Protectionism and Atmanirbharta Slogan

Context: Atmanirbharta slogan which is shorthand for protectionism is almost like fighting the future’s war with yesterday’s ammunition.

Problems Arising out of Protectionist Policies

• Rise in tariffs, license requirement and import restrictions:
  • During past five years, out of the 5,500 items under the six-digit tariff code, nearly 3600 have undergone upward tariff revision.
  • In the 2020-21 Budget alone, more than 600 items have undergone upward tariff revision.
• Leads to less competition: rampant cartelisation and inefficient production; Perpetuates allocative inefficiency and rising cost levels:
• Protection is not limited: as in the East Asian countries, which results in price gouging, lack of innovation and high prices for consumers.
• It becomes difficult to choose champion sectors: E.g. Of the six areas for concentration initially in South Korea, not a single industry exists as a driver of export or growth after 30 years.
• Pro-business polices rather than pro-market: The same business shifted their sourcing to China for price and profit advantage instead of specialising, innovating and driving down the cost.
• Anti-trade stance: failure to join trade blocs like the European Union, Asia-Pacific Economic Cooperation (APEC) and the Regional Comprehensive Economic Partnership (RCEP).
• Price gouging, lack of innovation and high prices for customer: increasing the marginal cost of production.

Protectionism Stems from following Fundamental Flaws in Government’s Understanding

• Belief that state-led ‘champions ’can conquer the world: Economic Surveys of past years show that largest firms show a much smaller share compared to other comparable countries.
• Conflating security with trade: Obsession with Chinese economic growth cannot be emulated because of huge economic dependence (India’s dependence is much more on Chinese electronic goods)

Conclusion:

• India can build its economic strength by intelligent trading rather than by staying behind a newly raised ‘iron curtain’.
• It is instructive to follow new winners like Bangladesh, Vietnam and Cambodia, which have done it with pragmatism, prioritisation and well-considered pathways.