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Thursday, August 5, 2021

Aatmanirbhar Bharat: India’s Economic Response To China

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It is often said that good economics makes good politics.  Politics and economics are intricately intertwined to each other, much like a cause effect relationship. A nation’s political capital is predicated on its economic fundamentals and hardly any country can gloss over its economic performance in pursuit of its political goals.

On 12th May 2020, in his fifth national address, PM Narendra Modi announced an ambitious programme christened ‘AATMANIRBHAR BHARAT ABHIYAAN’ (ANBA) with an outlay of Rs 20 lakh crore, a whopping 10 percent of India’s GDP. Amid the raging global turbulence in the midst of COVID 19 pandemic and its devastating consequences on economies across the globe, this massive government intervention to resurrect the Indian economy and drastically alter its contours couldn’t have come at a better time.

WHAT IS ANBA? 
Aatmirbharta simply means self-reliance and this self-reliance can be achieved by investing in the vast untapped potential of our economy. Making India self sufficient and less dependent on other nations for meeting its domestic economic requirements is thus the core idea of ANBA. It rests on five pillars, namely economy, infrastructure, a system driven by technology and forward-looking policies, demography and economic demand.  However, some sceptics cast aspersions on the intentions of ANBA and fear whether this is a  recourse  to a more orthodox idea of protectionism as some countries have recently resorted to. This is a misplaced assumption. Aatmnirbhar Bharat or Self-Reliant India simply means strengthening our own capabilities and augmenting capacities by leveraging the skills of our workforce without repudiating the reality of globalisation or retreating from the integrated global economic order. Rejecting the pragmatism of an interconnected world and descending into narrow isolationism is neither feasible nor desirable for any nation, let alone India. This would simply militate against the fundamental economic principle of comparative advantage. ANBA is thus anything but economic isolationism or trade protectionism.

AATMANIRBHAR BHARAT : INDIA’S IGNITION KEY TO BECOME THE MANUFACTURING HUB
From a tiny safety pin to gigantic engineering structures, China is dominating the manufacturing scene unshackled and unfazed. The Dragon has challenged the Best of the West in terms of manufacturing and Chinese standards have truly acquired the character of global standards. Therefore, ‘’manufacturing’’ and ‘’Made in China’’ are the buzzwords which have contributed immensely to the indomitable clout of China, burgeoning its economic prowess and political preponderance. In the wake of recent violent incursions of Chinese Army into the Indian territory in Galwan valley and the corresponding face off, it becomes more necessary than ever before for India to launch an economic offensive against China in the long run as fighting the Dragon alone on political and diplomatic fronts are not enough because we are heavily dependent on China for various goods and services, overtly and covertly. A smart diplomacy should be an ideal mix of politics and economics to resist the expansionist, aggressive and unrelenting China. 

SECTORAL ANALYSIS :
According to data from the Commerce Industry, imports from China account for about 16% of total imports whereas exports from India to China account for only about 3.2%.  This huge trade imbalance acts as a clear disadvantage for India.  
About 45 – 50% of India’s electronic equipments are imported from China, which feeds India’s most ubiquitous IT and ITeS industry.  In case of pharma and drug industry, especially Active Pharmaceutical Ingredients (API), it is a staggering 65 -70%. This is because Chinese government gives enormous incentives for companies to set up manufacturing bases with flexible labour laws, simplified tax regime and access to strategic markets. Similarly, China accounts for three – fourths of global battery production, so India’s bid to make electric vehicles makes it heavily dependent on the Chinese. China is using India as an economic tool for its politics.

THE AATMNIRBHAR STIMULUS:

MSMEs:
Prime Minister’s urge to use ‘’Swadeshi’’ or country made products or pitch for ‘’Vocal for Local’’ will translate into action only when India sufficiently produces goods and services to cater to its domestic demands, substantially reducing our dependence on China.

