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

  • Skill India For Atmanirbhar Bharat

    As India embarks on the path of self-reliance through Atmanirbhar Bharat Abhiyan, it has to nurture the skilled workforce. This article highlights the need to upgrade the skills or upskill the youth to meet the employment needs of technology-driven 21st century.

    Context

    • The effects of the pandemic are expected to have a lasting impact on every sphere of activity.
    • Considering this impact, India announced the Atmanirbhar Bharat Abhiyan to propel the country on the path of self-sustenance.

    Objectives

    • Atmanirbhar Bharat has twin objectives- short term and long term.
    • 1) Reviving different spheres of the economy in the short term.
    • 2) Insulating India from any future global economic downturn, by making it robust in the long run.
    • The Abhiyan seeks to build capacities across sectors and promote local products.
    • Further, it would focus on scaling up manufacturing, accelerating infrastructure development, attracting investments and promoting a consumption-led growth.

    Youth: Strength of India

    • About 65 per cent of India’s population is below 35 years and 50 per cent is below 25 years.
    • With a huge, educated young population, India is uniquely poised to realise its demographic potential.
    • The fact that Indians are heading several MNCs shows that there is no dearth of knowledge and talent in the country.
    • However, we need to upgrade the skills or upskill the youth to meet the employment needs of technology-driven 21st century.

    Opportunities and challenges

    • Pandemic and is being seen by many as an opportunity to upgrade their knowledge and acquire new skills.
    • The fourth industrial revolution has triggered a paradigm change in which digital technology drives the job market.
    • Remote working with increasing adoption of digital technology might continue to be dominant mode of working for the near future.
    • It is estimated that nearly 70 per cent of the world’s learners are affected by school closures due to pandemic across education levels.
    • Artificial intelligence, machine learning, data science, cloud computing and Internet of Things will be area of interest for companies.
    • With people opting to online buying, companies will seek to adopt new online marketing strategies.
    • Another important issue that needs to be addressed is ensuring equitable employment through higher participation of women in the workforce.

    Way forward for Atmanirbhar Bharat

    1) Local to glocal

    • There have been some reassuring developments with an accent on “local to glocal”
    • The production of several lakh PPE kits, a collaboration of automobile industries to produce ventilators, manufacture of more than 70 Made in India products by the DRDO are just a few examples of the capability of Indian scientists, IT professionals and technocrats.

    2) Reducing import

    • We must aim to gradually reduce imports in every sector from crude oil to heavy machinery.
    • This reduction should be based on the locally available resources, talent, and skills of the human capital.

    3) Globally competitive product

    • While remaining vocal about local, we must aim at making Indian products to be globally competitive. 
    • We should try to stay ahead in the innovation-led knowledge economy.
    • PSUs and the private sector should not only complement but collaborate wherever feasible.
    • The private sector must massively step up investments R&D. PSUs too need to modernise in terms of technology.

    Consider the question “Atmanirbhar Bharat Abhiyan has the aim of reviving the Indian economy. Examine its objective and how it seeks to revive the economy”

    Conclusion

    To remain globally competitive with a well-assured future, we need to focus on “skills, scale and speed”. India has the potential to emerge as the global hub for providing skilled manpower to other nations.

  • Trade policy for India

  • Google for India Digitization Fund (GIDF)

    Technology giant Google will invest $10 billion (₹75,000 crores) in India as part of the ‘Google for India Digitization Fund (GIDF)’.

    Practice question for mains:

    Q.Discuss the role of foreign investment in the digital transformation of India.

    About GIDF

    • The GIDF focuses on digitizing the economy and building India-first products and services.
    • The plan is in line with big-tech’s bullish outlook on India. Earlier this year, Amazon said it would invest an additional $1 billion in India.
    • This was followed by a marquee investment announcement of $5.7 billion by Facebook in the country’s largest telecom company Reliance Jio.
    • Last month, Microsoft’s venture fund M12 said it would open an office in India to pursue investment opportunities focusing on B2B software startups.

    Focus areas

    The investment will focus on four areas important to digitization including:

    • Enabling affordable access and information for every Indian in their own language,
    • Building products and services that are deeply relevant to India’s unique needs,
    • Empowering businesses in their digital transformation journey and
    • Leveraging technology and AI for social good, in areas like health, education, and agriculture.

