In 1998, the BJP had led the NDA's electoral campaign with a 'swadeshi' propaganda thrust. Many of the NDA's voters had truly believed that unlike the previous regimes, the BJP-led government would not succumb to international pressures - particularly US machinations, and protect the nation's economic and national security interests. Finance ministers closely associated with neo-liberal economic programs - like Manmohan Singh and P. Chidambaram were defeated in the polls and there was an expectation that there would be a noticeable shift in direction.But long-time critics of the BJP had already warned that the BJP was insincere in it's commitment to 'swadeshi' and it's turnaround in the ENRON case was more likely to serve as a model for it's future actions. Although neo-liberal forces were kept somewhat at bay in the BJP-led NDA's first term, a more comfortable majority in the second round has given the promoters of neo-liberalism in the coalition more confidence that they can get away with unpopular policies without much concern about political stability.
That every successive administration in the last decade has eventually succumbed to the pressures of globalization suggests that regardless of how different political formations package their policies in advance of the elections, there is a powerful and very vocal lobby for globalization in India. This is because for some sections of Indian society and the Indian diaspora, globalization has come as something of a bonanza.
NRIs look forward to new business opportunities in a globalized India. English-language (or even local language) media outlets who expect globalization to increase advertizing revenues have also been eager supporters of globalization. (A recent Economic Times survey of the nation's top CEO's indicated that most major India businesses anticipated considerably higher allocations for marketing and advertizing campaigns in order to survive in the globalized Indian economy. Some estimate that the advertizing industry has been one of the fastest growing industries in India - growing as much as 25-30% in some years.)
Another outcome of globalization has been a huge increase in salaries of senior managers, accountants, lawyers and public-relations personnel working for MNCs or their local competitors. For the IT-literate, job opportunities have been plentiful, and there are also opportunities to live and earn abroad. For the English-speaking upper middle-class, this has come as a boon. With greater access to disposable income, the seduction of consumerism becomes hard to resist, and the demand for unrestricted globalization inevitably follows the attraction for new and ever more advanced consumer goods. This new and more prosperous class of Indian consumers associates India's progress with the availability of the latest automobile models and consumer goods. The local availability of imported European cosmetics and fashions, imported drinks and confectioneries - these have all become important to those who have sufficient disposable income to purchase such items.
Globalization has other champions too. Importers have a strong financial interest in a globalized economy. But so do exporters dependent on imported parts and machinery. Industrialists with interests in ports, shipping, international warehousing and other aspects of international trade and commerce may also see globalization as beneficial to their sectors of the economy. Indian industrialists who have so far failed to invest in research and development and are losing the battle for market share are also becoming amenable to globalization in the fond hope of partnering with an MNC that will enable them to stabilize or expand their sinking business ventures.
Although these sections of society are in numerical terms a very small minority in the country, they are able to wield considerable authority on account of their financial clout. Their voices are far more likely to be heard in the Indian media, and they are much more likely to be able to influence important political decisions in the country. Because of their familiarity with English, and privileged access to major media outlets and institutions of higher learning, they are taken to be more credible, and are thus able to exercise tremendous influence on public policy.
But it should be noted that the interests of a particular section of Indians need not match the real interests of all other sections of Indian society. Other sections of society may benefit only to the extent that a fraction of this new prosperity trickles down to them. Some may not benefit at all, while some may even be adversely affected. In addition, globalization may have hidden consequences that may negatively impact the quality of life even of those prospering through globalization.
But the greatest danger posed by unrestricted globalization is that it may exacerbate the problems of nagging poverty and uneven development, and create grave infra-structural mismatches. It is already evident that the Indian economy has become more dependent on imports which has brought with it constant pressure on the value of the Rupee, leading to recursive bouts of high inflation. And rather than expand India's manufacturing strength and develop new capabilities and technological development in India, globalization may in fact put India at a global disadvantage in key sectors of modern industry leading to an economy that is always chasing scientific and technological advances that occur in other nations.
