New Delhi — The growth in Index of Industrial Production (IIP) at 4.2% for July 2015 is the second successive month of over 4.0% growth during the current financial year.
The manufacturing sector is slowly emerging as a leader of industrial growth, increasing by 4.7%. In the first four months, the manufacturing sector has increased by 4.0% in 2015-16 as compared to 2.8% in 2014-15.
Consumer durables goods sector has, like last month, recorded double digit growth of 11.4%, boosted by growth in passenger cars and gems and jewellery.
As per the Balance of Payments (BoP) data for Q1 of 2015-16 released by the RBI last Friday, the position continues to be comfortable on a sustainable basis with a lower current account deficit at 1.2% of GDP in Q1 of 2015-16 as against 1.6% of GDP in Q1 of 2014-15.
India’s robust external sector has facilitated the lower depreciation of the Rupee vis-à-vis currencies of other major EMEs in the recent bouts of global financial volatility. The industrial production and BoP data released today, along with the Q1 2015-16 GDP numbers, point towards steady improvement in the Indian economy.
FDI: policy initiatives and performance
A major rationalisation of India’s FDI policy has been carried out. For the first time since 1991, all sectors of the FDI have been reviewed in an integrated manner, in order to simplify, standardize, rationalise and liberalise. The result is an even more investor-friendly coherent policy allowing FDI up to 100% on the automatic route for most activities. The requirement of multiple approvals which existed in several major sectors has been dispensed with, and the FDI equity cap raised in a large number of sectors such as mining of coal and lignite for captive consumption; mining of diamonds and precious stones and allowing FDI upto 100% in power trading, construction-development etc. FDI up to 51% has also been allowed in the retail trade of single brand products.
Foreign Direct Investment (FDI) inflows have shown remarkable growth. The growing attractiveness of India as an investment destination in the last 2 years is clearly reflected in the surveys carried out by international agencies. The latest FDI Confidence Index 2006 of AT Kearney has placed India as the second most attractive destination, just behind China. Mr Kamal Nath has been marketing India aggressively, having participated in and addressed Destination India, Business Summits and CEO Roundtables in a large number of countries, including the USA, UK, France, Italy, Brazil, Australia, Japan, Singapore, Malaysia and Indonesia.
Modernisation of India’s IPR regime
The Patents Act 1970 was amended with effect from January 1, 2005. The amended law, besides being compliant with India’s International obligations, also provides for simplified and rationalised procedures for expeditious grant of patent rights.
The main elements of the amended law include
- Provision for product and process patent protection for inventions in all fields of technology;
- Strengthened patentability criteria to avoid evergreening of patents;
- Term of patent of 20 years for all categories of inventions;
- Comprehensive provisions for safeguarding public interest and public health, such as compulsory licensing, use of patent by government or for government purposes, use of patent in emergent situations, revocation of patent in public interest / on account of security considerations;
- Provision for manufacture and export of medicines to LDCs; and
- Simplified procedures.
Boost to manufacturing sector
Manufacturing sector growth increased from 6.0% in 2002-03 and 7.4% in 2003-04 to 9.0% in 2005-06. Manufacturing sector growth rate had been higher than the overall industrial growth
With a view to enhancing international competitiveness of the domestic industry by providing quality infrastructure through public-private partnership in select functional clusters/ locations which have a potential to become globally competitive, the Department of Industrial Policy & Promotion has launched a new scheme in the name of Industrial Infrastructure Upgradation Scheme (IIUS) during the Tenth Plan (2002-07). This Scheme aims at enhancing the competitiveness of Indian industry through increased productivity, lower cost of production, improved product quality and increase in global market share. Special Economic Zones (SEZs) and emerging Special Investment Regions (SIRs) are to address the issues of scale of production, technology and infrastructure.
India has moved up ten steps upward in world competitiveness ranking for the year 2006 — from 39 (in 2005) to 29 (in 2006) out of a sample of 61 countries — according to the Switzerland-based International Institute of Management Development (IMD).
Record growth in exports
India’s (merchandise) exports crossed the landmark figure of US $ 100 billion in 2005-06. At 25% growth in 2005-06 and 27% growth in 2004-05, exports are currently growing three times faster than GDP growth. Exports as a share of GDP is more than 13% currently compared with a share of only 6% in 1990-91. India has also improved its rank in the world market as an exporter.
The significant feature of this strong performance is that the growth as well as diversification has occurred across all sectors and to all destinations. Based on disaggregated trade data for the period April-December 2005-06: The high growth of exports was led by petroleum products (63%), transport equipments (62%), iron-ore (47%), machinery and instruments (35%), readymade garments cotton including accessories (34%) etc. Among major export destinations the USA recorded a growth of 26%, the UAE 20%, China 46%, Singapore 55% and UK 50%.
Foreign trade policy initiatives
India’s export success is attributable in a large measure to the country’s first-ever Foreign Trade Policy with a five-year framework (204-09) which was launched by the Union Commerce & Industry Minister, Shri Kamal Nath in August 2004, which set out ambitious twin objectives of doubling India’s percentage share of global merchandise trade within 5 years, and increasing employment substantially, especially in rural and semi-urban areas. Merchandise trade in the very first year of the Policy period grew at a record rate of 27%, and coming on top of this, in 2005-06, recorded a growth of 25% over the already high base of 2004-05.
