Self-reliant Economy: Fact or Fiction?
The month of May saw Prime Minister of India, Narendra Modi, disclosed an economic package of $266 billion to tackle the ongoing pandemic. “This package will work to bring about a self-reliant India,” said Prime Minister Modi. Self-reliance has been an issue that has dominated Indian thinking since time immemorial. In recent times, this concept has been making its presence felt, particularly in the economic sphere. The Indian economy has made a mark by emerging as the 5th largest economy. Moreover, a report by Price Waterhouse Coopers (PwC) stated that the country’s GDP at Purchasing Power Parity (PPP) would likely overtake that of the United States by 2050. The Indian economy has seen unparalleled developments in the economic arena that has left many wondering if India would soon claim to be a self-reliant economy. In 2019 Prime Minister Modi made an official announcement regarding India’s ability to become a $5 trillion economy by 2024-2025. This vision has been claimed to be something challenging while being achievable by Finance Minister, Nirmala Sitharam. If India manages to achieve this feat, in no time can it declare itself as a self-reliant economy?
However, it has been pointed out by several professionals and experts of the field that such a leap is not possible for India at this stage. Scholars seem to think that for the economy to grow into a self-sufficient one, the growth rate needs to be at least 12% per year. “$5 trillion is a good aspirational goal. But please understand that a $5 trillion economy in a matter of 5 to 6 years cannot be achieved unless the economy grows in a sustained way between 8 and 9 per cent. It has to be closer to 9 per cent because today the Indian economy is $2.7 trillion. So, $5 trillion means almost doubling the size of the economy. And that is possible only if the economy grows at 9 per cent per annum in a sustained way for 5 to 6 years,” said former RBI governor, C. Rangarajan. He also opined that for the nation to qualify as one with a developed economy, an approximate of USD 12,000 needs to be the per capita income and this level of growth was pegged to be possible based on a steady rate of 9% per annum.
Prime Minister Modi in an address on May 12, 2020, stated “…21st century belongs to India…this vision strengthens…our resolve of self-reliant India…the meaning of self-reliance has changed…India does not advocate self-centric arrangements…India’s progress is…integral to that of the world….imperative for us to move forward with bold reforms to create a self-reliant India…to handle tough competition in the global supply chain…the economic package will increase the efficiency of all sectors… we need to play a big role in the global supply chain.” The message how India will “integrate not isolate” from this point forward was made clear as day by the Finance Minister on May 13, 2020. These aspirational words by the Prime Minister and then reiterated by the Finance Minister has led many to wonder if this the time when the Indian economy will take the big leap.
“When India speaks of becoming self-reliant, it doesn’t advocate self-centeredness but self-reliance that would bring happiness, cooperation, and peace to the whole world,” Mr Modi said in his speech regarding Aatmanirbhar Abhiyan. The Prime Minister claimed that there are five pillars to becoming self-reliant. “Infrastructure should become the identity of India; System should be based on the 21st-century technology-driven arrangements; Vibrant Demography is our source of energy for a self-reliant India; and Demand, whereby the strength of our demand and supply chain should be utilized to full capacity,” said the PM Modi. Prime Minister talked about how it is important to strengthen all the stakeholders as this would directly help fulfil their demand and enhance their capacity. He opined that it is the only way forward to ensure a self-reliant India. Prime Minister Modi “The definition of self-reliance has changed in the globalized world; it is different from being self-centred. Self-reliance contributes to the progress of the whole world.” While citing and example regarding the ongoing crisis, Modi explained how this crisis posed as an opportunity in front of the nation. Manufacturing of PPE and N-95 masks has shot through the roof to 2 lakh pieces daily.
The new economic package declared by the government which is a combination of the previous packages along with a new one totals to Rs 20 Lakh Crore which is equivalent to almost 10% of India’s GDP. It was made clear by the Prime Minister that the said package will give a push to sectors that will include land, labour, liquidity, and laws, among other areas. Also, it will accommodate the needs of various sectors including the cottage industry, MSME, labourers, middle class, and heavy industries. Set of bold reforms is the need of the hour to make India self-reliant claimed the Prime Minister. The changes will promote business, attract investment, and further strengthen the “Make in India” mission. According to the Prime Minister, tough situations India might face in the global platform along with the need to expand efficiency were kept in mind while preparing the economic package. Speaking about the impact of the pandemic, the Prime Minister stated “The crisis has taught us the importance of local manufacturing, market, and supply chains. All our demands during the crisis were met locally Now, it is time to be vocal about local products and help them become global.”
