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India 2020 Economy Outlook


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In the publication "India 2020 Economy Outlook", D&B attempts to evaluate and analyse the prospects of the Indian economy over the next six years. This publication provides a forecast of key …

In the publication "India 2020 Economy Outlook", D&B attempts to evaluate and analyse the prospects of the Indian economy over the next six years. This publication provides a forecast of key macroeconomic variables over the next few years. The publication also covers analysis of various Indian states with respect to their potential to contribute to India’s growth. It also analyses various enablers and major policy initiatives that would drive and facilitate India’s economic journey. It also presents various challenges to growth in the next few years.

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  • 1. Risk Management Solutions Sales & Marketing Solutions Learning Solutions Economic Analysis Group Dun & Bradstreet
  • 2. D&B - Manappuram India 2020: Economy Outlook Published in India by Dun & Bradstreet Information Services India Pvt Ltd. (D&B) Registered Office ICC Chambers, Saki Vihar Road, Powai, Mumbai - 400072. CIN: U74140MH1997PTC107813 Tel: +91 22 6676 5555, 2857 4190 / 92 / 94 Fax: +91 22 2857 2060 Email: URL: New Delhi Office 1st Floor, Administrative Building, Block ‘E’, NSIC - Technical Services Center, Okhla Industrial Estate Phase - III, New Delhi - 110020. Tel: +91 11 41497900/01 Fax: +91 11 41497902 Kolkata Office 166B, S. P. Mukherjee Road, Merlin Links, Unit 3E, 3rd Floor, Kolkata - 700026. Tel: +91 33 24650204 Fax: +91 33 24650205 Chennai Office New No: 28, Old No: 195, 1st Floor, North Usman Road, T. Nagar, Chennai - 600017. Tel: 91 44 28142265/75, 42897602 Fax: +91 44 28142285 Ahmedabad Office 001, Samruddhi, Opp. Old High Court, Near Income Tax Office, Ashram Road, Ahmedabad – 380014. Tel: +91 79 27540558/59, 27541131 Fax: +91 79 27540560 Bengaluru Office No. 7/2 Gajanana Towers, 1st Floor, Annaswamy Mudaliar Street, Opp. Ulsoor Lake, Bengaluru - 560042. Tel: +91 80 42503500 Fax: +91 80 43503540 Hyderabad Office 504, 5th Floor, Babukhan’s Millennium Centre, 6-3-1099/1100, Somajiguda, Hyderabad - 500082. Tel: +91 40 66624102, 66514102 Fax: +91 40 66619358 Research and Analysis Dr Arun Singh Darshan Ojha, Dipshikha Biswas, Seema Nair, Arif Tolnur, Sudhir Rewale, Juili Pargaonkar, Abhishek Srivastava Sales Head Jayesh Bahadur Sales Team Nittin Maheshwari, Apoorba Kumar Patranabish, Pankaj Sharma, Sunena Jain, Kalyan Basu, Neetu Dhamija, Nitin Chaudhary, Amanpreet Bindra, Rupit Kar, Avishek Tiwari, Vaibhav Dhote, Sujata Bhakat, Sarita Sharma, Anupam Dass, Raj Choudhury, Anandita Pongurlekar, Vini Batheja, Anubha Garg, Nupur Khanna, Mayank Bhanu, Shubhra Upadhyay, Tanya Bedi, Rakesh Goyal, Shipra Thakur, Yashaswini Chandrashekar, Sindhu Ravi, Aisha Rashyani, Vishwa Desai Operations Team Nadeem Kazi, Ankur Singh, Shankar Iyer, Rajesh Gupta, Sumit Sakhrani Design Team Tushar Awate, Sonal Gangnaik, Shilpa Chandolikar, Mohan Chilvery All rights reserved This publication is copyright and all rights are reserved. Apart from any fair dealing for the purpose of private study, research, criticism or review as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Enquiries should be addressed to the publishers. Although every effort has been made in compiling and checking the information given in this publication to ensure that it is accurate, the authors, the publishers and their servants or agents shall not be held responsible for the continued accuracy of the information or for any errors, negligence or otherwise howsoever or for any consequence arising therefrom. D&B - Manappuram India 2020: Economy Outlook ISBN No - 978-93-82060-45-1
  • 3. Preface.................................................................1 Foreword..............................................................2 Executive Summary...............................................3 CONTENTS India’s Macro-economic Outlook 2020.................. 5 Economic Growth Drivers.................................... 24 State-wise Analysis of Economic Development....59 Policy Roadmap ...............................................179 Challenges to Growth.......................................194
  • 4. India’s economic growth has slowed markedly over the last two years due to structural and cyclical factors. For two consecutive years now, we have seen sub-5% GDP growth, a far cry from the average 8% recorded between FY06 and FY11. Regulatory hurdles, supply bottlenecks, particularly in the food and infrastructure sectors, weak consumer demand and policy instability have weakened business sentiment and halted new investments. A stable Government at the Centre has generated a new wave of optimism across the country and revived business sentiment due to expectations of proactive implementation of key economic reforms. The new Government has so far relayed the right signals, which has only heightened the sense of exuberance amongst India Inc. However, reinvigorating the economic growth engine from the current sub-5% growth necessitates progress on the policy front. The revival of economic prospects would be contingent upon the effective and speedy implementation of structural reforms. This would correct the economic imbalances and shift the economy onto a more sustainable growth path. The measures taken hereon will decide the fate of our economy for the next many years and also decide how we are viewed by foreign investors. The challenges that lie ahead for the new Government are formidable, but by no means insurmountable. After all, the underlying economy is still strong and capable of delivering robust growth. Dun & Bradstreet’s research report “India 2020 Economy Outlook” analyses the prospects of the Indian economy during the current decade. This report provides forecasts of key macroeconomic variables, studies growth prospects of some Indian states, identifies critical parameters that will drive growth during this period and also attempts to chart out some of the major policy initiatives that will facilitate India’s economic journey. We believe that economic growth will gather pace by FY16 and accelerate thereafter. Large infrastructure investment by the Government along with increased investment activity by the private sector is likely to help the economy achieve its potential in coming years. The services sector will continue to drive India’s growth momentum, growing by an average of above 9.0% during the period FY17 to FY20. I hope that you find this publication to be a useful research tool and an invaluable addition to your library. PREFACE The recovery and pace of economic growth in the current decade will, however, be dictated by consistent and effective implementation of wide-ranging economic and governance reforms. It is important that a measure of political consensus is achieved on key economic issues and parties across the political spectrum will need to adopt a bi-partisan approach in such matters. 1 Kaushal Sampat President & Managing Director - India Dun & Bradstreet
  • 5. The country has seen its economic growth slow down considerably in the last three years with GDP growing at lesser than 5% in seven out of the previous eight quarters. Despite the relatively slower growth recently, the Indian economy is poised to cross the US$ 2 trillion mark in FY15. Furthermore, India currently stands at the threshold of a new exciting phase of transformation. The installation of a new majority Government at the Centre has unleashed a wave of optimism about India's economic prospects. There are some early positive signs that the government will prioritize employment, infrastructure and growth. While expectations are running high, the government has also signalled that the pace of change and reform would be modulated. In this context, the first budget of the government has served to provide a sense of direction, with the hope that reform and growth push will continue incrementally over the next few months. Some key priorities of the NDA government are already noticeable: accelerating infrastructure development, bridging the urban rural divide, financial inclusion and importantly encouraging manufacturing for employment generation. While these priorities are undoubtedly laudable, efficient and timely implementation of related policies, programs and projects remains a challenge that the new government must surmount. Crucially, there is a growing assertion from government and policy-makers about the need to ensure active participation of states in the planning and development process. In fact, there are recent indications that the government is looking to replace the over-six decades old model of the Planning Commission with a new institution structured as a think-tank. It is also expected that the states will be allowed a greater influence in policy making and resource allocation through these changes. Greater involvement of states could also be accompanied with a template for greater accountability and more focused implementation of national resources. Broadly speaking, the revived optimism in the economy bodes well for the future. The implementation of the new agenda could see our economy shift into the next gear of productivity and competitiveness by the year 2020. In fact, GDP growth is expected to recover towards the second half of FY15 and gather significant pace by FY16. The increment in GDP growth will naturally lead to higher disposable incomes. D&B evaluates that India’s per capita GDP at current market price would almost double to reach close to ` 2 lakh (~ ` 1.90 lakh) by FY20. Probably the tag of being a middle income economy awaits India within a generation. In order to effectively catalogue this journey of growth, D&B has been producing this report “India 2020 Economy Outlook”. This is the fourth edition of the report and it brings out the scenarios for future growth in context of the current situation. I hope you will find this publication insightful and I look forward to your valuable feedback and suggestions. 2 Pawan Bindal Director Dun & Bradstreet India FOREWORD
  • 6. The structural reforms initiated in 1991 unlocked India's growth potential, transforming it into one of the fastest growing economies in the world. However, from the sustained high growth of above 9.0% achieved between FY06-FY08, the Indian economic growth has plunged to less than 5.0% in FY13-FY14. The European debt crisis inflicted a period of slowdown to the Indian economy which was further intensified by the inherent structural bottlenecks. At this juncture, a wave of optimism about revival in growth has been unleashed by the new majority Government at the Centre. Transparent bureaucracy, a pro-business policy framework, removal of structural rigidities and continuation of reforms are some of the major initiatives expected to be undertaken by the new government to unleash India’s growth potential. Even as the priorities are established, ensuring time-bound implementation, accountability and participation of states in the development process would be essential. Accordingly, we believe that the next six years would be very crucial as the path towards a more productive, efficient and competitive economy needs to be set to bring back India’s high growth trajectory. In the publication "India 2020 Economy Outlook", D&B attempts to evaluate and analyse the prospects of the Indian economy over the next six years. This publication provides a forecast of key macroeconomic variables over the next few years. The publication also covers analysis of various Indian states with respect to their potential to contribute to India’s growth. It also analyses various enablers and major policy initiatives that would drive and facilitate India’s economic journey. It also presents various challenges to growth in the next few years. The highlights of the analysis have been provided below - India’s Macro-Economic Outlook 2020 • The formation of a new majority Government at the Centre heralds a new period of real effective change. The economic growth momentum will gain traction as India is expected to witness a change in the politics surrounding economic policy-making • India is likely to realise its potential and achieve an annual average 3 growth rate of around 7.5% during FY15 to FY20 • India’s growth would be driven by a rapidly expanding services sector. The services sector is likely to grow by around 8.7% during FY17 to FY18 and further accelerate to 9.5% during FY19-FY20 • Investment as measured by Gross Domestic Capital Formation (GDCF) is expected to increase to 39.6% of GDP by FY20 from 36.5% in FY10 • Strong growth in domestic savings will support domestic investment. Aggregate savings as a % of GDP is expected to surge to 37.9% in FY20, as against 33.7% in FY10 • Within consumption, share of discretionary spending is expected to rise to 66.7% of private final consumption expenditure (PFCE) in FY20 as compared to 58.9% in FY10. Dr Arun Singh Senior Economist Dun & Bradstreet India EXECUTIVE SUMMARY
  • 7. Economic growth drivers: • Substantial investments in social and physical infrastructure and harnessing the demographic dividend will be the key growth drivers that will enable the economy to achieve ‘inclusive and sustainable growth’ • Removing key structural constraints to growth and improving basic civic infrastructure such as transportation, sanitation and water, healthcare and energy systems; education and skill development of the youth; spreading the use of technology across India's vast population and raising productivity across sectors including agriculture, are some of the areas which need to improve strongly to enable the Indian economy to get on to the high growth phase. • Rising demand for infrastructure facilities, growing middle class and an increasing working-age population would engender substantial increase in infrastructure investments during the current decade. Infrastructure investment is expected to surge to around 10.0% of GDP by FY20 from around 6.8% of GDP in FY10 • Total government expenditure on health and education is expected to 4 inch up to 6.2% of GDP in FY20, as against 4.4% of GDP in FY10 • The investment in agriculture sector is expected to grow to around 3.2% of GDP by FY20 as against 2.8% of GDP in FY10. State-wise Analysis of Economic Development: • India has entered in the era of inclusive growth, wherein significant progress can be seen in terms of growth percolating to even the weaker sections of the society during the next few years • Share of the eleven states under consideration – Bihar, Madhya Pradesh, Rajasthan, Odisha, Uttar Pradesh, Maharashtra, Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu and Kerala – in India’s GDP (factor cost constant price) is expected to increase to around 76.0% by FY20, as against 68.1% during FY10 • The contribution of the BIMAROU states to India’s incremental real GDP will be approximately 27.2% during FY11-FY20 as compared to 18.8% during FY01-FY10 • Three of the five BIMAROU states are expected to grow at an annual average growth rate of more than 9% during FY15-FY20. Among BIMAROU, Uttar Pradesh will remain the largest contributor in overall GDP • Gujarat is expected to emerge as the second largest contributor to GDP by FY16. On a per capita basis, Gujarat may marginally overtake Maharashtra in FY15 • Maharashtra would continue to be the largest contributor to India’s GDP, maintaining a share of around 16.1% in FY20.
  • 9. The Indian economy crossed the one trillion US dollar GDP mark in FY08 consequent to the high growth witnessed since the second half of the last decade (FY01-FY10). After around seven years it is likely to cross 2 trillion US$ mark in FY15. India’s growth story differs from other economies like Japan, South Korea and China because of its service sector driven growth rather than by labour-intensive manufacturing sector. While the pro-market reforms initiated in 1990s paved the way for the growth trajectory of the services sector in India, it did not helped much to the industrial sector which might have played a role in growth in entrepreneurship. India’s transition from its agricultural to a service driven economy (bypassing industrial sector) has led to it being the 3rd largest country in terms of Purchasing Power Parity (PPP at constant 2011 international $). The per capita GDP which indicates the approximate amount of goods and services that each person in a country would be able to buy in a year if income were divided equally to an extent reveals the country’s level of economic development. India’s Gross Domestic Product (GDP) per capita, adjusted for purchasing power parity, in constant 2011 dollars was US$ 5,238 in 2013. Comparing the per capita income levels show that in 1990, India had a higher per capita income in PPP terms than China. However, unprecedented growth had led China to cross India’s current (2013) level of per capita income by 2005. Thus, India is around eight years behind China in terms of per capita income. Further, Asian countries like Philippines achieved India’s 2013 level of per capita income by 2008 and Indonesia by 1994. The achievement of Korea and Malaysia in terms of GDP per capita during the last decade was also significant. 6 Chart 1.1: GDP per capita, PPP US$ (constant 2011 international $) Source: World Bank However, the impact of the high growth of India has been concentrated and not been widespread as is evident from the fact that India remains far behind than some of the Asian countries in a number of development indicators.
  • 10. Even today, India’s large section of the population remains employed in the agriculture sector and majority of the population still resides in rural areas. Despite India being a services driven economy, services sector contribution to employment remains low, while agriculture continues to be the single largest employment generator. Given below are a set of parameters which we have used for comparison between India and some Asian and emerging economies. While these comparisons indicate India lagging behind these countries, it also points out the numerous opportunities that India has and can exploit going ahead. We expect that with the increase in growth and the consequent rise in income, India would be able to improve its welfare indicators and achieve a more inclusive growth going forward. Rural population Around 68.9% of India’s population resides in the rural areas (Census 2011) with around 54.6% of the population employed in agriculture. About ten years ago in 2001, around 72% resided in the rural areas. Thus, majority of the population is not able to access the benefits that the urban population derives. The urban areas are usually the growth centers of the country with an access to modern facilities in terms of infrastructure or goods. In comparison, only 15% of the total population in Brazil belongs to the rural areas. While around 47-48% of the total population in China and Indonesia belong to the rural area, the % of people residing in the rural areas has sharply declined in China and Indonesia from the 2001 level when it was around 63% in China and 57% in Indonesia. 7 Chart 1.2: Rural population (% of total population) Source: World Bank
  • 11. Per capita health expenditure In terms of per capita health expenditure India not only remains far behind the other Asian and emerging economies, the increase in per capita health expenditure during the last decade has not been adequate in comparison with the growth rate achieved in other countries. Out of pocket health expenditure in India remains quite high. 8 Chart 1.3: Per capita health expenditure US$, PPP (constant 2005 international $) Source: World Bank Financial inclusion India has been trying to deepen the financial inclusion in the country, however, it still has long way to go. The presence of commercial bank branches per 100,000 adults was lower than the world average in 2012. We expect access to financial services to increase in the coming years as there have been initiatives taken by the Reserve Bank of India and the Government for the same. Chart 1.4: No of Commercial bank branches (per 100,000 adults) in 2012 Source: World Bank
  • 12. Indian economy - Moving ahead India has achieved a high growth trajectory during the last decade propelled by the set of industrial trade and financial sector reforms and the consolidation of government finances. Moreover high savings rate, acceleration in investment, moderate inflation and fiscal consolidation led India to achieve an average growth rate of 9.5% during the period FY06 to FY08. The growth trajectory of the Indian economy suffered a setback when the economy slowed down due to the impact of the global financial crisis and European debt crisis. India’s growth weakened considerably and slumped down to an average growth of around 4.6% during FY13 and FY14 - the lowest growth since FY04. The slowdown in growth was a result of global factors which was compounded by domestic structural issues. Global macroeconomic and financial uncertainty, weak external demand, elevated price levels, widening twin deficits and falling investment impacted growth. 9 Chart 1.5: Growth journey of the Indian economy Source: Mospi However, we believe that India has a great potential to emerge as a strong economy. The formation of a new majority Government at the Centre heralds a new period of real effective change. The economic growth momentum will gain traction as India is expected to witness a change in the politics surrounding economic policy-making. Nonetheless, the future performance of the Indian economy will depend more heavily on reinforcing domestic drivers of growth.
  • 13. 10 Chart 1.6: Indian economy: A shift to a high growth path Source: Mospi, D&B research Indian economy: Journey towards doubling per capita income (GDP) According to D&B’s estimate, the Indian economy is expected to recover from the current phase of slowdown towards the second half of FY15. Growth is expected to pick up towards end FY15 and gather pace by FY16. India’s GDP is expected to witness a healthy growth rate of an average of around 7.0% during FY16 to FY17, beyond which its growth rate is expected to accelerate. India is likely to achieve a higher growth rate of around 8.2% during FY18-FY19 and is expected to touch a growth rate of 9.0% by FY20. This increase in growth rate will culminate into a realisation of high per capita income (GDP) over the years. According to D&B’s assessment, India’s per capita GDP at current market price would almost double to reach close to ` 2 lakh (` 1.9 lakh to be precise) by FY20. We believe India has the potential to achieve a higher growth rate, given its domestic fundamentals. We expect India is likely to realise its potential and achieve an average growth rate of around 7.5% during FY15 to FY20. In our assessment of India’s growth dynamics we have identified certain key areas of transformation which will play a critical role in upholding India’s growth story. Sustaining growth – Areas of transformation Currently, the Indian economy is growing below its potential growth rate. Thus, the foremost priority would be to fill the negative output gap and subsequently to raise the growth potential. We have identified certain areas which if emphasized would help in resolving the domestic structural constraints and help in raising the growth potential as well. Enhancing infrastructure investments Increasing investments in infrastructure and implementing the projects within a reasonable time frame, would provide a much needed fillip to the economy and galvanize it for all round progress and development.
  • 14. Tier III and tier IV cities are expected to be the new centers of growth during the forthcoming years due to the growing pressure on the urban areas. There has been a perceptible thrust in the Budget towards upliftment of regions beyond the urban centres. Initiatives such as creation of 100 smart cities would provide the much needed fillip for all round progress and development. The rural areas are also expected to develop through the likely increase in focus of the government to provide the key infrastructural facilities through its rurbanisation mission. Emulating Gujarat’s successful rurban development model of urbanisation of the rural areas in others states is a step forward to bridge the urban rural divide. Further, introduction of “Digital India” - a pan India programme to ensure broadband connectivity at village level and increase in financial inclusion would also propel the growth story forward. Linking of rivers, development of industrial corridors with emphasis on smart cities to spur growth in manufacturing and urbanisation, work on select expressways in parallel to the industrial corridors, target of National Highway (NH) construction of 8,500 km, development of new airports in Tier I and Tier II cities, 500 urban habitations to be provided support for renewal of infrastructure and services in the next 10 years through PPPs are some of the concrete measures to uplift the infrastructure in all spheres The government's ambitious plan to revive infrastructure through launching a Diamond Quadrilateral project of high-speed trains, modernization and revamping the railways, modernizing existing ports and building cities with a well-developed civic infrastructure and providing for single window clearances – both at the centre and in the states and chalking out investment-friendly public-private partnership (PPP) mechanism also generates confidence that the beginning has been made. Innovation and entrepreneurship India ranks 76th out of the 121 nations in the Global Entrepreneurship and Development Index, 2014 (GEDI), published by GEDI, a specialized non-profit research and consulting firm. Further, the ‘Doing Business 2014 report’, a study conducted by the International Finance Corporation of the World Bank Group ranks India at 134th among the 189 countries surveyed. However, currently initiatives have been taken to promote entrepreneurship and innovation. Measures such as “Start Up Village Entrepreneurship Programme” for encouragement of rural youth to take up local entrepreneurship programs, proposal to launch “Skill India” to skill the youth with an emphasis on employability and entrepreneurial skills along with training and support for traditional professions are initial steps to boost the spirit of entrepreneurship. 11
  • 15. The focus of the government on agri-research and technology are the essential ingredients to launch the second Green Revolution. Development of biotech clusters and strengthening of research centres will promote R&D for healthcare. The Government plans to strengthen at least five institutions as Technical Research Centres in areas such as nanotechnology, materials science and biomedical device technology. Establishment of Biotech clusters in Faridabad and Bengaluru to be scaled up to include global partnerships in accessing model-organism resources for disease biology, stem cell biology and high-end electron microscopy. Funding of entrepreneurship India is an attractive destination for risk capital. However, the entrepreneurial ecosystem needs to be improved by enhancing availability of risk capital to entrepreneurs at start-up and early stage. Funding is one of the key concerns for any start-up venture. The recent proposal by the government to set up a fund with a corpus of ` 2 bn to establish a technology centre network to promote innovation, entrepreneurship and agro-industry and ` 100 bn fund for start-up capital for small enterprises would support the small entrepreneurs. Liberalisation of FDI, legislative and administrative changes to reduce litigation in direct taxes and ensuring adequate capital flows (both debt and equity) would support the entrepreneurship spirit and uplift the growth potential of the Indian economy. Governance and policy Overall governance along with corporate governance needs to improve from the current levels. In fact, governance has to improve at every level – from hospital and educational institutions to polity, firms, non-profit institutions, banking and finance, regulation, land records etc. As indicated by the World Bank’s worldwide governance indicators, India is still below average on key governance parameters. The new government with its mantra of “minimum government and maximum governance” has dismantled a number of ministerial panels and started taking measures to streamline the administrative structure to improve governance and delivery. The government has also recently abolished the practice of appointing groups of ministers (GoMs) and empowered groups of ministers (eGoMs). We believe that the policy landscape will have to act as a catalyst to remove the bottlenecks and create a conducive environment for investment to pick up pace and industry to thrive which will in turn boost consumption. Moreover, the reforms are critical for raising the efficiency and the productivity levels of the invested capital. Improving the quality of health and education is essential for improving productivity of the labour force. 12
  • 16. Achieving higher growth is possible in India, if the government improves governance and continues to take adequate policy measures to address the bottlenecks hindering the investment initiatives and facilitate not only the industrial sector but also the services sector which has the potential to achieve a higher and sustainable growth. Enhancing productivity Increasing productivity & efficiency and ensuring optimum utilization of resources would ensure a sustained rate of real growth. With the availability of huge working age population, India needs to sufficiently invest to absorb the labour productively and also ensure that the labour force is suitably skilled and educated to be employable. We expect investment in human capital i.e. education to increase in the coming years which is likely to generate more skilled and resourceful young population. The productivity and efficiency of all sectors in the economy has to improve so as to keep the prices pressures under control. Both the agriculture and industrial sectors in India suffer from low productivity. Ease of doing business India still needs to go a long way in creating an enabling and conducive business environment. According to the report “Doing Business 2014”, World Bank, India ranks 179 out of 189 countries in the ease of starting a business. India ranks the lowest in ease of doing business relative to the other BRICS countries while South Africa ranks highest overall in the ease of doing business relative to the other BRICS economies. Interestingly, China ranks low overall, except on certain parameters such as Enforcing Contracts and Registering Property where it ranks high. It has also made considerable progress in getting credit, in which it now stands at 73. India ranks low on almost all of the parameters including - Starting a Business (179), Dealing with construction permits (182), Getting electricity (111), Registering Property (92), Paying taxes (158), Trading across borders (132), Enforcing contracts (186) and Resolving Insolvency (121), while it ranks relatively high in parameters Getting credit (28) and Protecting investors (34). While China does very poorly in dealing with construction permits as it ranks 185 out of 189 countries, it is interesting to note that Hong Kong SAR, China, ranks number one globally. Hongkong made obtaining construction permits easier by introducing the “Be the Smart Regulator Program”, a large-scale improvement program for business licenses covering multiple business sectors, which reduced the time to deal with building permits by 36 days and eliminated 8 procedures related to inspections and pre-approvals. In 2010, it established a one-stop center allowing six local departments and two private utility companies to function under the same roof to expedite the process to obtain a construction permit. 13
  • 17. The Indian government has recently introduced facilitation measures which would lead to ease of doing business. Facilitation measures such as launch of e-Visa, Indian Customs Single Window Project for trade, introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial sector, one single operating DEMAT account and making all business and investment related clearances and compliances available on a 24x7 single portal would help the business community. While a beginning has been made, needs to be done in the coming years. Increased infrastructure spending, substantial growth in investment activity, strong growth in services sector, emergence of a large working age population and healthy consumption demand are thus going to be the key drivers of growth. 14 Services sector will continue to drive India’s growth momentum Services sector contributed around 60% to India’ GDP in FY14 as against around 39% during FY85. The services sector is currently undergoing considerable moderation in growth due to weak global growth prospects and sustained slowdown in the industrial sector which in turn has led to reduced demand for services. The services sector which grew remarkably, clocking an average growth of 10.3% during FY06-FY10 has moderated and is growing in single digit. The growth in the services sector fell to 9.7% during FY11 from 10.5% during FY10 and has decelerated during the remaining years. Services sector growth averaged at around 6.8% during FY12 to FY14. The strain on the services sector is expected is continue till FY16 and we anticipate the services sector to gain traction thereafter. D&B expects the services sector to grow at an average of above 9.0% during FY17 to FY20. The services sector is likely to grow by around 8.7% during FY17 to FY18 and further accelerate to 9.5% during FY19-FY20. The increase in traction in the services sector would come from some stability from the turmoil in the external environment and resurgence in the industrial activity. While the growth in hotels, transport and communication segment is expected to drive the growth, it would be the strong growth in the financing, insurance, real estate & business services segment which would lead to the higher growth in the services sector. According to D&B’s estimates, growth in services sector is expected to average at 8.5% during FY15-FY20. The thrust in infrastructure, increased focus in services export, major initiatives for financial inclusion in the country and increase in per capita income would help in boosting the services sector. Creating an enabling policy environment, supporting the small and medium enterprises, building world-
  • 18. class infrastructure in identified tier II & tier III cities would provide a push to IT-ITeS industry. There has been a conscious effort by the Government to leverage IT in different varied segments of the economy such as CLICK for digital classrooms, e-Visa for tourism, eBiz platform for industry and Digital India for broadband penetration in rural India. 15 Chart 1.7: Growth in industry and services sectors to resurge f: D&B forecasts, data from FY15 are forecasts Source: Mospi, D&B India India’s industrial sector to gain strong footing The industrial sector is currently witnessing a deceleration in growth with larger than expected prolonged slowdown having started to impact the services sector as well, thereby pulling down the GDP lower than the level witnessed during the 2008 global financial crisis. The deteriorating investment activity, sustained inflationary pressures, unfavourable external environment and loss of business confidence both with domestic and foreign investors have led to the weak industrial scenario. Most importantly, the slower than expected pace of implementation of critical reforms, the bottlenecks in the clearances of projects and the lower rate of resolving issues in the project investments have backtracked the industrial development which was required to sustain the high growth trajectory of the Indian economy. A revival in the industrial sector is imperative for India to achieve an inclusive and sustainable growth. The demographic dividend which will present India with a large pool of young and working age population has to be harnessed well and productive employment must be generated through employment opportunities in the manufacturing sector. The 183 mn additional income-seekers (according to the Planning Commission) that are expected to join the workforce in the next 15 years cannot be absorbed by the services sector alone. The manufacturing sector also needs to become more dynamic to help India increase its export growth potential.
  • 19. We expect the slowdown in the industrial sector to continue till FY15. While we expect the industrial sector to recover, the process of recovery would be at a slower pace. The growth in industrial production is expected to gain traction from FY16. The measures that will be taken by the government both at the central and the state government level to develop the infrastructure and the industrial sector will take time to accelerate the industrial process. Most of the state governments have been emphasizing on the need to develop their industrial sector and infrastructural facilities to drive the growth of their respective states. We believe an overhaul in infrastructure, development of more skilled workforce, bringing down the cost of doing business, and smoothening of process for projects executions aided by conducive policies would herald a more stable industrial activity in the coming years. Though there has been a slack in the reform process which has derailed the growth momentum of the economy, we believe there would be some traction in implementation and also initiation of reforms over the next few years. However, we expect that the impact of the reforms would take some time to unfold. D&B expects the industrial component of GDP to gather pace and improve slightly from 0.4% in FY14 to 1.5% in FY15. The industrial growth is however expected to record a high pace of growth thereafter. Industrial activity is expected to gain traction during the second half of the decade recording an average growth of 7.8% during FY16 to FY20, backed by growth in domestic investments and the government’s thrust on infrastructure development. Increase in investment as well as industrial activity and export diversification measures being taken by the government during this period will see India achieve a high export growth. Share of agriculture expected to come down It would not be easy to achieve an inclusive and sustainable growth without having a steady growth in the agriculture sector. The high economic growth entails sustained growth in the agriculture sector as well. Supply constraints in the agriculture sector and inability to cater to the growing demand of the increasing population would lead to accelerating price increases. The government proposes to adopt the National Mission for Sustainable Agriculture (NMSA) under the 12th Five Year Plan which aims at transforming the Indian Agriculture into a climate-resilient production system through adoption and mitigation of appropriate measures in the domains of both crops and animal husbandry. Despite reduction in net sown area due to growing urbanisation and industrialisation, the agriculture sector is expected to record an average growth of 3.7% during FY15-FY17 and at a slightly higher pace of around 4.3% during 16
  • 20. FY18- FY20 owing to increase in investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. The analysis of sectoral GDP data reveals the pattern generally exhibited by economies in the phase of growth. The share of agriculture sector in aggregate GDP is expected to decline further from 14.6% in FY10 to 11.4% in FY20. This can largely be attributed to increased traction in services. The share of services sector is expected to surge from 57.1% in FY10 to 63.5% in FY20. The share of the industrial sector to GDP is expected to come down from 26.1% in FY14 to 25.1% in FY15 and then remain at the same level in FY20. 17 Chart 1.8: Rising share of services sector in India's GDP All figures are at factor cost constant prices Source: Mospi, D&B India Investment to get support from traction in infrastructure activities Improvements in the supply-side of the economy will be a major determinant for India to achieve a sustainable high growth. For India, supply side factors such as investment, education and technological change will be the most important growth enablers during the next few years. Investment in infrastructure is expected be the major growth driver for the Indian economy in the coming years. As per D&B’s expectations, investment as measured by Gross Domestic Capital Formation (GDCF) is expected to increase to 39.6% of GDP during FY20 from 36.5% in FY10. While the government is expected to undertake significant infrastructure investments, private sector investment is also expected to rise substantially and account for around 51.8% of the total investment in infrastructure by
  • 21. FY20. While the investment activities in the recent period had weakened considerably, with number of projects being stalled and shelved increasing significantly, concerns have risen over the productivity and the efficiency of the capital invested. The investment rate which had deteriorated during FY12 to FY13 is expected to continue to fall during FY14 as well. One of the biggest concerns here is fall in productivity level. A reflection of the fall in the productivity growth has been the rise in the Incremental Capital Output Ratio (ICOR). The ICOR has steadily increased from an average of 4.3 during the pre-crisis period (FY03 to FY08) to an average of 5.3% during FY09 to FY13. Lack of continuance of economic reforms and likely loss of efficiency and productivity of key infrastructural sectors such as mining & quarrying, power, gas & water have led to a rise in the ICOR levels. Removing procedural bottlenecks is warranted to facilitate investment by domestic as well as foreign investors. According to the World Bank’s latest Ease of Doing Business, it takes an average of 12 procedures, 27 days, and a minimum paid in capital of 124.4% of per capita income to start a business. We expect increased policy focus on improving the productivity and efficiency of the capital invested in coming years. Chart 1.9: Strong growth in domestic savings to support investment Note: GDS (Gross domestic savings), GDCF (Gross domestic capital formation); GDS/GDP and GDCF/GDP fig-ures are at current market prices. Investment rate is defined as% share of investment in current GDP market 18 price. Saving rate is defined as % share of saving in current GDP market price. f: D&B forecasts Source: Mospi, D&B India A major proportion of investment would be funded by domestic savings. As per D&B’s forecasts, aggregate savings as a % of GDP is expected to surge to 37.9% in FY20, as against 33.7% in FY10; domestic savings would primarily be driven by rising income levels. Moreover, a growing middle class population and changing age composition of the country are expected to help increase the saving rates. Given the fall in saving propensity, RBI and government has taken various measures to channelize household finances into financial savings.
