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Opportunities in the Post-Covid-19 World under the Make in India Initiative

Opportunities in the Post-Covid-19 World under the Make in India Initiative

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BORN IN INDIA I SERVED FROM INDIA I TO THE GLOBE

Dated:  01.06.2020

Opportunities in the Post-Covid-19 World under the Make in India Initiative

 

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The Make in India Initiative and Opportunities in the Post-Covid-19 World

1.0   The Covid-19 besides unsettling and plunging the world in unprecedented severe economic crisis has also thrown up a universe of opportunities  for India, specifically for  those enterprises who wish to be a part of the India  growth story. The unreliability of  the Chinese Political System in not warning the world in time about the impending pandemic threat and its unscrupulous attempts to exploit the economic meltdown to entrench its strategic and economic interest has shaken the confidence of the world in China as a reliable trade/ economic ally. The world has started looking to other destinations to keep the global economic engine moving with India emerging as a key potential  destination.

 2.0   However, to be a part of the India growth story its important to understand and engage with regulatory environments of India, while understanding the India growth story.

3.0   Thus far participation of India in the global economy has risen and is high, in terms of GDP, trade, etc. India has developed know-how and succeeded in exporting a huge basket of  goods and services to a large number of countries. It has specialised in sectors which will likely to be in high demand in the near future e.g., information, communication and technology (ICT) services, pharmaceuticals and medical devices etc. The government aims at getting India even more and better integrated into the global economy, the objectives are to double India’s share of world trade, to makes India a hub for global value chain under the make in India flagship; to boost foreign investment inflows by modernizing regulations and to attract more savings from Indians living abroad.

 The imposition of US tariffs on Chinese products world accelerate the rejigging of value chains. Preliminary data suggests that India has seized some of the market shares lost by China, with more success in capital and skill intensive industries than in labour intensive ones. Smart policy making has also led to enablement and success of India industry. For instance the ICT sector has been able to function under the Shop and Establishment Act and hence was not subject to the 45 labour laws which apply to industries.

4.0  Addressing domestic bottlenecks; infrastructure and business environment :-

 The 2014 OECD Economic Survey of India (OECD, 2014) concluded that manufacturing, for which the production process tends to be more fragmented than for services, suffered most from tax cascading – taxes were levied on each successive transfer, inclusive of any previous tax being levied, as indirect taxes levied on inputs were not creditable from indirect taxes levied on outputs. The Goods and Services Tax (GST), by allowing firms to deduct taxes on inputs, is a clear improvement for the manufacturing sector when implementation costs will disappear.

4.1  Infrastructure bottlenecks have lessened:

    The quality of infrastructure is a key determinant of countries’ participation in global value chains . As exports of goods tend to be more intensive in energy and transport than services, they suffer more from infrastructure bottlenecks.

Electricity : India has made significant progress in increasing electricity generation and transmission capacities, in particular from renewable sources, to fulfil its commitment to provide electricity for all. Total generation increased from 1000 TWh in 2010 to 1600 TWh in 2017, making India the third-largest electricity market in the world (IEA, 2018). In 2018, electricity reached every village and the government aims to provide electricity for all by 2019.

Ports :  Container traffic at Indian ports is increasing rapidly. The Sagarmala programme launched in 2015 aims at modernising and developing ports, enhancing port connectivity, supporting coastal communities and stimulating port-linked industrialisation. The government also aims at improving infrastructure effectiveness, reducing the turnaround time at major ports from about 3.4 days in 2018 to the global average of 1-2 days by 2022-23 (NITI Aayog, 2018). The Sagarmala programme, launched in 2015 for the period to 2025, aims at reducing logistic costs – both direct costs and inventory handling costs – for foreign and domestic trade by developing and rehabilitating ports. It also aims at doubling the share of water transportation in the modal mix, since it is more cost-effective and emits less greenhouse gas than road and railway transport  (FICCI, 2018). More than 605 projects have been identified by the government under the Sagarmala initiative, with a budget of INR 8.8 trillion (about 5.1% of FY 2018/19 GDP). As of 2018, 89 projects were completed and 443 were under various stages of implementation and development.

Turnaround time at major ports has reduced from 107 hours in FY 2011-12 to close to 60 hours in the first seven months of FY 2018/19.Measures to improve the ease of trading across borders have been taken, including the replacement of manual forms with e-filing, e-delivery and e-payment for shipping lines and agents, and a reduction in charges for non-peak hours at ports. The government has also abolished restrictive cabotage rules that prevented foreign ships from transporting containers between Indian ports.

Major Ports are being made more competitive in this regard  , the Major Port Authorities Bill, 2020 was introduced in Lok Sabha .  The Bill seeks to provide for regulation, operation and planning of major ports in India and provide greater autonomy to these ports.  It seeks to replace the Major Port Trusts Act, 1963.  Key features of the Bill include Public Private Partnership (PPP) projects. The Bill defines PPP projects as projects taken up through a concession contract by the Board.  For such projects, the Board may fix the tariff for the initial bidding purposes.  The appointed concessionaire will be free to fix the actual tariffs based on market conditions, and other conditions as may be notified.  The revenue share in such projects will be on the basis of the specific concession agreement.

