Dheeraj Kumar Sharma
Infrastructure and Industries, together they are amongst the few crucial areas of economy which determine the growth of a country by measuring the real development in their current state. Given the fact that investment in infrastructure is directly proportional to high economic growth; India has well utilized and encashed on the equation. The Indian economy saw a uproar in the infrastructure sector during the last year with its go-getting schemes such as Ease of Doing Business, Make in India, Digital India, Skill India, Start-up India and Smart cities etc. Our reverent Prime Minister – Mr. Narendra Modi left no stone unturned to ensure that the infra sector gets a boost from both the private as well as public support. He has been largely endorsing the PPP model for climbing high on the growth ladder. His countless foreign visits have resulted in a record FDI in India in the last year which has simultaneously increased the foreign exchange reserves at the highest ever level of about USD 350 billion. The net GDP growth has been marked at 7.6% and a simultaneous decrease in the CPI inflation which has been tagged at 5.4% as stated in Union Budget 2016-17 by the Finance Minister Mr. Arun Jaitley.
Background
In the wake of the global slowdown, India has out rightly emerged as the fastest growing economy with a high growth rate of over 7% as stated by the Economic Survey 2015-16[1].
The manufacturing sector has played a major role in achieving this high growth rate which was exceedingly influenced by the Make in India initiative of the Indian Government. The National Accounts Data of February 2016 as quoted in the Economic Survey indicates a 12.6% growth in Q3 of 2015 against 1.7% in Q3 of 2014.
As per the latest data released in January 2016 on revised National Income –
a. Industrial Sector comprising of mining, manufacturing, electricity and construction made a growth @5.9% in 2014-15 as compared to the growth rate of 5% in the year 2013-14; which is further anticipated to be at 7.3% in 2015-16
b. Manufacturing sector alone is expected to grow at 9.5% in 2015-16
c. The third quarter (Q3) of 2015-16 registered a growth of 8.9% as compared to Q3 of 2014-15 in which the growth percentage was as low as 3.8%
The government has put on its running shoes to catch up the pace of industrial growth and to further maintain and sustain the momentum of the overall economic growth through its various schemes which aim at simplification of procedures to boost the investment by opening up more avenues in the Foreign Direct Investment (FDI) Policy.
Recent Developments in FDI Sector
FDI has been a buzzing and debatable topic ever since the NDA Government took the charge. FDI has proved to be a major driver of the economic growth as it’s a non-debt source of finance. The Government with a view to avail high amount of FDI in Indian opened up the FDI Policy by bringing in more encouraging reforms. Some of the key reforms are –
a. Liberalizing various sectors for FDI including defense, construction, broadcasting, civil aviation, plantation, trading, private sector banking, satellite establishment, etc.
b. Cutting down list of industries to be termed as “defense industries” requiring industrial license
c. FDI in defense brought up to 49%
d. FDI in railway infrastructure raised up to 100%
e. FDI in insurance & pension sector hiked up to 49% (26% being under automatic route)
f. Investment limit requiring prior approval of Foreign Investment Promotion Board (FIPB)/ Cabinet Committee on Economic Affairs increased from Rs. 1200 crores to Rs. 3000 crores.
g. FDI in medical device manufacturing has been allowed for 100% under automatic route
The FDI inflows and FDI equity inflows have increased by 26% and 31% respectively during the April-November 2015 period as compared to its predecessor period from April-November, 2014. The cumulative FDI inflow during this period was summed up at USD 59.6 billion out of which more than 60% was contributed by Singapore and Mauritius.
