Bharat Jhunjhunwala
US President Barack Obama has a portrait of Mahatma Gandhi hanging in his office. He has also called India and America ‘‘natural allies’’. But Obama’s main agenda is to pull the American economy out of recession. Such effort would be beneficial for us in normal circumstances. Economic growth in America would create demand for our goods. But it may have the opposite effect in times of recession. Obama may try to revive the American economy by shutting out imports from India. Change of guard in a profit-making company raises expectations among vendors that they will get new orders. But the same change of guard in a loss-making company creates fear that payment may get stuck or the remaining orders may be cancelled. Similarly, an inward-looking American economy will not be good for India.
First, the good news though. Obama wants to increase investment in infrastructure such as roads and digital lines. This will create demand for machineries and iron and steel that we supply for road making. Our IT engineers will get jobs in laying the digital lines. Obama is creating a stimulus package to revive the American economy. At the time of writing this article, the design of this package was under discussion. A similar stimulus package was implemented by George Bush earlier. Refund cheques were mailed to taxpayers with the idea that they will spend this money and buoy the demand in the markets. Such a package will have positive effect on India. American consumers will have more purchasing power to buy goods produced by us.
However, Obama’s other economic policies will have an opposite effect. This will become clear by comparing Obama’s policies with those of George Bush. The former President was an ardent supporter of free trade. He felt that import of cheap good produced in other countries should be allowed into America because it helped raise the standard of living of American people. He wanted American businesses to compete with cheap imports by using advanced technologies and raising productivity of their workers. Say, the price of a car exported from India to America is Rs 5 lakh. The cost of production of the same car in the US is Rs 6 lakh. George Bush suggested that American automakers should develop new technologies and reduce the cost of production in America to Rs 5 lakh and thus face competition from cheap imports. This policy was good for India because Bush allowed entry of our goods into America. Our exports were rising.
But this policy failed to provide relief to American workers. The problem was inherent in globalization. American companies have made available their most advanced technologies to low-wage countries like India. Technologies developed by American companies no longer provide an edge to American producers. Say, an American automaker has developed a new paint technology and successfully reduced the cost of production of the car from Rs 6 lakh to Rs 5 lakh. This would provide a competitive advantage to American companies if they held the paint technology closely and automakers in India did not have access to the same. The compulsions of globalization work in the opposite direction. American automakers like General Motors and Ford are also producing cars in India. They have to compete with Tata, Suzuki and Honda in the Indian market. Therefore, they would quickly export the new paint technology to their Indian operations. In the result, the cost of production of car in India — at least by American companies — is reduced from Rs 5 lakh to Rs 4 lakh. The domestic operations of US automakers cannot compete with their own operations in India. Soon the new paint technology is copied by other automakers and across-the-board reduction in cost is obtained in cars produced in India. This is the reason that George Bush’s policy did not deliver economic growth and jobs to the American people.
Obama wants to protect jobs of the American people. Let us ask, protect jobs from whom? Answer is from India and China. Obama wants to impose higher taxes on the US automakers that manufacture cars in India and import into America. He wants to raise taxes on companies that are sending jobs to foreign countries like India. A condition has been attached to the stimulus package being negotiated in the US Congress to the effect that companies availing of relief under the package will not outsource jobs to foreign countries. This policy will be clearly harmful for us. Large number of jobs are being created in Gurgaon, Mysore and Chennai in outsourcing of services like legal research, processing of insurance claims, clinical trials, medical transcription etc. Obama wants to stop these jobs from going to India.
The bailout package for US automakers will have a similar effect. The US government will provide low-cost loans to the domestic automakers. This will artificially reduce their cost of production. The cost of production of a car in America will reduce, say, from Rs 6 lakh to Rs 5 lakh due to lower interest burden and make it possible for US automakers to compete with the car made in India. This will impact on our exports negatively. The stimulus package under negotiation is likely to provide a similar facility to a large number of American industries. Our exporters in these areas will lose their competitive edge just as our farmers are unable to export to the US because of agricultural subsidies. Obama wants to create green jobs such as improving the insulation in American homes and reducing the cost of heating. These jobs will almost wholly be created in America. American workers alone will be able to install insulation in American homes.
Obama’s Afghan agenda too will create problems for us. Obama wants to exit from Iraq and win the war in Afghanistan. He will necessarily have to seek cooperation from Pakistan to succeed in this. He can possibly fulfil his economic agenda by other strategies but he has to necessarily depend on Pakistan for his Afghan agenda. Obama is known to have Pakistani friends and has visited Pakistan earlier. His natural inclination is towards that country.
On the whole, India may make some gains from the increased investments in infrastructure and the stimulus package being made by Obama. But we stand to lose on all other policies. source: the sentinel assam
No comments:
Post a Comment