The financial systems of the world are reeling under the biggest crisis of the last eighty years. Over last one month the central banks of various countries and the governments, led by US government, have announced one rescue measure after another. The US government has stepped in to bail out some of the biggest banks and insurance companies and save them from bankruptcy. Some failing banks have been taken over by other banks at the instance of the government. Central banks have pumped in hundreds of billions of dollars of money into banks to enable banks to meet their day-to-day cash requirements. All the central banks have together reduced interest rates for inter-bank borrowing so that banks may resume lending of money. American government has obtained the approval for spending up to Rs 31,50,000 crore ($ 700 billion) of peoples money to help failing American financial institutions. The total money already committed or spent by the various governments and central banks has touched a high of Rs. 90,00,000 crore ($ 2,000 billion), nearly twice India’s GDP.

The UPA government has been assuring the people of the country that the present crisis of the global financial system will have a marginal or no effect on the country and its people. It gave similar assurances last year when the first signs of financial crisis appeared in 2007 in the form of a home loan crisis in the US Yet the country and its people suffered the most severe rise in price of petroleum products along with very high food prices. The statements made by the Prime Minister, Finance Minister and other officials during the last few weeks too cannot be believed by the people.

The Indian state has been pursuing the policy of liberalisation and privatisation since 1991 and taking one step after another in this direction. India was always integrated into the world imperialist economic system, and it has become even more integrated as a consequence of liberalisation. Indian and foreign finance capital flow freely into and out of our country. The UPA government is bluffing and pulling wool over peoples eyes when it declares that Indian economy will not be affected by the crisis of global finance capital institutions.

The effects of the crisis are already visible in a number of areas in the country:

For Indian people all the above factors have either direct or indirect impact on their lives.

External trade – imports and exports – will be directly adversely affected. External trade of India constituted 48% of GDP in 2006-07 as against only 29% in 2000-01. Due to a sharp slowdown of the economies of the US Europe and Japan, demand for Indian exports and prices of exported goods will both come down. Indian exporters will close many of the production units and render thousands of people jobless. The level of exploitation of people working in exporting units will further go up to take care of drop in export prices. People working in textile, garment, leather, jewellery are likely to be hurt the most. Exports of Indian minerals and manufactured goods will be hurt severely. Iron ore exports (Rs 29,000 crore in 2007-8), from India have come down very sharply during August and September, due to a cessation of imports into China, the largest importer. People working in these mines will find themselves without a job in the coming months.

A large number of people in the country work in the IT and BPO industries to provide various kinds of services for American and European companies. The crisis will have an immediate impact on the jobs of people working in these segments.

With a sharp rise in the value of Indian rupee, all imports will become costlier. Particularly worrisome for people will be the rise in price of cooking oil which is imported in large quantities to meet the demand of the country.

All the above factors will lead to a drop in the growth rate affecting people working in all key sectors like automobile, steel, cement, IT, bank& insurance, etc. The growth rate of the Indian economy will be further hurt by lack of capital to build new large plants, roads, ports, etc. as availability of foreign capital will drastically reduce.

A lot of savings of working people has been invested in mutual funds as well as in stocks of various companies. As part of the liberalisation of economy, successive governments have cut back interest on savings in banks and pushed people to invest their life savings in the stock market. The crash in the stock market means the wiping out of large proportions of the savings of the people.

The government had in recent years encouraged people to invest in housing, by making available cheap credit for housing. This had also given a boost to the housing industry. A few months back, in line with the US, the Indian government increased the interest rates on loans, increasing the debt of lakhs of people who have taken loans. People are finding it difficult to pay their instalments.

Indian banks have lent large sums of money during the last few years to maximize their profit; these have been lent without any security being provided by the borrowers. Unsecured loans by banks have shot up to 44% in 2007-08. The top 20 borrowers account for 56% of the total unsecured loans. With the growth rate falling, profits coming down and many of the projects remaining incomplete due to lack of capital, all the unsecured money lent by the banks is unlikely to be returned.

The Indian banks, under control of the government, will be pushed to write off the loans to the big capitalists. They will be pushed to give more loans to the biggest corporations, and to shore up the stock market, and this is nothing but an indirect way of making people pay for guaranteeing the profits of the biggest monopolies. It cannot be ruled out that by pursuing this course, some of the Indian banks themselves go bankrupt.

The world economic crisis is already hitting India. As always, the government of the capitalists will ensure that it is the working masses that bear the burden of this crisis, while the monopolies are bailed out using public funds. At the same time, the ruling class parties will increasingly resort to state terrorism, to the organising of sectarian violence to paralyse the people’s resistance. Thus a very difficult situation confronts our working masses.

The developing situation shows that capitalism is a system that develops only by periodically destroying productive forces, human as well as material, at the altar of greed for maximum profits. The capitalist system needs to be replaced by the socialist system, in which the means of production will be in the hands of society, and economy will be oriented towards fulfilling the growing needs of the working masses and the future generations. The course of liberalisation and privatisation pursued by the successive governments has ensured massive profits for the Indian big bourgeoisie, and it has increased the poverty and insecurity of working masses at the other pole. Now the times call on communists and working class activists to fight for a complete halt and reversal of the liberalisation privatisation program, and to rally people around the necessity for replacing the capitalist system with a modern socialist system.