  • How friendly government policies can boost Indian steel industry

    The steel industry forms the backbone of the economy. This article highlights the difficulties of the industry magnified the pandemic. Ans suggest ways to revive demand.

    BAT could help

    • Introduction of a Border Adjustment Tax, known as BAT could help India’s steel industry.
    • Many countries use BAT to protect local steel manufacturers.
    • With economic pain unleashed by the pandemic and threat posed by Chinese state-subsidised steel imports, India hardly affords not to BAT.
    • BAT would create a level playing field.

    Why Indian steel industry is non-competitive

    • Indian steel manufacturers bear multiple local taxes – electricity and cross-subsidy duties, clean energy cess and royalties on ore and there are more.
    • These taxes make up 12% of the price of steel.
    • In rival markets, these levies either do not exist or are comparatively lower.
    • So Indian steel is non-competitive even before it leaves our plants.

    Impact of Covid

    • Impact of Covid on India’s biggest steel mills, which make up 65% of the country’s annual output of about 110 MT, was calamitous.
    • During the pandemic, the mills’ massive blast furnaces continued to burn.
    • Closure and reopening of furnaces can take up to 12 weeks; the process is complex, and maintenance costs are high.
    • So, the furnaces were burning during the lockdown.
    • India’s mills have continued to bear high fixed costs: firing furnaces but without making much steel.
    • Because of this, smaller mills, which account for about a third of national output, lack the strengths to survive a trough, and many have capitulated.

    Significance of Steel Industry

    • Steel is front and centre in India’s recovery.
    • The industry rests on mutual support – investment is made by entrepreneurs, the government offers supportive policies.
    • Government will lend weight to India’s competitive and comparative advantages, especially in manufacturing, in a post covid-19 economic order.
    • Indian steel’s guiding light is a steel ministry vision of 300MT of capacity by 2030, currently at about 138 MT.
    • The pandemic will put pressure on this target.

    Short term hurdles faced by Steel industry

    • Government capital expenditure is diverted to public health.
    • Real estate builders have an interest in large scale construction.
    • Car manufacturing will not see upturn until the second half of the year.
    • The pandemic has also hurt demand for capital utilisation, weighing heavily on capex.

    How the demand can be improved

    • Steel needs more infrastructure projects. Also, the fillip would be for the government to pay on time. Expedite the work.
    • An initiative to consign old cars to the scrap heap would significantly lift demand for steel to build replacement cars.
    • Improving the logistics chain would help transport finished goods and materials more quickly and less expensively.
    • Make steel the material of choice in the construction of flyovers, roads bridges and crash barriers, improving their safety, durability and, as a result, their life-cycle cost.
    • Indian mills possess world-class infrastructure and capacities and have integrated backwards by acquiring mining rights, partly to mitigate costs. As mentioned, one is high taxes on input materials such as energy.

    Consider the question “Examine the issues Indian steel industry faces. Suggest the ways to make it more competitive.”

    Conclusion

    A revived economy means a revived steel industry. The government should provide the wider and deeper support to the government to bring this vital sector back on the track and make help achieve global competitiveness.

  • What is Equalization Levy?

    The government is not considering extending the deadline for payment of Equalization Levy by non-resident e-commerce players, even though a majority of them are yet to deposit the first instalment of the tax.

    Try this MCQ:

    Q.The Equalization Levy sometimes seen in news is related to:

    a) E-commerce

    b) Air Travel

    c) Imports Substitution

    d) None of these

    What is Equalization Levy?

    • Equalization Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.
    • It is aimed at taxing business to business transactions.

    The following services are currently covered under the EL:

    1. Online advertisement;
    2. Any provision for digital advertising space or facilities/ service for the purpose of online advertisement;

    Applicability

    Equalization Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to the levy:

    • The payment should be made to a non-resident service provider;
    • The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.

    Why it was introduced in India?

    • Over the last decade, IT has gone through an exponential expansion phase in India and globally.
    • This has led to an increase in the supply and procurement of digital services.
    • Consequently, this has given rise to various new business models, where there is a heavy reliance on digital and telecommunication networks.
    • As a result, the new business models have come with a set of new tax challenges in terms of nexus, characterization and valuation of data and user contribution.
    • To bring in clarity in this regard, the government introduced in the Budget 2016, the equalization levy.

