This newsletter is really a public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?
Welcome to the mid-week edition in which we write essays on a public policy theme. The usual public policy review comes out on weekends.
PS: If you enjoy listening instead of reading, we have this edition available as an audio narration courtesy the good folks at Ad-Auris. If you have any feedback, please send it to us. Listen in podcast app
- RSJ
There’s that old joke about outrunning the bear:
Two campers are walking through a forest when they see a bear about a hundred feet away. The first camper digs into his backpack, pulls his running shoes out and starts changing into them. The other camper is puzzled – “Let’s run. Why are you wasting time changing shoes? You can’t outrun the bear.”
“I don’t need to, the first camper replies. “I just need to outrun you.”
Atmanirbhar Is Everywhere
In corporate India these days, you don’t even need to outrun the competition. You just need to out-atmanirbhar them.
It is difficult to find a single interview of any business leader these days without a reference to Atmanirbhar Bharat. Every company is working to be atmanirbhar including those whose business model is founded on free international trade (Exhibit A: Xiaomi ‘more Indian’ smartphone brand than any other). Opportunism is an addiction. You can’t resist it even when you know it will harm you. Of course, going against the grain of atmanirbhar has its own challenges. Ask Toyota.
Yet, it is one thing to contort yourself and position all your initiatives as atmanirbhar; it is quite another to use it to settle corporate scores or block competitors from entering your market. We have seen this film before. The traditional business houses pre-1991 weren’t agitating for open markets, low tariff regime and fewer government restrictions in business. Instead most used these to their advantage, kept upstarts out and extend their market dominance. The price in the form of low-quality products, shortages and black markets were borne by the ordinary customers.
This mad race for aatmanirbharta again illustrates why we argue for pro-market policies, not pro-business ones. Pandering to the aatmanirbharta slogan is a way for some businesses to get an unfair advantage over others. Pro-market policies, by contrast, are concerned with government actions to increase competition and to plug market failures.
Therefore, it is no surprise the entrenched firms of today are batting for an atmanirbhar regime. There’s a strange race on to ‘out-atmannirbhar’ the competition. So, a Chinese phone company claims its more local than Indian companies (65 per cent of components sourced locally) and starts putting a ‘made in India’ logo on its phone. Its business head for India takes a swipe at competition saying “non-Chinese foreign rivals including one US company imports all of their phones from China and local Indian brands only relabel and sell in India.” The problem with not standing up to a principle (like free trade) while aligning yourself with the flavour of the season isn’t too hard to comprehend. There will soon be another brand that will claim 100 per cent local sourcing to claim greater ‘Indian-ness’ regardless of what it means to cost and quality for the customers. Or, the opportunism will come back and bite you in the back like this Chinese company found out when the government banned two of its popular apps that were provided as value-added services with their phones.
You also have the bizarre case where the founder of a payment app company with significant Chinese investment in it claiming – “It’s Google-nirbhar bharat not Atmanirbhar Bharat” – when Google temporarily suspended the app owing to violations of its gambling policy. Not to be left behind a competitor payment app ran an advertising campaign positioning itself as a truly Indian app in contrast to the foreign apps. Like that should make a difference to the customers. And now you have the Indian start-up founders coming together to create a BharatApp store to achieve Google-mukt India.
It Is What You Make Of It
Three points to consider here. First, it is good to create an alternative when you aren’t happy with the incumbent. That’s the right way to go about this so long as the competition is on the basis of product features like price and quality and not on the provenance of the product. Second, the complaint about Google Play Store using its dominant position to dictate terms with app makers is as valid as many of these start-ups doing the same with their suppliers or ‘partners’. Lastly, any idea that such an app store should be partly governed by the government or a regulator is terrible and should be nipped in the bud. That’s replacing an almost monopoly by a real monopoly.
The government has been vague in its definition of atmanirbhar. But everyone has picked up the subtext. Businesses, both PSUs and private firms, are reducing their dependence on China, claiming increase in local sourcing, and declaring intention to manufacture locally to support the initiative. That the Gross Fixed Capital (GFC) formation in India has remained range bound, and companies and promoters are investing more outside of India for much of past 5 years don’t seem to get in way of these claims. Nobody will anyway check for them in future. The import tariffs have been increased on a range of items in every budget over the past 3 years. The charitable view is we are dealing with international trade partners on our terms now. Maybe.
The message going out is we are turning protectionist as we find growth hard to come.
Rodrik’s Trilemma
There are two questions we have here:
1. What if there were no pandemic and no skirmishes with China at the border. Would we have still jumped onto the atmanirbhar bandwagon?
Dani Rodrik in his book The Globalisation Paradox (2011) framed the trilemma confronting a country in the global economy:
“In particular, you begin to understand what I will call the fundamental political trilemma of the world economy: we cannot simultaneously pursue democracy, national determination, and economic globalization (emphasis ours). If we want to push globalization further, we have to give up either the nation state or democratic politics. If we want to maintain and deepen democracy, we have to choose between the nation state and international economic integration. And if we want to keep the nation state and self-determination, we have to choose between deepening democracy and deepening globalization. Our troubles have their roots in our reluctance to face up to these ineluctable choices.”
In the few years leading up to pandemic, it was clear India was making the choice of nation state and self-determination along with democratic accountability. Following Rodrik’s trilemma, it would follow we would have to let go of deep economic globalisation. The slowdown in growth because of a weak banking system and the double blow of monetisation and GST was beginning to impact lives and livelihoods. The inability to effect second generation structural reforms meant there were no real solutions at hand to solve for these. Therefore, the turn to atmanirbhar would have happened. The pandemic and the border stand-off with China made it easy to turn it into a rallying cry.
2. Would this protectionist turn by India invite negative repercussions from our trading partners?
I don’t think so. Globalisation has been on wane since the global financial crisis (GFC). Between 1981-2007, the income elasticity of global trade, measured as the ratio of the average growth rate of imports of goods and services to average global GDP growth, was 1.8. That is, for every 1 per cent of GDP growth in the world, global trade grew by 1.8 per cent. In the last decade this has fallen below 1. There has been populist backlash about the spoils of globalisation accumulating to only a few in most developed nations of the world. The pandemic, its impact on the economies around the world, the concentration risks of global supply chains and the boorish behaviour of China have reinforced the risks of globalisation across continents.
Rodrik had made his choice clear about the trilemma in his book:
“So we have to make some choices. Let me be clear about mine: democracy and national determination should trump hyper-globalization. Democracies have the right to protect their social arrangements, and when this right clashes with the requirements of the global economy, it is the latter that should give way. You might think that this principle would be the end of globalization. Not so.
“…A thin layer of international rules that leaves substantial room for manoeuvre by national governments is a better globalization. It can address globalization’s ills while preserving its substantial economic benefits. We need smart globalization, not maximum globalization.”
(Un)Smart Globalisation = No Globalisation
Post pandemic, it is likely this might be the prevailing consensus about globalisation. While India’s quest for being atmanirbhar has other reasons, it will escape censure because others might be sailing in the same boat. That doesn’t take away from a point we have made in the past editions. Smart globalisation sounds like a great idea but there’s no real definition for it. It devolves in to not-so-smart protectionism eventually.
HomeWork
Reading and listening recommendations on public policy matters
[Podcast] Dani Rodrik on Neoliberalism and limits of globalisation on Econtalk podcast with Russ Roberts.
#75 "Out-atmanirbharing" The Competition