  • 22. 19 Chart 1.10: Growth in private final consumption expenditure Source: Mospi, D&B Research Rising income levels coupled with increase in the young working-age population will lead private final consumption expenditure to grow steadily over the years. As per D&B’s projections, growth in private final consumption expenditure is expected to average at around 7.0% during FY15-FY20. Chart 1.11: Changing pattern of private final consumption expenditure (LHS) Chart 1.12: Rising share of discretionary spending over the years (RHS) f: D&B forecasts Source: Mospi, D&B India Further, the analysis of consumption expenditure data reveals a changing pattern of private final consumption expenditure during next few years. The share of spending in basic goods (food, beverages & tobacco and clothing & foot wear) in private final consumption expenditure is expected to decline substantially to around 33.0% in FY20, versus around 41.0% in FY11. On the other hand, share of discretionary spending (rent, fuel & power, furniture, medical care, transport & communication, recreation & education) is projected to increase from 59.0% in FY11 to around 67% in FY20. This
  • 23. shift in consumption pattern towards discretionary products indicates that the lifestyle of the people is expected to undergo major change. Within the basic goods, the share of spending in the food, beverages & tobacco component of the basic goods is expected to decline from 32% from the beginning of the current decade (FY11 to FY20) to around 25% in FY20. The share of gross rent, fuel and power under the discretionary goods is also projected to come down from 11% in FY11 to 8.8% in FY20. The growth projections for the macroeconomic variables that have been discussed so far have been done with certain underlying assumptions. The realization of the underlying assumptions that have been considered behind charting out the above scenario (Scenario I) is important for India to realise its potential and reach to be a US$ 4.58 trillion economy by FY20. However, given the current uncertainty which prevails not only in the domestic and global economy but also over the development in the reforms environment, we have outlined two other scenarios (Scenario II and Scenario III) which have been described in brief below. 20
  • 24. Scenario I: Incremental thrust on reforms to push India’s GDP to reach US$ 4.58 trillion by FY20 We have assumed that the new Government at Centre undertakes incremental effort to push through major reforms and successfully implements them in a time bound manner. The rise in productivity and efficiency levels is expected to yield a higher output for capital invested over the coming years. Government’s effort is expected to boost the private sector and improve the overall demand scenario. The consumption demand is thus likely to remain healthy and support the overall growth momentum. We also expect stability in the external environment and recovery in global growth which will aid India’s growth journey during the forthcoming year. In this scenario we expect GDP at market price to reach US$ 4.58 trillion by FY20. 21 Chart 1.13: India’s GDP at market price to reach US$ 4.58 trillion by 2020 Note: GDP figures are at MP Current Prices; GDP figures from FY13 are D&B forecasts Source: CSO, World Development Indicator and D&B India
  • 25. Scenario II - Failure to provide requisite thrust in reforms leads India’s GDP to reach US$ 4.3 trillion by FY20 Any derailment in the global recovery process or emergence of external shock can push back India’s growth momentum. If the recovery in the global economy takes a longer time than expected it would pose a major difficulty for the recovery of the Indian economy from the current slowdown. In addition, if the government faces major impediments in implementing critical reforms and fails to boost investment activity, we expect that the recovery process would be further delayed. Without any major push to clear the obstacles and supply side constraints which has been so far hindering the investment activities resulting in lower productivity and rise in inefficiency levels i.e. rise in ICOR levels, the pace of growth of the Indian economy would slow down. The consumption demand in this scenario would remain weak failing to provide requisite support to growth. In this scenario we expect India’s GDP at market price to reach US$ 4.35 trillion by 2020. 22 Chart 1.14: India’s GDP at market price to reach US$ 4.3 trillion by FY20 Note: GDP figures are at MP Current Prices; GDP figures from FY14 are D&B forecasts Source: CSO, World Development Indicator and D&B India
  • 26. Scenario III- A big push to enable India to be close to a US$ 5 trillion economy by FY20 In this scenario we assume that the new Government at Centre is able to push through its ambitious reform program and successfully implements them within a much shorter time period than expected. The government takes extra initiatives to bring about a major overhaul in its reform agenda – the favourable policy environment, resurgence in investment activity, enhanced private sector contribution and resurgence in consumption demand will provide the ‘big push’ to the Indian growth momentum. Increase in productivity and efficiency levels owing to technology gains and improvement in governance will enhance the ICOR levels. Increase in ICOR along with traction in investment will be able to provide a much greater thrust to the growth momentum. Rise in income levels along with the growing population will boost the savings rate. We also expect that the government will be able to capitalise on the promise of the country’s demographic dividend and exploit the untapped potential of some unexplored states and region. Stability in the external environment and recovery in global growth will also support India’s growth momentum. Assuming that the exchange rate remains at an average of around ` 56 per US$ during FY15-FY20, we expect India’s GDP at market price to reach US$ 4.92 trillion by FY20 in this scenario. 23 Chart1.15: India’s GDP at market price to reach US$ 4.92 trillion by FY20 Note: GDP figures are at MP Current Prices; GDP figures from FY13 are D&B forecasts Source: CSO, World Development Indicator and D&B India
  • 27. 24 India has emerged as a strong economy over the years. However, one of the major drawbacks of the high growth phase has been that the benefit of economic growth has not been equitably distributed. The recent slowdown has revealed that India needs to capitalise on its resources such as demographic dividend and untapped markets which would act as drivers of growth, pulling the economy out of the current phase of slowdown and ensure a sustainable high growth path. Rebound in economic growth can only be achieved through realisation of full potential of key growth drivers. The poor state of the physical infrastructure, both in terms of quantity and quality has further raised concerns regarding the sustainability of economic growth. The continuation of India’s economic policy stasis has raised the spectre of widening income inequalities by retarding the economy’s supply-side GROWTH dynamism. As the economy progresses ahead, there are reasons to ECONOMIC Demographic dividend Despite the world population expected to rise from 6.92 bn in 2010 to 7.72 bn in 2020, the working age population aged between 15 and 59 years in developed regions is expected to fall from 766 mn in 2010 to 738 mn in 2020. However, it is expected to increase to 3,986 mn for the less developed economies in 2020 from 3,543 mn in 2010. For India, it is likely to increase to 860 mn by 2020 from749 mn in 2010. This clearly shows that while the rest of the world could suffer from an ageing population, India could be blessed with “Demographic Dividend.” believe that these challenges will be met with some assurance of success. Removing key structural constraints to growth and improving basic civil infrastructure such as transportation, sanitation and water, healthcare and energy systems; education and skill development of the youth; spreading the use of technology across India's vast population and raising productivity across sectors including agriculture, are some of the areas which need to strongly improve to enable the Indian economy to get on to the high growth phase. This chapter identifies the potential growth drivers in India that could stimulate growth and drive the Indian economy on a high and sustainable growth path. In this endeavour, we begin by identifying substantial investments in physical and social infrastructure and harnessing the demographic dividend as the key growth drivers which will enable the economy to achieve ‘inclusive and sustainable growth’ in the period leading to FY20. Although we expect these two factors to contribute significantly to India’s growth story during the forthcoming years (2014-20), the role of other factors (such as technological progress, improvement in productivity etc) should not be underrated. DRIVERS
  • 28. 25 In India, around 31% of the population is estimated to be below 15 and more than half to be under 24, with the median age being around 28 years by 2020. It is predicted that India will become the world’s youngest country with 64% of its population in the working age group by 2020. The dependency ratio for India is expected to fall from 54% in 2010 to 49% in 2020, while that for China is expected to increase from 36% to 43% in 2020. The total labour force in India is estimated to grow at an annualised rate of 1.6% from 541.84 mn in FY12 to 586.44 mn in FY17 as per Current Daily Status (as per Census 2011). It is accepted that demographic dividend can contribute to significantly higher economic growth rates, provided that there are enough opportunities matching the requirements of the economy. As a country with a population projected to increase to more than 1.3 bn by 2021, India has tremendous human potential. However, to take full advantage of its demographic dividend and to unlock the human potential of its entire people, India needs to improve across a broad range of social and economic indicators including health and nutrition, education, social security and skill development. However, one of the most worrying factors for the economy has been the fall in employment elasticity of growth. This is an important factor in identifying the number of jobs that are being created with each % increase in the economic growth going forward. Lack of employment opportunity could be a major impediment for gaining benefits from changing demographics in the country. Additionally, the recent trend of unemployment among the educated people raises a serious question on the benefits of the demographic dividend. In many cases, the employment provided by the state is just subsistence level employment, and for educated people such kind of employment opportunities will not be sufficient. There is an over-emphasis on services and neglect of the manufacturing sector. The service and industrial sector provide employment to nearly 45% of the population, whereas they contribute around 86% in overall GDP. Furthermore, majority of them are informal workers. There is also a significant difference between the wages of regular workers and informal workers. So, what needs to be done in order for India to gain full advantage of a demographic dividend? The education system needs to be improved to ensure that it creates skills which add to the employment potential. The government is already working on this. With an objective of creating skilled personnel so that they can be effectively absorbed in the workforce, the government has launched
  • 29. the “National Skill Development Mission” (NSDM) with an outlay of ` 228 bn. The mission has laid institutional foundations for proactive role of public and private sector for reaping the benefits of demographic dividend. In line with NSDM, the Ministry of Labour and Employment had formulated National Skill Development Policy in 2009 with an overall target of creating 500 mn skilled workers by 2022. Further, with rapid industrialisation and development in Tier II and Tier III cities, the urban population in the country, which was 27.8% in 2001, is expected to increase to 32.1% in 2020, which would further act as a growth driver. But, with only 12% of the total workforce skilled, it would be essential to address the issue of labour demand-supply mismatch. This needs to be accompanied by increasing the labour productivity. Framing and implementing appropriate policies to create a large pool of skilled workforce, large scale investment in infrastructure sector which is labour intensive, sustained capital flows into the manufacturing sector in order to address the labour demand side issues and investments in social infrastructure i.e. health and education would be warranted to improve the quality of workforce and addressing the employment issues. Lessons to be learnt Countries that have been able to reap the benefits of a Demographic Dividend While there are many countries that have had high increases in their dependency ratios due to a demographic transition, South Korea, Brazil, Tunisia and Ireland are few examples that have been able to take advantage of a demographic dividend due to the successful implementation of strategic policies. By emulating certain measures that these countries have taken, India may also be able to reap the benefits of a demographic dividend, and more importantly, prevent itself from experiencing a demographic disaster. In South Korea, the main mechanism for economic development was government-led, labour-intensive and export-oriented industrialisation. For this, the government encouraged production of consumer goods and improved the infrastructure. There were also considerable changes in the education policy; South Korea’s educational strategy changed from compulsory primary education to an education that focused on vocational training. The rapid expansion of education in terms of quantity as well as quality is the principal feature of the South Korean educational development during the country’s industrialisation. Due to the education policies, the middle, high and tertiary school enrollment ratios increased substantially by the 2000s. Because of these policies, profound changes have been noticed in every field since 1960. 26
  • 30. Brazil is another country that was able to reap advantages of a demographic dividend and most recent growth is attributed to four key policies: investment in infrastructure, lower levels of poverty and inequality, increased openness to the world, and reformed government institutions. The government allowed a more expansionary fiscal policy, including increased public investment. This helped especially to keep the damage from the world recession to a minimum and allowed for a faster recovery. The Brazilian growth model has gone through three phases – wage-led expansion (with income transfers and higher minimum wages leading to increased consumption and a recovery of investment); investment-led growth (higher public investment and financial incentives to private investment) and the new phase with emphasis on education and innovation to spur long-term growth. Small countries like Tunisia and Ireland were also able to reap a dividend from their demographic transitions. Tunisia’s growth strategy has been based on the development of labour-intensive and export-oriented manufacturing activities through which it has increased employment for low-middle-skilled workers, mainly women. Tunisian public policy has targeted growth in tandem with poverty alleviation. Rural development programs have been put in place to provide the infrastructure needed to develop agriculture and integrate this sector more with urban areas. The strategy of industrial development based on light manufacturing and export growth as well as the development of tourism has paid off highly in terms of employment creation, particularly for low-skilled workers. Educational reforms included the “learning improvement project” which included development of new school curricula, the creation and distribution of new text books, and the implementation of new tools to measure students’ performances. The government allotted notable amounts of public spending to the education sector - primary and secondary education became accessible and free of charge to all individuals while a partial contribution is paid by students at the tertiary level. As a result, indicators of social and economic wellbeing have improved significantly. Almost all Tunisian children attend school compared to only 80% for the MENA region and female labour participation is high in a regional context. Infant mortality rate declined and life expectancy is higher than the average for both lower-middle-income and MENA countries. Inequality has also dropped steadily since the 1990s, and in 2005 only 3.8% of the population lived in extreme poverty according to the lower national poverty line. Ireland leveraged its demographic dividend advantage through focusing on long-term productivity growth and by increasing levels of employment. The Irish commercial policy encouraged free trade and monetary integration and the industrial policy has been an early supporter of the free movement 27
  • 31. of international investment. The Irish education policy encouraged free secondary and low-cost higher education. Investments in secondary and post-secondary education provided crucial support for productivity growth through a plentiful supply of well-educated young workers. Irish education generally supports shorter, more applied courses and focuses on vocational training in the secondary and tertiary levels. These developments have been critical in making Irish domestic firms more productive and attracting multinational corporations to Ireland. Over the past decade, Ireland’s real domestic product per head has doubled, and its national unemployment rate has declined from 16% to less than 5%. It can be seen that the growth strategy for almost all of the countries mentioned above has been the development of labour intensive, export-oriented manufacturing activities and the implementation of good quality education focusing on vocational training that reaches a majority of the people. One of the most worrying factors for the Indian economy has been a lack of employment opportunity. The education system needs to be improved to ensure that it creates skills which add to the employment potential, and there must be a greater focus on vocational training. Investment in social infrastructure While physical infrastructure is expected to play a vital role in India’s journey towards higher growth in the coming few years, improvement in social infrastructure (especially health, sanitation and education) will help the country to move toward inclusive growth. Since investment in social infrastructure is a necessary condition for attaining higher economic growth, the Government has over the years scaled up investment in social infrastructure. Health Infrastructure Even though healthcare in India has improved over the years, it still lags behind Brazil, China, Russia and few other developing countries. Healthcare spending as a % of GDP in India is lowest among the BRICS nations. According to World Bank estimates, healthcare expenditure in India was US$ 61.4 per capita (at current US$) while China spent US$ 321.7 and Brazil US$ 1,056.5 in 2012. The world average health expenditure per capita was US$ 1,030.4 in 2012. While the basic indicators of health like infant mortality rate and life expectancy have improved significantly over a period of time, it has not yet reached the levels stipulated in the Millennium Developmental goals set by the United Nations. Infant mortality rate and maternal mortality ratio dropped to 42 in 2012 and 178 (year 2010-12, Ministry of Health and Family Welfare, Sample Registration survey, Economic Survey FY14) as against target of around 27 and 109 for 2015, respectively, set by the United Nations. 28
  • 32. Further, the improvement in the health indicators has not been uniform; while states such as Kerala have performed well, Madhya Pradesh and Odisha continue to disappoint even though the states began on equal footing. In order for sustained economic growth, the basic indicators of health must improve. Apart from physical capital, investment in human capital is an important way of driving economic growth. The public expenditure on healthcare in India is appalling when compared to other developing countries. The private expenditure dominates the total spending significantly. The “Out of Pocket” expenditure in India is significantly above the world average. A high level of “Out of Pocket” expenditure implies that the individual is not registered under an effective insurance scheme and has to bear the burden of medical emergencies himself. Therefore, in order to encourage growth, the government needs to monitor the “Out of Pocket” spending. It is expected that during the next few years, the responsibility of implementing healthcare and sanitation programs will mainly lie with the state governments and local bodies while financial assistance will be provided by the central government. The commitment to public provisioning of health services featured in the “National Health Policy” was a good start. However, inadequate resource allocation and poor governance have led to a progressive weakening of services. Development of healthcare in the private sector has compensated for the shortcomings of the public sector but in order to boost economic growth both sectors must develop in tandem. The government under the 12th Five Year Plan is expected to bring about sweeping changes in the healthcare sector with focus on streamlining expenditure under the National Rural Health Mission (NRHM), introduction of district-wise pilots of Universal Health Coverage (UHC), creation of a Public Health Cadre and providing free medicines through a Central Procurement Strategy. The NRHM set up in 2005 is aimed at reducing Infant Mortality Rate (IMR), Maternal Mortality Rate (MMR) and Total Fertility Rate (TFR). The Ministry of Health and Family Welfare has launched the ` 225 bn National Urban Health Mission (NUHM) in Feb 2013 in order to address the needs of urban slum dwellers. With a soaring rate of urban migration, it is likely that expenditure under the NUHM will rise dramatically. Further, the “Rashtriya Bal Swasthya Karyakaram” has been launched in 2013 to provide comprehensive healthcare services to around 270 mn children across the country. The government has indicated that in an attempt to provide “Health for All”, it will introduce two key initiatives i.e. the Free Drug Service and Free Diagnosis 29
  • 33. Service which would be taken up on priority. The government is to set up two National Institutes for Ageing in New Delhi and Chennai. It is also planned to set up AIIMS-like institutes in Andhra Pradesh, West Bengal, Maharashtra and Uttar Pradesh. Health infrastructure can be divided into two primary categories, namely medical services and medical education. Medical services indicators include the number of hospitals, density of hospitals in rural and urban areas, hospital beds to population ratio, number of physicians and doctors, number of nurses etc. Medical education infrastructure in the country has shown rapid growth during the last 20 years. The country has 381 medical colleges, 301 dental colleges and a total admission of 25,320 in BDS colleges as of FY14. The number of medical education institutes determines the number of physicians and doctors available in the future. Therefore, there is a need to set up a higher number of medical colleges in the country. While India has a high number of hospital beds, the ratio of beds to population is 0.7 which is significantly lower than the OECD average of 3.8 as per World Development Indicators (WDI) data. The target recommended by the UHC of India is 2.0 which will warrant a remarkable rise in the number of beds. In 2011, India had only 0.7 physicians per 1,000 population, which is well below the OECD average of 3.2. Moreover there was lesser than one nurse per 1,000 people which is notably below the OECD average (8.9) and the world average indicated by the OECD briefing note. Due to the paucity of skilled doctors and nurses in both urban and rural areas, demand for healthcare is higher than the supply, leading to huge waiting times, queues, exploitation, bribery and corruption. These problems must be stamped out if growth is to be encouraged. India has 1,51,684 Sub Health Centers (SHC), 24,448 Primary Health Centers (PHC) and 5,187 Community Health Centers (CHC) as of March 2013. According to Universal Health Coverage, each SHC should cover a population of 5,000 (or a Gram Panchayat). The size and spread of India’s population will require a physical infrastructure of 314,547 SHCs, 50,591 PHCs and 12,648 CHCs by 2022 as per the report on National Service Norms. The above recommendations, if fulfilled, will provide a significant boost to the health infrastructure in the country. With a rising number of people migrating to urban areas, the government needs to take active measures to provide healthcare facilities to the urban poor. Significant intra-urban inequalities in the country have caused the urban poor to suffer disproportionately from a wide range of diseases and health problems. Therefore, the government must provide health insurance, 30
  • 34. better sanitation facilities, greater number of hospitals and doctors in order to cater to the needs of the urban poor. Moreover, healthcare facilities must be affordable. The government has encouraged foreign investment in India since Jan 2000. FDI in the healthcare sector is allowed up to 100% and the government encourages social infrastructure projects like construction of hospitals and building of medical equipment and facilities. A significant portion of most of the country’s healthcare Budget is attributed to healthcare research. However, majority of the policies employed by the government of India focuses on healthcare provision not healthcare prevention. The government of India allocated ` 100.3 bn for health research under the Twelfth Plan Outlay as compared to ` 18.7 bn under the Eleventh Plan Outlay. The government not only needs to allocate a greater amount but it also needs to set up establishments that conduct comprehensive research in healthcare. In order to encourage research, it must ensure patents are respected and contracts are enforced. The government of India launched the Rashtriya Swasthya Bhima Yojna (RSBY) in 2008 in order to provide health Insurance to families below the poverty line. The success of this scheme was applauded by countries like Germany, UN and the World Bank. Other areas in healthcare that are likely to grow significantly are telemedicine and medical tourism. Growth in the telemedicine sub-sector is taking place due to the need for specialist doctors in rural areas, as most of them live in urban or semi-urban centers of India. With a population of 851 mn people living in rural areas as per World Bank estimates 2013, healthcare facilities can be provided through telemedicine. Medical tourism will be on the rise in India due to highly trained English speaking doctors offering services at low costs. These measures, if suitably implemented, can potentially have a lasting impact on India’s medium and long-term growth prospects. According to D&B’s forecasts, total government expenditure on health is expected to inch close to 2.0% of GDP in FY20, as against 1.4% (BE) of GDP in FY14. 31
  • 35. 32 Chart 2.1: Government investment in healthcare to increase marginally E: Estimate, BE: Budgetary Estimate, F: D&B forecast Source: Budget Document, D&B Education In the recent past, India has made significant progress in the field of education. While literacy levels increased from 64.8% in 2001 to 73% in 2011, it is significantly below the world average of 84.3% as of 2010. Amongst the BRICS nations, literacy levels in China were 95.1% while Brazil attained 90.4%, South Africa 92.9% and Russia had around 100% literacy rates as per World Bank estimates of 2010. Further, the rise in literacy levels is not uniform in India. While the male literacy rate is 80.9%, the female literacy rate is merely 64.7% according to Census 2011. A goal of the 12th Five Year Plan is to raise the overall literacy rate to over 80% and to reduce the gender gap in literacy to less than 10%. In order to improve the growth of the economy, the literacy rate must rise uniformly. According to UNDP report, 2014 estimates, India’s adults mean years of schooling at 4.4 years is well below the other emerging market economies such as China (7.5 years) and Brazil (7.2 years). A matter of particular concern is the steep dropout rate after the elementary level. Chart 2.2: Pupil to Teacher Ratio (2011) Source: World development indicator-2014, World Bank
  • 36. As indicated by the 12th Five Year Plan, the four major priorities with respect to education are access, equity, quality and governance. The problem of access is no more primary enrollment, but ensuring that the dropout rate is minimal, increasing secondary enrollment and ensuring regular attendance. There is a drastic difference in the male and female enrollment rate. Moreover, in order to improve inter-generational mobility, the government must ensure that families below the poverty line are provided equal opportunities. While the gaps in average enrolments between disadvantaged groups and the general population have decreased, there is still a considerably large gap in learning levels with historically disadvantaged and economically weaker children having significantly lower learning outcomes. Therefore in the future equity is a major concern. While the primary enrollment in India has increased dramatically, the literacy rates have not risen significantly. This is because the quality of education has not been up to the mark. Indicators of the quality of education are pupil to teacher ratio, physical space, textual materials, classroom processes, academic support to the teachers, assessment procedures and community involvement. The pupil to teacher ratio in China stands at 16.8 while Brazil has a ratio of 21.3, significantly below that of India (35.2) as per WDI database 2014. Regular studies and analysis should be conducted in order to monitor the impact and quality of teaching. The education system in India can be categorized into 1. Pre-primary education (Until age 6), 2. Primary education (Ages 6 – 11), 3. Secondary education (Ages 11 – 16), 4. Tertiary education (Ages 16 and beyond, includes university education), 5. Vocational education (training for specific trades), 6. Teacher education (Developing teaching skills) and 7. Adult education (Ages 18 and beyond developing skills, attitudes or 33 values). Pre-primary education The main purpose of pre-primary education is to prepare children physically, emotionally, socially and mentally for formal schooling and to prevent poor performance and early drop out. The Government of India had launched the Integrated Child Development Services (ICDS) scheme in 1975. The Department of Women and Child Development has been implementing the scheme which seeks to provide healthcare facilities, supplementary nutritional support and to improve children’s communication and cognitive skills as a preparation for entry into primary school. The private sector also has a significant number of pre-primary institutions and with growing demand for pre-primary education in urban areas, the number of institutions is likely to go up. With a rising
  • 37. population and an increasing rate of young population, India is set to require a greater number of pre-primary institutions both in urban and rural areas. Primary education The Right of Children to Free and Compulsory Education (RTE) Act, 2009 was introduced in 2009 and commenced in 2010 with the objective that every child has a right to full time elementary education of satisfactory and equitable quality in a formal school which satisfies certain essential norms and standards. Government has also initiated the Sarva Shiksha Abhiyan (SSA) which covers all states and union territories and reaches out to an estimated 194 mn children in 1.2 mn habitations in the country. The program is being implemented in partnership with the states to address the children in the age group of 6-14 years. As per the Economic Survey FY14, the achievements of the SSA till FY14 include opening of 357,611 new primary and upper primary schools, construction of 277,093 school buildings, construction of 1,587,836 additional classrooms, provision of 223,939 drinking water facilities, construction of 783,349 toilets, appointment of 15.06 lakh teachers and in-service training for 53.33 lakh teachers. To fill the gap in elementary education, an amount of ` 286.4 bn is being funded for Sarva Shiksha Abhiyan as indicated by the Union Budget FY15. There has been a significant reduction in the number of out of school children on account of SSA interventions. However under the 12th Five Year Plan, the government is considering a shift from a project-based approach of SSA to a unified RTE-based governance system for UEE (Universal Elementary Education). However, India has to set up a greater number of primary education centers in areas where education infrastructure is minimal. The government must target a lower average class size which will require appointment and training of a significant number of people. The National Program of Nutritional Support to Primary Education was launched in 1995 and in 2001 a Mid-Day Meal Scheme (MDMS) was launched to improve enrollment rates, enhance nutritional levels of children and encourage greater attendance rates. During FY14 ` 109.3 bn was spent towards providing Mid-Day Meals, benefiting about 108 mn children, whereas for FY15 ` 132.2 bn has been allocated. The government initiated the Mahila Samakhya (MS) scheme in FY89 in order to translate the goals of National Policy on Education which include the empowerment of women, social and economic up-liftment of women and improvement of female literacy rates. However, the program is currently being implemented in only ten states. In order to achieve greater equality, the scheme should be transformed into a nationwide scheme covering a greater number of villages in a district as mentioned by the 12th Five Year Plan. 34
  • 38. Secondary education The government has initiated several schemes to encourage secondary education. However, the gross enrollment ratio (GER) of secondary school remains at 69% as of 2011, which is significantly below China (89%), Russia (95%) and South Africa (102%), according to World Development Indicator (WDI) report, 2014. As per the 12th Five Year Plan, the target is to raise the Gross Enrolment Ratio (GER) at the secondary level to over 90%. The ongoing Centrally Sponsored Schemes for secondary education are as under 1. National Means-cum-Merit Scholarship Scheme 2. National Scheme for Incentive to Girls for Secondary Education 3. Rashtriya Madhyamik Shiksha Abhiyan (RMSA) for universalisation of access 35 to and improvement of quality of education at secondary stage 4. Scheme for setting up of 6000 Model Schools at Block Level as benchmark of excellence 5. Scheme for construction and running of Girls Hostel for students of secondary and higher secondary schools. 6. Scheme of Inclusive Education for Disabled at Secondary Stage (IEDSS) 7. Vocationalisation of Secondary Education Source: Department of School Education and Literacy, Ministry of Human Resource Development, Govern-ment of India The government had launched the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) scheme in FY10 in order to increase the enrollment ratio into secondary school. The scheme targets to achieve access to universal secondary education, reduce gender, social and regional gaps and ensure good quality secondary education by the end of 12th Five Year Plan and by 2020 the scheme wishes to achieve universal retention. Under the Union Budget FY15, ` 49.7 bn has been allocated for Rashtriya Madhyamik Shiksha Abhiyan. Table 2.1: Achievements and targets of RMSA as of 31st March 2014 Sr. No Target Achievements 1 11,000 (approx.) new schools 10,503 new schools sanctioned 2 Strengthening of 44,000 existing schools Strengthening of 35,540 existing schools have been approved 3 179,000 additional teachers 41,507 additional teachers have been approved 4 88,500 additional classrooms 51,767 additional classrooms have been approved 5 In-service training of all teachers every year In-service training has been sanctioned Source: Department of School Education and Literacy, Govt. of India. The Information and Communication Technology in Schools (ICT) Scheme was launched in Dec 2004 to promote computer education. The scheme is expected to bring innovation in teaching learning process. National Scheme of
  • 39. Incentive to Girl Child for Secondary Education is launched with the objective to establish an enabling environment to reduce the drop-outs and to promote the enrolment of the girl child belonging mainly to SC/ST communities in secondary schools. National Means-cum-Merit Scholarship Scheme (NMMSS) was launched in May 2008 with the objective to award scholarships to meritorious students of economically weaker sections to arrest their drop out at class VIII and encourage them to continue the study at secondary stage. Other schemes include Financial Assistance for Appointment of Language Teachers, Vocationalisation of Secondary Education, Inclusive Education for Disabled at Secondary Stage and Adolescence Education Program. Tertiary education India has one of the largest higher education systems in the world, and has been witnessing healthy growth in its number of institutions and enrollment. There exist 723 Universities, 37,204 colleges and 11,356 diploma-level institutions according to the Economic Survey FY14. Gross Enrolment Ratio (GER) in higher education in India for 2012 is 25% while China has a GER of 27% and Russia of 76% in the same period according to WDI report, 2014. The Pupil-Teacher Ratio (PTR) in universities and colleges is 25.6 as per All India Survey on Higher Education released in 2013. It is evident that while states like Tamil Nadu have numerous Universities, the North Eastern regions lack good quality educational institutions. The government must strive to set up greater number of educational institutions in the North-East regions. In the field of higher education, the Government proposes to set up Jai Prakash Narayan National Centre for Excellence in Humanities in Madhya Pradesh. Also, five more IITs in Jammu, Chhatisgarh, Goa, Andhra Pradesh and Kerala will be set up, besides five IIMs in Himachal Pradesh, Punjab, Bihar, Odisha and Maharashtra. 36 Chart 2.3: Gross enrollment ratio (GER) Source: World development indicator-2014, World Bank
  • 40. Adult education Saakshar Bharat Mission (SBM) was launched in 2009 to further promote and strengthen “Adult Education”. According to a report by UNESCO, the youth and the adult literacy rate in India is likely to be 90.2% and 80.5%, respectively by 2015. This reflects that although the government is taking active steps in educating children at the primary and secondary level it also needs to educate adults in order to achieve the literacy targets set in the 12th Five Year Plan. India has lower adult literacy rates than youth literacy rates. Therefore, the government needs to ensure that it invests more in adult education in the future. Teacher education Competence of teachers and their motivation is crucial for improving the quality. At the national level, the National Council of Educational Research and Training prepares a host of modules for various teacher training courses and also undertakes specific programs for training of teachers and teacher educators and similarly at the state level in order to promote future growth, education and training of teachers is mandatory. The Central Government has started with best teacher awards, to encourage and facilitate efficient teachers and motivate youth to join the profession. With the Internet revolution, one can make videos of these talented teachers and show it to current as well as aspiring teachers, so that they can improve their teaching skills. Therefore the future of teacher education and training is online education. The Pandit Madam Mohan Malviya New Teachers Training Program is being launched for an initial sum of ` 5 bn. India faces a huge challenge to fund its rapidly growing higher education sector. As per D&B’s estimates, public expenditure in education is expected to increase to 4.2% of GDP by FY20, compared with 3.3% (BE) of GDP in FY14. In order to help India’s education sector to develop more rapidly, private expenditure is set to increase during the current decade. The likely scenario in the future will be a lowering of current licensing and regulatory restrictions to ease the barriers of entry for private institutions. India’s goals for the next several years could revolutionise the education sector and will help train individuals ready to enter the workforce. This influx of skilled workers in both the service and industrial sector is expected to contribute to the growing GDP. 37
  • 41. 38 Chart 2.4: Investment in education sector to gather pace f: D&B forecasts Source: Planning Commission, D&B India, India Budget document Investment in physical infrastructure Sustained increase in infrastructure is expected to be one of the crucial factors for sustaining strong growth in the coming few years. Significant investments in physical infrastructure will also lead to employment generation, increased production efficiency, reduction in cost of doing business, and improved standard of living. India’s infrastructure development has not kept pace with economic growth as it continues to be beleaguered by the perennial problems. To name a few, these challenges revolve around poor project management practices, financing and regulation. The rising demand for infrastructure facilities, rapid growth in urbanisation, bulging of the middle class and an increasing working-age population would engender substantial increase in infrastructure investments during the next few years. Given the various government initiatives, investments in India’s infrastructure development are expected to surge. Government strategy to increase investment in infrastructure through a combination of public investment and public private partnership indicates an increased thrust on the sector. The Government has taken a number of initiatives in the Union Budget FY15 to provide boost to the infrastructure sector. Measures announced for physical infrastructure such as roads, railways, industrial corridors and rural infrastructure are likely to modernise and improve the connectivity within all parts of the country. Focus on expediting the completion of pending projects will modernise the infrastructure network and is likely to provide the necessary boost to manufacturing and agriculture sectors. Development of smart cities is likely to bridge the gap in infrastructure development in the country. Setting up of ‘Infrastructure Investment Trust’ will open alternative source of funding for the infrastructure sector, which in turn is likely to reduce the pressure from the traditional source of financing such as banks.
  • 42. Given the renewed emphasis on infrastructure sector by boosting infrastructure financing coupled with initiatives to enhance physical infrastructure such as roads, railways, shipping, airports, rural and urban infrastructure, the investment in physical infrastructure is expected to increase sharply. Significant investment in physical infrastructure will also lead to employment generation, increased production efficiency, reduction in cost of doing business and improved standard of living. According to D&B’s estimates, physical infrastructure investment is expected to surge to 10.2% of GDP by FY20 from around 6.8% of GDP in FY10. 39 Chart 2.5: Investment in infrastructure to increase Note: f: D&B forecast Source: Planning Commission ,D&B Research Apart from development of infrastructure facilities in existing cities/towns, increased focus is expected on infrastructure development in new townships/ rural areas. Regional-urban development plans will be made to identify new growth corridors. Tier III & tier IV cities will emerge as the new growth areas due to space and resource constraint in urban areas as they become overpopulated with increasing workforce migrating from rural areas and small towns. D&B expects a substantial rise in rural infrastructure development, which will provide further impetus to economic growth in rural areas, in turn resulting in significant reduction in poverty. Increased investment in rural infrastructure will benefit the rural population through higher income, rise in employment opportunities, and lower cost of basic goods due to improvement in transportation facilities. Nonetheless, improvement in rural infrastructure will need to be properly targeted to benefit the rural poor. Agriculture and irrigation The agriculture & allied sectors contributed approximately 13.9% of India’s GDP during FY14. Although this is lesser than 14.6% in FY10, agriculture remains an important driver of growth. Despite the structural change, agriculture still remains a key sector, providing both employment and livelihood opportunities
  • 43. to 54.6% (Census 2011) of the population. With Indian population expected to reach 1.3 bn and the demand for foodgrain expected to reach 277 mn tonnes by FY21, food security would become an important issue for the country and therefore investment in agriculture has to go up significantly. India’s agricultural policy is still rooted in the goal of self-sufficiency in grains. However, consumption patterns are changing fast toward high-value agricultural products. India has gradually transformed from a net importer of agricultural products to a net exporter. India’s agricultural exports have augmented from US$ 17.7 bn in FY10 to US$ 42.6 bn in FY14 and the trend suggests that exports are likely to rise significantly by 2020. Yield of major crops and livestock in the region is much lower than that in the rest of the world. However, as per the report Agriculture Vision 2020, India expects to increase the yield per hectare significantly. Emphasis must be given to the states where current yield levels are below the national average yield. 40 Table 2.2: Target yield of agricultural commodities in 2020 Item Yield target in 2020 (kg per ha) Low Income Growth High Income Growth Rice 2664 2652 Wheat 3137 3045 Course Cereal 1268 1214 Cereal 2357 2311 Pulses 1029 1095 Food grains 2119 2092 Edible Oil 379.7 399 Potato 22279 24566 Vegetables 25673 31812 Fruits 24064 29259 Sugarcane 8788 9088 Note: LIG: Low income growth 3.5% per capita GDP growth assumed, HIG: High income growth 5.5% per capita GDP growth assumed Source: Agriculture: Vision 2020 Various policy initiatives i.e. National Food Security Mission (NFSM), Mission for Integrated Development of Horticulture Mission (MIDH), National Mission on Oil Seeds and Oil Palm (NMOOP), National Mission for Sustainable Agriculture (NMSA), National Mission on Agricultural Extension & Technology (NMAET) have been undertaken by the government to increase agriculture productivity, to promote holistic growth of the horticulture sector, to increase production of vegetable oils and to provide appropriate technology to farmers and improve agronomic practices.
