In the first of this two-part series, the author analysed the meaning of ‘vocal for local’ and the government’s commitment towards ‘Make in India’. Here, he discusses discordant voices, their relevance, and how business in India should evolve, despite the adverse consequences of the pandemic.
Despite clarification by the government on what constitutes ‘Vocal for Local’ and its policy commitment to ‘Make in India’, there is still apprehension in many quarters. Some of the concerns are being discussed in this article.
Boycott of Chinese Products
On June 7, 2020, the Confederation of All India Traders (CAIT), an apex association of traders in India, announced a nationwide boycott of Chinese products from June 10. The organisation's aim was to bring down the value of current Chinese imports from US$ 75B to approximately US$ 13B by December 2021. Baba Ramdev, the cofounder of Patanjali Ayurved, also voiced support for the campaign, declaring that boycotting Chinese products was nothing less than a ‘service to the nation’.
In 2019, while China’s exports to India were valued at U.S.$ 75B, India’s exports to China was at US$ 18B, showing a trade deficit of U.S.$ 57B. Chinese exports to India constitute mainly manufactured products -- electrical machinery, electronics, and plastics. India’s exports to China constitute mainly raw materials and industrial inputs, including chemicals and cotton.
According to the UNCTAD (United Nations Conference on Trade & Development), in 2019, India was amongst the top 10 destinations of FDI in the world. The U.S.$ 49B FDI inflow was received by companies dealing in services, computers (hardware & software), telecommunications, trading, automobiles, tourism, construction, and chemicals. Significantly, in the report, Singapore and Mauritius were the top sources of FDI, followed by the Netherlands, U.S. and Japan.
Singapore and Mauritius are top sources of FDI because they provide favourable tax regimes for companies investing in India. The India-Mauritius Tax Treaty was signed in 1982, while the India-Singapore Double Tax Treaty was signed in 1994; both the treaties have been periodically updated. Investments originating from Singapore and Mauritius are more likely to be foreign companies, with business presence (shell companies) created to take advantage of the good business environment and tax benefits. In recent years, Chinese businesses have made significant investments in India, possibly through this route. Indian companies like OLA, Hike, BigBasket, Byju’s, Delhivery, Dream-11, Oyo, Paytm, Snapdeal, Zomato and TicTok, now have sizeable Chinese equity holdings.
Considering the penetration of Chinese products in the Indian economy, the ballooning India-China trade deficit and the significant presence of Chinese investments in Indian companies, it may be challenging to boycott Chinese products. The boycott call by CAIT may also have been supported by vested interests, who seek to avoid competition from better and cheaper Chinese products.
Emphasis on Self-reliance
During the late Arun Jaitley’s tenure as Finance Minister as well as in the current dispensation of Nirmala Sitharaman, the NDA government has periodically raised import tariffs in critical sectors to promote domestic manufacturing. In November 2019, India took the strategic decision to forego joining the RCEP (Regional Comprehensive Economic Partnership), citing negative impact for farmers, MSMEs, and dairy products. In the wake of the COVID-19 pandemic, the government has stressed the importance of self-reliance by announcing measures to support home industries. Government tenders, up to Rs. 200 cr., are now only reserved for Indian bidders. The FDI policy has been amended to protect Indian companies from "opportunistic acquisitions", by introducing scrutiny under the Ministry of Commerce & Industry, for countries sharing land borders with India.
In the 20th century, the people of India were forced to travel in the iconic now obsolete Ambassador car for more than three decades because of misplaced protection for the home industry. After the reforms of 1991, many economists suggested that tariff protection, without specific purpose and timelines, will make the domestic industry less and not more competitive. India’s globally competitive info-tech, automobile, and pharma sectors were forged through international competition and now require no further protection.
Already saddled with an adverse balance of trade, there are fears that many sectors of the Indian industry are not ready to face international competition. Further, in view of the disruption caused by the pandemic, it is perhaps prudent to delay the exposure of Indian industry to global competition. However, such protection should be temporary, and our long-term commitment should remain focused on free trade (minimal tariffs) and open markets (no restrictions on sources).
On May 13, 2020, the MHA issued a directive that all police canteens, including those of central police organisations, will only sell goods that are ‘swadeshi’. In a subsequent clarification, it was stated that all existing canteen products would be classified into three categories: those purely Indian, those manufactured or assembled in India, and those imported. While the first two categories would be permitted for sale in canteens, the third category was to be delisted. On May 29, an order was issued delisting more than 1,000 products from sale in canteens. However, on June 1, the order was withdrawn, stating that it had been erroneously issued and that more deliberation was required to determine the categories of products.
With this logic, an imported Mercedes-Benz and Levi’s jeans should be delisted from sale in police canteens. But, if the same products are assembled or made in India, they could still be available in the canteen. With the proliferation of MNC brands in India, it is increasingly difficult to discern purely imported items from those that have been assembled or produced in India. This is perhaps where the serious challenge lies.
In a Nutshell
Governments are obliged to enable citizens to get the best value for their money. There is also the promise of free trade and open markets, to which our leaders have demonstrated commitment. ‘Be Indian – Buy Indian’ or ‘swadeshi’, should not mean citizens are required to buy more expensive and less-efficient products, merely because they are produced by Indian companies.
In fact, protection of domestic industry, under the garb of nationalism, has been used as a window to serve inefficiency in work standards, corruption in business dealings, and nepotism in accumulation of wealth. There is little merit in misquoting nationalism to justify dependence on poorly-designed, over-priced, and poor-quality products.
The COVID-19 pandemic has disrupted the global economy, and the government might see merit in providing some protection to the local industry. However, such protection should (hopefully) only be a temporary measure, to allow the home-industry to prepare for international competition. Other industries should take a cue from India’s info-tech, automobile and pharma sectors, to produce goods and services of world standard.
From a purely nationalistic perspective, ‘Indian-ness’, should be defined by Indian brand-name, production-in-India, and Indian ownership. However, in modern India, with its integrated economy, the government has wisely decided to define ‘Indian-ness’, only in terms of production-in-India. In the 1920s, Mahatma Gandhi led a successful people’s movement to burn Lancashire textiles in favour of homespun and hand-woven substitutes. In the 21st century India, it may not be so easy to discern ‘foreignness’, with the multitude of goods & services available in our country.
Author: Maj. Gen. Moni Chandi, Chief Strategic Officer, Synergia Foundation