The other day I got an email from a friend working in one of the financial institutions in Wall Street in New York in the United States asking me whether the coming to power of the Bharatiya Janata Party at the centre under the leadership of Narendra Modi would ensure an IRR of 20% in the infrastructure sector in India. The IRR is the internal rate of return, also called the economic rate of return which is the rate at which, when discounted to the present, all the projected net cash flows from a project during its life cycle equal the initial investment. Only if the IRR is significantly more than the going interest rate on borrowed capital does it become profitable for any company to undertake a project and the financial institutions lending to it also are assured of repayment of the loans with interest that they have advanced to the company. Given that the interest rate charged by banks for loans to projects currently in India is around 13% due to the Reserve Bank's policy of high interest rates to curtail the stubbornly high inflation rate, it is not unreasonable for financial institutions to demand an IRR of 20% from a project to fund it. Unfortunately for the capitalists, IRR in the infrastructure sector in India has been well below 10% in recent years mainly due to two factors - the high cost of land because it is difficult to evict people forcibly from land these days and the high cost of raw materials and energy due to environmental laws and increasing scarcity of non-renewable natural resources. Thus, what the friend in Wall Street was basically asking was whether Narendra Modi would be able to reduce the costs of land and raw materials to such an extent that the IRR of infrastructure projects could go up to 20% from the current 10% or less (there are many projects which have not been able to go on stream because of high raw material and energy costs after the plants having been commissioned and so are reeling under huge debt and interest burdens, especially in the power sector) and make them viable to fund.
The crucial thing here is that the IRR is concerned only with the economic costs of a project. Since the economic costs have to be minimised if IRR has to be high so there is a tendency to reduce the social and environmental costs either by undervaluing them or externalising them altogether. This has been the motto of all development right from the time agriculture was developed in the neolithic era some ten thousand years ago. However, this process of externalisation of social and environmental costs increased many times once industrial development started and it continues apace spurred on by the thrust of financial institutions to earn super profits on the money that they loan out to various companies. But the world over the financial institutions are faced with serious obstacles because social and environmental costs cannot be externalised so easily anymore as people have become more resistant to forcible displacement and the environment also is hitting back in many ways against its devastation through floods, droughts, a non renewable natural resource crunch, global warming and the like. In India, in recent times, land acquisition has become particularly problematical because of a long history of displacement without adequate compensation, rehabilitation and resettlement of people which has created a trust deficit for the Government and the Corporations among the people. So much so that over the past decade there have been some fierce battles both on the ground and in the courts waged by the people affected by such unjust displacement of whom tribals are in a large majority because most of the resource rich areas, where infrastructure projects like mines, dams and power plants have to be constructed, happen to be forested habitats of the tribals. As a consequence of these struggles India now has a new Land Acquisition and Rehabilitation and Resettlement Act (LARRA) to replace the colonial Land Acquisition Act of 1894, a Scheduled Tribes and Other Traditional Forestdwellers (Recognition of Rights) Act (FRA), the Panchayat Extension to Scheduled Areas Act (PESAA) and the National Green Tribunal Act (NGTA), which together make it very very difficult for the Government and the Corporations to acquire land and devastate the environment. One of the most important victories in recent years is that of the Dongria Kondhs shown below who were able to prevent Vedanta Resources, one of the biggest mining and metals conglomerates in the world, from displacing them from the Niyamgiri Hills in Orissa to extract the bauxite that is there underneath them.
Both displacement and devastation of the environment had become costly in the developed countries much earlier due to higher levels of awareness and so social and environmental costs had to be internalised in the IRR calculations pushing down the rate of profit. The corporations there aided by their governments and international institutions like the International Monetary Fund and the World Bank began outsourcing their manufacturing and services into the developing countries. However, now even in India things have become difficult and increasingly social and environmental costs are having to be internalised and that is why my friend in Wall Street was asking whether Narendra Modi would be able to improve matters for them by halting and reversing this IRR reducing trend in India because he had been able to do precisely that in the state of Gujarat while he was Chief Minister there for three decades by trampling on the rights of the people and devastating the environment.
