Since India gained independence in 1947, the Indian economy passed through various challenges. On the eve of independence,the size of its population was 360 million, and the literacy level was just around 12 percent. Presently, the population has touched 1.35 billion, and literacy level has jumped to 74 percent. Its GDP in 1950 was around $30.6 billion. By 2020 beginning, the GDP rose to $3.202 trillion. The Indian economy is now the fifth-largest in the world in terms of nominal GDP, and third largest by Purchasing Power Parity (PPP) (Mohan, 2020).

The Indian economy adopted different models for development over the years. During the 1950s, the main emphasis was on having a planned economy/mixed economy. Industrialisation began mainly in the public sector, and efforts were made to become self-sufficient in food grains production. Owing to those efforts, in agriculture India is surplus in food grains production. The second phase of the Indian economy started with economic reforms initiated during the 1980s and accelerated from 1990s onwards.

In these phases of development of the Indian economy, there is one other country, i.e. China that can provide a benchmark for comparison. In 1949, China’s population was 540 million, and literacy level was 20 percent. In 2019, China had a population of 1.39 billion, and literacy is around 85 percent. Both India and China have significant reservoirs of human resources. The difference is only in types of government. In China, the government is centralised and coercive to achieve targets, while it is democratic in India. Economic reforms started in both countries during the 1980s.

The third phase of the Indian economy started in 2014 with the present regime under the leadership of Prime Minister Narendra Modi. The government gave various energetic slogans and unleashed a new resolve to create a stronger economy. The NITI Aayog released in 2018 the ‘strategy for New India @ 75’, which is the corollary of Prime Minister’s slogan “New India by 2022”. The main message was to ensure balanced development across all the states with collective efforts and effective governance. The strategy covered as many as 41 sectors for balanced growth with few strategic priorities, and set the target of $4 trillion economy by 2022 (additional 1 trillion of GDP in three years) (Aggarwal, 2020). During the COVID-19 pandemic, the PM gave another call of ‘Atmanirbhar Bharat’ (Self-Reliant India) movement supported by the ‘Vocal for Local’ (Goyal, 2020). The other slogans like Make in India, Digital India, DBT, and Clean India are meant to impact the economy in future positively.

Since the economy was noticeably suffering a slowdown in January 2020, the revised GDP growth estimates came downwards to 5 percent, which became a cause of concern. India’s general government deficit, which was estimated at a whopping 7.5% to 9% of the Gross Domestic Product in 2019, is mopping up most of the net financial savings of the households, which are estimated at around 11%  of  the GDP. When the economy was not under stress, the gap between the combined deficit and total household savings was 6 to 8% of the GDP, which is now around 2%; and therefore, the private sector is comparatively starved of funds. (Montek, 2020)

Further, two immediate factors which impacted the Indian economy are, firstly, Covid- 19 pandemic, and secondly, the prospect of India- China military face off spilling over to the realm of economics. To put things in perspective, in terms of per capita income, China is ahead of India. China is an upper-middle-income country. The per capita income in China is $10,276 against $2,104 for India. China and India are trading in large volumes, with India suffering a huge trade deficit.

In six months Covid-19 has already caused a slowdown in global economies. The cost of economic disruption caused globally by the pandemic has been estimated between $9 trillion and $33 trillion. The global consulting company Mckinsey has emphasised that the cost of preventing future pandemics would be much less than the cost of suffering future pandemics. Rightly observing that the pandemic has exposed the weaknesses in the walls of infectious-disease- surveillance and-response capabilities, it rues that investments in public health and other public goods are solely undervalued; investments in preventive measures, where success is invisible, even more so. The attention should not shift once the pandemic recedes, thinking that the world is free to have its way for another one century till such a pandemic hits again. It is imperative to understand that this pandemic is neither the last one nor is there any guarantee that pandemics will not come with higher frequency. According to the report prepared by Mckinsey, global spending of $30-$220 billion over the next two years and $20-$40 billion annually after that could substantially reduce the likelihood of future pandemics.

Mckinsey offers a candid caveat that these are high-level global estimates with wide error bars and that they do not include all the costs of strengthening health systems around the world. The wide gaps prevail on health expenditures as percentage of GDP across countries. In India, health expenditure as percentage of GDP is 3.5%, in China it is 6.5%, and in developed countries like USA, it is 17.7%. In India, the centre and state budget allocation to health is around 4-5% whereas other countries allocate around 8-10% of the budget to health care.

India’s present GDP per capita is around $2,104. China’s per capita GDP is $10,261, and that of the US is $54,795. The Indian economy will have to move forward on a fast track. China’s GDP was 5% of the $GDP in the 1980s, but today it is almost 60% of the US GDP (Nominal). As per the World Bank classification, India falls in the lower-middle-class country with GNI per capita ranging between $1026-3995, while China is an upper-middle-class country with GNI per capita ranging between $3996-12,375. By way of an illustration of the objective ahead, the United States of America and a large number of other countries fall under the high-income countries group with GNI per capita more than $12,376. India’s share of world GDP is less than 4%, whereas it is around 15% in the case of China and 23.6% in the case of the USA. Indian economy needs a determined, consistent, big push to scale itself to a much higher and bigger operating economic platform and to come out of economic slowdown that emerged due to pandemic.

The COVID-19 pandemic, having inflicted direct disruption to production, supply chain, financial impact on firms and financial markets; unemployment; the stress of the banking systems due to the moratoria on repayments along with NPAs; a deadly blow to hospitality, tourism and transport sectors, combined with the essential cash and kind subsidies and doles to mitigate the pandemic stress on the poor in particular, and all sectors of the economy in general has the potential to put Indian economy in a tailspin. However, timely interventions by a decisive and a resolute leadership combined with the tenacity and fighting spirit of the Indian industries, in general, has the potential of converting the pandemic tragedy into a global opportunity to lead the other countries through a process of faster recovery.

India’s tax to GDP ratio is around 10%; while most developed countries have tax to GDP ratio of 30%. Indian economy needs resources to strengthen the health sector leadership, healthcare financing, health workforce, medical products and technologies, information and research and service delivery, which is the WHO prescription for achieving the desired outcomes of the improved health level and equity, responsiveness, financial risk protection and improve efficiency.

Banking is the backbone of any planned economic resurgence. There has been a policy trend to undertake public expenditure by the government, either through direct spending or through facilitating bank credit for private investments. Although attention has been paid in the recent past to the non-productive assets accumulated in the banks, and some remedial measures are underway, there has been an indiscreet proportion of lending, at times without adequate diligence, with the sole purpose of accelerating growth.

As growth in itself has become a politically flagged yardstick of achievement, the direct or indirect government ownership of the banks has contributed to dilute their essentially commercial and business-like operations. The public ownership has created an environment where market discipline is perceptibly weak, and where the regulators remain circumscribed. Over decades, investment entities, financial institutions and non- banking financial companies have been used to support vague and extraneous objectives underwriting the government’s disinvestment targets, preserving employment in public enterprises, contributing assistance to states based on the political clout of the representatives, intermittently providing artificial support to stock markets, and occasionally ignoring lapses in due diligence.

Special attention is required to ensure sound health and reliability of the government banking sector, which needs to set up excellent benchmarks for private banks. However in India, it is the other way round. In public perception, the depositors are no longer as confident of the nationalised banks for the security of their deposits, as they used to be a decade earlier. It is interesting to note that between March 2018 and March 2019, when the safety perceptions got ruffled, the deposits in private banks exceeded those in the nationalised banks. As against INR 4.8 trillion deposits in private banks,  the government  banks  secured only INR 2.3 trillion of deposits after netting out the deposits of IDBI upon its reclassification as a private bank. Even the foreign portfolio investors preferred private banks. However, the nationalised banks still outperform the private banks in return of assets and return on equity (Patel, 2020). In 2019-20 the government infused INR 70,000 crore into public sector banks to boost credit for a strong impetus to the economy.

Thanks to an increasing realisation of the government about the need to tackle the burning issue of non-productive assets (NPAs) of the banks and emphatic insistence upon provisioning, there has been a reversion to the immensely needed working culture of securing the credit with strictest due diligence. During this pandemic time, many accounts would turn NPAs, especially those which were already in stress. Mergers and other administrative initiatives tend to increase the productivity of nationalised banks, which otherwise suffer from far lower revenue per employee as compared to their counterparts in private banking. It is a matter of grave concern that the amounts swindled through frauds have been ten times more in the nationalised banks as compared to their counterpart private banks.

It is excruciating, but a very welcome development for future reforms from the government, as well as the regulator. Reported cases of fraud of around INR 10 billion in 2018 multiplied exponentially thereafter (RBI-December 2019 Financial Stability Report UP 32), and the entire machinery has started the much-awaited sanitisation by getting after the cases of fraud hidden under the cloak of non-productive assets of the banks. This will hopefully make the banking sector emerge more robust anti-corruption measures. The troubled shadow banks saw signs of stimulus when the government in mid-May announced INR 3 trillion of collateral-free loans to the nation’s small businesses and INR 705 billion special credit loans to non-bank financiers.

Another moot point in public spending is that of the systemic leakages that take away a substantial part of the benefits that every unit of input must seek to achieve in the process of pump- priming the economy. Though bona fide and active initiatives have been taken, the leaking pipes have neither been replaced nor adequately repaired. The inevitable result is that more money is being pumped into the leaking pipes, and more the money pumped in, much more is the leakage. There is hardly any worthwhile quantitative comparison data between what the NITI Aayog has been able to achieve and improve upon and what the Planning Commission of India had lacked in the process of pumping funds into the leaking pipes operated both by the Centre as also by the States, which enjoyed substantial autonomy in operating the leaky system. Like the rest of the world, the Covid-19 pandemic has struck at the roots of almost all market forces, throwing various ongoing trends topsy-turvy. A demand-driven economy substantially catering to domestic consumption has suddenly reversed into a surplus capacity economy with the market forces of demand suffering a free fall on account of curtailed consumption levels.

Nothing can generate more demand than a firm resolve towards creating an Atmanirbhar Bharat. “The five pillars of Atmanirbhar Bharat – Economy, Infrastructure, System, Demography and Demand are aimed with a bird’s eye view on all the sectors and sections of society alike. Infrastructure, as an identity of the country; System, to bring in technology-driven solutions; Vibrant Demography; and, demand, tapping the demand- supply chain optimum utilisation of resources” (Yojana, July 2020). The Prime Minister has announced a unique economic and comprehensive package of INR 20 lakh crore, equivalent to 10% of India’s GDP, to support the five pillars of Atmanarbhar Bharat, calling upon the people to become vocal for our local products, and the industry to make the local products turn global in terms of production standards, quality and marketing.

