Big Lesson From Small Nation

Import substitution cannot deliver “Make in India for the World”

- Arvind Panagariya & Deepak Mishra

In 2015, turning its back on trade liberalisation, India decided to promote the mobile phone industry through import substitution. The eventual goal of the switch was to make a success of “Make in India for the World”. Have we turned a corner as seems to be widely believed?

Imports of telephones had risen from $3.2 billion in 2009 to $7.5 billion in 2014 and have fallen to $2.2 billion in 2020. Alongside, exports had fallen from $3.5 billion in 2009 to $0.6 billion in 2014 and have risen to $3.0 billion in 2020.

No doubt, these numbers testify to the significant expansion of domestic production of telephones since 2015. But the success is rather modest when measured against what Vietnam, a country less than one-tenth of India’s size, has achieved. From just $0.9 billion in 2009, its telephone exports rose to $21.5 billion in 2014 and to $31.2 billion in 2020. Its electronic goods exports stood at $122 billion in 2020 against India’s $12.8 billion.

How has Vietnam achieved this success? Whereas Indian leaders routinely express regret at having signed free trade agreements (FTAs) even with countries accounting for a minuscule proportion of the country’s trade, tiny Vietnam has boldly embraced such economic giants as China and the European Union in FTAs. It also has FTAs with every single Asian country of any significance.