  • 44. In order to promote future growth in agriculture, provision of low cost agricultural insurance is mandatory. As indicated by the Union Budget FY15, the Government has set a target of ` 8 tn for agriculture credit. Moreover, it wishes to set up Long Term Rural Credit Fund in NABARD for the purpose of providing refinance support to Cooperative Banks and Regional Rural Banks with an initial corpus of ` 50 bn. The Government also intends to finance half a mn joint farming groups of “Bhoomi Heen Kisan”. If these measures are implemented successfully, it will provide an impetus to agricultural production and will improve the standard of living of farmers. The government has set up Indian Agricultural Research Institute (IARI) which currently has 20 divisions and sanctioned staff strength of 3,540 comprising scientific, technical, administrative and supporting personnel. In the Union Budget FY15, the government plans to establish two IARI institutions in Assam and Jharkhand allocating ` 1 bn for this purpose, agricultural universities in Andhra Pradesh and Rajasthan and horticulture universities in Telangana and Haryana allocating ` 2 bn for this purpose. Unlike other sectors, agriculture is subject to fluctuations of weather and the vagaries of monsoon. Therefore, the government needs to ensure that the prices of grains do not fluctuate drastically. In the Union Budget FY15, a sum of ` 5 bn has been allocated for establishing a “Price Stabilization Fund” to mitigate price volatility in the agriculture produce which create uncertainties and hardship for the farmers. National Mission on Micro Irrigation (NMMI) has been implemented since the year 2010 to promote the use of efficient methods of irrigation such as drip and sprinkler irrigation system in the country. According to the Ministry of Agriculture annual report FY14, an area of 4 lakh ha has been covered including 2 lakh ha each under drip irrigation and sprinkler irrigation. New capacities of 7.9 mn hectare during the 12th Five Year Plan period are targeted by the government. It has identified 518 irrigation projects of which 236 are major projects and 265 are medium projects for extension, renovation and modernisation. As per the National Water Mission, the government plans to increase water use efficiency by 20% by 2017. The gap of about 15% between the irrigation potential created and the irrigation potential utilised would also be reduced by half by the year 2017. As per the 12th Five Year Plan, micro-irrigation coverage will be given priority in irrigated areas. This will help to improve water utilisation and save greater amounts of water. Moreover under the 12th Plan, the government has set up National Irrigation Management Fund in order to improve water use efficiency. 41
  • 45. Under the Union Budget FY15, a sum of ` 10 bn will be provided to Pradhan Mantri Krishi Sinchayee Yojana to provide assured irrigation in rain fed areas. The Union Budget FY15 appears to make promising changes in the agriculture sector by providing wheat and rice at reasonable prices to weaker sections, broadcast of Kisan TV which requires a sum of ` 1 bn and the re-introduction of Kisan Vikas Patra. These reforms are targeted to achieve a 4% annual growth rate in agriculture as mentioned by the Union Budget FY15. As per D&B’s estimates, the investment in agriculture sector is expected to grow to around 3.2% of GDP by FY20 as against 2.8% (E) of GDP in FY14. 42 Chart 2.6: Investment in agriculture expected to rise f: D&B forecasts Source: Planning Commission, D&B India, India Budget document Electricity The 12th Five Year Plan focuses on infrastructure development for sustained and inclusive growth of the economy. However, electricity deficit remains a major hindrance on this roadmap. In order to tackle increasing urbanisation and to boost industrialisation, the government has undertaken many power sector reforms in the last few years. The target for capacity addition in the 12th Five Year Plan has been fixed at 88,537 megawatt (MW). Table 2.3: Capacity addition targets and achievements (up to June 2014) during the 12th Five Year Plan Type Central Sector % Achieved State Sector % Achieved Private Sector % Achieved Total % Achieved (MW) (MW) (MW) (MW) Thermal 14,878 44.9 13,922 61.1 43,540 59.1 72,340 56.6 Hydro 6,004 24.8 1,608 6.3 3,285 5.1 10,897 16.1 Nuclear 5,300 0.0 0 0.0 0 0.0 5,300 0.0 Total 26,182 31.2 15,530 55.4 46,825 55.3 88,537 48.2 Source: Ministry of Power, Government of India, Central Electricity Authority
  • 46. In the first two years of the 12th Five Year Plan, there has been significant progress in thermal power addition, however, the capacity of hydro and nuclear power remains low. During the 13th Five Year Plan, the government aims to develop a total domestic capacity of 79,200 MW, out of which 12,000 MW would be from hydro, 18,000 MW from nuclear and 49,200 MW from coal, assuming no exploitation of renewables and gas-based resources for power generation. The total potential power generation from renewable energy sources by 2032 is estimated at around 1.83 lakh MW. As of Jun-14, the total installed capacity stood at 249,488 MW, Further, demand for power stood at 91,765 mn units (MU) and availability of energy stood at 88,347 MU, reflecting a power deficit of 3.7%. 43 Chart 2.7: Break-up of installed capacity (MW) in India as of Jun-14 (% share) Note: RES (Renewable energy sources) include Small Hydro Project, Biomass Power, Urban & Industrial Waste Power, solar and wind power. Source: Ministry of Power, Government of India, Central Electricity Authority Thermal power (power generation from coal, gas and diesel) constitute largest share in installed capacity, amounting to around 69% as of Jun-14. After FY11, private sector participation in thermal power generation increased tremendously. Opening up of inter-state power transmission for private sector has proved beneficial for the sector. In the 11th Five Year Plan, thermal power capacity of 48,540 MW was commissioned, whereas thermal power capacity of 90,925 MW is estimated under projects that are under implementation and that are likely to be commissioned during the 12th Five Year Plan and beyond. By the end of the 13th Five Year Plan (FY22), thermal efficiency (efficiency of the thermal capacity) is expected to rise to 36.5% from 33.9% in FY07. Coal is the major source of thermal power. Coal requirement by FY17 is estimated at 842 mn tonnes (MT) while coal availability is estimated at 604 MT, indicating a shortfall of 238 MT. To tackle the anticipated shortage of coal,
  • 47. promoting gas-based generation is crucial. Hence, the government intends to fulfill additional gas capacity of 25,000 MW during the 12th Five Year Plan. In the National Electricity Plan 2012, priority has been accorded to generation of renewable energy in order to reduce GHG (greenhouse gases) emissions and ease reliance on thermal power. As of May-14, capacity of grid-interactive renewable power stood at 31,833 MW, showing 11.9% (y-o-y) growth over May-13. Further, the capacity of off-grid power stood at 1,022.81 MW. In the 12th Five Year Plan, the government aims to deploy 15,000 MW of wind power, 2,100 MW of small hydro power, 500 MW biomass, 1,400 MW for bagasse cogeneration and 10,000 MW solar power. India’s flagship program in solar energy ‘Jawaharlal Nehru National Solar Mission’ (JNNSM) sets a target of adding 20 gigawatt (GW) of grid connected and 2 GW of off-grid capacity by 2022 in three phases. In the first phase (2010-13), capacity of 1,100 MW of grid connected solar power has been allocated and over 979 MW has been installed. Further, off-grid capacity of 118 MW has been sanctioned. Gujarat and Rajasthan showed the highest installed capacity during phase I. Between Jan-10 and May-12, the capacity of solar power projects in India went up from 8 MW to over 979 MW. 44 Table 2.4: Targets of JNNSM (Phase II and III) Segment Cumulative Target for Phase II (2013-17) Cumulative Target for Phase III (2017-22) Utility Grid Power including rooftop 10,000 MW 20,000 MW Off Grid Solar Applications 1,000 MW 2,000 MW Solar Collectors 15 mn sq metre 20 mn sq metre Source: Ministry of New and Renewable Energy Targets envisioned under Phase-II (2013-17) of JNNSM 1. Around 20,000 villages to be covered through ‘Energy Access’ scheme by way of deployment of off-grid electricity generation projects. 2. Deployment of 25,000 solar pumps 3. Deployment of around 1 mn off grid lighting systems. 4. Target of around 25,000 solar integrated telecom towers. 5. At least 15-20 cities where solar water heaters would become the main source of heating water. 6. Deployment of 50,000 solar cookers. 7. At least 200 systems, 30 TR (Ton of Refrigeration) each on an average (60,000 sq.m.) for air conditioning / refrigeration systems. Source: Ministry of New and Renewable Energy
  • 48. Government of India (GoI) is committed to provide 24x7 power supply to rural areas. Rajiv Gandhi Grameen Vidyutikaran Yojana, a flagship program of GoI, is a big step towards rural electrification. Under the 12th Plan, the government aims to cover 12,468 unelectrified villages, 0.2 mn villages under intensive electrification and 13.3 mn below poverty line households. In the Budget FY15, a new scheme ‘Deendayal Upadhyaya Gram Jyoti Yojana’ has been announced to further improve electricity augmentation in rural areas and strengthen distribution and transmission system. With increasing investments in the renewable energy sector in the country, reliance on thermal power is likely to go down in the future. However, as stated in the 12th Plan, the share of renewables in total energy consumption will be as low as 2% by 2021. Therefore, consistent expansion of renewable energy and its utilisation is crucial. Increasing focus on rural electrification is expected to bring inclusive growth in the country. D&B expects investment in the electricity sector to go up to 2.7% of GDP in FY20 from 1.8% (E) FY13. Investment in distribution sector during the 12th Plan is assessed at ` 3.1 tn. ‘National Electricity Fund’ has been set up to provide interest subsidy and promote capital investment in distribution sector. In Feb-14, the Fund approved proposals worth ` 96.5 bn of project loans from 8 states. Moreover, the Ministry of Power has allocated 14 Smart Grid pilot projects in various states of India. Further, the government envisages developing 16 Ultra Mega Power Projects (UMPPs) worth 4,000 MW each. Proposal Announced in Budget FY15 1. Proposal to provide adequate quantity of coal to power plants which are already commissioned or would be commissioned by March 2015, to unlock dead investments. 2. Ministry of Coal constituted a new ’Inter-Ministerial Task Force‘ (IMTF) on June 13, 2014 to review rationalisation of linkages in order to reduce the transportation cost for Power Utilities. 3. Proposal to develop 15,000 km of pipeline using PPP model. 4. Initial sum of ` 1 bn for preparatory work for a new scheme ’Ultra-Modern 45 Super Critical Coal Based Thermal Power Technology’. 5. Extension of the 10-year tax holiday to the undertakings which begin generation, distribution and transmission of power by FY17. Source: Budget FY15, Government of India Aviation Indira Gandhi International Airport, Delhi is 5th best airport in the Asia Pacific region as of 2013 as per Airports Council International. However, a few years ago Delhi Airport did not come close to the top 10 best airports in the world. There has been a dramatic change in the quality and quantity of airports in India.
  • 49. Since the introduction of Public Private Partnerships (PPPs) mode of investment in airport infrastructure, there have been five major international standard airports constructed in cities like Mumbai, Delhi and Bengaluru. Moreover, 35 non-metro airports have been constructed or are under construction in cities such as Agra, Bhopal and Ahmedabad at an estimated cost of around ` 45 bn. The Indian aviation market is expected to emerge as the third largest aviation market globally by FY20 in terms of size of the Industry with over 336 mn domestic passengers and 85 mn international passengers. The rise in volume in domestic air travel will be led by rising personal disposable incomes, growing urban young middle income population and rising demand from semi-urban regions. In order to achieve this milestone, the government needs to develop high quality infrastructure facilities in various cities. The primary strategies of the government will include expansion of aircraft and airport capacities, strengthen security, increase connectivity especially to the North-East region and introduce seaplane operations. As per 12th Five Year Plan, India will require 30 more functional airports by FY17 and 180 over the next 10 years in order to meet the growing number of cargo and passenger forecasts. 46 Chart 2.8: Forecast of passenger (mn) throughput at Indian airports in the next 20 years Note: Plan data reflects data of the terminal year of that particular five year plan. International passenger includes transshipment passenger as well Source: Ministry of Civil Aviation (MoCA) Estimates
  • 50. 47 Chart 2.9: Forecast of cargo throughput at Indian airports in the next 20 years Note: Plan data reflects data of the terminal year of that particular five year plan. International cargo includes transshipment cargo as well Source: MoCA Estimates, MMT: Mn Metric Tonnes According to a report of the Working Group on Civil Aviation Sector, total investment of ` 3,773 bn has been estimated for airport infrastructure development work by 2031-32. This investment would result in creation of additional passenger capacity, the development of airport infrastructure, development of world class air navigation services infrastructure and other activities to improve the air connectivity. It is not only the renovation and rebuilding of international airports that is necessary but it is also mandatory to improve domestic airports. As per the Working Group report, airlines in India are expected to add around 370 aircrafts worth ` 1,500 bn to their fleet by FY17. As per latest estimates, 1,019 aircraft would be inducted by scheduled passenger airlines by 2030, which translates in to an investment requirement of ` 7,070 bn at 2011 prices. The aviation sector is thus expected to generate direct and indirect employment opportunities, improve productivity and augment efficient movement of goods and services. In order to provide appropriate funding to this massive activity, government needs to encourage domestic as well as foreign investors to invest. India will need to provide external capital with greater confidence with respect to market risks. This will require clarity on the regulatory framework, improved governance, enhanced coordination between stakeholders and stronger execution capabilities. Estimates received from Airports Authority of India (AAI) and the industry indicate that the Indian airports would require an investment of about ` 675 bn during the 12th Plan, of which around ` 500 bn is likely to be contributed by the private sector. The investment in the airport infrastructure is critical as it improves the domestic and international connectivity. It is not only the air passengers who benefit, but the rising number of freight aircrafts will improve the efficiency of
  • 51. transportation among various cities. Another important aspect is the decrease in burden on rail which is the primary means of transport in India. India can only achieve greater annual GDP growth if the economies of populous states such as Uttar Pradesh and Bihar perform strongly. But for this to happen they will need to develop their air capacity. Oil and gas India is the one of the largest importers of crude oil and imported US$ 165.2 bn worth of crude in 2014. According to the latest report (Jun-14) of Petroleum Planning and Analysis; Ministry of Petroleum and Natural Gas, 76% of India’s crude oil consumption and around 30% of India’s natural gas consumption is being imported. As of FY14, India’s crude oil import dependency is 77.6% which is likely to grow significantly in the future. According to a report by the Ministry of Petroleum and Natural Gas, the supply-demand gap is expected to widen by 2030 and the cost of importing oil is likely to reach US$ 300 bn. If the government does not implement significant measures in order to foster domestic production, then India will have to bear a cost of US$ 3.6 tn to import oil until 2030. India has an untapped potential of 206 bn barrels of oil in 15 sedimentary basins. The government must tap the unexplored resources in order to ensure a sustained and continuous supply of oil. Moreover, with the uncertainty in the Middle East and the fluctuating prices of oil, the government must look for alternative countries to import. The New Exploration Licensing Policy (NELP) program is a major initiative aimed at attracting private investment into oil and natural gas. About 57% of the blocks have been awarded to PSUs, 28% to private companies and 16% to foreign companies. As per the Ministry of Petroleum and Natural Gas, the government aims to construct strategic crude oil reserves of 5.33 MMT capacity, pursue transnational oil and gas pipeline projects and enhance oil and gas production with the assistance of Exploration and Production companies (E&P). In order to reduce the dependency on imported oil, India needs to stimulate oil production by facilitating exploration and development of new fields and infuse efficient technology in existing fields. If the government promotes the use of coal and other renewable resources, then India can reduce its import bill to a cumulative of US$ 1.0 tn from US$ 3.6 tn as per the Ministry of Petroleum and Natural Gas. Demand of petroleum products is projected to increase at an annual rate of 4.7% during the 12th Five Year Plan. This will increase consumption of POL products from 158.2 MMT in FY14 to 186.21 MMT by FY17. On the other 48
  • 52. hand, oil production during the 12th Plan is likely to increase marginally and then decline by 3.26% towards the end of the Plan. Chart 2.10: Region-wise share of reserves of crude oil and natural gas 49 Source: Indian Petroleum and Gas Statistics FY13, Published in Dec -13 With growing imports of oil and natural gas, India must look at alternate forms of hydrocarbon energy like Coal Bed Methane (CBM) and Shale Gas. The Government of India has awarded 33 CBM exploration blocks. Commercial production of CBM has already commenced. By FY17, CBM production is expected to be around 4 Mn Metric Standard Cubic Meter Per Day (MMSCMD). In the Union Budget FY15, the finance minister announced the initiation to accelerate production and exploitation of CBM reserves. The current average CBM production for the year FY15 (April 2014 to June 2014) is about 0.58 MMSCMD. The projected CBM production is likely to reach 4.0 MMSCMD by FY17. Usage of piped natural gas will be promoted as it is clean and efficient to deliver. Moreover, the government of India has taken steps to initiate shale gas exploration and production and will take significant steps to involve the private sector also. Summary of reforms required and targets 1. Eliminate the uncertainty that has arisen regarding gas pricing from NELP production sharing contracts by implementing a new design of contracts. 2. Operationalise a roadmap to move petroleum product prices received by marketing companies to prices aligned with global prices. 3. Promote development and production of biofuels by the oil sector E&P and marketing companies at commercial level. 4. Expand exploration and production of domestic oil and gas sources and develop a framework to exploit shale gas. 5. Reduce crude oil imports by 50% by 2020, 75% by 2025 and eventually achieve self-sufficiency and Energy Independence for India by 2030 Source: Report on the committee on “Roadmap for Reduction in Import Dependency in Hydrocarbon Sector by 2030”; Ministry of Petroleum and Natural Gas
  • 53. Ports India has a coastline of around 7,517 km with 13 major ports and over 200 non-major ports along the coast-line according to the 12th Five Year Plan. In order to foster growth, the government needs to improve port facilities and construct new ports in regions that are not easily accessible. The Maritime Agenda proposes a total investment of ` 2,960 bn in 424 projects in major ports and non-major ports by 2020. Capacity enhancement at major ports is taking place through captive projects as well as the PPP and non-PPP mode. Successful implementation of these projects is necessary to achieve the government’s target of port capacity of 3,130 MMTPA by 2020. Tariff setting is a major issue, which limits private sector investments in the sector. Therefore the concerns of the private sector need to be adequately addressed in order to encourage investment. Port capacity and operational efficiency are expected to improve with measures taken for construction and deepening and modernisation of berths and terminals. Rail and road connectivity of ports will allow for faster movement of cargo. Standardisation of documents and streamlining of security clearance procedures are expected to make port projects more attractive. Moreover, there is also a need to expand existing framework to attract participation from the private sector for development of infrastructure facilities. An important component of the capacity creation is the development of non-major ports. Considering the fact that nearly 40% of the traffic is handled by non-major ports and is likely to increase significantly during 12th Plan, this gap in the system needs to be rectified quickly. 50 Table 2.5: Growth and share of traffic handled at major and non-major ports in India Year (% Growth in Traffic handled) Share of traffic (%) Major Ports Non-Major Ports Major Ports Non-Major Ports FY09 2.2 3.3 71.3 28.7 FY10 5.7 35.5 66.0 34.0 FY11 1.6 9.1 64.4 35.6 FY12 -1.7 12.2 61.3 38.7 FY13 -2.6 9.7 58.5 41.5 FY14(P) 1.8 8.3 56.9 43.1 Source: Update on India port sector- FY14, Ministry of Shipping The average output per ship berth per day has improved from 9,745 MT in FY07 to 10,967 MT in FY12. As per the 12th Five year Plan, port-wise performance shows that the average turnaround time declined mainly due
  • 54. to good performance by Paradip, Mormugao, Chennai and Kolkata ports. Despite adequate capacity and handling facilities, the average turnaround time of major Indian ports is around 3.87 days as of FY14, which is very high compared to the average turnaround time of about 10 hrs for cargo vessels in Hong Kong as of 2012. As per the Maritime Agenda, the anticipated traffic at Indian ports would grow to 2484.4 mn tonnes (mt) by 2019-20 from the present level of 849.9 mt at a CAGR of 11.3%. Investment in port infrastructure is critical. While domestic investment contributes significantly, government must promote foreign direct investment for future growth and development. Even though the cap of foreign investment in ports is 100%, the government needs to reduce complexity and improve transparency of the regulations. It is important to digitalise all major and non-major 51 port facilities to improve efficiency. The Finance Minister has announced 16 new port projects to be awarded this year with a focus on port connectivity. An amount of ` 117.4 bn will be allocated for the development of Outer Harbour Project in Tuticorin for phase I. SEZs will also be developed in Kandla and JNPT, which are major ports in India. A comprehensive policy will also be introduced to promote the Indian ship building industry in the current financial year. It is expected that the government will announce noteworthy policies in order to foster the development and construction of port facilities. Roads and highways Among all the infrastructure sectors, road transport contributes the most to the country’s GDP implying that developing and improving the network of roads is of supreme importance. According to the estimates by the National Highways Authority of India (NHAI), about 65% of freight and 80% of passenger traffic is carried by roads. As per the NHAI, by FY20, roads are likely to remain the dominant form of passenger and freight movement. However, the % of paved roads in India (53.8%) lags behind the world average of 57% as of 2011. Therefore, it is not only the vast reach of highways and roads but also the quality and maintenance that make a difference. Table 2.6: Highways in India Roads and Highways in India as of FY14 Category of Road Length of Road (km) Share in total road length (%) National Highways (NHs) 92,851 1.9 State Highways (SHs) 142,687 2.9 Other Roads 4,649,462 95.2 Total 4,885,000 100.0 Source: Ministry of Road Transport and Highways, Annual Report 2013-14
  • 55. Highways in India consist of National highways, State Highways and Expressways. India has a reach of 92,851 km of National Highways with the North Eastern states having lesser highways than states such as Maharashtra, Uttar Pradesh, Andhra Pradesh and Rajasthan. Since the National Highways carry a major chunk of traffic, their share in the total road network in the country must increase. In order to catch up to the increasing number of vehicles on the road, the state governments need to invest a higher amount in highways linking different cities in states. This is essential for big states like Uttar Pradesh, Maharashtra etc. India’s road network has benefited greatly from the National Highway Development Program (NHDP). The NHDP alone is estimated to have employed 40 persons per day per km. Existing 2-lane National Highways are to be developed into 4-lane highways to accommodate greater number of vehicles. Moreover, the highways are likely to be improved by providing underpasses, service roads or alternate roads for slow moving traffic. In order to achieve connectivity between urban and rural areas, state highways need to be constructed and widened. Therefore, the government needs to encourage the initiation of a program that is responsible for the development of state highways. The current budget allocated an amount of ` 378.8 bn for NHAI and state roads, out of which ` 30 bn will be spent in the North East. Moreover, the Budget indicated that approximately 8,500 km of roads will be constructed in the current year. Although the government has a plan for the future road development, it needs to ensure that the projects are not stalled or delayed. The NHDP program will be funded primarily through PPP. As per NHAI, PPP in NHDP Phase III picked up substantially. Government needs to ease regulations and encourage PPP to promote private investment in road infrastructure. As compared to ` 79.7 bn allocated to states for roads and bridges in the 11th Five Year Plan, the 12th Five Year Plan seems to be more promising as it has allocated ` 124.1 bn. Moreover, the union government has shown its inclination towards setting up a committee for project preparation. The committee must not only advocate current policies but it must also plan for the future development and construction of roads. 52
  • 56. 53 Table 2.7: NHDP and NHAI projects Total Length (km) Already 4/6 Laned (km) Under Implementation (km) Contracts Under Implementation (No.) Balance Length for Award (km) NHDP GQ 5,846 5,846 0 0 - NS&EW Ph I & II 7,142 6,305 420 45 417 Port Connectivity 380 379 1 1 0 NHDP Phase III 12,109 6,214 4,210 58 1,685 NHDP Phase IV 14,799 610 5,246 12 8,943 NHDP Phase V 6,500 1,869 2,212 18 2,419 NHDP Phase VI 1,000 - - - 1,000 NHDP Phase VII 700 22 19 2 659 NHDP TOTAL 48,476 21,245 12,108 136 15,123 Others (Ph. - I, Ph. - II & Misc.) 1,754 1,391 363 4 0 SARDP-NE 388 91 18 1 277 TOTAL by NHAI 50,618 22,727 12,489 141 15,400 Source: National Highway Authority of India, as on 30th June, 2014 Railways Indian Railways has been the primary form of transportation in India with the distinction of being the largest railway system in the world under single management. Historically the railways has always been the frontrunner in the transportation of goods and services. However, recently the railways have made news for the lack of safety standards, rising costs relative to revenues and inferior quality infrastructure and mismanagement of resources. In order to tap the vast potential of the railway network, the government needs to announce and implement new projects and policies that promote the construction and maintenance of railway infrastructure. With rapid urbanisation, increasing requirement for efficient transportation and increasing standards of living, rail would be the foremost mode of transportation. The Ministry of Railways expects to meet the increasing demand for passenger and freight services with the addition of 25,000 km of new lines by 2020 and increase in rail speeds. Moreover, rail revenue is likely to contribute approximately 3% of GDP by 2020.
  • 57. Chart 2.11: Railways, passengers carried (mn passengers - km) - 2012 54 Source: World development indicator-2014, World Bank Chart 2.12: Projected railways passengers in India in 12th Five Year Plan Source: 12th Year Plan, Planning Commission In order to create efficient, faster and safer railways, the government is expected to focus on repairing, maintenance and construction of high quality rail tracks, development and building of bridges keeping in mind the safety standards, deployment of proven and reliable on-board train protection system and improvement of the quality and capacity of the rolling stock (wagons, locomotives and coaches). The government wishes to improve the connectivity of the North-Eastern Region and has allocated an additional ` 10 bn to expedite the development of rail and connectivity. One of the goals of Vision 2020 by the Ministry of Railways is to encourage public-private partnerships in order to supplement the financing provided by the government. Around ` 14,000 bn is needed for capacity augmentation, upgradation and modernisation of railways by FY20. PPPs will improve the technological capability of the Indian Railways, improve transparency and increase the efficiency of operations. Currently, areas identified for execution through PPPs include development of world-class stations, high-speed corridors
  • 58. including bullet trains, setting up of Multi-modal Logistics Parks, Dedicated Freight Corridors, rolling-stock manufacturing units and port connectivity. 55 Table 2.8: Capacity enhancement and modernisation works (Investment figures in ` bn) Broad category Sub category Long-Term (2012-13--2019-20) Total Physical Target Investment (` bn) Physical Target Investment (` bn) 1. Bottleneck removal Traffic Facilities(e.g.Freight bypass, Terminal Facilities for freight and parcel services including Logistics Parks) - 200 - 230 Speed raising - 250 - 250 2. Capacity augmentation: (Investments are for both works in progress & works soon to be completed) New Line 24,000 kms 1,700 25,000 kms 1,800 Doubling / Tripling / Quadrupling (including DFCs) 11,000 kms 1,240 12000 kms 1,300 Gauge conversion 9,500 kms 280 12,000 kms 350 Metropolitan transport project - 510 - 605 Electrification including 2x25KV system for high-speed density network 12,000 kms 108 14,000 kms 126 3. Rolling stock Freight-Wagon 255,227 (No) 766 289,136 867 Diesel Locomotives 4,644 (No) 488 5,334 560 Electrical Locomotives 3,726 (No) 582 4,281 649 Passenger Coaches, EMU/DEMUs/ MEMUs 43,968 (No) 715 50,880 825 * Upgradation/expansion, setting up of PU/Workshops - 912 - 1,016 4. Service improvements Passenger:World-class stations and MFCs 38 stations 700 50stns 900 Adarsh station - 8 - 10 Security - 40 - 46 5. Technological up gradation and Safety Track renewal and 25 T axle load 30,210 kms 551 41,240 kms 714 Bridges 18,000 70 20,800 80 S&T/Mech/Elct works 278 - 364 IT - 84 - 98 6. High speed corridor 2,000 2,000 2,000 kms 2,000 7. Others Research/staff Qtrs/investment. in PSU,power plant etc - 990 - 1,089 8. Total - 12,471 - 13,878 * Includes setting up of new depots/upgrading workshops etc. Note : The investment figures represent a rough and tentative assessment only. Source:-Indian Railways, Vision 2020: Ministry of Railways
  • 59. As indicated by the Union Budget FY15, the government has decided to encourage development of metro rail systems, including light rail systems, in the PPP mode. Moreover, it has allocated a sum of ` 10 bn for accelerating the development of the Railway system in the border areas. Although the government has taken proactive decisions to foster the development of Indian Railways, it must implement greater measures in order to achieve a world-class 56 railway system. Important targets for 2020 1. Increase Gross Revenue of the Indian Railways to 3%. 2. Addition of 25,000 kms of new lines by 2020, supported by government funding and a major increase in Public Private Partnerships (PPPs). 3. Raise maximum speed of passenger trains from 110 – 130 Kmph to 160 – 200 Kmph and of freight trains from 60-70 Kmph to over 100 Kmph. 4. Construction of 4 high-speed rail projects to provide bullet train services at 250-350 Kmph. 5. Make Indian Railways completely accident free. 6. Up-gradation of quality of services in terms of punctuality, safety, security, sanitation, cleanliness and amenities at stations and onboard, catering and other value- added services. 7. Development of infrastructure in order to cater to the 15,180 mn passengers expected in the year 2019-20. 8. Construction of facilities that can handle the rise in freight to 2165 MT expected in the year 2019-20. 9. Reduction by 1% in the sanctioned strength per annum in order to reduce costs and improve efficiency of Indian Railways. 10. Creation of railway infrastructure and operations with the assistance of the private sector. 11. Development of a Project Design Document (PDD) expected to result in reduction of approximately 100,000 tonnes of CO2 emissions per annum. 12. Achieving maximum energy efficiency in traction as well as non-traction use will receive the highest priority. 13. Transformation from a supply constrained business to a state of availability on demand business. 14. Usage of existing and innovative networks of distribution channels like Internet, online data, mobile telephones and other vending mechanism to improve access to railway systems. 15. Railway proposes Wi-Fi facility at ‘A1’ & ‘A’ category stations and in 50 rakes of important trains in Rajdhani/Shatabdi/Duranto category. Source: Vision 2020, Ministry of Railways, Union Budget FY15 Infrastructure financing Infrastructure spending is estimated to be around 7.1% (E) of GDP in FY13. While majority of the investment is made by the public sector, private sector is emerging as a key player. In the past few years, private investment in infrastructure is on the rise while public investment is falling as a % of total
  • 60. investment. As indicated by the Union Budget FY15, the government of India plans to encourage private investment significantly. Public-Private partnerships (PPP) In order to build world-class infrastructure, India has followed the route of Public- Private Partnerships. Among all forms of infrastructure financing, the PPP model is emerging as the most favoured and dominant form of investment. Sectors that have benefited significantly through PPP projects are Aviation, Railways, Ports, Power and Roads. As per the Union Budget FY15, the government is attempting to make farming competitive and profitable by encouraging both public and private investment in agro-technology development and creation and modernisation of existing agri-business infrastructure. Moreover, as per the Union Budget FY15, banks will be encouraged to extend long term loans to infrastructure sector with flexible structuring and are permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending. The share of the private sector in infrastructure financing is expected to gradually increase to 51.8% in FY20 from 39.6% (E) in FY14. 57 Chart 2.13: Rising share of private sector in infrastructure financing f: D&B forecasts Source: Planning Commission, D&B India, India Budget document According to a report by the Working Committee on infrastructure financing, an investment of ` 55 tn is targeted over the duration of the 12th Five Year Plan. As proposed by the Union Budget FY15, there will be an extension of a liberalised facility of 5% withholding tax to all bonds issued by Indian corporate abroad, extending validity up to June 30, 2017. Moreover, to augment low cost long term foreign borrowings for Indian companies, the eligible date of borrowing in foreign currency has been extended from Mar-16 to Mar-17 for a concessional tax rate of 5% on interest payments.
