Reorient industrial policy

The New Industrial Policy should be a joint effort by the Union and state govts, one that is market-friendly rather than business-friendly

- NITIN DESAI

The global economy is in the midst of a proliferation of activist industrial policies whose beneficial effects, beyond enriching company owners, are doubtful. For instance, the current widespread subsidy-oriented government support for chip manufacturing, driven by geopolitical concerns, is likely to lead to global overcapacity, lower international prices, and reactive protectionist measures, ultimately resulting in higher costs for chip-using manufacturing activities in the states that are doing this. In fact, over the past few years, there has been a dramatic increase in distortive industrial policies globally, rising from a few hundreds in 2017 to more than 2,000 in 2023, with about 100 in India.

An activist industrial policy, however, is an established tradition in India. Ten years ago, in 2014, one such version—the Make in India initiative—was launched. Since then, a variety of sector-oriented measures have been implemented. The primary form of subsidy support to corporations is revenue forgone, which amounted to ₹1.09 trillion in 2022-23, accounting for 13 per cent of the corporation tax collected. Recently, more direct subsidies have been introduced for chip manufacturing and for a variety of other industries under the production-linked incentive (PLI) scheme. But the record of manufacturing growth during the Make in India programme period (2014-15 to 2023-24) shows a fall in the share of manufacturing in total gross value added (GVA) from 16-17 per cent in the first five years to 14-15 per cent in the last five years. An activist industrial policy that is focused on specific sectors and companies has not led to an acceleration of industrial growth.