Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
[pib] Index of Industrial Production (IIP) grows by 5.7% in February, 2024
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Index of Industrial Production (IIP), Core Industries etc.
Mains level: NA
Why in the news?
India’s Index of Industrial Production (IIP) increased by 5.7% in February, up from 3.8% in January, according to data from the Ministry of Statistics and Programme Implementation (MoSPI).
What is Index of Industrial Production (IIP)?
- IIP as it is commonly called is an index that tracks overall manufacturing activity in different sectors of an economy.
- It is currently calculated using 2011-2012 as the base year.
- It is compiled and published by Central Statistical Organisation (CSO) every month.
- CSO operates under the Ministry of Statistics and Programme Implementation (MoSPI).
Components of IIP:
- Three broad sectors in IIP:
- Manufacturing (77.6%),
- Mining (14.4%)
- Electricity (8%).
- Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilizers are the eight core industries that comprise about 40 per cent of the weight of items included in the IIP.
Basket of products:
There are 6 sub-categories:
- Primary Goods (consisting of mining, electricity, fuels and fertilisers)
- Capital Goods (e.g. machinery items)
- Intermediate Goods (e.g. yarns, chemicals, semi-finished steel items, etc)
- Infrastructure Goods (e.g. paints, cement, cables, bricks and tiles, rail materials, etc)
- Consumer Durables (e.g. garments, telephones, passenger vehicles, etc)
- Consumer Non-durables (e.g. food items, medicines, toiletries, etc)
Who uses IIP data?
- The factory production data (IIP) is used by various government agencies such as the Ministry of Finance, the Reserve Bank of India (RBI), private firms and analysts, among others for analytical purposes.
- The data is also used to compile the Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP) on a quarterly basis.
IIP base year change:
- The base year was changed to 2011-12 from 2004-05 in the year 2017.
- The earlier base years were 1937, 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94 and 2004-05.
What are the Core Industries in India?
About Index of Eight Core Industries (ICI)
Components covered in these eight industries for compilation of index are as follows:
|
How is IIP different from ICI?
- IIP is compiled and published monthly by the National Statistics Office (NSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends.
- However, ICI is compiled and released by Office of the Economic Adviser (OEA), Department of Industrial Policy & Promotion (DIPP), and Ministry of Commerce & Industry.
- The Eight Core Industries comprise nearly 40.27% of the weight of items included in the Index of Industrial Production (IIP). These are Electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilisers.
PYQ:[2015] In the Index of Eight Core Industries, which one of the following is given the highest weight? (a) Coal Production (b) Electricity generation (c) Fertilizer Production (d) Steel Production |
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Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
[pib] GRID-INDIA is now a Miniratna Company
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Central Public Sector Enterprise (CPSE) and their Categorization
Mains level: NA
What is the news-
- Grid Controller of India Limited (GRID-INDIA) reached a significant milestone as it was honored with the prestigious status of Miniratna Category-I Central Public Sector Enterprise (CPSE) by the Ministry of Power.
About Grid Controller of India Limited (GRID-INDIA)
- Founding: Established in 2009, GRID-INDIA plays a vital role in ensuring the smooth operation of the Indian Power System.
- Mandate: GRID-INDIA is tasked with overseeing the seamless transfer of electric power within and across regions, facilitating transnational power exchanges, and ensuring reliability, economy, and sustainability in the power sector.
- Regional Load Despatch Centres (RLDCs) and NLDC: GRID-INDIA comprises five RLDCs and the National Load Despatch Centre (NLDC), collectively managing the All India synchronous grid.
- Functions: Managing one of the world’s largest and most intricate power systems, GRID-INDIA handles diverse challenges arising from the integration of power systems, rising energy demands, and the proliferation of Renewable Energy (RE) sources.
What are Central Public Sector Enterprises (CPSEs)?
- CPSEs are companies in which the central government holds a majority stake (usually more than 51%).
- These enterprises operate across various sectors, including manufacturing, infrastructure, energy, telecommunications, and financial services.
- CPSEs are governed by the Department of Public Enterprises (DPE) under the Ministry of Heavy Industries and Public Enterprises.
Within the CPSEs, there are further classifications based on their financial performance, operational autonomy, and strategic importance:
| Maharatna Companies | Navratna Companies | Miniratna Companies | |
| Categories | Single category | Single category | Two categories (Category-I and Category-II) based on the Autonomy |
| Eligibility Criteria | Annual turnover of ₹25,000 crore, net worth of ₹15,000 crore, and net profit of ₹5,000 crore over the last three years | A composite score of at least 60% based on various parameters such as net profit, net worth, total manpower cost, cost of production, PBDIT (Profit Before Depreciation, Interest, and Taxes) to turnover ratio, and other operational and financial parameters. | Satisfactory operational and financial performance, as per government guidelines |
| Operational Autonomy | High degree of operational autonomy and financial powers | Moderate degree of operational autonomy and financial powers | Limited operational autonomy and financial powers |
| Investment Authority | Authority to make strategic investments, undertake mergers and acquisitions, and form joint ventures or collaborations without seeking government approval | Authority to undertake investment decisions, execute projects, and form joint ventures or subsidiaries within prescribed limits without seeking government approval | Authority to make certain investment decisions, incur capital expenditure and undertake expansion projects within prescribed limits without seeking government approval |
| Number of Companies | Limited number of companies (currently 10 Maharatna companies) | Limited number of companies (currently 14 Navratna companies) | Larger number of companies (over 70 Miniratna companies) |
| Examples | Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation (IOC), NTPC Limited | Bharat Electronics Limited (BEL), Hindustan Aeronautics Limited (HAL), Bharat Petroleum Corporation Limited (BPCL) | Container Corporation of India (CONCOR), National Aluminium Company Limited (NALCO), Power Grid Corporation of India Limited (POWERGRID) |
PYQ:
2011: Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)?
- The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt.
- The Government no longer intends to retain the management control of the CPSEs.
Which of the statements given above is/ are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
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Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
EU’s Digital Markets Act (DMA): Lessons for India
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Digital Markets Act , Gatekeepers
Mains level: Regulation of global tech giants
In the news
- The Digital Markets Act (DMA) marks a significant milestone for the European Union (EU) as it reinforces its role as a global trendsetter in regulating the tech industry.
- With its implementation, six tech giants designated as “gatekeepers” – Amazon, Apple, Google parent Alphabet, Meta, Microsoft, and TikTok owner ByteDance – are required to adhere to new regulations.
EU’s Leadership in Tech Regulation
- Pioneering Regulations: The EU has a history of imposing significant fines on tech giants, enforcing strict antitrust rules, and pioneering norms to regulate social media and artificial intelligence.
- Global Impact: The DMA sets a precedent for tech regulation worldwide, with countries like Japan, Britain, Mexico, South Korea, Australia, Brazil, and India drafting similar rules to prevent tech dominance in digital markets.
Key Provisions of the DMA
- Regulated Services: The DMA targets 22 services, including operating systems, messenger apps, social media platforms, and search engines, offered by the designated tech gatekeepers.
- Penalties for Non-Compliance: Tech companies face hefty fines of up to 20% of their annual global revenue for repeated violations or potential breakup for systematic infringements.
Implications for Tech Giants
- Shift in Business Practices: Tech giants are compelled to adapt their business models to comply with the DMA, such as Apple’s decision to allow iPhone users to download apps from sources outside its App Store.
- Reduced Monopolistic Practices: The DMA aims to curtail monopolistic practices by providing users with choices for default browsers, search engines, and app sources.
Challenges and Criticisms
- Security Risks: While Apple’s decision to allow app downloads outside its App Store offers more freedom to users, it also raises concerns about potential security risks associated with third-party sources.
- Market Fragmentation: Critics argue that additional fees imposed by tech giants for alternative app sources may deter developers, leading to market fragmentation and hindering competition.
- Consumer Awareness: Despite offering choice screens for default services, smaller players like Ecosia raise concerns that users may stick with familiar options due to lack of awareness about alternatives.
EU’s Vigilance and Future Outlook
- Regulatory Oversight: EU competition Chief Margrethe Vestager emphasizes close scrutiny to ensure tech firms comply with DMA regulations and prevent circumvention of rules.
- Consumer Choice: The DMA prioritizes consumer choice by allowing users to select default services and promoting competition among tech companies.
- Continuous Evaluation: The effectiveness of DMA regulations will be continuously evaluated to address emerging challenges and ensure a fair and competitive digital ecosystem.
Application in India: Unique Considerations
- Market Dynamics: India’s digital market differs significantly from the EU, with distinct internet penetration levels, consumer preferences, and regulatory challenges.
- Debate on Ex-Ante Regulation: The EU’s adoption of ex-ante regulations raises questions about its applicability in India and the need for tailored approaches to address local market dynamics.
- Ground Realities: Legal experts emphasize the importance of aligning regulatory frameworks with ground realities and testing laws in local contexts to ensure effective implementation.
Way Forward: Tailored Solutions for India
- Customized Regulation: India’s DMA should be crafted in consultation with businesses and consumers to address the country’s unique market dynamics and regulatory challenges.
- Pragmatic Approach: Regulatory frameworks must be flexible and responsive to ground realities, ensuring that laws effectively address local needs and promote competition and innovation.
Conclusion
- The DMA represents a significant step towards promoting fair competition and consumer empowerment in the digital landscape.
- As the EU leads the way in tech regulation, the DMA’s implementation will have far-reaching implications globally, shaping the behavior of tech giants and safeguarding consumer interests in an increasingly digitized world.
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Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
Why India needs deep industrialisation
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Disguised unemployment
Mains level: India's economic stagnation, particularly in terms of industrialization and employment generation,
Central Idea:
The article explores India’s economic stagnation, particularly in terms of industrialization and employment generation, and proposes a shift towards high-skill, services-driven growth as advocated by Raghuram Rajan and Rohit Lamba in their book “Breaking the Mould: Reimagining India’s Economic Future”. It argues that traditional approaches to industrialization have not been effective in India and suggests that focusing on high-skill services, particularly in the IT sector, could stimulate manufacturing and address socio-economic inequalities.
Key Highlights:
- India’s historical struggle with industrialization despite various reform efforts.
- Proposal for a shift towards high-skill services-led growth to stimulate manufacturing.
- Critique of traditional industrial policy and its failure to address unemployment and trade deficits.
- Challenges posed by poor employment elasticity of services-led growth and inequality in the service sector.
- Impact of unequal access to education on labor market outcomes and economic disparities.
- Cultural factors contributing to India’s industrial stagnation, including undervaluing certain occupations and skills.
- Importance of mass education and collective absorptive capacity for innovation and economic development.
Key Challenges:
- Poor employment elasticity of services-led growth.
- Inequality in the service sector, particularly in terms of wages.
- Unequal access to education and skills training, exacerbating socio-economic disparities.
- Cultural attitudes towards certain occupations hindering innovation and industrial development.
- Lack of mass education and collective absorptive capacity for technological progress.
Main Terms:
- Industrialization
- Services-driven growth
- High-skill services
- Information technology (IT)
- Unemployment
- Trade deficit
- Inequality
- Mass education
- Absorptive capacity
- Technological progress
Important Phrases:
- “Premature deindustrialization”
- “Disguised unemployment”
- “Mass school education”
- “High-skill services pitch”
- “Cultural prerequisite for industrialization”
- “Useful knowledge”
- “Organic innovation in manufacturing”
- “Collective absorptive capacity”
- “Deep industrialization”
Quotes:
- “Rural entrepreneurship was able to grow out of the traditional agricultural sector on a massive scale [in China]. The rural Indian, in contrast, hampered by a poor endowment of human capital, were not able to start entrepreneurial ventures remotely on the scale of the Chinese.” – Yasheng Huang
- “India needs deep industrialization, not just the service sector, that has the power of changing the foundations of society.” – Authors (Rajan and Lamba)
Useful Statements:
- “India’s historical struggle with industrialization despite various reform efforts.”
- “Proposal for a shift towards high-skill services-led growth to stimulate manufacturing.”
- “Impact of unequal access to education on labor market outcomes and economic disparities.”
- “Importance of mass education and collective absorptive capacity for innovation and economic development.”
Examples and References:
- Periodic Labour Force Survey, 2021-22.
- Raghuram Rajan and Rohit Lamba’s book “Breaking the Mould: Reimagining India’s Economic Future”.
- Economic historian Joel Mokyr’s insights on the role of useful knowledge in economic development.
- Comparison between India and China’s approaches to rural entrepreneurship and industrialization.
Facts and Data:
- India’s manufacturing share in output and employment has been stagnant and below 20%.
- India’s trade deficit has been widening, largely driven by imported goods.
- Inequality in the service sector is higher compared to manufacturing.
- India is one of the world’s most unequal countries in terms of education.
Critical Analysis:
- The article presents a critical examination of India’s historical industrialization efforts and their limitations.
- It questions traditional approaches to industrial policy and offers a provocative alternative centered around high-skill services.
- The critique of inequality in the service sector and its implications for socio-economic disparities adds depth to the analysis.
- The cultural factors influencing India’s industrial stagnation provide valuable insights into the broader challenges faced by the country.
Way Forward:
- Emphasize the need for a comprehensive approach to economic development that addresses both industrialization and service sector growth.
- Invest in mass education and skills training to enhance collective absorptive capacity and promote innovation.
- Reevaluate cultural attitudes towards certain occupations to foster organic innovation in manufacturing.
- Ensure that economic policies prioritize reducing inequality and promoting inclusive growth.
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Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
The truth about India’s booming toy exports
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Non-tariff barriers (NBTs). Quality control order (QCO)
Mains level: success of 'Make in India' policies in the toy industry
Central Idea:
The article discusses India’s toy industry’s recent shift to net exports, attributing the success to protectionist measures under the ‘Make in India’ initiative. It raises questions about the efficacy of these policies and calls for a public release of an officially sponsored research study by the Indian Institute of Management Lucknow (IIM-L) to facilitate a more informed policy discussion.
Key Highlights:
- Between 2014-15 and 2022-23, India’s toy exports increased significantly, turning the country into a net exporter, while imports declined.
- An unpublished IIM-L case study, sponsored by DPIIT, credits the export success to promotional efforts under ‘Make in India.’
- The article questions the reported success and analyzes official statistics to understand the factors behind the industry’s turnaround.
Key Challenges:
- Lack of transparency regarding the IIM-L case study, creating ambiguity about the actual impact of ‘Make in India’ on the toy industry.
- Concerns about the sustainability of protectionist measures and the potential for “rent-seeking” behavior in the absence of complementary policies.
- The decline in labor productivity and other indicators in the toy industry despite protectionist measures.
Key Terms:
- ‘Make in India’ initiative.
- Net exports (exports minus imports).
- Protectionism.
- Non-tariff barriers (NBTs).
- Quality control order (QCO).
- Annual Survey of Industries (ASI).
- Fixed capital per worker.
- Gross value of output.
Key Phrases:
- “Turnaround in the labour-intensive industry.”
- “Rising protectionism since 2020-21.”
- “Infant industry argument.”
- “Learning by doing.”
- “Virtuous circle of expanding domestic capabilities.”
Key Quotes:
- “India has turned into a net toys exporter since 2020-21. ‘Make in India’ policies made it possible.”
- “Perhaps the IIM-L’s study uses different evidence to buttress its contention.”
- “Rising tariff and non-tariff barriers have made it possible.”
Key Statements:
- The article questions the correlation between ‘Make in India’ policies and the reported success in the toy industry.
- Concerns are raised about the impact of protectionism on the industry’s long-term competitiveness.
- Calls for transparency and public release of the IIM-L case study to facilitate informed policy discussions.
Key Examples and References:
- Reference to the tripled customs duty on toys in February 2020 and the imposition of non-tariff barriers since January 2021.
- Mention of the decline in labor productivity and other indicators in the toy industry despite protectionist measures.
Key Facts and Data:
- Toy exports increased significantly between 2014-15 and 2022-23, making India a net exporter.
- The trade balance for toys turned positive in 2020-21 after a gap of 23 years.
- Customs duty on toys was raised to 70% in March 2023.
Critical Analysis:
- The article critically examines the reported success of ‘Make in India’ policies in the toy industry, emphasizing the role of protectionism.
- Concerns are raised about the sustainability of protectionist measures and the need for complementary policies to enhance domestic capabilities.
- The decline in labor productivity challenges the notion that protectionism has led to improved industry competitiveness.
Way Forward:
- Advocate for transparency by making the IIM-L case study public to inform meaningful policy discussions.
- Emphasize the need for a comprehensive policy approach, combining protectionism with investment policies and infrastructure development.
- Encourage a dialogue on the long-term impact of protectionist measures on the toy industry’s competitiveness and the potential for “rent-seeking” behavior.
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Analyzing the Slowdown in India’s Core Sector
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Core Sector
Mains level: Read the attached story
Central Idea
- India’s eight core sectors experienced a significant slowdown, growing by 7.8% in November, down from 12% in October.
About Core Industries in India
- The main or key industries constitute the core sectors of an economy.
- In India, eight sectors are considered the core sectors.
- These sectors are in decreasing order of their weightage: Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.
About Index of Eight Core Industries
- The monthly Index of Eight Core Industries (ICI) is a production volume index.
- ICI measures the collective and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
- Before the 2004-05 series six core industries namely Coal, Cement, Finished Steel, Electricity, Crude petroleum and Refinery products constituted the index basket.
- Two more industries i.e. Fertilizer and Natural Gas were added to the index basket in the 2004-05 series. The ICI series with base 2011-12 will continue to have eight core industries.
The components covered in these eight industries for compilation of the index are as follows:
- Coal – Coal Production excluding Coking coal.
- Crude Oil – Total Crude Oil Production.
- Natural Gas – Total Natural Gas Production.
- Refinery Products – Total Refinery Production (in terms of Crude Throughput).
- Fertilizer – Urea, Ammonium Sulphate (A/S), Calcium Ammonium Nitrate (CAN), Ammonium chloride (A/C), Diammonium Phosphate (DAP), Complex Grade Fertilizer and Single superphosphate (SSP).
- Steel – Production of Alloy and Non-Alloy Steel only.
- Cement – Production of Large Plants and Mini Plants.
- Electricity – Actual Electricity Generation of Thermal, Nuclear, Hydro, imports from Bhutan.
Recent data: Sector-Wise Growth Details
- Decline in ICI: The ICI witnessed a 3.34% drop from October, marking its lowest since March 2023.
- Sector-Specific Trends: Notably, only refinery products and coal showed month-on-month growth, with significant year-on-year increases.
- Steel Production: Growth in steel production hit a 13-month low at 9.1%.
- Crude Oil and Fertilizer: Crude oil saw a contraction, while fertilizer production growth decelerated.
- Natural Gas and Electricity: Both natural gas output and electricity generation growth slowed down considerably in November.
Comparative Analysis with Previous Year
- Year-on-Year Comparison: The core sectors had a 5.7% growth in November 2022.
- Influence of Base Effects: Last year’s high growth in certain sectors like cement significantly influenced this year’s comparative figures.
Economic Insights and Projections
- Bank of Baroda’s Perspective: The slowdown in fertilizer growth aligns with the end of the rabi sowing season, as per the bank’s chief economist.
- IIP Forecast: The core sectors are expected to contribute to an IIP growth of 7%-8%.
- Economists’ View: Experts predict a continued slowdown in core sector growth due to strong base effects from the previous fiscal year.
Future Expectations and Challenges
- India Ratings and Research Predictions: A slowdown in core sector growth is anticipated in the coming months, influenced by the strong base effect.
- Broader Economic Impact: This slowdown is indicative of larger economic challenges, potentially affecting future policy and market expectations.
Conclusion
- Economic Resilience Test: The trends in India’s core sectors underscore the challenges in sustaining growth amid diverse economic conditions.
- Need for Strategic Economic Planning: Addressing these slowdowns will require astute economic planning and possibly new strategies to boost growth in these key sectors.
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[pib] RAMP Programme
Note4Students
From UPSC perspective, the following things are important :
Prelims level: RAMP Programme
Mains level: NA
Central Idea
- Union Minister for MSME launched three sub-schemes under the RAMP (Reforms and Acceleration in MSME Performance) programme.
About RAMP Programme
| Details | |
| About | World Bank assisted Central Sector Scheme. |
| Launch | FY 2022-23 |
| Supported By | Ministry of Micro, Small and Medium Enterprises (MoMSME), Government of India. |
| Primary Aim | – Improve access to market and credit for MSMEs.
– Strengthen institutions and governance. – Enhance Centre-State linkages and partnerships. – Address delayed payments and promote greening of MSMEs. |
| Key Components | – Preparation of Strategic Investment Plans (SIPs) by states/UTs.
– Apex National MSME Council for monitoring and policy overview. |
Details of the Launched Schemes
| MSME Green Investment and Financing for Transformation Scheme (MSME GIFT Scheme) | MSE Scheme for Promotion and Investment in Circular Economy (MSE SPICE Scheme) | MSE Scheme on Online Dispute Resolution for Delayed Payments | |
| Objective | To assist MSMEs in adopting green technology. | The government’s first scheme to support circular economy projects in the MSME sector. | Combines legal support with IT tools and Artificial Intelligence to address delayed payments issues. |
| Support Mechanisms | Offers interest subvention and credit guarantee support. | Aims to achieve zero emissions by 2070 through credit subsidy. | Focused on aiding Micro and Small Enterprises. |
| Unique Features | – Encourages eco-friendly practices in MSMEs.
– Financial incentives for green technology adoption. |
– Promotes sustainable and eco-friendly business models.
– Supports long-term environmental goals. |
– Innovative use of technology for dispute resolution.
– Aims to streamline payment processes and reduce conflicts. |
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SC affirms “Group of Companies’ Doctrine
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Group of Companies Doctrine
Mains level: NA
Central Idea
- The Supreme Court has issued a landmark ruling, expanding the scope of arbitration agreements to include non-signatories under specific conditions.
- This ruling centers on the “group of companies” doctrine within the framework of arbitration agreements.
‘Group of Companies’ Doctrine
| Details | |
| Essence | Non-signatory entities in a corporate group can be bound by an arbitration agreement if part of the same group as a signatory. |
| Basis on Mutual Intent | Relies on the mutual intention to bind both signatories and non-signatory group members. |
| Arbitration as a Tool | Offers an alternative to court litigation, with enforceable decisions by neutral arbitrators. |
| Root in International Jurisprudence | Based more on international arbitration practices than domestic law. |
| Indian Legal Precedent | Established by Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. case (2013). |
| Criteria for Application | Set by the Indian Supreme Court, includes mutual intent, relationship between entities, common subject matter, transaction nature, and contract performance. |
| Objective | Aims to prevent dispute fragmentation in complex, multi-party transactions. |
| Recent Supreme Court Ruling | Clarified conditions under which non-signatories can be bound by arbitration agreements, focusing on legal relationships and demonstrated intentions. |
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Leniency Plus Norms to curb Cartelisation
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Leniency Plus Norms
Mains level: NA
Central Idea
- The Competition Commission of India (CCI) has unveiled a draft of revised lesser penalty regulations, introducing a groundbreaking “Leniency Plus” Norms and shedding light on its strategy for combating cartels.
About Competition Commission of India (CCI)
|
Understanding “Leniency Plus”
- Existing Leniency Program: Under the current Competition Act 2002, a leniency program allows companies to receive partial immunity from penalties if they provide substantial information about their involvement in a cartel. This aids competition authorities in uncovering secret cartels and obtaining insider evidence.
- Additional Reduction in Penalty: In the “Leniency Plus” framework, a cartel member cooperating with CCI for leniency can disclose the existence of another unrelated cartel during the original leniency proceedings. In return, they receive an additional reduction in penalties.
- Incentivizing Disclosure: “Leniency Plus” serves as a proactive antitrust enforcement strategy, encouraging companies already under investigation for one cartel to report other undisclosed cartels, thus promoting transparency.
Legal foundation
- Legal basis: The “Leniency Plus” regime was incorporated into the Competition (Amendment) Act 2023, which received Presidential approval in April of the same year.
- Global Adoption: The concept of “Leniency Plus” is not new, as it is already recognized and practised in jurisdictions like the UK, US, Singapore, and Brazil.
- Encouraging Disclosure: One of the key aspects of these regulations is their encouragement for companies already under investigation for one cartel to report other undisclosed cartels to the competition regulator.
Tap to read more about Cartelization!
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Government must handhold semi-conductor industry
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Semi-conductors
Mains level: semi-conductor industry, potential, initiatives challenges and way forward
What’s the news?
- Moody’s report has brought to light a critical factor that could disrupt India’s semiconductor aspirations: climate change.
Central idea
- In December 2021, the Indian government launched the Semicon India Programme, allocating a substantial budget of Rs 76,000 crore for the development of a domestic semiconductor manufacturing ecosystem. While this initiative aimed to position India as a prominent player in the global semiconductor market, it faces multifaceted challenges, as highlighted in a recent report by Moody’s, a global rating firm.
Challenges highlighted in the Moody’s report
- Climate Change Risks: The report points out that climate change can lead to damage to manufacturing facilities, disruptions in supply chains, and substantial financial losses in the semiconductor industry, potentially deterring investments.
- Environmental Footprint: The semiconductor industry’s substantial environmental footprint is a challenge, with chip fabrication plants consuming large amounts of water, generating hazardous waste, and contributing significantly to greenhouse gas emissions.
- Competitive Landscape: India’s emerging semiconductor sector faces competition from established global players who are already taking steps towards sustainability, making it essential for Indian semiconductor units to adopt sustainable practices to remain competitive.
The Significance of Semiconductors
- Technological Advancement: Semiconductors are the bedrock of technological progress, enabling innovations across industries. They underpin the development of advanced electronic devices, leading to continuous improvements in efficiency, performance, and functionality.
- Information Processing: Semiconductors power the microprocessors and memory chips found in computers, smartphones, and digital gadgets. This processing capacity drives data analysis, artificial intelligence, and complex computations.
- Consumer Electronics: Nearly all consumer electronic devices, from televisions to household appliances, incorporate semiconductors. These components enhance functionality, making these devices more user-friendly and efficient.
- Clean Energy: Semiconductors are vital for renewable energy sources. They enable efficient energy conversion and management in solar panels, wind turbines, and energy storage systems, promoting clean and sustainable energy solutions.
- Healthcare Revolution: In the healthcare sector, semiconductors are crucial for medical imaging, diagnostic equipment, and wearable health monitoring devices. They empower healthcare professionals with accurate data for improved patient care.
- National Security: Semiconductors are indispensable for defense and security applications, including radar systems, encryption technology, and surveillance equipment. They ensure the reliability and security of vital systems.
- Space Exploration: Semiconductors are vital for space missions and satellite technology. They enable data collection, communication with Earth, and the operation of instruments, advancing humanity’s understanding of the cosmos.
- Environmental Monitoring: Semiconductors are used in environmental monitoring systems, aiding efforts to assess and mitigate environmental issues such as air and water quality, climate change, and pollution.
Industry Initiatives Toward Sustainability
- Taiwan’s Semiconductor Manufacturing Company (TSMC): TSMC, one of the world’s largest chip manufacturers and a key supplier to tech giants like Apple, has taken a significant step by pledging to achieve net-zero emissions by 2050. This commitment reflects a proactive approach to reducing the environmental impact of semiconductor manufacturing.
- Samsung and Intel: The article also notes that companies like Samsung and Intel, along with several European semiconductor firms, have reportedly started conducting greenhouse gas (GHG) audits. These audits are essential for understanding and quantifying the industry’s carbon footprint, with the goal of identifying areas for improvement.
India’s Greenfield Advantage
- Clean Slate: India’s semiconductor industry has the advantage of starting from a relatively clean slate. Unlike established semiconductor hubs that may have legacy issues, India’s greenfield centers can begin their operations with a fresh perspective and without the burden of historical environmental challenges.
- Learning Opportunity: These greenfield centers in India can learn from the experiences of semiconductor companies in other parts of the world. They have the opportunity to incorporate global best practices right from the outset, making sustainability and environmental responsibility integral to their operations.
- Smart City Programme: Many of India’s semiconductor hubs are planned as part of the government’s Smart City Programme. This planning approach involves creating modern, sustainable urban environments. As a result, these townships are more likely to incorporate eco-friendly and climate-resilient infrastructure and drainage systems.
- Preventing Disruptions: The greenfield centers should prioritize strategies to prevent disruptions during extreme rainfall events. This proactive approach is important, considering the potential impacts of climate change, which can lead to increased rainfall and extreme weather events.
Way forward
- Learning from Global Best Practices: By learning from the experiences of established global players and incorporating best practices from the outset, Indian semiconductor units can enhance their sustainability quotient.
- Regional Considerations: The government’s vision of establishing Dholera in Ahmedabad as a chip-making hub should be attuned to regional climate factors. Climate change is expected to exacerbate heat-related stresses in the region, making it crucial to factor in climate-resilient infrastructure.
- Government Intervention: In light of Moody’s report, it is evident that the government must play a pivotal role in supporting the semiconductor industry. This includes investment in climate-resilient infrastructure, providing guidance to the industry, and encouraging semiconductor units to adopt sustainable practices.
Conclusion
- The Semicon India Programme holds the potential to propel India into the ranks of global semiconductor manufacturing leaders. However, this ambitious endeavor faces significant challenges, with climate change posing a formidable threat to its success. By taking proactive measures, India can navigate the treacherous waters of climate change and move closer to realizing its dream of becoming a chip-manufacturing hub.
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Manufacturing PMI eased to 5-month low
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Purchasing Managers' Index (PMI)
Mains level: Not Much
Central Idea
- India’s manufacturing sector experienced a slowdown in September, reaching a five-month low, according to the seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI).
- The PMI eased to 57.5 from August’s 58.6. A reading of 50 reflects no change in activity levels.
Purchasing Managers’ Index (PMI)
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate.
- If it is lower than the previous month then it is growing at a lower rate.
Analysis and Outlook
- Mild Slowdown: The manufacturing industry in India showed mild signs of a slowdown in September, primarily due to a softer increase in new orders, which tempered production growth.
- Positive Outlook: Despite the slowdown, both demand and output saw significant improvements, and manufacturers maintained a strongly positive outlook for production.
- Job Creation and Input Stocks: Upbeat forecasts continued to drive job creation efforts and initiatives to replenish input stocks, indicating a favourable trajectory for the Indian manufacturing industry.
- Concerns: However, the solid increase in output charges, despite easing cost pressures, could limit sales in the coming months, prompting caution.
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Purchasing Managers’ Index (PMI) reaches 31-month high
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Purchasing Managers' Index (PMI)
Mains level: NA
Central Idea
- Surge in PMI to 31-month high: The S&P Global India Manufacturing PMI soared to 58.7 in May, the highest level in 31 months.
Service SectorThe service sector, also known as the tertiary sector, includes a wide range of economic activities that are focused on providing intangible goods and services to customers. Some examples of activities that fall under the service sector include:
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Purchasing Managers’ Index (PMI)
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.
Key insights of recent trend
- Fastest factory order growth: Factory orders rose at the fastest pace since January 2021.
- Unprecedented accumulation of inputs: Producers accumulated inputs at an unprecedented pace due to lower costs.
- Improvement in operating conditions: The index reflects a substantial improvement in operating conditions, with a significant increase from 57.2 in April.
- Strong growth in order books and exports: Order books grew for the 23rd consecutive month, supported by a rise in export deals.
- Highest output levels in 28 months: Output levels reached the highest point in 28 months.
- Increased hiring: Pressure on capacities led firms to increase hiring, reaching a six-month high.
Reasons behind this rise
- Rise in selling prices: Producers raised selling prices at a solid and quicker rate in May, the highest in a year.
- Mild input costs but adjusted charges: Input costs remained historically mild, but producers adjusted their charges due to sustained cost increases and a supportive demand environment.
- Improved business confidence: Business confidence about growth improved, reaching a five-month high.
- Public faith in economy: Factors such as publicity and demand resilience contributed to the optimistic outlook.
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Crisis Gripping Surat’s Diamond Industry
Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: Diamond Industry in India
Central Idea
- Surat, acclaimed as India’s diamond city, is grappling with a distressing upheaval in its diamond industry. Job losses and tragic suicides have plagued the once-thriving sector.
- This article delves into the origins of the crisis and its complex implications.
Surat’s Diamond Dominance
- Economic Hub: Surat, located in Gujarat, is renowned for processing 90% of the world’s diamonds, with over 6,000 units cutting and polishing rough gems sourced globally.
- Employment Powerhouse: Employing more than a million craftsmen and workers, the diamond industry contributes significantly to India’s economy, generating an estimated annual revenue of Rs1.6 trillion or more.
- Exports Significance: Cut and polished diamonds constitute 65% of India’s gem and jewellery exports, amounting to Rs1.76 trillion in 2022-23.
Dark Clouds over Surat
- Tragedy Strikes: Amidst the turmoil, nine individuals tied to the diamond industry have tragically taken their own lives. Over 20,000 workers have lost their jobs as the sector grapples with a multifaceted crisis.
- Diminished Earnings: Many workers have experienced wage reductions of up to 30% due to shortened working hours, fewer workdays, and unpaid leaves during the summer, extending up to a month for some.
- Gone Bonuses: The customary lavish Diwali bonuses, once a source of joy for diamond industry workers, have become a distant memory.
Unraveling the Factors
- Sluggish Demand: Global consumer spending cuts due to high interest rates in the US and Europe and a slowing Chinese economy have contributed to a demand downturn.
- Offtake Plunge: Despite exports totalling Rs1.76 trillion in 2022-23 (marginally lower than the previous year), global diamond demand plummeted by almost 30% within three months.
- Geopolitical Impacts: With Russia being a significant source of rough diamonds (around 35% of supply), political tensions such as the Ukraine conflict have led to restrictions on Russian diamonds. Sanctions on major diamond miner Alrosa have disrupted the supply chain.
- Lab-Grown Rivalry: The emergence of lab-grown diamonds, replicated under lab conditions and cheaper than natural counterparts, poses a significant challenge. These synthetic gems are becoming more popular and are 20% cheaper than natural diamonds of the same size.
Conclusion
- Surat’s diamond industry, once a beacon of prosperity, finds itself at a crossroads.
- The convergence of economic shifts, geopolitical dynamics, and technological advancements has disrupted its foundation.
- As Surat navigates this tumultuous terrain, a resilient and adaptable strategy is essential to ensure the industry’s longevity and viability in a changing world of diamonds.
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A ‘fab’ way to conduct India-Japan tech diplomacy
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Semiconductor and its applications
Mains level: India-Japan semiconductor collaboration and its significance
What’s the news?
- In July 2023, India and Japan announced a landmark collaboration aimed at bolstering the semiconductor sector’s resilience and jointly developing the semiconductor ecosystem.
Central idea
- India and Japan’s pioneering collaboration aims to fortify their semiconductor industries and drive joint innovation in semiconductor design, manufacturing, equipment research, supply chain resilience, and talent development. This strategic partnership signifies a noteworthy advancement in both government-to-government and industry-to-industry engagements.
What are semiconductors?
- Semiconductors are a class of materials that exhibit the unique property of electrical conductivity, lying between conductors and insulators.
- Unlike conductors, which allow electricity to flow freely through them, and insulators, which do not conduct electricity at all, semiconductors have an intermediate level of electrical conductivity.
Semiconductor fabrication
- Semiconductor fabrication, also known as semiconductor manufacturing or semiconductor processing, refers to the intricate process of creating semiconductor devices, such as integrated circuits (ICs), microchips, and other electronic components.
- These devices are the building blocks of modern electronics and play a crucial role in various technologies, including computers, smartphones, televisions, and many other electronic devices.
The India-Japan Semiconductor Collaboration and a Strategic Policy Alignment
- Common Vision and Agreements:
- India’s Make in India and Japan’s Society 5.0 visions converge in the pursuit of self-reliance and innovation.
- Bilateral agreements have been signed for technology transfer, cooperative semiconductor research, and reciprocal trade in related products.
- Industry Leadership:
- Japan’s advanced semiconductor industry’s global prominence complements India’s growing IT sector and rising demand for semiconductors across industries.
- Their complementary strengths lay the groundwork for a mutually beneficial collaboration.
- Addressing Challenges:
- Geopolitical tensions and supply chain disruptions in the Indo-Pacific region highlight the need for diversified semiconductor supply chains and international collaboration.
- Joint research efforts combine resources and expertise to address complex semiconductor design, manufacturing, and material challenges.
- Human Resource Development:
- Skill exchange programs, workshops, and training initiatives underline the commitment to cultivating skilled professionals.
- The emphasis is on preparing the workforce for the evolving semiconductor landscape.
What are the challenges?
- Technological Challenges:
- Semiconductor Miniaturization: The challenge of creating smaller and more powerful semiconductor components to meet the increasing demand for compact and efficient devices
- AI Integration: Integrating artificial intelligence into various applications requires specialized semiconductors that can handle complex AI algorithms efficiently. Developing such chips is challenging due to the need for high computational power and energy efficiency to accommodate AI workloads effectively.
- Quantum Computing: Quantum computing, a cutting-edge technology, relies on quantum bits (qubits) for enhanced computational capabilities. Developing stable and reliable qubits is a challenge due to the delicate nature of quantum states and the need for advanced error correction mechanisms.
- Supply Chain Resilience:
- Disruptions in Semiconductor Supply Chains: The article highlights disruptions caused by supply chain vulnerabilities due to factors such as geopolitical tensions and natural disasters. Collaborations between nations like India and Japan aim to strengthen semiconductor supply chains to minimize such vulnerabilities.
- Geopolitical Uncertainties:
- Tensions in the Indo-Pacific Region: Geopolitical tensions in the Indo-Pacific region impact trade, technology transfer, and collaborations. The partnership between India and Japan reflects the need for like-minded countries to work together amidst such uncertainties.
- Talent Shortage:
- Shortage of Skilled Professionals: The article does not explicitly mention a shortage of skilled professionals in the semiconductor industry. However, the skill exchange programs and training mentioned in the article suggest that developing a skilled workforce is a priority for the partnership.
Indo-US Collaboration and the Emerging Landscape
- Technology Partnership: The technology partnership between India and the United States encompasses investment, innovation, and workforce development. This collaboration underscores both countries’ commitment to advancing their semiconductor ecosystems in a strategic and comprehensive manner.
- Academic Involvement: India is set to sign an agreement with Georgia Tech University, demonstrating a focus on academia-industry collaboration to foster semiconductor research and talent development.
- Private Sector Investments: The partnership is reinforced by specific investments from Micron Technology and Applied Materials to establish semiconductor manufacturing units and research centers, signaling tangible private sector involvement.
