Today's Editorial

09 April 2017

Giving nod to Indian goods

 

 

Source: By Ashwani Mahajan: The Statesman

 

 

After assuming power in May 2014, the Prime Minister Narendra Modi announced key points of his economic policy, of which Make-in-India was an important component. Significantly, rate of growth of industrial production which was more than 15 per cent in 2007-08 dropped to zero and sometimes to negative in the years after 2011-12. Electronics, computer hardware, durable and non durable consumer goods, furniture etc. all were being imported from China or other countries. No new factory was coming up in India and existing ones were also shifting out. Not only that manufacturing was at a standstill, the share of manufacturing in GDP was hardly around 15 per cent.

 

In May 2014, after the formation of the Modi government, policies like Make in India and Start Up India were announced. In his speech from the Red Fort, Mr Modi said that his policy was to increase industrial production in India. He appealed to companies from around the world to come and start production in India. On the other hand, the government called upon entrepreneurs in India to set up manufacturing in the country and said they would be relieved from various types of red tape. ‘Ease of Doing Business’ would be improved to make the business environment better for new and old entrepreneurs.

 

For ‘start-ups’, the government assured an enabling environment in terms of facilities, tax exemptions and cooperation. For the first time, there was an effort to increase business on such a large scale. New phrases like Start up, stand up, holding hands etc. were added to the official dictionary. Although the fruits of these efforts may take some time to come, it cannot be denied that there has been some improvement in the environment for industrial and business development. The new ‘start-ups’ started coming and the government’s attitude was also to provide a ‘holding hand’.

 

Whereas, the first condition for increasing industrial production is that industries be established, domestic demand for those goods is also a precondition. Unfortunately for the last several years, the import of industrial goods (whether they are consumer goods or producer goods, such as machinery) has been increasing fast. Exports were not increasing at the same pace. However, huge imports also indicate that demand existed in our own country which is an important precondition for industrial output to increase.

 

World Trade Organisation (WTO) came into existence in 1995. According to the agreements reached at WTO, commitment was made by all member countries to keep import tariffs low and eliminate all non-tariff barriers which could curb imports. Due to cheap labour, government subsidies and unethical practices, and resulting low prices, Chinese goods started dominating world markets. The impact was also felt on India, and India’s trade deficit with China reached $ 52.7 billion by 2015-16.

 

The government is also a big source of demand. At present many imported goods enter the government procurement chain due to many reasons. Suppliers of Chinese goods win tenders due to low prices. According to a rough estimate, government purchases at least Rs 2 trillion (Rs 2 lakh crores) every year. It is therefore necessary that in order to increase production in the country, procurement of items made in India should be preferred by the government. Even before the new economic policy came into force, preference used to be given to small scale industries/ Khadi products. But this was given up after the new economic policy came into force. At the first instance the preference in the purchase was changed to a price preference and subsequently the preference was abated gradually. After the WTO agreements, it was argued that since we are obliged to treat foreign companies/ imports on a similar footing as Indian products, we could not give preference to indigenously produced goods, even from small industries.

 

Under the ‘Buy American Act 1933’, US-made products are preferred in government procurement in USA. According to WTO rules, if a government gives preference to products made from that country for its own consumption, then it would not be treated as violation of WTO rules. But if a commercial entity is forced to give preference to indigenously produced goods for commercial use or sale, then it would be considered a violation of WTO rules. In the Jawahar Lal Nehru Solar Mission, when the condition of the use of local solar equipment was imposed by India, the US objected to the same and India lost its case in Dispute Settlement Panel (DSP) and even in the appeal.

 

It is clear that if the government gives preference to products made in India for its own requirements, then WTO Agreements are not violated. Even America gives priority to American goods in government procurement. India can do the same and there cannot be a dispute. Recently a committee of Secretaries of the Ministries has made a recommendation to the government that to make the ‘Make in India’ policy successful, the products made in the country should be given preference in government procurement. It is believed that the government will soon announce such a policy and the rules will be issued by the Finance Ministry in this regard.

Significantly, today a large quantity of products is being imported from China and host of other countries and the same gets included in government procurement. It may be assumed that by giving priority to the purchase of products made in the country, the ‘Make in India’ programme can be made successful in the country. Industry is also pleased with such a policy proposal because it will give industry an assured captive market for its goods.

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