  • 61. The rapidly rising demand for credit by infrastructure companies was supported significantly by commercial banks by unwinding their excess investments in government securities maintained as SLR. Hence, it is estimated that banks were able to provide about half the debt finance needs of infrastructure investment. Non-bank finance companies (NBFCs) also increased their lending sharply as the credit demand for power, telecom and roads expanded. Moreover, Infrastructure Development Funds (IDFs) have been set up for channelising long-term debt from domestic and foreign pension and insurance funds. As proposed in the Union Budget FY15, there would be a tax efficient pass through status, for PPP and other infrastructure projects. Other forms of investment include Shyama Prasad Mukherji Rurban Mission which would be initiated through PPP and aims to improve civic infrastructure. 58
  • 62. India has entered in the era of inclusive growth. The significant progress made can be seen in terms of growth percolating to weaker section of the society during the next few years. During the 11th and 12th Five Year Plan, the government’s efforts toward driving benefits of the ongoing strong growth to the underdeveloped regions rose significantly. The focus of the 11th and 12th Five Year Plan has been different; as compared to earlier Five Year Plans, these 2 Plans focus on inclusiveness and inclusive growth as one of the core strategies. Both the Five Year Plans emphasize on the growth process rather than growth alone. This has helped to achieve inclusive growth. The focus has been towards improving access to essential facilities and services like skill development, education and health. It further focuses towards employment creation and poverty reduction. Focus on inclusive growth: Excerpts from the 12th Five Year Plan Document The Plan document makes it amply clear that a return to high growth will not come from following a business as usual approach. ……………………….... Some of the policy changes called-for are difficult, but they are necessary if we want inclusive and sustainable growth. ……………………………………………….. In all this, we must keep in mind that growth must not only be rapid, it must be inclusive and sustainable. The benefits of growth must reach the SCs, STs, OBC, Minorities and other disadvantaged groups in our society. ………………………………. Recognizing that outcomes will be the result of actions, the Twelfth Plan, for the first time, has resorted to scenarios to indicate the implications of different types of behaviour. Our objective should be to achieve the scenario of “strong inclusive growth” which can yield an average growth rate of around 8% of GDP and significant improvements in various inclusiveness indicators. …………………. if we fail to do what is necessary, we may slip into a scenario of “Policy logjam” which will lead to growth of 5 to 5.4 percent, with a much worse outcome for inclusiveness. The idea of inclusive growth seems to be taking precedence not only politically but also on the corporate front with significant emphasis being placed on the untapped potential in rural India. What is reassuring is that the last few years have seen significant acceleration in efforts to extend the benefits of the various initiatives taken in this direction, to a larger section of the under-developed regions/society. As per the 12th Five Year Plan, growth in consumption (Real Monthly Per Capital Consumption Expenditure (MPCE) - Uniform Recall Period) across deciles was much more inclusive in the period FY05 to FY12, as compared to the period FY94 to FY05. 59 STATE-WISE ANALYSIS OF ECONOMIC DEVELOPMENT
  • 63. 60 Table 3.1: Decile-wise annual growth in MPCEURP at constant prices (2004–05) Deciles (% of population) Rural Urban FY94 to FY05 FY05 to FY12 FY94 to FY05 FY05 to FY12 First (0-10) 0.70 2.91 0.66 2.96 Second (10-20) 0.49 3.00 0.54 3.28 Third (20-30) 0.56 3.15 0.66 3.39 Fourth (30-40) 0.55 3.17 0.91 3.42 Fifth (40-50) 0.54 3.17 1.00 3.41 Sixth (50-60) 0.55 3.30 1.24 3.35 Seventh (60-70) 0.52 3.40 1.36 3.30 Eighth (70-80) 0.61 3.45 1.35 3.40 Ninth (80-90) 0.71 3.48 1.47 3.45 Tenth (90-100) 1.61 3.71 2.30 4.52 Average 0.85 3.40 1.49 3.72 Source: 12th Five Year Plan, Planning Commission However, to unlock the potential, substantial improvement in education and health services, coupled with financial inclusion would be required. We believe that over the coming few years, India would see significant improvement in infrastructure, education, skill development and healthcare. Appropriate policies and political will to uplift the deprived would be prerequisite criteria for inclusion of the lowest economic class as India moves ahead on the high growth trajectory. Focus on accelerating growth in the States: Excerpts from the 12th Five Year Plan Document Another aspect of inclusiveness relates to whether all States, and indeed all regions, are seen to benefit from the growth process. The regional dimension has grown in importance in recent years. On the positive side, ........, many of the erstwhile backward States have begun to show significant improvement in growth performance and the variation in growth rates across States has narrowed. However, both the better performing and other States are increasingly concerned about their backward regions, or districts, which may not share the general improvement in living standards experienced elsewhere. Many of these districts have unique characteristics including high concentration of tribal population in forested areas, or Minorities in urban areas. Some districts are also affected by left wing extremism, making the task of development much more difficult. In the Twelfth Plan, we must pay special attention to the scope for accelerating growth in the States that are lagging behind. This will require strengthening of States’ own capacities to plan, to implement and to bring greater synergies within their own administration and with the Central Government. As a first step, the Planning Commission is working with it’s counterpart Planning Boards and Planning Departments in all State Governments to improve their capabilities. An important constraint on the growth of backward regions in the country is the poor state of infrastructure, especially road connectivity, schools and health facilities and the availability of electricity, all of which combine to hold back development. Improvement in infrastructure must therefore be an important component of any regionally inclusive development strategy.
  • 64. Convergence in the state level and central government policies would further drive inclusive growth. While the central and state governments are expected to continue to harness growth enabling policies and increase their emphasis on development of social infrastructure, initiatives and policies to exploit and tap the unexplored potential of some states are immediate requirement. As India moves ahead on the economic and social development front, we anticipate significant improvement in governance and reduction in corruption. We expect better implementation of government policies and development projects as the economy moves toward 2020. Some of the states such as Bihar, Odisha, Madhya Pradesh etc, which were historically poor states and had been languishing for a long time, have started witnessing growth over the past few years. In fact, states such as Bihar, Madhya Pradesh and Gujarat are now amongst the fastest growing states in India. The turnaround of these states could be attributed to the states’ strategy of altering their growth dynamics by focusing on changing the politics surrounding economic policy-making. The states’ focus on infrastructure development, primary education and healthcare has helped in bridging the big divide witnessed during the earlier years and highlights the inclusive growth. In this chapter, we attempt to identify potential Indian states that can contribute significantly to India’s growth story during the current decade by building on the present reality. This chapter will also provide forecast of Gross State Domestic Product for these states till 2020. We believe that Maharashtra, Gujarat, Andhra Pradesh (AP) and Tamil Nadu (TN) will be amongst the most economically developed states in the country by FY20. Bihar, Madhya Pradesh (MP), Rajasthan, Odisha and Uttar Pradesh (UP), which have been considered sick (BIMAROU) in terms of development, are expected to begin leveraging their huge potential in terms of vast natural resources and manpower. This chapter also covers Karnataka and Kerala. While we expect these eleven states to make impressive contributions to India’s progress during the next few years, the role of other states (not included in this report) should not be undermined. 61
  • 65. 62 Chart 3.1: State-wise share in incremental GDP (%) (Top) Chart 3.2: Per capita income at current price during FY14 (Bottom) • Share of the eleven states under consideration – Bihar, Madhya Pradesh, Rajasthan, Odisha, Uttar Pradesh, Maharashtra, Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu and Kerala – in India’s GDP (factor cost constant price) is expected to increase to around 76.0% by FY20, as against 68.1% during FY10. • Contribution of the BIMAROU states to India’s incremental real GDP will be approximately 27.2% during FY11-FY20 as compared to 18.8% during FY01-FY10. • Three of the five BIMAROU states are expected to grow at an annual average growth rate of more than 9% during FY15- FY20. Among BIMAROU, Uttar Pradesh will be the largest contributor in overall GDP. • Gujarat is expected to emerge as the second largest contributor to GDP by FY17. Gujarat’s per capita income would surpass that of Maharashtra by FY15. • Maharashtra would continue to be the largest contributor to India’s GDP, maintaining a share of around 16.1% in FY20. Note: Incremental GDP refers to the addition in GDP during the period under review; GSDP is taken at factor cost at constant prices for all states Source: CSO, D&B India BIMAROU1, to contribute significantly to India’s growth story The acronym BIMAROU (which means sick in Hindi) is used for Bihar, Madhya Pradesh, Rajasthan, Odisha and Uttar Pradesh, which have lagged in terms of growth despite their huge potential. In spite of accounting for 34.7% of the total geographical area and 40.2% of the total population of India, the BIMAROU states have contributed only 21.2% (FY11) to GDP. In order to achieve higher sustainable growth, the government is required to accord high priority to explore the full potential of these states. With the growth potential shown by BIMAROU states, it is expected that this age-old impression about these states would change by FY20. These states would start exploring their potential and enter the race to catch up with the rapidly-developing states in the country. The GSDP contribution of BIMAROU states to incremental GDP would increase to 27.2% during FY11-FY20, as against 18.8% during FY01-FY10. 1 Group of these five states together is generally referred to as BIMAROU states. The concept of BIMARU has been modified to include Odisha.
  • 66. Thrust on infrastructure development and indus-trialisation 63 to drive growth of states Development of physical as well as social infrastructure is a pre-requisite for development of states. Besides, adequate thrust on gaining manufacturing excellence, leveraging agriculture and focusing on rapid growth in the services sector is essential for all-round development of the states. In the past few years, most of these states have witnessed a shift in focus of the state governments towards improving infrastructure facilities. These states have experienced some improvement in industrialisation as well over a period of time. However, the momentum of private industrial investment did witness some setback due to the advent of the global economic crisis, domestic factors and structural bottlenecks, which in fact affected the entire Indian economy. However, we expect that these states would witness gradual increase in private investment going forward, given the focus of the government on improving infrastructure and facilitating industrial growth. Most of the BIMAROU states have focused more on development spending. In the recent years, there has also been greater focus by the state governments on social sector spending, as reflected in the increase in social sector expenditure to GSDP ratios across the states during the period under review. However, given the relatively inadequate state of development in these states, integrated efforts of the state and central governments in this direction should be sustained to support growth. Chart 3.3: Industrial Entrepreneur Memoranda (IEMs) implemented - BIMAROU States • After the slowdown in 2007, Industrial Entrepreneur Memoranda (IEMs) implemented has surged for BIMAROU states. • Share of Madhya Pradesh in Industrial Entrepreneur Memoranda (IEMs) implemented in total BIMAROU states has surged to around 74% during the first six months of 2014. • Expected investment in infrastructure and industry is likely to support economic development of these states. Source: DIPP, Ministry of Commerce Thrust on improving agriculture productivity – imperative The economies of BIMAROU states are highly agrarian in nature and majority of people is dependent on the agriculture sector. The dedicated focus on improving the productivity and efficiency in the agriculture sector along with increasing farm income are imperative to bring about overall development in these states. Focus on improving irrigation facilities and a host of schemes initiated by the state as well as central governments are expected to yield results in the long run.
  • 67. 64 Bihar - Rise in construction sector and infrastructural development, a catalyst to boost the upward trend in economic development
  • 68. The scale and pace of economic change that Bihar has witnessed primarily over previous few years has pushed the state to the centre of all development debates. Much of the growth that the state witnessed has been the result of a comprehensive, home-grown reform program initiated by the state government since 2005. These reforms ranged from changes in managing public finance and reforming government expenditures, public investments in building infrastructure and most importantly revamping the law and order machinery. All these changes have provided an enabling environment for private investment in the state and greater industry commitment that is necessary to achieve long-term sustainable growth. D&B expect the reform process to continue and yield results in terms of aggregate and multi sector economic outcomes. The prevailing perceptions about the business and socio-political environment in Bihar are slowly being countered, and therefore it is plausible that Bihar may witness an increase in investment interest over the coming years. The impact of the strong growth process in recent years along with the success of various welfare programmes can be felt from the pace of growth in per capita income; the period FY07-FY14 saw Bihar’s per capita income (at current prices) grow at a CAGR of 17.5%, higher than the growth recorded for India (13.4%) over the same time period. While, it might take many years to catch up with the national average, the foundation for strong economic activity has been laid. The state grew at an average annual rate of 11.0% during FY07-FY14, one of the highest among all the Indian states. This growth was backed by the encouraging performance in the construction sector. 65 Chart 3.4: Performance of construction sector (%) • Industrial sector grew by 11.5% in FY14, mainly led by the construction activities. • The construction sector which accounted for 6.6% of the total GSDP in FY05 almost doubled to 12.9% of the total GSDP in FY14. • The share of agriculture and allied activities has declined from 31.5% in FY05 to 18.9% during FY14, whereas share of service sector in total GSDP increased to 62.7% in FY14 against 54.7% during FY05 Note: GSDP at constant (2004-05) price Source: CSO, D&B India
  • 69. GSDP expected to grow at an average of 10.5% during FY11-FY20 66 Chart 3.5: Gross State Domestic Product of Bihar (` bn) • GSDP of Bihar posted an annual growth rate of 9.9% in FY14, driven by the growth in the construction and services sector • D&B forecasts Bihar to record an annual average growth rate of 9.8% during FY15- FY20 Note: GSDP at constant (2004-05) price Source: CSO, D&B India Chart 3.6: Sectoral Gross State Domestic Product of Bihar (FY14) (%) • The share of the agricultural sector has been showing a decline over the years, and it came down to 18.9% in FY14. This shows that the importance of the primary sector has declined steadily over the years. • Services sector recorded an average growth of 12.4% during FY07-FY14. Trade, hotels and restaurants continued to be the major contributor in state’s GDP. Note: at constant (2004-05) prices Source: MOSPI Key elements of transformation Prudent management of public finance has been primarily responsible for the turnaround witnessed in Bihar’s economy. One of the notable feats on this front has been the government’s commitment to step up public expenditure and more importantly reallocate expenditure away from non-developmental heads to developmental heads. There has been a two-fold increase in total expenditure from ` 315.7 bn in FY08 to ` 891.7 bn in FY13. The non salary component of developmental
  • 70. revenue expenditure has increased from 69% to 74% during this period while the share of new development expenditure is above 40% in FY13 (BE) as against 20% till FY06. Interest payment on outstanding loans now accounts for about 11% of the total non-plan expenditure in FY13 as against 21% in FY06. Plan expenditure has grown more than six times since FY06. New vision of good governance Bihar, for long, has been bedeviled by numerous problems of mal-governance – corruption, inefficiency, frequent breakdowns of law and order, political interference, and so forth. This was amongst the prime factors deterring investment and economic activity in the state. In recent years, the government has initiated several administrative reforms and accorded highest priority to “Good Governance”. A corrected focus on governance has enabled the government to tackle law and order issues, encourage transparency, and improve the delivery of public service. Continued focus on these initiatives is likely to provide an impetus for investments – both external and domestic – which would have far reaching implications for the entire process of accelerated socio-economic development. 67 Governance Reforms • Bihar Right to Public Service Act, 2011 • Bihar Special Courts Act, 2009 • Bihar Lokayukta Act, 2011 • Right to Information Act, 2005 Rising infrastructure sector: focus on road and power Bihar is aggressively working on building physical infrastructure and the spurt in infrastructure activities would be the key driver of economic growth in the state. Moreover, the impact of the massive infrastructure programme on job creation (via the “multiplier effect”) will be substantial. The state government is going to formulate soon a ‘State Maintenance Policy’ to take care of already built infrastructures like roads, buildings and other public utilities, and the modalities for the purpose are being finalized. Road The state government has taken up the construction of roads and bridges on a large scale in keeping with its resolution of connecting the state capital with the remotest area so as to cover the distance within a maximum time of 6 hours. Bihar Road Resource Protection Policy has been prepared in FY14 in view of ensuring better maintenance of roads in the state. The road network in Bihar is inadequate both in terms of capacity and quality. In FY13, Bihar with 174.88 kms of road length per lakh population lagged much behind than the all-India average of 387.53 kms. Moreover, the state has a total rural road
  • 71. length of 1.62 lakh kms of which a substantial proportion remains unpaved. The state government has initiated the Mukhyamantri Setu Nirman Yojana, in order to provide all-weather connectivity to the remotest rural areas. The main objective of this programme is to construct bridges on the rivers and drains. Considering Bihar’s limited construction capacity and funding constraints, all options are being explored to establish Public-Private Partnership Mode of construction works. Road infrastructure projects amounting to ` 283.9 bn are expected to be completed by FY20 out of which ` 35.5 bn two Laning Parallel Road to Indo-Nepal Project was the largest in terms of investment. Power Bihar is a power deficient state with an anticipated peak deficit at around 31% and energy requirement deficit of 20.2% for FY13. In order to cope with the growing energy needs of the state, the state is looking to expand its power production via investment in large thermal power plants and hydro projects. For improving and expanding the power transmission network, work is being carried out in two phases under Rashtriya Sam Vikas Yojana, which is supported by the Power Grid Corporation of India Limited. Twenty one projects are expected to be completed by FY20 in the power generation segment, majority of which belongs to the thermal sector. The state government has requested the central government to make an allocation of 1,500 MW of power from Bhutan to Bihar. Bihar has also established an agency called Bihar Renewable Energy Development Agency which is responsible for the development of projects that would use non-conventional energy sources in the state for production of electricity. Moreover, an outlay of ` 31.9 bn was earmarked for the power sector in FY15 under the state plan, a rise of 78.1% from the previous year. 68 Table 3.2: Power supply position in Bihar Year Peak demand (MW) Peak Availability (MW) Deficit (MW) Deficit (%) FY10 2,200 1,508 692 31.5 FY11 2,250 1,664 586 26 FY12 2,500 1,712 788 31.5 FY13 2,650 1,802 848 32 FY14 (Sep-13 3,150 2,190 960 30.5 till present) Source: Economic Survey 2014, Bihar State Power Holding Company
  • 72. Table 3.3: Forecast of peak load and energy requirement (FY14 to FY17) Year Peak Load (MW) Energy Requirement (MU) FY14 3,194 19,478 FY15 3,873 23,214 FY16 4,472 26,330 FY17 5,108 29,539 Source: Department of Energy, Government of Bihar Investments Investment is expected to remain a key driver of economic growth for Bihar in the forthcoming years. After the adoption of New Industrial Incentive Policy, 2011, Bihar has witnessed actualisation of investments by several leading companies. Till October 2013, the State Investment Promotion Board approved a total of 1,441 proposals for establishment of industrial units in the state, involving an investment of ` 2,839.7 bn, with employment potential of 203,727 persons. Around 53% of the proposals approved are for food processing, while power plant accounts for 10% of the total investments. 69 Exhibit 3.1: Key legislations to improve Business Climate
  • 73. Industrial development in the state According to Annual Survey of Industries, with the addition of 888 new factories in FY11, Bihar's share in India increased to 1.33% from 1.21% in FY10. The state recorded an appreciable increase in respect of factories in operation in FY11 over FY10, both in agro-based and non agro-based categories. Bihar Industrial Policy was adopted in 2006, and later revised in 2011 in order to create a conducive industrial atmosphere in the state. Moreover, Bihar State Industrial Investment Advisory Council was constituted in 2012 on account of attracting the investments and providing suggestions to the state government on the development of industrial investments. Bihar Industrial Area Development Authority (BIADA), constituted under the statutory provision of the Bihar Industrial Area Development Act 1974 promotes and assists the rapid development of industries in the industrial areas and estates. This scheme is carried out through its four regional offices at Patna, Bhagalpur, Muzaffapur and Darbhanga. MSME development in Bihar The investment per unit of MSME rose from ` 0.2 mn in FY08 to ` 1 mn in FY12, and the employment per unit increased from 2.77 persons in FY08 to 4.06 persons in FY12. Patna division accounted for 30% of the total MSME units registered in Bihar in FY13. Source: Bihar Economic Survey 2013-14 Bihar has immense potential for sugar and allied industries. The state gov-ernment has decided to encourage the sugarcane based industries in Bihar, in view of increased prospects in the sugar sector. Hence, Sugarcane Survey Policy was established in 2013 in order to strengthen the sugar industry in the state which is expected to boost the rural economy of Bihar. Incipient developments in the IT sector The IT sector that practically did not exist earlier in Bihar has started making its presence felt in recent years. By the end of FY11, Bihar had altogether 315 registered IT companies, accounting for 5.35% of the total IT companies in India. The major comparative advantage for Bihar is its vast talent pool and young population. In FY13, many schemes for the development of IT sector were taken up in the state. A total of 533 Points of Presence are operational in the state under Statewide Area Network (SWAN), with the central government assistance. The Common Service Centre, a core infrastructure of the national e-governance, has been established in all the 9 divisions of the state. With the Government already in the process of addressing the various infrastructure challenges and creating a conducive business environment, it is likely that the state may witness increased investment interest in the IT sector. Source: Bihar Economic Survey 2013-14 70
  • 74. Initiatives to promote upcoming sectors in Bihar with special reference to tourism The state government is focussing on developing the tourism in a systematic manner in order to boost the economic growth and generate revenues and employment in Bihar. Department of Tourism announced a project to develop one hotel in Patna and three others at Gaya, Muzaffarpur and Rajgir. The lands are being acquired for more hotels in the state. The Department of Tourism intends to develop water, health and rural tourism in the state and altogether 66 projects worth `. 0.12 bn are awaiting for necessary clearances. In FY14, the trade, hotels and restaurants sector accounted for 25.7% of the total GSDP and posted a double digit growth of 18.8% on a y-o-y basis. Agricultural growth necessary to bridge state’s rural-urban divide The state government is trying to bridge the rural-urban divide by promoting higher agricultural growth. The rate of growth of Agriculture and Animal Husbandry sector was 5.9% during 2006-13. The state government is focusing on a strong agricultural monitoring system by stressing on sufficient support services in irrigation, seeds, fertilizer, farm mechanization, agricultural credit and awareness programmes. For an agrarian economy such as Bihar, the food processing sector could emerge as the key driver for economic growth. There exists enormous opportunities for investment in the food processing sector in the state. The focus of the state government is to tap the untapped potential of agriculture sector through accelerated development of the food processing industry which will create employment in the rural and backward regions. Development in social sector Even as Bihar is below national averages on various social indicators (life expectancy, literacy etc), the Government is making concerted efforts to bring about an overall improvement in the quality of life through sustained increase in expenditure on social services (which includes health, education and some essential welfare programmes). Expenditure on social services has risen to ` 244.3 bn in FY13 from ` 143.1 bn in FY10. The state government introduced the Manav Vikas Mission (MVM) for 2013- 17 to improve the human development in Bihar. Under MVM, the state government has identified six components - (i) Demography, Health and Nutrition, (ii) Elementary Education and Literacy, (iii) Drinking Water Supply and Sanitation, (iv) Information Technology, (v) Security for Weaker Sections and Ultra Poor and (vi) Art, Culture and Sports. 71
  • 75. Encouraging literacy in the state A decadal increase of 14.8 % points in literacy rate was not only the highest among all the decadal growth rates in Bihar since 1961, but also the highest among all the states for the decade 2001-11. There have been special efforts made to enable girls across the state to go to school and to continue in school past the elementary stage. Source: Bihar Economic Survey 2013-14 The state has taken several steps to dropout rates of students from school. The continuation of the students at this level is very crucial for building human resource for the state. However, the state government should focus on improving the secondary and higher education in Bihar inorder to impart skill in the students. This would enable the youth in contributing towards the development of state by taking up the job opportunities in the state. Though the plan and non-plan expenditure on education has increased over the years, the share of education in total budget has declined from 18.3% in FY08 to 15.8% in FY11. But during FY12 to FY13, this share has shown a remarkable increase and stands at 37.0% in FY13. Skill Development Mission (BSDM) was announced in Bihar in order to develop skill of one crore youth of the state by 2017. 72
  • 76. 73 Madhya Pradesh – Promising development of infrastructure to accelerate industrialisation
  • 77. Madhya Pradesh’s strategic location coupled with huge endowment of natural resources underscores the growth potential for the state. Madhya Pradesh witnessed a significant growth of 9.8% during FY09-FY14 as against average growth of 6.7% of the Indian economy during the same period. This spurt in growth was propelled by growth in the agriculture and services sectors (especially Banking, Insurance and Communication). Going forward, improved performance in the industrial sector and thrust on harnessing its abundant natural resources along with human capital development are expected to be the key drivers of growth of Madhya Pradesh. The per capita income of the state (at current prices) more than doubled from ` 28,414 in FY09 to ` 59,998 in FY14. 74 Chart 3.7: Gross State Domestic Product of Madhya Pradesh • Madhya Pradesh’s GSDP increased at an average rate of 5.2% during FY01–FY10 and at a higher rate of 9.2% during FY11– FY14. • The share of agriculture & allied activities increased marginally from 27.7% in FY05 to 29.0% in FY14, whereas, the share of industry declined marginally from 27.1% to 25.6% during the same period. Share of services remained largely the same during FY05-FY14. • GSDP of Madhya Pradesh is projected to grow at an average rate of 9.5% during FY15-FY20, higher than the projected average growth of 7.5% for India’s GDP. Note: GSDP at constant (2004-05) prices; f: D&B forecast Source: CSO and D&B India Agriculture & allied activities in GSDP clocked significant annual average growth of 9.6% during FY06-FY14. Consistent progress in irrigation potential and utilisation has benefited the agriculture sector in Madhya Pradesh. On the other hand, industry sector grew at an average rate of 8.1% during FY06- FY14.
  • 78. 75 Chart 3.8: Sectoral GSDP of Madhya Pradesh (FY14) (%) • During FY14, the services sector accounted for the largest share of 45.4% in Madhya Pradesh's GSDP. However, this contribution is lower, when compared to a share of 47.2% in FY11. • The trade, hotels and restaurants sector constituted 11.7% of Madhya Pradesh's GSDP. • The Banking & Insurance and Communication sectors (within GSDP) have grown at an average growth rate of 18.8% and 19.8%, respectively during FY09 – FY14. Share of Banking & Insurance in MP’s GSDP has increased significantly from 3.6% in FY05 to 7.7% in FY14. Note: GSDP at constant (2004-05) prices Source: CSO Madhya Pradesh also fares well in maintaining state finances. Fiscal deficit of the state is estimated at 2.98% (BE) of GSDP in FY15, which is within the 3% limit stipulated under the Fiscal Responsibility and Budget Management (FRBM) Act, 2005. The state is expected to maintain revenue surplus of ` 44.79 bn (BE) in FY15. Contained fiscal deficit along with revenue surplus gives positive prospect to economic growth of the state in the coming years. Agricultural growth – Backbone of Madhya Pradesh economy Agriculture sector in Madhya Pradesh has given a major boost to the economic growth of the state. With 5 crop zones, 11 agro climatic zones and 4 soil types, Madhya Pradesh is endowed with favourable climate for agro business. In addition, irrigation facilities in the state have immensely benefitted the food grain production. Allied activities like fisheries, horticulture and milk production are also picking up pace in the state. Owing to consistent high growth of food grain production, Madhya Pradesh has been awarded with Krishi Karman Award consistently for the last two years, by Government of India. With 9.2% share in country’s food grain production, Madhya Pradesh was the third highest food grain producer in India during FY14. Further, the state’s contribution in total soybean production in India was 44.1% in the same period. Madhya Pradesh was also the largest producer of oilseed; with a production of 6.8 mn tonnes in FY14, it contributed 20.6% to the country’s total oilseed production. Wheat production in Madhya Pradesh has gone up significantly from 7.32 mn tonnes to 13.13 mn tonnes during FY05-13. In FY14, the state ranked third in wheat production after UP and
  • 79. Punjab, thereby contributing around 14% in overall wheat production of the country. Rise in agricultural production has been propelled by development of irrigation infrastructure in the state. Currently, there are 16 completed irrigation projects in the state which have brought 1.1 mn hectares of land under irrigation. Moreover, 22 projects are under implementation. Irrigation potential created under annual plans has gone up from 2.2 mn hectares in FY04 to 2.9 mn hectares in FY12. However, actual utilisation in FY12 stood at 1.6 mn hectares. Hence, sizeable irrigation potential exists in the state, which can be utilized to increase agricultural production. Agri business and food processing has been identified as one of the ‘focus sectors’ in Madhya Pradesh as per the 'Amended Industrial Promotion Policy'. The Budget FY15 allocated ` 224.13 bn to agriculture, which is almost 19.2% of the total budget allocation. Irrigation works have been provided ` 57.14 bn. To sustain the momentum in agriculture, the state government aims for expansion of access to inputs, credit and technology along with development of more storage capacity and horticulture corridors. The Government of Madhya Pradesh has prepared the largest database of land records in the country which is known as ‘Bhu-Abhilekh’. Targets under 'Vision 2018' of Madhya Pradesh 1. Bring an additional 5 mn hectares of cultivable land under ridge and furrow 76 method of Soyabean cultivation 2. Bring an additional area of 0.48 mn hectares under System of Rice Intensification (SRI) for improved paddy cultivation 3. Provide ‘Soil health card’ to every farmer 4. Bring 0.15 mn hectares under the coverage of ‘Haldhar Yojna’ for deep ploughing annually 5. Increase annual agriculture credit through co-operatives to ` 250 bn 6. Make available Kisan Credit Cards (KCC) to 2.02 mn farmers in addition to the 4.56 mn farmers already provided 7. Develop a Bhopal-Indore horticulture corridor 8. Develop horticulture clusters around Jabalpur, Gwalior, Ratlam, Jhabua, Chindwara and Chattarpur 9. Expand storage capacity to 150 Lakh Metric Tonnes (LMT) 10. Establish 15 LMT of warehousing capacity in the Bundelkhand region. 11. Double the milk processing capacity to handle more than 2 mn litres of milk per day in cooperative fold 12. Increase fish production in the state from the current level of 85,000 MT to 145,000 MT 13. Increase mulberry cocoon production from 1mn kg to 2 mn kg 14. Bring about 4,000 hectare additional land under mulberry cultivation. Source: Department of Planning, Economics and Statistics, Government of Madhya Pradesh
  • 80. Infrastructure development to boost industrialisation The Madhya Pradesh government has been emphasising development of infrastructure in order to attract more investments in the state. Transport According to the Ministry of Road, Transport and Highways, total length of national highways in India is around 92,851 km, out of which 5,184.6 km national highways are in Madhya Pradesh. The state has 10,373 km of state highways and 21 national highways. Further, Madhya Pradesh has 1,050 km of railway route and 1,673 km running track in the state. Central location of Madhya Pradesh and its connectivity to other important cities in India is an advantage. Allocation for Infrastructure Development in Budget FY15 1. Up-gradation of 19,000 kms of major district roads and linking of divisional 77 headquarters with four lane and district headquarters with two lane roads 2. Conceptualisation of 'Narmada Gambhir Link Project', to irrigate 50 thousand hectares in Malwa region 3. Light Metro Rail for Indore and Bhopal under Mass Rapid Transport System 4. Feasibility survey sanctioned for metro rail project in Jabalpur 5. Investment worth ` 40 bn has been proposed in the sector of power distribution 6. Target to make available 3,120 MW additional power capacity during FY15 7. 40 industrial training institutes (ITI) to be completed in state. Source: Madhya Pradesh Budget FY15 Power The state government has successfully removed electricity deficit and achieved 24 hour power supply. Electricity generation by Madhya Pradesh Power Generation Company has gone up from 14,731 mn units (MU) in FY02 to 19,874 MU in FY14. Electricity supply to rural region and agriculture has significantly improved due to separation of feeders. Objectives of the 12th Five Year Plan 1. Remove power shortage in the state by setting up new generating power projects 2. Expansion of Transmission System - interconnection of state transmission system with national grid 3. 100% meterisation and prevention of theft 4. To provide electricity to all rural households under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme 5. Separation of rural feeders from agricultural feeders. Source: Planning, Economics and Statistics Department, Government of Madhya Pradesh
  • 81. 78 Table 3.4: Additional generation capacity program for 12th Five Year Plan Years Madhya Pradesh Power Generating Company Ltd. (MW) State Sector (MW) Central Sector (MW) Private Sector (MW) Other Sector (MW) Total (MW) FY13 1100 0 173 606 200 2079 FY14 600 0 78 1508 0 2186 FY15 594 0 757 1729 0 3080 FY16 594 1040 352 1691 0 3677 FY17 0 1600 0 825 0 2425 Total 2888 2640 1360 6359 200 13447 Source: Planning, Economics and Statistics Department, Government of Madhya Pradesh As per the expected peak requirement and availability in the 12th Five Year Plan, Madhya Pradesh is projected to enjoy surplus of 21.21% in peak availability of power. Ongoing power projects in Madhya Pradesh 1. Shree Singaji TPP (2x600 MW), Purni, district Khandwa (Malwa)- Mega Power Project status by Govt. of India 2. Satpura TPS Extension Unit 10 & 11 (2x250 MW). New projects in the 12th Plan 1. Dada Dhuniwale Khandwa Power Project (2x800MW), Khandwa - Commissioning of the units expected in FY17 2. Shree Singaji TPP Stage-II (2x660MW), Khandwa- Two units of 660 MW each are programmed to be commissioned in March 2015 and September 2015. 3. Bansagar TPP (2x800MW), Tikuratola, Shahdol- 2x800 MW units are programmed to be commissioned in FY18. Plans proposed in the 13th Five Year Plan 1. 1x250 MW Extension Unit No.6 Amarkantak Thermal Power Station, Chachai, District Anuppur- The 250 MW extension unit is programmed to be commissioned by FY20 2. 1 x 660 MW, Super Critical Thermal Extension Unit at STPS, Sarni- The 660 MW Super Critical extension unit is programmed to be commissioned by FY20. Source: 12th Five Year Plan (2012-17), Annual Plan 2012-13, Government of Madhya Pradesh Renewable energy Consistent increase in renewable energy capacity has favoured the state’s development. In order to promote utilisation of renewable energy and make the energy situation more sustainable, the government of Madhya Pradesh has implemented many policies, such as Biomass Policy 2011, Small Hydro Policy 2011, Wind Policy 2012 and Solar Policy 2012.