  • Decoupling pharmaceutical industry from China should be strategic

    Abrupt ban on import from China would harm the India pharmaceutical industry and disrupt the supply of several essential medicines. Any attempt at reducing the dependence on China for APIs should be strategies, argues the author.

    Dependence of Indian pharma industry on China

    •  India is the third-largest producer of finished drugs in the world.
    • However, India relies significantly on China for supplies of active pharmaceutical ingredients APIs.
    • An estimated 70 per cent of API requirements of India’s pharmaceutical industry are sourced from China.
    • For some drugs, such as paracetamol and ibuprofen, this dependence is almost 100 per cent.
    • This import reliance has been fuelled by environmental controls in India and competition with China, which has higher volumes of production and lower costs.

    Implications of banning import from China

    • Restricting or banning the import of APIs would cause significant disruption to the Indian pharmaceutical industry
    • The pharmaceutical industry had $40 billion in revenues in 2018-19, according to Pharmexcil.
    • Such a prospect is especially of concern to potential patients.
    •  Indian pharmaceutical industry annually exports $20 billion worth of medicine.
    • An ad hoc or reactive decoupling could disrupt the production of a wide range of medicines in India and globally.
    • Such disruption could affect the availability of Dexamethasone and painkillers, such as paracetamol and ibuprofen, as well as antibiotics, such as penicillin.
    • The impacts would be especially high in low and middle-income countries.
    • In many African countries, in fact, India supplies almost 50 per cent of the medicines in value terms.

    Lessons from the past: Policy initiative matters

    • Market share of foreign-owned multinationals in India was 80-90 per cent in 1970 in the pharmaceutical industry.
    • It fell to 50 per cent by the early 1980s, and down to 23 per cent today.
    • The prices of medicines in India fell from being amongst the highest in the world to amongst the lowest.
    • But this did not happen through sudden decoupling from foreign multinationals or a complete boycott or ban on imports.
    •  The 1970 Indian Patent Act removed product patent protection in pharmaceuticals.
    • So, the 1970 Patent Act is widely lauded for facilitating the growth of India’s industry.
    • India also benefited from the 1973 Foreign Exchange Regulation Act (FERA) and the subsequent New Drug Policy (1978).
    • Thus, a series of policy initiatives succeeded in tilting the balance in favour of Indian-owned firms.

    But does it mean we have to depend on China forever?

    • No, but reducing dependence on China will not be easy to achieve.
    • In India, any decoupling from China must be strategic, with significant policy support.
    • It will take time for a paced indigenisation.

    Government moves to reduce dependence for API

    • In March, the government announced Rs 3,000 crore to develop three bulk drug parks.
    • The government also announced Rs 6,940 crore to manufacturers of 53 bulk drugs over the next eight years.
    • Planning ahead towards greater domestic production of APIs, as well as reduced dependence on China, is an understandable and sensible policy objective.
    • Despite a decline in recent decades, India has a stronger starting point than most countries given the continued presence of some API production capabilities.
    • Indian firms have capacities, for instance, to produce COVID-19 treatments, including Remdesivir.

    Consider the question “What are the APIs? Why India depends on other countries for it and what are implications of it? Suggest ways to reduce this dependence.”

    Conclusion

    In the short run, boycotts or bans would be counter-productive for the Indian industry, while also affecting access to much-needed medicines to India’s citizens and beyond. In the long run, however, reducing dependence on China would be strategically prudent.

    Back2Basics: What are APIs?

    • Active pharmaceutical ingredient (API), is the term used to refer to the biologically active component of a drug product (e.g. tablet, capsule).
    • Drug products are usually composed of several components.
    • The API is the primary ingredient.
    • Other ingredients are commonly known as “excipients” and these substances are always required to be biologically safe, often making up a variable fraction of the drug product.
    • The procedure for optimizing and compositing this mixture of components used in the drug is known as “formulation.”

  • IN-SPACe: Future forerunner for India’s space economy

    • The government approved the creation of Indian National Space Promotion and Authorisation Centre (IN-SPACe) to ensure greater private participation in India’s space activities.
    • This decision is described as historic being part of an important set of reforms to open up the space sector and make space-based applications and services more widely accessible to everyone.

