The Myth of the New India

#104 by bbabu

Amaa Yaar .. to borrow from BJ, ...

service sector as in ?? ... Wal mart is not allowed.

Walmart is trading, retail selling. It is not service sector, though maybe in the broadest and silliest definition. Pure service-sector is all that software and call-centres which you guys have set up for foreigners.

Bbabu,

You go on with this entire dillitante discourse on economics and in the end you say:

I have problems with some of the things done in the name of liberalization. None of them was touched by the author or you. Can anyone explain why Mauritius have a special tax treaty with India ?

So do you favour liberalization, or not? You seem confused to me.

I really don`t know why India has this special tax treaty with Mauritius. Perhaps it`s because Mauritius is Hindu, right? In my opinion neither you, nor India, know whether they`re coming or going.

zeemax #103

`` Even India, right now, allows foreign investment according to sectoral limits. And portfolio investment is regulated by RBI closely. But they opened up the service sector 100% to foreign ownership and it was a folly. That was the point. ``

service sector as in ??

there are a lot of restrictions on foreigners in the service sector

Wal mart is not allowed.

#102 by hamidm2

Hamidm,

I can`t verify what you say right now, but I will. China does not allow wholly owned domestic access, but you say they do. I`ll check if you`re right. In the meantime do kindly check how many of the wholly owned companies you mention are allowed domestic access.

Yes I didn`t mention wholly owned because I had mentioned foreign investment as a rule. Percentage of ownership is going into details.

Even India, right now, allows foreign investment according to sectoral limits. And portfolio investment is regulated by RBI closely. But they opened up the service sector 100% to foreign ownership and it was a folly. That was the point.

Re: # 97

zeemax,

.... you did not say ``wholly owned`` before ....... in any case, Shanghai GM is ``wholly`` run by GM management ..........

......... china revised its WFOE regulations in 2001 before its entry to the WTO .... last year in guangzhou wholly foreign-owned projects accounted for 60 per cent of the total compared to two of 59 projects a decade ago .....

..............Sony-China is wholly owned by Sony with over 30,000 employees and sells over 75% of its production locally ........ GE Energy is owned 90% by GE .... GE operates 24 WFOEs (wholly foreign owned enterprise) in China .......... i am sure i can find other manufacturing examples ........... most trading companies are wholly owned (mitsui is an example) and since 2002 foreign engineering and construction companies can set up wholly owned subsidiaries .....

...... and no, i don`t agree that ``foreign investment can actually do more harm `` - the economies of Spain and Ireland were buit almost entirely by multi-nationals .......

zeemax #92

`` Liberalisation is a two-edged sword. On the one hand it attracts the excess capital available in developed economies on-shore, on the other hand it takes away the lion`s share of its fruits back off-shore in Foreign Exchange, thus placing further pressures on the FX resources of the country and its current account balance. This is usually a tilted exchange in return for a little growth, a little employment, and a little technology transfer, in times of stress such as India FX crunch of 1992 and Pakistan stagnation pre-2002/5. ``

Why is liberalization always associated with foreign capital ? As an Indian citizen I could not start a power generation plant to generate electricity even though there is plenty of demand for the electricity.

Liberalization is not a black and white concept. It is not an all or none concept. You do not have to liberalize even a whole sector at the same time.

`` Due to the above, China only allows direct foreign investment in the manufacturing sector PROVIDED it is meant 100% for export. It does not allow domestic access at all. Still FDI queues up. ``

Anything that prevents other countries from copying China ?


`` Another example is Malaysia. At the peak of the 1997 far-eastern economic crisis, all the impacted countries after losing their FX reserves scrambled to float their currencies (from peg regimes) and liberalise. The only exception was Malaysia. It refused to float and re-pegged at a slightly lower level, and actually re-imposed capital controls to the extent that no new investments were allowed-in, and all existing investment could not be liquidated before one year, as well as transfer abroad of even a small amount of Ringgit 3,000/- and above required central bank approval. So it de-liberalised and you can see now that it is head-and-shoulders above the rest of the pack who liberalised. ``

You like Malayasia for their capital controls. Why not adopt their hire/fire labor policies ? Your problem is that you are embracing policies selectively. There is nothing wrong with that. Except Malaysia is a country of 23 million people with abundant natural resources on a per captia basis. Their policies would not apply even to any of her own neighbors.

