India to Bharat : Dilemma of looking inward

International trade between countries is a contentious issue. When it takes place in full swing, it involves a diligent task of balancing with the considerations of the domestic producers of both the sides. Any deviation from achieving this balance gives rise to lots of unrest. The Doha talks failed while the respective countries tried to safeguard their domestic interests. One hypothesis (still needs to be researched and tested) behind the increased attack on Indian students in Australia revolves around the job insecurity to Australian workers which the Indian students brings (yes they still do) with them. This hatred comes from the fact that the Indian students don’t bring any value in exchange to the people who lose jobs to them. We seldom hear the similar hatred towards an Indian doing/opening businesses overseas, not even in Australia; because they create more jobs than what they eat into while entering other businessmen’s space out there. We still see Alphonso mangoes from India getting exported all over the world especially the developed nations. Can’t these developed countries grow these mangoes in their own territory? They surely should be (or why else they are developed?) but why they don’t do so but rather import it from us, we who eat into hundreds of their jobs in the name (and hype?) of outsourcing?

And the same Alphonso mangoes most of the time are unaffordable within our own country. So what explains their exorbitant price inside the growing (and the host) nation. Is it because they are in high demand and that too in a ‘foran’ (can also be read and understood in Hindi, yes these countries pay immediately) nation? Every nation is different from each other in terms of climate, land, capital, labor and technology which is what also gives them their own unique capabilities. The mangoes can indeed been grown in a country say X but the resources required to do it might have been more efficiently employed to grow something else say coffee since X has favorable climate to grow coffee. The opportunity cost of producing mangoes within X is the amount of coffee that could be produced with the same resources which is high compared to the opportunity cost of growing the same in a nation like India. So, India is said to have a comparative advantage in producing mangoes while country X has comparative advantage in producing coffee and both tries to achieve the economies of scale in their respective areas of (low cost?) expertise. This is what tempts the nations in engaging themselves in international trades.

Outsourcing as a concept can be seen on similar lines. The bigwigs instead of spending their valuable time on the low end (and non-core) works started preferring to transfer them to cheaper options where the opportunity cost of getting involved in this kind of jobs was comparatively lower. In due course of time, China became the factory of the world while India the back-office and after the current recession with the fall of western economies, we are seeing a surge in reverse brain drain. This migration can lead to an increase in the number of jobs and innovations in the developing nations with corresponding decrease in the developed ones. So it is not advisable for a country to focus its exports or a company to target its product totally to developed economies. The focus in developing countries instead of being totally export-driven needs to shift to domestic consumption. This is what has happened in current recession which pulled us (though accidentally?) out of it. India saw increase in social sector spending and transfers more due to political compulsions (blessing in disguise? or our own indigenous way of solving our problems? or the Bharat as a nation just got lucky?) rather than any specific monetary or fiscal policies. When the farm loan waivers and fertilizer subsidies were announced, no one had any clue of the coming financial crisis. Implementations of Sixth pay commission (that too retrospectively) though not aimed but further improved the domestic spending. And then the government transfers through NREGS and Bharat Nirmaan schemes gave the final thrust.

One very notable development on account of government expenditure is that of Bihar which recently reported an 11% GDP growth, next only to Gujarat. The Bihar’s growth story has been by now covered by the likes of Wall Street Journal and Knowledge@Wharton. We can clearly see the increase in infrastructure spending (in the form of constructions) since 2004-05 onwards.

Bihar Growth Story Due to Construction Boom
Source : Economic Survey 2008-09, Finance Dept., Govt. of Bihar

And the days are gone when the central funds to the state remained unutilized.

But who has been the actual beneficiary of all these government spendings: the Bharat’s “aam aadmi” or the government itself which got re-elected? or the Indian economy? In management lingo, it’s been a win-win for all till now but can it remain so in long term? Will the model be able to sustain by itself? It cannot, given India’s rising budget deficit which is partly caused due to the kind of social spending mentioned above. The divestment spree and 3G spectrum sale can reduce the deficit to a certain level but what after that?

– Ajay Verma (Batch 2009-2011)

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