💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • MSMEs need funds for tech upgrades, green transition

    Why in the news? 

    Union Minister for MSMEs Jitan Ram Manjhi outlined six strategic pillars identified to foster the growth of the MSME sector.

    What are the 6 pillars for the growth of the MSME Sector   

    • Formalisation and Access to Credit: Promoting formalization of MSMEs to enhance their credibility and access to formal financial institutions.Improving access to credit through schemes like Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
    • Increased Access to Market and E-commerce Adoption: Facilitating MSMEs’ access to domestic and international markets through initiatives like market linkages and export promotion schemes.
    • Higher Productivity Through Modern Technology: Encouraging MSMEs to adopt modern technologies and digital tools to improve productivity and efficiency.
    • Enhanced Skill Levels and Digitalisation in the Service Sector: Focusing on skill development and training programs to enhance the capabilities of the MSME workforce.
    • Support to Khadi, Village, and Coir Industry for Globalisation: Promoting traditional industries like Khadi and Coir by providing marketing support and international exposure.
    • Empowerment of Women and Artisans Through Enterprise Creation: Encouraging entrepreneurship among women and artisans through skill development and financial support.

    How can Employment be raised?   

    • Promoting MSME Growth: Support MSMEs with policies for credit access, market expansion, tech modernization, and encourage startups for job creation.
    • Skill Development and Training: Invest in industry-aligned skill development, collaborating with educational institutions and industry partners for vocational training.
    • Infrastructure Development: Invest in infrastructure projects for job creation; develop industrial clusters and economic zones for manufacturing jobs.
    • Supporting Employment-intensive Sectors: Promote high-employment sectors like tourism, agriculture, healthcare, renewable energy; prioritize job creation in rural areas.

    Indian Government steps taken for MSME 

    • Prime Minister Employment Generation Programme (PMEGP): It aims to create employment opportunities through the setting up of new micro-enterprises.
    • Credit Guarantee Scheme for Micro & Small Enterprises (CGTMSE): Provides collateral-free loans of up to ₹1 crore to individual Micro and Small Enterprises (MSEs).
    • Financial Support to MSMEs in ZED Certification Scheme: Provides up to 80% subsidy to MSMEs to inculcate Zero Defect and Zero Effect (ZED) practices in manufacturing.
    • A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE): Facilitates innovative business solutions, promotes entrepreneurship, and creates new jobs at the grassroots level.

    Way to Green Transition and R&D (Way forward)

    • Financial Incentives and Soft Funds: Offer MSMEs financial incentives, subsidies, and soft loans for green tech and support R&D with grants and tax incentives.
    • Policy Support and Regulatory Framework: Develop supportive policies and regulatory frameworks that encourage MSMEs to integrate environmental sustainability into their operations.
    • Capacity Building and Technical Assistance: Offer capacity-building programs and technical assistance to MSMEs to enhance their knowledge and capabilities in green technologies.
    • Promotion of Green Products and Market Access:Promote green products via marketing campaigns, certification programs, and platforms for showcasing and selling.

    Mains PYQ: 

    Q Economic growth in the recent past has been led by an increase in labour productivity.” Explain this statement. Suggest the growth pattern that will lead to the creation of more jobs without compromising labour productivity. (UPSC IAS/2022)

  • The shape of the Manufacturing Base in India

    Why in the News? 

    Prime Minister Narendra Modi has formed the government again, now leading a coalition in his third term. The new administration must intensify its focus on economic reforms, especially those related to manufacturing.

    Significance of Manufacturing Base

    • Economic Growth: Enhancing the manufacturing sector is vital for India’s economic growth. Increasing manufacturing output can significantly boost GDP, as evidenced by the government’s initial target to raise manufacturing from 15% to 25% of GDP by 2025.
    • Employment Creation: A robust manufacturing sector can generate substantial low-skilled employment, which is crucial for absorbing the large workforce transitioning from agriculture. This can help mitigate stress on urban governance structures caused by rapid urbanization.
    • Trade Balance: Strengthening manufacturing can help reduce India’s goods trade deficit, particularly by decreasing reliance on imports of manufactured goods such as electronics, which currently contribute to a significant trade imbalance.
    • National Security: A strong manufacturing base can provide the resources needed for national security. By enhancing industrial capacity, India can better support its defense needs and contribute to regional security, aligning with American interests.
    • Supply Chain Resilience: Developing manufacturing capabilities in India can improve the viability of U.S. supply chains by having production bases in friendly countries. This is particularly important in the face of China’s rising economic and geopolitical influence.

