Industrial Policy for Strategic Sectors
Indian Economy
- PYQs5
- Articles1
Background
This concept is vital for understanding India's economic development strategy, self-reliance initiatives (Atmanirbhar Bharat), trade policy, and the government's role in market intervention to manage strategic vulnerabilities in critical sectors like pharmaceuticals and emerging technologies (AI).
Industrial policy refers to government interventions aimed at promoting specific industries or sectors to achieve economic and strategic objectives, such as fostering domestic manufacturing, enhancing competitiveness, and reducing reliance on foreign supply chains in critical areas.
Facts & tables
- PLI Scheme Example
- The Production-Linked Incentive (PLI) scheme is an industrial policy in India to promote domestic manufacturing of bulk drugs, aiming to reduce dependence on China.
- Challenges of Implementation
- NITI Aayog's assessment shows India still sources 65% of critical pharma ingredients from China, indicating that industrial policies create footholds but not instant resilience.
- Application to AI
- India needs similar strategic interventions in AI to deepen backward linkages to frontier AI and strengthen forward linkages to global markets, mirroring efforts to manage pharma dependencies.
- Government's Role in Risk Underwriting
- The government should help underwrite geopolitical and concentrated technological risks (e.g., through export credit, hybrid-annuity models) that private firms cannot efficiently bear alone.
| Mechanism | Purpose |
|---|---|
| Export Credit | Insures firms against geopolitical risks in international trade. |
| Hybrid-Annuity Models | State funds part of long-gestation infrastructure projects, making fixed payments to reduce private capital risk. |
| Production-Linked Incentive (PLI) | Provides incentives for domestic manufacturing to reduce import dependence and boost exports. |
| Type | Reference |
|---|---|
| Conceptual area | External Sector & Capital Flows |
| Conceptual area | Fiscal Policy & Public Debt |
| Body | Role |
|---|---|
| Niti Aayog | Assesses policy impact |
Prelims angle
Prelims angle: Policy measures
Prelims angle: Multi-statement analysis
- Industrial policy: Government interventions to promote specific industries for economic/strategic goals.
- PLI scheme: Key example in India to boost domestic manufacturing (e.g., bulk drugs).
- Challenge: Policies create footholds but require sustained effort for full resilience (e.g., pharma dependence on China).
- Government's role: Underwrite geopolitical and concentrated technological risks for private firms (e.g., export credit, hybrid-annuity models).
- Application to AI: Need for similar strategic interventions to build domestic AI capabilities and reduce foreign dependence.
| Year | Framing tags |
|---|---|
| 2023 | Multi-statement analysis, Factual recall |
| 2021 | Multi-statement analysis, Conceptual understanding |
| 2019 | Conceptual understanding, Multi-statement analysis |
| 2017 | Terminology-based question, Conceptual understanding |
| 2016 | Policy measures, Multi-statement analysis |
Timeline
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External Sector & Capital Flows
Conceptual area
-
Fiscal Policy & Public Debt
Conceptual area
-
Prelims 2016
Policy measures, Multi-statement analysis
-
Prelims 2017
Terminology-based question, Conceptual understanding
-
Prelims 2019
Conceptual understanding, Multi-statement analysis
-
Prelims 2021
Multi-statement analysis, Conceptual understanding
-
Prelims 2023
Multi-statement analysis, Factual recall
-
Reimagining sovereign AI for India’s strategic future
Industrial policy, exemplified by PLI in pharma, aims to build domestic capabilities and reduce strategic dependence. While effective in creating footholds, it requires sustained effort and government support to underwrite risks, especially in emerging strategic sectors like AI.
See also
No related topics linked yet.
Past papers
2016–2023 · 3 questions
In the news
Reimagining sovereign AI for India’s strategic future
Industrial policy, exemplified by PLI in pharma, aims to build domestic capabilities and reduce strategic dependence. While effective in creating footholds, it requires sustained effort and government support to underwrite risks, especially in emerging strategic sectors like AI.
Try these PYQs
What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and 'Gold Monetization Scheme'?
