ExplainSpeaking on economy | Atmanirbhar Bharat: A brief and not-so-affectionate history

As you notice, the PM used both the phrases to refer to “Atmanirbhar”.

So, let me quickly attempt to answer some key questions that you might have.

First up: What is the difference between self-reliance and self-sufficiency when it comes to policymaking?

When a country wants to be self-sufficient, it essentially wants to produce all the goods and services it needs by itself and does not want to depend on the rest of the world. In other words, it wants to cut down on all its imports and isolate itself.

In contrast, self-reliance typically means that the country wants to have enough resources — typically foreign exchange reserves — to pay for what it wants to import.

Self-reliance is accepting that no country can be self-sufficient and thus it is better to become so economically prosperous that the country has enough forex reserves to pay for what it cannot produce at home or what could be imported from abroad for cheaper.

The second key question is: Are either of these new ideas?

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Actually, no. From 1951 up until 2014, when Mr Modi abolished the Planning Commission and replaced it by Niti Aayog, India followed Five Year Plans and in every plan document, achieving self-reliance or self-sufficiency was one of the core goals.

Of course, in the first two FYPs (1951 to 1961), Indian policymakers prioritised becoming self-sufficient — and this involved import substitution. But when this policy did not work, the planner of the economy shifted to achieving “self-reliance” from the 3rd FYP (1961-1966) onwards.

The idea was still to reduce dependence on the rest of the world but from this point onwards the focus was more on having enough forex to buy what India needed. This was to be achieved by raising exports and reducing imports.

With each passing plan-period, the country adopted more and more restrictive controls on imports such as higher import duties, massive license-permit raj on who could import what, how much and for what reason.

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But these good intentions were paving the proverbial road to hell. In reality, this approach only led to black marketing of imports on the one hand — those who got the licence to import then sold their quota at a higher price within the country — and promoted inefficiencies in domestic industries, on the other.

The idea was that India should protect its “infant industries” and allow them to grow strong before they face competition. To aid their growth, all imports barring the “essential” ones were to be discouraged.

But this created a system of perverse incentives where domestic firms had no reason to become more efficient. Of course, the eventual cost of this approach was borne by the common Indians at large because as consumers, they continued to get sub-standard goods or no goods at all while inefficient industrialists prospered. It formalised a system of crony capitalism.

This push for self-reliance reached its crescendo during the 6th and 7th FYP (1980-1990) when policies of import-substitution and license-permit raj ruled the roost. But all along these years, the share of India’s exports in world trade was coming down; between 1953 and 1990, the share of India’s exports in world trade fell by a whopping two-thirds from already meagre 1.4% to an almost insignificant 0.5%.

Eventually, in June 1991, India was staring at a crisis with forex barely enough to cover for imports of 13 days! Today, thanks to liberalisation, the Indian economy is roughly six-times what it was in 1991 and we have enough forex to cover over 13 months of imports.

But the fascination with self-reliance did not end in 1991 — the mantra continued to dominate FYPs. For instance, the 9th Plan (1997-2002) stated that “self-reliance must remain an important component of (India’s) development policy and strategy”.

However, it was also becoming clear to planners and policymakers that in a free market economy — as against a “planned” one — it was not possible to control what people buy.

Yet the plan document stated: “It is the responsibility of the government to create conditions by which such tendencies can be corrected by the agents [that is, individual economic agents like you and me] themselves”.

The instruction asking the government to “create conditions” so that people do not over-import is noteworthy.

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Also noteworthy is that “Atmanirbharta” as a concept is not at all new. It is as old as India itself and frankly, it is this policy — even more than having a government-dominated planned economy model (China has been dominated by the government but still grew very fast) — that is responsible for keeping Indians poor by not letting the economy grow above the so-called Hindu rate of growth of less than 4% for several decades.

It is possible to argue that India can make Atmanirbharta — either self-reliance or self-sufficiency — work this time around.

But, as the brilliant essayist Francis Bacon said, hope is a good breakfast but a bad supper.

The government has already restarted resorting to bans and handing out import licences. The justifications are also the same — be vocal for local — or, in other words, protect domestic firms and help them grow.

Just remember: As in the past, the cost of this forced inefficiency will be paid by people at large.

Stay safe!

Udit