THE IMPACT OF INDIA BECOMING A MORE SELF RELIANT ECONOMY

  11-Oct-2020 12:49:03

Atmanirbhar self reliance India economy


You think of being self-reliant, you think of freedom, of strength as you don't need anyone else to save you in your time of need, of not being on a vulnerable footing anymore and not having to ask someone else before you order that one expensive dress you always wanted to have. Sounds fun, right?


But what if we look beyond the individual level and try applying this concept of being self-reliant on an entire economy. Will it still be as satisfying and liberating? I took an opinion poll of around 10 people and all of them answered with a

definite yes. What more do we need after all? We can sustain our own economy without having to depend on someone else. No unwanted political interference. Creation of jobs. Development of our infrastructure and what not. Why would anyone not want that? And that's not a rhetorical question.


Atmanirbharta'(reminiscent of the Make in India program) is what our government seems to aim for, with a specialized focus on 5 pillars: Infrastructure, Technology, Economy, Local Demand and Demography. The defense sector also seems to be on the agenda as an import embargo has been imposed on 101 items which will be followed through over a course of 5 years. This doesn't seem unreasonable since dependence on foreign defense technology puts us in a weak spot and can very well compromise on our security. The only question that remains is whether our institutions have the efficiency to accelerate indigenous production or is it only possible in theory.


Another example of going indigenous is the development of 5G infrastructure by Jio (still a work in progress). Whereas once upon a time we were struggling to choose between the USA and China for importing 5G technology(basically a trade-off between cost and security), seems like we might not have to anymore if everything turns out well.


But if we start digging at a very fundamental level, forgetting how cool self-reliance sounds, is it really such a good idea? What does economics say about it?


Like things usually happen in this world, there is no common point on which everyone agrees. There are some people who are all for free trade and on the other hand there are hardcore protectionists and both sound right and wrong in their own way.


When it comes to free trade, there is always the question of comparative cost advantage (Basically every country produces that commodity which it can produce with a low amount of resources and imports those commodities which it would be able to produce using a higher amount of resources from another country). For example India has a relatively abundant supply of labor and Germany has a relative abundance of capital. Thus, India would be able to produce labor-intensive goods at a lower price and import capital-intensive goods from Germany, which would be cheaper to do than to go for its own production. Walking the path of self-dependence may entail losing out on this advantage.


This becomes the fundamental principle of free trade and promotes the optimum utilization of resources (in order to maintain a low cost of production) which in turn requires efficient entrepreneurs, thus promoting the spirit of entrepreneurship.

Besides that, the domestic producers won't take their market for granted and end up producing goods of inferior quality. Instead, they will have to face competition from foreign competitors and will have to up their game in order to survive, thus not only ensuring a market which is wide and diverse but also one which provides value and quality.


So if this sounds like such a win-win situation for everyone, why are countries like the USA and India trying to move away from it? Why are they trying to convert themselves into a nearly self-dependent economic unit rather than enjoy the fruits of the world itself being a complete economic unit in itself?

For some countries like the USA, it's about Balance of Trade (that is maintaining an excess of exports over imports) and hence the bitter trade wars with China. It also relates to prioritizing the employment of their own citizens. After all, why should their own natives remain unemployed and the outsiders fill up all the job vacancies? Why let our markets flood with cheap goods and set fire to our domestic economy? Sounds perfectly reasonable.


What's the way for us then? India has already experimented with being a protectionist (although the government claims 'Aatma nirbharta' is anything but protectionist) once. The period before 1991 saw a myriad of import restrictions with the result that Indian consumers had hardly any choice and the domestic producers were well content with the coarse quality of goods they offered. The standard of living was poor and the emergent upper-middle class we see today hardly existed.


But we have also seen how the US had tried to arm-twist India into stopping the war with Pakistan in 1965 by holding off the supply of food grains. This was akin to compromising the sovereignty of our country and to avoid a repeat of that, we have achieved more or less complete self-reliance as far as this area is concerned. And this will be true for more or less all aspects.


There is no denying that self-reliance will help to loosen the claws of unemployment. Following the setting up of an industry, demand for labor is bound to follow. And that is just the direct creation of jobs. Suppliers, transporters and other middlemen will be needed. Perhaps someone will open up a food outlet or a grocery store near the premises, thereby breathing fresh air into the local economy.


As the domestic economy grows, the development of infrastructure will shoot up, which India is in a dire need of. There will be roads laid down for smoothing the inter- connectivity between regions in order to ensure smooth transit of trade. The need for credit and finance will cause banking and financing facilities to crop up. We will see more industrial cities and economic zones which will play a crucial role in promoting ease of business.


There is also an argument which challenges the notion of comparative advantage. How can we ever hope to achieve it until we nurture and protect those industries until they become self-sufficient to the point of needing no protection?


India has been grappling with the dumping practices of China, either directly or routed through other countries. This completely wrecks the domestic production units. Self- reliance will go a long way in insulating us from such unethical practices.


Focus on the production of only certain units tends to push us in the direction of one-sided economic development. Adoption of a more well-rounded and balanced approach will make for a more stable economic environment and will end up employing the idle resources, which is of critical significance for developing countries like India.


Going by the recent exports of PPE kits(around 23 lakh units), Surgical masks (around 4 crore units) and other medical necessities (in no less substantial quantities), we can perhaps see a glimpse of how India has the potential to become a major worldwide exporter of various goods and services. Thus, not only becoming more resilient to external shocks but also providing value to the international market.


But this is not something which is going to happen overnight. India's expenditure on Research and development is dismal (around 0.7 % of GDP). Until and unless we start prioritizing innovation, self-reliance will remain a fairy tale.


Dangers of monopolistic tendencies will also loom owing to lack of foreign competitors because of which consumers end up being the losers. Unless proper measures are taken, inefficiency is bound to seep into the market which will work against the end consumer, thus defeating the whole purpose of being self-reliant.


Besides this, environmental costs can't be ignored. The recent environmental draft spelled out various provisions which are all about easing down rules for businesses but spell doom for environment. And although it was just draft, it can't be ruled out that sustainability will be forsaken for stimulating local industrial growth.

Self-reliance is no mean feat. Whether it becomes the answer to our problems like poverty, unemployment, regional inequalities depends on how meticulous is the planning undertaken at every step of the process. Ensuring that India continues to benefit from the policy of 'laissez-faire' that underlies free trade and yet becomes self-sustaining will be quite a tight rope to walk but a rope which can take us closer to our idea of an India which can not only stand on its own feet but can also shoulder in its an own way the progress of our world.


By : Riya Gupta