Economic Survey Volume 2 Chapter 8 (Latest)

ECONOMIC SURVEY   

VOLUME II

CHAPTER – 8

INDUSTRY AND INFRASTRUCTURE

 

INDUSTRY

Several industry specific reform initiatives taken by the Government since 2014 have significantly improved the overall business environment in the country. These include:

Major – GST, IBC, introduction of inflation targeting regime and announcement of bank recapitalization.

Others:

  • initiation and simplification of online application for Industrial License and Industrial Entrepreneur Memorandum,
  • integration of 20 services with the eBiz portal which functions as a single window portal for obtaining clearances from various Government agencies,
  • limiting the number of documents required for export and import to three by DGFT.

 

As per the first advance estimate of national income 2017-18, overall industrial sector growth is at 4.4% with manufacturing growth at 4.6%

 

Index of Industrial Production (IIP)

  • Base year revised from 2004-05 to 2011-12.

 

  • As per Used based classification:
  • Consumer non-durables (9.4%) have shown consistency.
  • Primary goods (3.4%) had lower rate- due to suboptimal performance of Mining Sector and Petrol/Motor spirit industry.
  • Capital goods (2.1%) – below expectations- due to impact of destocking after announcement of GST.

Eight Core Industries

 

The Index of Eight Core Industries measures the performance of eight core industries i.e. Coal,

Crude Oil, Natural Gas, Petroleum Refinery Products, Fertilizers, Steel, Cement and Electricity.

Its base year has been revised from 2004-05 to 2011-12.

They comprise about 40% weight in the IIP.

  • Growth of 4.8% in 2016-17 as compared to 3% in 2015-16.
  • Positive growth – coal, refinery products, fertilizers, steel and electricity. (Steel registering a robust growth of 10.7% due to imposition of Minimum Import Price (MIP) , anti-dumping duty etc. on steel imports)
  • Negative growth – Crude Oil, Natural Gas, and Cement.
  • For the period Apr-Nov, 2017-18 : growth of 3.9%

 

 

Corporate Sector Performance

  • Nominal credit growth (y-o-y) to industry turned positive to 1% in November 2017 for the first time after witnessing negative growth since October 2016. (Lower credit supply can be attributed to impaired balance sheets of public sector banks due to higher NPAs but it could also reflect weak demand for credit)
  • Demand for funds by Indian firms, in the wake of the credit slowdown, has been somewhat met by alternative sources such as corporate bonds and commercial paper.

                                 

Foreign Direct Investment

Total FDI inflow grew by 8% i.e. US$ 60.08 billion in 2016-17 in comparison to US$ 55.56 billion of the previous year. It is the highest ever for a particular financial year.

Top 3 contributors to India’s FDI equity inflows

 

Countries Share (in %)
Mauritius36.17
Singapore20.03
Japan10.83

 

Top 3 sectors receiving FDI equity inflows

 

Sectors Share (in %)
Services19.97
Telecommunications12.80
Computer Software & Hardware8.40

 

Initiatives taken by the Government to boost industrial performance:

  • Make in India
  • It aims at making India a global hub for manufacturing, research & innovation and integral part of the global supply chain.
  • Government has identified ten ‘Champions sectors’ under Make in India 2.0, which have potential to become global champion, drive double digit growth in manufacturing and generate significant employment opportunities.
  • Intellectual Property Rights (IPR) Policy, 2016
  • It aims to improve Indian intellectual property ecosystem and to create an innovation movement in the country and aspires towards “Creative India; Innovative India”.
  • Start-up India
  • It aims to create an ecosystem that is conducive to growth of Startups.
  • Under this, regulatory burden has been reduced on Startups such as Government has allowed them to self-certify compliance under 3 labour laws and 6 environment laws.

Champions Sectors include Capital goods, Auto and Auto Components, Defence & Aerospace, Biotechnology, Pharmaceuticals and Medical Devices, Chemicals, Electronic System Design & Manufacturing (ESDM), Leather & Footwear, Textiles & Apparels, Food Processing, Gems & Jewellery, New & Renewable Energy, Construction, Shipping and Railways.

 

SECTOR WISE ISSUES AND INITIATIVES

Steel Sector

To counter cheap steel imports from China, South Korea, and Ukraine into Indian markets, following measures were adopted:

  • Raising customs duty, imposition of anti-dumping duty, imposition of MIP
  • Rolling out New Steel Policy in 2017.
  • Policy on preference to domestically manufactured select iron & steel products.

