Industrial Policies

24 September 2015

Effects of liberalization on the economy, changes in industrial

policy and their effects on industrial growth

16:46

Global Competitiveness Report by World Economic Forum (WEF) has moved up India to 16 position at 55th.
Switzerland is on top.
Business leaders still consider corruption to be the biggest obstacle to doing business in the country, followed by
policy instability, inflation, access to finance, government instability and inadequate supple of infrastructure, among
others.
Though infrastructure in the country has improved (81st, up six places), it remains a major growth bottleneck,
electricity in particular.
The government budget deficit has gradually dropped since its 2008 peak, although it still amounted to 7 per cent of
GDP in 2014, one of the highest in the world (131st)
#Business #Trade #Infrastructure
EY (Ernst & Young) survey on 500 investors ranked India as most favorable destination. China is on 2nd followed by
Brazil.
Investors preferring to invest on Smart city project and infrastructure projects. Reasons for investors attractions are
Macroeconomic stability, Political stability, Relaxation in FDI, Governments efforts on ease of doing business, digital
India, hope of decreasing corporate tax from 30% to 25%, GST
Investors rated Indias domestic market and availability of labor among the most attractive features for doing
business.
Red tape, poor infrastructure, and complex investment rules were prime hindrance for investors till now.
#Development #Growth #Globalization
Anti-dumping duties: It is counter import measure used by a country under the multilateral World Trade
Organisation (WTO) regime to protect its domestic producers and market from below-cost/cheap imports. It varies
from product to product and from country to country.
Finance Ministry has imposed anti-dumping duties on imported Chinese auto parts used in commercial vehicles for a
period of five years.
Other products having anti dumping duties are Fully-drawn/oriented yarn, spin-drawn yarn and flat yarn of polyester,
fibre mostly product imported from China, Thailand, Malaysia
#Tax #Import
Shri Venkateswara Mobile and Electronics Manufacturing Hub in Tirupati, Andhra Pradesh. It is countrys first dedicated mobile manufacturing
electronics cluster to be established in lines with Union Governments flagship MakeInIndia initiative.
In this hub, Foxconn which is worlds largest contract manufacturer of electronics already has started its operations for manufacturing brands such as
Xiomi and Gionee.
Other important mobile brands like Micromax, UTL (Karbonn) and Celkon are also planning to start their manufacturing operations in this hub.
The first of its king hub is expected to create more than 10,000 jobs within a year. By the year 2019, it will contribute at least 5 per cent of the all-India
target of 15 lakh jobs.
#Employment

Privatization or Disinvestment
If the government wants, it could move on disinvestment aggressively without needing any legislative approval and brinkmanship. Instead, its
floundering around, trying to restructure and improve these companies without a clear game-plan.
Maharatnas, are performing well. Their return on capital and return on assets have been higher than those of comparable corporate firms by 4%
and 2%, respectively. Hence, for now, the plan could leave the Maharatnas in state hands. Maharatnas include BHEL, Coal India, GAIL, Indian Oil,
NTPC, ONGC and SAIL.
However, even in this category the situation has seen a reversal of trends in the last three years. Few Maharatnas are showing a continuous
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However, even in this category the situation has seen a reversal of trends in the last three years. Few Maharatnas are showing a continuous
decline in performance. Therefore, among the Maharatnas, SAIL, BHEL and Indian Oil need serious restructuring and better leadership.
The performance of the 17 Navratnas is consistently worse than that of comparable private corporates, with return on capital roughly 2% lower
compared to equivalent private firms.
This is the group that should be privatisedespecially Bharat Electronics, MTNL, NMDC and Oil India.
The category of Miniratna is formed by 73 companies, and these are the ones that are most ripe for strategic disinvestment. A plan to sell most
of these companies should be developed, with those in manufacturing and the services sector high on the list for immediate sale as these are
the worst performers.
Pros of Privatization
The PSUs which were strategically disinvested under the previous NDA government have done exceedingly well, thereby enhancing efficiency
and improving the return on assets.
The proceeds of the disinvestment could be parked into the strategic investment fund established recently. If these proceeds are used to
leverage private funding of the same magnitude, India could be able to invest an additional $50 billion per yearroughly 2.5% of GDPin
public infrastructure for the next 10 years.
It will unlock funds for building badly-needed social infrastructureroads, power transmission lines, sewage systems, irrigation systems,
railways and urban infrastructure.
This will also help draw in private investment, including FDI
#Development

Even though it is mandatory to implement the Section 135 of the Companies Act 2013, the desired result is not seen on the ground. In your opinion
how the provisions of this Section can be implemented effectively? Critically discuss.

