Govt plans to cut import dependence by building local capacity
The government is working on a sectoral strategy to reduce import dependence by building local capacity, creating value chains and quickly attaining self-reliance in at least half-a-dozen areas ranging from footwear and furniture to technical textiles and medical equipment to electronics and defence production, people aware of the development said.
The sectors will receive fiscal incentives credit support and tariff protection from an influx of cheaper imports, particularly from China, the people said, requesting anonymity.
“All custom duty exemptions would be comprehensively reviewed and many of them will go as they are hurting domestic manufacturing. A view on this is expected by the end of this quarter [FY-2021],” one of the people, who works for an economic ministry, said.
The sectors are being identified carefully on the basis of availability of supply chains and skilled workers, besides their potential to create job opportunities, the people said.
Prime Minister Narendra Modi has spelled out a vision for an Aatmanirbhar Bharat (Self-Reliant India) as the country battles the coronavirus pandemic and subsequent lockdown that is expected to cause an economic contraction this financial year. India has also been concerned about the size of its trade deficit with China, a concern that has been accentuated by this month’s military faceoff in the Galwan valley in eastern Ladakh.
The balance of trade between India and China is hugely tilted in the favour of the latter. According to recent trade figures released by the General Administration of Customs of China (GACC), India’s trade deficit with China was $56.77 billion in 2019. Bilateral trade between the two countries was about $92.68 billion in the year.
“The government’s strategy is a combination of its ongoing Make in India policy and Atmnirbhar Bharat Abhiyan (Self-reliant India Initiative). It should not be seen as a reaction to the Chinese misadventure at the border,” the first person said.
Relations between New Delhi and Beijing have soured after China’s People’s Liberation Army engaged with the Indian Army in a brutal brawl at the Galwan valley on June 15, leading to the loss of 20 Indian personnel. The unprovoked Chinese aggression has triggered calls for a boycott of Chinese goods.
“The policy to reduce import dependence predates the recent Chinese aggression. The finance minister did mention it in her budget speech. However, a popular sentiment against Chinese imports [after China’s recent aggression], will certainly also help us in our objective,” a second person, who advises the government on trade issues, said.
While presenting the Union budget on February 1 this year, finance minister Nirmala Sitharaman said the unhindered imports of goods under free trade agreements (FTAs) were hurting domestic industries, particularly MSMEs and such imports required stringent checks.
The government is also considering persuading big industries to use locally produced raw materials such as steel. “This is the policy even in some of the developed countries where Indian MNCs own automobile companies. The automakers are told to use locally purchased steel,” a third person, who works in the steel ministry, said.
“The government is taking measures to curb dumping of steel and steel products that are sub-standard in quality,” he added. The ministry has already issued a directive for state-run firms asking them to prefer domestically manufactured iron and steel products.
Experts said the government’s sectoral strategy was a step in the right direction, but import curbs should be calibrated to avoid any abrupt disruption in supply.
“Yes, a sectoral strategy is the only way to reduce dependence on imports. India should immediately consider sector-based clusters, on plug and play model,” Mohit Singla, chairman of the Trade Promotion Council of India (TPCI), said.
The vision of an Atmanirbhar Bharat would be achieved gradually, DK Aggarwal, president, PHD Chamber of Commerce and Industry, said. “Imports need to be reduced gradually in a phased strategy,” he said adding that the cost-competitiveness of Indian businesses should be enhanced.
Ram Singh, a professor at the Delhi School of Economics, said India has the potential to become self-reliant, but in some sectors its production was critically dependent on Chinese imports.