The DIPP released the figures stating sector-wise FDI inflows during April-November, 2015, which have been cited below –
| Table6.4:Sector-wise FDI Inflows during April 2014 to November 2015 | ||||
| Sl No Sector | Amount of FDI(in US$ million) | |||
| 2014-15 | 2015-16 | Percentage of total FDI | ||
| Apr.-Mar. | Apr.-Nov. | Apr.-Nov. 2015-16 | ||
| 1 | Services Sector (financial, non-financial and others) | 4443.26 | 4102.47 | 16.5 |
| 2 | Computer Software & Hardware | 2296.04 | 4419.84 | 17.8 |
| 3 | Trading | 2727.96 | 2604.40 | 10.5 |
| 4 | Automobile Industry | 2725.64 | 1657.82 | 6.7 |
| 5 | Telecommunications | 2894.94 | 1062.91 | 4.3 |
| 6 | Construction (Infrastructure)Activities | 870.25 | 1368.96 | 5.5 |
| 7 | Chemicals (Other Than Fertilizers) | 762.76 | 1157.37 | 4.7 |
| 8 | Drugs & Pharmaceuticals | 1497.74 | 321.37 | 1.3 |
| 9 | Hotel & Tourism | 777.01 | 865.25 | 3.5 |
| 10 | Power | 707.04 | 635.13 | 2.6 |
| 11 | Mining | 684.39 | 518.84 | 2.1 |
| 12 | Petroleum & Natural Gas | 1079.02 | 48.69 | 0.2 |
| 13 | Non-Conventional Energy | 615.95 | 440.64 | 1.8 |
| 14 | Industrial Machinery | 716.79 | 293.56 | 1.2 |
| 15 | Others, excluding above-mentioned sectors | 8131.71 | 5310.51 | 21.4 |
Source: DIPP
Booster Steps by Government
To boost the manufacturing scenario is taking on various steps. These initiatives have in altogether provided India an improved business environment and larger FDI inflows. An interactive portal http://makeinindia.com for dissemination of information and interaction with investors has been created with the objective of generating awareness about the investment opportunities and prospects of the country, to promote The results have been marked by the world as India stands at #130th position in 2016 from #142nd in 2015 in the rankings of World Bank’s Ease of Doing Business Report. Let’s look at some key booster steps by the Indian Government –
a. Launch of Make in India scheme
b. Launch of other supporting schemes/policies such as Digital India, Skill India, Start-up India, etc
c. Liberalizing FDI Policy and easing regulatory norms
d. Building a pentagon of corridors across the country to facilitate smooth and free flow transportation.
e. Also in an encouraging step, the National Investment and Infrastructure Fund (NIIF) has been approved to extend equity support to Non-Banking Financial Companies (NBFCs)
f. Issue of tax-free infrastructure bonds for rail, roads and irrigation programmes have also been allowed.
g. Simplifying tax filings through revised forms and returns
h. Reducing the burden of compliances in operating companies by bring in major amendments to the Companies Act, 2013 and its rules
i. Launching of single window platform for incorporation of a company via Form INC-29 with all requirements of DIN, Name application, Company registration, PAN registration etc in one single form
j. Simplifying Import-Export procedures related to registration and management
k. Integration of 20 services with e-biz portal to function as single window clearance from various governments and agencies
l. Upgrading the decades’ old labour laws
m. Using technology in every possible sector
n. Online filings and systems for registration/license application for various departments
Industrial Performance
The Industrial sector plays an important role in achieving a high pace in terms of economic growth. It helps a country achieve sustainability and stability for its future endeavors. The Index of Industrial Production (IIP) which provides quick estimates of the performance of key industrial sectors has been constantly rising in the upward direction. (See Table from Economic Survey 2015-16 below).
| Table: IIP-based Growth Rates of Broad Sectors/Use-based Classification (in percent) | |||||||||||
| Weight | 2013-14 | 2014-15 | 2014-15 | 2015-16 | |||||||
| Q1 | Q2 | Q3 Apr.– Dec. | Q1 | Q2 | Q2 | Apr | Dec | ||||
| General | 100.00 | -0.1 | 2.8 | 4.5 | 1.3 | 2.0 | 2.6 | 3.3 | 4.8 | 1.5 | 3.1 |
| Sectoral | |||||||||||
| Mining | 14.16 | -0.6 | 1.5 | 3.0 | 0.5 | 2.1 | 1.8 | 0.4 | 3.1 | 3.3 | 2.3 |
| Manufacturing | 75.53 | -0.8 | 2.3 | 3.9 | 0.4 | 1.1 | 1.8 | 3.7 | 4.7 | 0.9 | 3.1 |
| Electricity | 10.32 | 6.1 | 8.4 | 11.3 | 9.4 | 9.4 | 10.0 | 2.3 | 6.8 | 4.4 | 4.5 |
| Use Based | |||||||||||
| Basic goods | 45.68 | 2.1 | 7.0 | 8.7 | 7.0 | 8.3 | 8.0 | 4.7 | 4.4 | 1.3 | 3.4 |
| Capital goods | 8.83 | -3.6 | 6.4 | 13.6 | -0.5 | 3.2 | 5.1 | 2.0 | 13.4 | -10.0 | 1.7 |
| Intermediate goods | 15.69 | 3.1 | 1.7 | 3.1 | 1.6 | 0.8 | 1.8 | 1.6 | 2.2 | 1.9 | 1.9 |
| Consumer goods | 29.81 | -2.8 | -3.4 | -3.2 | -5.4 | -6.4 | -4.9 | 2.5 | 2.7 | 6.8 | 4.0 |
| Consumer durables | 8.46 | -12.2 | -12.6 | -9.5 | -15.5 | -20.9 | -15.2 | 3.7 | 11.9 | 23.4 | 12.4 |
| Consumer non- durables | 21.35 | 4.8 | 2.8 | 1.4 | 2.3 | 3.2 | 2.3 | 1.7 | -3.0 | -1.6 | -1.0 |
Source: CSO
From the table above, it is visible that India has attained growth in all the industries as compared to the figures from the period of 2014-15. Clearly India has obtained a sustainable momentum amidst the ups and downs in the industrial growth. While the mining sector grew high on account of rise in coal production; the electricity was mainly contributed by higher growth in generation of thermal and nuclear sector and the manufacturing sector witnessed boom due to the higher outcome in the various industries viz, furniture, motor vehicles, chemicals & chemical products, petroleum products& nuclear fuel and wood & products of wood, etc.