Global trends of steel prices (post June 2017) along with measures undertaken by the Government led to rise in exports of steel for the period April – December 2017 by 52.9% while imports have risen by only 10.9%

 

MSME sector

Major schemes implemented for development of MSME sector:

  • Prime Minister’s Employment Generation Programme (PMEGP) is aimed at generating self-employment opportunities through establishment of micro-enterprises in the non-farm sector.
  • Credit Gurantee Scheme for MSME – It covers collateral free credit facility extended by eligible financial institutions (up to Rs. 200 lakh per borrowing unit)
  • Credit Linked Capital Subsidy Scheme (CLCSS) aims at facilitating technology upgradation of the MSME sector.
  • Pradhan Mantri Mudra Yojana: To provide funding to the non-corporate small business sector.

The MSME sector faces a major problem in terms of getting adequate credit for expansion of business activities. Latest data on credit disbursed by banks shows that the MSME received only 17.4% of the total credit outstanding.

 

Textiles and Apparels

It has tremendous potential for growth in exports and employment. China is losing market share in clothing exports due to rising labour costs. However, India has not been able to leverage this opportunity due to – India’s competitors (Bangladesh, Vietnam, Ethiopia) having duty free access to markets of EU and USA; stringent labour laws; and high logistics cost.

Measures adopted to promote textiles and apparel sector:

  • Subsidy under Amended Technology Upgradation Fund Scheme for concessional import of machinery enhanced from 15% to 25%
  • Implementation of Rebate of State Levies on Export( RoSL) for state levies which were not refunded through duty drawback earlier
  • Government to bear 12% of the employers’ contribution of the full EPFS for new workers
  • Increasing overtime caps in line with ILO norms and introduction of fixed term employment.
  • Scheme for Capacity Building in Textile Sector (SCBTS), 2017 – It involves National Skill Qualification Framework compliant training courses. The scheme will be applicable from 2017-2018 to 2019-2020 with an outlay of Rs 1,300 crore.

 

Leather sector

Leather sector is also highly labour intensive, but the global demand for footwear is moving towards non leather footwear, while Indian tax policies favour leather footwear production.

India also faces high customs tariffs in a number of developed country markets of leather goods and non-leather footwear.

Therefore to address the situation, government unveiled Scheme for promotion of employment in the leather & footwear sector, 2017, for the development of infrastructure, addressing environment concerns, facilitating additional investments by more tax incentives, improving employment capacity and increasing production by better technology.

 

Gems and Jewellery

India is one of the largest exporters of gems and jewellery. It is one of the fastest growing sectors and is export oriented and labour intensive. As per the 68th round of NSSO, the sector employed 20.8 lakh persons in 2011-12.

Following programs may be taken up for promoting employment in this sector:

  • PPP models could be explored for training in jewellery designing.
  • The jewellery training institutes may be affiliated with the Gems and Jewellery Sector Skill Council.
  • Setting up infrastructure such as refineries, hallmarking centres etc., to promote jewellery manufacturing in rural areas.
  • Creation of multiple jewellery parks to promote production in a more organized environment.

 

INFRASTRUCTURE SECTOR

In order to ensure high and sustainable growth, investment in infrastructure is vital. Around US$ 4.5 trillion worth of investments is required by India till 2040 to develop infrastructure to improve economic growth and community wellbeing. The Global infrastructure outlook shows that the gap between required infrastructure investment and current trend of investment is expected to be widened over the year.

Shortfall in investment in infrastructure sector has been due to: collapse of PPP especially in power and telecom projects; stressed balance sheet of private companies; issues related to land & forest clearances.

 

Road sector

Road transport is the dominant mode of transport in India, both in terms of traffic share and in terms of contribution to the national economy. India has one of the largest road networks of over 56.17 lakh km.

 

Conversion of State Highways to National Highways

  • 3180 km of State Highways have been converted to NHs
  • India’s road density at 1.66 km/sq.km of area

The Government’s focus on constructing NHs in Indian States has a significant impact on trade and per capita income. Two relationships exist:

  • Higher the Density of National Highways, higher the Interstate Trade (Export + Import) as per cent of Gross State Domestic Product (GSDP) in Indian States
  • A positive relationship exists between density of NHs and the per capita income in Indian States. Higher the density of National Highways (NHs), higher the Per capita GSDP.