Being self-reliant is critical for the growth strategy of Indian economy and to make it more export-oriented. Just taking note of India’s trade flow with China for an example, the imports by India from China stood at $73.3 billion, much higher than India’s exports to China pegged at $16.7 billion, leaving India’s trade deficit with China at the staggering level of $53.6 billion. The manufacturing sector in India could not grow as fast as compared to China and South Korea. In China and India, the economic reforms started during the 1980s onwards. During the period from 1961 to 2018, China grew by more than 10% in 22 years while India could never cross that mark even for a single year. The miracle of industrial growth happened in China by foreign direct investments in the selected regions on an experimental basis, the SEZs (Special Economic Zones) developed with foreign investments. Moreover, the state-owned enterprises at the local level of cities and villages known as TVEs linked to markets directly became ancillary industries. The labour laws became flexible and investments in the enterprises by the locals were encouraged. The legal system in China did not protect private property rights, and land acquisition is still not a hurdle as it is in India for setting industrial units. Gradually, the Chinese manufacturing sector shifted from labour intensive to capital intensive.

Much more worrying is the nature of India’s imports such as capital goods like power plants, telecom equipment, steel projects; intermediate products like pharmaceutical APIs, chemicals, plastics engineering goods; and finished products like fertilisers, refrigerators, washing machines, air conditioners, telephones etc. Low-cost consumer goods meeting every human need at the micro- level manufactured in China have invaded the Indian markets and have given a severe jolt to the Indian traditional and modern manufacturing sectors.

In India, the manufacturing sector always remained under the protection of the state. High import tariffs, inflexible labour laws, protection to small industries and inefficiency in state-owned enterprises could not create a milieu for the development of a competitive manufacturing sector. The industry, with particular emphasis on SME, will have to shed its internal inefficiencies fundamentally caused by the complacent, unprofessional, and hereditary ownerships-cum- management. Time has come when the increasing international competition will not allow the industry the luxury it has enjoyed so far, of passing on the cost of its inefficiencies to the consumers, who opt for products with higher quality at a much lesser cost.

Efforts to make the Indian MSMEs (Micro, Small and Medium Enterprises) competitive globally leave much to be desired. MSMEs contribute as much as 30% of the GDP and hence become a top priority. Presently, one of the welcome steps to support viable MSMEs in the face of their destabilisation due to the Covid-19 pandemic is the Reserve Bank of India stepping in to restructure the advances to this priority sector.

With a liberal classification on August 6, 2020, raising the aggregate exposure limit to the borrower INR 25 crore as on March 1, 2020, with a few more conditions, RBI has stepped in to benefit their accounts which may have slipped into NPA category. Similarly, the RBI has allowed banks to reckon the funds infused by the promoters in their MSME units through loans under Credit Guarantee Fund Trust for Micro and Small Enterprises / Distressed Assets Fund as equity/quasi-equity from the promoters for debt-equity computation. Further, the Indian economy can leapfrog ahead of others by dint of a creative policy on innovation. India’s Science, Technology and Innovation Policy of the year 2013 cater to the three pillars of talent, technology and trust, aimed at orienting public procurement towards innovative production.

India has a large population; some feel that it is a liability. A large population is not altogether a liability if it is converted into an economy’s strength. It creates much consumption-related demand; and if made employable and productive, it creates a massive tailwind for the economy to push it to grow at a faster pace. The issue is squarely related to the productivity of our labour, and value-added per average labourer in the process of production, which adds on to the Gross Domestic Product. It is a matter of concern that the value-added per worker in India is just about 10% of a US worker. China’s labour productivity in terms of value-added per worker is 2 ½ times more as compared to India. A two-pronged approach of skilling India’s labour force and providing it with the requisite resources is a prerequisite to increase the value-added per worker, thereby increasing the gross domestic product of India. Pradhan Mantri Kaushal Vikas Yojna operated by the Ministry of Skill Development and Entrepreneurship (PMKVY) has the potential of giving a quantum jump to the gross national product by increasing the productivity and value-added per worker far beyond the present levels. There is a dire need to upgrade the skills of the Indian labour force to international standards by involving the industry for developing the necessary framework, curriculum and quality benchmarks.

The prioritisation of relevant skills should be left to the industry for meeting their demand, with a clear idea on those skills which can have a catalyst effect and multiply productivity to a geometrical growth. Though the National Skill Development Corporation boasts of having trained more than 5 million students in India, the qualitative skilling evaluation would not only capture the total numbers but essentially the increase that it has caused in the value addition per trained worker as compared to an untrained one. The government of India has identified high priority sectors for imparting skills with an eye upon fast track results as a part of Make in India initiative, where the economy has still miles to go ahead.

Agriculture and allied activities are already areas of specific focus because even though the contribution of primary sector to the GDP has come down substantially over the years, still about 70% of farm households in India own less than 1 hectares of land, and about 85% of the farm households own less than 2 hectares of land. Livestock and other allied agricultural activities which are required to supplement the income arriving from core agriculture require a revolution to take the primary sector to the next higher level of productivity and value addition. Indian agriculture made rapid progress in terms of production, but certain geographical constraints and lack of market orientation make it less competitive relatively to countries like China.

The Indian and Chinese agrarian economies are two ancient economies of the world. In both nations, a massive number of farmers depend upon agricultural income for survival. China has an advantage in irrigation when compared to Indian agriculture. India is the land of monsoons, where torrential rainfall is concentrated in a concise period of the year; whereas, in China, the average rainfall (at least in the more settled parts of the country) is somewhat more evenly distributed over the year. Reservoir storage of water supply in China for irrigation is almost five times that of India. Chinese agriculture productivity started improving since the 1980s when the shift came from collective farms to household responsibility farming. Chinese rice productivity is two times more than that in India. The share of agriculture in GDP in China is 7.11 percent, and in India, it is 15.4 percent. Percentage of persons employed in agriculture in China is 25.1, and in India, it is 42.39 percent as large inequality prevails in land ownership in India. (Bardhan, 2011) For the production of high-value crops, contracts between farmers and corporates are more successful in India than in China, especially in dairy and food processing. Market liberalisation in agriculture came in China after de-collectivisation. The compulsory quota and procurement systems have been abandoned by the government. In India, recently at the time of the pandemic, special packages have been designed for the agriculture sector and certain legislations have been amended to make the market free from state control. The Essential Commodities Act is being amended to help the farmers generate higher incomes by deregulating agriculture foodstuffs including cereals, edible oils, oilseeds, pulses, onions and potatoes etc. No stock limit applies to processors or value chain participants, with a few conditions, and further, it has been decided to impose stock limit under rare circumstances like national calamities, famine etc. as a price intervention by the state. The ordinances namely The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, and The Farmers (Empowerment and Protection) Agreement Price Assurance and Farm Services Ordinance, 2020, have been promulgated with a focus on the rural economy. The implications of various initiatives envisaged through these legislations has evoked much interest and are being intensely debated by various stakeholders. The resistance to these amendments from the farmer unions in many states is a big challenge to the government.

The Indian economy has indeed made substantial progress in the field of governance through re-engineering of business processes, technology and data analysis. The CEO of NITI Aayog informs that the Direct Benefit Transfer (DBT) has been implemented across 437 schemes, and helped to save INR 83,000 crore till date. He further discloses that its implementation has led to 2.75 crore duplicate, fake or non-existent ration cards being deleted, and 3.85 crore duplicate and inactive consumers for Liquefied Petroleum Gas (LPG) subsidy being eliminated. Blockchain technologies can improve India’s prospects at ease of doing business rankings, elimination and resolution of litigation arising out of contractual obligations, compromises in quality control, and others. The Goods and Services Tax (GST), though still under the process of stabilisation, has added 3.4 million new indirect taxpayers. There is an imperative need to focus upon the application of Artificial Intelligence in the fields of agriculture, health care and education in the Indian economy.

As the Indian economy gears up on a fast track of growth, the conflict between “development” and “environment” will surely become more intense. The central and state ministries of environment will have to play a far more proactive role to ensure that development and ecological concerns are balanced for not only increasing the GDP but also for ensuring long-term sustainability through a pollution-free life. “If development is about the expansion of freedom,  it  has  to embrace  the removal of poverty as well as paying attention to ecology as integral parts of a unified concern, aimed ultimately at the security and advancement of human freedom. Indeed, important components of human freedoms-and crucial ingredients of our quality of life-are thoroughly dependent on the integrity of the environment, involving the air we breathe, the water  we drink, and the epidemiological surroundings in which we live” (Dreze & Sen, 2013).

These are indeed challenging times. It is time for tough decisions, sound strategy, and a zero error implementation to be ahead of others in the changing global scenario.

*Sarvesh Kaushal is a retired Bureaucrat. He is a former Chief Secretary of Government of Punjab (India).

References:                                                                                                                                

1. Ahluwalia, Montek Singh (2020): Backstage: The story behind India’s High Growth Years, Rupa Publications, Delhi, pp
2. Patel, Urjit (2020): Overdraft: Saving the Indian Saver, Harper-Collins Publisher, Delhi, pp
3. Kant, Amitabh (2018): The Path Ahead: Transformative Ideas for India, Rupa Publications, Delhi, XVII.
4. Dreze, Jean & Sen, Amartya (2013): An Uncertain Glory: India & its Contradictions, Penguin Books, India, pp
5. McKinsey & Company. “Not the Last Pandemic: Investing Now to Reimagine Public-Health Systems.” Https://Www.mckinsey.com/~/Media/McKinsey/Industries/Public and Social Sector/Our Insights/Not the Last Pandemic Investing Now to Reimagine Public Health Systems/Not-the-Last-Pandemic-Investing-Now- to-Reimagine-Public-Health-Systems-F.pdf, July
6. Guruswamy, Mohan (2020): “We are trysting with destiny”. The Economic Times, August
7. Bardhan, Pranab (2011): Awakening Giants: Feet of Clay, Oxford University Press,
8. Aggarwal, Aradhana (2020): “Slogans, Policies and a Reality Check”. The Financial Express, August
9. Goyal, Garvit (2020): “Vocal for Local: PM Narendra Modi’s big boost to Indian companies”. The Economic Times, May 19.

Since the identification of the initial cases in late 2019, the outbreak of the coronavirus disease (COVID-19) has been spreading  across the globe. Followed by the initial spread in Northeastern Asia, COVID-19 spread rapidly in Europe, the Americas, and later in the remaining areas including South Asia, leaving no region free from the threat of the virus. As of 15 August 2020, more than 21 million cases were reported globally with about 755,000 deaths.^[i] In South Asia,^[ii] More than 3.1 million cases are reported with about 60,000 death. Some of the countries, which had been hit relatively in early-stage and managed the outbreak with a well-functioning health system, have successfully contained the outbreak while COVID-19 is still rapidly spreading in some other countries. South Asia was considered relatively safe from the threat even after the detection of the first cases in the countries. For example, after the first case was detected on 30 January 2020 in India and 8 March 2020 in Bangladesh, the number remained low for about one to two months in these countries. However, since then the number has increased rapidly, recording more than 2.5 million cases in India and 270,000 cases in Bangladesh as of 15 August 2020.

The ongoing pandemic is not merely a threat to the health system. The associated containment measures such as full or partial lockdowns of the countries with restrictions on the movement of people and goods within and across border have caused substantial economic and social cost through various channels. The supply chain disruptions have slowed international trade, putting many developing economies at risk, which are dependent on the export of manufacturing goods and import of intermediary goods. Domestic containment measures stalled economic activities, forcing many factories and offices to shut down during the lockdowns. As a result, domestic consumption and investment declined, which have been further worsened by the social distancing measures and fear. Travel bans, closure of the borders, and precautionary behaviour drastically reduced the travel demand, placing the entire aviation industry and tourism sector in an unprecedented crisis.

