An Atmanirbhar Economy

An Atmanirbhar Economy

What does the concept of Atmanirbhar mean to an Indian economist today? We are talking about our economic and financial relations with other countries and foreign financial institutions.

Let’s first look briefly at the distant past. In Harappan times, India had traded with many countries, using boats to export and import goods. Kautilya advised the Emperor to promote imports, to give consumers more choices, and generate tax revenues from import duties. In other words, international trade was a normal part of life in those faraway days.

Let’s look at the recent past. In the 1960s, India had very limited international trade, which indicates that India depended upon itself. And India’s comparator countries, China, Bangladesh, and South Korea also had limited international trade. But by 1990, these countries had increased their trade shares significantly, while India was still a closed economy. By 1990, China and South Korean economies had begun to grow rapidly but not India.

Figure 1. Ratio of international trade to GDP.

India changed its economic model in the early 1990s. After this, India’s trade ratio began to increase. It was similar in the comparator countries. From low values of under 10% in the 1960s, China’s trade ratio peaked in 2006 at 64%, while India’s ratio peaked at 56% in 2011. In short, the greater openness of the Chinese and Indian economies was accompanied by economic growth, with higher growth rates in China than in India.

In short, increasing international trade did not reduce the economic growth rate – instead, the two moved together. That’s the lesson from the experience of India and its selected comparator countries.

Now, let’s look at the future. India has to keep its economy open to foreign trade and foreign investment. There’s not much disagreement about this.

India’s imports from China have been going up. India’s top three imports from China are electronic equipment, machinery, and organic chemicals, not consumer goods. So, these imports are likely to continue. Further, India has been courting foreign investment in the form of FDI for many years. Now, as some US companies look to leave China, India is giving them incentives to set up production in India.

A critical problem is that our industrial companies are not competitive in the world market. Some of them came up in earlier times when they were protected from foreign competition. These protections continue today. For example, foreign companies cannot readily export their cars to India – they have to make the cars in India. That does create some jobs, and it is consistent with the Atmanirbhar (self-reliance) idea. However, Indian cars are not world-class in terms of price and quality. As a result, the Indian consumer does not get a fair deal.

But that should not be an outcome of being Atmanirbhar. Being Atmanirbhar should not mean that Indians don’t get to consume world-class goods and services. And if you think about it, being Atmanirbhar is not about what and how much you trade with other countries.

As I see it, being Atmanirbhar means taking advantage of foreign trade without being vulnerable to external economic or political shocks. It means that our economy must be resilient. If and when there are external shocks, we should be able to respond to them to mitigate the negative effects and take advantage of any opportunities that the shocks open up.

A resilient economy requires that its producers are efficient, dynamic, and flexible, not stuck on established products or practices. These are the characteristics of world-class producers. It does not mean that all the producers are export-oriented. Instead, it means that they move with the times, and adapt quickly to local and external changes. And it means that they are not dependent on laws that limit foreign competition in the form of imports.

Many of our industrial firms are not ready to be a part of a resilient economy – they are not efficient enough and are not flexible enough. So, that’s what has to change. However, this change may take a decade or even longer. Hence, Indian industries have no time to waste and should act immediately.

Further, on the financial policy front the Indian rupee must become a freely traded, international currency. It would be a strong signal that India can compete successfully in the world economy, and that we are a resilient economy. In short, an Atmanirbhar economy that depends on its own strengths and has a respectable place in the world economy.

About the Author

Subodh Mathur, an economist (Ph. D. MIT), has worked in many countries. He is the author of the book called ‘India's Path to Prosperity 2022-2047: A Workable Agenda for the Next 10-15 Years’.

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  • Balanced and Pragmatic approach suggested