India’s intellectual and policy community has embraced atmanirbharta. This inward turn — actually return — amounts to abandoning two core principles of the post-1991 consensus: Export-orientation on the macro-economic side, and slow but steady liberalisation on the trade side. Is the inward turn strong? Is the underlying diagnosis-cum-prognosis correct? Will it work? Based on new research, our simple answers are, respectively: Yes; no; and not really.
Let’s start with some key facts. The inward turn is most evident in trade policies aimed at promoting domestic manufacturing. Leaving aside the spate of China-related restrictions, tariffs have been increased substantially, trade agreements have been put on hold, and a spate of production subsidies are being offered.
Between 1991 and 2014, average tariffs declined from 125 per cent to 13 per cent. However, since 2014, there have been tariff increases in 3,200 out of 5,300 product categories, affecting about $300 billion or 70 per cent of total imports. The average tariff increased from 13 per cent in 2014 to nearly 18 per cent. The largest increases occurred in 2018 when tariffs for nearly 2,500 product categories were increased, amounting to nearly 4 percentage points. Tariff increases have been greatest in low-skill manufactured imports and cell-phone assembly, amounting to 10-15 percentage points.
The inward turn is based on three misconceptions of diagnosis and prognosis. First, the perception is that India’s growth success since 1991 has not really been based on exports and certainly not on manufacturing exports. This is wrong. India has been a model of spectacular export success and an exemplar of export-led growth.
Between 1995 and 2018, India’s overall export growth (in dollars) averaged 13.4 per cent annually, the third best performance in the world amongst the top 50 exporters. Most strikingly, India’s manufacturing exports (in dollars) — for long considered India’s Achilles Heel — grew on average by a whopping 12.1 per cent, the third-best performance in the world, and nearly twice the world average (Figure 2). Only China and Vietnam surpassed India.