Thursday, 27 June 2013

Buy Best and Leave the Rest - A Refutal

With exchange rate of Indian Rupee hitting a new low of 60.32 INR to 1 $ , social media abuzz with posts mocking the current government's economic policies. There also seems to be a massive campaign which goes like ' Buy Indian and Save India '. 

On a superficial level it does sound right for it seems like we are sending off billion dollars out of our country by buying goods of Multi-Nationals like Unilever or Procter and Gamble. In fact we do romanticize with 'Swadeshi Movement', which involves shunning goods of foreign origin, for it was part of our Independence struggle against Britain. 

Now coming back to the question, Can being Swadeshi actually improve our country's economy ? 

Seems the answer is not as simple as blurting out a slogan like , 'Be Indian and Buy Indian'. 

We have to remind ourselves that we are now living in a globalized world where it is hard to pinpoint the country of origin of any Corporation. Say Unilever or Hyundai or P&G , they all are Multi-Nationals and their stock is traded on stock markets. So that means they may have Indian shareholders.In fact our so called Indian companies are also MNCs. Say TATA , Flipkart , Jet Airways or what soever. They also may have share holding by foreigners for they are traded in Stock markets . 

So what matters is that these firms produce their goods in Indian territory, sell their goods through Indian salespersons and they pay taxes to Indian Government. Eventually they are creating infrastructure, creating jobs and helping people have a better lifestyle. 

Unilever , for example is a Anglo-Dutch consumer goods company. but they have their manufacturing plants in India . Say Micromax. It is an Indian consumer electronic company, but what we won't know is that the components in their mobile phones are sourced from China or Taiwan. So actually it means that Micromax is not as Indian as we would expect. There are many firms which produce goods in China and at last label them as ' Made in India '. 

So it's better for us to be remind ourselves of what would happen if our own Information Technology firms face such a campaign in foreign countries. In fact there is a sizable majority in United States, who think that we Indians are robbing their jobs. So how different is our companies in comparison with the MNC's who are being demonized by false propaganda of , ' Buy Indian and Save India '. 

In total, any campaign that  calls for boycotting so called-foreign goods is nonsensical because they may not as foreign as you think. In fact it is difficult to ascertain .

And coming back to the cause for Indian rupee losing its value is not because of our buying habits but due to our increased dependence on foreign countries for energy. We import nearly 80 % of our energy needs. We lack quality coal and hence we are importing them too for our thermal power plants. And mainly the political climate is very unstable and hence foreign investors are wary of investing here and they resort to selling their stocks in share markets. This results in further decrease in Rupee Value. 

We have to remember that our country is part of a global market. There is no way we can deny that fact. So as a common man there is certainly one thing which we can do 

It is , to remind ourselves that we are consumers. As an ideal consumer, our job is to choose quality goods. You may not know what proportion of investment in a company is held by investors from abroad. So instead of thinking over what is truly swadesi , we can choose quality goods . Market being a self-correcting institution will be pushed to produce quality goods and if Indian companies are going to produce them , who is going to stop. 

On a parallel note, if any Indian really want to do something, we should start buying fuel efficient cars, motorcycles, Save energy . Because we spend most of our foreign exchange on Energy Imports. Gold imports also eat away so much of our foreign exchange. Sadly no one talks about it.

So the new slogan should be , ' Buy Best and leave the Rest '

By the way , INR hitting 60 to $ is not end of the world for INR has faced much worse devaluations in history. 

Indian Rupee Devaluation : Reasons for the Depreciation of Indian Rupee. by Balaji Viswanathan on Zingfin: The Big Picture

India is screwed, no matter what RBI does on rupee

Chidambaram didn’t start rupee fire, but India is burning because of it


  1. Very Nice Presentation...Whereas US has put limits on Outsourcing,we Indians are still holding on US and making them wealthy day by day..
    I also created a Doodle few days ago on the same topic..If you want have a look..

    1. Thank you for your appreciation. Will check out your doodle. And I still feel that role of individuals like us in macroeconomics is very limited and that's why felt intelligent consumerism would change the market for good and for ever.

  2. Wrt Foreign products and their companies, Most layers of their High paying management layer will remain in their respective countries no matter what, and only the cheap labour will be based in india for example. Although they dont pull out easily, if they start to look for cheaper labour elsewhere, the local job scenario becomes unstable and troublesome for many.
    It is always good to be wary/cautious about ushering our manpower and resources into depending on global companies and markets. This way we will always be lagging behind in any sector and its definitely good to support indigenous companies. We dont even get to have ownership in those foreign companies unless they are traded in BSE, if you have to get it from NYSE or others, you are paying a lot of extra commission. If the ownership,labour and the Management are based in india, it will simply be an indian company and not an overseas one. If you are okay with the high paying jobs n profitablity being overseas and the average overseas worker making a lot more for their time than the indian worker, we should patronise the foreign company. And when their wages are higher and their currency has more value, they will easily buy up the resource that truely matter from us.

    1. The reason why FMCG majors cannot shift their plants easily because they have setted it up to strike the sweet spot of Logistics. Their goods are mostly high volume, low value goods and it makes sense for them to produce and distribute here. More over we have a huge domestic market to support.

      Coming to firms of Indians, what is your take on MIcromax ? Micromax does its design to manufacturing in China and just sells it's goods here. So how different is Micromax or Karbonn is comparison with a SOuth Korean maker like Samsung ?

      Should a consumer buy indigenous goods just because it is produced here or by a person who has a Indian Origin ? What is the incentive for a person to change his preferences ?

  3. Replies
    1. Thank you :) Hope you enjoyed other posts as well.