The Future of India on the way to self-reliance
With the “Vocal for Local” appeal as the bedrock, India’s newfound pursuit for self-reliance, or Atmanirbharta, might just catapult the country into creating its niche in the global supply chain. But how will self-reliance as a policy play out in India’s foreign relations? Dissecting the challenges that lie ahead, Manoj Nair, Head of Marketing, spoke at The Corporate Ecclesia – a virtual panel discussion organized by MBA(IB), Department of Commerce, and the Delhi School of Economics – about the future of India on the way to self-reliance. Following is a derived excerpt from the insightful discussion.
We are at a pivotal point now. Just like in 1991, when the Indian economy was liberalized. The economic decisions we make now will define us as a country for at least the next two decades.
In 1991, plummeting foreign exchange reserves forced the government’s hand to open the economy for Foreign Direct Investment (FDI), leading to several reforms. It was an economic crisis limited to India, with no precedence. Influenced by the colonial exploitation and the country’s exposure to socialism as a counter, India inclined towards protectionism after Independence. Foreign investment was often viewed with suspicion. Businesses were nationalized and all major industries were heavily controlled by the government. You may recall the license raj that made doing business in India difficult not only for the global companies but also for the domestic ones.
In retrospect, it was clear that India’s brand of socialism didn’t work in its entirety. The annual growth rate of India stagnated at 3.5%, also derisively known as the Hindu rate of growth, between the 50s and 80s. Unlike us in the current situation, they did not have the advantage of hindsight to go any other way.
We are at a juncture of another crisis today, but we are not alone in this. The crisis will nudge countries across the world to redefine their economic policies. We will have to move in sync, coordination, and collaboration with the global economies.
The COVID-19 crisis has led several of the “Trillion $ club” countries, including the US, Germany, Japan, and India, to be more inward-focused. The US is going for protectionism by building a wall, reducing the number of work visas, and renegotiating tariffs with its trade partner countries. China, while it has always encouraged and promoted local industries, is now also aggressively looking at capturing additional land resources in its socialist fold. Japan is struggling with its own issues of a stalled economy, skewed demography, and Abenomics. The UK is also struggling to redefine its fundamental economic philosophy after its exit from the European Union early this year. India too is looking at improving its domestic capability to reduce reliance on world economies.
But this inward movement towards self-reliance has assumed a slightly new meaning now because the pandemic is not a crisis isolated to our country; economies are struggling the world over. Prime Minister Modi’s vision of an Atmanirbhar Bharat is at the heart of this newfound context. It is not to be confused with the swadeshi push of the Nehruvian and socialist India of post-independence; both being fundamentally different.
Modi’s Atmanirbharta also deviates from the government’s five-year-old Make in India push. With Atmanirbharta, we are shifting gears from ‘Make in India,’ to ‘Make for the world’.
While the Swadeshi movement sought to shun any foreign-made product and impose import substitution, Make in India was about increasing the share of domestic manufacturing in the global supply chain. It sought to persuade foreign companies to make their products in India by sourcing material and talent from India. But it did nothing to increase the 17-18% share manufacturing has consistently had in India’s total production for the past decade.
The vision of Atmanirbhar Bharat comes from the realization that we first need to focus on innovation, capability building, and skilling. Atmanirbharta seeks to enhance existing capabilities through focus areas mentioned above, instead of playing in areas where the global competition is intense. The aim is to invest in local companies that will produce the products of global companies in India, for domestic as well as export purposes.
The government has started taking the necessary steps in this direction. The Rs 20 lakh crore stimulus package announced to boost the economy, the labor bill reforms, farm bill reforms, opening up of the defense sector for private sector investment, are steps towards making India a world-class destination to set up a business. The government budget, in line with its Atmanirbhar Bharat goal, has also given equal impetus to the micro, small, and medium enterprises (MSMEs) that contribute nearly 29% to the GDP and account for 48% of the exports.
As a result of the reforms, FDI inflow in India increased by 20% in a year, to stand at $74.4 billion in 2019-20, according to RBI data.
After MSMEs, the second biggest GDP contributor is India’s $190 billion IT sector. The segment is flourishing with nearly 55% share in the world IT market. The sector has been instrumental in facilitating a digital platform for the government’s fight against COVID-19 and kept the economic engine of the country running. In the last 20 years, the sector has received FDI worth $45 billion and exported products and services worth $147 billion, or 45% of India’s total exports, in FY20.
As the world economies turn inwards, we, as part of the IT ecosystem have started setting up more offices globally, especially in the US, and are hiring from the local talent pool in respective countries. Similarly, the global companies wanting to do business in India must be encouraged to make for the world here in India leveraging local talent.
The knowledge transfer that thus happens, will give us an impetus in technology research and development ecosystem that will be at par with those of corporate giants like Google, Microsoft, or Apple. Innovation is key in improving our standing in the global supply chain in terms of quality. Whether we sink or soar, history will judge our execution of the idea. But then, history has the advantage of hindsight.