Policy for Construction of other PWD Road, especially District Roads

These roads play an important role in providing villages the accessibility for transportation of agricultural and other produce to nearby markets, along with access to schools and medical centres. The largest share in the road network in India is of rural roads (61 %).

Among Indian States there is a positive relationship between GSDP Per capita and Density of OPWD road.

There is a need for developing OPWD roads so as to provide access to district headquarter, market hubs etc. and to facilitate connectivity to State highways, thereby enhancing economic activities.

 

Status of Stalled Projects and NPAs in Road Sector

Projects under different phases of National Highway Development

Program are delayed mainly due to problems in land acquisition, utility shifting, poor performance of contractors, environment/ forest/wildlife clearances, Road Over Bridge (ROB) & Road Under Bridge (RUB) issue with Railways, public agitations for additional facilities, and arbitration/ contractual disputes with contractors etc.

The share of Non-Performing Assets (NPAs) out of total advances in road sector increased from 1.9% in 2012-13 to 20.3% in September 2017-18.

 

Measures taken for revival of stalled projects on NHs

To expedite completion of delayed projects- streamlining of land acquisition & environment clearances, exit for equity investors, premium re-schedulement, revamping of dispute resolution mechanism, frequent reviews at various levels etc.

In order to facilitate implementation of the projects, Hybrid Annuity Model (HAM) instead to Engineering, Procurement and Construction (EPC) has been adopted.

Bharatmala Pariyojana

It is a new umbrella program for the highways sector with an objective to achieve optimal resource allocation for a holistic highway development by bridging critical infrastructure gaps through effective interventions like development of Economic Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Green Field Expressways, etc.

 

Railways

 

Share of Indian Railways in freight movement has been declining over a period of time primarily due to non-competitive tariff structure and stiff competition from other modes of transportation.

To make rail transportation attractive and arrest the declining trend various initiatives were taken

Like- tariff rationalization, withdrawal of dual freight policy for export of iron ore, policy guidelines of Merry Go Round System, new delivery models like Roll-on Roll-off services etc.

Government is also pushing for railway infrastructure development like completion of broad gauge lines, Infrastructure Status to Station Redevelopment etc.

 

Infrastructure Status to Station Redevelopment

‘Station Redevelopment’ is the biggest non-fare revenue generating project for redeveloping railways stations in the country and has been included in the Harmonized List of Infrastructure

Subsectors.

An MOU has been signed by Ministry of Railways with Ministry of Housing and Urban Affairs for integrated planning for station redevelopment projects in cities identified as SMART cities.

 

Metro Rail system

Metro rail projects are highly capital intensive, so it is difficult to fund metro rail projects from

Government exchequer only. Thus, Government of India has notified Metro Rail Policy, 2017, which imbibes on the learning from international examples and bridges the gap for enhancing the feasibility of metro rail projects from economic, social and environmental perspective.

 

Civil Aviation

India is the third largest and the fastest growing domestic aviation market in the world in terms of number of domestic tickets sold. Domestic passenger traffic registered a compound annual growth rate (CAGR) of 9.89% during 2007-08 to 2016-17.

 

Initiatives taken for the growth of civil aviation sector:

 

  1. RCS-UDAN (Regional Connectivity Scheme – ‘Ude Desh ka Aam Nagrik’ )

Launched in October 2016, a first-of-its-kind scheme globally to stimulate regional connectivity through a market based mechanism.

  1. Airport Development
  • revival of 50 unserved and underserved airports by December 2018
  • in-principle approval for setting up 18 Greenfield airports in the country
  1. Liberalization of Air Services
  • India-Afghanistan Air Freight Corridor
  • Air Services Agreement between India and Serbia (updated in May 2017)

 

Shipping

To encourage the growth of Indian tonnage and for higher participation of Indian ships in Indian trade, the Government has implemented several measures like:

  • Reduction of GST from 18% to 5% on bunker fuel used in Indian flag vessels;
  • Brought parity in the tax regime of Indian seafarers employed on Indian flag ships vis-à-vis those on foreign flag ships;
  • Removing obstacles in the smooth implementation of the India Controlled Tonnage (ICT) scheme which allows Indian companies to directly own ships in foreign flags;
  • Easing many procedural compliance issues like ship registration, procuring chartering permission and payment of chartering fees online.

 

Scope for ship-repair industry

Geostrategic location of India (located strategically on the international trade route), abundance of labour and quality of work are the strengths for the ship-repair business.

It can create a strong manufacturing base as well as generate millions of jobs.

