Dr. Susmit Kumar, Ph.D.

China and India launched economic liberalization about the same time in the early 1990s, but whereas China is now the global economic leader India is nowhere. During these years, India have run trade deficits year after year whereas China had trade surpluses, enabling it to amass four trillion dollars of FOREX (FOReign EXchange), making it the undisputed country to replace the US as the world’s number one economic superpower. Yes, the growth rate of India in the last couple of years is the highest in the world but it is vulnerable to economic collapse, due to an economic crisis resulting from generating trade deficits year on year. Without trade surplus, India cannot even dream of becoming a super-power, and in the last 30 years trade surplus was not a priority of any Indian administration.

As shown in Table 1, the cumulative trade deficit of India during 1999-2016 was about $1.5 trillion (in 2016, India’s trade deficit was $94 billion). India paid for this trade deficit by the NRI remittance and FDI (during 2011-13 Current Account Deficit (CAD) crisis, higher CAD did a lot of damage to the Indian economy). If India would have had just the trade balance, its FOREX would have at least $1.5 trillion above the current FOREX and India would have been at the threshold of becoming a superpower along with China. India’s Rupee would have been added as a world reserve currency following its addition to the IMF’s Special Drawing Rights currency basket.

During the 1999-2016, India not only lost $1.5 trillion of FOREX due to trade deficit, but lost nearly $3 trillion of economic activities (worth of jobs) in its domestic economy. As explained in my article The Hidden Cost of Imported Items and The Need to Redefine Modi Administration’s “Make in India” Policy”, the total number of jobs lost due to trade deficit may be two to three times that of the actual factory jobs. Because we should consider the indirectly associated jobs as well, such as in schools, hospitals and in the auto sector, etc., as factory workers would spend their income in such associated fields.

Crude oil is the costliest item in India’s import bill. India has the technical/scientific manpower and resources to replace the import of crude oil by finding its substitutes. For an example, the technology behind the electric autos are out there for last more than two years - GM manufactured one in 1996, but then stopped it because electric autos would have created a mass layoffs in auto industry - petrol stations, repair shops (due to no oil change every 3,000 miles), etc. For this very reason, GM recalled each EV1 (General Motors EV1 Electric Car) and crushed each one. India should have gone for electric autos long ago as it would have had resulted in trade surplus. In this way India can stop importing crude oil in less than five years.

India should never allow Tesla or a start-up Tesla in India. The fate of Shai Agassi’s Better Place start-up shows how for max “profit” mentality destroys everything because the owner cares for money only and nothing else (A Broken Place: The Spectacular Failure Of The Startup That Was Going To Change The World). Agassi was the founder and former CEO of Better Place, which had developed a model and infrastructure for employing electric cars as an alternative to fossil fuel technology. The company went bankrupt in 2013, having spent over $850 million while deploying less than 1000 cars. If Tesla wants to be a player in the emerging largest consumer market in the world, it will have to work with Maruti, partly owned by the government. India should never go down the path of unrestricted privatization policy of the US, which has resulted in massive loss of good paying jobs. India has the necessary scientific and technical manpower to develop its own versions of electric vehicles. Also, if the Modi administration would ask the NRI scientists and technical people to help in this noble cause (to help India achieve trade balance at the earliest), they would certainly come forward with the help. Under pressure from the US, when Russia refused to transfer the cryogenic engine technology, Indian scientists are able to manufacture it on their own. In space technology, India is fast catching the top players like the US and Russia. Hence if there is political will, Indian scientists can come up with their own technologies to stop crude oil import.

India can do the same (increase in production or replacement) with other mass consumed costly items in its import bill. A country should not import a mass-consumption item at all; it should either increase its production to its consumption volume or come up with substitutes. As the 2011-13 CAD crisis has shown, India is vulnerable to economic collapse due to an economic crisis as a result of generating trade deficits year on year.  Hence it should treat foreign trade on par with defense (please read: http://www.susmitkumar.net/index.php/47-uncategorised/149-india-needs-to-treat-its-foreign-trade-same-as-defense-sector-part-1, India Needs to Treat Its Foreign Trade Same as Defense Sector, Part-2).

Once India has achieved trade balance/surplus, the NRI remittance and FDI would prop up the FOREX rather than paying the trade surplus, resulting in $2 to $3 trillion FOREX in 8 to 10 years. Once India has trade surplus, it will not have to beg for FDI. Instead foreigners would make a beeline for a pie in the world’s largest democratic country having better safeguards for investment than a restricted country like China.

Table 1: Trade Deficit of India (in USD billion)

(source: https://en.wikipedia.org/wiki/Foreign_trade_of_India; http://www.indexmundi.com/g/g.aspx?v=145&c=in&l=en)

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