    Issues with the “Business Reforms Action Plan (BRAP)” and the States

    • Outdated Rankings: The BRAP rankings, designed to foster competition among states, have not been updated since the COVID-19 pandemic. This has diminished their effectiveness in motivating states to improve their business environments.
    • Self-Reporting Issues: The BRAP rankings rely heavily on states’ self-reporting of their local business practices, which often does not align with actual investor experiences. This discrepancy undermines the credibility of the rankings.
    • Model Industry Laws: The central government’s initiative to create model industry laws for states has been underwhelming. There is a lack of robust and effective frameworks to guide states in implementing these laws.
    • State-Level Control: Many critical factors of production, such as power, water, sanitation, labor regulations, land acquisition rules, and environmental regulations, are controlled by state governments. This decentralization complicates the implementation of cohesive national policies.
    • Need for Transparent Policies: Encouraging states to adopt thoughtful and transparent industrial policies is challenging. The current toolkit of incentives and penalties needs enhancement to motivate states effectively.

    Role of the US in Improving the Business Attractiveness of Indian States

    • Guidance on Economic Governance: The U.S. can expand engagement with Indian states by providing direct guidance on effective economic governance. This can help states create more investor-friendly environments.
    • Investment Pathways: Improving pathways for potential investors to engage with state governments is crucial. The U.S. can facilitate connections between American investors and Indian states, helping to streamline investment processes.
    • Senior Officials’ Engagement: U.S. officials visiting India should go beyond the major economic hubs of Delhi, Mumbai, and Bengaluru. Engaging with a wider set of large states can highlight the importance and opportunities arising from global supply chain shifts.
    • Policy Redirection: The recent national election provides an opportunity for policy assessment and redirection. The U.S. can support India in aligning its policies with the core needs of the manufacturing push — jobs, trade, and security.
    • Encouraging Job-Creating Sectors: The U.S. can emphasize the importance of job-creating manufacturing sectors such as textiles, paper mills, and furniture, rather than focusing solely on capital-intensive sectors like semiconductors and robotics. This approach can help create more employment opportunities in India.

    Way forward: 

    • Establishment of State-level Economic Advisory Councils: Create advisory councils comprising experts from academia, industry, and government to advise state governments on economic policies, including manufacturing incentives and regulatory frameworks.
    • Review and Update of BRAP Rankings: Overhaul the Business Reforms Action Plan (BRAP) to include independent evaluations and audits alongside self-reporting. Ensure transparency and accuracy in ranking states’ business environments to provide credible guidance for investors.

    Mains PYQ: 

    Q Can the strategy of regional-resource-based manufacturing help in promoting employment in India? (UPSC IAS/2019)

  • How to read India’s Balance of Payments?  

     Why in the news? 

    India’s current account showed a surplus in Q4 of 2023-24. However, current account surpluses are not always beneficial, and deficits are not inherently detrimental.

    Latest Data from the Reserve Bank of India (RBI)

    • Current Account Surplus: India registered a current account surplus during the fourth quarter (Jan-Mar) of the 2023-24 financial year, marking the first surplus in 11 quarters.
    • Quarterly vs. Annual Data: Despite the Q4 surplus, the current account balance for the entire FY2023-24 remained in deficit, indicating underlying economic trends and demands.

    What is Balance of Payments (BoP)?

    • The BoP is a ledger of a country’s transactions with the rest of the world, recording all monetary transactions between residents of a country and the rest of the world.
    • It shows the amount of money flowing into and out of the country, indicating the relative demand for the rupee compared to foreign currencies (usually in dollar terms).

    Constituents of the BoP

    The BoP has two main accounts: the Current Account and the Capital Account.

    • Current Account: It covers the trade in goods (exports and imports), trade in services (transportation, tourism, licensing, etc.), Income (wages, interest, dividends, etc.), and current transfers (remittances, foreign aid, etc.).
      • Trade of Goods (Merchandise Account): Records export and import of physical goods. A trade deficit occurs when imports exceed exports.
      • Invisibles of Trade: Includes services (banking, insurance, IT, tourism), transfers (remittances), and income (earnings from investments). These are transactions not visible like physical goods.
      • Net Balance: The sum of the merchandise trade and invisible trade determines the current account balance. Q4 showed a surplus in the current account due to a surplus in invisible despite a trade deficit.
    • Capital Account: It covers debt forgiveness, migrants’ transfers of financial assets, taxes on gifts and inheritances, and ownership transfers of fixed assets.
      • Investments: Captures transactions related to investments such as Foreign Direct Investment (FDI) and Foreign Institutional Investments (FII).
      • Net Balance: Q4 showed a net surplus of $25 billion in the capital account.