All these led to a global recession, accompanied by a huge amount of job losses. The Asian Development Bank (ADB) projects 0.1% of real GDP growth rate in 2020, compared with the 5.1% growth in 2019, for developing Asia while the major advanced economies of United States, Euro area, and Japan in the aggregate are expected to contract by 5.1%.^[iii] An estimate by the International Labour Organization indicates that working-hour losses have worsened during the first half of 2020, especially in developing countries. Compared to the fourth quarter of 2019, working-hour losses for the first quarter of 2020 reached to 5.4% of global working hours, equivalent to 155 million full- time jobs, which has further worsened in the second quarter of 2020 to the loss of 14.0%, equivalent to 400 million full-time jobs, i.e., soaring unemployment rates.^[iv] This will reverse the trend of the poverty reduction in the developing countries, pushing back many millions into poverty, wiping away the gains made in the last few decades.

This unprecedented pandemic and its impacts are changing the global landscape in social and economic activities. There will be a new norm in post-COVID-19 era in the movement of people and goods, social life, and economic activities. Certain areas will fall into decline under the rapidly changing environment while some will emerge to meet people’s new needs. The current situation, in that sense, is a challenge, at the same time opportunity. South Asia is not an exception to this and to continue its economic growth and social development as in the past decades, countries should quickly adapt to the new norm. This article intends to offer some thoughts on how the world would change and how to prepare the post- COVID-19 period for South Asian countries.

Development strategy with a stronger emphasis on the health sector

There exist large varieties in economical sizes and structure among South Asian countries from some of the world’s smallest economies like Bhutan and Maldives and the world’s fifth-largest economy of India by nominal GDP. Bhutan and Nepal as landlocked economies and Maldives as a small island developing State face challenges like limited resources, remoteness, and vulnerability to natural hazards and external shocks. Countries like India and Bangladesh are benefiting from its young and plentiful labour force and are well placed for globalization and linkage to the global value chain. Regardless of the varying economic characteris-tics, all the countries in South Asia are under development path as low-income or middle-income countries. Guided by the well-structured and targeted national strategies and plans, and benefited by the vibrant young population, South Asian countries have been successful in achieving robust economic growth in recent years and the region is now the fastest-growing in the world.

The success of economic growth in South Asia was anchored by the infrastructure development and export-oriented growth strategy of which the effectiveness was proven by other countries in Asia like Japan, Republic of Korea, and the People’s Republic of China. It is still believed such a strategy would be effective considering the abundance of the labour force and demographic dividend in the region. However, the pandemic has revealed the importance of the health systems, which had received relatively low attention in the course of development. The pandemic indicates that a well- established health system directly contributes to economic resilience and countries with well- functioning health systems have showed the possibility of quick and robust economic recovery. The governments recognized the importance of the health infrastructure and allocated a significant portion of the relief packages to the health sector. In South Asia, the allocation on health is slightly higher at 0.6% of GDP than the average allocation of 0.5% of GDP in the packages announced by G20 countries. National budgets and development plans are also expected to put a stronger emphasis on the development of the health sector in the coming years. For example, the national budget of Bangladesh for the fiscal year 2021, announced in June 2020, allocated 7.2% of the total budget for the health sector, increased by 14% compared to the previous year. It is also expected that the Eighth Five Year Plan for Bangladesh would initiate significant reforms in the healthcare system. Under the new norm in the post-COVID-19 era, a more robust health system, including a well-functioning public health system, with widespread health insurance program, will be a critical factor that can reduce the uncertainty in similar events like the COVID-19 pandemic.

Social protection and social safety net

Social protection and social safety nets are critical for inclusive growth, protecting the poor and vulnerable from impacts of economic shocks, natural disasters, and other crises like the ongoing pandemic. It is estimated that about 36% of the very poor escaped extreme poverty because of social safety nets, including cash, in-kind transfers, social pensions, public works, and school feeding program. They also lower inequality and reduce the poverty gap.^[v] The cascading impact of the health crisis to economic and social crisis during COVID-19 pandemic stresses the efficiency and effectiveness of the social protection and social safety net. In response to the urgency for basic needs of the poor and vulnerable, who lost their job and whose movement were restricted, countries expanded their existing social protection and safety net programs by adding additional beneficiaries and provided direct cash transfer and free or subsidized food. Due to the timely and immediate actions taken by the authorities, many of the poor and vulnerable were relieved from the stress for basic needs.

At the same time, the experiences during the pandemic also revealed the weakness in the existing programs in areas of efficiency, traceability, accountability, coverage, etc. There still exist vulnerable groups which are not well covered by the existing programs. For example, informal workers who occupy the majority of the labour force in urban areas of some South Asian countries are not fully covered by the existing programs or the relief package against the COVID-19 impact. Due to weak monitoring and tracing system, there exist chances for omissions of the potential beneficiaries or leakage to the unqualified citizens. Also, due to the weak financial status of the governments, all the qualified beneficiaries may not be covered in the respective program or the level of benefit may not be sufficient to cover the basic needs. The COVID-19 pandemic raised these aspects to the surface and provided the opportunity to revisit existing social protection and safety nets. The reforms in social protection and a social safety net should be towards more comprehensive coverage and immediate delivery to the targeted beneficiaries.

Agriculture sector productivity and economic resilience

While the share of agriculture sector in national economies of South Asian countries is not as high as the manufacturing and services sectors, it is still the largest labour employing sector in South Asia. For example, while the share of agriculture in the Indian economy is only about 14% of GDP, the employment share is about 49%. Similarly, with 13% of share in GDP, the agriculture sector employs about 40% of labour in Bangladesh. This means the sector is still labour-intensive in South Asia, unlike the capital-intensive agriculture in advanced economies. Due to such characteristics, the agriculture sector in South Asia has been severely affected by the COVID-19 pandemic. With the lockdowns and restrictions in movement, harvest activities were hampered due to the lack of seasonal migrant workers, and access to farm inputs like seeds and fertilizers became challenging. Disruption in the transport system caused challenges in the delivery of agricultural products to the consumers though governments allowed the movement of the agricultural products. In addition to the supply side disruption, limited mobility and reduced income due to prolonged lockdown and closure of the businesses disrupted the demand for food, resulting in food security greatly affected, and raising concern for the nutrition status of the poor and vulnerable.

The current experience under the pandemic further emphasizes the need for improved agricultural productivity and reforms in the agriculture sector in the region. For this, a comprehensive and holistic plan with actions for different time span should be established and implemented. In the short term, measures to mitigate the impact of COVID-19 should be implemented, especially for the small and micro- farming houses. First of all, the disrupted supply chain for agricultural labour and farm inputs should be restored with enough safety measures on the ground. Access to up-to-date information about the pandemic situation and market prices should be provided to the farmers with the support for access to the market. Groups farming in India is a good example which overcame the impact of the pandemic through information exchange among farmers, aggregated production and arrangement of transportation.^[vi] Financial support to the farmers and agribusiness is also essential as a short-term measure to ensure the continuity in their business activities. It is a relief that several stimulus packages announced by the governments include support to the agriculture sector with loan guarantees, working capital finance, and refinancing schemes. International collaboration should be sought to ensure food security and stabilize food prices. ASEAN Plus Three Emergency Rice Reserve is an excellent example of international collaboration in strengthening food security, poverty alleviation and malnourishment eradication without distorting regular trade among its member economies.^[vii] Countries in South Asia can establish a similar mechanism to enhance the food security and respond to emergency food shortage situation, utilizing existing frameworks such as SAARC, SASEC, or BIMSTEC.

COVID-19 pandemic is an excellent opportunity to further strengthen the medium to long-term actions with policy reforms that can ensure sustainable and resilient development in agriculture. Continued investment in agriculture infrastructure can enhance the competitiveness of the sector. In addition to investment in the traditional infrastructure, lessons from the pandemic urge the development of the strengthened logistics system, which can directly link the farmers and small agribusinessmen to the consumers, ensuring fair prices for the producers. Mechanization and automation in agriculture and agri-business is another area where medium to long-term intervention is required. This will not only improve productivity but also enhance the resilience to events like a pandemic. As such, the process is costly, especially for small-scale farming, innovative modalities can be considered like equipment leasing and sharing economy. Besides, investment in agricultural research and development, institutional and legislative reforms to support the new and innovative initiatives would contribute to the productivity increase and enhanced food security.

Urbanization and Urban Policy

The spread of COVID-19 pandemic has been severe in large cities due to high population density, large gathering, and the intensive movement of people. The urban sprawl caused by unplanned urbanization, insufficient water, sanitation and hygiene services, and lack of medical facilities has aggravated the impact of the pandemic. However, large cities drive economic growth as centres of production and consumption, employment generation, and innovation. The progress of urbanization is still at an early stage in South Asia, with only 34.4% of the total population living in urban areas, compared with the world average of 55.7% or 80.8% in OECD countries.^[viii] Therefore, urbanization will continue to increase, given its critical role in economic development.

In preparation for the post-COVID-19 era, countries should revisit urbanization policies so that cities in South Asia can be livable, resilient, and smart. The governments should look at optimal population that cities can host, and adopt integrated and sustainable urban planning, facilities and utilities, and standards. Targeted investments in clean water, sanitation, public health, food supply, energy provision, and transportation networks, with better and innovative technologies and systems, will help optimize the economic activities. The development of peri-urban areas, satellite cities and urban renewal will lessen the burden of the megacities and diversify economic centres. A planning approach with broader consultations with different stakeholders can help control the urban sprawl and create a stronger coalition for change, thereby helping cities become a pillar of resilience.

Supply Chain and Logistics

Logistics industry facilitates global manu- facturing by connecting firms to markets through various services like multimodal transportation, freight forwarding, warehousing, and inventory management. Better logistics performance is positively related to the higher income, and it demonstrates the sector’s contribution to productivity and economic growth. Better efficiency in the logistics sector means higher competitiveness and potential for higher economic growth.^[ix] The COVID-19 induced lockdown, restriction in movements, and travel bans have directly affected the supply chains and brought drastic changes in the logistics industry. The impact was not even on the different segments of the industry. The business-to-business logistics market was almost at a standstill with the disrupted supply chains. In the meantime, the business-to-consumer market has remarkably expanded as people opted for online shopping for the essentials. With the reopening of the economies, companies are diversifying their sources and relocating the supply chains closer to their business to avoid potential disruption in the future. The profile of the goods being delivered to consumers have changed and this segment of the logistics industry is expected to flourish in the post COVID-19 era.^[x]

For South Asian countries, many of which set export-oriented strategy as a critical pillar for development, it is critical to catch the changing environment and adapt to new normal quickly. In the post-COVID-19 era, several changes in the supply chains and logistics are expected, which will also affect the manufacturing base in South Asian countries. The foremost changes would be shortened and diversified supply chains through nearshoring in regional level or domestically reshoring for companies to enhance the resilience to the external shocks like the pandemic. This may benefit countries with capable manufacturing sectors and favourable beneficial exports policies. As the least integrated region with intra-region trade at less than 5% of total trade, such development can be challenging as many of the main export products overlap among the countries. However, at the same time, this can promote the diversification of the products and services in different countries with enhanced regional cooperation. In the business-to-consumer market, the last mile logistics with e-commerce will be further expanded as we already observe during the lockdown periods in many parts of the world. The technology solutions like real-time tracking, smart locker, and use of robots and drone will further evolve, which make safe, convenient, and contactless delivery possible. These changes will be complicated, and the implications will be multifold, but for South Asia to remain the fastest-growing region, it will be critical to adapt to the changing environment and grab the opportunity quickly.

