Chapter-8: Industry and Infrastructure
- What are the various measures taken by government of India to improve ease of doing business?
- What are survey notes on Credit growth?
- What are survey notes on Foreign Direct Investment?
- What are survey notes on Ease of Doing Business?
- What are key initiatives taken by the Government to boost industrial performance?
- What were reasons for under-investment in infrastructure sector until the recent past?
- What are survey notes on Infrastructure – Roads?
- What are survey notes on Civil Aviation?
- What are major initiatives to improve the performance of Major Ports?
- What are survey notes on Energy Sector?
- What are survey notes on Indian Logistics sector?
- What are survey notes on National Gas Grid?
- What are survey notes on LPG Connections to BPL Houses- Pradhan Mantri Ujjwala Yojana?
What are the various measures taken by government of India to improve ease of doing business?
India has leapt 30 ranks over its previous rank of 130 in the World Bank’s latest Doing Business Report 2018. Credit rating company Moody’s Investors Service has also raised India’s rating from the lowest investment grade of Baa3 to Baa2.
This has been made possible due to a host of measures undertaken by the Government including implementation of the Goods and Services Tax, Insolvency and Bankruptcy Code, introduction of inflation targeting regime and announcement of bank recapitalization. Other measures to facilitate ease of doing business include initiation and simplification of online application for Industrial License and Industrial Entrepreneur Memorandum, integration of twenty services with the eBiz portal which functions as a single window portal for obtaining clearances from various Government agencies, limiting the number of documents required for export and import to three by DGFT.
What are survey notes on Credit growth?
Nominal credit growth (y-o-y) to industry turned positive to 1per cent in November 2017 for the first time after witnessing negative growth since October 2016. Lower credit supply can be attributed to impaired balance sheets of public sector banks due to higher Non Performing Assets but it could also reflect weak demand for credit. The Government has recently announced bank recapitalisation to the tune of Rs. 2.11 lakh crore. The move is aimed at easing the balance sheets of the public sector banks, conditional on cleaning up their balance sheets, thereby helping banks to accelerate the pace of credit disbursement.
What are survey notes on Foreign Direct Investment?
Foreign Direct Investment (FDI) has been an important source of financing for the economy. FDI policy reforms announced in 2016 brought most of the sectors under automatic approval route, except a small negative list. Total FDI inflow grew by 8 per cent i.e. US$ 60.08 billion in 2016-17 in comparison to US$ 55.56 billion of the previous year. It is the highest ever for a particular financial year. In 2017-18, till September, the inflow of total FDI was to the quantum of US$ 33.75 billion.
- In terms of share in FDI Equity inflows, Mauritius, Singapore and Japan have been top three countries in India contributing 36.17 per cent, 20.03 per cent and 10.83 per cent of the total FDI Equity Inflows during 2016-17.
- In terms of the Sectors receiving FDI Equity inflows, Services (Finance, Banking, Insurance etc.), Telecommunications and Computer Software & Hardware have been the top three sectors with a share of 19.97 per cent, 12.80 per cent and 8.40 per cent respectively.
What are survey notes on Ease of Doing Business?
The year 2017-18 has been remarkable for India’s global image as a promising investment destination. In recognition of the reforms carried out by the Government, Moody’s Investor Service upgraded India’s sovereign credit rating to Baa2 from the lowest investment grade of Baa3 after a period of 13 years.
India ranked 100 among 190 countries assessed by the Doing Business Team in the Ease of Doing Business Report, 2018 with an improvement of 30 ranks over its rank of 130 in the Ease of Doing Business Report 2017. India saw an improvement in six out of ten indicators namely – Dealing with construction permits, getting credit, protecting minority investors, paying taxes, enforcing contracts and resolving insolvency
These improvements in rankings have been a result of various reform measures undertaken by the Government including Structural and deep-seated reforms such as Goods and Services Tax (GST) and Insolvency and Bankruptcy Code (IBC); reforms aimed at strengthening India’s institutions – Demonetization, mechanism for inflation targeting via the Monetary Policy; progress in Aadhaar enrollment and use in targeted delivery of benefits; and announcement of the Government’s decision for recapitalization of public sector banks.
