HVK Archives: Clarity begins at home
Clarity begins at home - The Telegraph
Sudip Chaudhuri
()
April 24, 1998
Title: Clarity begins at home
Author: Sudip Chaudhuri
Publication: The Telegraph
Date: April 24, 1998
The swadeshi thrust to the economic policy as proposed in the
national agenda for governance presented by the Bharatiya Janata
Party and its alliance partners has evoked strong reaction from
certain quarters in India and abroad. It is being stated that
swadeshi does not make any economic sense. That it is basically
politically motivated. For the ruling alliance at the Centre it
might as well be political rhetoric. The gap between what they
say before elections and do after coming to power is well known.
A recent example is what the BJP-Shiv Sena combine said and did
about the Enron project in Maharashtra. But it is not valid to
say that swadeshi or economic nationalism does not make any
economic sense. The philosophy was propounded much before the
birth of the BJP or its forerunner, the Jana Sangh.
Swadeshi has many dimensions. Let us take up here some issues
relating to protectionism and consumer welfare. Critics of
swadeshi argue that it basically will mean the reintroduction of
protectionism for Indian industry. Tariffs will be raised. They
assume that Indian industry is basically inefficient. Hence
swadeshi will benefit these inefficient but more affluent
industrialists who are unable to face international competition
and will hurt the poor consumers who will be denied the cheapest
and best products in the world. If, on the other hand, import
barriers are removed, then international competition will force
the Indian producers to be efficient and will be good for the
producers as well as the consumers.
But protectionism if properly practised, does not mean pampering
inefficient industrialists. Contrary to what some believe, all
Indian enterprises are not inefficient. We have many competent
enterprises in diverse sectors such as textiles, automobiles and
machinery. Even when they are efficient they often face unfair
competition from foreign firms which are financially much more
powerful. Consider, for example, Bharat Heavy Electricals
Limited.
It is known to be an internationally competitive electrical
equipment manufacturing enterprise. But if all import
restrictions are removed then BHEL will find it very difficult to
compete. Its competitors can and do charge prices which do not
cover the full cost of production. The losses thus incurred can
be made up by more profitable sales in markets which they
dominate or through other businesses. Even when they cannot make
up the losses, they have the financial resources to withstand the
losses. Once competitors like BHEL are eliminated, they can jack
up the prices. For firms like BHEL from poor countries to survive
and grow, official backing against unfair international
competition is necessary.
It is true some Indian industrialists have misused the privileges
granted to them. Because of the way the import controls and
licensing policies were implemented, they very often were not
required to face competition. As a result, some of them did not
really bother about improvements, costs, quality and, as a
result, consumer interests were neglected. This must stop.
Privileges will have to be linked to performance. Economic
reforms are essential in this regard.
Following Taiwan we can, for example, use the threat of imports
to discipline the producers. If industrialists are told they
will have to be internationally competitive within a specified
time and if they are not, then the government will allow fair
priced imports, then in their own self-interest they are expected
to try their best to be competitive.
The industrialists who took advantage of the system do not
deserve sympathy. But it does not make any sense to teach these
erring industrialists a lesson by actually allowing largescale
imports now and destroying the industries. No point saying that
they had enough time. They did not improve and hence no more time
should be given to them.
If these industrialists did not behave properly in the past, it
was at least partly because, despite that, official bounties
continued. You did not take any action for years. Now all of a
sudden you ask them to face international competition and fight
it out. It is not possible to be efficient overnight. Lifting
import barriers in such cases does not ensure efficient
production. It implies "efficient" imports and destruction of
industries in India.
The industrialists, as the critics say, are rich and therefore
have options to survive. Why punish the poor workers for
decisions not taken by them? Obviously, for some of us who do not
have to worry about jobs, it is better to have the choice of
getting the world's cheapest and best goods. But what about
those who are losing their jobs? From where do they get the money
to buy the goods? If you ask an unemployed person which is
better - a job with limited availability of goods arid shops
stocked with the best stuff in the world but no jobs to enjoy
them - the choice is obvious.
Some say several years have passed since 1991 when the reforms
were announced. What have these industrialists done? What is
important is not the number of years. It is the policy
environment that matters. With persons like Manmohan Singh and P
Chidambaram at the helm of affairs who basically consider the
lowering of tariffs as an indicator of development, efforts on
the part of industrialists were hardly expected. They were in a
mess and may have been responsible for that. But if you now want
them to behave, then they will have to be given support to face
the world.
It is possible that despite the best of efforts, some enterprises
in India will not be internationally competitive in some
industries. It is possible to argue that we should not have
attempted the production of all the goods we are producing now In
future, careful assessment will have to be made about the choice
of industries to be promoted. We should take up the production of
those for which chances are higher that in the long run we will
be internationally competitive. Close government-business
collaboration is necessary for such strategic planning.
Once the industries are selected, all support should be given and
also performance demanded. Swadeshi does not assume Indians are
inferior as some commentators think. It actually assumes that
given proper opportunities, Indian enterprises can be the best in
the world and can contribute to our economic development.
But what do we do with the industries which are there
historically, but are not competitive and are not likely to be so
in the foreseeable future? This is a serious socio-economic
question and not a matter of smart comments.
In the event of the closure of these industries, what we do with
the displaced workers and the idle assets require careful
consideration. Let us remind ourselves that in similar
circumstances, countries much richer than us have not acted
rashly For years, the United States has been protecting its
textiles industry from cheaper imports with the full knowledge
that at the current state of technology these industries will not
be competitive.
(The author is professor of economics, Indian Institute of
Management, Calcutta)
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