Free Imports Zindabad, Licence-Permit Murdabad!

Free Imports Zindabad, Licence-Permit Murdabad!


From a macro economist’s viewpoint, subsidies and price controls distort. So theoretically, the sharp fuel price rises, designed to do away with such things, is for the common good and worth the projected 1% inflation engendered by expected price rises. Notwithstanding protests from opposition parties and allies alike for its “anti-people” aspects.

Perhaps this is a good time to suggest the same market forces logic should also extend to other imports, particularly high-end finished goods, which face a wall of protectionism, even when we do not manufacture the items in India. We protect the inferior by taxing the superior in a classic bit of left-over Socialism.

Consider that the recent US launch of the 2010 Audi A-4, with a number of new bells and whistles, is priced at some $31,000 there, or a modest Rs. 15 lakhs. This is the kind of figure applied in India to the likes of the Skoda Laura and the Volkswagen Jetta, the C and B category marques respectively, from the same stable as the luxury class Audi. But in India, by the time the new A-4 is introduced, sometime in 2011, its price will be in an altogether more precious Rs. 30 or 35 lakh range.

An S Series Mercedes Benz limousine, or a seven series BMW, or the high-end Audi models, which currently sell in India for about 90 lakhs, would be hard pressed to cost a rupee more than Rs. 45 lakhs in Europe or the US. And if these top class cars, were assembled in India, you could probably shave off another Rs. 10 lakhs from their on- street price.

It could happen, spurred by ever higher sales numbers, as the Indian economy, particularly that of corporate India, grows. Call it affordable luxury, though at any reduced price, such items will still remain the province of a privileged few.

There is, however, a universally beneficial reason for letting in sophisticated engineering, including luxury cars, without prohibitive import duties. It tends to raise standards all around.

Consider that Volvo and Mercedes are going in for heavy investments in bus and truck manufacturing facilities in India. Can Ashok Leyland or Tata Motors afford to be left behind? Otherwise, why have they upgraded their design and manufacturing benchmarks with alacrity, including the acquisition of bus and truck plants in South Korea and elsewhere to facilitate the process? Before such competition was allowed, the same domestic companies, somnolent with Government protection, were quite content to sell shoddy vehicles using 1954 technology, well into the eighties and nineties!

On a pure merits basis, fearful protectionism translates into penalties applied to aspiration, and punishment to success. This hurts more in an interlinked world. But choosing such illogic, animated not by a forward-looking vision, works its post-imperial damage, as if we abused children of empire know nothing better than to repeat the brutalisation and injustice.

We have chosen to hobble our progress because of our piece-meal and ad hoc policy, putting us well behind other BRIC economies such as China, Brazil and Russia. We change only if we must, reluctantly, suspiciously, travelling along with our holdalls and tin trunks of yore, and the ubiquitous, if inappropriate kitchen sink also. In our Socialist decades of retardation, dismal economic policy was always swaddled in ideological hypocrisy and if it weren’t for the size of our domestic markets we would have been sunk long ago. Still, it is hard to forget such long used pathways.

Policies of exclusion and scarcity were practiced with a grim colonial mindset, to deliberately enrich cronies with nod and wink favouritism. We made a virtue of permitting duty free or quota regulated import of intermediate goods and technologies, required for the manufacture of products in India. So far so good, but there were invariably built-in licensing bonanzas so that the powers that be could eat their cakes and have them too. Such cynical policy sleight-of-hand led to unrelated diversifications, outright fraud and collusive corruption.

But while hobbling local enterprise, the same Government of India did not allow in fully-built units of anything manufactured abroad, without imposing punishing duties. Neither did it encourage foreign investment. These meant only low-end products were produced, or more truthfully, assembled and copied locally; while sophisticated things were invariably imported at considerable cost, and this applied to everything from defence purchases to chocolate.

Indian industry, unexposed to the intricacies of top class R&D or manufacture, even via the copycat route, languished in its second or third-rate morass. We developed little idea about quality and sophistication in goods or services, or even, let it be said, management or project implementation practices. It gives you some understanding as to why we are so poor at execution even today.

But maybe now, just maybe, for its liberating and self-affirming fallout, amongst other things, it is time to let in not just imported vehicles but a plethora of other items at their international price tags, like civilized and self-confident countries do.

Local industry that is inferior and under-funded will be impacted when this happens. But, whatever won’t excite market sentiment anymore in comparison with markedly better alternatives, will force innovation, to the overall betterment of core virtues, those very aspects which are worth keeping and preserving.

India is inching its way towards integration with the globe in various ways, ranging from satellites, missiles and space exploration, nuclear power and high-end technologies with “dual-use” potential, continuous modernisation of our military machine and our forecasting models for everything from the weather to the economy. Our new found concern about carbon credits, stock market practices, a logo for the rupee which could go convertible someday, and so on. And, of course, painfully bearing the brunt of prices, meaning by that the real prices, of petroleum products that we are forced to largely import.

But, we could gain at the swings what we lose at the roundabouts, with a reworking of our import policies, so that we welcome anything we cannot as yet produce here in India on an open and general basis. By doing this, we could spark off another paradigm shift in our journey to join the ranks of the brightest and the best. And it won’t be very long after that before we can manufacture and offer services that are value-added, technologically cutting-edge, competitively priced, yet second to none.


(1, 052 words)

June 27th, 2010
Gautam Mukherjee