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Apr 16th


By Prabhu Guptara

Posted in Economics
Comments 0
“As seen in the International Indian magazine”

There are many ways to measure how much money is being lost to our nation through our corruption.   Here is one measure:

In just four years, EU-India trade increased by 31% to over 53 billion euro in 2009.  Also, since 2003, EU investment to India more than quadrupled to 3.1 billion euro in 2009. This is because we liberalized some areas of business.

However, because we did not liberalise other areas of business, we are missing out on billions more.

How many billions?  The best available estimate is: between 9 and 19 billion euros.  If we took the midpoint figure of 14 billion euros, that’s something like 700 billion Indian rupees (PLEASE CHECK THE CURRENT EXCHANGE RATE AND PUT THE CORRECT FIGURE IN CRORES IF YOU WISH).

That’s according to the Trade and Investment Barriers Report 2011 published recently by the European Commission, the EU’s executive body.   That is of course only in relation to the EU.   You can and should add in the investment that could come into our country from all the other countries in the world.

Anyway, according to this Report, what’s stopping all these thousands of European crores from coming into our country?  Simply our trade rules and regulations.

Why do these trade rules and regulations exist?  In theory, to protect India and Indians from exploitation by foreign interests.  In reality, most such rules and regulations exist to provide bureaucrats the possibility of asking for bribes, and they exist to protect the big Indian companies owned and run by our elites from foreign competition.   When we talk about corruption, we usually refer to bribery and fraud indulged in by our politicians and bureaucrats.  However, protecting the big business houses from foreign competition is a much more significant sort of corruption because it enables existing Indian big businesses to continue to disadvantage and exploit the Indian consumer.  That is why politicians, bureaucrats and industrialists club together to try and prevent liberalization.

We have seen the pros and cons of liberalisation in one sector after another – telephones, computers, scooters, cars…  Big Indian companies were exploiting our own people by selling inefficient and out of date products at far too high a price, by creating artificial scarcities.  As soon as the applicable rules and regulations were either removed or changed to allow greater competition, Indian customers found that they had enormous choice between Indian and foreign products, between out of date and modern products, and between efficient and inefficient products… which were all either instantly or very quickly available to customers.

So what exactly are the trade rules and regulations that are preventing so much money from flowing in?   In addition to high import costs, there are “quantitative restrictions” (that is, only a certain quantity of a product can be imported during a specified time period, for example a year), “import licensing” (that is licences are required before you can import something), “mandatory testing and  certification” (totally unnecessary, time-consuming, energy-consuming and expensive tests for products, with final issue of certificates before they can be imported), as well as “complicated and lengthy customs procedures”.

But which are the most important “significant trade irritants … which need to be resolved”?

First, there are licensing requirements relating to new security provisions have been proposed.  These would prevent non-Indian operators from bidding for telecoms projects. What are the proposed new requirements? Any foreign company bidding for a telecoms project must get prior security clearance (as if the greatest threat to India’s security is foreign companies!  We all know very well that the greatest threat is our own lax security arrangements and the corruption which makes such arrangements easy to get past).  Futher, there is an obligation to substitute foreign engineers with Indian ones!  That will disadvantage foreign engineers who we should be welcoming, and force companies to employ Indian engineers even if they are poorly qualified.  In any case, such requirements are unprecedented internationally, and would limit foreign investments in India.  Specifically in the telecoms field, such provisions are a step backward – Indians saw the benefits of liberalization in this sector before we saw them in any other sector.

The Report also points out that India does not comply with international standards, and that our country has an unpredictable environment for bidders.

Then, India’s investment policy continues to hinder foreign investments.  Many important economic sectors such as multi-brand retail remain closed to foreign investment.  This benefits Indian players but disadvantages the Indian customer.  Further, a series of measures has been adopted to control foreign capital flows and ensure maximum benefit for local companies through technology and know-how transfers.  Well, I have nothing against technology transfers that take place on a negotiated basis between Indian and foreign companies, but our national policy should not force foreign companies to transfer technology – because this simply discourages foreign companies from doing business with India.  In fact, our national policy should not be concerned with encouraging the import of foreign technology which, at best, enables us to catch up or keep up with the rest of the world. No, our national policy should be concerned with encouraging and incentivizing our own research and development, so that we come up with new products and patents that lead the world.

Finally, the Report notes that, though there has been “some improvement” in India’s intellectual property rights enforcement infrastructure, “there are still significant concerns about India’s response to counterfeiting and piracy.”   In other words, we are still not doing enough in these matters.

The good news is that, at least in relation to the EU, there is a comprehensive free trade agreement with India currently being negotiated.  If we don’t drag our heels as we usually do, it will be a great day for the average Indian.


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