Why and how the focus of our industrial policy needs to shift

Source– The post is based on the article “Why and how the focus of our industrial policy needs to shift” published in The Indian Express on 19th November 2022.

Syllabus: GS3- Changes in industrial policy and their effects on industrial growth

Relevance: Reforms in industrial sector

News- The article explains the important aspects that should be considered while designing the industrial policy.

Which aspects should be considered while designing industrial policy?

Job creation– The industries need to be very carefully selected. Many of the industries currently chosen to be under PLI are highly capital and skill intensive. Goal of job creation for our massive numbers of unskilled workers should be considered.

Job creation or even economic growth may not always be the main goal of industrial policy. In a world of geo-political conflicts and supply chain disruptions, national security is often considered a major goal. But unnecessary subsidies should be avoided.

Discipling the firms– In policy implementation, there is a need for monitoring the performance of the target firms. We have to be strict with non-performing firms. If necessary, we can withdraw support from them. It requires extra efforts that go beyond the traditional culture of bureaucracy in India.

We have to be careful while disciplining the firms. They should not become white elephants or they acquire too much market power. South Korea and Taiwan used the discipline of success in export markets to nudge the firms supported by their industrial policy to have international standards of quality and cost-consciousness. They followed a stick-and-carrot policy: The stick of export market discipline and the carrot of generous credit subsidies.

Soft industrial policies- These are policies like encouraging research and development, extension services, vocational training, improving regulations and infrastructure are needed. The goal should be to develop domestic policies of coordination that improve productivity more than interventions that distort prices.

soft industrial policies need to be customised to local decentralised contexts, particularly when you want to help small and medium sized firms.

Focus on green products– The 2017 United Nations publication on Green Industrial Policy suggests many examples of new green products and service opportunities that have a great deal of job-creating potential. These are from renewable energy generation and storage, bioplastics, decentralised miniature electric grids, technologies of drip irrigation and rainfall harvesting, the reinforcement of sea walls, green energy-powered three-wheeler public transportation, and so on.

The support for industrial policy has to be nuanced, multi-faceted and vigilant in its disciplining functions.