Vijay Kumar Gaba: Self Reliance

Showing posts with label Self Reliance. Show all posts

Thursday, August 20, 2020

Preparing for chaos - 3

Continuing from yesterday (see Preparing for chaos -2)

As I said earlier, the world will be a materially different place in five year from now. However, notwithstanding the technological advances and development of advanced forecasting techniques, it may not be accurately predict the contours of the global order in 2025. The learnings from great depression may only inform us that changes will be dramatic. However, these may not guide us about the nature and direction of the changes, because the present circumstances are very different from 1930s.

Given that I am a tiny investor, and my concerns are mostly limited to the local Indian assets, I would like to only assess

(a) Where India stands in this melee?

(b) What changes are required in my investment strategy to mitigate the impact of transformative changes that may take place in next 5 years?

I hear lot about a Industrial revolution in India. The government has spoken about many ideas like "Make in India", "Make for India", "Make for World", "Self Reliant India" to emphasize on the need to focus on growth of manufacturing sector in India. In past few months some incentives have been announced to promote manufacturing of mobile handsets. There are proposal to implement similar production linked incentives for chemicals also. Besides, many tariff and non tariff measures have been announced to protect and promote Indian manufacturers of tyres; power tillers; chemicals; arms, ammunition & equipments used by defense forces; etc.

Somehow, I am not able to see how these measures will make Indian economy more competitive globally. The policy on defense production for example is incongruent with the objective. Import restrictions on TV and Mobile sets would be inefficient for consumers and revenue both. The better course would have been to subsidize domestic production for three years to afford domestic producers an opportunity to become globally competitive without impacting the consumers.

I therefore feel that we may not see a significant shift in the growth trajectory for manufacturing and IPR based industries in next few years at least. The growth pattern seen in past one decade will continue, with industries like pharmaceutical, Chemical and Automobile etc further improving their scale and competitiveness quotient.

I am also not feeling any excitement about India becoming a spare tyre to the global industries seeking some safety for the eventuality of China getting punctured. The assumption that the world will be able to ignore China for long and learn to live without it forever seems preposterous to me. I shall therefore be extremely cautious on businesses that are building capacities just on this basis.

Also, given the poor employment elasticity of modern manufacturing, I do not approve of investment in manufacturing just to improve create more jobs.

I am therefore of the view that India is struggling to find a way out this chaos and there is no indication that we are moving in right direction as yet. I shall therefore maintain a cautious stance on my investment strategy for next 3-5 years.

...to continue tomorrow

Thursday, July 2, 2020

Disengagement with China in markets should be no less strategic than at borders

Continuing from yesterday (see here)

The Indian economy suffers from a variety of deficits. The most talked about deficit, i.e., fiscal deficit in fact is the least worrisome amongst all the deficits, in my view. I believe that some of the most worrisome deficits include:

1. Growth capital deficit

2. Advanced technology deficit

3. Skill deficit

4. Trust deficit

5. Compliance deficit

6. Governance deficit

7. Productivity deficit

8. Social infrastructure deficit

9. Employment opportunity deficit

10. Demand deficit

To successfully achieve the objective of self reliance, as being popularly understood, we must first bridge these deficits.

In recent years, China has been helpful in bridging many of these deficits, especially growth capital, technology, productivity, employment opportunities and demand deficits. Chinese investors have invested millions of dollars in Indian start ups by way of risk capital. Chinese have supplied affordable solutions in the areas of energy, transportations, chemicals, healthcare, etc. Affordable Chinese consumer imports have created huge employment opportunities for millions of self entrepreneurs, traders, street vendors, and aided in creation of demand, especially consumption demand. The Chinese economy funded these deficits at the expense of its labor and stability financial system.

We must pause here and assess that since due to legacy issues we always have a wide and deep trust deficit with China, was it advisable in the first place, to let Chinese and Indian economic interest intertwine so much?

Keeping the jingoistic nationalism aside, we must also consider that the non essential, toys, plastic decorative items, small appliances & tools which are more visible and talked about items, constitute a miniscule part of the total imports from China. The imports are dominated by electronics, engineering products & components, agro chemical, specialty chemical, medical equipments, precious metals and Iron & Steel. Our main exports to China include Cotton, gems & jewelry, copper, ores, organic chemicals. China is therefore present in our entire value chain.

Disengagement with China in markets therefore has to be equally strategic as in case of borders. We cannot and should not do it overnight by taking some whimsical, but popular, decisions. We need to have a strategy to fill the deficits by alternative means and render China redundant before disengaging ourselves. Self reliance in this context would mean, building capacities in the fields of advanced technology, raising the level of skill, compliance and governance to attract adequate amount of growth capital, raising productivity to enhance savings potential for domestic funding of growth; and bridging the trust deficit between the people and the administration.

