India's Coronavirus Crisis Spurs a New Look at Self-Reliance

By Bill Spindle and Rajesh Roy

NEW DELHI -- The coronavirus pandemic has pushed India's jobs crisis from bad to worse, leading the government to take a new look at an old solution: self-reliance.

Prime Minister Narendra Modi's latest plan appears aimed at helping companies to get even more focused on Indian consumers, as opposed to exports, while also using the potentially vast domestic market to lure foreign firms to set up operations in the country and employ Indians.

To what extent this is accomplished through protectionism or root-and-branch economic reform, or something in between, could determine its success in creating the tens of millions of new jobs India desperately needs in the coming years and decades, economists said.

Mr. Modi took to national television last week to tout an economic stimulus plan he said was worth 10% of the nation's economy. The centerpiece of his pitch was self-sufficiency.

The prime minister isn't the only world leader casting his sights back on his home market. Politicians around the world have invoked the almost impossible challenge of getting basic medical supplies to call for more domestic economic control.

As the virus started spreading, France's finance minister demanded more "economic and strategic independence" for French industry. President Trump has repeatedly said the pandemic justified his nationalist economic agenda. In an interview on Fox Business Network Thursday, Mr. Trump said the pandemic has proved he was right, blaming "these stupid supply chains that are all over the world" for American medical equipment shortages. "I said we shouldn't have supply chains," he added. "We should have them all in the United States."

India has a history of rejecting globalization, and Mr. Modi's call taps deep into the nation's psyche. Self-sufficiency was at the heart of the campaigns Mohandas Karamchand Gandhi led to achieve India's independence from Britain. For the Mahatma, it meant a focus on village life, farming and self-reliance, symbolized by the image of himself hand-spinning thread on a wooden wheel.

India's first prime minister, Prime Minister Jawaharlal Nehru, transformed the concept into a national economic strategy that required the "commanding heights" of India's economy -- from banks to steelmakers and vehicle manufacturers -- to be under tight government control.

A key part of that strategy, which guided the country for decades after its founding in 1947, were extensive measures to stop or disadvantage imports in favor of domestic production.

The approach was ultimately blamed by economists for stifling economic growth, as India's protected companies were unable to compete anywhere but at home and missed out on the globalization of manufacturing that spread abroad. The strategy was jettisoned in the early 1990s, during another severed economic crisis.

But vestiges of the system have persisted in India's inflexible rules governing land use, laws tightly restricting companies' ability to lay off workers and the myriad regulations and red-tape constraining private companies.

Mr. Modi's arrival on the national stage in 2014 came with expectations that his administration would go the final distance in removing those hindrances and usher in a new era of stronger growth and job creation. Before then, he was credited with fueling a manufacturing boom as head of Gujarat, one of the country's most economically dynamic states.

Some progress was made during Mr. Modi's first term as prime minister: the country's bankruptcy laws were overhauled and a patchwork of state tax regimes was replaced with a uniform nationwide system. His signature initiative was an effort to build manufacturing capability dubbed "Make in India."

But a surprise move in 2016 to ban much of the currency in circulation -- aimed at reducing corruption and encouraging digital payments -- dealt a blow to the economy. And problems implementing the tax-system overhaul helped assure the economy never really recovered.

"Make in India" was bogged down by the same regulations left over from the old economy. They still hadn't been changed, especially land and labor laws.

By late last year, annual economic growth had shriveled to 5%, the slowest in a decade, from a rapid pace of more than 8% in 2017. Unemployment by at least one measure was the highest in a generation at 6.2% in 2019. Then the pandemic hit.

As with many nations, India's response was an economy-crippling lockdown of the country to stem the spread of infection. Unemployment skyrocketed to a high of 27% in the first week of this month, according to private data provider the Centre for Monitoring Indian Economy. The economy could contract this year for the first time since 1980, private economists said.

This has sparked the new search for solutions and the resurgence of talk of self-sufficiency. "Let's be vocal for local," Mr. Modi told the nation last week.

That slogan conceals a debate within the government over just what self-sufficiency will mean in the post-pandemic world. On the one hand, the measures announced included some protectionist moves designed to shield Indian companies, particularly small and medium-size businesses, from foreign competition, such as outright banning foreign companies from bidding for smaller government contracts.

Behind the scenes, however, some in Mr. Modi's administration have been mounting a rejuvenated effort to attract global manufactures who may want to move some of their production out of China, whose dominance of global supply chains has proved problematic amid the pandemic and recent global trade frictions.

Indian officials are wooing some of the biggest global high-tech and electronics companies, drug and medical-equipment makers and textile manufacturers to relocate some of their China-centered operations to India.

"Our aim is to target potential companies and ask them what it would take for them to shift manufacturing to India, and then design sectoral policies to achieve that," said Rajiv Kumar, a leading Indian economist and vice chairman of the government's leading economic think tank, NITI Aayog.

But success in luring more such activity would depend on overcoming longstanding frustrations with the country's bureaucracy, rigid restrictions on laying off workers and limited land availability for large-scale manufacturing plants.

"To revive the economy eventually it will need deeper reform," said Mihir Swarup Sharma, head of economy and growth program at Delhi think tank Observer Research Foundation. "The prime minister suggested that is imminent but provided no details. We have heard such promises before."

India has a remarkably young population, with some 10 million people reaching working age every year for decades to come. For them, and for a world in need of India's growth, what self-sufficiency turns out to mean in a post-pandemic world will be critical.

Write to Bill Spindle at [e-mail] and Rajesh Roy at [e-mail]