Aatmanirbhar Bharat: An idea whose time has passed

Fortress India is not a workable solution

Politics

June 15, 2020

/ By / New Delhi

Aatmanirbhar Bharat

Prime Minister Narendra Modi may need to revisit the basic model of Atmanirbhar Bharat

Prime Minister Narendra Modi’s call for making India entirely self-reliant risks to push India back by decades into protectionism and boost inefficiency and reduce competitivity.

On May 12, in an address to the nation, Prime Minister Narendra Modi unveiled Aatmanirbhar Bharat (self reliant India) as his government’s response to the economic catastrophe brought upon the world and the country by the coronavirus pandemic and the ensuing lockdowns. Modi said that as global supply chains had broken it was the right moment for India to become self-reliant in as many goods and as quickly as possible.

What Modi left unsaid in his speech but many other members of the government did say loud and clear was that the moment was propitious for India due to high tensions between most developed countries and China as western companies with large presence in China may look to relocate their manufacturing plants to other nations and those looking to invest now may be tempted to scout other countries for setting up their ventures. And Modi’s Atmanirbhar Bharat pitch is mainly based on the premise that India with its large domestic market and good relations with most developed nations would be best placed to attract such investments. This belief is also behind the numerous campaigns that have appeared in time and again across India to boycott all Chinese products.

There are several major problems with both the premises. One, companies have long been scouting for options to China for over a decade notably due to the rising labour costs in the country and as a result several Asian nations, such as Bangladesh, Vietnam or Cambodia and the Philippines have already benefitted by attracting a fair bit of investment. Bangladesh, Cambodia and the Philippines in textiles and garments industries, while Vietnam has emerged as a major cluster of electronic goods manufacturing. In all these years, India did receive some investments notably in smartphone industry, but most of the complex and critical parts are still being manufactured in China and Taiwan, Indian units of mainly Chinese and Korean smartphone manufacturing companies are barely assembling these.

The way China has penetrated the industrial manufacturing world over the past five decades means it is well nigh impossible to imagine any mainstream manufactured product of an international company that does not have any Chinese-made components within. According to the UN Statistics Division, in 2018 China’s share in global manufacturing was as high as 28.4 pc, leaving the US way behind at 16 pc and India with a eager 3 pc share in global manufacturing industry. This data indicates the distance that India has to go in terms or becoming a real superpower in the manufacturing domain, even if it managed to play all its cards right, which is rather a tall order.

Right in the beginning of this year, the world was painfully reminded of China’s might and strategic place in the global manufacturing industry as supply chains for all products from automobiles to zippers were thrown asunder as Chinese lockdown led to a total shutdown of the industry in the Asian giant. Six months on, in industries in countries where lockdown is over, the work is severely hampered as the supplies are yet to be restored. Even the critical healthcare industry was brought to its knees as China accounts for over a third of all ingredients that are used by the global pharmaceutical industry.

Even the Indian pharma industry was crippled as the world’s largest generics manufacturer and exporter relies on Chinese imports for three-quarters of its Active Pharmaceutical Ingredients or key semi-processed materials for its own drugs.

But is not just China that Indian industry depends on. Companies in Europe, United States, Korea and Japan all export key products to India, either entirely manufactured or at least key parts of many products. For India to become self-reliant even in one sector it would be neither possible nor practical as the costs per unit would rise for most components due to lower volumes and many companies would be hesitant to share the intellectual property required for manufacturing certain key products locally for the fear of reverse engineering that both India and China have so far used in their manufacturing industries.

Cert that the Indian government does not mean a total ban on imports but even for a realistic rise in manufacturing industry in India, all the signs are anything but a positive. India continues to face tremendous challenges in boosting manufacturing capabilities right from getting land needed for plants to all the necessary permissions and licenses, which remain a huge task despite India’s climb in the ease of doing business index of the World Bank where it stands 63rd amongst 190 nations. However, while there has been substantial progress, India still lags in areas such as enforcing contracts (163rd) and registering property (154th). It takes 58 days and costs on average 7.8 pc of a property’s value to register it, longer and at greater cost than among OECD high-income economies. And it takes 1,445 days for a company to resolve a commercial dispute through a local first-instance court, almost three times the average time in OECD countries.

It does not help that Indian government has been involved in very high profile and high cost litigation with several multinationals over the years, with British telecom giant Vodafone being the latest one. Such disputes and abrupt u-turns in policies send a very negative message to the investor world who have become increasingly cautious about the continuity of policies over the long term as well as the time taken to not only establish new businesses but also the ease of winding up, if need be. In both the areas, India’s track record has been very patchy. Another factor in their decision making is the rising incidences of protectionism, not just in India, but indeed around the world. On the one hand, the Indian government sent out a strong signal to investors that it was opened up to the world and making life less complicated by pushing through a series of reforms, including very controversial ones governing the labour. But almost simultaneously it has made dramatic changes in duties and import conditions for a whole host of goods and services. It also has brought in policies that openly favour Indian companies over foreign ones in varied domains such as retail, e-commerce as well as digital payment systems.

Atmanirbhar Bharat programme could also severely undermine innovation and research & development by the private sector in India, an area where India seriously needs to improve if it were to survive as an economic power in the new world.  With increasing protectionism, the government will only make the private sector even more complacent and reluctant to enhance investments in R&D. Ultimately, it will render the industry incompetitive and at the end the Indian consumer will pay the price.

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1 COMMENTS

  1. Avatar grolyrtolemcs says:

    Exceptional post but I was wanting to know if you could write a litte more on this subject? I’d be very thankful if you could elaborate a little bit more. Cheers!

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