Why block the Panda?

The raging debate going on these past few days in India is on the issues of ‘Vocal for local’, ‘Atmanirbhar Bharat’  and  nationalist calls to boycott Chinese goods which have been amplified by the recent border skirmishes but the question to ask here is whether all these will help us become a powerful economic nation. Will this bring about a large scale change in consumer attitudes towards local goods as anticipated by some people? And even if it does is it good for our country’s progress? The question to be addressed is why block the Panda?

History Of Buy Local Campaigns

Buy local campaigns have been used by almost all the countries in the world in the past and some are even using it today, It remains a very powerful political tool. In fact the United States has had a long history of ‘buy American’ campaigns. George Washington wore handspun cloth made in the colonies as a sign of protest against the British. William Hearst, who owned 27 newspapers in 1932-33 called on the American people to “Buy American” and “Hire American” under the banner of putting “America First” as the solution to bringing the country out of the great depression. President Hoover on his last day in office signed ‘The Buy American Act’ which required the United States to prefer U.S.-Made products in its purchases. A major agenda of President Trump’s election campaign was ‘Buy local, Hire local and Make America great again’. Data tells us that all these campaigns didn’t change consumer attitudes towards foreign products. The US is the largest importer in the world with an import bill of USD 3.1 trillion and commands a 13.4 % share of of all global imports and has a trade deficit of USD 616.8 Billion. Even Europe and South America have had a history of buy local campaigns but they too have failed to change public attitudes. Each of these public movements failed because they failed to realize that the consumer only looks to maximize his utility and that is the way it should be. Such non-tariff barriers have had absolutely no effect in any country throughout history. So I believe it is a futile debate because there is too much evidence from all over the globe as well as from history to tell us that such non-tariff barriers just do not work!

The Chinese Problem

Competitiveness is built by producing goods that we are best at producing and directing all our resources in the production of those goods and services and rely on imports for goods that we are inefficient in producing. India is at a stage of the development process where it has to try and be a larger part of the global economy and not turn isolationist. We have already suffered from import substitution policies in the past and we shouldn’t repeat those mistakes. China is one of our largest trading partners with total trade of USD 87 billion. Chinese Investments are deep rooted in the Indian Economy. 18 of India’s 30 unicorns have large Chinese funding. So China is very much a part of our economy and cutting trade ties or increasing tariffs will be catastrophic. There will be large scale disruptions in the supply chain. Most of our intermediate goods come from China at a low cost which helps Indian Producers to produce goods at a lower cost. The two main reasons why China has a cost advantage is that it has economies of scale and lower transport costs. It costs Rs 4/kg for a shipment of cable to arrive at Mumbai from Shanghai which is 300 kms away but it costs around 14/kg for the shipment to be transported from Mumbai to Noida. Why shouldn’t India import cable or for that matter any other goods from China? Having said all this, the real concern with China is that of dumping. The WTO has also taken cognizance of the fact and we also need to revisit and strengthen our Anti-dumping laws and also impose some quality standardization protocols to protect our consumers from low quality imports.

What Should India Do?

I believe that the single most important thing that people of India and the Government need to worry about is to increase our competitiveness and strive to make our companies compete on the global level and that won’t happen if we keep on clamoring for protection. Protection is needed for nascent industries who are just starting out. If Indian companies believe that they can’t compete even after 70 years of Independence then the problem isn’t about lack of protection from global players but about structural problems that hinder our progress. When I look around the world, the public discourse in too many large countries is fixated on external issues such as foreign trade, foreign Investment etc. rather than focusing and contemplating upon internal matters that are actually very critical for the development of any large country. I believe the public discourse in India should shift from these external issues to internal matters such as internal integration. Internal integration is a very broad topic and there are many socio-economic aspects to it. Below are some of the things related to it that come to my mind.

Developing world class transport infrastructure is a very vital cog in the development of any large country like India. It will only happen if we put pressure on elected Governments and make it a key electoral issue

The issue of internal migration and caste are impediments to our progress and are related to internal integration. The rhetoric about immigrants taking away local jobs is pretty dangerous and it is even sadder to see that it has a great political pull.

Another very important aspect of internal integration is that of women empowerment. I believe that the discussion today is very confined or narrow in the sense that we are only talking about gender equality. Data tells us that participation of women in the workforce and female literacy have profound effects on society. The regions where women play a much larger role in the society have much lesser social problems like lower rates of Malnutrition, higher female to male ratio at birth, lower death rates of children below 5 years etc. In my view the debate needs to broaden and we need to look at women not as victims or patients that need to be helped but rather as agents who can uproot deep societal problems.

The things that have been done recently in the direction of internal integration are the introduction of GST and the recent announcement to abolish the essential commodities act and amend the APMC act are steps taken in this direction. GST has enabled free movement of goods between states. It has enabled uniformity in indirect taxation laws throughout the country. The amendment of the APMC act will allow farmers to sell their produce on their own terms.

I will address some of these issues in detail later on.