Swadeshi, socialism: 2 ‘mindsets’ keep India down

Some years ago, the venerable Keshub Mahindra, one of the proponents of the reviled Bombay Club, revealed to me how gentleman industrialists of India Inc sat in Oberoi’s Belvedre Club in August 1991 to discuss how to petition the government on the rising heft of MNCs who would inundate India with their cheaper goods and kill domestic industry. In the first flush of the unfettering of the command economy, liberalisation was a dirty word for Indian industry. The underlying anodyne fear over how MNCs would sweep them away with their financial firepower, making them form a conglomeration of forces. They petitioned then finance minister Manmohan Singh on November 10, 1993, saying while they welcomed competition in the market, they urged the government to take steps “to enable them [Indian businesses] to play their rightful role in the industrial development of the country”. One of the sharp waiters serving this elite group leaked the story to the media, which then went to town on how India Inc wanted protectionist barriers set up in their battle with the firangs. It’s another matter that Indian industry became more competitive and agile in the years ahead, to not just survive but thrive.

Socialism, swadeshi, insularity and inward-looking — synonyms which could be used interchangably. How dare anyone equate swadeshi with socialism? After all, one is a dogma and the other a boilerplate of economic nationalism. Bottomline, they all reflect a mindset which is backward. Its orientation, origins and template going deep into a concentric circle called narrow-mindedness. After all, India remains capital, energy, infrastructure and power-deficit. Policy stasis of different kinds continue to impede its progress. It has to open up, yet it has chosen not to. It remains illiberal and suspicious of foreigners and foreign capital. For a country which was invaded and ruled by foreigners till 1947, this is a remarkable metamorphosis. Perhaps this rigidity stems from this “being ruled and colonised” credo dominant over centuries in this country. That is why this inherent reservation and scepticism, a lingering doubt that eats innards, like an ulcer, it leaves you in discomfort.

So, batten down the hatches roll out the mattresses and be defensive. For UPA, there was a default mechanism which crept into their thinking after returning to power with 206 seats in 2009, the setting signalled a return to its socialist moorings. For the BJP, a right-wing, muscular nationalism-practising party, the default mechanism is swadeshi — be Indian, buy Indian — a clarion call first given by Mahatma Gandhi against the British Raj. Neo-swadeshi rooted in age-old canons, an extension of the Gandhi-inspired phenomenon which swept India. Economics tells you that market forces determine and discover pricing. That is the only way if the true potentiality of the axis of commerce needs to be exploited. Instead of being progressive, what does India choose to do? It opts to hound you with retrospective, retrograde and regressive taxes. This cuts across party lines. It goes beyond the pale because at heart we are all Luddites. The latest instance is an offshoot of the Doklam crisis — boycott Chinese products, goods and imports; as articulated by the Swadeshi Jagaran Manch’s S. Gurumurthy and the Rashtriya Swabhiman Andolan’s K. Govindacharya. India has imposed anti-dumping duties on 93 products like chemicals, machinery, steel and other metals, fibres, yarn, rubber, plastic, electrical items, electronics and consumer goods imported from China. Another 40 cases relating to imports from China have been initiated by the Directorate-General of Anti-Dumping and Allied Duties (DGAD). Protectionist policies are good for they are probably wreaking havoc on Indian-made products, but free market economics avers that let competition be the only whetstone to decide who the winner is.

Sometime in August 2012, late attorney-general Goolam E. Vahanvati, India’s highest law officer, opened a brand new front. He argued India can raise a demand on Hong Kong-based Hutchison as it was liable to pay tax on the sale of its Indian assets to the UK’s Vodafone Group in 2007 — India could legally send a notice to Hutchison, which exited the country in 2007, after selling its operations to Vodafone for over $11 billion. “Ultimately, the tax has to be paid by either of the two companies, or both. The government doesn’t quite care, but legally a notice can be served on Hutchison” — the argument went. The ghost returned last week.

In a bizarre move, the income-tax department sought Rs 32,230 crores in tax, interest and penalty from Hong Kong-based Hutchison for alleged capital gains on the $11 billion deal for sale of its mobile business in India to the UK’s Vodafone Group in 2007. In a regulatory filing to the Hong Kong stock exchange, CK Hutchison Holdings said its unit Hutchison Telecommunications International had been served with a tax demand of about Rs 7,900 crores, along with interest of Rs 16,430 crores and penalty of Rs 7,900 crores. The company, of course has disputed this claim. This is the first time that the I-T department has raised a tax demand on the Hong Kong firm. So far, it insisted on tax payment from Vodafone. It may be noted that the tax department had earlier offered companies locked in tax disputes to settle the issues, but none of the top firms came forward. They preferred to challenge the tax demand in international arbitration tribunals. So if you can’t get Vodafone, which has taken you to arbitration, open a spanking new front and target the other party to the transaction, but wake up to that reality a decade later.

Meanwhile, swadeshi protagonists like Govindacharya, S. Gurumurthy and Baba Ramdev are ratcheting up the pitch on the old bogey of economic nationalism. My view on economic nationalism is become strong like the chaebol in South Korea or the zaibatsu in Japan and manufacture world-class products. Produce them with the best cost efficiencies and flood the world. That is an economic model India should pursue, become a global hub of Indian-manufactured products and export them. It could be an automobile or a two-wheeler or a handset.

Today we have Hero Motocorp as a shining example of Indian manufacturing — on the Delhi-Jaipur expressway it has three manufacturing plants and its assembly lines are churning out 678,797 two-wheelers (in August alone, the highest-ever monthly sales recorded). Another Indian iconic bike maker Royal Enfield sold 67,977 units in August 2017, compared to 55,721 units in August 2016. It’s going toe to toe with Harley Davidson worldwide.

But wait, both are a part of a competitive set which includes Honda, Hero’s erstwhile partner, and their numbers for August are staggering. It sold 622,180 units last month, creeping up on Hero and besting Bajaj Auto and TVS Motor. Now this is a function of competitive and free market forces. Shuttering yourself will not help. Nor will policy flips-flops like the ones on “luxury cars and SUVs” where anomalies were detected — that prices actually went down after GST kicked in, so levy a cess making it prohibitive to buy them (53 per cent). Then luxury cars become a homologous unit where the Toyota Etios, Honda City, Maruti Ciaz and similar vehicles are mistakenly seen as luxury cars due to their 4m-plus length and over 1500cc engine capacity. There is no logic or rationale in such a move. Economic activity moves on wheels, the more cars we sell, the deeper will be the tax collections under GST. Don’t raise these old bogies now, for if you want the world to perceive you as a genuine free market economy, the law of supply and demand, rather than a Central government, should regulate production and labour. Companies sell goods and services at the highest price consumers are willing to pay, while workers demand the highest wages companies are willing to pay. We are a far cry from that.