Role of Governments and Policy Recommendations

Those mentioned above will be only a part of the changes we will face in the post-COVID-19 era. This will affect all economic units— consumers, farmers, manufacturers, services providers, and the public sector. While all need to prepare for the new norm, the role of governments are especially crucial as the new norm should be directed to the sustainable, inclusive, and resilient economic growth path. A few points are listed here that the government should take in the changing world with policy recommendations.

The foremost and urgent role of the governments is to bring the disrupted economies by the COVID-19 pandemic back to normal. All governments in South Asia are implementing the stimulus and relief packages to mitigate the impact of COVID-19 and stimulate economic recovery. While the size and the contents of the packages vary depending on the economic structure and the impact on the economy, they commonly include measures for strengthening healthcare system, protecting the poor and the vulnerable, preserving employment, and supporting businesses, including micro, small and medium enterprises (MSMEs). Central banks in the region have also injected liquidity to financial markets to support business continuity and recovery. Properly implementing these measures as intended will be the first step for facilitating economic recovery in the short run. However, the economic recovery process will be longer than expected with the prolonged pandemic situation, and the new norm will prevail as discussed above. Therefore, while implementing the immediate stimulus and relief measures and preparing further policy actions for economic stimulus, the governments should acknowledge that the situation after COVID-19 will not be same as before and new norms should be taken into account. Accordingly, adjustment of the national strategies or reflecting the new norm in the new national strategies will be required.

Sound and prudent fiscal and monetary policies will be critical for governments to maintain political and economic stability in the coming years. Concerns exist in South Asian countries due to the worsening macroeconomic imbalances by COVID-19. National revenue will reduce due to the disruption in economic activities while the expenditure will increase to implement the stimulus and relief packages, debt level will increase due to significant borrowing, and non-performing loans are expected to soar. Therefore, the fiscal and monetary policies should be appropriately designed so that they can benefit the sectors that fit in the new norm after COVID-19. Enough liquidity should be provided to those sectors with proper regulatory reforms that can provide an enabling environment. Borrowings from international financial markets and multilateral development banks should be wisely planned so that the much-needed sectors can be adequately supported. Reforms in the financial sector will be critical to enhance the resilience of the economy.

The governments in South Asia should allocate more resources in public research and development (R&D) and promote private R&D. Governments need to be proactive in promoting and investing in R&D for the development of innovative systems. Otherwise, the R&D environment in South Asia will be further deteriorated by COVID-19. It is a well-known fact that investments in R&D are crucial for economic growth. Recognizing the importance of the R&D to recover from the pandemic swiftly, several governments in the world are strengthening their R&D capacity. For example, the UK government has declared plans to expand public R&D investment as a strategy to cope with the COVID-19 induced recession. South Asian countries should strengthen the R&D environment and invest in future technologies to realize their potentials, bring diversity in the economy, enhance resiliency, and adapt to the new norm in the post-COVID-19 era. Not only should there be an increased investment in R&D, math and science education should be accompanied to provide soil for future innovation.

Regional cooperation among South Asian countries and other regions will be critical to quickly recover from the economic downturn and prepare for the post-COVID-19 era. Regional cooperation has never been more important than the current time. In addition to overcoming the health crisis, countries can collaborate for enhanced food security, development of new supply chains, and political and economic stability. Wide range of difference in economic size and structure can enable us to find win-win solutions for the regional members. Potential for increased intra-region trade in South Asia should be actively sought with economic diversification in each country. Economic regions may be defined by economic resources such as raw materials, industry concentrations, labour markets, and available infrastructure. They can share talent, capital and technology across regions and national boundaries to drive one- another’s prosperity. South Asia is large enough to achieve a critical mass of companies, institutions, infrastructure, and talent. With almost a quarter of the world’s population living in the region, “act regionally, and compete globally” can help the region prosper.

Regions vary by relative strength from which regional specialization or comparative strengths can emerge. Recognizing the region’s strength and connecting with other regions for mutual benefit could help establish value chain and production networks that perform value-added activities and compete in the global marketplace. It can attract large employers, open up new opportunities for prosperity and raise their stakes for participation. The regions become a locus of economic development, with economic authority de- centralized to the region and region to region relationship fostering regional networks. In today’s world, global or regional value chain networks supplier and buyer are integral partners. Value chain and production networks weave together different specialized clusters, giving rise to a network of clusters. For seamless trade, facilitation measures should be taken, aligned to international standards. It is like envisioning South Asia as a network of the region each playing a different role in the value chain and creating a win-win outcome for each other, leading to shared prosperity. Discussions beyond the traditional areas can be brought to prepare the post-COVID-19 era collaboratively.

The ongoing and expected changes will render South Asia an opportunity to become a new growth engine for the global economy. To shorten and diversify supply chains, companies will look for alternative or additional manufacturing bases. South Asia, with almost a quarter of the world’s population, is an attractive location which can provide abundant and competitive labour forces. The region itself is also a vast market which is rapidly expanding with the increasing purchasing power of the people. In the course of reshaping supply chains, South Asia can seek an opportunity to upgrade its industry profile by attracting high

value-added industries. For this, human capital needs to be upgraded by strengthening skills, technical and vocational education and training, and higher education. The investments in human capital will not only result in higher wages for the citizens but also transform the economy into innovation and knowledge-driven economy.

The COVID-19 pandemic is still an ongoing crisis. Nobody knows when this crisis will be put to an end and how the new world will look like. However, the world is continuously changing bit by bit to cope with the COVID-19 and prepare for the new norm. Countries in South Asia should not fall behind in these changes, instead lead the changes by utilizing its strength and reinforcing its weakness. The new norm is coming, and the one who takes the first step will lead in the new world.

The views expressed in this article are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank (ADB), its Advisory Council, ADB’s Board of Governors, or the governments of ADB members.

*Manmohan Parkash is Country Director, Bangladesh Resident Mission, Asian Development Bank (ADB). Mr Parkash has extensive experience in international finance and development, including policy formulation and reforms.

References:                                                                                                                                

1. ^[i] Coronavirus disease (COVID-2019) situation reports. (accessed 16 August 2020)
2. ^[ii]Comprising Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri
3. ^[iii] 2020. Asian Development Outlook Supplement: Lockdown, Loosening, and Asia’s Growth Prospects. Manila.
4. ^[iv] 2020. ILO Monitor: COVID-19 and the world of work Fifth Edition. Genève.
5. ^[v]World 2018. The State of Social Safety Net 2018. Washington, DC.
6. ^[vi]Mishra, 2020. Collaborating in a Time of Crisis: Three Early Takeaways from the COVID-19 Response in India. IFAD Blog.
7. ^[vii] 2020. Food Security in Asia and the Pacific amid the COVID-19 Pandemic. Manila.
8. ^[viii]World World Development Indicators. (accessed 20 August 2020)
9. ^[ix] 2020. The Impact of COVID-19 on Logistics. Washington, DC.
10. ^[x]Bobby 2020. Logistics: challenges and opportunities in the post-COVID-19 world.

The general view of the relationship between governments and industry is that the government formulates the operating framework for industries to operate on an arms- length distance from the government, except where government intervention is required for operational issues such as the issuance of a license, issuance of permits, taxation, etc. The government plays a limited role in formulating the vision for the industry or creating new industries, hence sticking to the principles of laissez-faire capitalism.

However, that is not how the world’s advanced economies have been operating, irrespective of whether they are capitalists or otherwise. Governments are deeply intertwined with the industries, and the industries’ growth has a direct impact on the government and its ability to gather taxes and spend on public goods such as infrastructure. These governments have evolved precedents and processes that are able to react to both immediate issues concerning the industries and long-term strategic issues impacting the industries and hence the economy. A key governance structural differentiator between advanced economies and the growing economies is how closely the government coordinates with the industries in the advanced economies to orchestrate growth within the economy and leadership globally.

As an example, in the Mecca of laissez-faire, the USA, PCAST (President’s Council of Advisors on Science and Technology), which is a govern- ment committee, came out with a report in 2017 that urged the government to take urgent steps for ensuring that the US industries regain their global leadership in semiconductors. Hence whatever needs to be done from a technology development perspective, global trade regime perspective, or a geopolitical perspective would be initiated by the US government.^[i] The PCAST report concluded by saying: “we strongly recommend a coordinated Federal effort to influence and respond to Chinese industrial policy, strengthen the US business environment for semiconductor investment, and lead partnerships with industry and academia to advance the boundaries of semiconductor innovation. Doing this is essential to sustaining US leadership, advancing the US and global economies, and keeping the Nation secure”. The matter of leadership in semiconductors is not being left to laissez-faire, contrary to popular beliefs of how the US government operates.

The proactive steps by the US Government do not stop at only promoting its semiconductor industry. It also ensures that other nations, especially China do not overtake its companies and its technologies. In September 2017, as one of the first actions of the then newly elected US President, President Trump issued an executive order blocking Lattice Semiconductor Corporation’s proposed acquisition by Canyon Bridge Capital Partners, which was partly funded by China’s central bank^[ii], under the CFIUS (Committee on Foreign Investment in the United States) framework. The US government did not want any crucial technology to be leaked to China.

If we look at the Chinese economy, given that a large number of its companies are actually believed to be driven by the People’s Liberation Army (PLA), it is in the deep interest of the government to ensure that these companies, that are both traditional^[iii] and in new-age industries^[iv], succeed. Moreover, this is largely because the profits from these behemoths actually find their way back into the coffers of the government and/ or the army or into those who control the government and the army.

Such close coordination between the government and the industry is not a feature of only communist countries and should not be dismissed as such. A quick look across the advanced economies in the world shows that these economies have maintained their leadership and grown because of the government’s close coordination with the industry. It is to be noted that technology has been a key driver of wealth generation of the advanced economies and that the technology leadership of the advanced economies has been aided by global trade regimes such as TRIPS (Trade-Related Aspects of Intellectual Property Rights) which helped in maintaining their lead in technology, besides several other policy driven factors^[v].

Role of the US Government in creating and supporting its Technology Industries

In the 20th century, the western world and Japan were the technological leaders, and hence the global economic leaders. These nations’ governments set the direction of technology leadership that they would like to achieve and then carefully assimilated technologies from around the world and built on it rapidly to create new technologies and industries. Such orchestration of industry leaders on a global stage happened through close coordination between the government and the industry, with appropriate policies at local and global levels.

As early as in 1791, Alexander Hamilton wrote the ‘Report on Manufacture’^[vi] in which he urged for an activist and mercantilist approach by the US federal government regarding its economy. This was one of the earliest articulations of the government providing a direction in the role of technology for economic development. In the same decade, the federal government played an instrumental role in developing new production techniques and technologies by turning individual entrepreneurs with innovative ideas.

