Dr. Susmit Kumar, Ph.D.

[Note: Dr. Kumar’s every paper is sent to 1500+ people in India which includes PM Mr. Modi, Prime Minister Office (PMO), several Cabinet ministers in India, Secretaries (IAS) and Additional Secretaries (IAS), 200+ officers at Niti Aayog, professors at IIMs, IITs and premier Indian universities, and fellows at several Indian think tanks.]

 

The US-based economists would generally preach you to earn money by doing dirty jobs (i.e. to produce consumer items which requires low wages) of the Western countries, mainly of the US. But India has all the required ingredients, like technical and natural resources to make herself an economic superpower without being an exporting country. Niti Aayog’s policy paper of E-vehicles only after 2030 is a major step towards it by replacing the crude oil import, the costliest item among its imports, with its substitute (please read my paper: Niti Aayog's New Electric Vehicle Policy – Implementation of Dr Susmit Kumar's April 2017 Recommendation, June 29, 2019).

 

Till recently, India’s economic policy, under both the NDA and UPA governments, was to emulate China’s export-oriented policy in order to become an economic superpower. But due to Dr Susmit Kumar’s sustained efforts, India’s economic policy has now become import substitution, i.e. to use its own resources, both technological and scientific as well as natural resources, to make the country an economic powerhouse. This change is evident in the recent speech of Professor Arvind Panagariya, a professor of economics at Columbia University (US), while delivering the keynote address at a panel discussion on ‘Economic Priorities for the New Government’ of Prime Minister Narendra Modi, in New York, US (Export-led growth very critical for good jobs in India: Arvind Panagariya, PTI/The Indian Express, June 25, 2019):

 

As tariffs are going up on many different items, … the “whole idea of turning back to import substitution turns the clock back (for India). It is on the back of trade liberalisation and very rapid export expansion during the 2000s onwards that the (Indian) economy really began to grow at this very rapid rate.

 

We [India] have to return to becoming an export-led growth country.

 

… there is not a single country which has grown on a sustained basis at rates of 8-10 per cent for 2-3 decades without very rapid growth in trade.

 

[He] made a strong case for creating Shenzhen-style Autonomous Employment Zones that create zones of 500 square kilometers or more along the coast that are characterized by highly entrepreneur-friendly regime with respect to land, labour and international trade to boost economic growth in the years to come.

 

Dr Panagariya was the first Vice-Chairman of Niti Aayog (January 2015 to August 2017), a think tank of the Government of India, which is responsible for producing policy papers to achieve Sustainable Development Goals. During his tenure at the Niti Aayog, Niti Aayog produced “Three Year Action Agenda: 2017-18 to 2019-20” in which there were 67 references to “China” and “Chinese.” The agenda underscored the need to “replicate” China’s very large special economic zones along its coasts by developing two employment zones on India’s east and west coasts. For Make in India to succeed, the country would have had to manufacture for a global market, as China and some other countries do. But for that, Indian products had to be competitive, it said (67 references to China reveal inspiration of Niti Aayog’s 3-year action plan, The Hindustan Times, DK Singh, August 28, 2017).

 

It is worth noting that Dr Kumar’s paper, Niti Aayog: Why does it need new direction and a new leadership?, led to the resignation of Dr Panagariya from the Vice-Chairman of Niti Aayog. Also due to Dr Kumar’s two years efforts (2016-18), now all three top economists (Niti Aayog Vice Chairman, Chief Economic Advisor and Reserve Bank of India Governor) are held by India-based economists whereas in past more than a decade, the US-based Indian-origin economists were holding these posts.

 

An export-based economy is based on factors beyond the country’s control. The collapse of East Asian countries like Thailand, Malaysia, Indonesia and South Korea in 1997 showed the perils of export-economies. During the 1990s, until the 1997 East Asian Economic Crisis, countries like Indonesia, Malaysia and Thailand were held as East Asian Economic Miracle countries because of their astounding economic growth rate based on exports. In order to increase its exports, China devalued its currency, the yuan, by 35 percent in 1994. Japan then had to devalue the yen to maintain its export level. Other Asian countries delayed devaluation until 1997. This caused a sharp fall in their exports while China’s 1997 exports increased by 20 percent. Japan also had a trade surplus of $91 billion that year.

 

After years of large trade surpluses, South Korea’s imports began to exceed its exports. In 1996, its trade deficit was $23.7 billion. Its foreign exchange reserves at the end of 1997 were only $8.87 billion, compared to $29.4 billion at the end of 1996. Thailand’s 1997 trade deficit was about $10 billion. Taiwan’s trade surplus that year fell 44 percent to $7.6 billion—its lowest since 1984. In December, it had a trade deficit of $40 million, quite rare for that country.

 

China’s trade surplus with the U.S., in turn, had been increasing exponentially year by year, and in 1997 reached about $40 billion. Chinese exports in 1996 were valued at $150 billion, which was almost equal to the total value of the exports of Indonesia, Malaysia, Philippines, and Thailand combined. China’s foreign exchange reserves (FOREX) at the end of 1997 were about $142 billion, second highest after Japan’s.