  • 82. 79 Table 3.5: 12th Five Year Plan targets for non-conventional sources of energy Particulars Target Solar Photovoltic Street light (No.) 11,500 Domestic Light (No.) 3,800 Solar Power Plant (kw) 12,500 Solar Thermal Water Heater (Sq. Meter) 49,000 Solar Cooker (No.) 25,000 Rural Electrification Villages (No.) 98 Majra/ Tolas (No.) 475 Source: 12th Five Year Plan, Madhya Pradesh The state has achieved significant growth in capacity of renewable energy. Wind energy generation capacity has gone up from 27.9 MW in FY05 to 314.3 MW in FY13 and solar energy generation capacity during FY13 is worth 7.3 MW. Further, capacity in pipeline for wind, solar and biomass energy is estimated at 1,199.4 MW, 270 MW and 295.4 MW, respectively. There are 74 hydro projects in the state, with 218.7 MW worth capacity in pipeline. During FY13, among all the states, Madhya Pradesh registered highest annual growth (26.8%) in the total installed electricity generation capacity. Under the ‘Vision 2018’, the state government aims to increase capacity of long term conventional and non-conventional sources above 20,000 MW. Moreover, a US$ 350 mn loan from Asian Development Bank (ADB) is expected to help Madhya Pradesh on its roadmap to become a power surplus state by 2018. Financial Inclusion –A step towards inclusive growth The banking sector in Madhya Pradesh has witnessed impressive growth in the last decade. Increase in number of branches has helped to increase the spread of mainstream banking. Table 3.6: Indicators of Financial Inclusion Indicators FY05 FY14 Branches of commercial banks (Nos) 2,377 3,684 Branches of co-operative banks (Nos) 1,234 1,121 Branches of Regional Rural Banks (Nos) 1,047 1,192 Total branches (Nos) 4,658 6,412 Total agricultural advances (` bn) 128.7 556.8 Advances to weaker sections (` bn) 42.59 212.8 Source: Economic Survey, Madhya Pradesh, State Level Bankers’ Committee
  • 83. During FY13-FY14, micro and small enterprises advances went up from ` 176.9 bn to ` 229.4 bn, registering the growth of 30%. Target set for agriculture credit under ‘Annual Credit Plan FY15’ is ` 540.1 bn, showing the growth of 30% over the target of FY14. Priority sector credit (including agricultural credit) target is estimated at ` 717.9 bn. Rising credit deployment in priority sector will likely to boost micro and small enterprises along with agriculture & allied activities. Madhya Pradesh follows ‘Samruddhi’ model of ‘financial inclusion’. This model has enabled Electronic Fund Management System (e-FMS) in the state. The e-FMS was rolled out in the entire state of Madhya Pradesh in 2013. Since then, no wage-payments in the course of Mahatma Gandhi Nationa Rural Employment Gurantee Scheme (MGNREGS) implementation have been made through cheque or cash. This system has helped to improve transparency and reduce turnaround time. Samruddhi model has also facilitated electronic transfer of various social security benefits through ‘Samagra Samajik Suraksha Mission’ (SSSM). It has been rolled out in 15 districts of the state. In summary, e-governance has helped to improve financial inclusion in Madhya Pradesh, which is likely to enhance the efficiency of welfare schemes. Financial inclusion model in Madhya Pradesh selects ‘unbanked’ villages on the criteria of geographical distance from bank branch instead of national criteria of village population. Under this model, 14,767 villages have been identified as unbanked villages out of which 1,767 villages have been successfully covered under bank-branch expansion as of Nov 2013. As per the national agenda of financial inclusion, all the 2,736 villages in the state with a population of more than 2,000 have been covered with availability of banking services. Further, 11,252 villages with population less than 2,000 have been covered under financial inclusion as on 30th Sept 2013. Besides, 63% of population of the state has been covered under AADHAR enrollment as on May 2014, with highest enrollment in Indore district and the lowest in SheopurKalan . Banks in Madhya Pradesh are also performing well in terms of advances to priority, weaker and agriculture sector. Table 3.7: Performance against norms set out by RBI (%) Particulars RBI Norm State performance as on 31st March 2014 (Advances - % of total credit) Advances outstanding to priority sector 40 58.60 Advances outstanding to agriculture 18 33.77 Advances outstanding to weaker sections 10 13 Source: State Level Bankers’ Committee, Madhya Pradesh 80
  • 84. Under 'Vision 2018', the state government envisages to computerise the activities of Primary Agriculture Credit Society (PACS) and link them to the Core Banking Solution of Co-Operative banks, which will enable better delivery of agricultural credit. With around 72.4% rural population, wave of ‘financial inclusion’ in Madhya Pradesh is expected to bring large population into mainstream banking, which is likely to empower rural population in the state and boost agro based and small scale industries. Roadmap towards industrialisation In the agrarian economy of Madhya Pradesh, industry sector is slowly picking up pace owing to Industrial Promotion Policy and incentives offered by the government. A favourable resources base, infrastructure development and conducive industrial policies are likely to make the state more business-friendly in the future. However, share of industry in GSDP of Madhya Pradesh has failed to show encouraging picture. Further, manufacturing sector also shows dismal performance. The share of manufacturing sector in state GSDP has declined from around 14% in FY09 to 10.1% in FY14. Nonetheless, the state government has chalked out the strategy in order to realise its potential in industrialisation. Being the important part of Delhi Mumbai Industrial Corridor, Madhya Pradesh holds the potential in creating industrial clusters. This corridor is projected to generate additional employment for over 0.2 mn people. In order to accelerate submission and clearance process for businesses, the state government has established single window through ‘Trade and Investment Facilitation Corporation Ltd’. This is likely to improve ease of doing business in the state. Initiatives under amended industrial promotion policy 2010 1. Sectors in focus - Agriculture and food processing, textiles, automobile and auto components, tourism, pharmaceuticals, bio-technology, IT, healthcare, skill development and logistics and warehousing- these sectors are likely to attract more investments in the near future 2. An assistance to set up industrial parks by sharing development costs 3. Micro and small industries in all districts to receive capital subsidies at the rate of 15% up to a maximum amount of ` 15 lakh. Further major and medium industries would be provided 50% assistance of expenditure on development of infrastructure up to the premises of industrial units 4. Land reforms – ‘Land bank’ to be established for industrial purposes and an 81 online application and allotment system to be developed 5. New industries to give 50% direct jobs to local people, which is expected to boost employment scenario in the state 6. Indore, Gwalior, Bhopal and Jabalpur have been selected for development of IT investment, which will give boost to service sector. Source: Industrial Promotion Policy 2010, as amended in 2012, Government of Madhya Pradesh
  • 85. Pithampur-Dhar-Mhow Investment Region (MIR) Development of Pithampur-Dhar-Mhow and Ratlam –Nagdamega industrial region and Dewas Shajapur and Neemuch-Nayagaon industrial area has been given priority under the industrial corridor project. Approved projects like Knowledge City Ujjain, Multi-Modal logistic hub at Pithampur and Economic Corridor on Indore-Pithampur Airport Road will change industrial scenario in Madhya Pradesh. 13.1% land of the corridor is allocated for IT and ITeS industries and 13.7% to non-polluting industries. Capacity of Multi-Modal logistic hub at Pithampur is estimated at 0.63 mn TEUs (Twenty foot equivalent unit) per annum. Consequently, logistics integration will drive up the efficiency. Source: Madhya Pradesh Trade and Investment Facilitation Corporation Ltd Apart from industrial development, tremendous development in electricity generation and reduction in electricity deficit is expected to boost industrialisation in the state. Social services – Meager quantity and poor quality Madhya Pradesh accounts for 6% of total population of India. The state’s population has grown by 1.87% per annum during 2001-2011, as against India’s population growth of 1.64% for the same period, indicting increasing pressure on limited social sector infrastructure. Madhya Pradesh lags behind in health related indicators. Low life expectancy and high infant mortality rate (IMR) in Madhya Pradesh in comparison with national average is a matter of concern, indicating poor quality of medical services in the state. Moreover, the state also displays shortfall of medical infrastructure. To overcome these shortfalls, Madhya Pradesh government brought 'Healthcare Investment Policy' in 2012. The policy provides various capital and interest subsidies along with non-fiscal incentives to expand the access of healthcare facilities in the state. Further, under ‘The State Illness Assistance fund’, the state provides grants to below poverty line people who require major surgical interventions. 82 Health related targets under the 12th Five Year Plan 1. Reduce Maternal Mortality Ratio (MMR) to 125 2. Reduce IMR to 35 from 56 per 1000 births in 2012. 3. Improve the sex ratio (0–6 years) to 950 females per 1000 males 4. Reduce malnutrition to 20% and anemia to 25%. Source: Planning, Economics And Statistics Department, Government of Madhya Pradesh In the education sector, Madhya Pradesh has been implementing several schemes such as Sarva Shiksha Abhiyan (SSA), Rashtriya Madhyamik Siksha Abhiyan (RMSA) and Sakshar Bharat etc. Under SSA, the state government has improved access to primary education by opening many primary and upper primary schools (number of primary and upper primary schools stood at 84,057 and 30,266 in FY14). Drop-out rate at primary level has decreased from 8.2% in FY12 to 3.4% in FY13. Overall literacy rate in the state is 70.6%
  • 86. as per Census 2011. However, gender gap remains a cause of concern with male literacy at 80.5% and female literacy at 60%. In its 'Vision 2018', the government aims to achieve 100% enrolment of children at the high school and secondary school levels along with significant reduction in drop-out rates at all levels. Emphasis on ‘skill development’ under 'Vision 2018' is likely to increase private sector participation in education as well as boost self-employment 83 in the state. According to 'India Human Development Report 2011', Madhya Pradesh consistently lags in human development over the years despite an impressive economic growth. Hence, bridging the gap between economic and social development remains a crucial aspect for sustainable growth of Madhya Pradesh in the coming years. Thereby, 'Vision 2018' of state rightly focuses on public health, education, skill development and women empowerment. Trends in plan outlays – Increasing focus on social services Prominent focus on social services is visible from the upward trend of social services allocations. A share of ‘social services’ in annual plan outlays has gone up from 31.1% in FY04 to 39.6% in FY13. Outlays on rural development and irrigation have witnessed significant fall in the last ten years, despite Madhya Pradesh being an agrarian economy. On the other hand, share of transport in proposed outlays has increased significantly from 7.2% in FY04 to 12.9% in FY13, highlighting the priority given to infrastructure development. Table 3.8: Five Year Plan Outlays – % distribution of plan outlays by sectors Sectors 11th Plan (2007-12) 12th Plan (2012-17) Approved Outlays (` bn) % Share Projected Outlays (` bn) % Share Agriculture and Allied Activities 34.1 4.9 174.8 8.7 Rural Development 79.4 11.3 129.8 6.4 Special Areas Programme 31.3 4.5 83.6 4.1 Irrigation and Flood Control 151.0 21.5 275.3 13.6 Energy 94.9 13.5 206.0 10.2 Industry & Mining 6.0 0.9 56.7 2.8 Transport 85.8 12.2 246.1 12.2 Science, Technology & Environment 1.9 0.3 5.9 0.3 General Economic Services 15.3 2.2 33.6 1.7 Social Services 202.1 28.7 798.4 39.6 General Services 1.6 0.2 8.7 0.4 Total 703.3 100 2,018.6 100 Source: Madhya Pradesh Annual Plan 2013-14
  • 87. Proposed actions under the 12th Five Year Plan 1. To enroll unskilled people under National Rural Employment Guarantee Scheme (NREGS), the state intends to put 1.73 bn mandays during the 12th Five Year Plan 2. Under ‘Chief Minister Housing Mission’, more than 0.7 mn houses are to be 84 constructed for rural homeless families 3. To provide shelters to about 40,000 people under ‘Chief Minister Antyodaya Housing Schemes’ 4. To complete all industrial development works and ensure that all units come in SEZ and Parks become operational 5. To create 665.6 thousand job opportunities per annum, out of which 513.5 thousand would be for men and 152 thousand for women 6. Infrastructure for all schools, both government and private will be made available within 3 years. Source: Madhya Pradesh Planning Commission In the coming years, Madhya Pradesh intends to bring balance in social and economic development through industrialisation, delivery of social services along with infrastructure development. Under the 12th Five Year Plan, the state aims to achieve an overall growth rate of 12.0% through 9% growth in primary sectors, 12.0% growth in secondary and 13.8% growth in tertiary sector. The target appears to be ambitious. Economic slowdown might restrain growth of industry sector. Further, agricultural growth alone cannot push the economy in the long run. Being an agrarian economy, Madhya Pradesh is missing the global wave of knowledge-driven service sector, which might hinder the overall growth of the state.
  • 88. 85 Rajasthan - Government’s initiatives, infrastructural development and industrialisation to aid state’s growth
  • 89. Rajasthan, the north-western state of India, constitutes approximately 23% of the National Capital Region, the second largest urban agglomeration in the world. Rajasthan, which posted a double digit growth of 14.4% in FY11, later witnessed a slowdown by recording near 5.0% growth in the following years. The growth rate averaged at 4.8% during FY12-FY14. The segment which acted as an engine in pushing the overall growth of the economy was the services sector which recorded a growth of 7.8% during FY12-FY14. However, it is important to note that agriculture and allied still continues to be the most prominent sector as it contributed more than 20.3% in FY14 to state GSDP and is the largest employment provider. According to the 2011 Census, agricultural sector provided employment to over 60% of the total workers in the state. On the other hand, growth in industrial sector averaged at 9.3% during FY06-FY10. However, growth in industrial sector slowed down and posted a rate of below 5% after FY10. While the share of industry has declined marginally in recent few years, it still holds significant share in the state’s GSDP. We expect thrust on infrastructural development, encouraging government policies, improved performance in the industrial sector, launch of social & economic programmes and balanced regional development in the state will be the main indicators to boost the overall growth of Rajasthan during next six years leading to 2020. Gross State Domestic Product of Rajasthan expected to grow by 8.6% during FY11-FY20 86 Chart 3.9: Gross State Domestic Product of Rajasthan (` bn) • GSDP of Rajasthan is expected to grow by 7.2% during FY11-FY15, and further intensify to 9.9% during FY16-FY20 • We believe speedy industrialisation, government initiatives and infrastructural development will boost the state’s growth f: D&B forecast Source: CSO and D&B India
  • 90. 87 Chart 3.10: Sectoral Gross State Domestic Product of Rajasthan (FY 14) (%) • Manufacturing sector grew at an average of 6.4% during FY07-FY14 • Services sector accounted for 51.2% of the state’s GSDP in FY14 and grew by an average of 9.4% during FY07-FY14. The growth was mainly driven by trade, hotels and restaurants, which grew by 9% during FY07-FY14 Note: at constant (2004-05) price Source: CSO Focus on balanced agricultural sector development There is an acute need of speeding up improvements in agriculture sector, as it is the largest employment provider in the state. The prospects of agriculture in the state largely depend on timely arrival of monsoon. Hence, the state government has taken up a significant number of measures to improve agriculture sector by improving the agriculture infrastructure, promoting agro based business and by introducing policy for convenient procurement process. Following are some of the initiatives taken up by the state in order to promote the growth in the agricultural sector: • As per the state’s annual plan of FY14, an outlay of ` 23.5 bn was earmarked for the agriculture and allied services, which was 5.9% of the total outlay • To promote farm mechanization, 33,649 agricultural implements were distributed among farmers during FY14 • A World Bank funded project – ‘Rajasthan Agriculture Competitiveness Project’ July 2012 to April 2019 was launched with a cost of ` 8.3 bn. This project emphasises on judicious use of irrigation water including ground and surface water and efficient use of water in rainfed areas • The state has a large scope for horticulture. It provides additional employment opportunities to the rural people while diversifying the rural economy to agro processing and other ancillary activities. During FY14, against the budget provision of ` 1.5 bn, an amount of ` 1.4 bn has been utilized upto Mar-14
  • 91. According to the state’s annul plan of FY14, under ‘Vision 2017’ of the agricultural sector, the state focuses on increasing production, productivity and area sown; diversification to high value crops; promoting post-harvesting management; indigenous breed conservation and improvement; and long term drought proofing. Growth in industrial sector to pick up Industrial development always remains a thrust area in the agenda of the state government. The industries present in the state are reportedly not providing sufficient employment to sizeable population. Moreover, the contribution of the industrial sector towards the state domestic product is also below the expectations. Therefore, the state government has been focussing on accelerating industrial development which will play a major role in the state’s economic progress. Hence, following are the some of the initiatives taken to boost the industrial sector: • According to the state’s annual plan of FY14, an amount of ` 2.3 bn has 88 been earmarked to the industry sector • Saint Gobain Group is making an investment of ` 10 bn in Bhiwadi for establishing a plant for float glass. It is proposed to establish the largest float glass plant of the world in this unit. Work for the project is in progress and trial production is to commence by September 2014 • At present, 36 District Industries Centres and 7 sub-centres are working for providing inputs and other facilities to entrepreneurs. • Industrial Shivirs are organised at District and Panchayat Samiti levels to promote industrial development and to make people aware about the procedure of establishment of industrial units. During the year FY14, 39 shivirs were organized at district level and 263 shivirs were organized at panchayat samiti level • Under the Mahatma Gandhi Bunker Bima Yojana, 2,713 bunkers have been benefitted against the target of 3,000 during the FY14, benefiting the handloom workers in the state • VASTRA, an International Textile and Apparel Fair 2013 was organized in Rajasthan, which helped Rajasthan to generate a business of US$ 69.3 mn • Under the Prime Minister Employment Generated Programme, 365 khadi and village units have been benefitted. A budget provision of ` 175.00 lakh was proposed during FY14 for New Mini Khadi Cluster Scheme • Regional Industrialization Promotion Scheme (Backward districts) 2011- 12 had been implemented for promoting industrialization in industrially backward districts of the state such as Karauli, SawaiMadhopur, Dholpur, Baran & Pratapgarh. This scheme is functioning till Dec-14 with an earmarked amount of ` 50 mn
  • 92. • The state developed an industrial estate in Neemrana dedicated for Japanese investors (JETRO). RIICO has so far allotted 485.82 acre land to 46 Japanese companies in this area, of which 33 companies have started commercial production. A total investment of ` 42.2 bn is expected on the allotted land and employment opportunities for approximately 9,170 people Apart from the above, polices such as Rajasthan Enterprises Single Window Enabling and Clearance Act, 2011, Rajasthan Industrial and Investment Promotion Policy-2010 & Rajasthan Investment Promotion Scheme-2010 are being implemented to achieve global competitiveness, accelerate overall pace of industrial growth, increasing employment opportunities along with ensuring sustainable development and strengthening small, medium and large industries. Achievement of MSMEs in Rajasthan A total of 17,601 MSME industrial units have been registered during FY14, against the target of 15,000 units. These units with a total investment of ` 27.8 bn have generated direct employment for 98,791 persons. Further, 119 proposals for establishment of major and medium industries with an investment of ` 228.4 billlion have been submitted to the Government of India. Source: Rajasthan Economic Review 2013-2014 SEZ development in Rajasthan The presence of SEZs in Rajasthan is likely to play an importamt role in the industrial development of the state. • Three SEZs have been established in the state, of which, two SEZs based on Gems & Jewellery are established at Sitapura, Jaipur and one at Boranada, Jodhpur for development of handicraft industry. During FY14, the exports have reached over ` 9 bn upto Mar14, creating jobs for 9,831 persons • Mahindra group is establishing a SEZ with RIICO in Jaipur with an expected investment of ` 100 bn. In this SEZ, various zones shall be established for industrial units of different sectors • An investment of ` 16.5 bn has been incurred in Mahindra World City (Jaipur) Ltd. in FY14. Till now, exports worth ` 10.8 bn have been made from here and with direct employment to 4,721 persons and indirect employment to 2,827 persons 89
  • 93. Focus on petroleum, oil and gas sectors • The Directorate of Petroleum was setup to expedite the exploration and development of Oil and Natural Gas sector in the state • The State Government has sanctioned 11 Petroleum Mining Leases (covering an area of 4,632 sq. km) for exploitation of Crude Oil, Heavy Oil and Natural Gas. • Oil India has entered into an agreement with Venezuelan Company PDVSA for the exploitation of proved in-place Heavy Oil Resource of 25.00 mn tonnes and Bitumen Reserves of 53.00 mn tonnes • A total of 65.61 mn barrels of crude oil have been produced with accrued revenue of ` 59.5 bn during FY14 Source: Rajasthan Economic Review 2013-2014 Tourism sector, a vital contributor to services sector During the calendar year 2013, the number of tourist arrivals in Rajasthan was 317.35 lakh (302.98 lakh domestic and 14.37 lakh foreign). Approximately, 21% of foreign tourists visiting India, visit Rajasthan also. Increase in foreign and domestic tourists in Rajshan is expected to generate indirect employment, which is likely to positively impact the overall GSDP. The state’s Tourism Unit Policy continues to encourage investment in tourism sector. Following are the highlights in the sector: • According to the annual state plan of FY14, development work on 10 villages has been undertaken to promote Rural Tourism. Further, the state is also focussing on the development of infrastructure to promote religious tourism. • In FY13, ‘Paying guest Awas Yojana’ was extended in the state • For the year FY14 original budget provision was of ` 668.8 mn for the Tourism Department against which an expenditure of ` 583.9 mn has been incurred. In FY14, the state incurred an amount of ` 103.8 mn on various conservation, renovation and development works under state plan. • The state government is encouraging joint ventures and contract management of private heritage properties (forts, fortresses, palaces and havelis) and is identifying heritage government properties to award on a lease basis. Developers and investors are offered attractive investment opportunities through the state’s popular tourist attractions • 17 tourism projects are scheduled for completion in the state by FY20. The ` 10 bn Udaipur Kempinski Hotel project by Ambience Infrastructure Pvt. Ltd was the largest in terms of investment. The project, under implementation is located at Udaipur and is expected to be completed by Mar-18 90
  • 94. Rise of IT sector • Computer software/services and ITeS exports from the state have expanded at a CAGR of 18.9% from FY 09 to FY13 and stood at US$ 185.2 mn in FY13. IT parks with special infrastructure have been set up at Jaipur, Jodhpur, Udaipur, Kota and Alwar. • According to the guidelines of Government of India under National e-Governance Plan (NeGP), four Committees have been constituted by the State Government to provide impetus and right direction to IT and e-Governance in the State. All Government Departments are required to earmark 3% of their Plan Budget for e-Governance initiatives. Under NeGP, a State Data Centre in IT Building has been established with Storage Area Network (SAN) capability of 43 racks Data Centre is 125 TB (Terabyte). Source: Rajasthan Economic Review 2013-2014 and IBEF 2014 Infrastructural development to act as a catalyst in state’s growth Power sector Rajasthan has made significant progress in the power sector. It is important to note that the installed capacity of the power in the state which was just 1,328 MW in FY82 went up to 14,371.6 MW at the end of FY14, which was more than a ten times increase as compared to FY82. As per the state’s annual plan of FY14, under the Vision 2017, the state intends to supply quality electricity to all consumers including rural households at reasonable prices. 91 Table 3.9: Year-wise increase in installed power capacity Year % increase FY10 15.1 FY11 13.8 FY12 12.2 FY13 19.1 FY14 17.1 Source: Rajasthan Economic Review 2013-2014 Table 3.10: Year-wise increasing in trend in power sector (%) Year Energy Availability Net Energy Consumed FY10 14.2 14.0 FY11 8.9 9.3 FY12 8.4 8.5 FY13 11.4 11.5 FY14 10.1 10.0 Source: Rajasthan Economic Review 2013-2014
  • 95. The State Government has adopted the competitive Bidding guidelines of GoI and has approved procurement of 3,840 MW power under case -1 and case-2 by Rajya Vidyut Prasaran Nigam Limited through Private developer. The state government intends of granting a support of ` 89.5 bn to power companies. Rajasthan Renewable Energy Corp Ltd announced ` 100 bn power plant project in Barmer in FY13. The said project will generate 100 MW of electricity. A total of 31 power projects are scheduled for completion in Rajasthan by FY20, out of which 22 projects are being implemented while rest are in the announcement stage The ` 84 bn Kalisindh Super Thermal Power Project by Rajasthan Rajya Vidyut Utpadan Nigam Ltd was the largest power project in terms of cost in the state that is slated for commissioning by FY20. Once completed, the two units of this project are expected to generate a total power of 1,200 MW. Thrust on renewable energy: • The Government of Rajasthan had launched the “The Solar Power Policy" on 19.4.2011 and has also made amendments in the Wind Policy in March, 2014 for better development of wind power generation in the state • Three Demonstration Wind Farm projects sanctioned by Ministry of Non Renewable Energy (MNRE), Government of India with total aggregate capacity of 6.35 MW have been installed at Jaisalmer, Phalodi and Devgarh. A total of 2,797.85 MW wind power capacity has been installed upto Mar-14 with a total investment of ` 154 bn • Solar plants will be set up in the State under the National Solar Mission and Rajasthan Solar Energy Policy 2011. So far, Solar Power Generation Plants of 725.50 MW capacity has been established in the state • 11 Biomass Power Generation Plants of 114.30 MW capacity have been established in the State up to Mar-14 • Solar City Programme, Remote Village Electrification Programme and Energy conservation Programme schemes are being launched and promoted in the state Source: Rajasthan Economic Review 2013-2014 With an expected increase in installed power generation capacities, investments and initiatives undertaken by the government towards boosting renewable energy generation, Rajasthan is expected to emerge as a power surplus state in coming years. This is likely to aid the growth of state’s industrial and agricultural sectors in the current decade. Transportation sector The total road length in the state has accelerated from 13,553 km in 1949 to 195,850 km in FY14. However, out of 195,850 km road length, three fourth is village roads and about 16% village habitations are not connected by all weather roads. As such, the state still lags behind as compared to the national scenario with respect to the integrated and efficient road transportation system. Therefore, the state government intends to achieve 100% connectivity 92
  • 96. for villages above 250 population of people in the next 2 years and 65% villages having a population below 250 in next 4 years. Further, strengthening and renewal of 6000 km rural roads is on the agenda of the state government. Jaipur Metro Rail Project Jaipur Metro Rail Project has been planned for the rapid urban transport keeping in view the growing needs of the public transport for the next few decades. The project intends to spur economic development of the city while preserving its heritage and culture. This Rail Project promises to be a significant step in making Jaipur, a world class city. Source: Rajasthan Economic Review 2013-2014 Rajasthan Gramin Sadak Vikas Yojana was launched in FY13 to connect the unconnected villages by road. A total of 663 villages have already been connected and work on connecting 1854 villages is underway. Moreover, work on 500 villages with less than 250 population was expected to be covered in FY14 with an expenditure of ` 5.9 bn. A total of 33 projects in the transport services sector are scheduled completion by FY20. Majority of these projects are located in Jaipur and Jodhpur. Of the 33 projects, 30 are being implemented and the remaining are in the announcement stage. Following are the top 5 transport services projects that are scheduled to be completed in the state by FY20: 93 Table 3.11: Top 5 transport services projects scheduled to be completed by FY20 in Rajasthan Company Name Project Name Cost (` bn) Project Status Transport Industry Group Location Completion expected Jaipur Metro Rail Corpn. Ltd. Jaipur Metro Rail Project Phase-II 65.83 Announced Railway transport infrastructure services Sitapura industrial area & Panipech Nov-16 Jaipur Metro Rail Corpn. Ltd. Jaipur Metro Rail Project Phase-I 31.49 Under Implementation Railway transport infrastructure services Jaipur Mar-18 L & T B P P Tollway Ltd. Beawar-Pali- Pindwara (NH- 14) Highway Project 23.88 Under Implementation Road transport infrastructure services Ajmer, Pali & Sirohi Sep-17 Shreenathji-udaipur Tollway Pvt. Ltd. Gomti Chauraha- Udaipur (NH 8) Four Laning Highway Project 11.14 Under Implementation Road transport infrastructure services Gomti & Udaipur Sep-15 G V K Deoli Kota Expressway Pvt. Ltd. Deoli-Kota (NH- 12) Four-Laning Highway Project 8.50 Under Implementation Road transport infrastructure services Tonk & Kota Aug-14 Source: CMIE Capex
  • 97. Dedicated Freight Corridor (DFC) The Dedicated Freight Corridor (DFC) is 1,483 km long rail corridor connecting the Jawaharlal Nehru Port near Mumbai with Dadri near Delhi. With nearly 39% of DFC passing through Rajasthan, opportunities for industrial establishment along the route are eminent, as the corridor will make Rajasthan easily accessible to western and northern markets. About 60% of the state’s area falls within the project area of influence including major districts such as Jaipur, Alwar, Kota and Bhilwara. With this, the state will be positioned as an attractive destination for setting up industrial units. DFC will allow high-speed connectivity for high axle load wagons of double stacked container trains supported by high power locomotives. The corridor will eliminate the limitation of Rajasthan being a land-locked state and will generate unprecedented development and opportunities. Source: Bureau of Investment Promotion, Government of Rajasthan Focus on social sector • Under the Urban Infrastructure Development Scheme for Small & Medium Towns (UIDSSMT), Government of India has sanctioned 37 projects costing ` 6.1 bn in 35 cities for Rajasthan. • A State Flagship Program ‘Mukhya Mantri Shahari BPL Awas Yojana’ was launched by the State Government to provide subsidy for construction of own houses for Urban BPL families, Under this scheme, one lakh BPL families are to be benefited. • Pradhan Mantri Rozgar Srajan Karyakram (PMRSK), aims to provide new employment opportunities by promoting large numbers of Gramodyog services and commercial activities in rural and urban areas of the State. During the year FY14, 1,625 applications have been sanctioned and loans have been sanctioned to 1,227 persons to share their venture. • Rajasthan Janani Shishu Suraksha Yojana was launched in all the 33 districts on 12 September 2011 to bring down maternal and child mortality rate in the State. Moreover, free treatment and transport facility to pregnant women and sick infants is provided. • Under the Mukhyamantri Kaushal Vikas Yojana, 3 lakh unemployed youth will be trained per annum in various skill sectors through short terms vocational skill courses. • During the year FY14, 1,776 youth have been trained against the target of 1,600, under Entrepreneurship Development Training Programme (EDTP). 94
  • 98. According to the state annual plan of FY14, under the Vision 2017, the state intends to achieve the following: • Enabling economic and social empowerment • Protecting women and children from all forms of violence and 95 discrimination • Ensuring child rights; • Inclusion of all marginalized groups and protection of the vulnerable • Providing quality education • Meeting housing needs of urban poor • Providing efficient public transport system and financial strengthening of local bodies
  • 99. 96 Odisha – Focus on industrial activities, infrastructural development and services sector
  • 100. The state economy has witnessed high growth rates during the last decade. However, the state registered a slowdown in the past three years. Odisha recorded a single digit annual average growth rate of 5.8% during FY12-FY14 after recording significant growth rate of around 9.8% during FY04–FY11. It is important to note that the services sector grew by 8.6% (y-o-y) in FY14, while the agricultural sector recorded a negative growth of 3.3% in FY14. The industrial sector witnessed a slowdown in growth by posting an increase of 5.7% in FY14, after a 9.5% rise the previous year. Transformation of state Diversification of economic activities has led to a visible structural shift from an agriculture based economy to an industry and service-led economy in Odisha. The share of the total workers in the agricultural sector (cultivators and agricultural workers) declined from 64.7% in 2001 to 61.8% in 2011. This indicates that although the majority of population in the state still depends on agriculture directly or indirectly, the state economy has been diversifying and there is a shift from the agricultural sector towards the non-farm sectors. The share of employment in the public sector continues to be higher than that in the private sector, although the latter has shown steady increase. It is, however, heartening to note that the share of women employees in the organised sector has been steadily increasing and has exceeded at 16% in 2012. The expansion of construction, trade, hotels, restaurants, communications, banking sub-segments within the broad services sector are responsible in making Odisha a services sector led economy in terms of income and employment generation. The expected growth during next few years leading to FY20 is likely to be driven by industrial and services segment. The state’s focus on being a services and industrial oriented economy along with the emphasis on leveraging its abundant mineral and other resources, promoting industrial activities and creating employment opportunities within the state will be important growth drivers in the current decade. 97
  • 101. GSDP of Odisha expected to increase by 8.1% during FY15-FY20 98 Chart 3.11: Gross State Domestic Product of Odisha (` bn) • The per-capita income (at current prices) stood at ` 66,522 in FY14 in Odisha • GSDP of Odisha grew at an average rate of 7.4% during FY01-FY10, marginally higher than the nation’s average of 7.2% • Odisha’s GSDP is expected to grow at an average rate of 6.5% during FY11-FY15, and further intensify to 8.3% during FY16- FY20 • Rise in industrial and services sectors are expected to drive the state growth in the coming years f: D&B forecast Source: CSO and D&B India Chart 3.12: Sectoral Gross Domestic Product of Odisha (FY14) (%) • Growth in agricultural sector declined by 3.3% in FY14, after a rise of 11% in FY13 • Manufacturing sector accounted for 16.2% of GSDP in the state in FY14 and grew at 7.1% during FY14 • Services sector grew by 9.2% during FY07- FY14, led by sustained growth in transport, storage & communication and trade, hotels and restaurant segments Source: CSO Agricultural growth vital for a balanced state growth Agriculture sector accounted for 15.6% of the state’s GDP in FY14. Agricultural sector continues to be an important segment for the state, inspite of the reduction in its share in the overall GSDP. There is a need to impove agricultural production and productivity with better technology, higher public and private investments and effective implementation of ongoing programmes in agriculture and allied sectors. Following are the initiatives taken to develop the agricultural sector: • Odisha State Agricultural Policy 2013 was implemented in the state inoder to bring a shift from the present level of subsistence agriculture
  • 102. to a profitable commercial agriculture. It is also designed to address the encouraging trends and potential areas for development in agriculture segment • A total of 20 irrigation projects amounting to ` 164.2 bn were under implementation in Odisha as on Aug-14. The ` 39.3 bn Odisha Community Tank Management Project was the largest in terms of investment. The project was announced by the Government of Odisha in Jan-12 and is located in Cuttak and Puri • To rationalise the irrigation development in Odisha, a programme was initiated during FY06 for providing irrigation facilities to atleast 35% of the cultivable area of every block by 2014. The state government tied up funding with NABARD for providing subsidy under the Jalanidhi programme, which is being implemented in the state and encourages farmers to go for creation of captive irrigation sources through shallow tube wells, bore-wells, dug wells. The state government continues to attach high priority to create irrigation potential as well as optimally utilise available water resources during the 12th Five Year Plan As per Odisha’s state plan of FY14, the state’s focus areas in the agricultural sector were as follows: • 1.6 lakh ha of additional areas to be brought under irrigation during 99 FY14 • 20,000 number of bore-wells will be completed during FY14 which will create irrigation potential of 40,000 hectare • ` 0.9 bn is provided for the new scheme ‘Lining of Canals’ to ensure optimum utilization of irrigation potential created • 28 new schemes launched for these sectors for provision of quality inputs, access to improved technology and markets • Support for provision of both long-term and short-term credit to the farmers at affordable rates Initiatives by the state government along with state’s focus on irrigation facilities is expected to increase the productivity of the sector, maintain a balanced growth and generate further revenue for the state. Mining segment and steel sector to aid industrial growth Most large-scale industries in Odisha are mineral-based. The state occupies an important place in the mineral deposits and production in India. The mineral belt is spread over an area of more than 6,000 sq km. The mining & quarrying sector accounted for 5.8% of Odisha’s GSDP during FY14. Growth in the mining sector picked up by posting a 6.2% increase on a y-o-y basis in FY14 after a decline in rate for two continuous years i.e. during FY11-FY12. Mining & quarrying provides employment to different sections of the population
  • 103. including tribal groups. In FY3, nearly 79.5% of employees were engaged in the iron ore and coal sub-sectors of the state. The mineral sector of Odisha has been increasingly employing capital intensive and labour saving technologies with a view to enhancing its global competitiveness. 100 Table 3.12: Value of Mineral Production of Odisha Year Value (` bn) FY 07 76.3 FY 08 106.3 FY 09 151.2 FY 10 153.2 FY 11 282.9 FY 12 302 FY13 350 Source: Economic Survey of Odisha 2013-14 Table 3.13: Direct Employment in Mineral Sector of Odisha Year Numbers FY 07 47,376 FY 08 49,176 FY 09 44,167 FY 10 43,705 FY 11 51,877 FY 12 48,239 FY 13 59,417 Source: Economic Survey of Odisha 2013-14 Chart 3.13: Composition of exports from Odisha (FY13) (%) • Metallurgical products accounted for 49.1% of total exports from Odisha in FY13 • At the end of FY13, there were 344 exporters and 22,012 industry units including 2,285 small scale registered units engaged in exports in Odisha Source: Economic Survey of Odisha 2013-14 Aluminium production in India is concentrated within four big plants, two of which (NALCO and Vedanta Aluminium Limited (VAL)) are located in Odisha.