- Global Implications: The collaboration reflects global recognition of India’s semiconductor capabilities by the United States, positioning India as a significant player in semiconductor development on the global stage.
- Supply Chain Resilience: The partnership’s emphasis on investment and innovation aligns with the broader goal of diversifying semiconductor supply chains, reducing dependencies, and enhancing resilience.
- Complementary Collaborations: The collaboration complements India’s partnership with Japan, creating a multidimensional approach that addresses diverse aspects of the semiconductor landscape.
Conclusion
- The India-Japan semiconductor partnership signifies a paradigm shift in global technology alliances. This collaboration not only holds the potential to reshape the semiconductor landscape but also contributes to regional stability and innovation. As India and Japan march forward hand in hand, their combined efforts promise to shape a future characterized by cutting-edge technologies and a shared resolve to achieve new frontiers of technological brilliance.
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Northeast India’s Struggle with Special Economic Zones (SEZs)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Special Economic Zones
Mains level: Read the attached story
Central Idea
- The Northeast region’s journey with SEZs has been marked by challenges and missed opportunities.
- Despite the approval of five SEZs in the region between 2007 and 2021, none have become operational.
Overview of Unoperational SEZs in NE
- Unrealized IT SEZs: The report underscores the delay in establishing IT SEZs in Manipur and Sikkim, both of which were approved in 2013 and 2021 respectively.
- Nagaland’s Unfulfilled Promise: Despite approvals dating back to 2007-9, the SEZs in Nagaland remain dormant, representing a missed opportunity for economic growth.
- Pending Agro-Products Zone: The agro-products zone approved in Tripura in 2019 is yet to materialize, indicating the need for coordinated efforts to overcome hurdles.
What are SEZs?
- Distinctive Zones: A Special Economic Zone is an area characterized by distinct trade and business regulations set apart from the rest of the country.
- Economic Objectives: SEZs aim to enhance trade balance, encourage investments, generate employment, facilitate efficient administration, and amplify economic growth.
- Favorable Financial Policies: SEZs offer tailored financial policies that encompass investment, taxation, customs, trading, quotas, and labor regulations.
- Tax Incentives: Businesses within SEZs may benefit from tax holidays, a designated period of reduced taxation upon establishment within the zone.
Inception of SEZs in India
- EPZs Pioneering: India embraced the concept of Export Processing Zones (EPZs) with Asia’s inaugural EPZ established in Kandla in 1965.
- Genesis: India’s SEZ policy was inaugurated on April 1, 2000, with the intent of bolstering foreign investments and creating a globally competitive environment for exports.
- Objectives: The policy aimed to boost exports, level the playing field for domestic enterprises, and provide a comprehensive legal framework for SEZ development and operation.
- Regulatory Framework: The SEZ Act of 2005 furnished the regulatory umbrella covering crucial aspects of SEZs and the units operating within them.
Distinct Characteristics of SEZs
- Diverse Zone Types: SEZs encompass various categories such as free-trade zones (FTZs), export processing zones (EPZs), industrial estates (IEs), free ports, and more.
- Enhanced Foreign Investment: SEZs attract foreign direct investment (FDI) by multinational corporations (MNCs) and international businesses, spurring economic growth
Setting up SEZs
- Open to All: Any private, public, joint sector, state government, or its agencies can establish an SEZ.
- Foreign Participation: Foreign agencies are also permitted to establish SEZs in India.
- States Role: State government representatives within inter-ministerial committees on private SEZs offer consultations on proposals.
- Infrastructure Provision: State governments must ensure the provision of essential resources like water and electricity before SEZ proposals are recommended.
- Labor Laws: SEZs adhere to normal labor laws, enforced by respective state governments, with a focus on simplification of procedures and introducing single-window clearance.
Benefits offered
- Economic Boost: SEZs aim to streamline business processes, improve infrastructure, and offer tax benefits, propelling FDI and export growth.
- Trade Growth: SEZs contribute significantly to India’s exports by providing a conducive environment for production and export-oriented activities.
- Investor Attraction: The relaxation of regulations and access to advanced infrastructure in SEZs entices international investors seeking to capitalize on export-driven opportunities.
Conclusion
- The parliamentary report serves as a clarion call to address the stagnation of SEZs in Northeast India and transform the challenges into opportunities.
- It underscores the importance of crafting a fresh industrial development scheme that is responsive to the region’s dynamics.
- By leveraging the unique strengths of the Northeast, the government has the chance to not only rectify the current situation but also contribute to the inclusive economic growth of the entire nation.
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Learning from the CHIPS Act of the U.S.
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Semiconductor policy and related updates
Mains level: India's Semiconductor Policy, CHIPS ACT and lessons for India
What’s the news?
- The United States’ CHIPS Act, which authorizes substantial funding over five years to boost its semiconductor industry, celebrates its one-year anniversary.
Central idea
- Industrial policies have become pivotal tools for nations to secure competitiveness, innovation, and national security. The CHIPS Act exemplifies such an endeavor, allocating $52.7 billion to bolster the American semiconductor sector. While not a blueprint, this Act offers essential lessons for India’s semiconductor strategy.
What is the CHIPS Act?
- The CHIPS Act, or the Creating Helpful Incentives to Produce Semiconductors for America Act, is a United States federal law that was enacted in 2022.
- It aims to address various challenges and concerns related to the semiconductor industry in the United States.
- The CHIPS Act was introduced to boost American competitiveness, innovation, and national security in the semiconductor sector. It recognizes the strategic importance of semiconductor manufacturing and technology leadership for economic growth and national defense.
Notable features of the CHIPS Act
- Significant Funding: The CHIPS Act authorizes $52.7 billion over five years to boost American competitiveness, innovation, and national security in the semiconductor industry.
- Cooperation Across Government: The Act involves cooperation and coordination between multiple government arms, with separate funds allocated to different departments, including the Department of Commerce, the Department of Defense, the Department of State, and the National Science Foundation.
- Lead Agency: The Department of Commerce is designated as the lead agency responsible for administering the $50 billion CHIPS for America Fund, which focuses on accelerating semiconductor manufacturing and research within the United States.
- National Semiconductor Technology Center (NSTC): A nodal agency, the NSTC, is created to collaborate with industry and educational institutions to develop a competent semiconductor engineering workforce and promote growth in the field.
- Investment Principals and Financial Structuring Directors: The CHIPS Act establishes a CHIPS Program Office (CPO) responsible for assessing project viability and attracting private sector investments. Investment Principals and Financial Structuring Directors are hired to catalyze private sector involvement.
- Future Research Focus: The Act doesn’t solely focus on immediate manufacturing needs. It allocates funding, such as the $11 billion investment in future research, which includes areas like advanced packaging techniques, to ensure the country’s competitiveness in the long term.
- Industrial Policy Template: The CHIPS Act provides a valuable template for effective industrial policy in the semiconductor industry, showcasing institutionalized administrative capacity that supports continuity beyond changes in government.
India’s semiconductor policy
- MeitY’s Leadership: MeitY plays a pivotal role in formulating and executing India’s semiconductor strategy. The ministry’s oversight spans various aspects, including manufacturing, assembly, design, and compound semiconductors.
- India Semiconductor Mission (ISM): Within MeitY, the India Semiconductor Mission (ISM) has been established to focus on manufacturing, assembly, and displays. ISM aims to foster indigenous production capabilities by collaborating with industry and academic institutions.
- C-DAC for Chip Design: The Centre for Development of Advanced Computing (C-DAC), another MeitY initiative, focuses on chip design. By investing in research and development, C-DAC aims to enhance India’s expertise in chip design and innovation.
- Chips2 Startup (C2S) Program: MeitY’s C2S program collaborates with universities and colleges to cultivate a skilled semiconductor engineering workforce. This initiative emphasizes the importance of industry-aligned training programs to cater to the sector’s specific needs.
- Manufacturing and Export Incentives: To attract investment and promote domestic manufacturing, India offers incentives such as the Production Linked Incentive (PLI) scheme. This encourages semiconductor companies to establish manufacturing facilities in India.
Lessons for India
- Whole-of-Government Approach: India’s semiconductor strategy should adopt a whole-of-government approach, similar to the CHIPS Act, to ensure coordination and continuity across different government departments and agencies involved in semiconductor-related initiatives.
- Collaboration and Coordination: Like the CHIPS Act, India should emphasize collaboration between industry, academia, and government to build a skilled semiconductor workforce and ensure alignment between education and industry needs.
- Certification of Training Programs: Instead of directly running training programs, India should focus on certifying quality training programs offered by universities and private training institutes to ensure a competent workforce in the semiconductor sector.
- Long-Term Vision: India’s semiconductor strategy should not only address immediate manufacturing needs but also outline a long-term vision for sustained growth and leadership in the industry.
- Public-Private Collaboration: India should encourage public-private collaboration to attract private sector investments and leverage the expertise of both government and industry for semiconductor development.
- Flexibility in Policy Implementation: India’s semiconductor strategy should be adaptable, allowing for adjustments based on changing industry trends and challenges while aligning with the nation’s goals.
Conclusion
- The CHIPS Act serves as a template for effective industrial policy in the semiconductor sector. By analyzing its strengths and weaknesses, India can learn valuable lessons for structuring its own strategy to achieve competitiveness, innovation, and national security in semiconductors. Effective execution and a comprehensive approach are key takeaways for India’s policymakers.
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The new restriction on Personal Computers/laptop imports: Why the move, and its potential impact
Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: India's electronics and IT hardware production capabilities, challenges and measures
What’s the news?
- The central government has placed restrictions on the import of laptops, tablets, and computers with immediate effect. As per the notification, the import would be allowed under a valid license for restricted imports.
Central Idea
- India has imposed restrictions on the import of personal computers, laptops, and other IT hardware from China to promote domestic manufacturing and reduce dependence on Chinese imports. This move is part of the government’s efforts to boost the electronics sector and strengthen India’s self-reliance in the production of IT hardware.
What does the notification for the restriction on imports state?
- Restricted Categories: The notification restricts the import of personal computers, laptops, palmtops, automatic data processing machines, microcomputers and processors, and large or mainframe computers falling under the HSN code 8471.
- Import Against a Valid License: Imports of laptops, tablets, all-in-one personal computers, and ultra-small form factor computers and servers under HSN 8741 will be allowed only against a valid license for restricted imports.
- Exemption for Research and Development: The government has granted exemption from import licenses for imports up to 20 items per consignment used for research and development, testing, benchmarking, evaluation, repair and re-export, and product development purposes. However, these imports can only be used for the stated purposes and not for sale.
- Exemption for Repair and Return: The license for restricted imports is not required for the repair and return of goods that were repaired abroad, as per the Foreign Trade Policy.
China’s Dominance in IT Hardware Imports
- Increase in Electronic Goods Imports:
- India has witnessed a significant increase in imports of electronic goods and laptops/computers in recent years.
- During the April-June quarter, the import of electronic goods surged to $6.96 billion, accounting for 4–7 percent of the overall imports.
- Dominance in the Personal Computers Category:
- Among the seven categories of restricted imports, China holds a substantial share in the personal computer segment, which includes laptops and palmtops.
- In the April-May period, imports of personal computers from China amounted to $558.36 million, representing roughly 70–80 percent of India’s total imports in this category.
- Surge in imports from China:
- While there was a decline in imports from China in the previous financial year, it is crucial to address the sharp surge in imports in the two preceding years (2021–22 and 2020–21).
- In 2021–22, imports of personal computers and laptops from China saw a year-on-year increase of 51.5 percent, amounting to $5.34 billion.
- Similarly, in 2020–21, there was a significant year-on-year increase of 44.7 percent, with imports totaling $3.52 billion.
Reasons behind the restrictions
- Boosting Domestic Production: India aims to strengthen its domestic production capabilities in the electronics sector. By restricting imports, the government wants to push companies to manufacture these goods locally in India.
- Reducing Reliance on China: India has seen a significant increase in imports of electronic goods and laptops/computers from China in recent years. By imposing restrictions, India intends to reduce its reliance on Chinese imports and diversify its sources of electronic products.
- Supporting the PLI Scheme: The move is seen as a direct boost to the Center’s production-linked incentive (PLI) scheme for IT hardware. The restrictions aim to encourage companies to participate in the scheme and invest in local production.
- Addressing Trade Imbalance: India has faced a trade imbalance in the electronics sector with China. By limiting imports, India aims to address this imbalance and potentially improve its trade position.
- Strengthening the Domestic Electronics Industry: The restriction is part of India’s broader strategy to develop and strengthen its electronics manufacturing sector. By promoting domestic production, India seeks to create job opportunities and enhance its industrial capabilities.
Conclusion
- India’s decision to restrict IT hardware imports from China aims to reduce import reliance on a single country. With the right incentives and measures in place, this restriction could pave the way for a robust and competitive domestic IT hardware industry in India.
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World’s Largest Office Space: Surat Diamond Bourse
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Surat Diamond Bourse
Mains level: NA
Central Idea
- The Surat Diamond Bourse (SDB), hailed as the world’s largest office space project, is set to be inaugurated by Prime Minister.
About Surat Diamond Bourse
- The SDB is a large-scale project located in Surat, Gujarat, India.
- It is claimed to be the world’s biggest office space in a single project.
- It is built to expand and consolidate the diamond trading business from Mumbai to Surat.
- Surat is renowned as a major hub for cutting and polishing diamonds, and the development of SDB aims to bring all diamond-related activities and infrastructure under one roof.
Key features
- Location: The SDB is situated at DREAM (Diamond Research and Mercantile) city in Surat.
- Size: The bourse spans an area of 66 lakh square feet (approximately 6.6 million square feet), making it one of the largest office spaces in the world.
- Design: The thematic landscaping of the project is based on the ‘panch tatva’ theme, representing the five elements of nature – air, water, fire, earth, and sky.
- Infrastructure: The SDB consists of nine towers, each with ground plus 15 floors. It will accommodate over 4,200 offices with sizes ranging from 300 square feet to 7,500 square feet.
- Security: Given the high-security nature of the diamond industry, over 4,000 CCTV cameras have been installed at different locations inside and outside the SDB.
- Shifting from Mumbai: The bourse seeks to address the space crunch and expensive office real estate in Mumbai, where much of the diamond trading currently takes place.
Economic significance of SDB
- Businesses: The complex will house various diamond-related businesses, including the sale of rough and polished diamonds, diamond manufacturing machinery, diamond planning software, diamond certificate firms, lab-grown diamonds, and more.
- Employment: The SDB is expected to generate significant employment opportunities, providing direct employment to over 1 lakh people in various roles related to the diamond industry.
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The Effectiveness of Production-Linked Incentive Schemes: A Critical Analysis
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Production-Linked Incentive schemes
Mains level: Production-Linked Incentive, advantages and structural challenges
Central Idea
- Former Reserve Bank of India (RBI) Governor, Raghuram Rajan, recently expressed doubts regarding the efficacy of the production-linked incentive (PLI) scheme in boosting India’s domestic manufacturing and exports. While the government believes that the PLI scheme has been successful in enhancing the manufacturing sector, critics have raised concerns about its effectiveness.
What is Production-Linked Incentive scheme (PLI)?
- PLI is a scheme introduced by the Indian government in 2020 to promote domestic manufacturing in specific sectors.
- Under the PLI scheme, eligible companies receive financial incentives or subsidies based on their incremental production or sales.
- The objective of the scheme is to boost the competitiveness of Indian manufacturers, attract investment, create employment opportunities, and enhance exports in targeted sectors.
- The scheme aims to encourage both domestic and foreign companies to set up or expand their manufacturing operations in India, thereby strengthening the country’s manufacturing ecosystem and reducing reliance on imports.
Significance of the policy of subsidizing domestic sectors
- Promoting Domestic Industries: Subsidies provide financial support to domestic industries, encouraging their growth and competitiveness. By reducing production costs, subsidies enable businesses to offer goods and services at more competitive prices, both in domestic and international markets.
- Encouraging Employment Generation: Subsidies can stimulate job creation within domestic sectors. By providing financial incentives to businesses, subsidies help them expand their operations, leading to increased hiring and reduced unemployment rates.
- Enhancing Competitiveness: Subsidies can bolster the competitiveness of domestic industries, particularly in sectors where foreign competitors have a significant advantage. Financial assistance can be used to invest in research and development, adopt advanced technologies, upgrade infrastructure, and improve product quality, enabling domestic businesses to compete more effectively on a global scale.
- Reducing Dependency on Imports: By subsidizing domestic sectors, governments aim to reduce reliance on imported goods and services. This supports import substitution, where domestic industries are incentivized to produce goods that were previously imported, thereby strengthening the domestic manufacturing base and reducing trade deficits.
- Fostering Innovation and Technology Development: Subsidies can facilitate research and development activities within domestic sectors. By providing financial support for innovation, governments encourage businesses to invest in new technologies, processes, and products.
- Sectoral Development and Economic Diversification: Subsidies can be targeted towards specific sectors deemed strategically important for the country’s economic development and diversification. By incentivizing investments in these sectors, governments aim to create a robust industrial base, foster industrialization, and facilitate economic growth.
- Addressing Market Failures: Subsidies can be used to rectify market failures, such as externalities or information asymmetries. For example, subsidies can be provided to encourage the adoption of environmentally friendly practices or to support industries with high spillover effects on other sectors of the economy.
- Attracting Investments: Subsidies serve as a tool to attract domestic and foreign investments. By offering financial incentives and creating a favorable business environment, governments can entice businesses to establish or expand their operations within the country. This promotes economic development, job creation, and technology transfer
Role of tariffs on imports
- Protecting Domestic Industries: Tariffs are often imposed on imported goods to provide a level of protection to domestic industries. By increasing the cost of imported products, tariffs make them less competitive in the domestic market.
- Creating a Level Playing Field: Tariffs can help create a level playing field for domestic industries by counterbalancing advantages enjoyed by foreign competitors. These advantages may include lower production costs, access to subsidies, or different regulatory standards.
- Promoting Import Substitution: Tariffs incentivize domestic production by making imported goods more expensive. This stimulates import substitution, where domestic industries are encouraged to manufacture goods that were previously imported.
- Generating Government Revenue: Tariffs are a significant source of revenue for governments. By levying taxes on imports, governments can generate funds that can be allocated for various public purposes, including infrastructure development, social programs, and public services.
- Balancing Trade Deficits: Tariffs can be utilized to address trade imbalances and reduce trade deficits. If a country consistently imports more than it exports, imposing tariffs on certain imported goods can help reduce the trade deficit by discouraging excessive imports.
- Encouraging Domestic Industry Development: Tariffs can encourage the development and growth of domestic industries by making imported goods relatively more expensive. Higher prices on imports can incentivize domestic businesses to invest in their production capabilities, innovate, and improve efficiency.
Challenges of effective implementation of the PLI in manufacturing sector
- Targeting and Selection: Identifying the right sectors and companies for incentives is crucial to the success of the PLI scheme. Determining the sectors that have the potential for growth, job creation, and export competitiveness requires careful analysis and assessment.
- Administrative Efficiency: Efficient administration and implementation of the PLI scheme are essential. This involves the timely disbursal of incentives and the monitoring of compliance by beneficiary companies.
- Funding and Budgetary Allocation: The PLI scheme requires significant financial resources to support the incentives provided to eligible companies. Ensuring adequate funding and appropriate budgetary allocation pose challenges, especially in balancing the financial burden on the government while meeting the scheme’s objectives.
- Meeting Performance Criteria: The PLI scheme typically includes performance-based criteria that companies must meet to qualify for incentives. Ensuring that beneficiary companies adhere to these criteria and meet the prescribed benchmarks can be challenging and requires continuous monitoring and evaluation.
- Risk of Subsidy Dependence: There is a risk that companies may become overly reliant on subsidies and may not invest adequately in improving their competitiveness or innovation capabilities.
- Sector-Specific Challenges: Different sectors within the manufacturing industry have unique challenges that need to be considered during the implementation of the PLI scheme. These challenges could include technological barriers, supply chain complexities, skill gaps, or global market dynamics.
Way ahead: Addressing the structural issues in the manufacturing sector
- Infrastructure Development: Adequate and modern infrastructure, including transportation networks, power supply, logistics, and connectivity, is essential for the smooth functioning of manufacturing activities.
- Access to Finance: Availability of affordable and accessible finance is critical for the growth of the manufacturing sector, especially for small and medium enterprises (SMEs). Enhancing access to credit, promoting innovative financing mechanisms, and easing collateral requirements can help address the finance gap and support the expansion of manufacturing businesses.
- Quality of Education and Skill Development: A skilled workforce is vital for the manufacturing sector’s productivity and competitiveness. Addressing the quality of education and aligning it with the needs of the industry can help bridge the skill gap.
- Research and Development (R&D) and Innovation: Promoting R&D and innovation is crucial for enhancing the technological capabilities and competitiveness of the manufacturing sector. Encouraging investment in R&D, fostering collaboration between industry and research institutions can help drive technological advancements
- Regulatory Reforms: Simplifying and rationalizing regulatory frameworks can reduce bureaucratic burdens, enhance ease of doing business, and attract investments. Streamlining processes, reducing red tape, and ensuring transparent and efficient regulatory mechanisms can create a conducive environment for manufacturing businesses to thrive.
- Supply Chain Integration: Strengthening supply chain integration is essential for improving efficiency, reducing costs, and enhancing competitiveness.
- Sustainability and Environment: Integrating sustainability practices and adopting eco-friendly technologies are increasingly important for the manufacturing sector. Emphasizing resource efficiency, reducing carbon emissions, and promoting circular economy principles can enhance the sector’s environmental sustainability and compliance with global sustainability standards.
- Market Access and Trade Policies: Facilitating market access, reducing trade barriers, and promoting export-oriented policies are critical for the manufacturing sector’s growth and global competitiveness.
Conclusion
- The efficacy of the PLI scheme in boosting India’s domestic manufacturing and exports is a subject of debate. While targeted subsidies can stimulate growth in strategic sectors and cater to existing demand, concerns surrounding cronyism and bureaucratic control must be addressed. Focusing on improving the investment environment and addressing infrastructural and educational deficiencies will contribute to sustainable growth in the manufacturing sector.
Also read:
| Govt doubles outlay on PLI for IT hardware |
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Govt doubles outlay on PLI for IT hardware
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Production Linked Incentive (PLI) scheme
Mains level: Not Much
Central Idea
- The Union Cabinet has approved an updated version of the Production Linked Incentive (PLI) scheme for IT hardware manufacturing.
PLI Scheme for IT Hardware
- The PLI scheme for IT hardware was initially introduced in March 2021.
- It provides incentives of over 4% for incremental investment in domestic manufacturing for eligible companies, such as Dell and Flextronics.
- The scheme aims to boost domestic manufacturing, increase exports, and make India a prominent player in the IT hardware sector.
- The scheme will have a tenure of six years, providing a long-term incentive for eligible companies to invest in domestic IT hardware manufacturing.
Growth in indigenous IT hardware
- The government highlighted the growth of electronics manufacturing in India.
- There is a 17% compound annual growth rate over the past 8 years and a production benchmark of $105 billion, including $11 billion in mobile phone exports.
New changes introduced
- The budgetary outlay for the PLI scheme for IT hardware manufacturing has been set at ₹17,000 crore.
- The incentive rate has been increased to 5%, offering a higher benefit to companies investing in domestic manufacturing.
- An additional optional incentive has been introduced for using domestically produced components, although the specific rates of these incentives are not specified.
- If the optional incentives are utilized as intended, the total incentive under the scheme could amount to 8-9%.
Achievements in Telecom hardware manufacturing
- Telecom hardware manufacturing has surpassed the projected ₹900 crore and reached ₹1,600 crore.
- Some Indian companies have become significant exporters of complex radio equipment worldwide.
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Competition (Amendment) Bill passed in Lok Sabha
Note4Students
From UPSC perspective, the following things are important :
Prelims level: CCI, COMPAT
Mains level: Not Much
The Lok Sabha passed the Competition (Amendment) Bill, 2023, which could pose new challenges for global technology companies.
About Competition Act, 2022
|
Changes brought by the Amendment
(1) Penal powers to CCI
- It grants the CCI the authority to penalize entities found engaging in anti-competitive behavior based on their global turnover, rather than just their annual domestic turnover, which was the case previously.
(2) Turnover Definition
- The definition of “turnover” has been a widely debated subject in the competition law landscape.
- The Supreme Court had previously fixed the criteria for determining turnover in competition law contraventions, holding that it should be the “relevant turnover,” i.e., turnover derived from the sales of goods or services.
(3) Mergers and acquisition
- The CCI will have greater authority in mergers and acquisitions worth more than Rs 2,000 crore.
- Additionally, the time limit for approval of mergers and acquisitions has been reduced from 210 days to 150 days.
Impact on Tech Companies
- While the provision on global turnover will not be exclusively applicable to tech companies, they are likely to be the most affected by it, given the nature of their business that operates across geographies.
- Typically, the revenue earned from these companies’ India operations is much smaller than their income in other regions, such as the US and Europe.
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PM MITRA Scheme: 7 States to get textile parks
Note4Students
From UPSC perspective, the following things are important :
Prelims level: PM MITRA
Mains level: Not Much
The Centre has selected seven states in India to set up new textile parks under the PM MITRA (Mega Investment Textiles Parks) Scheme.
What is PM MITRA Scheme?
- The scheme was announced in October 2021, and the parks will be established by 2026-27.
- MITRA aims to enable the textile industry to become globally competitive, attract large investments, and boost employment generation and exports.
- It will create world-class infrastructure with plug and play facilities to enable create global champions in exports.
- It will be launched in addition to the Production Linked Incentive Scheme (PLI).
- It will give our domestic manufacturers a level-playing field in the international textiles market & pave the way for India to become a global champion of textiles exports across all segments”.
Its implementation
- An special purpose vehicle (SPV) owned by Centre and State Government will be set up for each park, which will oversee the implementation of the project.
- The Ministry of Textiles will provide financial support in the form of Development Capital Support up to ₹500 crore per park to the Park SPV.
- A Competitive Incentive Support (CIS) up to ₹300 crore per park to the units in PM MITRA Park shall also be provided to incentivize speedy implementation.
- Convergence with other Government of India schemes shall also be facilitated in order to ensure additional incentives to the Master Developer and investor units.
Envisaged Benefits
- The parks will boost the textiles sector in line with 5F (Farm to Fibre to Factory to Fashion to Foreign) vision.
- The Centre envisages an investment of nearly ₹70,000 crore into these parks, with employment generation for about 20 lakh people.
- The parks will function as centres of opportunity to create an integrated textiles value chain, right from spinning, weaving, processing, dyeing and printing to garment manufacturing, all at a single location.
Need for such scheme
- Textile industry is critical to India’s economy, employing 4.5 crore people and contributing 7% of GDP. Despite its potential, the industry is facing challenges that need to be addressed.
- The unorganized textile industry in the country increased wastage and logistical costs, impacting the competitiveness of the country’s textile sector.
Challenges Faced by India’s Textile Industry
- High input costs due to high taxes and tariffs, inadequate infrastructure, and a lack of skilled labor.
- Competition from cheaper imports (ex. from Bangladesh) and a growing informal sector.
- Environmental concerns related to the industry’s high water usage, pollution, and hazardous waste disposal.
- The pandemic further disrupted supply chains and led to reduced demand.
Conclusion
- PM MITRA Parks represent a unique model where the Centre and State Governments will work together to increase investment, promote innovation, create job opportunities and ultimately make India a global hub for textile manufacturing and exports.
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National Champions Model for Infrastructure Development: Pros and Cons
Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: National Champions Model for Infrastructure Development, Advantages and disadvantages
Central Idea
- Emerging economies struggle to provide functional and efficient infrastructure. Infrastructure has become a national aspiration good, a mechanism for job creation, and a necessity. The two biggest constraints on infrastructure provision are cost and public good component. This national champion’s model aims to incentivize private sector participation in infrastructure investments, but it also has its own set of challenges and limitations.
Traditional Financing Approaches and their Limitations
- The traditional approach to financing infrastructure has relied on tax revenues or government borrowing.
- However, this creates a vicious trap as poorer economies generate less tax revenue, which limits infrastructure investment, leading to a further spinoff that affects the growth of the economy and keeps the country poor.
- Increasing public borrowing domestically tends to crowd out private investment, exacerbating the problem.
The Public-Private Partnership Model and its Problems
- The Indian government tried to incentivize private sector participation in infrastructure investment by introducing the Public-Private-Partnership (PPP) model in the early 2000s.
- While the PPP model led to the construction of a lot of infrastructure, it ended in an avalanche of non-performing assets with public sector banks, private sector bankruptcies, accusations of widespread corruption, and a change in government in 2014.
The National Champions Model and its Innovations
- The present government has modified the PPP approach by assigning the bulk of infrastructure provisioning for roads, ports, airports, energy, and communications to a few chosen industrial houses.
- This is the national champions model where the government picks a few large conglomerates to implement its development priorities.
- This model incentivizes national champions to build projects by providing subsidies to cover the costs.
- New aspects of the National Champions Model:
- National champions need control over existing projects with strong cash flows to incentivize investment in projects with low returns and negative cash flows.
- Public association of champions with the government’s national development policy generates a competitive advantage for the champions in getting domestic and foreign contracts.
- Access to some cash-rich projects allows national champions to borrow from external credit markets by using these entities as collateral, which lowers the cost of finance of other.
Benefits of National Champions Model
- Economic growth: National champions can contribute to economic growth by generating revenue, creating jobs, and investing in research and development.
- Strategic importance: The model can help ensure that the country has a strong presence in strategically important industries, such as defense or energy, which can be critical to national security.
- Export competitiveness: National champions can become leaders in their respective markets and compete effectively in global markets, which can increase exports and improve the country’s trade balance.
- Innovation: National champions can invest heavily in research and development, leading to technological advancements that can benefit the broader economy.
- Access to capital: National champions may be able to access capital more easily than smaller companies, allowing them to make larger investments and pursue growth opportunities.
The Problems with the National Champions Model
- Too big to fail: Market and regulatory treatment of conglomerates as too big to fail. This means that these companies are so large and important to the economy that their failure could cause widespread harm to the financial system and the economy as a whole. This opens the door to market hysteria, delayed discovery of problems, and spillovers of sectoral problems into systemic shocks. The recent troubles of the Adani companies in India highlight the potential risks associated with this approach.
- Encouraging market concentration that can be bad for efficiency and productivity: Concentrated markets reduce competition and can lead to higher prices, lower quality, and reduced innovation. When firms have market power, they have less incentive to improve their products or services, reduce costs, or innovate. This can result in lower overall productivity in the economy.
- The risk of turning the country into an industrial oligarchy: An industrial oligarchy is where a small group of powerful and influential conglomerates control a large portion of the economy. This can have negative consequences for economic growth, social mobility, and political stability. An oligarchy may be resistant to change and less responsive to the needs and aspirations of the broader population.
- Uneven playing field: The optics of an uneven playing field in terms of market access and selective regulatory forbearance that can become a significant deterrent for foreign investors.
Conclusion
- While infrastructure is a necessary condition for growth, it is not a sufficient one. Effective demand is the problem, as seen in the power sector, where the inability of the power distribution companies to recover payments was the issue. India is at an inflection point in its development path, and the national champions model has its pros and cons that needs to be analyzed before its consideration.
Mains Question
Q. What is National Champions Model for Infrastructure development in India? Discuss its advantages and disadvantages.
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Industry pushes separate Ministry for Microenterprises
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MSMEs categorization
Mains level: Read the attached story
Central Idea: The Consortium of Indian Associations (CIA) has suggested the formation of an independent ministry for the self-employed and microenterprises to address specific issues concerning the sector.
Why demand for new Ministry?
- Micro entrepreneurs continue to be governed by complicated and outdated laws and dispensable compliance burdens.
- Despite the government’s efforts, MSMEs in India face several challenges such as access to finance, lack of skilled labor, and inadequate infrastructure.
- New ministry might help in providing different types of support and benefits from the government, such as access to credit, subsidies, and tax exemptions.
What are Microenterprises?
- Microenterprises are small businesses that typically have a small number of employees, limited assets, and low levels of annual turnover or revenue.
- The term “microenterprise” is often used interchangeably with “microbusiness” or “micro firm.”
- Microenterprises can be found in a wide range of sectors, including retail, manufacturing, and services.
- Examples of microenterprises include small retail shops, food stalls, street vendors, small manufacturing units, and service providers such as plumbers, electricians, and small-scale service providers.
Features of Microenterprises
- In general, microenterprises are considered the smallest type of business.
- They are typically characterized by their low capital investment and simple production processes.
- These businesses are often started by entrepreneurs who are seeking self-employment and a means to earn a livelihood.
Why are they important?
- Employability: Microenterprises are an important part of many economies, especially in developing countries, where they can provide vital employment opportunities and contribute to economic growth.
- Scale of business: Such enterprises have huge potential of business penetration at household and domestic level by providing a range of services.
Microenterprises in India
- According to the Ministry of Micro, Small and Medium Enterprises (MSMEs), there are approximately 6.3 crore (63 million) MSMEs in India, which employ around 11 crore (110 million) people.
- In India, MSMEs are classified based on their investment in plant and machinery or equipment, as well as their annual turnover.
- The classification of MSMEs is as follows:
- Micro Enterprises: Micro enterprises are the smallest type of enterprises and have a lower investment limit than the other two categories. For manufacturing enterprises, the investment limit is up to Rs. 1 crore in plant and machinery, while for service enterprises, the investment limit is up to Rs. 50 lakh. The turnover limit for both types of enterprises is up to Rs. 5 crore.
- Small Enterprises: Small enterprises are those that have an investment in plant and machinery or equipment between Rs. 1 crore to Rs. 10 crore. For service enterprises, the investment limit is between Rs. 50 lakh to Rs. 2 crore. The turnover limit for both types of enterprises is between Rs. 5 crore to Rs. 50 crore.
- Medium Enterprises: Medium enterprises have a higher investment limit than small enterprises. For manufacturing enterprises, the investment limit is between Rs. 10 crore to Rs. 50 crore, while for service enterprises, the investment limit is between Rs. 2 crore to Rs. 5 crore. The turnover limit for both types of enterprises is between Rs. 50 crore to Rs. 250 crore.
Various initiatives
The government of India has taken several initiatives to support the growth of MSMEs in the country, such as:
- Udyam Portal: The government has introduced a new registration process called Udyam Registration to make it easier for MSMEs to register and avail of various government schemes and benefits.
- Credit Guarantee Fund Scheme: The Credit Guarantee Fund Scheme provides collateral-free loans to MSMEs from banks and other financial institutions.
- Cluster Development Programme: The government has launched the Cluster Development Programme to enhance the competitiveness of MSMEs by providing support for infrastructure, technology, and marketing.
- National SC-ST Hub: The National SC-ST Hub aims to promote entrepreneurship among Scheduled Castes and Scheduled Tribes by providing support for capacity building, market linkages, and access to finance.
- Technology Upgradation: The government provides financial support to MSMEs for technology upgradation through various schemes such as the Technology Upgradation Fund Scheme and the Credit Linked Capital Subsidy Scheme.
Way forward
If the govt. is to consider creating a separate ministry for microenterprises, there are several steps that could be taken to ensure its effectiveness:
- Defining clear objectives: This should be based on a thorough understanding of the challenges faced by microenterprises and the opportunities available to them.
- Coordination with other ministries: The new ministry should coordinate with other ministries to ensure that the policies and initiatives developed are aligned with the broader economic and social objectives of the government.
- Developing policies and initiatives: The ministry should develop policies and initiatives that address the specific needs of microenterprises in India such as access to finance, technology, and markets.
- Strengthening institutional capacity: The ministry should have a strong institutional capacity to implement policies and initiatives effectively. This could involve recruiting experts in the field of microenterprises and strengthening the capacity of existing institutions.
- Creating awareness: The ministry should create awareness among microenterprises about the support and services available to them. This could involve organizing workshops and training programs, as well as leveraging digital platforms to disseminate information.
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What are Lab-Grown Diamonds?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Lab grown diamonds
Mains level: Not Much
During her Budget speech, Finance Minister announced the government’s move to focus on lab-grown diamonds (LGDs).
What did the FM announce?
- Customs duty on the seeds used in lab-grown diamond manufacturing will be reduced, announced the finance minister.
- She also announced a grant to IITs to facilitate the growth of LGDs in India.
What are Lab-Grown Diamonds (LGD)?
- Lab-grown diamonds are diamonds that are produced using specific technology which mimics the geological processes that grow natural diamonds.
- They are not the same as “diamond simulants” – LGDs are chemically, physically and optically diamond and thus are difficult to identify as “lab-grown.”
- While materials such as Moissanite, Cubic Zirconia (CZ), White Sapphire, YAG, etc. are “diamond simulants” that simply attempt to “look” like a diamond.
- LGDs have basic properties similar to natural diamonds, including their optical dispersion, which provide them the signature diamond sheen.
- They lack the sparkle and durability of a diamond and are thus easily identifiable.
- However, differentiating between an LGD and an Earth Mined Diamond is hard, with advanced equipment required for the purpose.
How are LGDs produced?
There are multiple ways in which LGDs can be produced.
- High pressure, high temperature (HPHT) method: This method requires extremely high pressure, high temperature presses that can produce up to 730,000 psi of pressure under extremely high temperatures (at least 1500 Celsius). Usually graphite is used as the “diamond seed” and when subjected to these extreme conditions, the relatively inexpensive form of carbon turns into one of the most expensive carbon forms.
- Other processes: These include “Chemical Vapor Deposition” (CVD) and explosive formation that creates what are known as “detonation nano-diamonds”.
What are LGDs used for?
(1) Production
- For instance, LGDs are most often used for industrial purposes, in machines and tools. Their hardness and extra strength make them ideal for use as cutters.
- Furthermore, pure synthetic diamonds have high thermal conductivity, but negligible electrical conductivity.
(2) Electronics industry
- This combination is invaluable for electronics where such diamonds can be used as a heat spreader for high-power laser diodes, laser arrays and high-power transistors.
(3) Jewelleries
- Lastly, as the Earth’s reserves of natural diamonds are depleted, LGDs are slowly replacing the prized gemstone in the jewellery industry.
- Crucially, like natural diamonds, LGDs undergo similar processes of polishing and cutting that are required to provide diamonds their characteristic lustre.
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Opportunity to unlock the full Potential of MSMEs
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Particulars of MSME sector reforms
Mains level: MSME significance and challenges
Context
- India overtook the UK as the world’s fifth-largest economy in 2022, and is on track to achieving PM Narendra Modi’s vision of a $5 trillion economy by 2026-27. Despite concerns of a looming global recession, supply disruptions and the Russia-Ukraine war, India has stood out as a bright spot, growing faster than most major emerging markets. The government’s budget for 2023 presents an opportunity to make the Indian MSMEs competitive and self-reliant.
