New Delhi: Prime Minister Narendra Modi wants to make India more self-reliant, but if the experience over the past few years is anything to go by, it’s not going to be easy.
Faced with disruptions to raw material supplies from China because of the pandemic and millions of job losses following a nationwide lockdown, Modi has ratcheted up calls to boost local manufacturing and reduce India’s reliance on imports.
A shortage of personal protective equipment at the beginning of the outbreak increased his resolve — and within the space of just two months, India has become the world’s biggest maker of PPE kits after China. That success has only emboldened Modi as he exhorts Indians to buy local goods.
Go 'vocal for local': PM Modi appeals people to endorse local products. https://t.co/yvXtbEalgj
via NaMo App pic.twitter.com/F6AfvnZsYn
— PMO India (@PMOIndia) May 13, 2020
A military standoff with China is now adding fuel to those calls. Following a deadly clash between soldiers from both countries along a contested Himalayan border this month, Indian political leaders have called for a boycott of Chinese goods and possible higher tariffs on products from its neighbor. Traders, who were previously reluctant to snub cheap Chinese imports, have now come up with a list of 3,000 items, including toys, watches and plastic products, that can easily be replaced by local manufacturing.
The push to cut imports this time is “more pronounced in its economic nationalism,” said Amitendu Palit, a senior research fellow at the National University of Singapore. “The dominant thinking is if businesses give up imports, and start making the same products at home, then they would create jobs, and generate incomes in a self-sustaining process.”
Deja Vu
Modi previously attempted to boost domestic manufacturing with his Make in India plan, but that had limited success. Under that initiative, the government pledged to cut red tape and assist companies looking to set up shop in the country. The ambition was to grow the share of manufacturing in the economy to 25% by 2020, from 15% in 2014.
But strict local-content rules in that plan backfired by raising production costs for companies, while waning domestic consumption amid a protracted slowdown in the economy saw the manufacturing sector’s share remaining almost stagnant at about 15%.
Modi has little choice but to focus on manufacturing, given the slump in the dominant services sector — the primary driver for employment growth. With the economy on course for its first full-year contraction in four decades, authorities see industrial growth as key to creating jobs for some 1 million young people entering the workforce every month.
India has outlined new measures to promote self-reliance, including prohibiting global companies from bidding for government contracts up to a value of 2 billion rupees ($26.4 million), and giving collateral-free loans to small businesses that account for about 48% of India’s goods exports.
Analysts say the latest measures will do little to make local firms more competitive.
“These are all medium-term strategies India already had. Now it is taking a little bit of political color,” said N.R. Bhanumurthy, vice chancellor of Bengaluru Dr. B.R. Ambedkar School of Economics. “If you want to really deal with China you need to be very competitive. That’s not an overnight job.”
The politically influential Swadeshi Jagran Manch — a group aligned with Modi’s ruling party — has been at the forefront of pushing Indians to reduce their dependence on imports.
Need of the hour: People #BoycottChineseProducts,celebrities stop endorsing Chinese brands, govt stops Chinese imports, Chinese investt and tenders to Chinese companies for infrastructure including proposed tender to Shanghai Tunnel Eng Co. @swadeshimanch https://t.co/GiP0bT5ZJl
— ASHWANI MAHAJAN (@ashwani_mahajan) June 16, 2020
But doing so is easier said than done. China is India’s biggest source of imports, with purchases including electronic goods, nuclear reactors and organic chemicals running into almost $70 billion last year. Beijing enjoys a trade surplus of about $50 billion with New Delhi.
“Self-reliance should be interpreted as making India more resilient in the coming years, rather than interpreting those words in its narrowest terms,” said Kaushik Das, chief India economist at Deutsche Bank AG. “The objective is not to reduce imports at any cost.”
Modi is also hoping to lure investment as businesses around the world look to reassess their supply chains and diversify their China operations.
“While this vision is good, we need policies,” said Ram Upendra Das, head of the Centre for Regional Trade in New Delhi, describing the recent self-reliance pledge as “more of a reiteration” of the Make in India program. “We need to upgrade physical infrastructure, social infrastructure.”
India has been trying to woo investors since the U.S.-China trade war, but many favored places like Vietnam, Thailand and the Philippines instead, given concerns about India’s archaic land and labor laws.
Frustrating Delays
While India is in the process of simplifying labor laws and has cut corporate tax rates to bring it on par with Asian peers, challenges remain in the form of cumbersome land acquisition rules, foreign-exchange controls and lethargic bureaucracy.
Companies including South Korea’s top steelmaker, Posco, have given up on their India investment plans, owing to frustrating delays in land acquisition. The result is that India imports 6.69 million tons of finished steel despite being a net exporter of iron ore.
Words alone won’t be enough to attract investors, said Jayati Ghosh, an economics professor at the Jawaharlal Nehru University in New Delhi.
“The economy is in a state of collapse,” she said. “If you’re a global company interested in a new location for part of your supply chain, you need excellent infrastructure.” – Bloomberg
Also read: ‘Atmanirbhar Bharat’ needs both import-substitution and export industrialisation
Mr Tony Machado: In your fact free eulogy to Modi, you do have a few correct statements. You are indeed right about the corrupt mess left behind by the Congress.
But tell me Mr Machado, aren’t many these very same corrupt Congressmen now in the BJP thanks to defections ? And what makes you believe that the BJP is corruption free? Heard about the award of the Rafale maintenance contract to Anil Ambani – a bankrupt businessman with zero skills in aerospace engineering? What about the allocation of land at throwaway prices to Baba Ramdev ? That godman-cum-charaltan was allocated 96 bighas of land by evicting poor farmers in Himachal Pradesh. Has any investigation been initiated into the assets of Indians like Amitabh Bachchan and Aiushwarya Rai who were listed in the Panama Papers exposé? Indeed, the list of corruption cases against BJP politicians is as long as the Congress list. And Modi or any PM in Delhi cannot do anything about it
What you forget is that the basic equations in Indian politics do not change because parties change power in Delhi or other state capitals. Every Indian politician, regardless of party affiliations spends money to get elected and hopes to recoup his initial investment manyfold. He does not spend money on getting elected out of love for the people but reagrds it as any other business venture and expects a Return on Investment – an ROI. He may be corrupt but he is no idiot.
Tell me if the financing rules and the basic motivations for joining politics have changed. And whether you have stopped paying bribes to policemen, corporators, municipal officials, hospitals ….
Well said.
Give some credit to the fact that PM Modi has a vision and he has succeeded in fired up the imagination & drive of a nation fatigued by Congress (mis) rule. He gets 90 % marks just for showing leadership & setting direction.
No body is under any illusion that the change to Atmanirbhar will be quick. We are in this for the long haul. The PM has never claimed otherwise. One has to start somewhere. Unfortunately, our starting point is the corrupt mess left behind by the Congress UPA-I & II. That’s where the Atmanirbhar journey begins.