A throwback to protectionism?

Paran Balakrishnan | Updated on January 22, 2020

The treatment meted out to Amazon chief, the ‘Make in India’ push and the non-signing of RCEP are pointers to that

The BJP government has flashed a strong message to global investors and it’s likely to give them pause. Last week, India’s anti-trust regulator opened an investigation into Amazon and announced the move on the eve of the arrival of Jeff Bezos, the e-commerce giant’s billionaire boss. And while Bezos is usually received like royalty around the world, in Delhi, he got a completely different reception — in fact, no reception — from Prime Minister Narendra Modi who refused to meet him.

While Modi dished out the silent treatment after rolling out the red carpet on Bezos’ 2014 visit, Railways Minister Piyush Goyal went on the offensive, sneering at Amazon’ plan to invest $1 billion in India and suggesting it was only covering up losses from alleged predatory pricing.

“It’s not as if they’re doing a great favour to India when they invest a billion dollars,” Goyal said. Initially, he backed off his televised comments, saying he’d been misquoted (he hadn’t). But after Bezos left, Goyal hit out again, attacking Bezos’ pledge to create a million jobs by 2025 and arguing it hardly made up for the millions of Indians put out of work by e-commerce sites like Amazon that “incur huge losses to the country.”

Bezos’s every move is watched around the world and his India “welcome” has surely etched a deep impression on investors looking at the country. But Modi and Goyal appear totally unconcerned — another sign of the government’s U-turn towards attracting the foreign investment it talked so much about wooing in its first term and how protectionist at heart it has become.

Protectionism has been almost a way of life for all Indian governments which have been obsessed since Independence with producing as much as possible within our borders. In the early days, the argument was India didn’t have the foreign exchange to pay for large-scale imports. Today, it’s an old habit that can’t be kicked. If nothing else, it’s the safe solution Indian bureaucrats are familiar with. Also, as now is evident, Modi’s not the business-oriented trailblazer he was packaged as, but a risk-averse politician who doesn’t want to rock the boat and upset any of his domestic constituencies.

Modi has made his basic protectionist leanings abundantly clear in recent months. In fact, in his final Mann ki Baat of 2019, he made an extraordinary request that Indians buy “products made in India, made by the hands of our citizens, carrying the fragrance of the sweat of our countrymen. Can’t we resolve to buy such things?” Strangely, he threw in an unexplained time-limit on buying Indian, saying: “I do not advocate this for a long time, just till 2022, till the completion of 75 years of Independence.”

Swadeshi Movement

Then, Modi invoked Mahatma Gandhi and the Swadeshi Movement, started during a very different era. Going beyond that, though, he drove home his message, asking his audience, “Can we promote locally made products? Can we prioritise them in our shopping? Can we link local products with our status and pride?”

It could, of course, be argued, that Modi’s exhortations are just a continuation of Make in India, one of the most heavily advertised slogans of his first term with its eye-catching striding lion logo. But Make in India had a more positive message of bringing foreign manufacturers to India. Now, the message has become more negative — that Indians should buy Indian-made products to the exclusion of others.

There are, of course, formidable forces backing protectionism in the BJP-RSS combine. Swadeshi has long been a watchword for the RSS and its close affiliate, the Swadeshi Jagran Manch (SJM) which promotes an eccentric economic gameplan of self-reliance and opposition to foreign direct investment. The SJM tried to weigh in and stop the sale of Flipkart to US supermarket giant Walmart. It opposes privatisation of companies like Bharat Petroleum and Air India, to which the government is committed. The SJM said in December that Saudi oil giant Aramco shouldn’t be allowed to buy BPCL.

What are the other indicators of this government’s growing protectionist inclinations? Well, there was India’s recent decision not to sign the Regional Comprehensive Economic Partnership treaty, the fallout of which, negative or positive, we’ll come to know in years ahead. Also, among large economies, the US and India have imposed the most trade curbs in the past three years to promote domestic manufacturing, according to the GTA database, a Swiss trade-policy monitoring project.

India’s hiked duties in the last two Budgets on a range of products and an official US report states India’s tariff rates among other World Trade Organisation countries are “the highest of any major economy.” While in this case, it may be the pot calling the kettle black, US President Donald Trump has dubbed India “the king of tariffs.”

History shows beggar-thy-neighbour protectionism never has a happy ending. While tariff hikes in one industry, like steel, can benefit that sector, it damages sectors such as automakers which have to pay higher prices for that input. Globally, protectionism is mutating into different forms, even in the most hi-tech industries. An argument has been building in recent years that the Chinese were able to build tech giants like Tencent and Alibaba only because they kept out US mammoths like Google and Facebook.

Therefore, the argument goes, India must block the world’s biggest tech heavyweights and create its own local champions. That’s the argument driving the government’s efforts to prevent data from leaving the country. Inevitably, it’s a stand being opposed by the most powerful global tech giants. Thus, also, the speculation Modi and Goyal gave Bezos a hostile reception because Reliance is poised to make a giant splash in the e-commerce business. But there’s a multiplier effect from all this hostility, and protectionist policies inevitably invite retaliation.

Reputation of unpredictability

Can the Modi government break free of its protectionist inclinations? Does it even want to? To pull India out of its deepest economic downturn in six years, let alone achieve its $5 trillion GDP target by 2025, logic dictates the government needs all the economic fire-power it can muster and that involves attracting foreign investors.

India, with its policy flip-flops, has already got a reputation as a tough, unpredictable, place to invest (think Vodafone for one). The government’s very public snub to Bezos risks having a multiplier chill effect on investors globally, though Bezos seems determined not to take offence. In possibly the best riposte he could give to the government over his hostile reception, he wrote on Amazon’s home page as he left: “I fall more in love with India every time I return here.”

Published on January 22, 2020

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