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The Hindu newspaper recently featured an interview (‘How a group of 20 people from diverse backgrounds created an affordable, world-class ventilator during the lockdown’, 3 April 2021) with the authors of the book, The Ventilator Project, Srikant Sastri and Amitabha Bandyopadhyay. As the book’s cover states, it is the story of how an Indian Institute of Technology-Kanpur consortium built a world-class product in 90 days. The usual time required is 18 months. A ventilator requires 500 parts, and hence, setting up domestic production capacity during a global lockdown is an inspirational achievement. Asked about the paucity of domestic medical equipment, the authors said that the government has to invest in medical infrastructure and give preference to domestic equipment. Second, Indian industry has to respond with inexpensive products of good quality. This is the crux of India’s renewed drive for self-sufficiency.

In a column (Where Modi Could Be Just as Wrong as Nehru) for BloombergQuint on 3 April 2021, Andy Mukherjee suggested that self-sufficiency is a policy that has been tried and failed, even as he acknowledged several sound policy initiatives taken by the government in the last two years.

In the light of the aggressive diplomacy pursued by China against many nations and on many fronts, self-sufficiency is making a comeback in many corners of the world. Take a look at the fact-sheet on the American Jobs Plan put out by the White House Briefing Room on 31 March:

“[President Joe Biden’s] investments will use more sustainable and innovative materials, including cleaner steel and cement, and component parts Made in America and shipped on U.S.-flag vessels with American crews under U.S. laws….

…. It will give consumers point of sale rebates and tax incentives to buy American-made EVs, while ensuring that these vehicles are affordable for all families and manufactured by workers with good jobs. …

….These efforts will create good-paying jobs for union labourers, line workers, and electricians, in addition to creating demand for American-made building materials and parts…."

The Information Technology and Innovation Foundation conceded that “tariffs and other forms of trade protection, which have been ineffective in the past, may have a role to play" in a report last year (The Impact of China’s Production Surge on Innovation in the Global Solar Photovoltaics Industry, 5 October 2020).

In this regard, what happened in the US after the Donald Trump tariffs on solar manufacturing offers plenty of encouragement. According to an article (The Case for Taking Back Solar) in The American Prospect, “The tariffs that the Trump administration placed on foreign solar modules, under Sec. 201 of the Trade Act, which allows retaliation against dumped imports, motivated three foreign producers (Hanwha Q Cells, Jinko, and LG) to open US module plants in response to the tariffs."

In fact, a similar response has occurred in India as well. The Financial Express reported on 1 April 2021 that Borosil Glass will be doubling its solar panel glass manufacturing capacity to 900 tonnes per day, and that this enhanced capacity would be available by April 2022. One of the reasons behind this capacity addition, coming at a cost of 500 crore, is that Borosil Glass is protected by India’s anti-dumping duty. If more such domestic fixed capital formation with acceptable international quality standards took place in response to the protection afforded, then the policy would have served its purpose. Otherwise, not.

In the 36th Annual Day Commencement Lecture at the Exim Bank of India, professor Arvind Panagariya pointed out that investments attracted to industries that enjoy tariff production are necessarily inefficient. Under normal conditions, that is a fair statement to make and a caveat to keep in mind. However, the world first began to encounter an aggressive China after the global financial crisis of 2008, and now, post-covid, China’s trade and foreign policy actions have taken on a higher level of belligerence. The tail-risk of a massive supply disruption of products and components imported from China, in the event of a conflict, is non-trivial.

In January, Clive Hamilton, the author of Hidden Hand: Exposing How the Chinese Communist Party is Reshaping the World, questioned the wisdom of placing Chinese businesses at the heart of Britain’s infrastructure (How China could Turn off Britain’s Lights, 25 January 2021) . In particular, Hamilton drew attention to the threat it poses to Britain’s electricity distribution system. Therefore, critics of a policy of creating domestic capacity with tariff protection have to account for such risks in their cost-benefit analyses. It is not ‘business as usual’ trade economics anymore. Of course, this cannot become a catch-all excuse for protectionism for all sectors and all players.

In the final analysis, whether a national policy of self-sufficiency is self-defeating or an economic success will be determined by the response of corporate India to the slew of incentives that the government has offered in recent years, including lower overall corporate tax rates and a specific 15% tax rate for new manufacturing businesses, if set up before March 2023. If Indian industry steps up to the plate, it will be a win-win. If not, it is back to the drawing board. But, what is not in doubt is that the enabling conditions for neo-liberal economic policies are in retreat.

These are the author’s personal views.

V. Anantha Nageswaran is a member of the Economic Advisory Council to the Prime Minister.

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