Improved ratings had an immediate positive impact on economic indicators. The immediate impact was seen in terms of the Daily Sensex rising roughly 700 points in a span of few days .The immediate impact was also visible in terms of the rupee appreciation reflecting better investment sentiment and expectations. The rating upgrade is also expected to reduce the cost of borrowing for the Indian Government.
However, there are several reforms and simplifications already complete but still to be acknowledged by the Ease of Doing Business Team (EoDB). Some of them include:
- Construction Permits – Municipal Corporation in Mumbai and Delhi have reduced the number of procedures to 8. Likewise, the time frame for approvals during the construction cycle of a building has brought down to 60 days.
- Resolving Insolvency – Reorganization of procedure for corporate debtors through insolvency eco-system, namely, National Company Law Tribunal (NCLT), National Company Law Appellate Tribunal (NCLAT), Insolvency Professionals (IP), Insolvency Professional Agency (IPA), Insolvency Professional Entity (IPE), and Insolvency and Bankruptcy Board of India has been carried out.
- Trading Across Border – Various steps have been undertaken to simplify trade. Noteworthy among these include online message exchange system for import clearances of agricultural commodities; limiting the number of documents for import and export to 3; establishment of Import Data Processing and Management System (IDPMS) for data processing for payment of imports and effective monitoring; and reduction in the “Gate in” time period for export containers from 5 days to 4 days.
- Enforcing Contracts– Various reforms have been undertaken to improve the enforcement of contracts. Maharashtra and Delhi High Court have established Commercial Division benches and Commercial Appellate Division benches.
- Getting Credit – The amended SARFAESI Act 2002 provides priority to secured creditors to be paid first over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
- Paying Taxes – The Government has introduced project ‘RAPID- revenue, accountability, probity, information and digitalization’ for administrating the tax reforms to make tax compliances more taxpayer-friendly, transparent with the aim of widening the tax base.
What are key initiatives taken by the Government to boost industrial performance?
Make in India
- The ‘Make in India’ programme was launched on 25th September 2014 which aims at making India a global hub for manufacturing, research & innovation and integral part of the global supply chain.
- The Government has identified ten ‘Champions sectors’ that have potential to become global champion, drive double digit growth in manufacturing and generate significant employment opportunities. The sectors have been identified for renewed focus under the Make in India version 2.0 including Capital goods, Auto and Auto Components, Defence & Aerospace, Biotechnology, Pharmaceuticals and Medical Devices, Chemicals, Electronic System Design & Manufacturing (ESDM), Leather & Footwear, Textiles & Apparels, Food Processing, Gems & Jewellery, New & Renewable Energy, Construction, Shipping and Railways.
Intellectual Property Rights (IPR) Policy
- In May, 2016, Government for the first time adopted a comprehensive National Intellectual Property Rights (IPR) policy to lay future roadmap for intellectual property.
- This aims to improve Indian intellectual property ecosystem, hopes to create an innovation movement in the country and aspires towards “Creative India; Innovative India”. Subsequent to the approval of this policy and creation of Cell for Intellectual Property Rights Promotion and Management (CIPAM), there has been a substantial improvement in the IPR and Patent handling matters
- In order to promote innovation and entrepreneurship among enterprising youth of our country, the Hon’ble Prime Minister of India had announced the “Startup India, Standup India” initiative on Independence Day (15th August 2015). The initiative aims to create an ecosystem that is conducive to growth of Startups.
- An Action Plan for Startup India comprising 19 action points was unveiled on 16th January, 2016. Government has acknowledged the need to reduce the regulatory burden on Startups and have allowed them to self-certify compliance under 3 labour laws and 6 environment laws.
- The initiative allows Startups to focus on their core business and keep compliance cost low. Startup India hub has been developed as a single point of contact for the entire Startup ecosystem and enables knowledge exchange along with access to funding. In order to provide support, a Fund of Funds for Startups (FFS) with a corpus of 10,000 crores has been created and is being managed by SIDBI.
