This blog is the outcome of an argument that I had with my friend Arjun Nehra, while we were returning back from office by the company bus ST 5. We were debating if certain sectors have matured enough to open them up or rather can they actually withstand the onslaught of the MNCs? The moot question is will the country benefit by such a move?
Though Arjun is very much in favour of opening up of the economy, he feels it is not yet the right time.Since we used the banking industry as the support tool for our arguments, the argument finally boiled down to are Indian banks ready to face the competition from foreign banks from April 2009. He feels Indian companies need to be given some more time so that they can grow enough, thereby making it difficult for the MNCs to gobble them up ( both literally and metamorphically. In literal sense, I mean taking over and in the other sense, drive them out of business.)
He gave many arguments in support of his stand by giving examples how the western countries actually did the same, there by helping them to grow big so that they can now be the “MNCs”. I use this blog to convey what is my opinion in such matters, for Arjun is not the only the one with whom I had this debate.
I don want to talk about the benefits of opening up of economy nor about the negative consequences. I feel neither the need nor have the ability to dwell on those. Let it be left to those who are better qualified to talk about them. The question that I strive to answer is why some people get swayed by the arguments of protectionism and why I am not so convinced by it.
The arguments they come up with are the standard ones like : “I do not want the profits to go to a foreign country.” “ these corporations would destroy indigenous industries” “ they benefit only the urban elite “ and so on and so forth. The arguments they put forward are extremely logical and analytical that you don’t have an option but not to disagree with it. The arguments are quite coherent and for the unopinionated they actually look very sensible. It is based on the grounds of infallibility of Logic. I do not intend to attack the infallibility of logic, but what I SAY IS LOGIC IS NOT APPLICABLE HERE.
All the horrors, consequemnces they portray would hold true if business were like Physics or Maths. Unfortunately, its like economics which makes it an Analytical Science rather than Predictive Science. In predictive science like maths, physics given the circumstances, we can predict the outcome of an experiment. It is invariant in the sense that it does not matter if it is carried out in
The best example of it is illustrated by so called Stock Market Analysts. They give 100 solid reasons why there will be a rally tomorrow, but if there is a crash tomorrow, they will give 100 other, equally solid and water tight reasons that would logically explain the melt down of the market. The fault is not their analysis but in the inherent inadequacy of economics/business to able to predict. It is an analytic science. So its like you are using an axe to clear the rubble. ( boss, u need a shovel).
Ok. If its not a predictive science, then how can u be sure that the horrors wont come true. That’s
I am saying it partly on the basis of my understanding of how Capitalism works and partly on the basis of historical data. I believe history repeats itself. So the lessons of a particular industry is not just relevant for that industry but to BUSINESS AS A WHOLE. Lets answer the critics’ charge that it will favour only the urban rich.
Yes I agree, it will favour them initially. However, when the urban market saturates they don have the option but to cater to the needs of the rural populace. Sounding preposterous? I have data to support me. Consider Telecom industry. They first expanded in the urban market. Their offerings and products were customized to the needs of an urban clientele. It no doubt widened the urban- rural divide in this particular aspect. But with the passage of time and the companies realizing that there is tremendous scope in rural areas, they changed track and now are quite bullish about it. They have come up with offerings that appeals to the village folks. So the divide which was widening earlier is not shrinking at a rate which no protectionist expected or dreamt.
Similar is the case with ICICI BANK. With their innovative business model, they have proved that offering banking facilties to rural areas is not about Social Obligations but a viable business reality.
To explain why banking sector can be opened up, I will write a separate blog sometime in the near future.