It is not surprsing, therefore, that Narendra Modi has, immediately after coming to power at the centre, given a clarion call to global investors to come and "make" in India and has initiated measures to dilute the strict conditions of the LARRA, FRA and NGTA so as to ensure that IRR can be hiked up once again. One can see this as a battle between capital concentrated in the hands of a few on the one hand and society and the environment on which the majority depend for their livelihoods on the other. The majority do not have access to capital and are somehow clinging on to what little they have to eke out a living. Those in control of capital, however, are concerned only with getting returns on it even if it is at the cost of devastating society and the environment. Since this creates a situation of conflict, a major part of the accumulated capital is spent on maintaining armed forces and the police and fighting wars or suppressing revolts. To provide legitimacy to this grossly illegitimate use of power, capital also controls the media and academia so as to keep the masses and intellectuals steeped in inanities rather than become conscious fighters against this injustice. Unless this huge inequality in access to capital is removed and Wall Street not only occupied but demolished, there is no way in which justice can be ensured.
The crucial thing here is that the IRR is concerned only with the economic costs of a project. Since the economic costs have to be minimised if IRR has to be high so there is a tendency to reduce the social and environmental costs either by undervaluing them or externalising them altogether. This has been the motto of all development right from the time agriculture was developed in the neolithic era some ten thousand years ago. However, this process of externalisation of social and environmental costs increased many times once industrial development started and it continues apace spurred on by the thrust of financial institutions to earn super profits on the money that they loan out to various companies. But the world over the financial institutions are faced with serious obstacles because social and environmental costs cannot be externalised so easily anymore as people have become more resistant to forcible displacement and the environment also is hitting back in many ways against its devastation through floods, droughts, a non renewable natural resource crunch, global warming and the like. In India, in recent times, land acquisition has become particularly problematical because of a long history of displacement without adequate compensation, rehabilitation and resettlement of people which has created a trust deficit for the Government and the Corporations among the people. So much so that over the past decade there have been some fierce battles both on the ground and in the courts waged by the people affected by such unjust displacement of whom tribals are in a large majority because most of the resource rich areas, where infrastructure projects like mines, dams and power plants have to be constructed, happen to be forested habitats of the tribals. As a consequence of these struggles India now has a new Land Acquisition and Rehabilitation and Resettlement Act (LARRA) to replace the colonial Land Acquisition Act of 1894, a Scheduled Tribes and Other Traditional Forestdwellers (Recognition of Rights) Act (FRA), the Panchayat Extension to Scheduled Areas Act (PESAA) and the National Green Tribunal Act (NGTA), which together make it very very difficult for the Government and the Corporations to acquire land and devastate the environment. One of the most important victories in recent years is that of the Dongria Kondhs shown below who were able to prevent Vedanta Resources, one of the biggest mining and metals conglomerates in the world, from displacing them from the Niyamgiri Hills in Orissa to extract the bauxite that is there underneath them.
Both displacement and devastation of the environment had become costly in the developed countries much earlier due to higher levels of awareness and so social and environmental costs had to be internalised in the IRR calculations pushing down the rate of profit. The corporations there aided by their governments and international institutions like the International Monetary Fund and the World Bank began outsourcing their manufacturing and services into the developing countries. However, now even in India things have become difficult and increasingly social and environmental costs are having to be internalised and that is why my friend in Wall Street was asking whether Narendra Modi would be able to improve matters for them by halting and reversing this IRR reducing trend in India because he had been able to do precisely that in the state of Gujarat while he was Chief Minister there for three decades by trampling on the rights of the people and devastating the environment.
It is not surprsing, therefore, that Narendra Modi has, immediately after coming to power at the centre, given a clarion call to global investors to come and "make" in India and has initiated measures to dilute the strict conditions of the LARRA, FRA and NGTA so as to ensure that IRR can be hiked up once again. One can see this as a battle between capital concentrated in the hands of a few on the one hand and society and the environment on which the majority depend for their livelihoods on the other. The majority do not have access to capital and are somehow clinging on to what little they have to eke out a living. Those in control of capital, however, are concerned only with getting returns on it even if it is at the cost of devastating society and the environment. Since this creates a situation of conflict, a major part of the accumulated capital is spent on maintaining armed forces and the police and fighting wars or suppressing revolts. To provide legitimacy to this grossly illegitimate use of power, capital also controls the media and academia so as to keep the masses and intellectuals steeped in inanities rather than become conscious fighters against this injustice. Unless this huge inequality in access to capital is removed and Wall Street not only occupied but demolished, there is no way in which justice can be ensured.
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