- Several steps have also been taken to promote Industry-Academia Partnership and Incubation. With an aim to foster and facilitate Bio-entrepreneurship, Bio-clusters, Bio-Incubators, Technology Transfer Offices (TTOs) and Bio-Connect, offices are being established in research institutes and universities across India. Seed Fund and Equity Funding support is also provided to bio-tech Startups under the initiative.
The share of MSME Sector in the country’s Gross Value Added (GVA) is approximately 32 per cent. MSMEs in India play a crucial role in providing large scale employment opportunities at comparatively lower capital cost than large industries and also in industrialization of rural & backward areas. As per the National Sample Survey (NSS) 73rd round, for the period 2015-16, there are 633.8 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities providing employment to 11.10 crore workers.
The MSME sector faces a major problem in terms of getting adequate credit for expansion of business activities. Latest data on credit disbursed by banks shows that out of a total outstanding credit of Rs. 26041 billion as in November 2017, 82.6 per cent of the amount was lent to large enterprises. The MSME received only 17.4 per cent of the total credit outstanding. Growth of credit to Micro and Small enterprises increased by 4.6 per cent, while credit to Medium enterprises decreased by 8.3 per cent
The major schemes implemented for the development of MSME sector are as follows:
- Prime Minister’s Employment Generation Programme (PMEGP) is aimed at generating self-employment opportunities through establishment of micro-enterprises in the non-farm sector by helping traditional artisans and unemployed youth.
- Credit Guarantee Scheme for Micro and Small Enterprises covers collateral free credit facility (term loan and/or working capital) extended by eligible lending institutions including Non-Banking Financial Company (NBFC) to new and existing micro and small enterprises up to 200 lakh per borrowing unit.
- Credit Linked Capital Subsidy Scheme (CLCSS) aims at facilitating technology upgradation of the MSME sector.
- The Government has also initiated the Pradhan Mantri Mudra Yojana for development and refinancing activities relating to micro industrial units. The purpose of Micro Units Development and Refinance Agency (MUDRA) is to provide funding to the non-corporate small business sector. The Government has also set up the MUDRA Bank. Loans extended under the Pradhan Mantri Mudra Yojana (PMMY) during 2016-17 have crossed the target of 1.8 lakh crore. Of this amount, Rs. 1.23 lakh crore was lent by banks while non-banking institutions lent about Rs. 57,000 crore. In December 2017 total number of borrowers were 10.1 crore, out of which 7.6 crore were women.
Initiatives taken in Textiles sector
Cabinet announced a Rs. 6000 crore package for the apparel sector on 22nd June 2016. Major components of the package included enhanced subsidy under Amended Technology Upgradation Fund Scheme for concessional import of machinery from 15 per cent to 25per cent (conditional on firms generating requisite employment); implementation of Rebate of State Levies on Export( RoSL) for state levies which were not refunded through duty drawback earlier; Government to bear 12 per cent of the employers’ contribution of the full EPFS for new workers; increasing overtime caps in line with ILO norms; and introduction of fixed term employment.
The Government has in December 2017 approved the scheme for Capacity Building in Textile Sector (SCBTS). The scheme will be applicable from 2017-2018 to 2019-2020 with an outlay of Rs. 1,300 crore. It shall have the National Skill Qualification Framework (NSQF) compliant training courses, with funding as per the common norms notified by Ministry of Skill Development and Entrepreneurship (MSDE).
What were reasons for under-investment in infrastructure sector until the recent past?
- There was massive under-investment in infrastructure sector until the recent past when the focus shifted to invest more on infrastructure. The reasons behind the shortfall in investment were: collapse of Public Private Partnership (PPP) especially in power and telecom projects; stressed balance sheet of private companies; issues related to land & forest clearances.
- The need of the hour is to fill the infrastructure investment gap by financing from private investment, institutions dedicated for infrastructure financing like National Infrastructure Investment Bank (NIIB) and also global institutions like Asian Infrastructure Investment Bank (AIIB), New Development Bank (erstwhile BRICS Bank) which is focusing more on sustainable development projects and infrastructure projects.