Roads :   The Bharatmala programme, launched in 2017 for a five-year period, aims at developing 83 677 km of roads, including economic corridors to strengthen links between manufacturing centres and export hubs. Roads account for the lions share in inland freight transport. The overall cost of the programme was estimated at INR 6.9 trillion (4% of FY2018/19 GDP). The programme relies partly on public-private partnerships, in particular for highways. As of February 2019, 137 road projects with an aggregate length of 6 530 km had been awarded and were in various implementation stages.

Labour regulations: Various measures have been taken to make labour regulations and institutions friendlier to job creation (OECD, 2019). Taking into account the COVID -19 pandemic many State Govt., have suspended the application of most of the labour laws for a considerable duration for instance UP has done so for three years ,Gujarat has also taken similar measures.

5.0   Reform Momentum : To keep up the reform momentum and speed up the dispatching of manufacturing exports, the government has proposed the creation of Coastal Employment Zones. Tax benefits linked to employment creation would add to existing incentives for Special Economic Zones. Coastal Zones are also likely to relax labour regulations. As of March 2019, 14 Coastal Zones have been proposed and plans were being developed for four pilot ones in Andhra Pradesh, Gujarat, Maharashtra, and Tamil Nadu.

5.1  Proposed Coastal Employment Zones:  In its Three Year Action Plan 2017/18 to 2019/20, the government (NITI Aayog) suggested the creation of two Coastal Employment Zones, one on the east coast and the other on the west coast, to capture agglomeration effects and attract large multinational firms leaving China because of rising labour costs.

The main features of the proposed zones would be:

Large areas (i.e. larger than existing special economic zones) with flexible land conversion rules. Coastal zones are to be spread over 500 km2 or more and include existing habitations and industry structures. They will have sufficiently flexible land conversion rules to permit the conversion of these habitations and structures into alternative uses over time as industrialisation proceeds.

-Flexibility in the Floor Space Index would also be granted.

– More liberal and business-friendly regulations. Coastal zones should have liberal labour laws, as is currently the case in Gujarats Special Economic Zones. -They may also have more liberal land acquisition rules (as done in Tamil Nadu and Gujarat).

-Tax breaks for new firms creating many jobs. For new firms and firms creating many jobs, government financial support could be envisaged in the form of an upfront benefit for firms, in contrast to the existing tax relief that firms can only benefit from once they become profitable.

-Proximity to deep draft ports.

– Public investment on infrastructure. The central government may commit to investing up to INR 50 billion (0.03% of FY 2018 GDP) in each coastal zone to meet the infrastructure and housing needs.

– Trade facilitation and trade liberalisation. Clearance time for imports and exports will be reduced to international levels within the zones.

5.2  Trade Facilitation :  India has launched the National Trade Facilitation Action Plan for 2017-2020, after ratifying the WTO Trade Facilitation Agreement in 2016. This plan aims at increasing the efficiency of cross-border trade by reducing border and documentary compliance time, permitting exporters to electronically seal their containers at their own facilities, and reducing physical inspections. The Plan foresees a decline in dwell time for imports to within three days for sea cargo, within two days for air cargo and on the same day for land customs. For exports, the aim is to reach below two days for sea cargo and on same-day for air cargo. Implementing the governments Plan, including the Indian Customs Single Window Project, will facilitate trade.

5.3  FDI Norms  :  India has recently taken steps towards more competitive services by raising or eliminating limits on foreign equity in civil aviation, cable and satellite broadcasting and the insurance sector and allowing for foreign branches for reinsurance activities. For single-brand retail trade, India has eased local sourcing requirements in 2019 by relaxing the definition of goods subject to the 30% local sourcing requirement. Single-brand retailers will also be allowed to open online stores before setting up brick-and-mortar ones (not more than two years after). India has liberalised its FDI policy in many sectors over the past two decades. Since 2014, India has been a top reformer: caps on foreign participation have been raised and more sectors have been brought under the automatic route, avoiding the administrative burden associated with the government approval route. The opening was most ambitious in the air, real estate and retail distribution sectors. In 2017, the Foreign Investment Promotion Board was abolished and the government approval system was simplified and decentralised –concerned ministries are now invited to accept or reject FDI projects within a shorter timeframe (8-10 weeks). Overall, the OECD FDI Restrictiveness Index suggests that in 2018 India was more open than several other EMEs, including China, Indonesia and Malaysia. While global FDI flows declined three years in a row to 2018, FDI inflows to India as a share of GDP have remained relatively robust.

The government aims at making India a more attractive FDI destination. FDI restrictions in single-brand retail, digital media, contract manufacturing and coal sector were loosened in August 2019. Local sourcing norms for single-brand retail FDI have been softened. In presenting its Budget for FY 2019-20, the government indicated that further reforms are likely, including in the insurance, aviation and media sectors.