  • 104. Odisha has the highest aluminium production capacity in India. In FY11, total aluminium production in Odisha accounted for 51% of the total production by all the four big plants in India. Odisha also accounts for 10% of the total steel production capacity in India while it has 25% of total iron ore reserves in the country. Investments on a rise By the end of FY13, the state government signed MoUs with 93 reputed investors across sectors for investments of around ` 5,320.9 bn to set up industries in various sectors, such as steel, aluminium and cement. Of 93 MoUs, 49 have been signed with various steel promoters with an investment of ` 2,304.2 bn and an estimated production of 83.66 mn tons per annum (MTPA). Of these 49MoUs, 30 projects have started partial production with an investment of ` 805.1 bn, achieving a production capacity of 12.66 MTPA of steel, 11.45 MTPA of sponge iron and 4.23 MPTA of other products. These industries have provided direct employment to 27,780 persons directly and 59,560 persons indirectly so far. Source: Economic Survey of Odisha 2013-14 101 Table 3.14: List of steel projects expected to be completed by FY20 in Odisha Company Name Project Name Cost (` bn) Project Status Location Completion expected by Tata Steel Ltd. Duburi (Kalinganagar) Steel Project 431.49 Under Implementation Dubri Dec-18 Jindal Steel & Power Ltd. Angul Steel Phase-I Project 300.00 Under Implementation Angul Mar-17 Steel Authority Of India Ltd. Rourkela Steel Project 129.22 Under Implementation Rourkela Mar-15 S S L Energy Ltd. Angul Integrated Steel Plant Project 86.09 Announced Angul Mar-17 Mideast Integrated Steels Ltd. Kalinganagar Integrated Steel Project Phase-II 80.00 Announced Kalinganagar Mar-18 Action Ispat & Power Pvt. Ltd. Orissa Steel Expansion project 30.00 Under Implementation Odisha Nov-15 Concast Steel & Power Ltd. Jharsuguda Steel Expansion Project 5.50 Under Implementation Jharsuguda Jun-15 M G M Steels Ltd. Nimidiha Steel Project 4.20 Under Implementation Nimidiha Dec-15 Crackers India(alloys) Ltd. Gobardhanpur Steel Project 4.00 Under Implementation Gobardhanpur Dec-16 Source: CMIE Capex
  • 105. Rise in SSI/MSME units The state has been gradually witnessing a rise in the number of Small Scale Industry (SSI) / Micro, Small and Medium Enterprises (MSME) units in the recent years. In FY13, Sundargarh district reported maximum number of SSI/MSME units (494) in Odisha followed by Khurdha (456), Cuttack (438) and Ganjam (410). Highest numbers of MSMEs belonged to the repairing and services sub sector (34.3%) during the period. Among the manufacturing units, the largest number of MSME units in Odisha belongs to the food and allied sector. The state government provides administrative, managerial and financial support for revival, promotion and diversification of traditional MSMEs. A total of 1,027 cottage industrial units were set up in FY13 with an investment of ` 0.3 bn, creating jobs for 1,393 people in the state. Source: Economic Survey of Odisha 2013-14 Significant investments in the industry in the past few years augur well for the state’s economy. Moreover, implementation of new land acquisition, rehabilitation and resettlement bill 2011 is expected to boost FDI in Odisha going forward. According to the Department of Industrial Policy & Promotion (DIPP) the cumulative FDI inflow into the state stood at ` 19.3 bn during April 2000 to May 2014. Till Mar-14, a total of 91 Industrial Entrepreneur Memoranda (IEMs) valued at ` 28.7 bn were filed in the state, which would create employment for 17,532 people. During the Tenth, Eleventh and Twelfth plan periods (till Mar- 14); Odisha received a total of 1,500 investment intentions of ` 15,199 bn. The investment intentions included Industrial Entrepreneur Memoranda (IEMs) filed by non-MSME category industrial undertakings, Letters of Intent (LOIs) and Direct Industrial Licences issued. Focus on services sector Services sector accounting for a major 49.2% share in the state’s economy in FY14, grew at an average of 9.2% during FY07-FY14. The most important sub-sector of the service sector is trade, hotel and restaurants which grew by 9.6% during FY07-FY14. Hotel and tourism industries are strongly linked. Development of the hotel industry is essential for the growth of tourism. Tourism sector Odisha has vast potential for the development of tourism. Bhubaneswar, Puri, Ratnagiri, Lalitgiri and Udayagiri are main tourist locations in the state. During 2001-2011, the number of tourists from within the state has tripled, while it has more than doubled from the rest of India and abroad. France, German, UK and USA were the major tourist generating markets from overseas during 2012, and nearly 54% foreign tourists came from Western Europe. It is 102
  • 106. important to note that the inflow of money to Odisha through tourism during FY13 has been assessed at ` 48.8 bn. The state has introduced schemes to promote eco-tourism. In FY11, the ` 1.7 bn Sisupalgarh Heritage Development Project was announced by the state government in Sisupalgarh, Odisha. 103 Table 3.15: Tourism projects scheduled for commissioning by FY20 in Odisha Company Name Project Name Cost (` bn) Project Status Location District Signet Hotels Pvt. Bhubaneshwar Hotel 0.4 Under Ltd. Project Implementation Bhubaneshwar Khordha Roots Corporation Ltd. Bhubhneshwar Ginger Hotel Project Not Available Announced Bhubhneshwar Khordha Source: CMIE Capex The tourist inflow in the state stood at 9.1 mn in FY12, a rise of 9.4% on a y-o-y basis. About 92,000 people were directly engaged and 2.8 lakh persons were indirectly engaged in the tourism sector of Odisha. Odisha Tourism Policy 2013 was implemented by the state government as an aggressive and pro-active approach in achieving growth in the tourism sector of the state. Rise in tourism activities would aid in foreign exchange earnings and employment generation opportunities. IT/ITes sector The State has undertaken massive steps to improve the use of information technology, especially in public administration. The Industrial Policy Resolution, 2001 of the State has identified electronics, telecommunication, IT and IT-enabled services as priority sectors. In order to attract more investors in Odisha, the state government put together a new Information and Communication Technology (ICT) policy in January 2014. Table 3.16: IT & software projects scheduled to be completed by FY20 in Odisha Company Name Project Name Cost (` bn) Project Status Location District D L F Ltd. Bhubaneswar Infopark Project 10.00 Under Implementation Infocity Khordha Infosys Ltd. Bhubaneshwar Second Development Centre Project 5.00 Under Implementation Janla Odisha Mindtree Ltd. Bhubaneshwar Software Campus Project 2.50 Under Implementation Bhubaneshwar Puri Tata Consultancy Services Ltd. Bhubaneshwar Software Development Centre Project 0.4 Under Implementation Bhubaneshwar Puri Industrial Infrastructure Devp. Corpn. Of Orissa Balasore STP Project NA Under Implementation Balasore Odisha Source: CMIE Capex
  • 107. E-governance is encouraged and enforced at various levels. Two software technology parks are in operation: one in Bhubaneswar and the other in Rourkela. The State Government is developing a State of the Art Biotech Pharma IT Park over an area of 64.613 acres in Bhubaneswar as a PPP undertaking. 104 Table 3.17: Top 6 IT & software projects under implementation in Odisha as on Aug-14 Company Name Project Name Cost (` bn) Project Status Location District D L F Ltd. Bhubaneswar Infopark Project 10.00 Under Implementation Infocity Khordha Infosys Ltd. Bhubaneshwar Second Development Centre Project 5.00 Under Implementation Janla Odisha Mindtree Ltd. Bhubaneshwar Software Campus Project 2.50 Under Implementation Bhubaneshwar Puri Wipro Ltd. Bhubaneshwar Software Development Project 2.00 Implementation Stalled Bhubaneshwar Puri Tata Consultancy Services Ltd. Bhubaneshwar Software Development Centre Project 0.4 Under Implementation Bhubaneshwar Puri Orissa Industrial Infrastructure Devp. Corpn. Gaudakashipur IT SEZ (Info Valley) Project 0.38 Under Implementation Gaudakashipur Khordha Source: CMIE Capex With the introduction of ICT Policy, 2004, the Government of Odisha has been focussing on developing a well planned, robust and futuristic IT architecture in the state, and augmenting employment opportunities for the educated youth. Infrastructure sector likely to improve Infrastructural development in Odisha has always been the main highlight on the agenda of the government to facilitate industrial development. Road sector The state government has focused on improving the quality of roads along with providing connectivity to villages. According to Odisha’s state annual plan of FY14, the state intends to construct 600 bridges with an investment of about ` 20 bn to improve rural connectivity, along with double laning of all State Highways with an investment of ` 30 bn under the State Highways Development Project (SHDP) during 2013-17. L&T Infrastructure Development Projects Ltd has been awarded a road project worth US$ 218 mn on BOT basis by the state government. The project involves widening of the 161.73 km Sambalpur-Rourkela section of the state highway. Under Pradhan Mantri Gram Sadak Yojana (PMGSY), out of 9,184 roads of 36,071 kms length sanctioned, 6,156 roads of length 23,081 kms have been
  • 108. completed with an expenditure of ` 85.3 bn by FY12. These roads provided all-weather connectivity to 8,168 habitations. 105 Chart 3.14: Completed road length under PMGSY (kms) • The state had a total road length of 2.5 lakh km by the end of FY13 including 3,593.2 km of national highways and 3,568.7 km of state highways • 2,401.3 km roads were completed in Odisha under PMGSY during FY13 • The State Government has released ` 1.4 bn during FY06 to FY13, out of which, ` 1 bn have been utilised for maintenance of PMGSY roads including ` 0.3 bn utilised during FY13 Source: Odisha Economic Survey 2013-14 Power sector In terms of improving the performance of the power sector in Odisha, the state government has taken up various measures for creating additional generation capacity, demand-side management, reduction of transmission and distribution (T&D) losses and renovation of old units and rural electrification. As per Odisha’s state plan of FY14, the state’s focus areas in the power sector are as follows: • Commencement of construction of 660x2 MW capacity Thermal Power Project of OPGC, a State PSU with an investment of `100 bn • Investment of over ` 20 bn during 2013-17 for setting substations for improving the quality and reliability of power supply in rural areas and reduce AT&C loss by 5% • Proposed investment in Transmission Projects - 3x400 KV sub-stations with associated transmission lines at a cost of ` 15 bn in PPP mode Table 3.18: Top 5 power projects under implementation in Odisha as on Aug-14 Company Name Project Name Cost (` bn) Location District Orissa Integerated Power Ltd. Bedabahal Ultra Mega Power Project 252.00 Bedabahal Sundargarh Sakhigopal Integrated Power Co. Ltd. Bhadrak Ultra Mega Power Project 180.00 Bijoypatna (chandbali tehsil) Bhadrak Orissa Thermal Power Corpn. Ltd. Kamakhyanagar Coal Fired Power Project 170.00 Kamakhyanagar Dhenkanal Odisha Power Generation Corpn. Ltd. IB Valley Phase-II Thermal Power Project 115.47 Banharpali Jharsuguda N T P C Ltd. Gajamara Mega Power Project 114.00 Gajamara Dhenkanal Source: CMIE Capex
  • 109. Following are the developments in the power sector: • The state government has signed 29 MoUs with the Independent Power Producers inorder to set up power plants with a total generating capacity of 40,620MW • Odisha government has provided a sum of ` 0.7 bn during FY12 under a special programme for KBK districts (RLTAP scheme) out of Special Central Assistance. This would help in improving the power supply position and solving the low voltage problem in Birmaharajpur and Charvata areas in Sonepur district of the state. • 88 of the 47,529 villages in Odisha have been electrified by FY13 • Compared to FY01, the state’s total consumption of power has increased 106 by 122.6% by the end FY13 • A substantial increase in investment over the years reflects the priority accorded to the power sector by the state government. The state government launched Biju Saharanchal Vidyutkaran Yojana in FY11 in order to provide access to electricity to the people living in unelectrified areas of urban local bodies Other infrastructural developments: • As per Odisha’s state plan of FY14, the state government is expected to invest in SPVs for three economically viable railways projects. Further, state plan outlay of ` 1 bn for three freight corridors at Haridaspur – Paradeep, Angul –Sukinda – Duburi and Talcher – Angul – Chhendipada on participative model • In the Railway Budget FY13, surveys for three new railway lines have been announced; Raipur-Bargarh via Aarang, Tumgaon, Jhalap and Sairapali, Ambikapur-Jharsuguda to connect with Delhi main line and Ambikapur- Jharsuguda via Batuali, Sitapur, Pathalgaon and Kotba • The ` 20 bn Khurda Road-Bolangir Broad Gauge Railway Project by East Coast Railway is scheduled to be completed by Dec-18. Once completed, the railway line would connect the hinterland of Odisha with the economically developed regions of the state • Gopalpur Port is being developed as an all weather port. Dhamara Port, a Green Field Project, has been undertaken by the Dhamara Port Company Ltd. for establishment of a mega port of international standards • The ` 100 bn Dhamra Port Phase II Project by Dhamra Port Co. Ltd was under implementation in Odisha and is slated for completion by Mar-17 • The state government is encouraging private firms to strengthen port infrastructure for several upcoming metallurgical projects in the state. The state cabinet has approved the formation of the Orissa Maritime Board, which will act as the single-window agency for the development of ports and inland waterways • AAI is planning to modernise, expand and operate the Jharsuguda Airport, in light of the industrial hub, which is being built near the airstrip. The state government has proposed to develop greenfield airports in Rayagada, Paradip, Dhamara, Angul and Kalinganagar in an effort to boost intra-state and inter-state civil aviation facilities • The new domestic terminal at the Biju Patnaik Airport was inaugurated on 04 March 2013. The terminal building was completed at a cost of US$ 31.3 mn Source: Odisha Annual Plan 2014, CMIE Capex and India Brand Equity Foundation-2014
  • 110. Focus on social sector • Gopabandhu Gramin Yojana was launched by the state government during FY07 with a view to provide additional developmental assistance to the targeted 11 backward regions of Odisha • With a view to improving literacy levels among ST and SC communities, particularly among girls, the State has been establishing hostels for ST and SC students. A large number of vocational and technical institutions have come up during the last few years and help equip the youth with employable technical and soft skills. This has been possible through encouragement and support from the government • The State has promulgated the Odisha Right of Children to Free and Compulsory Education Rules, 2010 on the basis of the model rules made by the GoI As per Odisha’s state plan of FY14, the state’s focus areas in the social sector are as follows: • Augmenting infrastructure support for Higher and technical Education for enhancing the quality of manpower • Strengthening and quality improvement of health care delivery • Strengthening Social protection of women, children and the socially excluded groups • Skilling of 1 mn youths under the Odisha Employment Mission • Capacity building for income generating activities and Enhanced Food Security, increase in income, better quality of life for the empowerment of tribal community in 27 Tribal Blocks of 7 Districts in Odisha • Coverage of all farm households under a Comprehensive Health Insurance Scheme at par with the coverage under Rastriya Swathya BimaYojana Source: Odisha Annual Plan 2014 As per the Odisha Economic Survey 2013-14, the state government is focussing on bringing visible improvements in the state finances and is intending to create fiscal space for higher plan size and capital outlays to propel a higher growth in the economy. 107
  • 111. 108 Uttar Pradesh – Infrastructure and industrial sectors to be main growth drivers
  • 112. The economy of Uttar Pradesh is mainly agrarian and the performance of the agricultural and allied activities determines the growth rate of the state. However, in recent years the growth in the industrial and services sectors of the state has picked up. Industrial sector accounted for 21.2% of the GSDP during FY14. Growth in the industrial sector stood at an average of 5.0% during FY07- FY14, while that of the services sector at 9.1% during the same period. The overall growth was mainly backed by registered manufacturing in the industrial sector, and transport, storage & communication, real estate, ownership of dwellings & business services and banking & insurance in the service sector. Hence, a gradual transition from an agricultural to an industrial and service oriented economy is expected in the coming years. Focus on balanced agricultural development The primary sector employs about two-thirds of the workforce and contributes about 22.2% to the state income in FY14. This sector continues to provide income to majority of the rural households in the state. Growth in the agricultural sector moderated to 2.6% in FY14 from 4.7% in FY12. The proposed outlay for the agricultural sector for FY14 accounted for 8.1% of the total plan outlay in the state. The state intends to achieve the following under the State Annual Plan FY14 in the agricultural sector: • Effective implantation of Agriculture Policy 2013, Food Processing Industry Policy 2012 and Sugar Industry, Co-generation and Distillery Promotion Policy 2013 • 6 lack ha irrigation increased in 2012-13, 691 new State Tubewells 109 installed • World Bank Project of ` 28.4 bn conceptualized, under implementation • Turn key/EPC Contracting, New farmer friendly Land Policy Contribution of industrial sector Uttar Pradesh has developed itself as an industrial hub of North India and it has potential to grow at an even better pace. The state has taken a lead in improving overall infrastructure and logistical facilities in order to support the industrial growth. The Government of Uttar Pradesh has approved and announced the new Infrastructure and Industrial Investment Policy-2012 with an objective of improving the industrial growth rate in the state. According to the State Annual Plan FY14, the Industrial Services Guarantee Act – 2013 is under preparation. Uttar Pradesh State Industrial Development Corporation (UPSIDC) has so far developed over 150 industrial areas. Tronica City, Ghaziabad and Growth
  • 113. Centres Projects are some of the industrial infrastructure projects by UPSIDC that are focussed on developing industrial townships in the state. Till Mar-13, a total of 446 Industrial Entrepreneur Memoranda (IEMs) valued at ` 92.6 bn were filed in the state, which would create employment for 1.13 lakh people. During the Tenth, Eleventh and Twelfth Plan Periods (till March-14), Uttar Pradesh received a total of 3,356 investment intentions of ` 2122.5 bn. The investment intentions included Industrial Entrepreneur Memoranda (IEMs) filed by non-MSME category industrial undertakings, Letters of Intent (LOIs) and Direct Industrial Licences issued. Industrial investment in Uttar Pradesh grew at a CAGR of around 134% between FY08 and FY12. The capital investment in heavy industries increased from ` 50.5 bn in FY11 to ` 193.1 bn in FY12. The Twelfth plan envisages industrial growth rate of 11.2% p.a. and an estimated investment of ` 3,177.5 bn in manufacturing sector. Uttar Pradesh ranks 3rd in terms of state-wise number of MSME enterprises in India. A total of 1.8 lakh MSME units were set up during the 11th Five Year Plan with a total investment of ` 220 bn. Moreover, in FY12, a total of 33,532 Small Scale units were established with an investment of ` 34.5 bn. The state has a total of 80,000 handlooms with workforce of 250,000 handloom weavers. 110 Chart 3.15: Gross State Domestic Product of Uttar Pradesh (` bn) • Uttar Pradesh’s GSDP is projected to grow at an annual average rate of 8.1% during FY15-FY20. The expected growth rate is likely to be slightly higher than the all-Indian average rate of 7.5% during the period • We believe overall infrastructural development, rising investments in the industrial and infrastructural sectors, social development would provide the required thrust to the state growth in the current decade Note: GSDP at constant (2004-05) prices, f: D&B forecast Source: CSO and D&B India
  • 114. 111 Chart 3.16: Sectoral Gross State Domestic Product of Uttar Pradesh (FY14) (%) • Services sector grew at an average of 9.1% during FY07-FY14, mainly led by growth in sub-segments such as real estate, ownership of dwellings and business services and banking and insurance • During FY07-FY14, growth in the industrial sector averaged at 5% while that of agricultural sector averaged at 3.4% Note: at constant (2004-05) price Source: CSO Noida Special Economic Zone to support state’s exports Noida Special Economic Zone (NSEZ) is the only Central Government SEZ in Northern India providing infrastructure, supportive services and sector specific facilities for exports like gem and jewellery and electronics software. This is the only land locked SEZ and hence emphasis of type of units to be set up are those with high value and low volume. Its proximity to Delhi and the availability of manpower makes it ideal for setting up jewellery and software development units. These two sectors have contributed more than 30% of the export turn over during the year FY09. Uttar Pradesh has 7 operational SEZs of which majority are located in Noida while a total of 31 SEZs, majorly have been granted formal approval by the government which caters to various sectors, such as IT/ITeS, textile, handicraft and non-conventional energy. In FY11, Uttar Pradesh was India's 6th largest IT service exporter and recorded IT service exports of ` 120 bn. Software Technology Parks are located at Noida, Lucknow, Kanpur and Allahabad in Uttar Pradesh. Agra also has emerged as a preferred investment location due to proximity to IT hubs such as Noida and Gurgaon. The State Level Empowered Committee has been set up to oversee the development of IT industry in the state. Source: Noida Special Economic Zone; Special Economic Zones in India, Ministry of Commerce and Industry; and Udgoy Bandhu, Government of Uttar Pradesh Investments and initiatives in infrastructure sector to propel state growth Power As per the state’s annual document, an input based franchisee system of power distribution has been undertaken to ensure uninterrupted power-supply to industries. With more capacity additions from the coal based plants scheduled in the coming years, a further growth in power output is expected.
  • 115. The state announced the Solar Power Policy in 2013 in view to tap the potential of solar power by promoting the establishment of solar energy based power projects. As per the policy, the target capacity of 500 MW of Grid connected solar power plant will be achieved till FY17. The state intends to be a power surplus state in the coming years and hence is in the process of implementing and testing the public private partnership model in the power sector. The state has also introduced Input Based Franchisee system in Agra to improve the power distribution mechanism. A total of seven electricity projects costing ` 12.8 bn were announced during FY14 in Uttar Pradesh, majority of which were located in Bundelkhand. Power projects (inclusive of power generation as well as transmission) worth ` 692.2 bn were under implementation in Uttar Pradesh as on 17th June 2014. A total of 60 projects were expected to be completed in the state by FY20. 112 Table 3.19: Top three power projects in Uttar Pradesh under implementation Company Name Project Name Investment (` bn) Capacity (in Mw) Location Scheduled for completion Neyveli Uttar Pradesh Power Ltd. Ghatampur Coal Based Power Plant Project 143.7 1980 Kanpur Mar-22 Lalitpur Power Generation Co. Ltd. Lalitpur-1 Thermal Power Project 127.0 1980 Lalitpur Apr-16 Bajaj Power Generation Pvt. Ltd. Mirchwarain (Lalitpur-2) Power Project 120.0 1980 Lalitpur Mar-17 Source: CMIE The state intends to achieve the following under the State Annual Plan FY14 in the power sector: • Average power availability and demand gap during FY14 is estimated to be 2,400 MW(20.2%) • 62 new Transmission substations and augmentation of 101 substations amounting ` 11.3 bn • 300 new distribution substations and augmentation of 300 substations amounting ` 15.8 bn • Transmission works of approximately ` 100 bn under PPP on BOOT mode • A plan for online metering & billing in all 168 towns having population over 30,000 • Banks to provide fresh loan funds for operational losses of ` 90.3 bn for financial year FY13 to FY15 (under the state’s financial restructuring plan) Road The national highway in Uttar Pradesh is 7,818 kms which accounts for 10.2% of the total national highways in India. This highway is well-connected to its nine neighbouring states which would ensure smooth flow of trade.
  • 116. During FY14, 7 projects were completed in the road transport infrastructure services segment. A mega road project like the ` 133 bn Yamuna Six-Lane Expressway Project was completed in FY13. This 165 kms Yamuna Expressway is expected to reduce the travel time between New Delhi and Agra by an hour and ease congestion on the Mathura road route and open up avenues for industrial and urban development in the region and provide base for convergence to tourism and other allied industries. The completion of the ` 700 bn Ganga Expressway Project is imperative for the state’s industrial development. The project is expected to give a fillip to trade and regional development of eastern Uttar Pradesh. The expressway was proposed to be developed on the left side of Ganga and to reduce travel time considerably boosting trade. A total of 32 projects are expected to be completed by FY20. According to data provided by Udyog Bandhu, investments worth ` 230 bn are planned for 2,500 km of state highway projects. Moreover, a total road length of 6,730 km is identified as core network by World Bank, of which 2,466 km has been developed by Uttar Pradesh Public Works Department (UPPWD). In order to improve the road connectivity in Uttar Pradesh, the state intends to focus on the following under the State Annual Plan FY14 in the road transportation sector: • Ensuring connectivity of balance 6221 habitations with over 500 113 population, not covered under PMGSY • Building 4 Lane/2 Lane with paved shoulders Highways & Bye-Passes through PPP mode • Widening all State Highways up to minimum 2 lane ensuring seamless transport through augmentation of Road-Over-Bridge (ROB) Network • Construction of 572 Km long Indo-Nepal Border Road started As per the state annual document, following are some of the National Targets as per vision 2021 for development of road sector: • Half of the national highways to be developed with 4-6 lanes • Rehabilitation of bridges showing signs of distress • State highways of 10,000 kms road length to be four laned • By end of 2021, state highways to be expanded to 1.6 lakh kms • 40% of major district roads should have a minimum of two-lane carriageway • Villages with population more than 1,000 to be connected
  • 117. Rising investments in the state along with the state government’s initiatives towards improving the road connectivity is likely to boost the road infrastructural domain. Rail Amongst states in India, Uttar Pradesh possesses the largest railway network in the country spanning over 8,763 km. Approximately a total of 15% of Delhi Mumbai Industrial Corridor catchment area is spread over 12 districts of Uttar Pradesh. The development of an Industrial corridor along the alignment of dedicated freight line would create immense opportunities for employment and revenue generation in the estate. The Delhi Metro Rail links Noida and Ghaziabad with Delhi thereby increasing connectivity between the cities. Dedicated Freight Corridor Uttar Pradesh is the biggest beneficiary of eastern Dedicated Freight Corridor project with a share of 55% percent in the total length of 1,839 kms. Dadri is the junction point of eastern and western Dedicated Freight Corridors. The dedicated freight corridors will enhance the rail infrastructure and drive the establishment of industrial corridors and logistic parks. The eastern corridor will pass through the states of Haryana, Uttar Pradesh, Bihar and West Bengal while the Western Corridor will traverse the distance from Dadri to Mumbai, passing through the states of Delhi, Haryana, Rajasthan, Gujarat and Maharashtra. The corridor projects is expected to facilitate uninterrupted transportation of goods to sea ports. Source: Dedicated Freight Corridor Corporation of India Limited and Udgoy Bandhu, Government of Uttar Pradesh Improved prospectus of rail connectivity in the state is likely to cater to the smooth functioning of the agricultural and manufacturing sectors. Investments in aviation sector to support infrastructural growth The state plans to build and modernise airports on PPP model – near Agra in the vicinity of Delhi Mumbai Industrial Corridor to provide facility of dry-cargo transport along with aircraft maintenance hub and at Kushinagar in eastern Uttar Pradesh to promote industrial development and tourism. 114 Four aviation projects are expected to be completed in the state by FY20. Table 3.20: Aviation projects expected to be completed by FY20 in Uttar Pradesh Company Name Project Name Project Status Location Government Of Uttar Pradesh Kushinagar International Airport & Buddhist Circuit Project Under Implementation Kushinagar Airports Authority Of India Kanpur Airport Civil Enclave Project Announced Kanpur Airports Authority Of India Rae Bareli (IGRUA) Expansion Project Announced Rae bareli Government Of Uttar Pradesh Agra International Airport Project Under Implementation Agra Source: CMIE
  • 118. The ` 3.5 bn Kushinagar International Airport & Buddhist Circuit Project is under implementation and is expected to be completed by FY16. The proposed airport will directly connect Japan, Myanmar, Korea, China, Thailand, Bhutan and Sri Lanka with Kushinagar, since these countries are followers of Buddhism and account for the maximum number of tourists in the circuit. Increase in tourism in the state is expected to generate indirect employment, which in turn will contribute to overall GSDP. In FY13, the Central government of India announced its plans to upgrade the Lucknow and Varanasi airports to international standards. The government intends to improve the airport infrastructure primarily focussing on expanding terminals, improving immigration and customs facility in order to handle international operations. Further, attractive incentives offered under the new Infrastructure and Industrial Investment Policy 2012 is expected to support the state’s infrastructural domain. Lucknow – A Science City Lucknow is ranked among the Top 10 cities in India for fastest job-creation and has emerged as a "Science City", with numerous national level laboratories, engineering and management institutes. Uttar Pradesh has a large base of skilled labour, making it an ideal destination for knowledge-based sectors. Hence, it is imperative for the state government to devise initiatives through state budgets and annual plans in order to carry out a balanced economy in the present decade. Source: Udgoy Bandhu, Government of Uttar Pradesh 115 Sectoral distribution of plan to support state’s growth Chart 3.17: Sectoral distribution of plan outlays (` bn) Source: Annual Plan document
  • 119. In FY14, the outlay for industry and minerals sector grew by 13% from FY13, irrigation & flood control rose by 26.5% and transport increased by 39.7%. With increase in allocation of funds for the sectors, the industrial, agricultural, infrastructural segments are expected to function smoothly. Improvement in social sector with special focus on education In 2011, with approximately 200 mn people, Uttar Pradesh ranked first in terms of population in India followed by Maharashtra (112.3 mn), Bihar (103.8 mn), West Bengal (91.3 mn), Andhra Pradesh (84.6 mn) and Madhya Pradesh (72.6 mn). Moreover, the population of Uttar Pradesh is greater than in Brazil. According to the State Annual Plan FY14, Uttar Pradesh witnessed an increase in student enrolment and drop in out of school children, improvement in Teacher Pupil ratio at primary and upper primary school level, decline in drop out rate and improvement in retention rate & student - classroom ratio. The state intends to achieve a literacy rate of 85% by 2017. The state has effectively implemented the `Education for All Policy’ in order to raise the literacy rate. The state has made investments towards enhancing the standard of education across different levels. In order to boost the literacy in Uttar Pradesh, the state intends to achieve the following under the State Annual Plan FY14 in the education sector: • Effective steps to fill large vacancies of teachers in primary schools • Transparent on-line recruitment and deployment system for teachers • Teacher education system to be revamped; teacher education and 116 teaching learning process to be developed • Continuous Comprehensive Evaluation to be implemented in 5 districts • Annual Learning Achievement Assessment of children in 10 districts from 2013-14
  • 120. 117 Maharashtra – Focus on industrial activities to drive state’s growth
  • 121. Maharashtra, the most industrialised state has maintained a leading position in the industrial sector of India. It was the pioneer in small scale industries and continues to attract industrial investments from both, domestic and foreign in-vestors. It has become a leading automobile production hub, a major Informa-tion Technology (IT) growth centre and has largest number of special export promotion zones. The share of industrial sector in total GSDP accounted at an average of 30.2% during FY06 to FY14 and grew at an average of 8.6% during this period. The growth in the segment was mainly led by manufactur-ing sector (7.9%), construction (11.4%) and electricity, gas and water supply 118 (10%) during the period. Highlights of State • The state has a large base of skilled and industrial labour, making it an ideal destination for the knowledge-based and manufacturing sectors • Mumbai, state’s capital, is the trade and commercial capital of India and has evolved into a global financial hub • Mumbai home to several global banking and financial services firms • The government of Maharashtra has several policies in place to set up the right kind of business climate in the state. These policies aim to motivate investors to invest into various sectors in the state, thereby contributing to the overall development of the economy • Pune, a major city in the state, emerged as the educational hub. Pune is the largest auto hub of India, with over 4,000 manufacturing units just in the Pimpri-Chinchwad region. The state also has the largest base of local original equipment manufacturers Source: IBEF 2014 The State is committed to faster, sustainable & balanced regional growth, to accelerate creation of employment opportunities and improve overall com-petitiveness of local industries.
  • 122. 119 Chart 3.18: Contribution of districts towards state’s GSDP: Regional disparity • Mumbai, Thane and Pune contribute around 46.8% to state GSDP • Mumbai, Pune and Thane contributes nearly 16 -17% each to the Industrial sector • Mumbai has highest share of 27.4% in the services sector followed by Thane with 14% Note: at constant prices; Source: Maharashtra Economic Survey 2013-14 Balanced agricultural growth vital for rural districts The share of agriculture and allied activities in total employment in the state according to the 2011 census was 52.7%. The state witnessed a growth of 4.0% in FY14 in the agricultural sector after a decline of 1.0% in FY13. The crop production in the state is mainly dependent on weather conditions creat-ing economic uncertainties for farmers. Most of the underdeveloped districts in the state depend on agriculture and allied activities. Hence, the state has undertaken various major, medium and minor irrigation projects to tap maxi-mum irrigation potential in the state. According to the annual plan of FY14, the state has encouraged PPP, dry-land farming mission and micro irrigation. The state government is focussed in maintaining a consistent and balanced growth for employment, income and food security. Thus, development of ag-riculture is key to the sustained growth of rural districts. Chart 3.19: Irrigation Potential - Created % Utilised (%) • The state government has undertaken various irrigation projects to create maximum irrigation potential • However, there is a wide gap between irrigation potential created and utilized in major, medium and minor projects in the state Source: Maharashtra Economic Survey 2013-14
  • 123. Rising investments to lead to strong industrial presence The state announced its Industrial Policy 2013 with the view of making Ma-harashtra a globally competitive manufacturing destination - promoting rapid sustainable investment and inclusive growth. This policy will remain valid upto Mar-18. According to the Annual Survey of Industries FY12 results, Maharashtra ranked first in India in terms of Gross Value Added and emoluments to employees with share of 18.3% and 20.3%, respectively at All-India level. Since August 1991 to March 2012, 4,246 Foreign Direct Investment (FDI) projects amounting to ` 978 bn were approved, of which 45% were com-missioned and 10% are under execution. In FY12, 105 FDI projects with an investment of ` 54.5 bn were approved in the state. The United States of America & Mauritius are the two prominent countries investing in industrial sector of Maharashtra with 14% and 13% share respectively in total FDI. The IT industry (` 127.7 bn) and financial services groups (` 118.6 bn) continued to receive sizable FDI proposals in the State. From Aug-91 up until mid-Jul-13, 389 Mega & Large Projects were approved in Maharashtra, with an investment of ` 3,150 bn creating 3.5 lakh jobs. Of these, 120 projects with an investment of ` 640 bn generating 0.90 lakh employment opportunities were commissioned and 121 projects with an in-vestment of ` 925.9 bn and expected employment of 1.14 lakh are under 120 execution. Upto Dec-13, in all 181,119 MSME units, with an investment of ` 436.2 bn, generating employment of 23.36 lakh were functioning in Maharashtra. Of the 181,119 MSME units in the state, Pune accounted for highest units with 75,080 creating 8.68 lakh jobs followed by Konkan (excl. Mumbai) with 29,603 units creating 4.63 lakh jobs. As on Dec-13, 18 SEZs were executed with total investment of ` 165.2 bn on area of 2,528 ha which generated employment of about 8.60 lakh. Further, a total of 144 IT parks have started functioning with an investment of ` 33.3 bn, thereby creating employment to about 4.44 lakh. Majority of IT parks are situated in Pune followed by Greater Mumbai and Thane. The setting of new industries and presence of a strong industrial sector is ex-pected to boost the economic development of Maharashtra.