What are survey notes on Infrastructure – Roads?
- National Highways (NHs) /Express Ways in India accounted for 2.06 per cent of the total road length.
- India’s road density at 1.66 km/sq.km of area was higher than that of Japan (0.91 km/ sq km),
- The surfaced road length in India was 61 per cent of the total road length which was much lower as compared to United Kingdom (100 per cent), Korea (83 per cent) Russia (71 per cent) and China (68 per cent).
- The largest share in the road network in India is of rural roads (61 per cent). Other PWD Roads accounted for the second highest share (20 per cent), Urban Roads (9 per cent), Project Roads (5 per cent), SHs (3 per cent) and NHs (2 per cent) in the year 2015.
Initiatives taken to improve roads
- In order to facilitate implementation of the projects, Hybrid Annuity Model (HAM) instead to Engineering, Procurement and Construction (EPC) has been adopted.
- Capital expenditure is deferred under HAM (and requires lesser amount of funds during construction years in comparison to projects on EPC mode.
- Further, initiatives such as monetization of projects through the Toll-Operate in Transfer model, securitization of toll revenue, adopting the ‘Infrastructure Investment Trusts route, other innovative financing options including LIC, Long Term Pension Funds etc. have been taken to attract fresh capital from the market on the strength of already operational projects.
- With proactive policy interventions, around 88 per cent of these projects have now been put back on track, or appropriately re-engineered and restructured and the total number of stalled projects have been reduced to three.
- Bharatmala Pariyojana is a new umbrella program for the highways sector that focuses on optimizing efficiency of freight and passenger movement across the country by bridging critical infrastructure gaps through effective interventions like development of Economic Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Border and International connectivity roads, Coastal and Port connectivity roads and Green-field expressways.
- A total of around 24,800 km are proposed to be constructed in Phase I. In addition, Phase I also includes 10,000 km of balance road works under NHDP.
- Estimated outlay for Phase I is 5,35,000 crore. The objective of the program is to achieve optimal resource allocation for a holistic highway development/improvement initiative.
Hybrid Annuity Model (HAM)
- Hybrid Annuity Model (HAM) is a combination of two models i.e., the EPC (Engineering, Procurement and Construction) model and BOT – Annuity (Build, Operate, Transfer) model. Under the EPC model, the private players construct the road and have no role in the road’s ownership, toll collection or maintenance. National Highways Authority of India (NHAI) pays private players for the construction of the road. The Government with full ownership of the road, takes care of toll collection and maintenance of the road.
- Under the BOT model private players have an active role in road construction, operation and maintenance of the road for a specified number of years as per agreement. After the completion of the years of operation, the private players transfer the asset back to the Government. Under BOT, the private players arrange all the finances for the project, while collecting toll revenue (BOT toll model) or annuity fee (BOT annuity model) from the Government, as agreed. In the BOT annuity model, the toll revenue risk is taken by the Government. The Government pays private player a pre-fixed annuity for construction and maintenance of roads.
- HAM combines EPC (40 per cent) and BOT-Annuity (60 per cent) Models. On behalf of the Government, NHAI releases 40 per cent of the total project cost, in five tranches linked to milestones. The balance 60 per cent is arranged by the developer. The developer usually invests not more than 20-25 per cent of the project cost, while the remaining is raised as debt.
- In BOT toll model, the private players did not show their willingness to invest, since they had to fully arrange for the entire finances, either through equity contribution or debt. NPA-riddled banks were reluctant to lend to these projects. Since there was no compensation structure such as annuity, the developers had to take entire risk in low traffic projects. The essence of HAM model arose due to requirement of better financial mechanism where the risk would be spread between developers and the Government.
What are survey notes on Civil Aviation?
