Recently, the Prime Minister outlined a ₹20 trillion stimulus package, along with a quantum leap in reforms. Mint explains self-sufficiency and how it is different from the liberalization trade policy.
Recently, the Prime Minister outlined a ₹20 trillion stimulus package, along with a quantum leap in reforms. He gave a call for being vocal about local and about the need to be self-sufficient. Mint explains self-sufficiency and how it is different from the liberalization trade policy.
What’s self-sufficiency in the context of India?
India as a country has maintained a trade deficit as it imports more goods than it exports. This is due to the rise in domestic demand in a situation, where production at home has largely been weak in catering to this demand. As a result, even in sectors in which India has production capabilities, it depends on other countries for raw material. For example, the pharmaceutical sector, where the bulk of the active pharmaceutical ingredients is imported from China. Self-sufficiency in the present context refers to a specific task of improving efficiency, competing with the world and helping the world.
Why is it so important to achieve this goal?
There has been a long need for efficiency-enhancing reforms that could make Indian producers competitive in the global market. These reforms are critical for creating domestic production capabilities. The disruption in supply chains due to the covid-19 outbreak and the lockdown in China have had an adverse effect on several world economies. More countries are now looking at boosting domestic production capabilities to be able to absorb supply chain shocks. The move is also important in terms of strategic and geopolitical considerations, as India looks to punch above its weight in international affairs.
Is it different from swadeshi and import substitution?
Self-sufficiency is different from swadeshi and import substitution policies followed earlier in terms of the choice of policy instrument. Import substitution relied extensively on imposing high import tariffs and discouraging foreign trade, while the present move focuses on reforms and improving ease of doing business, including for foreign firms in the country.
Does this mean import tariffs won’t be raised?
There is a possibility of raising import duties on a wide range of final goods and services. Some of these changes could focus on specific countries to address India’s trade deficit with them. Globally, such tariffs may rise due to geopolitical considerations as the world decides to move towards globalization 2.0, which relies a lot on trade between rules-based economies. Some tariffs may also be moderately hiked to correct for an inverted duty structure and incentivize final production of goods and services in India.
What does this mean for India’s economy?
India’s ability to recover from the effects of covid-19 and its economic fallout depends on the ability to protect industries. This is why it’s important to promote Indian industries while making them competitive through reforms and government interventions. The move to avoid global tenders up to ₹200 crore is geared to incentivize companies—Indian and multinational—to set up base in India. The aim is to encourage them to invest in the country.