    Impact on the Indian Economy: 

    • Exchange Rate Stability: The current account surplus in Q4 helped stabilize the exchange rate of the rupee. By absorbing excess dollars, the Reserve Bank of India (RBI) prevented excessive appreciation of the rupee, which helps maintain the competitiveness of Indian exports.
    • Improved Sovereign Ratings: A current account surplus can positively impact India’s sovereign credit ratings, as it indicates stronger external financial health and reduces reliance on foreign borrowing.
    • Foreign Exchange Reserves: The surplus contributed to an increase in India’s foreign exchange reserves, enhancing the country’s ability to manage external shocks and providing a buffer against global economic uncertainties.
    • Investment Climate: A surplus in the capital account, driven by Foreign Direct Investment (FDI) and Foreign Institutional Investments (FII), indicates investor confidence in the Indian economy, potentially leading to more robust economic growth and development.
    • Economic Health Indicators: Despite the Q4 surplus, the annual current account deficit suggests robust domestic demand and investment needs. This aligns with a growing economy that requires imports of capital goods to enhance production capacity and future export potential.

    Way forward: 

    • Enhance Export Competitiveness: India should focus on boosting its export sector by diversifying export products and markets, improving product quality, and providing incentives for export-oriented industries.
    • Promote Sustainable Foreign Investment: Encouraging sustainable and long-term foreign investments, particularly in sectors like manufacturing, technology, and renewable energy, can strengthen the capital account. 

    Mains PYQ: 

    Q Craze for gold in Indian has led to surge in import of gold in recent years and put pressure on balance of payments and external value of rupee. In view of this, examine the merits of Gold Monetization scheme. (UPSC IAS/2015)

  • Surge in Silver Imports from UAE through Gift City

    Why in the News?

    • India’s majority of silver imports are now handled by few private players from Dubai through the India International Bullion Exchange (IIBX), Gift City.
      • This trend, aimed at reducing import duties by the traders, poses potential long-term revenue losses for India.

    India’s Silver Imports

    • India imported a record 4,172 metric tons of silver in the first four months of 2024, far exceeding the total of 3,625 tons imported in all of 2023.
      • In February 2024 alone, India imported a record 2,295 metric tons of silver, up from 637 tons in January. This represents a 260% increase.
    • The surge in imports has been driven by increasing demand from the Solar panel industry as well as a rise in Speculative Investment, with investors betting on silver outperforming gold.
    • Nearly half of India’s silver imports in 2024 so far have come from the United Arab Emirates (UAE) due to a lower import duty under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).
      • India generally imposes a 15% import duty on silver.
      • However, because of the CEPA signed between India and the UAE in 2022, allows private traders to import silver through the India International Bullion Exchange (IIBX) paying 9% duty, and an extra 3% in value-added tax.
    • The government is now concerned about the 647-fold spike in silver imports from the UAE and plans to discuss the issue with Abu Dhabi.
      • The Gift City exchange, while clearing imports from Dubai since December 2023, is under scrutiny for potential violations of these rules compared to imports from other ports.

    About India International Bullion Exchange (IIBX)

    • Bullion refers to physical gold and silver of high purity that is often kept in the form of bars, ingots, or coins.
    • The IIBX was announced during the 2020 budget speech by the Finance Minister.
    • It is set up at the International Financial Services Center (IFSC) located in GIFT City, Gandhinagar.
    • It is India’s first bullion exchange, launched on 29 July 2022 in Gujarat.
    • It is the 3rd exchange of its kind in the globe.

    Regulations and Setup:

    • The International Financial Services Centres Authority (Bullion Exchange) Regulations, 2020, were notified in December 2020 specifically for the trading of precious metals, including gold and silver.
    • These regulations encompass the operations of the bullion exchange, Clearing Corporation, depository, and vaults associated with IIBX.

    Operational Framework

    • Previously, India had liberalized gold imports through nominated banks and agencies in the 1990s.
      • With IIBX, eligible qualified jewellers in India can directly import gold.
    • Jewellers need to become trading partners or clients of an existing trading member to participate in the exchange.

    Comparison with Previous Practices

    • Previously, bullion in India was imported under a consignment model by nominated banks and agencies approved by the RBI, which added handling fees and premiums.
    • The introduction of IIBX aims to streamline the supply chain by allowing direct imports through the exchange, potentially reducing costs for traders and consumers alike.