How can it be achieved?
The crisis that has dawned on the world has destroyed several economies. Major economic players of the world have been hit hard. Experienced people have been claiming that the ongoing worldwide lockdown would usher in sharp economic decline with certain companies being hit the worst. For India to take advantage of this situation, it is a necessity to incentivize its companies to help them cope up from the hard blow. The Economic Times has brought to light how this is an “opportunity in the making.” Several propositions have been given by The Economic Times regarding the strengthening of the economy. They are:
- The nation should prioritize investments in the sectors concerning local SMEs and MSMEs so that the nation does not have to rely on investments made by the MNCs.
- The electronics industry should be the centre of attention. SOPs should be offered to Indian manufacturers that would help them to “set up and scale-up facilities.”
- To compete on a global scale, innovation needs to be ramped up. The great demographic dividend can be used to “innovate and build an IPR regime.”
- Another area of focus should be the Defense Electronics and Telecom industry. The government needs to develop “policies to encourage Indian private sector companies” to invest in this particular sector as this one sector is dominated by PSUs and Foreign companies. Along with this, the government needs to restructure the defence manufacturing PSUs as they are scattered all over the nation. The Economic Times suggests that these labs should be paired up with SMEs and MSMEs.
- As the crisis might delay the rollout of the 5G networks worldwide, India should try to come up with an indigenous 5G telecom gear. The nation can use the USOF and TDB funds to invest in building solutions for 5G and rural broadband.
A strategy should be developed by the Government along with a 5-year action plan which would be formulated based on advice by the companies working in the sector instead of the consultants.
- The nation’s focus needs to be towards IPR and platforms that generate and store data as data is considered as the “new oil.” It should be consumed and monetized to ramp up the economy. “India’s contribution to the global telecom supply chain is minuscule while being the 2nd largest telecom market in the world. The focus should shift towards the supply side from the demand side. India imports electronics worth 400B$ and this needs to change” stated The Economic Times.
Is it achievable?
In a talk about the PM’s address regarding Make in India and Aatmanirbhar Bharat, Mahindra and Mahindra MD Pawan Goenka stated “There are many factors. Some of it related to the industry itself, some of it relates to policies and some it related to the constraints that we have both internal as well as external and our competitiveness.” The lockdown has acted as a catalyst that renewed interest of the Government regarding manufacturing in India. “Furniture has an extremely high potential for export and currently India has very little furniture export. Leather and footwear also have tremendous export potential. Yet, we are still importing footwear,” said Mr Pawan Goenka. To ramp up the GDP of the nation about the share of manufacture, the MD opined, “clearly, the manufacturing growth in India has been less than what the country deserves. It is not something where you can flip the switch and the growth will happen. Several factors are responsible and the competitiveness of the industry is one of the major factors.” He clearly stated that the cost of the finished product needs to be in line with ‘competitiveness’ of the prices in the markets we are looking to take control of and this is applicable not only for China but also for other nations. The nation must look at the different finished prices of goods available on the market. “India has great potential to take manufacturing value addition to $1 trillion by 2025. Even though we have had a setback because of COVID- 19, I believe we can still do it,” said Goenka.
A prima facie overview of the economic scene of India would somehow support these “throwaway” claims, but after taking a good look at other variables one can be expected to arrive easily at the conclusion that such a jump is not at all plausible. Economists claimed that the devastating effects of the pandemic will be felt by all and manifest in the form of a decreased GDP in the year 2021. The dependency of the Indian economy on the consumption of private sector, investments by MNCs, and trade carried on by external factors will be immensely affected. The sector that takes up nearly 30% of the Indian market consists of the MSMEs. They might not be able to sustain themselves as a result of non-ending nationwide lockdown. Several ‘at risk’ business organizations might fall apart like a house of cards due to the disastrous economic situation left by the crisis after it disappears. Even if the economic growth follows a steady growth rate of 7.5% per year, $5 trillion economy by the nation can be achieved not by 2024-2025 but might be delayed by 2 years at least. The rate has, however, been based on a 4.5% inflation rate. The prevailing situation impedes any such measure that might help the economic situation and aid in the further realization of the dream of a self-reliant economy. However, the various variables one would take into account while coming to the answer regarding self- sufficiency of the economy should be understood to not be something ‘rock solid’ as the opportunities provided if used correctly might give shape to this dream.