How self-reliant is Atmanirbhar? Part 1

Prime Minister Narendra Modi, in his now-famous speech on 12^th May, made an impassioned pitch for Atmanirbhar Bharat, a self-reliant India within an intertwined global platform in the spirit of ‘Vishwa Kalyan’ (world welfare) and ‘Vasudhaiva Kutumbakam’ (the world is a family). He tried to fashion our movement towards self-reliance as something that would altruistically accommodate the aspirations of the whole world. He evoked our recent export of medicines and world-wide acceptance of Yoga as examples of a trustworthy India in her quest to be a vanguard in the global path to help the mankind, a display of his masterly phraseology.

The speech was delivered with the usual flair, knowing that pride and passion work well with people, most of who would never bother to make a reality check. He knew that his vast populace of admirers would find great meaning and direction in the speech, not because of the content but because he was the deliverer. At the same time, he was well aware that the phalanx of his detractors, smaller in number but equally very vocal, and more virulent, are ever-ready with their barrage of criticism, frequently bordering on ad hominem attack; these opponents are seldom charitable enough to see anything positive in his narrative and deeds and are therefore best ignored. So the great paradox is that his admirers and detractors do hear but hardly listen to what he says. I will try to listen in.

Let us once again revert to the speech. What did he speak of other than some glimpses of the 20 lakh relief package, which for some is merely Rs 3 lakh crore and for others some more but not really Rs 20 lakh crore for anyone? He spoke of Lockdown 4.0 briefly. He emphasized the concept of Arth banam Maanav Kendrit Vaishvikata, i.e., we have to transform our approach to make globalization focussed on people and not money. I, of course, did not fully comprehend the import here. He spoke of sankalp (resolve), i.e. we need strong determination to endure and stand firm in these tough times of the pandemic and contribute towards revival of our economy. He moved on to Sankalp Shakti aur atmanirbhar Bharat (the power of our determination and self-reliant India) the message was that with this resolve and will power, we should turn these trying times into an opportunity to become self-reliant. According to the PM, atmanirbharata lies in our ancient cultural and spiritual ethos. Unfortunately, that makes it immune to any inquisition in the light of worldly realities and scientific pragmatism. This was a speech layered in facile cogitation of our past glory, subsequent subjugation and now the ordained mantle on him to steer it to a new epoch of self-reliance and world-leadership. Let all this verbiage be a payam-e-ibrat to the ghafils of both denominations (borrowing from poet Firaq, a message for the ignorant) even as I try to find my own meaning here.

The buzzword Atmanirbhar sounded great and immediately appealed to the masses so let me cherry-pick only this phrase in this analysis- Atmanirbharata or Self-reliance. Beyond Shakespearean tale of sound fury, signifying nothing or whatever else which escapes me, what can it mean when put in practice?  This was central to the message in the speech and in any case, self-reliance should have been our focus as it is, Corona or no Corona. Why not try to detach from the predictable discourses from both sides of the divide and extract the doable from the PM’s narrative. This speech and the slogans which followed can dominate various debate by experts of all hues but let us see if the intent can be harnessed to manoeuvre some meaningful action.

The chimera of Atmanirbharata! What exactly does it convey?  At a very basic level, the importance of promoting local products so we obviate the practice of looking to other countries for imports. This is different from the attempts to boost manufacturing in India to capture global opportunities that are staring at us. That is about foreign investments. Let us leave that aside. The Atmanirbhar package may appear to comprise of initiatives on which the government would spend liberally, with estimates ranging from 1% to 4% of the GDP. There is an intended boost for reviving the industry, particularly MSMEs, in the form of some concessions in deferment of dues to the government and collateral-free loans. It would help to some extent but mainly in restoring what we already manufacture. How will that take us towards this new mantra of self-reliance? 

Let us talk about the first fallout of the speech coupled with the recent border issues with China now. Border issues need to be resolved with a firm resolve, no doubt, but the discourse has become that we boycott Chinese goods. To start with, deletion of TikTok and other apps from one’s phone is proclaimed as a patriotic act. How infantile is that? How can patriotism be reduced to this symbolism? We in India are so taken in by symbolism and that it becomes the destination for millions but there is hardly any thought for some meaningful action. Pride and patriotism cannot be rendered to such cursory acts. And use of Chinese goods? Smart phones, Laptops, TVs, cameras, nearly 80% of all consumer electronics, branded footwear, school equipment like geometry boxes and even pencils, furniture, spectacles, household goods and your Diwali lights and crackers. You must be aware that our great Statue of Unity has a sizeable China-made component. Even Indian national flags made in China sell a lot. Gandhiji called for boycott of British goods as we were an exploited lot but in today’s globalized world, do we want our countrymen to bear the cross by purchasing poorer quality stuff at higher prices while waiting for the government to act in some way. In our intermeshed world, this job of the government cannot be done by users and consumers in general public, it is a puerile red herring. 