    Recommendations for Addressing Challenges

    • Renegotiation of CEPA Terms: The Global Trade Research Initiative (GTRI) advocates for revising CEPA terms to curb duty arbitrage and enforce stricter checks on value addition claims by Gift City exchange.
    • Enhanced Regulatory Oversight: GTRI proposes limiting silver imports to RBI/DGFT-nominated agencies to mitigate risks associated with mis-declared imports and ensure compliance with CEPA conditions.
    • Investigation and Oversight: There is a call for a thorough investigation into relationships between export and import firms to identify and mitigate conflicts of interest or familial ties that could influence import practices.

    PYQ:

    [2016] What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?

    1. To bring the idle gold lying with Indian households into the economy.
    2. To promote FDI in the gold and jewellery sector.
    3. To reduce India’s dependence on gold imports.

    Select the correct answer using the code given below:

    (a) 1 only
    (b) 2 and 3 only
    (c) 1 and 3 only
    (d) 1, 2 and 3

  • ICEA calls for reduction in Import Duties to Boost Mobile Phone Sector

    Why in the News?

    • The Indian Cellular & Electronics Association (ICEA), representing domestic electronics manufacturers, called for a reduction of import duties in the upcoming Union budget.
      • ICEA highlighted that the growth of the mobile phone sector now depends on demand in the global market rather than domestic demand, facilitated by supportive policies like the Production Linked Incentive (PLI) scheme.

    About India Cellular and Electronics Association (ICEA) 

    • The ICEA is the apex industry body representing the interests of the mobile and electronics sector in India.
    • It was established in 2017.
    • It plays a crucial role in shaping policies and promoting the growth of the industry through advocacy, policy formulation, and strategic initiatives.
    • Membership:
      • ICEA comprises leading mobile handset manufacturers, electronics companies, and industry stakeholders.
      • This includes both Indian and global companies operating in the electronics sector.
    • Collaborations:
      • ICEA works closely with government bodies, regulatory authorities, and other industry associations to align its initiatives with national economic goals.

    ICEA’s Key Demands

    • Reduction of Import Duties: ICEA is calling for a reduction in import duties on manufacturing inputs for electronics, particularly in the mobile phone sector.
      • Current high tariffs are increasing manufacturing costs in India by 7-7.5% on the bill of materials.
    • Alignment with Global Standards: The demand includes aligning tariffs with those of countries like China and Vietnam, which have lower tariffs on fewer components.
    • Improvement of Customs Procedures: ICEA is urging for streamlined customs procedures to prevent delays in the shipment of key components.

    Significance of ICEA’s Demands

    • Reducing import duties enhances competitiveness, boosts exports, stimulates investment and job creation, reduces trade deficit, and fosters long-term growth in India’s electronics and mobile phone manufacturing sectors.

    Key Initiatives and Programs by ICEA

    • Electronics Manufacturing Clusters: ICEA promotes the development of electronics manufacturing clusters to create a robust supply chain and manufacturing base in India.
    • Skill Development: The association emphasizes the need for skill development in the electronics sector to ensure a skilled workforce capable of supporting industry growth.
    • R&D and Innovation: ICEA encourages research and development (R&D) and innovation within the sector to maintain competitiveness and technological advancement.

    Boost in Mobile Phone Exports from India

    • ICEA Report: According to ICEA, mobile phone exports from India have doubled to surpass Rs 90,000 crore (about USD 11.12 billion) in FY 2022-23 from Rs 45,000 crore in FY22.
    • Government Targets: The government has set a target of USD 10 billion worth of mobile phone exports, with an ambitious goal of achieving USD 300 billion worth of electronics manufacturing by 2025-26, of which USD 120 billion is expected from exports.

    Major Contributors to Export Growth:

    • Apple’s Contribution: Apple is estimated to have a 50% share of mobile phone exports from India, contributing USD 5.5 billion (about Rs 45,000 crore).
    • Samsung’s Contribution: Samsung accounts for approximately 40% of exports, worth Rs 36,000 crore.
    • Third-Party Exports: Third-party exports contributed around USD 1.1 billion to the total export, comprising phones of various brands made in India.

    Future Projections:

    • Export Contribution: Mobile phones are anticipated to contribute more than USD 50 billion worth of exports by 2025-26.
    • Overall Contribution: Mobile phone exports now account for 46% of the overall electronic goods exports, according to ICEA.

     

    PYQ:

    [2016] Recently, India’s first ‘National Investment and Manufacturing Zone’ was proposed to be set up in:

    (a) Andhra Pradesh

    (b) Gujarat

    (c) Maharashtra

    (d) Uttar Pradesh

  • Netherlands becomes India’s 3rd Largest Export Destination in 2023-24

    PC: LiveMinit

    Why in the News?

