A decentralised system, where economic entities are expected to be self-reliant, requires a generalised system of social trust and the ability to enforce contracts. In turn, it implies a need to carry out administrative reforms and, more specifically, reform of the legal system.

 

In recent weeks, Prime Minister Narendra Modi delivered two important speeches outlining his long-term vision for the economy. The first speech was part of the context-setting for the stimulus package subsequently announced by Finance Minister Nirmala Sitharaman. The second speech was an address to the annual session of Confederation of Indian Industry. In both cases, the Prime Minister emphasised the idea of “Atmanirbhar Bharat” (self-reliant India). But, what does Atmanirbhar Bharat really mean? How does it fit with the reforms being currently announced? What does it imply for future policy?

It is important, at the very onset, to clarify that this idea of self-reliance is not about a return to Nehruvian import substitution or autarkic isolationism. The prime minister emphasised that his vision includes active participation in post-COVID global supply chains as well as the need to attract foreign direct investment.

Similarly, it should also be clear that it is not a return to licence-permit raj and inspector raj of the socialist era. Far from suggesting a centralised, top-down model directed from the “commanding heights” of the Planning Commission, the prime minister spoke of freeing Indian entrepreneurship and innovation from bureaucratic hurdles. This is about decentralised localism that takes pride in local brands, emphasises resilience and flexibility, and encourages local capacity-building and indigenisation.

In order to understand the intellectual underpinnings of Atmanirbhar Bharat, therefore, it is necessary to skip past the socialist-era connotation of the term to an earlier era of thinkers like Swami Vivekananda. In this context, the idea of self-reliance is about resilience, leveraging internal strengths, personal responsibility, and a sense of national mission (or “Man Making” to use the late 19th century expression of Swami Vivekananda).

 

The recently announced liberalisation of the agriculture sector is a good illustration of this world view and its economic implications. Since the 1950s, Indian agriculture policy has been driven by two sets of laws — the Essential Commodities Act (ECA) and the state-level Agricultural Produce Marketing Committee (APMC) Acts. Together, these draconian laws gave government officials the power to tell farmers where to sell their produce, restrict transportation, fix prices, confiscate stocks and even imprison so-called “hoarders”.

All of this was justified in the name of food price stability and the paternalistic idea that farmers did not know how to market their produce. The system was not only unfair to farmers, it did not even stabilise food prices. As discussed in the latest Economic Survey (Volume 1, 2019-20), the ECA actually increased the volatility of prices for commodities like onion, pulses and sugar. Moreover, it led to harassment of traders and rampant rent-seeking by officials. The Survey found evidence that only 2-4 per cent of ECA-related raids stood up in court; no small matter when there were 76,000 such raids in 2019 alone.

The scrapping of the ECA-APMC system enables localised decision-making by farmers even as they can participate in a national common market or export to the global market. Similarly, traders can now invest in supply-chains and agri-businesses without the fear of being arbitrarily labelled a hoarder by an inspector. The government still has a role but it is as an enabler, providing soft and hard infrastructure.

The same economic philosophy is reflected in several other supply-side measures announced recently. Self-reliance implies that product and factor markets are made flexible in order to allow the Indian economy to adapt to the problems and opportunities of an emerging post-COVID world. Thus, there is an unapologetic commitment to privatisation of non-strategic public sector entities, opening up of new sectors like space to private investment, decriminalisation of most aspects of corporate law, greater flexibility in labour laws, and so on.

 

Nonetheless, the above emphasis on flexibility and personal endeavour should not be confused with a completely laissez faire market economy. Self-reliance also means a commitment to resilience at multiple levels — at a national level, an industry level, and at an individual level. For example, the government has indicated that it would provide various forms of incentives and protection to key industries — for example, inputs for the pharmaceuticals industry. We have just witnessed how the vagaries of global supply chains can choke a key industry when it is needed most. Similarly, the incentive structure of defence procurement has been changed to encourage indigenisation even as foreigners are encouraged to manufacture in India.

The same idea of resilience, when applied to individuals and vulnerable social groups, calls for the creation of safety nets. This explains the effort to create a health insurance system (Ayushman Bharat), and the direct benefit transfer mechanism based on Jan Dhan-Aadhaar-Mobile. Notice how an intellectual framework of self-reliance leads to health insurance and direct benefit transfer (that is, resilience) but not to Universal Basic Income (that is, dependence). It also explains why labour reforms emphasise flexibility on the one hand but on the other hand are also pitching for more stringent norms for safety and working conditions.

 

So where does this approach lead? A decentralised system, where economic entities are expected to be self-reliant, requires a generalised system of social trust and the ability to enforce contracts. In turn, it implies a need to carry out administrative reforms and, more specifically, reform of the legal system. As argued repeatedly in recent Economic Surveys, the inefficiencies and delays of the legal system are now the single biggest hurdle to economic development. This is not just about the judicial process but the wider ecosystem of rules, regulations, policing, investigation and so on. It is not a coincidence that Prime Minister Modi had clearly mentioned “Law” as one of the pillars of his vision.

Hope readers are able to see that Atmanirbhar Bharat is not just a slogan but a vision with deep roots in India’s intellectual tradition. So, when PM Modi speaks of self-reliance, it is about standing up confidently in the world, and not about isolationism behind “narrow domestic walls”.

This article first appeared in the print edition on June 6, 2020 under the title ‘What is Atmanirbhar Bharat?’ The writer is Principal Economic Adviser, Government of India. Views are personal.