`` A large public sector is indespensible for countries of demographic characteristics like Pakistan/India. Public sector is usually derided solely because of its incompetence, but that need not be the case. The UAE is almost entirely public sector in not only public utilities, but also big business. So is Singapore. Many large scale highly competetive industries in Scandinevia and France are in the public sector. Airbus Industrie is a case in point. The difference is in management alone which can be easily acquired nowadays. Plus, India has an invaluable asset in form of NRI professionals which have not contributed to India in the manner as the overseas Chinese have done for China, or perhaps the Govt has not offered the right invcentives. ``

I doubt India can imitate UAE, Singapore, Scandinavia.

`` Anyway, you presumed wrongly. I was talking about the `Protection of Economic Reforms Act-1992` in NS first tenure which effectively lifted ALL capital controls in Pakistan, both for individuals as well as corporates. India followed suit in the same year albeit to a much reduced extent. ``

I am not sure what Nawaz Sharif was thinking in 1992. Most Pakistani PMs in the 1990s were busy fighting their poltical rivals and army generals for politcal turf. It is not fair to assume they were focussed on economic policy.

`` Only the state sector can uplift the vital infrastructure because it is so highly capital-intensive and low-yielding long-term investment. Socialism is not the problem. Incompetence in managing the state sector is the problem. ``

incompetence = lack of accountability

Given the situation I see no reason why the Indian state has to directly run toll roads, telephone networks, airlines etc. The state has to set the policy, rules and regulations for private entities to compete vigorously. I agree it would be awful if a private telephone company fleeces its customers.

The state has still plenty to do - water supply, sewage, muncipal roads, electricity grid etc.

`` Exactly. So why did you change tracks without first acquiring these essential pre-requisites through socialism? All these necessary ingredients can only be acquired through an efficient socialistic state-sector policy framework. The only successful capitalist model available in the world is USA and its direct satellite nations, for reasons that Masadi elucidates much better than I ever can. While, every single other economy, including all of Europe, Malaysia, China, Russia amongst others started out with huge state sectors and large public expenditures to varying degrees. China and Russia of-course being the extreme examples. ``

You have to start somewhere. People cannot wait for the state to rollout the infrastructure. China a communist society in theory is the manufacturing platform for the USA. I doubt any economic theory book would have predicted that.

`` Some people have also pointed out to restrictive labour laws in India which ostensibly are to blame. I don`t think so. Many posters will be aware that the strongest labour unions in the world are in Germany, and German workers only work for 36 hours a week which is the smallest working week in the world. However, the same labours` productivity is the highest. USA itself has very strong unions, and terms of hiring/firing/wages etc. are highly regulated by federal legislation. Protection of labour is not a crime. Lack of productivity is. ``

Why would a company fire productive work force to begin with ? Malaysia, SIngapore, South Korea, China allow for firing of workers. Why should India be any different ?

`` India is now totally dependant upon external sources/factors for all its growth. Given any sudden external shock, it will be in very difficult times. ``

A socialist India was subject to intense external shock in 1990. Why is India in 2006 any different ?

I have problems with some of the things done in the name of liberalization. None of them was touched by the author or you.

Can anyone explain why Mauritius have a special tax treaty with India ?

So the Apartheid status has begun for Indian Muslims.

Wonderful. Now India is really going down the drain....wait for the fireworks.....

Economic superpower? Hmmm ...

From The Asian Age, Aug 8

Mumbai: Probe Muslims who travel

The Maharashtra government has issued a directive to the state police to thoroughly investigate every Muslim who travels abroad.

Senior executives in multinationals are being visited at their residences by police inspectors asking questions, demanding to see copies of their passports and insisting on letters from the executives’ employers certifying the travel.

A vice-president of the largest multinational in India, living in a posh colony of Mumbai, told this newspaper that he was at home when two police inspectors visited his residence demanding to see him. When they learnt he was not there they left instructions with his family that he should visit the police station with details of his passport and travel abroad. However, before entering his house, the policemen questioned his staff outside the residence to find out his movements.

Well-placed sources said that a directive had been issued by the government and the state police had to act on it. Every Muslim, the sources said, were under close watch and had to provide proof of his travel as well as letters justifying it as and when approached by the police. Social activists in Mumbai claim that ``thousands`` of Muslims have been arrested from different parts of the city in the wake of the Mumbai blasts with the police refusing to give details, or even the proof required for the detention.

A group of 18 MPs, cutting across party lines, met Prime Minister Manmohan Singh recently to draw his attention to the large-scale arrests and urged his immediate intervention. Prime Minister Singh is reported to have shared their concerns and, according to the MPs, said that if Muslims were indeed being harassed in the manner suggested by the MPs, it was ``a very serious matter``. He said that the hands of the terrorists would be strengthened if innocent Muslims were humiliated. He said he would take up the matter and urged the MPs to meet Union home minister Shivraj Patil. Nothing has come of this till date.

