PrintFriendlyOn May 12, 2020 Prime Minister Narendra Modi addressed the nation and announced an economic package of Rs 20 lakh crore along with declaring the broad blueprint of a new vision for a self-reliant India. Prime Minister Modi stated that his Government would essentially focus on not just buying more from the domestic companies but also appealed to the country at large to advocate and promote local products. He coined the term ‘vocal for local’ and envisioned the plan of his Government to create an ‘Atmanirbhar Bharat’ or a self-reliant India.
The Prime Minister’s speech was followed by announcements of a slew of economic reforms by concerned ministries, in the following days, that charted the blueprint of unshackling several sectors from restrictive policies of the past, presented a new government policy of reserving government procurement up till Rs 200 crore for domestic companies only and heralding a new vision to unleash the potential of MSME sector and handholding them to become not just bigger through scalability but also globally competitive.
Some of the reforms including changes in the definition of MSME as well as proposal to amend the APMC act to allow farmers the freedom to sell their produce anywhere or anyone they prefer, by unshackling them from the clutches of the state controlled commission agents and powerful middlemen, are path breaking and boldest reforms that the country has witnessed since 1991.
Webbing an Opportunity for Nation in the Midst of a Crisis
Every crisis brings with it a new set of wisdoms and realisations for any society. In the midst of an unprecedented pandemic and uncertainty forced upon by the contagious COVID 19 virus, the nation needed a new idea to not just pass through the tumultuous phase and recover the economy, but also a spark to ignite and unleash the ‘animal spirit’ among the country’s entrepreneurs, traders, industrialists and farmers. From here on India needs a structural metamorphosis for future resilience and no more just incremental changes to merely limp back to normalcy.
The magnitude of what the Prime Minister has stated, and the manner in which it would unleash a new India, would become evident to people only in the times to come. Many may not have comprehended yet the enormity of the vision that he has given a clarion call on. His mention of the need for ‘Quantum Leap’ instead of ‘Incremental Leap’ is exactly what India needs now.
PM Modi stated, “When the world is in crisis, we must pledge – a pledge which is bigger than the crisis itself. We must strive to make the 21st century India’s century. And the path to do that is self-reliance”[i]. During his speech he also gave the example of how India transformed its PPE and N95 mask production capacity in the midst of the crisis. “When the crisis began, not a single PPE was being manufactured in India. N-95 masks were being manufactured in negligible quantity. Today, the situation is such that India is manufacturing 2 lakh PPE kits and N95 masks each per day. We are able to do so because India has turned a crisis into an opportunity. India’s vision to convert this crisis into an opportunity is going to prove influential as we become more self-reliant”[ii], the PM said.
Precedence from the Past: From Devastation to World Class
The Second World War (WW II) ended with unfathomable remnants of devastation all around. Not just Germany and Japan, even from the side of the victors, Great Britain, France and even Soviet Union were nothing better than a pile of debris with a major depletion of critical human resources, as a price of war, and with not much capital in hand to restore their respective broken nations. For Japan and Germany, the devastation was not just physical and economic, but deeply psychological too.
And yet, over the next four decades, both Japan and Germany had a phoenix like rise from ashes of debris to the pinnacle of technological prowess. Both Japan and Germany became synonymous with words like innovation and quality. German and Japanese brands became household names. The trust that Japanese brands like Sony, Hitachi, Suzuki, Mitshubishi or Toyota, to name a few, developed, could only be compared with German counterparts like Siemens, Volkswagen, Daimler, BMW, Bayer or Braun. Few would have thought in the aftermath of WWII that in a few decades’ time, a customer from almost any corner of the world would take pride in ownership of any product made either in Japan or Germany.
Why India Faltered in the Past but the likes of Japan and Germany Flourished…
Incidentally, it was barely two years after the end of WW II that India got independence from British rule. It was impoverished no doubt but it did not have a devastated infrastructure to deal with. India was not a country that was reduced to rubble by WW II. True, it had to start from basics of industrial development but it did have basic infrastructure at place. Yet, it could not, in the next four decades since 1947, reach anywhere near Japan or Germany in terms of industrial prowess.
