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

  • Euro Zone ‘Coronabonds’

    The coronavirus pandemic has revived the acrimonious debate between euro zone countries about jointly issuing debt through instruments called Coronabonds.

    Coronabonds

    • Coronabonds are proposed debt instruments amongst EU member states, with the aim of providing financial relief to Eurozone countries battered by the coronavirus.
    • They aim to meet healthcare needs and address the deep economic downturn that is set to follow.
    • The funds would be mutualised and supplied by the European Investment Bank, with the debt taken collectively by all member states of the European Union.
    • The euro zone jointly issues debt through its bailout fund, the European Stability Mechanism, which borrows on the market against the security of its paid-in and callable capital provided by euro zone governments.

    Back2Basics

    What is Eurozone?

    • The Eurozone officially called the euro area is a monetary union of 19 of the 27 European Union (EU) member states which have adopted the euro as their common currency and sole legal tender.
    • The monetary authority of the Eurozone is the Eurosystem.
    • It consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

  • [pib] CCI Green Channel Route

    The Competition Commission of India (CCI) has received a request for merger of a company following green channel combination route.

    What is a Green Channel Route?

    • In a bid to facilitate mergers and acquisitions (combination) in the country, the Competition Commission of India (CCI) has taken inspiration from the customs department and established a ‘green channel’.
    • Every Combination above a certain threshold, seeking to be sanctioned has to necessarily pass the CCI scanner in order to be approved.
    • The CCI characterizes the ‘green channel’ as an automatic system of approval for Combinations wherein the Combination is deemed to be approved upon filing the notice in the format prescribed.
    • The ‘green channel automatic approval upon notification route’ is a right step by CCI towards the propaganda of ease of doing business in India.

  • Fully Accessible Route (FAR)

    The Reserve Bank of India (RBI) has introduced a separate channel, namely ‘Fully Accessible Route’ (FAR), to enable non-residents to invest in specified government bonds with effect from April 1.

    Fully Accessible Route (FAR)

    • The move follows the Union Budget announcement that certain specified categories of government bonds would be opened fully for non-resident investors without any restrictions.
    • Under FAR, eligible investors can invest in specified government securities without being subject to any investment ceilings.
    • This scheme shall operate along with the two existing routes, viz., the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR).

    Benefits

    • This will substantially ease access of non-residents to Indian government securities markets and facilitate inclusion in global bond indices.
    • This would facilitate inflow of stable foreign investment in government bonds.

    Back2Basics

    Voluntary Retention Route (VRR)

    1. RBI had announced a separate scheme called VRR to encourage Foreign Portfolio Investors (FPIs) to undertake long-term investments in Indian debt markets.
    2. Under this scheme, FPIs have been given greater operational flexibility in terms of instrument choices besides exemptions from certain regulatory requirements.
    3. The details are as under:
    • The aggregate investment limit shall be ₹ 40,000 crores for VRR-Govt and ₹ 35,000 crores for VRR-Corp.
    • The minimum retention period shall be three years. During this period, FPIs shall maintain a minimum of 75% of the allocated amount in India.
    • Investment limits shall be available on tap for investments and shall be allotted by Clearing Corporation of India Ltd. (CCIL) on ‘first come first served’ basis.

  • Foreign Trade Policy 2015-2020 extended for one year

    The Union Commerce and Industry Ministry has announced changes in India’s Foreign Trade Policy (FTP). The Govt. has decided to continue relief under various export promotion schemes by granting an extension of the existing Policy.

    Foreign Trade Policy 2015-20

    • It provided a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the “Make in India” vision of Prime Minister.
    • The focus of the new policy is to support both the manufacturing and services sectors, with a special emphasis on improving the ‘ease of doing business’.
    • It described the market and product strategy and measures required for trade promotion, infrastructure development and overall enhancement of the trade ecosystem.