This endeavor inevitably include bringing India into a state of equilibrium by removing social, and regional, economic imbalances, e.g., through-

Industries and businesses who have thrived historical on government largesse and not necessarily on the enterprising abilities of promoters giving back to society by way higher taxes, higher voluntary CSR spending, technology upgrade for better resource utilization, etc.;
Regions like Gujarat and Maharashtra, which are economically more developed despite not being endowed richly with natural resources, acknowledging that a part of their development is due to imperial designs of British regime and share their wealth with exploited regions like Jharkhand and Odisha.
Caste and communities which command ownership of the major part of economic resources and occupy most of the social space, voluntarily vacating some space for the historically oppressed and downtrodden.
Populace which has grown to be non-compliant by habit, not necessarily by intention, changing habits like spitting on roads, violating traffic rules, encroaching on pavements in front of their house/shops, exploiting domestic helps and child labor etc.

Wednesday, July 1, 2020

Self reliance is about contentment

Continuing from yesterday (see here)

As I highlighted yesterday, "Self Reliance" may be mostly a political slogan at this point in time; as not many people in the government, legislature and administration appear to be adequately clear about the concept itself. It would be a great idea if the government comes out with a white paper on the issue.

In my view it is important to assimilate the following considerations, if we truly want to evolve into a 'Self Reliant" economy.

First of all, we need to accept that "self reliance" is primarily a philosophical concept. Its economic implications are mostly incidental. The flow of "self reliance" therefore begins from the core of society, i.e., the individual, and moves outward toward the community and the State. For a State to be self reliant, all its constituents, i.e., individuals, communities, traditions, customs, culture, etc need to commit unconditionally to the objective of self reliance. Any incongruence amongst various constituents will defeat the purpose. A few individuals or communities aspiring to be globally competitive, wealthy, and famous, and therefore placing their lives relative to the others, may not allow the State to become self reliant.

Secondly, it is to be understood that the traditional Indian tenet of "contentment" is quintessential to the concept of self reliance. The individuals and communities must work to limit their needs, desires and aspirations to the spiritual goal of realizing the greatest truth, and designate the material pursuits only as a mean of subsistence.

As Gandhi ji stated, the western life style of chasing material and financial wealth cannot lead to self sufficiency, swaraj or self reliance. In fact the whole idea of economic development, as we are pursuing today focuses on centralization of power - political and economic.

Third, the pseudo socialist and quasi feudal nature of our democracy often leads to wasteful expenditure, policies and plans focused on winning elections rather than achieving sustainable economic growth and development, serious misallocation of capital and sub-optimal use of resources. We have seen politicians creating undue demand for color televisions, smart phones, laptop computers etc. by manipulating the process of democracy. In rural and semi-urban areas, motor cycle has replaced bicycle as a mandatory dowry item. These days, it is almost impossible to marry your daughter if you cannot afford a motorcycle in dowry. Smart phones also find place in most ‘demand lists’. It is clear that our society is defying the classic McGregor's evolutionary pyramid and moving directly from sustenance to aspirational consumption. The demand thus created is neither desirable nor sustainable.

Fourth, self reliance shall essentially result in material disengagement from the global economy. In the modern day context when geopolitical and cultural relations have essentially become a subset of economic relations, this disengagement may not be limited to trade and commerce issues.

Having these considerations will essentially bring us to the Bhutanese model of development, where the focus is on the individuals' happiness and spiritual elevation rather than the length of the roads & railways, strength of the armies, and other meaningless economic statistics.

The governance then will have to be modeled on the traditional concept of Ram Rajya - where the socio-economic equality & justice is prime consideration for the King, who is always subservient to the subjects.

Obviously, not many people think in these terms when swearing by self reliance. So, what are the implications for self reliance as being understood popularly?....to be continued tomorrow

Tuesday, June 30, 2020

Self Reliance is not about ultra Nationalism

In an interview with the Manchester Guardian in 1965, the then foreign minister of Pakistan Zulfikar Ali Bhutto famously said, “If India builds the bomb, we will eat grass or leaves, even go hungry, but we will get one of our own. We have no alternative.”

The world has seen how Pakistan has built the nuclear bomb and what cost its citizens have paid for the toy that will perhaps never be unboxed. It may be argued that the nuclear arsenal build by Pakistan and India has created a strong enough deterrence for any war between the two countries. Regardless, we had a war in Kargil (1999) and significant rise in the violence in the Kashmir Valley and along the line of control (LoC) since both countries declared themselves to be the nuclear powers in 1998. India has struck twice deep into PoK and changed the status quo materially in J&K in past 5 years. Many soldiers and civilian die every year on the both sides of LoC; and Pakistan economy is surviving on the IMF support. Bhutto did not realize that hungry people would need food to survive, which nuclear weapon cannot provide.