    During fiscal year 2023-24, the Netherlands emerged as India’s third-largest export market, with a trade surplus expanding to $17.4 billion.

    India’s Trade with the Netherlands

    • Key Export Commodities: Notable export items to the Netherlands include petroleum products ($14.29 billion), electrical goods, chemicals, and pharmaceuticals, showcasing robust growth in these sectors.
    • Continual Expansion: India’s exports to the Netherlands have steadily risen by approximately 3.5% to reach $22.36 billion in 2023-24, illustrating sustained growth momentum.
    • Mutual Investment: The Netherlands is a significant investor in India, with foreign direct investment (FDI) amounting to about $5 billion during the last fiscal.
    • Corporate Presence: Over 200 Dutch companies, including industry giants like Philips, Akzo Nobel, and KLM, operate in India, while Indian firms like TCS, HCL, and Sun Pharmaceuticals have a substantial presence in the Netherlands.

    Shift in Trade Dynamics

    • Outpacing Major Destinations: The Netherlands has surpassed traditional trade partners such as the U.K., Hong Kong, Bangladesh, and Germany in terms of India’s export focus.
    • Long-term Growth: Export figures have shown consistent growth since 2000-01 when India’s exports to the Netherlands were a mere $880 million.

    Significance: Gateway to Europe

    • Strategic Positioning: The Netherlands’ efficient ports and extensive connectivity with the EU via roads, railways, and waterways have positioned it as a vital gateway to the European market.
    • Strong Ties: Diplomatic relations between India and the Netherlands, established in 1947, have evolved into robust political, economic, and commercial partnerships.

    India’s Trade Dynamics

    Export Figures:

    • Forecasted to reach approximately US$776.68 billion in FY 2023–24.
    • Slightly surpassed the US$776.40 billion recorded in the previous fiscal year.
    • Concluded with the highest monthly merchandise exports of US$41.68 billion in March 2024.

    Import Figures:

    • Total goods imports decreased by 5.66 percent to US$675.44 billion.

    Global Merchandise Export Ranking:

    • India advanced from 19th to 17th place.
    • Marginal increase in share from 1.70 percent in 2014 to 1.82 percent in 2023.
    • Exported to 115 countries out of a total of 238 destinations during FY 2023-24.

    Key Export Markets:

    • Include the US, UAE, Netherlands, China, UK, Saudi Arabia, Singapore, Bangladesh, Germany, and Italy.
    • Represent 46.5 percent of India’s export portfolio.

    Diversification Strategy:

    • Focus on expanding beyond traditional sectors like iron ore and agricultural commodities.
    • Target sectors include electronics, pharmaceuticals, engineering products, and food items.
    • Plan to introduce goods such as alcoholic beverages, prepared meals, confectioneries, jackfruit, and bananas.
    • Emphasis on market research and analysis for product customization.

    Trade Partners:

    • China emerged as India’s largest trading partner, surpassing the US.
    • Bilateral trade with China totalled US$118.4 billion in FY 2023-24.
    • Bilateral trade with the US amounted to US$118.3 billion in the same period.
    • India’s exports to China increased by 8.7 percent in FY24, driven by various sectors.
    • Imports from China rose moderately, totalling US$101.7 billion.

    (Source of Data: Ministry of Commerce and Industry, Department of Commerce)

    PYQ:

    [2013] The balance of payments of a country is a systematic record of:

    (a) All import and export transactions of a country during a given period of time, normally a year.

    (b) Goods exported from a country during a year.

    (c) Economic transaction between the governments of one country to another.

    (d) Capital movements from one country to another.

     

  • China’s share in India’s industrial goods imports jump to 30% from 21% in last 15 years: GTRI

    Why in the News?

    India’s imports from China crossed $101 billion in 2023-24 from about $70 billion in 2018-19, and the country’s share of India’s industrial goods imports has risen from 21% to 30% over 15 years, according to a report by the Global Trade Research Initiative (GTRI).

    • The data shows, it’s resulting in a cumulative trade deficit exceeding $387 Billion in the last 5 years, which is an alarming situation for the Indian government.

    What is meant by Trade Deficit?

    • A trade deficit refers to a situation where the country’s imports exceed the receipts from its exports. A trade deficit arises in the course of international trade when the payments for imports exceed the receipts from export trade.
    • A trade deficit is also referred to as a negative balance of trade.
    • The concerns arising due to this deficit include pressure on external payments and on the currency value of a country. Countries often alter import and export policies, curbing imports or increasing import duties on certain goods due to this.
    • They also encourage exports and consumption of indigenous goods.

