For manufactured products, the stated policy since the 1950s was to allow imports of only the goods that were not being made in India in sufficient quantities
Last week, Prime Minister Narendra Modi pitched ‘self-reliant India’ as the visionary aim to pursue in the coming days and years. It raises apprehensions of India discouraging imports from more efficient producers abroad and encouraging less efficient local producers.
Self-reliance is not a new theme. Immediately after Independence, the stated policy was to increase domestic production of food grains with a view to lower our dependence on imports. We achieved self-sufficiency in food when, in the early 1970s, the green revolution was ushered in. It included use of high yielding varieties of imported seeds, fertilisers, pesticides etc. and improved farming and irrigation methods.
For manufactured products, the stated policy since the 1950s was to allow imports of only the goods that were not being made in India in sufficient quantities. So, licensing was introduced allowing only essential imports, and high duties also imposed on imported goods. This led to the rise of inefficient domestic producers of shoddy goods and widespread smuggling. The policy of encouraging import substitution turned out to be counterproductive. In the wake of liberalisation in 1991, import licensing was retained only for a few negative list items and import duties also came down. Over a period of time, this list became very small, as our commitments to the disciplines under various agreements at the World Trade Organization (WTO) obliged us to eliminate quantitative restrictions.
However, the voices pleading protection to domestic producers grew louder, especially through the Swadeshi Jagran Manch, a non-government organisation. The consumers, nevertheless, benefited through better products at lower prices. The domestic industries also had easier access to better capital goods and inputs at competitive prices. Some producers preferred to seek protection through higher import duties and anti-dumping, safeguard and anti-subsidy countervailing measures. Even so, globalisation meant better goods at lower prices through efficient supply chains. Overall, the liberalised policy led to higher growth.
For the past few years, the emergence of China as a major manufacturer has raised concerns amidst allegations of unfair trade practices and inability of WTO to reform the global trading system. The Covid-19 outbreak has exposed many countries to the stark reality of high dependence on China for essential medicines, drug intermediates, medical equipments, protective gears and so on. Many governments now want to build enough domestic capabilities to cope with emergencies and develop alternate sources of supply for essential items. Given the context, the PM’s call for self-reliance can gain some traction among a few.
Experience shows that inter-dependence, rather than protectionism, results in greater efficiencies and overall welfare. A global crisis calls for global co-operation and collaboration. Inevitably, globalisation will throw up winners and losers. The right strategy is to cope with the challenges and specialise in areas where we have comparative advantage as a nation. Retreating into a protectionist mode is an easy option that has not worked earlier and is unlikely to work in future.
The way forward for the policymakers is to consult the specialists who understand the evolving global dynamics better and work out a credible strategy for incentivising manufacture on a global scale, keeping in view the advantages in sectors like pharmaceuticals. Mere slogans and knee-jerk reactions cannot get us anywhere. Laws of economics do not respect the power that an individual or lobby can wield.
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