Swaminomics: A little change in self-reliant India, how is our country different from Korea and Latin countries

Ananya Shroff
6 Min Read

Author: Swaminathan S. Anklesaria Iyer
Last week, this column described how the government's self-reliance policy is evolving into an Indian version of the Korean chaebol, where the government seeks to globalise large industrial conglomerates by supporting and subsidising them. Other countries in East Asia have done the same. Will India follow East Asia or go the way of Latin America, which used high tariffs, limited competition and cheap credit to build large industries? Chaebols bribed politicians but corruption was far more rampant in Latin America, destroying economies. Despite early gains, the region has not moved from middle income to high income. Argentina, one of the richest countries in the 19th century, went bankrupt seven times and fell into a tailspin.

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East Asian countries have always focused on exports, thus making them globally competitive. In contrast, Latin American countries wanted self-sufficiency. The result was that a lack of competitiveness ruined them. Will India succeed in its version of chaebolisation? Or will it go the way of Latin America, as economists like Raghuram Rajan fear. Let us consider three major fears:

India's policy is somewhere between the two
The first concern is incomplete chaebolisation. Korea kept out big multinationals. But the goals of self-reliance are mixed. It wants national champions but also wants to attract big multinationals. It claims to have succeeded in attracting Apple to make and export billion-dollar iPhones and Micron (with a subsidy of 70% of the cost) for semiconductor assembly and testing. This has been described as unfair concessions to foreigners. In contrast, Korea has never allowed foreign investment in manufacturing. Samsung and Hyundai grew first by buying foreign technology and later by investing heavily in research and development. India's self-reliance policy is far from pure chaebolisation. It is a confused mix of attracting FDI and creating national champions to take on the world, with India's three big companies – Tata, Ambani and Adani.

Desire of both multinationals and national champions

Self-reliance involves high tariffs to curb imports, subsidies through production-linked incentives (PLI), and regulations that favour national champions. The government has raised import duties on many low-tech items, protecting small producers of items such as kites, candles, watches, and textiles. But it also wants multinationals such as Amazon and Walmart. At the same time, India is changing e-commerce rules to benefit domestic companies such as Reliance. So unlike Korea, India wants both multinationals and national champions.

This is not a collusive achievement
The second fear is that Indian businessmen will resort to non-competitive strategies, mainly buying profits from corrupt governments. Some Indian economists say India is going the way of Latin America, where companies like Ambani and Adani are making money in non-competitive areas like infrastructure. But this is not a collusive achievement. Reliance Jio has given India one of the cheapest telecom networks in the world. Adani started with Mundra port. It had to be competitive to attract cargo from major ports like Mumbai and nearby Kandla. Today, Mundra is India's largest port, with the largest special economic zone attached to it.

The critics' predictions were not correct
A decade ago, Adani decided to invest $16 billion in a new Carmichael coal mine project in Australia. No well-connected person would make such a big bet in another country. He had to fight environmentalists and Aboriginal groups for years. In addition, rival miners said Carmichael would need an export price of at least $110/ton to succeed, which was impossible because the world was slowly phasing out coal. Adani fought critics for years, finally securing all the permits and starting production. Today Australian coal costs $140/ton, so Adani's guess was right and his critics' guess was wrong.

India in a good position to move forward
Tata is an established global player. It is now the largest private sector employer in Britain, running TCS, Tata Steel Europe (formerly Corus) and Jaguar Land Rover. The third fear of critics is that Indian companies will fail due to a lack of R&D. India spends only 0.6% of GDP on R&D, while China spends 2.4% and Korea 4.8%. Most Indian R&D is done by the government, not corporations. This must change radically if India is to be chaebolised. However, top Indian companies are aiming to do just that. Ambani and Adani are planning massive R&D in renewable energy. They aim to reduce the price of green hydrogen, which is the cutting edge, from $3/kg to $1/kg. Jaguar's R&D will help Tata become world-class in e-cars. Bajaj, India's fourth-largest conglomerate, has converted most of its Pune factory into an R&D centre. Success is by no means assured. But India is well positioned to move forward. We must remain optimistic.

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