    India’s Industrial Imports from China:

    • Electronics and Telecom Sector: During April-January 2023-24, India’s import value for electronics, telecom, and electrical products was $67.8 billion, with China contributing $26.1 billion. (38.4% of the total imports)
    • Machinery Sector: China contributed 39.6% of India’s imports in this category. This highlights China’s essential role as a supplier of machinery to India.
    • Chemical and Pharmaceutical Sector: India’s chemical and pharmaceutical imports were $54.1 billion, with $15.8 billion coming from China (29.2% of the total).
    • MSMEs sector: Products like mobiles and data processing units, are imported by Indian MSMEs. These imports could potentially be produced domestically, highlighting gaps in India’s industrial capabilities.

    Current Trade Observations concerning China and other countries:

    • Rising Trade Deficit with China: India’s exports to China have stagnated at around $16 billion annually (from 2019 to 2024), while imports from China surged from $70.3 billion in 2018-19 to over $101 billion in 2023-24.
    • Growth Rate of Imports: China’s share in India’s industrial product imports increased from 21% to 30% over the last 15 years. China’s exports to India grew 2.3 times faster than India’s total imports from all other countries.
    • Diverse Product Imports: Chinese firms are increasingly entering the Indian market, which is expected to accelerate the import of industrial products from China. India’s imports span high to low-technology items, like smartphones, electronics, electric vehicles, and solar energy.
    • Strategic Concerns: The growing trade deficit and dependence on China have profound strategic implications, affecting both economic and national security dimensions.

    Way Forward:

    • Supply chain diversification: India must focus on diversifying its supply chains and reducing dependency on single-country imports, especially from geopolitical competitors like China.
    • Boosting R&D: Increase investment in research and development for electronics, semiconductors, and machinery to foster innovation and improve domestic production capabilities.
    • Incentivizing Production: Provide tax incentives, subsidies, and grants to local manufacturers of electronics, data processing units, and semiconductor devices to encourage production and reduce import dependency.

    Mains PYQ:

    Q China is using its economic relations and positive trade surplus as tools to develop potential military power status in Asia’, In the light of this statement, discuss its impact on India as her neighbor. (UPSC IAS/2017)

  • MSMEs have not been defined well — and micro enterprises pay the price for this

    Why in the News?

    A parliamentary panel suggested separating micro-enterprises from the broader MSME category and recommended revising definitions every five years.

    • A government order for timely MSME payments has exposed knowledge gaps and unintentionally marginalized smaller enterprises, highlighting issues in understanding their structure and operations.

    Present Status:

    • According to the National Sample Survey Organisations (NSSO) Unorganised Enterprise Survey 2016, 95% of the enterprises surveyed reported revenues under Rs 50 lakh per annum. Of them, 89% reported an annual revenue of under Rs 12 lakh.
    • In the Annual Survey of Industries (ASI), more than 66% of the enterprises reported an annual revenue of less than Rs 50 lakh, and of them, 45% reported annual revenues of Rs 12 lakh.

    What are the Categories of Micro-Enterprises?

    • Category 1 – Micro: More than 98% of the MSMEs are within this category, with reporting annual revenue of Rs 50 lakh and less.
    • Category 2 – Small: The MSMEs that are reporting annual revenue of Rs 50 lakh to Rs 5 crore.

    Present Ambiguity and structural Gap in defining MSMEs

    • Lack of Clarity and Consistency in defination: In India, the MSMED Act of 2006 categorized MSMEs based on investment in plants and machinery, which led to industries keeping their plants small to maintain MSME advantages.
      • However, the MSMED Amendment Bill, 2018 proposed defining MSMEs solely based on yearly turnover, which has been criticized for under-reporting of qualifying enterprises.
    • Quantitative vs. Qualitative Approaches: There are two main techniques for defining MSMEs: quantitative and qualitative, with MSMEs typically defined using a quantitative approach. Quantitative criteria like number of employees, total assets, and yearly revenue have limitations as they vary by industry and sector.
    • Impact on Micro Enterprises: The ambiguity in defining MSMEs negatively impacts micro-enterprises, leading to issues like delayed payments and limited access to benefits and support schemes.
      • Moreover, the unregistered micro-enterprises have been worse hit by the COVID-19 pandemic than small and medium enterprises, with micro-enterprises accounting for more than two-thirds of all MSMEs and having a higher rate of informality.

