Home / Opinion / Views /  Our self-reliance thrust must not defy cost logic

Pride is important. And Indian chests would duly swell with it should ‘Made in India’ aircraft start flying people around the globe. Speaking at a ceremony on Sunday in Gujarat to flag off a Tata-Airbus venture to make the latter’s C-295 planes for military transport, Prime Minister Narendra Modi called it a “big step in making India a defence manufacturing hub".“Soon," he said, “big passenger planes will also be built in India." Swelling Indian air traffic, he added, would spell robust demand for aeroplanes over the next 10-15 years. For now, our Air Force can expect a boost in its ability to move troops, equipment and other forms of payload around. As defence analysts affirm, home-made hardware expands our strategic autonomy, a point implicit in the project’s Atmanirbhar Bharat credentials highlighted by Tata Group chief N. Chandrasekaran. Self-reliance is a big deal for national security. But what about markets for other products? And what if our pride demands a premium?

India is not an outlier in its pursuit of local production aimed at import substitution. Globally, it’s the flavour of the times, an approach that stems from global trends no less than nationalist fervour. If the Great Recession of the West slowed globalization, the covid pandemic snapped supply chains and showed the perils of import over-reliance. Meanwhile, the Ukraine war has joined US-China trade tensions to reveal the frailty of economic ties that girdle the globe. Long-upheld norms of cross-border commerce have failed to survive contact with this year’s hostilities. Supply embargoes have arisen amid a scenario of rising import tariffs and mercantilist attitudes. This retreat of what’s in the world’s common interest can be pinned at least partly on an “America first" shift in Washington. Instead of playing the champion of open markets, the US has been closing up and adopting interventionist policies that try to direct the flow of resources in line with a central plan. Since its global power depends on a technology edge, the US dash for hi-tech local chips (and effort to deny China these) can be seen as a special case. Similarly, American state investment in an electric vehicle industry could be justified for serving a climate agenda that its car market left to itself might fail to serve. Yet, even if US intervention is focused on very few sectors, its raising of barriers and emphasis on local sourcing indicate a new comfort with autarky that would stun free-market advocates.

Self-reliance has its limits. A world in which every country tries to make everything would be far from optimal because everyone can’t be the best at making all that’s to be made. Trade specialization makes sense, just as sharing tasks by virtue of value-for-money or expertise does within an economy or company. Even if a single nation could somehow produce all its needs by itself, doing so would be punitively costly for its consumers. A failed attempt was the pre-1991 story of India, when we kept local producers shielded from global competition by high import duties and thus had to pay higher prices for worse products than people did in open economies. This time, our self-reliance thrust differs. It is not an inward turn, the Centre avers, but entails state support for domestic production aimed at export success. Even so, its success will depend on whether local units can be globally competitive in New Delhi’s chosen fields. Without this, an upsurge in Indian demand met by local supply would raise the pride premium we must shell out.

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