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‘License Raj’ & ‘Protectionism’
‘License Raj’ & ‘Protectionism’ – How Modi Govt is Failing India’s Manufacturing!

Modi government is hell-bent to adopt protectionism, trade barriers, Licence Raj, import substitution and inward-looking policies, all in the name of promoting manufacturing.

The Modi government’s midnight decision to introduce a Licence for the import of laptops, tablets, personal computers, and servers will not only revive ‘Licence Raj’, but it is also a tacit admission that the PLI Scheme has failed to deliver. It is also an assault on a large number of lower and middle-income consumers, including students, who had taken to digital learning, especially in the post-pandemic era. Digital India will suffer. 

First things first. India needs a vibrant manufacturing sector to thrive. Since 2014, the output of India’s manufacturing sector has dipped from 15% to 13%. Although India stands at sixth position in the global ranking of countries in the manufacturing sector, yet its market share is just 3% of the total manufacturing, while China’s share is about 28%. Even though India’s services sector is its growth engine, in the post-pandemic era, it is imperative for India to fire all its engines of growth. Therefore, manufacturing, agriculture and urbanization cannot be ignored and must be emphasized too. 

However, the question is what is the mechanism to spur the manufacturing sector? Is it protectionism, or it is creating a holistic environment which enables private entities to set up manufacturing units? Access to land, better regulatory clearances, easy compliances, reducing red tape, transparent practices which forgo rent-seeking, access to technology and emphasis on greener and cleaner energy infrastructure could be some of the vital factors to encourage this sector. India does not have a dearth of labour – both skilled and semi-skilled, and a large number of people would be given better opportunities through manufacturing. 

Surprisingly, the Modi government is doing the opposite. It has a two-pronged strategy of crony capitalism and protectionism. No Indian will oppose ‘Aatmnirbhar Bharat’ or ‘Make in India’ – but there is a wide wedge between these high voltage campaigns propagated by the present government and the actual implementation. 

The biggest example of this approach is the apparent failure of the PLI scheme (introduced in 2020) which is targeted at a motley group of 14 sectors, mostly big industries, chosen without any clear criteria, which provides subsidies to finished goods in India. The chosen sectors are big-ticket, large industries that have the potential to crowd out MSMEs. They create lesser jobs than MSMEs. 

Former RBI Governor demonstrated in a recent paper that the PLI Scheme does not add to the manufacturing output. Giving an example of mobile phone exports and imports, Rajan’s paper reflected on how PLI Scheme is only subsidizing the assembling of mobile phones in India, but not the elements used to make it – semiconductors, PCBA, displays, Li-ion batteries, battery chargers, and cameras. 

Is the PLI Scheme a panacea for Indian manufacturing and the creation of jobs? Despite the government’s over-the-top claims, the PLI scheme does not seem to garner the desired results. The PLI scheme provides a subsidy ranging from 4% to 6% on the value of the additional production the investing firms generate. Till March 2023, 733 applications were approved in 14 sectors with an expected investment of Rs 3.65 lakh crore. However, the actual investment of just Rs 62,500 crore has been realized till March 2023. This is just a measly 1.7% of the expected investment under the scheme. It is important to note that the government’s incentive outlay in the form of subsidies and tax incentives is Rs. 1.97 lakh crore for the scheme, which is almost 1% of the GDP. 

In June 2023, the Modi government notified the PLI scheme for IT hardware 2.0 after it was held up for more than two years. The government had to initially scrap the scheme in 2021 after it received no bids from global giants, who had issues with the investment requirements of the scheme. The reason for the introduction of Licences for the import of laptops, tablets, personal computers and servers is that big manufacturing companies like Apple, Samsung, Acer etc. did not show any interest in setting up manufacturing units here in India, using the PLI scheme. 

The Modi government’s trade policy is another problem. It is inward-looking and is based on pre-liberalisation import controls. According to the World Trade Organization’s (WTO) Tariff Profile 2022, India has one of the highest average tariffs of 18.3% in the Asia-Pacific region. 

Successive governments in the past two decades have been following a consistent policy of reducing import duty, but the Modi government in a calibrated departure has changed the policy on its head by hiking tariffs in well over 500 major item categories since 2016. Shockingly, between 2016 and 2022, more than 3,000 tariff increases by the present government have affected 70% of India’s imports. 

High import duties for India also mean a loss of exports by making them uncompetitive. A large portion of India’s exports is contingent on its imports. The long-term impact of introducing trade barriers is inefficiency in domestic manufacturing and lower quality of goods production. 

India has been negotiating several bilateral Free Trade Agreements (FTA) since 2004. In fact, under Dr Manmohan Singh India signed 11 Trade Agreements, but under the Modi government, they have only progressed on trade agreements with Saudi Arabia, U.K and Australia – which are still a work in progress. In 2019, the present government did not enter the multilateral Asian free trade agreement – Regional Comprehensive Economic Partnership (RCEP). 

Protectionism, trade barriers, Licence Raj, import substitution and inward-looking policies have way passed their expiry date. The present government’s departure from a well-established post-liberalisation policy may well be following the post-pandemic global trend, but the sting in the tail is that these polices were started by them well before the pandemic stuck. 

One Nation, One Election
Why One Nation, One Election is the first step to dismantle Federalism.

Not only it is detrimental to the Panchayati Raj system, the argument that it would lead to better governance rings hollow.

Inches and inches of column space have been utilized in newspaper opinion pages on the ongoing debate about ‘One Nation, One Election’. Simultaneous elections to the Union, States, and Local Bodies shall demolish not only federalism but also the very functioning of our Panchayats and Urban Local Bodies (ULBs). It will end whatever basic autonomy and power they possess currently. 