    Practice question for mains:

    Q. What is IN-SPACe? Discuss how it would benefit ISRO and contribute to India’s space economy.

    What is IN-SPACe?

    • IN-SPACe is supposed to be a facilitator, and also a regulator.
    • It will act as an interface between ISRO and private parties and assess how best to utilise India’s space resources and increase space-based activities.
    • IN-SPACe is the second space organisation created by the government in the last two years.
    • In the 2019 Budget, the government had announced the setting up of a New Space India Limited (NSIL), a public sector company that would serve as a marketing arm of ISRO.

    Confusion over NSIL and ANTRIX

    • NSIL’s main purpose is to market the technologies developed by ISRO and bring it more clients that need space-based services.
    • That role, incidentally, was already being performed by Antrix Corporation, another PSU working under the Department of Space, and which still exists.
    • It is still not very clear why there was a need for another organisation with overlapping function.
    • The government now had clarified the role of NSIL that it would have a demand-driven approach rather than the current supply-driven strategy.
    • Essentially, what that means is that instead of just marketing what ISRO has to offer, NSIL would listen to the needs of the clients and ask ISRO to fulfil those.

    Then, why was IN-SPACe needed?

    (1) ISRO and its limited resources

    • It is not that there is no private industry involvement in India’s space sector.
    • In fact, a large part of the manufacturing and fabrication of rockets and satellites now happens in the private sector. There is increasing participation of research institutions as well.
    • Indian industry, however, is unable to compete, because till now its role has been mainly that of suppliers of components and sub-systems.
    • Indian industries do not have the resources or the technology to undertake independent space projects of the kind that US companies such as SpaceX have been doing or provide space-based services.

    (2) India and the global space economy

    • Indian industry had a barely three per cent share in a rapidly growing global space economy which was already worth at least $360 billion.
    • Only two per cent of this market was for rocket and satellite launch services, which require fairly large infrastructure and heavy investment.
    • The remaining 95 per cent related to satellite-based services, and ground-based systems.

    (3) Catering to domestic demands

    • The demand for space-based applications and services is growing even within India, and ISRO is unable to cater to this.
    • The need for satellite data, imageries and space technology now cuts across sectors, from weather to agriculture to transport to urban development and more.
    • If ISRO is to provide everything, it would have to be expanded 10 times the current level to meet all the demand that is arising.

    (4) Promoting other private players

    • Right now, all launches from India happen on ISRO rockets, the different versions of PSLV and GSLV.
    • There were a few companies that were in the process of developing their own launch vehicles, the rockets like ISRO’s PSLV that carry the satellites and other payloads into space.
    • Now ISRO could provide all its facilities to private players whose projects had been approved by IN-SPACe.

    How ISRO gains from all these?

    • There are two main reasons why enhanced private involvement in the space sector seems important.
    • One is commercial, and the other strategic. And ISRO seems unable to satisfy this need on its own.
    • Of course, there is a need for greater dissemination of space technologies, better utilization of space resources, and increased requirement of space-based services.
    • The private industry will also free up ISRO to concentrate on science, research and development, interplanetary exploration and strategic launches.
    • Right now too much of ISRO’s resources are consumed by routine activities that delay its more strategic objectives.

    A win-win situation for all

    • ISRO, like NASA, is essentially a scientific organisation whose main objective is the exploration of space and carrying out scientific missions.
    • There are a number of ambitious space missions lined up in the coming years, including a mission to observe the Sun, a mission to the Moon, a human spaceflight, and then, possibly, a human landing on the Moon.
    • And it is not that private players will wean away from the revenues that ISRO gets through commercial launches.
    • The space-based economy is expected to “explode” in the next few years, even in India, and there would be more than enough for all.
    • In addition, ISRO can earn some money by making its facilities and data available to private players.

  • Tale of two economies

    China began heavy investment in infrastructure. This was a key policy decision as it provided employment to millions of people improving their economic status and purchasing power, which was the essential ingredient for industrial progress.ajya Sabha TV programs like ‘The Big Picture’, ‘In Depth’ and ‘India’s World’ are informative programs that are important for UPSC preparation. In this article, you can read about the discussions held in

  • ‘Country of Origin’ on GeM Portal

    The government has made it mandatory for sellers on the Government e-Marketplace (GeM) portal to clarify the country of origin of their goods when registering new products.

