Athmanirbhar Bharat marked its entry into the political arena in March 2020, just when Covid began raging across the world and strict lockdowns were being imposed to control the spread. The world’s reliance on China was laid bare in the early days of the pandemic and the supply chain disruptions wreaked havoc in businesses.
The Modi government saw an opportunity to fill the void China had left and showcase India as an alternative and a viable supply chain hub. It also made political sense for the Indian government to rely less on Chinese imports, especially in the context of the Galwan incident that led to relations nose-diving between the two countries.
But apart from these global economic and political factors, another interesting thing happened. Self-reliance, which was discarded summarily since the 1991 reforms, made a triumphant comeback under the guise of Atmanirbharta. The tattered reputation of free trade and gloablisation made this comeback easier.
Atmanirbharta also neatly dovetailed into the BJP’s economic ideology, whose attitude towards reforms was always lukewarm and cautious despite the hype generated.
The PLI factor
The PLI (Productivity-linked Incentive) programme was an integral part of the Atmanirbhar plank. The scheme envisaged government support to select industries provided they met a few production and investment targets.
The scheme was launched in March 2020 in 13 sectors which included — auto components, automobile, pharmaceuticals, chemicals, food processing and textiles and apparel.
This list was later expanded by 10 more sectors in November 2020 and now has 24 sectors, the last one being Drone and Drone components.
The global context
Globalisation has been in retreat since the Global Financial Crisis of 2008, when the world economy very nearly keeled over, thanks to the reckless behaviour of the giants in the western financial world.
Former US President Donald Trump’s bruising trade war with China and to a lesser extent with EU and other countries singed global trade and left globalisation permanently damaged. The WTO is yet to recover from blow that Trump delivered during his reign.
But even after the 2008 financial crisis, China and India remained the torchbearers for free trade and globalisation, given the massive gains that these two countries had made from them. But this mood slowly started shifting towards the end of the 2010s. India’s stalled negotiations with the EU over a free trade deal and pulling out of the RCEP deal were seen as signs of growing fatigue towards free trade and a rules based multilateral global trade order.
The pandemic seems to have turned the clock back irreversibly.
The PLI scheme also inadvertently led to India having an industrial policy which again was abandoned since the 1991 reforms. Under an industrial policy the government basically picks a few winners, industries that have the best chance to raise domestic capacity, technology infusion and exports, and showers them with financial support and subsidies. South Korea followed a similar policy in the 1960-70s.
The Modi government is attempting a similar strategy in India. But crucially under the PLI schemes, foreign companies are also allowed to take part in it and avail themselves of government support, provided they meet the production and investment criteria.
The pharma factor
One of the key factors driving the PLI scheme was to drastically reduce the pharma sector’s reliance on the import of Chinese APIs or bulk drugs that are needed to manufacture medicines here. Recently in Parliament, Minister of Chemicals and Fertilisers Mansukh Mandaviya, said that out of the 53 drug raw materials that India used to import, 35 are now being domestically manufactured, a sign of growing self-reliance.
He said 32 new plants for manufacturing the 35 APIs (Active Pharmaceutical Ingredients) have been set up under the PLI scheme.
This “de-coupling” of the pharma sector from Chinese sector assumed significance during the pandemic.
Dissenting note
Though there may be compelling reasons to take the “self-reliance” path for the pharma sector, doubts are being raised on whether this strategy will be feasible for the other sectors.
Raghuram Rajan, Professor at the University of Chicago and former RBI Governor, sounded a note of caution on the PLI scheme at a recent public lecture, where he said that these policies have never worked well in the past. He said that to overcome the cost disadvantage of the PLI scheme offers subsidies and tariff protection.
“By doing so we are going back to the licence raj which has been tried before and failed for India,” was his rather harsh warning. He also raised a red flag over the government’s efforts to build indigenous chip manufacturing capacity. The investments needed for this are humongous involving huge subsidies which could well turn into a white elephant.
Rajan urged using these funds for more useful avenues such as education and skills development. He also called for an assessment of the PLI scheme.
The PLI scheme is still evolving and the jury is still out. But given the political capital invested in the scheme, an objective, independent assessment after a period of time may well be worth the while.