Nuances of becoming Atmanirbhar Bharat
There should be a concrete draft of intentions that invites informed comments.
No one can argue against the proposition that the need of the hour is a gradual march towards a more Atmanirbhar Bharat (a self sufficient India). However, this goal cannot be misconstrued as a desire for a more insular nation; one which endeavours to produce every product and service within its four walls. Instead, an Atmanirbhar Bharat must imply a resilient and nimble country; one capable of adequately looking after its own interests in both good and bad times, and one that places an emphasis on the security, health and economic well being of its large and growing population.
In pursuit of this objective, the chosen strategies and programs may not fit into an established mould, and will have to be indigenously conceived, quickly tested on the ground, and scaled up rapidly. The process calls for unprecedented creativity in policymaking, marking a clear break from the past. It requires a leadership team capable of prioritising effectively, making difficult choices and demonstrating the ability to build national consensus on a long term vision, while pushing forward on the pace of progress. At the current incipient stage when the concept of “Atmanirbharata” is still being evolved, with the Union Government doing some loud thinking, it would be helpful to start with a concrete draft of intentions that invites informed comments. Putting out a written draft would provide the impetus for the much needed conceptual clarity, smoothening out the wrinkles within the official channels, and begin to concretise effective upcoming measures.
There are learnings at hand from certain past endeavours to boost exports. In the 1960s, it was setting up product based export promotion zones (e.g. SEEPZ in Mumbai for electronics, a more general purpose one at Kandla port in Gujarat), in the 1980s came the specific Export Oriented Areas (EOAS), and in the early 2000s we finally settled on special economic zones (SEZS). Since the SEZ scheme involved the private sector in identifying locations, investing in land and infrastructure, and in management of the SEZS, the Central government in 2005 gave the policy measure significant stability by enacting a law. The Atmanirbhar mission too will be highly demanding of private initiatives and their resources, and giving it a statutory assurance for risk mitigation is an option to explore. These statutes should be enacted once the concept is fully fleshed out and the pilot projects satisfactorily concluded with fiscal and financial incentives considered.
The recent well intentioned Central initiative of Production Linked Incentive (PLI) deserves another look—this includes the incentive for three products in April this year (manufacture of mobile phones and specified electronic equipment, active pharmaceutical ingredients and medical devices), and the ten more from the fourth round of stimuli announced early November (automobiles and auto components, advanced chemistry cell battery, pharmaceuticals, personal computers and laptops, air conditioners, telecom equipment, specialised steel, solar modules, man-made fibre textiles and food products). A cash incentive of 4%-6% of incremental sales, totalling Rs 2 lakh crores (US $27 bn), linked to fresh investment, resultant increased production over the next five to six years, has been put on the table. But realistically, it will be considered available to identified beneficiaries only when there is a statutory backing. Otherwise, the incentive would remain dependent on uncertainties, particularly the government’s annual financial standing, discretion of Project Management Agencies of implementing administrative ministries, and the usual periodic changes in government.
Implementing explicit laws to promote indigenous production should make the support process fair, transparent and realistic, ensuring that participants in PLI schemes wouldn’t be compelled to make endless rounds of ministries for their legitimate entitlements. Such arrangements which make the matter justiciable in a court of law would serve as checks on the arbitrariness of the executive. In fact, all assistance due to the scheme participants on the one hand, and their specific obligations in attaining the desired incremental production and investment levels (or exports where applicable) on the other, must also be put down in enforceable contractual documents.
The short term goal—five to six years—of PLIS for different products would be to lower the immediate dependence on imports including through imposition of higher import duties, prescription of higher quality standards, and enforcement of regulations such as rules of origin. The longer-term objective must unequivocally be to make the domestic manufacturer selfreliant without any crutches of government aid. A sine qua non is that post availing the
PLI, Indian products become globally competitive. Only then would we reap the benefits of product and process development processes and plug seamlessly into global and regional supply chains.