Globalization and Technology Transfers
Take the argument that globalization brings in new technology. On a selective basis, globalization indeed brings in new technology and opposition to globalization is not tantamount to becoming technologically isolated from the rest of the world. But today, almost no advocate of globalization is calling for selectivity. For instance, Coca-Cola and Pepsi were welcomed into the country even though they offered little in terms of new technology. Cosmetic manufacturers and manufacturers of designer label clothes have also brought in little new technology of any consequence. The same can be said of advertising companies and manufacturers of consumer non-durable goods like soap, detergent, toothpaste, cereals etc.
And although there has been significant investment in the manufacture of automobiles and consumer goods, the capital equipment and the assembly lines for their production is imported. Little of the design and development work takes place in India. And in many instances, all that happens is the local assembly of knocked-down kits. So far, globalization in India has not been tantamount to an all-around technological upgradation of Indian design and manufacturing.
Some offer a counter-argument for unrestricted globalization arguing that only if India liberalizes unconditionally will India be able to attract high technology and capital investment in the areas it really wants. In other words, if we let the Cokes and Pepsis of the world to come in, the INTELs, the AMDs, and the CISCOs will follow. But the experience of the last decade belies such claims. While it is true that INTEL, AMD and CISCO have all invested in India, the sum total of their investments has been minuscule in relation to their other investments abroad. And rather than bring in new technology to India, they are actually sucking out technology from India. All their investment has been on divisions that either develop software on demand, or provide research assistance to their US counterparts. None of them has set up any manufacturing plants in India or signed any technology transfer agreements with any Indian company. All the technology that is developed is owned and marketed by the parent company, and other than the slightly higher than average salaries that accrue to a small minority of Indians working in the sector, few benefits accrue to India as a nation. What is worse is that these companies are provided all manner of perks and privileges to exploit India's intellectual capital. They are given tax breaks and tax write-offs. They are given preferential treatment in the allocation of scarce resources like land, and round-the-clock electricity supply.
In a July 20 Times of India report titled 'IT expert warns against digital divide in country' the author wrote: A leading information technology (IT) expert has cautioned against a "digital divide" in the country and creation of disparities between the IT haves and have-nots. The report quoted M. Anandakrishnan (vice-chairman of the information technology task force of the Tamil Nadu government and the vice-chairman of the Tamil Nadu state council for higher education) as saying: "You cannot have a high-tech facility and have 50,000 people within a few kilometres who don't have any access to computers. Availability of computers in every village did not mean accessibility and accessibility does not mean assimilation. Unless there is 'localisation of content' this technology could not be used by 97 per cent of the population." The article goes on to question the euphoria surrounding the growth of the IT sector and again quotes M. Anandkrishnan: "We speak of 57 per cent growth of the software sector and 100 per cent growth of the hardware sector. We must take into consideration that the figures include hardware and equipment imports. We are talking of someone else's products. We are still dependent on imports, and even now we have to use servers abroad to get to the Net". (Although there are some companies that assemble personal computers in India, India's share of world hardware manufacturing is less than that of Taiwan, Korea, Malaysia, China, or Singapore - even lower than Thailand or the Philippines). M. Anandkrishnan was also quoted as saying that the productivity of Indian labour was very low - that Indian workers earned one thirtieth of what a Japanese worker took home, concluding that the burgeoning of IT could be termed a "revolution" only if a "high intensity of growth," was indicated. The absence of any significant investment in the local design and manufacture of advanced electronic components, computer chips or telecommunication hardware must be seen as a significant failure of this decade of rapid globalization.
Advocates of globalization have often made the claim that globalization rather than destroy Indian industry would instead accelerate the growth of new industry and cause India's economy to grow faster. But a detailed analysis of Foreign Direct Investment (FDI) in the last few years indicates that a sizeable portion of this investment has not gone into the creation of new productive capacities. Much of the investment has simply gone into into takeovers of existing Indian enterprises or towards speculative investments in the Indian stock market. Moreover, other than India's "hot" IT companies and select MNCs - the vast majority of Indian stocks have not benefited from such highly volatile FDI flows.