  • 124. 121 Chart 3.20: Gross State Domestic Product of Maharashtra (` bn) • GSDP of Maharashtra grew by 8.1% during FY10-FY14 and is expected to grow by 8.0% during FY15-FY20 • Industrial activities is likely to contribute to the state’s development during the current decade Note: GSDP at constant (2004-05) prices f: D&B forecast Source: CSO and D&B India Chart 3.21: Sectoral Gross State Domestic Product of Maharashtra (FY14) (%) • Services sector accounted for 64% of the state’s GSDP in FY14. The rise was on account of growth in sub-segments such as transport, storage & communication and banking & insurance • The registered manufacturing sector grew by 3.7% during FY14 in the state, after a marginal rise of 0.2% in FY13 Note: at constant (2004-05) price Source: CSO Rising exports to boost the state’s economy In order to recognise the efforts put up by the exporters and to boost the exports in Maharashtra, the state is taking initiatives such as giving awards based on export performance and implementing space rent subsidy scheme for small scale industries for participation in international exhibitions. The main products exported from the state are gems & jewellery, software, textiles, readymade garments, cotton yarn, metal & metal products, agro-based products, engineering items, drugs & pharmaceuticals and plastic & plastic items. In FY14, upto Oct-13, the exports from Maharashtra amounted to ` 2,883.8 bn, while that of India stood at ` 10,680.9 bn. Source: Maharashtra Economic Survey 2013-14
  • 125. Infrastructural development in the State Power In Nov-13, the state cabinet approved a US$ 304 mn proposal for setting up of new power stations, capacity enhancement of existing power sub-stations and laying of underground power cables in Pune, Nashik, Ojhar, Sinnar, Kol-hapur, Panvel and Navi Mumbai. The capacity addition by various sources, improvement in the network infrastructure, reduction of Transmission & Dis-tribution (T&D) losses and energy conservation measures has improved sup-ply position in Maharashtra. The state is concentrating on effective utiliza-tion of wind, Solar Thermal & Solar Photovoltaic, Bagasse Co-generation and biomass power and hence is in line with the Indian government to adopt the policy of achieving the target of purchasing 10% electricity from renew-able sources. Out of total 41,095 inhabited villages (as per census 2001) in the state, 40,719 villages were electrified by conventional electricity through Maharashtra State Electricity Distribution Company Limited (MAHADISCOM) upto Dec-13. Though Maharashtra has the highest power installed capacity and generation in India, the state needs to focus on bridging the gap between demand and supply of electricity which is a cause of concern. 122 Table 3.21: Per capita consumption of electricity (in units) Type India Maharashtra FY12 FY11 FY12 Total 559.9 851 874.7 Industrial 199.7 321.3 331.2 Domestic 142.4 185.3 198.4 Agriculture 117.3 191 182.3 Source: Maharashtra Economic Survey 2013-14 Table 3.22: Supply & shortfall of electricity at average peak demand (in MW) Year Average peak demand Supply Shortfall FY10 12,624 10,921 1,703 FY11 13,517 11,917 1,240 FY12 14,043 12,841 1,202 FY13 14,0.32 13,309 723 FY14* 13,879 13,387 492 *upto Dec-13 Source: Maharashtra Economic Survey 2013-14 Road Projects in the road sector amounting to ` 271.8 bn are expected to be completed by FY20. The ` 110 bn Mumbai Trans Harbour Link Project by the Mumbai Metropolitan Region Development Authority (MMRDA) was the larg-est in terms of investment that is scheduled for completion by FY20. Road
  • 126. Development Plan 2001-21 is being implemented in the state with a target of development of 336,994 km roads. 123 Table 3.23: Cumulative road length constructed and number of habitations connected under PMGSY since inception Statutory Development Board Physical Target Physical Achievement • The Pradhan Mantri Gram Sadak Yojana (PMGSY), a 100% centrally sponsored scheme is being implemented in the state since 2000 by Maharashtra Rural Roads Development Association • The target of 24,531 km of road length for connecting 8,311 habitations in the state has been set under PMGSY • Under the PMGSY, a total of 22,441 km of road length has been created by connecting 7,843 habitations, upto FY14 Road length (km) Habitations (no.) Cumulative road length (km) (upto Mar-14) Cumulative habitations connected (no.) (upto Mar-14) Vidarbha 7,782 2,921 7,083 2,632 Marathwada 5,027 1,863 4,881 1,752 Rest of Maharashtra 11,722 3,527 10,477 3,459 Total 24,531 8,311 22,441 7,843 Source: Maharashtra Economic Survey 2013-14 and Government of Maharashtra Port The state declared Port Policy 2010 for speedy development of green field ports, multipurpose jetties and cargo terminals. Number of captive and multi-purpose jetties is expected to be set up within the limits of non-major ports, which would handle cargo. The state government has decided to develop minor ports in the state with the participation of the private sector under the control of Maharashtra Maritime Board. The ` 200 bn Container Terminal Project by Jawaharlal Nehru Port Trust was the largest project in terms of in-vestment in the state. The project located in Nhava Seva in Raigarh, is under implementation and is expected to be completed by Mar-20. Air transport To reduce congestion in Mumbai International Airport, an additional airport has been proposed in four phases at Navi Mumbai with estimated cost of about ` 145.7 bn. Multi-modal International Cargo Hub and Airport at Nag-pur (MIHAN), an economical development project is currently underway in the state. The project comprises of developing the existing airport of Nagpur as an international passenger and cargo hub airport. Moreover, a multi-product SEZ is being developed around the boundary of the airport. On completion, MIHAN would be easily accessible to all metro cities of India which is likely to drive the industrial development in the state. Further, the new terminal T2 for modernisation of Chhatrapati Shivaji International Airport (CSIA) is a state-of-the art world class terminal with a capacity to handle 40 mn passengers per annum.
  • 127. Focus on social sector • Several steps have been taken to empower women, including formulation of women-specific schemes. Maharashtra was the first State in India to formulate Women Policy in 1994, which was revisited in 2001; further new Women Policy 2013 has been announced • The State initiated Maharashtra State Rural Livelihood Mission since 2011 with the objective of reducing poverty by building strong institutions for the poor at grass root level which will enable them to access gainful self-employment and skilled wage employment opportunities • To improve the Human Development Indicator of 12 most backward districts identified in Maharashtra, the state government constituted ‘Maharashtra Human Development Mission’ in June 2006. The State ranks fifth in India after Kerala, Delhi, Goa and Punjab, according to ‘India Human Development Report (IHDR) 2011’ • Under Indira Aawas Yojana, 1.5 lakh houses were constructed in 2012-13. Under ‘Basic Services to Urban Poor’ and ‘Integrated Housing and Slum Development Programme’, about 59,177 and 26,014 dwelling units were constructed respectively upto Dec-13 • The expenditure incurred by the state under the Mahatma Gandhi National Rural Employment Guarantee Act was approximately ` 9 bn in FY14 (uptoDec-13), with an average employment of 39 days per household • To state targets to halve the % of state population below the National Poverty Line between 1990 and 2015 Source: Maharashtra Economic Survey 2013-14 and Maharashtra Annual Plan 2014 124
  • 128. 125 Gujarat – Industrialisation and rurbanisation to boost economic growth
  • 129. In the last few years, Gujarat has emerged as one of the leading industrial states and the most preferred destination for investors due to its industry-friendly policies and favorable investment climate. Gujarat has witnessed impressive growth in the last ten years. Stable government and economic reforms have propelled growth of Gross State Domestic Product (GSDP). The GSDP of Gujarat has increased at an average rate of 8.8% during FY01-FY10 as against India’s GDP growth of 7.2% during the same period. Given the financial and European debt crises, India’s growth rate moderated to 6.7% during FY11-FY13, whereas growth in Gujarat’s GSDP remained elevated at 8.5%. The expansion in the GSDP of Gujarat has largely been a result of the growth in the output of the service and manufacturing sectors. During FY05- FY13, on an average, the share of service sector in GSDP has remained at 45.4% and share of industry at 40%. Per capita income of Gujarat (at factor cost current prices) stood at ` 111,189 in FY13, which was almost 1.4 times that of national per capita income (at factor cost current prices). 126 Chart 3.22: Gross State Domestic Product of Gujarat • Gujarat’s GSDP (at factor cost constant prices) grew at an average rate of 7.1% during FY01-FY05 and 9.7% during FY06- FY13. During the respective period, India’s GDP grew at 5.7% and 8.0%, respectively. • However, services sector grew at an average rate of 11.5% during FY06-FY13 and industrial sector grew at 9.6% during same period. • GSDP of Gujarat is projected to grow at 9.8% during FY15-FY20, higher than the overall India’s GDP growth. Note: GSDP at constant (2004-05) prices; f: D&B forecast Source: CSO and D&B India
  • 130. 127 Chart 3.23: Sectoral GSDP of Gujarat (FY13) (%) • Share of services sector in Gujarat’s GSDP has increased significantly from 43.9% in FY05 to 49.7% in FY13. The share of agriculture has declined from 16.1% in FY05 to 11.1% in FY13. The share of industry has remained almost flat at 40.0% during same period. • The share of trade, hotel and restaurants business in the service sector’s GSDP has grown significantly from around 37.7% in FY05 to 43.8% in FY13. Economic growth of the state, robust infrastructure and brand campaigning have benefited tourism, hotel and trade business. • Further, owing to tourism policy, Tourism Incentive Package Scheme and destination and heritage specific development plans, tourism and trade business is expanding in the state. Note: GSDP at constant (2004-05) prices Source: CSO Share of agriculture sector in state GSDP has been falling steadily since FY07, indicating the shift from an agrarian economy to a service sector-oriented and industrialised economy. Owing to the development of irrigation infrastructure and other allied activities, GSDP of agriculture & allied sector has grown at 23.1% in FY06; however it moderated to 5% in FY12 and further registered the decline of 7% in FY13. The industry sector is the backbone of the Gujarat economy. The total number of Micro, Small and Medium Enterprises (MSMEs) in the state stood at 0.6 mn as on FY14, providing employment to 3.7 mn people. Infrastructure development, power availability and business friendly policies are benefiting the industry and service sector in Gujarat. During April 2000-May 2014, the state received FDI equity inflows to the tune of ` 449.08 bn. Industrial Development – Pillar of Gujarat’s growth Manufacturing remains the largest contributor to the industrial sector in the state. With the introduction of ‘Interest Subsidy under Assistance to Manufacturing Sector Scheme (2013)’, MSMEs and large industries are further expected to expand and diversify. In FY13, the share of manufacturing sector in GSDP of Gujarat remained at 26.4%. By 2017, the state government aims to increase this share to 32%. Gujarat has attracted large investments in the last decade owing to the success of the ‘Vibrant Gujarat Global Investors Summit’.
  • 131. 128 Table 3.24: Investments through Vibrant Gujarat summits Summit Investments (US$ bn) 2003 14 2005 20 2007 152 2009 253 2011 450 Source: Gujarat Government /Vibrant-Gujarat In the Summit 2013, 121 countries, 24 Indian states and 58,000 delegates participated and investment intentions of 17,719 Memorandum of Understanding (MoUs) were generated and 2,670 Strategic Partnership Intentions were signed in the area of skill development, knowledge etc. Chart 3.24: Indicators of industry sector (FY12) • According to Annual Survey of Industries (ASI), FY12, Gujarat topped the position in ‘capital investment in industry sector’, owing to its investment friendly policies. • Despite increasing trend of capital investment in industry sector, number of factories in Gujarat does not follow the same trend. Consequently, Gujarat also falls behind in employment in industry sector. It stood at 4th position in terms of ‘number of workers’ during FY12. States like Tamilnadu, Maharashtra and Andhra Pradesh outpaced Gujarat in number of factories and workers, according to ASI FY12. Subsequent to rising capital investments, Gujarat holds sizeable potential in establishing new factories and boosting employment. • In Gujarat, chemicals & petrochemical sector and textile have the highest number of projects under implementation as on Jun-14. Along with these two sectors, metallurgical and engineering industry show vast number of projects issued. Hence, these industries are likely to thrive in the future. Source: ASI FY12
  • 132. Major projects under implementation - 1. Dahej Petrochemical & Petroleum Investment Region 2. Sanand Eco-city project 3. Dholera Special Investment Region (SIR) and international airport - Aim to 129 develop world class center of industrial excellence and economic activity 4. A Mega Industrial Park spread over 3,000 hectares in Dholera 5. Gujarat Finance Tech city (GIFT)- first Financial Services Special Economic Zone (SEZ) 6. 55 SEZs covering an area of approximately 30,954 hectares. Presently, 16 SEZs are in operation. 7. 27 industrial parks are operational and 20 parks are under approval 8. Petroleum, Chemicals and Petrochemicals SIR 9. Aliyabet Entertainment and Eco Development SIR 10. Santalpur SIR 11. The Halol-Savli SIR 12. Navlakhi SIR 13. Mandal-Bechraji SIR Source: Vibrant Gujarat 2013, Big 2020, Economic Survey FY14, Gujarat Infrastructure Development Board (GIDB), Gujarat State Road Development Corporation (GSRDC) Thrust on infrastructure to support growth Power Infrastructure development has been at the forefront in the social and industrial development of the state. The state has witnessed tremendous improvement in transport facilities and electricity generation. The total installed conventional power generation capacity in Gujarat was 18,510 megawatt (MW) in FY14 as against 9,026 MW in FY06. Chart 3.25: Composition of installed capacity as on December 31, 2013 (%) Source: Gujarat Infrastructure Development Board
  • 133. As on FY13, installed capacity of conventional fuel based energy in Gujarat stands at 18,270 MW, while that of renewables stands at 4126 MW. In renewables, wind energy accounts for around 78% and solar power for 20.8%. By 2017, the projected demand for electricity in Gujarat would be around 18,478 MW while the state’s capacity to supply is estimated to be 40,039 MW. Various electricity schemes like Kutir Jyoti Scheme, Sagarkhedu Sarvangi Vikas Yojana and numerous power projects have transformed Gujarat into an electricity surplus state. Jyotigram Yojana, a major power sector reform in Gujarat achieved round-the-clock three-phase power supply in 18,000 villages and 9,700 Petaparas by splitting electricity for agricultural and non-agricultural 130 use in rural areas. Projects under implementation by Gujarat Power Corporation Ltd 1. Development of 6 x 1000 MW nuclear based power project at Bhavnagar 2. 700 MW gas based power project at Pipavav – Joint venture (JV) between Gujarat Power Corporation Ltd. (GPCL) and Gujarat State Petroleum Corporation (GSPC) 3. Solar park of capacity worth 590 MW at Charanka, district Patan spread across 5,384 acres 4. Allocation of ` 100 mn as financial assistance for acquiring coal mines and gas reserves overseas. 5. MoU with Atlantis Resources Pte limited for implementation of 50MW pilot tidal based power project at Gulf of Kutchh at Mandvi and 200 MW tidal based power project anywhere in Gujarat 6. Rooftop Solar Project in Vadodara, Surat, Mehsana, Rajkot & Bhavnagar which is estimated to add capacity worth 25 MW. 7. ` 300 bn refinery at Mundra with 15 mn tonnes capacity by Indian Oil Corp. The plant is scheduled to come up by FY22. Source: Gujarat Power Corporation Ltd. Transport The total length of railway lines has gone up from 5,186 route km in FY04 to 5,257.2 route km in FY12, while the total length of roads in FY12 was 77.7 thousand km as compared to 74 thousand km in FY02. Air traffic has also seen a significant increase in the last ten years. During FY05-FY13, domestic aircraft departure has increased from 24.2 thousand to 51.9 thousand and international aircraft departures from 3.8 thousand to 5.9 thousand. With a coastline of 1.6 thousand km and 42 ports, Gujarat ports’ total capacity has increased from 135 mn metric tonnes per annum (MMTPA) in FY02 to 387 MMTPA in FY14 and it is estimated to increase to over 864 MMTPA in FY20. The traffic at private ports has gone up at a CAGR of around 37.0% from FY04 to FY14. During the same period, ports of Gujarat Maritime Board
  • 134. witnessed CAGR of 12%. In FY14, at 309.9 MMTPA, Gujarat accounted for 74.1% of traffic for non-major ports of India. Major ongoing/upcoming projects 1. Delhi Mumbai Industrial Corridor (DMIC)- 37% of the planned route is in 131 Gujarat with 60% investment 2. Metro rail connecting Ahmedabad with Dholera- Route of approximately 101 km 3. High speed rail connecting Ahmedabad-Mumbai-Pune 4. Bus Rapid Transit System in Ahmedabad, Rajkot, Surat and Vadodara 5. Ports at Vansi Borsi, Bedi and Modhwa under PPP mode 6. Budget FY15 proposes to undertake Ultra Mega Solar Power Projects in Gujarat 7. Four laning of highways -1) Dakor - Savli, (2) Vadodara -Dabhoi, (3) Surat - Olpad and (4) Surat –Bardoli (5) Chirai-Anjar Road Source: Vibrant Gujarat 2013, Big 2020, Economic Survey FY14, GIDB, GSRDC Water projects Gujarat has placed significant importance on water management by using the strategies of rain water harvesting, check dams and inter-basin transfers. According to Economic Survey FY14, the total irrigation potential of surface water created up to June-2013 turns out to be 74.1% of ultimate irrigation potential. "Sardar Sarovar Project” on Narmada River is a multi-purpose project which carries enormous potential to provide water resources to the state. The state government set up Sardar Sarovar Narmada Nigam Ltd (SSNNL) in order to implement this project. The dam has an installed hydropower capacity of 1,450 MW and irrigation potential of 1.8 mn hectares in Gujarat which benefits around 1 mn farmers. Projects under progress 1. 150 mn litres per day (MLD) sea water based desalination plant for Industrial water supply in Kutch region 2. Water security project for Dhloera SIR (DSIR) 3. Waste water recycling plant and transmission of recycled water for non-potable application for DSIR 4. Raw water transmission from Pariyej-Kaniwal reservoir for portable application for DSIR Projects (Study Completed) 1. Improvement of water supply & sewerage system for Amreli & Bharuch Towns 2. Improvement of water supply & sewerage system for Anand & Mehsana towns 3. 45MLD proposed sewage treatment plant in Rajkot 4. Unsolicited proposal of 50MLD water treatment plant at Ranakpur 5. Industrial water supply for Kadi, Nandasan & Mehsana Source: Gujarat Infrastructure Development Board
  • 135. Health Infrastructure envisaged under Vision 2020 1. Four integrated healthcare townships with an aim to create at least 50,000 132 beds 2. Development of medical university 3. Centre for excellence in life sciences (at least 3 by 2020) 4. Centre for excellence in Knowledge Development and Information Technology for healthcare 5. Centre for excellence in Indian system of medicine 6. Centre for excellence in Pharmaceuticals Source: Gujarat Infrastructure Development Board E-governance Gujarat has marked an impressive progress in e-governance. Projects like SWAGAT Online (State Wide Attention on Grievances through Application of Technology), e-Gram (e-governance in Gram Panchyats), e-Dhara (complete computerisation of land records across the state), IWDMS (Integrated Workflow and Document Management System), SICN (Sachivalya Integrated Communication Network) and Gujarat State Data Centre etc. have improved efficiency and transparency in government administration through e-governance. Gujarat Infrastructure Development Board (GIDB) has utilised Public-Private Partnership (PPP) model for infrastructure development. GIDB has undertaken many infrastructure development initiatives in order to give a boost to economic activities in the state. Further, the Gujarat government intends to create an e-databank/data warehouse to disseminate the information, for which feasibility study has been undertaken. This project will increase transparency and also act as a source of revenue for the government. Given the indispensable role that infrastructure plays in social and economic development, Gujarat government has adopted the Infrastructure Agenda named as ‘Big 2020’. Under Big 2020, the state has undertaken projects that cover all important sectors viz. road and rail infrastructure, port development, industry, water projects, smart city building, energy, tourism, education and healthcare. All inclusive infrastructure development will prove crucial in versatile development of the state by 2020. Online mechanisms have significantly increased the ease of doing business in the state. Overall, sectoral distribution of projects along with efficiency brought by e-governance is further expected to drive investments in Gujarat. Trends in annual plan outlays – Increasing allocation to social development In the 12th Five Year Plan (FY12-17) of the state, about 41.5% of the outlay has been made towards social services, and allocation for irrigation and flood
  • 136. control accounts for 23.8% of total planned outlay. Allocation to the transport sector accounts for 9.7% of total outlays while that for energy sector accounts for 5.3%. Improvement of quality and quantity of infrastructure in social sector and water resource management has been given utmost importance in the state plans of Gujarat. 133 Table 3.25: Annual plan outlays – Sectoral allocations (% share) Sectors FY11 FY12 FY13 FY14 FY15(P) General Economic Services 3.0 4.1 3.0 3.1 3.1 Science, technology and environment 1.1 1.0 0.8 0.7 0.8 Communication 1.2 1.3 1.3 1.4 1.1 Transport 10.8 10.0 9.8 8.6 7.9 Industries and Minerals 3.6 3.2 4.9 4.2 3.1 Energy 6.0 5.2 7.5 8.5 7.2 Irrigation and Flood control 19.2 24.0 23.1 21.6 18.3 Rural development 3.9 4.2 2.9 2.9 3.2 Agri and allied 7.0 6.7 6.1 6.4 6.1 Border Area development programme 0.5 0.4 0.3 0.4 0.3 General services 0.1 0.1 0.2 0.2 0.2 Social services 43.7 39.9 40.1 42.0 48.8 Source: Budget documents from FY11 to FY15 Trends in annual plan outlays indicate the state government’s priority to social sector development. Share of outlays allocated to social services has gone up significantly over the years. Further, allocation for irrigation and flood control has remained high over the years, though it shows a declining trend. The state’s focus on water resource management is visible from the planned outlays on irrigation. In the Budget for FY15, 22% of developmental expenditure is towards agriculture, irrigation and rural development and 14.9% to water supply, sanitation and urban development. In FY15, social service outlays have significantly gone up where as infrastructure related outlays i.e. allocation for transport, energy and irrigation have gone down. Rural development outlay is also estimated to increase over previous year. Overall, annual plan FY15 emphasises social development over industrialisation, transport and energy infrastructure. Laggard social development despite increasing outlays Despite giving priority to social services in annual plans, Gujarat is lagging many Indian states in human development. Laggard human capital development might prove to be a hindrance in the economic growth of Gujarat. As per the India Human Development Report 2011, Gujarat’s Human Development Index (HDI) rose from 0.527 in FY08 to 0.644 in FY12, however it still lags eight
  • 137. other states. The data given below compares few social indicators of Gujarat with those of some other states which rank higher in HDI. 134 Table 3.26 Social indicators Indicator/State Delhi Kerala Himachal Pradesh Punjab Maharashtra Tamil Nadu Gujarat India Infant Mortality Rate per (Census 2011) 28 12 38 30 25 22 41 44 Maternal Mortality Rate (Census 2011) NA 81 NA 172 104 97 148 212 Literacy Rate (Census 2011) 86.3 93.9 83.8 76.7 82.9 80.3 79.3 74.0 Poverty Headcount 15.6 11.3 10.9 11.3 20 22.4 27.4 21.5 (% age of Persons) FY12 Source: C. Rangrajan Committee, Planning Commission, National Health Mission Gujarat still trails in the development of health and education sectors. Further, high poverty level implies that economic growth in Gujarat has not reached all sections of the society. The development model in the state has enabled growth of the service and industry sectors. However, it has failed to raise the living standards of a vast section of the society, leading to high poverty. Hence, planned execution of allocated outlays and more inclusive model of development are essential for enabling balanced development of Gujarat. The state government intends to achieve social development through development of infrastructure in all the sectors. BIG 2020, a ‘Package of Infrastructure Projects’ aspires to place Gujarat at the top of the Human Development Index. ‘Rurbanisation’ to achieve rural development Gujarat places high importance on rural development, as 57.4% of the state’s population is in rural areas. Rural development in the state is implemented through the model of ‘rurbanisation’, which envisages achieving regional transportation and connectivity and financial self-sufficiency in rural areas and building eco-friendly planned villages. The state implements centrally-sponsored schemes such as Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA), Indira Awas Yojana (IAY), and Nirmal Bharat Abhiyan along with state-sponsored schemes such as SakhiMandal and Sardar Patel Awas Yojana. SakhiMandal Yojana was launched in 2006 with an aim to empower rural women in the state, by creating self-help groups and providing them with the access to resources. As on March 2013, there were 0.20 mn numbers of SakhiMandals in the state and Sakhimandal savings were worth ` 2.31 bn. Sardar Patel Awas Yojana was implemented for landless agricultural labourers and village artisans living below the poverty line in rural areas of the state. The number of houses completed under this scheme went up from 10,530 in FY04 to 200,351 in FY14.
  • 138. 'Rurban' Schemes Gujarat rural development model ‘Rurbanisation’ aims to bridge the rural-urban gap by achieving balanced socio-economic development. State government has included villages having pouplation more than 7,000 and 82 taluka centers for schemes under 'Rurban'. In the 1st phase of 'Rurban', planning for providing underground drainage system to 82 taluka headquarter and 3 villages is prepared. Total 81 drainage project work have recieved administrative approval, work of which is under process. Source: Panchayats, Rural Housing and Rural Development Department, Gujarat ‘Garib Kalyan Mela’ is another innovative initiative implemented by the Gujarat government. The program aims to distribute benefits of various schemes directly to the beneficiaries. So far, 900 Melas have been taken place and the government has distributed benefits worth ` 105 bn to around 80 lakh poor. Further, the state government has undertaken many initiatives to bring e-governance in Gujarat. e-Gram Vishwagram Project, the flagship program in rural development envisages equipping all village panchayats with necessary IT equipment. Currently, 13,685 village panchayats are furnished to provide e-services through VSAT Broadband connected PCs. 135
  • 139. Mission Mangalam Mission Managalam was lauched in Gujarat with an aim to empower poor people through Self Help Groups (SHGs), build capacities in them and lead them towards sustainable livelihoods. To implement this Mission, a company named as Gujarat Livelihood Promotion Company Limited (GLPC) was launched in 2010. Targets for FY15 1. Under Mission Mangalam 3,200 SHGs to be formed. 2. All SHGs should have at least 70% below poverty line (BPL) members. 3. SHG members will be provided basic training, leadership & conflict resolution and record keeping training along with information about different department schemes. 4. An online database of SHGs will be prepared. 5. A unique ID will be provided to each SHG. 6. An online tracking system will be developed to monitor all SHGs in terms of 136 grading, credit linkage, skill upgradation, training and marketing. Mangalam Haat – Initiative to create 45 'Mangalam Haat' to provide facilities like sales promotion, grading, quality, import-export facilities to SHG products which will enable SHGs to provide products to different Government offices. Pension scheme – Proposal to introduce pension scheme for the SHG women under BPL. Aam Admi Bima Yojana For FY15, ` 65.6 mn has been proposed to be provided under the state budget to provide life insurance protection to 0.80 mn rural landless households. Indira Awas Yojana (IAY) Aim to construct 34,105 houses for rural BPL families in FY15. Nirmal Bharat Abhiyan Target to provide subsidy to construct 50,000 household latrines for above poverty line families. Source: Annual Plan 2014-15, Commissionerate of Rural Development, Gujarat State Going ahead, Gujarat is likely to benefit from its all-inclusive investment strategy. Sector specific incentives and policies are expected to drive growth and expansion of the service and manufacturing sectors. Business friendly policies and economic freedom has created conducive environment for business and entrepreneurship. Moreover, with stable government both at the State and Center, Gujarat is likely to reap benefits from infrastructure development and pro-business incentives and is expected to attract more investments and become an ‘industrial hub’ in the coming years. However, human development remains extremely crucial for the sustainable and inclusive economic growth of Gujarat. With increasing focus on rural development and upgradation of social services in terms of spread and quality, the Gujarat government is rightly placing its resources for achieving balanced growth.
  • 140. 137 Andhra Pradesh: Thrust on industries to boost growth
  • 141. Andhra Pradesh2 is the 5th most populous state in the country, with a population of 84.66 mn (Census 2011), accounting for 7% of India’s population. In 2014, the existing state of Andhra Pradesh was officially separated into Andhra Pradesh and a new state called Telangana, which came into existence in June 2014. The State of Telangana comprises the following territories: Adilabad, Karimnagar, Medak, Nizamabad, Warangal, Rangareddi, Nalgonda, Mahbubnagar, Khammam and Hyderabad. Andhra Pradesh state consists of 13 districts – the 4 districts of Rayalaseema and 9 districts of the coastal Andhra. Hyderabad in the existing State of Andhra Pradesh shall be the common capital of the State of Telangana and the State of Andhra Pradesh, for a period not exceeding ten years. Andhra Pradesh has consistently maintained its position as the fourth largest state in India, in terms of Gross State Domestic Production (GSDP), during FY10-FY13. In FY14, it is likely to be at fifth position in terms of its share to India’s GDP. During FY14, the Gross State Domestic Production (GSDP) of Andhra Pradesh recorded growth (y-o-y) of 5.8% and contributed 8.0% to India’s GDP. As per the Annual Survey of Industries (ASI) FY12, Andhra Pradesh is the third largest state in terms of worker base, with 11.11 lakh workers and 27,708 factories in the registered manufacturing sector. Effective implementation of several poverty-alleviating and employment generating programmes of the State and Centre, supported by a better delivery mechanism have helped the people to maintain relatively better standards of living. Andhra Pradesh’s Per Capita Gross State Domestic Product (GSDP) (at factor cost current price) at ` 98,637 (FY14) is almost 1.2 times higher than that of India’s per capita GDP. Further, despite being amongst the leading states in the country, Andhra Pradesh seems to be lagging in attracting investments. After steadily increasing from ` 1.5 tn as of March 2005 to ` 8.8 tn as of March 2012, outstanding investment projects in the state stagnated at about this level for the next two years. Andhra Pradesh is trailing behind certain neighbouring states, even in attracting Foreign Direct Investment (FDI). For instance, as compared to Tamil Nadu and Karnataka, which received FDI equity inflows to the tune of US$ 13.6 bn and US$ 12.8 bn, respectively, during April 2000-May 2014, Andhra Pradesh attracted much lower FDI equity inflows of US$ 8.8 bn. 138 2 The content and analysis of Andhra Pradesh includes newly created Telangana state
  • 142. 139 Chart 3.26: FDI equity inflows in Andhra Pradesh (US$ bn) Note: FDI inflows classified as per RBI’s – Regional Office received FDI inflows Source: DIPP website Subdued investments seem to have slowed down economic growth in recent years An analysis of the state’s economic growth in the past decade ending FY14 reveals a steep deceleration in growth in the recent 2-3 years; from an annual average growth of 9.1% during FY05-FY11, growth slowed down to 6.1% during FY12-FY14. This could be partially attributed to slower investments flowing into the state. During this 10-year period, performance of the industry sector has fluctuated sharply. As compared to a growth of 11.6% in FY11 and 7.5% during FY12, the industry sector de-grew by 0.5% in FY13, before improving marginally by 2.4% in FY14. Similarly, growth in the services sector slowed down considerably from an average of 10.9% during FY06-FY11, to 7.4% in FY12-FY14. Chart 3.27: District Domestic Product of AP for FY13 (` bn) Source: AP State Statistical Abstract
  • 143. 140 Chart 3.28: District Domestic Product of Telangana for FY13 (` bn) Source: Telangana State Statistical Abstract Economic growth performance of Andhra Pradesh remained fluctuated during the Eleventh Plan Period, with annual growth ranging from 4.5% to 12%. While the Eleventh Plan Outlay was ` 1,878 bn, the Expenditure stood at ` 1,580.2 bn. Andhra Pradesh leads among all the States and Union Territories with a projected outlay of ` 3,428.42 bn for the 12th Plan, accounting for 9.2% of the total outlay of all the States. Chart 3.29: Andhra Pradesh: Eleventh Plan outlay vs expenditure (` bn) *Includes Special Area Programmes, General Services, & Science, Technology and Environment Source: Socio-Economic Survey 2012-13 Andhra Pradesh & Twelfth Five Year Plan document, Planning Commission
  • 144. 141 Chart 3.30: Andhra Pradesh: Twelfth plan outlay (` bn) *Includes Special Area Programmes, General Services, & Science, Technology and Environment Source: Socio-Economic Survey 2012-13 Andhra Pradesh & Twelfth Five Year Plan document, Planning Commission Nevertheless, the Twelfth Plan Projected Outlay at ` 3,428.42 bn is 117% higher than the Eleventh Plan Expenditure. More importantly, the Twelfth Plan has increased thrust on both urban and rural development, along with greater focus on energy, transport and housing sectors. These factors augur well for providing a boost to the overall economic growth process of the state for the coming years. Chart 3.31: Gross State Domestic Product of Andhra Pradesh (` bn) • GSDP of Andhra Pradesh grew at an average rate of 6.9% during FY10-FY14, higher than the all-India average growth of 6.7% during the same period. • Growth in GSDP of Andhra Pradesh is projected to accelerate to 7.7% during FY15-FY17 and further to 8.2% during FY18-FY20. Note: GSDP at constant (2004-05) price; f: D&B forecast Source: CSO & D&B India
  • 145. 142 Chart 3.32: Sectoral Gross State Domestic Product of Andhra Pradesh (FY14) (%) • Manufacturing sector accounted for 12.4% of Andhra Pradesh’s GSDP in FY14 and grew at a CAGR of 8.5% during FY05-FY14. • Services sector recorded a CAGR of 9.7% during FY05-FY14. • The trade, hotels & restaurant sector accounted for 14.6% of Andhra Pradesh’s GSDP in FY14 and grew at a CAGR of 9.1% during FY05-FY14. • The transport, storage & communication sector contributed 12.5% to the state’s GSDP during FY14 and grew at a CAGR of 13.8% during FY05-FY14. Note: at constant (2004-05) prices Source: CSO Export performance remains robust The export performance of Andhra Pradesh continues to remain robust, as indicated from the following two charts below. Exports from Andhra Pradesh have increased at a CAGR of 26.9% during FY03-FY12. During FY12, exports from Andhra Pradesh totaled ` 1,161.03 bn, an increase of 26.7% over the preceding year, with software, engineering items, and drugs & pharmaceuticals (incl. allied chemical plastics) contributing three-fourth of the state’s export turnover. Chart 3.33: Andhra Pradesh: Composition of exports (FY12) (%) Source: Socio Economic Survey 2012-13, Andhra Pradesh
  • 146. 143 Chart 3.34: Andhra Pradesh: Export performance Source: Socio Economic Survey 2012-13, Andhra Pradesh Manufacturing sector attracts greater investments Over the last decade (FY05 to FY14), the manufacturing sector in AP has been receiving greater investments; share of the manufacturing sector in total outstanding investments have doubled from 16.2% (March 2005) to 33.3% (March 2014). This augurs well for the overall industrial sector in AP, since the manufacturing sector has to grow at a higher rate if the industrial sector is to propel overall growth momentum and employment. The electricity sector accounts for the second largest share of 28.5% of total outstanding investments in the state as of March 2014. The state had, in recent years, faced severe shortage of power supply which had an adverse impact on industry and service sectors. Chart 3.35: Trend in investment scenario Note: Figs. in ` denote outstanding investments as of March each year Source: CMIE
  • 147. 144 Chart 3.36: Break-up of outstanding investments* by sector (%) *As of March 2014 Source: CMIE Role and contribution of MSMEs expected to accelerate Considering the role and importance of MSMEs in driving the economy’s growth, the state government has laid increased emphasis on promoting MSMEs. In this regard, the government plans to give greater importance on developing clusters, as they enhance the productivity of MSMEs. Table 3.27: Employment and Investment Projections for the 12th Five Year Plan Year Large Industries MSMEs Nos. Investment (` bn) Employment (Nos.) Nos. Investment (` bn) Employment (Nos.) 2011-12 100 183.0 36,604 10,000 55.0 165,000 2012-13 121 201.3 40,264 11,000 60.5 151,250 2013-14 133 221.5 44,291 12,100 66.6 166,375 2014-15 146 243.6 48,720 13,000 73.2 183,013 2015-16 160 268.0 53,592 14,300 80.5 201,314 Total 660 1,117.4 223,471 60,400 335.8 866,951 Source: Approach to 12th Plan, Govt. of Andhra Pradesh Given the State Government’s objectives of employment generation during the 12th Plan Period, as can be seen from the table above, going ahead, the priority sectors identified include textiles, chemicals, electrical machinery, paper products, and printing & publishing. Further, the identified sectors which can create employment under the MSME sector include textiles, wearing apparel, food & beverages, and tobacco. These units contribute about 70% of total employment of the MSME sector.