On the contrary, Nehruvian protectionist policies resulted in restricting the elbow room of Indian industry and suffocated them with an obstructive industrial licensing policy coupled with inspector raj. The socialist penchant for reserving innumerable products for exclusive manufacturing by small scale industry and a general disdain for capital, resulted in Indian industry perpetually failing to leverage the power of scalability, or economy of large scale production, thereby eventually losing out in the global markets both in terms of qualitative and quantitative production.
Agricultural legislations such as APMC Act perpetually did away with both the bargaining and purchasing power of the Indian farmer thereby keeping him impoverished and perennially at mercy of the state and middlemen. As a result domestic demand never reached its optimum potential for long. India thus merely limped along with a perpetual foreign exchange reserve crisis and a faltering economy that did not encourage innovation or aspiration.
Sadly, Since Independence the Indian approach was always Incremental and not Quantum
Perhaps the reason why India could never catch up with Japan and Germany was because they were thinking of quantum leap since 1945 while India’s policy makers were thinking of incremental change since 1947. Even during India’s economic liberalisation initiated in 1991 out of an unprecedented balance of payment crisis, the reforms were incremental and not structurally quantum in nature.
Prime Minister Modi is perhaps the first Indian Prime Minister who has openly talked about unleashing India’s powers through quantum leap, structural reforms and by doing away with all the restrictive practices that prevented access of Indian private sector in many sectors. In fact, GST and Insolvency & Bankruptcy Code Act are some of the major structural reforms that have already been implemented by PM Modi that previous regimes dithered to implement.
For the first time an Indian Prime Minister has asked Indians to take a pledge to make 21st Century as India’s century, and no more perceive India as a third world economy simply playing the catch-up game. For the first time an Indian Prime Minister has shown the resolve to pledge support for Indian industry get into the global league and become part of the global supply chain. Since independence, Industry in India has always been looked as pariah by every politician for fear of losing socialist tag even though it is always the industrial infrastructure of a nation that plays a key role in alleviating national poverty.
Charting a New Path for Small & Medium Industry: Aspire to Get Bigger
Prime Minister Modi during his speech specifically mentioned about the need to take care of every stakeholder in the supply chain. This is an important statement from the perspective of making sure that the ancillary industries and component manufacturers, most of which fall in the MSME (Micro, Medium and Small Enterprises) category, are adequately nurtured for their leap into the next league.
By bringing a fundamental change in the definition of MSME, thereby giving them the elbow room to grow, Modi Government is unleashing the power of 63.4 million units[iii] which contribute nearly 30% of India’s GDP but is yet to realise its full potential.
Essentially what this is going to do is to make sure that many of India’s ‘unicorns’ in the MSME sector would start aspiring to grow bigger instead of preferring to stay small. Their individual growth stories and collective aspirations to become part of the global supply chain would not only take India to a different league of industrial evolution but also would create a large array of jobs in the country that is essentially needed to cater to the need for rising population of labour force.
Every Global Giant was once a Small Entity and then it became a Behemoth
For long, in the name of protecting small industries, India had extremely restrictive policies for the small scale sector. No one was allowed to become bigger.
No one wanted to become bigger for fear of losing the incentives of the small scale sector. This resulted in impeding the aspirations of SSI (Small Scale Industry) sector and their hunger for growth. Consequently, in many cases, India’s MSME sector found it difficult to compete with their Chinese counterparts because India’s SSI sector did not have the advantage of leveraging scalability to reduce cost by producing in large quantity, since India’s restrictive policies prevented that. What Modi Government is aspiring to do is to make sure that India’s SSI sector is given the wings to fly and attain global scale.
It has to be remembered that every major global brand, be it Japanese, German, American or Korean or from anywhere else, was once a small local player, like India’s MSME players, and then they aspired to become regional or national in their footprints thereby eventually taking the final leap towards the global journey of fame, respect and acceptance. In many cases, the national governments have consistently helped their domestic companies emerge global through different means. It is a norm than an exception in case of China and Russia or even US where domestic companies are provided with cheap finances and governmental backing to gain global foothold.
