In an interview that is a devastating critique of the government’s ‘Atmanirbhar Bharat’ (Self-Reliant India) policy but also sharply critical of the government’s broader economic thinking, which is referred to as its policy software, Arvind Subramanian, the Narendra Modi government’s first chief economic advisor (CEA) has said that if the government wants accelerated growth lasting several years it must reverse the Atmanirbhar policy and also improve the policymaking process to create a stable economic environment. Failure to do so would mean “there would still be modest growth … but a broader boom that transforms and improves the lives of millions of Indians and convinces the world that India is back would be out of reach”.
In an interview with Karan Thapar for The Wire, Subramanian, who served as CEA from October 2014 till June 2017, called upon the government to abandon its national champion policy in favour of an approach that treats all firms equally, lower trade barriers whilst ensuring greater integration into global supply chains and improve policymaking to give India a stable economic environment in which manufacturing and exports can flourish.
Speaking specifically about the production-linked scheme (PLI), which he calls “subsidy-raj”, he said, “It carries all the risks of the old licence-raj … hard to enforce, driven by arbitrary decision-making and creates a system of entitlement.”
Subramanian said the associated attempt to create national champions seems to focus mainly on the Adani and Ambani conglomerates. He said, consequently, “The government is encouraging an extraordinary concentration of economic power … (this) could create an oligopolistic economy that will stifle innovation and growth.”
The former CEA said this strategy will not create anywhere near the employment required to provide jobs for the 7-8 million young Indians who enter the labour market each year. This is because the PLI subsidies are aimed at technology and capital intensive sectors, such as cell phones, and not labour-intensive sectors.
He said the policy of creating national champions could lead to charges of “stigmatised capitalism” which could undermine “public support for market-based reforms” and reinforce the suspicion many Indians have of capitalism.
Subramanian also criticised the protectionism that is part of the Atmanirbhar Bharat policy. He said there have been 3,200 tariff increases since 2014 which have pushed up the average tariff rate from 13% to 18% and affect 70% of India’s imports. This increase in tariff will put off manufacturers who wish to relocate from China to India and produce for the outside world.
The senior fellow at Brown University was also critical of the government’s refusal to participate in regional trade agreements like the RCEP. This, again, will put off the capital India wishes to attract from China. “At precisely the moment when India has its long-awaited chance to compete with China for the first time as a global manufacturing centre the government is making it harder to integrate the Indian economy into global supply chains,” he said.
Beyond his sharp and devastating criticism of the Atmanirbhar industrial policy, Subramanian also spoke critically of three other areas of what he calls policy software. First, the quality and integrity of India’s data. It needs to be hugely improved, otherwise, we simply won’t know what is the true situation in the country, what diagnosis is, therefore, necessary and what solutions are, thereafter, required.
Subramanian also said the distrust between the Union and state governments means that policies which need to be jointly implemented are not effectively executed. “Policymaking can become trapped in a vicious cycle, in which a lack of trust on the part of states discourages them from implementing national initiatives properly, thereby eroding the (Union) government’s trust and discouraging it from consulting with the states on the next policy measure.”
Finally, Subramanian spoke of the lack of continuity in government policy and, even, contradictions in policy. He cited the example of the proposed changes in online retail policy that would adversely impact Amazon and Walmart. He said: “The lack of a clear stable investment framework is the fundamental barrier to convincing international manufacturers leaving China to relocate their operations to India.”
In The Wire interview, the former CEA also spoke about the increasing mood of majoritarianism and outspoken anti-Muslim prejudice which, he said, will clearly act as a deterrent or, at least, an obstacle for the foreign investment that India wants to attract.
Subramanian said until the Atmanirbhar policy is abandoned and the rethinking of economic policy software happens, high growth will not happen and the lives of Indian people will not be transformed. He agreed that the future of India depends upon the government abandoning the Atmanirbhar policy and rethinking its policy software.
The above is a paraphrased precis of Arvind Subramanian’s interview with Karan Thapar for The Wire. Though recounted from memory it is not inaccurate. However, there is a lot more in the interview than has been covered by this precis. In the run-up to the budget on February 1, the interview will help in understanding the key challenge facing India.