There are two news items about the current negotiations going on about the proposed India-Europe free trade agreement that deserve some reflection on everyone’s part. One is about the possible impact of the agreement on luxury, or higher-end car prices in India; the other was a case filed against the European Commission, by the Corporate Europe Observatory (COEb), a lobby watchdog. Let us consider them one at a time.
It appears that the currently high 40 per cent duties on luxury cars may be agreed down. If duties on luxury cars are reduced, and the automakers pass on the tax cuts to consumers fully, then prices of imported luxury cars will come down quite a bit. For example, the Volkswagen Beetle will come down from Rs 21 lakh to Rs 13 lakh, while a BMW 7 series will come down from Rs 84 lakh to Rs 52 lakh. This, of course, will make these cars affordable to many more Indians and, in the process, create a problem for Indian manufacturers such as the Tata who recently launched their crossover Aria, or the Mahindra who is all set to launch its World SUV W201 this year. Many who were thinking about buying these cars may now decide to buy an imported car even if it costs a little more. Not surprisingly, therefore, the Society of Indian Automobile Manufacturers has opposed such a move. Interestingly, even the Japanese automobile manufacturers in India have made noises about how it will affect the Indian automobile sector. Both have raised the spectre of reduced growth in employment in a country frantically trying to create productive jobs for its fast expanding labour force.
I am immediately reminded of two events that everybody in, and around, my generation has experienced. One was the advent of the Maruti car and the other was the entry of small car manufacturers such as Daewoo (now out of production) and Hyundai into the Indian market. For many, many decades, the Ambassador and Premier Padmini continued with producing the same model with little or no change in their design or accessories. People waited for months to get delivery of their cars and the car manufacturers made no investments in new models or in expanding capacity. They said they were doing all this to keep prices low. And, they also made us believe that they were not making enough profits at these low prices to make any new investments for technological upgrades to their car. Then Maruti 800 came on the scene. Suddenly, Hindustan Motors, instead of making losses at the advent of competition, started making changes to the more than 40-year-old Ambassador to make it more attractive.
And, let us not forget the Japanese either. All the way till almost the end of the nineties they continued selling the Maruti 800, which, in the late nineties, was at least two decades old. Once Daewoo and Hyundai came in, they immediately introduced newer models and since then they suddenly found an attractive and growing market that justified newer models.
Both these experiences are worth recalling now. In the first case, India was still a highly controlled economy; in the second India had already undergone major reforms for close to a decade. In other words, producers, regardless of whether they are Indian or foreign, are exactly the same — they want governments to support them whenever possible so that they can maintain their profits. Opening up to competition is something that new entrants like; it is also something that incumbent companies hate. Of course, the incumbents will make all the right noises about employment and growth in a poor country but consumers should be extremely sceptical about the real motives behind such arguments.
In the second instance referred to in the opening paragraph of this piece, the COEb has charged the European Commission of being less than transparent to its own citizens. In particular, they have charged that while European corporate establishments and their associations — both financial and non-financial — are being consulted and privy to all the negotiations, non-corporate establishments have, however, been kept away from being fully informed. In fact, civil societies in both countries have complained about this quite bitterly. In Europe, the COEb has an institutional process that they can use and they have done just that. They have sued the Commission in the European Court.
In India, we know that industry associations are being consulted. Of course, we are not surprised since, thanks to the Nira Radia tapes, we are now aware that without the explicit or implicit connivance of Indian corporate groups even ministers cannot be sure of their ministerial berths. But, our acceptance and subsequent neglect of this fact is a bit surprising. As this piece has suggested already, businesses (whether Indian or foreign) do not necessarily have the best interests of the poor customers at heart. Moreover, any free trade agreement with Europe should have an impact on India’s farmers who are more numerous and poorer than our big businesses. It is only fair that the latter are given more say in what affects them; instead, we give more rights to the businesses to participate in the negotiations!
It is important to emphasise that this is not the fault of democracy or the free market. Instead, it is the fault of the government and the intellectuals in the world’s largest democratic free market. They are giving democracy and free markets a bad name because they have forgotten what either actually means. First, we must learn from our own experiences. Second, we, who are so quick to refer to other countries for doing whatever we do, should learn from what COEb has done to the European Commission.
The author is research director, India Development Foundation