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What are MSMEs? How are they defined?
- Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which was notified on October 2, 2006, deals with the definition of MSMEs. The MSMED Act, 2006 defines the Micro, Small and Medium Enterprises based on:
- The investment in plant and machinery for those engaged in manufacturing or production, processing or preservation of and
- The investment in equipment for enterprises engaged in providing or rendering of services.
MSMEs in India at present
- The 6.3 crore micro, small and medium enterprises which account for 30 per cent of GDP and employ nearly 11 crore people have demonstrated this spirit of resilience.
- With sales in several industries across the MSME sector reaching 90 per cent of pre-pandemic levels, India’s small businesses are scripting a turnaround.
Union budget 2023: An opportunity to make MSMEs more competitive and self-reliant
- Streamlining input tax credit for e-commerce suppliers: Currently, suppliers selling on e-commerce platforms need to procure input services like logistics, which are taxed at 18 per cent. This leads to precious working capital getting blocked without any visibility of future realisation, potentially discouraging suppliers from adopting e-marketplaces.
- Adequate working capital for small businesses: From meeting fixed expenses such as electricity, rent and employee wages to investing in future growth, adequate working capital is a must for small businesses.
- Lowering GST rates on input services: By lowering GST rates on input services availed by online sellers, the government will not only shore up their finances but also give a leg-up to their digitisation journey. Further, refunds of accumulated input tax credit will improve their cash flow situation.
- Expedited GST relaxation for small online businesses: There is also a need to expedite GST relaxation for small online businesses. In a landmark move last year, the GST Council announced a relaxation of rules for small businesses looking to go online.
- GST relaxation measures for small online vendors: Among other measures, mandatory GST registration was waived for small online vendors with a turnover of less than Rs 40 lakh and Rs 20 lakh for goods and services, respectively.
- Unlocking the potential of MSMEs through Digitization: With just 10 per cent of our MSMEs currently online, expeditious implementation of these new norms is key to unlocking their full potential. Millions of small businesses are waiting in the wings, hoping to reap the benefits of digitisation such as a much bigger addressable market, increased efficiencies and easier access to capital.
- The National Logistics Policy (NLP) can also be leveraged to make MSMEs competitive: The NLP aims to bring down logistics costs as a percentage of the GDP from 13-14 per cent to 8 per cent, on par with developed nations. While lower costs will encourage more MSMEs to use tech-powered logistics services, they will need support to tap rising e-commerce demand from smaller towns and semi-rural areas.
- Indian post and railways can be utilized for cost effective last mile delivery: The government could rope in India Post as a tech-enabled last-mile delivery partner that can facilitate cash-on-delivery transactions at competitive prices. Similarly, the unparalleled reach of Indian Railways can be synergised to ship wares to the remotest parts of the country quickly and cost-effectively.
Why the MSME sector is important especially for India?
- Employment: The Indian MSME sector provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector.
- Help building inclusive and sustainable society: It contributes to building an inclusive and sustainable society in innumerable ways through the creation of non-farm livelihood at low cost, balanced regional development, gender and social balance, environmentally sustainable development, etc.
- For example: Khadi and Village industries require low per capita investment and employs a large number of women in rural areas.
- Contribution to GDP: With around 36.1 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities.
- Exports: It contributes around 45% of the overall exports from India.
Conclusion
- With a visionary government charting out the nation’s growth path, it is anticipated that the budget would certainly deliver on the challenges for MSMEs and take us closer to the dream of an Atmanirbhar Bharat.
Mains question
Q. Highlight the significance of MSME’s for India. What more efforts can be taken to make MSMEs more competitive and self-reliant?
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What is Purchasing Managers Index (PMI)?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: PMI
Mains level: Not Much
India’s Services sector reported a sharp growth with Services Purchasing Managers’ Index (PMI) surging to 58.5 last month from 56.4 in November 2022.
Purchasing Managers’ Index (PMI)
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate.
- If it is lower than the previous month then it is growing at a lower rate.
What are its implications for the economy?
- The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
- It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
- Central banks of many countries also use the index to help make decisions on interest rates.
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Principles of Financial Consumer Protection
Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: Financial Consumer Protection
Context
- Earlier this year, the G20/OECD released a draft of the proposed revisions to their 2011 High-level Principles on Financial Consumer Protection. As India takes over G20 presidency in December, it must lead others by example and adopt the revised principles, especially since the global financial markets are headed for a stormy future.
What is Financial Consumer Protection (FCP)?
- Financial consumer protection encompasses the laws, regulations, and institutional arrangements that safeguard consumers in the financial marketplace. It includes technical guidance, country reports, and tools for policymakers, regulators, development partners and other experts.
Background of Financial Consumer Protection
- 10 thematic areas: The 2011 principles covered 10 thematic areas reflecting the market and consumer issues, including equitable and fair consumer treatment, disclosures and transparency, and financial education.
- Two additional principles included: In October, the fourth finance ministers and central bank governors meeting endorsed these principles. In 2022, two additional principles were included access and inclusion and quality financial products.
- Recommendation for intervention: The updated principles also recommend intervention by regulators in certain high-risk products, cultivating appropriate firm culture and using behavioral insights to better consumer outcomes.
- These principles deal with three cross-cutting themes
- Financial well-being,
- Digitalization and
- Sustainable finance.
Financial well-being under Financial Consumer Protection
- Individual financial well-being: OECD’s working definition of “individual financial well-being” refers to being in control, feeling secure and having freedom about one’s own current and future finances.
- Easy disclosure to consumers: An effective FCP regime must ensure adequate and easy to understand disclosures to consumers. However, an information dump for mere compliance defeats this purpose, especially in India where financial literacy is not pervasive.
- Risk profiling by service provider: Regulators such as SEBI prescribe certain financial service providers to assess customer suitability and undertake risk profiling before providing services.
- India does not recognize this theme: At present, India does not recognise this concept. Going forward, faced with challenges like financial illiteracy and economic hardship, it may be worth considering.
Digitization under FCP
- Increasing digital channels in financial domain: FCP must factor in the increasing number of digital channels consumers use to interact with financial products and services and the impact of greater use of artificial intelligence and other emerging technologies.
- Guideline on digital lending by RBI: In September, the RBI released guidelines on digital lending, mandating entities providing digital lending services to have a grievance redress officer, assess a borrower’s creditworthiness before extending credit, and allow a borrower to exit without penalty.
- Poor grievance redressal: Additionally, there are concerns regarding redress of grievances against payment service providers in the UPI ecosystem. With the rising number of UPI transactions and the largely unregulated status of cryptocurrencies, FCP will continue to be relevant.
Sustainable finance under FCP
- Multi-dimensional approach: There is growing consumer demand for sustainable financial investments. Financial services providers are incorporating environmental, social and governance factors into their operations, products and services.
- Transparency is must: FCP recommends improved transparency to help consumers make informed choices.
- BRSR by SEBI: SEBI has transitioned from “business responsibility reporting” to “business responsibility and sustainability reporting” (BRSR) to promote responsible corporate governance vis-à-vis climate change.
- Mandatory disclosure by BRSR: Eligible companies under BRSR must provide certain disclosures, including a sustainability performance report. This allows investors to make an informed decision. Similar disclosures must be introduced in other market segments.
Conclusion
- The RBI’s financial inclusion index shows that an increasing number of people are entering financial markets. FCP is central to ensuring that they continue to stay. The current regulatory landscape is sectoral and fragmented, resulting in regulatory arbitrage, as witnessed in the case of digital gold. Regulators must take a coordinated approach to protect consumers.
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National Investment and Infrastructure Fund (NIIF)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: National Investment and Infrastructure Fund
Mains level: Not Much
Finance Minister has urged the National Investment and Infrastructure Fund (NIIF) to expand its operations and explore ways to crowd in private capital for projects under the National Infrastructure Pipeline, PM Gati Shakti and National Infrastructure Corridor.
What is NIIF?
- National Investment and Infrastructure Fund (NIIF) is India’s first infrastructure specific investment fund or a sovereign wealth fund that was set up in February 2015.
- The objective behind creating this fund was to maximize economic impact mainly through infrastructure investment in commercially viable projects, both Greenfield and Brownfield.
- It was proposed to be established as an Alternative Investment Fund to provide long tenor capital for infrastructure projects with an inflow of ₹20,000 crore from the GoI.
- It was registered with SEBI as Category II Alternative Investment Fund.
Types of funds in NIIF
- NIIF manages three funds: Master Fund, Fund of Funds and Strategic Fund.
- The funds were set up to make investments in India by raising capital from domestic and international institutional investors.
- Master Fund: It is an infrastructure fund with the objective of primarily investing in operating assets in the core infrastructure sectors such as roads, ports, airports, power etc.
- Fund of Funds: The Fund of Funds anchor and/or invest in funds managed by fund managers who have good track records in infrastructure and associated sectors in India. Some of the sectors of focus include Green Infrastructure, Mid-Income & Affordable Housing, Infrastructure services and allied sectors.
- Strategic Opportunities Fund: It is registered as an Alternative Investment Fund II under SEBI in India. Its objective is to invest largely in equity and equity-linked instruments. It has been established to provide long-term capital to strategic and growth oriented sectors in the country with the aim to build domestic leaders.
Functions of NIIF
The functions of NIIF are as follows:
- Fund raising through suitable instruments including off-shore credit enhanced bonds, and attracting anchor investors to participate as partners in NIIF;
- Servicing of the investors of NIIF.
- Considering and approving candidate companies/institutions/ projects (including state entities) for investments and periodic monitoring of investments.
- Investing in the corpus created by Asset Management Companies (AMCs) for investing in private equity.
- Preparing a shelf of infrastructure projects and providing advisory service
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Declining Consumer Demand and Reluctant Investors
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Corporate Investment, demand situation and related issues
Context
- In September, Finance Minister Nirmala Sitharaman was anguished that industry was holding back from investing in manufacturing despite a significant cut in corporate tax rates in 2019.
Analyzing the corporate Investment since the pandemic
- Less investment is not the result of losses: The slowdown in corporate investment did not happen because companies were making losses.
- More profit but less investments by corporates: In fact, private companies, boosted by considerable tax cuts, made windfall profits. A State Bank of India analysis shows that tax cuts contributed 19% to the top line of companies during the pandemic. But this did not result in increased investments.
- Dividends to shareholders: Before the pandemic, instead of investing in themselves, companies chose to reward shareholders with higher dividends.
- Investment in equity and debt instead of Infrastructure: During the pandemic, they did not use the profits for paying out dividends; they retained a big chunk of the profits. However, instead of investing in buildings, plants and machinery, they invested in equity shares and debt instruments.
- Corporate cited the slowdown in demand as reason for less investment: So, both before and after the outbreak, they shied away from capital investments. The hesitancy to invest can be explained by a slowdown in the demand side of the economy.
- Corporates didn’t invest in long term returns sectors: Consumer demand started to decline the year before the pandemic and worsened after the COVID19 outbreak. This forced companies to use the increased profits to decrease their debts, pay dividends and invest in financial instruments instead of increasing productivity by making capital investments.
What is The current consumer’s demand situation?
- Average Consumer sentiment index: Private companies invest when they are able to estimate profits, and that comes from demand. The Centre for Monitoring Indian Economy’s (CMIE) consumer sentiment index is still below pre-pandemic levels but is far higher than what was seen 12-18 months ago.
- Buoyant Aggregate demand: RBI’s Monetary policy report dated September 30 says, Data for Q2 (ended Sept) indicate that aggregate demand remained buoyant, supported by the ongoing recovery in private consumption and investment demand. It shows that seasonally adjusted capacity utilization rose to 74.3% in Q1 the highest in the last three years.
- High household savings: Along with household savings intentions remaining high, might hold the key to the investment cycle kicking in.
Statistic on demand and investment
- New investment projects: The new investment projects announced as a % of GDP, since FY18, the share has remained below the 5% mark, compared to over 9% between FY05 and FY22.
- Collection of corporate tax decreased: Corporate tax and income tax collected in India as a % of GDP after the cut in 2019, the share of corporate tax declined dramatically, while the share of income tax gradually increased.
- Double burden on tax payers: The shift in tax burden from the corporates to the people came at a time of job losses and reduced income levels. This pushed more people into poverty.
- Corporate profit increased after tax cut: Profit after tax earned by non-financial private companies in ₹ trillion after the tax cut, the profits of these companies rose to ₹4-5 trillion in the last two financial years from ₹1-2 trillion in many of the previous periods.
- Increase and decrease in dividend to shareholders: Dividends paid by non-financial private companies as a share of profits earned after tax, Payouts to shareholders surged in FY20, the year before the pandemic, but reduced in the following years.
- Profit retention increased: Retained profits as a % of profit after tax surged to 63% in FY22 the highest in a decade (limited companies were analyzed in FY22, so data are provisional).
- Profits are invested in equities: In FY21, the debt-to-equity ratio came down to 0.86 the lowest in at least three decades. In FY22 (provisional data), it came down further to 0.71.
- Year on year decline in capital investment: Year on year change in the investments of non-financial private companies in fixed assets such as buildings, plants, machinery, transport and infrastructure have declined in recent years. But the year on year change in investments in financial instruments such as equity, debt and mutual funds have surged.
Conclusion
- Corporates are holding their pockets in hope of demand rise in future. However, this affects the post-pandemic recovery of economy. IMF and RBI was right to revise their growth forecast this year. Unequal recovery of economy have certainly affected the income levels of middle class. Government has taken a lot of step on supply side (corporate side and banking reform) but no intervention in revival of demand.
Mains Question
Q. Analyze the corporate investment pattern before and after the pandemic? What are the reasons for decline in corporate investment in fixed assets in economy since the pandemic?
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C295 and India’s aircraft industry
Note4Students
From UPSC perspective, the following things are important :
Prelims level: C-295
Mains level: Aerospace industry in India
Recently, PM laid the foundation stone for the C-295 transport aircraft manufacturing facility in Vadodara to be set up by Airbus Defence and Space and Tata Advanced Systems Limited (TASL).
Why is it making headlines?
- This is the first time a private sector company would be manufacturing a full aircraft in the country.
- This is a huge step forward for India in the global aircraft manufacturing domain.
What is the C-295MW transporter?
- The C-295MW is a transport aircraft of 5-10 tonne capacity which will replace the legacy Avro aircraft in the Indian Air Force (IAF) procured in the 1960s.
- It was originally produced by a Spanish aircraft manufacturer.
- This company is now part of Airbus and the aircraft’s manufacturing takes place at Airbus’s plant in Spain.
Why c-295MW?
- The C-295 has very good fuel efficiency and can take off and land from short as well as unprepared runways.
- As a tactical transport aircraft, the C295 can carry troops and logistical supplies from main airfields to forward operating airfields of the country.
- It can operate from short airstrips just 2,200 feet long and can fly low-level operations for tactical missions flying at a low speed of 110 knots.
- The aircraft can additionally be used for casualty or medical evacuation, performing special missions, disaster response and maritime patrol duties.
A boost to domestic aircraft manufacturing
- Over the last two decades, Indian companies, both public and private, have steadily expanded their footprint in the global supply chains of major defence and aerospace manufacturers.
- They do supply a range of components, systems and sub-systems.
India’s collaboration with top firm
- Boeing’s sourcing from India stands at $1 billion annually, of which over 60% is in manufacturing, through a growing network of 300+ supplier partners of which over 25% are MSME.
- Tata in a joint venture (JV) with Boeing, manufactures aero-structures for its AH-64 Apache helicopter, including fuselages, etc.
- It also makes Crown and Tail-cones for Boeing’s CH-47 Chinook helicopters.
- Similarly, Lockheed Martin has joint ventures with TASL in Hyderabad which has manufactured crucial components for the C-130J Super Hercules transport aircraft.
How this has become possible?
- The US is simplifying its export regulations for India, through a series of measures.
- As US and India together pursue the Indo-Pacific strategy and are enhancing technology prowess.
Boost to India’s civil aviation sector
- India has a much bigger footprint in civil aviation manufacturing than defence, in addition to being a major market itself.
- Both Airbus and Boeing do significant sourcing from India for their civil programmes.
- According to Airbus every commercial aircraft manufactured by them today is partly designed and made in India.
- India now has world’s fastest-growing aviation sector and it is about to reach the top three countries in the world in terms of air traffic.
- Another major growing area is Maintenance, Repair and Overhaul (MRO) for which India can emerge as the regional hub.
Conclusion
- The private defence sector is still nascent and a conducive and stable regulatory and policy environment will be an important enabler.
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Competition panel penalizes Google
Note4Students
From UPSC perspective, the following things are important :
Prelims level: CCI
Mains level: Not Much
The Competition Commission of India (CCI) has imposed a ₹1,337.76-crore penalty on Google for abusing its dominant position in multiple markets in the Android mobile device ecosystem.
What did Google do?
- Google had abused its dominance in the licensing of its operating system for smart mobile devices, app store market for Android smart mobiles among others.
- The CCI examined various practices of Google with respect to its licensing and various proprietary mobile applications, including Play Store, Google Search, Google Chrome, YouTube, etc.
About Competition Commission of India
- CCI is the competition regulator in India.
- It is a statutory body responsible for enforcing The Competition Act, 2002 and promoting competition throughout India and preventing activities that have an appreciable adverse effect on competition in India.
- It was established on 14 October 2003. It became fully functional in May 2009.
Its establishment
- A need was felt to promote competition and private enterprise especially in the light of 1991 Indian economic liberalization.
- The idea of CCI was conceived and introduced in the form of The Competition Act, 2002 by the Vajpayee government.
- The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws.
- The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises, and regulates combinations (acquisition, acquiring of control, and Merger and acquisition), which causes or likely to cause an appreciable adverse effect on competition within India.
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Bringing Business friendly Industrial Laws
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Holistic decriminalisation Bill
Mains level: Holistic decriminalisation Bill ,advantages and MSME's,Ease of doing business
Context
- The government’s proposal to bring a “holistic decriminalisation” bill in the Winter Session of Parliament, If gets enacted into law, it will be one of India’s greatest reforms since 1991. One of the objectives of this proposed law is to “end harassment and reduce compliance burden on businesses.
What is Holistic decriminalisation Bill?
- A new holistic decriminalisation bill is set to amend burdensome provisions in laws related to businesses.
- Union Minister of Commerce and Industry, Piyush Goyal said that the Decriminalising sections of various laws will end the harassment faced by businesses and reduce compliance burden. Seeking quick industry feedback on problematic areas that can be covered in the proposed Bill.
What is the status of existing laws in India?
- Burden of Imprisonment clauses: Business regulatory universe comprises 1,536 laws, of which more than half, or 843 laws, carry imprisonment clauses. Under these laws, there are 69,233 compliances businesses face as an aggregate, of which almost two out of five, or 26,134, carry imprisonment clauses.
- Union and state legislations on the compliance: Of the 843 laws with imprisonment clauses, 28.9 percent, or 244 laws, have been enacted by Parliament; the rest by State legislatures and rules. Of the 26,134 compliances that carry imprisonment clauses, a fifth, or 5,239 clauses are situated in Union laws.
- No institutional support for informal sector: Of the 69 million enterprises in India, only 1 million are formal employers; as a result, the remaining informal enterprises get no access to institutional capital, talent, or supply chains.
- Smaller the better attitude: India’s predatory and rent-seeking policy infrastructure ensures that businesses choose to remain under the regulatory radar—small may not be beautiful but it is certainly safe. For instance, a small business with 150 employees or more has to deal with 500 to 900 compliances a year, on which it can end up spending up to INR 12-18 lakhs by hiring consultants to be compliant with labour laws, taxes, factories, and so on.
- Burden of compliance is cost-effective: Creating a regulatory bias against small businesses once a line of scale is crossed, managing a compliance department becomes cost-effective; until then, for the small business owner-manager, compliances becomes a risk-management strategy, almost an economic activity.
Why such reforms in business laws are necessary?
- To attract more investment: When viewed through the lens of the government’s intention to make India an investment destination for global and domestic capital, it would be a reform that should end the endemic of harassment, corruption, and rent-seeking by officials of the Union government.
- To end corruption at state level: Corruption by officials of state governments will end when criminal provisions in State laws and rules get similarly rationalised; some of these will get rationalised with amendments to Union laws that are enforced by state governments.
- Encouraging the entrepreneurial spirit: Regulatory framework is cumulative policy actions of the three arms of the State the executive, the legislature, and the judiciary using instruments of legislations, rules, regulations, or orders, to create or raise barriers to a smooth flow of ideas, organisation, money, and, most importantly, the flow of the entrepreneurial spirit.
What are the recommendations for Holistic decriminalization?
- Amend the overreaching laws: Reform all compliances with overarching legislation, across ministries and departments. Smaller steps being taken to ease doing business in India, such as shifting the responsibility under the Legal Metrology Rules from directors to executives, should converge into this single bill.
- There should be Justifiable imprisonment: Use criminal penalties in business laws with extreme restraint the idea of using a criminal clause as a default option should be done away with and replaced by a justification for imprisonment, including the term in jail.
- Ending the criminalisation: End the criminalisation of all compliance procedures such as filing on a wrong form or mislabelling.
- Introducing new laws: Introduce sunset clauses for all imprisonment clauses this needs a new enabling law as a precursor.
- Bringing extensive Digitisation: Digitise all compliance filings, as has been done by the income tax department.
- Focus on paperless work: Convert every department that acts as a regulatory body to go paperless and faceless. This should look beyond merely creating a website and uploading records. This will enable automated record reconciliation, identify leakages, detect frauds, and flag discrepancies.
- More such steps in the right direction: By reducing the compliance burden such that it ends harassment, the government is moving in the right direction. To prevent any policy holes left after the passage of the bill into an act, this is a law that needs to be studied hard, debated well, and only then enacted. Of course, there will be political opposition. It is up to the government to ignore the rhetoric and embrace the solutions for the greater good of the country.
Conclusion
- The country is getting ready for third-generation reforms. Among them are reforms that rationalise compliances and imprisonment clauses—retain a handful, reduce or remove most, compound the rest and turn physical imprisonment into financial penalties. The Inspector Raj, expressed through the colonial, corrupt, and rent-seeking policy infrastructure, must be disassembled and jobs, wealth, and large enterprises created.
Mains Question
Q. Why current industrial policy and laws are causing the harassment of entreprenuers? Discuss the reforms needed in the light of proposed “ Holistic Discrimination” Bill.
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Analysing Insolvency and bankruptcy Code
Note4Students
From UPSC perspective, the following things are important :
Prelims level: what is IBC
Mains level: IBC reforms
Context
- Speaking at the Sixth anniversary of the insolvency and bankruptcy Board of India (IBBI) on October 1, Union Finance Minister Nirmala Sitharaman said that the country could not afford to lose the “sheen” of its insolvency law, the Insolvency and Bankruptcy code(IBC)
What is Insolvency?
- Simply speaking, insolvency is a financial state of being one that is reached when you are unable to pay off your debts on time.
- Insolvency is essentially the state of being that prompts one to file for bankruptcy. An entity a person, family, or company becomes insolvent when it cannot pay its lenders back on time.
- Typically, those who become insolvent will take certain steps toward a resolution. One of the most common solutions for insolvency is bankruptcy.
What is Bankruptcy?
- Bankruptcy, on the other hand, is a legal process that serves the purpose of resolving the issue of insolvency.
- Bankruptcy is a legal declaration of one’s inability to pay off debts. When one files for bankruptcy, one obliges to pay off what is owed with help from the government.
What is Insolvency and Bankruptcy Code (IBC)?
- In a growing economy, a healthy credit flow and generation of new capital are essential.
- When a company or business turns insolvent or “sick”, it begins to default on its loans.
- In order for credit to not get stuck in the system or turn into bad loans, it is important that banks or creditors are able to recover as much as possible from the defaulter, as quickly as they can.
Why the IBC introduced?
- Increasing Non Performing Assets: In 2016, at a time when India’s Non Performing Assets and debt defaults were piling up, and older loan recovery mechanisms were performing badly, the IBC was introduced to overhaul the corporate distress resolution regime in India.
- Time bound mechanism: To consolidate previously available laws to create a time bound mechanism with a creditor in control model as opposed to the debtor in possession system.
- Two positive outcomes: When insolvency is triggered under the IBC, there can be just two outcomes: resolution or liquidation. liquidation means the process of winding up a corporation or incorporated entity
Importance of the Insolvency and bankruptcy code
- Resolution: First objective is finding a way to save a business through restructuring, change in ownership, mergers etc.
- Maximising the value: The second objective is to maximise the value of assets of the corporate debtor maximise the value .
- Credit facility: To promote entrepreneurship, availability of credit, and balancing the interests of all stakeholders.
- Easy exit: The Insolvency and Bankruptcy Code would provide such an environment to ensure easy exit for sick companies and help the country to improve its position in ease of doing business.
- Speedy winding up: The bankruptcy code will make it easier for companies to wind up failed businesses and bring India on a par with developed nations in terms of resolving bankruptcy issues.
- Time bound disposal: Timeliness is key here so that the viability of the business or the value of its assets does not deteriorate further. It minimizes the problem of delay as there are strict timelines within which the case has to be disposed off. Quick disposal of cases will maximize the recovery amount.
- Information database: It prepares a database to provide information on the insolvency status of individuals. In addition to this, specialized insolvency professionals helps in guiding through the process.
- Easy process of claim: Easy process of claim by the creditors also encourages financial institutions to extend credit facilities thus strengthening the financial markets with increased availability of credit for business.
What are the challenges before IBC?
- Weak Resolution: IBBI data for the 3,400 cases admitted under the IBC in the last six years, more than 50% of the cases ended in liquidation, and only 14% could find a proper resolution.
- Increasing deadlines: The IBC was thus initially given a 180 day deadline to complete the resolution process, with a permitted 90 day extension. It was later amended to make the total timeline for completion 330 days is almost a year.
- In FY22, it took 772 days to resolve cases involving companies that owed more than 1,000 crore. The average number of days it took to resolve such cases increased rapidly over the past five years.
- On Haircuts (Debts that banks forgo):The Parliamentary Standing Committee on Finance pointed out in 2021 that in the five years of the IBC, creditors on an average had to bear an 80% haircut in more than 70% of the cases.
- As per The Hindu Data Team, in close to 33 of 85 companies so far that owed more than 1,000 crore, lenders had to take above 90% haircuts. In case of the resolution of the Videocon Group for instance, creditors bore a haircut of 95.3%.
What are experts saying?
- Addressing the delays: In order to address the delays, the Parliamentary Standing Committee suggested that the time taken to admit the insolvency application and transfer control of the company to a resolution process, should not be more than 30 days after filing the case.
- New mechanism: The IBBI has also called for a new yardstick to measure haircuts. It suggested that haircuts not be looked at as the difference between the creditor’s claims and the actual amount realized but as the difference between what the company brings along when it enters IBC and the value realized.
Conclusion
- Insolvency and Bankruptcy Code is a comprehensive and systemic process, which gives a quantum leap to the functioning of the credit market. However, it is the need of the hour to find new and innovative alternatives to make this system comprehensible and address the challenge of delay and resolution.
Mains Question
Q. Insolvency and Bankruptcy Code (IBC) is a comprehensive and systemic process, which gives a quantum leap to the functioning of the credit market. Discuss the challenges and way ahead in the resolution mechanism of IBC.
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What is Purchasing Managers Index (PMI)?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Manufacturing Purchasing Managers’ Index (PMI)
Mains level: India's manufacturing sector slowdown
India’s manufacturing sector experienced its slowest expansion in September since June, the S&P Global India Manufacturing Purchasing Managers’ Index (PMI) indicated, with the index easing to 55.1 from August’s 56.2.
PMI improves
- A PMI reading above 50 indicates an increase in firms’ activity levels, and September marked the 15th straight month of growth in manufacturing activity.
Purchasing Managers’ Index (PMI)
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate.
- If it is lower than the previous month then it is growing at a lower rate.
What are its implications for the economy?
- The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
- It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
- Central banks of many countries also use the index to help make decisions on interest rates.
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Adani’s global footprint and India’s infrastructure diplomacy
Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: Infrastructure diplomacy
Context
- From mines to ports and logistics, the Adani conglomerate has been expanding across sectors, regions. This has gone hand in hand with India’s diplomatic and strategic outreach towards infrastructure diplomacy.
What is infrastructure?
- Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function.
What are the features of infrastructure?
- Power and the source of its production such as coal and oil;
- Roads and road transport;
- Railways;
- Communication, especially telecommunication;
- Ports and airports; and.
- For agriculture, irrigation constitutes the important infrastructure.
What is infrastructure diplomacy?
- Infrastructure diplomacy is to promote infrastructure cooperation and economic ties overseas through political means and to enhance political trust between countries via collaboration in infrastructure development.
Why in news?
- “Several foreign governments are now approaching us to work in their geographies and help build their infrastructure. Therefore, in 2022, we also laid the foundation to seek a broader expansion beyond India’s boundaries,” chairman and founder of the Adani group Gautam Adani,now the world’s third-richest person.
Background
- Foreign presence much earlier: In fact, the Adani group had been scouting abroad much earlier. Since 2010, the Adani group has been in Australia, developing the Carmichael coal mine in Queensland.
- A greenfield multi-purpose port: In 2017, Adani Ports and Special Economic Zones (Ltd) signed an MoU for a greenfield multi-purpose port for handling containers at Carey Island in Selangor state, about 50 km southwest of Kuala Lumpur.
What is situation now?
- Company pursue international infrastructure projects aggressively: The last two years, however, have seen the company pursue international infrastructure projects aggressively. In May 2022, APSEZ made a winning bid of $1.18 billion for Israeli state-owned Haifa Port, jointly with Israeli chemicals and logistics firm Gadot.
- Strategic joint investments: In August this year, APSEZ and Abu Dhabi’s AD Ports Group signed MoU for “strategic joint investments” in Tanzania. The new ASEZ-AD MoU will look at a bouquet of infrastructure projects besides Bagamoyo in the East African Indian Ocean nation — rail, maritime services, digital services and industrial zones.
- India’s strategic objectives than has been possible so far: Is it just a coincidence that Adani’s global expansion closely shadows the Chinese footprint along its Belt and Road Initiative? Or is it that as Delhicompetes with China for influence in the neighbourhood and beyond, the Adani group’s size, resources and capacity are seen as a key element in achieving India’s strategic objectives than has been possible so far.
- India’s infrastructure diplomacy: Is now becoming identified the world over with one company.
- Public and private investment to bridge gaps: For the Adani group, described as India’s biggest ports and logistics company, there couldn’t be a better time. As the Quad grouping of Australia, India, Japan, and the US, competes with China in the Indo-Pacific, it has committed “to catalyse infrastructure delivery” by putting more than $50 billion on the table for “assistance and investment” in the Indo-Pacific over the next five years and “drive public and private investment to bridge gaps”.
Implications of infrastructure diplomacy
- Win-Win deal: Adani’s new “no-hands” model of doing business with neighbours a power plant in Jharkhand, exporting all its output to Bangladesh has been seen as a “win-win” deal.
- Economic interests lie at the heart of geopolitics: The link between diplomacy and commercial interests has generated its share of debate, especially in the US, where its diplomats, intelligence agencies and military interventions abroad have actively pushed the interests of big business first the hunt for cheaper raw materials, then for markets abroad, then to shift industry where manpower was cheaper. As seen in the new age trading blocs the US-led IPEF, and the Chinese dominated RCEP economic interests lie at the heart of geopolitics.
Conclusion
- At a time when global rivalries are growing sharper in the shadow of the war in Europe, and as India looks out for its own interests, pushing powerful corporates to the centre-stage of its diplomacy, whether it is to build ports, buy or sell weapons or make chips, is inevitable.
Mains question
Q. Economic interests lie at the heart of geopolitics. Analyse this statement in context of India’s active push for infrastructure diplomacy by including private conglomerates like Adani in it.
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Services PMI flags rebound in August
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Purchasing Managers’ Index
Mains level: Not Much
The services sector rebounded in August from a four-month low in July and created the most jobs in 14 years as input cost pressures eased to the slowest pace in 11 months, as per S&P Global India Services Purchasing Managers’ Index (PMI), which expanded to 57.2 last month, from July’s 55.5.
Purchasing Managers’ Index (PMI)
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate.
- If it is lower than the previous month then it is growing at a lower rate.
What are its implications for the economy?
- The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
- It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
- Central banks of many countries also use the index to help make decisions on interest rates.
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Contract Enforcement in India
Note4Students
From UPSC perspective, the following things are important :
Prelims level: EODB
Mains level: EODB in India
Ease of doing business in India remains low, dragged down by the way contracts are enforced in the country. Recent reforms have improved the business climate somewhat, but there is a long way to go.
What is the Ease of Doing Business index?
- It is an index designed by the World Bank to rank 190 economies.
- A higher rank (closer to 1) means the country’s regulatory environment is favourable to business operations.
- India was ranked 63rd in the overall index in 2020.
- World Bank has now discontinued the Doing Business index.
Indicators used
The ranking is calculated on the basis of indicators such as:
- Starting a Business
- Dealing with Construction Permits
- Getting Electricity
- Registering Property
- Getting Credit
- Protecting Minority Investors, Paying Taxes
- Trading across Borders
- Enforcing Contracts and
- Resolving Insolvency
How is ‘Enforcing Contracts’ measured?
- In 2020, in the parameter of ‘Enforcing Contracts’, India was ranked 163rd, against 186th in 2015. The parameter considers time, cost and quality of the judicial process.
- Time considers the number of days to resolve a commercial dispute in courts;
- Cost measures the expenses of attorney, courts and enforcement as a percentage of claim value; and
- Quality considers the use of best practices which can promote efficiency and quality i.e., court proceedings, case management, alternative dispute resolution and court automation.
- Each of the three indicators have a 33.3% weightage.
How is India doing on this parameter now?
- At 163rd position in 2020, the country continues to struggle, with the time taken to resolve a commercial dispute being approximately 1,445 days in the Doing Business Report 2020.
- However, as of August 2022, law ministry data shows a marked improvement of close to 50% in days taken to resolve a dispute to 744 days in New Delhi and 626 days in Mumbai.
What are some of the reforms undertaken?
- The Department of Justice, the nodal point for ‘Enforcing Contracts’ indicator along with the eCommittee of the Supreme Court, has undertaken a series of reforms.
- Some of the steps include the establishment of dedicated commercial courts with monetary jurisdiction up to ₹3 lakh.
- There also exists online case filing, e-payment of court fees, electronic case management, special courts for infrastructure project contracts, as well as automatic and random allocation of commercial cases thereby eliminating human intervention.
What further steps are required?
- An efficient judiciary instils confidence in investors and signals the commercial viability of transactions.
- The number of court hearings should be minimized too; often, lawyers have an incentive to stretch out the process.
- The judicial system should encourage out-of-court settlements through the respective lawyers as practised in advanced countries.
- It is equally important that the judiciary leaves matters relating to economic governance to governments.
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Manufacturing PMI hits 8-month high
Note4Students
From UPSC perspective, the following things are important :
Prelims level: PMI
Mains level: Not Much
India’s manufacturing sector rebounded in July, with sales and output growing at the fastest pace since November. The PMI quickened last month to 56.4, from June’s 9-month low of 53.9.
Purchasing Managers’ Index (PMI)
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate.
- If it is lower than the previous month then it is growing at a lower rate.
What are its implications for the economy?
- The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
- It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
- Central banks of many countries also use the index to help make decisions on interest rates.
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Core Sector output expands by 12.7%
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Core Industries
Mains level: Read the attached story
India’s eight core sectors’ output growth moderated to 12.7% in June, from 18.1% in May, with all sectors except crude oil registering an uptick in production.
What are the Core Industries in India?
- The main or the key industries constitute the core sectors of an economy.
- In India, there are eight sectors that are considered the core sectors.
- They are electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers.
Index of Eight Core Industries (ICI) vs Index of Industrial Production (IIP)
[A] Index of Eight Core Industries
- The monthly Index of Eight Core Industries (ICI) is a production volume index.
- ICI measures collective and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
- Prior to the 2004-05 series six core industries namely Coal, Cement, Finished Steel, Electricity, Crude petroleum and Refinery products constituted the index basket.
- Two more industries i.e. Fertilizer and Natural Gas were added to the index basket in 2004-05 series. The ICI series with base 2011-12 will continue to have eight core industries.
Components covered in these eight industries for the purpose of compilation of index are as follows:
- Coal – Coal Production excluding Coking coal.
- Crude Oil – Total Crude Oil Production.
- Natural Gas – Total Natural Gas Production.
- Refinery Products – Total Refinery Production (in terms of Crude Throughput).
- Fertilizer – Urea, Ammonium Sulphate (A/S), Calcium Ammonium Nitrate (CAN), Ammonium chloride (A/C), Diammonium Phosphate (DAP), Complex Grade Fertilizer and Single superphosphate (SSP).
- Steel – Production of Alloy and Non-Alloy Steel only.
- Cement – Production of Large Plants and Mini Plants.
- Electricity – Actual Electricity Generation of Thermal, Nuclear, Hydro, imports from Bhutan.
[B] Index of Industrial Production
- The Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in an economy such as mineral mining, electricity and manufacturing.
- The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
Difference between the two
- IIP is compiled and published monthly by the National Statistics Office (NSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends.
- However, ICI is compiled and released by Office of the Economic Adviser (OEA), Department of Industrial Policy & Promotion (DIPP), and Ministry of Commerce & Industry.
- The Eight Core Industries comprise nearly 40.27% of the weight of items included in the Index of Industrial Production (IIP).
- These are Electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilisers.
Importance of Core Industries
- The core sectors have a major impact on the Indian economy and significantly affect most other industries as well.
- Their measures help account for the physical volume of production in India.
- Their analysis offers a clearer and more realistic assessment of what’s happening in the economy
- Their progress is used by government agencies for policy-making purposes.
- They remain extremely relevant for the calculation of the quarterly and advanced Gross Domestic Product (GDP) estimates.
- The core sector is also known as Infrastructure output as they represent the basic industries that form the base of the economy.
Do you know about the Strategic Sectors?
The government has identified four strategic sectors where the presence of state-run companies will be reduced to a minimum.
- Atomic energy, space and defence
- Transport and telecommunications
- Power, petroleum, coal and other minerals and
- Banking, insurance and financial services
Try this PYQ:
Q.In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?
(a) Coal production
(b) Electricity generation
(c) Fertilizer production
(d) Steel production
Post your answers here.
