Swadeshi Movement Part 2

There is beauty, and a huge blemish, to Prime Minister Narendra Modi’s Aatma Nirbhar Bharat crusade. It appeals to ­different individuals in diverse ways. Some see it as a 21st-century version of Gandhi’s call to embrace swadeshi, an intoxicating cocktail of nationalism, capitalism and globalisation. Others look at it as a magical melting pot for patriotism, self-confidence and national ambitions. In the process, it turns out to be a chaotic and confusing blend of beliefs based on fuzzy logic.

Consider how consumers perceive the ongoing self-reliance campaign. Vijjy, who works with clients in Switzerland, is engrossed by the split within her condominium’s flat owners’ association about whether to buy an Indian or a foreign elevator brand. Sunil, a businessman in his sixties who isn’t active on social media, is ­enthused by the ban on 224 Chinese mobile apps. A part-time investor, Deepak, is excited by the huge foreign inflows from Google and Facebook in the post-Covid period.

ALSO READ: Inequality Paradox

India Inc. too looks at the drive for self-reliance in varying ways. Dabur chairman Amit Burman is obsessed about brands that were launched by Indians, use local ingredients, and sell in India and other markets. A core theme for Naveen Jindal of Jindal Steel & Power is the ability to woo global money into India, and away from China. A recent entrant to the list of global dollar-billionaires, Radha Vembu of Zoho Corp, worries about the paucity of home-developed tech products.

Modi brilliantly connected contradictory ideas, and concocted slogans that seem oxymoronic. “Make in India, Make for the World” cannot co-exist with #VocalForLocal, or a call to consume Indian products. Aatma Nirbhar Bharat cannot incorporate the zeal to attract foreign capital, technology and management expertise through “ease of doing business” and rampant relaxation of norms and ceilings for investment by foreign companies or individuals. Yet, these forms of self-reliance were successfu­lly sold to, and accepted by, the masses.

ALSO READ: Land Of Billion Entrypreneurs

Made in India by Indians and foreigners: In the Modi scheme of things, what is crucial is that products need to be made here. It doesn’t matter if they are Indian or foreign brands, as long as the factories are located here. More importantly, foreign investment, in all its forms and contours, is welcome. While FDI limits are up in most sectors, even sacrosanct areas like defence are now open for the entry of global weapons suppliers. The race to become a renowned FDI hub is on, especially in the post-Covid scenario.

Most multinational companies (MNCs), in an attempt to decouple from China and spread their supply chains, wish to either relocate their existing manufacturing bases, or establish new ones, elsewhere. This gives an opportunity to India to emerge as a substitute factory to the world. One of the critical pegs of Modi’s mission is to offer enough incentives to foreigners to come to India. For potential investors, apart from hikes in FDI ceilings, labour reforms and “ease of doing business” are important considerations.

ALSO READ: Think Indian Dot Com

Over the past six years, the two Modi regimes chipped away at the multiple clauses that comprise World Bank’s annual country ranking on “ease of doing business”. Experts say that specific laws, rules and regulations were re-jigged to climb up the ranking ladder. India’s position jumped from 142 to 63 among 190 nations. NITI Aayog CEO Amitabh Kant said this was proof that India could emerge as “one of the easiest countries to invest and create wealth”.

Critics dub these initiatives as an attempt to chase “bogus rankings”. Even a die-hard Modi supporter like Jindal admits there is a gap between ranking and reality. An April 2020 report by Japan’s Nikkei polled 1,000 firms that wished to exit China, and found that less than a third named India as a possible destination. A TeamLease study concluded that businesses need to grapple with 69,000 central and state compliances.

Labour reforms, which were passed recently, may reduce these hurdles. But these measures will act as a double-­edged sword. While one can argue that owners need the flexibility to hire-and-fire workers, and provide employment on contract for specific periods, it can be misused and abused without proper checks and balances. In India, the state and central governments seem to be pro-business, which is hinted by the suspension of labour laws in some states, and the judiciary is lethargic.

ALSO READ: Bharat Inc.

Make in India for Indians and the world: Several economists like former RBI governor Raghuram Rajan are convinced that purely export-led economies are a thing of the past. While smaller ones like Vietnam and Korea have no option but to pursue this strategy, larger ones like China, Brazil, Russia and India have to cater to their large domestic markets. In India, this implies a boost to local consumption, which can be fuelled by middle-class expenditure, and an increase in ailing and failing farm incomes.

Sadly, over the past nine years, both these sections have suffered immen­sely. A combination of economic slowdown and the recent lockdown decimated the middle class’s ability to buy and spend. Through an unending series of gluts and shortages, farmers saw their incomes being throttled by vested interests. Both urban and rural consumption took a beating. ­COVID-19 worsened the situation. Today, the middle class doesn’t wish to take money out of its pockets, and the farming class cannot.

