It should serve as a call to secure our borders and not signal a return to protectionist policies that could distort our economy
As this column had warned some months ago, covid-19 presents the perfect opportunity for incumbent governments everywhere to reshape public policy in a direction that matches their ideological proclivities, whether or not these new policy directions have anything to do with the current crisis.
Thus, in Canada, the government of Prime Minister Justin Trudeau and his Liberal party has rolled out one massive spending scheme after another, wreaking havoc with Canada’s public finances and creating a debt overhang which may take years, or decades, to clean up. This will make Canada considerably more socialist than it was before the current crisis, and that too done by a party that not only holds a minority of seats in Parliament, but which failed to win the popular vote in last year’s general election.
In India, Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP)-led government have no such problem, having won a second overwhelming majority in elections last year, and evidently in command of wide public support, if opinion polls are to be believed. Whether the country’s botched lockdown erodes support for the Modi government remains to be seen, although it matters little in the short run, as its electoral mandate has another four years to run.
Unfortunately, while Canada turns more socialist, India appears to be unfurling an agenda of the BJP drawn from its ideological mentor, the Rashtriya Swayamsevak Sangh (RSS)—what Modi has dubbed “Aatmanirbhar Bharat". Translating roughly as “self-reliant India", the doctrine of self-reliance has long been a core plank of the RSS ideology. I cannot recall Modi campaigning on self-reliance in either 2014 or 2019, yet it is now being promoted not only by him, but also by key voices in the system of governance around him.
Defenders of this doctrine might point out that “self-reliance" should not be mistaken for autarky: the latter implies doing everything for oneself, while the former suggests being able to fend for oneself, which sounds more limited and reasonable than cutting oneself off from the outside world.
Alas, the suggestion made by some of the idea’s overzealous advocates that India should cut off imports from China, or that Indian consumers should boycott Chinese goods, or that Indian firms should divest themselves of Chinese investment, all point toward a return, willy-nilly, to the bad old days of import substitution and a market closed to foreign trade and investment, rather than some benign embrace of an outward-looking self- reliance.
The government’s actions, too, bespeak a turn toward autarky rather than benign self-reliance: in particular, the raft of tariff increases under the Modi government in both its first and current innings. Again, defenders of the government will point to the fact that India’s tariff rates are still low compared with many of its trading partners. All that this means to me is that much more scope remains for further tariff increases should the government go down this road. This, in itself, is not especially reassuring, as there is little evidence that the government carries conviction in the doctrine of freer trade and intends to halt the march of tariff increases.
Defenders of the government would also point to the apparent (and arguable) success of import substitution at various times and places elsewhere, while pointedly being unable to rebut the reality that it was tried and failed miserably in India. What was the decades-long experience with the licence-permit-quota raj, if not a failed experiment in socialism, autarky and central planning? All that it led to was anaemic growth, a failure to tackle poverty, and the whole framework was ultimately undone by a macroeconomic crisis. In other words, the Nehruvian (and later Indira Gandhi-style) inward-looking planning model failed on its own terms. This has been the central lesson of the 1991 economic reforms and their aftermath, one that has been acknowledged as such by governments of different political stripes since then. They either carried forward those reforms, or, at the very least, did not roll them back.
The Manmohan Singh-led government, in power for a decade, should rightly be faulted for not pursuing the unfinished agenda of economic reforms—as your columnist has done on numerous occasions, both when its was in office and afterwards. To the former government’s credit, however, it did not reverse course on previous reforms, and notably not on trade liberalization. The Modi government is the first government since 1991 to roll back, at least partially, an import plank of the reforms agenda—and that includes governments led not only by the Congress and the BJP, but also coalitions involving parties of the Left in hodge-podge arrangements of the 1990s.
A sensible definition of self-reliance would focus on military preparedness and capability. For example, if you make guns but need to import bullets from an antagonist rival, that would not be a good situation to be caught in if hostilities were to break out. If the Modi government would like to make India self-reliant the right way, it should ensure that it can defend every square inch of Indian territory and keep India’s borders safe from foreign encroachment, with indigenous military capability—as Jawaharlal Nehru failed to do in 1962, when India suffered defeat in a border war with China. Reversing this unfortunate Nehruvian legacy would display a far better understanding of self- reliance than turning the clock back on almost three decades of economic liberalization.