The United States has become a much- admired global economic and military superpower on its technological leadership. The US government has actively and repeatedly intervened in its technology industries to develop and promote what is usually termed as “moonshot” projects. These projects are aimed at developing groundbreaking and exploratory technologies and are initiated by active and ambitious government efforts in tandem with their industry, which results in enormous benefits for the domestic US technology industry.  This framework of government pushing technology development initiative with the private sector leading it has been followed by all countries since then, without exception, who have become leaders in technology. One of the earliest pushes by the US govern- ment on their strategic pursuit of dominance of technology was the push for gaining leadership in the telegraph technology. In 1842, the feasibility of Samuel Morse’s innovation of the telegraph was demonstrated with the funds appropriated by the US Congress. This initiative set the US industry players to become serious competitors in the telegraph industry and create very large number of jobs for Americans.^[vii]

Similarly, the US government’s strategic intent in the second half of the 19th century to be a leader in the railway industry led to the creation of the US Railway network. The US federal government passed the Pacific Railroad Act of 1862 and the Union Pacific Act of 1864, which played an instrumental role in developing the US railway network. These acts provided substantial and significant financial incentives for the development of the US rail network^[viii].

The US government has continued to pursue its policy of attaining leadership in strategic areas of technology by providing a guiding hand to its capitalistic industry, right into the 21st century, and continues to do so even today. Below are a few examples of the US federal government’s push into key technologies that led to the US gaining tremendous leadership in these areas:

• Development of dual-use industries, such as aircraft frames, engines: The National Advisory Committee for Aeronautics,^[ix] formed in 1915, contributed significantly to the development of the US aircraft industry, a role it still plays, helping the US to stay as one of the global leaders in aeronautics. In fact, in 1917, the government also initiated pooling of patents to create the Manufacturers Aircraft Association, to help create a formidable domestic aircraft manufacturing industry. ^[x]
• Radio- By pooling patents, providing equity, and encouraging General Electric’s participation, the US Navy helped to create the Radio Corporation of America^[xi]
• Computer Industry – Originated from the US government’s wartime support for a program that resulted in the creation of the ENIAC (Electronic Numerical Integrator and Computer), one of the earliest electronic digital computers, and the government’s encouragement of the industry in the postwar ^[xii] It was built by University of Pennsylvania and funded by the Army Ballistic Research Laboratory. It led to the US becoming the leaders in computing globally.
• Internet – Government support through the US Defense Department and the NSF played a critical role in the development of the Similarly, microelectronics, robotics, biotechnology, nanotechnologies, and the investigation of the human genome received significant support from the US government, which has turned these areas into major economic activities in the US. As Vernon W. Ruttan has observed, “Government has played an important role in technology development and transfer in almost every US industry that has become competitive on a global scale.”^[xiii] Importantly, the US economy continues to be distinguished by the extent to which individual entrepreneurs and researchers take the lead in developing innovations and starting new businesses. In doing so they often harvest crops sown on fields made fertile by the government’s long-term investments in research and development.

European Government efforts for Technology Dominance

Europe and the European Union have continuously strived to gain leadership in technology through their industries. They have invested significant taxpayers’ money and governmental effort to remain ahead of the technology curve through guided innovation.

The European Union (EU) continues to stress on innovation at both the Union level as well as the regional level. For Europe 2020, the three priorities identified include smart growth, sustainable growth, and inclusive growth. The EU’s Innovation Policy places a strong emphasis on social innovation, recognising it as “an important new field which should be nurtured.” The Policy suggests creating a virtual hub of social entrepreneurs and supporting them with a European Social Fund (ESF)^[xiv].

In the UK, the existing framework under the Department for Innovation, Universities & Skills (DIUS) has focused on the lifelong learning and early-stage venture capital front. The Innovation Nation White Paper^[xv] outlines the future of innovation in the country, providing intellectual leadership by suggesting new policies based on new imperatives. Highlights include provisioning for ‘hidden’ innovation and demand-driven ideas and fostering collaboration between public, private and non-governmental organisations (NGOs) to transform public services. Aside from this, it stresses on reforming the Small Business Research Initiative (SBRI) and incentivising enterprises with investment and expertise to convert research into innovation. To prepare the next generation of innovators, it recommends getting educational institutions to emphasise on STEM (science, technology, engineering and mathematics) subjects.

Leadership in semiconductors has been one of the key focus areas of both the US and the European governments. The US has been leading the race through its early government initiative through the creation of the SEMATECH consortium.^[xvi] In a mould similar to SEMATECH, The Interuniversity Micro-Electronics Centers (IMEC) in Flanders in Belgium, is one of the world’s largest semiconductor research partnerships and strives to be a global “centre of excellence”. The organisation, which received around half of its €285 million in revenue in 2010 from company research contracts and most of the rest from the Flemish government and the European Commission, has a staff of 1,900 and more than 500 industrial residents and guest researchers. It also has research partnerships in the Netherlands, Taiwan, and China. It has “core partnerships” with Texas Instruments, ST Microelectronics, Infineon, Micron, Samsung, Panasonic, Taiwan Semi- conductor, and Intel, and “strategic partnerships” with major equipment suppliers.

IMEC emphasises pre-competitive research that is three to 10 years ahead of industry needs, and therefore takes on risky projects that partners cannot afford to do on their own. Researchers from academia and industry work together under the same roof on areas that include chip design, processing, packaging, microsystems, and nanotechnology. In July 2005, IMEC produced its first 300 mm silicon disks with working transistors, in a new 3,200-square meter facility. A production ASML lithography system installed in 2006 offered capabilities that at the time were beyond those available even at the U.S.-based SEMATECH.

The Texas Instrument executive Allen Bowling noted that moving a new material or device into production requires seven to 12 years of pre- competitive research.^[xvii] This is where IMEC has been of “great value” to its members, by reducing the cost of each company, while making Europe competitive from a cost perspective in the semiconductor space.

Also, given that electric vehicle technologies and lithium-ion batteries / other battery technologies are widely believed to be the next big industry, the European Union and many of its governments are marshalling its resources to ensure that Europe stays in the forefront of these new technologies.^[xviii] In fact, EU had set a target of 8-9 million Electric vehicles (EV) on the road by 2020, to boost its strategic intent of dominating the EV industry. France had a goal of 2 million EVs on the road by 2020; Germany had 1 million by 2020; Spain had a goal of 1 million EVs by the end of 2014, The Netherlands had 200,000 EVs as its 2020 target. The targets send out a strong signal to the industry in terms of the government’s commitment and support for large-scale EV adoption.

Initiatives of the French Government

The French government has consistently taken a leadership role in ensuring that France maintains its leadership in select areas of technology such as smartcards, semiconductors etc. France had gained leadership in semiconductor research through a consortium involving ST Microelectronics, Philips, and Freescale that worked till 2007. The French government intervened in 2007 to launch a massive initiative called Nano 2012.^[xix] Nano 2012 was supposed to be one of the largest industrial projects in France, that targeted to make the Grenoble region a world centre for developing 32nm and 22nm CMOS (Complementary metal oxide semiconductor) technologies. The program involved nearly €4 billion in funding from the national, state, and local governments for R&D and equipment. The consortium partners included CEA-Leti Institute for Micro and Nanotechnology Research; IBM’s Fishkill, NY, semiconductor production complex; ST Microelectronics; the University of New York at Albany; ASML Holdings of the Netherlands; and Oregon-based and ST Mentor Graphics of Wilsonville, Oregon. The initiative was housed at MINATEC, a campus in Grenoble.

In addition to providing space, MINATEC also helped bring in academic programs from four universities. MINATEC also brought in its then state-of-the-art facility for 300 mm silicon wafer centre, a 200 mm micro-electro-mechanical systems (MEMS) prototyping line for fast development of new products, and one of Europe’s best facilities for characterizing new nano-scale materials. The Nano 2012 facility houses 3,000 researchers and 600 technology transfer experts.

It is critical to note that for every five researchers, there is one technology transfer expert. MINATEC has been publishing over 1,600 research papers per year and has been filing over 350 patents per year.

MINATEC is supported by over 200 industrial partners that includes Mitsubishi, Philips, Bic, and Total. Two-thirds of its annual €300 million annual budget comes from outside contracts. The French and local governments also provide it with funding, in addition to funding from the French Atomic Energy Commission and private investors. MINATEC forms a powerful tool of the French government to keep France in the forefront of semiconductor and other high technologies.

Way back in 2009, the French government also identified Lithium-ion batteries as a focus area. The French Atomic Energy Commission and the French Strategic Investment Fund formed a joint venture with Renault and Nissan to manufacture lithium-ion batteries^[xx]. The efforts led to the setting up of a €600 million plant in Flins in France that can produce up to 100,000 batteries a year. The venture also has built plants in Portugal, Great Britain, and Tennessee. The French company Saft supplies lithium-ion batteries to Mercedes, BMW, and Ford.

In 2010, The French government had set a target of having 2 million electric vehicles on the road by 2020.^[xxi] Government-linked companies such as Electricité de France, SNCG, Air France, France Telecom, and La Poste have committed to buying electric vehicles. In addition, the government is investing €1.5 billion to support up to 1 million public charging stations.

Initiatives of the Japanese Government in High Technology

METI (Ministry of Economy, Trade and Industry) of the Government of Japan has been playing a pivotal role in ensuring that the Japanese industry stays as one of the leaders in the world of high technology. The government has many key initiatives that are ensuring that Japan maintains its technology lead. The METI model has been adopted in various forms by South Korea, Taiwan, and China, powering their industries into leadership in various areas.

The Japanese government realised that the Japanese industry needs to have a dominant play in semiconductors. When the Japanese semiconductor industry suffered a slump in the 1990s, policymakers looked to the past for ideas about how to revive it. Having been very pleased with the results of the Very Large-Scale Integrated Circuit (VLSI) project in facilitating the rise of Japanese semiconductor industries in the 1980s (Morris 1990), Japan launched an armada of projects that mirrored this strategy, including the Semiconductor Leading Edge Technologies, Inc. (SELET,^[xxii] Association of Super-Advanced Electronics Technologies (ASET),^[xxiii] Semiconductor Technology Academic Research Center (STARC), Millennium Research for Advanced Information Technology (MIRAI), Highly Agile Line Concept Advancement (HALCA), Advanced  SoC Platform Corporation (ASPLA)6 (ERI-JSPMI 2002) and Extreme Ultraviolet Lithography System Development Association (EUVA).

For example, the Association of Super- Advanced Electronics Technology (ASET) that focuses on equipment and chip R & D has produced more than 100 patents and completed a number of projects with industry, including ones that developed technology for X-ray lithography and plasma physics and diagnostics. ASET had also launched the Dream Chip Project, which focused on 3-D integration technology. It had also started an initiative on next-generation information appliances.

In 1996, the Japanese government also played a key role in pushing the industry to form the Semiconductor Leading Edge Technology Corp (SELETE), a joint venture funded by 10 large Japanese semiconductor companies^[xxiv]. The consortium conducts collaborative R&D for production technologies for wafer equipment, which is then used by the consortium members to exploit in a competitive environment commercially.