    Practice question for mains:

    Q. India’s quest for self-reliance is still a distant dream. Critically comment in light of the popular sentiment against the Chinese imports in India.

    What is Government e-Marketplace?

    • The GeM is a one-stop National Public Procurement Portal to facilitate online procurement of common use Goods & Services required by various Government Departments / Organizations / PSUs.
    • It was launched in 2016 to bring transparency and efficiency in the government buying process.
    • GEM aims to enhance transparency, efficiency and speed in public procurement.
    • It is a completely paperless, cashless and system driven e-marketplace that enables procurement of common use goods and services with minimal human interface.
    • It provides the tools of e-bidding, reverses e-auction and demand aggregation to facilitate the government users to achieve the best value for their money.
    • The purchases through GeM by Government users have been authorized and made mandatory by the Ministry of Finance by adding a new Rule No. 149 in the General Financial Rules, 2017.
    • It has been developed by Directorate General of Supplies and Disposals (Ministry of Commerce and Industry) with technical support of National e-governance Division (MEITy).

    What is the new move?

    • Sellers on the GeM portal will now have to disclose the origins of their products.
    • The portal also has a ‘Make in India’ filter, and government offices will be able to ascertain which products have a higher content of indigenously produced raw materials.

    Why need ‘Country of Origin’ tag?

    • The tag would help bidders choose products that meet the ‘minimum 50 per cent local content’.
    • This is the new procurement norm amended by the government earlier this month categorise suppliers based on the level of local content in their goods.
    • The GeM portal now allows buyers to reserve a bid for Class I local suppliers, or suppliers of those goods with more than 50 per cent local content.
    • For bids below Rs 200 crore, only Class I and Class II (those with more than 20 per cent local content) are eligible.

    Why is all of this happening?

    • The decision comes in the backdrop of the government’s push for self-sufficiency which intends to promote self-reliance by boosting the use of locally produced goods.
    • At $ 70.32 billion in 2018-19 and $ 62.38 billion between April 2019 and February 2020, China accounts for the highest proportion of goods imported into India (around 14 per cent in 2019-2020 so far).
    • It also follows the deadly clashes between Indian and Chinese troops in Galwan Valley which have prompted several government departments to launch an offensive against imports from China.

    How will ordinary consumers in India be impacted?

    • The announcement may over time filter out imported goods from use in government offices and facilities.
    • This might provide an opportunity to Indian manufacturers across industries to push their products in government facilities.
    • A more direct impact may be seen if the proposal to mandate the country of origin for products on private platforms is implemented.

  • Why trade openness and national security go together

    Protectionism involves the use of one or more restrictions on free trade between countries. What are the main reasons why this should be avoided?

    The main arguments against protectionism are outlined below:

    Market Distortion and loss of Economic Efficiency

    Protectionism can be an ineffective and costly means of sustaining jobs and supporting domestic economic growth:

    Higher Prices for Consumers

    Import tariffs in particular push up prices for consumers and insulate inefficient domestic sectors from genuine competition. They penalise foreign producers and encourage an inefficient allocation of resources both domestically and globally.

    Reduction in Market Access for Producers

    Export subsidies depress world prices and damage output, profits, investment and jobs in many lower and middle-income developing countries that rely heavily on exporting primary and manufactured goods for their growth.

    Extra Costs for Exporters

    For goods that are produced globally, high tariffs and other barriers on imports act as a tax on exports, damaging economies, and jobs, rather than protecting them. For example, a tariff on imported steel can lead to higher costs and lower profits for car manufacturers and the construction industry.

    Adverse Effects on Poverty

    Higher prices from tariffs tend to hit those on lower incomes hardest, because the tariffs (e.g. on foodstuffs, tobacco, and clothing) fall on products that lower income families spend a higher share of their income. Tariffs can therefore lead to a rise in relative poverty.

    Retaliation & Trade Wars

    There is the danger that one country imposing import controls will lead to retaliatory action by another.