The Prime Minister in his address to the nation on Monday called for a reorientation in India’s economic outlook by aiming for ‘Atmanirbharta’ or self-reliance. This was to be accompanied by suggestions for reforms in various vital arenas of the economy such as land acquisition, labor laws, and liquidity. Since his address, there have been talks of similarities in his orientation with that of Pandit Nehru and Indira Gandhi, both of whom saw self-reliance was an important facet of development. Unfortunately, in the past, we have pursued this idea of self-reliance by closing trade opportunities and ensuring a high degree of protectionism that stifled growth. While there were early signs of dysfunctionality of the system such as the balance of payment crisis in 1957, the pitfalls of the system weren’t clearly realized until 1991, when another balance of payment crisis forced the hand of the government to abandon the closed-economic system.
Reforms and Growth
Post the reforms of 1991, India witnessed a new age of abundance that had remained evasive since our independence. The reforms increased competition in the domestic market, providing more and better-quality options to the consumer. For the first time, we saw Indian firms establish themselves without the protective umbrella of the state and facing international competition. This was accompanied by domestic de-regulations such as the New Telecom Policy allowing for India to become a hub of IT-related Services. The Rao-Vajpayee consensus emerged and sustained high growth rates for the next two decades.
Growth Story Derails
Unfortunately, the growth story derailed very soon after the regime change in 2004. While UPA-I did not reverse the pace of reforms in its first term, it shifted its focus towards redistribution. Thus, a host of new legislations were passed focusing more on the redistributionist aspect of state intervention such as MNREGA and loan-waivers for farmers. In a lot of ways, UPA-I made the failure of UPA-II inevitable as it lost precious time in formulating policies on how the interaction between state and the new-emerging market should be conducted. Thus, UPA-II saw successive corruption scandals on account of lack of policies and the accompanying arbitrary allocation of sources in the new market. This stunned the UPA government into a policy paralysis, it preferred no-allocation than to have its allocation reversed by the Courts as in the case of the 2G spectrum and coal blocks allocation.
Optimism and Disappointment
It is important to recall all of this because the reforms envisioned by our Prime Minister can easily slip into these fault lines. The arrival of NDA’s governance was marked by a high degree of optimism. It was widely believed that it will restore the pace of growth and will bring consistency into decision-making through straight-line policies. There were some appreciable reforms in its first term such as the implementation of the Insolvency and Bankruptcy Code, and the attempt to unify the internal market by GST, which is still being refined. The government in its initial term also sought to reform land laws with limited success. However, post-GST implementation, the government’s appetite for reform has taken a hit. More worryingly, it has shown signs of reverting back to import substitution, a policy that was chiefly responsible for the slow growth in the early years of our independence. Thus, the question remains if ‘Atmanirbharta’ would bring another age of autarky?
A New Opportunity
While it is tough to answer this question and it is easy to be a skeptic, the recent moves by the government show that it might as well be the dawn of the second age of reforms in the country. Take, for example, the willingness of India to supply Hydroxychloroquine medication to the world. It shapes not only from a sense of altruism but also for the desire of projecting India as a reliable partner. The recent teleconference with United States’ Secretary of state Mike Pompeo along with foreign ministers of Australia, India, Japan, South Korea, New Zealand, and Vietnam, shows that India is perceived as an important partner in the efforts to move the essential supply chains out of China. Underlying these diplomatic and trade exchanges is the want and willingness to invest in India. The yearning for which has started to also reflect in the domestic arena, marked by relaxation in labor laws, APMC Acts, and land acquisition law by various states.
New Wine & an Old Bottle
Therefore, it is doubtful that the government is simply advocating the same self-reliance as the Nehruvian-consensus offered. It is, perhaps, marketing it in the same manner. The self-reliance can be perceived to be directed towards shifting strategic industries away from China. The recent experience with our reliance upon China for Active Pharmaceutical Ingredient for our Pharma industries has shown that there is an urgent need for localizing certain strategic industries. The subsequent clarifications by the Finance Minister also hinted that it is not the same self-reliance of yesteryears. But a new reorientation of global supply chains with technological assistance, inputs, and support from countries seeking to move its manufacturing away from China. However, we have to ensure that this reorientation occurs with a clear set of ideas, guidelines, and laws that project consistency. The UPA experience has shown that a lack of transparency and arbitrariness reduces the political capital and results in policy paralysis. Hopefully, we would witness another wave of prosperity through these reforms.
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