The Foreign Trade Policy (2004-09) is noteworthy particularly for the following: Focus on doubling of India’s trade within the next 5 years and integration of exports activity with mainstream production and employment activities has given a new thrust to export performance; Closer regional and bilateral cooperation with other countries has helped to deepen global integration; FTAs (Free Trade Agreements), PTAs (Preferential Trading Arrangement), CECA (Comprehensive Economic Cooperation Agreement), Joint Commissions etc. have also helped; Emphasis on country-specific and product-specific strategy to boost exports in labour intensive activities; Simplification of procedures and expansion of the EDI (Electronic Data Interchange) system has helped reduced transaction costs; and the SEZ Act and notification of rules under this Act is expected to give a further thrust to investments and growth of exports.
Employment generation and exports
One of the objectives of the Foreign Trade Policy (2004-09) is to make trade an instrument for employment generation. The supplement to the FTP announced for 2006-07 and the earlier policy announcements have tried to promote employment generation in line with the overall policy objectives envisaged for 2004-09.
According to the study conducted by the Research and Information System for Developing Countries (RIS): In 2004-05, exports generated additional direct employment of 1.4 million in the country. Against an export of US $ 80 billion in 2004-05 the total employment generation in the export sector was 16 million (9 million direct and 7 million indirect). In 2009-10 it is estimated (by the study) that the overall exports would be US $ 165 billion resulting in total employment of 37 million. The total incremental employment generation is expected to be 21 million between 2004-05 and 2009-10.
Initiatives to promote labour-intensive exports
The latest initiative taken by the government to promote labour intensive exports announced by former minister Kamal Nath in the annual supplement to the Foreign Trade Policy in April 2006 were as follows:
- Twin schemes of focus product and focus market introduced to give additional impetus to penetration of strategic markets in labour intensive sectors such as fish and leather products, stationery items, fireworks, sports goods and toys, and handloom & handicraft items. The Focus Product and Focus Market Scheme, allows duty credit facility at 2.5% of the FOB value of exports of specific products and notified countries.
- Vishesh Krishi Upaj Yojana expanded to include village and cottage industries and is being renamed as the Vishi Krishi Upaj Aur Gram Udyog Yojana. It had been decided to incentivise export of village and cottage industry products by awarding a duty-free scrip at the rate of 5% of FOB value of exports under the expanded scheme.
- Massive thrust on making india gems & jewellery and automotive hub by facilitating easier product movement across the borders and allowing import of precious metal scrap for refining. In order to help India emerge as a hub of auto components, import of new vehicles by auto component manufacturers for R&D purposes would now be allowed without homologation (i.e. testing for fitness on Indian roads required for import of new models of cars) so as to give the sector easier access to latest technologies
Special economic zones take off
The scheme for setting up of SEZs in the country to promote exports which was announced in the Export-Import (EXIM) Policy in the year 2000 has at last taken off. In order to impart stability to the SEZ regime and to achieve generation of greater economic activity and employment through the establishment of SEZs, a Special Economic Zone Act has been enacted. The SEZ Act, 2005, supported by SEZ Rules, have come into effect from February 10, 2006.
Of the 164 SEZs approved for establishment, 8 SEZs at Mahindra City (IT and textiles) near Chennai (Tamil Nadu); Indore (Madhya Pradesh); Jaipur and Jodhpur (Rajasthan); Manikanchan and Salt Lake Electronic City (West Bengal); Nokia Sriperumbudur (Tamil Nadu) have become operational in 2004 / 2005 / 2006. Further, 5 SEZs at Mahindra City for auto ancillary, Moradabad (UP), Village Vanj, District Surat (Gujarat), Hassan (Karnataka) and Chandigarh, are now getting ready for operation. Other zones are at various stages of implementation.
Facilities and incentives offered to the developer of an SEZ include duty free import/domestic procurement of goods for the development, operation and maintenance of an SEZ; exemption from Central Sales Tax, Service Tax and Income Tax for a block of 10 years in 15 years etc.
Investment of the order of Rs.1,00,000 crore over the next 3 years in infrastructure development of SEZs and in setting up of units therein, with an employment potential of over 5 lakh jobs is anticipated.
India proactive in the WTO
India’s tough negotiating strategies have led to its emergence as a key player in the World Trade Organisation (WTO) negotiations. Under Shri Kamal Nath’s stewardship, India played a central role first in finalizing the July Framework in Geneva in 2004, and then in obtaining a development-oriented Ministerial Declaration at Hong Kong in 2005. India’s brilliant strategy of cobbling together the Grand Alliance — a coalition of three developing country groupings — the G-20, G-33 & G-90 was very successful. This was achieved not only by actively co-chairing the G-20, but by reviving the moribund G-33, and wooing the LDCs and African Group, attending their meetings in Mauritius in 2004 and Brussels in 2005, though India was a member of neither.
In Hong Kong, India championed the cause of the West African countries on the cotton issue. With this strategy, government has ensured that India’s core concerns and interests are satisfactorily addressed, with enough negotiating space for India in future negotiations.