Context: While the Indian industry has been asked to set new targets towards building self-reliance in furniture, footwear and air conditioners, the government has parallelly begun laying the groundwork to achieve this in at least 10 promising sectors.
- To overcome these testing times, The Prime Minister has come up with Atma Nirbhar Bharat Abhiyan that promotes local economy.
- A special and comprehensive economic package of Rs 20 lakh crore that accounts for 10% of India’s GDP, has been announced to bring the economy back on track.
- The Finance Minister further announced structural reforms across various sectors to pave the way for Aatma Nirbhar Bharat Abhiyan.
- India has a natural advantage in these sectors, which can grow to become a strength for the country.
- Focussing on raising quality controls to make India globally competitive.
- Cutting imports: The emphasis is on targeting the quality of domestically made products so that “unnecessary” imports can be reduced in these sectors and the nation can find stronger footing in the global value chain.
- FDI: Ministries are looking at bringing more investment and making India a major manufacturing destination for their sectors.
Significance: Indian Prime Minister had raised concerns with India’s dependence on imports, specifically highlighting the over 30 percent Imports in the air conditioners sector. He had called for reducing imports.
India’s import dependency:
- India imported $467.2 billion worth of commodities between April and March 2019-2020.
- Of this, leather and leather products were $1.01 billion, pearls, precious and semi-precious stones were about $22.4 billion.
- Electrical and non-electrical machinery were $37.7 billion.
- Machine tool imports were about $4.2 billion.
Example of India’s import dependency : The AC industry
- The Indian AC industry, with an estimated Rs 12,000 crore market and sales of over 5.5 million units, is largely dependent on imported compressors — which accounts for 60-65 percent of an AC’s production value.
- Imports due to India-ASEAN Free trade pact: In the split AC category, several Japanese companies that are market leaders have been importing from Thailand and Vietnam by taking advantage of the concessional tariffs available under the India-ASEAN trade pact or bilateral Free Trade Agreements signed with these countries.
- This is especially so in case of the newer ‘inverter’ category of ACs, where the compressor specifications and built-in electronics are different.
Identified sector for self-reliance scheme
- Sectors already identified by the Department of Promotion for Industry and Internal Trade (DPIIT) in consultation with other ministries include
- capital goods and machinery,
- mobile and electronics, gems and jewellery,
- pharmaceuticals, textiles and garments.
Concerns with Atma Nirbhar Bharat Abhiyan
- With Atma Nirbhar Bharat, there is a danger of India going back to an import substitution framework which may not be quite appropriate in the 21st century.
- Import substitution industrialization (ISI), is a development strategy focusing on promoting domestic production of previously imported goods to foster industrialization.
- Criticism of ISI: It showed following results:
- Production that often did not extend into industries other than consumer goods
- slow employment growth,
- agricultural-sector decline and minimal productivity growth.
- Social strife also emerged and was seen in part as resulting from increased internal migration and greater inequality.
- Trade distortion: Increasing import duties may cross WTO prescribed limits and invite disputes.
- However, here, measures like the home ministry’s intent to remove imported products from its central police canteens, while discriminatory, will not clash with India’s international trade commitments.
- For government procurement, there is an exception. Countries are allowed to bend in favour of their producers.
Other govt. initiatives for self-reliance: Various schemes are already geared towards making India a major player in sectors like medical devices, APIs.
- The second phase of the electronics manufacturing scheme: It has a capital outlay of up to Rs 50,000 crore. It is a new version of the Modified Special Incentive Package Scheme.
- In addition to planning mobile manufacturing units, it plans to subsidise and provide incentives to peripheral device units such as charger and phone cover manufacturing units.
- The Modified Special Incentive Package Scheme
- It provided a capital subsidy of 20 percent to units inside special economic zones (SEZ) engaged in electronics manufacturing, and 25 percent to units outside SEZs. It had limited success.
- Being strategic: We need to be strategic in terms of the choice of sectors in which we want to be self-reliant. There should be a very strong case for increasing domestic value addition, besides considering aspects of consumer safety and national security.
- Raising import duties: While implementing measures like increasing import duties, we will need to make sure we are not crossing the WTO bound rates.
We have to emphasise Indian production of a certain scale, certain quality and certain standards. Then only the Indian product will match up to the best in the world.
Image Source: PIB
About Import substitution industrialization (ISI)
- It was pursued mainly from the 1930s through the 1960s in Latin America—particularly in Brazil, Argentina, and Mexico—and in some parts of Asia and Africa.
- In theory, ISI was expected to incorporate three main stages:
(1) domestic production of previously imported simple nondurable consumer goods,
(2) the extension of domestic production to a wider range of consumer durables and more-complex manufactured products, and
(3) the export of manufactured goods and continued industrial diversification.