India and Self-reliance – A brief History

GOVERNANCE/ ECONOMY

Topic: General Studies 2,3:

• Government policies and interventions for development in various sectors
• Indian Economy and issues relating to planning, mobilization, of resources 

India and Self-reliance – A brief History

Context: In the wake of COVID-19 pandemic, Prime Minister emphasised the necessity of a self-reliant India.

India during Early days of Independence – Self-reliance losing way to License Raj

• Self-reliance in state-run heavy industries and strategic sectors in the decades following independence had placed India ahead of most developing countries.
• In the 1970s and 80s, however, India did not modernise these industries to climb higher up the technological ladder. 
• The private sector, which had backed the state-run core sector approach in its Bombay Plan, stayed content in a protected market.
• Little effort was made to modernise light industries or develop contemporary consumer products.
• The industrial ecosystem was kept hostage to Licence-Permit-Quota system which stifled innovation. As a result, self-reliance gave way to corruption & import dependence

Consequence of these policy measures

• India’s industrial ecosystem was thus characterised by low productivity, poor quality and low technology, and was globally uncompetitive.
• India completely missed out on the ‘third industrial revolution’ comprising electronic goods, micro-processors, personal computer etc.
• Today, India is the world’s second largest smartphone market. However, it does not make any of these phones itself

India at the turn of 1990s

• India embarked on liberalisation, privatisation and globalisation, shunning previous restrictive industrial policies
• The very concept of self-reliance was rubbished; in the belief that advanced technologies could simply be bought from outside at lower costs
• Two related ideas have prevailed since then, and neither delivered the desired results

• First is ignoring Public Sector Units

• • PSUs were considered inefficient and sluggish for the competitive globalised scenario. 
  • Hence, no effort was made to engender either real autonomy or a transition to new technological directions.
  • Instead, PSUs were undermined or abandoned, along with many nascent research and development (R&D) efforts
  • On the other hand, the private sector displayed little interest in these heavy industries and showed no appetite for technology upgradation.
  • With entry of foreign corporations, most Indian private companies retreated into technology imports or collaborations. 

• Second is inviting Foreign Direct Investment

• • This was envisaged to bring new technologies into India’s industrial ecosystem, removing the need for indigenous efforts towards self-reliance.
  • However, mere setting up of foreign manufacturing facilities in India is no guarantee of absorption of technologies (the ability to independently take them to higher levels).

Consequences of above two ideas – Inequitable Growth

• Meagre technology transfer: Foreign majors jealously guarded commercially significant or strategic technologies in off-shore manufacturing bases.
• Outlier among Asian Countries:  Japan, South Korea, Taiwan, Singapore and Hong Kong strengthened their self-reliant capabilities though planned state investments in R&D including basic research (3-5% of GDP), technology and policy support to private corporations, infrastructure, education and skill development (4-6% of GDP).
• Dwarfed by China: Both India and China were on similar levels during first four decades of Independence. However, China now is self-reliant S&T and industrial capability and has set itself a target of becoming a world leader by 2035 in 5G, supercomputing, Internet of Things, artificial intelligence (AI)
• Inactive Private sector in R&D: Most R&D in India is conducted by PSUs, with little efforts from private players as they prioritized short-term profits over innovations
• Widened Inequality: Privatization and FDI benefits were largely reaped by already wealthy sections of society which led to increased gap between rich & poor

Way Ahead – Self-Reliance requires enhanced R&D

• State-funded R&D, including in basic research, by PSUs, research institutions and universities needs to be scaled-up significantly, well above the dismal 1% of GDP currently. 
• Private sector delivery-oriented R&D needs to be supported through policy & fiscal measures
• India’s meagre public expenditure on education needs to be substantially ramped up (as against current trends of privatisation which would only shrink access)

Connecting the dots:

• Neoliberalism
• Globalisation in the wake of COVID-19 pandemic