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Vocal for Local

Continuation for Make in India and MSME & PLI - Minor Tweaks Needed. Use value of this topic is very High
News
  1. While Innaugrating the Global Investors Summit. PM again said that the country must now focus now on
    1. Vocal for Local
    2. Local for Global
  1. Govt is pitching for this for sometime like Make In India.
    1. We used to Import Mobile Phones, Now we are Exporting Manufacturing
  1. this is in context for Decoupling and Derisking from China
  1. Across the Globe, there is now trend of Economic Natioanlism i.e prioritising domestic economy
      2. Productivism - Prof Danny Rodrick. America First Policy Adopted by Trump continued by Biden is an example of Economic Natioanlism.
Quote
For a Self Reliant India or to Bring India on a Path of Rapid Economic Development we should focus on 5i
Intent - VFL & EN should not lead to Deglobalisation
Inclusion - Reaching the Last Mile Inlusive Growth
Investment - Driver of Competitive Growth
Infrastructure - Our Problem is Legacy Deficit like of Lack of Physical and Social Infrastructure
96% of Korean Workforce is Formally Skilled. in India only 2% are formally skilled from the age group of 16 to 29.
RPL - PM Vikas Kaushal Yojana - Recognition of Prior Learning i.e RPL → Even considering that we have only 8%
Innovation → World is moving towards Fourth IR. Market and Industry Skills to match with Knowledge Economy
What is V&L
Its a Campaign for India which urges people to buy and support indigeneous products. It is more of a nudging under Behavourial Economics. It is not a specific scheme
ANBA - Atma Nirbharar Bharat Abhiyan
5 Pillars
  1. Economy
      2. We need Quantum Jump. We need Tranformational Economy. 5 Trillion Economy by 2047. Post Independence our Economic Growth Rate was 3% Per Anum which was called as Hindu Growth Rate
      If Economic Growth Rate is More than 7%
  1. Infrastructure
      2. For Infra Budget Allocation is 10 Lac Crore. There is a Trend of Steady Increase wrt to Governments Budgetary Allocation for Infra. Rs 7L. Primarily due to Multiplier Effect
  1. System
      2. Technology Driven System. Example is DPI.
  1. Demography
      2. Around 67 to 68% of Indian Population is Working Age Population
      And out of that Majority People are below 30 years of Age
4. Doemstic Demand
There is a Growing Middle Class also called as Aspiring Class. Our Model is Consumption (Domestic) Led Economy. We are not a Export Led Economy
4 L’s
Reform in 4 L needed
  1. Land - Land Acquisition, Environmental Clearence
  1. Labour - Easeing Complex Labour Laws
  1. Liquidity - Creidt Expansion is the next phase of growth. Cheaper Loan is needed for Working Capital. Around 16% MSME is only getting formal credit. And the Interest rate they are paying for Working Capital is very high as high as 25 to 30%
  1. Laws - Reforms in Laws Needed, Changes in Taxation Laws like Tax Terrorism - Restrospective Taxation, Reforms in IBC
Need for Vocal for Local
  1. Self Reliance
    1. Earlier → Security Development Dehyphenation
        2. Example : India China - There were Border Issues but the Economic Cooperation was still very high. China opened its Economy before us. China capitalised on the Globalisation Work.
    2. Now → Secuirty & Development Linked Now → Imp for Domestic Economy → Present Security Threat is from Non Traditional Threats
    3. That is why Developed Countries are Talking about Decoupling and Derisking
    4. We need to protect our Interests Together
    5. Dehyphenation has led to change from Cooperating Rivals to Competing Rivals → Competition has Increased Especially in the Competive Field
  1. Supply Chain Disruptions
    1. To Address Issues related to Supply Chain Disruptions. It was extended to further weaponisations during Russian Ukraine War
    2. This gravely affected Indian Pharmaceutical Industry. China controls and leads in Raw Materials in & Manufacturing of Chips
    3. Raw Material is the Oil of Fourth IR.
    4. Todays War is that of Chip War. Chip is the New Oil, Data is the New Oil.
    5. Hence it is important to promote Local industries for the sake of - De Risking & De Coupling
      1. De Coupling - Complete Separation
      2. De Risking - Move Supply Chain out of China but there is a Backup and Another Option Available
  1. Low Labour Cost
    1. Adavntage of Producion in India is Cheap Labour
  1. Growing Middle Class and Disposable Income
    1. According to Pan India Survey by PRICE - Peoples Research on Indian Consumer Economy
    2. It Gives Insight into Indias Demographic Change and Trends, as per its Survey
    3. It Categorises into 4
        4. Income Category
        Annual Income
        Percentage in Metro Cities
        Destitutes
        < 1.25 Lakh
        Not specified
        Aspiring Class
        Up to 5 Lakh
        32%
        Middle Class
        5 Lakh to 30 Lakh
        55%
        Rich
        > 30 Lakh
        13%
        Because of Huge and Over All Middel Class and Aspiring Class → Disposable Income is High → Hence Increased Consumption
