Home >Opinion >Views >A self-reliance dilemma for India to grapple with

Addressing a seminar on Monday, India’s external affairs minister S. Jaishankar made an eloquent case for a globalization game adapted to a world of trade that could not escape the shadow of “state capitalism". This reference to how China had distorted the dynamics of global markets was not lost on anyone. Decisions taken now, he said, would “determine whether India will become a first-class industrial power or not". Among India’s recent calls have been a refusal to join the Regional Comprehensive Economic Partnership (RCEP), a free-trade pact that looks set to dominate trans-border commerce in the eastern hemisphere, and the state championship of chosen industries. Both swerve away from the broad policies we pursued after opening up the economy in 1991. “We have allowed subsidized products and unfair production advantages from abroad to prevail," Jaishankar said, “And... this was justified by the mantra of an open and globalized economy." The outcome was a severe industrial setback, he argued, and so it was time for us to regain autonomy in the trade-policy space.

India’s export performance has indeed been disappointing ever since globalization began to recede after the Great Recession of 2008-09. Despite fair-play rules of the World Trade Organization, China has largely gotten away with what looks like the active use of state resources to swamp markets elsewhere. Its support mechanisms seem so well insinuated in its industrial base that it is hard to identify specific dumping tactics. It is also true that its exports have crushed Indian production in many fields. Coupled with RCEP, China’s sprawl of value-chain links across Asia has placed it in a formidable position to loom large over not just regional, but—in spite of its new inward turn—global trade as well. Indian industry, our government appears to reckon, cannot hope to win with the scales tilted so heavily against us.


Yet, what will work for us in achieving a new balance of competitiveness, and thus a shot at global success, remains hazy. This presents us a dilemma. Should our Atmanirbhar—or self-reliant—approach trace the Chinese formula by expanding the state’s role in our economy? A policy to incentivize a few industries with giveaways could attract global majors looking to diversify value chains and ramp up volumes rolling off domestic assembly lines. The early promise of this is visible in the arena of mobile handsets. But economic history is also littered with cases of chosen state champions hogging a bigger chunk of a country’s resources than market forces would otherwise allow, warping allocative efficiency, raising cost levels—especially if firms are shielded by tariffs from global rivalry—and eventually acting as a drag on economic expansion. Centrally-devised industrial plans, as we learnt from the Soviet experience, could go awry over the years. This risk would be high if transparency is low, special interests get in the way of course corrections, and state planners fail to grasp the preferences of millions who comprise consumer markets. Sure, our shift back from a relatively hands-off state is not very pronounced, at least not so far, but it would be advisable to treat it as an experiment under watch. Likewise, we have good reason to keep our options open on trade pacts like RCEP. Saving some businesses from exposure to external competition by staying aloof could deprive the innovative of access to a vast pan-Asian market. Short-term anxieties must not get the better of long-term benefits.

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