    Way forward:

    • Enhanced Data Collection: Conduct regular and comprehensive surveys to gather detailed data on MSMEs, particularly focusing on micro-enterprises.
    • Further Classification within Micro-Enterprises: Establish sub-categories within the micro-enterprise category based on revenue thresholds (e.g., below Rs 10 lakh, Rs 10-25 lakh, Rs 25-50 lakh).
    • Revenue Diversity: Significant variation in revenue among micro-enterprises necessitates further classification.
    • Targeted Policies: Addressing classification gaps can enhance policy effectiveness, supporting micro-enterprise growth and sustainability.

    BACK2BASICS
    Program and Policies Explanation
    MSME Development Act, 2006 Provides the legal framework for defining MSMEs and their classification into micro, small, and medium enterprises.
    Credit Guarantee Fund Scheme for Micro and Small Enterprises Provides credit guarantee cover of up to 75% of the credit to micro and small enterprises.
    Udyog Aadhaar A simple online process for MSME registration, requiring only the Aadhaar number and a self-declaration.
    MSME Samadhaan Mechanism to facilitate the promotion and development of MSMEs, including Khadi, Village, and Coir Industries.
    Mudra Yojana Provides loans up to 10 lakh to non-corporate, non-farm small/micro enterprises.
    ZED Scheme Aims to enhance the manufacturing capabilities and competitiveness of MSMEs through Zero Defect Zero Effect (ZED) certification.
    Stand-Up India Facilitates bank loans between 10 lakh and 1 crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch

     

    Make in India: Focuses on making India a global manufacturing hub, with MSMEs playing a crucial role.

    Stand-Up India: Facilitates bank loans between 10 lakh and 1 crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch

    Mains PYQ:

    Q Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports. (UPSC IAS/2017)

  • Why worker housing is the key to unlocking India’s manufacturing ambitions

    Why in the News?

    The emphasis on workers’ accommodation in the manufacturing sector is gaining traction in the news due to its potential to address key challenges and unlock India’s manufacturing ambitions.

    About  India’s goal to $10 trillion by 2035

    India aims to grow its economy to $10 trillion by 2035, with a specific focus on transforming the manufacturing sector to increase its GDP share from 15% to 25%. This ambitious goal involves a four-fold growth in manufacturing to enhance employment elasticity.

     

    Present Challenges:

    • Inadequate Infrastructure: Many factories currently lack the necessary infrastructure to support large-scale manufacturing, particularly in terms of workers’ accommodation.
    • Land Regulation: Existing industrial land allocation regulations do not typically account for worker housing, necessitating regulatory changes at the state level.
    • Commute and Productivity: Workers often face long commutes, with studies showing travel times of up to two hours each way, leading to exhaustion and reduced productivity.
    • Living Conditions: Many workers live in ad hoc accommodations, which are not ideal for maintaining a stable and productive workforce.
    • Skill Gaps: There is a need for more targeted skill development programs to enhance worker productivity and adaptability to new manufacturing processes and technologies.
    • Lack of Coordinated Policy: There is a need for a more coordinated approach between state and central governments to provide the necessary fiscal and policy support.

    Economic Factors that will steer Enlightened Self-Interest:

    • Transportation Savings: By providing on-premises or factory-adjacent accommodation, companies can significantly reduce transportation costs, estimated at over Rs 5,000 per worker per month.
    • Increased Productivity: Reduced commute times and better living conditions can lead to increased worker productivity.
    • Reduced Attrition: Better living conditions and reduced commuting stress can decrease workforce attrition, ensuring a more stable and experienced workforce.
    • Better Training Facilities: On-site accommodation can facilitate better training programs, enhancing workers’ skills and productivity.
    • Lower Carbon Footprint: Reducing the need for long commutes can lower the overall carbon footprint of manufacturing operations.

    Way forward:

    • Tax and Fiscal Incentives: The Union government can catalyze investment in workers’ accommodation through tax incentives, GST reductions, and other fiscal benefits.
    • Priority Sector Tagging: Tagging workers’ accommodation as a priority sector for construction finance can attract more investment.
    • Collaborative Financing: Leveraging vehicles like the National Investment and Infrastructure Fund (NIIF) to finance credible worker housing projects can boost infrastructure development.

    Mains PYQ:

    Q The nature of economic growth in India in recent times is often described as a jobless growth. Do you agree with this view? Give arguments in favour of your answer. (UPSC IAS/2015)

  • Indian manufacturing needs more sophistication: Finance Minister

    Why in the News?

    In a recent statement, the Finance Minister highlighted the pressing need for sophistication in India’s manufacturing sector to drive economic growth and competitiveness.

    • The sophisticated manufacturing sector provides a conducive environment to enhance the efficiency of producing goods and services.

