Dr Ashwani Mahajan
During the last three decades of globalization, the protection of domestic industry was considered like a crime. It was being said that free trade is the panacea of all economic problems. The rationale was that hindrance to the free trade would make our industries inefficient, as lack of competition will hinder efficiency and would affect competitiveness. During the Corona period there has been a big change in the thinking of policy makers in India and the world. Prime Minister Narendra Modi has said that the biggest lesson the country has learnt in this corona crisis is that we have to become self-reliant.
The Prime Minister says that we have to be vocal for the local (indigenous) and be reverent for the local and promote the same. To make the village self-reliant, we would need to make requisite efforts. For this, all the people’s representatives, technocrats, leaders of industry and trade, social activists; all will have to make concerted efforts. We know that India has been a country of diversities. Every province, every district of our country, and even every village has its own specialty. We know that each district is known for one or more types of skills, agricultural product(s) or one or more industrial clusters. Generally, more than one type of characteristics exists in the same district. In the absence of incentives over the years, districts have been losing their distinct identities with regard to their industries, skills and agriculture produce. In fact, every district of our country produces a variety of excellent agricultural products, but due to lack of appropriate system of incentives, storage and marketing, many of these products are facing the danger of extinction. Sometimes, despite having domestic capabilities in the efficient production of these products, the country has to even import them.
On the other hand, so far as manufacturing is concerned, various districts of the country are known for modern and traditional industries. There are places like Ludhiana which is famous for wooden hosiery and bicycle industry, Tirupur for hosiery, Agra for shoe and iron forging, Badouhi for carpets, Banaras and Kanjeevaram for sarees and many others which are world famous. Chinese dumping and neglect of the Government, red tape, inspector raj, lack of finance, lack of access to new technology, etc. are some of the reasons that have led to the decline of these clusters.
In the past, due to the obsession towards globalization and the domination of multinational companies, these industries witnessed a significant decline. Today, when we are talking about self-reliance, efforts are also needed to be made to preserve and enhance their local products according to their specialisation. Along with the efforts of the Central and State Governments towards protection and promotion of local industries, if the people’s representatives, industry and trade leaders, social activists etc., make efforts, then these enterprises will naturally get a new life. Learning lesson from pandemic, if the country revives and promote its manufacturing, which has deteriorated due to perverted policy framework and unfair competition from China, then it will increase employment and income in the country and improve the standard of living of the people.
Self-reliance will not come overnight
Some people believe that in this era of globalization, we are so much connected with the rest of the world, that our efforts to become self-reliant can prove to be regressive and suicidal. They say that if the import of components coming from China is stopped then our industries will come to standstill. Such people fail to appreciate that resolve to self reliance is not about stopping imports from China altogether, but to gradually reduce dependence on China.
Due to apathy of Governments in the past towards dumping of Chinese goods, our industry got destroyed. However, we have to rebuild our industry and we need to ready ourselves to find alternatives. We must not forget that most of the imports from China are those which are either produced or could be produced in the country. These include steel, chemicals, machinery, vehicles, fertilizers, pesticides etc. There are many imports, which do not even require high technology. Such zero technology products can easily be produced in the country in a short span of time. In such a situation, a lot of imports from China can be stopped.
In the past 90 percent of APIs (Active Pharmaceutical Ingredients), required for our pharmaceutical industry were produced in the country. This industry can also be revived in India, with efforts from the Government. For their revival, the Government has already implemented an incentive scheme of more than Rs 11000 crore.
Apart from this, we can try to increase production of electronics, telecom, mobile phones, other consumer goods etc. in India. The Government has already rolled out a plan to revive electronic and mobile phone industry.
Self reliance is not protectionism
Policy of self-reliance by increasing production in the country cannot be equated with protectionism. It is of course true that, for new industries to flourish, the import duty on goods coming from abroad will have to be increased a bit; to discourage dumping, anti-dumping duties in some cases safeguard duties may also be needed. Standards are also needed to prevent inferior foreign goods, and alongside a host of non tariff barriers may need to be imposed. Those who call these measures as protectionist must understand that US imposes more than 6500 non tariff barriers, China imposes more than 3,500 such barriers, while India imposes only nearly 350 such barriers.
Using of WTO provisions is also no protectionism
It has to be understood that the protectionism before the new economic policy of 1991 led to inefficient industrialization, because during that period, heavy import duties (100 percent to 600 percent) were levied in India, which can actually said to be a hindrance to efficiency. The era of high import tariffs has already ended after the WTO came into existence. India is already bound by WTO rules. But there are provisions and flexibilities in the WTO as well, through which we can promote our industries and protect them from unequal competition. Due to the globalization of the last three decades and the obsession of our policy makers towards free trade, have led to lowering of import tariffs well below the WTO bound rates. Whereas, WTO rules allow India to have an average import duty of up to 40 percent, our average import duty is less than even 10 percent. Under these provisions, the Government of India increased import duties on some items including electronics, mobile phones, consumer goods, etc. from 10 percent to 20 percent and this helped reducing imports significantly. In the last 2 years between 2017-18 and 2019-20, India’s trade deficit with China has come down from $ 63.2 billion to $ 48.6 billion. Apart from anti-dumping duties, countervailing duties, we can also impose non-tariff barriers and encourage Indian industries by implementing standards. Such actions cannot be equated with pre-1991 protectionism. Almost all countries impose tariff and non-tariff barriers for the protection and promotion of their industries, so why can’t India do the same. India’s unilateral free trade will prove suicidal when other countries are increasing import duties in the name of trade war.
Therefore, critics have to understand that the continuous decline of industries due to cheap Chinese imports is not in the country’s interest. Why a steadily increasing trade deficit does not distract critics, is beyond comprehension. The need of the hour is that efforts should be made to stop imports, primarily with incentives to our industries. And after that, by making products of international standards, we can, not only fulfill the requirements of the country, but also export to foreign countries. It has to be understood that every country is protecting its industries, so we cannot equate measures adopted under the WTO provisions with protectionism. In fact, this effort of self-sufficiency of the country can play an important role in raising income and employment in the country.
(The author is Associate Professor, PGDAV College, University of Delhi)
Dr Ashwani Mahajan