 

At the same time, foreign investment had been flooding other Asian countries with dollars despite trade deficits. Thailand had the weakest economy in the region because of its high debts, which were about 38 percent of GDP. When currency traders, notably billionaire investor George Soros, saw the vulnerability of the Thai economy, they bought several forward contracts worth more than $15 billion and flooded the international market by selling bahts, the Thai currency, in May 1997. This was a speculative attack on the baht, believing that it would devalue Thailand at first tried to prop up its currency by selling dollars and buying bahts, but when its FOREX reserve dropped into the danger level, it had to unpeg the baht from the dollar on July 2, 1997, resulting in a free-fall for the Thai currency. Due to free convertibility, Thais also moved their money out of the country by converting it into dollars, depleting the nation’s foreign reserves further. According to Thailand’s central bank, it spent more than $16 billion in its failed attempt to prop up its currency. (Speculative currency traders sell a currency at a value they consider to be high on the expectation that it will depreciate so that they can buy the currency back for much less than they sold it. The difference in price is the trader’s profit.)

 

The crash of the baht created a domino effect and resulted in the crash of all other currencies and stock markets in the region one by one. Malaysian Prime Minister Dr. Mahathir Mohamad called Soros a moron and blamed him for the Asian crash. He also blasted Western economic powers for attempting to exploit and dominate the developing world. Indonesian president Suharto compared the currency traders to “gamblers.” He said, “We have 30 years’ experience building a strong foundation. Then, in six months it collapses, not because of an internal crisis, but because there is manipulation of our currency.”

 

During 2016 and 2018, Dr Kumar published several papers, some of which are copied below, on the importance of import substitution, which has finally led the Modi administration to abandon its export-based policy in favor of import substitution. If India can achieve even the trade balance, 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.

 

During the 1999-2016, India not only lost $1.6 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, considering 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.

 

Had India had the $2 trillion FOREX, it would have had FOREX firepower to match China’s OBOR (One Belt One Road) spending in every part of the globe. Apart from this, all the Western countries and ASEAN countries, due to having territorial dispute with China in South China Sea, would have been in India’s camp against the authoritarian Communist China. Even Russia would have been in India’s camp because it knows that it is just a question of time before China would claim Far East Russia where the Russian population is on continuous decline and cheap Chinese labor are flooding the region.

 

(A) India Needs to Treat Its Foreign Trade Same as Defense Sector, Part-2, May 17, 2016.

 

“Hence India should never import a mass consumption item and it should find a substitute for an imported mass consumption item at the earliest.”

 

(B) Is "Make In India" Theme Helping Indian Economy? - Part I, March 25, 2017

 

“Therefore, there is an urgent need for the Modi government to re-define its “Make in India” policy so that India can beat China in its own game and get rid of perennial trade deficits, on the way to becoming an economic super-power. I believe in the principle that a country should never import a mass consumption items otherwise it would be at the mercy of external factors which are beyond its control.”

 

(C) India, China and Growth Rate, April 16, 2017

 

(2)   Replacing imported mass consumption items with India made items: Once I saw a large “Made-in-China” air cooler, with three side cooling pads, a water pump to pour water on cooling pads and a fan in the front, in a politician lawn in Lutyens’ Delhi. This air cooler can be made in India easily. Should India spend its “precious” dollars on simple items like air cooler which can be easily reverse-engineered? As explained in my article The Hidden Cost of Imported Items and The Need to Redefine Modi Administration’s “Make in India” Policy, if you purchase a "Made in China" commodity instead of "Made-in-India" commodity, then India loses not only a factory job but also indirectly associated jobs such as in schools, hospitals, and auto sector. Instead the purchase of the imported commodity creates such lost jobs in China. Due to these hidden benefits, China has been able to sell the items at below manufacturing price undercutting all other countries. The government should target imported products that are killing domestic jobs and provide tax-breaks and subsidies to reduce its price. The Modi government is contemplating on providing minimum basic income to everyone. Let this minimum basic income be paid towards the salaries in the form of subsidies to manufacture these products. India needs to produce all the mass consumption items to insulate itself from factors outside its control. It should not allow large conglomerates to manufacture these items because after few years, they will shut down the manufacturing plants and start importing as profit being their sole motive, they can make more money from imports. These plants can work on no-profit no-loss philosophy with “Codetermination” policy.

 

(D) Niti Aayog Is Missing Its Number One Objective – Trade Balance and Self-Sufficiency of Essential Mass Consumption Items - Part I, April 25, 2017

 

Development, without the aim of “Trade Balance” and “Self-sufficiency of Essential Mass Consumer Items” (to insulate its economy from factors, beyond its control) has no meaning. Time and again the history of global economy has shown that a FOREX (FOReign EXchange) crisis can bring down a country’s entire economy, within few months, for years to come. Unless the Indian economy achieves “Trade Balance” and “Self-sufficiency of Essential Mass Consumer Items,” it will be always vulnerable to collapse due to factors beyond its control. Niti Aayog needs to modify all their three recently approved key documents for the country - 5-year vision, 7-year strategy and 3-year action plan - and have these two as their top priorities/objectives.