If we have to make India a leader in manufacturing, then we need to designate our MSME sector as the protagonist of this new growth story. MSMEs account for about 45% of manufacturing output, 40% of exports, 28% of GDP besides providing employment to millions of people in urban and rural areas. The government has rightly recognised the potential of MSME sector in realising the mandate of ANBA.  Accordingly, a fund of funds with a corpus of Rs 10,000 crore will be set up for MSMEs.  This will provide equity funding for MSMEs with growth potential and viability. All businesses (including MSMEs) will be provided with collateral free automatic loans of up to three lakh crore rupees.  MSMEs can borrow up to 20% of their entire outstanding credit as on February 29, 2020 from banks and Non-Banking Financial Companies (NBFCs). This would enable as well as encourage the MSMEs to diversify their production basket, venture into newer areas, innovate the conventional product manufacturing techniques to create economies of scale and attracting semi skilled and skilled jobs and resulting in greater formalisation of Indian economy.  Another path breaking reform is the decision of the government to change the definition of MSMEs. Henceforth, MSMEs would be categorised based on the criteria of annual turnover as well as an increase in the investment limit. The distinction between manufacturing and service sector enterprises has been done away with.  This would reduce dwarfism in the MSME sector as well do away with the ‘’problem of missing middle’’. This would also encourage the MSMEs to register on stock exchanges.


This approach of reviving the MSMEs must be coupled by cross cutting synergies of skilling and employment generation. Rural and semi urban youths must be skilled through appropriate collaborations with programmes like PM Kaushal Vikas Yojana, Skill India Mission, etc and incubated through the MSMEs. This would lead to a shift towards vocational education, skilled workforce as well as job creation. This would result in a decisive shift towards more manufacturing-oriented economy than a service driven one and would absorb the surplus labour from agriculture and ease the burden on the later.  All this would unleash a vibrant role for India in the Industrialisation 4.0 positioning itself as a leader in the field of science and various emerging technologies like Robotics, Edge Computing, Bio Technology, Artificial Intelligence, etc. If we succeed in harnessing the full potential of MSMEs in manufacturing and job creation by reaping our demographic dividend, this will be our first major victory against Chinese dominated manufacturing sector.

AGRICULTURE:
Although agriculture’s share in Indian GDP has been constantly declining, it still employs an overwhelming 45% of population in India. In rural India, agriculture is the financial mainstay of the people. Despite   enormous dependence on it for livelihood, agricultural sector suffers from various structural constraints in India. Low productivity, lack of profitability, lack of value addition and small sized landholdings have always impeded the growth of agriculture and rural India. Under ANBA,  farmers will be provided institutional credit facilities at concessional rates through Kisan Credit Cards.  This scheme will cover 2.5 crore farmers with concessional credit worth two lakh crore rupee.
 An Agri Infrastructure Fund has been set up with a sum of Rs 1 lakh crore earmarked for development of agricultural infrastructure projects at farm gates and aggregation points. Farm gate refers to the place where consumers can buy produce directly from the farmers, eliminating the middle men. This would result in greater bargaining power for farmers, better price and quality goods for the consumers, reduce the chances of wastage, black marketing, hoarding or exploitation of farmers. Indeed, a win win situation for all. So, a farmer could become ‘’aatmnirbhar’’ or self-reliant realising his worth.  An additional fund of Rs 30,000 crore will be released as emergency working capital for farmers. This fund will be disbursed through NABARD to Rural Cooperative Banks (RCBs) and Regional Rural Banks (RRBs) for meeting their crop loans requirements.  This fund is expected to benefit three crore small and marginal farmers.  This is in addition to the financial support of Rs 90,000 crore that will be provided by NABARD to RCBs and RRBs to meet the crop loan demand this year.   Some experts have hailed this as the 1991 moment for agriculture.

Agriculture is closely related to allied sectors like diary, fisheries, etc and provide a bulwark to farmers against uncertainties of agriculture like crop losses or price volatility. Underlying the importance of allied sectors, the Pradhan Mantri Matsya Sampada Yojana (PMMSY) will be launched for integrated, sustainable, and inclusive development of marine and inland fisheries.  Under this scheme, Rs 11,000 crore will be spent on activities in Marine, Inland fisheries and Aquaculture and Rs 9,000 crore will be spent for developing infrastructure (such as fishing harbours, cold chain, markets).  An Animal Husbandry Infrastructure Development Fund of Rs 15,000 crore will be set up, with the aim of supporting private investment in dairy processing, value addition, and cattle feed infrastructure.  Incentives will be given for establishing plants for export of niche dairy products.  Our Prime Minister Narendra Modi has always emphasised on rural India and agriculture and it is expected ANBA would give the much-needed fillip to the ailing agro sector and would retrieve the rural economy from its quagmire and further, arrest the rural to urban distress migration.  A self sufficient and prosperous rural economy will act as a demand side factor for the economy and a higher per capita income in villages will result in higher per capita consumption expenditure too.

