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Reimagining independence

17.08/2020

Narendra Modi is not the first Indian prime minister to embrace the idea of self-reliance but he has given the phrase a nationalistic ring. Can Atmanirbhar Bharat become the soaring idea that lifts the Indian economy out of the doldrums? 


“We want to develop a balanced economy and, as far as possible, promote self-sufficiency” 

—Jawaharlal Nehru, Prime Minister, 1952 

“In the earlier decades, the rallying cry of the deprived was independence. Today it should be self-reliance...” 

—Indira Gandhi, Prime Minister, 1972 

“India is an old country, but a young nation, we are impatient. I am impatient and I too have a dream of an India, strong, independent, self-reliant...” 

—Rajiv Gandhi, Prime Minister, 1985 

“The state of the world today teaches us that an Atmanirbhar Bharat (self-reliant India) is the only path. It is said in our scriptures, Eshah Panthah, that is, self-sufficient India” 

—Narendra Modi, Prime Minister, 2020

Every Indian prime minister since Independence has dreamt of a self-reliant and self-sufficient India. The most recent to chant the mantra is Narendra Modi who prefers to call it Atmanirbhar Bharat, using some Hindi gravitas to rescue the term from its tired English cliché. But as India completes 73 years of Independence, how different is the self-reliance that Modi propounds from the one Nehru talked of when he took over as India’s first prime minister? Does it hark back to the era of licence raj, import substitution and bank nationalisation? Is it just some fancy new nomenclature for the Modi government’s stillborn Make in India campaign? Or is Atmanirbhar Bharat, in its latest avatar, a soaring quest to liberate India from the woes of the Covid-19 pandemic, including an economy in free fall?

Modi and his key aides say there are plenty of differences between Atmanirbhar Bharat and the Nehru-Gandhi model of self-reliance. They are keen to first clarify what it is not. Ravi Shankar Prasad, who holds the important portfolios of law and justice, electronics and information technology and communications, told india today, “The Atmanirbhar Bharat Abhiyan (campaign) is clearly not India in isolation. It is not about an inward-looking India. The campaign is not against any country, it is just being India-positive.” Amitabh Kant, the CEO of NITI Aayog, which is putting flesh to the bare bones of the Atmanirbhar campaign, adds, “It is certainly not about anti-globalisation.” (See column)

So, what then is Modi’s Atmanirbhar Bharat about? Spelling it out in his address to the nation on May 12, Modi enumerated, “This magnificent building of self-reliant India will stand on five pillars. The first pillar is the economy where we will ensure a quantum leap rather than incremental change. The second is building infrastructure fit for a modern India. Third will be an emphasis on technology-driven systems that fulfil the dreams of the 21st century and not the past century. The fourth is our vibrant demography, which as the world’s largest democracy will be our source of energy for a self-reliant India. And the fifth will rest on growing economic demand, and to meet it, our supply chain needs to be empowered.”

Lest his statements be interpreted as a harking back to the insular practices of the pre-1991 protectionist era, the prime minister went on to clarify that India “should play a big role in the global supply chain”. He indicated that there would be major changes in four Ls, Land, Labour, Liquidity and Laws, to meet the new challenges. He also announced a Rs 20 lakh crore financial package that would provide direction to the self-reliance campaign. Soon after, Union finance minister Nirmala Sitharaman, in a series of daily press briefings, announced major reforms or concessions in key sectors such as defence, space, atomic energy, aviation, construction, railways, agriculture, mining, power, real estate and MSMEs. 

Since then, the prime minister’s office and concerned ministries have held series of meetings to ensure that the various reforms announced are implemented speedily. Dr Guruprasad Mohapatra, secretary, department for promotion of industry and internal trade, says: “We are clear that we are not headed towards an autarchy where we would close our economy to the world. We would remain globally connected and the idea is India should not only produce enough for itself but also for the world. And as Covid has shown, we need to avoid dependence on a particular geography to meet our needs.”

Modi’s sense of timing for announcing the Atmanirbhar campaign was impeccable. For one, with the economy still in ICU, he was confronted with his own 1991 moment. So, just like Narasimha Rao had capitalised on economic distress to push through major reforms, Modi knew that the stakeholders would not resist the big changes he wanted to pull the economy out of the morass it was in. With Covid-19 exposing India’s dependence on China for even basics like testing kits and PPEs, Modi used the ongoing border hostilities to whip up economic nationalism against Chinese imports. The banning of popular Chinese apps and a section of the BJP calling for a boycott of Chinese goods received public support. His cry of ‘vocal for local’ had a swadeshi ring to it that endeared him to sections of the Sangh Parivar who had opposed his earlier moves to reform and reduce the salience of public sector enterprises. In agriculture, Modi was able to override the naysayers and push through major reforms, including ending the state monopoly over purchase of produce.

