Home / Opinion / Columns /  Opinion | Our government holds the lock but not keys to a self-reliant India

The ongoing efforts to de-escalate tensions with China may or may not pan out as desired by India, ie, with the restoration of status quo ante, as in April this year. The killing of 20 soldiers sparked outrage, leading to calls for a boycott of Chinese goods and investments. The government has banned 59 Chinese apps and scrapped Chinese bids in some infrastructure projects, even as cargo from China has got delayed at Indian ports.

On another plane, it has also announced plans for Atmanirbhar Bharat, a self-reliant India, which ties in with its efforts to reduce over-dependence on Chinese imports. Many economists have derided these efforts, assuming that it will take India back to the era of costly import substitution. The boycott call has also been criticized because it may end up causing supply disruptions in our own economy.

These criticisms are at least half wrong. Import substitution works in areas where import costs are higher than domestic costs. This is manifestly the case with many defence imports.

However, critics need to be taken seriously in areas where competitive forces exist and the cost of import substitution will be high. In order to lure companies to “Make in India", incentives are being offered in sectors like APIs (active pharmaceutical ingredients) and electronics. While these sweeteners may help, they may not necessarily create Indian world-beating companies, or even get world beaters to shift their supply chains to India. The government would thus do well to understand what creates global champs. Governments have very little to do with their creation.

Reality 1: Companies compete, while governments can only enable. Governments cannot create global champions, though mercantilist countries like Japan, South Korea and China did do so at one point. What governments can do is create an enabling policy and regulatory environment that fosters economic growth and lets companies scale up. Airtel and Reliance Jio did not emerge as India’s two big telecom survivors because the government anointed them as winners. Nor did TCS, Infosys and Wipro become global outsourcing giants because of the government. They became global biggies because the policy environment for their growth was positive both in India and abroad.

Reality 2: This rule partly contradicts the first, but is an essential factor in global success. Once a domestic market declares its winners, governments matter in helping them go global. Big multinational companies are always viewed with suspicion, and so governments that don’t stand four-square behind their own giants may find that they never graduate beyond the domestic market. Large government contracts and inorganic takeovers of iconic companies abroad cannot happen without government support for our companies with diplomacy and backroom heft. Today, a Jio is valued at over $66 billion and Vodafone plc at $44 billion. If Vodafone Group is on the block, and either Airtel or Jio want to buy it, it would require Indian political support.

Reality 3: The global market is increasingly becoming a winner-takes-all one. Google, Facebook, Amazon, Apple and Microsoft are all near monopolies in their respective areas. Even in manufacturing, China’s global dominance involved specialization and investments on a massive scale. Indian companies competing with Google or Chinese manufacturers would be a 10-year project that would take more than incentives. In a winner-takes-all scenario, you need to first create a great product at a great price. Once that is established, you grow scale quickly before others get the idea. This is the story of Jio as much as of Google.

Reality 4: Don’t fret about domestic monopolies too much. The point is you cannot beat an Amazon or Walmart even in India by obsessing about monopolies and big businesses. Indian companies have to scale up, gobble companies, and become national champs first, so that they can take on global giants. Such regulation should kick in after a monopoly or cartel develops in India, and not merely because current market shares look high. A big domestic share could mean nothing in the global context. We should look at dominance in a global context and not a local one. Consider what Jio’s valuation would have been if the Competition Commission had barred it from taking on Facebook’s $5.7 billion investment because it was already the Indian telecom market’s leader.

Reality 5: Supply chains involving medium and small companies are created by large companies, not governments. There is a lot of loose talk about global supply chains moving to India. But it is companies that decide which supply chains to set up. Maruti has a supply chain in India and also in China and Japan. Its supply chain is determined by its needs.

In short, the government must not think it needs to create winners, but that it must foster the right environment for winners to emerge from the soil of India. Once they do, you must back them to the hilt.

The government holds the lock but not the keys to Atmanirbhar Bharat. As long as the lock is well oiled, companies will find the keys on their own.

R. Jagannathan is editorial director, ‘Swarajya’ magazine

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