Question

In November 2015, the government of India formulated a policy for according preference to the government procurement of electronic goods that are manufactured domestically. This was commented by the press as 'India moves forward with its 'Make in India' campaign to promote economic strength and a more robust standing in the global market'. According to your analysis of Chapter 17, do you think the Indian government spending constrained by this national preference policy has a bigger effect on Indian output than unconstrained Indian government spending? What could happen if this policy is extended to all government spending?

Answer 1

National preference in government spending can aid domestic output, but it must be balanced with broader reforms and global trade dynamics to ensure sustainable economic development.

Step-by-step explanation:

The question asks whether the Indian government spending constrained by a national preference policy has a bigger effect on Indian output than unconstrained government spending. The Make in India campaign was designed to promote domestic manufacturing and economic strength. It's plausible that by favoring domestic over imported electronic goods, this policy could initially lead to a positive impact on domestic industries and employment by stimulating internal demand. However, it might reduce the competitiveness of domestic producers if they rely too heavily on government procurement rather than improving efficiency and innovation to compete in the global market.

Moreover, extending this policy to all government spending could have complex outcomes. It could boost various Indian industries but might also risk retaliation from trade partners, increased costs for government projects, and limited access to the best or most cost-effective technologies. An emphasis on improving the domestic capital market accessibility, as mentioned, may provide a complementary approach to strengthen the economy by nurturing entrepreneurship and employment.

In summary, while focused national preference policies can temporarily increase domestic output, they should be paired with market reform and international trade considerations to avoid negative long-term consequences.