Economic nationalism is wrong turn for India

Prime Minister Narendra Modi wants all 1.3 billion Indians to be “vocal for local” — meaning, to not just use domestically made products but also to promote them. India’s Covid-19 lockdown has severely pinched logistics, a perennial challenge in the huge, infrastructure-starved country. But more worrying than the disruption is the fruity political response to it. Rather than being a wake-up call for fixing supply chains, the pandemic seems to be putting India on an isolationist course. Why?
Granted that the liberal view that trade is good and autarky bad isn’t exactly fashionable anywhere right now. What makes India’s lurch troublesome is that the pace and direction of economic nationalism may be set by domestic business interests. The Indian liberals, many of whom are Western-trained academics, authors and — at least until a few years ago — policy makers, want a more competitive economy. They will be powerless to prevent the slide. Modi’s call for a self-reliant India has been echoed by Home Minister Amit Shah, the cabinet’s unofficial No. 2, in a television interview. If Indians don’t buy foreign-made goods, the economy will see a jump, he said. The strategy — although it’s too nebulous yet to call it that — has a geopolitical element. A military standoff with China is under way, apparently triggered by India’s completion of a road and bridge near the common border in the tense Himalayan region of Ladakh. It’s very expensive to fight even a limited war there. With India’s economy flattened by Covid, New Delhi may be looking for ways to restore the status quo and send Beijing a signal.
Economic boycotts, such as Chinese consumers’ rejection of Japanese goods over territorial disputes in the East China Sea, are well understood as statecraft. In these times, it’s not even necessary to name an enemy. An undercurrent of popular anger against China, the source of both the virus and India’s biggest bilateral trade deficit, is supposed to do the job. But is it ever that easy?
A hastily introduced policy to stock only local goods in police and paramilitary canteens became a farcical exercise after the list of banned items ended up including products by the local units of Colgate-Palmolive Co, Nestle SA, and Unilever NV, which have had significant Indian operations for between 60 and 90 years, as well as Dabur India Ltd, a New Delhi-based maker of Ayurveda brands. The since-withdrawn list demonstrates the practical difficulty of bureaucrats trying to find things in a globalised world that are 100% indigenous.
Free-trade champions fret that the prime minister, whom they saw as being on their side six years ago, is acting against their advice to dismantle statist controls on land, labour and capital to help make the country more competitive. Engage with the world more, not less, they caution. But Modi also has to satisfy the Rashtriya Swayamsevak Sangh, the umbrella Hindu organisation that gets him votes. Its backbone of small traders, builders and businessmen — the RSS admits only men — was losing patience with the anemic economy even before the pandemic. Now, they’re in deep trouble, because India’s broken financial system won’t deliver even state-guaranteed loans to them. The US-China tensions — over trade, intellectual property, Covid responsibility and Hong Kong’s autonomy — offer a perfect backdrop. A dire domestic economy and trouble at the border provide the foreground. Big business will dial economic nationalism up and down to hit a trifecta of goals: Block competition from the People’s Republic; make Western rivals fall in line and do joint ventures; and tap deep overseas capital markets.

—Bloomberg