Is import substitution affordable?

Even as the central government and financial regulators have dished out several relief and stimulus packages to keep the engine of economy running, the fact remains that the actual impact of COVID-19 pandemic on trade and commerce is yet to be completely understood.

The outbreak of the pandemic has shattered business cycles in every sector of economy, where loss of jobs and tremendous fall in incomes of businesses as well as individuals has been widespread. In simpler terms, we are still clueless about the exact form of coronavirus induced adversities once the lockdown strategy is done away with.

Right from the inception of this deadly outbreak, which disrupted global economic supply chains, opinions galore that a new world order is knocking at our doors. In fact, in coming times COVID-19 will be more approached as an economic emergency than a health emergency.

The kind of situation emerging at the moment is viewed by the country’s leadership as an opportunity to reshape the economic landscape; harness the untapped economic potential and become self-reliant.

On May 12, 2020, Prime Minister Narendra Modi announced the ‘Aatma Nirbhar Bharat Abhiyan’ scheme that aims to provide assistance to farmers, migrant workers, etc. and also aims to revive the industrial sector. In light of this scheme, state governments also have announced their own measures and policies to help revive the economic activities of their own regions.

Aatma Nirbhar Bharat is basically a policy which resonates well with the Rashtriya Swayamsevak Sangh’s (RSS) core philosophy of Swadeshi, or being indigenous, and the PM’s announcement was perceived as the first steps for reshaping this policy in keeping with their long-pending demand. It’s by all means a bold step by the government, as Aatma Nirbhar will mean moving from just ‘Made in India’ to ‘Made by India’.

‘Make by India’ would mean that global companies in India do not make the product, but from scratch to the finish will be locally made and delivered.

Precisely, it’s here the concept of import substitution has started gathering momentum to boost domestic manufacturing in the wake of the current economic scenario.

Notably, the government has already indicated to introduce an import substitution policy to ‘replace foreign imports’. Earlier this year the MSME Minister Nitin Gadkari had stated that there is a need to focus on import substitution to replace foreign imports with domestic production and helping the country save foreign exchange.

Now let’s analyse the import substitution policy in the context of Jammu & Kashmir. Can it prove a path to economic prosperity?

Jammu & Kashmir has always proved an entertaining field for opinion makers, political commentators, global scenario watchers and newsmen. Amid conflicting politics, it’s the projection of economic landscape loaded with huge potential. But untapped.

During the past two decades, I have always heard economists having an eye on the state always summing up it as ‘rich economy, poor government’. Though several initiatives were tailored to bring vibrancy in realizing the available potential, we hardly witnessed the region being pulled out of the economic mess.

Interestingly, the concept of import substitution policy in the context of J&K was debated some three years back as fuel to ignite economic engine to tap the potential. Talking about progress in economic activities in the turmoil conditions is, of course, courageous and laudable. However, understanding the import substitution route and assess its relevance to the kind of economic scenario in which we are engulfed makes sense.

The policy in theoretical perspective is a way to encourage self-sufficiency and also to aid the protection and promotion of local industries as well as entrepreneurship.  But in practicality, raising barriers against the import of products from other states brings in many evils too. It can discourage competition and consumers would be denied quality products as well as competitive pricing.

Precisely, in our kind of diverse economy and in the given vexed political scenario, import substitution is almost misfit. Critics rightly point out that import substitution strategies are ‘often lumped with other strategies and its effects are difficult to tease apart. As in many economic development scenarios, the counterfactual provides fodder for criticism–it is often quite difficult to say whether import substitution strategies led to better economic performance or whether that performance would have come to fruition regardless of the strategies.’

It is important for geography like ours to understand the rationale for import substitution. We have to first understand the basic forces at work in our economy.

However, we cannot overlook this substitution in certain sectors like horticulture, floriculture and dairy. For example, our apple industry stands now seriously challenged by forces outside players. Despite having huge potential in floriculture, this sector remains under utilized. Potential in dairy is enormous. We have failed to scale it up in an organized manner. To a large extent, failure of cooperative sector in the state is responsible in spoiling the huge economic potential of sheep and dairy farming and even poultry farming in the state.

On top of it, let’s take the case of power. Importance of providing sustainable and affordable energy to the people here has always missed the focus of our ‘men of vision’. As far as providing of energy to even poorest of the poor goes, it is only through harnessing of hydel-power – best suited for our unique set of circumstances.

How cheap hydel energy helps to eradicate poverty and generate heat in economic activity can be gauged by the fact put forth by experts that by installing a one-megawatt hydel power project in along with complete distribution network for the area can change the socio-economic conditions of the area by providing electricity to run machinery and equipment for the manufacturing and processing of local goods.

This locally-generated energy will also be creating skilled job opportunities in the power supply system as well as in workshops for making electric appliances and fixing electric installations. Small and medium industries can immensely benefit through this cheap energy. Precisely, it would be rejuvenating our cultural energy.

We all know, our need for power is acute and urgent in nature. There is need to have a policy framework to be evolved in order to develop the hydro power potential of the State. In fact, power is the key to import substitution.

However emphasis should be to lay hand on significant micro, mini and small hydro potential and exploit them gainfully to provide electricity to remote villages in a cost effective and environmentally benign manner. It will pave way for youth to go for industrial activities; forests will be saved; small and tiny sector will get opportunity to accelerate income generation capacity and prosperity will mark impression all-round.

Of course, the current situation presents an opportunity to stimulate and promote import substitution. But it’s equally loaded with a huge challenge of being competitive on a global scale. It’s an uphill task for an economy like ours to trigger changes in the narrative from the base, mobilise resources and stimulate critical stakeholders and basic players to reach consensus to perform on the lines of import substitution framework.

In succinct, pursuing import substitution, whether at national level or regional level, needs a well-defined policy. At the moment there are huge impediments and gaps in our economic sectors which don’t favour import substitution. We should not surrender to the disruptions in global supply chain induced by coronavirus outbreak. The efforts to strengthen the supply chains should be prioritized and lay on hand on import substitution as a secondary measure that too once bottlenecks in our economic set-up are removed.

(The views are of the author & not the institution he works for)