The hoopla from the exit polls during the recent Lok Sabha election exposed links between the political leadership of the Narendra Modi government and the economic leadership of big speculative capital, locked with each other in a double helix structure.
For those of us who may not have followed, the Indian stock market witnessed an all-time high on June 3, right after exit polls predicted that the Modi alliance would win a decisive majority. The predicted numbers danced around “400 paar (beyond 400 seats)” – a prophecy the Prime Minister had repeated in many of his initial campaign speeches. Within the next 24 hours, as the vote counting began to suggest that the Modi alliance was unlikely to win an overwhelming majority, the stock market suffered the worst intraday fall since the COVID-19 lockdown in March 2020, wiping out around Rs. 30 lakh crore from the market in a matter of few hours.
While ‘who exactly profited from this’ is a matter of proper investigation, the episode nonetheless demonstrated a direct interdependence between the top political and economic powers in the current economic system. A few months prior to this, the electoral bonds case had exposed how many big corporations might have obtained privileged protection and immunity from law by donating part of their wealth to the ruling party, through such bonds.
This exit poll-stock market “scam” is in fact only the tip of the iceberg of a system that is based on speculation and gambling at the cost of millions of poor families on the edge of survival. The 2024 electoral mandate of neglected India that showed a lack of trust in an autocratic government must also be seen as a vote of no confidence against such speculative capital interests feeding such a government and its policies.
Debt fuelled ‘growth’
Over the last 10 years, the Modi government channeled large amounts of transnational investments into the domestic economy, through private equity. The only way this capital influx ‘trickled down’ to the majority of the population was through shrinking consumption, high rates of unemployment, stagnant real wages, evaporating savings, severely low welfare spending and systematic dismantling of social infrastructures such as public health, public education, and even access to basic food supply, altogether resulting in skyrocketing household indebtedness.
According to the RBI Annual Report of 2023-24, household debt levels was up to 38% of GDP in 2022-23, an all-time high, with the only exception of 39.1% of GDP recorded in the pandemic. Local studies by Isabelle Guerin and others working in rural Tamil Nadu, have pointed to soaring levels of indebtedness (99%), much higher than in the national level surveys.
Debt-to-Asset ratio trends for rural and urban India. Source: AIDIS reports.
This indebtedness in particular has come to rest with women, who are often the last person responsible for ensuring basic survival needs for the family, along with being a full-time wage worker. The past decade in particular has created millions of such indebted women who have been forced to depend on the capital market, through MFIs, for their daily sustenance including basic food. This has only further deepened existing casteist and patriarchal controls, by inflicting and legitimising violence on women and Dalit women, in particular.
Private transnational capital, and the MFI gamble story
The economics of the Modi regime has been a vicious loop of dispossession-speculation-indebtedness. First step is to dispossess the people by taking away their lands, jobs, schools, hospitals, rivers and forests, selling them off to the brokers of big capital. Subsequently, ‘injecting’ a portion of the profit into the same dispossessed people, as debts for survival.
The debt trap
A key piece in this loop are the microfinance institutions (MFI) lending to the poor. This June 4, when the financial markets came crashing down, the share prices for the largest MFIs operating in India also dropped significantly. While the narrative is that these MFIs are “eradicating poverty” and “banking the unbanked”, in reality, they are making record profits by connecting big speculative capital to poor women borrowers in India.
Consider two cases of Equitas Small Finance Bank (which started off as a NBFC-MFI, but eventually received its banking licence in 2016); and Belstar, a NBFC-MFI, also a subsidiary of Muthoot Finance. Between 2011 and 2016, both MFIs greatly benefited from the microfinance frenzy from the richer countries in the Global North, receiving transnational capital of Rs 325 crores and around Rs 200 crores respectively, from the UK, Germany, Netherlands, World Bank, and Swedish and Danish development banks.
In order to make a profitable business out of lending to the economically vulnerable, the MFI machinery are engaging in the process of ‘securitisation’ (the same process that caused the US sub-prime crisis of 2007-08), to facilitate speculation and gambling on primarily working class women’s perpetual state of indebtedness. While the American bets relied on mortgage payments of low-income house owners in urban America, the MFI bets rely on regular interest repayments by MFI borrowers in rural India.
How does securitisation work?
Such women’s unpaid loans are grouped into different high and low risk categories, and packed into tranches or ‘Special Purpose Vehicles’ (SPVs), and sold to investment banks or private equity funds who further sell these to the next layer of investors. This raises ‘new’ money for the MFI which is then lent back to the women borrowers at astronomical interest rates. In this way, both the MFI and the investment bank receive immediate cash and the risk of the loans are transferred to the final investors, many of whom can (at least temporarily) cover potential losses from such investments, given their investment in diverse portfolios across different sectors for their profits. Belstar raised Rs 21,116 crore rupees in 2023 just through this process of securitisation. Their net profit and returns to equity holders were 130 and 1303 crore rupees respectively.
Belstar net profits (after taxes) and return on equity in %. MIX Market dataset, World Bank.
The role of the government
Despite being fully aware of the fragility of the financial markets to varying economic and political circumstances, the government continues to support transnational private capital by promoting MFIs as one of the main tools in the fight against poverty.
After the horrific cases of MFI related mass suicides in 2010 in Andhra Pradesh, the Malegam Committee in 2011 suggested recommendations for ‘partial regulation’ of the MFIs. One recommendation included setting an arbitrary limit on the interest rates that actually worked in favour of large MFIs, who charged individual borrowers an explosive annualised interest rate between 18 to 26%, while diversifying the pool of investors from whom they borrowed, maintaining the net interest margin at less than 10%. In 2022, post-COVID, the RBI announced new guidelines for the NBFC-MFIs that not just raised the acceptable level of household indebtedness by double, but allowed a complete deregulation by removing any cap on interest rates, claiming that this will create a “level playing field” for the MFIs. In reality, complete deregulation is only going to make the MFI landscape more monopolistic than it already is with a few large MFIs (gross lending portfolio > Rs. 500 crore) owning roughly 97% of the lending portfolio and client base.
For small finance banks such as Equitas and Ujjivan, the RBI introduced the priority sector lending certificates (PSLC) in 2016, allowing banks to trade RBI-issued certificates that make it possible to trade their priority sector lending targets. A policy that was meant to provide subsidised loans directly by public sector banks to important sectors such as agriculture and MSMEs, has been converted into exchangeable certificates that can be bought and sold for income (‘Miscellaneous Income’ in the balance sheet), thereby transferring all the risk of the loans onto banks that purchased these certificates to meet their own PSL targets. From 2018-2023, Equitas and Ujjivan received a total income of Rs 188 crores and Rs 941 crores by selling such PSLCs.
What we have tried to describe above is how speculative money has been turning millions of people into commodities, as literal ‘assets’ and ‘liabilities’.
The new government as well as the opposition must respect the mandate of the poor people of this country, as not just a mandate against political dictators, but also against the dictatorship of big, speculative capital. They must take appropriate measures to cancel the debts of the poor that are quite clearly artificially manufactured and used to sustain the interests (literally) of such speculative capital.
Pooja Balasubramanian is a social feminist economist currently working on questions related to debt, social protection, care work and capitalist structural relationships across different countries.
Tathagata Sengupta is an education researcher, specifically working on questions of mathematics, mathematics education, and the history, economics and sociology of mathematical knowledge practices.