Swadeshi vs globalisation

Swadeshi vs globalisation

Bharat Jhunjhunwala

THE globalisation lobby holds that swadeshi is outdated, it indicates an unwillingness to upgrade production facilities to global standards; and Indian industrialists love swadeshi because it enables them to sell their shoddy products at exorbitant prices. The car industry is considered a classic example — fuel-inefficient Ambassadors and Fiats ruled the market until Suzuki came in with new technology and models.

The criticism is valid. In the 1980s, swadeshi helped protect inefficient domestic industries. It is obvious that the quality of goods available in the Indian market has undergone a dramatic improvement since the economy was opened up in the 1990s. The quality of cars, television sets and textiles has improved tremendously.

There are three ways of introducing competition and breaking the `backward' mentality — domestic competition, free trade and foreign investment. Swadeshi involves embracing domestic competition and free trade but rejecting foreign investment. However, foreign investment is a different ball game altogether.

Consider the car industry. The Tatas had sought a licence to manufacture passenger cars, but it was rejected. The result was a duopoly between the Birlas and the Walchands. Had the government promoted domestic competition and the Tatas had produced the Indica 20 years ago, the country might have emerged as a major car exporter by now. It would have been the ideal policy.

If domestic competition does not bring forth the desired upgradation, the second step should have been to allow import of cars. This would have either pushed the Birlas and Walchands out of the market or forced them to upgrade. Free trade is beneficial.

India would have had to earn the dollars to import the cars. That would have led to increased exports in other high-skill labour-intensive sectors in which India has a comparative advantage.

The objective of free trade should be to provide an `optimal challenge' to domestic car manufacturers in the above instance. Very low tariffs can deny legitimate protection to a nascent industry and nip the domestic challenger in the bud. Very high tariffs could encourage inefficient production. With such an orientation free trade becomes an instrument to cajole domestic entrepreneurs to adopt global standards.

The swadeshi objection is to foreign investment. Certainly this policy also provides goods of global standards as happened in the 1990s. But there are other long-term negative effects that need to be considered.

Foreign investment leads to wealth repatriation by MNCs in the form of overpricing imported components, royalty payments and profit repatriations. The trade unions at Maruti have been stressing this fact which, unfortunately, mainstream economists have refused to look at.

This strategy had disastrous effects in Africa, which received huge FDI flows in the 1960s but became a basket case in the 1970s. Similarly, Latin America received huge foreign investments in the 1970s and the 1980s, but the 1990s proved to be its `lost decade'. Domestic competition leads to increased production in the same sector and free trade leads to production in export
sectors. However, foreign investment leads to neither. Some statistical studies have found no impact of MNCs on technology.

Thus swadeshi seeks domestic competition, and free trade-led globalisation and opposes foreign investment. The fundamental contradiction of the present foreign investment-led globalisation is that it grants free movement for capital while hemming in the people within national boundaries. It is inevitable that many developing countries will lose their capital to other
countries while their people stay put.

There are only two ways that the good of the people can be secured. The ideal
method would be to allow the free movement of labour and capital.The second way is to keep the capital of each country within its borders and develop, howsoever slowly, on a swadeshi line while adopting policies of domestic competition and free trade. Swadeshi stands for domestic competition and free trade and is against foreign investment.

This has to be understood clearly by the proponents of swadeshi, who often oppose free trade, and the opponents, who ignore the disastrous long-term effects of foreign investment..

(The author is a New Delhi-based freelance writer.)