Topic – Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
3) Tariff liberalisation policies and the liberal FDI policy regime, enveloped within a passive industrial policy framework, have resulted in India’s increased electronics import dependence. Critically analyze.(250 words)
Why this question
Liberalization in India helped India becoming a leading IT services hub of the world. But its electronics manufacturing industry has not been able to even (substantially) reduce ,leave alone eliminate import dependence. This is a serious economic and policy matter which needs to be probed in detail.
Critically analyze- Here we have to examine methodically the structure or nature of the topic by separating it into component parts, and present them as a whole in a summary.Based on our discussion we have to form a concluding opinion on the issue.
Key demand of the question.
The question wants us to dig deep into the issue and bring out how these factors- tariff liberalisation policies , a liberal FDI policy regime, a passive industrial policy framework- have led to India’s increased electronics import dependence. We have to discuss each factor separately but present them all as contributing factors to- India’s increased electronics import dependence.
Structure of the answer
Introduction-write a few lines indicating the present status of the Electronic System Design and Manufacturing (ESDM) sector in India and about the electronics imports in India. Mention the predicted growth in the sector and the need of the hour to seize that opportunity.
Discuss how each of the three factors have led to India’s increased electronics import dependence. E.g
- Tariff liberalization policies- India joined the World Trade Organization’s (WTO) Information Technology Agreement (ITA-1) in 1996, with the conviction that lowering duties on a range of ICT products under the ITA-1 would boost the competitiveness of India’s software exports, apart from increasing their market access. Compared to the 1993–98 period electronics sector witnessed significant net decline in total factor productivity growth (TFPG) between 1999 and 2004. This downward trend continued after trade liberalisation was intensified from 1997 onwards under the ITA-1 which was then exacerbated by the equally non-strategic tariff liberalisation carried out by India under its free-trade agreements (FTAs) with the ASEAN and Japan and South Korea, countries that were already deeply integrated into global value chains (GVCs) in the electronics sector.
- FDI policies have provided limited incentive for large foreign original equipment manufacturers (OEMs) and electronics manufacturing service providers to invest in local production. Instead, they typically choose to only set up final assembly plants in India . A trade policy that promotes duty-free imports will clearly reduce the appeal of domestic production, particularly in a scenario where there is inadequate policy support for enhancing productivity at the firm and industry levels.
- Discuss how the industrial policy framework failed to recognize the need to encourage technological innovation through government funding; protect domestic industries; enhance the productivity of the industry as well as labour, ensure significant value addition; integrate ourselves into global value chains etc.
Conclusion- sum up your discussion in a few lines and form a fair and a balanced conclusion on the above issue.