    Features of the FTP 

    • Goods – Earlier there were 5 different schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY) for rewarding merchandise exports with different kinds of duty scrips with varying conditions attached to their use.
    • Duty-free scrips are paper authorisations that allow the holder to import inputs which are used to manufacture products that are exported, or to manufacture machinery used for producing such goods, without paying duty equivalent to the printed value of the scrip.
    • For instance, a duty-free scrip valued at Rupees 1 lakh allows the holder to import goods without paying duty of up to Rupees 1 lakh on the goods.
    • Under the new Foreign Trade Policy, all these schemes have been merged into a single scheme, namely the Merchandise Export from India Scheme (“MEIS“) and there is no conditionality attached to scrips issued under the MEIS.
    • Services – The Served From India Scheme has been replaced with the Service Exports from India Scheme (“SEIS“).
    • SEIS is stated to apply to ‘Service Providers located in India’ instead of ‘Indian Service Providers’.
    • Therefore, SEIS rewards to all service providers of notified services, who are providing services from India, regardless of the constitution or profile of the service provider.
    • Special Economic Zones – The policy outlines extended incentives for Special Economic Zones in India
    • Export Houses – The nomenclature of Export House, Star Export House, Trading House, Star Trading House, Premier Trading House certificate has been simplified and changed to One, Two, Three, Four and Five Star Export House.
    • Status Holders – Business leaders who have excelled in international trade and have successfully contributed to India’s foreign trade are proposed to be recognized as Status Holders and given special privileges to facilitate their trade transactions, in order to reduce their transaction costs and time.
    • Resolving Complaints – In an effort to resolve quality complaints and trade disputes between exporters and importers, a new chapter on Quality Complaints and Trade Disputes has been incorporated into the Foreign Trade Policy.
    • There would be no conditionality attached to any scrips issued under these schemes.
    • For grant of rewards under MEIS, the countries have been categorized into 3 Groups, whereas the rates of rewards under MEIS range from 2% to 5%.
    • Under SEIS the selected Services would be rewarded at the rates of 3% and 5%.

  • Regulation of Payment Aggregators (PAs)

    The Reserve Bank of India released guidelines for regulating payment aggregators (PAs) and payment gateways (PGs), nearly six months after it first proposed regulating these entities in a discussion paper.

    Payment Aggregators (PAs)

    • PAs are entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for the completion of their payment obligations.
    • PGs are entities that provide technology infrastructure to route and facilitate the processing of an online payment transaction without any involvement in the handling of funds.
    • With the new set of guidelines PAs and PGs such as Paytm, Pay Pal, Mobikwik, Razorpay, PayU, CCAvenue etc. will be regulated by RBI to ensure the safety of all our online transactions.

    What are the new guidelines?

    The new guidelines say that-

    • A payment aggregator (entities that facilitate e-commerce sites and merchants to accept various payment instruments) should be a company incorporated in India under the Companies Act, 1956 / 2013.
    • Non-bank entities offering payment aggregator services will have to apply for authorisation on or before June 30, 2021.
    • E-commerce marketplaces providing payment aggregator services will have to be separated from the marketplace business and they will have to apply for authorisation on or before June 30, 2021.
    • Pas existing today will have to achieve a net worth of ₹15 crore by March 31, 2021 and a net worth of ₹25 crore by the end of third financial year, which means or before March 31, 2023.
    • The net-worth of ₹25 crore shall be maintained at all times thereafter.

  • What is Keqiang Index’?

    China’s GDP numbers which are preferably represented by Keqiang Index has been recently seen in news amid coronavirus outbreak.

    Keqiang Index

    • Li Keqiang index or Keqiang index is an economic measurement index created by The Economist to measure China’s economy using three indicators, as reportedly preferred by Li Keqiang.
    • It uses three other indicators:
    1. the railway cargo volume,
    2. electricity consumption and
    3. loans disbursed by banks
    • Li Keqiang currently the Premier of the People’s Republic of China, suggest the index as better economic indicator than official numbers of GDP.

  • Welcome Policy On APIs, Devices

    Context

    It is most welcome that the Centre has announced a `14,000-crore incentive package to boost the manufacture of drugs, especially active pharmaceutical ingredients (API).

    What should be the immediate policy focus?

    • Focus on protective gear: The immediate policy focus must be to swiftly overcome shortages of critical protective gear like gowns and face masks, diverting production lines if required.
    • We also need to anticipate and step-up production of vital devices like ventilators.
    •  Provisions in the package: What is proposed now are industrial parks for bulk drugs and APIs, together with a policy for multi-year fiscal benefits. And ditto for parks for the manufacture of medical devices and attendant fiscal incentives.
    • The state governments need to identify 1,000 acres for the parks that are well-integrated with knowledge centres and nationally accredited labs.

    What additions need to be made in the package?

    • Public-private partnership: In tandem, the pharmaceuticals package issued on Saturday needs to be followed through, with a forward-looking public-private partnership, to avoid import-dependency in this critical sector.
    • What is envisaged is a set of schemes to reap economies of scale and ready availability of inputs in the production of APIs and medical devices via the cluster approach.

    How India became uncompetitive in API?