More importantly, Indian policymakers should not remain apprehensive of competition or joining a regional or larger multilateral trade pact. The constant fear of getting swamped by cheaper exports is not a sustainable strategy over time, and it entails the domestic consumers and industrials bearing the cost. Spread across space and time, there is compelling evidence that it is free and fair trade that pushes up the pace of economic progress. Hitherto, India has been largely out of trade in networked products with a 0.5% share of their global trade compared to China’s 20%, South Korea 5%, Singapore 3.5%, Malaysia, Thailand 2% each and Vietnam 1%. That must change.
While decisive short-term protective measures may be deployed, India cannot afford to remain out of the global arena for too long and deprive itself of the gains from such a mode of development, particularly in creating employment and increasing incomes. Also, it is competition per se, which brings in the competitiveness, as witnessed first-hand in Indian steel-making, automobiles and white goods, particularly after the 1991 liberalisation.
As we march towards acquiring long-term productivity gains and increasing the competitiveness of Indian manufacturing, a sound policy approach warrants close and periodic monitoring of improvements effected by each participant in the PLI schemes. All parameters to measure success should, ab initio, be defined and shared with participants (ideally in a formal contract) in order to build mutual confidence, and aligning what measurable success looks like.
No approach to improving competitiveness can be complete without putting technology, a major harbinger of improved competitiveness, at the forefront. This is true not just in heavy or complex industries which constantly require new techniques to cut costs, improve products, reduce energy consumption and incorporate stricter emission norms, but also in other manufacturing, whether labour intensive or not. To survive, SMES too have to keep pace with their peers globally.
Our ceding of ground in the export of apparels and electronics to Vietnam, to Bangladesh and Cambodia in readymade garments and Turkey in leather items, is a case in point. While these countries no doubt use cheaper Chinese raw materials, they have embraced considerable technology and modern management practices to scale and move up the value chain. The Indian industry’s hi-tech content, as per a reliable study, on other hand, declined by 14% between 2011 and 2015.
There is no getting around that the state has to be the leading financier, catalyst and disseminator of knowhow and skill development. Prioritising the procurement of goods and services from R&D intensive domestic companies, and giving them further tax incentives, low interest-bearing loans or outright grants are warranted. Such actions have worked well in the tech-intensive US, Israel and now China. In addition, private sector R&D facilities need to be treated at par with the publicly owned ones. Moving towards becoming a “networked science state” and acquiring a developmental and pro-technology mindset is imperative for India.
Realising the role of technology in building competitiveness is the first step in the long and arduous road to technological advancement. Years of a downward trend in R&D expenditure from 0.85% of GDP in 2011 to 0.62% in 2015 must be reversed. Successive industrial policies need making modern technology development and its usage their focus, with venture capital investments being promoted across the board.
By investing heavily in R&D and making technology its core capability, in just under two decades, China could transform itself from a manufacturer of low-tech cheap goods to a producer of advanced industrial machines, military equipment, complex chemicals and pharmaceuticals. Only after rapidly bridging the technological gap with the US, did it start talking of a “dual circulation” strategy and cautiously turning inwards. Or as Xi Jinping describes in an essay in the 20 November edition of the Communist Party’s official journal: “building production chains that are independently controllable, secure and reliable, and strive for important products and supply channels to all have one alternative source”. Even while their President listed high speed rail, electric power equipment, new energy, and communication as areas to preserve its advantage and to safeguard its industrial and national security, China has simultaneously embraced new trading arrangements like RCEP, and evinced interest, post Trump, in joining the US conceived Trans Pacific Partnership(tpp).
Desirable as it is, progress towards Atmanirbharta has to be carefully crafted without falling into populist landmines. A more selfreliant India will entail significant costs and sacrifice, but these can be minimised. Nuance in policy is required as the pace and process of reaching the desired targets will differ between industries. Strategic priorities such as defence, health care, energy and food should be targeted first. For short periods, protectionism and trade barriers might be acceptable, but self-reliance, ultimately, has to be attained by the Indian manufacturers standing on their own feet. Only then, will this journey be sustainable and for the good of citizens at large.
Ajay Dua, a public policy specialist and a developmental economist by training, is a former Secretary in the Ministry of Commerce and Industry.