The Japanese government also helped create the Millennium Research for Advanced Information Technology (MIRAI) program, for alternative materials for future large-scale integrated circuits which focused on technologies such as extreme ultraviolet lithography for 50-nm device manufacturing in conjunction with 10 Japanese device and lithography equipment purchasers.^[xxv] In 2010, the Japanese government also launched a number of initiatives to shore up its share of the overall global lithium-ion battery market. Japan’s New Energy and Industrial Technology Department Organisation (NEDO) have developed an ambitious roadmap that sees lithium-ion as the dominant battery technology. The Ministry of Economy, Trade, and Industry has a roadmap for the automotive industry that calls for up to 50 percent of cars to be “next-generation” electrified vehicles and up to 70 percent by 2030. The roadmap also envisions up to 2 million regular chargers and 5,000 rapid chargers deployed across the country to “pave the way for full-scale diffusion.” In fact, way back in 2010, the government’s Fiscal Year budget included ¥3 billion for collaborate R&D by the government, industry, and academia for innovative batteries.

Role of Ministry of Economy, Trade and Industry (METI)

The evolution of the Japanese technology policy shows that it is not just limited to technological advancement, but rather, there are significant economic, political and institutional implications. Thus, a comprehensive approach is needed to prevent generating any negative outcomes and to take advantage of the synergy among different policies. Concerning the investment in the innovation process, the presence of market failures and the fact that the social rate of return is superior to the private rate of return justifies the State’s intervention.

Although a clear philosophy was already expressed in a 1949 white paper (After WW II), the Japanese technology policy was often dictated by short-term visions and external pressures until a new philosophy was brought in. The new philosophy, with a particular emphasis on social contribution, fixed objectives that promote tripartite cooperation between government, industry and academia, to create a competitive environment and set an evaluation system. The system attempts to remove or reduce existing barriers to free the flow of people and ideas, set the rules of the game, and generate the dynamics of innovation.

Japan’s technology policy generally uses a top- down approach. The State acts as a social planner by making decisions based on the information it possesses in consultation with relevant stakeholders. This is the structure that has been followed by other Asian countries that subsequently became economic powers. Perhaps this is the structure that India should look at very closely to power its own growth.

Digital Breakthrough Economies

Digital breakthrough economies are those economies that became leaders in technology in the last fifty years. Concerted efforts by their governments helped these nations achieve a pole position in certain specific areas of technology. They offer significant learning for India as India attempts to become a leader in Digital technologies.

Taiwan

Public-private research programs have led Taiwan’s leadership in semiconductor design and fab since mid-1970s. One can say that Taiwan’s dominance in semiconductors started with the government-funded Industrial Technology Research Institute (ITRI) by acquiring the 7-micron chip technology from RCA to spin off UMC, a leading global semiconductor foundry.^[xxvi] ITRI also helped launch TSMC, the world’s dominant foundry. ITRI continues to operate substantial semiconductor-related R&D partnerships. The institute’s Electronics and Optoelectronics Research Laboratories, for example, include programs in fields such as next-generation memories and chips for lighting and 3D imaging.
Taiwan is leveraging its advantage as a leader in both semiconductor and flat-panel display manufacturing, which uses similar production processes to make both crystalline silicon and thin- film cells rival China a photovoltaic exporter. Taiwan ranks behind only China in crystalline silicon cells, with over 230 companies across the entire supply chain. Three companies, Gintech, Motech, and Solar Power, each are building 1.2 gigawatts to 2.2 gigawatts in new production lines. Industry consortia organised through Taiwan’s Industrial Technology Research Institute are developing a range of processes for thin-film cells and printable photovoltaic cells, technologies that also are being developed by Taiwanese producers of digital displays and solid-state lighting devices. Government incentives for manufacturers include a five-year tax holiday, credits that cover 35 percent of R&D and training, accelerated depreciation for facilities, and low-interest loans. Taiwan also offers an array of subsidies to accelerate domestic deployment of solar power, targeting 10 gigawatts of capacity. The government funds 100 percent of some photovoltaic projects in remote areas, as well as several “solar city” and “solar campus” demonstration projects. Under the Renewable Energy Development Act, Taiwan implemented a feed-in tariff that would incentivise distributed production of solar energy that could then be fed into the grid.

Taiwan aims to become one of the top three lithium battery producers in the world. This goal is spearheaded by Industrial Technology Research Institute (ITRI). ITRI formed the High Safety Lithium Battery STOBA consortium of Taiwanese companies to promote the development and diffusion of STOBA-based battery technology. As of 2011, four Taiwanese companies had entered into production of STOBA lithium batteries and the local industry was projected to invest $1.7 billion in 2012.

Korea

The phenomenal post-war development of South Korea is one of the most remarkable economic stories of the twentieth century. The small Asian nation in 1960 was one of the world’s poorest countries, with a Gross Domestic Product roughly equal to that of Ghana and its per capita income being lower than that of India. In the next fifteen years, it transformed into the twelfth largest economy in the world with its per capita GDP being four times that of India. This transformation was orchestrated by Government intervention through a combination of state-directed bank financing, light and then heavy industrial export promotion, fostering of large industrial conglomerates (the fabled chaebol), and suppression of labor unions to create workplace peace.

These initiatives of the Korean government have culminated with South Korea being counted as a developed economy. As per Campbell^[xxvii] underlying Korea’s strong economic development has been a consistent effort to create a robust science and technology (S&T) capacity. From the beginning of Korea’s export-oriented drive in the 1960s, this has followed two parallel tracks: creation of a state-led research and educational capacity, centred on state-run research institutes, and in-house research and development efforts by the chaebol and some medium-sized firms. Universities, which were relatively weak S&T players till the late 1990s, were strengthened through government intervention.

South Korea largely followed the METI model of Japan and worked closely with its chaebols to create technology powerhouses such as Samsung, LG, Hyundai etc.^[xxviii],^[xxix] In fact, five of the biggest chaebols make up more than half of the Korean Stock Market’s benchmark index.^[xxx] From 1961- 1988, the Korean Government created a rudimentary research capacity, focused on creation of government-run research institutions, a technical university, and a central research park, as the private sector gradually began to muster its own applied research capacity^[xxxi]. In the subsequent decade, the Korean chaebols became the leaders of R&D initiatives in Korea. The government provided significant funding for the National S&T Technology Program which became the preferred institution for catapulting the chaebols and the Korean industry into technology leaders. This program was later replaced by the 21st Century Frontier Program and specified research funds. By the turn of the century, Korea had achieved strong aggregate performance in terms of numbers of researchers and funds spent on R & D and continued to build on that advantage. The IT industry and, to a lesser extent, biotech have become the major drivers of technological and economic development. The government played a key role in growing the nascent IT sector, through a combination of privatisation of the national telephone service provider,  creation of infrastructure, and dispute moderation.

As per Campbell, from the mid-1990s, Korean government has pushed for the possibilities of “Big Science,” i.e., basic or foundational science. Korea participates in various international basic science programs, and has created another big state funding effort (the 577 program) to support basic science. The government has spent much policy effort on drafting “visions” of future technological developments.

It would indeed be useful for India to look at the institutional structures adopted by Korea to transform itself so quickly, with a heavy focus on close coordination with the industries in gaining leadership in technology closely.

China

China was the next big economy after South Korea that rapidly transformed its economy from a low-income economy to an upper-middle-income economy in a short span of twenty years. China borrowed heavily from the Japanese and the Korean models to harness resources and accelerate growth in its economy. Besides the tools of using

• consortium led technology development and
• polices and regulations that are favourable to its domestic industries, it also heavily relied on a new state sanctioned policy tool for technology acquisition—illegal acquisition of technology through piracy, cyber hacks, state sanctioned IPR violations, forced surrender of IPR of western entities and other mechanisms that did not follow rule-based technology acquisition.

China has now emerged as a strong science and technology innovation player. The Organisation for Economic Co-operation and Development (OECD), along with the Ministry for Science and Technology, have been reviewing the policies for innovation in the country and have come up with gaps that we, in India, would be quite familiar with. As its medium and long-term objective, China wants its dependence on foreign technology to reduce by 30 per cent and be among the top five countries in the world in terms of domestic invention patents granted, and the number of international citations of its scientific papers.

Chinese government regards the coming up of a domestic, globally competitive semiconductor industry as an utmost priority with a stated goal of becoming self-sufficient in all areas of the semiconductor supply chain by 2030. China faced significant barriers to entry in this mature, capital- intensive, R&D-intensive industry.^[xxxii] China also offered many forms of support to photovoltaic manufacturers. For example, producers could access cash grants of between ¥200,000 and ¥300,000 ($30,900 to $46,300) available to high- tech startups that are less than three years old with no more than 3,000 employees.

Large “demonstration projects” by manufacturers get grants of up to ¥1 million. The China Development Bank offered low-interest loans of several billion dollars for major production plants. The bank reportedly provided $30 billion in low-cost loans to photovoltaic manufacturers in 2010. A number of Chinese provinces offered further incentives, including refunds for interest on loans and electricity costs, 10-year tax holidays, loan guarantees, and refunds of value-added taxes. To open its production plant in China, Massachusetts-based Evergreen Solar was reported to have received $21 million in cash grants, a $15 million property tax break, a subsidised lease worth $2.7 million, and $13 million worth of infrastructure such as roads. Such subsidies have spurred massive expansion of production capacity. By the first half of 2009, some 50 Chinese companies were constructing, expanding or preparing polycrystalline silicon production lines.

The Chinese government has further set procurement rules that require products for “government investment projects” be purchased from domestic sources unless they are unavailable. Purchases of imported equipment require government approval. China requires that at least 80 percent of the equipment for its solar power plants be domestically produced.

China’s Ministry of Industry and Information Technology had plans to invest around ¥100 billion ($15.2 billion) by 2020 in subsidies and incentives over 10 years to support new-energy vehicle production. The government had set a target of selling 1 million electric vehicles a year by 2015 and aims to have 100 million by 2020. The government also offered a $9,036 subsidy to buyers of electric cars and subsidised fleet operations in 25 cities. By 2018, China was manufacturing 1.2 million electric vehicles. The National Develop- ment and Reform Commission identified lithium- ion cells and batteries as strategic industries, and several government programs subsidise China’s industry through investment and tax credits, loans, and research grants. To give its domestic industry an extra edge, the government essentially requires foreign battery companies to manufacture in China if they wish to sell there.

The Chinese government has now changed gears with bringing in tremendous focus on technologies that power the 4th Industrial revolution such as Artificial Intelligence, IOT, robotics etc.^[xxxii] This focus of the government, in tandem with the industry, has placed China as one of the leaders in Artificial Intelligence, poised to gain from the economic benefits and the strategic benefits of being a leader in 4th industrial revolution technologies.

Government Supported Technology Acquisition for India

The question now is what are the institutional mechanisms that India should adopt, to make Indian economic players as leaders in various technology areas. India has been largely pursuing development of technology from scratch as the primary mechanism for technology development. In a few cases, such as the development of the Marut fighter aircraft, specialists were brought in from outside to help in the project. In the case of Marut, the renowned German aircraft designer, Kurt Tank was brought in, albeit by serendipity as Kurt Tank had chosen to live in India at that time^[xxxiii],^[xxxiv]. In limited other cases, joint ventures were used to catapult India to technology leadership, such as the Bramhos supersonic cruise missile project that is a joint venture between Indian and Russian state-owned defence research entities^[xxxv].