At an annual meet of the Confederation of Indian Industry, Modi listed five Is needed to achieve the goal of Atmanirbhar Bharat, Intent, Inclusion, Infrastructure, Investment and Innovation. While there is clearly intent and the process of reform must benefit all sections of society, the key to success is how well the Modi government goes about implementing infrastructure plans, attracting investment and enabling technological innovation. Kant believes the time is ripe for a New Deal similar in intent to US president Franklin D. Roosevelt’s massive government funding for infrastructure development in America to overcome the Great Depression. Even before Covid-19 struck, the finance minister in December 2019 had committed that the government would spend Rs 102 lakh crore over the next five years on infrastructure. For road construction alone, the Centre had targeted an expenditure of Rs 15 lakh crore in the next two years.

Yet, with huge shortfalls in revenue caused by the economic disruption due to Covid, the government is planning innovative ways to crack the investment and credit gridlock. Vinayak Chatterjee, chairman, Feedback Infrastructure Services, believes the government’s proposal to set up a Development Financial Institution for Infrastructure (DFII) will be a game-changer. The DFII will need an Act of Parliament to come into existence, but when it does, it will be able to raise funds at much lower interest rates than commercial banks and also lend at much lesser rate. Unlike banks, the repayment could be spread over 30 years. The DFII will act as a pressure point to bring about quality changes in government policy and clearances. But to ensure funds, the external affairs ministry will have to leverage Modi’s global outreach and get friendly governments to invest as Japan did for India’s bullet train project. The Japanese government has extended a Rs 1.1 lakh crore loan repayable over 50 years at 0.1 per cent interest for the project.

What Covid also called for was reducing dependency on imports, particularly from China, where the balance of trade remains highly unfavourable to India. As S.N. Subrahmanyan, CEO and MD, Larsen & Toubro, points out, “India can drastically reduce dependency on imported products, including from China, by setting up processes to develop a large-scale, efficient and cost-effective domestic industrial ecosystem. The atmosphere is right and we should accelerate this.” A recent study by the Delhi-based Research and Information System for Developing Countries (RIS) found that of the 4,044 products that India imported from China in 2018, there were other more competitive suppliers than China in at least 3,326 or 82 per cent of the products. The RIS study also discovered that there were 327 products from China that India was highly dependent on. The import bill for these items was $66.6 billion or 73 per cent of India’s total imports of $90 billion from China.

Professor Sachin Chaturvedi, director-general, RIS, believes India needs to diversify imports of such critically sensitive products rather than depend on a single country and start indigenising domestic production through import substitution. He advocates a trade act similar to the US Super 301 to empower the government to take all action, including tariff and non-tariff-based retaliation, against countries that adopt discriminatory and unfair practices that hurt our commerce. Says Chaturvedi, “Our findings show India requires an industrial policy that embraces the needs of industry, trade and technology apart from finance to make us globally competitive. We need a whole of government approach to make Atmanirbhar work.” 

Meanwhile, NITI Aayog too has done a study which shows that India could impose higher tariffs on 350 consumer goods imported from China valued at $8.64 billion without affecting our exports. But Kant advocates that these tariffs be progressively lowered on an annual basis to avoid falling into the protectionism trap of the 1960s and 1970s which had rendered industry inefficient and expensive. The government is also taking steps to prevent the round-tripping of imports by China, routing products through Southeast Asian countries that India has free trade agreements with.

In several key sectors, the government has already put in place various schemes and measures to promote domestic production and thereby self-reliance. In defence, where India is the world’s second-largest importer of equipment, defence minister Rajnath Singh recently announced the gradual import substitution of 101 items worth Rs 3.5 lakh crore over the next five years. For MSMEs, finance minister Sitharaman announced that only Indian companies can participate in tenders up to Rs 200 crore. In electronics, where imports total over Rs 4 lakh crore, mainly from China, the government has introduced production-linked incentives of 4-6 per cent on incremental sales of goods for five years to encourage foreign companies to set up base in India and give domestic manufacturing a boost. Both telecom majors Apple and Foxconn have announced plans to set up manufacturing plants in India. In pharmaceuticals, where India is dependent on China for 80 per cent of its needs for API (Active Pharmaceutical Ingredients) and medical devices, the government is encouraging state governments to set up special bulk drug industrial parks, with Rs 1,000 crore grant-in-aid for each park, to enable entrepreneurs to set up factories.

