by Sri Ashok Chowgule

Selective external liberalisation would mean that a policy would be set out which would indicate in which sectors foreign collaboration would be permitted. In some cases, investment would also be permitted. In terms of national priorities, obviously investment in consumer sector would not be permitted.

This policy of complete internal liberalisation and selective external liberalisation was the one that was followed by all the Asian Tigers, including Japan. Domestic giants like Sony, Toyota, Daewoo, etc., came up because foreign companies were not allowed to set up shop in these countries. Also, there was a severe import regime, which did not allow foreign companies to market their goods in these countries. Of course, the domestic giants that came up were not one or two in number, but many. For example, Japan has more than eight major car manufactures, unlike three in USA. These companies were protected from imports, and were able to learn and absorb manufacturing and marketing techniques.

In addition, these Asian Tigers gave a lot of incentives to enable the domestic companies to export their surplus production. This encouraged the companies to set up large sized plants, which enabled them to keep the cost of production down and so offer to the home markets products at reasonable prices. The economy benefited in many ways, and the Asian Tigers were able to achieve high rates of growth in GDP.

It is alleged that the Nehruvian model was a SWADESHI one, since it prevented imports from coming into the country. However, the Nehruvian model stifled local entreprenuership since there was a system of licence raj. The plants that were set up were very small, and the number of companies allowed were very few. To take the example of the automobile industry, while two companies in India were allowed to set up plants of about 30,000 cars per year, Japan had eight plants with minimum one million cars per year. At the level of the Indian capacity, there was no possibility of model upgradation, since the investment in the old one could be recovered over a very long period of time. Additionally, the ancillaries were also pygmy in size, and here too development was not possible with the size of plants being set up.

The opening up of economy that is being sought will not solve the basic problem of development of domestic entreprenuership. The Japanese, the Koreans, the Taiwanese giants have been nurtured over a long period of time, and they are now able to face up to the international competition. In India, by allowing indiscriminate entry of foreign companies, the domestic companies have to face an unequal competition. The best example is that of Hindustan Lever (part of the Anglo-Dutch conglomerate) which is swalowing up companies at a very fast pace. About two years ago, Tatas had to succumb to the pressure and allowed their toiletries unit to be merged with the multi-national.

While the developed countries come and tell India to open up its economy for their companies to operate freely, the same is not being done in their countries in industries where India has a competitive advantage. We have the Multi- Fibre Arrangement which sets out quotas for exports of textiles from the developing countries. The objective is to protect the domestic textile industries in the developed from competition from imports. The latest fashion is to use the social clause in preventing products from developing countries to be imported. Incidentally, since the quotas are auctioned and traded, the manufacturer of garments has to incur additional cost of doing business.

As far as the social clause is concerned, the developed countries should be asked to look at their own process of development, and see how much of it has been due to the very practices that they are today objecting to. The visuals of child labour in the British coal mines, working 12 hours a day, seven days a week are well documented. The manner in which the developed countries have degraded the environment is well known to all. Most important, through the process of colonisation, these countries took away a substantial part of the wealth of the colonies for enriching themselves. Slave trade and use of slave labour is only one such example.

In Europe, sugar imports is highly restricted to protect the domestic industry which produces sugar from beet root. Countries like India which use sugar cane, and hence is a cheaper producer are shut out, and are unable to set up plants with exports in mind. In USA, software imports are made difficult by the visa restrictions, and other non-tariff barriers. The net effect is that the developing countries do not have export outlets, but are forced to liberalise their import trade. This makes growth in GDP very difficult. (Of course, the one that is paying the price is the consumer in the developed countries since he has to pay a higher price for the product.)

Japan has severe restrictions on imports of agriculture products, especially rice. The number of disputes with America on this account are numerous. Korea still does not permit imports of more than 1900 cars a year, while it is exporting more than a million. It is not only the western countries that are coming to lecture India about liberalisation, but also the Asian countries which have used the restrictive import regime for their own development.

The USA and Europe give huge subsidies to the agriculture producers. In some cases, the subsidies being given are not to grow anything on the land - in other words to keep the land fallow. It is estimated that the subsidy amount is about USD 1000 per family of four. (NOTE: Please check the accuracy of this figure, if this note is to be used.) The European agriculture subsidies have produced mountain of items like butter, which is used as 'aid' for the developing countries. The reason why I have put 'aid' in quotes is because this depresses prices in the recipient country to below the cost of production and hence leaves no incentive for the domestic industry to come up.

It is high time that all those who are deeply committed to the well being of India awaken to the facts of trade diplomacy, and not fall into the trap that is being set by the developed countries. There needs to be proper reciprocity, so that there is a win-win situation. At the moment, under pressure of IMF and others, India is following a dangerous path. The growth rates at the moment may appear to be high - but what will happen is that there will not be a domestic entrepreneur class, but only a service class, working to the whims and fancies of dictates from a multi-national who may not have the interest of India at heart.

Policy on Economic Affairs