However, there have been limited centralised initiatives to marshal the nation’s resources to catapult Indian industry to the heights of technology leadership. In February 2020, the Indian govern- ment constituted an empowered Technology Group (TG)^[xxxvi] for providing timely policy advice on latest technologies; mapping of technology and technology products; commercialisation of dual use technologies developed in national laboratories and government R&D organisations; developing an indigenisation road map for selected key technologies; and selection of appropriate R&D programs leading to technology development. The empowered Technology Group stops short of actual acquisition of technology and the technology ecosystems that is necessary to help the Indian industry gain dominance.

For example, very few will debate the fact that India’s burgeoning aviation industry calls for India having its own single aisle passenger aircraft. It is expected that India will require 2,300 single aisle aircrafts worth USD 320 billion in the next 20 years ^[xxxvii]. By creating India’s own aircraft manufacturing industry, it is obvious that a large number of jobs, economic benefits and associated strategic benefits will accrue to India. However, aircraft manufacturing is extremely complex and requires hundreds, if not thousands of component manufacturers. It would take decades to build the ecosystem and the technologies to be able to have a single aisle aircraft that is state of the art and is able to compete with other aircraft manufacturers globally. Hence, it would be almost futile to pursue such a program and divert billions of dollars from other more pressing needs of the country. However, as of 2020, there are opportunities to acquire aircraft manufacturers at very low costs, with a running book, a running team and with an existing ecosystem. A prime example is the Brazilian aircraft manufacturer, the Embraer as well as possibly the Sukhoi SSJ100 regional jet. The Embraer was to be acquired by Boeing for USD 4.3 billion for 70% stake.^[xxxviii] With that arrangement not coming through, Embraer could potentially be acquired by an Indian entity, backed by the Indian government.

The question is, what is the backing that is needed from the Indian government for such an acquisition? For starters, an acquisition of this kind has to be a leveraged buyout (LBO), which implies that the purchase has to be funded by the company’s future sales. Thus, the Indian government can provide support by pushing banks to be the lenders for the deal. In addition, perhaps the Indian military can purchase transport aircrafts to enable the order book to roll. For the future, policies and regulations can be adopted to provide preferential access to the Indian market as well as markets where India can expert geopolitical influence. In addition, interested Indian business houses can be selected through an open process. For sure, the Indian government would have considered the above acquisition. The larger point is, do our acquisition mechanisms provide for the agility needed to grab such opportunities? Or do we need to create a special institutional mechanism to be able to go out and acquire technology in a much more rapid manner, with a quicker response to market opportunities. Similarly, there are other mechanisms of technology acquisition that have been adopted by other nations that India needs to deploy in a concerted manner.

In summary, technology acquisition needs to be done, along with creation of entire ecosystems, in a combination of the following manners:

• Build new technologies in-house with Indian private sector through procurement
• Create consortium of Indian players to pool and build new technologies
• Buy technologies from outside India
• Hire experts from outside India who have built the technologies
• Buy companies that have the technologies
• Get the technology by other means
• Innovation in procurement

Along with the above, a CFIUS like regulation and its active implementation would also be necessary to protect the technologies acquired and developed in India ^[xxxix].

Conclusion

India would need to adopt an institutional structure to be able to rapidly acquire technology and technology ecosystems for its industries in order to accelerate its growth and increase per capita GDP of the nation.

It is proposed that perhaps a National Techno- logy Acquisition entity be formed that works with the existing institutions of National Society of Collegiate Scholars (NSCS), Technology Group, Ministry of Electronics & Information Technology (Meity), MOD, MoS&T, Niti Aayog and other line ministries, while marshalling the resources from banks, venture capitalists, startups, incubation centres, domestic conglomerates, academia, industrial research entities and foreign collaborations, as shown in figure below:

Similar structures have been proposed earlier by the author^[xxxx] in 2013, and in 2015^[xxxxi]. Such a structure would lend towards bringing in all the mechanisms of technology acquisition across the civilian and dual- purpose industry landscape in a credible manner and help power the Indian economy towards global leadership.

*Dr Jaijit Bhattacharya is a noted expert in technology policies and technology-led societal transformation. A recipient of the prestigious APJ Abdul Kalam Award for innovation in Governance, he is currently President of Centre for Digital Economy Policy Research. He is also CEO of Zerone Microsystems Pvt Ltd, a deep-tech startup in the fintech sector.

References:                                                                                                                                

1. ^[i]PCAST, “Report to the President – Ensuring Long-term US Leadership in Semiconductors”, January 2017, https://obamawhitehouse.archives.gov/sites/default/files/microsites/ostp/PCAST/pcast_ensuring_long- pdf
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3. ^[iii]Jingrong Lin, Xiaoyan Lu, Junsheng Zhang, Ying Zheng, “State-owned enterprises in China: A review of 40/ years of research and practice” in China Journal of Accounting Research, Volume 13, Issue 1, March 2020, Pages 31-55
4. ^[iv]Evan Medeiros, Roger Cliff, Keith Crane and James C. Mulvenon, Chapter “The Digital Triangle”: A New Defense-Industrial Paradigm?” in “A New Direction for China’s Defense Industry, published by RAND Corporation (https://www.jstor.org/stable/pdf/10.7249/mg334af.12.pdf)
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15. ^[xv]Innovation Nation Department for Innovation, Universities & Skills, presented to Parliament by the Secretary of State for Innovation, Universities & Skills, March 2008.
16. ^[xvi]https://darpa.mil/about-us/timeline/sematech
17. ^[xvii]Charles W Wessner and Alan Wm Wolff, Rising to the Challenge: US Innovation Policy for the Global Economy, National Research Council (US) Committee on Comparative National Innovation Policies: Best Practice for the 21st Century, National Academies Press (US); 2012, ISBN-13: 978-0-309-25551-6ISBN- 10: 0-309-25551-1
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29. ^[xxix]How South Korea Made itself into a Global Innovation Leader, https://nature.com/articles/d41586- 020-01466-7. 2020
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31. ^[xxxi]Joel Campbell, Troy University, “Building an IT Economy: South Korean Science and Technology Policy”, in Issues in Technology Innovation, Number 19, September 2012
32. ^[xxxii]Yujia He, “How China is Preparing for an AI-Powered Future,” The Wilson Center, June 20, 2017,
33. ^[xxxiii] Chatterjee, “Hindustan Fighter HF-24 Marut; Part I: Building India’s Jet Fighter,” https://web. archive.org/; and Chris Smith, India’s Ad Hoc Arsenal: Direction or Drift in Defense Policy? (Stockholm: SIPRI, 1994) 160–62
34. ^[xxxiv]https://britannica.com/biography/Kurt-Tank
35. ^[xxxv]http://www.brahmos.com/content.php?id=1
36. ^[xxxvi]https://pib.gov.in/PressReleasePage.aspx?PRID=1603642
37. ^[xxxvii]https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/india-will-need-2300- planes-worth-320-bn-in-20-yrs-boeing/articleshow/67159161.cms?from=mdr
38. ^[xxxviii]https://in.reuters.com/article/embraer-m-a-suitors/embraer-seeks-business-partners-but-not-a-repeat-of-the- boeing-deal-idINKBN239141
39. ^[xxxix]Jaijit Bhattacharya, “TikTok’s Shifting Of Headquarters Out Of China Will Make It No Less Predatory”, in Outlook, July 2020 (https://www.outlookindia.com/website/story/opinion-tiktoks-shifting-of-headquarters- out-of-china-will-make-it-no-less-predatory/356841)
40. ^[xxxx]Jaijit Bhattacharya, “Strategic Implications of Internet Governance”, in CLAWS Journal, Winter 2013
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In the fourth tranche of the Atmanirbhar Bharat initiative, Finance Minister Nirmala Sitharaman had, on May 16, announced the decision of corporatisation of OFB.

The year 2020 will long be remembered for the pandemic which originated from Wuhan in China and spread across the world,causing death and devastation in its wake. SARS- CoV-2, the virus that causes the coronavirus disease (Covid-19), has led to the temporary closure of innumerable industries with resultant job losses and has had an extremely debilitating impact on the major economies of the world. The Indian economy, which was already under stress from a variety of causes, was also adversely impacted. It was in such a bleak environment, that Prime Minister Narendra Modi delivered his Independence Day address from the ramparts of the Red Fort, with a clarion call for ‘Atmanirbhar Bharat’. The address was a clear enunciation of the vision of the Prime Minister and the thrust of his government to rejuvenate the economy whilst tackling the pandemic and the security challenges that beset the nation from an expansionist China and an intransigent Pakistan, intent on continuing its proxy war against India, through support to terrorism.

The Prime Minister’s address infused a sense of hope amongst the Indian masses and gave a clear and positive message to the Indian corporate, both public and private sector, that the government was committed to an economic revival based on self-reliance. The call for ‘Atmanirbhar Bharat’ was not new and had been made earlier by the

Prime Minister, but its reiteration on Independence Day was a clear message to all, of his governments resolve to chart India through the present difficult times and on to a more prosperous future. This has had its impact in the defence sector too, where two initiatives are set to strengthen India’s defence industrial base. The first pertains to the corporatisation of the Ordnance Factory Board (OFB) and the second to a decision by the Ministry of Defence to place 101 items for the military on the negative list, which were till now being imported.

Role Of the Private Sector

India’s defence needs can no longer be met solely by the public sector undertakings, and increasingly, the private sector will have to be called upon to manufacture a large part of India’s defence requirements. One of the first initiatives of the Narendra Modi Government when the NDA won the 2014 elections was to launch the Make in India programme. This was a clear signal to optimism of the private sector to be vectors in achieving self-reliance in defence manufacturing. Make-in-India is a decisive and bold step towards attaining strategic autonomy. While the public sector has to date played a crucial role in catering to the needs of the security forces, it lacks the capacity to meet all of India’s defence needs. Even seven decades after independence, India remains highly dependent on imports.

*Maj. Gen. Dhruv C. Katoch is Editor, India Foundation Journal and Director, India Foundation.

Speaking at a function in Shillong on 28 September 2019, Defence Research and Development Organisation (DRDO) Chairman G. Satheesh Reddy, while stressing on the need to focus on indigenous defence production said that as of now, indigenous produce in defence manufacturing is just about 45-50 per cent and we are dependent for the rest on imports.^[i] The focus of the government is hence on improving defence capability through indigenous manufacture of most of the country’s defence needs. Towards that end, the Ministry of Defence (MoD) released on 3 August 2020, the draft Defence Production and Export Promotion Policy 2020, which aimed at a turnover of USD 25 billion in domestic defence sector production over the next five years, within which was set a target of USD 5 billion for exports in defence and aerospace goods and services.^[ii] Earlier, the Defence Production Policy of 2011, which had as its objective the goal to achieve substantive self-reliance in design, development and production of equipment/weapons systems/ platforms and to create conditions conducive for the private industry to take an active role in this endeavour,^[iii] while laudable, achieved little of significance.

