Imports, not exports, are key to the economy and to our trade

State, Market, Society

The idea of India has been tied closely to the idea of ‘make in India’ for more than a century now. The connection was quite close and easy to make -- India must be built by Indians, not only politically but also economically. The Swadeshi movement began 117 years ago, in Kolkata, and was quite clearly an important part of the struggle for independence. By then, it had already been half a century of increasingly powerful calls for boycott of English goods, especially clothes. Various pioneers of industry also attempted to start production in India to substitute imported goods, and some even took over foreign-owned companies.

The legacy of the movement has persisted long after 1947. It was tempered by Nehru’s preference for the State over the market, and as a result there were several giant State enterprises that came up to produce heavy goods, in particular. And at various times since Independence, there have been strong advocates of self-reliance among the opposition parties, too. When the BJP took power at the Centre, the embrace of Swadeshi continued despite the change in government. And #MakeinIndia has been a prominent theme during the party’s second turn in power.

Support for local production as an important goal also received a boost from the experience of many other countries, especially in Asia, that grew by leaps and bounds after turning their attention to becoming manufacturing hubs. While they all began by making low-value products, some have gone on to higher value production too. South Korea, where people were at the same income levels as Indians half a century ago, became an OECD member before the turn of the millennium. China’s standing as a world power is deeply inter-woven with its status as the leading manufacturer of numerous goods.

All of this, however, only explains why India has chosen this view of its potential for so long. It doesn’t explain why that potential has not materialised, and every government simply makes the same promise as the previous one, changing nothing besides the faces in its promotional advertisements.

After several rounds of declared faith in promoting local production, India’s share of global manufacturing, measured by output value, is around 3%. Not only that, governments have taken the view that while we are waiting for Indian production to pick up, we must not concede the local market to foreign production. As a result, the best products in the world are not easily available in India in many sectors; in some cases, they are not at all available. Having shut out the world, we haven’t done a good job of building alternatives. Instead, Indian consumers are stiffed, and asked to bear this because it’s our duty to support our producers.

Why would political leaders support a few tens of thousands of producers instead of a billion+ consumers? Part of the answer is surely in the way the parties are funded -- they get their funds from the businesses whose interests they protect.

But that’s only part of it. Despite the protection they’ve got against imports, why have Indian manufacturers been so slow to get going? There are many reasons. Low purchasing power, poor logistics, constantly changing policies of the government, low literacy and resulting lack of productivity in the workforce, to cite only a few. Over decades, governments’ stated commitment to manufacturing has not been matched by efforts to tackle problems with the necessary inputs. They simply haven’t walked the talk.

But there is also one other question we should look at. We have tried to shut out foreign competition to favour locals, but does the very act of shutting out the world’s factories from Indian markets make it unlikely that we’ll ever build our own world-class plants? After all, it takes a lot of high-quality equipment and tools to build a great factory, but we’ve also shut out imports of those inputs. Perhaps the obsession with exports is all wrong.

Imports are the real point of international trade, Paul Krugman reminded us in his New York Times column earlier this month. The countries that decided to build a strong export focus first had to liberally import the various inputs needed for such production. And those, in turn, also helped expand the choices available to local markets. As Krugman notes about the war in Ukraine, the lack of imports is more likely to pull Russia down than all the sanctions against its exports.

Self-sufficiency has its value, but that value is exaggerated. We certainly should not be equating local manufacturing with national pride. India’s goal should be to ensure that its people have the widest access to the best goods and services. If we’re going to launch various avatars of ‘make in India’, we should come up with a way of doing that which doesn’t begin by banning or restricting imports.

Underlying all this is an even bigger problem. Our political parties don’t believe in economic freedom, or in personal liberty. The enterprise and rights of the people are not their starting points. They’re still selling the snake oil of development delivered by the Sarkar. They tolerate the market but only to ensure that it too is aligned with the political economy. It is long past time to put the consumer and citizen first. Only that will create great Indian producers.