For nearly three decades from 1962 to 1988, car buyers in South Korea were forced to buy locally manufactured cars because the Korean government had imposed a ban on all imported automobiles till 1988 and the import of Japanese automobiles till 1998. Economist Ha-Joon Chang, in his book, Edible Economics, has talked about how until the early 1990, the Korean government made sure that Hyundai and other firms got access to high subsidised credits. In fact, in 1973, the government threatened Hyundai Motor Company and other automakers that their licenses to produce cars would be revoked if they didn’t come up with their own models. Using its regulatory and financial power, the Korean government also put explicit and implicit pressure on foreign as well as local companies to increase the local content of their products so that domestic car-parts industries would develop.
For all its ‘free enterprise’ message to the world, Chang calls the US, the inventor of the economic theory of ‘infant industry protection’. The country ‘erected a high wall of protectionism to create the space for its young companies to grow, protected from superior foreign, especially British, producers in the 19th and early 20th century’.
So, India’s move to curb imports to push local manufacturing should not be eyebrow-raising. Of course, one may argue that what South Korea got right in the 70s, India may not get in 2023. But what if it does? We can, in the process, create a strong global brand selling low-cost yet high quality computer hardware. After all, we did taste success in the case of local manufacturing of mobile handsets.
To be sure, India’s domestic consumption is a big, important driver for India to bargain hard with global consumer goods companies to manufacture here. And with the increased digitalisation globally, the move is well-timed. The Indian laptop market is more than a $5 billion opportunity. Is it unfair for a large, fast-growing country like India to seek an opportunity to manufacture some of those laptops locally? It’s time India’s huge population becomes the country’s lever in foreign trade policy and not a drag.However, as with all policy measures, the devil lies in the details or execution as in this case. How India nudges and negotiates with the foreign companies to set up factories here, what kind of support and ease of doing business it offers will decide how eagerly foreign companies respond to the government’s call for Make in India. The first production linked incentive scheme didn’t enthuse them – will the threat of a ban bring them on board?There is also the concern whether India can afford a ban at a time when its economy is growing fast and needs cutting edge infrastructure used globally. Policy makers will have to be cautious about ensuring that the import restrictions do not impede the innovation and development brought about by the global electronic hardware. It’s a tight rope to straddle.
