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Business Commentary/Mahesh Nair

Economic Nationalism: The Weak and The Strong

Mukesh Ambani, vice-chairman of the Reliance Group, and Krishna Kumar Modi, president of the Federation of Indian Chambers of Commerce and Industries are as similar as chalk and cheese.

One is a suave Stanford-educated, media-shy businessman instrumental in making his company the most profitable Indian firm and a global petrochem major.

Modi, on the other hand, is a traditional owner-manager whose flagship, Godfrey Phillips, is a tobacco company that has failed to make the most of a booming market unlike, say, ITC Ltd. As president of FICCI, his voice is also said to be the voice of a large section of Indian industry.

So when recently both Ambani and Modi recently spoke of "the need for economic nationalism" many eyebrows were raised. Were they both talking about the same thing? Was this a cry of pain from India industry or was it a mere hyperlink to the economic manifestoes to be released before the general elections?

Let's look at what Ambani -- who has steadfastly been benchmarking every operation of Reliance against the very best in global business -- means when he talks of economic nationalism. Accepting the Businessman of the Year Award from Business India magazine, he said: "We need not feel embarrassed to advocate economic nationalism...Our government functionaries also must not feel shy to work closely with business. Jointly they should ensure that India's economic interests are protected -- through trade, investment, and foreign policy measures.."

Elsewhere, in an interview to the same magazine, Ambani remarks, "Everyone shares the same (Bombay Club) constraints, such as the high cost of capital and high local taxes. There are two ways to deal with this. One is to adopt a defeatist attitude. The other is to look for solutions to work around the problems." Later on, he adds, "If international companies can raise a 100-year bond, we should be allowed to do it as well. If their pricing is not controlled, ours shouldn't be either. You cannot tie our hands and legs and then say now compete with the world!"

Considering the above three statements would it be wrong to say that:
* By "economic nationalism" Ambani means that by which India's economic interests are protected?
* Unlike the Bombay Club, he has looked for (and found!) solutions to work around the problems?
* He has performed admirably well when his hands and legs were untied? Remember, Reliance was the first Asian company to successfully raise a 100-year debt; and Reliance Petrochem Ltd has pulled the carpet from major Indian liquefied petroleum gas manufacturers like Indian Oil Company and Hindustan Petroleum Corporation Limited by offering liquefied petroleum gas at almost Rs 3,000 cheaper per tonne in a deregulated market!
* That Mukesh Ambani is talking about "economic nationalism" after having made the most of "economic internationalism"!

Now let's hear what K K Modi has to say about "economic nationalism". A few weeks ago when I met him, Modi said while it was fashionable to criticise protectionists groups like the Bombay Club, we needed to think hard about economic nationalism. "Why should domestic industry have to pay for higher duties while imported goods have lower duties? Why can't we have a two-way street, and allow Indian companies to also export their goods to the US markets? Why can't our government play hardball, instead of going overboard inviting foreign investment to the detriment of domestic industry?"

The basic assumption inherent in these statements is that business is a fair game and that it is conducted between two equals. It is not. If you manufacture tea cups, and I do the same, how can we ever do business? Until and unless I sell my tea cups for a lesser price or your tea cup boasts of a better quality? For any two parties to do business, one must fulfill another's needs and be awarded (paid a price) for it. One must have a want. The other a product.

True, it is in the interests of India's economy that we should encourage domestic industry. After all, if you were to manufacture computer components, tyres, and chemicals here, there would be more economic spinoffs (employment, development, etc) than in just importing these goods, packaging and marketing them. But what do you do if these imported items are cheaper and of a better quality? Should you prohibit their usage here and deny customers a better choice? Or should you concentrate on manufacturing something else which you can offer cheaper and of a better quality so that you can sell it here as well as abroad?

This brings us to Modi's demand for a two-way street that allows Indian companies to export goods to, say, markets like the US. Agreed, the United States and other OECD countries also place certain restrictions on trade. But what has India been exporting to these countries? Traditional export items such as textiles, leather goods, tea, gems and jewellery (we import the stuff, cut, polish and export them). Why is that, apart from software (which too accounts for a meagre percentage of total imports by these developed countries from India), no Indian product has been successfully exported to these countries?

Surely the answer lies more with the fact that we have developed hardly any world class product rather than with restrictions. The day Messrs Modi, Bajaj & Thapar develop world class products or are able to satisfy domestic market demands, then possibly it makes sense to listen to this cry for two-way streets. And if somebody is asking for time for domestic Indian industry to grow up to take competition, I would ask them to meet the likes of Ambanis who had much less time and are doing much better.

Ashwani Gupta, director, business development, GE India, offers an interesting viewpoint. "If you peel the reasons out, economic nationalism as it is used today in India actually means protecting interests of a few select business houses. These are the ones, who because of their inbuilt inefficiencies, are unable to cope up with demands of the competitive market."

Those speaking about economic nationalism need to get out of this frog-in-the-well attitude. Under the World Trade Organisation agreement to which India is a signatory, imports of many items in the textile, agricultural , and pharmaceutical sector are going to to be free in another two years. As per the Geneva Convention (India is a signatory here too), infotech products such as those in telecom and computer industry are going to attract zero per import duty and will be thrown open for world trade. It would do a load of good if Indian businessmen spend more time reading the WTO charter products and services list than wail about economic nationalism.

Finally, the Heritage Foundation, a conservative American think-tank and the Wall Street Journal, had recently published their index of global economic freedom. India is at the bottom of the list just above China, and way below even Russia, Indonesia, Turkey, Malaysia, and the Czech Republic!

Where do you think India would be if we were to adopt the economic nationalism of K K Modi?

And where would we be if were to adopt the economic nationalism of Mukesh Ambani?

Mahesh Nair