India is the 3rd largest and the fastest growing domestic aviation market in the world in terms of number of domestic tickets sold. Key observations on Civil Aviation sector are as follows:
Regional Connectivity Scheme – ‘Ude Desh ka Aam Naagrik’ (RCS-UDAN)
- To make flying accessible and affordable for the masses in the regionally important cities, the RCS-UDAN scheme was launched in October 2016. This is a first-of-its-kind scheme globally to stimulate regional connectivity through a market-based mechanism. 27 States/UTs have already signed MOUs with the Central Government under RCS-UDAN. Many private sector airlines are actively participating under this scheme.
- Provision of 4,500 crore for revival of 50 unserved and underserved airports/air strips has been taken up with budgetary support of Government to be completed by December 2018. Revival of airstrips/airports will be ‘demand driven’, depending upon firm commitment from airline operators as well as from the State Governments.
- Government has granted in-principle approval for setting up 18 Greenfield airports in the country, which include Mopa in Goa, Navi Mumbai, Shirdi and Sindhudurg in Maharashtra, Bengal, Dabra in Madhya Pradesh, Pakyong in Sikkim, Karaikal in Puducherry, Kushinagar in Uttar Pradesh, Dholera in Gujarat, and Dagadarthi Mendal, Bhogapuram, and Oravakallu in Andhra Pradesh. Government has granted “site clearance” for 5 Greenfield airports: Machiwara in Punjab, Itanagar in Arunachal Pradesh, Jamshedpur in Jharkhand, Alwar in Rajasthan and Kothagudem in Telangana.
Liberalization of Air Services
- India-Afghanistan Air freight Corridor: The decision to establish an Air Freight Corridor between Afghanistan and India was taken in September 2016. The Corridor will provide Afghanistan, a landlocked country, greater access to Indian market especially for perishables, and will allow Afghan businessmen to leverage India’s economic growth and trade networks for its benefit.
What are major initiatives to improve the performance of Major Ports?
- Major Ports have been benchmarked to international standards and 116 initiatives were identified of which 86 initiatives have been implemented and remaining will be implemented by 2019.
- Major Ports Authorities Bill, 2016 to replace Major Ports Trust Act, 1963 to modernise the institutional structure of Major Ports has been introduced in the Parliament on 16.12.2016. Subsequently, referred to the departmental standing committee that submitted its report in July 2017.
- Radio Frequency Identification System (RFID) to reduce dwell time, transaction time and ease congestion has been operationalized in 9 Major Ports. The remaining Major Ports are in the process of operationalising RFID which would be completed by March, 2018.
- Direct port delivery and direct port entry initiated at Major Ports for EXIM containers.
The Sagarmala programme is the flagship programme of the Ministry of Shipping to promote port-led development in the country through harnessing India’s 7,500 km long coastline, 14,500 km of potentially navigable waterways and strategic location on key international maritime trade routes. The main vision of the Sagarmala Programme is to reduce logistics cost for international and domestic trade, with minimal infrastructure investment. Under the Sagarmala Programme, 508 projects at an estimated investment of more than Rs. 8 Lakh Crore have been identified for implementation over the next 20 years. Of these, 289 Projects worth Rs. 2.17 Lakh Crore are under various stages of implementation and development. These projects are being implemented primarily through the private players or PPP mode.
Inland Waterways Transport (IWT)
- The ‘Jal Marg Vikas Project’ on National Waterways-I (NW-I) in river Ganga, a large integrated IWT project, has been launched between Varanasi and Haldia covering a distance of 1380 kms at an estimated cost of 5369 crore. On NW-2 (River Brahmaputra), Ro-Ro services have commenced between Dhubri and Hatsingimari in July 2017 on an Inland Waterways Authority of India (IWAI) vessel. Further, under the National Waterways Act, 2016, 106 additional inland waterways have been declared as National Waterways (NWs). Based on techno economic studies, eight new NWs have been taken up for development in 2017-18.
- These include, NW-16 (Barak river); three in Goa viz. NW- 27:Cumberjua, NW 68 – Mandovi , NW 111 – Zuari; NW-86 ( River Rupnarayan) ; NW 97 (Sunderbans); NW-9 (Alappuzha–Kottayam– Athirampuzha Canal) and NW-37 (River Gandak). In order to reduce the logistics cost of cargo and facilitate passenger movement between North East and mainland, MOUs have been signed with Bangladesh.