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Draft Development of Enterprise and Service Hubs (DESH) Bill
Note4Students
From UPSC perspective, the following things are important :
Prelims level: SEZ, DESH
Mains level: Success and limitations of the SEZs in India
The Centre plans to table the Development of Enterprise and Service Hubs (DESH) Bill in the monsoon session of the Parliament, which will overhaul the special economic zones (SEZ) legislation.
What are SEZs?
- A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
- SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
- Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
SEZs in India
- The SEZ policy in India first came into inception on April 1, 2000.
- The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
- The idea was to promote exports from the country and realize the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
- Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.
- SEZ units used to enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years, and 50% of the ploughed back export profit for another five years
Why replace the existing SEZ Act?
- The World Trade Organization’s dispute settlement panel has ruled that India’s export-related schemes, including the SEZ Scheme, were inconsistent with WTO rules.
- India has been accused of giving tax benefits to exports through SEZs.
- Countries aren’t allowed to directly subsidize exports as it can distort market prices.
- SEZs also started losing their allure after the introduction of minimum alternate tax and a sunset clause to remove tax sops.
How is the DESH legislation different?
- The DESH legislation goes beyond promoting exports.
- It has a much wider objective of boosting domestic manufacturing and job creation through ‘development hubs’.
- These hubs will no longer be required to be net foreign exchange positive cumulatively in five years (i.e, export more than they import) as mandated in the SEZ regime.
- They will be allowed to sell in the domestic area more easily. The hubs will, therefore, be WTO-compliant.
- DESH legislation also provides for an online single-window portal for the grant of time-bound approvals for establishing and operating the hubs.
Will there be any tax benefits at these hubs?
- It’s not clear yet.
- However, the draft Bill does state that states and the Centre will be allowed to give further incentives in the form of tax rebates, incentives, exemptions, and duty drawbacks.
- Subsidy schemes may be offered for goods and services at these hubs.
- States and the Centre may take fresh measures to speed up clearances and simplify compliance.
Will it be easier to sell in the domestic market?
- Companies can sell in the domestic market with duties only to be paid on the imported inputs and raw materials instead of the final product.
- In the current SEZ regime, duty is paid on the final product when a product is sold in the domestic market.
- Besides, there is no mandatory payment requirement in forex, unlike in the case of SEZs.
- However, the government may impose an equalization levy on goods or services supplied to the domestic market to bring taxes at par with those provided by units outside
What role will states play in DESH?
- DESH is expected to play a larger role, definitely.
- In the SEZ regime, most decisions were made by the commerce department at the Centre.
- Now, states will be able to participate and even directly send recommendations for development hubs to a central board for approval.
- Besides, state boards would be set up to oversee the functioning of the hubs.
- They would have the powers to approve imports or procurement of goods, and monitor the utilization of goods or services, warehousing, and trading in the development hub.
Way forward
- If indeed India needs the special hubs, the govt must address the critical gaps in existing SEZ law through the DESH bill and it must be thought through before bringing it to the Parliament.
- Effective implementation of the law could act as a lever to India’s growth.
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India’s Total Factor Productivity (TFP)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Total factor productivity
Mains level: Not Much
India’s total factor productivity (TFP) growth has seen a moderate decline compared to the global experience, though it remains above that of emerging markets and developing economies, according to a recent report.
What is Total factor productivity (TFP)?
- Productivity levels measure the relationship between total products or output, and inputs or factors of production employed.
- Labour productivity is a measure of total output divided by the units of labour employed in the process of production.
- However, TFP is a measure of total output divided by a weighted average of inputs; i.e., labour and capital.
- Improvements in TFP bring down production costs, raise output levels, and lead to a higher gross domestic product.
- While total productivity measures all-inclusive productivity, TFP is a measure of production efficiency.
How has India fared thus far?
- A recent Reserve Bank of India (RBI) report points to a moderate decline in TFP growth compared to the global experience.
- TFP growth rate for India during the 2010-2019 period was approximately 2.2%, as against -0.3% for emerging markets and developing economies.
- During the pandemic, the TFP for India declined by 2.9% in 2020 and marginally improved by 0.1% in 2021.
- In 2022, TFP growth rate is projected to increase to 2%.
- As per estimates, TFP growth contributed to 30% of India’s GDP growth during 2010-2018.
- It was largely driven by public administration, quality education and social works.
What has been the TFP trend across the world?
- Global productivity growth has witnessed a prolonged slowdown since 2010, with the deceleration sharper in emerging and developing economies.
- This is ascribed to a weakening investment climate, and lower employment growth levels in developed economies, among others.
- TFP growth for the world economy was 0.7% in 2021 and may shrink by 0.5% in 2022.
What are the ways to improve TFP?
- India’s initiatives around skill development and the new education policy are steps in the right direction, since they focus on boosting manpower employability.
- Quality education, better healthcare, nurturing of innovation, introduction of efficient technology and processes in domestic companies and reduction in misallocation of resources can help improve TFP levels.
- Though the country’s ranking in the Global Innovation Index, 2021 has improved to 46, it still has some distance to go.
How can the industry improve productivity?
- Improved TFP minimizes per-unit cost facilitating the horizontal expansion of consumption demand, thereby improving the standard of living.
- Employers have fortunately started acknowledging the fact that manpower is an essential component in profit earnings.
- Today, the focus has shifted to retaining talent, which is limited in supply.
- This positive transformation seen after the pandemic needs to be further extended.
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[pib] MSME Sustainable (ZED) Certification Scheme
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MSME ZED Certification Scheme
Mains level: Boost for MSMEs
The Union Ministry for Micro, Small and Medium Enterprises has launched the MSME Sustainable (ZED) Certification Scheme.
MSME Sustainable (ZED) Certification Scheme
- This Scheme is an extensive drive to enable and facilitate MSMEs adopt Zero Defect Zero Effect (ZED) practices.
- It aims motivate and incentivize them for ZED Certification while also encouraging them to become MSME Champions.
- Through the ZED Certification, MSMEs can reduce wastages substantially, increase productivity, enhance environmental consciousness, save energy, optimally use natural resources, expand their markets, etc.
Components of the scheme
- Under the Scheme, MSMEs will get subsidy as per the following structure, on the cost of ZED certification:
- Micro Enterprises: 80%
- Small Enterprises: 60%
- Medium Enterprises: 50%
- There will be an additional subsidy of 10% for the MSMEs owned by Women/SC/ST Entrepreneurs OR MSMEs in NER/Himalayan/LWE/Island territories/aspirational districts.
- In addition to above, there will be an additional subsidy of 5% for MSMEs which are also a part of the SFURTI OR Micro & Small Enterprises – Cluster Development Programme (MSE-CDP) of the Ministry.
- Further, a limited purpose joining reward of Rs. 10,000/- will be offered to each MSME once they take the ZED Pledge.
Back2Basics: Zero Defect Zero Effect Scheme
- Launched in 2016 by the Ministry of MSME, the ZED scheme is an integrated and comprehensive certification system.
- The scheme accounts for productivity, quality, pollution mitigation, energy efficiency, financial status, human resource and technological depth including design and IPR in both products and processes.
- Its mission is to develop and implement the ‘ZED’ culture in India based on the principles of Zero Defect & Zero Effect.
- ZED principles include:
- Zero Defect: Zero non-conformance or non-compliance
- Zero Effect: Zero wastage, liquid discharge, solid waste; zero pollution
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Special Purpose Acquisition Companies (SPACs)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: SPACs
Mains level: Not Much
The government is reportedly considering a regulatory framework for special purpose acquisition companies (SPACs) to lay the ground for the possible listing of Indian companies through this route in the future.
What are SPACs?
- An SPAC, or a blank-cheque company, is an entity specifically set up with the objective of acquiring a firm in a particular sector.
- They aim to raise money in an initial public offering (IPO) without any operations or revenues.
- The money that is raised from the public is kept in an escrow account, which can be accessed while making the acquisition.
- If the acquisition is not made within two years of the IPO, the SPAC is delisted and the money is returned to the investors.
- While SPACs are essentially shell companies, a key factor that makes them attractive to investors are the people who sponsor them.
- Globally, prominent celebrities have participated in SPACs.
Why in news?
- According to reports, the Company Law Committee was set up in 2019 to make recommendations to boost ease of doing business in India.
- This committee has made this suggestion regarding SPACs in its report submitted to the government recently.
- The concept of SPAC has existed for nearly a decade now, and several investors and company promoters have used this route to take their investments public.
- The vehicle gained momentum in 2020, which was a record year for SPAC deals; this record was broken in 2021.
Where does India stand?
- Early last year, renewable energy producer ReNew Power announced an agreement to merge with RMG Acquisition Corp II, a blank-cheque company.
- This became the first involving an Indian company during the latest boom in SPAC deals.
- As things stand now, the Indian regulatory framework does not allow the creation of blank cheque companies.
- The Companies Act, 2013 stipulates that the Registrar of Companies can strike off a company if it does not commence operations within a year of incorporation.
Risk factors around SPACs
- The boom in investor firms going for SPACs and then looking for target companies have tilted the scales in favour of investee firms.
- This has the potential, theoretically, to limit returns for retail investors post-merger.
- SPACs are mandated to return money to their investors in the event no merger is made within two years.
- However the fineprint of several SPAC prospectuses shows that certain clauses could potentially prevent investors from getting their monies back.
- Historically, though, this has not happened yet.
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Who are the Angadias?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Angadias
Mains level: NA
An FIR has been registered against some Mumbai Police officials last week for allegedly threatening Angadias and extorting money from them in south Mumbai.
Who are Angadias?
- The Angadia system is a century-old parallel banking system in the country where traders send cash generally from one state to another through a person called Angadia that stands for courier.
- It is by and large used in the jewellery business with Mumbai – Surat being the most popular route as they are two ends of the diamond trade.
- The cash involved is huge and it is the responsibility of the Angadia to transfer cash from one state to another for which they charge a nominal fee.
- Generally, it is the Gujarati, Marwari and Malbari community that are involved in the business.
How does the system work?
- The Angadia system works completely on trust as large sums, at times in crores, are involved.
- Generally, traders have the same Angadias for decades together.
- If a trader from Zaveri Bazaar in south Mumbai wants to pay a diamond trader in Surat, he will send an Angadias who usually delivers the money within 24 hours.
- They also have fixed trains that leave from Mumbai at night and reach Gujarat by early morning.
- Usually, to verify authenticity, the trader will, for example, will give a Rs 10 note to the Angadia and provide the number of the note to the recipient.
- It is only after the recipient confirms the note number that the Angadia will hand over the money to the person.
- After making the payment, the Angadias return to Mumbai the same day.
Is the system legal?
- While the Angadia system per se is legal, there hangs a cloud over the activity as it is suspected that a lot of times it is used to transfer unaccounted money.
- Since the business deals in cash and there is no account maintained for the same, there have been suspicions that it is also used for transfer of black money like the hawala.
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India’s economy and the challenge of informality
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Defining formal sector
Mains level: Paper 3- Challenges of formalisation
Context
Despite efforts by the government, formalisation of economy still eludes us.
Prevalence of informality in India
- Despite witnessing rapid economic growth over the last two decades, 90% of workers in India have remained informally employed, producing about half of GDP.
- Combining the International Labour Organization’s widely agreed upon template of definitions with India’s official definition (of formal jobs as those providing at least one social security benefit — such as EPF), the share of formal workers in India stood at 9.7% (47.5 million).
- The prevalence of informal employment is also widespread in the non-agriculture sector.
- About half of informal workers are engaged in non-agriculture sectors which spread across urban and rural areas.
- Industries thriving without paying taxes are only the tip of the informal sector’s iceberg.
- What remains hidden are the large swathes of low productivity informal establishments working as household and self-employment units which represent “petty production”.
- To conflate the two distinct segments of the informal sector would be a serious conceptual error.
Fiscal perspective of formalisation
- Efforts to encourage formalisation: Currency demonetisation, introduction of the Goods and Services Tax (GST), digitalisation of financial transactions and enrolment of informal sector workers on numerous government Internet portals are all meant to encourage the formalisation of the economy.
- The formal sector is more productive than the informal sector, and formal workers have access to social security benefits.
- The above-mentioned efforts are based on the “fiscal perspective” of formalisation.
- This perspective appears to draw from a strand of thought advanced by some international financial institutions such as the International Monetary Fund, which foregrounds the persistence of the informal sector to excessive state regulation of enterprises and labour which drives genuine economic activity outside the regulatory ambit.
- Hence, it is believed that simplifying registration processes, easing rules for business conduct, and lowering the standards of protection of formal sector workers will bring informal enterprises and their workers into the fold of formality.
Issues with fiscal perspective
- Early on, in an attempt to promote employment, India protected small enterprises engaged in labour intensive manufacturing by providing them with fiscal concessions and regulating large-scale industry by licensing.
- Such measures led to many labour-intensive industries getting diffused into the informal/unorganised sectors.
- Further, they led to the formation of dense output and labour market inter-linkages between the informal and formal sectors via sub-contracting and outsourcing arrangements (quite like in labour abundant Asian economies).
- While such policy initiatives may have encouraged employment, bringing the enterprises which benefited from the policy into the tax net has been a challenge.
- Political and economic reasons operating at the regional/local level in a competitive electoral democracy are responsible for this phenomenon, too.
Role of underdevelopment
- Global evidence suggests that the view that legal and regulatory hurdles alone are mainly responsible for holding back formalisation does not hold much water.
- A well-regarded study, ‘Informality and Development’ argues that the persistence of informality is, in fact, a sign of underdevelopment.
- The finding suggests that informality decreases with economic growth, albeit slowly.
- A similar association is also evident across major States in India, based on official PLFS data.
- Hence, the persistence of a high share of informal employment in total employment seems nothing but a lack of adequate growth or continuation of underdevelopment.
Impact of pandemic
- Research by the State Bank of India recently reported the economy formalised rapidly during the pandemic year of 2020-21, with the informal sector’s GDP share shrinking to less than 20%, from about 50% a few years ago — close to the figure for developed countries.
- These findings of a sharp contraction of the informal sector during the pandemic year (2020-21) do not represent a sustained structural transformation.
- They are a temporary (and unfortunate) outcome of the pandemic and severe lockdowns imposed in 2020 and 2021.
Way forward
- Policy efforts directed at bringing the informal sector into the fold of formality fail to appreciate that the bulk of the informal units and their workers are essentially petty producers eking their subsistence out of minimal resources.
- The economy will get formalised when informal enterprises become more productive through greater capital investment and increased education and skills are imparted to its workers.
Consider the question “What are the reasons for persistent informality in India? Suggest the way to ensure the smooth transition to the formality.”
Conclusion
Policy efforts to formalise the economy will have limited results as the bulk of informal units are petty producers.
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[pib] One District One Product (ODOP) Initiative
Note4Students
From UPSC perspective, the following things are important :
Prelims level: One District One Product (ODOP)
Mains level: Not Much
As a major boost to Centre and State collaboration in promoting products under the ODOP Initiative – a State Conference was recently held by the Department for Promotion of Industry and Internal Trade (DPIIT).
One District One Product (ODOP)
- ODOP spearheaded by the Uttar Pradesh government in 2018, is an important initiative that is being adopted all over India to realize the true potential of each district.
- ODOP is an initiative which is seen as a transformational step forward towards realizing the true potential of a district, fuel economic growth and generates employment and rural entrepreneurship.
- It is operationally merged with ‘Districts as Export Hub’ initiative being implemented by DPIIT as a major stakeholder.
- The main philosophy is to select, brand and promote one product from each district of India that has a specific characteristic feature to enable profitable trade in that product and generate employment.
Why need this scheme?
- India is home to several agricultural and non-agricultural (including manufacturing) products that are region-specific.
- Every district has products that are unique and provide livelihoods and generate income.
- This scheme is in tune with the PM’s call to transform every district into an export hub and realize the goal of Atmanirbhar Bharat.
What needs to be done for its success?
The important aspect that the policy initiatives in India should thus be mindful of are:
- Ownership of the initiative should lie at the center of implementation.
- The stakeholders irrespective of the sector along the value chain need to be identified and provided information and awareness.
- It is important to streamline other initiatives such as registration of Geographical Indications (GI), formation and development of farmer producer organizations etc.
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The mobile phone sector has lessons for India’s economy
Note4Students
From UPSC perspective, the following things are important :
Prelims level: PLI scheme
Mains level: Paper 3- Lessons from the success of mobile manufacturing
Context
The mobile phones and room air conditioners (RAC) sectors in recent times have shown us the formulae for expansion of the manufacturing sector and growing exports.
How did India expand its mobile manufacturing base?
- We were one of the largest consumers of mobile phones in 2014.
- In 2014-15, our mobile phone imports exceeded $8 billion.
- Our electronics imports were threatening to exceed our oil imports.
- Steps taken by govt: The government took many steps like 100 per cent automatic FDI,
- levy of import duties to protect local manufacturers,
- the Phased Manufacturing Plan (PMP),
- manufacturing clusters (EMC 2.0) and
- the Production Linked Incentive (PLI) scheme.
- They have attracted investments, created lakhs of jobs, and have moved us from being a net importer to a net exporter.
- Our mobile phone manufacturing value has jumped more than eight times from Rs 0.27 trillion in 2013-14 to Rs 2.2 trillion in 2020-21.
- We have surpassed the US and South Korea to become the second-largest manufacturer globally.
Steps need to be taken
- Our mobile phone exports are primarily limited to feature phones and low-value smartphones.
- India must aim for a significant increase in exports from the current $4 billion.
- China exports $200 billion, and Vietnam exports $60 billion worth of mobile phones.
- The PLI scheme aims to achieve the same by allocating incentives of Rs 410 billion for the mobile phone category over the next five years.
- Low value addition: Our value addition in mobile phone manufacturing is currently limited to 15-20 per cent versus more than 40 per cent in China.
- The scheme for promoting the manufacturing of electronic components and semiconductors (SPECS) is a step in the right direction.
- We must focus on setting up a fabrication plant to manufacture semiconductor chips to facilitate complete vertical integration.
The Room AC sector story
- We imported RACs worth Rs 41 billion in 2017-18.
- The government initiated multiple measures such as the PMP scheme, banning the import of refrigerant-filled ACs, increasing the import duty on RACs and critical components, and the PLI scheme.
- From 2017-18, RAC imports have declined by 56 per cent to Rs 18 billion in 2020-21.
- Our import of RACs has shifted from China to an FTA country like Thailand, where import duty isn’t applicable.
- A judicious mix of protection (levy of import duty/banning of finished goods) and incentives (PMP, PLI scheme, 100 per cent FDI) has developed local manufacturing, created jobs, and turned a trade surplus.
Way forward
- We missed the manufacturing/export bus in the 1980s.
- We did excel in services like software to become back office to the world. With China+1 becoming a geopolitical imperative, it is an opportune time for us to expand the manufacturing sector and improve our export market share.
- To achieve our true potential we need close coordination and seamless working between central, state, and local governments, the rule of law, improvements in infrastructure, especially logistics and flexible labour laws.
Conclusion
Many of our peers are ahead of us in ease of doing business, but none of them has a large domestic market like us. The automobile and generic pharma sector in the past and the mobile phone/RAC sectors recently have shown that we know the formulae.
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What is Antrix- Devas Multimedia Deal?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Antrix
Mains level: Read the attached story
A Canadian court has ordered the seizure of more than $30 million worth of Airport Authority of India’s assets.
Background
- In 2005, Devas Multimedia signed an agreement with Antrix —a commercial arm of the IISRO —to provide multimedia services to mobile users using the leased S-band satellite spectrum to be provided by Antrix.
- In 2011, the UPA-2 government canceled this agreement on the ground that it needed the S-band satellite spectrum for national security and other social purposes.
- This led to arbitration between Antrix and Devas at the International Chambers of Commerce (ICC) and two bilateral investment treaty (BIT) arbitrations. India lost all three disputes.
India’s non-compliance
- AAI and Air India are being targeted because they are Indian public sector entities with overseas assets and serve as a proxy for the government of India.
- The Canada court can do so through the concept of restrictive immunity.
- In the meanwhile, the National Company Law Tribunal (India) ordered the liquidation of Devas Multimedia on the ground that the affairs of the company were being carried on fraudulently.
Why did India cancel the deal?
- The scandal first came to light when in 2011, the news reported that there were some irregularities in the agreement between Antrix and Devas.
- They reported the findings of a draft audit report and pointed out discrepancies including financial mismanagement, conflict of interest, non-compliance of rules, and favoritism.
- This revelation came at the heel of the 2G spectrum scam which was condemned for the high level of corruption.
How can a Canadian court order the attachment of Indian assets?
- State immunity — a well-established principle of international law — shields a state and its property against legal proceedings in the courts of other countries.
- This covers immunity from both jurisdiction and execution.
- However, there is no international legal instrument in force dealing with state immunity in the municipal legal systems of different countries, which has created an international void.
- Consequently, countries have filled this void through their national legislations and domestic judicial practices on state immunity.
- Typically, prominent jurisdictions such as Canada follow the concept of restrictive immunity (a foreign State is immune only for sovereign functions) and not absolute immunity.
How can assets of AAI be seized when the claim is against India?
- In execution proceedings, assets of an entity can be seized if that entity is an alter ego of the State that fails to comply with the arbitral award.
- In other words, if the foreign sovereign exercises such extensive control over the entity, then the presumption that the entity has a separate corporate character is set aside.
- Thus, the Canadian court must have concluded that the Indian government extensively controls AAI.
What options does India have?
- The first option is to comply with the two adverse BIT awards. However, it is highly unlikely that India would do so.
- The second option is to challenge this decision in an appellate court in Canada as per Canadian law where India can try proving that the ‘extensive control requirement’ is not met in the case of AAI.
- However, state immunity from execution is purely a procedural hurdle to the enforcement of the BIT award.
- It cannot justify India’s breach of its international law obligations enshrined in the two BITs and the continued failure to comply with the arbitral awards.
Back2Basics: New Space India Limited (NSIL)
- It functions under the administrative control of the Department of Space (DOS).
- It aims to commercially exploit the research and development work of ISRO Centres and constituent units of DOS.
- The NSIL would enable Indian Industries to scale up high-technology manufacturing and production base for meeting the growing needs of the Indian space program.
- It would further spur the growth of Indian Industries in the space sector.
ANTRIX
- Antrix Corporation Limited (ACL), Bengaluru is a wholly-owned Government of India Company under the administrative control of the Department of Space.
- It is as a marketing arm of ISRO for promotion and commercial exploitation of space products, technical consultancy services and transfer of technologies developed by ISRO.
- Antrix is engaged in providing Space products and services to international customers worldwide.
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Global shortage of Semiconductor Chips
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Semiconductor, Rare earth elements
Mains level: Electronic industry
Worldwide carmakers have slashed production due to an abrupt and cascading shortage of semiconductors.
Semiconductor Chips
- Semiconductors — also known as integrated circuits (ICs), or microchips — are most often made of silicon or germanium, or a compound like gallium arsenide.
- It’s the thing that makes electronic items smart and faster.
- Made from a material, usually silicon, that “semi-conducts” electricity, the chip performs a variety of functions.
- Memory chips, which store data, are relatively simple and are traded like commodities.
- Logic chips, which run programs and act as the brains of a device, are more complex and expensive.
Reasons for shortages
- Stay-at-home shift: This pushed chip demand beyond levels projected before the pandemic. Lockdowns spurred growth in sales of smartphones, laptops etc to the highest in a decade
- Fluctuating forecasts: Automakers that cut back drastically early in the pandemic underestimated how quickly car sales would rebound.
- Stockpiling: Chinese smartphone industry dominates the global market for 5G networking gear — began building up inventory to ensure it could survive US sanctions.
How is the chip crisis playing out in geopolitics?
- The global chip crisis and geopolitical tensions with China have shifted focus back on semiconductors.
- The US, which was once a leader in chip manufacturing, wants the crown back.
- The protectionist US is looking to bring manufacturing back to America and reduce its dependency on a handful of chipmakers mostly concentrated in Taiwan and South Korea.
- China’s renewed aggression on Taiwan is also being seen in light of the chip crisis.
Impact of semiconductor shortages
- Chip shortages are expected to wipe out $210 billion of sales for carmakers this year, with the production of 7.7 million vehicles lost.
- Broadband providers were facing delays of more than a year when ordering internet routers.
Why is it so hard to compete?
- Manufacturing advanced logic chips requires extraordinary precision, along with huge long-term bets in a field subject to rapid change.
- Plants cost billions of dollars to build and equip, and they have to run flat-out 24/7 to recoup the investment.
- A factory also consumes up enormous amounts of water and electricity and is vulnerable to even the tiniest disruptions, whether from dust particles or distant earthquakes.
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Reining in the Direct Selling Industry
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Direct Selling
Mains level: Direct Selling and related issues
The Government has notified the Consumer Protection (Direct Selling) Rules, 2021, that prohibits all direct selling entities from promoting pyramid schemes or money circulation schemes, while also providing for a mechanism for redressal of consumer complaints.
What is Direct Selling?
- In Direct Selling, goods or services are directly sold to consumers through sellers who act as individual representatives of the direct selling entities, instead of a retail premises.
- For example: Brands such as Amway, Herbalife , Oriflame and Modicare etc. directly sell their products through outlets. They are generally expensive.
What are the new rules?
- The new Rules were primarily introduced to prohibit the promotion of pyramid and money circulation schemes by the direct selling industry.
- Apart from that, entities are now required to be registered in the country.
- Further, to provide a redressal mechanism for consumers, the Rules mandate that direct selling entities appoint grievance redressal officers who will put up their contact details on the website.
- Direct selling entities that are not established in India, but offer goods or services to consumers here, will also need to comply with the newly notified rules.
How big is the Indian Direct Selling industry?
- As per a report, the number of active direct sellers in the country stood at around 7.4 million in 2019-20.
- The two big categories were ‘wellness & nutraceuticals’ – which accounted for 57% of the sales, followed by cosmetics and personal care which contributed 22% to the sales.
Whom do these Rules apply?
- These Rules apply on all models of direct selling and all goods and services bought or sold through direct selling.
- Direct selling entities that are not established in India, but offer goods or services to consumers in India, will also need to comply with the newly notified Rules.
Why have they been notified now?
- Fraud prevention: The guidelines aim for preventing fraud and protecting consumer interest. Earlier, these were not regulated under enforceable law.
- Costly products: A direct selling entity or a direct seller cannot refuse to take back “spurious goods or deficient services” and provide a refund, or charge consumers any entry fee or subscription fee.
- Coercive persuasion: They often tend to persuade consumers to make a purchase based upon the representation that they can reduce or recover the price by referring prospective customers.
- Providing legitimacy to DS: The Rules provide legitimacy to the industry and also help attract more foreign direct investment (FDI).
What do the rules say?
- Registration: Every direct selling entity with operations in India needs to be registered in the country, and have a minimum of one physical location as its registered office within India.
- Self-declaration: The entities will need to make a self-declaration that it is in compliance with these Rules and is not involved in any pyramid scheme or money circulation scheme.
- Data storage within India: Additionally, such entities are required to store sensitive personal data within India and take steps to ensure the protection of such data.
- Grievance redressal: The Rules mandate that direct selling entities appoint one or more grievance redressal officers and put up their details such as name, telephone number and email address, on their website.
- Officer to ensure compliance: Every direct selling entity will need to appoint a nodal officer who will be responsible for ensuring compliance with the provisions of the Act.
- Restricted visits: A direct seller will not visit a consumer’s premises without identity card and prior appointment or approval, or provide any literature to a prospect, which has not been approved by the direct selling entity.
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Amendment to the Multi-State Cooperatives Act, 2002
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Multi-state cooperatives
Mains level: Multi-State Cooperatives Act, 2002
The Union Home and Cooperation Minister has announced the decision to amend the Multi-State Cooperative Societies (MSCS) Act, 2002 to plug the loopholes in the Act.
What is MSCS Act?
- Cooperatives are a state subject, but there are many societies such as those for sugar and milk, banks, milk unions etc whose members and areas of operation are spread across more than one state.
- The MSCS Act was passed to govern such cooperatives.
- For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.
What are Multi-State Cooperatives?
- They draw their membership from two or more states, and they are thus registered under the MSCS Act.
- Their board of directors has representation from all states they operate in.
- Administrative and financial control of these societies is with the central registrar, with the law making it clear that no state government official can wield any control on them.
Why does the government plan to amend the Act?
(1) Issues with Central Registrar
- The exclusive control of the central registrar, who is also the Central Cooperative Commissioner, was meant to allow smooth functioning of these societies.
- The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states.
- What was supposed to facilitate smooth functioning, however, has created obstacles.
- For state-registered societies, financial and administrative control rests with state registrars who exercise it through district- and tehsil-level officers.
(2) Multiple checks and balances
- Thus if a sugar mill wishes to buy new machinery or go for expansion, they would first have to take permission from the sugar commissioner for both.
- Post this, the proposal would go to the state-level committee that would float tenders and carry out the process.
- While the system for state-registered societies includes checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multistate societies.
- Instead, the board of directors has control of all finances and administration.
(3) Lack of govt control
- There is an apparent lack of day-to-day government control on such societies.
- Unlike state cooperatives, which have to submit multiple reports to the state registrar, multistate cooperatives need not.
- The central registrar can only allow inspection of the societies under special conditions — a written request by one-third of the members of the board.
- Inspections can happen only after prior intimation to societies.
(4) Lack of infrastructure
- The on-ground infrastructure for central registrar is thin — there are no officers or offices at state level, with most work being carried out either online or through correspondence.
- For members of the societies, the only office where they can seek justice is in Delhi, with state authorities expressing their inability to do anything.
(5) Ponzi schemes functioning as MCS
- There have been instances across the country when credit societies have launched ponzi schemes taking advantage of these loopholes.
- Such schemes mostly target small and medium holders with the lure of high returns.
- Fly-by-night operators get people to invest and, after a few instalments, wind up their operations.
What kind of amendments can be expected?
- The Centre is holding extensive consultations with experts from various fields: bankers, sugar commissioners, cooperative commissioners, housing societies federations etc.
- The centre might increase their manpower, first in Delhi and then in the states, to ensure better governance of the societies.
- Also, technology will be used to bring in transparency.
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What is Cartelization?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Competition Commission of India (CCI), Cartelization
Mains level: Not Much
The Competition Commission of India (CCI) has slapped certain penalties on paper manufacturing companies from agricultural waste and recycled wastepaper against Cartelization.
What is a Cartel?
- According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
- The International Competition Network, which is a global body dedicated to enforcing competition law, has a simpler definition.
- The three common components of a cartel are:
- an agreement
- between competitors
- to restrict competition
What is Cartelization?
- Cartelization is when enterprises collude to fix prices, indulge in bid rigging, or share customers, etc.
- But when prices are controlled by the government under a law, that is not cartelization.
- The Competition Act contains strong provisions against cartels.
- It also has the leniency provision to incentivise a party to a cartel to break away and report to the Commission, and thereby expect total or partial leniency.
- This has proved a highly effective tool against cartels worldwide.
- Cartels almost invariably involve secret conspiracies.
How do they work?
- According to ICN, four categories of conduct are commonly identified across jurisdictions (countries). These are:
- price-fixing
- output restrictions
- market allocation and
- bid-rigging
- In sum, participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition.
How do cartels hurt?
- While it may be difficult to accurately quantify the ill-effects of cartels, they not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations.
- A successful cartel raises the price above the competitive level and reduces output.
- Consumers choose either not to pay the higher price for some or all of the cartelized product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators.
Are there provisions in the Competition Act against monopolistic prices?
- There are provisions in the Competition Act against abuse of dominance.
- One of the abuses is when a dominant enterprise “directly or indirectly imposes unfair or discriminatory prices” in purchase or sale of goods or services.
- Thus, excessive pricing by a dominant enterprise could, in certain conditions, be regarded as an abuse and, therefore, subject to investigation by the Competition Commission if it were fully functional.
- However, it should be understood that where pricing is a result of normal supply and demand, the Competition Commission may have no role.
How might cartels be worse than monopolies?
- It is generally well understood that monopolies are bad for both individual consumer interest as well as the society at large.
- That’s because a monopolist completely dominates the concerned market and, more often than not, abuses this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.
How to stop the spread of cartelization?
- Cartels are not easy to detect and identify.
- As such, experts often suggest providing a strong deterrence to those cartels that are found guilty of being one.
- Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel.
- However, it must also be pointed out that it is not always easy to ascertain the exact gains from cartelization.
- In fact, the threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case.
Back2Basics: Competition Commission of India (CCI)
- The CCI is the chief national competition regulator in India.
- It is a statutory body within the Ministry of Corporate Affairs.
- It is responsible for enforcing The Competition Act, 2002 in order to promote competition and prevent activities that have an appreciable adverse effect on competition in India.
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Formal sector and fine print
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Formalisation and its challenges
Context
A recent study by SBI has reported that the Indian economy witnessed accelerated formalisation under the distressed conditions of the pandemic and the lockdown last year. The study estimates that the share of the informal economy has fallen to a mere one-fifth of GDP — a figure comparable to many advanced economies.
Understanding informality
- ILO definition: The ILO’s globally accepted framework for definitions is as follows: Informal sector enterprises are defined as private unincorporated enterprises owned by individuals (or households) that are not constituted as separate legal entities independently of their owners.
- They are not registered under specific national legislation (such as Factories’ or Commercial Acts).
- Definition of a formal worker in India: Formal workers in India, on the other hand, are defined as those having access to at least one social security benefit such as a provident fund or healthcare benefits.
What explains the decline of informal sector in GDP
- Significance of informal sector: In 2017-18, as per the latest official statistics, India’s informal sector accounted for approximately 52 per cent of its GDP, employing 82 per cent of the total workforce.
- These ratios have broadly remained unchanged over the last decade.
- Most affected due to pandemic: As the informal (unorganised) sector bore much of the brunt of the economic contraction during 2020-21, a decline in its share in GDP is unsurprising.
- Lack of financial strength: The sector had neither the financial strength nor the technical wherewithal to face the Covid shock.
- Inadequate policy support: Additionally, policy support, mostly supply-side measures, was mainly focused on firms in the formal sector, with the informal sector left to fend for itself.
Issues with decline
- Undeniably, the informal sector’s share in GDP is likely to have shrunk due to the Covid shock.
- However, alarmingly, the purported decline in the informal sector’s share in GDP has not been accompanied by an expected reduction in its employment share.
- Data from the official annual Period Labour Force Survey (PLFS) 2017-18 and 2019-20, where the latter includes the period of the Covid shock from April to June 2020, shows that the employment share in non-agricultural informal enterprises has increased from 68 per cent in 2017-18 to 69.5 per cent in 2019-20.
- These figures do not include the agricultural sector, where employment is almost entirely in the informal sector.
- The increasing share of the formal sector in terms of GDP but declining share in employment only widens the schism (or dualism) between the two sectors.
- The increasing share of the formal sector in terms of GDP but declining share in employment only widens the schism (or dualism) between the two sectors.
Implications
- Impact on investment and growth: The lack of remunerative jobs for the vast majority of Indian consumers implies that eventually the lack of growth in demand will adversely impact investment and economic growth.
- After all, a mere 17-18 per cent of the workforce in the organised sector cannot sustain growth of the economy in the long run.
- Squeezing out informal enterprises: The increase in the formal sector’s share in GDP due to Covid-19 is a result of large, formal enterprises squeezing out informal enterprises.
- It is important to note here that the increase in formalisation is not a consequence of micro and small informal firms transitioning to formality.
Increasing productivity: A way forward to formalisation
- Promoting formalisation: Over the last five years, the economy has officially witnessed a significant drive towards formalisation.
- Multiple reasons for avoiding formalisation: It is crucial to recognise that firms exist in the informal sector for various reasons and not simply to evade regulations and taxation.
- Significance of productivity: Many own account enterprises and MSMEs cannot afford to survive in the formal sector due to their low productivity.
- It is essential to view the process of formalisation as a development strategy that requires stepping up investment in physical and human capital to boost productivity and the extension of social security benefits for all workers, not just a registration strategy on myriad portals.
Consider the question “Informal sector has been affected disproportionately in the wake of the pandemic. What are the implications of this for the economy? Suggest the way forward for the formalisation.”
Conclusion
The informal sector will come back to life as much of it represents the survival efforts of the working poor. Celebrating formalisation based on the misery and devastation of poor informal workers (and their meagre productive assets) is not just misplaced but also callous.
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What to do about the heavy cost of doing business in India
Note4Students
From UPSC perspective, the following things are important :
Prelims level: EoDB
Mains level: Paper 3- Reducing the cost of doing business in India
Context
The controversy over Ease of the Doing Business (EoDB) notwithstanding, India must now sharpen its focus on the Cost of Doing Business (CoDB).
Cost of Doing Business in India
- India has made considerable progress on EoDB rankings since 2016.
- While the Centre’s focus on EoDB has been commendable, several state governments have also made efforts to improve business conditions.
- India must now sharpen its focus on the Cost of Doing Business (CoDB).
- India lags behind other countries in terms of CoDB on several counts.
Two key factors influencing CoDB — energy costs and regulatory overload
- High fuel costs: Diesel prices in India are 20.8 per cent higher than those in China, 39.3 per cent higher than in the US, 72.5 per cent higher than Bangladesh and 67.8 per cent higher than in Vietnam.
- This is largely because of heavy taxation — total taxes on diesel account for over 130 per cent of the base price in India.
- High power costs: In the case of electricity, prices for businesses in India were higher by around 7-12 per cent vis-à-vis those in the US, Bangladesh or China and by as much as 35-50 per cent as compared to those in South Korea or Vietnam prior to the recent coal/energy crisis.
- Coal, which accounts for more than 70 per cent of electricity generation in India, is also pricier vis-à-vis other countries leading to higher electricity prices.
- Like in the case of the petroleum sector, government levies account for nearly half of the prices paid by coal consumers.
- And coal producers cannot claim input tax credit because electricity is not under GST.
- Further, coal freight costs are amongst the highest in the world as high freight rates are used to cross-subsidise passenger fares by the railways.
- Regulatory overload: Outsized regulatory levels also pose a significant burden on businesses.
- A Teamlease report highlights that a small manufacturing company with just one plant and up to 500 employees is regulated by more than 750 compliances, 60 Acts and 23 licences and regulations.
- A mid-sized manufacturing company with six plants spread across different states is regulated by more than 5,500 compliances, 135 Acts and 98 licences and registrations.
- Keeping track of such a large number of regulations along with the changes thereof, imposes huge operational and financial costs on businesses, particularly the MSME segment.
Way forward
- Including fuels under GST would lower costs for businesses owing to input tax credit even if taxation levels continue to remain high.