And is it really something the government can do easily? The government actually will not and mostly cannot. The government has not restricted or banned Chinese goods and companies as they have to abide by WTO guidelines. Now, these guidelines do permit anti-dumping tariffs, safeguards against subsidies through countervailing duties and even an embargo in contingent cases including a surge of imports etc. as exceptions to protect domestic industries but they have to be based on substantiation and not whims. I am sure the government would be quite wary of a regime of import restrictions, high customs duties and undue preference given to local manufacturers who are not competitive. 

Besides, many Chinese companies have factories in India and sell products manufactured in India, in India. More than 2500 Indian Companies have invested in factories in China and have been shipping their products to India for retail sale. Which one of these would you boycott?

Friends, China, like it or not, is a powerhouse of manufacturing. China has a share of around 14% in global exports whereas this number for India is around 2%. Major partners for China are the US, Japan, Germany and South Korea for India whereas where as for India the countries are the US, China, UAE and Saudi Arabia. Meanwhile, in 2018-19 China’s imports into India dropped to some extent from around 16.5% to 13.5% whereas there was an increase in share of exports from around 4.5 % to 5%. In this scenario, attempt should be to consolidate the gains further instead of disturbing the applecart. Trade tensions between the U.S. and China have given India an opportunity to ramp up exports to both countries and we should be looking for ways to exploit that. As things stand today, China’s trade with India is a small fraction of their worldwide exposure and misplaced jingoism can only create bad blood, achieving nothing. We must act strongly on the border issue and brook no nonsense but we are not strong enough to be more than a scarecrow or to make a threat which we can really carry. If we go through with his threat at government level, we would be the ones to get a bloodied nose. So this call for boycott should be ignored.

Remembering Shakespeare says Touchstone in As you like it, “The fool doth think he is wise, but the wise man knows himself to be a fool”. In today’s world, we should not be foolishly wise but wisely foolish.

What we need to do is to offer the consumers as well the industry an alternative by strengthening our capability instead of closing the doors to others. Now that is a long term game but it must begin in earnest. We have to first manufacture as good as others and then play on domestic volumes to make the price competitive. What can the government do about it? The government must support the industry morally and financially, through subsidies and incentives. Many of these subsidies can also be like hidden incentives and subsidies that China already affords its industry to sell abroad while riding on robust domestic demand: subsidies and incentives like cheap land, specially-sourced raw materials, export facilitation, even enabling government manpower from laboratories and design centres. For example, the possibility of selling railway rolling stock abroad- due to hidden subsidies built in the price of Chinese exports, India is unable to compete in price and this is an area where government support with long term view can help us penetrate.

Remember, we can never take a stance that we would not import but would like to export at the same time. I will give two examples here. Japan for instance. It has practically no raw materials and imports nearly everything. It turns them into finished good for its domestic and a large export market. Isn’t Japan self-reliant? The essence of self-reliance in a globalized world, to my mind, is that we manage our supply chains so well and spread them out so judiciously that in case of an emergency like the present pandemic, the chain may suffer somewhat but is never disrupted and our manufacturing is not affected. 

Our manufacturing should be expanded with increased Indian as well as global sourcing, riding first on domestic and later export markets. There are fundamentally two aspects in industrial eco-systems: one based on the idea that we should be as less dependent on others as possible, especially in sectors such as food and defence. This is based on the perceived risk of such dependence and this obviously makes sense. The other is the theory of comparative advantage, with its variations, and this is favoured by most economists. What this entails is that a country should not produce everything it needs, even if it can produce it; it focuses on what it can do better. 

Consider machine tools. This is one of the areas which would need imports for a long time. We have to get quality machine tools from abroad as the home-grown industry has not matured and would not mature merely through the existing Make in India policy. One cannot excel in manufacturing without employing the top of the line machine tools and therefore import is a must.

The scope of Make in India which merely stipulates 50% value addition in India should be redefined. One of our success stories is the Pharma sector. But we are merely a factory of the world whereas the heart, the development of drugs takes place in the laboratories and Bio-parks across the US, Europe and now even China. We have to evolve a more comprehensive avatar of Make in India with innovation and development of designs as an essential; else we remain an importer of technology or strive to be only a leased manufacturing space. If we don't develop our own technology and products, we will continue to hop back to where we were, every ten-fifteen years. 

We must also remember that Transfer of Technology(ToT) contracts can take us only so far. ToT is actually an oxy-moron. Because technology is much more than a set of documents, drawings, specifications, test plans, vendor qualification protocol etc. or classroom training and meetings to make it amenable to any transfer. Technology is a creation. It lives in the mind and heart of the creator. We have indulged in this ToT business for too long since independence and have had enough learning. It has now become a disabler, a crutch. It is time now to unleash the creator in us. I am not advocating the foolishness to tread in areas where we are still miles behind, I am talking of areas where we can tread and succeed. 

