What will drive India’s next economic transformation?

• The covid pandemic has disrupted the global supply chains, and highlighted the issues with it, including dependencies on one or few countries for some links in the chain.
• Governments across the world are encouraging countries to shift their manufacturing out of China.

India must position itself to benefit through export orientation:

• With the global supply chains being reforged, India must position itself as a vital link in this new order.
• A strong export orientation, cost-competitive manufacturing and creation of domestic champions is the need of the hour.
• An Atmanirbhar Bharat (self-reliant India) will not be possible without growing exports to serve global markets. Therefore, global orientation is imperative.

 

India must also reduce imports in sectors where it can:

• Commodities:
• India imports a large number of commodities that are available in abundance within India itself.
• For example, despite having some of the largest coal reserves in the world, India still imported coal worth Rs 1.7 lakh crore in 2018-19.
• Now, with commercial coal mining a reality, we should see steady reductions in our import bills.
• Defence:
• Defence is another area where India has been a large importer.
• A gradual import substitution of 101 items worth Rs 3.5 lakh crore over the next five years has already been announced.
• An increase in FDI limits from 49% to 74% also announced.
• India has an abundance of minerals which can go into making metals like aluminium which has strategic future uses and super-alloys needed for defence production and in a range of industries.

 

Conducive business environment must be created:

• A reform-based stimulus to the economy was announced during the Covid-19-induced recession.
• Historic reforms were announced in the agriculture sector and the coal sector was de-monopolised, paving the way for private sector investment.
• A conducive business environment will enable both domestic and foreign investment.
• However, there are a few critical elements that must be addressed to create a business environment that is the envy of the world.

Move towards production-linked incentives in manufacturing:

• The Prime Minister's vision for an Atmanirbhar Bharat hinges decisively on the success we are able to achieve in our manufacturing sector.
• We must move away from capital-linked subsidies to production-linked incentives (PLI).
• Several PLI schemes have been announced, already showing encouraging results.
• The production-linked incentive (PLI) scheme for mobile phone manufacturing has been showing impressive results.
• This is one of the vital cogs in enabling large-scale, low-cost manufacturing.

Must be careful on duties on imports so as not to impact exports:

• While imposing tariffs on imports seems like an easy solution to reducing imports, the effect is some time the opposite of what was expected.
• If duties are raised on critical inputs for exports, then the cost of exports would rise, making them uncompetitive in global markets.
• Even if duties are imposed on consumer goods, the duties should contain a sunset clause and be phased out in a clearly-defined timeline, allowing the domestic industry to grow.

Land and labour reforms:

• Land and labour have been the traditional constraints in achieving scale in manufacturing.
• Moves are being made in reforming labour laws, with multiple labour laws at the central government-level to be subsumed into four labour codes. Bills in this regard are set to be tabled in the coming monsoon session of Parliament.

Easing regulatory burden:

• Another vital element is that of easing the regulatory burden.
• India has already made progress in this regard, as evidenced by our jump of 79 positions in the World Bank’s Ease of Doing Business Rankings.
• Going forward, there should be nor delays in clearances and requirement of multiple permissions. 
• The states must take the lead and cooperate on this front.

Lowering the logistics costs:

• India’s high cost of logistics relative to other competing nations has been a disadvantage.
• For example, our port turnaround time stands at approximately 60 hours adding to costs, despite significant improvements in the past years.
• To address this, the central government is expected to continue its push towards elevating India’s infrastructure to world-class standards through the National Infrastructure Pipeline.
• Digitisation of our ports will be critical in reducing our turnaround time.

 

Conclusion:

• India’s domestic market will serve as the base of an Atmanirbhar Bharat.
• Combined with world class infrastructure and a conducive business environment, India will attract both domestic and foreign investments in manufacturing.
• These investments will, in turn, promote high quality, cost-competitive manufacturing.
• When this happens, India will take its rightful place in global value chains.