The crash and PC

From the outset, the FM and the government were determined to increase the FDI cap in insurance from 26 to 49 per cent. They wanted to facilitate the takeover of Indian private banks by foreign banks by allowing them upto 74 per cent stake. The FM was also spearheading the move to put in place the New Pension Scheme which would allow pension funds to be privatised and invested in the stock market. On top of all this, the prime minister had declared that India would go in for full capital account convertibility.

The Left parties strongly opposed all these measures. The FM could not hide his impatience: 8220;If India has to grow at 9 per cent plus continuously, its financial sector has to be modernised with the slew of reforms in the banking, insurance and pension sectors8221;, he declared last December.

Drawing on Asia8217;s experience in the 1997-8 crisis, the Left parties put up cogent arguments against deregulation of the financial sector and further opening up of the insurance sector to foreign capital.

The finance minister in his recent remarks was prompt in his assurance that the Tata-AIG enterprise was on a sound financial basis. AIG has been in the forefront in lobbying for raising the FDI limit to 49 per cent in the insurance sector. Frank Wisner, the former US ambassador to India, is currently the vice chairman of AIG. He has been instrumental in lobbying the Indian government to open up insurance further. Wisner was ambassador to India when the agreement with Enron for the Dabhol project was finalised. He played a key role in pushing through the controversial project and then joined Enron8217;s board in 1997. Both with Enron and in insurance, those at the helm whether it be the FM or then finance secretary Montek Ahluwalia, now at the Planning Commission were working in concert with US lobbies.

The Left parties had pointed out in their note cited above, as early as in 2005, the record of companies like AIG, specifically mentioning the questionable reputation and quoting news reports. Chidambaram would also know that Maurice Greenberg, then chairman of AIG, was removed in 2005 for accounting fraud. It is this company which the Bush adminstration has given a 85 billion bailout!

Deregulation of the financial sector in the US unleashed financialisation of the economy and concentrated power in the hands of a small group of financial companies. Investment banks played a key role in this restructuring. It was this unbridled financial speculation through the use of dubious instruments driven by greed for quick profits which led to the current meltdown.

The FM is aware of this, and yet insists on financial sector reforms. Far from ensuring 8220;regulation ahead of innovation8221;, bringing in companies like AIG into insurance and Citibank into banking, and capital account convertibility, would ensure complete deregulation of the financial sector.

This crisis must open the eyes of all the political parties who have uncritically supported financial sector liberalisation. Can they be unconcerned about the pension rights of millions of central and state government employees? The New Pension Scheme initiated by the centre and backed by the BJP state governments, if implemented, would lead to thousands of crores of rupees of the employees going into the stock markets, subject to wild fluctuations beyond the control of any regulatory authority. The net result would be that the employees would get pension less than what they are getting in the earlier scheme, i.e. 50 per cent of their last salary.

It is time that the prattle about financial sector reforms is ended. Let there be a serious effort to put in place measures to strengthen our financial sector in a manner which would safeguard the country8217;s economy and contribute to sustained development.

The writer is the general secretary of the CPI M. Excerpted from an article in People8217;s Democracy