What are survey notes on Energy Sector?
- A new scheme, Saubhagya (Pradhan Mantri Sahaj Bijli Har Ghar Yojana), was launched in September 2017 to ensure electrification of all remaining willing households in the country in rural and urban areas with an outlay of 16320 crore. The scheme envisages electrification of around 4 crore households that do not have electricity connection by March 2019.
- For unelectrified households located in remote and inaccessible areas, solar photo voltaic based standalone systems with power packs of 200-300 Watt with battery backup are to be provided to allow maximum of 5 LED Lights, one DC fan, one DC power plug along with repairment and maintenance for five years. The prospective beneficiary households would be identified using Socio Economic Caste Census (SECC) 2011.
- Lighting itself accounts for about 20 per cent of the total electricity consumption in India. A number of initiatives have been taken up by the Government to ensure commercial energy efficiency in the country including the following:
- National LED programme: A programme for promoting use of the most efficient lighting technology at affordable rates was launched in January 2015. The programme includes two components (a) Unnat Jyoti by Affordable LED for All (UJALA) providing LED bulbs to domestic consumers with a target to replace 77 crore incandescent bulbs with LED bulbs and (b) Street Lighting National Programme (SLNP) to replace 1.34 crore conventional street lights with smart and energy efficient LED street lights by March 2019.
- In addition, the Bureau of Energy Conservation is simultaneously taking up number of programmes for energy conservation including standardisation and labelling of appliances, buildings, passenger cars and heavy duty vehicles etc.
What are survey notes on Indian Logistics sector?
The Global Ranking of the World Bank’s 2016 Logistics Performance Index shows that India jumped to 35th rank in 2016 from 54th rank in 2014 in terms of overall logistics performance. Apart from increasing trade, better performance in logistics will augment the programme like Make in India, and also enable India to become an important part of the global supply chain. India has improved its rank in all the six components of logistics performance index.
Realizing the importance of the sector and to address the inefficiencies, the Government has included the Logistics sector in the Harmonized Master List of Infrastructure Subsector. Inclusion of Logistics Sector in the Harmonized Master List of Infrastructure Subsector will benefit the sector in many ways as follows:
- It will be helpful in facilitating the credit flow into the sector with longer tenures and reasonable interest rates.
- The infrastructure status will simplify the process of approval for construction of multimodal logistics (parks) facilities that includes both storage and transport infrastructure.
- It will encourage market accountability through regulatory authority and will attract investments from debt and pension funds into recognized projects.
What are survey notes on National Gas Grid?
Government has envisaged developing an additional 15,000 km long pipeline network to have an ecosystem of National Gas Grid in the country. The Government has approved partial capital grant of Rs. 5,176 Crore (40 per cent of the estimated capital cost of Rs. 12,940 Crore) in September 2016 to GAIL for constructing 2650 km Jagdishpur-Haldia & Bokaro-Dhamra Pipeline (JHBDPL) natural gas pipeline project, popularly known as Pradhan Mantri Urja Ganga of Eastern India.
This project will connect Eastern part of the country with National Gas Grid and will ensure the availability of clean and eco-friendly fuel, Natural Gas, to the industrial, commercial, domestic and transport sectors in the States of Uttar Pradesh, Bihar, Jharkhand, Odisha and West Bengal. These pipeline Projects would support the revival of 3 Fertilizer Plants namely Gorakhpur (U.P.), Barauni (Bihar) and Sindri (Jharkhand) along the route of these pipeline projects.
What are survey notes on LPG Connections to BPL Houses- Pradhan Mantri Ujjwala Yojana?
Under Pradhan Mantri Ujjwala Yojana (PMUY), 5 crore LPG connections are targeted to be provided to BPL families with a support of Rs. 1600 per connection by 2018-19. The scheme is aimed at replacing the unclean cooking fuels mostly used in rural India with the clean and more efficient LPG (Liquefied Petroleum Gas).