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

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 make large industrial conglomerates global by supporting and subsidizing them. Other countries in East Asia have followed suit. Will India follow East Asia or follow the path of Latin America, which used high tariffs, limited competition and cheap loans to build big industries? Chaebol bribed politicians but corruption was far more rampant in Latin America, which destroyed economies. Despite initial advantages, the region has not grown from middle-income to high-income. Argentina, one of the richest countries in the 19th century, went bankrupt seven times and fell behind.

East Asian countries have always focused on exports, thus becoming globally competitive. In contrast, Latin American countries wanted self-sufficiency. The result was that the 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 between the two
The first concern is incomplete chaebolisation. Korea excluded large multinationals. But the goals of self-reliance are mixed. It wants national champions but also wants to attract large multinationals. It claims success in attracting Apple to make and export billions worth of iPhones and Micron (with subsidies of 70% of the cost) for semiconductor assembly and testing. This has been described as an unfair giveaway to foreigners. In contrast, Korea has never allowed foreign investment in manufacturing. Samsung and Hyundai grew by first buying foreign technology and later investing heavily in R&D. India’s self-reliance policy is far from pure chaebolisation. It is a confused mix of attracting FDI and making India’s big three companies – Tata, Ambani and Adani – become national champions to take on the world.

Desire of both multinationals and national champions
Aatmanirbhar 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 be reduced to uncompetitive tactics, mainly buying favours from corrupt governments. Some Indian economists say India is going the way of Latin America, with companies like Ambani and Adani 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 didn’t guess right
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/she had to fight environmentalists and Aboriginal groups for years. In addition, rival miners said Carmichael would need an export price of at least $110/tonne to succeed, which was impossible as the world had slowly phased out coal. Adani fought critics for years, finally got all the permits and began production. Today the price of Australian coal is $140/tonne, so Adani guessed right and his/her critics didn’t.

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 because of 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. Top Indian companies, however, 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 cutting-edge stuff, 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. Let us be optimistic.