INFRASTRUCTURE:
Infrastructure is the support system of an economy. A strong and vibrant economy hinges on a robust infrastructure. Massive infrastructural and logistical makeover is a sine qua  non for ANBA to succeed. India has made rapid strides in expanding infrastructural network over the years, however, a lot more has to be achieved strategically in sync with ANBA.

We have to think of port-based manufacturing clusters, so that true economies of scale and the benefits of lower logistical costs can be reaped. Presently, the average time to move goods from Indian ports to the east coast of the US, according to data provided by the 2016-17 Economic Survey, is 21-28 days (versus 14 from China).
Our road transport costs are $7 per km, versus $2.4-2.5 for China. $3 for Sri Lanka, and $3.9 for Bangladesh). Trying to move supply chains out of China won’t happen without fixing our logistics costs. This calls for huge improvements in road and railway infrastructure and also port infrastructure.  Existing government programmes like Bharat Mala and Sagar Mala projects should be prioritised further equipped with a higher funding and superior expertise to inch closer towards the ambitions of ANBA.

ENERGY:
The story of infrastructure is incomplete without energy sector included in it.  India and China show similar trends in energy demand, consumption, and imports. As of 2018, China was the world’s largest consumer of energy and accounted for 24 percent of global energy consumption and 34 percent of global energy demand growth. India, for its part, has the third largest energy demand in the world. The International Energy Agency (IEA) projects that by 2040, the average Chinese household will consume twice as much energy as it does today and India alone will grow to account for 30 percent of the entire global increase in energy demand.

Under ANBA, a liquidity support of Rs 90,000 crore will be provided to power discoms.  These will be in the form of funds from Power Finance Corporation and Rural Electrification Corporation.  Discoms will also be provided with state government guaranteed loans exclusively for discharging their liabilities to power generation companies. To enhance efficiency, power distribution will be privatised in the union territories.  The burden of inefficiencies of power companies will not be passed on to the consumers.  Standards of Service and associated penalties for DISCOMs will be defined prompting discoms to ensure adequate power and avoiding load-shedding. This would lead to safeguarding of consumer rights and an efficient and cost-effective energy governance regime in India.

DEFENCE:
It is an extremely critical area where we need to outperform China both in terms of quantity as well as quality. China ranked second in military spending with an outlay of $261 billion, whereas India ranks third with a military outlay of $71.1 billion, according to Stockholm International Peace Research Institute.

Under ANBA stimulus package, FDI limit in defence manufacturing under automatic route will be increased from 49% to 74%.  Make in India initiative will be promoted in the defence sector aiming to make the country independent in terms of production.  A list of weapons/platforms will be released which will be banned for import based on a year wise timeline. To promote efficiency, autonomy and accountability, government has decided to corporatize Ordnance Factory Board.

WAY FORWARD:
Successful people don’t do different things, they do the same thing in different ways. To realise the postulates of Aatma Nirbhar Bharat Abhiyan, it is extremely imperative that we leave no stone unturned in turning this challenge into an opportunity unlocking the true potential of Bharat. Since the core ideology of this programme is self reliance, much depends on our own efforts and actions to realise an Aatm Nirbhar Bharat. For this, each of us have to do our bit. If the government’s duty is to facilitate necessary conditions and provide incentives to transform the socio-economic landscape of India, we as citizens have the responsibility to realign our consumer preferences for more Swadeshi goods and encourage our family members, peers and colleagues to do so. For the sake of our country, lets’ do it!

References:

https://www.jagranjosh.com/general-knowledge/aatma-nirbhar-bharat-abhiyan-package-for-covid-19-1589779191-1

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