It could not be ascertained if the directive covered Muslims travelling to all parts of the world, or just to select targeted countries. The Americans already have a system in place where the airlines have to supply them with the passenger list and details of those travelling to the US as soon as a particular flight takes off. Sources said these rules have been made more stringent now. Social activists from Mumbai, who did not want to be quoted at this stage as they would come under ``needless pressure``, said there was fear and anger amongst the minorities over the large-scale arrests and their total inability to seek justice. ``The arrests have not led the authorities to solve the Mumbai blasts, but that has not stopped them from rounding up any and every one whose only crime might be that he did not grease the hands of the beat policeman,`` the activists said.

Muslim executives, who are furious with the attitude of the police, have been told that there is little they can but do but ``cooperate`` in the face of a government directive. Senior police officers also expressed their inability to do anything with every Muslim living in the state now being flagged as and when he travels abroad. The only concession that the police can make, the sources said, ``is interrogate them at their residence instead of getting them over to the police station``.

Mumbai police commissioner A.N. Roy has confirmed a large number of arrests, but refused to give an exact figure when questioned by journalists. Despite the arrests, the anti-terror squad of the Mumbai police remains clueless about the identity of those who carried out the seven serial blasts on July 11, 2006. The Mumbai police has openly admitted that Muslim men who visited West Asia were suspects. Several such men have been picked up with little more proof except that they visited the ``suspect`` region on work. The sources said that employees of smaller companies, when questioned or detained, could, and were, losing their jobs.

#98 good catch. :-)

hamidm (#96): you are wrong

zeemax (#97): So you agree with me.

:)

Hamidm,

Shanghai GM (a 50-50 jv with SAIC)

Yes that`s true. So you agree with me. China does not allow wholly owned foreign access to local markets.

You do get the point. Don`t you? How foreign investment can actually do more harm than good.

Re: # 92

zeemax,

``Due to the above, China only allows direct foreign investment in the manufacturing sector PROVIDED it is meant 100% for export. It does not allow domestic access at all.``

you are wrong

...... GM has invested almost $4B in Shanghai GM (a 50-50 jv with SAIC) and is the #1 car maker in China having surpassed FAW Volkswagon this year and 99.9% of its sales came from within china ....... GM, sold 453,832 units in the six months ended in June, up 47 percent from a year earlier ............... so far all the other foreign car-makers have also been selling mainly inside china which is the fastest growing market in the world with a 2006 forecast of 4m pasenger cars (not including trucks and busses) ................. it will be many years before chinese automakers have significant exports ....

..... i am sure there is fdi in other manufacturing industries that are geared for the local market as well ...

ahmedmadani #90, {``Look at pakistani man , woman and indian counterparts. They are fair complexed and tall and fat and obase as there is lots of food to eat while indian is dark complexion and thin as shortage of food. So your school have achievent in taking undernourished dark person and train and he can get job in usa. ...Any way in middleeast countries even IIT has no value as they want usa college grads. Do not worry about PK, every thing is going smoothling here like fine assembly plant ...``}

Madani Sahib,
You have a unique way of providing irrefutable arguments. Whenever I am depressed at world events, I just have to read your posts and everything seems so much brighter. Will you be running for President of Pakistan soon? You got my vote. :)

madani: i think ``white`` is the only color visible to you. let us do an eye examination to make sure:

Can you see anyone in the picture below? No?

Actually, there is a group of Pakistanis sitting there. You dont see them because they are not ``white`` complexioned which seems to be the only complexion visible to you in Pakistan. And since you dont see them, you dont see what issues concern them either. but perhaps you can read, black and white - so read what it says under the picture.


LAHORE - August 07, 2006: Women activists of Anjuman Mazareen Punjab stage a sit-in outside the Lahore Press Club to seek ownership rights for the lands they have been ploughing for three generations. — Dawn

and now a prayer for pakis :

bismillah ir rehman er rahim ..........

i`m good enough, i`m smart enough, and doggone it, people like me.
i am a human being, not an indian even though i look like one. but that is okay.
horrid hindoo : there but for the grace of al-lah go i.

#80 by bbabu

I agree liberalization would have failed in the 1950s, 1960s and 1970s. India should have launched economic liberalization in the 1980s. Indira and Rajiv Gandhi freed up select sectors like cement, two wheelers, consumer goods etc.

Liberalisation is a two-edged sword. On the one hand it attracts the excess capital available in developed economies on-shore, on the other hand it takes away the lion`s share of its fruits back off-shore in Foreign Exchange, thus placing further pressures on the FX resources of the country and its current account balance. This is usually a tilted exchange in return for a little growth, a little employment, and a little technology transfer, in times of stress such as India FX crunch of 1992 and Pakistan stagnation pre-2002/5.