- Cleaning up the power distribution sector, which is largely state-controlled, could potentially lower electricity prices for businesses.
- Fiscal incentives by the Centre: A majority of the compliances stem from the states and reducing this burden would require a significant push on states to act on this front.
- The Centre could leverage the “carrot and stick” framework — using fiscal incentives to nudge the states to act and disincentivise them from maintaining the status quo.
Consider the question “What are the factors affecting the cost of doing business in India? Suggest the measures to reduce it.”
Conclusion
The Government must prioritise reducing the cost of energy and compliances for businesses rather than focusing on de jure measures to boost ease of doing business. These will boost India’s manufacturing competitiveness significantly and further increase formalisation in the economy.
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[pib] Industrial Park Ratings System (IPRS) Report
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Industrial Park Ratings System (IPRS)
Mains level: NA
The Department for Promotion of Industry and Internal Trade (DPIIT) has released the Industrial Park Ratings System Report.
Industrial Park Ratings System (IPRS)
- The IPRS pilot exercise was launched in 2018 with an objective of enhancing industrial infrastructure competitiveness and supporting policy development for enabling industrialization across the country.
- The IPRS report is an extension of the India Industrial Land Bank which features more than 4,400 industrial parks in a GIS-enabled database.
- It seeks to help investors identify their preferred location for investment.
- With this report, the investors can even remotely refer to this report to identify the suitable investable land area, as per the various parameters of infrastructure, connectivity, business support services and environment and safety standards.
Highlights of the report
- 41 Industrial Parks have been assessed as “Leaders” in the Industrial Park Ratings System Report released by DPIIT.
- 90 Industrial Parks have been rated as under the Challenger category while 185 have been rated as under “Aspirers”.
- These ratings are assigned on the basis of key existing parameters and infrastructure facilities etc.
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Lessons from the death of the ease of doing business index
Note4Students
From UPSC perspective, the following things are important :
Prelims level: EoDB ranking
Mains level: Paper 3- Issues with EoDB ranking
Context
The Ease of Doing Business Index (EoDB) came under attack on grounds that its data was modified in response to pressure from countries like China and Saudi Arabia. As a result of an independent audit, the index has now been abandoned by the Bank.
Methodology used in EoDB ranking
- World Bank researchers developed the EoDB ranking system under the assumption that better laws and regulatory frameworks would increase the ease of doing business and improve economic performance.
- It collected data from respondents in various countries regarding existing laws and regulations on multiple dimensions, validated them through internal scrutiny, and then combined them into an overall index that allowed us to rank countries.
- Each dimension was weighted equally and added up to create a scale.
India specific issues with the EoDB ranking
- If we want to create an internationally comparable index, we must ask similar questions.
- Difference in level of development not taken into account: Yet, many of these questions may not be locally salient in economies at different levels of development.
- For example, EoDB asked questions about the ease of getting an electric connection.
- However, it is not getting a connection that is the problem, rather the reliability of electricity supply that hampers Indian industries.
- In addition, most of the questions focused on hypothetical cases about limited liability companies.
- However, the World Bank’s own enterprise survey shows that 63 per cent of Indian enterprises are sole proprietorships and only 14 per cent are limited partnerships.
- Focusing on protecting minority owners’ rights in this tiny segment of Indian industries and using it to rank the business climate in India does not seem particularly useful.
- The index placed tremendous faith in formalised systems while simultaneously disdaining bureaucratic structures embedded in this formalisation.
Why EoDB ranking was so significant?
- A bigger problem is that EoDB had acquired such power that countries competed to improve their rankings.
- Countries assume that their EoDB ranking will attract foreign investors.
- Empirical evidence about this presumed impact is questionable.
- There is indeed some evidence that the score on EoDB is associated with FDI, but this association exists mainly for more affluent countries.
- For instance, in 2020, China was the largest recipient of FDI despite ranking 85th on the EoDB.
- One of the less visible parts of the EoDB exercise was the underlying political message.
- Regulation, often treated synonymously with bureaucratic hurdles, is bad, and abandoning regulations will bring positive results.
Way forward
- Should we try to reform the index or give up on it? The decision rests on the answer to two questions.
- First, are there universally acceptable standards of sound economic practices that are applicable and measurable across diverse economies?
- Second, if the indices are so powerful, should their construction be left to institutions like the World Bank that bring not just knowledge but also wield the heft of global economic power?
Consider the question “What are the advantages associated with Ease of Doing Business ranking? What are the issues with it?”
Conclusion
The presumed economic consequences, as well as political benefits associated with improving the rankings, encouraged many countries to try and “game” the system by making superficial improvements on indicators that are being measured and, when that failed, by putting explicit pressure on the World Bank research team.
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What is a Cartel?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Cartel, Cartelization
Mains level: Free market and its limitations
Last week, the Competition Commission of India (CCI) has slapped a penalty on a cartel of beer companies for hiking the prices.
What is a Cartel?
- According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
- The International Competition Network, which is a global body dedicated to enforcing competition law, has a simpler definition.
- The three common components of a cartel are:
- an agreement
- between competitors
- to restrict competition
What is Cartelization?
- Cartelization is when enterprises collude to fix prices, indulge in bid rigging, or share customers, etc.
- But when prices are controlled by the government under a law, that is not cartelization.
- The Competition Act contains strong provisions against cartels.
- It also has the leniency provision to incentivise a party to a cartel to break away and report to the Commission, and thereby expect total or partial leniency.
- This has proved a highly effective tool against cartels worldwide.
- Cartels almost invariably involve secret conspiracies.
How do they work?
- According to ICN, four categories of conduct are commonly identified across jurisdictions (countries). These are:
- price-fixing
- output restrictions
- market allocation and
- bid-rigging
- In sum, participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition.
How do cartels hurt?
- While it may be difficult to accurately quantify the ill-effects of cartels, they not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations.
- A successful cartel raises the price above the competitive level and reduces output.
- Consumers choose either not to pay the higher price for some or all of the cartelised product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators.
In other words, by artificially holding back the supply or raising prices in a coordinated manner, companies either force some consumers out of the market by making the commodity (say, beer) more scarce or by earning profits that free competition would not have allowed.
Are there provisions in the Competition Act against monopolistic prices?
- There are provisions in the Competition Act against abuse of dominance.
- One of the abuses is when a dominant enterprise “directly or indirectly imposes unfair or discriminatory prices” in purchase or sale of goods or services.
- Thus, excessive pricing by a dominant enterprise could, in certain conditions, be regarded as an abuse and, therefore, subject to investigation by the Competition Commission if it were fully functional.
- However, it should be understood that where pricing is a result of normal supply and demand, the Competition Commission may have no role.
How might cartels be worse than monopolies?
- It is generally well understood that monopolies are bad for both individual consumer interest as well as the society at large.
- That’s because a monopolist completely dominates the concerned market and, more often than not, abuses this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.
How to stop the spread of cartelisation?
- Cartels are not easy to detect and identify.
- As such, experts often suggest providing a strong deterrence to those cartels that are found guilty of being one.
- Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel.
- However, it must also be pointed out that it is not always easy to ascertain the exact gains from cartelisation.
- In fact, the threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case.
Try this PYQ:
One of the implications of equality in society is the absence of:
(a) Privileges
(b) Restraints
(c) Competition
(d) Ideology
Post your answers here.
Back2Basics: Competition Commission of India (CCI)
- The CCI is the chief national competition regulator in India.
- It is a statutory body within the Ministry of Corporate Affairs.
- It is responsible for enforcing The Competition Act, 2002 in order to promote competition and prevent activities that have an appreciable adverse effect on competition in India.
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The end of the doing business rankings
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Ease of Doing Business Report
Mains level: Read the attached story
The World Bank Group has scrapped its flagship publication, the ‘Doing Business’ report.
Doing Business Report
- This report publishes the influential annual ranking of countries on the Ease of Doing Business (EDB) index.
- It ranks countries by the simplicity of rules framed for setting up and conducting businesses.
Utility of the index
The World Bank’s decision has wide ramifications, as the index serves varied purposes.
- Many countries showcase improved ranking to signal market-friendly policies to attract foreign investments. National leaders often set EDB rank targets.
- This helps them measure domestic policies against global “best practices” and browbeat domestic critics.
- India, for instance, wanted its administration to ensure that India breaks into the top 50 ranks of the EDB index.
- Some countries seem to use their political heft to improve their rank, polish their international image and sway public opinion (as appears to be China’s case).
Issues with the credibility of the report
- The Group acted on its commissioned study to examine the ethical issues flagged in preparing the 2018 and 2020 editions of the EDB index.
- It is accused of having exerted pressure on the internal team working on the Doing Business report to falsely boost China’s rank by doctoring the underlying data.
- Similarly, tensions were also reportedly brought to bear in the case of Saudi Arabia’s rank, among others.
EDB index rank vs economic outcomes
- There is a disconnect between the stellar rise in EDB index rank and economic outcomes.
- The theory underlying the EDB index could be suspect, the measurement and data could be faulty, or both.
- For example, China’s phenomenal economic success, especially its agricultural performance (after the reforms in 1978), is perhaps the most unmistakable evidence demonstrating that lack of clarity of property rights may not be the binding constraint in a market economy.
- What matters is economic incentives.
- Measuring regulatory functions underlying the index could be tricky and subjective and possibly politically motivated as well, as the controversies surrounding the index seem to suggest.
EODB in India: At what cost
Ans. Weakening labour regulations
- Closer home, India has weaponised the mandate to improve the rank in the EDB index to whittle down labour laws and their enforcement and bring them close to the free-market ideal of ‘hire and fire’.
- Most States have emulated Maharashtra’s lead of administrative fiat, which renders labour laws toothless by dismantling official labour inspection systems and allowing employers to file self-regulation reports.
- The government has farmed out critical safety regulations such as annual inspection and certification of industrial boilers to ‘third party’ private agencies.
- The Labour Department’s inspection is now not mandated; it is optional only by prior intimation to employers.
Implications of such moves
- Such abdication of the government’s responsibility towards workers has reportedly affected industrial relations.
- The workers’ strike at Wistron’s iPhone assembly factory in Karnataka last year is an example.
- Further, severe industrial accidents are rising, damaging life and productive industrial assets.
Why did World Bank scrap the index?
- Investigations into “data irregularities” in preparing the EDB index, as brought out by the independent agency, seems to confirm many shortcomings repeatedly brought to light for years now.
- The index appears motivated to support the free-market ideal.
- It is dressed up under scientific garb and is underpinned by seemingly objective methods and data collection.
- Strong leaders (and motivated officials) seem to have used their position to manipulate the index to suit their political and ideological ends.
Conclusion
- India claimed the success of its Make in India initiative by relying on its ranking on the EDB index without tangible evidence.
- Handing over law enforcement to employers by self-reporting compliance seems to have increased industrial unrest and accidents.
- It perhaps calls for honest soul-searching as to what havoc a questionable benchmark can wreak.
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National Monetization Pipeline shows promise — and limits
Note4Students
From UPSC perspective, the following things are important :
Prelims level: National Monetization Pipeline
Mains level: Issues with Asset Monetization in India
The government of India recently announced an asset monetization plan, wherein existing public assets worth Rs 6 trillion would be monetized by leasing them out to private operators for fixed terms.
The plan has generated a lot of print so it is worth discussing its pros and cons.
About NMP
- The identified assets are primarily concentrated in roads, railways, power, oil and gas, and telecoms.
- The lease proceeds are expected to be used for new infrastructure investment which, in turn, will contribute to the government’s ambitious Rs 111 trillion infrastructure investment plan.
Important issues raised by the plan
[I] How much should the government expect to raise from the plan?
Revenue Potential
- In deciding the amount to bid for leasing rights, bidders compute the present discounted value of the annual cash flow from the asset for the duration of the lease.
- The biggest uncertainty in this calculation surrounds the cash flow on these public assets.
- Rates of return estimates on public capital in the US have been estimated to be upwards of 15 per cent.
- However, this is India with its myriad uncertainties regarding pricing, bill collection, asset quality, regulatory framework as well as policy reversals.
- Hence there is significant uncertainty regarding the revenue potential of the plan.
[II] Is the plan likely to increase the efficiency of the economy?
a. Efficiency of the economy
- The NITI Aayog believes that the private sector is better at managing and operating the identified public assets than the public sector.
- There is certainly scope for efficiency gains. However, there are significant efficiency impediments too.
- One set of efficiency issues surrounds usage fees. A second factor related to efficiency is the effect of the plan on competition.
b. Stressed sectors
- The identified assets belong to core sectors of the economy spanning transport, energy and communication.
- Sectors like telecoms and ports have already seen rising concentration of ownership in recent years.
- An acceleration and extension of this trend to other segments of the infrastructure landscape would be seriously worrying.
- While some of this could well be rationalized through the stipulation of rules for the allocation of leasing rights, the plan is silent on this.
c. Financing of the lease bids
- If bidders finance their bids using domestic savings, there is a clear opportunity cost of the plan since these savings would otherwise have been invested in alternative projects.
- Moreover, the bidding for scarce domestic savings by prospective investors will also raise domestic interest rates which will put downward pressure on domestic private investment.
- It would also be worth reminding ourselves that the last round of PPP-based infrastructure funding routed through banks ended up with a heap of NPAs in public sector bank balance sheets.
Biggest flaw of the NMP
- No clear objective: The biggest drawback of the plan is that it fails to articulate the reasons for public sector inefficiency in asset management.
- No focus on management: If it is personnel-related, then privatizing management may be the right answer. If the inefficiency is related to constraints on pricing and bill collection, then the roots of the problem are unlikely to be addressed by leasing out their management to private operators.
- No clear assessment of underperforming sectors: The plan document also fails to outline whether the identified brownfield assets are the public sector’s highest cash flow assets or the relatively under-performing ones.
Better alternatives for the govt
- The way around this is to welcome foreign investors to bid for the assets.
- But this will require serious political will since entrenching foreign influence on Indian public assets will generate controversy.
- On this aspect too, the announced plan is low on details.
Way forward
- If the private sector is indeed more efficient in running infrastructure assets, the most efficient strategy would be to lease out the worst-performing assets rather than the best performing ones.
- The NITI Aayog would do the policy landscape a big service by following up the proposal with a white paper that addresses some of these efficiency-related issues.
- Without that, the monetization plan, while intriguing, is incomplete.
Conclusion
- A monetization plan envisages the private sector paying an upfront fee to the government which the government uses for new infrastructure investment.
- As much as private bidders finance themselves by borrowing, this amounts to the private sector borrowing and handing over the funds to the government to invest in infrastructure.
- This could enhance efficiency in infrastructure investment only if the government faces higher interest rates in capital markets than the private sector.
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[pib] PLI Scheme for White Goods
Note4Students
From UPSC perspective, the following things are important :
Prelims level: White Goods, PLI Scheme
Mains level: Success of the PLI Scheme
A total of 52 companies have filed their application with a committed investment of Rs 5,866 crore under the PLI scheme to incentivize the domestic manufacturing of components of White Goods.
What are White Goods?
- White goods refer to heavy consumer durables or large home appliances, which were traditionally available only in white.
- They include appliances such as washing machines, air conditioners, stoves, refrigerators, etc. The white goods industry in India is highly concentrated.
Why PLI scheme for white goods?
- Indian appliance and consumer electronics (ACE) market reached INR 76,400 crore (~$10.93 bn) in 2019.
- Appliances and consumer electronics industry is expected to double to reach INR 1.48 lakh crore (~$21.18 bn) by 2025.
- The PLI Scheme on White Goods is designed to create complete component ecosystem for Air Conditioners and LED Lights Industry in India and make India an integral part of the global supply chains.
- Only manufacturing of components of ACs and LED Lights will be incentivized under the Scheme.
What is PLI Scheme?
- As the name suggests, the scheme provides incentives to companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods.
- PLI scheme offers incentives on incremental sales for products manufactured in India.
- The scheme for respective sectors has to be implemented by the concerned ministries and departments.
Criteria laid for the scheme
- Eligibility criteria for businesses under the PLI scheme vary based on the sector approved under the scheme.
- For instance, the eligibility for telecom units is subject to the achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
- The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others.
- Under food processing, SMEs and others must hold over 50 per cent of the stock of their subsidiaries, if any.
- On the other hand, for businesses under pharmaceuticals, the project has to be a greenfield project while the net worth of the company should not be less than 30 per cent of the total committed investment.
What are the incentives offered?
- An incentive of 4-6 per cent was offered last year on mobile and electronic components manufacturers such as resistors, transistors, diodes, etc.
- Similarly, 10 percent incentives were offered for six years (FY22-27) of the scheme for the food processing industry.
- For white goods too, the incentive of 4-6 per cent on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights.
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Govt. mulls allowing local sales by SEZ units sans import tag
Note4Students
From UPSC perspective, the following things are important :
Prelims level: SEZs, Baba Kalyani Committee
Mains level: Read the attached story
The government is considering a proposal to allow producers in Special Economic Zones (SEZs) to sell their output to the domestic market without treating them as imports.
What are SEZs?
- A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
- SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
- To encourage businesses to set up in the zone, financial policies are introduced.
- These policies typically encompass investing, taxation, trading, quotas, customs, and labor regulations.
- Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.
SEZs in India
- The SEZ policy in India first came into inception on April 1, 2000.
- The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
- The idea was to promote exports from the country and realizing the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
- Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.
Who can set up SEZs? Can foreign companies set up SEZs?
- Any private/public/joint sector or state government or its agencies can set up an SEZ.
- Yes, a foreign agency can set up SEZs in India.
What is the role of state governments in establishing SEZs?
- State governments will have a very important role to play in the establishment of SEZs.
- A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal.
- Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.
Are SEZs controlled by the government?
- In all SEZs, the statutory functions are controlled by the government.
- The government also controls the operation and maintenance function in the central government-controlled SEZs. The rest of the operations and maintenance are privatized.
Are SEZs exempt from labor laws?
- Normal labor laws are applicable to SEZs, which are enforced by the respective state governments.
- The state governments have been requested to simplify the procedures/returns and for the introduction of a single-window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.
Who monitors the functioning of the units in SEZ?
- The performance of the SEZ units is monitored by a unit approval committee consisting of a development commissioner, custom, and representative of the state government on an annual basis.
What are the special features for business units that come to the zone?
- Business units that set up establishments in an SEZ would be entitled to a package of incentives and a simplified operating environment.
- Besides, no license is required for imports, including second-hand machinery.
How do SEZs help a country’s economy?
- SEZs play a key role in the rapid economic development of a country.
- In the early 1990s, it helped China and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits – provided, however, that the zones offered attractive enough concessions.
- Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red-tapism, and strict labor laws.
- To date, these restrictions have ensured that India has been unable to compete with China’s massively successful light-industrial export machine.
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Why is there a push for Asset Monetization?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Asset Monetization
Mains level: Execution of NMP in spirit
Finance Minister has recently announced the framework for the National Monetization Pipeline (NMP) and its process is under discussion.
What is Asset Monetization?
- Asset Monetization involves the creation of new sources of revenue by unlocking of the value of hitherto unutilized or underutilized public assets.
- Internationally, it is recognized that public assets are a significant resource for all economies.
- Many public sector assets are sub-optimally utilized and could be appropriately monetized to create greater financial leverage and value for the companies and of the equity that the government has invested in them.
- This helps in the accurate estimation of public assets which would help in the better financial management of government/public resources over time.
What is the National Monetization Pipeline?
- The NMP names a list of public assets that will be leased to private investors.
- Only brown-field assets, which are assets that are already operational, are planned to be leased out under the NMP.
- So, to give an example, an airport that is already operational may be leased out to an investor.
- Assets that are yet to be developed, such as an undeveloped piece of land, for example, may not be leased out.
- Importantly, there won’t be any transfer of ownership from the government to the private sector when assets are leased out.
- The government only plans to cede control over its assets for a certain period of time, after which the assets must be returned to the government unless the lease is extended.
Will NMP help the economy?
- Better control and utilization: Economists generally believe that scarce assets are better managed and allocated by the private sector than by the government. So to the extent that the NMP frees assets from government control, it can help the economy.
- Freeing Capital: The government believes that leasing out public assets to private investors will help free capital that is stuck in these assets.
- Infra generation: The government can use this money, in turn, to build fresh infrastructure under the National Infrastructure Pipeline (NIP).
- Economic boost: In fact, the proceeds from the NMP are expected to account for about 14% of the total outlay for infrastructure under the NIP. The government believes all this spending will boost economic activity.
- A perfect model: Analysts also believe that the government has now through the NMP found the right model for infrastructure development.
- Source of finance: The government, they say, is best suited to tackle the ground-level challenges in building infrastructure, while the private sector can operate and offer indirect finance to these projects through the NMP.
For example, say the government has invested thousands of crores in a road project. It may take the government decades to recover its investment through the annual toll revenues. Instead, the government can recover a good chunk of its investment by leasing out the right to collect toll for the next 30 years to a private investor.
What are the risks?
- Political lobbying: The allocation of assets owned by governments to private investors is often subject to political influence, which can lead to corruption. In fact, many in the Opposition allege that the NMP will favour a few business corporations that are close to the government.
- Burden of opportunity cost: The expected boost to economic activity due to higher government spending may also need to be weighed against the opportunity costs. For one, the money that the government collects by leasing out assets comes from the pockets of the private sector. So higher government spending will come at the cost of lower private spending.
- Legal uncertainties: The NMP also does not address the various structural problems such as legal uncertainty and the absence of a deep bond market that hold back private investment in infrastructure.
- Sheer Privatization: There are also concerns that the leasing of airports, railways, roads and other public utilities to private investors could lead to higher prices for consumers. If the government merely cedes control of public utilities to private companies without taking steps to foster greater competition, it can indeed lead to poor outcomes for consumers.
- Policy compulsion: The government’s past disinvestment projects such as the sale of Air India did not catch the fancy of investors owing to the stringent conditions set by the government. In the case of Air India’s sale, the buyers were supposed to possess a certain minimum net worth and stay invested in the airline for at least three years.
What lies ahead?
- The success of the NMP will depend on the demand for brown-field government assets among private investors.
- Many analysts also believed that the government was expecting buyers to pay too much for a debt-ridden Air India.
- The pricing of assets and the terms of sale will thus determine the level of interest that private investors show for assets leased under the NMP.
- In the past, doubts have been raised about the allocation of airports and other assets to certain private business groups (say Adani Group).
- So the process that the government adopts this time to allocate assets may come under scrutiny. There is likely to be a demand for an open, competitive auction of assets.
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National Monetization Pipeline
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Asset Monetization
Mains level: National Monetization Pipeline (NMP)
The Union Finance Minister has launched the National Monetization Pipeline for the brownfield infrastructure assets.
What is Asset Monetization?
- Asset Monetization involves the creation of new sources of revenue by unlocking of the value of hitherto unutilized or underutilized public assets.
- Internationally, it is recognized that public assets are a significant resource for all economies.
- Many public sector assets are sub-optimally utilized and could be appropriately monetized to create greater financial leverage and value for the companies and of the equity that the government has invested in them.
- This helps in the accurate estimation of public assets which would help in the better financial management of government/public resources over time.
National Monetization Pipeline (NMP)
- The NMP comprises a four-year pipeline of the Central Government’s brownfield infrastructure assets.
- It will serve as a medium-term roadmap for the Asset Monetization initiative of the government, apart from providing visibility for the investors.
- Incidentally, the 2021-22 Union Budget, laid a lot of emphasis on Asset Monetization as a means to raise innovative and alternative financing for infrastructure.
- It has to be noted that the government views asset monetization as a strategy for the augmentation and maintenance of infrastructure, and not just a funding mechanism.
What is the plan?
- NMP is envisaged to serve as a medium-term roadmap for identifying potential monetization-ready projects, across various infrastructure sectors.
- It estimates aggregate monetization potential of Rs 6.0 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.
Objectives of the program
- NMP aims for universal access to high-quality and affordable infrastructure to the common citizen of India.
- Asset monetization, based on the philosophy of Creation through Monetization, is aimed at tapping private sector investment for new infrastructure creation.
- This is necessary for creating employment opportunities, thereby enabling high economic growth and seamlessly integrating the rural and semi-urban areas for overall public welfare.
- The strategic objective of the programme is to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term patient capital.
Framework
The framework for core asset monetization has three key imperatives:
- The pipeline has been prepared based on inputs and consultations from respective line ministries and departments, along with the assessment of total asset base available therein.
- Monetization through disinvestment and monetization of non-core assets have not been included in the NMP.
- Further, currently, only assets of central government line ministries and CPSEs in infrastructure sectors have been included.
- Process of coordination and collation of asset pipeline from states is currently ongoing and the same is envisaged to be included in due course.
Estimated Potential
- The aggregate asset pipeline under NMP over the four-year period, FY 2022-2025, is indicatively valued at Rs 6.0 lakh crore.
- The estimated value corresponds to ~14% of the proposed outlay for Centre under NIP (Rs 43 lakh crore). This includes more than 12-line ministries and more than 20 asset classes.
- The sectors included are roads, ports, airports, railways, warehousing, gas & product pipeline, power generation and transmission, mining, telecom, stadium, hospitality and housing.
- The top 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value. These top 5 sectors include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%).
Implementation & Monitoring Mechanism
- As an overall strategy, significant share of the asset base will remain with the government.
- The programme is envisaged to be supported through necessary policy and regulatory interventions by the Government in order to ensure an efficient and effective process of asset monetisation.
- These will include streamlining operational modalities, encouraging investor participation and facilitating commercial efficiency, among others.
- Real time monitoring will be undertaken through the a separate dashboard.
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What India’s informal sector needs right now
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MGNREGA
Mains level: Paper 3- Issues of informal sector
Context
Informal sector workers suffered far more from the national lockdown in 2020 than their formal sector counterparts.
Significance of informal sector
- India’s large informal sector, which employs around 80 per cent of the labour force and produces about 50 per cent of GDP.
- Of the 384 million employed in the informal sector, half work in agriculture, living mostly in rural India, and the other half are in non-agricultural sectors.
- Of those, about half live in rural India and the remaining in urban areas.
- Ignoring problems in the informal sector can be costly as it can lead to job and wage losses, higher inflation and even risk the livelihood of migrant workers.
Impact of pandemic on informal sector workers
- Informal sector workers suffered far more from the national lockdown in 2020 than their formal sector counterparts.
- Such disruptions can be inflationary too.
- India was one of the few countries with high inflation throughout pandemic-stricken 2020.
- The 40 per cent in the informal non-agricultural sector is the most affected by the pandemic.
- These workers are most vulnerable as they have borne the brunt of the economic disruption that the pandemic has unleashed.
Impact on the informal sector
- Nominal GDP growth has been a good indicator of the formal sector corporate sales.
- But during the pandemic and also during events like demonetisation, formal corporate sales have exceeded nominal GDP growth.
- This means that some demand, which was previously supplied by the informal sector, began to be supplied by the formal sector.
- Several surveys over this time also show a rise in urban unemployment and self-employment, with the latter category seeing the highest earnings loss.
Way forward
- Formalisation on the back of policy changes: While traditionally associated with efficiency gains, if it comes at the cost of putting small informal firms out of business.
- Formalisation that comes only on the back of external pressure or leads to deep distress in the informal sector, may not be sustainable.
- By contrast, formalisation that happens on the back of policy changes that help small and informal firms grow over time into medium or larger formal sector firms is more sustainable.
- Social welfare scheme: We need protection for informal sector workers via social welfare schemes so that the disruption they are facing does not lead to a permanent fall in demand.
- There is a case for remaining generous with programmes such as the rural MGNREGA scheme for longer.
- India doesn’t have an MGNREGA equivalent urban social welfare scheme.
- Reforms: Steps to promote reforms that are needed to help small businesses grow are critical.
- For example, lowering the regulatory burden associated with growing firms.
Conclusion
Bringing the informal sector to the forefront of policy decisions can lead to a significant payoff for the entire economy for years to come.
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Special Economic Zones
Note4Students
From UPSC perspective, the following things are important :
Prelims level: SEZs
Mains level: Not Much
Key Highlights of the report
- If India is to become a US $5 trillion economy by 2025, then the current environment of manufacturing competitiveness and services has to undergo a basic paradigm shift.
- The report notes that the success seen by services sectors like IT and ITES (IT enabled services) has to be promoted in other services sector like health care, financial services, legal, repair and design services.
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SC quashes some provisions of 97th Amendment dealing with co-operative societies
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Doctrine of Severability
Mains level: Management of Cooperatives
In a major boost for federalism, the Supreme Court has struck down parts of the 97th Constitution amendment which shrank the exclusive authority of States over their cooperative societies.
Background
- The Gujarat High Court in 2013 had held that the amendment, to the extent it introduced conditions for state laws on co-operative societies, was liable to be struck down.
- This amendment was passed without the ratification of one-half of the state legislatures as mandated by Article 368(2) of the Constitution.
- As per Article 368(2), ratification of one-half of state legislatures is required for an amendment that makes changes to an entry in the state list.
- Since co-operative societies were a state subject as per Entry 32 in List II of the Seventh Schedule, the amendment introducing Part IX B required ratification as per Article 368(2), the High Court ruled.
What was 97th Amendment about?
- The 97th constitutional amendment dealt with issues related to the effective management of cooperative societies in the country.
- It was passed by Parliament in December 2011 and had come into effect from February 15, 2012.
- Part IXB, introduced in the Constitution through the 97th Amendment of 2012, dictated the terms for running cooperative societies.
- The provisions in the amendment went to the extent of determining the number of directors a society should have or their length of tenure and even the necessary expertise.
What is the recent Judgement?
- In a majority judgment, the supreme court has held that cooperative societies come under the “exclusive legislative power” of State legislatures.
- The judgment may be significant in the background of fears voiced by the States whether the new Central Ministry of Cooperation would disempower them.
- The change in the Constitution has amended Article 19(1)(c) to give protection to the cooperatives and inserted Article 43 B and Part IX B, relating to them.
- The Centre has contended that the provision does not denude the States of its power to enact laws with regard to cooperatives.
Exceptions to the amendment
- The Supreme court did not strike down the portions of Part IXB of the Amendment concerning “Multi-State Cooperative Societies” due to the lack of ratification.
- When it comes to Multi-State Co-operative Societies (MSCS) with objects not confined to one State, the legislative power would be that of the Union of India.
What was the dissenting opinion?
- In his dissent, Justice K.M. Joseph said the doctrine of severability would not operate to distinguish between single-State cooperatives and MSCS.
- The judge said the entire Part IXB should be struck down on the ground of absence of ratification.
Back2Basics: Doctrine of Severability
- Article 13 deals with laws inconsistent with or in derogation of fundamental rights.
- It also deals with all laws enforced in India, before the commencement of the Constitution.
- The doctrine of Severability in Article 13 can be understood in two dimensions
- Article 13(1) validates all Pre-Constitutional Law and thereby declares that all pre-Constitutional laws in force before the commencement of the Indian Constitution shall be void if they are inconsistent with the fundamental rights.
- Article 13(2) mandates the State that it shall not make any law that takes away or abridges the fundamental rights conferred in Part III of the Indian Constitution and any law contraventions this clause shall be void.
- This doctrine widens the scope for Judicial Review on unconstitutional parts of any law.
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Middle income trap
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- How India can avoid the middle income trap
The article suggests focusing on improving productivity and thereby the manufacturing sector to avoid the middle-income trap.
What is the middle-income trap and why it matters for India
- This trap was first conceived by World Bank economists.
- They found that of the 101 developing economies that could be classified as ‘middle income’ in 1960, only 13 managed to become rich nations by 2008.
- There is little consensus on why some countries succeed in making the transition to high-income status.
- But a distinctive attribute of those that succeed in the transition to high income is productivity improvement.
- India could use its demographic dividend to avoid this predicament and achieve the critical velocity needed to move into the high-income bracket.
How can India avoid the middle-income trap
1) Improve productivity
- Re-allocation of labour from low-productivity agriculture to high-productivity sectors, such as manufacturing, has been a primary channel through which today’s advanced economies raised their living standards.
- In India, growth in labour productivity has consistently declined over the past decade.
- The annual growth rate of output per worker has dipped from 7.9% in 2010 to 3.5% in 2019, as per International Labour Organization estimates.
- This was also a period of low growth in India’s manufacturing sector.
- In 2020-21, it accounted for only 14.5% of India’s gross value added, down from 17.4% in 2011-12.
- An essential first step in improving productivity would be strengthening this sector.
2) Strengthen manufacturing sector
- Industrial labour relations is among the most critical elements to revitalize India’s manufacturing sector especially in the context of labour productivity.
- These labour laws created incentives for firms to remain small and uncompetitive, thereby affecting productivity.
- The new code, once implemented, would increase the threshold relating to layoffs and retrenchment in industrial establishments to 300 workers.
- Other countries, such as China, Vietnam and Bangladesh, with whom India competes for foreign investment and export markets do not require the approval of administrative or judicial bodies for dismissals.
- Therefore, in spite of recent reforms, India’s labour laws stay rigid in comparison with those of its competitor countries.
3) Technology intensive manufacturing
- Engendering innovation in higher value-added, tech-intensive activities is important for economies before they reach that juncture.
- If exports are taken as a proxy for the manufacturing capabilities and competitiveness of an economy, the present status of tech-intensive manufacturing in India leaves a lot to be desired.
- As per World Bank data, high-tech exports accounted for only 10.3% of India’s manufacturing exports in 2019.
- Rival countries had a much higher share of the same: 31% in China, 13% in Brazil, 40% in Vietnam and 24% in Thailand.
- Low R&D spending in India, ranging from a mere 0.64% to 0.86% of gross domestic product over the past two decades, has held the country back.
Steps to improve tech-intensive manufacturing
- The government has introduced a production-linked incentive scheme to ensure a greater share of local value addition.
- While this would attract foreign investments in tech-intensive manufacturing, there is also a need for greater incentives for R&D investments by firms in India.
- A first step in this direction could be reinstating the tax exemption on R&D under Section 35 (2AB), even for companies opting for the lower corporate tax rate of 22%.
Conclusion
We need appropriate interventions to improve productivity—both economy-wide and within the sector. And we must do it now.
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What is the Purchasing Managers’ Index (PMI)?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Purchasing Managers’ Index
Mains level: India's manufacturing slowdown
India’s manufacturing industry has slid back to a decline in June, as per the IHS Markit Manufacturing Purchasing Managers’ Index (PMI).
Purchasing Managers’ Index
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.
What are its implications for the economy?
- The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
- It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
- Central banks of many countries also use the index to help make decisions on interest rates.
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MCA raises threshold of Small and Medium Companies
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Small and Medium Companies
Mains level: MSME sector updates
The Ministry of Corporate Affairs has expanded the turnover and borrowing thresholds for Small and Medium-sized Companies (SMC), allowing a larger number of firms to benefit from reporting exemptions under accounting norms.
What is the change?
- The MCA has increased the turnover threshold for SMCs to Rs 250 crore from Rs 50 crore, and the borrowing threshold to Rs 50 crore from Rs 10 crore.
- SMCs are permitted to avail a number of exemptions under the Company (Accounting Standards) Rule 2021 to reduce the complexity of regulatory filings for smaller firms.
- Banks, financial institutions, insurance companies, and listed companies cannot be classified as SMCs.
- Further, any company which is either the holding company or subsidiary of a company that is not an SMC cannot be classified as an SMC.
What are the exemptions available to SMCs that are not available to other firms?
- SMC are completely exempted from having to file cash flow statements and provide a segmental break up of their financial performance in mandatory filings.
- SMCs can also avail partial reporting exemptions in areas including reporting on employee benefits obligations such as pensions.
- SMCs are exempted from having to provide a detailed analysis of benefit obligations to employees, but are still required to provide actuarial assumptions used in valuing the company’s obligations to employees.
- SMCs are also exempted from having to report diluted earnings per share in their filings.
- Diluted earnings per share reflect the per-share earnings of a company assuming that all options to convert other securities into shares are exercised.
Answer this PYQ in the comment box:
Q. What is/ are the recent policy initiative(s) of the Government of India to promote the growth of the manufacturing sector?
- Setting up of National Investment and Manufacturing Zones.
- Providing the benefit of single window clearance.
- Establishing the Technology Acquisition and Development Fund.
Select the correct answer using the codes given below:
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
How does this impact these firms?
- Experts have noted that the move would promote ease of doing business for the firms that would now be included under the definition of SMC.
- The Accounting Standards for SMC, which were notified in December 2006 and amended from time to time, are much simpler as compared to Indian Accounting Standards (Ind AS).
- These accounting standards involve less complexity in their application, including the number of required disclosures being less onerous.
- Ind AS standards are applied to larger firms and are largely similar to International Financial Reporting Standards (IFRS) used in most developed jurisdictions.
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GIMAC: India’s first maritime arbitration centre
Note4Students
From UPSC perspective, the following things are important :
Prelims level: GIMAC
Mains level: International arbitration and India
The Gujarat Maritime University signed a Memorandum of Understanding (MoU) with the International Financial Services Centres Authority in GIFT City to promote the Gujarat International Maritime Arbitration Centre (GIMAC).
What is GIMAC?
- The GIMAC will be part of a maritime cluster that the Gujarat Maritime Board (GMB) is setting up in GIFT City at Gandhinagar.
- The Maritime Board has rented about 10,000 square feet at GIFT House which is part of the Special Economic Zone (SEZ) area with clearance from the development commissioner.
- This will be the first centre of its kind in the country that will manage arbitration and mediation proceedings with disputes related to the maritime and shipping sector.
- The centre is expected to be ready by the end of August.
Why is such a centre needed?
- It is required because, for instance, the ship owners belong to a different country and the person leasing the ship is from another country.
- Any dispute arising between them can be resolved within this centre.
- There are over 35 arbitration centres in India. However, none of them exclusively deals with the maritime sector.
- The arbitration involving Indian players is now heard at the Singapore Arbitration Centre.
- The idea is to create a world-class arbitration centre focused on maritime and shipping disputes that can help resolve commercial and financial conflicts between entities having operations in India.
- Globally, London is the preferred centre for arbitration for the maritime and shipping sector.
What is the current status of the project?
- The process of recruiting staff for the arbitration centre is currently underway.
- A 10-member advisory board for GIMAC, consisting of international experts and professionals, has been created, which will help in the framing of rules for the arbitration centre and in empanelling arbitrators.
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Corporates need commitment to sustainability and community alongside pursuit of profit
Note4Students
From UPSC perspective, the following things are important :
Prelims level: CSR norms in India
Mains level: Paper 3- Sustainability and capitalism
The article calls the corporates to adopt new capitalism in the aftermath of the pandemic which involves alongside the profit motives the commitment to giving back.
