Is liberalisation harming consumers and the economy?

Published by: The Economic Times, 20th January 2001

By Pradeep S Mehta

Secretary General
CUTS Centre for International Trade, Economics and Environment

Now the revered Kanchi Shankaracharya has joined the anti-globalisation bandwagon, seeking a halt of the liberalisation process, as ‘it is having a disastrous impact on our economy’. Many would like to believe that the current process of globalisation and liberalisation is harmful to our economy because several small and medium scale factories are closing to due to cheaper import of consumer goods. The evidence does not suggest in concrete terms that it is entirely due to imports that these factories are being affected. Indeed years of protection have left them vulnerable and the playing field is not level. But there are other factors too, which often get overlooked. However the question to be asked is if these goods are coming in, there is a growing demand. This demand is being met with goods of better quality and lower prices. As a result consumers are using the savings for other things, thus the whole economy is gaining. If indeed there was widespread unemployment and consequent reduction in purchasing power—due to the downturn–these goods would not have found a market. Unfortunately much of the facts is being overtaken by hype and over-reaction.

For all these years we have kept our markets closed to competition from abroad for several reasons. One which continues to linger on is the fear of becoming colonised once again. The East India Company syndrome continues to dominate our psyche. During those days information moved at a snail’s pace when a letter would take atleast six months to reach Europe from India. Today information can reach any remote corner of the world in split seconds, thus assuming that we are helpless is very disingenuous. The Soviet empire collapsed due to the fax machine which enabled people to send out information without being censored. The exchange helped build up international opinion and pressure on the repressive regime, leading to its collapse and replacement by a democracy. Today internet has the power of thwarting any such design. For example, it has been used very effectively by the international civil society to ensure the demise of the OECD’s draft multilateral agreement on investment (MAI). This accord would have granted increased rights to transnational companies, and enhanced responsibilities of countries to ensure that these rights are upheld. It was literally a licence to loot.

However, in spite of the demise of the MAI, foreign direct investment (FDI) continues to increase and some of it flows to developing countries. One of the arguments against the MAI has been whether having it will help increase FDI flows. That argument stands vindicated. The annual UNCTAD World Investment Reports points out that FDI continues to grow every year. Much of it is due to domestic regulatory changes, which have enabled FDI to come in smoothly. In India, we specialise in vacillation on our FDI policy, and where there is a clear policy other factors have a negative effect with the result FDI flows are too little for the size of our economy and our needs.

A few weeks ago, I had pointed out in these columns about low level of FDI flows into India. In 1999, we received only about $2.17bn, as against a small country like Chile getting $9.22bn (How to grow, and reduce poverty too, December 9, 2000). Somewhat similar to our East India Company experience, in the 1970s Chile was actually under the control of the US-based giant: AT&T. Yet Chile is not afraid any longer about FDI having any type of colonising effect. It has all the laws in place by which they manage their economy pretty well. Why is Chile pursuing FDI? Because it does not have the resources to enable it to meet their consumers’ demands and their own economy’s needs.

Even as India, we do not have those massive resources to generate the amount of electricity that will be required to meet with demands of an increasing population, agriculture and industry. Not only electricity but several other essential infrastructural services, such as roads, water, communications etc, will continue to degenerate unless resources are found to buttress them. If we are unable to buttress the critical basic need requirements and availability, we will not be able to reduce poverty.

If swadeshi was the way forward, we would not have landed up in the mess that we are in. Interestingly, at one of our workshops on reforms, governance and state accountability with grassroot activists, many of who have started appreciating the need for liberalisation and reforms, swadeshi was defined by them as what is ‘good for us and our country’. These people with robust common sense have realised that the protagonists of the so-called swadeshi movement are actually not rooting for the country but for some vested interests. They are convinced that reforms are necessary if they have to get out their poverty trap. For example, they are even willing to pay more for electricity, if the supply and quality is consistent. Thus to assume that liberalisation will not benefit the consumers or the economy is quite illogical. A large section of people are in favour of reforms, provide the government continues to talk to them, and in their language. Otherwise the pace of reforms will suffer and we will continue to wallow in abysmal poverty.

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