Even when the pandemic was raging, India undertook bold reform measures to secure its future on the path of self-reliance and the results have started to bear fruit.
Ravaged by the pandemic, fiscal 2021 was an abnormal year for the world economy at large. Yet, when economists in India would look back after a few decades they would probably realise that the strength of the country’s economy then had roots in the year that has gone by. It is no coincidence that it also happens to be the 30th anniversary year of the Indian economy’s liberalisation that began in 1991.
As any country that is bereft of crude, India’s economy runs a trade deficit with the world. During fiscal 2021, its overall trade was worth nearly $685 billion which, due to the contraction in the domestic economy and lower consumption, was less by 13 percent over the previous fiscal. But while India’s imports came down by over 17 percent--$393.6 billion in fiscal 2021 over $ 474.71 billion in fiscal 2020, crude oil bill again playing a major role contracting by a third, its exports were relatively resilient, declining only by 7 percent at $291 billion. As a result, India’s overall trade deficit with the world narrowed, for the first time in many years.
While one should not read too much into the data of just one year, the number of steps the government has taken to make the country’s economy more self-reliant in the last 12-18 months, does merit a mention. India has hiked import duties in a wide range of sectors especially in electronics from products like air-conditioners and televisions, water purifiers and ovens to refrigerators and even solar panels to thwart cheap imports and enable domestic industry to scale up.
At the same time, realising that tariff protection alone may not be enough, the government also came up with the ambitious production linked incentive scheme across 13 sectors. The aim is to offset the high cost the industry has to incur on things like power, capital and infrastructure that makes Indian manufacturing uncompetitive globally.
The corpus for the various PLI schemes covering electronics and automobiles, textiles and pharmaceuticals, food and steel, is massive—nearly Rs 2 lakh crore has been earmarked. The first such scheme for manufacturing mobile phones and components has received enthusiastic response too, with more than a dozen proposals.
“India having a big domestic market and capability of competing China in attracting global manufacturing facilities is quite significant. In the post Covid economic scenario, globally there is a perception, of shifting manufacturing outside China, as a risk diversification strategy,” says Gopal Krishna Agarwal, national spokesperson for BJP. “India being a democracy, having independent judiciary and media, brings more comfort to global players as an alternative. This brings in an added opportunity for attracting foreign green field projects to India. Initiatives such as PLI, new Logistics and Industrial Policy are helping in this direction. Efforts of some state governments, like Uttar Pradesh, are also bringing positive results.”
The impact of these measures are already visible in its ties with China--one of India’s largest trade partners. For years India has suffered a debilitating trade deficit with the dragon but in the last few years it has come down. In fiscal 2021, it is down at $44 billion--a 7-year low. Only three years ago, it was a high $63 billion.
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“It shows that we are on the right track and policy measures are working. From a time when there always was an increase in deficit, we have come to a juncture when it is reducing rapidly,” says Ashwani Mahajan, co-convener of Swadeshi Jagran Manch—one of the staunchest advocates of self-reliance. “Our dependence on Chinese goods was so much that the domestic industry was suffering. Efforts to reverse the trend started only from 2018 onwards. That was the first time when a finance minister had raised tariffs even though protectionism was considered a bad word. Those measures have yielded results—the ones we see today.”
For a country with sparse crude reserves, becoming self-sufficient will be a commendable feat. It will take a few decades, but the first baby steps were taken last year under the shadow of a global pandemic.