The government should exploit large projects and the attendant huge investments to drive indigenous effort. That has been the China story. They invested heavily in getting world majors to set up comprehensive units in China on stringent terms favouring genuine transfer of know-why and know-how to China and since the domestic business offered was great, these companies had no way to resist these terms. Within years Chinese engineers acquired a capability to challenge these companies globally with their own products; a perfect example of economic muscle subjugating all the large manufacturers of the world to create a competition for themselves.

We cannot match China in the level of investments that has driven their growth but even what we have invested has not led us to self-reliance. Being a railway man, I will give the example of the Metro sector. India has invested Rs 5 to 6 lakh crores in Metros with every large city eyeing new generation Metro projects usually in collaboration of the Central and respective state governments with viability gap funding. Another Rs 4 lakh crores or so is in pipeline. Revised to present worth, this would be much greater. Approx. 30% to 40% of this would be in rolling stock and signalling, say some 2.5 lakh crores. In spite of such a massive investment, we have no indigenous design or substantial high end manufacture in India. Only low end work is done in the country. As for home-grown technology itself, there is hardly any. From the days of foreign exchange crunch goading the nostalgic Kolkata Metro initiative of 1984, which indeed was an engineering challenge then, what we have to come to is merely some screwdriver technology, a perfect anathema to our dream of self-reliance. Misplaced policies have ensured that the space of rolling stock and signaling in Indian Metros is one of continuing stranglehold of multinational companies and elimination of India-grown technology competitors in large Indian Metro project opportunities. Even today, Indian companies are kept out on one pretext or the other.

Another example- India has gone for massive investments in renewable energy sector with solar installations. Why is that all solar installation equipment, be it panels, electronics and the lithium iron batteries are sourced almost entirely from China? I can understand that it is difficult to penetrate the battery market as the raw materials are abundant in China. But why panels, which were invented in the US but today are 70% preserve of China? And electronics? It should be possible to incentivize our industry to manufacture in the country at matching price.

Let us remember the days prior to early 1990s when we had a severe crisis of foreign exchange and the trill those days was to localize somehow. It was needed but it did result in a culture of hasty reverse engineering leading to poor quality. 

Atmanirbharata cannot be degenerated into a revival of the old Nehruvian model of import substitution or autarkic isolation, which led to goods and services that were perpetually in short supply, of shoddy quality and with a huge price tag. At that time, it was possible to live with a great deal of isolation but today it is not possible even for countries like USA and China. With a lot of effort, India has pulled itself by the bootstraps and become a supplier of many products at a reasonable price and quality. Care needs to be taken to see that this does not degenerate into our inability to innovate behind a curtain of protection.

The focus should be on active participation in post-COVID global supply chains, with or without FDI. It cannot be about a centralised, top-down command economy model but about freeing the Indian entrepreneurial and innovative spirit further from bureaucratic hurdles. It should be about indigenisation with pride not in local brands, per se, but local brands of value, with self-confidence, resilience and flexibility. The government is indeed talking unapologetically about privatisation of non-strategic public sector entities and opening up of new sectors to private investment, reform in corporate and labour laws, all to make Indian economy to adapt to the problems and opportunities of an emerging post-COVID world. This decentralized system would call for sustained reforms which the government has only talked about but not walked the talk yet. It is beyond dispute that Indian industry suffers from a lot of disadvantages, especially against China. These are structural problems and need to be addressed: cost of capital, development of manufacturing eco-systems, corporate laws, labour laws, skill level of workers, infrastructure and frequent changes in government policy; the need is for the government and industry to work like collaborators and evolve the robust route to a quick transformation. 

Like the Metro rolling stock and solar installations, there are many such areas which have unnecessarily been made holy cows with practically no growth of home-grown technologies. These are the areas which need that the government step in and encourage the industry. It must underwrite the risks for emerging companies and believe me, there are many straining at their leash for the government to embolden them to experiment and flourish. We are where Japan was in the fifties or China in the nineties. This is the time for us to take that bull by the horn and invest in development of products and technologies. The signals that the government meant to support such initiatives must start emanating now. There is enormous young talent in the country with a bee in their bonnets but lack of institutional support prevents them from gathering any honey.

This is a country which has such talent, that when pushed to the wall due to denial of technology but freed from stifling bureaucracy and restrictions at the same time, can develop Chandrayaan, Mangalyaan and missiles. With support of the government, India can develop thousands of home-grown technologies in a matter of years and then only will we be truly atmanirbhar.

(to be continued in part 2, next week on Sat 20^th June)