 

Port Development

Following initiatives taken to improve the performance of Major Ports:

– Major Ports have been benchmarked to international standards

– Major Ports Authorities Bill, 2016 to replace Major Ports Trust Act, 1963 to modernize the institutional structure of Major Ports has been introduced in the Parliament on 16.12.2016.

– Radio Frequency Identification System (RFID) to reduce dwell time, transaction time and ease congestion has been operationalized in 9 Major Ports.

– Direct port delivery and direct port entry initiated at Major Ports for EXIM containers.

Sagarmala Programme

  • To promote port-led development in the country through harnessing India’s 7,500 km long coastline, 14,500 km of potentially navigable waterways and strategic location on key international maritime trade routes.
  • Main vision: to reduce logistics cost for international and domestic trade, with minimal infrastructure investment.
  • Under the budget head of Sagarmala, a total of 945.74 Crore has been sanctioned for the year 2017-18.

 

Inland Waterways Transport (IWT)

  • The ‘Jal Marg Vikas Project’ on National Waterways-I (NW-I) in river Ganga, a large integrated IWT project, has been launched between Varanasi and Haldia covering a distance of 1380 kms at an estimated cost of 5369 crore.
  • On NW-2 (River Brahmaputra), Ro-Ro services have commenced between Dhubri and Hatsingimari in July 2017 on an Inland Waterways Authority of India (IWAI) vessel.
  • Under the National Waterways Act, 2016, 106 additional inland waterways have been declared as National Waterways (NWs).
  • Eight new NWs have been taken up for development in 2017-18 [NW-16 (Barak river); three in Goa viz. NW- 27:Cumberjua, NW 68 – Mandovi , NW 111 – Zuari; NW-86 ( River Rupnarayan) ; NW 97 (Sunderbans); NW-9 (Alappuzha–Kottayam– Athirampuzha Canal) and NW-37 (River Gandak).

 

Telecom

The overall tele-density in India was 93.42 % including 56.78 % in rural areas and 172.86 % in urban areas (as on September, 2017). The mobile industry in India is currently employing over 4 million people both directly and indirectly.

However, telecom sector is going through a stress period due to – growing losses, debt pile, price war, reduced revenue and irrational spectrum costs.

Despite various bottlenecks, Indian Telecom sector has taken up various reforms such as spectrum management, Bharat Net programme and umbrella scheme like ‘Digital India’ in order to convert India into a digital economy and a knowledge based society.

 

Bharat Net Programme: This is the largest rural connectivity project of its kind in the world, and is the first pillar of Digital India Programme. It aims to link each of 2.5 lakh gram panchayats of India through optical fibre network. It will facilitate the delivery of various e-Services and applications including e-health, e-education, e-governance and ecommerce.

Target of New Telecom Policy in 2018 covering Regulatory & Licensing frameworks impacting the sector, Connectivity for All, Quality of Services, Ease of Doing Business and Absorption of New Technologies including 5G and Internet of Things. TRAI has also recommended new policy on ‘Net Neutrality’ which prohibits discriminatory tariffs for data services.

 

Power

  • India has witnessed a substantial development in power sector with improved power generation capacity at 330860.6 MW (November, 2017) and reduced peak deficit (the percentage shortfall in peak power supply vis-à-vis peak hour demand) from 9% in 2012-13 to 2% during Apr- Sep 2017-18.
  • However, bottleneck continues in distribution of power supply. Various initiatives have been undertaken to meet the ambitious target of providing electricity to all by 2019. These are Deen Dayal Upadhyaya Gram Jyoti Yojana, Ujjawal DISCOM Assurance Yojana (UDAY), Integrated Power Development Scheme, etc.

 

Saubhagya (Pradhan Mantri Sahaj Bijli Har Ghar Yojana): launched in September 2017, it envisages electrification of around 4 crore households that do not have electricity connection by March 2019. Under it, beneficiary households would be identified using Socio Economic Caste Census (SECC) 2011.

National Smart Grid Mission in power sector to plan and monitor implementation of programmes related to smart grid activities. It has a budget allocation of Rs. 30 crores for 2017-18.

Energy conservation

 

  1. National LED programme: launched in January 2015, it includes two components-

(a) Unnat Jyoti by Affordable LED for All (UJALA) providing LED bulbs to domestic consumers with a target to replace 77 crore incandescent bulbs with LED bulbs

(b) Street Lighting National Programme (SLNP) to replace 1.34 crore conventional street lights with smart and energy efficient LED street lights by March 2019.

