Calcutta Notebook



There is a growing reaction against China in the world today. Multinational Companies are quitting China and countries are reluctant to import goods from China. But India will lose the opportunity if business houses here cannot compete with Thailand and Vietnam. Germany will import cheap goods from Thailand instead of expensive goods from India. The challenge is to manufacture goods cheaper than any other country in the world.

The massive 200 lakh crore Atma Nirbhar (self reliance) package is focused on providing loans. These are beneficial when there is demand in the market. The industrialist can then borrow from the bank, put up a factory, make the goods and sell them in the market. At present, however, there is no demand in the market. In this situation more loans will only push the borrowers deeper into debt and trouble. The interest burden will increase and they will not be able to sell their goods in absence of a robust demand; and they will not be able to repay the loans. The atma nirbhar (self reliance) package will not deliver.

Suggestion is being made that the Government should provide cash transfers to the people so that demand is generated in the economy. This strategy is correct to the extent that demand will be generated in the economy. However, if one continues to be open to the world market, the demand can go to the purchase of Thai goods instead of Chinese goods. The Modi Government will be burdened by debt while the benefit will accrue to Thailand.

Professor A K Gulati of Indian Council for International Economic Relations has stressed the need to improve the productivity of Indian workers. He is right. Here workers produce about one-half of the goods produced by their Chinese counterparts. For example, an Indian worker makes 5 footballs in a day if the Chinese worker makes 10. Increase in productivity will reduce the cost of footballs made by Indian firms and boost exports. Only then one can compete with Thailand. The difficulty here is twofold. Firstly, productivity cannot be improved in a day. It is a long drawn process requiring reform of labour laws, installation of modern machines and improvement in managerial skills. This cannot be done in a few months. Secondly, the world economy is not likely to revive anytime soon. Prime Minister of Australia Scott Morrison has said that the "post-pandemic world will be a poor, dangerous, and disorderly world. Countries will have major trade falls, imbalances, and disputes…"

A positive indicator amidst these dark clouds is that Indian electronic exports have doubled in the last few years. At the same time a recent report by Citi Research says that "none of the key parameters suggest any material improvement in the manufacturing sector over the last six years." Therefore, the improvement in electronics exports could be the exception that proves the rule. For one thing, the price of raw materials and finished goods in India is same as in Thailand. These prices are today determined by the world market. Then why is it that India cannot make goods at the same cost as Thailand? Here one should give attention to the words of B R Sikri, President of Federation of Pharma Entrepreneurs. He has said that the primary reason for the Indian Pharma industry sourcing material from China was the high cost of production in India due to the lack of fast track approvals, environment flexibility, regulatory approvals on a prompt basis, cheaper land, cheaper power, etc. Underlying these problems is the proverbial bureaucracy. The time taken in obtaining a regulatory approval or environmental clearance is wholly due to the bureaucracy seeking grease money. Therefore, the Government must reign in the bureaucracy. Indeed, corruption is rampant in China as well. However, corruption there is constructive while it is obstructive in India. Deng Xiaoping had given incentives to local officials to establish industries. They were given promotions and higher salaries if they could attract industries. Thus, the officials then went out of their way to facilitate establishment of industries. In India it is the reverse. An honest official is hounded by the corrupt and soon got transferred to an obscure posting.

The Government should have a confidential survey done by the related public. The work of an Executive Engineer of the State Electricity Board, for example, must be assessed by the consumers of his Division. Those ranked at lowest 10 percent should be retired prematurely. Kautilya had said that the King should appoint spies to track the corruption among the officials; and another spy to spy on the frontline spies to ensure that they do not get corrupted. Alas! Instead of following this correct advice of tradition, the Government is pampering its employees; paying increased DA when the country is sinking; and taking no step to proactively identify and dismiss corrupt officials. This is the reason that Sikri says Indian Pharma is importing from China.

The reason Indian are unable to compete with China and Thailand is not the work culture .Indian workers do wonders in the United States. Large numbers of them are employed by multinationals like Microsoft and Cisco. The problem is that the Indian industrialist is hamstrung by bureaucratic extortion.

[Formerly Professor of Economics at IIM Bengaluru]

Vol. 53, No. 14, Oct 4 - 10, 2020