- Analysts are hopeful that Prime Minister
Narendra Modi ’sAtma Nirbhar Bharat programme will be a bigger success than ‘Make in India ’ to boost India’s manufacturing. - Focusing on specific sectors and pushing for local products to replace imports is the government’s new strategy.
- Electronics, pharmaceuticals and labour-intensive industries may be the biggest beneficiaries of Atma Nirbhar Bharat.
This time around, with ‘Atma Nirbhar>$4’ (self-reliance), there is a targeted focus on specific sectors — defence, pharmaceuticals, and electronics sectors are most likely to reap the benefits.
“None of the key parameters suggest any material improvement in the performance of the manufacturing sector over the last six years,” said a report by Citi Research highlighting the inefficiency of Make-in-India. The share of value-added by the manufacturing sector to the country’s overall production has remained stagnant between 17% to 18% over the last decade.
With Atma Nirbhar Bharat, analysts see the policy focus shifting from exports and towards attracting shifts of supply chains to providing fiscal incentives and putting in import restrictions instead. Citi Research notes that most companies are anyway going to adopt a ‘China plus 1’ strategy rather than entirely move out of China.
Exports will remain the key focus, as in any developing economy. However, the fundamental difference between ‘Make in India’ and Atma Nirbhar is the realisation that India can’t control what the world will buy and therefore, it should focus on its strengths instead of playing in areas where the global competition is intense.
Import restrictions
The biggest strength for India is its large consumer market.
Before forcing the world to buy from India, the Modi government had to ensure the people of the country were willing to buy local brands. Cheaper imports, everything from mobile phones to textiles to steel— particularly from China— had to be fended off.
The $4 gave India the political impetus it needed to put its plans in place, starting with putting a cap on Chinese investment into India.
Take pharmaceuticals, for instance. “Bulk drug imports are 63% of total pharma imports and for some medical equipment; the import dependency could be as high as 86%,” said Citi Research in its report. The pharmaceutical sector is among the 10 ‘champion’ sectors recognised by the government. As a part of this, India is scouting for international companies that would like to move their manufacturing base to the country.
Exports still remain an integral part of Atma Nirbhar Bharat. However, rising global protectionism, reneging on bilateral foreign trade agreements, and the expiry of India’s most prominent export incentive scheme — Merchandise Export Incentive Scheme (MEIS) — indicate that the push on exports is weakening.
Value addition
Margins is where value addition kicks in. It’s not enough for exports to grow, they also need to bring more value in order to have a beneficial effect on the economy. Otherwise, some sectors may grow at scale but they won’t necessarily add to the profit bottom line.
The foundation for this was laid out ahead of the budget earlier this year, in India’s annual Economic Survey. “While the short to medium term objective is the large scale expansion of assembly activities by making use of imported parts & components, giving a boost to domestic production of parts and components (upgrading within global value chains) should be the long term objective,” it said.
So far, pharmaceuticals, defence manufacturing and electronics have been given incentives to make more value-added products in India. Going forward, labour-intensive sectors like leather, textiles and food processing are likely to see similar thrust, according to Citi Research.
“India’s relatively cheaper labour cost and abundance of food produce could turn out to be competitive advantages,” it brokerage noted. However, it also points out that in order to succeed and for PLIs to have an impact on India’s Gross Domestic Product (GDP), the gambit of sectors that will benefit from PLI schemes needs to be increased.
Electronics manufacturing in India, a case study
Electronics goods production is one of the few success stories of Indian manufacturing. In the two years, exports have doubled to $11.8 billion in 2020 from $6.4 billion in 2018. Even so, while the volume of production may have increased, concerns were raised over value addition.
“A domestic electronics component manufacturing ecosystem had to be developed to reduce dependence on imports and fiscal incentives are planned to develop that ecosystem,” said Citi’s report.
The government estimates that its new Product Linked Incentive (PLI) scheme for mobile phones and other electronic products manufacturing are likely to generate fresh capital investment of $11.5 trillion to help it achieve its target of a $1 trillion digital economy by 2025.
The idea has definitely improved from Make in India to Atma Nirbhar, whether the results will be better is something to be seen in a few years from now.
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