Q. Critically analyse the provisions of union governments Start-up India plan and the challenges that lie in its implementation.
Ans:
Critically analyse the provisions of union governments Start-up India plan and the challenges that lie in its implementation.
Tailoring policy to get the government out of the way of start-ups was the underlying theme at the StartUp India
Significant Provisions of Startup India are as follows
1) A sum of 10000 crore rupee to facilitate funding for next four years.
2) Self certification for compliance related to labour law and environmental laws
3) No Labour-law inspection for next three years.
4) Relaxation in norms for public procurement.
5) Tax exemption for first three years and relaxation of capital gains
6) Support for legal issues and filing for patents was also promised
7) More Incubators and 500 new laboratories with 3D printing facilities
Challenges in Implementation
1) To be eligible for schemes, start-ups will have to show that their innovation has "significantly improved" existing processes, here bureaucracy
will come in picture, projects may be delayed while getting approval for eligibly, it may leads to corruption, as it's on bureaucrats to judge the
significance
2) only companies which satisfy the government's restrictive definition of a start-up - "driven by technology or intellectual property"
3) The government cannot target or identify innovation; only the market can. The government should focus on creating conditions for
innovation.
4) Needs to get approval from inter-ministerial board to be eligible for tax benefits.
5) De-domiciling of Indian startups, for example Flip-kart is registered in Singapore
5) Labour rights may be compromised as self certification is needed and no inspection for 3 years
Benefits of Startup India
Will increase the employment
Will decrease the brain drain
Will promote the Make In India

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Q: It is said that countries across the world are de-industrialising. What do you understand by de-industrialisation? Why is it happening? Can
India buck this trend? Examine.
Reduction in the size or share of the manufacturing sector in an economy is referred as De-industrialising. It leads to both social and economic
changes in a particular region, due to reduction in industrial activities.
This trend is an outcome of interplay between different factors like

Increased productivity in manufacturing sector because of enhanced labor skills and automation reduced the demand for new labor
Increasing share of tertiary or service sector in the economy as a sign of developed economy
Ageing population of developed economies that creates a shortfall of workers e.g. in Japan
Sluggish global demand post 2008 crisis and Eurozone crisis
Growth of labor intensive industries in developing economies leading to shifting of manufacturing industries in these countries
Shifting of manufacturing industry in developing countries, fulfilling the demand of global consumer, so less demand in local industries
Climate change is also causing the shutdown of pollution exhaustive industries.
It is being argued that this trend can engulf India too as India is consistently registering higher growths in the services sector. Further, innovations
in S&T and emphasis on skill education will improve the productivity and reduced the demand for workers. However, such concerns may be
misplaced because-

India is spearheading 'Make in India' program that seeks to rejuvenate the manufacturing sector
Various policies and programs like NIMZ and National Manufacturing Policy are in practice
Improved productivity as an outcome of automation will create jobs in capital industries
Foreign Trade Policy 2015 seeks to explore new markets for manufactured good and hence an increase in demand for workers
India has not seen it's Industrial era properly, with young and cheap labor forces it is highly likely that India will buck this trend.

Q: The mobile phone industry is said to be a bright spot amidst economic gloom in India. Yet, its said that the increasing penetration of smartphones
and mobile technology will be facing major challenges in coming days. Examine these challenges and measures needed to overcome them.
Ans:
Mobile Technology in India has been growing exponentially but it is said that the industry will be facing major challenges in the coming days. These
challenges are Infrastructure still remains a problem
Increased competition with limited spectrum would lead to major problems for the consumer. Ex- call drop, reduced network speed, poor network
connections
Lower broadband penetration in villages leads to digital divide.
Affordability and digital literacy are major setbacks.
Further increased competition would lead to price war between telecoms which would hinder start ups.
Security threats comes along with the advancement, need to develop better antivirus programs to protect consumer information.
Measures
Proper implementation of schemes like BharatNet, Digital India would solve major bottlenecks like Internet penetration, infrastructure and digital
literacy.
Infrastructure sharing should be facilitated.
More mobile friendly apps and antivirus would be needed. This would also require funding. Start up India is a good step in this direction.
Involvement of private sector via Project Loon is a welcome step.
Govt should simplify its regulations and ease taxation so that the end consumers do not have to bear the cost.

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