    • Policy rigidities and price controls: APIs are, of course, bulk drugs that provide medicines with their therapeutic value, and it is unfortunate that since circa 1995, India has become steadily uncompetitive in API production, thanks to a panoply of policy rigidities such as onerous price controls.
    • Export competition from China: Opaque export competition from China has been game-changing indeed: APIs for most medicines are mostly imported.
    • This needs to change, fast. We do need to competitively and efficiently boost output of pharmaceuticals right across the value chain.

    Conclusion

    The government must understand that manufacture by itself is not enough. The policy must ensure competition and quality, keep prices down.

  • [pib] Scheme for Promotion of manufacturing of Electronic Components and Semiconductors (SPECS)

    The Union Cabinet has approved Scheme for Promotion of manufacturing of Electronic Components and Semiconductors.

    About SPECS

    • The scheme aims to offer the financial incentive of 25% of capital expenditure for the manufacturing of goods that constitute the supply chain of electronic products.
    • The scheme will help offset the disability for domestic manufacturing of electronic components and semiconductors in order to strengthen the electronic manufacturing ecosystem in the country.

    Benefits

    The proposal, when implemented, will lead to the development of electronic components manufacturing ecosystem in the country. Following are the expected outputs/outcomes in terms of measurable indicators for the scheme:

    • Development of electronic components manufacturing ecosystem in the country and deepening of Electronics value chain
    • New investments in Electronics Sector to the tune of at least Rs. 20,000 crore
    • Total employment potential of the scheme is approximately 6,00,000
    • Reducing dependence on import of components by large scale domestic manufacturing that will also enhance the digital security of the nation

  • [pib] Production Linked Incentive Scheme

    The Union Cabinet has approved the Production Incentive Scheme (PLI) for Large Scale Electronics Manufacturing.

    Production Incentive Scheme (PLI)

    • The scheme proposes production linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including Assembly, Testing, Marking and Packaging (ATMP) units.
    • The scheme shall extend an incentive of 4% to 6% on incremental sales (over a base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five (5) years subsequent to the base year as defined.
    • The proposed scheme is likely to benefit 5-6 major global players and few domestic champions, in the field of mobile manufacturing and Specified Electronics Components and bring in large scale electronics manufacturing in India.

    Benefits

    • The scheme has a direct employment generation potential of over 2,00,000 jobs over 5 years.
    • It would lead to large scale electronics manufacturing in the country and open tremendous employment opportunities.  Indirect employment will be about 3 times of direct employment as per industry estimates.
    • Thus, the total employment potential of the scheme is approximately 8,00,000.

  • Schemes for Electronic Manufacturing

    The Union Cabinet has approved financial assistance to the Modified Electronics Manufacturing Clusters (EMC2.0) Scheme

    Background

    • To build and create requisite infrastructure ecosystem for electronics manufacturing; Ministry of Electronics and Information Technology notified Electronics Manufacturing Clusters (EMC) Scheme which was open for receipt of applications upto October, 2017.
    • A period of 5 years is available for disbursement of funds for the approved projects.
    • There was a need for continuation of such scheme in modified form for further strengthening the infrastructure base for electronics industry in the country and deepening the electronics value chain.

    EMC 2.0 Scheme

    • The Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme would support setting up of both Electronics Manufacturing Clusters (EMCs) and Common Facility Centers (CFCs).
    • For the purpose of this Scheme an EMC would set up in geographical areas of certain minimum extent, preferably contiguous, where the focus is on development of basic infrastructure, amenities and other common facilities for the ESDM units.
    • For Common Facility Centre (CFC) there should be a significant number of existing ESDM units located in the area and the focus is on upgrading common technical infrastructure and providing common facilities for the ESDM units in such EMCs, Industrial Areas/Parks/industrial corridors.

    Aims and objectives

    • The scheme aims for development of world class infrastructure along with common facilities and amenities through Electronics Manufacturing Clusters (EMCs).
    • It is expected that these EMCs would aid the growth of the ESDM sector, help development of entrepreneurial ecosystem, drive innovation and catalyze the economic growth of the region by attracting investments in the sector, increasing employment opportunities and tax revenues.

    Benefits

    The Scheme will create a robust infrastructure base for electronic industry to attract flow of investment in ESDM sector and lead to greater employment opportunities.  Following are the expected outputs/outcomes for the Scheme:

    • Availability of ready infrastructure and Plug & Play facility for attracting investment in the electronics sector:
    • New investment in electronics sector
    • Jobs created by the manufacturing units;
    • Revenue in the form of taxes paid by the manufacturing units