  1. The Bureau of Energy Conservation is simultaneously taking up number of programmes for energy conservation including standardisation and labelling of appliances, buildings, passenger cars and heavy duty vehicles etc.

 

Logistics

Achievements: The Indian logistics industry worth around US$ 160 Billion has grown at a compound annual growth rate (CAGR) of 7.8% during last five years. It provides employment to more than 22 million people. With GST, the Indian logistics market is expected to reach about US$ 215 Billion in

2020, growing at a CAGR of 10.5% India has improved its rank in all the six components of logistics performance index.

 

Challenges: high cost of logistics impacting competitiveness in domestic and global market, under-developed material handling infrastructure, fragmented warehousing, multiple regulatory/ policy making bodies, lack of seamless movement of goods across modes, lack of integrated IT infrastructure/modern technology.

 

Steps taken:

  1. A new Logistics Division has been created in the Department of Commerce to develop and coordinate integrated development of the logistics sector, improvement in existing procedures, identification of bottlenecks and gaps, and introduction of technology based interventions in this sector.
  2. Logistics sector included in the Harmonized Master List of Infrastructure Subsector which will offer given benefits:
  • Facilitate the credit flow into the sector with longer tenures and reasonable interest rates
  • The infrastructure status will simplify the process of approval for construction of multimodal logistics (parks) facilities
  • Encourage market accountability through regulatory authority and will attract investments from debt and pension funds into recognized projects.

 

Petroleum and Natural Gas

Crude oil production target during 2017-18 (April-Oct) was not met due to declining production from old and marginal fields, delay in completion of some projects in western offshore, unplanned shutdown of wells, processing platform/plants and pipelines.

Shortfall in Natural gas production target during 2017-18 (April-October) was due to decline of production from old and marginal fields, under-performance of wells, delay in getting multiple clearances, land acquisition, Right of Use (RoU) permission issues and resistance from local groups for development projects and unplanned shutdown of wells, processing platforms/plants and pipelines.

Important new initiatives taken to transform hydrocarbon sector in India:

 

  • Mapping of Sedimentary Basins: it will help in launch of future Exploration and Production (E&P) activities and will also be instrumental in increasing investments in domestic production of oil and gas
  • Increasing refining Capacity: India has emerged as a refinery hub (2nd largest in Asia) with refining capacity exceeding demand.
  • National gas Grid: To ensure easy availability of clean and eco-friendly fuel, Natural Gas, to the industrial, commercial, domestic and transport sectors in the States of Uttar Pradesh, Bihar, Jharkhand, Odisha and West Bengal.
  • Pratyaksh Hanstantrit Labh (PAHAL): Targeted system of subsidy delivery to LPG consumers.
  • Pradhan Mantri Ujjwala Yojana (PMUY): Aimed at replacing the unclean cooking fuels mostly used in rural India with the clean and more efficient LPG.5 crore LPG connections are targeted to be provided to BPL families by 2018-19.

 

Housing

Housing for All by 2022 is a government priority for which a housing policy is required which caters to the need of increasingly fluid Indian population, by enabling horizontal (ability to move to, between and within cities as job opportunities arise) and vertical mobility.

 

The importance of Rental Housing – an important part of urban eco-system

Trends in rental housing-

  • Its share in Indian cities has been declining from 54% in 1961 to 28% in 2011. However, it is not uniform as northern states experienced sharper decline (excluding the mountain states).
  • More prevalence in Urban areas (31%) than in rural areas (only 5%) – census 2011.
  • Higher in larger cities than in smaller cities.
  • More urbanized states have a higher % of rental housing (Gujarat, Maharashtra)

Issues: rent control, unclear property rights and difficulties with contract enforcement

 

The problem of vacant housing

A trend increase in vacant houses: from 6.5 million in 2001 to 11.1 million in 2011. According to the national census, vacant houses constitute around 12% of the share of the total urban housing stock. Greater prevalence in the western half of the country (Maharashtra followed by Gujarat).

Reasons behind vacant housing are same issues mentioned in rental housing. The spatial distribution of the new real estate may also be an issue as the vacancy rates generally increase with distance away from the denser urban cores.

 

Way Forward

India’s housing requirements are complex but till now policies have been mostly focused on building more homes and on home ownership.

Data suggests that a more holistic approach is required that takes into account rentals and vacancy rates. This needs policy-makers to pay more attention to contract enforcement, property rights and spatial distribution of housing supply vs. demand.