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Decoding the Atmanirbhar Bharat package and its various components

Union Finance Minister Nirmala Sitharaman
There is a huge difference between the 1991 reforms and the Atmanirbhar package announced by the government recently. While the former were designed to make India a globalised economy, the latter seeks to make the country self-reliant. The government has denied that the policy is isolationist and says it will make India part of the global supply chain. However, import substitution is certainly a part of the package. Besides, agriculture, micro, small and medium enterprises (MSMEs), privatisation, FDI are the key to the policy of self-reliance, whose package was announced by finance minister Nirmala Sitharaman over five days earlier this month. 

Focus on agriculture and MSMEs: 

While the first set of reforms largely skipped the farm sector, the ones announced by Prime minister Narendra Modi and detailed by Sitharaman focused on this crucial sector, and MSMEs. It used its hitherto untapped power under the Constitution to propose freeing up inter-state trade. It also tries to bring in farm produce under the contract agriculture. 

The seventh schedule allocates subjects to the Centre and the states. Some subjects are in the Concurrent list where both the Centre and the states can frame laws, with the caveat that the law framed by the union government will prevail in the event of clash between the two laws. The Centre will use Entry 42 of the Union list along with the Entry 33 of the Concurrent List to frame a legislation to free up inter-state trade of all agricultural commodities and intra-state trade in specific farm produce. Entry 42 empowers the Centre to frame laws for inter-state trade, while Entry 26 of the State list empowers states to frame rules and laws to regulate trade within their boundaries. 

However, the provisions of Entry 26 are subject to Entry 33 of the Concurrent list, which empowers both the Centre and states to frame rules and laws relating to production, distribution and supply of foodstuff, including edible oil and oilseeds. As cited above, the union law has supremacy over the state legislation in the Concurrent list.

The structure of the existing APMCs will not be changed or altered.

For contract farming, the Centre is exploring the prevailing provisions of the Indian Contracts Act for making a legal framework to protect farmers in case of contract farming and also laying down rules for companies which enter into such agreement with farmers.

The Act guides all existing contract arrangements, but farming is not under it. In other words, contract farming is not allowed. The provisions of this Act will be explored to include farming within its ambit.

The proposed amendment to the Essential Commodities Act to deregulate cereals, edible oils, oilseeds, pulses, onions and potato matches the two pieces of legislation. These moves will allow a big processor to purchase directly from farmers anywhere in India without worrying about the legal problems he might encounter and also store as much as he wants.  

Similarly, the government took a number of measures to boost the MSME sector. It had earlier relied on reservation of items for the MSME sector. Reservation had started with just 47 items in 1968. By 1970, some 55 items were reserved for the sector and in 1998, despite liberalisation reforms unleashed in 1991, the number rose to 836 categories. Later, items were progressively de-reserved and in 2015 even the last 20 items were de-reserved for the sector.  

"Policy initiatives have been taken to encourage greater investment, including (for) the existing MSME units, to incorporate better technologies, standard and branch building to enhance competition in Indian and global markets for these products," the Commerce and Industry Ministry had said in a statement in 2015. 

Now, again reservation of sort is given for the MSME sector in procurement of government items (detailed later in the story). 

In fact six of the 16 measures announced by Sitharaman in her package were devoted to MSMEs. Besides, collateral-free loans aggregating Rs three trillion from banks, financial institutions and non-banking finance companies (NBFCs) were announced for the sector. Interest rate was capped at 9.25 per cent for loans from banks and financial institutions and 12 per cent from NBFCs.

There was also a larger definition of MSMEs that combined investments and turnover, Rs 20,000 crore subordinate debt, Rs 50,000 crore equity infusion through fund of funds.

SBI group chief economic advisor Soumya Kanti Ghosh said while 1991 reforms were aimed at making India competitive at the external level, the Atmanirbhar package focused on making India strong internally. 

Import substitution:

Though the government denied that it is following the policy of isolationist and protectionism, there are many such instances of this policy, especially where MSMEs and the defence sector are concerned. 

As cited above, the government prohibited global tenders in government procurement up to Rs 200 crore. "Indian MSMEs and other companies have often faced unfair competition from foreign companies," Sitharaman said in her package to MSMEs. 

She added that this move will help MSMEs increase their business, and will be a step towards a self-reliant India, apart from supporting Make in India.

Besides, the finance minister said the government will notify the list of weapons/platforms whose import would be banned. The list will be revised every year.  

There will also be focus on indigenisation of imported spares. There will be a separate capital budget for indigenous weapons procurement.

The Defence Production Policy of 2018 (DPrP-2018) already stipulates that by 2025, India must achieve self-reliance in producing helicopters, fighters, warships, tanks and missiles. These platforms currently constitute the bulk of weapons imports. 

Privatisation:

The boldest reforms were announced for the public sector in the finance minister's last tranche of the packages. However, the FM also said all areas would be open to the private sector.

Even now all the activities, except atomic energy and railway operations other than construction, operation, and maintenance in select areas, are open to the private sector, according to the site of the Department for Promotion of Industry and Internal Trade.

Even here, the Budget for 2020-21 had announced allowing public-private partnership in Railways.

Sitharaman said the strategic sectors where the public sector would be present would be notified. In these, at least one enterprise and at most four of them will be public sector companies, but the private sector will be allowed. PSUs will be privatised in all other sectors, she said. 

The government did not detail which one would be the strategic sectors. It also did not clarify whether banks would be included in the policy or not. If banks are included in the strategic sector, only four banks would be there against 12 at present. 

Partha Chatterjee, professor and head of economics, Shiv Nadar University, said: “Questions that remain is how will a particular sector be decided as strategic? What is the timeline?  Will that be also applicable to sectors where government is the dominant player, like say banking? The government has to ensure that competition in the sectors don’t go down.”

Sitharaman also said that the ordnance factory board would be corporatised. However, she sought to clarify that corporatisation does not mean privatisation. 

At the same vein, she also said that ordnance factory stations would eventually be listed. Whether this would lead to privatisation or not cannot be assessed as of now since privatisation means bringing down the government equity below 50 per cent. 

FDI:

While the government announced restricting certain weapons and spare parts to Indian manufacturing, it also said it will raise FDI in defence to 74 per cent through automatic route against 49 per cent at present. This was one of the major demands of the foreign defence vendors for transferring critical technology to subsidiaries in India. 

The Confederation of Indian Industry (CII) on Saturday said, “This will attract foreign funds into this sector, along with technology infusion.” 

India gives orders worth $100 billion a year for defence procurement, making it one of the world’s lucrative markets for defence companies. Net FDI inflows grew 14.2 per cent in 2018-19. The top sectors attracting FDI equity inflows are services, automobiles and chemicals.

In May 2001, the defense sector, which was earlier reserved for the public sector, was opened up to 100 per cent for Indian private sector participation, with FDI up to 26 per cent, both subject to licensing. The FDI policy was further liberalised, allowing 49 per cent stake under automatic route and above 49 per cent if access to modern technology was provided.

After opening up the sector for Indian private sector participation, 42 FDI proposals were approved in defence sector for the manufacturing of various defence equipment. The government also issued 439 industrial licenses to private companies till March 2019 for the manufacturing of a wide range of defence items. But, to date no big-ticket MNC investments have been made in India, barring few offset contracts by Indian companies for MNCs.


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