Further the Economic Survey revealed that the eight core infrastructure supportive industries being coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity; weighted for 38% in the IIP with the overall growth of these industries falling by 3.8% in the period of April-December 2015-16 as compared to the corresponding period of April-December 2014-15.
The Steel and Aluminum industries’ in which India stands out to be the 4th and 2nd largest producer respectively saw a decline in the growth rate in the year 2015-16. The steel industry recorded a -0.7% growth whereas aluminum industry was sorely hit with a -6.9% growth rate during the above cited period. The global steel industry was shook by the falling prices as low as 20-45%, which in turn resulted in fall by 17-35% in the domestic prices of steel; and the aluminum industry’s cost of production was much above its international sliding prices showing a drastic downgrading in the capacity utilization in the last one and half year. The future forecasts for the aluminum industry are sounding no relief until the international prices increases.
Infrastructure Performance
Infrastructure has been recognized as the chief sector which lays down the roadmap for the growth of a nation. It comprises of various sectors of the economy such as power, real estate, railways, energy, roads, civil aviation, shipping, telecommunication, etc. which may be termed as the pillars of any economy as they provide the valuable support to an economy for maintaining a firm stand and constant growth momentum. The flagship scheme named Smart Cities Mission has been implemented in consultation with the states for the urban development. It aims at promoting cities which provide the core infrastructure and give a high living standard to the citizens with access to all the modern technology and innovations. The smart cities aim to achieve an adequate supply of water, electricity, sanitation including solid waste management, efficient urban mobility and public transport, affordable housing, enhanced IT connectivity supported by the Digital Indian initiative, good governance including e-governance and safety & security of citizens particularly women, children and the old.
India needs Rs. 31 trillion (USD 465 billion) to be spent on infrastructure development over the next five years, with 70% of funds needed for power, roads and urban infrastructure segments, says a report published by IBEF in August 2015[1]. The Government of India is planning to award 100 highway projects under the Public-Private Partnership (PPP) mode in 2016. The same stand has been supported by RBI by allowing 100% FDI in construction sector under automatic route.
The growth in the infrastructure sector has been triggered with various announcements and proposed investments, to regulate which the Department of Industrial Policy and Promotion (DIPP) has set up an online monitoring system for on-going projects under the Industrial Infrastructure Upgradation
Infrastructure Investment Fund (NIIF) with an initial corpus of Rs. 40,000/- crores (USD 6 billion)
Developments in Power Sector
The Power sector has been primarily kept in focus by the Indian government to ensure an uninterrupted continuous access to power supply in the country by floating various programmes for increasing power generation, transmission and distribution. The Electricity Act and tariff policies by state governments’ were recently amended to keep in line with the set target. The results were also motivating as the efforts put in by the authorities as the year under review registered a 4.4% growth. The government sanctioned projects worth Rs. 41100.4 crores under its new scheme, “Deendayal Upadhyay Gram Jyoti Yojana (DDUGJY)”. Budgets have also been allotted to this scheme along with Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) to provide the necessary support. With a aim to achieve 100% electrification of the villages by providing clean energy the Government of India has brought in the historical UDAY scheme (Ujwal DISCOM Assurance Yojana) for the electricity distribution companies (DISCOM) which aims at providing solution for the financial distress situation of these companies. These schemes coupled with the National LED Programme, National Smart Grid Mission, etc have ensured that India is treading in the right direction to achieve its goal of continuous supply of power.
Developments in Coal Sector
The Coal sector unlike the other sectors recorded a growth of 4.7% in the April-December, 2015.The current production for coal amounted to 447.48 Mte which appears to be very low in comparison to the target of 700 Mte set for 2015-16 by the government. To ensure that the target remains in achievable limits, the Coal Mines (Special Provisions) Act, 2015 along with its rules, has been enacted to reallocate 204 coal blocks whose allocation was cancelled by the Supreme Court. The auction will be carried out in e-auction mode to ensure fair and transparent mode of allocation of coal blocks. Through this enactment a continued coal resource for production and operation is to be obtained.
