This Independence Day will be different from the previous ones in several ways. There will be no flag-waving crowds cheering the military parade in State Capitals, educational institutions will not host celebrations, and businesses may also restrict themselves to flag-hoisting, watched by a handful of mask-wearing employees. The need for social distancing, brought about by the Covid-19 pandemic, has changed our lives. Yet, in the words of Charles Dickens, in this ‘winter of despair’, there is certainly ‘a spring of hope’.

Even as the economy passes through its most difficult phase in recent history, staring at the fourth recession since Independence, there is also a resolve building up to make the most of the opportunity presented by this catastrophe. The Prime Minister’s clarion call to move towards ‘Atma Nirbharta’ (self-reliant India) has given Indian businesses a new purpose.

The lull in activity has given companies time to re-think their business strategies and orient themselves towards the requirement of the domestic market in such a way that imports reduce.

Need to reduce imports

The ‘Atma Nirbhar Bharat’ is a well-thought-out strategy that seeks to meet two objectives. One, domestic producers staring at lower demand due to the pandemic can actively look at producing other products for domestic consumption. For instance, many paint manufacturers have begun producing hand sanitisers, and textile companies are making PPEs and face masks.

The other objective is to reduce import dependence. India has consistently sported a trade deficit over the past two decades. While exports registered a sharp increase between 1991 and 2010, export growth has flattened since then. The growth in imports has, however, outpaced exports since 2000, led by the import of mineral fuels, oils and distillation products. While this component of imports is rather inelastic, given the growing income level of the population, there is a strong case to reduce the import of electrical and electronics equipment, which account for 11 per cent of the imports, and machinery, nuclear reactors and boilers (which account for 9.3 per cent).

Further, after the border clash with China, and the resultant determination to curb imports from China, the need for becoming ‘Atma Nirbhar’ becomes all the more exigent. India has had a trade deficit with China, ranging between $48 billion to $63 billion over the last three fiscal years.

Government initiatives

To disincentivise imports at large, particularly those from China, the Centre has taken various steps. It banned 59 Chinese apps, and announced production-linked incentives, contingent upon companies achieving certain milestones for large-scale production of certain electronic components and mobile phones: for this, it has set aside ₹40,000 crore. Incentives are also to be given for producing API and drug intermediaries; for this, another ₹10,000 crore has been allocated over five years.

In another major step, the Ministry of Defence is proposing an import embargo on 101 items to move towards indigenisation of defence equipment manufacturing. This is expected to result in order inflow, equalling almost ₹4-lakh crore to domestic manufacturers, over the next 6 to 7 years.

Apart from ensuring credit to MSMEs, the Centre has decided to disallow global tendering in projects up to ₹200 crore. This will ensure that smaller manufacturing units get to make the products that were thus far sourced from outside India.

Industry’s response

Many Indian businesses have taken the call to move towards self-reliance in earnest. The most cited success story is the manufacture of Personal Protection Equipment kits. The production was scaled to over two lakh kits per day from no production in March 2020.

Among larger companies, RIL took the lead and unveiled two significant initiatives at its recent Annual General Meeting. One, Jio plans to partner with Google to manufacture an Android-based smartphone operating system that will make smartphones cheap and affordable to those who are still using 2G phones. Two, Jio has designed and developed a complete 5G solution, which can be launched in a year’s time. The company plans to export 5G solutions.

Another success story covered in BusinessLine relates to Morbi, a manufacturing hub in Gujarat, which is looking to substitute for electronics imports from China. About 150 electronic and clockmakers from this town are looking to strike a deal with manufacturers to get them to give up sourcing parts or finished products from China.

The way forward

Given India’s large population, re-orienting domestic companies to cater to domestic consumption can lead to more sustained growth that will be insulated from external shocks.

But the move towards sourcing from local producers will mean Indian manufacturers have to pay a higher price for inputs; China’s scale of production had facilitated lower prices. The government needs to provide incentives to businesses that completely indigenise their inputs in the form of fiscal rebates. The recent move to review the import licences of large multi-national companies with production units in India to stop the practice of allowing these units to import parts and assemble them in India is a right step.

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