We need policy clarity

Context: The recent call for self-reliance has led to import substitution of Lithium which is critical to the growth of various sectors. Caution should be taken to avoid India turning into a high cost inefficient economy.

Significance of Lithium:

• Basic building units of rechargeable batteries: that power everything from portable devices such as laptops and smartphones.
• Have military and aerospace applications.
• Basis of various sunrise industries: e-vehicles manufacturing.

Steps were taken by the government: 

• 10-year Import Duty Plan: Government is mulling an import duty plan to support local manufacturers.
• Tax concessions and finance provisions: to encourage industry at home.
• Formed Khanij Bidesh India Ltd.: which aims to acquire reserves of strategic minerals such as cobalt and lithium in countries such as Argentina, Bolivia, Chile, South Africa and Australia.

Challenges to import substitution: 

• May lead to inefficiencies:
• Industries shielded from global competition by high tariff walls have little incentive to keep costs down and quality high.
• Arrangement tends to spell inefficiency that pushes up costs for all users of the protected product.
• China’s dominance in the resources: China is seen to have a natural advantage as well, thanks to its abundance of input minerals (including rare earth) for their production.

Way Forward: 

• Gradual reduction of duties: That would give domestic players enough time to get their act together while raising their exposure to import competition.
• Set Exports Target: to act as a test of how globally competitive their products are. If they fail to sell their products in world markets in about three or four years, the entire plan should be scrapped.

Conclusion: The push for self-reliance must not turn India into a high-cost market, least of all in areas vital to the future of value creation.