Coronavirus – Economic Issues

What self-reliant economy means?op-ed of the day

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Making the economy self reliant.


‘Atma-nirbhar’ has become a buzzword after PM Modi mentioned it in his speech. This article analyses the policy statement announced by the PM that focuses on self-reliance of the country in the future.  So, what exactly the term self-reliance could include? what are the areas in which India is dependent on other economies? Read the article to know more about these issues.

Policy statement of 1991

  • In 1991, only four policy statements were made —the end of licence-permit Raj, steep cuts in fiscal deficit and tariffs,  and devaluation of the Rupee.
  • With four policy measures, the economy was pulled out of a crisis and placed on a new growth path.
  • The key to 1991 was the political articulation of a vision that went beyond platitudes.

What is there in the PM’s vision statement?

  • The PM’s vision statement had four elements.
  • First, a step up in public spending and investment, aimed at promoting the welfare and raising the investment rate.
  • Second, policy reforms aimed at making the domestic economy more globally competitive.
  • Third, a long-term structural shift making the economy more “self-reliant” and less dependent on the world economy.
  • The fourth wheel of this new growth engine will be Lockdown Model 4 that is to be announced in a few days.

 Commitment of political leadership: key to spending and investment

  • Increased public spending will certainly boost demand and generate employment in the short term and add to infrastructure capacity in the medium term.
  • Policy reform, including changes in land, labour and other policies, could yield results in the medium term.
  • But for now, investors will wait and watch to test the sincerity and efficiency of governments at the Centre and in the states.
  • They will wait to see how the various policy steps being announced by the FM get implemented — how quickly and how efficiently.
  • The government can meet with success if investors, consumers and other economic agents believe in the commitment of the political leadership and the capability of the administration to deliver.

Focus on the self-reliance

  • PM has said that his version of self-reliance does not imply isolationism and inward-orientation.
  • His version of self-reliance will inject greater self-confidence in the people by reducing the country’s dependence on other nations.
  • Theotonio Dos Santos, defined dependence as a situation in which a country’s economy is “conditioned by the development and expansion of another economy”. 
  • He said that to be self-reliant the growth process of an economy “should not become dominated or dependent on another economy”.

So, on which economies is India excessively dependent?

  • 1. The oil-exporting economies.
  • Oil and gas account for a bulk of India’s imports.
  • Whatever new sources of energy India may tap in the foreseeable future, it will remain import-dependent for energy.
  • Fortunately, for India, the global crude oil and gas markets are likely to remain buyers’ markets for some time to come.
  • 2. Dependence on foreign exchange.
  • Second is the dependence on foreign exchange inflows both in the form of remittances, mainly from the Gulf and the US, and financial flows into capital markets.
  • It is not clear how the new Modi strategy of self-reliance proposes to deal with this dependence.
  • If anything, India is seeking more FDI and external debt.
  • 3. Defence equipment.
  • The third dependence is on imported defence equipment, mainly from Russia, the US, Israel and France.
  • 4. Electronic and pharmaceuticals.
  • Fourth, import dependence in electronic goods and pharmaceuticals, mainly from China.
  • Thus far, government policy does not address these dependencies.
  • The immediate focus of PM’s self-reliance seems to be China.

How to turn import dependence into import power?

  • Post-Deng Xiaoping China established long ago that for a large economy, it is possible to be both self-reliant and globalised at the same time.
  • Trade in itself does not create dependence if a country is able to grow both exports and imports.
  • China has demonstrated the geo-economic power of both exports and imports by making trade partners dependent on it on both counts.
  • When China refuses to buy wine and beef from Australia, it is using its import power, not demonstrating its import dependence.
  • If an economy is willing to live without those imports or can substitute them with domestic production, then it is not badly hurt.

So, what are the lessons for India?

  • It is export dependence that can make even a large economy vulnerable.
  • It is China’s dependence on US markets that President Donald Trump has aimed to reduce by waging a trade war.
  • India has never had such export dependence on any one country.
  • Indian government’s hope that multinational companies exiting China will relocate to India can only make India more export-dependent since these MNCs aim to sell globally.
  • Making India less dependent on China cannot be the only measure of self-reliance.

Consider the question “For India, it is not trading dependence that makes India vulnerable but the inadequacy of its human capital. Comment”

Conclusion

For India to be truly self-reliant and self-confident, public investment in education, human capability and research and development has to increase.

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Rakesh Das
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But according to my opinion for making a strong economy, a country needs a balance in both imports and export and then only a good relationship will establish between the two countries and will show interest for further export or import and mostly the economy will be more stable or gradually up.