Our Government Holds the Lock

Livemint     8th July 2020     Save    

Context: The government must not think it needs to create winners, but that it must foster the right environment for winners to emerge from the soil of India.

Steps taken by the government amidst India-China standoff:

  • The government has banned 59 Chinese apps and scrapped Chinese bids in some infrastructure projects; cargo from China has got delayed at Indian ports.
  • Announced plans for Atmanirbhar Bharat, a self-reliant India, which ties in with its efforts to reduce over-dependence on Chinese imports.
  • Opposing argument: Import substitution works in areas where import costs are higher the domestic costs, For E.g. in case of defense imports.
  • Supporting argument: Import substitution is necessary for areas where competitive forces exist. For E.g. incentives are being offered in sectors like electronics and medicine.

Way Forward: The government would do well if it facilitates the growth of domestic firms rather than thinking of creating one.

  • Create enabling policy and regulatory environment: that fosters economic growth and lets companies scale up.
  • For E.g. Airtel and Jio didn’t emerge as India’s two big telecom survivors because the government created a policy environment for them to flourish.
  • Global Supply chains involving medium and small companies are created by large companies, not governments. For E.g. Maruti has supply chains in China and Japan also.
  • Incentivize the domestic winners: Once a domestic market declares its winners, governments matter in helping them go global.
  • Large government contracts and takeovers of iconic companies abroad cannot happen without government support for our companies with diplomacy and backroom heft.
  • Create a great product at a great price: to compete with the global monopolies like Google, Amazon, and Chinese domination in manufacturing.
  • Controlled regulation: Regulations should only kick in after a monopoly or cartel develops in India, and not merely because the current market share looks high.
  • A big domestic share could mean nothing in the global context. We should look at dominance in a global context and not a local one.
  • For E.g. the Jio’s valuation would have been negatively impacted if the Competition Commission of India would have barred it from taking recent investments from Facebook.

Conclusion: The government holds the lock but not the keys to Atmanirbhar Bharat. As long as the lock is well oiled, companies will find the keys on their own.