Many countries trust the quality and reliability of India’s vaccine more than Russia’s or China’s. India’s more transparent and less state-dominated economy enables a greater trust in the world.

In a global order that is set to de dominated by the United States and China, how can a middle power like India create a niche for itself? India’s ongoing “vaccine diplomacy” may provide a template. India has already supplied more than 5 million vaccines to its neighbouring countries—Bangladesh, Sri Lanka, Nepal, Bhutan and Myanmar—as well as additional quantities to other emerging economies like Brazil and some even to a rich country like Bahrain. The UN Secretary General Antonio Guterres has called India’s vaccine manufacturing capacity the “best asset in the world.” What, then, are the contours of the template?
1. Generosity: India is one of the worst affected countries in terms of the number of Covid-19 cases and must vaccinate 700 million people at a minimum. Its self-interest would dictate deploying every vaccine produced to its local population. Yet, even as the country goes about vaccinating the most vulnerable segments rapidly and sequentially, the government has decided to help the most vulnerable populations in our neighbouring countries and others, which will earn tremendous goodwill. If not governments (which change), then at least the people of these countries will remember than India helped in a most difficult time. Needless to say, it is only possible to be generous when you have plenty. In vaccines India does, but not in too many other sectors.
2. Trust: The fact is that all of India’s neighbours have the option to ask Russia or China to supply their indigenously developed vaccines. Let us for a moment assume that the Pfizer and Moderna versions are either too costly or require cold chains which are unavailable in much of the world (though neither Pfizer nor Moderna has even tried to get clearances in emerging countries including India). In the circumstances, many countries trust the quality and reliability of India’s vaccine more than Russia’s or China’s. India’s more transparent and less state-dominated economy enables a greater trust in the world. But, going forward, markets need deepening in every corner of the economy so that trust grows.
3. Private sector capacity: The Government of India is in a position to benefit from vaccine diplomacy only because Indian private sector companies are able to produce high quality vaccines on a large scale and very reasonable cost. None of the Government-owned companies/PSUs in the pharmaceutical/biotech space have even remotely the capacity to do so. It is time to accept that the private sector can do more for India’s strategic interests than an inefficient and slow public sector. It also worth noting that Indian manufacturers can produce top quality products at low prices; China does not have a monopoly. But again, for the moment, this is limited to a handful of sectors.
Of course, the template has worked well in the current context because the Indian pharmaceutical/biotech sector is more advanced and more competitive globally than most others. If the government wants to use this template to create a niche for India that will differentiate it from the big two, but also other middling powers, it has to recognize the primacy of the private sector, which is essentially about recognizing the skills of enterprise and innovation that the people of India have but are unable to use in India because of too many government controls and regulations.
If the call for an Aatmanirbhar Bharat is about empowering Indian entrepreneurs to become world beaters, the government is on the right track. Some limited protection, particularly from China, is an integral part of this strategy, but protection alone doesn’t lead to the creation of a world class economy. The pharmaceutical sector is top class because it has had to compete in world markets for long. The perverse policy of price control in domestic markets forced manufacturers to look for additional markets overseas, for which they had to aspire to be top quality.
Other sectors would need to achieve the same, but the government must remove all hurdles. It has done well by providing production-linked incentives in several sectors, including for active pharmaceutical ingredients which are concentrated in China, but these only neutralize to an extent, the additional costs imposed by policy distortions, whether in land markets, labour markets, capital markets, logistics or power. More fundamental reform is required. A strong and competitive private sector is India’s best leverage with the world.
The alternative would be to continue to believe that the Indian State and its agencies and companies will replicate the Chinese model or the broader East Asian model. In India’s democratic polity and redistributionist political economy, that is unlikely to happen.
There is an opportunity for India to combine the relative strengths of the US and China—private sector capacity and the capacity to produce quality goods at low prices respectively while eschewing the interventionism of the superpowers. It may be quite a nice niche to occupy.
Dhiraj Nayyar is Chief Economist, Vedanta.