‘One Nation, One Election’ (ONOE) is not only a direct assault on federalism, which is a part of the basic structure (better term is framework!) of the Constitution, but also an instrument to squeeze out the little authority provided to our Panchayats and elected members of the Urban Local Bodies.

The terms and reference of the recent committee formed by the Union Government on ONOE explicitly state that it must “examine and make recommendations for holding simultaneous elections to the House of the People (Lok Sabha), State Legislative Assemblies, Municipalities and Panchayats”.

The last two tiers – Municipalities and Panchayats have been conveniently erased in the present public discourse, even though they may be the key to understanding why simultaneous elections would be detrimental to Parliamentary Democracy. 

India elects 543 Lok Sabha members, more than 4100 MLAs, the MLAs also elect around 245 Rajya Sabha members. More importantly, we elect 89,194 representatives to urban wards and 31.89 lakh elected panchayat representatives spread across three tiers of the Panchayat system – Gram Panchayat, Panchayat Samiti and Zila Parishad. MPs and MLAs together elect the President of India too. 

With ONOE in place, the limited three-tier system, which India has painstakingly developed at the grassroots, would be in jeopardy. A huge number of representatives in this system serve the interests of the people they get elected from, in a highly localized manner. Infact, there is a view in political parlance that Gram Sabha members have more power than MLAs. Take an urban example, for instance, the Municipal Corporation of Delhi has a garbage disposal or parking space as a core issue in its election. People vote for that. But if ONOE takes place, national or state issues will be overarching and the discourse about parking or garbage disposal shall get crowded out.

Similarly, there is enough empirical evidence that Indians vote differently in Assembly Elections and Lok Sabha elections. This is primarily because the issues at the State level are regional and more local – road, water, housing, electricity, law and order, health and education; than the issues at the national level – economy, national security, foreign policy, trade et al. What ONOE aims to do is to encroach on the regional, state-level, localized discourse during an election campaign and consume the voter with these mega issues, thus leaving very little ground for community-level issues to hold water.

There is a reason why political parties prepare State-level manifestos. Those manifestos will now be overshadowed by national-level narratives. If the candidates in Assembly Elections, even if they belong to national parties, want to raise important provincial issues or sub-regional issues, then the national parties would continue to force their ‘nationwide’ uniform agenda down their throats. This is not in the spirit of cooperative federalism or ‘Team India’, which is being propagated by the current regime.

Let it be very clear, the Union holds the states together. No one is saying that national issues are of lesser importance; the issue here is that economic, social, and political issues of states are equally important, for they are the ones who implement most programs and schemes of the Union. 

Supporters of ONOE primarily point out that the mechanism enables the government to concentrate on governance once the elections are over. This is a superficial argument. In a situation, where the voters would hardly know about the localized issues at Panchayat or State level, and would only be forced to form an opinion on national issues, would there be an informed debate on how to solve those local issues? Will they be able to vote on local issues? Once there is no opinion, there wouldn’t be any accountability for implementation. In a vibrant, albeit chaotic Democracy, such as ours, there are ways and means to create debates on local and state issues. If these issues do not get prominence, then whatever leeway the supporters of ONOE imagine, in the case of governance, is hollow.

Voters are the biggest stakeholders in any election. If the voters do not discuss issues, if representatives do not get prominence in highlighting those issues, there wouldn’t be any informed decision-making while casting the vote. Then, one should forget about any accountability from the incumbent at the implementation stage too.  ONOE, therefore, wants to subsume Democracy at the local level with a broad stroke of uniformity. 

Cynics might point out that in India, local elections are hardly issue-based, especially for Panchayats and ULBs. They are mostly dependent on caste combinations, muscle, and money power, or the influence of the ruling party in the State. Let us concede that argument for a moment. Yes, our weakest political unit still remains the Panchayats and ULBs in terms of devolution of power, but that is a function of electoral reforms. ONOE is not the solution to overcome that.

But what about the States? Over the years, India’s federal system has become more decentralised and stronger. There was a time when two-thirds of India’s districts did not even have a proper administration. In the last 25 years, that has considerable changed. Post Liberalisation, there has been a remarkable change in how we govern our states, because now we have more funds, and states now have more to do in terms of welfare-oriented governance. If the devolution of power has taken place from Union to the States, then certainly it can take place, although gradually, from States to the grassroots bodies.

Likewise, recent elections have also seen, caste-based social cleavages being broken because of aspirational politics. A Yadav may or may not vote for a Yadav, and a Kurmi may or may not vote for a party that traditionally represents Kurmis. If that can change, without a uniform, all-encompassing solution like ONOE, then certainly, Indian Democracy is doing something right.

Representative governance has been the soul of Indian Democracy. Mahatma Gandhi spoke about village-level republics which are self-sustainable. Our indigenous experience with the representative government started in the republic (Gad Rajya) of Lichhavi, Kapilvastu, Pava, Kushinara, Ramagrama, Sunsamagiri, Piphali, Suputa, Mithila and Kollanga in the 6th Century BC and continued up till 400 AD in various parts of the country. The Sabhas, Samitis and Ganapati of these republics were the modern-day Parliament, Cabinet and the Prime Minister respectively. It was not some monolithic, singular-power system. It provided a considerable level of autonomy for development activities at the grassroots. 

Sadly, ‘One Nation, One Election’ seeks to dismantle this multiple, but cohesive power structure. We should not let it happen.