No, the myth of the foreign takeover hides the element of competition they bring in
Why do I subscribe to Outlook? I can collect news and views on my own, perhaps throughsurfing the Net. The answer is obvious. Outlook is more efficient at doing this than I am.My time is spent more productively elsewhere and everyone gains from this specialisation.Why isn’t there a law that decrees that everything consumed in Delhi must be producedin Delhi? Surely, Delhi should strive for self-reliance. The answer is welfare gains fromspecialisation again.
Sadly, people see red the moment national boundaries—at best artificial andirrelevant for economic rationality—are brought in. Self-reliance for Delhi is stupidbut self-reliance for the country is good.
Self-reliance cannot be equated with autarchy, the absence of world trade. At best,self-reliance can be interpreted as ability to pay—adequate foreign exchange to payfor imports. There is no question that India can pay. The balance of payments (BoP) is ingood shape and forex reserves are comfortable, perhaps too comfortable. Pre-1991,India’s share in world trade was 0.5 per cent. Today, the figure is more like 1 percent.
Protection from foreign competition is not costless and consumers suffer from badquality, high costs and inadequate service. The more the competition, the better. And thecolour of competition does not matter. Increasingly, I don’t even know what is anAmerican company and what is a Japanese one. Hopefully, I will eventually not know what anIndian company is. For now, though, the notion of an "Indian" company doesexist. But protecting the interests of such companies isn’t identical to protectingthe country’s interests. The interests of consumers are not protected.
Liberalisation and competition benefits consumers. It also benefits efficient producersbut hurts the inefficient. Why should we protect such inefficient producers?Unfortunately, we wear two hats, the consumer hat and the producer hat. Wearing theconsumer hat, we want the competition, even if it happens to be foreign. Wearing theproducer hat, we want to avoid competition, especially if that happens to be foreign.
Foreign competition can come through imports and foreign direct investments (fdi) inmanufacturing. It is a myth that it has substantially come in through imports. Trade datasubstantiate this. Yes, because our BoP is in good shape, we are unable to maintain QRs onimports on those grounds. Yes, most products have moved to the ogl from April 1, 2001, butthat doesn’t mean duty-less imports.
We’ve also introduced various non-tariff barriers on imports. Despite high prices,some limited consumption does take place. But these were consumers who bought smuggledstuff in the first place. Or shopped abroad. Yes, Indian agriculture is in trouble. Butbarring a few items, that has nothing to do with import competition. Yes, Indianmanufacturing is in trouble, but not due to imports. Overall, or item-wise, Chineseimports account for less than 5 per cent of imports.
Some foreign competition has indeed come in through fdi. But nowhere has this led to anacross-the-board slaughter of Indian brands. Foreign competition has pulled up the market(cars, TVs, batteries), catered to high-price segments and injected competition. Thelow-price segment remains an Indian preserve. In the competitive process, Indian producerswho’ve improved have survived and will eventually venture overseas. Those who ignoredthe message have gone down under and no tears need be shed.
What is a brand? A brand implies product differentiation and usp, so that consumers pay the higher premium. There have been very few Indian brands. Indian producers have competed on the basis of cost. They have sold commodities in the name of brands. That is the reason the Chinese threat is serious. Ipso facto, there can be no Indian brands that are under threat. Foreign competition will lead to true Indian brands, local and global. For that to happen, xenophobes have to be replaced by xenophiles.