For the first time, an Indian Government, under Prime Minister Modi, has shown the same resolve because in today’s era, the clout of a nation is not just about military power but economic clout as well that results out of the strength of its industry. The United States for example, is consistently charting a protective architecture and attempting to negotiate favourable trade deals to support its domestic manufacturing and create jobs within the country. Global defense industry consists of major private players often backed in the global market by their respective governments.
The Legacy since 1947: Fantasy for Imported Goods & Decay of Indian Innovation
One of the most important aspects of the Japanese or German or even the French or Korean growth stories is that people of these countries always took pride in buying the products of their own countries. One would never find a Japanese feeling superior by buying an American or a German product. The same goes for the German or the Korean. However in India, a different culture was created and embedded in the Indian psyche, which had its genesis in the British rule but was carried forward even after independence.
The British Empire, having destroyed indigenous industries of India, swamped the country with imported goods brought from Britain. Those who could afford those products felt a sense of belonging to a higher echelon of the society by virtue of ownership of those products. Post-independence, a combination of myopic protective policies and a general disdain and suspicion towards private enterprises, restricting access of, and competition from private sector in many domains reserved for state controlled enterprises, made sure that India’s products during the Nehru-Indira socialist era were never world class because the state never encouraged development of world class products through competitive innovation. This legacy continued in some sectors even after economic liberalisation that started in 1991. State-owned enterprises, assured of market and immune from competition, never had a reason to strive for excellence. As a result, India suffered and for long had to remain dependent on imports of critical products and technologies.
Thus, while the ruling elites would import the best of the things from abroad, the mass were made to do good with whatever mediocre products that were made in India even as most nurtured a desire to someday own a foreign product. Even owning something as rudimentary as an imported soap or perfume was a matter of pride and a ‘dream come true’ for the teeming millions during the socialist era of India.
Journey from 1991: Commendable but India Inc. Yet to Leverage its True Potential
Post economic liberalisation of 1991, in the unshackled environment, Indian industry did make major strides and in the last three decades took India from the shores of balance of payment crisis to a $3 trillion economy with around $480 billion in foreign exchange reserves. In 2018, seven Indian companies were in the Fortune Global 500 list. Several Indian companies also feature regularly in many other global ranking of companies. From automobile to generic drug manufacturing to IT services industry, Indian companies have made themselves reasonably well known in global arena. Over the last two decades hundreds of foreign companies, big, medium and small, have been acquired by their Indian counterparts to expand India’s footprint in the global business matrix.
Yet India is yet to unleash its real potential.
PM Modi’s clarion call to people of India to not just embrace local products but to also become vocal, or rather become brand ambassadors of them, is perhaps the first concerted effort by any statesman of India to push Indian companies for a greater pie in the global business matrix.
Decision of Modi Government to open all sectors to private players and reserve participation in tenders worth up to Rs 200 crore for Indian companies only, has to be immensely appreciated. Access of Indian private sector to sectors hitherto restricted to state owned companies would help in developing healthy competition and encourage innovation for quality products to reduce imports.
World Class Swadeshi Products for the Global Market
Prime Minister Modi’s pitch for Atmanirbhar Bharat and ‘Vocal for Local’ slogan is much more than the generic Swadeshi movement which, even though was noble in essence, was more isolationist in nature. Instead,
PM Modi’s clarion call is for not just making Indian products more popular in India but to eventually make sure that Indian brands become synonymous with quality and become household names globally. PM Modi is talking about integration and not isolation from global economy. In other words, globalisation cannot be just about FDI coming to India but also about Indian companies becoming global and investing in resources and markets elsewhere to expand the Indian footprint.
This though is happening for many years now but it needs to be institutionalised with active help of Indian Government.
