• Invest
    Investment Suite
    Stocks
    Mutual Funds
    Future and Options
    IPO
    Exchange Traded Funds
    Commodity
    Stockcase (Stock Baskets)
    Currency
    Non Convertible Debentures
    Sovereign Gold Bond
    Exclusive
    NRI Account
    Private Client Group
    Features
    SipIt
    MTF
    Investment Suite
    Exclusive
    Features
  • Platform
    Product Suite
    Kotak Neo App & Web
    Nest Trading Terminal
    NEO Trade APIs
    Features and Tools
    MTF
    Securities Accepted as Collateral
    Margin Requirements
    Equity Screeners
    Payoff Analyzer
    Calculators
    SIP Calculator
    Lumpsum Calculator
    Brokerage Calculator
    Margin Calculator
    MTF Calculator
    SWP Calculator
    CAGR Calculator
    Simple Interest Calculator
    ELSS Calculator
    Step up SIP Calculator
    All Calculators
    Product Suite
    Features and Tools
    Calculators
  • Pricing
  • Research
    Research Calls
    Long Term calls
    Short Term calls
    Intraday calls
    Derivatives calls
    Pick of the week
    Top Monthly Picks
    Research Reports
    Fundamental Research Report
    Technical Research Report
    Derivative Research Report
    Research Calls
    Research Reports
  • Market
    Stocks
    Market Movers
    Large Cap
    Mid Cap
    Small Cap
    Indices
    Nifty 50
    Bank Nifty
    FinNifty
    Nifty Midcap India
    VIX
    All Indian Indices
    Mutual Funds
    SBI Mutual Funds
    HDFC Mutual Funds
    Axis Mutual Funds
    ICICI Prudential Mutual Funds
    Nippon India Mutual Funds
    All AMC's
    IPO
    Upcoming IPO
    Current IPO
    Closed IPO
    Recently Listed IPO
    Stocks
    Indices
    Mutual Funds
    IPO
  • Learn
    Resource
    Market Ready
    Kotak Insights
    Infographic
    Podcast
    Webinars
    Youtube Channel
    Quarterly Results
    Investing Guide
    Demat Account
    Trading Account
    Share Market
    Intraday Trading
    IPO
    Mutual Funds
    Commodities
    Currency
    Futures & Options
    Derivatives
    Margin Trading
    Events
    Budget 2024
    Muhurat Trading
    Share Market Holiday
    Market Outlook 2025
    Resource
    Investing Guide
    Events
  • Partner
    Business Associates
    Fund Expert
    Kotak Connect Plus
    Startup connect
  • Support
    FAQs
    Circulars
    Bulletins
    Contact Us
    Forms Download
    Get your Statement

Not The Obvious Solutions

  •  4m
  • 0
  • 20 Apr 2023

From drug price ceiling to additional duties on steel imports and export ban to counter onion shortage - govt response to several problems shows the lessons may not have been learnt, writes T N Ninan

One of the lessons which the Narendra Modi government has yet to learn is that the solutions to economic problems can be counter-intuitive. In other words, not the first thing that strikes your mind. As we saw with demonetisation, the solution to black money is not necessarily to attack cash holdings, since most of the old notes came back to the Reserve Bank. Similarly, the solution to a tax shortfall is not necessarily to raise tax rates — a suggestion aired briefly in the context of the goods and services tax (GST) — any more than the solution to a trade deficit is to put up the shutters to imports. As the 1991 experience showed, the solution to a large trade deficit may be to open up the economy, not putting up protective walls; and encouraging exports could be done more effectively by scrapping export subsidies and adjusting the external value of the rupee instead.

These and similar lessons don’t seem to have been learnt, if recent experience is anything to go by. Thus, the response to pharmaceutical price increases has been to impose price ceilings, just as the response last September to a domestic shortage of onions was to impose an export ban. As critics of Donald Trump’s trade policies have pointed out, imposing additional import duties on goods from China has raised the cost of supplies domestically (JP Morgan calculates the impact on a family budget to be $1,000 in a year). Someone should do a similar exercise in India to work out the cumulative costs of the additional duties imposed on steel imports, the cost of tariff hikes and export subsidies on offer in the effort to make India a manufacturing hub for things like mobile phones, the potential impact of additional duties on imports in the “others” category, the likely cost to the consumer of banning palm oil imports from Malaysia and petroleum from Turkey, and so on.

Then we have the snarky response to Jeff Bezos and Amazon. Given how much of world trade is intra-firm, and how important it is to become a part of global supply chains, Mr Bezos’s promise of additional exports of $10 billion should have encouraged the government to welcome the announcement, or at least to hold its peace. Instead, the response was far from friendly — influenced, no doubt, by the fact that Mr Bezos owns a newspaper that is critical of the Modi government, and by lobby pressure from small traders who fear unfair competition from a company with deep pockets. But the Competition Commission of India (CCI) was created to deal with such problems, even if it does not always move when it should (such as in the Jio case). The larger point is that small store owners do not have the ability to create large supply chains that feed into international markets, nor to create a manufacturing base that generates quality jobs. Once again, the tactical response has been the wrong one.

A particularly striking example is offered by Jharkhand, which gives employers a subsidy of Rs 5,000 per month for every employee taken on board in the garment industry. Surely, this is a measure of the lack of competitiveness of the country’s garment industry — bear in mind that labour cost cannot be the most important reason for lack of competitiveness because China is by far the world’s leading garment exporter despite having much higher labour costs. Although the subsidy seems to be generating a positive response from industry, there has to be doubt about whether this really is a "good news" story.

Any industry will invest if it is given a large enough incentive, but there may be better ways of using the taxpayer’s money if the underlying reasons for lack of competitiveness were to be addressed — like a bloated currency that prices India out of world markets. It might be argued that sometimes the best can be the enemy of the good, especially if the former is hard to deliver. But too many such lazy compromises are what create a high-cost economy of the kind that we have lived with for long, and from which we had been moving away until recently.

Did you enjoy this article?

0 people liked this article.

What could we have done to make this article better?

Read Full Article >
Enjoy Free Demat Account Opening
+91 -

personImage
Enjoy Free Demat Account Opening
+91 -