Representational image | Employees at a mobile phone factory in Andhra Pradesh, 2019 | Karen Dias/ Bloomberg
Representational image | Employees at a mobile phone factory in Andhra Pradesh, 2019 | Karen Dias/ Bloomberg
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The Narendra Modi government’s Atmanirbhar Abhiyan Package, worth almost Rs 21 lakh crore, is an opportunity to kickstart Make in India 2.0. Apart from allaying near-term working capital and loan financing concerns during an unprecedented health crisis, the package lays down a bold intent to re-energise, revamp and reinforce a strong industrial and manufacturing sector for India’s long-term growth in a post-Covid world.

The aim of the stimulus package is two-fold. First, it addresses the immediate financing and liquidity problems that firms, businesses and utilities are facing due to the lockdown. Nearly Rs 6 lakh crore has been advanced towards this front in forms of collateral-free loans, interest rate subventions and liquidity provisions. Moreover, to ease out the risk aversion of the banks, the lenders have been assured of full credit guarantee on the loans they will give to the MSMEs. Additionally, the Reserve Bank of India’s (RBI) monetary operations have already led to a liquidity generation of around Rs 1.4 lakh crore with an additional Rs 1 lakh crore in immediate refinancing facilities for small financial institutions and mutual funds. 

Second, the package, apart from a sizeable enhancement of government safety nets, lays down reforms that could kickstart a manufacturing movement for  India in the longer term. Accepting a long-pending demand for the revision of the definition for MSMEs, disallowing of global tenders in government procurement to the tune of Rs 200 crore (average public procurement in India is around Rs 70 lakh, and categorisation of strategic sectors are welcome steps for revamping domestic manufacturing.


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Maintaining momentum

Even before the pandemic, India’s manufacturing sector, barring a few bright spots, had long been ailing with problems of low productivity, higher costs of inputs and stiff competition from cheap imports. In terms of growth, India’s manufacturing sector, despite its vast potential, has underperformed compared to its overall GDP growth. As a result, the share of manufacturing in India’s GDP has been stagnant at around 16-17 per cent. Compare it to China and South Korea, where manufacturing accounted for 29 per cent of GDP in 2018. Despite India’s strong performance in the Ease of Doing Business rankings, there is a lot that needs to be done to make manufacturing the cornerstone of India’s economy. Our estimates, as stated in an earlier article, suggest a 2-3 time multiplier effect on additional jobs in other sectors for every job created in manufacturing.

So, the outline and the outlay of the package couldn’t have come at a more opportune time. To keep the momentum going, first, it is important to outline and carry out the new national industrial policy that has undergone consultation for some time. The coronavirus pandemic has brought attention to the excellence of the medical supplies and pharma industry in our country. The significant capacity enhancement of medical supplies for domestic and export markets makes it all the more critical to have an industrial policy that keeps the medical sector as a keystone of our industrial policy. In view of economic disruptions and rising uncertainty, we further suggest that industrial ‘health clinics’ for sick MSMEs be set up immediately under the aegis of the MSME ministry. These clinics should be staffed with the best of talent and must form the technical backbone of India’s MSME sector.


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Second, to accelerate the impact of the reforms announced for industries under various tranches,  the respective states and ministries should actively look to provide firms with a business-friendly environment. As a first step, Renewable Purchase Obligations or RPO (a fixed percentage of energy in the form of renewables to be bought from state electricity boards) could be potentially extended for firms and industries uniformly. Karnataka has led the way by extending the deadline for RPO requirements and other states should take note. Industrial power tariffs have increased over the years and with additional costs of setting up captive power supplies (due to poor supply quality), major manufacturing units are facing rising input costs. At this point, state governments must handhold these firms and attempt to correct pricing and supply distortions on a war footing.

Third, existing Free Trade Agreements (FTAs) should be now re-calibrated to tap into our unlocked export potential. Our utilisation ratio of the agreements is only around 20 per cent, and to reinforce the economy towards export-led manufacturing, the full channelisation of FTAs becomes critical.


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A robust base

The Modi government’s package has attracted a lot of discussion on whether this was the best way forward to deal with the current situation. Arguments in favour of cash handouts have been voraciously made. But will it be worth the cost of financing? The answers in the public domain are not satisfactory. We do not yet have a database for labourers that contains their bank account/Aadhaar details.

The Uttar Pradesh government has announced a commission for migrant labourers, which, if it works well, could be a model for the states and for the Centre to implement. In the absence of a database, a case for targeted cash transfers for existing government scheme beneficiaries could be potentially made, but a lot of these beneficiaries are already getting augmented support in terms of front loading of payments under the Atmanirbhar package, along with rations in kind.

To avoid credit downgrading, the mode of financing these cash payments could potentially be through pledging of PSU shares to the RBI (Vijay Kelkar-Ajit Ranade proposal), but all of these calculations have to be minutely worked out because these are sensitive to leakages and slippages. In view of the many ambiguities, it seems that the Modi government was perfectly reasonable in implementing the package in its current form as an immediate start.

The Atmanirbhar package should not be seen as a standalone exercise in the government’s commitment to reform India’s manufacturing amid a globally hostile situation. Make in India 1.0 was successful in kicking off the manufacturing movement in India. Make in India 2.0 should take it up from there and lay the foundation for a robust manufacturing base. The measures outlined here are doable and could be additional boosters for an economy that is willing to take-off, provided the right set of conditions are created. It has taken us a pandemic to realise the need to assemble our manufacturing units and we must not give up on it. A lot more still needs to be done.

VK Saraswat is a member of NITI Aayog. Anirudhha Ghosh is a PhD candidate, Johns Hopkins University. Views are personal.

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