Capitalism in the aftermath of Covid-19
- The 2008 crisis was caused by the excesses of global finance, whereas the 2020 economic crisis was caused by a pandemic that spilled over to the economy.
- While the current pandemic is the first of its kind in nine decades, the dire economic consequences are very similar to that global financial crisis just a decade ago.
- What is also similar is the policy response that has followed both the 2008 and 2020 crises — the Keynesian prescription of the government stimulating a depressed economy by using monetary and fiscal instruments.
- Cheap liquidity preserves the wealth of the asset-owning classes even as the real economy stalls.
- However, over-stretched governments head towards a debt/fiscal crisis which eventually forces austerity, hitting those dependent on government handouts.
- It is this inequality in outcomes that is unlikely to happen this time.
- Already, the G-7 has pledged to maintain a minimum level of corporation tax.
- There have also been calls for additional taxation, particularly on the assets of the wealthy.
What corporates can do
- Instead of waiting for governments to react under popular pressure, corporates must themselves set out on a different path.
- Covid-19 has brought home the fragility of human life and the deeply interconnected fate of humanity.
- Outside of the pandemic, there is no better example of this than climate change which, if left uncontrolled, could devastate the world.
- While governments negotiate, corporates must respond with voluntary commitments to mitigate climate change.
- Climate change mitigation should be at the core of all business models going forward.
- In addition, promoters need to come forward to pledge more of their wealth towards philanthropy.
- India implemented the concept of corporate social responsibility as part of its legal framework a decade ago.
Investor pressure for action towards environment
- The ability of the private sector to work for the greater good seems implausible.
- But it is already happening — not because of government regulation, but because of investor pressure.
- Progressive actions towards the environment and society are being rewarded by investors.
- The absence of such progressive actions is being penalised.
- Market forces are, after all, embedded in society.
- They are perfectly capable of moving beyond profit.
Threat of new-age tech capitalism
- The real challenge for society, government and capitalists comes from the new-age tech capitalists.
- They are the new monopolists or oligopolists who don’t exercise their power over society by charging a supernormal price.
- In fact, a lot of them provide goods and services at hefty discounts.
- Instead, what they seek is to control information and influence choices.
- Many of the promoters of such enterprises are philanthropists but society and governments have a different set of concerns on how they exercise power.
Conclusion
An imperfect world is passing through a perfect storm. There will be big changes on the other side. Capitalism will survive. It could thrive by choosing its own pathway or it could stumble along under the hammer of big government fuelled by populist backlash.
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[pib] Chennai–Kanyakumari Industrial Corridor (CKIC)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Chennai–Kanyakumari Industrial Corridor (CKIC)
Mains level: Not Much
The Asian Development Bank (ADB) and the Centre have signed a $484 million loan to improve transport connectivity and facilitate industrial development in the Chennai–Kanyakumari Industrial Corridor (CKIC).
About CKIC
- CKIC is part of India’s East Coast Economic Corridor (ECEC), which stretches from West Bengal to Tamil Nadu.
- The project will upgrade about 590 km of state highways in the CKIC influence areas that cover 23 of the 32 districts between Chennai and Kanyakumari in Tamil Nadu.
- It connects India to the production networks of South, Southeast, and East Asia.
- ADB is the lead partner in developing ECEC.
Answer this PYQ in the comment box:
Q. With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements:
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Significance of CKIC
- The project is part of the priority infrastructure projects identified for corridor development under the ADB-supported CKIC comprehensive development plan.
- Enhanced connectivity of industrial hubs with hinterland and ports will particularly help increase the participation of Indian manufacturing in global production networks and global value chains.
- The project will also strengthen road safety improvement programs through advanced technologies for road monitoring and enforcement.
- In addition, the project will help improve the planning capacity of Tamil Nadu’s Highways and Minor Ports Department.
Back2Basics: Asian Development Bank
- The ADB is a regional development bank established on 19 December 1966 which is headquartered in the Ortigas Center located in the city of Mandaluyong, Metro Manila, Philippines.
- The company also maintains 31 field offices around the world to promote social and economic development in Asia.
- From 31 members at its establishment, ADB now has 68 members.
- The ADB was modeled closely on the World Bank and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.
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Why companies are adopting sustainable business models?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Sustainability pressure on companies
The article discusses the three undercurrents that are pushing companies to adopt more sustainable business models.
Demand for sustainable business practices
- Companies across the world are facing pressure to adopt sustainable business practices.
- In a global first, a judicial court in the Netherlands has invoked the principles of human rights obligations of companies to rule that the Royal Dutch Shell will have to further accelerate its targeted reduction in greenhouse gas (GHG) emission.
- The shareholders of Chevron forced upon the management a resolution to set strict emission targets from the products that it sells.
- The German cabinet approved a law that requires all coal-fired plants to close down much earlier than the target date set only eighteen months ago.
- In India, the SEBI came out with a new set of Business Responsibility and Sustainability Reporting (BRSR).
- BRSR will be mandatory for the top 1,000 companies from the next year.
Three factors driving the change
1) Investors’ pull
- Workers saving for their pension do not want their investments to go to companies whose tailings-dam can burst and cause hundreds of death in Brazil.
- Investors also realise the long-term business risk of companies if sustainability isn’t a focus.
2) Governments’/regulators’ push
- In 2021, the US announced that it will cut emissions by over 50% by 2030.
- Japan has almost doubled its 2030 targets.
- The UK has now announced a target to cut 40-45% by the same time, from the earlier goal of a 30%-cut.
- China has announced that its emissions will peak by 2030, and by 2060, it would have net zero emissions.
- India is expected by the global community to announce net-zero by 2050.
- All of these have huge implications not only for hydrocarbon companies but across multiple sectors.
- Banking regulators are asking banks to include climate in the risk assessment of the companies they lend to.
- Insurance and pension regulators are raising similar questions in their sector.
3) Measurement/reporting
- When sustainability debates picked up, many organisations like CDP, CDSB, PRI, GRI, TCFD, IMP, IIRC, SASB, etc, sprang up to fulfill the need for sustainability reporting.
- Often, these worked at cross purposes and in competition with each other, leading to ‘greenwashing’ and other malpractices and creating confusion in the minds of investors.
- But, the realisation that the investors need a set of comparable and verifiable reporting formats has gathered momentum in the past one year.
- The last excuse to avoid focus on sustainable business practices will also wither away.
Consider the question “Financial capital is just one of the multiple capitals a successful company must possess. This brings sustainability into the focus. In light of this, discuss the factors that are forcing the companies to factor in the sustainability in their business models.”
Conclusion
The decades-old debate on environmental damage and sustainability is now reaching a decisive phase. Companies need to factor in the sustainability aspect in their profit calculus to remain relevant in changing world.
Source:
https://www.financialexpress.com/opinion/the-sustainability-heat-on-companies/2268494/
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FinMin grants ‘infrastructure’ status for convention centres
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Harmonized Master list
Mains level: Infrastructure sector
The Finance Ministry has granted ‘Infrastructure’ status for exhibition and convention centres, a move that is expected to ease bank financing for such projects.
Exhibition-cum-Convention Centre
- ‘Exhibition-cum-Convention Centre is included in the Harmonized Master List of Infrastructure sub-sectors by insertion of a new item in the category of Social and Commercial Infrastructure.
- The benefits available as ‘infrastructure’ projects would only be available for projects with a minimum built-up floor area of 1,00,000 square metres of exclusive exhibition space or convention space or both combined.
- This includes primary facilities such as exhibition centres, convention halls, auditoriums, plenary halls, business centres, meeting halls etc.
- As of now, the major projects underway in the sector are backed by the government – the International Exhibition-cum-Convention Centres at Dwarka as well as Pragati Maidan in the capital.
What is the Master List?
- The Harmonized Master list approved by the cabinet committee on infrastructure has five main sectors and 29 infra subsectors.
- The five sectors include transport, energy, water sanitation, communication and social and commercial infrastructure.
- The infra tag allows certain benefits including access to easier borrowings overseas, the ability to raise funds through tax-free bonds, tax concessions, and access to dedicated lenders such as IIFCL, and the debt funds.
- Last August, the government had added affordable rental housing projects to the list of sectors recognised as infrastructure.
Benefits of the move
- The infrastructure tag no longer involves significant tax breaks but would help such projects get easier financing from banks, said experts.
- India doesn’t have large convention centres or single halls with capacities to hold 7,000 to 10,000 people, unlike countries like Thailand that is a major global MICE-destination.
- Becoming a MICE (Meetings, Incentives, Conferences and Exhibitions) destination can generate significant revenue with several global companies active in India but it will take time to become a preferred destination.
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Applying the policy of self-reliance to health, infrastructure and green technologies
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- How Atmanirbhar Bharat policies can help in post-covid recovery
The article highlights how Atmanirbhar Bharat policies can play important role in India’s post-pandemic recovery.
Decline of trade-led catch-up growth
- The Asian Development Bank identifies India as an outlier, with the country’s GDP growth likely to range between eight and 10 per cent — as against 7.7 per cent for China and seven per cent for the Asian region.
- The convergence between the rich and poor countries in the 1990s and 2000s was founded on high relative growth rates driven by globalisation and export-led growth.
- The World Bank and many international think tanks are now projecting a process of de-globalisation, reduction in exports, and reduced service exports from the tourism, travel and hospitality sector in response to COVID.
- So, the phenomenon of trade-led catch-up growth is declining.
How Atmanirbhar Bharat is different from past strategies
- India’s import substituting growth strategy of the 1960s did not succeed because the high protective customs barriers led to the growth of non-competitive industries.
- The current Atmanirbhar Bharat project is different because tariffs are low and public investment is focused on non-tradable infrastructure rather than commodity production.
1) Atmanirbhar in heath: Atmirbhar Swasth Bharat
- Atmanirbhar Swasth Bharat is a domestic non-trade dependent initiative which will invest over Rs 64,000 crore in setting up 17,800 rural and 11,000 urban health and wellness centres and 602 critical care hospitals in the country’s districts.
- Today India has 29 health workers per 10,000 population, while we need 60 such professionals per 10,000 people, as per WHO norms.
- Creating such a cadre will mean nearly four million new jobs, which can be self-paying.
2) Infrastructure
- China and emerging markets like Russia and Brazil have a fairly advanced transport and energy infrastructure.
- India has a huge potential to renew its railways and highways and shift to solar energy from its current dependence on coal.
- In fact, the country’s long-neglected fourth largest rail network in the world is undergoing rapid transformation.
- While rail track coverage expanded by 5,000 km during 2010 to 2014-15, nearly 7,000 km of tracks were added between 2015 and 2020.
- The Railways now aim to lay 9.5 km of track daily and have raised adequate capital for the same by leveraging domestic insurance funds.
- Railways are also aiming for 100 per cent electrification and zero carbon footprint by 2024.
- Electrified track has doubled from 20,000 km in 2012/13 to nearly 40,000 km in 2020.
- The Centre’s decision to invest heavily in urban mass transit systems since 2014 has led to the rapid expansion of such services.
- The resolution of financial problems of blocked PPP projects and smooth land acquisition process has increased the pace of construction of national highways.
- Pace of construction of the national highway increased from 3,330 km per year during 2009-20014 to nearly 9,450 km in 2020-21.
3) Renewable energy
- Today over 55 per cent of India’s energy comes from coal but the share of renewable has been steadly increasing.
- Starting with only 10 MW of solar power in 2010, India has installed nearly 35 GW of solar power by 2020.
- This has been propelled by economic reforms which drove solar power prices down from Rs 17 per unit in 2010 to Rs 2.44 per unit in 2020.
- The target of reaching 100 GW by 2022 can drive growth further.
- Currently nearly 25 per cent of India’s electricity is used for pumping underground water for irrigation.
- Providing irrigation energy from decentralised solar grids — solar power can be generated at the points on consumption.
- This will reduce huge transmission losses and the associated carbon footprint of non-renewable energy sources.
4) Privatising public sector outfits
- The Centre’s shift towards privatising public sector outfits including banks, insurance companies and other PSUs can fund the growth of rail, road and energy infrastructure.
- This will also foster efficiency in India’s credit system.
- China achieved supernormal growth in infrastructure without access to international financing in the initial decades.
- Recent studies have revealed that China’s financial decentralisation and commercial exploitation of state-owned lands was critical for the success.
- In India, too, regional development authorities like the Mumbai Metropolitan Regional Development Authority and Maharashtra Industries Development Corporation have financed the metro, trans-harbour links and industrial infrastructure through a similar commercial land allocation model.
- This model can be extended throughout the country to finance infrastructure expansion.
Consider the question “How Atmanirbhar Bharat policies differ from the past import-substituting growth strategy? Examine the role Atmanirbhar Bharat can play in the post-pandemic recovery?”
Conclusion
In such a way, Atmanirbharta with its various facets will pave the road of post-pandemic recovery.
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What is Index of Industrial Production (IIP)?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: IIP
Mains level: Read the attached story
Last week saw the release of the Index of Industrial Production (IIP), which recorded a contraction of 1.6% in January.
Index of Industrial Production (IIP)
- Index of Industrial Production data or IIP as it is commonly called is an index that tracks manufacturing activity in different sectors of an economy.
- The IIP number measures the industrial production for the period under review, usually a month, as against the reference period.
- IIP is a key economic indicator of the manufacturing sector of the economy.
- There is a lag of six weeks in the publication of the IIP index data after the reference month ends.
- IIP index is currently calculated using 2011-2012 as the base year.
IIP Index Components:
- Mining, manufacturing, and electricity are the three broad sectors in which IIP constituents fall.
- The relative weights of these three sectors are 77.6% (manufacturing), 14.4% (mining) and 8% (electricity).
- Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilizers are the eight core industries that comprise about 40 per cent of the weight of items included in the IIP.
Basket of products
There are 6 sub-categories:
- Primary Goods (consisting of mining, electricity, fuels and fertilisers)
- Capital Goods (e.g. machinery items)
- Intermediate Goods (e.g. yarns, chemicals, semi-finished steel items, etc)
- Infrastructure Goods (e.g. paints, cement, cables, bricks and tiles, rail materials, etc)
- Consumer Durables (e.g. garments, telephones, passenger vehicles, etc)
- Consumer Non-durables (e.g. food items, medicines, toiletries, etc)
Who releases IIP data?
- The IIP data is compiled and published by CSO every month.
- CSO or Central Statistical Organisation operates under the Ministry of Statistics and Programme Implementation (MoSPI).
- The IIP index data, once released, is also available on the PIB website.
Try this PYQ:
Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?
(a) Coal production
(b) Electricity generation
(c) Fertilizer production
(d) Steel production
Who uses IIP data?
- The factory production data (IIP) is used by various government agencies such as the Ministry of Finance, the Reserve Bank of India (RBI), private firms and analysts, among others for analytical purposes.
- The data is also used to compile the Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP) on a quarterly basis.
IIP base year change:
- The base year was changed to 2011-12 from 2004-05 in the year 2017.
- The earlier base years were 1937, 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94 and 2004-05.
IIP vs ASI
- While the IIP is a monthly indicator, the Annual Survey of Industries (ASI) is the prime source of long-term industrial statistics.
- The ASI is used to track the health of industrial activity in the economy over a longer period. The index is compiled out of a much larger sample of industries compared to IIP.
- The IIP essentially tracks the change in the volume of production in Indian industries.
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India as a factory for the Quad
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- India's manufacturing capacity
The article highlights how India could offer the solution to the tactical issue faced by the Quad: matching China’s manufacturing capacity.
Strategic case for the Quad
- The strategic case for the Quadrilateral Security Dialogue, better known as the Quad, has always been sound.
- A rising China, with its authoritarian one-party system, is a challenge to the democratic order.
- The strategic case for the Quad has, however, always faced a tactical hurdle.
- China was the factory of the world.
- It had become an almost indispensable cog in the global supply chain owing to its low-cost manufacturing prowess at a mass scale.
- How could any grouping hope to challenge China’s power-play dynamics while at the same time being dependent on its factories to sustain its economies?
Two recent development that changed the dynamic
- Two recent developments have completely changed the dynamic.
- First, Australia returned to the Malabar Naval exercises in 2020, after 13 years.
- Second, on March 12, the first summit-level meet of the Quad — comprising the US, India, Japan and Australia — is scheduled to take place.
Rise in India’s manufacturing ability
- What has changed between 2007 and 2020 that Quad 2.0 has become viable is the globally visible rise in India’s manufacturing ability.
- Consider the following examples.
1) PPE Kit manufacturing
- First, the success in PPE kits.
- At the beginning of the COVID-19 pandemic, India was manufacturing zero PPE kits.
- India not just created an overnight world-class manufacturing capacity to meet its own needs but also started exporting PPE kits.
2) Vaccine Maitri
- Second, the soft power of Vaccine Maitri.
- The developed countries are scrambling to secure vaccines for their domestic population.
- India is not only vaccinating its own people faster than any other country but is also exporting millions of vaccines to countries in need.
- From Canada to Pakistan and from the Caribbean Islands to Brazil — Made in India vaccines have been a life vest across the globe.
3) India’s private industry
- Third, the enterprise of India’s private industry — a hallmark of the deepening manufacturing base.
- As a recent New York Times report noted, when it came to syringes — without which the vaccines were useless — the global scramble again led to Indian manufactures.
- Hindustan Syringes alone has ramped up its manufacturing capacity to almost 6,000 syringes a minute.
4) Precision high-end manufacturing
- The PLI scheme launched for electronics’ manufacturing evinced unprecedented global interest with 22 top companies, including the top manufactures for Apple and Samsung mobile phones.
- Over the next five years, a manufacturing capacity of over $150 billion and exports of $100 billion have been tied up through this scheme.
5) Figher plane manufacturing
- Fifth, the success of India’s fourth-generation fighter jet programme and the orders placed by the Indian Air Force for 83 Tejas jets.
- India’s success is one more milestone in its journey towards emerging as a global manufacturing destination.
Policy changes to make India manufacturing destination
- Concurrently, India has been reforming its economic policies to make it even more attractive as a manufacturing destination.
- India has the lowest tax rate anywhere in the world — 15 per cent for new manufacturing units.
- FDI norms have been relaxed across the board and automatic approval processes instituted for FDI even up to 100 per cent.
- Privatisation of PSUs is now an established process.
- Labour laws have been finally reformed and compliance burdens significantly eased.
- Taxation is now faceless, thus ending the spectre of rent-seeking.
- A well-functioning, world-class bankruptcy law is in place. Interest rates are low.
- And India’s digital infrastructure rivals the best in the world and in many cases beats it.
Consider the question “India’s growing prowess as the manufacturing hub could provide the Quad tactical basis by replacing China. Comment.“
Conclusion
The only arrow that was missing in the quiver of the Quad has now been attained. The strategic case for the Quad was never in doubt. The dependence on China’s factories is what kept the grouping of democracies from emerging. India has raised its hand to solve that problem.
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[pib] Khadi Prakritik Paint – India’s first cow dung paint
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Khadi Prakritik Paint
Mains level: KVIC and its success
Union Minister for MSMEs has launched an innovative new paint called Khadi Prakritik Paint – India’s first cow dung paint
It is very unlikely that an MCQ will be asked in Prelims. However one must know this from mains perspective.
Khadi Prakritik Paint
- It is developed by Khadi and Village Industries Commission at his residence.
- The eco-friendly, non-toxic paint, called “Khadi Prakritik Paint” is a first-of-its-kind product, with anti-fungal, anti-bacterial properties.
- Khadi Prakritik Paint is available in two forms – distemper paint and plastic emulsion paint.
- The project was conceptualized by Chairman KVIC in March 2020 and later developed by Kumarappa National Handmade Paper Institute, Jaipur (a KVIC unit).
- The paint is priced at only Rs. 120 per litre for the distemper, and Rs.225 per litre for the emulsion, almost half the price charged by big paint companies.
A no lesser brand
- Khadi Prakritik Emulsion paint meets BIS 15489:2013 standards; whereas Khadi Prakritik Distemper paint meets BIS 428:2013 standards.
- The paint has successfully passed various test parameters such as application of paint, thinning properties, drying time and finish, among others.
- It dries in less than 4 hours and has a smooth and uniform finish.
Why makes it competent?
- Based on cow dung as its main ingredient, the paint is cost-effective and odourless and has been certified by the Bureau of Indian Standards.
- The paint is free from heavy metals like lead, mercury, chromium, arsenic, cadmium and others.
- It will be a boost to local manufacturing and will create sustainable local employment through technology transfer.
- This technology will increase the consumption of cow dung as a raw material for eco-friendly products and will generate additional revenue to farmers and gaushalas.
- Utilization of cow dung will also clean the environment and prevent clogging of drains.
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[pib] Action Agenda for an AtmaNirbhar Bharat (AAAN)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: AAAN
Mains level: Agenda for Atmanirbhar Bharat
The Health Ministry has released the report Action Agenda for an AtmaNirbhar Bharat (AAAN) prepared by Technology Information, Forecasting and Assessment Council (TIFAC).
Q.‘Doubling Farmer’s Income’ and ‘USD 5 trillion economy’ seems more like slogans today in wake of COVID pandemic. Comment on the statement with keeping in view the Atmanirbhar Bharat Abhiyan of the government.
AAAN Report
- The report AAAN is a consequential follow-up of the TIFAC’s White Paper on Focused Interventions for ‘Make in India’: post-COVID -19 which was released earlier this year.
- The White Paper highlighted five thrust sectors namely, Healthcare, Machinery, ICT, Agriculture, Manufacturing, and Electronics that would be critical for India’s economic growth post-COVID.
- This AAAN action plan has been structured with reference to timeline, highlighting short/medium and long term interventions in various identified sectors.
Why need such an agenda?
- The World is experiencing unprecedented health and economic crisis. A widespread deep global recession has been bolstered, undermining global cooperation and multilateralism.
- The most outward global economies have turned inwards and are designing enhanced measures for rebooting and resilience of the economy.
- The document also specifically defines overarching policy recommendations with reference to technological inputs, focusing towards Local to Global.
- It would thereby revive the Indian economy, in identified domains of Innovation and Technology Development, Technology Adoption/Diffusion, Boosting up Manufacturing and Productivity, Trade and Globalization etc.
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The MSME sector holds the key to an Indian economic recovery
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Issues faced by MSMEs and dealing with them
The article highlights the importance of MSMEs for the economy and issues faced by the sector.
Context
- The economy may have recovered from the trough of April but is yet to show signs of a sustained recovery on an annual basis.
- The number of establishments registered with the Employees’ Provident Fund Organisation declined by more than 30,800 in October, compared to September.
Incentives for MSMEs
- The above-cited numbers are indicator of the vulnerability of the employment situation, but also as a performance indicator of micro, small and medium enterprises (MSMEs).
- The MSME sector is vital for employment generation, as also for an economic recovery to sustain.
- Under Atmanirbhar Rozgar Yojana the government will bear the entire provident fund contributions for two years of all new employees hired.
- However, similar announcements earlier failed to enthuse the MSME sector.
- Along with the employment incentive, the MSME sector has also been provided collateral free credit.
- But the offtake from the scheme has not been impressive, pointing to deeper issues.
Why the incentives failed
- Part of the reason these incentives failed lies in the very nature of the MSME sector and its heterogeneity, which is inherent in its definition as a residual sector once large enterprises are excluded.
- A 2015-16 survey of the National Statistical Office shows that almost 94% of these enterprises are tiny, with less than four workers.
- Only 31% are registered under various acts, but these face regulatory hurdles, some of them related to compliance with the goods and service tax (GST).
Problems faced by MSMEs
- In 2015-16 survey of the National Statistical Office two most important problems mentioned were a lack of demand and unpaid dues.
- On both, the situation after 2015-16 has worsened, with the economy slowing down and the government responsible for the largest unpaid dues.
- With the finances of state governments also strained due to pandemic, the fiscal situation has added to the problem of unpaid dues.
- The sector is also affected by the political economy of state intervention, which seems biased in favour of large corporations.
- Unlike the ₹1.5 trillion tax bonanza that large companies received as part of a pre-pandemic stimulus, there was no such bounty for the MSME sector.
- With most state governments relaxing labour regulations for large companies, even the low-wage advantage that this sector enjoyed has got diminished.
- Policy changes have not only reduced the compliance burden of labour laws, but have also helped large enterprises reduce wage costs.
- Consequently, the MSME sector has to now compete with a corporate sector that has easy access to capital, cheap and unregulated labour and a lower tax burden than before.
Way forward
- Apart from the fiscal stimulus, the sector requires a political-economy approach that prioritizes MSME interests.
- India needs to ease the regulatory burden of small units and aid their survival through fiscal support.
- Above all, they need a level-playing field vis-à-vis big businesses.
Consider the question “Despite several incentives by the government MSME sector fails to play the role expected of it. What are the issues faced by the sector and suggest the measure to deal with the issues.”
Conclusion
Given the important role played by the sector in the economy, issues faced by it must be addressed on ani urgent basis to revive the economy battered by the pandemic.
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PLI Scheme extended to 10 key Sectors
Note4Students
From UPSC perspective, the following things are important :
Prelims level: PLI Scheme
Mains level: Paper 3- Analysing the importance of PLI Scheme
Manufacturing holds key to the economic prosperity of the country. The article examines the significance of Production Linked Incentive Scheme to boost manufacturing in India.
Need for increasing manufacturing capabilities
- The world of manufacturing is now more interconnected than ever before with all major industries—automobile, electronics, pharmaceuticals, textiles, etc—operating as a global value-chain.
- In order to integrate India as a pivotal part of this modern economy, there is a strong need to step up our manufacturing capabilities in sectors of high growth, including the cutting edge technology sectors.
- A strong and dynamic manufacturing sector will fuel India’s economic growth by allowing companies producing in India to penetrate effectively into the global supply chains across various sectors.
- Apart from enhancing exports, it will also reduce our import dependencies and spur domestic consumption.
- ‘Atmanirbhar Bharat’ has brought manufacturing to the centre stage and emphasised its significance in driving India’s growth.
Factors favouring India
- India offers an attractive domestic market, with a large population in the educated and earning segment.
- It also has a strong institutional framework which allows for a smooth functioning of the industry.
- A concerted effort towards attracting substantial investments for the creation of large manufacturing facilities, combined efficiency and economies of scale, can help Indian companies globally competitive and integrate with the global markets.
How Production Linked Scheme (PLI) will help achieve these objectives
- The Production Linked Incentive (PLI) Scheme is designed to incentivise incremental production for a limited number of eligible anchor entities in each of the selected sectors.
- These selected entities will invest in technology, plant & machinery, as well as in R&D.
- The scheme will also have beneficial spillover effects by the creation of a widespread supplier base for the anchor units established under the scheme.
- Along with the anchor unit, these supplier units will also help to generate massive primary and secondary employment opportunities.
- The sectors for PLI have been shortlisted on the basis of their potential for economic growth, extent of benefit to the rural economy, revenue and employment generation.
- A key benefit of the PLI Scheme is that it can be implemented in a very targeted manner to attract investments in areas of strength and to strategically enter certain segments of global value chains (GVCs).
- This will help bring scale and size in key sectors and create and nurture global champions.
- The scheme incentivises upcoming technologies that represent the biggest economic opportunities of the 21st century.
- The scheme intends to generate large-scale employment by incentivising the development of traditional, labour intensive sectors like Food Processing and Textiles.
- The current basket of Indian manufacturing constitutes of large volume of low-value products.
- The scheme aims to correct this by encouraging large manufacturers to bring technology and to build capabilities for high-value output thereby providing higher returns to the upstream producers.
- It will also enable an increase in exports.
- The scheme envisages globally-integrated manufacturing in sectors such as automobile and auto components, pharmaceuticals, telecommunications, white goods and steel.
- These are crucial sectors in terms of their strategic importance, contribution to the GDP and employment-generation potential.
Conclusion
Given the scale of incentives, which is around Rs 1,96,000 crore, the manufacturing sector of the country is set to transform in the next few years. Its contribution to the GDP will significantly improve, leading to unprecedented investment and job creation.
Source:-
https://www.financialexpress.com/opinion/pli-scheme-will-help-india-nurture-manufacturing-giants/2128992/
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[pib] PLI Scheme extended to 10 key Sectors
Note4Students
From UPSC perspective, the following things are important :
Prelims level: PLI scheme and various sectors
Mains level: Moves for Atmanirbhar Bharat
The Union Cabinet has unveiled the Production-Linked Incentive (PLI) Scheme to encourage domestic manufacturing investments in ten key sectors.
PLI Scheme
- The PLI scheme aims to boost domestic manufacturing and cut down on imports by providing cash incentives on incremental sales from products manufactured in the country.
- Besides inviting foreign companies to set shop in India, the scheme aims to encourage local companies to set up or expand, existing manufacturing units.
UPSC can directly as the sectors included in the PLI scheme. Earlier it was only meant for Electronics manufacturing (particulary mobile phones).
What was the earlier PLI Scheme?
- As a part of the National Policy on Electronics, the IT ministry had notified the PLI scheme on April 1 this year.
- The scheme will, on one hand, attract big foreign investment in the sector, while also encouraging domestic mobile phone makers to expand their units and presence in India.
- It would give incentives of 4-6 per cent to electronics companies which manufacture mobile phones and other electronic components.
- A/c to the scheme, companies that make mobile phones which sell for Rs 15,000 or more will get an incentive of up to 6 per cent on incremental sales of all such mobile phones made in India.
- In the same category, companies which are owned by Indian nationals and make such mobile phones, the incentive has been kept at Rs 200 crore for the next four years.
10 new sectors added
The ten sectors have been identified on the basis of their potential to create jobs and make India self-reliant, include:
- Food processing
- Telecom
- Electronics
- Textiles
- Speciality steel
- Automobiles and auto components
- Solar photo-voltaic modules and
- White goods such as air conditioners and LEDs
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India’s catch-up evolution in techno-policy landscape
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Loopholes in India's policymaking
This newscard is an excerpt of the original article published in the DownToEarth.
Central theme: India needs to work out problems in old policies and develop new ones that ensure a rapid tectonic shift in India’s technological future.
Past lessons:
(1) From Agriculture
- The Father of the Green Revolution, Norman E Borlaug, was credited with the development of semi-dwarf, disease-resistant and high-yield variety of wheat that he introduced in India, Pakistan and Mexico.
- Led by Mexico, and soon followed by India, many countries adopted what is now commonly known as the ‘Green Revolution’.
- Even after suffering two famines and recovering from the colonial catastrophe, India transformed itself into a self-sufficient nation in terms of rice and wheat over the next two decades.
Sustaining GR with farm mechanization
- Nearing the end of this decade, farm mechanization in India stands at 40-45 per cent, which is low compared to the USA (95 per cent), Brazil (75 per cent) and China (57 per cent).
- Renewal of focus on farm mechanization was afforded only in the 12th five-year plan through a sub-mission on agricultural mechanization.
- Regional disparities aside, India has broken the inertia in adopting farm machinery when compared to previous decades that is largely owed to the current push by the Union government.
Still stranded with Land reforms
- Yet, the response came late as compared to other countries with similar levels of development and was off by decades when compared to advanced economies.
- Indian policymakers are still catching-up when implementing agriculture reforms, including land record digitization that should have been done and dusted by now.
(2) Agriculture to Industries
- After adopting resistant-variety cotton, India became the largest producer and second-largest exporter of cotton.
- But it lags significantly behind in exporting cotton fabric at 5-6 per cent of the global share as China leads at 51 per cent.
- Even with technical textiles, India’s production share is at four per cent and we suffer from an overall trade deficit.
Why do we lag?
- The earlier policies have not been revamped to reorient them into improving the technologically laggard and decentralized small-scale industries.
- The overall direction is guided by budgetary announcements and segregated schemes that often leads to ambiguity in policy.
- The new textile policy that is expected to provide for the economy of scale through textile parks is yet to be rolled out and the dedicated National Technical Textile Mission has only been recently announced.
- Both policies should have been in place a decade ago.
(3) Automobile sector
- India’s automobile sector is yet another example of playing policy catch-up.
- None of the Indian companies has any substantial market share in electric vehicle (EV) production, and retail sale of EVs in India has not registered any significant growth.
- The biggest hurdle to the growth of EVs in India, among others, is policy ambiguity in relation to conventional internal combustion (IC) engine vehicles that hamper strategic business decisions.
Beyond lofty roadmaps
- In June 2019, NITI Aayog claimed that only EVs would be sold in India after 2030, replacing conventional IC engine vehicles, a claim that was later refuted by the Union Minister of Transport.
- Policy ambiguity and lack of clear-cut directives on such a revolutionary technology can create disarray within the industry and on the broader strategic direction of the manufacturing sector.
(4) Gaps in data and privacy lawmaking
- The world is fast changing with the advent of the fourth industrial revolution, artificial intelligence (AI) and quantum computing (QC).
- Every dimension of technology will start interacting with each other as the physical operations will all be controlled and operated by intelligent and adaptive virtual systems.
Here too, India lags
- Advanced economies have already put data regulation guidelines in place. China and the United States are already far too ahead in their R&D and policy research into AI and QC.
- India developed its national strategy for AI only in 2018 and still lacks a full-proof futuristic policy on quantum computing.
- Revolutionary and disruptive technologies require full-proof futuristic policies and strategies for development, and not vision documents and segregated schemes.
Dealing with data
- As of November 2019, the Internet and Mobile Association of India put India’s active Internet users at 504 million; in 2020, India would register nearly 700 million internet users.
- We generate a copious amount of data, which, when combined with personal data from individual users in India, demand a new legal and paradigm change.
- India’s data fiduciary laws are still in their nascent stage.
- Data Protection Bill based on the recommendation of the Justice BN Srikrishna Committee is still pending with Parliament.
Not treating the symptoms
- Every day millions of Indians share intricate personal details and data over the internet; a majority of active users are unaware of the threats posed by an open-access to data.
- Political battles are slowly gaining traction on the internet by harnessing the loopholes in social media.
- Threats of state surveillance loom over millions of Indians and even now, any legal framework to protect data or privacy is missing.
What we can deduce from the above discussion?
- The Indian State heavily influences the outcome of the country’s technological development, largely due to the significant presence of PSEs, the dominance of public expenditure in R&D and the type of mixed economy.
- Therefore timely policy intervention is essential to drive technological development in India.
- Policies also require time to materialise and bear fruit, and thus far, India’s track record in implementing policies does not inspire confidence.
India isn’t always laggard
- India has been able to harness the potential of technology in the past by timely policy intervention. India was an early bird to its environmental policies and space technology.
- The United States set up its Solar Energy Research Institute in 1977 and India set up its Commission of Alternate Sources of Energy (CASE) in 1981.
- Today, India leads by example in the share of renewable energy in its power generation matrix. India’s space technology is another success story that doesn’t miss the public eye.
- Time and again, through innovation and research, Indian academia and industries have exemplified its willingness and capacity to change, and all it requires is the desired policy push.
Conclusion
- With the rapid pace of technological development, the Union government and states cannot set to lose out time, as they have done in the previous decades.
- India must hunt for new technological innovations, fund research into prospective applications and build policies to facilitate the adoption of new technologies.
- Ministries and public-funded research bodies must be re-tasked to actively seek out new and emerging technologies all across the globe.
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Economic lessons from Vietnam and Bangladesh
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Lessons from Bangladesh and Vietnam for Indian economy
The article examines the emergence of Bangladesh and Vietnam as the major export hubs in the world and explains the lessons India could draw from it.
Context
- Bangladesh has become the second-largest apparel exporter after China.
- Vietnam’s exports have grown by about 240% in the past eight years.
Analysing Vietnam’s success
- An open trade policy, a less inexpensive workforce, and generous incentives to foreign firms contributed to Vietnam’s success.
- Vietnam’s open trade policy through Free Trade Agreements (FTAs) means trading partners do not charge import duties on products made in Vietnam.
- Vietnam’s domestic market is open to the partners’ products.
- Vietnam has agreed to change its domestic laws to make the country attractive to investors.
- Over a decade or so, large brands such as Samsung, Canon, Foxconn, H&M, Nike, Adidas, and IKEA have flocked to Vietnam to manufacture their products.
What explains Bangladesh’s success?
- In Bangladesh, large export of apparels to the EU and the U.S. make the most of the country’s export story.
- The EU allows the import of apparel and other products from least developed countries (LDCs) like Bangladesh duty-free.
- India, as a good neighbour, accepts all Bangladesh products duty-free (except alcohol and tobacco).
- Bangladesh may not have this facility in four to seven years as its per capita income rises and it loses the LDC status.
- Bangladesh is working smartly to diversify its export basket.
Lessons for India
- The key learning from Bangladesh is the need to support large firms for a quick turnover.
- Yet, most of Vietnam’s exports happen in five sectors, in contrast, India’s exports are more diversified.
- The Economic Complexity Index (ECI), which ranks a country based on how diversified and complex its manufacturing export basket is, illustrates this point.
- The ECI rank for China is 32, India 43, Vietnam 79, and Bangladesh 127.
- India, unlike Vietnam, has a developed domestic and capital market.
- To further promote manufacturing and investment, India could set up sectoral industrial zones with pre-approved factory spaces.
- There should be no need to search for land or obtain many approvals.
India should pursue organic growth
- Most of Vietnam’s electronics exports are just the final assembly of goods produced elsewhere.
- In such cases, national exports look large, but the net dollar gain is small. China also faces this issue.
- Country’s Export to GDP ratio (EGR) indicates its export capacity.
- Vietnam’s EGR is 107%, such high dependence on exports brings dollars but also makes a country vulnerable to global economic uncertainty.
- The U.S.’s EGR is 11.7%, Japan’s is 18.5%, India’s is 18.7%. Even for China, with all its trade problems, the EGR is 18.4%.
- Most such countries, including India, follow an open trade policy, sign balanced FTAs, restrict unfair imports, and have a healthy mix of domestic champions and MNCs.
- While export remains a priority, it is not pursued at the expense of other sectors of the economy.
- The focus is on organic economic growth through innovation and competitiveness.
Consider the question “While export is essential for the growth of the country, over-dependence on it and its promotion at the expense of the other sectors could do more harm to the economy than good. Comment.”
Conclusion
With reforms promoting innovation and lowering the cost of doing business, India is poised to attract the best investments and integrate further with the global economy without increasing its dependence on export.
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What is the Purchasing Managers’ Index (PMI)?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: PMI
Mains level: Not Much
The services sector has PMI has signalled first expansion since February this year.
Try this PYQ:
Q.Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers?