Developments in Minerals Sector
Following the footprints of the Indian industrial sectors, the mineral sector up roared its growth percentage to 3.1 from its corresponding period in the previous year. The resulting growth was majorly on account of rise in production of bauxite, chromite, iron ore, limestone and phosphorite; supported strongly by the 4.6% rise in coal production. The Singaporean companies have been noted boosting their investments in the iron ore segment. The Government after taking strict lesson from the 2011-12 and 202-13 legal beating, enacted number of policies to turn the shape of mining sector in India. In a constructive step, it amended the Mines and Minerals (Development and Regulation) Act, 1957 for establishing the District Mineral Foundation in each district and the National Mineral Exploration Trust for impetus to exploration.
Developments in Petroleum & Natural Gas Sector
This sector witnessed a decline of 1-2% as compared to its corresponding previous year figures due to the global production being falling down. India depends on the oil and gas assets acquired from outside and hence the decline is not entirely a result of failure of the Indian economy. The government has strived to keep the growth rate at constant in this sector despite of the global turmoil. It took on various initiatives like –
a. Policy for Marginal Fields of ONGC and OIL
b. Policy on Testing Requirements in New Exploration Licensing Policy (NELP)
c. Policy for Production Sharing Contracts (PSC)
Developments in New& Renewable Energy
As stated in the Economic Survey, India is moving from Megawatts to Gigawatts in the generation of clean renewable energy. The target for 2022 has been increased to 175GW for the energy sector. The cumulative generation capacity during the period of April-December, 2015 has been over 38,820 MW. Initiatives which were adopted for setting up of rooftop solar panels, solar pumps, solar cities and solar parks have yielded remarkable results with respect to their set targets. In addition to above, other key initiatives include –
a. National Offshore Wind Energy Policy
b. Inclusion of renewable energy in priority sector
c. Bank loans up to Rs. 15 crores for solar based power generation
d. 100% FDI (including 74% under automatic route)
e. Approval for amendments to the National Tariff Policy, 2005 to enhance Renewable Purchase Obligation (RPO).
Developments in Railways
During the year under review, the Indian Railways, which was posed with various challenges, registered a meager 1.26% growth. The Union Budget of 2015 focused majorly on high speed trains and tracks which demanded huge financing. During the year various steps were taken to upgrade the railways in terms of reservation policies, ticket booking facilities, healthy catering services, cleanliness drive for the railways, etc. The resources are very limited for the development of the railways and therefore a major emphasis was laid on the PPP model for the upliftment of the railways. Google coming forward to help make the Indian railway stations wifi enabled was a major achievement during the year. The target to connect every railway station under Digital India scheme is praiseworthy.
Developments in Road Infrastructure
India is the 2nd largest country in terms of road network having 52.32 lakh kms of road network. This sector witnessed a decent growth during the period as major outstanding and pending projects were completed and launched for the use by general public. During the year the schemes such as Bharatmala Programme, Special Accelerated Road Development Programme, etc were in the headlines. Also the authorities approved a scheme for development of about 1177kms of national highways and 4276 kms of state roads with estimated cost of about Rs. 7300 crores.