In addition, several MNCs have deliberately launched new 100% owned ventures that consciously undercut already existing partnerships with Indian manufacturers. Ironically many of these predatory ventures are funded by Indian banks and financial institutions! An Economic Times report (Dec 25 1999) cited Gouri Prasad Goenka, who took over as the Federation of Indian Chambers of Commerce & Industry (FICCI) president last month as complaining that MNCs were using Indian capital to take over Indian industry! He had said that the grant of approvals for 100 per cent subsidiaries in areas where the multinational already had a venture with a local partner was a danger signal for shareholders as well as industry. Amit Mitra, Ficci secretary, supplemented Goenka's objection by saying that in the United States, an agreement between joint-venture partners had a conflict of contract clause. Goenka also complained that MNCs were able to get loans from Indian financial institutions at interest rates lower than those offered to domestic industrialists and pointed out that nowhere in the world was a 100 per cent subsidiary allowed in non-technical areas. A report in the Hindustan Times by Nitya Chakroborty pointed to the case of Pfizer - the US pharmaceutical major lobbying to set up a 100% subsidy in direct competition with it's existing Indian venture that was partially Indian-owned. She also mentioned the tobacco giants as lobbying hard for permission to set up 100% subsidies.
MNCs and 'transparency' and 'ethical practices'
Arguments favoring globalization have often centered on how multinationals practice 'transparency' in their business dealings and are more 'ethical' than their Indian counterparts. Although rarely substantiated with any thing other than anecdotal testimonies, such praise for the MNCs is common in the Indian media. Yet, there are numerous instances where multinationals have not only displayed a lack of ethics and 'transparency' but have actually broken the law. Consider an October 2, 1998 report in the Hindu titled: Large-scale tax evasion by MNCs unearthed. The author of that report, Sujay Mehdudia wrote: "Income-Tax officials have alleged that these companies evade taxes with impunity as the tax laws of the country are 'inadequate and ineffective' to deal with such cases." He wrote of multinational giants flouting tax laws knowing very well that they could not be arrested or criminally prosecuted against under the Indian legal system and could get away by paying the tax dues when caught. Violations were neither rare nor exceptional, since all the companies surveyed or scrutinized by the Income-Tax authorities in the recent past had shown a tendency to violate the law of the land. The article quoted a high-ranking tax officer as saying: "Had the violations taken place in some other country, not only would criminal proceedings have been launched but the people responsible for it would have been put behind bars." The author concluded his article with the statement: "In the recent past, cases of TDS evasion by some Japanese and South Korean firms operating in India have come to the notice of the authorities, highlighting a ``certain intention'' on the part of these companies to dupe the Government."
A more recent Hindustan Times report (May 12 2000) was more specific - it began with the headline: Rs 2100 crore tax evasion by MNCs. Minister of State for Finance V Dhananjaya Kumar in a written reply to a question posed in the Lok Sabha had provided data that indicated that MNCs had evaded Rs 1433.89 crores on income tax, Rs 143.80 crore on central excise duty as well as Rs 535.05 crore on account of import duty payable during last three years. Sony was identified as the biggest evader, and charged with evading over 450 crores. SEDCO Forex International Drilling Co, Swiss-Swedish major Asia Brown Baveri, Hyundai Motors, Johnson & Johnson, Siemens, LG, Hawlet Packard and Philips were others implicated in cheating on import duties. Several MNCs had not paid enough central excise duties - including stock market darlings like Hindustan Lever, Procter and Gamble and Nestle. EID Parry, Gillette, Pepsi, Bayer, Novaritis and Carrier Aircon were also named as violators. Asia Satellite Telecom, Sabre Inc, Lucent Technologies, Nokia, Caribjet inc and Allied Signal group had been cited for serious income tax violations. Amadeus Marketing, American Airlines, British Airways, Pan Amsat, Motorola, Ashurst Morris Crisp, Reuters and ABN Amro were also in the list of companies to have evaded income tax.