Due to the above, China only allows direct foreign investment in the manufacturing sector PROVIDED it is meant 100% for export. It does not allow domestic access at all. Still FDI queues up.

Another example is Malaysia. At the peak of the 1997 far-eastern economic crisis, all the impacted countries after losing their FX reserves scrambled to float their currencies (from peg regimes) and liberalise. The only exception was Malaysia. It refused to float and re-pegged at a slightly lower level, and actually re-imposed capital controls to the extent that no new investments were allowed-in, and all existing investment could not be liquidated before one year, as well as transfer abroad of even a small amount of Ringgit 3,000/- and above required central bank approval. So it de-liberalised and you can see now that it is head-and-shoulders above the rest of the pack who liberalised.

The money spent on public sector white elephants could have been directed into education both higher and elementary.

A large public sector is indespensible for countries of demographic characteristics like Pakistan/India. Public sector is usually derided solely because of its incompetence, but that need not be the case. The UAE is almost entirely public sector in not only public utilities, but also big business. So is Singapore. Many large scale highly competetive industries in Scandinevia and France are in the public sector. Airbus Industrie is a case in point. The difference is in management alone which can be easily acquired nowadays. Plus, India has an invaluable asset in form of NRI professionals which have not contributed to India in the manner as the overseas Chinese have done for China, or perhaps the Govt has not offered the right invcentives.

I do not know much about Pakistan`s liberalization. I presume you are talking about Ayub Khan`s reforms in the 1960s. Pakistani economic reforms are doomed if it chooses outright confrontation with India over Kashmir or with USA over Taliban. You cannot punch with guys out of your league.

Ayub Khan`s reforms/industrialization was purely at the cost of the ex-checquer in the form of subsidies and incentives. That coddling of industry with money, made whatever industrial base was established during that time permanently incompetetive and dependant on more of the same hand-outs just to survive. This is still the case and no new industry can now flourish because adding further incentives to provide a level playing field to the newcomers is no longer possible from tight fiscal resources.

Anyway, you presumed wrongly. I was talking about the `Protection of Economic Reforms Act-1992` in NS first tenure which effectively lifted ALL capital controls in Pakistan, both for individuals as well as corporates. India followed suit in the same year albeit to a much reduced extent.

Socialism is the problem in India - govt owned telecom enterprises, electricity companies, govt highways are not conducive to a Chinese style economic boom.

Only the state sector can uplift the vital infrastructure because it is so highly capital-intensive and low-yielding long-term investment. Socialism is not the problem. Incompetence in managing the state sector is the problem.

Capitalism works when you have informed critical mass of well educated enterpruneurs, rule of law, access to capital and appropriate infrastructure. India still does not have them.

Exactly. So why did you change tracks without first acquiring these essential pre-requisites through socialism? All these necessary ingredients can only be acquired through an efficient socialistic state-sector policy framework. The only successful capitalist model available in the world is USA and its direct satellite nations, for reasons that Masadi elucidates much better than I ever can. While, every single other economy, including all of Europe, Malaysia, China, Russia amongst others started out with huge state sectors and large public expenditures to varying degrees. China and Russia of-course being the extreme examples.

Some people have also pointed out to restrictive labour laws in India which ostensibly are to blame. I don`t think so. Many posters will be aware that the strongest labour unions in the world are in Germany, and German workers only work for 36 hours a week which is the smallest working week in the world. However, the same labours` productivity is the highest. USA itself has very strong unions, and terms of hiring/firing/wages etc. are highly regulated by federal legislation. Protection of labour is not a crime. Lack of productivity is.

India is now totally dependant upon external sources/factors for all its growth. Given any sudden external shock, it will be in very difficult times.

Having said all of the above, of-course I recognise there are so many variables in approach depending upon demographic and geo-political factors, that each nation has to set its priorities extremely delicately. This choice may easily go wrong.

#86 by bongdongs

Thanks. No I hadn`t seen it but have read it now. This is exactly what I mean. Niche-based service sector growth will permanently atrophy any wide-based manufacturing attempt in the future, particularly in a value-addition environment.

For benefit of others, I`ll reproduce a very telling excerpt:

Textile plants need supervisors. Bicycle factories need designers. They both require managers. Yet these are the very people whose wages are being bid up sharply, squeezing the profitability of labour-intensive and tradeable manufacturing, with its wafer-thin profit margins in an era of global competition. Thus, highly productive skill-based development in the fast-growing states, while beneficial for the nation, may indirectly undermine the profitability and growth of labour-intensive manufacturing in the others.