 

(E)  Niti Aayog Is Missing Its Number One Priority – Trade Balance and Self-Sufficiency of Essential Mass Consumption Items - Part II, May 4, 2017.

 

“Without having trade surplus and becoming self-sufficient in essential mass consumer items, India has no hope of becoming a super-power.”

 

(F)  Think Twice Before Accepting Any Statement of a US Economist/MBA, May 8, 2017

 

“The bottom line is that if India wants to be a superpower, it has to get rid of its perennial trade deficit and become self-sufficient in essential mass consumption items.”

 

(G) China’s OBOR and Niti Aayog, May 15, 2017.

 

“… it is completely wrong that “Trade Balance” and “Self-sufficiency in Essential Mass Consumption Items” have not been made the top priorities of Niti Aayog.”

 

(H) Trade Deficit and India’s Missing USD 1.5 Trillion FOREX, August 11, 2017

 

“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….

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 per Dr Kumar (India is a Country, not a Company - How Anglo-US 'Imported' Economists Misled and Mismanaged the Indian Economy, Susmit Kumar, Munshiram Manoharlal Publishers Pvt. Ltd., New Delhi, 2018, pp 182-186):

 

India should never import a mass consumption item and it should either increase its production domestically or find a substitute for an imported mass consumption item at the earliest. As crude oil is the biggest import item in India, costing a net $117 billion in 2015, India should find alternative fuels like corn-based alternative fuels include biodiesel, bioalcohol (methanol, ethanol, butanol), chemically stored electricity (batteries and fuel cells), hydrogen, non-fossil methane, non-fossil natural gas, vegetable oil, propane and other biomass sources. Also India has the technical/scientific manpower and resources to replace the import of crude oil by finding its substitutes.

 

India imports consumer items like phones, furniture, water coolers, and erickshaws, to name few, mainly from China. India can easily manufacture these by doing reverse engineering which China does with everything, from phones to military aircrafts. Private firms in India may not manufacture these consumer items as they would not like to have loss making plants but the government should manufacture these by providing subsidies which China does with majority of items it manufactures. Also one manufacturing job creates additional jobs as the worker would buy consumer items like say food, clothes and car, children would go to school and he would rent or construct house, increasing spending in housing sector. Hence by importing items like furniture, country is losing these additional jobs apart from the manufacturing jobs directly associated with the item in consideration.

 

India can … increase in production or replacement with other mass consumed costly items in its import bill. India has been spending its precious dollars on importing simple items like scissors, air coolers, idols, phones, furniture, water coolers, and erickshaws, to name few which can be manufactured easily in the country. India can easily manufacture these by doing reverse engineering which China does with everything, from phones to military aircrafts.

 

Once [he] saw a large “Made-in-China” air cooler, with three side cooling pads, a water pump to pour water on cooling pads and a fan in the front, in a politician lawn in Lutyens’ Delhi. This air cooler can be made in India easily. Should India spend its “precious” dollars on simple items like air cooler which can be easily reverse-engineered? Private firms in India may not manufacture these consumer items as they would not like to have loss making plants. The government should target imported products that are killing domestic jobs and provide tax-breaks and subsidies to reduce its price which China does with majority of items it manufactures. The Modi government is contemplating on providing minimum basic income to everyone. Let this minimum basic income be paid towards the salaries in the form of subsidies to manufacture these products. It should not allow large conglomerates to manufacture these items because after few years, they will shut down the manufacturing plants and start importing as profit being their sole motive, they can make more money from imports. These plants can work on no-profit no-loss philosophy.

 

The World Trade Organization (WTO) should not intervene for the country providing subsidies to these industries because majority of high-tech industries in the Western countries have origins in government subsidies. For an example, the US based Tesla, which makes electric cars, sells solar panels and launches rockets into space, is mainly funded by the government subsidies. It is an open secret that China has become the world's number one exporter of consumer goods only by providing government subsidies to its domestic manufacturing firms. A country should never import a mass consumed item because not only it loses related manufacturing jobs, it will also be at the mercy of factors outside its control.

 

In nearly all US universities, more than 80% to 90% of professors and research (MS and PhD) students in engineering and computer science/technology are either Indians or Chinese. Same is true in all the research labs in the US. More than half of the programmers in San Francisco Bay Area, also called Silicon Valley, California, US, which hosts headquarters of IT firms like Apple, Facebook, Yahoo, HP, Oracle, eBay, Paypal and Cisco, are Indians. Mr. Modi needs to create a task force to assemble brains from the US and other countries as well as from Indian premier institutes like IITs to achieve the goal. India can spend tens of billions of US dollars on it because it has potential to eliminate hundreds of billions of dollars from each year import bill.