(a) The Reserve Bank of India
(b) The Department of Economic Affairs
(c) The Labour Bureau
(d) The Department of Personnel and Training
Purchasing Managers’ Index
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.
What are its implications for the economy?
- The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
- It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
- Central banks of many countries also use the index to help make decisions on interest rates.
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Index of Eight Core Sector Industries
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Core Sector Industries
Mains level: Core sector industries and their impacts
The Office of Economic Advisor within the Department for Promotion of Industry and Internal Trade (DPIIT) has released the Index of Eight Core Industries (ICI) for September 2020.
Try this PYQ:
Q.In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?
(a) Coal production
(b) Electricity generation
(c) Fertilizer production
(d) Steel production
What is the Index of Core Industries?
- As the title suggests, this is an index of the eight most fundamental industrial sectors of the Indian economy and it maps the volume of production in these industries.
- It gives the details of these eight sectors — namely Coal, Natural Gas, Crude Oil, Refinery Products (such as Petrol and Diesel), Fertilizers, Steel, Cement and Electricity.
- Since these eight industries are the essential “basic” and/or “intermediate” ingredient in the functioning of the broader economy, mapping their health provides a fundamental understanding of the state of the economy.
- In other words, if these eight industries are not growing fast enough, the rest of the economy is unlikely to either.
ICI this year
- This data is to focus on the trend of ICI growth over the past 6 months — that is, since the start of the Covid-19 pandemic and associated lockdowns.
- A crucial factor in this regard would be the next wave of Covid-19 infections.
- If there is a surge in the winter months — as is being witnessed in most Europe and the US — then India’s recovery will be dented yet again.
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[pib] National Productivity Council (NPC)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: National Productivity Council (NPC)
Mains level: Not Much
National Productivity Council (NPC) has been granted accreditation conforming to ISO 17020:2012 by National Accreditation Board for Certification Body (NABCB).
National Productivity Council (NPC)
- NPC is a national level organization to promote productivity culture in India.
- The NPC comes under the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry.
- Established in 1958, it is an autonomous, multipartite, non-profit organization and has been registered as a Society under the Societies Registration Act XXI of 1860.
- NPC is a constituent of the Tokyo-based Asian Productivity Organisation (APO), an Inter-Governmental Body, of which the Government of India is a founder member.
Why ISO status?
- It has been granted accreditation for undertaking inspection and audit work in the area of Food Safety Audit and Scientific Storage of Agricultural Products.
- NPC has been conducting inspections/audit for different statutory bodies such as Warehousing Development and Regulatory Authority (WDRA) and FSSAI and is already having high credentials in the area of inspections and audits.
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Feasibility of Export Driven Growth for India
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Export led growth
Mains level: Paper 3- Contribution of export in the growth
To aim for achieving high growth rate by focusing only on the domestic consumption and domestic demand could result in failure. The article argues for the focus on export to achieve the objective of growth.
Domestic-demand led growth and its limitations
- The debate in India has focused on domestic-demand led growth.
- But there is no known model of domestic demand/consumption-led growth, anywhere that has delivered quick, sustained, and high rates of economic growth for developing countries.
- India’s GDP growth of over 6 per cent after 1991 was associated with real export growth of about 11 per cent.
- Moreover, domestic-demand led growth requires more public spending, tax cuts, private investment, and/or financial sector reforms: which is not feasible in the present context due to pandemic.
- Consumption growth will be limited by the fact that household debt has grown rapidly in the last few years.
- Consumption now can grow only if incomes grow.
- Government spending could be a short run option, but COVID has limited that possibility.
Why India should not follow advanced countries’ fiscal policies
- India’s interest rates are not at zero and are unlikely to be so because of persistent inflation.
- India’s borrowing is still considered risky which is reflected in ratings.
- The favourable interest rate-growth differential that supports expansionary policy in the advanced countries is absent in India.
- India may well have scope for expansionary fiscal policy in the short run but not as a medium run growth strategy.
Why India should focus on export
- Given all the above factors, India does not have the luxury of abandoning export orientation because the alternatives are so limited.
- India’s market is too small to sustain any kind of serious import substitution strategy.
- Small size of the market makes it difficult to offer investors the domestic market as bait and incentivising them to export.
- India’s big, unexploited opportunities are in unskilled labour exports.
- India is vastly under-exporting relative to its labour force.
- Because China’s wages are rising as it has become richer, it has vacated about $140 billion in exports in unskilled-labour intensive sectors.
- Post-COVID, the move of investors away from China will probably accelerate to hedge against supply chain disruptions.
- India did not take advantage of the first China opportunity, now, a second opportunity stemming from geo-politics should be seized by India.
- As India contemplates atmanirbharta, two deeper advantages of export orientation are always worth remembering.
- 1) Foreign demand will always be bigger than domestic demand for any country.
- 2) If domestic producers are competitive internationally, they will be competitive domestically and domestic consumers and firms will also benefit.
Why openness of ecnonomy is important
- Exploiting this opportunity in unskilled exports requires more not less openness.
- To be internationally competitive, many parts and components have to be imported from so many different sources.
- One indicator is the foreign or import contribution to exports.
- China and Vietnam at the time of their export boom in textiles and clothing suggests that exports were highly dependent on imports (between 40 and 45 per cent).
- In contrast, India’s import share is about 16 per cent.
- Achieving Chinese and Vietnamese levels of success will therefore require greater imports and openness.
Way forward
- Export success will require genuine easing of costs of trading and doing business in India.
- In the case of clothing, a key policy change in India will be to eliminate tariffs on all inputs.
- It will also require signing free trade agreements with Europe that still impose high duties on India’s clothing export, while Bangladeshi and Vietnamese exports which enjoy preferential access to world markets.
Consider the question “As India contemplates atmanirbharta, we should not forget that export dynamism is essential for the rapid and sustained high economic growth. Comment.”
Conclusion
In sum, resisting the misleading allure of the domestic market, India should zealously boost export performance and deploy all means to achieve that. Pursuing rapid export growth in manufacturing and services should be an obsession with self-evident justification.
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Production Linked Incentive (PLI) Scheme
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Production Linked Incentive Scheme (PLI)
Mains level: Not Much
The Ministry of Electronics and IT had approved some proposals by electronics manufacturers under its Production Linked Incentive (PLI) Scheme.
Try this MCQ:
Q.The Production Linked Incentive (PLI) Scheme often seen in news is related to-
a) Electronics manufacture
b) Khadi and Village Industries
c) MSMEs
d) None of these
What is the PLI scheme?
- As a part of the National Policy on Electronics, the IT ministry had notified the PLI scheme on April 1 this year.
- The scheme will, on one hand, attract big foreign investment in the sector, while also encouraging domestic mobile phone makers to expand their units and presence in India.
- It would give incentives of 4-6 per cent to electronics companies which manufacture mobile phones and other electronic components.
- A/c to the scheme, companies that make mobile phones which sell for Rs 15,000 or more will get an incentive of up to 6 per cent on incremental sales of all such mobile phones made in India.
- In the same category, companies which are owned by Indian nationals and make such mobile phones, the incentive has been kept at Rs 200 crore for the next four years.
Tenure of the scheme
- The PLI scheme will be active for five years with financial year (FY) 2019-20 considered as the base year for calculation of incentives.
- This means that all investments and incremental sales registered after FY20 shall be taken into account while computing the incentive to be given to each company.
Which companies and what kind of investments are considered?
- All electronic manufacturing companies which are either Indian or have a registered unit in India will be eligible to apply for the scheme.
- These companies can either create a new unit or seek incentives for their existing units from one or more locations in India.
- Any additional expenditure incurred on the plant, machinery, equipment, research and development and transfer of technology for the manufacture of mobile phones and related electronic items will be eligible for the incentive.
- However, all investment done by companies on land and buildings for the project will not be considered for any incentives or determine the eligibility of the scheme.
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Finishing the unfinished task of reform in land and labour markets
Note4Students
From UPSC perspective, the following things are important :
Prelims level: APMC Act, Companies Act, ECA 1955
Mains level: Paper 3- Reforms in various sectors of economy
The article discusses the issues faced by the various sectors of the economy and how the reform measures introduced by the government could help these sectors.
Exploitation of farmers and consumers
- The Indian farmer has bee treated as captive sources of producing cheap food grain while living at subsistence levels.
- There was no freedom to choose the point of sale for his produce, he could not decide the price of his product and had no say in selecting the buyer.
- The end consumer was equally short-changed with frequent cycles of persistent high inflation.
- The only beneficiaries of this perverse system were middlemen who thrived under political protection.
How reforms will help farmers
- The stifling nature of the Essential Commodities Act and the APMC Act have both been removed.
- Contract farming is now nationally enabled, allowing private investment to come in.
- Private investment will bring in technology, modern equipment, better seeds, know-how for in-between-season crops, improved yields, better logistics and freer access to national and international markets.
- The Indian farm sector will now finally begin to see the benefits of economies of scale.
Need for the reforms in various sectors
- There were 44 different labour laws with more than 1,200 sections and clauses that demanded compliance if one even thought of becoming an entrepreneur.
- Different inspectors and departments administered these laws and this stunted many entrepreneurs.
- The Companies Act of 2013 completely paralysed risk-taking and quick decision-making among the private wealth creators.
- There were a large number of organisations that called themselves “banks” but were completely outside the ambit of RBI regulation.
- The politicians who controlled these banks were the primary obstacles in introducing any reforms in these sectors.
- Indian mainstream banks, contrary to international norms, had a peculiar practice of “grossing” their bilateral liabilities rather than “netting”.
- As per estimates, this locked anywhere between Rs 50,000 to Rs 70,000 crore funds.
Reforms made by the government
- In place of the 44 central labour laws, the Parliament has now put in place four labour codes that are much simpler — the Code on Wages, the Industrial Relations Code, the Social Security Code and the Occupational Safety, Health and Working Conditions Code.
- The bilateral banking netting law has been passed and a large corpus of unproductive capital has been freed to be deployed in the market.
- Cooperative banks will now be regulated by the RBI and its customers will have the same protections as those of other regular banks.
- The problematic sections of the Companies Act 2013 have been done away with and the fear of criminal prosecution gone.
Conclusion
The reforms in various sectors of the economy are bound to help the faster recovery of the economy as well as help the farmers realising their full potential.
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Action plan for the success of Atmanirbhar Bharat project
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Atmanirbhar Bharat Mission
Mains level: Paper 3- Atmanirbhar Bharat Abhiyan and challenges
Atmanirbhar Bharat Abhiyan, well considered plan by the Central government seeks to transform the Indian economy. The article analyses its potential and suggests the ways to achieve the aims.
Vocal for local
- Prime Minister Narendra Modi gave a call to fellow Indians to be “Vocal for Local” in May.
- This includes not only to buy and use local products but to also take pride in promoting them.
Challenges
1) Imports from China
- Serious challenge to Atmanirbhar mission is country’s $65 billion worth of imports from China alone.
- Most of these imports are of essential items — raw materials, components and intermediates required in producing finished goods.
- For example, the pharmaceuticals sector imports nearly 70 per cent of its raw material and drug intermediates.
- It may not be feasible to replace all Chinese imports in the near future.
- It may also be debatable if the end goal is to replace the entire chain of imports from a country.
- Nevertheless, experts and industrialists do assert that the ANBA is an excellent initiative and gives India the opportunity to embark on the self-reliance drive.
2) Struggling MSMEs
- A major part of the Vocal for Local mission rests on the MSMEs, which has been seen as struggling for survival.
- But the reforms announced as part of the ANBA should put them on a stronger footing.
- One immediate fallout of these measures will be creation of large scale employment opportunities for both the skilled and unskilled workforce.
- A stronger manufacturing base will also lead to positive spinoffs related to the supply-purchase of local raw material and capacity building of allied manufacturing units.
Way forward
- First, an umbrella action plan should be drawn by the Niti Aayog listing all targets under the ANBA and the Vocal for Local Mission.
- A monitoring agency will review and suggest course correction to ensure that no delay is allowed to build.
- Second, each state/UT will develop an action plan in consonance with the umbrella plan.
- A separate organisation created by each state will be responsible for the implementation of the action plan
- Such organisation should also conduct regular studies to identify local and global market trends and invite competitive solutions to meet market demands.
- Third, each district (or a group of districts) will work out a more detailed action plan, and charter of responsibilities for ground level officers and departments.
Conclusion
The ANBA is a mission to empower the people of India. It will in all likelihood become a benchmark of how governments and their various organisations can work in a mission mode.
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[pib] SPICe+ Portal
Note4Students
From UPSC perspective, the following things are important :
Prelims level: SPICe+ Portal
Mains level: Not Much
The Ministry of Corporate Affairs has notified and deployed a web-form namely ‘SPICe+’ as a part of Govt of India’s Ease of Doing Business (EODB) initiatives.
Try this MCQ:
Q.The SPICe+ Portal sometimes seen in news is related to which of the following Ministry?
(a) Ministry of Environment, Forest and Climate Change
(b) Ministry of Commerce and Industry
(c) Ministry of Corporate Affairs
(d) Ministry of Agriculture & Farmers’ Welfare
SPICe+ Portal
- It offers 10 services by three Central Government Ministries and Departments (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance), one State Government (Maharashtra) and various Banks.
- Thus it saves the procedure, time and cost for Starting a Business in India.
- These 10 services are:-
- Name reservation
- Incorporation
- DIN allotment
- Mandatory issue of PAN
- Mandatory issue of TAN
- Mandatory issue of EPFO registration
- Mandatory issue of ESIC registration
- Mandatory issue of Profession Tax registration (Maharashtra)
- Mandatory Opening of Bank Account for the Company and
- Allotment of GSTIN (if so applied for)
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[pib] ARISE-ANIC Initiative
Note4Students
From UPSC perspective, the following things are important :
Prelims level: ARISE-ANIC initiaitive
Mains level: Reviving MSME Sector of India thr
Atal Innovation Mission (AIM), NITI Aayog, has launched Aatmanirbhar Bharat ARISE-Atal New India Challenges, to spur applied research and innovation in Indian MSMEs and startups.
The name ARISE typically sounds some social sector or HRD related initiative. This is where one has to be cautious.
ARISE ANIC Initiative
- The program is a national initiative to promote research & innovation and increase the competitiveness of Indian startups and MSMEs.
- Its objective is to proactively collaborate with esteemed Ministries and the associated industries to catalyse research, innovation and facilitate innovative solutions to sectoral problems.
- It also aims to provide a steady stream of innovative products & solutions where the Central Government Ministries / Departments will become the potential first buyers.
- It is in line with the PM’s mandate of “Make in India”, “Startup India”, and “Aatmanirbhar Bharat” to fast track the growth of the Indian MSME sector.
Its implementation
- The programme will be driven by ISRO, four ministries—Ministry of Defence; Ministry of Food Processing Industries; Ministry of Health and Family Welfare; and Ministry of Housing and Urban Affairs.
- It will support deserving applied research-based innovations by providing funding support of up to Rs 50 lakh for speedy development of the proposed technology solution and/or product.
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State Reforms Action Plan Rankings 2019
Note4Students
From UPSC perspective, the following things are important :
Prelims level: State Reforms Action Plan Rankings 2019
Mains level: Ease of Doing Business
Andhra Pradesh has bagged the first rank among all the states in the country in the state business reforms action plan-2019 (BRAP-2019), representing ease of doing business for Atmanirbhar Bharat.
About the Ranking
- It is the annual ease of doing business index of states and UTs of India based on the completion percentage scores of action items points of annual Business Reforms Action Plan (BRAP) under the Make in India initiative.
- This ranking is based on the implementation of the business reform action plan.
- Some of the key focus areas are access to information and technology, the setting up of a single-window system, construction permit enablers and land administration, according to DPIIT.
- It based on the progress of states in completing annual reform action plan covering 8 key areas.
The top ten states under the State Reform Action Plan 2019 are:
- Andhra Pradesh
- Uttar Pradesh
- Telangana
- Madhya Pradesh
- Jharkhand
- Chhattisgarh
- Himachal Pradesh
- Rajasthan
- West Bengal
- Gujarat
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Boosting manufacturing
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Manufacturing sector in India
The article analyses the issues of increasing manufacturing in India while dealing with the constraints faced by it. It also suggests the important role States can play.
Why companies are expected to exit China
- In the aftermath of the pandemic manufacturing companies are expected to exit China due to three primary reasons.
- 1) Realisation that relying heavily on China for building capacities and sourcing manufacturing goods is not an ideal business strategy due to supply chain disruptions in the country caused by COVID-19.
- 2) Fear of Chinese dominance over the supply of essential industrial goods.
- 3) The growing risk and uncertainty involved in operating from or dealing with China in the light of geopolitical and trade conflicts between China and other countries, particularly the U.S.
Where India stands in comparison with China
- China ranks first in contribution to world manufacturing output, while India ranks sixth.
- Against India’s target of share of manufacturing in Gross Domestic Product (GDP) to 25% by 2022, its share stood at 15% in 2018, only half of China’s figure.
- Industry value added grew at an average annual rate of 10.68% since China opened up its economy in 1978, India’s grew at 7% after India opened up its economy.
- Next to the European Union, China was the largest exporter of manufactured goods in 2018, with an 18% world share.
- India is not part of the top 10 exporters who accounted for 83% of world manufacturing exports in 2018.
Constraints faced by manufacturing sector in India
India faces numerous constraints in promoting the manufacturing sector.
- They chiefly include infrastructure constraints, a disadvantageous tax policy environment, restrictive trade policies, a non-conducive regulatory environment, rigid labour laws.
- Constraints also include high cost of industrial credit, poor quality of the workforce, Low R&D expenditure, delays and constraints in land acquisition, and the inability to attract large-scale foreign direct investment into the manufacturing sector.
What role States can play?
- They can contribute land: Federal government system in India demands the participation of States for the lasting solution to the constraints on the sector.
- An important requirement for the development of the manufacturing sector is the availability of land area.
- This could be one of the reasons why manufacturing activity is mainly concentrated in Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh.
- However, what is of concern is that some States that also have large land area contribute disproportionately little in manufacturing GSDP.
- These states include Andhra Pradesh, Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, Telangana, and West Bengal.
Way forward
- Identify reasons: The reasons for less manufacturing activity in these States have to be carefully examined.
- State-specific industrialisation strategies: Based on such reasons, State-specific industrialisation strategies need to be devised and implemented in a mission mode with active hand-holding by the Central government.
- State specific reforms: Policy actions on the part of individual States would improve India’s overall investment climate, thereby boosting investments, jobs, and economic growth.
- Policy actions of the Centre and the States should be well coordinated: Strategy Group consisting of representatives from the Central and State governments along with top industry executives to instil teamwork and leverage ideas through sharing the best practices of the Centre and States could be formed.
Consider the question “What are the constraints faced by the manufacturing sector in India? Suggest the ways to deal with these constraints highlighting the important role States can play in boosting manufacturing.”
Conclusion
Both the States and the Central government needs to work in tandem to boost the manufacturing in India and transform the economic landscape of India.
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The missing large in MSMEs
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MSMEs
Mains level: Paper 3- MSMEs issues and opportunities
MSMEs in India has huge untapped potential. This article suggest the ways to tap it and make the MSMEs major contributor to India’s growth.
What is an issue with MSMEs
- Despite MSME contributing 20% of the GDP and employing about 110 million workers, we have failed to make bold policy-moves to make it more productive and competitive.
- MSMEs are not becoming ‘larger’ and more dynamic, with 99% of the estimated 60 million being micro-enterprises with limited aspirations.
- At the core of this lack of competitiveness is a structural issue.
Addressing the structural challenges
Size
- Consider India’s largest textile cluster vs Bangladesh’s largest.
- More than 70% of the units in Tirupur are micro-enterprises with less than 10 employees while only 20% of the units in Narayanganj in Bangladesh have less than 10 employees.
- This factor makes the cluster in Bangladesh more competitive and helping Bangladesh’s exports grow faster than India’s.
- Though Bangladesh has other advantages also, but this structural difference is critical.
Relation between size and productivity
- Productivity data from manufacturing MSMEs in OECD show that the productivity of medium firms (50-250 people) could be as much as 80-100% higher than that of micro firms (<9 employees).
- Growth in scale allows them to invest in people to improve skills, in better technology & processes, and in innovation.
- The most-competitive of them grow from their small beginnings to become world-beaters.
- This push to grow and improve capabilities and productivity is central to dynamism of any country’s industrial structure.
- This dynamism of micro-enterprises has been one of the less-reported policy levers behind China’s rise as an industrial powerhouse.
What stops MSMEs in India from growing?
- Our policy-legacy of highly restrictive asset-based definition which has only recently been relaxed, coupled with a mindset, and, policies, to support the ‘small is beautiful’ narrative.
- Overly complex regulatory regime doesn’t differentiate enterprises on their scale, other than the really tiny ones, in terms of compliance needs.
- For example, if a unit has more than six employees, the trade union law becomes applicable, If a unit has more than 10 employees, the Factories Act is applicable.
- Small enterprises thus face the same multitude of regulatory requirements as larger ones, and end up having compliance costs account for a higher percentage of revenue.
- For the tiny/micro units, there is simply no incentive to grow and enter the formal economy.
Policy intervention needed
1) Getting MSMEs into formal credit system
- To do this, we need to adopt an approaches that can help banks and NBFCs move away from asset-backed lending, towards some form of cash-flow-based lending.
- Small retailers are outside the formal credit system, unable to invest, modernise and grow, given they lack fixed ‘assets’.
- But, all of them are linked to, and sell, brands of well-known, large companies.
- If banks and NBFCs work with these companies and use anonymised data on sales and credit-performance to develop credit-scores for lending to them?
- Similar innovative ways could help cover other micro-unit segments.
2) Simplified tax and regulatory regime
- The second policy intervention needed is to de-average and implement a simplified tax and regulatory regime for MSMEs.
- This would also reduce the cost of compliance.
3) Development of digital platform
- The third intervention, appropriate for digital era, is to develop a comprehensive ‘digital platform’ for the sector.
- This will call for a mandatory, unique identifier for all.
- The platform will have to be linked to different relevant databases.
Consider the question “MSMEs in India continues to play an important role in India’s development yet it suffers from structural challenges which hinders it from fueling India’s growth. In light of this, examine the challenges MSMEs faces and suggest the policy interventions.”
Conclusion
As India launches the Atmanirbhar Bharat Abhiyan to reignite growth of the economy for a post-COVID world, building such a globally-competitive MSME has to become one of the initiative’s core pillars. Only then can our industry improve and sustain its global competitiveness.
Source-
https://www.financialexpress.com/opinion/the-missing-large-in-msmes-a-globally-competitive-indian-mittelstand-is-the-need-of-the-hour/2063155/
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What are Strategic and Non-strategic Sectors of Industries?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Strategic and non-strategic sectors
Mains level: Disinvestment of CPSEs
The government will soon come out with a policy on strategic sectors and simultaneously kick into motion a process of complete privatization for companies in the non-strategic sectors.
Try this question for mains:
Q. “Privatisation of CPSEs can lead to the conversion of public monopoly to a private monopoly.” Analyse.
What are Strategic and Non-strategic Sectors of India?
- An industry is considered strategic if it has large innovative spillovers and if it provides a substantial infrastructure for other firms in the same or related industries.
- Earlier, the strategic sectors were defined on the basis of industrial policy.
- The government classified Central Public Sector Enterprises (CPSEs) as ‘strategic’ and ‘non-strategic’ on the basis of industrial policy that keeps on changing from time-to-time.
According to this, the Strategic sector PSUs are:
- Arms & Ammunition of defence equipment
- Defence aircraft & warships
- Atomic energy
- Applications of radiation to agriculture, medicine and non-strategic industry
- Railways
Banking, insurance, defence, and energy are likely to be part of the strategic sector list. All other PSUs apart from the strategic sectors fall under Non-strategic Sector including Power Discoms.
A change in policy post-Atmanirbhar
- Under the Self-sufficiency move, the proposed policy would notify the list of strategic sectors requiring the presence of at least one state-owned company along with the private sector.
- In all other sectors, the government plans to privatize public sector enterprises, depending upon the feasibility.
- The number of enterprises in strategic sectors will be only one to four, and others would be privatized/merged/brought under a holding company structure.
Will it help privatization?
- The government has already set in motion privatization plans for large PSU companies BPCL, Air India, Container Corporation of India, and Shipping Corporation of India.
- Budget 2020-21 had announced plans to sell part of the Centre’s stake in LIC through an initial public offer (IPO), and the sale of equity in IDBI Bank to private, retail and institutional investors.
- The emphasis on privatization could see companies in chemicals and infrastructure space being privatized, while the government has stated its intent to reduce the number of state-owned banks.
- This could see some smaller banks being privatized in due course.
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[pib] ASPIRE Portal
Note4Students
From UPSC perspective, the following things are important :
Prelims level: ASPIRE Portal
Mains level: Not Much
The International Centre for Automotive Technology (ICAT) is developing a technology platform for the automotive industry called ASPIRE – Automotive Solutions Portal for Industry, Research and Education.
Try this MCQ:
Q.The recently launched ASPIRE Portal deals with:
a) Aspirational Districts
b) Primary Education
c) Industrial Clusters
d) Automotive Technology
ASPIRE Portal
- The key objective of this portal is to facilitate the Indian Automotive Industry to become self-reliant by assisting in innovation and adoption of global technological advancements.
- It aims to bring together the stakeholders from various associated avenues.
- This includes bringing together the automotive OEMs, Tier 1 Tier 2 & Tier 3 companies, R&D institutions and academia (colleges & universities) on matters involving technology advancements.
- The activities would include R&D, Product Technology Development, Technological Innovations, Technical and Quality Problem Resolution for the industry, Manufacturing and Process Technology Development etc.
- Apart from acting as a solution and resource platform, the portal will also host grand challenges in line with the need of the industry as will be identified from time to time, for development of key automotive technologies.
About ICAT
- International Centre for Automotive Technology (ICAT) is located at Manesar in Gurugram district of Haryana.
- It is a govt entity owned by the Ministry of Heavy Industries.
- It has facilities for vehicle homologation and also testing laboratories for noise, vibration and harshness (NVH) and passive safety.
- It also includes a powertrain laboratory, engine dynamometers, emission laboratory with Euro-V capability, a fatigue laboratory, passive safety laboratory, and vehicle test tracks.
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Agreement for Emergency Response Programme for MSME
Note4Students
From UPSC perspective, the following things are important :
Prelims level: International Finance Corporation
Mains level: Paper 3- Credit supply to MSME
The World Bank and the Government of India signed the $750 million agreement for the MSME Emergency Response Programme to support increased flow of finance into the hands of micro, small, and medium enterprises (MSMEs), severely impacted by the COVID-19 crisis.
How will the agreement protect the MSME sector
1. Unlocking liquidity
- The Government is focused on ensuring that the abundant financial sector liquidity available flow to NBFCs and that banks.
- Banks and NBFCs have turned extremely risk-averse.
- This project will support the Government in providing targeted guarantees to incentivize NBFCs.
- Project will also support banks to continue lending to viable MSMEs to help sustain them through the crisis.
- It will be achieved by de-risking lending from banks and Non-Banking Financial Companies (NBFCs) to MSMEs.
- This derisking will be done through a range of instruments, including credit guarantees.
2. Strengthening NBFCs and SFBs
- Improving the funding capacity of the NBFCs and Small Finance Bank (SFBs), will help them respond to the urgent and varied needs of the MSMEs.
- This will include supporting government’s refinance facility for NBFCs.
- In parallel, the IFC is also providing direct support to SFBs through loans and equity.
3. Enabling financial innovation
- Only about 8 percent of MSMEs are served by formal credit channels.
- The program will incentivize and mainstream the use of fintech and digital financial services in MSME lending and payments.
- Digital platforms will play an important role by enabling lenders, suppliers, and buyers to reach firms faster and at a lower cost.
- The digital platform will be helpful especially to small enterprises who currently may not have access to the formal channels.
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Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
CHAMPIONS Platform to empower MSMEs
Note4Students
From UPSC perspective, the following things are important :
Prelims level: CHAMPIONS Portal
Mains level: Various moves to boost MSME sector
Recently PM has launched the technology platform CHAMPIONS as a one-stop-shop solution of MSME Ministry.
At the very first sight, the name CHAMPIONS creates a delusion. It looks more of an HRD initiative. Here lies the risk! Please cautiously make a personal note here. Demarcate all such initiatives on an A4 page.
CHAMPIONS Platform
- CHAMPIONS stand for Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength.
- The portal is basically for making the smaller units big by solving their grievances, encouraging, supporting, helping and handholding.
- It is a technology-packed control room-cum-management information system.
- It is also fully integrated on a real-time basis with GOI’s main grievances portal CPGRAMS and MSME Ministry’s own other web-based mechanisms.
- This ICT based system is set up to help the MSMEs in a present difficult situation and also to handhold them to become national and international champions.
Detailed objectives
- Grievance Redressal: To resolve the problems of MSMEs including those of finance, raw materials, labour, regulatory permissions etc particularly in the COVID created a difficult situation;
- To help them capture new opportunities: including manufacturing of medical equipment and accessories like PPEs, masks, etc and supply them in National and International markets;
- To identify and encourage the sparks:e. the potential MSMEs who are able to withstand the current situation and can become national and international champions.
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What are General Financial Rules (GFR)?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: General Financial Rules (GFRs)
Mains level: Various moves to boost MSME sector
The union government has notified amendments to General Financial Rules (GFR) to ensure that goods and services valued less than Rs 200 crore are being procured from domestic firms, a move which will benefit MSMEs.
Possible mains question:
Q. Discuss how the nationwide lockdown to control the coronavirus outbreak has led to the resurfacing of inherent bottlenecks in India’s MSME Sector.
What are the General Financial Rules (GFRs)?
- The GFRs are a compilation of rules and orders of the Government of India to be followed by all while dealing with matters involving public finances.
- They are instructions that pertain to financial matters.
- They lay down the general rules applicable to Ministries / Departments, and detailed instructions relating to the procurement of goods.
- They are issued by the procuring departments broadly in conformity with the general rules while maintaining the flexibility to deal with varied situations.
Also read:
[Burning Issues] Fiscal Push for MSME Sector of India (Part I)
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Credit guarantees to MSMEs: What are they and how will they help?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Credit Guarantee Scheme
Mains level: Reviving MSME Sector of India
Finance Minister has announced some details of the Atmanirbhar Bharat Abhiyan economic package. The main thrust of the announcements was a relief to Medium, Small and Micro Enterprises (MSMEs) in the form of a massive increase in credit guarantees to them.
Practice questions:
Q. Discuss the efficacy of various tranches of credit facilities to MSMSEs provided under Atmanirbhar Bharat Abhiyan.
Q. Discuss how the nationwide lockdown to control the coronavirus outbreak has led to the resurfacing of inherent bottlenecks in India’s MSME Sector.
What is the package about?
- Instead of directly infusing money into the economy or giving it directly to MSMEs in terms of a bailout package, the government has resorted to taking over the credit risk of MSMEs.
- These credit guarantees should help the formal banking system meet the credit demand of the MSME sector (see Chart 2).
What is the credit guarantee scheme for MSMEs?
- Loans to MSMEs are mostly given against property (as collateral) because often there isn’t a robust cash flow analysis available.
- But in times of crisis, like the one currently playing out, property prices fall and this inhibits the ability of MSMEs to seek loans. It also means that banks are less willing to extend loans.
- A credit guarantee by the government helps as it assures the bank that its loan will be repaid by the government in case the MSME falters.
How does it work?
- For instance, if the government provides say a 100% credit guarantee up to an amount of Rs 1 crore to a firm, it means that a bank can lend Rs 1 crore to that firm; in case the firm fails to pay back, the government will make good all of Rs 1 crore.
- If this guarantee was for the first 20% of the loan, then the government would guarantee to pay back only Rs 20 lakh.
Why need credit guarantees?
- Even before the Covid-19 crisis, Indian government finances were in poor health. This pandemic has meant that government revenues will come under further pressure.
- For instance, experts are already talking about a GDP contraction of 5% to 10% in the current financial year. It will result in a revenue loss of anywhere between Rs 5 to 7 lakh crore.
- And yet, this is also the year when employees and firms want the government to help them out financially.
- Banks, quite justifiably, suspect that any new loans will only add to their growing mountain of non-performing assets (NPAs).
- So the government was facing an odd problem: Banks had the money but were not willing to lend to the credit-starved sections of the economy, while the government itself did not have enough money to directly help the economy.
- The solution — credit guarantees — finally chosen by the government is not a new one, because this fiscal conundrum is not a new one either (Chart 3).
Quantum of credit guarantee facilitated by FM
- There are three proposals but the main one is for standard MSMEs — that is, those MSMEs which were running fine until the COVID-19-induced lockdown disrupted their work.
- For these, the government has provided a credit guarantee of Rs 3 lakh crore.
- This is like an emergency credit line, said the Finance Minister, and it is for MSMEs that have an already outstanding loan of Rs 25 crore or those with a turnover less than Rs 100 crore.
- The loans will have a tenure of 4 years and they will have a moratorium of 12 months (that is, the payback starts only after 12 months).
Why Rs 3 lakh crore?
- The total outstanding loan to MSMEs by the banking and NBFC sector is around Rs 16 to 18 lakh crore.
- Assuming that 80% of these loans are working capital loans where there would be a 20% incremental funding needs, that gives an amount of approximately Rs 3 lakh crore.
- So the government is hoping that this credit guarantee will help those MSMEs take out another loan and recover.
- The hope is that since these MSMEs were able to pay back before the crisis, there is no reason why they cannot after the crisis, provided they are given some extra money to survive this period.
What were the other measures?
- There is a subordinate debt scheme, worth Rs 20,000 crore, which will allow loans to MSMEs that were already categorised as “stressed”, or struggling to pay back.
- In this case, the government’s guarantee is not full, but partial.
- The third measure is the creation of a fund with a corpus of Rs 50,000 crore to infuse equity into “viable” MSMEs, thus helping them to expand and grow.
- The government intends to put in Rs 10,000 crore and get others, possibly institutions like LIC and SBI, to fund the remaining amount.
- Then there is a change in the definition of an MSME that was pending for long. Now MSMEs are judged on turnover and there will be no difference between a manufacturing MSME and services MSME.
How far will these measures help?
- The Rs 3 lakh crore credit guarantees are the most substantive announcement as it will most likely have a significant impact.
- It will help MSMEs pay salaries and keep their heads above the water even as the economy slows down.
- This measure is expected to help as many as 45 lakh MSMEs.
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[pib] CHAMPIONS Portal for Indian MSMEs
Note4Students
From UPSC perspective, the following things are important :
Prelims level: CHAMPIONS Portal
Mains level: Not Much
In a major initiative, Union Ministry of MSME has launched CHAMPIONS portal for assisting Indian MSMEs march into the big league as National and Global Champions.
MSME sector has been hit badly by COVID. Initiatives like CHAMPIONS portal are crucial for this sector.
CHAMPIONS Portal
- ‘CHAMPIONS’ is a technology-driven Control Room-Cum-Management Information System.
- The CHAMPIONS is an acronym for Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength
- As the name suggests, the portal is basically for making the smaller units big by solving their grievances, encouraging, supporting, helping and handholding.
- It is a technology-packed control room-cum-management information system.
Three basic objectives of the CHAMPIONS
1) How to help the MSMEs in this difficult situation in terms of finance, raw materials, labour, permissions, etc.
2) How to help them capture new opportunities like manufacturing of medical accessories and products like PPEs, masks, etc.
3) How to identify the sparks, i.e., the bright MSMEs who can not only withstand but can also become national and international champions.
Technology imbibed in the portal
- In addition to ICT tools including telephone, internet and video conference, the system is enabled by Artificial Intelligence, Data Analytics and Machine Learning.
- It is also fully integrated on a real-time basis with GOI’s main grievances portal CPGRAMS and MSME Ministry’s own other web-based mechanisms.
- The entire ICT architecture is created in house with the help of NIC in no cost. Similarly, the physical infrastructure is created in one of the ministry’s dumping rooms in record time.
A hub and spoke model of network
- As part of the system, a network of control rooms is created in a Hub & Spoke Model.
- The Hub is situated in New Delhi in the Secretary MSME’s office.
- The spokes will be in the States in various offices and institutions of Ministry.
- As of now, 66 state-level control rooms are created as part of the system.
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Private: Fiscal Push for MSME Sector of India
COVID-19 and MSMEs
- The MSMEs were already struggling — in terms of declining revenues and capacity utilization — in the lead-up to the Covid-19 crisis.
- The total lockdown has raised a question mark on workers payment primarily because these firms mostly transact on cash. That explains the job losses.
- The problem with most small Indian businesses is that they operate on thin margins and don’t have the deep financial resources to survive a significant dip in cash flows.
- So, when an unexpected event like a lockdown happens and MSMEs can’t sell/produce their goods or services, it also means for many they can’t meet their monthly expenses – this includes costs like paying salaries to their employees.
Fiscal stimulus package to MSMEs under Atmanirbhar Bharat Abhiyan
Finance Minister has announced the first tranche of the Atmanirbhar Bharat Abhiyan economic package. The main thrust of the announcements was a relief to Medium, Small and Micro Enterprises (MSMEs) in the form of a massive increase in credit guarantees to them.
What is the package about?
Instead of directly infusing money into the economy or giving it directly to MSMEs in terms of a bailout package, the government has resorted to taking over the credit risk of MSMEs.
1) 100% credit guarantee
- Firstly, it will give a 100% credit guarantee for Rs 3 lakh crore worth of collateral-free loans to MSMEs that were doing fine before the pandemic hit and are now in trouble.
- This deal will only apply to small businesses that already had an outstanding loan of Rs 25 crore or those with a turnover of less than Rs 100 crore.
- This doesn’t mean the government is directly infusing Rs 3 lakh crore into India’s MSMEs.
- Put simply, if an MSME wants to take a loan of Rs 1 crore from a bank now, the Centre is saying that if the business fails to repay that loan, it will step in and make good all of that Rs 1 crore.
- Thus, banks don’t have to worry about potential NPAs – that headache is transferred to the government.
2) Subordinate debt scheme
- The second measure is a ‘subordinate debt scheme’ worth Rs 20,000 crore and is mainly for MSMEs who are already struggling with debt and are unlikely to get fresh funding by themselves.
- This scheme will allow banks and NBCs to give loans to MSMEs which are already deemed as ‘stressed’ and are thus less credit-worthy.
- For these firms, the government will only provide partial credit guarantee support to banks.
3) Availability of Funds
- The final step involves the government creating a Rs 50,000-crore fund which will infuse equity into “viable” MSMEs, thus helping them to expand and grow.
