Research Unit for Political Economy, May 13, 2020

The Government has been extraordinary miserly in its economic package announced on March 26 in the wake of Covid-19 – officially 0.8 per cent of GDP, in reality perhaps half that. Subsequently, the Government had on May 8 announced plans to borrow an additional Rs 4 lakh crore, or 2 per cent of GDP, beyond its earlier estimates. This indicated that the additional spending would be in the range of 2 per cent of GDP.

However, in his speech of May 12, the Prime Minister announced what seems, on the face of it, to be a big economic package:

“The economic package that is being announced today, if added, comes to around Rs. 20 lakh crores. This package is about 10 percent of India’s GDP. With this various sections of the country and those linked to economic system will get support and strength of 20 lakh crore rupees.”

In a speech of over 2,000 words, the Prime Minister chose to provide no details of this package. This vagueness ensured that the night’s news and the following day’s headlines would be dominated by the figure of Rs 20 lakh crore, or 10 per cent of GDP, without the slightest notion of what it means. There is no hint of the respective shares within this of additional spending, re-labeling of existing spending, RBI liquidity measures, credit guarantees, and so on. Apparently all that is to be revealed by the Finance Minister over the next few days:

“Starting tomorrow, over the next few days, the Finance Minister will give you detailed information about this economic package inspired by the ‘Self-reliant India campaign’.”

By the time the Finance Minister reveals the details, the headline would have done its work.

While we await further details before commenting on the package, one needs to note an important indication in the Prime Minister’s speech: the new slogan of ‘self-reliance’ (aatma-nirbharta).

On this the Prime Minister spoke at length. The words ‘self-reliant’, ‘self-reliance’, and ‘self-sufficient’ appear 27 times in the speech, climaxing with five appearances in the last paragraph. What is the occasion for this? The Prime Minister says that “the Corona crisis has also explained to us the importance of Local manufacturing, Local market and Local supply chain”:

“When the Corona crisis started, there was not a single PPE [personal protection equipment] kit made in India. The N-95 masks were produced in small quantity in India. Today we are in a situation to produce 2 lakh PPE and 2 lakh N-95 masks daily.”

Indeed it is embarrassing that India has depended on imports for elementary personal protection of health workers. To date, it is dependent on imports for tests, although a test has been developed in a public sector institution. Two decades ago, India produced most of its active pharmaceutical ingredients (basic drugs), but now it is dependent on imports, largely from China, and its stellar pharma industry concentrates on formulations. In the period of globalisation, India systematically dismantled its public sector vaccine producers, and now 80 per cent of the Indian government’s requirement of vaccines is met by private firms in India and abroad, at 250 per cent the price of public sector producers. So genuine self-reliance is definitely a desirable aim.

However, loud claims of building up domestic manufacturing cannot go hand in hand with undermining domestic manufacturing and deepening import dependence. The ‘Make in India’ programme announced by the Prime Minister in 2014 claimed it would make India into a global manufacturing hub. Among other things, the Government declared it would promote the domestic manufacture of mobile phones in India, for which India is one of the world’s largest markets. Indeed, in a seeming success of the programme, India has now become the second-largest mobile phone manufacturer in the world, after China. However, as Sunil Mani brings out in a recent devastating study, all that has taken place is local assembly of imports by multinational firms, and in the process import dependence has actually deepened:

“Domestic production has been dependent on parts that were imported from abroad, and these imports have been growing [imports of parts of mobile phones rose from $2.67 billion in 2014 to $11.56 billion in 2018]. Given the fact that production is largely based on imported inputs, the ratio of gross value added (GVA) to gross value of output (GVO) has been declining sharply, especially during the period when domestic output has been increasing [GVA/GVO declined from 17 per cent in 2013-14 to 13 per cent in 2017-18]…. As such, no domestic production or innovation capability has been created or is in the offing in the foreseeable future. This dependent development has led to India’s technology trade deficit increasing on account of increased royalty and licence fee payments, besides dividends and profits being repatriated abroad.”

In the absence of a thorough-going plan to develop domestic technological capability, as part of an overall plan for independent development, windy ‘campaigns’ such as ‘Make in India’ or the new ‘self-reliance’ mantra can actually deepen dependence. And there is no sign of that serious planning by the Modi government, any more than by its predecessor.

What then is the real significance of the ‘self-reliance’ slogan in Modi’s speech? It is that, in the name of promoting self-reliance, various ‘reforms’ will be rushed through, which could not have been so easily imposed in ‘peacetime’:

“In order to prove the resolve of a self-reliant India, Land, Labor, Liquidity and Laws all have been emphasized in this package.”

Land, Labour, Liquidity and Laws.

Let us start with Labour. A foretaste of this can be found in the wholesale demolition of labour laws carried out by various state governments in the last week, with the enthusiastic blessing of the Prime Minister. The word “Land” in the above list too is significant. The first Modi government in 2014 had tried to drastically amend the Land Acquisition, Rehabilitation and Resettlement (LARR) Act, 2013, to make it easier to acquire land by force, but was forced to retreat due to widespread opposition and its lack of a majority in the Rajya Sabha. In the new emergency-like conditions, in the name of ‘reviving the economy’, the Government may push to amend LARR Act once more. In these ways the virus may prove to be an ‘opportunity’:

“This vision of India – turning crisis into opportunity- is going to prove equally effective for our resolve of self-reliant India.”

Genuine self-reliance implies, among other things, that domestic industries find a market for their goods. Since workers are consumers, an increase in their wages expands demand for domestic manufacturers and indirectly promotes self-reliance.

However, it becomes clear from the Prime Minister’s speech that increasing wages is not part of his vision of self-reliance. His vision actually aims at integrating India more closely into global supply chains:

“Self-reliance also prepares the country for a tough competition in the global supply chain. And today it is the need of the hour that India should play a big role in the global supply chain. Realizing this, many provisions have also been made in the economic package. This will increase the efficiency of all our sectors and also ensure quality.”

One implication of such integration into global supply chains is the compulsion to keep down labour costs, even though they are already at desperately low levels. There is, in the Prime Minister’s words, “tough competition” between different countries on labour costs, each trying to make itself more attractive to multinationals by depressing wages. Since, in such supply chains, production is for export, the loss to domestic demand on account of depressed wages is not considered worth worrying about.

In this way, the strenuous emphasis on ‘self-reliance’ in the Prime Minister’s speech may actually usher in the opposite – greater foreign dependence and integration into multinational production networks, even as domestic demand and indigenous manufacturers languish.