Swadeshi for 21st century realities: Govt should foster an ecosystem for driving consumer preference

July 11, 2020 5:35 AM

Instead of forcing declaration of country of origin for products, govt should foster an ecosystem for driving consumer preference for a standards-driven Made in India brand.

As consumer choices aren’t being restricted, such certifications wouldn’t be against free trade or competition.As consumer choices aren’t being restricted, such certifications wouldn’t be against free trade or competition.

By Vasuki Nandan Mannem

The slogan of ‘Atmanirbhar Bharat’ has received considerable support from the general public, especially following China’s misadventures in Ladakh. These misadventures have indirectly made this an issue of boycotting Chinese products. However, boycotting is a fraught proposal since China is a crucial source of raw materials for local industries, like APIs in pharmaceuticals, components for electronics, etc. Further, many of our consumers wouldn’t be in a position to afford the alternatives.

Instead, Atmanirbhar Bharat must strive for an outward-driven yet self-sufficient economy rather than a mere inward-looking one. Unlike traditional import-substitution, atmanirbharta and trade need not be mutually exclusive. On the contrary, trade can provide an opportunity for greater indigenisation by increasing the market for Indian goods abroad. This would not only give an impetus to local production and employment, but also would provide a cushion to absorbs shocks in the economy when the global supply chains falter (as seen recently).

To this end, the government has undertaken numerous supply-side measures like production incentives, labour reforms, creating land banks for use by industry, etc. However, adequate efforts have not been made to promote consumers’ demand for Indian products. The Indian consumers today are showing an increasing preference for Indian products, with a greater sense of pride about supporting the ‘vocal for local’ call. However, due to a lack of disclosures from sellers and companies, it often is difficult for consumers to distinguish between imports and domestic products.

Thus, there exists asymmetry of information regarding product origins, which could affect consumer behaviour. One way to address this would be through a certification system for products ‘Made in India’ akin to ‘certified organic’, if certain standards related to local value-addition are met. The US has a similar system where the US FTC deals with the criteria for products to be labelled as ‘Made in USA’. This certificate would be strictly voluntary and available for any local or foreign brand undertaking production in India. Unlike recent guidelines mandating e-commerce products to declare the source of origin, the focus here is to brand and promote Indian products rather than singling out imports based on their origins.

These standards must reflect the realities of particular industries instead of a one size fits all approach. For example, 100% local value-addition is not possible in smartphone manufacturing, as India doesn’t have adequate capability to make microchips and other core components. So, the standards here would naturally have to be lower. Complementary to ‘Made in India’, an ‘Assembled in India’ certification having a lower threshold for local value-addition, could also be developed. Thus, foreign firms would not only have a cost incentive to assemble their items locally (supply-side measures), but also the possibility of higher demand from Indian consumers.

Simultaneously, awareness campaigns must be undertaken to inform consumers about these certifications. These measures would help create a ‘brand’ for Indian products both locally and globally. It would not only help the big Indian businesses, but also the MSMEs which presently lack recognition. However, the certification process must not be cumbersome, as it would undermine the ease of doing business. One way would be to grant certifications directly on the basis self-declarations by firm guaranteeing local value-addition. The verification would take place later (like tax returns) using analytics on data from GST filings, audits, etc; and penalties imposed only if claims were falsified.

As consumer choices aren’t being restricted, such certifications wouldn’t be against free trade or competition. It merely provides a new dimension of information to consumers on which they can base their decisions. A good analogy would be when some consumers prefer ‘eco-friendly certified’ products, despite being more expensive. This is because they are willing to pay a mark-up in order to be environmentally conscious (i.e. positive externality). Similarly, consumers might be willing pay more to promote local goods due to positive externalities like employment, poverty reduction, etc. Just as the demand for eco-friendly goods would also fall if the price is too high or the quality too low, so is the case here. So, this wouldn’t result in inefficiency, as the firms would have a strong incentive to be competitive and efficient. Thus, this could be a long-term alternative to short-term responses such as tariffs or boycotts, which could attract similar retaliation.

This idea of promoting local industries isn’t a new phenomenon. In fact, ‘Made in India’ or swadeshi was one of the hallmarks of our freedom struggle. However, instead of merely replicating the swadeshi of our past, we must fine-tune it to the realities of the 21st century.

The author is Research scholar, Delhi School of Economics

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