Strategic sector dominance is a key requirement for a strong and stable India, and this cannot be achieved without the private sector being involved in the manufacture of defence-related platforms and equipment in a big way. Technology infusion, adapting to technological challenges, and organic technological advancement will be an essential pre- requisite of high-quality defence production. The government’s promulgation of export friendly measures has enabled India to increase defence

exports to USD 1.54 billion in 2019, which marks a quantum leap from the USD 0.28 billion exports achieved in 2014.^[iv] However, there is still much to be done if Prime Minister Modi’s vision of achieving an export target of USD 5 billion in military hardware by 2025 is to be achieved.

Herein comes the importance of the measures recently announced to place 101 items used by the military on the negative list to boost indigenisation of defence production. The list is impressive and includes in its ambit light combat aircraft and helicopters, Short Range Maritime Reconnaissance Aircraft, Long Range – Land Attack Cruise Missiles, artillery guns, short-range missiles, shipborne cruise missiles, simulators, Wheeled Armoured Fighting Vehicles (AFV), Infantry small arms, some types of radars, ammunition of different types and a host of other items used by the military.^[v] Local manufacture of these items will give a big boost to the indigenisation effort and enable the creation of a strong and vibrant defence industrial base. The private sector will have an important role to play in this effort.

The Corporatisation of the OFB

The decision to corporatise the OFB was announced by Finance Minister Nirmala Sitharaman on 16 May 2020. This was the fourth tranche of the ‘Atmanirbhar Bharat’ initiative,^[vi] and was intended to provide greater autonomy to the Board while imposing higher levels of accountability, with a view to improving the quality of manufactured goods in an acceptable time frame and keeping such products priced competitively. The Foreign Direct Investment (FDI) limit in defence manufacturing under automatic route was

raised from 49 per cent to 74 per cent, and a large number of weapons and their spare parts were placed on the negative list, to promote indigenous production within the country. Also announced was the rationalisation of the tax regime for Maintenance, Repair and Overhaul (MROs) of the Aircrafts in the country. Earlier, the aircrafts had to fly abroad for the MROs. This issue had been highlighted in the January-February 2020 issue of the India Foundation Journal, and it is indeed heartening to see that the recommendations as given in the article^[vii] are now being implemented.

The fourth tranche of reforms also aimed at boosting the capabilities of the private sector by allowing them to use ISRO facilities and other relevant assets. The geo-spatial data policy is also being liberalised to provide for remote-sensing data to tech-entrepreneurs. Future projects for planetary exploration and outer space travel have also been opened to the private sector,^[viii] thus opening a wide array of avenues which were earlier not available.

Challenges of the OFB

The OFB is a subordinate/attached office of the Department of Defence Production and is based in Kolkatta. It has 41 Ordnance Factories, 9 Training Institutes, 3 Regional Marketing Centres and 4 Regional Controllers of Safety working under it. The principal products of OFB include tanks and armoured vehicles, artillery guns, small arms and other weapons and ammunition of various types. The OFB also manufactures troop comfort equipment like uniforms, tents, boots, etc. Main customers of the OFB are the Armed Forces, Paramilitary Forces and Central Armed Police

Forces, with the Indian Army being the primary customer and accounting for 75 per cent share of the total sales of the OFB.

The Ordnance Factories were set up and spread across the country as “captive centres” to serve the needs of the Armed Forces, but have been dogged by high costs, quality concerns and time delays in delivery of products. This has raised serious concerns over the functioning of the OFB which are amplified below:

• Monopoly Supply: As the OFB supplies products to the Armed Forces on a nomination basis, it has little incentive to improve its quality of products and maintain a timely delivery schedule. Because a captive market exists, the OFB does not have a dynamic system of getting customer feedback on issues which concern the The government has notified 275 non-core items of OFB which are now available to be procured from the market. These items were hitherto reserved for OFB, though they were readily available in the market.
• Quality Issues: The quality of products supplied by the OFB continue to be a cause of concern to the Armed Forces. The increasing number of cases of defective assemblies and components have been highlighted by the Service Headquarters in various forums. The high rate of Return for Rectification (RFR) cases indicate poor quality management and low-quality
• High Cost: High cost of products is primarily due to high overhead charges in OFB, including high maintenance charges and high supervisory and indirect labour Further, unethical procurement activities lead to extensive inventories, and the additional cost gets loaded on to the cost of production.

• Lack of Innovation: Little incentive has led to minimal innovation and technology development in OFB
• Low Productivity: Currently, there is low productivity of plant and machinery and workforce with a variation in productivity across the factories. Being the sole service provider for Armed Forces, there is no penalty for delayed delivery to the

The present state of OFB is inconsistent with the requirement of defence production centre, which calls for a great deal of flexibility at managerial and functional levels. Decisions like the modernisation of plant and machinery, joint ventures (JVs), Transfer of Technology (ToT) agreements etc. are all subject to government financial regulations and instructions, which reduces the leverage and flexibility of any dynamic production and marketing unit. As a government department, the OFB cannot retain profits and therefore has no incentive to make profits. Lack of a fixed tenure at the top management level impacts on motivation to push the organisation to the next level of efficiency by taking bold and visionary but sometimes unpopular steps. Therefore, the current structure of the OFB is not suited for carrying out production activities in a highly competitive industry, which requires managerial and technical flexibility for production and marketing activities.

Reports of Various Committees

Various committees have been formed over the years to look into the functioning of the OFB.

The 2000 T.K.A. Nair Committee Report suggested corporatisation and the conversion of the OFB into the Ordnance Factory Corporation Limited (OFCL). Self-reliance was the key, wherein the corporation could start its long journey by relying on its own strengths, revenues and surpluses for growth. The proposed structure would also enable appropriate future changes in line with the dynamic, fast-changing global environment related to the production of defence goods. With a sharpened focus and an innovative approach to competitive ground realities in each product and value chain segments in India and in world trade, the Indian armaments industry could  thus be enabled to carve out an array of opportunities for itself.

The 2004 Vijay Kelkar Committee report observed that in the existing set-up, ordnance factories (OF) by the very nature of the products they manufacture and in the manner in which they manufacture, have to continuously face the problem of obsolescence of existing technology, accessibility to newer technologies and their inability to meet the requirement of the user. Sustaining the OF in the current structure would prove financially and strategically costly for the user and consequentially for the country’s defence preparedness. Therefore, the Committee recommended that all OF should be corporatised under one single corporation under the leadership of competitive management. The existing dispensation by the government to OF should continue for a period of three years to help to steer the changed process internally. It was observed that the formation of corporation alone would ensure that OF gets the desired functional autonomy and become accountable and responsible for their operations and performance.

The 2015 Raman Puri Committee observed that it is essential to change the current functioning of OFB as an attached office of the Ministry and a budgeted entity, as it is entirely incompatible with the modern methods of production and practices. The Committee recommended splitting the current OFB into three or four segments as appropriate and converting these segmented Boards into DPSUs. A year later, in 2016, the Shekatkar Committee of 2016 also recommended corporatisation of OFB. Based on these reports and to strengthen their self-reliance in defence production, the government, on 16 May 2020, announced under the Atmanirbhar Bharat package, that corporatisation of OFB would be undertaken to improve autonomy, accountability and efficiency in ordnance supplies.

Advantages and Challenges of Corporatisation

The proposed transformation of OFB from a Government department to a public sector corporate entity will have several advantages. It would enable the Corporatised OF to form strategic alliances with Indian and overseas companies to develop new products, carving out a niche in the international armament industry and penetrate the defence export market. It would also provide greater flexibility in technology acquisition through overseas assets.

Corporatisation would lead to the creation of a sustainable business model and facilitate leapfrogging technology and innovation for self- reliance in defence. It would also enable increased

production capacity and retention of capability and knowledge base, having an overall positive impact on the employment sector with the creation of jobs in the long run.

More importantly, top management in the corporatised structure would be in a position to provide leadership and could initiate a change process to respond to competition. Unshackled from government procedures and controls, it would lead to improved flexibility and dynamismin decision making, which in turn would open up possibilities of creating new streams of revenues by leveraging engineering and technological capabilities.

While reducing import dependency for arms and ammunition, it would enhance combat efficiency of the Armed Forces. The move away from cost-plus mechanism to competitive pricing enables the procurement of quality products at a lower cost and ensures customer satisfaction through timely delivery. With under-utilised capacities in factories being better utilised, there would be a further reduction in costs of production. Finally, as the corporate entity moves from production-based to a technology-based organisation, this would further enhance self- reliance in defence capability. Moreover, converting OFB into a 100% Government-owned public sector unit would also ensure better equipment for the soldiers, ensuring their safety and strengthening their efforts in defending national boundaries.

The challenge to corporatisation comes from the large number of employees in the OFB. The 41 OF and other units of the OFB have three recognised trade unions—All India Defence Employees’ Federation (AIDEF) which is a federation of Left unions; the Bhartiya Pratiraksha Mazdoor Sangh (BPMS), which is an arm of the RSS affiliate Bharatiya Mazdoor Sangh, and the Indian National Defence Workers’ Federation (INDWF). These trade unions have been opposing the proposed corporatisation and have planned to go on an indefinite strike from 12 October.^[ix] Herein lies the challenge to reform in a sector as vital as defence. How this issue will be addressed will determine India’s quest to achieve self-sufficiency in defence production to at least 70 percent of its requirements. A strong defence industrial base will create a vast number of jobs and has the potential of enhancing India’s GDP by one or two percentage points. But for that, the fears and concerns of the over 4 lakh civilian defence employees will need to be addressed.

References:                                                                                                                                

1. ^[i]https://economictimes.indiatimes.com/news/defence/drdo-chief-urges-for-indigenous-defence-production/ articleshow/71350864.cms
2. ^[ii]https://swarajyamag.com/news-brief/govt-releases-draft-defence-policy-to-reduce-dependence-on-imports- and-take-forward-make-in-india-initiatives
3. ^[iii]https://makeinindiadefence.gov.in/pages/strategy-for-defence-exports
4. ^[iv]https://makeinindiadefence.gov.in/pages/strategy-for-defence-exports
5. ^[v]The full list of 101 defence items banned from import is available at https://psuwatch.com/list-of-101- defence-items-banned-from-import-by-ministry-of-defence
6. ^[vi]Details of the reforms announced are available at http://ddnews.gov.in/national/fm-nirmala-sitharaman- unveils-structural-reforms-various-sectors-fourth-tranche-rs-20-lakh Also see https://timesofindia.indiatimes. com/business/india-business/fourth-set-of-governments-rs-20-lakh-crore-stimulus-package-highlights-of- nirmala-sitharamans-speech/articleshow/75774584.cms
7. ^[vii]Gp Capt RK Narang, VM, Challenges of Indian Aviation MRO Industry, India Foundation Journal, Vol VIII, Issue No 1, January-February 2020, pages 80-87.
8. ^[viii]Note 6,
9. ^[ix]https://mumbaimirror.indiatimes.com/mumbai/other/4-lakh-defence-civilian-staff-go-on-strike-today/ articleshow/76760735.cms.