What to do with the inveterate anti-business mindset that defines much of India’s economic policy?
The US-China trade war can be India’s gain, a report by the Confederation of Indian Industry (CII) and the US India Business Council (USIBC) has said. The report, titled, “$500 Billion Roadmap”, is correct: yes, we can. The real issue is: do we want to do that? The optics of bonhomie between Prime Minister Narendra Modi and US President Donald Trump, the former’s emphasis on wealth creation and focus on ease of doing business, may tempt us to answer in the affirmative. Facts, however, suggest something else.
On the face of it, a big spurt in India-US relationship, not just trade, appears plausible. Several American companies are looking for alternative investment destinations so that they could shift their factories from China. The CII-USIBC report has even recommended a list of interventions in 13 specific areas. These include reinstatement of Generalized System of Preferences (GSP) benefits by the US for India, ending high tariffs on steel and aluminium imports by the US, price controls on medical devices, tweaking of India’s e-commerce policy, changes in import duties on high-end motorcycles, more cooperation in defence and aerospace, etc. “However, for this to materialize, both sides have to look at the challenges in the relationship as opportunities for growth and look for creative solutions to break the logjam wherever possible,” the report said.
Logjams can be broken, tariff rates altered, and policies tweaked, but what to do with the inveterate anti-business mindset that defines much of India’s economic policy? What can the government do with Swadeshi Jagaran Manch (SJM), which has become the bane of the economy? Anything good that the government attempts to do is mauled by saffron dinosaurs.
Then there are members of the Union Cabinet who let their whims and fancies run riot. This brings us to the audacity of hope in the CII-USIBC report. Who would be reading the $500-billion roadmap, and navigating accordingly, from the Indian side? Commerce Minister Piyush Goyal created a furore by announcing in September last in his capacity as Railways Minister, that General Electric should make electric engines rather than diesel ones. The implication was that the American firm’s 2015 contract, worth $2.6 billion for supply of 1,000 diesel locomotives, would end soon. The fact that GE had won the contract by way of competitive bidding didn’t bother; nor the truth that changing the terms of a contract midway is bad in principle and brings bad name to the country. Nobody took into account the fact that that was the largest foreign direct investment in India by an American company. This was also the first one going to an overseas firm after India allowed 100% FDI in railways. It also has salutary cascading effects, thus boosting the Make in India programme.
But ministers were obsessed with speeding up railway electrification. He said, “We are giving a relook to the ways of speeding up the electrification process” of rail lines across the country. Quite expectedly, GE protested and he backtracked, but not before hurting India’s international prestige.
Another grandee who has a fetish for electrification is Road Transport Minister Nitin Gadkari. He promised the auto-makers that he would “bulldoze” and he did that.
CII director-general Chandrajit Banerjee was quoted in the media, saying, “However, to achieve the shared goal of reaching $500 billion in the trade from the current $142 billion in 2018 would require a renewed focus on tackling some of the irritants to unleash the full potential of the economic relationship.”
The problem is that the irritants are too many and too powerful. Quite apart from some ministers, there are bureaucrats, economists, and experts, who, for generations, have read textbooks written by pinkish scholars and imbibed all the socialist ideas they were fed to them. Such policy and decision makers comprise the deep pink state that is the real culprit of the current slowdown and the highest unemployment rate.
The CII-USIBC report has mentioned three possible scenarios in which the India-US trade would grow from $142 billion in 2018 to the $500-billion target: the “limping”, “chugging”, and “soaring” scenarios. The first one is predicated upon deteriorated ties, resulting in a CAGR growth of 3.9% and the target reached in 2052. The second is premised upon unchanged ties (7.9% and by 2035) and the third on positive policy and regulatory moves (11.8% and by 2030).
While the third, and desirable, scenario seems difficult, it is certainly not impossible. But this would necessitate earnest intervention from Prime Minister Narendra Modi for the ministers concerned and the economic policy implementation paraphernalia seem neither willing nor capable of doing that.
Ravi Shanker Kapoor is a freelance journalist.