    What is the current state of Indian Manufacturing?

    • India’s manufacturing sector’s Gross Value Added (GVA) as a percentage of GDP has shown an upward trend (since 2014), currently hovering around 18%. There is a consensus that to compete on a global scale, Indian manufacturing needs to evolve and embrace sophistication in its processes, technologies, and products.
    • India’s Dependency Ratio: The dependency ratio is a measure that compares the number of dependents (people who are either too young or too old to work) to the working-age population.
      • According to the Economic Survey 2018-19, India’s Demographic Dividend will peak around 2041, when the share of working-age,i.e. 20-59 years, population is expected to hit 59%.

    Importance of Sophistication in Manufacturing:

    • Leveraging the Demographic Dividend: India’s young population and low dependency ratio offer a significant advantage in terms of labor force and consumption. To capitalize on this demographic dividend, there is a strong focus on ramping up skills in the Indian workforce through initiatives like the Pradhan Mantri Kaushal Vikas Yojana (PMKVY).
    • Enhancing Productivity and Quality: Embracing sophistication is crucial for enhancing productivity, quality, and competitiveness in the global market. By investing in technology, automation, and research and development, manufacturers can improve efficiency and deliver high-quality products.
    • Increasing Share in Global Value Chains: To increase India’s share in global manufacturing and value chains, the government is considering providing policy support. This will help reduce dependence on imports and make India more Self-reliant (Atmanirbhar).
    • Attracting Investments: Sophistication in manufacturing can attract significant investments from global companies looking to reduce their dependence on China. According to a Capgemini Research Institute report, 65% of senior executives in the U.S. and Europe plan to increase manufacturing investments significantly in India.
    • Unlocking Opportunities in Specific Sectors: Sophistication in manufacturing can help unlock opportunities in sectors such as food spending, financial services, and consumer markets. By 2031, India’s consumer market is projected to double, presenting a $2.9 trillion opportunity.

    What are the Challenges hindering the growth of the Sophisticated Manufacturing sector?

    • Inadequate infrastructure: Lack of reliable power supply, poor connectivity, and limited access to advanced technologies. Difficulty in obtaining credit, especially for small and medium enterprises (SMEs), to invest in technology upgradation.
    • Skill gaps: Shortage of skilled workers trained in modern manufacturing techniques and technologies
    • Weak Intellectual Property Rights: Insufficient protection of patents, trademarks, and copyrights, discouraging innovation
    • Regulatory hurdles: Complex bureaucratic processes, lack of clarity in policies, and inconsistent implementation

     Government Initiatives and Support

    • Make in India Initiative: Launched in 2014, the program aims to transform India into a global manufacturing hub by facilitating investment, fostering innovation, building best-in-class infrastructure, and making doing business easier. It focuses on 25 sectors, including automobiles, aviation, chemicals, and pharmaceuticals.
    • National Manufacturing Policy: Introduced in 2011, it aims to increase the share of manufacturing in GDP to 25% and create 100 million jobs by 2022. It focuses on enhancing skill development, promoting innovation, and creating a favorable business environment.
    • Production Linked Incentive (PLI) Scheme: It provides financial incentives to boost domestic manufacturing and attract investments in key sectors such as electronics, pharmaceuticals, automobiles, and telecom. It has helped reduce import dependence and increase exports in sectors like telecom and mobile manufacturing

    Way Forward:

    • Role of Financial Institutions: By providing access to capital, facilitating technology adoption, and offering financial expertise, they can empower manufacturers to invest in sophistication and drive growth.
    • Enhanced Strategies: Manufacturers need to prioritize investments in technology, automation, research and development, and skill development to enhance sophistication. Collaborating with financial institutions for tailored financial solutions can help accelerate this transformation.
    • Competitive Outlook: As Indian manufacturing embraces sophistication, it is poised to unlock new opportunities, improve competitiveness, and contribute significantly to the country’s economic growth. By aligning with the Finance Minister’s vision, the sector can chart a path towards sustainable success in the global market.

    Conclusion: The Finance Minister’s call for sophistication in Indian manufacturing underscores the need for a strategic shift towards innovation, efficiency, and quality. With concerted efforts from stakeholders, including the government, financial institutions, and manufacturers, India can elevate its manufacturing sector to new heights of success and competitiveness.

    Mains PYQ:

    Q Demographic Dividend in India will remain only theoretical unless our manpower becomes more educated, aware, skilled and creative.” What measures have been taken by the government to enhance the capacity of our population to be more productive and employable? (UPSC IAS/2016)