India at a crossroads: Reduce the risks of economic concentration

Source: The post is based on the article “India at a crossroads: Reduce the risks of economic concentration” published in Live Mint on 23^rd February 2023.

Syllabus: GS 3 – Indian Economy

Relevance: protectionists policies adopted by India

News: Many policies have been implemented by the government to make India one of the most important countries in the world. However, those policies also have concerns.

How have policies helped India?

The government has implemented various policies that have modernized India and supported its growth.

A massive investment has been made in the single market and in infrastructure including digital infrastructure. These investments with industrial policies and a growing digital based welfare system have led to robust economic performance.

Furthermore, India’s military and geopolitical importance will only grow, and its cultural diversity will generate soft power to rival the US and the UK.

However, there are also concerns with these policies.

What are the concerns with these developmental policies?

These policies have made India an economy where large private corporations/conglomerates control a significant part of the economy.

These conglomerates have helped the economy to grow despite lower investment rates. But, the problem with these conglomerates is that they have been able to influence policymaking to benefit themselves.

This has in turn led to two problems – a) it has become a hurdle to the growth of early-stage startups and domestic entrants in key industries, b) it is changing the government’s ‘Make in India’ programme into a counterproductive, protectionist scheme.

What issues are associated with the development of conglomerates?

If any loopholes found in these big industries (e.g., Adani Group), it hurts India’s image globally. It has implications for India’s institutional robustness and global investors’ perceptions of India.

The Asian financial crisis of the 1990s demonstrated that the partial capture of economic policy by capitalist conglomerates will hurt productivity growth by hampering competition, inhibiting creative destruction and increasing inequality.

Hence, India’s long-term success ultimately depends on whether it can foster and sustain a growth model that is competitive, dynamic, sustainable, inclusive and fair.

What are the problems with the Make in India scheme?

Make in India was intended to strengthen the Indian economy by increasing the domestic production of goods for exports.

However, India is promoting domestic products in Indian markets through Make in India and adopting protectionist import-substitution policies.

This gives advantages to domestic industries and conglomerates from global competition.

Moreover, India’s tariff policies are preventing it from becoming more competitive in goods export and it has also resisted joining regional trade agreements.

This ultimately affects the objective of Make in India which was intended to increase trade exports.

Another problem with Make in India is that it has evolved to support production in labour-intensive industries such as cars, tractors, locomotives, etc.

However, India should be focusing on industries where it has a comparative advantage, such as tech and IT, artificial intelligence, business services and fintech.

Hence, for reaping the benefits of Make in India, policymakers should focus on these dynamic sectors by establishing special economic zones. Else, Make in India will continue to produce suboptimal results.