converted from private to social and collective property, thereby eliminating all forms of exploitation of labour for private profit.


Opening up to foreign capital is not being done to create employment or for filling a so-called capital shortage. It is being done to satisfy the unlimited greed and imperialist aims of the monopoly capitalists. There would in fact be no shortage of capital in our country if the big capitalists are prevented from taking out massive amounts every year in pursuit of profits abroad.

Opening all doors to foreign capital is a course that poses serious dangers to national sovereignty. It will further aggravate the unevenness and imbalance in the economic development of our country. It is aimed at further intensifying the joint exploitation and plunder of our land and labour by Indian and foreign capitalists. It is completely against the interests of the toiling majority of people. It is against the general interests of Indian society.

This year is the 155th anniversary of the Indigo Revolt, when the peasants of Bengal refused to grow the indigo plant, from which the British East India Company made blue dyes for selling at a huge profit in the European markets. It was precisely to end the foreign control and plunder of our land and labour that innumerable Indian patriots made supreme sacrifices in the struggle to end British colonial rule.

On the eve of the 67th Independence Day, the sovereignty and independence of India is being gambled with, to fulfil the imperialist aims of the big bourgeoisie.

Communist Ghadar Party calls on all organisations of workers, peasants, women and youth, and all patriotic and freedom-loving citizens of the country to oppose the dangerous course along which the BJP and Congress Party are dragging our country.

Step up the struggle against the program of globalisation through liberalisation and privatisation!

Immediate halt and reversal of the process of opening up further to foreign capital!

Immediate halt to Indian companies taking out capital generated by our labour in pursuit of private profits abroad!

The wealth we create must be deployed to secure our well-being!

Let us prepare to seize the reins of power from the hands of the capitalist class and its parties!

Let us prepare to bring about those changes in economic orientation and the political system that will empower the working class and toiling majority of people, lift Indian society out of crisis and open the path for its all-round progress, guaranteeing prosperity and protection for all!


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Defeat Privatisation    protection agreement    national sovereignty    investment promotion    imperialist drive    Foreign Direct Investment (FDI)    foreign capital    capitalist    BJP    Aug 1-15 2014    Statements    Economy     Privatisation   

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