Quote:
Originally Posted by mac187 The problem is, we will become a import oriented nation. The idea is to be self-sufficient (not realistic) or export oriented (wishful). We need to strike a fine balance between these three. Below are the issues, as i see it,
1. Forex:
Currently we are losing a lot of forex on oil as we cannot produce to fulfill the local demand. This inturn will affect the value of our currency. We will end up paying higher coz what we can buy today with INR 1000 will need INR 1500 ~ INR 2000 if the currency gets devalued! (just an ex, not based on any calculation)
2. Loss in creation of jobs
If the same co's had opened factories in India, it would have given jobs of lakhs of people here. Note, i am talking about both white & blue collar here. Lesser jobs --> more unemployment --> higher income divide --> higher crime. More people in BPL, higher will be need for free medical care, budgets for the same have to go up. You and I will have to pay for the same via income/ other tax!
3. Death of local player
Remember Gold spot, Torino all these co's couldn't survive against the deep pockets of Pepsi and Coke. The same will happen to say companies like Force, God forbid, Tata. It also means loss of jobs to the once currently employed by these companies (directly/ indirectly). The other day i was watching Top Gear, they said at one point there were 130 local car manufacturers in Britain, until the Germans (VW) arrived.
4. Nurture local companies
If we let a free hand, then none of the Indian companies will survive. BMW and likes have been around for 100's of years and have reached this level. Its wrong to expect Tata/ Mahindra to fight with them, these guys haven't had the time to get ready for battle. Let them grow via the natural process of failure and improvement. Compare apples to apples here, compare Indian car makers to Chinese car makers (coz, I think the respective local industries came about almost at the same time)
Lastly, why shouldn't we tax these guys more? When the US can tax Indian IT companies to raise money for their Internal security budget. Why shouldn't we tax imports to raise money for our budget.
General observation, most of the replies by the members here are from a point of view of a car buyer. Like, this we would expect that there shouldn't be any tax at all on the imports! We all would love to drive around in Mercs, BMW etc. But if you look at the marco view we all will have to pay dearly if this were to come true. |
India's economic model, is in lot of ways similar to those of developed nations. It has never been one of an export oriented economy, Unlike China. Our trade balance has always been in deficit. So you cant say that "we will become a import oriented nation" . We already are and it is not a bad thing.
The thing about being an export based economy, which you consider (wishful), is that eventually you will lose the benefit of low cost manufacturing and head towards becoming an import based economy. Another thing is that if your economy is export based, you are highly exposed to one single currency(in most cases USD). It means that if that one currency depreciates, your holdings would suffer severe loss in value.
.I know people always relate to currency depreciation as bad thing and appreciation as good thing but thats not always the case. Depreciation is not always a bad thing. Specially if you want to decrease your trade deficit(which India wants to). The more, the value of Indian currency in forex market, the less attractive its goods are in the foreign market.In simple terms, foreigners will import more if they have to pay less for your goods. Thats the most important reasons why China has a pegged exchange rate system.
"2. Loss in creation of jobs"
You are all over the place in this point. I do not see any support for your statement. The connections you make are baseless and unrealistic.
BMW never produced 7series in india. So they did not hire anyone from india to produce those cars. Your whole idea is based in based on something that could happen or could not happen. Moreover bmw never planned to produce their flagship car in India. As these companies grow, they will increase their dealership network and service stations in india(job creation).
Death of local players is a very sad thing but it is something that could not be avoided if you want to progress. You cant stop building big bazaars for saving the small grocery store owners(from local city). You cant stop mcdonalds from entering india to save indian restaurant businesses. (thats the characteristic of becoming a developed nation).
4. Nurture local companies
If we nurture local companies, we will never become a developed economy. The first step towards development is the openness of the market. Just take time to see and compare the data of indian economy before 1991 and after the liberalization in 1991. If india had never allowed foreign companies to compete in indian market, India would still be what it was before 1991. India progressed at a very slow rate until 1991 and since then its growth rate has averaged significantly higher at around 5%.
I agree with your final point. We should always have tax.. but it should not be some ridiculous amount that would discourage imports.
I am considering both the micro and the macro level.
There is always going to be a negative side to any decision, but that should not hault our progress. We cannot keep operating inefficiently forever.