5.4   FTAs: India has used preferential trade agreements as a key component of its trade and foreign policy, especially since the early 2000s. It has concluded  bilateral agreements with several Asian countries (including South Korea in 2009 and Japan in 2011). It is party to various regional trade agreements, including the SAFTA, the Asia Pacific Trade Agreement, and the ASEAN.

6.1  Policy  And  Implementation  Framework  For  The  Make  In  India  Initiative  : The Department for Promotion of Industry and Internal Trade (DPIIT) drives the efforts in this direction and has come up with a road map   for the largest manufacturing initiative undertaken by a nation in recent history. In a short space of time, the obsolete and obstructive frameworks of the past have been dismantled and replaced with a transparent and user-friendly system. This is helping drive investment, fostering innovation, developing skills, protecting Intellectual Property (IP) and building best-in-class manufacturing infrastructure.

7.1   Make In India Campaign Main Focus Areas  : Make in India initiative has made significant achievements and has been reviewed now, focusing on 27 sectors – 15 manufacturing sectors and 12 champion service sectors under Make in India 2.0 programme. The Department for Promotionof Industry and Internal Trade is coordinating action plans for 15 manufacturing sectors, while Department of Commerce is coordinating action plan for 12 service sectors. The revised list of the 27 Sectors are as follows:

1. Aerospace and Defence

2. Automotive and Auto Components

3. Pharmaceuticals and Medical Devices

4. Bio-Technology

5. Capital Goods

6. Textile and Apparels

7. Chemicals and Petrochemicals

8. Electronics (ESDM)

9. Leather &Footwear

10. Food Processing

11. Gems and Jewelry

12. Shipping

13. Railways

14. Construction

15. New and Renewable Energy

16. Information Technology & Information Technology enabled Services (IT & ITeS)

17. Tourism and Hospitality Services

18. Medical Value Travel

19. Transport and Logistics Services

20 Accounting and Finance Services

21. Audio Visual Services

22. Legal Services

23. Communication Services

24. Construction and Related Engineering Services

25. Environmental Services

26. Financial Services

27. Education Services

 

8.1 Ease of Doing  Business : The Government is introducing several reforms to create possibilities for getting Foreign Direct Investment (FDI) and foster business partnerships. Some initiatives have already been undertaken to alleviate the business environment from outdated policies and regulations. This reform is also aligned with parameters of World Bank’s ‘Ease of Doing Business’ index to improve India’s ranking on it. This is driven by reforms in the areas of Starting a Business, Construction Permits, Getting Credit, Protecting Minority Investors, Paying Taxes, Trading across Borders, Enforcing Contracts, and Resolving Insolvency.

9.1 Intellectual Property Rights:  IPR  Policy was launched in May 2016. Its aim is to spur creativity and stimulate innovation and ensure effective IPR protection in India. In order to promote innovation the following measures have been taken. Final Patent (Amendment) Rules, 2019 – published on 17th September, 2019, amending The Patents Rules, 2003 has led to significant simplification of rules, especially for startups and MSMEs. . The Patent (Second Amendment) Rules, 2019 published to reduce fees for small entity/MSMEs for processing of patent applications under various sections of the Patents Act, 1970 will incentivize MSMEs to file for more patents.

10.1 Industrial Corridors:  Infrastructure is integral to the growth of any industry. The government intends to develop industrial corridors and build smart cities with state-of-the- art technology and high-speed communication. Along with the development of infrastructure, the training for skilled workforce for the sectors is also being addressed.

11.1  Growth of Micro, Small and Medium Enterprises Sector:  The Indian economy is likely to emerge as one of the leading economies in the world, with an envisioned GDP of USD five trillion economy by 2024. Our vision is to ensure that at least a contribution worth USD two trillion come from MSME sector. To accomplish this, M/o MSME has taken many steps during the year for technology advancement, skill development and job creation for empowerment of MSME Sector.

12.1  Skill Development Programme:  The skill ecosystem in India is undergoing major reforms and policy interventions as India embarks on its journey to become a Knowledge Economy. The skill gap study by the National Skill Development Corporation (NSDC) for the period of 2010-2014 reports that over 109.73 million additional skilled manpower will be required by 2022 across different sectors.

13.1  Conclusion :  A close watch at these regulatory, trade and other trends would help spot granular opportunities for instance : –  The textile sector provides and illustrative case, within textile exports, the share of yarns and fabrics, which are increasingly automated, has increased while the share of labour-intensive products, like carpets, has declined . A focus on the low -technology segment  for textile, garment and footwear, reveals that India has stopped gaining market shares since 2013; Vietnam now has a larger market share. Overall, manufacturing exports have fallen as a share of total exports and their composition has shifted from labour-intensive to high skill and technology-intensive items. A boom in PPE products demand could reinvigorate the testile sector . Manufacturing has emerged as one of the high growth sectors in India.

The Make in India campaign helps to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. The large investment in manufacturing will bring in more capacity creation in the country. The tax reliefs given to start ups and MSME‟s will boost sustainable employment and the quality of startups in the design led manufacturing sector. Make in India mission is one such long term initiative which will realize the dream of transforming India into manufacturing hub. Make in India campaign also focuses on producing products with zero defects and zero effects on environment.

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