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Business Commentary/Dilip Thakore

Congress more likely to sustain liberalisation

The relatively liberal policy statements and behavioural attitudes on issues of respect for minority sensitivities and a willingness to atone for past misdeeds makes the over 100-year-old Congress party the least evil of the big three parties and/or formations in the general election fray.

And in the matter of economic policy formulation and implementation, the Congress offers greater possibilities of sustaining the liberalisation and deregulation process and maintaining the relatively higher rates of GDP growth which the Indian economy has been experiencing in the 1990s.

The major point of departure between the arthik swaraj (economic independence) and the swadeshi (economic nationalism) agendas of the Congress and the BJP respectively (the wishy-washy economic agenda of the United Front coalition as expressed in its patchwork common minimum programme is a monument to discretionary licensing and unworthy of discussion) is on the issue of foreign investment and protection to Indian industry forom foreign competition.

On the issue of foreign direct investment (FDI), the Congress manifesto promises to encourage it to flow into more sectors of the economy and particularly into the insurance sector. The BJP is committed to permitting it only in infrastructure and hi-tech industries such as energy, roads, ports, and telecommunications. On the related issue of locking the hitherto isolationist Indian economy into the globalisation phenomenon, the Congress promises to step on the accelerator while the BJP believes that a 7-10 year period of rapid "internal liberalisation" must precede the globalisation of the Indian economy

Quite obviously, the BJP economic think tank has lent more than a sympathetic ear to the plaintive cries of the Bombay Club of industrialists led by scooter manufacturing tycoon Rahul Bajaj which has been arguing for "a level playing field" for Indian industry as a precondition of external liberalisation.

On the other hand, Congress party economists believe that given the nation's commitments to the World Trade Organisation (of which India is now a full-fledged member) to immediately eliminate physical and quantitative restrictions on imports and to progressively reduce import tariffs, giving so much time to Indian industry to shape up is neither possible nor desirable.

After close examination of the policy declarations and general attitudes of these two political parties which aspire to lead the nation into the 21st century, it is -- or should be -- obvious that the Congress party's economic agenda is much better rooted in contemporary realities.

For a start, it is very difficult to determine what are hi-tech industries (into which the BJP is quite willing to accept FDI) and which are not. One of the BJP netas coined a clever slogan indicating the acceptance of computer chips, but not of potato chips. Yet it canbe forcefully argued that FDI and sophisticated technologies are very urgently required in India's undercapitalised agriculture sector in which an estimated 40 percent of annual horticulture produce and over 10 percent of foodgrains rot before it can get to hungry markets. Indeed, the entry of Pepsico (ostensibly a low-end soft drinks manufacturing company) into India has more than tripled per hectare tomato yields in Punjab and enriched thousands of farmers in that state who are enjoying unprecedented farmgate prices as a consequence.

Likewise, the arrival in India of Kelloggs which manufactures allegedly low-tech and elitist breakfast cereals has not only enthused farmers but has also doubled the sales of Mohan Meakin's Mohun brand of cornflaks by expanding the market for breakfast cereals. In the circumstances, under a BJP government -- if and when -- who would decide whether a particular FDI proposal passes the hi-tech test? If the answer is government, won't this be a regression to case-by-case discretionary licensing which would reopen the floodgates of neta-babu corruption?

Moreover, how much real substance is there in the plaintive whine of members of the Bombay Club that the pitch has been doctored against Indian industry? True, interest rates in India are much higher than abroad. But then employee costs are much less and perhaps material costs as well. Besides, you don't hear Dhirubhai Ambani or Ratan Tata, who are sailing in the same boat as members of the Bombay Club, whining about unlevel playing fields and begging for protection. Their response is to set up world class manufacturing facilities and to defend their turf by wooing and winning the Indian consumer. Against all expectations, Ratan Tata's TELCO has driven several Japanese automobile manufacturing majors out of India's LCV (light commercial vehicles) market and is gearing up to dominate the national small cars market. That's the appropriate response to the challenge of foreign competition.

The fundamental difference between the economic agendas of the Congress and the BJP is that at long last the former is beginning to shape its economic policies with some regard to the interests of India's much-neglected consumers. This wisdom of according some respect to the consumer is yet to dawn upon the BJP leadership which continues to harbour quaint notions of national pride.

Indeed, it is only when one gauges the impact of economic liberalisation and deregulation from the vantage point of the consumer that the benefits of FDI and foreign competition to Indian industry manifest themselves. But for the stimulus of competition from foreign banks and particularly Citibank, Indian banks would have made no attempt to improve their notoriously shoddy services and systems. Ditto Indian Airlines. And but for the advent of the Indo-Japanese Maruti Udyog, India's aspirational middle class would have still been lumbered with the vintage Ambassador car.

The leftist argument against FDI and foreign competition is that such liberalisation does not impact the poor at the base of the social pyramid. But surely, this objection argues in favour of accelerating and deepening the liberalisation process. There is an urgent need for foreign investment and foreign companies to venture into the agriculture business and rural infrastructure development industries to supplement traditionally weak government initiatives in these sectors.

Admittedly it is futile -- and perhaps dangerous -- to expect foreign investment to solve the development problems of the Indian economy. At the best of times, foreign investment can only top-up domestic investment. But FDI and foreign competition can play a vital role in the national development process by setting bench-marks and standards for emulation by Indian industry. That is long-term benefit of FDI, foreign competition, and the whole liberalisation mantra.

Dilip Thakore