Introduction/Background

As the Covid 19 Outbreak wreaked havoc in India, the Prime Minister, Narendra Modi, in response to pleas for relief from the business community announced the Atmanirbhar Bharat Policy. Atmanirbhar means Self Reliance in English and this policy was rolled out along with a much hyped Rs 20 Lakh Crore Stimulus Package. While there has been criticism from a section of the experts that Atmanirbhar Policy is all about “import substitution” and the return of the much despised “License Permit Raj”, a nuanced reading of the fine print indicates that while there are some elements of weaning off India from imports, the broad thrust is on freeing up the shackled MSMEs or the Micro, Small, and Medium Enterprises that form the backbone of the Indian Economy.

Indeed, as the government was at pains to explain, Atmanirbhar aims to make doing business easy at the ground level as well as make the Indian MSMEs more competitive in wake of the Covid 19 Outbreak. Further, the government also pointed that “top down planning” was a thing of the past and instead, empowered entrepreneurs at the regional and sub-regional levels would find doing business easier than in the past. Moreover, by decentralising decision making and a turn towards localism, the Atmanirbhar Bharat Policy ensures a multi level push towards self reliance and self sustaining enterprises.

The Specifics: Atmanirbhar Bharat Policy Demystified

Some of the highlights of the Atmanirbhar Bharat Policy are:

– Opening up sectors such as Defence to foreign investment from 49% t0 74%

– Provision of tax cuts to MSMEs

– A Rs3 Lakh Collateral Free Credit Line to MSMEs and a flexible loan repayment schedule

– Creation of a One Nation, One Market model by unifying the rules and procedures for food and other sectors that were hitherto diverse and complex with specific policies for each state

– Injecting more liquidity into the MSMEs through fiscal and monetary measures

Taking a cue from the Central Government’s push, several states have announced more sops for MSMEs by making hiring and firing of labour easier as well as freeing up land acquisitions from the “tyranny of restrictions” such as majority landowner approvals for sale and other such measures. For instance, the state of Karnataka has passed a law that would help MSMEs in adopting hire and fire workers based on market conditions and have also land acquisition for industrialists to be directly made from the landowners instead of going through the government agencies.

Adoption of Glocal Approach

The celebrated columnist and cheerleader for globalisation, Thomas Friedman, coined the term Glocal to indicate how Asian and other emerging economies could flourish by Thinking Global and Acting Local. In other words, enterprises as well as global firms need to adapt to local conditions and adopt local practices while not forsaking their global brand equity. This so-called Glocal Approach is what the Atmanirbhar Bharat aims to do as it seeks to build capacity at the local level wherein India can continue to be plugged into the “global supply chains” and at the same time, a strong local presence would shield it from the vagaries of disruptions to the globalised value chains.

While many have pronounced globalisation as “over” due to the Covid 19 outbreak that has forced nations inwards and towards a closed border and erecting walls situation, the Atmanirbhar Bharat Policy is somewhat of a “welcome relief” as it merges the incentives for global investors with the facility of tie-ups with local MSMEs. Of course, there are some challenges in terms of shrinking of export markets that can prove to be a dampener for investors. Having said that, global investors can benefit by local investments and a readymade domestic market, although demand depressed, can bounce back due to the various stimulus packages announced as part of this policy.

How Atmanirbhar Bharat Would Impact MSMEs

Much before the Covid 19 induced (or some would say, forced) lockdowns, the Indian Economy was already struggling in the face of a Perfect Storm of Converging Economic crises brought on due to the Financial Crisis in the Shadow Banking Sector (one of the foremost lenders to MSMEs), the Collapse of Demand or the Demand Destruction that led to Stagflation, and the very real aspect of many MSMEs not fully recovered from the Demonetization and GST (Goods and Services Tax) rollout which many economists often point as contributory factors for the recession.

Thus, the Atmanirbhar Bharat Policy, by way of a mixture of Supply Side Incentives and Demand priming measures seeks to address some of the Macro and Micro economic factors for the recession. The Supply Side is targeted through Incentives for the MSMEs and the Demand priming is being anticipated with both fiscal and monetary measures. By incentivising Entrepreneurs to ramp up capacity through tax cuts, credit easing, and flexible labour policies, the government is expecting the revival of the MSMEs. Further, the moratorium on loan repayment, lowers interest rates, and easy credit off-take rules are meant to induce the Indian consumer to loosen his or her purse strings.

What is in it for European Investors

Foreign investors, who for long, have complained about excessive “red tape” as far as procuring clearances and approvals for everything from land acquisition to power and water connections can now be assured that such hindrances would reduce considerably. Indeed, even when India liberalized and opened up its economy in the 1990s, Western investors often found a “gap” between what they were promised by lawmakers and administrators higher up and what they encountered at the ground level where they were at the mercy of local officials and petty bureaucrats who held up their projects on often flimsy grounds.

The Atmanirbhar Bharat policy aims to redress this “execution lag” which would be music to the ears of the MSMEs, whether foreign owned, or domestic. As mentioned earlier, opening up key sectors, hitherto protected, from foreign investment, is another “game changer” when coupled with the strenuous efforts to improve the “Ease of Business”. As the cliché goes, India lives in Bharat or its Towns and Villages, and hence, this policy is transformative in the sense that it addresses the aspirations of the above segment. Moreover, the horrifying visuals of Millions of migrant workers left in the lurch due to the hasty lockdown would have spurred the Indian government to acknowledge the importance of the MSMEs and the plight of the informal sector workers has been recognized to some extent.

The Way Forward

One of the advantages of the Atmanirbhar Bharat Policy is that it combines the vision of the earlier Make in India Initiative with the practicalities of the situation arising out of the Covid 19 outbreak. For Western investors seeking an alternative to China as a base for their operations and at the same time, want a business friendly climate, the Atmanirbhar Bharat Policy could not have come at a better time. Moreover, the Indian Government has “sweetened” the outreach to foreign and domestic entrepreneurs with a slew of tax breaks, fiscal support, and monetary incentives.

In addition, the policy would also meet the expectations of those investors seeking markets for their products, though the condition that they must be made in India has to be met. In other words, global investors not particular about exports but the existence of domestic captive markets in India can benefit from this policy. Having said that, the recent skirmishes with China mean that there might be some hostility towards global investors who are invested there and want to do so in India as well. Moreover, though India offers a relatively stable political climate with continuity of policies even when governments change, the same cannot be said of the social environment, wracked as it is by periodic bouts of unrest.

Conclusion

While the policy is being operationalised, it makes sense for European investors to wait and watch how the measures “pan out” in the next few months. As it is the Covid 19 catalyzed uncertainties mean that no nation can claim to be “on top of the situation”, and hence, short term investments can continue whereas longer term commitments would need more clarity and a sense of sustainability. To conclude, while there is much “hype” around the policy, it should not end up a mere slogan like its predecessor, Make in India, and hence, investors should well do to let the “dust settle”.