    4. This Also Means that There should be more consumer choices. In Metro Cities around 70% is disposable income.
        5. This Consumer Choice could be met with Local Production. Contributing to Consumption Based Economy. One Major Factor is Private Consumption. Contributes to Job Creation Employment and More Jobs
    5. MSME, Defence and Space Sector
        6. MSME
        Acc to Govt : 30% of GDP is coming from MSME. As per Govt Data 42% of Exports is from MSME. MSME contributes to around 12 Crore Employment Directly
        Acc to Eco Survey 21-22 → 95% of MSME’s which are registered on UDYAM Portal is MICRO → Typical Exam of Dwarfism
        Defence Sector
        We are major Importers of Defence, but now India is also focusing on Defence Exports.
        Russia and India - BrahMos
        Tejas - LCA (Light Combat Aircraft)
        Demand for Export to Phillippines and Malaysia
        Space Technology
        India sends Satellite or Any Space Mission. ISRO’s cost is allmost 1/20th of NASA Cost.
        ISRO’s strenght is Human Resource and Man Power.
        Other
        Many Indian Companies like AMUL. Vocal for Local is focus area is Manufacuturing Sector, there is a Tilt but we are NOT ignoring Service Sector
        Emerging Companies Like BOAT, Mama Earth → Are Competing with Global Standard Products
Challenges
Economic Challenges
  1. Pre Mature De Indutrialisation - Good Example of Legacy Deficit. Now coming back to Manufacturing and becoming a Major Player to be called as “Factory of the World” becomes tough
      2. According to UN Statistical Division Data, 2019 - 28% of Global Manufacturing Output Globally is coming from China and India is around 3.1%
      notion image
  1. Low Productivity
      2. Reasons Are in Agri and Industry Sector Are
      1. 45% Workfroce is in Agriculture but roughly 17% is coming from Agriculture
      1. Acc to NSS and PLFS Data - 7.4% is the Share of Workforce in Manufactruin but Contribution to GDP is 17%
      Lewis Model of Industrialisation Says that
      He says that the General Problem is that the Surplus Labour without Skill and Low Wage are generally involved in Agri. By Just giving them, a little bit higher wage and a little bit higher skill, they will move to Manufacturing Sector. without compromising on the Agri productivity
      this will in turn lead to Machinsation and Productivity
      Now Coming to Industrial Sector we need Large Companies → For this we need development of Domestic Economy & Domestic Industries
      According to PRICE Survey Middle Class is Generally round 70% in all the cities of India on an Average
  1. Consumer & Producer Choices
      2. Consumer Choices
    1. Before 1990’s - There was State Led Economy and No Diversity
    2. Due to Lack of LPG, there was no choice
    3. the choice should be of Quality Products - Imperative for Sustaning Vocal for Local
    4. Indian Consumer Market is Price Sensitive Market → When there is a Low Price, The Demand will Increase
      5. Producer Choices
    5. In the name of protection of domestic industries → there should be any effect on the cheap raw material availaible with the producer.
    6. Increasing Tariff due to LPG so more production. But then w/o providing Natural Raw Materials in home and domestic you cannot cut down raw material source from outside
    7. In the Name of Economic Nationalism → there should not be Protectionism
  1. Decreased Competition
Financial Challenges
  1. Credit Problem
    1. Only 16% of MSME have access to formal credit. and this is also on high interest rate of around 25 to 30%
    2. Working Capital Rate is High because of NBFC Led Model → other thing is because they dont have collateral and the loans are asset based
    3. Why we need Account Aggregators → these entities can monetise their data for their growth
        4. AA will look into the cash flow of MSME → Not based on Asset Base but on Cash Flow
2. Investment
Indian Startups Raised 14 Billion Dollars in 2019. in the same period, Chinese Startups Raised 34 billion dollar
Policy Challenges
  1. Regulatory Cholestrol
    1. Word used by Economic Survey
    2. Last Ranking of India in Ease of Doing BUsiness by World Bank
    3. Regulatory Challenges, Excessive Regulation and Bureaucratic Procedures
    4. Typical Example is Retrospective Taxation
  1. Tariff and License Raj
    1. According to WTO “Tariff Profile for 2021” - India has one of the highest avaerage Tariff of 15% in the Asia Pacific Region
    2. Increasing Tariff Charges should not be used to improve domestic substitution → this will lead to Import Substitution. which will later affect both Consumer and Producer
    3. Read about Chakravyuh Problem → Addressed by IBC and Stuff
  1. Inverted Duty Structure is another Problem
    1. Better to Import Finished Goods rather than Raw Material as Raw Material cost is high as compared to FInished Goods
  1. License Raj
    1. Licensing Requirements for import of Laptops. Was put on hold
Legacy Challenges
Infra & Legacy Deficit Issues
Raghuram Rajan criticises the PLI’s to address credit deficit but it is actually meant to adress the legacy deficit before opening economy → We need to Create Social Capital → i.e Human Skill and HR . All countries like Korea, Japan and Germany did this before opening their economies to the world
Germany has 43% formally skilled crowd.
