The pandemic has made us rethink many things. Many have become sceptical of things that were previously the norm.
In July, union minister Nitin Gadkari said that the government is contemplating an import substitution industrialization (ISI) based policy. Import substitution industrialization (ISI) is a trade and economic policy that advocates replacing foreign imports with domestic production. It is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. Prime Minister Narendra Modi too spoke about Aatmanirbhar Bharat initiative in Mann ki Baat, which is aimed at promoting domestic production by making India a self-reliant country.
This means if such a policy is approved, we will be returning to the type of policy India was following before 1991.
In 2019, the domestic companies in India contributed 75% to the GDP. However, this took a severe beating in the year 2020 due to the coronavirus pandemic. This was some indication that the domestic producers needed help.
However, not everyone is buying the idea of import substitution. Raghuram Rajan, ex-RBI governor, in an interview, emphasized on the need to help domestic producers in the country through the adequate allocation of resources, instead of going for an import substitution based foreign policy.
It is also true that there will be repercussions. This rather will make many countries angry and subsequent retaliation from other side will be a given. For instance, roughly, 15% of India’s imports are from China itself, and 6% of our exports go the same way. In addition, we will not be able to procure the important raw materials needed by industries in India. This way, we might end up just damaging ourselves.