There are plenty more issues to be addressed if Atmanirbhar Bharat’s twin objectives, of making India self-reliant and globally competitive, are to be realised. India ranked 44th among the 167 countries listed in the World Bank logistics performance index, indicating that we still have a long way to go. Manish Sabharwal, chairman and co-founder, TeamLease Services, calls for a massive reduction of “regulatory cholesterol”. In a July 2020 column for india today, he said there were 1,536 central and state acts and 6,618 filings that entrepreneurs have to comply with annually to do business in India. The PMO has sent his analysis to various ministries to drastically reduce the number of such regulations.

Chatterjee points to more mundane reforms such as appointing independent regulators who can create conducive conditions for negotiations to settle disputes in the infra sectors. Over 60 per cent of public-private projects come up for arbitration in the first five years and projects get stuck for years after that. He also points out that private industry completely mistrusts the government sector when it comes to timely release of payments and advocates a comprehensive overhaul of public procurement policies. R&D, another critical area, has only pockets of excellence in a vast ocean of mediocrity. The government is now working on key areas of technology that India needs to establish some dominance in. K. Vijayaraghavan, principal scientific advisor to the government, says design has become critically important to manufacturing, and with intellectual capacity being its main driving force, Indian software firms should be incentivised to get into it in a big way. Vijayaraghavan says, “A strong combination of technology, economics and global understanding is needed to capture domestic and global markets and that is what we should work towards.”

In the following pages, we feature sterling examples of Indian enterprises that have already emerged as champions of Atmanirbhar Bharat. R.C. Bhargava, chairman of Maruti Suzuki, talks of the need to have a predictable business environment and points out that India is still not the chosen destination for foreign investors and has to vastly improve the ease of doing business. Kiran Mazumdar Shaw, chairperson of Biocon, warns of creating artificial self-reliance by increasing import duties or banning imports and reiterates the need to be globally competitive. Sanjiv Puri, ITC chairman, says developing cutting-edge technology, reducing the costs of logistics and ensuring environmentally sustainable practices are key imperatives. Finally, as Kumar Mangalam Birla, chairman, Aditya Birla Group, puts it: “Atmanirbhar includes Atmavishwas, self-confidence.”

Expert view 

Amitabh Kant, CEO, NITI Aayog

Making India a Top-Class Manufacturer 

Prime Minister Narendra Modi’s vision for an ‘Atmanirbhar Bharat’ is about making India self-confident. It is encouraging the country to embrace innovation and is about making India an integral part of the global supply chain, a top-class manufacturing nation and just excelling overall. It is certainly not about isolation and being anti-globalisation.

The prime minister’s view is that India must use the strength of its domestic market to produce goods and use that as a springboard for exports. There are a lot of products that we are importing today which we should be able to, logically, manufacture in India. 

There are several things that India needs to do to make Atmanirbhar Bharat a success. Firstly, India needs to begin manufacturing at a large scale. We have always provided capital subsidy, but we should now move away from that system and, instead, give production-linked incentives till we get to a global scale of production. What we have developed is a self-sustaining scheme, you invest in India, you produce in India, you sell in India and also to the world. 

Secondly, we will have to employ, what the US has labelled as, ‘the infant industry theory’. We will have to protect certain industries, but not forever. This protection will be via a phased manufacturing programme where duties will be brought down over, say, a five-year period to zero, aided by which they should be able to compete in the global market.

Thirdly, our experience shows that wherever we have imposed higher level of duties against China, those goods have come into India through countries with whom we have free trade agreements. We need to study this phenomenon of round-tripping from China and put a stop to it, but without increasing the amount of bureaucracy. We should not indulge in protectionist policies for inputs used in the production of exports. If we start tampering with the cost of inputs, we will become uncompetitive in exports. If tariffs are raised on products which fall under the category of consumer goods, India’s exports will not be adversely affected. But this should be done for a defined period and then be reduced gradually on an annual basis, over a period of five years, to 0-5 per cent. This will ensure that Indian manufacturing becomes globally competitive. However, if India imposes customs tariffs on intermediate or capital goods, it could negatively affect India’s exports.

Fourth, and the most crucial, is that India faces basic issues regarding land, labour, customs and turnaround in shipping ports. We should digitise these areas to bring in efficiency. Also, a lot of work needs to be done to making things easy and simple at the state level. That is really the key.

I feel there are four other factors in making Atmanirbhar Bharat a success. First, you must embrace technology for development. Second, innovation must be a key part of the strategy to bring in large-scale investment through production-linked incentives. Third, we should ensure the goods being consumed in India are being made in India through a phased manufacturing programme. Fourth, infrastructure development needs a massive push for which a lot homework has already been done.

As told to Raj Chengappa

Source: India Today