Industrial policy redux

First it was the shadow-banning of exports of rare earths that panicked Indian electric-vehicle (EV) manufacturers.

- DEBASHIS BASU

Now comes the Chinese halt on specialised fertilisers. A German tunnel-boring machine bound for India is reportedly stuck in China, awaiting export clearance. What next? India, the drug-manufacturing giant, imports 80 per cent of key starter materials from China. What if that is choked?

China needs nothing critical from India — on the other hand, India needs $115 billion worth of goods every year from China to keep various parts of its economy going. All those who were advocating that manufacturing is less relevant to nation-building in a globalised economy need to offer an explanation to the chokehold China has come to acquire. The answer of course is more local manufacturing, especially of critical items, which should come as a surprise.

Forty years ago, the dominant economic prescription was a heady cocktail of free-market principles: Open competition, minimal government interference, low tariff barriers, and financial liberalisation. This marked a decisive triumph of free-market ideology over state-led planning. Well, this manner of thinking appears to have come full circle now: Tariff barriers are up and government intervention is strongly shaping economic forces. United States President Donald Trump wants to reshore manufacturing, from steel to electronics to drugs. His predecessor, Joe Biden, had doubled down on vast subsidies for semiconductors and green technologies. Britain is discussing subsidising energy bills of manufacturers, and India has been offering incentives to boost local manufacturing in 17 sectors. Indonesia is mandating "local content" in foreign investments in manufacturing — with its vast nickel reserves, it aspires to be an EV powerhouse.