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Self-sufficiency is choice for businesses to make, not govts: Former White House Economic Advisor

Self-sufficiency is choice for businesses to make, not govts:
Former White House economic advisor

25 July 2020, New Delhi

There are many countries that are dependent on China and there is a balance to be struck when it comes to self-sufficiency, according to Dr Harry G Broadman, a former White House Chief of Staff of President’s Council of Economic Advisers and currently Partner and Managing Director, Emerging Markets Practice, Berkeley Research Group. “That is a choice to be made by businesses and not the governments. You have to make trade-offs between short-term and long-term gains,” he says.

Dr Broadman interacted with India’s business leaders in an online session organized by All India Management Association (AIMA). He spoke about how a tortoise India could beat the Chinese hare in international markets. The session was moderated by Mr Sanjay Kirloskar, President, AIMA and Chairman and Managing Director, Kirloskar Brothers. Ms Rekha Sethi, Director General, AIMA anchored the session.

Dr Broadman said that there was a need for India to open itself up more to attract more FDI, especially in the infrastructure sector. According to him, the number of sectors where foreign competition can come into India is more limited than it should be. However, he said that the government had a role in managing the transition because there would a cost. In the short run, he pointed out, when foreign companies come in, they replace the incumbent by offering superior products at lower prices, which sends a signal to the incumbent to make things better or make way.

Mr Kirloskar said that India needed to do a lot to improve its economy. “India needs foreign investment in infrastructure in order to compete,” he said. Dr Broadman suggested that India could allow joint bidding by Indian and foreign companies for infrastructure projects and procurement. “India needs infrastructure to realize the economy of scale and scope. Opening up the infrastructure market is a major policy issue for India,” he said. Mr Kirloskar pointed out that India’s government procurement market was much more open than that of America.

Comparing the attributes and behaviour of Indian and Chinese companies overseas, especially in in Africa, where he conducted a study for World Bank,

Dr Broadman said that Indian companies used more local resources and talent than the Chinese and they were more integrated into the socio-economic fabric of the host countries than the Chinese, who preferred enclaves. Many CEOs of Indian companies in Africa held local passports whereas only rare Chinese CEOs did.

“India is way ahead of China in the game of soft power,” Dr Broadman said. He emphasized that the stakeholders having a voice and getting heard is important. He argued that one could have a short-term or medium-term growth without democracy, but as people get educated and become more prosperous, one can run out of the runway. He said that China’s President Xi Jinping was facing a lot of resentment in China just as Donald Trump in America. Mr Kirloskar agreed and added that once people get richer, they want more political freedom.

Pointing to the unsustainable debt levels in China and the nexus between its banks and SOEs, Dr Broadman said that it would be no surprise if there was a run on Chinese banks in the future, and when that happens, the problem will cascade internationally.

Getting China to play by the rules would require multilateral efforts, says Dr Broadman. He argued that China was able to get away with not fulfilling its promises made at the time of entering the WTO because most countries resorted to bilateral dealings with China. “Continuing down the bilateral path, as Mr Trump has done, will not solve anything,” he said. Dr Broadman said that China’s state-supported financial sector would come under severe pressure if all the foreign bond holders acted in a multilateral fashion.

Commenting on the startup sector competition between Indian and China, Dr Broadman said that while China was doing important inventions but those were more exceptions than the norm. “Innovation is a part of the Indian DNA,” he said.

Warm Regards, Ranjana Bhardwaj