Dr Ashwani Mahajan
After assuming power in May 2014, the Prime Minister Narendra Modi, announced the key points of his economic policy, of which the Make-in-India was an important one. Significantly, rate of growth of our industrial production, which was more than 15 percent in 2007-08, turned out to become zero and sometimes negative in the years after 2011-12. That is, the industrial development had come to a halt from 2011-12. Electronics, computer hardware, durable and non durable consumer goods, furniture etc. all were being imported from China or other countries. No new factory was coming up in the country and the existing ones were also shifting to China. Not only that manufacturing was standstill, the share of manufacturing in GDP was hardly around 15 percent.
In May 2014, after the formation of the Narendra Modi Government, policies like Make in India, Start Up India were announced. In his speech from the Red Fort, Narendra Modi said that his policy is to increase the industrial production in India. He appealed to companies from around the world to come and start production in India. On the other hand, the government called upon the entrepreneurs in India that they should set up industry in the country and they would be relieved from various types of hassles, faced by them earlier. ‘Ease of Doing Business’ will be improved, to make business environment better for new and old entrepreneurs. For new ‘start-ups’, the Government assured an enabling environment in terms of facilities, tax exemptions and cooperation. For the first time, there was an effort to increase the business on such a large scale. New phrases like Start up, stand up, holding hands etc. were added to the official dictionary.
Although the fruits of all these efforts may take some time to come, it cannot be denied that there has been some improvement in the environment for industrial and business development. The new ‘start-ups’ started coming and the Government’s attitude was also of a ‘holding hand’.
Whereas, the first condition for increasing industrial production is that industries be established; however, demand for those items in the country is also a precondition for this to happen. Unfortunately for the last several years, the import of industrial goods (whether they are consumer goods or producer goods, such as machinery) has been increasing fast. Exports compared to imports were not increasing at the same pace. However, huge imports also indicate that demand existed in our own country, which is an important precondition for industrial to increase.
WTO Agreements
World Trade Organisation (WTO), came into existence in 1995. According to the agreements reached at WTO, commitment was made by all member countries to keep import tariffs low and eliminate all non-tariff barriers, which could curb imports. Due to cheap labor, Government subsidies and unethical practices, and resulting low prices, Chinese goods started dominating the world markets. Impact of the same was also felt on India, and India’s trade deficit with China reached $ 52.7 billion by 2015-16.
Government a Big Purchaser
The Government is also a big source of demand. At present lot of imported goods enter into Government procurement chain due to many reasons. Suppliers of Chinese goods win tenders due to low prices. According to a rough estimate, Government makes a purchase of at least 2 trillion rupees (2 lakh crores) every year. It is therefore necessary that in order to increase production in the country, procurement of items Made in India, should be preferred in the government. Even before the new economic policy came into force, preference used to be given to small scale industries/ Khadi products. But this preference was given up after the new economic policy came into force. At first instance the preference in the purchase was changed to the price preference and subsequently the preference was abated gradually.
After the WTO agreements, it was being argued that since we are obliged to treat foreign companies / imports, similar to Indian products, we cannot give preference to indigenously produced goods, even from small industries.
Preference is Possible
Under ‘Buy American Act 1933’, US made products are preferred in Government procurement in USA. According to WTO rules, if a Government gives preference to products made from that country for its own consumption, then it would not be treated as violation of WTO rules. But if a commercial entity is forced to give preference to the indigenously produced goods for commercial use or sale, then it would be considered a violation of WTO rules. In Jawahar Lal Nehru Solar Mission, when the condition of the use of local solar equipment was imposed by India, US objected to the same and India lost its case in Dispute Settlement Panel (DSP) and even in the appeal.
Government can bring new policy
Since it is clear that if the Government gives preference to products made in India for its own requirements, then WTO Agreements are not violated. Even America gives priority to American goods in Government procurement, India can do the same and there cannot be a dispute against India if it decides to give preference to Indian made goods. Recently a committee of Secretaries of the Ministries has made recommendation to the Government that to make the ‘Make in India’ policy successful, the products made in the country should be given preference in Government procurement. It is believed that the Government will soon announce such a policy and the rules will be issued by the Finance Ministry in this regard. Significantly, today a large quantity of products is being imported from China and host of other countries and the same gets included in Government procurement. It may be assumed that by giving priority to the purchase of products made in the country, the ‘Make in India’ program can really be made successful in the country. The industry is also pleased with such a policy proposal because it will give industry, an assured captive market for its goods.
(The author is Associate Professor, PGDAV College, University of Delhi)
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