'Efficiency' in whose interest - the MNC or the Indian consumer?
Another oft-repeated argument in favor of globalization is that multinational companies are more "efficient". Of course efficiency is never clearly defined. For instance, let us assume that efficiency equals profitabilty. Suppose a multinational invests 1000 crores and makes 200 crores in profit. On the other hand, assume that a domestic company invests 1000 crores and makes 100 crores in profit. It would thus seem that the MNC was more "efficient" - twice as much as the Indian company. But if half or more of the MNC's profits were repatriated to their foreign parent or to foreign shareholders, the relative benefit to India would be nil! And if the 100 crore in extra profit accrued only due to special tax breaks and other special favors granted to the multinational, the increase in 'efficiency' would be entirely fictitious.
Take another example. Let us suppose that the MNC is actually very "efficient" and is able to drive it's more "inefficient" Indian competitors out of business. With it's Indian competitors out of business, it could then raise prices over and beyond what the "inefficient" Indian companies charged their consumers. Here is another example of where "efficiency" from the point of view of the business does not translate into benefits for the Indian consumer. This has occurred not only in the soft-drinks sector, it has also occurred in the pharmaceutical sector.
Others have argued that the presence of multinationals would end the corrupt practices that hurt the 'efficiency' of India's public sector companies. The power sector is one such area where there is a clamour for speedy privatization. But consider a recent Times of India report (17 July 2000) where a report by the Comptroller and Auditor-General (CAG) of India was cited, pointing to the wastage of crores of rupees in the process of privatizing Orissa's power sector. According to the report, foreign consultants were appointed in violation of guidelines and no attempt was made to engage domestic firms for the purpose. The consultants, engaged to "effectively start and give a momentum to the reform programme'', were given a 582 per cent increase over the originally estimated time to do their work. However, their work spilled over to the third stage forcing the state to cough up an additional expense of Rs 72.96 crore. A sum of Rs 2.95 crore was also reimbursed to them without verification of supporting documents, the report pointed out. The implicated agency was DFID of Britain. The report said that during the selection process, World Bank's senior energy economist virtually put pressure on the government to opt for foreign firms, particularly KPMG, UK, and Arthur Andersen, USA, and sent the list for approval. The state government agreed to the WB official's suggestion without inquiring into the firms' experience and capabilities, the CAG report said. The WB staff, in violation of the Bank's own guidelines and without request from the government, also reviewed suo moto the proposals submitted by the short-listed consultants and took Rs 2.2 lakh as service charges. A consortium of consultants led by KPMG was finally chosen, with whom the state government entered into an agreement. The other members of the consortium included the National Economic Research Associates Inc. (NERA), USA, Mckenna & Co., London, and Monenco Agra Inc., Canada. Globalization of Orissa's power industry - (one of the few power surplus states in the country) has brought neither improved service nor lower costs. In Maharashtra, Enron remains the most expensive supplier of power charging the Mahrashtra State Electricity Board more than double what Tata Electricity Company charges. Moreover, it's power is produced using imported fuels making India more dependant on the international market.
There is also an assertion that globalization allows India to allocate scarce capital more efficiently because the Indian government could concentrate on areas that need special attention. But few seem to note that in this decade of globalization, the government has been steadily reducing it's ability to fund vital social needs or infra structural needs. Numerous tax breaks have been given to MNCs to set up manufacturing in India. States have competed with each other in offering concessions to MNCs. Maharashtra has huge concessions to Skoda for it's automobile plant near Aurangabad, Tamil Nadu offered special incentives to GM to set up it's plant near Chennai. Karnataka and Andhra Pradesh have been competing to attract IT businesses in their state. Even the Central Government has joined in the act.
