(This article is written by Mr. Prashant Girbane, Director General, MCCIA and was published in all editions of the Hindu Business Line on 28th November 2020.)
Atmanirbhar Bharat is as much about the broader philosophy of making India realise its potential to be self-reliant without cutting off from the world as it’s about the COVID-19 response package.
The ‘Atmanirbhar package’ was announced in three tranches over the past six months from 12th May 2020 to 12th Nov 2020, that covered monetary and fiscal stimuli. During this time, a set of reforms were also announced.
On the monetary stimulus front, The RBI did the heavy lifting with suitable and adequate measures that were announced and executed proactively. The Government also did its share by supporting the creation of liquidity through schemes like the Emergency Credit Line Guarantee Scheme (ECLGS). Given the constraints of available fiscal space and the uncertainty of the pandemic, the Government of the day has used an incremental approach towards the fiscal stimulus as against the UBI (Universal Basic Income) approach of one-time cash deposits in the account of every citizen to boost aggregate demand.
There were significant hardships caused during the reverse migration of labour as unemployed migrant workers yearned to be with their family back home in the times of stringent lockdown and utmost uncertainty. However, schemes like the PM Garib Kalyan Yojana and the Top-Up on MNREGA ensured that any significant distress incidents in rural India were avoided.
Urban India, that houses much of the Industry and services sector experienced an unprecedented negative impact due to the pandemic. Still, the larger companies in most sectors are recovering as the unlocking gained pace in Q2 of this Financial Year (FY). The Q2 financial results of more than 3000 listed companies in India indicate that their revenue is already more than that of Q2 in last FY and the profits as compared to previous financial year showed a phenomenal rise of more than 30%.
The most impacted segment that has yet to gain a similar pace of recovery is the informal sector, the MSMEs of whom more than 50 mn do not use formal credit and hence did not benefit from the schemes. It is these firms that also recruit the highest number of informal employees without social benefits and contribute to more than 90% of job losses in the pandemic. Notwithstanding the challenge of beneficiary identification in this segment, the Government needs to find innovative ways to avoid the impending distress in this informal sector.
Apart from monetary and fiscal, the third leg of the stimuli was ‘reforms’ — the reforms announced during the pandemic were in the fields of, Labour, Agriculture and the National Education Policy. Each of them holds great potential to help India enable growth in the medium to long term. A lot now depends upon the state governments who need to take these forward.
Atmanirbhar Bharat, the philosophy, however, builds on earlier announcements of ‘Make In India’. In the recent past, many major economies, including the US and China, have not just announced the promotion of domestic manufacturing but have supported the intent with detailed blueprints and significant resources towards realising it. India’s announcement of about a dozen PLIs (Production Linked Incentives) to create not just national but global champions, many of them in sunrise sectors is a positive step in that direction. Over the next five years, PLIs have a budgetary allocation of $26 bn to deliver $520 bn of production, and much of that is expected to be exported. The first PLI focussed on ‘mobile phone and electronic components’ is already delivering very encouraging feedback.
For India’s merchandise exports to realise their potential, our role in Global Value Chains (GVCs) needs to be significantly larger. As we aspire to tap into much larger foreign demand (exports) as compared to domestic demand, we need to be open to import the intermediaries that enable exports.
Hasty and indiscreet increases in import tariffs in union budget announcements do not support overall exports. While the claims of some commentators on tariffs heading back to pre-1991 levels are an exaggeration, the average of 18% tariffs in 2020 is undoubtedly higher than 13% in 2014 while being far lower than 125% in pre-1991.
While some sectors and sub-sectors (especially strategic ones) on occasions do justify increased import tariffs, the overall journey of tariffs needs to be on a downward gliding path.
Our industries need to become efficient and competitive not by the protection of increased import tariffs but with the Government’s help in a) reducing the compliance burden through further ease of doing business, b) reducing the cost of logistics from 14% of GDP to a globally competitive single-digit number, c) reducing the cost of energy through open access to renewable energy and d) reducing the cost of capital through increased competition of private sector banks while reducing Government role in PSBs. These steps will help India boost its inner strengths that will make us further self-reliant.
Integrating India into GVCs also means deepening our trades with other countries, and in an era where the WTO is dysfunctional, FTAs play an essential role. We must judge each FTA on the merits of its terms. While RCEP seems to have undesired China centricity, our FTAs with the EU, USA and UK have been in the works for long and deserve urgent attention.
Like any other policy narrative, ‘Atmanirbhar Bharat Abhiyan’ also needs to complete the intent to implement a journey that has just about begun. On its way, it must cross the following milestones-
· Further, increase ease of doing business rank from 63/190 (79 places improvement since 2014) to Top 50 and then Top 30.
· Attract investment and improve its contribution to GDP that has declined from 40% in 2012 to 32% in 2019.
· Step up in merchandise manufacturing (especially labour intensive) exports that have recorded almost no cumulative average growth since 2013.
· Increase share of manufacturing in GDP that has declined from 17% in 2008 to 14% in 2019.
· Increase India’s share of global exports to upper single-digit % from a mere 1.7% today.