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No, the ‘Self-Reliant India Campaign’ Is Not About Protectionism

The campaign is a mixture of an anti-crisis packet and a continuation of liberalization measures.

Krzysztof Iwanek
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No, the ‘Self-Reliant India Campaign’ Is Not About Protectionism
Credit: AP Photo/Rajesh Kumar Singh

As the Campaign for Self-Reliant India was unveiled in mid-May, some commentators focused on its title rather than its substance. Its name – Atmanirbhar Bharat Abhiyan in Hindi – indeed makes one think that the initiative is permeated with the idea of self-reliance.

Some were quick to claim that India is on the way to become an economy walled off by protectionism. Generalizing comparisons with trends in other countries, such as the United States, have been drawn, and a standard cry of “globalization in retreat” has been raised. And yet a point-by-point reading of measures announced as parts of this new campaign – as compiled by Megha Mishra for Money Control – reveals that hardly any of its elements are of a protectionist nature.

So far, hardly any limits on trade are at hand. Neither non-tariff barriers on foreign trade nor restrictions on FDI have been envisaged as part of the campaign. Moreover, some of the reforms within the package are going the opposite way by allowing a wider involvement of private and foreign entities. In practice, the campaign turns out to be less about finding an island of protectionism for the shaken ship of the Indian economy, but about navigating the stormy sea of a financial crisis while still staying in the waters of international markets.

The campaign’s core solutions are various types of financial support and an easing of rules, aimed particularly those citizens and companies that were deeply affected by financial distress: guarantees of food and wages for many poor citizens, loans for MSMEs and agriculturalists, a credit facility for street vendors, free grain distribution for migrants, helping companies stay afloat on the turbulent waves of liquidity, and a whole range of other solutions. None of these can be considered protectionist; it is but natural that under the current circumstances every government focuses primarily on helping the companies and citizens of its own country.

While these are responses to a new crisis, some of the campaign’s other elements bear a mark of continuation, rather than revolution. Atmanirbhar Bharat Abhiyan includes reforms that were in fact planned or considered earlier and could have taken place anyway, even without the pandemic (and the crisis that follows in its steps like a shadow).

The privatization of public power distribution companies (discoms), while announced now, was being mooted for years (although it has only covered union territories now). The privatization of six airports – in Amritsar, Bhubaneswar, Indore, Raipur, Tiruchirappalli, and Varanasi – also announced now, was already being recommended by the Airports Authority of India at the end of last year. The current move to auction coal blocks, in turn, is nothing more than a natural next step after the coal mining sector was opened to FDI in August 2019. Similarly, while New Delhi has now claimed that it will not make distinctions between mining coal for a firm’s own industrial use and mining it for the purpose of selling it – which will allow private companies to enter the coal trading market – this actually was already allowed last year. It is thus important to understand that the pandemic has not caused the Modi government to change its earlier course. Neither is New Delhi turning the economy inwards and cutting it off from the international markets.

Some were also quick to point out that there are other signs of this assumed “protectionist” attitude in New Delhi. One example brought into the discussion was India’s November 2019 decision not to enter the Regional Comprehensive Economic Partnership (RCEP). But the chief concern in case of RCEP was that it would deepen India’s trade imbalance with China (which is already of huge proportions) – an imbalance that most of the countries of the world are facing too. There is no doubt that China is not offering a level playing field when it comes to its trade with other countries. Thus New Delhi’s avoidance of RCEP does not signal that it is steering the country toward autarky.

While certainly too much was read into the Self-Reliant India catchphrase, there is one way we could explain it to both make sense of this idea and not deem it protectionist. Within the party ruling in India, the Bharatiya Janata Party, there have long been two broad strands when it comes to political economy. One called for freer markets, while the others stood by the idea of swadeshi: the concept supporting primarily domestic products and companies, including by protecting them from foreign competition. Over the last years, the former faction has been increasingly influential. With this, some even suggested a reinterpretation of swadeshi: while it was understood as choosing to primarily support Indian companies, this did not have to entail restricting FDI or external trade.

Seen from this perspective, Atmanirbhar Bharat Abhiyan may perhaps be understood the same way as Narendra Modi’s flagship in the armada of reforms declared in 2014: the Make in India campaign. Both in fact are meant to open the Indian market to FDI more, not less, and at same time this is portrayed as the move that will eventually strengthen domestic companies, not weaken them.

The rationale is that apart from job creation, FDI will lead to technology transfer, which will in time give Indian companies opportunities to learn and adapt. Take defense, for instance: while defense imports are now to be restricted, FDI in this sector has also been made wider. We may simply understand these measures to be two separate fronts, meant to deal with different aspect of military production. But if we have to weave them both into one general picture, the explanation would be that New Delhi does not want to be dependent on imports; it is open, however, to bringing in external expertise through FDI with the hope of settling production in India and gradually learning the technology. The Indian government’s other decisions unveiled under the current campaign suggest that the same approach is being applied to the sectors of space exploration, coal mining, and use of nuclear technology for medical purposes.

In a nutshell, the final goal is not to make India self-reliant – no country truly is – but to make its companies, especially the private ones, stronger, more advanced, and less dependent on state bureaucracy. And if indeed there is one common denominator behind this approach to FDI, it does not rest on the values of economic nationalism, but on the concept of value-added production.