In a report titled: Export give-aways to cost govt Rs 760 cr, Jayanthi Ayangar (Economic Times) wrote about the various tax holidays provided to exporters. The detailed report suggested that with violations and other means of tax evasion, the loss to the government may ammount to a 1000 crores. Rather than increase the government's ability to solve pressing problems, globalization has actually weakened the government's financial ability to intervene in the areas of education, healthcare and essential infrastructure.
Two years ago, (Deccan Herald, Aug 7, 1998) noted economist and deputy- chairman of the State Planning Board Dr D M Nanjundappa had termed as ''a bad commercial proposition`` the export incentives announced by former Union Commerce Minister Ramakrishna Hegde. ''Excessive higher dependence on foreign capital inflows and rise in exports is likely to be dangerous. Unless there is a sustained growth in exports arising from improvement in the competitive strength of the Indian industry, our hope to recover will be the willo-the- wisp," he said. Referring to the incentives offered for exports during 1995-96 by the Narasimha Rao government , he said though the revenue loss varied between Rs.18,00 crore and Rs.23,000 crore, exports rose only by Rs.10,000 crore. Losing Rs.25,000 crore of revenue to get export earnings of Rs.10,000 crore was not a good proposition adding that the loss of revenue and its implications were crucial. Two years later, his concerns remain just as valid since the trade deficit has widened to a record of 4 billion dollars for the last quarter. India's trade deficit grew almost 27% for the last quarter in spite of a substantial increase in exports. Although much of the rise came from fuel imports, growing fuel imports are themselves a negative consequence of poorly thought out liberalization.
As already noted in previous articles on liberalization and FDI, globalization has done little to solve India's pressing infra structural needs. This is particularly evident in the oil exploration and production sector. As a percentage of GDP, investment in oil exploration has fallen dramatically. In spite of deregulation and the award of licenses to multinationals for oil-drilling, domestic production of crude has been falling in both absolute and percentage terms. As a result, in the last quarter (Apr-July 2000), India's oil-import bill jumped 95%.
Skewed development: by-product of indiscriminate liberalization and globalization?
Critics of indiscriminate liberalization had warned that one of the biggest dangers of a totally liberalized economy would be the anarchic development of select geographical areas and the neglect of industrially unpopular areas. This has been reinforced in a report by Tushar Mohanti for the Economic Times Research Bureau. The report pointed out that of all the industrial entrepreneurs memorandum (IEM) filed since the new economic policy came into being in June 1991, only 10% have been implemented so far. In the case of implemented projects, only 10 per cent of the employment commitments were actually realized. He goes on to say that apart from poor implementation rate, what must be disturbing for both the planners and the government is the strong regional bias of the investment proposals. Proving the critics right, (who at the beginning of the reforms had doubted the chances of industrially backward states to derive benefits from the reforms), more and more IEMs have gone to industrially developed states. Other studies have also shown that prosperous states like Maharashtra, Gujarat, and Tamil Nadu and the National Capital region around Delhi have attracted most of the new investment proposals - especially those from the multinationals. In contrast, Mohanti reported that West Bengal, Orissa, Bihar and Assam — all from the east — had failed to take the benefits of deregulation. Bihar, Orissa and Assam each had less than one per cent share of the total IEMs filed during the period. Their shares in actual investment were even lower.
Another aspect of non-selective globalization is that a few select sectors - namely consumer goods, automobiles, and software have attracted almost 90% of all foreign investment. There has been very little investment in the production of advanced electronics, computer or telecom hardware, aircrafts, advanced industrial materials, capital goods and modern tools and equipment, or robotics. These are the areas where India is completely dependent on imports and is likely to fall further behind. Rather than steer production in areas of cutting-edge technology, state governments have been falling over each other in giving MNCs more concessions to produce more of what India is already producing!