Similar is the sentiment in India these days. The politicians are exhorting people to shun Chinese goods; and people appear ready to forgo consumption of goods with Chinese connection. "Self Reliance" is the war cry against China.

Being self reliant in my view is the best economic policy. But, "self reliance" could have entirely different connotations. Even within the government there appears no consensus over the form and degree of "self reliance" we are talking about in present day context. Listening to and reading about the views of various functionaries of the government, politicians in power, and people supporting "boycott China" movement on social media and streets, I find the following popular perceptions of "self reliance" -

(i) Use only Made in India products.

(ii) Become a manufacturing powerhouse like the South East Asian economies did in 1990s; and produce for the global economies. In the process we should encourage the global corporations to either relocate their manufacturing facilities from China to India; or source their global requirements from the manufacturers in India.

(iii) Become trade surplus economy; especially in manufactured and agriculture products, reversing the colonial model of development, i.e., supplier of raw material and importer of manufactured items.

(iv) Ban "unnecessary" imports from China, e.g., toys, decorative items, furniture etc.

(v) Become "self reliant" in defence production.

(vi) Ban all investments by Chinese investors in Indian businesses.

However, a deeper probe reveals that most people have no objection to the investments from and trade with Japan, Korea, UK, European Union, Canada, Russia, Australia, Gulf Countries, Latin American and African countries. Insofar as the USA is concerned, the feelings are mixed and ambivalent. Most of the people however do not mind deeper economic relations with the USA, provided the USA offers little more favorable terms in terms of VISA and taxation.

So basically, when we say "self reliance" and "trade barriers" we are primarily talking about limiting trade with the "enemies" China and Pakistan" and restricting the movement of labor from Bangladesh.

The worst part is that very few people leading the "boycott China" movement from the front, do not have even basic knowledge of the contours of India's trade with China. They hardly realize that the so called "non essential" items imported from China are a miniscule part of the total trade, but may be accountable for the employment and affordable consumption of millions of lower middle class and poor people in India. ....to continue

Thursday, June 4, 2020

Bits and pieces policy changes may not yield desired results

The government has announced a spate of policy measures to put the economy back on the growth path. The measures and intent to encourage manufacturing in the country is however the most publicized and discussed about policy initiative. It is a clear departure from the extant policy of global cooperation and using bilateral and multilateral trade agreements to benefit from the resources and manufacturing prowess of partner countries ,

So far, we have not seen a comprehensive policy framework for the policy initiative. The basic principle of management would guide that to execute such a major policy intuitive, which may have significant impact on the lives of 140cr people, the planners must first lay down a detailed conceptual framework, which defines in very unambiguous terms, at least the following:

(a) The need for such policy initiative; especially the circumstances that have necessaitated the significant change in the policy direction and intent;

(b) The objectives of the proposed policy initiative, especially specifying how the various stakeholders would specifically benefit fro the change;

(c) The deliverable goals of the policy initiatives, clearly defining the quantitative and qualitative target and timeframe for achieving the specified targets;

(d) Strategy to meet the objectives and goals, clearly defining the legal, regulatory, administrative, procedural, social and behavioral changes that would be prerequisite and/or desirable for achieving the objectives and goals of the policy initiatives; how the government proposes to implement these changes and what could be the hindrances in implementing these changes, etc.

(e) The programs that would be implemented for achieving the objectives & goals; the budget for these programs, executing and controlling authorities and review mechanism;

(f) The cost and benefit analysis of the proposed policy shift; specifically outlining the exit conditions and costs should the changes are found to be not working as planned.

The incumbent government had initially proposed the policy change to promote local manufacturing under its "Make in India" initiative in 2014. In six years, the government has not presented any comprehensive conceptual framework for it; though the NITI Aayog has issued some broad vision documents. There have been many scattered efforts to encourage investment in manufacturing sector, ) most prominent being the restructuring of corporate tax rates), and cluster development; we have not seen any a coordinated effort that would be usually needed for such a massive policy paradigm shift. To the contrary there have been many disparate actions by different organs of the government, defeating the very purpose of the policy itself.

The recently issued draft directive to ban production, transport sale and import of 27 popular agro chemicals is just one point in case. Significant capacities for these chemicals have been built in past few years only. The totally arbitrary decision to suddenly put a blanket ban on these products does not augur well for the policy intent of the government. Similarly, recently a circular was issued to ban sale of 1026 products which are imported in Semi Knocked Unit (SKU) condition in the police and para military canteens. The circular was withdrawn in couple of days. Apparently, two departments of the same ministry were not talking to each other on important policy issue.

Various organs of the government are giving different explanation of the policy intent itself. "make in India"; "Make for India", Make in India for the World", Self Reliance"; "India as a hub of Global Supply Chain" are some of the popular connotations. This does not show that we are going to have a paradigm shift in policy; may be just few bits and pieces here and there.