: Opinion: Reposition Industrial Policy #IndiaNEWS #News By B Sambamurthy Hyderabad: In the post-war era (WW II) many countries in the underdeveloped world and those battered by the war deployed Industrial

Opinion: Reposition Industrial Policy #IndiaNEWS #News
By B Sambamurthy
Hyderabad: In the post-war era (WW II) many countries in the underdeveloped world and those battered by the war deployed Industrial Policy (IP) as a strategic intervention by the state to accelerate economic development. South Korea, Japan, Germany, Taiwan and many more have succeeded and became highly industrialised countries. China, a full-blown communist country, started late but surpassed all these countries. Its communism did not come in the way of the build-up of global-scale private sector companies, an innovative ideological tweak. Similarly, our democracy cannot be a constraint for faster economic development through mature management of social and class frictions.
India’s tryst with industrial policy began well with the creation of high capital-intensive heavy industries. It crowded in private sector investment. But it did not sustain for long. Fiscal/monetary policies crowded out private investment. Besides, the policy was plagued by political capture, rent-seeking, picking winners and controlling the commanding heights of the economy for too long (ideological). It is no surprise that our performance has been suboptimal.
The economic reforms of 1991 marked a decisive shift towards a market economy. Industrial policy as a strategic tool was abandoned and this was replaced by the manufacturing process. But even then, the success is largely limited to a few industries like automobiles and pharma. IT is a different story. Infra has been a patchy success.
Industry Policy 2. 0
The global economic trajectory over the last two decades faced a lot of challenges like growing inequalities, frequent and massive market failures, jobless growth, transition to low-carbon economy, increasing financialisation of productive activities, and regional economic and trade arrangements. Moreover, the global power dynamics affected the creation, capture and distribution of economic and financial value.
Over the last few years, there has been a lot of academic research and empirical evidence on the usefulness of industrial policies. Dialogues at Columbia University provide enough policy inputs.
Prof Dani Rodrik of Harvard University and bestselling author on this subject, while arguing the case in favour of a new industrial policy that is more about governance and institutional design, also tackles the ills in the earlier editions like political capture and rent-seeking. The new policy is more about letting the failures/inefficiency go rather than picking the winners.
Countries as diverse as China to the US actively pursue industrial policies in one shade or the other and tweak them regularly to benefit by participating in the global production networks.

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