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

  • What is the Negative Imports List for Defence?

    The Defence Ministry announced a list of 101 items that it will stop importing.

    Try this question for mains:

    Q.Being one of the top importers of defence equipment India is well placed to enhance its domestic manufacturing capacity of defence equipment. Yet, India lacks it after repeated attempts to achieve it. Examine the reasons for this and suggest measures to overcome this anomaly.

    Negative Imports List

    • The negative list essentially means that the Armed Forces—Army, Navy and Air Force—will only procure all of these 101 items from domestic manufacturers.
    • The manufacturers could be private sector players or Defence Public Sector Undertakings (DPSUs).

    Why such a decision?

    • Reduce imports: As per the Stockholm International Peace Research Institute, which tracks defence exports and imports globally, India has been the second-largest importer between 2014 and 2019 with US$ 16.75 billion worth of imports.
    • Boost domestic industry: By denying the possibility of importing the items on the negative list, the domestic industry is given the opportunity to step up and manufacture them for the needs of the forces.
    • Boost exports: The government has been hoping that the defence manufacturing sector can play a leading role in boosting the economy, not just for the domestic market, but to become an exporter as well.

    Items included in the negative list

    The items mentioned in the negative imports list include:

    • water jet fast attack craft to survey vessels, pollution control vessels, light transport aircraft, GSAT-6 terminals, radars, unmanned aerial vehicles, to certain rifles, artillery guns, bulletproof jackets, missile destroyers, etc.

    Impact of the move

    • The items in the list are of proven technologies and do not involve any critical or cutting-edge technology for a next-generation weapon system or platform.
    • Little benefits for domestic players in short-run: Against each of these items are mentioned a year when import embargo would kick in, leading to apprehensions that demands will be placed with foreign vendors until then, leaving very little for domestic producers.
    • The biggest challenge for the government and the armed forces will be to keep this commitment to domestic producers in the event of an operational requirement.

  • Production Linked Incentive (PLI) Scheme for electronics manufacturers

    Global electronics giants are set to expand their presence in India under the Production Linked Incentive (PLI) Scheme for making mobile phones and certain other specified electronic components.

    Try this question for mains:

    Q. What is the Production Linked Incentive (PLI) Scheme? Describe its various features and benefits.

    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 will be 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.

  • What are Strategic and Non-strategic Sectors of Industries?

    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.

  • Adjusted Gross Revenue (AGR) in Telecom Sector

    The Centre and telcos assured the Supreme Court that they would not conduct any re-assessment or re-calculation of the Adjusted Gross Revenue (AGR) dues, which now stands at ₹1.6 lakh crore.

    Try this question for mains:

    Q.What are the various challenges faced by India’s telecom before the upgradation to 5G technology?

    What is AGR?

    • Adjusted Gross Revenue (AGR) is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).
    • It is divided into spectrum usage charges and licensing fees, pegged between 3-5 per cent and 8 per cent respectively.

    What is the issue?

    • The Bench observed that 15 or 20 years was not a reasonable time period and the telcos must come forward with an appropriate time frame.
    • The Centre had earlier urged the court that up to 20 years be given to the firms for the payments.
    • The telcos said they were in no position to give fresh bank guarantees for the payments.

    Why is AGR important?

    • The definition of AGR has been under litigation for 14 years.
    • While telecom companies argued that it should comprise revenue from telecom services, the DoT’s stand was that the AGR should include all revenue earned by an operator, including that from non-core telecom operations.
    • The AGR directly impacts the outgo from the pockets of telcos to the DoT as it is used to calculate the levies payable by operators.

    Read the complete issue here at:

    https://www.civilsdaily.com/news/explained-adjusted-gross-revenue-agr-in-telecom-sector/

  • [pib] ASPIRE Portal

    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.

  • 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.