For long, Japan or Germany or USA’s global prowess has been based upon their hold on the global economy, something which China has emulated in the recent past. If India has to take the quantum leap from the present $3 trillion economy to $38 trillion by 2050 as per the Goldman Sachs’ prediction, then Indian companies making it big in the global arena has to become a norm than an exception. This though has to be complemented with also making India a major hub for global manufacturing through the ‘Make in India’ initiative. Several global companies have evinced interest in shifting their global manufacturing bases to India in the recent past. It is also important here to mention that Indian industry too needs to spend much more on R&D, and make innovation a norm, to make their mark a permanent one in global arena.
The Supply Chain & Future Market Factor
A critical lesson for India during the COVID19 crisis is the importance of developing a comprehensive domestic supply chain to make sure that during global disruptions such as the on-going pandemic, India’s production of critical commodities is not hampered. There lies the need of giving due importance to the component manufacturers and every stake holder of the supply chain that PM Modi emphasised upon. Making sure that India develops proficiency in the component manufacturing would immune India from supply chain disruptions of future. It has to be remembered that making components in India are as important as assembling the final products in India.
Also, the post-COVID19 global market matrix would be challenging. A major slowdown is gripping the whole world paralysed by the pandemic related lockdowns everywhere. Global demand for goods and services is reaching a new nadir. The shocking drop in price of oil and the resultant impact on the oil exporting economies shows the vulnerability of dependence on export alone to drive an economy.
Future Progress would depend on Deepening the Internal Economy
Expanding the horizon of the domestic economy would make sure that resilience of India’s domestic economy would shield the nation during the times of global disruptions. Related to this are the bold steps of farm related reforms including proposed amendment to APMC Acts that would unshackle the farmers and give them the freedom to sell their produce to anyone of their preference. This is expected to have a major positive impact in terms of increased bargaining power of the farmer and rise in his disposable income which in turn is expected to have a major multiplier effect in terms of upsurge in demand for goods and services in rural and suburban India, thereby helping strengthening of the domestic economy further.
A New Era of Resilient and Resurgence has Just Begun for India
India has survived the most difficult part of the COVID19 pandemic and has performed much better than many of the much famed western countries. The country with such an enormous population, nearly four times of that of US, showed reasonable discipline during the lockdown phases. In spite of various challenges, and political rabble-rousers, vested interests of various shades attempting to vitiate the environment, people, by and large, have abided by the appeal of PM Modi during lockdown.
The Indian industry has shown tremendous resilience in terms of not just surviving, in spite of massive challenges, but also metamorphosing to start production of critical commodities including PPE, ventilators and essential drugs. People have helped each other and the country never needed any external help to withstand the crisis. India did everything on her own and extended helping hand to others as well.
If PM Modi’s vision for Atmanirbhar Bharat is properly implemented, along with development of resilient infrastructure and further easing of doing business, India would emerge as not just an immensely resilient country but would reach the pinnacle of global contribution based on the hard work, innovation and enterprising endeavours of a billion plus people. The journey then towards a $5 trillion economy by 2025, a $10 trillion economy by 2032 and $38 trillion[iv] economy by 2050 (as envisioned by Goldman Sachs) would be seamless and people would only realise then the essence of what the Prime Minister of India stated in his vision for Atmanirbhar Bharat on 12th May 2020.
References:
[i] Refer to https://www.news18.com/news/india/modi-says-india-turned-virus-crisis-into-opportunity-cites-example-of-ppe-kit-n95-mask-production-2617265.html
[ii] Refer to https://www.indiatoday.in/india/story/pm-modi-lockdown-speech-self-dependency-economic-measures-1677266-2020-05-12
[iii] Refer to CII page on MSME (https://www.cii.in/Sectors.aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTuNuXK6QP3tp4gPGuPr/xpT2f)
[iv] Refer to Page 149 of BRICS & Beyond, https://www.goldmansachs.com/insights/archive/archive-pdfs/brics-book/brics-full-book.pdf
(The writer is a New Delhi based Policy Analyst. The Views expressed are personal.)