The Uses of Adversity

IN A NOISY DEMOCRACY like India, it is hard to carry out reforms through ‘normal’ poli­cymaking processes. It takes a crisis to make the necessary changes. At such a time, the usual political calculus—that of the government and, more importantly, the Opposition and the special interests that block reforms—is in flux. This allows the necessary space to undertake the neces­sary reforms.

The present conjunc­ture, with US’ tariff threats and global markets in flux, presents a rare opportunity to make the changes that have eluded India for long. Such an opportunity may not arise again anytime soon.

There are two areas where India should seize the moment and do what is necessary. On the economic front, India must expand the Production-Linked Incen­tives (PLI) scheme along with much needed reforms to en­sure that private investment is not stymied. Much of the heavy lifting on increasing capital expenditure has been done by the Centre. There are, however, a finite number of projects on which the Centre can spend money.

After infrastructure and projects executed under Cen­trally-controlled Public Sector Undertakings (PSUs) are done, the ball has to pass on to the states. Here, there is a problem. Most states, especially the ones that are economically vi­tal, are run by the Opposition. In these states, the top priority is not investment and produc­tion but mopping up revenue to ensure that populist (and ruinous) economic ‘schemes’ can continue.

The Centre should leave these states alone and instead try something bold. It can shepherd a coalition of states that are willing to attract in­vestments—in competition to the usual destinations— and drastically simplify investment regulations for the private sector. This can work well: private investors get better opportunities to invest; capital starved states get manufacturing and other economically promising projects and India’s growth continues to remain on track.

The second area where India can use the opportunity presented by Trump is in de­fence projects. There is, clearly, a major risk that is now associated with depending on the Americans for key defence hardware. This is especially so in the case of jet engines for Indian fighter planes like Tejas Mark 1A and Tejas 2. India cannot substitute the American product with other foreign options, such as the ones offered by Rolls-Royce and Safran. The latter two are equally susceptible to Ameri­can arm-twisting. The Russian options—the experimental 177S and AL41, AL51 fam­ily—are not very appealing either. This is a chance for In­dia to commit a tidy sum (say, $10 billion) and throw the challenge to the private sector and upcoming tech compa­nies to develop a 110-140 Kilo Newton (KN) engine that can also be used for the AMCA jet. The same approach is needed to push for nuclear attack sub­marines, air defence systems and military applications of artificial intelligence (AI).

Done right—for example, by mission mode hand-hold­ing by the Prime Minister’s Of­fice—the results can catapult India into a higher economic trajectory where economic power and military prowess feed into a virtuous cycle of rising national power. The important part is Centralised hand-holding and freedom from the usual bureaucratic stifling. This has been done before in the case of ballistic missiles that were developed by such a process and bypass­ing bureaucratic controls.

The US is no longer a‘normal’ country where processes and decisions are carried out ratio­nally. It is futile to think that India can get a ‘deal’ that serves its interests even as it placates Trump. Not for the first time in its history, India stands alone. Unlike the past when it had virtually no strategic op­tions available to it, this time, its quiver is not empty. What India needs is will. Everything else will fall in place.

GDP growthIndian economyMade in IndiaNarendra ModipolicymakingProduction-Linked Incentivesrevenuetrade tariff