India must rethink self-reliance strategy amid global shifts
There is certainly a case for building a greater degree of self-reliance in some strategic sectors. There is a reason why India finds itself in a difficult spot, and China and Russia don't. Take Russia. It is not a rich country (in comparison to the US or EU states), but is able to face down the US and the EU in Ukraine. And that is because it is completely self-reliant in oil and gas, and defence equipment. Without these, it would be easy enough for a collective of other nations to halt it in its tracks.
Beyond his tariff actions (ostensibly meant to address US trade deficit), Donald Trump is also acutely aware of what is necessary to keep the US' economic might and great power status intact. His predecessors ensured that the US became the world's largest producer of oil and gas and self-sufficient in energy over the last 25 years. Trump is focused on producing critical minerals and semiconductor chips at home. In many ways, these are the new oil. America's grip on cutting-edge tech will continue uninterrupted, only if it isn't vulnerable on the supply of advanced chips. Its leadership on emerging technologies (many of which, including AI, are mineral-intensive) will be undercut without sufficient and assured supply of critical minerals. China is already giving the US and the world a demonstration of how much power and leverage its domination of the critical mineral supply chains is giving it. US advanced industries like defence and electronics need rare earths, which are almost entirely controlled by China. That is one of the main reasons why China faces lower tariffs than India, despite being more protectionist, buying Russian and Iranian oil, and a military rival to the US.This is the right moment for India to reassess aatmanirbharta. So far, over time, India has failed to achieve self-reliance in the most critical sectors of the economy. It's about 90% dependent on imports for oil and gas. It's the second-largest buyer of imported arms. It's 100% import-dependent for supply of critical minerals, and semiconductor chips.
This reality is what compromises India's strategic autonomy. The reality also is that India needs arms and defence equipment from Russia because most of its existing systems and platforms are from there. And India needs cheap oil from Russia because it helps macroeconomic management - whether inflation, CAD or value of the rupee. But this dependence puts India in an awkward position with the world's largest economy, the US, which would like us to pivot away from Russia. On critical minerals, like much of the world, India is dependent on China. Unlike much of the world, India has a chronic prickly relationship with its northern neighbour because of issues in the political domain. India is also heavily dependent on Chinese manufacturing.Again, all of this leaves us in a very vulnerable position. If the US, China or Russia decide to turn off supply for any variety of reasons, or decide to take advantage of India's dependence, it would be a big challenge.Unfortunately, India's imagination of aatmanirbharta has not always been strategic. It is too broad-based and cuts across all sectors. It's heavily dependent on public sector companies, especially in the most strategic sectors like oil and gas, minerals, and defence. It is predicated on the flawed logic that India doesn't need the world because it has such a large domestic market.Instead, GoI should narrow its industrial policy focus to select sectors. It should leverage India's abundant entrepreneurial talent, and continue to look outwards at markets that are still open. And it should carry out structural reforms that make the economy truly competitive.Now is not the time to go into a comfort zone. The best answer to disruption is disruption.
The writer is chief economist, Vedanta (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.) Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. As RBI retains GDP forecast, 4 factors that will test the strength of Indian economy
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