1. To bring the idle gold lying with India households into the economy
2. To promote FDI in the gold and jewellery sector
3. To reduce India’s dependence on gold imports
Select the correct answer using the code given below:
Statement 1 is correct: This is the primary objective of the Gold Monetization Scheme (GMS). The scheme encourages individuals and institutions to deposit their idle physical gold (jewellery, coins, bars) with banks. This gold is then melted, assayed, and added to the country's gold reserves, which can be lent to jewellers, thereby bringing it into the formal economy. Statement 2 is incorrect: These schemes are focused on managing domestic gold supply and demand. They are not designed to attract Foreign Direct Investment (FDI). Policies related to FDI in the jewellery sector are separate from these schemes. Statement 3 is correct: This is a core objective of both schemes.
* The Sovereign Gold Bond (SGB) Scheme provides a financial alternative to buying physical gold. By shifting demand from physical gold to paper gold, it helps reduce the demand for gold imports.
* The Gold Monetization Scheme (GMS) increases the domestic supply of recycled gold available to jewellers, thus reducing their reliance on imported gold. Both schemes aim to curb gold imports, which are a major component of India's import bill and contribute significantly to the Current Account Deficit (CAD).
Consider the following statements :
Statement-I : India accounts for 3.2% of global export of goods.
Statement-II :Many local companies and some foreign companies operating in India have taken advantage of India's 'Production-linked Incentive' scheme.
Which one of the following is correct in respect of the above statements?
* Statement I is incorrect: India's share in global merchandise trade is only 1.8% and 4% in global services. India plans to increase its export share in global trade from 2.1% to 3% by 2027 and 10% by 2047. * Statement II is correct: The PLI scheme is open to both domestic and international manufacturers. Samsung as well as Indian firms such as Dixon Technologies, UTL, Neolyncs, Lava International, Optiemus Electronics and Micromax are also expanding their factories to take advantage of the PLI scheme.
The term ‘Domestic Content Requirement’ is sometimes seen in the news with reference to -
Domestic Content Requirement (DCR) is a policy tool used by governments to encourage local industries to grow and reduce dependence on imports. In the context of solar power production, DCR mandates that a certain percentage of solar equipment used in the production process must be domestically produced. This policy is aimed at promoting indigenous manufacturing and reducing dependence on imports.
In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
1. The foreign currency earnings of India’s IT sector
2. Increasing the government expenditure
3. Remittances from Indians abroad
Select the correct answer using the code given below.
Statement 1 is correct: Foreign currency earnings - The IT sector generates foreign exchange through exports of services. This increases the supply of foreign currency reserves, making it easier to defend the rupee's value in the foreign exchange market during times of stress. Statement 2 is incorrect: While government spending can stimulate economic growth, it can also lead to a higher budget deficit. If the deficit is financed by excessive borrowing, it can put pressure on the currency if investors lose confidence in the government's ability to repay its debts. Statement 3 is correct: Remittances from abroad - When Indians working abroad send money back home, it adds to the inflow of foreign currency. This strengthens the country's foreign exchange reserves and provides a buffer against external shocks. Therefore, the correct code is 1 and 3 only.
India Government Bond Yields are influenced by which of the following?
1. Actions of the United States Federal Reserve.
2. Actions of the Reserve Bank of India.
3. Inflation and short-term interest rates.
Which of the statements given above is/are correct?
Statement 1 is correct: The Federal Reserve's monetary policy decisions, particularly regarding interest rates, can impact global capital flows. If the Fed raises interest rates, it can make US investments more attractive, potentially leading to some outflow of capital from India. This could affect demand for Indian government bonds and influence their yield. Statement 2 is correct: The RBI's monetary policy plays a crucial role in influencing Indian government bond yields. The RBI's actions like setting repo rates, open market operations, and cash reserve ratio (CRR) can affect the overall liquidity in the banking system. Higher liquidity can lead to lower yields, and vice versa. Statement 3 is correct: Inflation expectations and short-term interest rates are important factors for investors when considering the return on government bonds. Higher inflation expectations can lead investors to demand higher yields to compensate for the potential erosion of purchasing power. Similarly, short-term interest rates can act as a benchmark for bond yields. Therefore, all three factors significantly influence the yields of Indian government bonds.