Awards from Budget 2016-17
The Finance Minister in his Budget speech emphasized on 9 distinct pillars which aim to “Transform India” as the agenda for the Government for the next year. Infrastructure has been trusted to be critically important in 3 out of such 9 pillars, which are –
a. Agriculture infrastructure
b. Rural infrastructure for rural growth and rural employment
c. Infrastructure and Investment: to enhance efficiency & quality of life
The major awards granted by the Budget 2016-17 in different sectors of economy can be summarized as below –
Agriculture
a. To create new infrastructure for irrigation through the “Pradhan mantra Krishi Sinchai Yojana” to bring 28.5 lakh hectares area under net cultivated area
b. Fast track completion of 23 out of the pending 89 irrigation projects under AIBP before 31st March, 2017
c. Proposed Long Term Irrigation Fund in NABARD with initial corpus of 20,000 crore
d. Programme for sustainable management of ground water resources
e. Policy approved for conversion of city waste into compost under Swachh Bharat Abhiyaan
f. Promotion booster to organic farming through “Paramparagat Krishi Vikas Yojana” and “Organic Value Chain Development in North East Region” with provision of Rs. 412 crores
g. Introduction of National Level Competition to improve efficiency of 674 Krishi Vigyaan Kendras
h. Proposed Launch of The United Agricultural Marketing e-Platform on 14th April, 2016 i.e. birth anniversary of Dr. Baba Saheb Ambedkar
Rural Sector
a. Sum of Rs. 38,500/- has been allotted for MGNREGS and overall Rs. 87,765 crores allotted for rural development
b. 100% village electrification by May 1, 2018 through Rs.8,500 crore Deendayal Upadhayaya Gram Jyoti Yojna & Power Development Schemes
c. Introduction of ranking system for urban areas in terms of sanitation
d Digital Literacy Scheme to be launched soon
e. Proposed launch of Rashtriya Gram Swaraaj Abhiyaan for developing governance capabilities
Healthcare Sector
a. Prime Minister Jan Aushadhi Yojana to be opened up in 2016-17
b. National Dialysis Services Programmed funded through PPP model to be started
Education Sector and Skill & Job Development
a. 62 new Navodaya Vidyalayas to be opened up
b. Regulatory architecture to be developed to make 10 public and 10 private institutions as world class teaching and research institutions
c. Proposed set up of Higher Education Financing Agency (HEFA) with Rs. 1,000 crore capital base
d. Entrepreneurship education and training to be provided in 2200 colleges, 300 schools, 500 government it is and 50 vocational training centers through massive open online courses
e. Government to pay 8.33% contribution in Employee Pension Scheme for all new employees employing in EPFO for first 3 years
Infrastructure & Investment
The development of infrastructure has been considerably kept in mind to support the economic growth of the country by the Finance Minister. Following tracks of Mr. Narendra Modi, he has too, focused on the PPP model for developing infrastructure of the country. For this the following 3 initiatives have been announced –
1. A public Utility (Resolution of Dispute) Bill to be introduced in 2016-17 to facilitate resolution of disputes related to infrastructure contracts, PPP contracts and public utility contracts.
2. Guidelines for renegotiation of PPP Concession Agreements will be issued to cope with uncertainties of the economy and promote transparency.
3. A new credit rating system for infrastructure projects to be evolved to scrap off the standard perception of risk which leads to mispriced loans.
Apart from the above cited 3 key initiatives the following are additional support announcements in the Budget 2016-17 –
a. Total outlay on roads and railways to be Rs. 2,18,000 crores in 2016-17
b. Rs. 55,000 crores allotted for roads and highways as India saw 2015 the year of maximum highways being awarded
c. Action plan proposed for reviving unserved and underserved airports to promote regional connectivity
d. Comprehensive plan to be developed for augmenting investment in nuclear power generation
FDI Reforms
a. “Department of Disinvestment” to be re-named as “Department of Investment and Public Asset Management (DIPAM)”
b. 100% FDI to be allowed through FIPB route in marketing of food products produced and manufactured in India
c. New Policy approved for management of Government investment in Public Sector Enterprises, including disinvestment and strategic sale
d. 100% FDI in Asset Reconstruction Companies (ARCs) to be permitted under automatic route
e. Investment limit for foreign entities in Indian Stock exchanges to be enhanced from 5 to 15% to promote global competitiveness of Indian stock exchanges’
f. Limit of investment by FPIs in Central Public Sector Enterprises to be increased from 24% to 49%
g. Hybrid instruments to be included under FDI instruments
h. FDI to be allowed beyond 18 specified NBFC activities in the automatic route
i. To promote Make in India, Residency Status to be accorded to investors
j Introduction of Central State Investment Agreement to ensure effective implementation of Bilateral Investment Treaties
Conclusion
The Modi led government had promised various things to the general public before rising up to the power including very majorly the upliftment of the Indian economy and raise it at par with the global standards. The role of infrastructure has been very crucial in achieving the growth stated in the Budget and Economic Survey as the infrastructure has been the foundation for such fast moving economy. One of the most critical pieces to the growth of the economy will be revival of the infrastructure sector. With a bag full of reforms, the future would tell the tale of effectiveness of the reform policies introduced in this budget. Further with the abundant India Inc. schemes’ and policies, the vision of the Government is clear to everyone, which can be summarized by one the names of policy itself – Ek Bharat, Shresth Bharat!
Scheme. Also the Government approved the National
[1]http://www.ibef.org/industry/infrastructure-sector-india.aspx
[2]http://indiabudget.nic.in/es2015-16/echapvol2-06.pdf
(Author can be reached at dheeraj@vinodkothari.com)
The statistical data clearly shows the positive growth of Indian Economy due to introduction of many reforms and policies. Economy will develop soon.
Thank you Dheeraj for this Light.