- The Centre will put only Rs 10,000 crore into this and get other PSU institutions like SBI or LIC to help fund the remaining amount.
- The basic idea behind this is that MSMEs who have been forced into a cash-strapped corner by the national lockdown will be able to apply for some working capital that will keep their businesses afloat until they are able to operate at pre-pandemic levels.
- By doing this, the government also hopes to protect the employment that MSMEs create and thus save jobs.
4)Other measures
- There are two other MSME policy announcements – one aimed at bringing more firms into the MSME net, while the other is oriented towards providing a level playing field.
- The first is defining what the firm gets to be an ‘MSME’ and avail of all the government benefits that are given to that category of business.
- The criteria have been expanded quite loosely and will mean that companies don’t have to be as small as they were to avail of MSME benefits.
- Put simply, the government will now subsidize more smaller companies than they used to.
- Second, there is a change in the definition of an MSME that was pending for long.
- Now MSMEs will be judged on turnover and there will be no difference between a manufacturing MSME and services MSME.
- FM also extended the initiation period of fresh insolvency proceedings against MSMEs by six months to up to one year depending upon the COVID situation.
Need for such measures
- Even before the Covid-19 crisis, Indian government finances were in poor health. This pandemic has meant that government revenues will come under further pressure.
- For instance, experts are already talking about a GDP contraction of 5% to 10% in the current financial year. It will result in a revenue loss of anywhere between Rs 5 to 7 lakh crore.
- And yet, this is also the year when employees and firms want the government to help them out financially.
- Banks, quite justifiably, suspect that any new loans will only add to their growing mountain of non-performing assets (NPAs).
- So the government was facing an odd problem: Banks had the money but were not willing to lend to the credit-starved sections of the economy, while the government itself did not have enough money to directly help the economy.
- The solution — credit guarantees — finally chosen by the government is not a new one, because this fiscal conundrum is not a new one either (see chart).
Why Rs 3 lakh crore?
- The total outstanding loan to MSMEs by the banking and NBFC sector is around Rs 16 to 18 lakh crore.
- Assuming that 80% of these loans are working capital loans where there would be a 20% incremental funding needs, that gives an amount of approximately Rs 3 lakh crore.
- So the government is hoping that this credit guarantee will help those MSMEs take out another loan and recover.
- The hope is that since these MSMEs were able to pay back before the crisis, there is no reason why they cannot after the crisis, provided they are given some extra money to survive this period.
How far will these measures help?
- The Rs 3 lakh crore credit guarantees are the most substantive announcement as it will most likely have a significant impact.
- It will help MSMEs pay salaries and keep their heads above the water even as the economy slows down.
- This measure is expected to help as many as 45 lakh MSMEs.
Issues with the package
1) No banks consulted
- The scheme for MSMEs has left bankers unhappy as the guarantee is not being offered by the government, but from the credit guarantee trust fund for micro and small enterprises (CGTMSE) instead of being a sovereign guarantee.
2) Criteria of availability
- The benefits of the package will not be available to businesses which had repayments overdue by more than 30 days as on Feb 29, 2020.
- Only for the stressed MSMEs and those whose loans have turned bad, a Rs 20,000-crore subordinated debt scheme has been envisaged.
3) Employee’s welfare faintly addressed
- With the package, the government has mandated MSMEs for paying the wages.
- The MSMEs are short of revenues to be able to pay the salaries. It has now become a matter of ability to pay.
- Manpower cost for ancillary suppliers is one of the largest. Not every company has the ability to pay their employees so going forward will be more stressful.
4) Too much of loans
- The package has offered for taking additional loans, but the MSME sector is already leveraged heavily.
- At this point, taking additional loans can help with major short term liquidity, but in the longer-term, the companies or the units abilities for repaying these loans is grossly neglected.
- Also the onus on increasing the competitiveness of MSMEs post the lockdown has been grossly neglected.
Way forward
- The challenge now is to create a policy environment that will encourage the growth of more MSME that can hold their own in a competitive market.
- The problems faced by MSMEs need to be considered in a disaggregated manner for successful policy implementation as they produce very diverse products, use different inputs and operate in distinct environments.
- In general, there is a need for tax provisions and laws that are not only labour-friendly but also entrepreneur-friendly.
- More importantly, there is a need for skill formation and continuous upgrade both for labour and entrepreneurs.
- While the government has to strengthen the existing skilling efforts for labour, there is an urgent need for managerial skill development for entrepreneurs running MSMEs — an area that is considerably neglected.
- Further, the government could consider dedicated television and radio programmes, similar to agriculture, to help educate entrepreneurs running small businesses.
Conclusion
Covid-19 is a crisis with an unforeseeable ending. What is clear though is that the government and businesses—both large and small—will have to work together to ensure the protection of workers, be ready for risk management in terms of phased re-starting of business operations and be prepared and open to structural changes in business activities.
- Issues related to credit, like adequacy, timely availability, cost and mortgages continue to be a concern for MSME. These enterprises are dependent on self-finance. Profit margins are also low.
- The government drive for financial inclusion could benefit such entities.
- The government could consider dedicating specialised financial schemes for addressing difficulties in assessing and providing credit for small enterprises, as also providing a line of credit to firms which are under financial stress.
- The road ahead remains unclear, but it is likely that the economic damage is already much larger than the measures undertaken so far.
- A continued focus on reforms and on sustaining India’s growth potential will be critical in preventing macroeconomic instability.
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Private: Fiscal Push for MSME Sector of India (Part II)
COVID-19 and MSMEs
- The MSMEs were already struggling — in terms of declining revenues and capacity utilization — in the lead-up to the Covid-19 crisis.
- The total lockdown has raised a question mark on workers payment primarily because these firms mostly transact on cash. That explains the job losses.
- The problem with most small Indian businesses is that they operate on thin margins and don’t have the deep financial resources to survive a significant dip in cash flows.
- So, when an unexpected event like a lockdown happens and MSMEs can’t sell/produce their goods or services, it also means for many they can’t meet their monthly expenses – this includes costs like paying salaries to their employees.
Fiscal stimulus package to MSMEs under Atmanirbhar Bharat Abhiyan
Finance Minister has announced the first tranche of the Atmanirbhar Bharat Abhiyan economic package. The main thrust of the announcements was a relief to Medium, Small and Micro Enterprises (MSMEs) in the form of a massive increase in credit guarantees to them.
What is the package about?
Instead of directly infusing money into the economy or giving it directly to MSMEs in terms of a bailout package, the government has resorted to taking over the credit risk of MSMEs.
1) 100% credit guarantee
- Firstly, it will give a 100% credit guarantee for Rs 3 lakh crore worth of collateral-free loans to MSMEs that were doing fine before the pandemic hit and are now in trouble.
- This deal will only apply to small businesses that already had an outstanding loan of Rs 25 crore or those with a turnover of less than Rs 100 crore.
- This doesn’t mean the government is directly infusing Rs 3 lakh crore into India’s MSMEs.
- Put simply, if an MSME wants to take a loan of Rs 1 crore from a bank now, the Centre is saying that if the business fails to repay that loan, it will step in and make good all of that Rs 1 crore.
- Thus, banks don’t have to worry about potential NPAs – that headache is transferred to the government.
2) Subordinate debt scheme
- The second measure is a ‘subordinate debt scheme’ worth Rs 20,000 crore and is mainly for MSMEs who are already struggling with debt and are unlikely to get fresh funding by themselves.
- This scheme will allow banks and NBCs to give loans to MSMEs which are already deemed as ‘stressed’ and are thus less credit-worthy.
- For these firms, the government will only provide partial credit guarantee support to banks.
3) Availability of Funds
- The final step involves the government creating a Rs 50,000-crore fund which will infuse equity into “viable” MSMEs, thus helping them to expand and grow.
- The Centre will put only Rs 10,000 crore into this and get other PSU institutions like SBI or LIC to help fund the remaining amount.
- The basic idea behind this is that MSMEs who have been forced into a cash-strapped corner by the national lockdown will be able to apply for some working capital that will keep their businesses afloat until they are able to operate at pre-pandemic levels.
- By doing this, the government also hopes to protect the employment that MSMEs create and thus save jobs.
4)Other measures
- There are two other MSME policy announcements – one aimed at bringing more firms into the MSME net, while the other is oriented towards providing a level playing field.
- The first is defining what the firm gets to be an ‘MSME’ and avail of all the government benefits that are given to that category of business.
- The criteria have been expanded quite loosely and will mean that companies don’t have to be as small as they were to avail of MSME benefits.
- Put simply, the government will now subsidize more smaller companies than they used to.
- Second, there is a change in the definition of an MSME that was pending for long.
- Now MSMEs will be judged on turnover and there will be no difference between a manufacturing MSME and services MSME.
- FM also extended the initiation period of fresh insolvency proceedings against MSMEs by six months to up to one year depending upon the COVID situation.
Need for such measures
- Even before the Covid-19 crisis, Indian government finances were in poor health. This pandemic has meant that government revenues will come under further pressure.
- For instance, experts are already talking about a GDP contraction of 5% to 10% in the current financial year. It will result in a revenue loss of anywhere between Rs 5 to 7 lakh crore.
- And yet, this is also the year when employees and firms want the government to help them out financially.
- Banks, quite justifiably, suspect that any new loans will only add to their growing mountain of non-performing assets (NPAs).
- So the government was facing an odd problem: Banks had the money but were not willing to lend to the credit-starved sections of the economy, while the government itself did not have enough money to directly help the economy.
- The solution — credit guarantees — finally chosen by the government is not a new one, because this fiscal conundrum is not a new one either (see chart).
Why Rs 3 lakh crore?
- The total outstanding loan to MSMEs by the banking and NBFC sector is around Rs 16 to 18 lakh crore.
- Assuming that 80% of these loans are working capital loans where there would be a 20% incremental funding needs, that gives an amount of approximately Rs 3 lakh crore.
- So the government is hoping that this credit guarantee will help those MSMEs take out another loan and recover.
- The hope is that since these MSMEs were able to pay back before the crisis, there is no reason why they cannot after the crisis, provided they are given some extra money to survive this period.
How far will these measures help?
- The Rs 3 lakh crore credit guarantees are the most substantive announcement as it will most likely have a significant impact.
- It will help MSMEs pay salaries and keep their heads above the water even as the economy slows down.
- This measure is expected to help as many as 45 lakh MSMEs.
Issues with the package
1) No banks consulted
- The scheme for MSMEs has left bankers unhappy as the guarantee is not being offered by the government, but from the credit guarantee trust fund for micro and small enterprises (CGTMSE) instead of being a sovereign guarantee.
2) Criteria of availability
- The benefits of the package will not be available to businesses which had repayments overdue by more than 30 days as on Feb 29, 2020.
- Only for the stressed MSMEs and those whose loans have turned bad, a Rs 20,000-crore subordinated debt scheme has been envisaged.
3) Employee’s welfare faintly addressed
- With the package, the government has mandated MSMEs for paying the wages.
- The MSMEs are short of revenues to be able to pay the salaries. It has now become a matter of ability to pay.
- Manpower cost for ancillary suppliers is one of the largest. Not every company has the ability to pay their employees so going forward will be more stressful.
4) Too much of loans
- The package has offered for taking additional loans, but the MSME sector is already leveraged heavily.
- At this point, taking additional loans can help with major short term liquidity, but in the longer-term, the companies or the units abilities for repaying these loans is grossly neglected.
- Also the onus on increasing the competitiveness of MSMEs post the lockdown has been grossly neglected.
Way forward
- The challenge now is to create a policy environment that will encourage the growth of more MSME that can hold their own in a competitive market.
- The problems faced by MSMEs need to be considered in a disaggregated manner for successful policy implementation as they produce very diverse products, use different inputs and operate in distinct environments.
- In general, there is a need for tax provisions and laws that are not only labour-friendly but also entrepreneur-friendly.
- More importantly, there is a need for skill formation and continuous upgrade both for labour and entrepreneurs.
- While the government has to strengthen the existing skilling efforts for labour, there is an urgent need for managerial skill development for entrepreneurs running MSMEs — an area that is considerably neglected.
- Further, the government could consider dedicated television and radio programmes, similar to agriculture, to help educate entrepreneurs running small businesses.
Conclusion
Covid-19 is a crisis with an unforeseeable ending. What is clear though is that the government and businesses—both large and small—will have to work together to ensure the protection of workers, be ready for risk management in terms of phased re-starting of business operations and be prepared and open to structural changes in business activities.
- Issues related to credit, like adequacy, timely availability, cost and mortgages continue to be a concern for MSME. These enterprises are dependent on self-finance. Profit margins are also low.
- The government drive for financial inclusion could benefit such entities.
- The government could consider dedicating specialised financial schemes for addressing difficulties in assessing and providing credit for small enterprises, as also providing a line of credit to firms which are under financial stress.
- The road ahead remains unclear, but it is likely that the economic damage is already much larger than the measures undertaken so far.
- A continued focus on reforms and on sustaining India’s growth potential will be critical in preventing macroeconomic instability.
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What makes MSMEs, most vulnerable to Covid-19 disruptions?
Note4Students
From UPSC perspective, the following things are important :
Prelims level: MSME Sector and its definition
Mains level: MSME sector of India and various inherent issues
- The Covid-19 pandemic has left its impact on all sectors of the economy but nowhere is the hurt as much as the Medium, Small and Micro Enterprises (MSMEs) of India.
- All anecdotal evidence available, such as the hundreds of thousands of stranded migrant workers across the country, suggests that MSMEs have been the worst casualty of lockdown.
- A closer look at the anatomy of the MSME sector explains why MSMEs are so vulnerable to economic stress.
Possible mains question:
Q. Discuss how the nationwide lockdown to control the coronavirus outbreak has led to the resurfacing of inherent bottlenecks in India’s MSME Sector.
What are MSMEs? How are they defined?
- Formally, MSMEs are defined in terms of investment in plant and machinery.
- But this criterion for the definition was long criticised because credible and precise details of investments were not easily available by authorities.
- That is why in February 2018, the Union Cabinet decided to change the criterion to “annual turnover”, which was more in line with the imposition of GST.
- According to the proposed definition, which is yet to be formally accepted, a micro-enterprise will be one with an annual turnover less than Rs 5 crore; a small enterprise with turnover between Rs 5 crore and Rs 75 crore; and a medium enterprise with turnover less than Rs 250 crore.
How many MSMEs does India have, who owns them, and where are they situated?
- According to the latest available (2018-19) Annual Report of Department of MSMEs, there are 6.34 crore MSMEs in the country.
- Around 51 per cent of these are situated in rural India.
- Together, they employ a little over 11 crore people (Chart 3) but 55 per cent of the employment happens in the urban MSMEs.
- These numbers suggest that, on average, less than two people are employed per MSME.
- At one level that gives a picture of how small these really are. But a breakup of all MSMEs into micro, small and medium categories is even more revealing.
Distributions of MSMEs
- In terms of geographical distribution, seven Indian states alone account for 50 per cent of all MSMEs.
- These are Uttar Pradesh (14%), West Bengal (14%), Tamil Nadu (8%), Maharashtra (8%), Karnataka (6%), Bihar (5%) and Andhra Pradesh (5%).
- This breakup provides a sense of where the pain of the MSME crisis would be felt the most.
- Chart 4 shows, 99.5 per cent of all MSMEs fall in the micro category.
- The medium and small enterprises — that is, the remaining 0.5% of all MSMEs — employ the remaining 5 crore-odd employees.
- While micro-enterprises are equally distributed over rural and urban India, small and medium ones are predominantly in urban India.
What kind of problems do MSMEs in India face?
- No/Low Formal registration: To begin with, most of them are not registered anywhere. A big reason for this is that they are just too small. But, as it is clear in a time of crisis, it also constrains a government’s ability to help them.
- Away from Tax norms: GST has its threshold and most micro enterprises do not qualify. Being out of the formal network, they do not have to maintain accounts, pay taxes or adhere to regulatory norms etc. This brings down their costs.
- Lack of Financial buffer: According to a 2018 report by the International Finance Corporation (part of the World Bank), the formal banking system supplies less than one-third (or about Rs 11 lakh crore) of the credit MSME credit need that it can potentially fund (Chart 5). They don’t have the buffers of the bigger firms or access to cheap capital to help them tide over this period.
- Bad credit history: The other big issue plaguing the sector is the delays in payments to MSMEs — be it from their buyers or things likes GST refunds etc. A key reason why banks dither from extending loans to MSMEs is the high ratio of bad loans (Chart 6).
How has Covid-19 made things worse?
- The MSMEs were already struggling — in terms of declining revenues and capacity utilization — in the lead-up to the Covid-19 crisis.
- The total lockdown has raised a question mark on workers payment primarily because these firms mostly transact on cash. That explains the job losses.
- According to a recent survey he did for “small and medium” firms in manufacturing, only 7% said they will be able to survive for more than three months with their cash in hand if their business remains closed.
- A big hurdle to restarting now is the lack of labour availability.
What can be done?
- The RBI has been trying to pump money into the MSME sector but given the structural constraints, it has had limited impact.
- There are no easy answers for the MSMEs’ sufferings.
- However, the government can provide tax relief (GST and corporate tax), give swifter refunds, and provide liquidity to rural India (say, through PM-Kisan) to boost demand for MSME products.
What about credit guarantees?
- Loans to MSMEs are mostly given against property (as collateral) — because often there isn’t a robust cash flow analysis available — but in times of crisis, property values fall and that inhibits the extension of new loans.
- A credit guarantee by the government helps as it assures the bank that its loan will be repaid by the government in case the MSME falters.
- To the extent such defaults happen, credit guarantees are shown as a departmental expense in the Budget.
Urgent attention required
- Governments across the world have announced various measures ranging from wage support to direct subsidies to help these businesses tide over these difficult times.
- But, in India, more than a month after the national lockdown was announced; there is still no blueprint of how the government intends to support these businesses during this period.
Way forward
- There is a strong case for urgent government intervention — the costs of intervening early on will be much less than the price of delayed action.
- To begin with, all dues owned by governments and public sector undertakings to MSMEs can be immediately cleared. This will help ease their immediate cash flow woes.
- Second, with banks turning risk-averse, credit flow to MSMEs is likely to be depressed as solvency concerns will dominate.
- In such a situation, the government could step in. It could set up a credit guarantee fund that backstops loans to MSMEs.
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From informal to the formal economy: The crooked road
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Share of informal economy in the country's economy.
Mains level: Paper 3- Huge presence of the informal sector in the Indian economy and ways to formalise it.
The article discusses the issues around the informal workforce in the economy. What are the factors responsible for the high informal sector in India? How is this sector responding in times of COVID? Are there some easy solutions to mainstream the informal sector into our formal economy? These are some of the points one should ponder upon while reading this article.
The vulnerability of the informal workforce
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Developing countries such as India are economically vulnerable to Covid-19 because of the presence of huge informal workforce.
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Lack of protection: This vast informal workforce, which has no labour, social or health protection, is woefully ill-equipped to cope with the medical and economic shocks of the virus.
The humongous size of the informal economy in India
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Share of the informal sector: As per Periodic Labour Force Survey, 2017-18, 90.6 per cent of India’s workforce was informally employed.
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This estimate includes those who are employed in informal enterprises (unincorporated small or unregistered enterprises).
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It also includes informal workers in the formal sector (workers in the formal sector who are not provided any social security benefits by employers).
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Take another example: Between 2004-05 and 2017-18, a period when India witnessed rapid economic growth, the share of the informal workforce witnessed only a marginal decline from 93.2 per cent to 90.6 per cent.
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Covid effect: Looking ahead, it is likely that informal employment will increase as workers who lose formal jobs during the COVID crisis try to find or create work (by resorting to self-employment) in the informal economy.
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Also, formal enterprises are likely to continue hiring informal workers as they seek more flexibility and attempt to cut labour costs to cope with the COVID-19 induced economic uncertainty.
Why is the informal more favourable over the formal?
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The basic reason: necessity to eke out a subsistence living in the absence of alternative employment opportunities.
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The ‘not so basic’ reasons: Some self-employed persons choose to be in the informal economy voluntarily to avoid registration or taxation.
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Many are deterred by the costs of formalisation or don’t see much benefit from formalisation.
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Finally, the phenomenon of informalisation of wage employment in the formal sector is a consequence of formal firms trying to avoid payroll taxes and employer’s contributions to social security or pensions to reduce labour costs.
Some solution to smoothen the crooked road
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A multi-pronged and comprehensive approach is needed to facilitate the transition.
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Labour intensive growth: It requires creating more formal jobs through labour-intensive growth so that informal workers can move to these jobs.
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Registering and taxing informal enterprises: The Indian experience of compelling informal firms to register and become tax compliant through demonetisation and introduction of GST formalised them only in a legal sense.
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There is a need for increasing productivity of informal enterprises and incomes of the informal workforce by providing them with technical and business skills, infrastructure services, financial services, enterprise support and training to better compete in the markets.
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Promoting the path to entrepreneurship in the informal economy.
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Many informal enterprises would welcome efforts to reduce barriers to registration and related transaction costs as they expect to reap the benefits of formalising.
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Reducing decent work deficit: This requires protecting informal workers by providing them a social protection floor, ensuring a set of basic working conditions (adequate living wages, limits on hours of work and safe and healthy workplaces).
A direct question based on the issue of the informal sector can be asked by the UPSC, for ex- “There is a humongous presence of the informal sector in the Indian economy. What are the factors responsible for this? Suggest ways to transform the informal sector into the formal sector.”
Conclusion
Questions around the role of government and who bears the onus of protecting workers deserve careful consideration in the backdrop of the rising incidence of informal employment in the formal sector and the growth of the gig economy. It is apparent that in our relentless pursuit of economic growth, we have ignored the voices of India’s informal sector for too long.
Back2Basics: What is the informal economy?
- An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government.
- Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable.
- However, the informal sector provides critical economic opportunities for the poor.
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[pib] Software Technology Parks of India (STPI)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: STPI and thier functioning
Mains level: Role of STPI in facilitating start-ups and IT industries
Government of India has given 4 months’ Rental Waiver to the IT Companies Operating from Software Technology Parks of India (STPI) Centers.
STPI which witness multi-million transactions every day are the most promising workplaces for startups in India. They have gained popularity not among Indians, but also on an international platform for its state of the art infrastructure, world-class working conditions and amenities. We can expect a mains question like “Discuss the role of STPIs in making India a hub of ITeS exports”.
Why this waiver?
- The rental waiver will provide relief to the industry in this crisis situation emerged due to COVID19 pandemic.
- Most of these units are either Tech MSMEs or startups.
- This effort is also in the larger interest of around 3,000 IT/ ITeS employees who are directly supported by these units.
What are STPI?
- An STPI is a society established in 1991 by the Ministry of Electronics and Information Technology.
- The objective of an STPI is to encourage, promote and boost the export of software from India.
- STPI maintains internal engineering resources to provide consulting, training and implementation of IT-enabled services.
STPI Scheme
- The STP Scheme is a 100 per cent Export Oriented Scheme for the development and export of computer software, including export of professional services using communication links or physical media.
- This scheme is unique in its nature as it focuses on one product/sector, i.e. computer software.
- The scheme integrates the government concept of 100 per cent Export Oriented Units (EOU) and Export Processing Zones (EPZ) and the concept of Science Parks / Technology Parks, as operating elsewhere in the world.
Who can get a floor on STPI?
- An Indian company
- A subsidiary of a foreign company
- A branch office of a foreign company
Features of the STPI
- The STP Scheme provides various benefits to the registered units, including 100% foreign equity, tax incentives, duty-free import, duty-free indigenous procurement, CST reimbursement, DTA entitlement, and deemed exports.
- STPI centres also provide a variety of services including high-speed data communication, incubation facilities, consultancy, network monitoring, data centres and data hosting.
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[pib] CCI Green Channel Route
Note4Students
From UPSC perspective, the following things are important :
Prelims level: CCI Green Channel
Mains level: Not Much
The Competition Commission of India (CCI) has received a request for merger of a company following green channel combination route.
What is a Green Channel Route?
- In a bid to facilitate mergers and acquisitions (combination) in the country, the Competition Commission of India (CCI) has taken inspiration from the customs department and established a ‘green channel’.
- Every Combination above a certain threshold, seeking to be sanctioned has to necessarily pass the CCI scanner in order to be approved.
- The CCI characterizes the ‘green channel’ as an automatic system of approval for Combinations wherein the Combination is deemed to be approved upon filing the notice in the format prescribed.
- The ‘green channel automatic approval upon notification route’ is a right step by CCI towards the propaganda of ease of doing business in India.
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Private: Task Force on Sustainable Public Procurement (SPP)
Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
Private: Exports from SEZs achieve USD 100 Billion mark
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[pib] GreenCo Rating System
Note4Students
From UPSC perspective, the following things are important :
Prelims level: GreenCo Rating System
Mains level: Not Much
The Union Ministry of Railways has informed about the applications of Greenco Ratings on Workshops and Production Units of Indian Railways.
GreenCo Ratings
- GreenCo Rating is the “first of its kind in the World” holistic framework that evaluates companies on the environmental friendliness of their activities using life cycle approach.
- Implementation of GreenCo rating provides leadership and guidance to companies on how to make products, services and operations greener.
- It is developed by Confederation of Indian Industry’s (CII) Sohrabji Godrej Green Business Centre.
- It has been acknowledged in India’s Intended Nationally Determined Contribution (INDC) document, submitted to UNFCCC in 2015.
- GreenCo rating is applicable to both manufacturing facilities and service sector units.
- The rating is implemented at unit or facility level. The unit or facility has to be in operation for a minimum period of 3 years. In case of new plants/ facilities minimum 2 years operation is required.
Utility
It helps the industrial units in identifying and implementing various possible measures in terms of energy conservation, material conservation, recycling, utilization of renewable energy, GHG reduction, water conservation, solid and liquid waste management, green cover etc.
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Explained: Central Consumer Protection Authority (CCPA)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Terms of References for the office of CCPA
Mains level: CCPA, New Consumer Protection Laws, 2019
Recently the Union Ministry of Consumer Affairs has announced that a Central Consumer Protection Authority (CCPA) will be established by the first week of April.
What is the Central Consumer Protection Authority?
- The authority is being constituted under Section 10(1) of The Consumer Protection Act, 2019.
- The Act replaced The Consumer Protection Act, 1986, and seeks to widen its scope in addressing consumer concerns.
- The CCPA, introduced in the new Act, aims to protect the rights of the consumer by cracking down on unfair trade practices, and false and misleading advertisements that are detrimental to the interests of the public and consumers.
Why need CCPA?
- The new Act recognizes offences such as providing false information regarding the quality or quantity of a good or service, and misleading advertisements.
- It also specifies action to be taken if goods and services are found “dangerous, hazardous or unsafe”.
- The CCPA will have the powers to inquire or investigate into matters relating to violations of consumer rights or unfair trade practices suo motu, or on a complaint received, or on a direction from the central government.
What can the possible structure of CCPA be?
- The proposed authority will be a lean body with a Chief Commissioner as head, and only two other commissioners as members — one of whom will deal with matters relating to goods while the other will look into cases relating to services.
- It will be headquartered in the NCR of Delhi but the central government may set up regional offices in other parts of the country.
- The CCPA will have an Investigation Wing that will be headed by a Director General.
- District Collectors too, will have the power to investigate complaints of violations of consumer rights, unfair trade practices, and false or misleading advertisements.
What kind of goods and food items in particular, can be classified as “dangerous, hazardous or unsafe”?
- This is not specified in the notification of the Act.
- Regarding food, an official said the CCPA will ensure that all standards on packaged food items set by regulators such as the FSSAI are being followed.
What will the CCPA do if any goods or services are found not meeting these standards?
Under Section 20 of The Consumer Protection Act, the proposed authority will have powers to:
- recall goods or withdrawal of services that are “dangerous, hazardous or unsafe;
- pass an order for refund the prices of goods or services so recalled to purchasers of such goods or services and
- discontinuation of practices which are unfair and prejudicial to consumer’s interest
Penalties:
For manufacture, selling, storage, distribution, or import of adulterated products, the penalties are:
- If injury is not caused to a consumer, fine up to Rs 1 lakh with imprisonment up to six months;
- If injury is caused, fine up to Rs 3 lakh with imprisonment up to one year;
- If grievous hurt is caused, fine up to Rs 5 lakh with imprisonment up to 7 years;
- In case of death, fine of Rs 10 lakh or more with a minimum imprisonment of 7 years, extendable to imprisonment for life.
How will it deal with false or misleading advertisements?
- Section 21 of the new Act defines the powers given to the CCPA to crack down on false or misleading advertisements.
- The CCPA may order investigation that any advertisement is false or misleading and is harmful to the interest of any consumer, or is in contravention of consumer rights.
- If dissatisfied, the CCPA may issue directions to the trader, manufacturer, endorser, advertiser, or publisher to discontinue such an advertisement, or modify it in a manner specified by the authority, within a given time.
Penalties:
- The authority may also impose a penalty up to Rs 10 lakh, with imprisonment up to two years, on the manufacturer or endorser of false and misleading advertisements.
- The penalty may go up to Rs 50 lakh, with imprisonment up to five years, for every subsequent offence committed by the same manufacturer or endorser.
- CCPA may ban the endorser of a false or misleading advertisement from making endorsement of any products or services in the future, for a period that may extend to one year.
- The ban may extend up to three years in every subsequent violation of the Act.
What other powers will the CCPA have?
- While conducting an investigation after preliminary inquiry, officers of the CCPA’s Investigation Wing will have the powers to enter any premise and search for any document or article, and to seize these.
- For search and seizure, the CCPA will have similar powers given under the provisions of The Code of Criminal Procedure, 1973.
- The CCPA can file complaints of violation of consumer rights or unfair trade practices before the District, State, and the National Consumer Disputes Redressal Commission.
- It will issue safety notices to alert consumers against dangerous or hazardous or unsafe goods or services.
Also read:
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Listening to the call of the informal
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Pros and cons of formalising the informal sector, policy changes needed to support the informal sector
Context
Attempt to formalise the informal sector would not necessarily benefit it as two recent papers reveal.
What do the research papers reveal?
- The first paper-No strong evidence that formalisation improves business outcomes.
- Published by the National Bureau of Economic Research, economist Seema Jayachandran argues that there is no strong evidence from studies conducted in many developing countries that formalisation improves business outcomes.
- The second article-Formalisation an evolutionary process:
- In the second article, a background paper for the International Labour Organisation (ILO), economist Santosh Mehrotra calls formalisation an evolutionary process.
- During this evolutionary process small, informal enterprises learn the capabilities required to operate in a more formal, global economy.
- He says they cannot be forced to formalise.
The formalisation trap
- Why does the state want to formalise?
- Easy monitoring and taxation: The state finds it easier to monitor and to tax the firms that adopt its version of formality.
- Reduced last-mile cost for banks: Formality can reduce the last-mile costs for banks also.
- Problem with the imposed formalisation
- The added cost outweighs benefits: Ms Jayachandran’s study reveals that most of the formalities imposed from above, add to the costs of the firms that outweigh the benefits of inappropriate formalisation.
How informal sector improves themselves?
- Association with their peers: Small entrepreneurs gain from forming effective associations with their peers.
- Mentoring: They also benefit greatly from ‘mentoring’.
- On job skill development: Skills of small entrepreneurs and their employees are best developed on-the-job.
- This is because they cannot afford the loss of income by taking time off for training.
- Soft skills to form associations and manage enterprises, matter as much for the success of the enterprises as ‘hard’ resources of finance and facilities.
Problems with connecting to global supply chains-
- There is a desire to connect small firms in India more firmly with global supply chains.
- Search for lover cost source supply: Mehrotra points out that the primary motivation of multinational companies for expanding their global supply chains is to tap into lower-cost sources of supply.
- Supply chains compete with each other.
- When wages and costs increase in their source countries, they look for other lower-cost sources.
- Informal-the lowest labour cost firms: The lowest labour cost firms at the end of supply chains are generally informal.
- Thus, the push by the state to formalise firms is countered by the supply chain’s drive to lower its costs.
Way forward
- India’s jobs, incomes, and growth challenges necessitate a reorientation of policies towards the informal sector.
- First-The government and its policy advisers must stop trying to reduce its size.
- The development of an economy, from agriculture to the production of more complex products in the industry, is a process of learning.
- Informal enterprises provide the transition space for people who have insufficient skills and assets to join the formal sector.
- Second-Policymakers must learn to support informal enterprises on their own terms.
- Merely making it easy for MNCs and large companies to invest will not increase the growth of the economy.
- Third-Find ways to speed up the process of learning.
- Policymakers must learn how to speed up the process of learning within informal enterprises by developing their ‘soft’ skills.
- Large schemes to provide enterprises with hard resources such as money and buildings, which the government finds easier to organise, are necessary but inadequate for the growth of small enterprises.
- Fourth-Networks and clusters of small enterprises must be strengthened.
- They improve the efficiency of small firms by enabling sharing of resources.
- More clout to negotiate: They give them more clout to improve the terms of trade in their favour within supply chains.
- Reduced last-mile cost: They reduce the ‘last mile costs’ for agencies and providers of finance and other inputs to reach scattered and tiny enterprises.
- Fifth-The drumbeat for labour reforms must be changed.
- The laws should be simplified, and their administration improved. And, their thrust should be to improve the conditions of workers.
- Finally- The social security framework for all citizens must be strengthened.
- Health insurance and the availability of health services must be improved.
- And disability benefits and old-age pensions must be enhanced.
- The purpose of ‘labour reforms’ must be changed to provide safety nets, rather than make the workers’ lives even more precarious with misdirected attempts to increase flexibility.
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Air India Disinvestment
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Disinvestment processes in India
The government has kicked off the complete disinvestment process of Air India for the second time after it failed to receive a single bid in the first attempt back in 2018.
100% stake sale
- Most significantly, the government will offload 100% of its stake in Air India, compared with 76% put on the block last time.
- The government holding even a minor stake in the airline post disinvestment was seen as a huge negative for any potential buyers.
- The buyer will have to take on Rs 23,286 crore of debt out of a total Rs 60,074 crore.
- Compared with this, in the last attempt, a potential buyer would have to take on Rs 33,392 crore of debt and current liabilities.
- The amount of debt being bundled with the airline in this attempt is towards the aircraft that are being sold off along with the carrier as part of the transaction.
- The working capital and other non-aircraft debt will be retained by the government.
Air India’s assets
- The new owner will be taking on a fleet of 121 aircraft in Air India’s fleet and 25 planes in Air India Express’ fleet.
- These exclude the four Boeing 747-400 jumbojet aircraft that the airline plans to transfer to its subsidiary Alliance Air, which is not a part of the current transaction.
- However, like the last attempt, the properties currently in use by Air India, including the Nariman Point building and the company’s headquarters near Connaught Place in New Delhi will be retained by the government.
Will the new terms attract investors?
- Air India has a 50.64% market share in international traffic among Indian carriers.
- The government is hopeful of attracting investors with the new sale criteria, coupled with the main benefits of the airline, which are prime slots in capacity-constrained airports across the world.
- However, any potential investor is also expected to look at the size of the airline’s operations with reference to what those operations generate.
- For example, both Air India and Singapore Airlines operate with a fleet of 121 aircraft, but in 2018-19 Air India posted a net loss of Rs 8,556 crore, whereas Singapore Airlines reported a net profit of Singapore $ 779.1 million (approx Rs 4,100 crore).
What will the new investor get?
- The most attractive proposition in acquiring Air India is the slots and landing rights that it holds at airports such at Delhi, Mumbai, London, New York, Chicago, Paris, etc.
- These could be helpful both to airlines looking to expand into long-haul international operations, and to entities looking to set up global operations from scratch.
- Air India currently operates to 56 Indian cities and 42 international destinations.
- The new investor also gets hold of the ground-handling firm AI-SATS, which offers end-to-end ground handling services such as passenger and baggage handling, ramp handling, aircraft interior cleaning etc. at Bengaluru, Delhi, Hyderabad, Mangaluru and Thiruvananthapuram airports.
- This would provide the investor with an ancillary services firm with captive use.
Loss makers in AI
- Several of Air India’s international and domestic routes are profit-generating, while a number of them are loss-making or witness low load factors.
- This is a legacy problem that the airline comes with for the new promoter.
- Additionally, while the airline comes with 121 aircraft primed as domestic and international workhorses, 18 of them are grounded for lack of funds to make them airworthy.
How will consumers and employees be impacted?
Consumers
- If and when Air India is taken over by a private entity or consortium, experts believe the first move could be pruning of operations to ensure the airline inches closer to profitability.
- This could cause Air India to cease operations on certain loss-making domestic and international routes — leading to a rise in fares.
- It is believed that Air India’s continuous loss-making operations have skewed the market, wherein private companies have to play ball even when fares are artificially low.
- Cutting certain routes could also impact consumers in terms of the unique offerings by Air India, such as higher baggage allowance, etc.
Employees of AI
- Air India’s bloated staff strength was flagged by potential investors in the last disinvestment attempt.
- The airline has 17,984 employees, of which 9,617 are permanent staff.
- Whether the employees will be retained by the new investor is unclear.
- The government is expected to provide more clarity on conditions for retaining staff in the request-for-proposal stage, which will come after expressions of interest are received.
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Punjab’s new Right to Business Bill
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Right to Business
Mains level: Various mover for the MSME sector
The Punjab Cabinet this week gave its approval to a Punjab Right to Business Bill, 2020, a law aimed at ensuring ease of doing business for the Micro, Small and Medium Enterprises (MSME) sector.
Punjab Right to Business Bill, 2020
- Under the law, an MSME unit can be set up after ‘In-Principle’ approval from the District Bureau of Enterprise, headed by the Deputy Commissioner, working under the guidance of the State Nodal Agency, headed by the Director, Industries.
- Approval for units in approved Industrial Parks will be given in three working days.
- For new enterprises outside approved Industrial Parks, the decision on the Certificate shall be taken by the District Level Nodal Agency within 15 working days, as per the recommendations of the Scrutiny Committee.
What is the timeframe for unit owners to comply?
- Unit owners will have three and a half years after setting up the unit to obtain seven approvals from three departments: the sanction of building plans; issuance of completion/occupation certificate for buildings; registration of new trade licences.
- The industries involving hazardous processes will have to obtain a Fire NOC and get approval for the factory building plan before setting up the unit.
- All units will have to get environmental clearance from the Pollution Control Board beforehand.
Why was a law needed, rather than an executive order?
- According to the government, the Act will have overriding powers over various Acts of different departments that make approvals necessary before the setting up of small and medium units.
- This purpose could not have been achieved by an executive order.
- How the law actually works on the ground remains to be seen, however.
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