The recent announcement by PM Modi in pushing for an ‘Atmanirbhar Bharat’ raised a lot of debate, as expected. This debate very quickly turned into a political and nationalist debate and in the process, unfortunately, lost a bit of the essence of the enterprise. This piece is a quick look at what ‘Atmanirbhar Bharat’ really means from an economic perspective.
There might be a strong intuition to compare Atmanirbhar Bharat to the Swadeshi movement which was initiated during the freedom struggle. However there is a big difference between the two as I see it. The Swadeshi movement was from a demand side while the current plan being proposed by the PM is from the supply side. The Swadeshi movement involved consuming goods which were made by local businesses and not consuming goods which were made outside India, especially the UK. Though this ideology is also a part of the Atmanirbhar Bharat movement, it is not supposed to be the main driving narrative of the movement. The current movement envisages a lot of focus on R&D and innovation to develop products and services in India which would be world class and thus enable Indian businesses to sell their products not only in India but all over the globe. Thus the short term goal of the movement is to consume Swadeshi products (demand side) whereas the long term goal is to produce the best quality of products which can compete handsomely at the global stage (supply side).
An example of this can be the automobile industry in Japan. The in 1920s, American auto companies like Forg and GM dominated the Japanese automobile market. A law was passed in 1936 to promote local production and reduce foreign competition. The automotive industry in Japan increased rapidly from 1970 onwards backed by innovation in car designs and factory layouts. Japan eventually overtook the US to be the leading producer of automobiles and at one stage also started to fiercely compete against the US car behemoths in the US market itself.
Typical arguments raised against ‘vocal for local’ include the principles of free trade and the fact that efficiency is maximized when the free market allocates production to the person which gives the maximum value at minimum cost. It must be noted that all these theories make perfect sense subject to a range of assumptions. One of the assumption in almost all economic theories is that all the players in the theory (buyers and sellers) have the ultimate aim of profit maximization and do not have any other malicious intent. This assumption fails in the current geo-political situation globally and thus the economics of free trade also becomes difficult (possibly suicidal) to execute.
Turning towards production, basic economics (and simple logic) says 3 things are required for effective supply – land, labour and capital. The vast Indian hinterland always had large unused parcels of land. Capital and high mobility and thus is not an issue anyway – India has ample funding and it will flow wherever there is money. There is one major change which has taken place due to the pandemic – the Indian hinterland now has labour. And this labour has worked in world class facilities of Mumbai and Bangalore and NCR and knows the working of a shop floor. This fact has to be leveraged to set up good business units in the Tier II and II cities, possibly even in villages. This situation can potentially lead to a slew of benefits-
- Local employment for people in smaller towns, shunning the need to migrate to metros in search of work
- Much higher chance of goods being made as per the local needs (as locals will be setting shop)
- Decongestion of cities reducing the burden of healthcare, transit, infrastructure
India today stands on the cusp of a potential transformation in the way in which it produces and consumes. Irrespective of the political ideologies people may follow, it is worth to look at the ‘Atmanirbhar Bharat’ movement from an economic perspective and contribute to the movement in whichever way possible.