Mittle Stand Companies of Germany are competiing with Chinese Produced Goods in the World in terms of Quality and Quantity
Other Steps
  1. Withdraing of FTA Example RCEP.
View
Economic Nationalism
Countries Prioritising their Domestic Social Economic or Enviornmental Agendas over free trade and Multi Lateralism
Prioritisation of Over All Factors of Production, Industries & Raw Material
EN is as such Not Bad. EN introduces two contradictory Impulses
  1. The Temptation To Restrict, Economic Relations with Other Countries
  1. and Desire to Expand the International and Global Links in service of Domestic Economic Growth
This is the Thin Line on which EN works.
Protectionism
It is a Policy by the Government to protect the Domestic Industries from Foreign Competition through measures like Tariff, Quotas
Example : Tesla said that they cannot come to india unless over all Tariff is Reduced
Productivism
It is a socio economic model that emphasis the importance of Increasing Productivity and protection of domestic goods. There should be prioritisation of local goods
Comparitive Advantage
Acc to David Ricardo : Countries Should Produce Goods in which they are having relative efficiency advantage
What you can produce - produce and export
Now import what you cant instead of trying to produce everything in India
This is the Idea Behind Globalisation
Indian Competitive Advantage - 70% to Apple, 30% to Foxcom, 4% to Manufacturing
If Fox Conn is a 1 Trillion Dollar Company, Apple is 60 70 time more
Here the Comeptitive Advantage of India is Design
In Indian Context Competitive Advantage of Chip Design rather than focusing on trying to produce more and more Chips
Import Susbtitution Model
Reduce Foreign Dependency by Replacing Imports with Domestic Goods i.e Substitute
That is why Tariff and Subsidies and Quota. WTO looks after all these things
WTO objective is Free Trade
Developmentalism
Also called as East Asia Development Model. It is based on Export Led Growth, Characterised by State Led Capitalism. Hence through a mix of policies, state encourages growth of Domestic Companies.
Korean Companies are “Chaebos” i.e Family Business
Chinese Model is Beijing Conensus that is state led model
Its a Devlopemntalist Idea or Economic Ideology that focuses on State Led Macro Economic Planning and Export Led Growth Model
The State is only supporting some comapnies. It is also called as East Asian Economic Nationalism
Acc to Elizabeth Thurburn says that These Economic Porgrams were National Projects of Renewal aimed at Catching up with the West.
Lewis Model
Talks about Industrialisation of in Under Developed Countries, with Surplus Labour. These countries could shift Labour from Low Productivity Agriculture to Manufacturing. Factories could attract, Labours or Farm Labours by offering Slightly Higher Wages
Local for Vocal
Planning Model is Centralised Localism. Vocal for Local is opposite of it, Also called as Decentralised Localism. Focus on Locl Brands, Empowering Capacity Building & Indigenisation
Burmol Effect
Wage Rise in Jobs that have experienced Little or No Increase in Labour Productivity in response to wage rise in other jobs
Mittle Stand Companies
This is the Term used to describe MSME’s in germanies. It accounts for 68% of German Exports. 52% of Economic Outpurs and Employs around 16 million workers and helps to keep thr youth Unemployment Low
They are Financially Conservative. They formal formal Credit.
They invest heavily in R&D, they are largely family owned Businesses with a Vision Continuity.
They focus on Niche Market, Ignored by Large Corporated
Examples
  1. Mobile Industry
  1. Defence
  1. Space
Way Forward
  1. Supply Chain Resilience Initiative
  1. China + 1
  1. Focus on IT (Industry 4.0)
  1. IPR
Question
In LIght of the Vocal for Local Inititative. Discuss how can this Initiative help in Growth of Local Industries and Contribute to GDP, especially in the context of MSME’s
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