At a time when the US, dominator of the 20th century, has switched from globalisation and free trade to ‘America First’, Narendra Modi emphasised the very opposite at the Davos meeting of the World Economic Forum. “Many countries are becoming inward focused and globalisation is shrinking, and such tendencies can’t be considered a lesser risk than terrorism or climate change.” He was echoing the sentiments of Xi Jinping of China.
Modi’s categorical assertion is welcome. Some theorists are already speculating that China and India will fill the vacuum created by Trump’s retreat. I was asked on TV whether India was emerging as a global leader with a global vision for the 21st century.
Absolutely no, I replied. India is still a poor, under-developed country, internally riven over what social and economic vision it should have for itself, with barely a thought about developing a new vision for the world. Regardless of Modi’s defence of globalisation at Davos, India is instinctively protectionist. Unlike a true globaliser, it does not see imports as a welcome way to get cheap goods from the rest of the world: it sees them as a threat to Indian employment, production and prosperity. It has long been world number one in anti-dumping duties, keeping company with Donald Trump.
Even as Modi extols the virtues of open economies at Davos, he has imposed a series of import duties on electronic goods to protect and build the domestic industry. This, in economic jargon, is called “industrial policy” or “infant industry protection”. Much lobbying is in progress to extend such protection to solar energy equipment, which, like electronics, is an area where India simply cannot compete with China. Such a measure will echo Trump’s recent imposition of a 30% tariff on Chinese solar panels.
The underlying logic is that China first used protection and subsidies to create enormous factories, reaping scale economies that soon made it a very low-cost global hub of production. India’s electronics and solar industries say they want to follow a similar path, and will give up protectionist duties once they become competitive. But there is no guarantee of such a happy outcome, given Indian policy interventions that make its land, labour and capital more costly than in Asian competitors. The infant industry argument was used to justify high duties in the era of import substitution. Far from creating low-cost, competitive industries, it created high-cost, uncompetitive ones. India needs to end distortions in land, labour and capital, rather than go the protectionist route.
It raised import duties on several agricultural items (including wheat, sugar, dal and edible oil) last year, and banned or restricted the export of other farm goods to raise domestic prices for the benefit of farmers. In forums like the WTO, India has long resisted agricultural opening up, arguing that India is a country of poor subsistence farmers who cannot be left to the mercy of international markets, and of poor consumers who require huge, subsidised buffer stocks.
That is an acceptable stand for a poor country dependent on foreign aid and trade concessions. But a land of poor subsistence farmers cannot aim for global leadership or vision. Despite becoming a member of the G-20, India is still a poor country seeking special treatment from richer countries. Thank heavens it is no longer the biggest beggar for foreign aid, as earlier. But it is nowhere near global leadership or setting standards for the world.
The problem is not just protection for electronics or solar panels, but protection for cows. Do Modi and his colleagues have any idea what a global laughing stock India is for wanting to ban the slaughter of even aged cattle, beating up cattle transporters, and lynching people suspected of eating beef? Can India seriously sell abroad a global vision of an outright ban on cow slaughter, building endless gaushalas, and letting stray cattle roam the streets?
No, if Modi wants India to become a global leader setting standards for the rest of the world, he needs to wait till India becomes much richer, and is in a position to make sacrifices and offer concessions to other countries, rather than demand these (as is the case today). India will have to become much more competitive, and not seek protection or anti-dumping duties at the drop of a hat. Above all, it will need to become a standardsetter in social norms, human values, and the creation of a truly inclusive society, rather than a majoritarian one.