By opting out of the RCEP many in India believe that we have made a mistake and have missed a major opportunity of becoming a part of the largest trading bloc and its global supply chains. Interestingly, most sections of industry were relieved by the decision to stay out. They had certainly not gained from the Free Trade Agreements of the last decade. The anxiety has been that China would get a freer entry into the Indian market. The process of de-industrialisation that growing trade with China had triggered would only be accelerated.

Major policy changes are under way for self reliance. For some items, import duties have been raised and a few items have been placed in the restricted list for imports. A large Production Linked Incentive (PLI) scheme with an outlay of over ₹2 lakh crore has now been approved covering 10 major industrial sectors. These measures have been welcomed by industry and those who have been advocating the adoption of industrial policy. On the other hand, there are apprehensions about our going back to the pre-nineties era of protectionism which led to inefficient, non competitive manufacturing. India has benefited enormously from trade liberalisation and integration with the global economy. It would be unwise to go back.

Part of the problem lies in looking at manufacturing simplistically through the binary of ‘make for India’ and ‘make for the world’. The aim of any sensible industrial policy should be to make for the world. Even with some import duties the Indian consumer having had choice of imported goods would be willing to pay a price premium for better technology and quality. So we need to craft policy instruments which lead to globally competitive production both in terms of quality and price.

Tech, quality, key issues

The Japanese followed by the Koreans and then the Chinese ran what could be described with some literary license as ‘war economies’. The state and industry worked in partnership to achieve the shared goal of catching up with the advanced industrial economies. The key test was the ability to gain market share in the West. Initially, this share came from lower prices. But they all acted on the premise that lower prices would give market entry. But growth would be sustained only if technology and quality led to consumer satisfaction. Toyota, followed decades later by Hyundai, achieved a breakthrough in the US market with this strategy. Samsung followed by the Chinese are achieving this in our mobile phone market.

Once a firm had achieved some success in the global market, the state used the financial system for the rapid growth of these firms without following the normal prudential norms of debt equity ratios etc. Western commentators have been seeing a potential collapse of the Chinese banking system since the nineties. They also nurtured a competitive domestic industry structure. The Chinese supported their state owned enterprises to become global champions. They aided their private enterprises which emerged only after Deng’s reforms of 1979. Huawei is a good example of a private enterprise which has become a world champion. They have been smart in carefully listening to Western policy advice but in making their own judgments. They were clear that they had to avoid the fate of Russia and the shock therapy it embraced in 1991.

We are at an inflection point. If we get things right we can begin catching up. If not, we could slip into a lost decade. We urgently need a consensus on the essential prerequisite of preventing real exchange rate appreciation. Also, it may not be prudent for the government to lose control of its financial institutions. These are powerful instruments. Public sector banks have demonstrated their critical value in quickly disbursing government guaranteed loans to save small and medium enterprises in the present crisis. Their management can be made more professional. And there is no good reason why government cannot do it as well as any private entity.

The dominant conceptual framework of leaving market forces alone, believing that government cannot be expected to act intelligently or fairly in promoting industrial sectors or firms, and that ‘government has no business being in business’ has to make way. It has brought us so far. We need to go much farther. What is needed is pragmatism. No policy instrument should be off the table in trying to do what it takes to make Indian firms globally competitive. And India can be globally competitive only through its enterprises.

Policy instruments have to be conceived, implemented and evaluated for their efficacy in helping Indian enterprises become world champions. Quality and reliability are attributes which the Japanese succeeded in attaching to whatever was made in Japan. They became pioneers in developing quality management systems. We do have a government promoted Quality Council of India. It should be better funded and tasked to help Indian enterprises achieve global quality standards and get certified accordingly. The Bureau of Energy Efficiency has done pioneering work with star labelling for appliances. We need to put in place a similar system for ‘green’ manufacturing so that we could get better market share and even a price premium from environmentally sensitive consumers whose numbers are growing rapidly all over the world. The day a product made in India is expected to be reliable and green in global markets we would have arrived.

The challenge is to design additional policy instruments which would require modest fiscal resources and to create a fair and transparent process for identifying enterprises as potential global champions. Supporting start-ups, especially those with products, adequately so that they are not bought out holds huge promise as many are in frontier technologies and in sun rise industries.

We need more ambition. We should aim to catch up with China by 2047, the centenary year of our Independence. The key to achieving this would be a constructive ongoing dialogue and partnership with industry and thought leaders to keep evolving and fine tuning policy instruments.

The writer is former Secretary DIPP, and Distinguished Fellow Teri

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