Globalization and Privatization
One of the most dangerous aspects of unqualified and unrestricted globalization is the privatization of key publicly held companies to MNCs at prices lower than what it would take to set up a new company in that field. The predatory domination of the world's oil supply by a few Western mega-monopolies is too well-known. Yet, just last year, the BJP-led government sold off shares in GAIL (Gas Authority of India Ltd) at a scandalously low price. A Business Standard story from November 9, 1999 headlined: GAIL sell off opens cheap route to key stake for firms pointed to Enron and British Gas picking up equity in publicly held GAIL at 70 Rs a share when the strategic value of those shares was estimated as Rs 350.
Given the history of the BJP's previous sweetheart deals with ENRON, this giveaway is hardly surprising. But it sets an ominous precedent for the future. Will the euphoria that a section of the Indian population feels vis-a-vis liberalization and globalization blind them to such loot of vital and strategic assets? That the world's former colonial powers should wish India to globalize should not be surprising. Prior to 1947, India's assets and resources were looted to the hilt by the British rulers, and Britain was not the sole beneficiary. The benefits of unfair trade and colonial loot went as much to Britain's allies such as the US, Australia and Canada, and even to rival imperial powers such as Germany and Japan. Although the Indian situation today is not comparable to the situation in 1756 or 1858, the desire of the MNCs to gobble up strategic Indian assets is real and should not be dismissed lightly.
(In recent times, BALCO, the government owned Aluminium mining company came under the auction block and 50% of the company was sold at bargain basement prices. There is even talk of privatizing highly profitable and successful state enterprises such as BHEL)
It is no accident that economic policy "experts" in these nations are the most aggressive champions of privatization and globalization. Selling off strategically vital companies could not only introduce monopoly pricing pressures on Indian consumers, it could also seriously jeopardize India's national sovereignty. As it is, much of India's defence needs are procured from abroad. By privatizing oil and gas companies and other vital infrastructure related companies - India's vital interests will be even more controlled by foreign interests that could impinge on the ability of India to take the best decisions vis-a-vis protecting it's sovereign rights and interests.
To some extent this has already happened. During the Kargil invasion, the BJP government caved in to US pressure by not crossing the LOC even though it prolonged the war for India and led to higher Indian casualties. The manner in which the government has been bending to pressure on India's nuclear program, releasing dangerous terrorists in Kashmir, backing down on it's opposition to Pakistan's military leadership, privatizing key public sector companies and opening India's defence sector under pressure from the US, demonstrates a major policy shift from the days of Indira Gandhi. Such retrograde steps indicate that the obsession with attracting US and British investments into India is leading the BJP-led government into a foreign policy that is based on appeasement rather than any genuine advancement of broad-based Indian national interest.
Apparently an important lesson from India's history has been lost on the present ruling coalition. Before the First World War, Gandhi too had believed that appeasing the British would bring India gains. He campaigned heavily in favor of the British war effort, but after the war, the British rather than make any new concessions towards independence tightened it's colonial control. Gandhi's exercise in "partnership" ended up as a futile exercise in self-delusion and the freedom movement lost precious and valuable years in the bargain.
Those who have been taken in by promises of "partnership" during Clinton's much hyped visit to Indian might note that in spite of all the tall claims, FDI in the months following Clinton's visit actually fell, the trade deficit widened to a new record, and the rupee has shrunk in value.
While no one is arguing for India to remain aloof from the process of technological upgradation and modernization - it is unlikely that political and economic appeasement in the guise of globalization will do the trick for India. Unless India adopts a stance of hard bargaining and selectivity in the manner it globalizes, globalization will take place on the terms of the world's most powerful nations - and is unlikely to bring widespread benefits for the Indian people. It is therefore high time that the mantra of unrestrained globalization be questioned and challenged. The tall claims made by it's advocates need to be carefully scrutinized without the prevailing neo-liberal bias. The many failures, economic distortions and pitfalls of globalization need to be clearly exposed. Above all, India's economic policies need to be restructured to give an impetus to the local development of key technologies that play a crucial role in the modern economy and satisfy the most pressing needs of the vast majority of the Indian people.
NITIKA DARMOLI
PGDM,section-B,3rd sem
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