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The Prime Minister’s recent emphasis on ‘Making for the World’ is a step forward in the ‘Make in India’ programme and making India a major manufacturing hub of the world.

This brings India’s trade policy close to that of the success stories of East Asia such as South Korea and China. It also marks a welcome departure for the failed doctrine of the Washington Consensus to which India had to submit in 1991 due to its balance of payment crisis. The key precondition of success is to make the Indian bureaucracy more efficient in implementing the Prime Minister’s vision statement rather than take the lazy route of passing the buck by invoking the magic of the market. Let me elaborate on three key themes here.

As a World Bank economist, I worked intensively on South Korea in the 1970s and on China in the 1990s. I worked closely with the government agencies that were formulating and implementing trade policies and did not rely solely on the academicians who are the main interlocutors of our trade theorists in the US who had been, until recently, singing the praise of free trade in line with the vested interests of the big business in the US. 

I can say without the slightest doubt that both Korea and China, who are star performers in terms of growth, in general, and manufacturing, in particular, followed a more than mild protectionist policy in the early stages of their development. In South Korea, in the 1970s, there were widespread restrictions on imports of luxury consumer goods. Korea provided protection to its industries with the stipulation that within a given time-frame they would be able to meet certain export targets. China in the 1990s had many visible and invisible restrictions on imports as Indians who tried to export to China in those days would testify. What the Chinese were doing during the 1990s was to improve productivity of their manufacturing with help of skilling, capital investment and FDI infusion where needed. By late 1990s, when the Chinese government and the World Bank jointly undertook a study on effective protection rates in Chinese manufacturing, it was found that the Chinese had succeeded in putting water in their tariffs by then and their effective protection rate had become negative in most manufacturing items. China was thus first made ready to stand competition from foreign suppliers before they brought down their tariffs and import restrictions. The Indian government is right in giving up the blind opening up strategy of 1991. By opening up without strengthening the competitive capacity of small and medium industries, we pushed them to decline and imports of even simple commodities took over. The government is now trying to improve skilling and invite FDI to make in India where necessary and is focusing on new dynamic sectors such as electronics.

During the 1980s, when India was following a cautious opening up policy similar to that of the current government, India’s GDP grew by 5.7% per year. During 1991-2013, leaving aside the wild years of 2003-2010 (for which India is paying a high price in terms of NPAs), the growth rate was 5.9% - hardly a stellar improvement. Even more important is our performance on manufacturing - the liberation of which was the prime motive behind the end of the ‘license and permit raj’. It may come as a surprise to the admirers of the 1991 reforms that the share of manufacturing in GDP came down from 15.7% in 1990 to15.3 % in 2013 and was 13.7% in 2019 - lower that what it was in 1960 when it was 14.8%. With modest growth, India has experienced an increase in inequality in income and wealth as has been documented by Thomas Piketty and others. Looking forward, if we want India to gain its rightful place in the world, we need to grow at least by 7% per year for the next three decades, keep inequality low, and make India clean and honest. To achieve that objective, we have to develop our own swadeshi Atmanirbhar model while learning from the success stories of China and South Korea. 

The main problem with the previous policy of self-reliance was the lack of emphasis on export promotion in a time-bound manner. The current government has corrected that lacuna by the mantra of ‘making for the world’.  The new policy is right but in order to make a success of the new policy, the bureaucracy has to live up to the requirements.

In spite of many reports on administrative reforms, the bureaucracy has remained largely unreformed. It often takes the route of leaving it to the private sector and market and bypasses the difficult task of achieving better governance. This must change. 

- The author is Chairman of Pahle India

Foundation and a former Distinguished Fellow of NITI Aayog. 

- The opinion/s expressed in the article are that of the author’s and do not necessarily represent or reflect the policy or position of this magazine.