ALSO READ: ‘I’ Of The Storm

Late last year, i.e. before the lockdown, Hindustan Unilever CMD Sanjiv Mehta said rural demand was more than the urban one in the past 4-5 years. “Now, it has come down to half of urban growth,” he added. Urban spend fared better, but witnessed a dip too. In the past few months, the dismal story turned into a nightmare, which is evident from a 26 per cent GDP contraction in the April-June 2020 quarter, and the predicted negative 10 per cent growth in July-September. The government feels that the three new agriculture acts will hike rural incomes. But they may merely replace the old exploitative nexus between landowners, moneylenders and mandi middlemen with a corporate one that may be more manipulative. In its wisdom, the Centre used the stimulus package to tackle the supply side, i.e. put more money in the hands of businesses to enhance production. Not much was done to do the same for consumers to propel demand.

Hence, local spending is unlikely to go up in the near future. Even if it does take off later, exports cannot be neglected. India has to be an integral part of global trade; nationalism cannot lead to a closed economy, which was the case in the fifties, sixties and seventies. This is true because the Indian export basket comprises products that are labour-intensive, and offer employment to large sections. More importantly, India needs the dollars, pounds and euros.

Make in India to counter ­enemy-states: A growing fallacy is that Modi’s self-reliant India focuses on import substitution to nudge people to buy locally-made products, and shun imported goods. This isn’t, and cannot be, true. The fact remains that India needs to buy several items from other nations. Think of oil imports, which is the fuel that runs economic engines. Think of weapons, which are crucial to guard our borders. And think of capital goods, which can help in large-scale construction works.

Within a few sections, self-reliance equates with the resolve to spurn goods imported from enemy states like China. This is the spirit in which the Centre banned Chinese mobile and digital apps, and insisted on “country of origin” tags on imports. But if this carries on beyond a point, it will lead to severe distortions within the economy. Chinese goods are cheaper, and the insistence on India-made products may out-price the latter from both internal and global markets.

Take the case of APIs (active pharmaceutical ingredients). China exports the bulk of these items to India. In the recent past, the Modi regime offered benefits to increase local production. Buoyed by these moves, venture capitalists pumped in money. One shouldn’t forget that India was once a large maker of APIs, but deliberately gave it up as the Chinese ingredients were cheaper. If India makes expensive APIs now, it will increase local prices of ­medicines, and hit exports.

Obviously, the Centre needs to tread the self-reliance and Aatma Nirbhar Bharat grounds carefully. Economic ­decisions based on rhetoric and slogans can create havoc, as Britain realised after Brexit, and the US after it initiated trade wars with China. In addition, they lead to a transformation in corporate mindset, which impacts the manner in which business is managed. The thinking of owners is twisted and influenced by the politics of economics. Strategies, thus, undergo changes.

Four examples can illustrate how this happens. As India banned Chinese apps, two American tech behemoths, Google and Facebook, invested billions of dollars to buy minority stakes in Reliance’s Jio Platforms. India Inc. weaved a powerful narrative around them—how an Indian firm inked western partnerships to take on China. Pause for a moment. Since India doesn’t have a world-class technology repertoire, doesn’t this give the Americans a firmer and near-­monopolistic base in India?

None of the Indian software biggies are recognised as global tech players. The top firms avoided the high-risk, expensive merger-and-acquisition route to catapult themselves into the big league. They dealt with bodies (manpower arbitrage), not brains. India has a few digital unicorns, but the number is lower than China’s. Development of digital products took a back seat. This is why Zoho’s Vembu laments that India needs firms that can run the product marathon, and not the software sprints.

In comparison, in this century, Indian manufacturers made ambitious and audacious moves to acquire global giants. Many were mired in losses, some were resold or shut down, a few ran into policy and legal troubles, and only the rare ones turned out to be gems. More Indians became dollar-billionaires because of the value of the stocks they held, and not because of the worth of their operations. The former went up, even as the latter were saddled with debts, inefficiencies, and lack of foresight.

Finally, business families went belly-up, which reflected in the hundreds of high-profile bankruptcies. Groups built over decades vanished, or became shadows of their previous avatars. A few promoters sold their companies before they went under the hammer. One group took out front-page ads after it sold out to a foreign player. The punch-line claimed that it was the biggest example of Make in India. Instead, the epitaph should have read built in India, sold outside India.

Whichever way you look at the deal, it is an example of wealth creation by, and redistribution among, the rich. Its success lies in the ability to woo investors to set up factories in India. Coupled with this is the idea to boost local consumption. This implies initiative to put more money in the hands of the Indian consumers, attempts to distribute wealth equitably, and efforts to help the poor. Thus, both wealth creation and wealth distribution have to be the key ingredients of the Aatma Nirbhar Bharat mission.