  • 148. Major Industries The emphasis of the State Government has been to develop key sectors such as pharmaceuticals, biotechnology, food and agro-based industries, chemicals, leather, textiles and precision components to accelerate the industrial growth in the state. The AP Government continues its thrust on supporting the industry sector with greater emphasis on skill development and encouragement to the MSMEs. Over the years, Andhra Pradesh has grown in terms of its technological infrastructure and the state is among the major Indian states that have witnessed significant development in IT and telecom sectors. Information & communications technology Andhra Pradesh has been a pioneer in promoting the Information Technology industry during the late 90s and the early part of this century, and Hyderabad has emerged as one of the most attractive destinations for the IT-ITeS industry globally. The IT sector contributes 39% of total exports from Andhra Pradesh. Hyderabad is referred to as Cyberabad as the city has one of the largest concentrations of software technology companies in India. Besides Hyderabad, other major cities such as Visakhapatnam and Vijayawada are also emerging as potential IT hubs, largely on account of cost advantage and other enabling factors. Andhra Pradesh contributes the highest number of IT professionals to the talent pool, with direct employment created by the ICT industry in the state standing at over 3.2 lakh. The Information & Communications Technology (ICT) Policy 2010-15 has played a significant role in driving exponential growth of the IT industry in the state. Total export revenues of the sector have grown from ` 10 bn in 1998-99 to ` 643.54 bn by 2012-13. The recently announced AP IT Policy 2014-2020 envisages to attract investments of US$ 2 bn in IT and US$ 5 bn in Electronics manufacturing by 2020. The state has about 56 IT SEZs, out of 353 approved IT SEZs in the country. There exist over 450 exporting units registered with the STPI, with the export turnover of the STPI units standing at around ` 360 bn and providing employment to about 2.18 lakh people. Although the State Government has identified the IT sector as one of the prime growth engines to drive the state’s development, presently the growth in IT sector is restricted largely to Hyderabad and few districts including Visakhapatnam, Vijayawada, etc. Hence, concerted efforts are needed for developing other potential locations as IT hubs to propel equitable development in the state. This in turn calls for the need to evolve IT investor-centric policies to attract potential investors. 145
  • 149. AP IT Policy 2014-2020: Proposed government initiatives Vizag as a Mega IT Hub: Visakhapatnam will be developed as a Mega IT Hub, through an initial effort of developing an IT township with a built-up space of 5 mn square feet. IT Hubs: IT Hubs shall also be developed at Vijayawada, Kakinada, Tirupati and Anantapur. PPP for IT Infrastructure: The facilities, in the form of IT Towers, IT Parks and IT Zones shall be developed by adopting a transparent PPP policy. Information Technology Investment Regions (ITIRs): Government proposes ITIRs to be developed in Visakhapatnam and Tirupati initially. The Tirupati-Anantapur corridor will be proposed at a later phase. Source: AP IT Policy 2014-2020 Electronics The Government of Andhra Pradesh is the first state to bring out Andhra Pradesh Electronics Hardware Policy 2012-17, realising the significance of the Electronics Hardware Industry and the imperative need to promote the same as an import substitution sector. Andhra Pradesh ranks fifth in the national electronics industry, with AP contributing 7.5% of electronic production in India. The state houses over 300 electronic companies providing direct employment to over 60,000 people. In FY13, the electronic hardware industry in AP achieved production valued at ` 72 bn, with exports to the tune of ` 12 bn. By 2017, the state aims to achieve revenues (domestic + exports) of over ` 666.8 bn and employment level of 175,000 from the electronic hardware manufacturing industry. Tourism Tourism is another sector of focus for the State Government, with tourism being one of the high performing sectors in the state during the last one and a half decade. More than 7 mn visitors visit the state every year. The Vision 2020 document of the AP Government envisaged Tourism as a growth engine with great potential for creating employment for the youth and generating revenue for the State. In 2013, the state government announced that it has earmarked an investment of ` 10 bn through the public-private partnership (PPP) mode for developing and upgrading the state’s tourism infrastructure. The programme involves building coastal corridors along the Vizag-Bheemunipatnam sea front and Vizag-Vizianagaram- Srikakulam Regional circuit with investment of ` 1.75 bn, and eight new beach properties in Srikakulam, Vizianagaram, East Godavari, West Godavari, Prakasam and Nellore districts. Apart from upgrading infrastructure, the Andhra Pradesh Tourism Development Corporation (APTDC) intends to spend ` 0.40 bn on marketing and promotional activities to promote attractive tourist locations. 146
  • 150. Infrastructure development to boost growth The focus of the Government of Andhra Pradesh has been to develop infrastructure in the state, both through public and private participation. As per the website of the PPP Cell, Govt. of Andhra Pradesh, there are 110 public-private partnership (PPP) projects in Andhra Pradesh involving an amount of ` 253.45 bn. Out of this, investment projects in sea ports, roads and urban infrastructure accounted for almost 80% of the total projects. 147 Chart 3.37: Status of PPP projects in AP (` bn) Note: Website of PPP Cell accessed on 5th Aug, 2014 Source: Website of PPP Cell, Govt. of Andhra Pradesh Recent announcements for infrastructure development The government recently announced that it is exploring options in setting up 14 ports, out of which construction of the Kakinada, Krishnapatnam and Gangavaram ports has already commenced. Apart from this, the government plans to make Vijayawada, Visakahapatnam and Tirupati airports as international airports. It would also develop mini airports in each district. Exhibit 3.2: Major thrust for industries in the 12th Five Year Plan Source: Approach to 12th Plan, Govt. of Andhra Pradesh
  • 151. The way forward Formation of the two new states has thrown open several challenges, particularly, appropriate mobilisation of resources, infrastructure development, generation of employment opportunities, development of transportation systems with their own new hubs and spokes, development of new centres of excellence for education and healthcare, and establishment of new infrastructure for communications and information, amongst others. The Government envisions developing the new AP state as a knowledge society of global repute, with a focus on enhancing the quality of life of its citizens, through high-quality education and healthcare, increased productivity in agriculture and allied activities, creation of requisite employment potential by promoting electronics and IT industries and by providing good governance. The Government of Andhra Pradesh is putting increasing thrust on further developing the Electronics and IT industries in the state. Another vertical emerging as a focus area for the state government is Gaming, Animation, Media and Entertainment, as the Government expects this segment to provide better employment opportunities, particularly to the arts stream. Accordingly, the state government proposes to bring out a separate Andhra Pradesh Gaming, Animation, Media & Entertainment Policy 2014-19. Table 3.28: Major goals for electronics & IT sectors Major Indicator Goal to be achieved by 2020 Share in the national IT Exports 5% Investments in IT US$ 2 bn by 2017 & 5 bn by 2020 Investments in Electronics manufacturing US$ 5 bn by 2017 and 10 bn by 2020 Employment created in Electronics and IT 0.3 mn by 2018 and 0.5 mn by 2020 Source: Reimagining AP – Role of eGov, Electronics & IT, Govt. of AP Table 3.29: For the 12th Plan period, the government has set the following objectives: Parameter 2012 2017 Public Investment (` bn) Literacy 67% 86% 160.68 IMR per 1,000 46 28 192.68 Energy (MW) 15,895 29,000 232.75 Post harvest losses 35% 25% 10.00 Per capita income (`) 68,970 135,000 Source: Annual Plan 2013-14, Andhra Pradesh 148
  • 152. 149 Exhibit 3.3: Andhra Pradesh: 12th plan targets Source: Twelfth Five Year Plan (2012-17) A Way Forward To achieve the target of 10% growth in GSDP, increased thrust needs to be given on accelerating growth in agriculture, infrastructure, mining, manufacturing, construction and services. For the 12th Plan Period, the Government has identified textiles, drugs & pharmaceuticals, engineering goods, food processing, minerals & metals, chemicals & fertilisers, paper and biotechnology as the key drivers of growth. The employment in MSMEs is nearly 10 times that of the large industries in the state. One of the major challenges faced by businesses, particularly by the SMEs, is related to land and infrastructure. For boosting the growth of the MSMEs, the need of the hour is to increase thrust on the development of sector specific industrial parks with appropriate infrastructure in line with the requirement of the sector, which would go a long way in encouraging the MSMEs. During the 11th Plan Period, the industrial sector in Andhra Pradesh had to face several bottlenecks and slowdown on account of power shortage. Thus, power and other physical infrastructure are required to grow at a much faster rate so as to boost the industrial growth momentum. Thus, in order to exploit the full potential of the state, it is imperative to develop industrial infrastructure in an integrated manner in major locations, much before the actual process of industrialisation takes place, connecting with both rail and road. Moreover, better infrastructure facilities need to be developed and provided through greater collaborative efforts and participation of the public and private sectors.
  • 153. 150 Karnataka – Focus on inclusive growth and industrial development to accelerate state’s growth
  • 154. Best known for its software and biotechnology industry, Karnataka has also been one of the leading industrial states in India. The state’s capital, Bengaluru is popularly known as ‘Silicon Valley of India’. Karnataka is known as the ‘Knowledge Hub of Asia’ due to the presence of a number of premier institutions such as Indian Institute of Science, Indian Institute of Management, National Institute of Technology, National Institute of Advanced Studies and National Institute of Biological Sciences, among others. Karnataka's development can be attributed to its various proactive policies like Industrial Policy, Karnataka Industries (Facilitation) Act, Information Technology Policy, BPO Policy, Biotech Policy, Infrastructure Policy and Tourism Policy, among others. GSDP expected to grow at an average of 7.6% during FY15-FY20 Growth in the state’s GSDP is expected to average at 7.6% during FY15-FY20 on account of inclusive growth within the state with principal drivers being industrial, services and MSME sectors. 151 Chart 3.38: Gross State Domestic Product of Karnataka • Karnataka’ GSDP grew at impressive average rate of 11.0% during FY06-FY08. However, average growth has plunged to 5.5% during FY09-FY14 due to the effects of global economic slowdown. • Karnataka’s GSDP is projected to grow at 6.9% during FY15 and 7.8% during FY16- FY20. • Focus on industrial activities in backward zones of the state is likely to aid the state’s growth during the next six years. f: D&B forecst Source: CSO and D&B India
  • 155. 152 Chart 3.39: Sectoral share of Gross State Domestic Product of Karnataka (FY14) (%) • During the past decade, share of agriculture and industry in the GSDP has fallen from 18.7% and 30.3% in FY05 to 13.5% and 27.1% in FY14, respectively. • Services sector has been the driver for the state as its share in the GSDP grew from 51.0% in FY05 to 59.4% in FY14. • Banking & insurance, communication and real estate, ownership of dwellings and business services; have led the growth in services segment with average growth of 13.3%, 12.7% and 10.2% respectively during FY06-FY14. • Under the industry segment, construction sector accounted for 8.8% of GSDP in FY14 and rose at an average rate of 8% during FY06-FY14. Note: at constant (2004-05) price Source: CSO Rise in share of social services sector in plan outlay Chart 3.40: Sectoral share in plan outlay during FY03 & FY15 (%) • In the social services sector, education and urban development received the highest allocation during FY15. • The allocation to irrigation and flood control decreased considerably to 16% in FY15. However, it receives the second largest allocation in the total outlay. • Agriculture and transport both receive 9% (each) of the total outlay in FY15. While the allocation to agriculture increased from 5% in FY03, transport sector outlay decreased from 12% in FY03. • The allocation to Industry and Minerals remains constant at 2% in FY03 and FY15. • In FY03, major allocation of 33% was made to irrigation and flood control followed by 29% to the social services sector. However, in FY15, the focus has shifted mainly to the social services sector with 46% of the total outlay being allocated to this sector. Source: Planning Commission, Government of India; Draft Annual State Plan (2014-15) of Karnataka Investment scenario in Karnataka Karnataka has been proactive in attracting private investment, with Bengaluru being at the forefront. Investment-friendly policies have helped the state attract large-scale private investment especially in information and communication
  • 156. technology (ICT), biotechnology, semiconductor, business process outsourcing and knowledge process outsourcing. With an aim to diversify, the state plans to attract investments in other sectors such as Aerospace, Automobile, Cement and Steel. The cement sector is poised to become a growth driver for the state as investments in cement are picking up at rapid pace, while the “Karnataka Aerospace Policy 2013-23” is expected to drive investment into the aerospace sector. 153 Table 3.30: Sector-wise projects approved during FY11-FY14 Industry Project Cost (` bn) Cement 183.62 Air transport infrastructure services 87.40 Steel 52.35 Automobiles & ancillaries 46.65 Source: CMIE Table 3.31: Foreign direct investment inflow to Karnataka (in US $ mn) Year Karnataka All-India % share FY08 1,581 23,901 6.6 FY09 2,026 27,331 7.4 FY10 1,029 25,834 4.0 FY11 1,332 19,427 6.9 FY12 1,533 35,121 4.4 FY13 1,023 22,423 4.6 FY14 1,892 24,299 7.8 Source: Department Of Industrial Policy & Promotion, Government Of India Karnataka accounts for a significant share in the total FDI that flows into India. Between April 2000 and May 2014, Karnataka accounted for around 6% (US$ 12.82 bn) of total FDI inflow to India. The state attracts the fourth highest FDI inflows in India, after Maharashtra, Delhi & NCR, and Tamil Nadu.
  • 157. 154 Chart 3.41: Amount of investments in IEMs filed during FY09-FY14 (` bn) * upto May Source: Department Of Industrial Policy & Promotion, Government of India Chart 3.42: IEMs implemented during FY09-FY14 (Investment in ` bn) * upto May Source: Department Of Industrial Policy & Promotion, Government Of India During FY09-FY13, a total of 924 Industrial Entrepreneur Memoranda (IEMs) valued at ` 3,833.40 bn were filed in the state. Although the IEMs filed during the past four years have declined, the number of IEMs implemented has increased. Industrial development in the state According to Annual Survey of Industries (ASI), Karnataka accounted for 5.3% of the total number of registered factories in FY12 in India. Under the 2009-14 Industrial Policy, Karnataka approved around 1,200 large enterprise proposals during the policy period with an investment of ` 6,950.0 bn and employment generation for 2.58 mn people, as against the targeted Investment of ` 3,000.0 bn and employment generation for one mn people during the policy period. Out of these investments, few have already implemented and many of them are under various stages of implementation. In addition to this, 101,366
  • 158. MSMEs have also been established with an investment of ` 84.0 bn, which provided employment for 6,40,000 people. In order to encourage investors and entrepreneurs, boost industrialisation and development of the most backward areas of the state, the state is developing a new Industrial Policy 2014-19. Through this policy, the government envisions undertaking a holistic approach towards promotion of industrial development in the state through increasing the share of industry in the GSDP, development of MSME, inclusive growth and promotion of skill development and entrepreneurship. Moreover, the Government of Karnataka is also committed to providing right infrastructure and business environment to ensure availability of quality land, water, power and labour. The mission of new Industrial Policy 2014-19 (final draft), taken from Bangalore Chamber of Industry and Commerce, are as stated below: • To establish Brand Karnataka in the global market • To make Karnataka one of the top 3 investment destinations in the 155 country • To enhance the contribution of manufacturing sector to the State GDP to 20% by end of policy period • To attract minimum investment of ` 5,000 bn • To create additional employment for 1.5 mn people by 2019 Industrial corridors and NIMZs to stimulate manufacturing With an aim to boost industrial investments across the state, Karnataka plans to develop two major industrial corridors, namely, Chennai–Bengaluru–Chitradurga Industrial Corridor and Bengaluru–Mumbai Economic Corridor. Projects in these industrial corridors would help in stimulating manufacturing investments across the districts and thereby would lead to debottlenecking of infrastructure issues along the corridors. Besides these industrial corridors, the state also intends to develop four National Investment and Manufacturing Zones (NIMZs). The Government has granted in-principle approval to NIMZs in Tumkur, Kolar, Bidar and Gulbarga. The NIMZs would be large areas of developed land equipped with necessary eco-system to promote world-class manufacturing activity under the zone. Source: PIB MSME development in Karnataka Micro, Small & Medium Enterprises (MSMEs) sector form an integral part of Karnataka’s future growth. The number of MSMEs registered in the state has nearly doubled from 14,984 units in FY08 to 24,206 units in FY13. As compared to FY12, there is a 15.14% increase in the number of units registered, 35.84% increase in investment and 21.16% increase in number of persons employed during FY13.
  • 159. Table 3.32: Details of MSMEs registered in Karnataka (FY08 to FY14*) Year FY08 FY09 FY10 FY11 FY12 FY13 FY14* 156 Micro Units (Nos) 13,945 14,812 16,177 17,408 19,610 22,169 11662 Investment (` mn) 3135.2 2890.5 3511 3642 4365 6601.9 3850.3 Employment (Nos) 77,526 74,726 76,085 77,567 86,216 105,029 54403 Small Units (Nos) 902 869 992 998 1,370 1981 1348 Investment (` mn) 5980.1 5691.8 7040.4 6594.1 9126.6 11679.1 7752.5 Employment (Nos) 38,870 26,815 31,910 29,701 34,400 46,029 27992 Medium Units (Nos) 31 24 26 28 41 56 41 Investment (` mn) 2117.4 1579.5 1730.2 1826.1 2472.4 3404.1 2476.8 Employment (Nos) 6,373 3,493 3,169 3,958 7,771 4,493 6273 Total Units (Nos) 14,984 15,705 17,195 18,434 21,021 24,206 13051 Investment (` mn) 11265.7 10161.8 12281.6 12062.3 15964.1 21685.1 14079.6 Employment (Nos) 123,402 105,034 111,164 111,226 128,387 155,551 88,668 * Up to Oct-13 Source: Economic Survey of Karnataka 2013-14 Given the encouragement by the state government on promotion of MSME, we expect the MSME sector to support the state’s growth in the years to come. The state government introduced ‘Karnataka Nuthana Javali Neethi 2013-18’ for the textile sector with an objective of establishing the textile industry of Karnataka as a producer of internationally competitive value-added products, and thereby contributing to the sustainable employment and economic growth of the state. A budgetary provision of ` 10 bn has been proposed for Nuthana Javali Neethi 2013-18 for the policy period of 5 years. Targets of the Karnataka Nuthana Javali Neethi 2013-18 are as below: • Attracting investments in Textile sector to the tune of ` 100 bn • Generating new employment opportunities to about 0.5 mn people. Some features of the Nuthana Javali Neethi 2013-18 include: • Maximum Financial Assistance to MSME sector of about 15% to 20% of investments with a ceiling of ` 20 mn • Assisting existing industries with subsidy of 15% to 20% under a ceiling of ` 10 mn • Supporting sick co-operative spinning mills with subsidy of 20% under a ceiling of ` 20 mn • Providing financial assistance to the tune of 40% with a ceiling of ` 200 mn to textile industries to facilitate them with infrastructural facilities under Textile parks in Greenfield and Brownfield zones Source: Economic Survey of Karnataka 2013-14
  • 160. Focus on promoting inclusive industrial growth Regional imbalances in Karnataka have been an area of concern hindering the state’s sustainable economic growth. The income generated from industries is largely concentrated in a few districts in the state, especially Bengaluru Urban. Of the total income generated from manufacturing in Karnataka, about 81% is generated from just nine districts and the remaining 19% is from 21 districts. As few districts in the state generate major chunk of manufacturing income, this results in a lop-sided growth in manufacturing sector in the state. In order to reduce the regional imbalances, the Government of Karnataka aims to provide equal opportunity for industrial and urban development in every district/zone and create job opportunities for youth and women across all regions of the society. The state aims to enhance the development of Tier II cities to take the pressure off Bengaluru. The state government encourages setting up of semiconductor units in Tier-II cities other than Mysore, Mangalore and Hubli. Besides, the Karnataka State Electronics Development Corporation Limited (KEONICS), whose main objective is to promote electronics industries in Karnataka, is involved in establishing IT Parks in Tier-II cities such as Hubli, Gulbarga, Shimoga, Mysore and Mangalore. In addition, the state government is also looking at taking measures to improve connectivity, removal of VAT on aviation turbine fuel (ATF), setting up airports in tier-II cities, development of industrial corridors, public-private partnership initiatives, and ease of land acquisition, among others. Special focus on industrial development in Hyderabad- Karnataka region The provisions of Article 371 (J) of the Constitution provides Special Status to the Hyderabad-Karnataka region, which includes six districts: Gulbarga, Yadgir, Bellary, Bidar, Raichur and Koppal. Leveraging this status, the state government intends to create a strong industrial base in the Hyderabad- Karnataka area. With an aim to ensure social and economic development in the region, the state government in its FY15 Budget proposes the constitution of an Area Development Board with an allocation of ` 6 bn. Further, ` 10.37 bn has also been allocated for Special Development Works in the area. 157
  • 161. 158 Chart 3.43: GDDP and Per capita Income (NDDP) for FY12 • The per capita income for each of the six districts in the Hyderabad-Karnataka Region is lower than the per capita income for the state. • Bellary has the highest per capita income in the region and comes closest to that of the state. • None of the districts (except Bellary) in the Hyderabad-Karnataka Region has Gross District Domestic Product (GDDP) higher than that of the average GDDP in the state. Source: Economic Survey of Karnataka 2013-14 Table 3.33: Categorisation of Talukas as per High Power Committee on redressal of regional imbalances (2000-2002) Area Most Backward Taluka More Backward Taluka Backward Taluka Hyderabad Karnataka Area 22 5 2 States Total 39 40 35 Source: Economic Survey of Karnataka 2013-14 The Karnataka Government is also expected to provide the industries in Hyderabad-Karnataka region with incentives and concessions, such as, investment promotion subsidies, exemption from stamp duty, exemption from tax on electricity tariff and power tariff concessions. These packages would provide a boost to the SMEs in the region and thereby augment economic development in the region. Infrastructure to support industrial growth in the state The Government of Karnataka endeavors to increase investments for infrastructure development to the tune of 8% of the GSDP. As per the Government of Karnataka’s Draft Infrastructure Policy 2013, infrastructure development would entail annual investment of about ` 300 bn upto 2020. The state aims to augment infrastructure development through promoting Public Private Partnerships (PPPs).
  • 162. 159 Table 3.34: Target sectoral index and investment required by 2020 S. No Sector Index Target Index by 2020 Investment Requirement by 2020 (` bn) 1 Roads (km/ Sq km) 1.07 1.5 1,389 2 Railways (rail km/ 1000 sq km) 16 41 256 3 Ports (MMT/annum) 44 142 75 4 Energy (units per capita per annum) 700 1400 850 Source: Draft Infrastructure Policy 2013, Government of Karnataka Roads As of 2012, the length of National Highways (NHs) and State Highways (SHs) in Karnataka was 4,491 km and 20,770 Kms. The state government has taken various initiatives for improving state roadways network with funds from state resources, the Asian Development Bank and World Bank assistance. Under the Karnataka State Highways Improvement Project (KSHIP) Phase-I, it proposes to develop 1,846 km of roads with the assistance of World Bank and Asian Development Banks. Furthermore, the Karnataka Road Development Corporation Ltd (KRDCL) has received in principal approval from the Government of India to develop 759 km of SHs at an amount of ` 23.27 bn. Railways The Manufacturing Task Force, a committee constituted by the state government, has recommended to develop a dedicated freight corridor between Bengaluru-Mangalore, Bengaluru-Chennai and Bengaluru-Mumbai. This plan will not only provide high-speed link between the cities, but also increase connectivity and promote trade. Airports Minor airports at Shimoga, Gulbarga, Bijapur and Hassan are being developed on PPP basis through private operators. The existing defence airports at Bidar and Karwar are also being developed for civil operations. Ports The New Mangalore Port is the only major port in Karnataka. The state is working on the development of another major port, the Tadadi Port, on a PPP basis with an investment of about ` 30 bn. The port will have a capacity of 34 mn tonnes cargo handling in Phase-I, which would later be expanded to 62 mn tones. The port will help on the development of the backward region of Northern Karnataka. Other port projects on the anvil in Karnataka include projects at Haldipur and Honnavar.
  • 163. Energy In FY14, Karnataka had an energy deficit of 9.5%, which is the maximum when compared to other states in the Southern region such as Kerala, Puducherry, Tamil Nadu and Andhra Pradesh. Further, the anticipated energy supply deficit of the state for FY15 is 14.4%. During the 12th Five Year Plan period, the State proposes to add a capacity of 8,290 MW to the installed capacity of 2012 at a cost of ` 400 bn. The state government aims at providing 24 hours power supply to all by the year 2020. The vision further encompasses improved efficiency of electricity companies, implementation of energy conservation measures and development of renewable energy. The government has formulated the Karnataka Solar Policy 2014-2021, the main objective of which is to add solar generation of minimum 2,000 MW by 2021 in a phased manner by creating a favorable industrial atmosphere, promoting R&D and innovation, and PPP in the sector. 160
  • 164. 161 Tamil Nadu: Thrust on industrial sector to aid future growth
  • 165. Tamil Nadu surpassed Uttar Pradesh in FY11 in terms of its contribution to national GDP, to emerge as the second largest state in India after Maharashtra. During FY14, the Gross State Domestic Production (GSDP) of Tamil Nadu recorded growth (y-o-y) of 7.3% and contributed 8.4% to India’s GDP. Tamil Nadu’s Per Capita State Domestic Product (at factor cost current price) at ` 124,704 is almost 1.5 times higher than that of India’s per capita GDP. Tamil Nadu is the 7th most populous state in India with a population of 72.1 mn (Census 2011), representing 5.96% of India’s population. As per the Annual Survey of Industries (ASI) FY12, Tamil Nadu is the leading state in terms of employment generation, with 15.95 lakh persons employed and 36,996 number of factories in the registered manufacturing sector. With a literacy rate of 80.3%, Tamil Nadu ranks 8th among the Indian states. The state is amongst the most urbanised states in the country, with 48.5% of the population living in urban areas. Tamil Nadu is one of the most industrialised states in India. As of March 2014, outstanding investment projects in Tamil Nadu stood at ` 9.61 tn. 162 Chart 3.44: Gross State Domestic Product of Tamil Nadu (` bn) • GSDP of Tamil Nadu grew at an average rate of 8.4% during FY10-FY14, higher than the all-India average growth of 6.7% during the same period. • GSDP of Tamil Nadu is projected to grow at 7.6% during FY15-FY17 and at 8.4% during FY18-FY20. Note: GSDP at constant (2004-05) price; f: D&B forecast Source: CSO & D&B India Services sector driving economic growth of Tamil Nadu Like in many other states, the structure of GSDP in Tamil Nadu has been shifting away from agriculture, towards non-agriculture sectors, mainly the services sector. Over the last decade (FY05 to FY14), share of agriculture & allied sectors in the GSDP of Tamil Nadu has fallen from 11.1% (FY05) to 7.3% (FY14).
  • 166. 163 Chart 3.45: Sectoral Gross State Domestic Product of Tamil Nadu (FY14) (%) • Manufacturing sector accounted for 19.1% of Tamil Nadu’s GSDP in FY14 and grew at a CAGR of 8.7% during FY05-FY14. • Services sector recorded a CAGR of 10.4% during FY05-FY14. • Real estate sector accounted for 15.0% of Tamil Nadu’s GSDP in FY14 and grew at a CAGR of 13.4% during FY05-FY14. • The banking & insurance sector grew at a CAGR of 12.9% during this period. Note: at constant (2004-05) prices Source: CSO During FY06 and FY07, the economy of Tamil Nadu had recorded strong growth rates of 14.0% and 15.2%, respectively. During the Eleventh Plan Period (FY08-FY12), although the expenditure exceeded the approved outlay, growth slowed down in critical sectors such as power, industry and agriculture, thereby bringing down the state economy’s annual growth rate to an average of 8.6% during this five-year period. Chart 3.46:Tamil Nadu - Eleventh plan outlay vs expenditure (` bn) Source: Policy Note on Planning, Development and Special Initiatives Department 2013-14, Govt. of Tamil Nadu
  • 167. 164 Chart 3.47: Tamil Nadu - Twelfth plan outlay (` bn) Source: Policy Note on Planning, Development and Special Initiatives Department 2013-14, Govt. of Tamil Nadu The first two years of the Twelfth Five Year Plan witnessed the Tamil Nadu economy slowing down further, due to global slowdown, Euro zone crises, uncertainties in economy and weak monsoon. Although the growth in Tamil Nadu’s GSDP has tapered in the recent 2-3 years, the level of per capita income (at factor cost current price) has more than doubled, from ` 60,445 during FY09 to ` 124,132 during FY14. Between the 10th Plan period and the 12th Plan period, the Tamil Nadu government’s focus has shifted from the infrastructure sectors (energy, transport, etc) towards the social services sector. Plan outlay for social services has a share of 47.1% of the total outlay in the 12th Plan, as compared to 34.1% in the Tenth Plan. Combined allocation to the energy and transport sectors declined from 37% to 23% during this period. Government puts thrust on 2nd Green Revolution The agriculture sector (including allied activities) in Tamil Nadu grew at an average rate of 3.4% during the Eleventh Plan Period (FY08-FY12). The Twelfth Plan aims to achieve a growth of 4% in the agriculture sector and double the food grain production. To achieve this, the state government embarked on a Second Green Revolution, and has introduced reforms in agriculture through various innovative approaches such as whole village concept, crop specific strategies, soil health management, water resources management, input supply management, farm-based interventions and Integrated Farming System approach with extensive use of information technology. Strong manufacturing base boosting growth The manufacturing sector accounted for 19.1% of the state’s GDP in FY14. Tamil Nadu is already strong in the major industrial sectors of automobiles, automobile components, engineering goods, leather, textiles, information
  • 168. technology and bio-technology. And as per the Tamil Nadu Industrial Policy 2014 released by the Tamil Nadu Government in February 2014, the Government aims to maintain and improve the competitive edge of the state to make Tamil Nadu the manufacturing hub of India and one of the top three destinations for investment in Asia. 165 Exhibit 3.4: Priority sectors Source: Tamil Nadu Industrial Policy 2014 Major Industries Automobiles Tamil Nadu is the only Indian state to attract seven automobile companies, Ford, Hyundai, Mitsubishi, Daimler, Nissan, Renault and BMW. Chennai, also known as the Detroit of South Asia, has an installed capacity to manufacture 1.38 mn cars and 0.35 mn commercial vehicles per year. Tamil Nadu has also emerged as the manufacturing base for over 350 large auto component manufacturers, accounting for over 35% of India’s auto components production. The Tamil Nadu Automobile and Auto Components Policy 2014 aims to promote new auto clusters and attract mega automobile projects with economic spin-off potential, particularly in the Southern districts; generate additional employment potential for about 5 lakh persons by 2015 in this industry; double export of automobile and components from Tamil Nadu by 2016; make Tamil Nadu number one in Asia and Chennai one of the top five centres in the world in the automobile and components industry. It envisages setting up an Auto City, an industrial park spread over 1,000 hectares catering to domestic and global automotive/component design, prototyping, manufacturing and remanufacturing units for cars, buses, trucks and derivatives; earthmoving equipment; machined auto components, castings and forgings; and cold-rolled close annealed rolling and servicing. In addition to the Auto City, new auto clusters would be promoted in Tiruchirappalli, Tirunelveli and Thoothukudi.
  • 169. Biotechnology Tamil Nadu, apart from other states such as Karnataka, Andhra Pradesh, Maharashtra and Kerala has been proactive in supporting the biotech sector by establishing world-class biotech parks and clusters. Tamil Nadu is fast emerging as an innovation and knowledge-driven economy, and is well poised to reap the benefits which the biotechnology sector has thrown open. Going forward, the following areas of the biotechnology sector are expected to offer enormous growth opportunities in Tamil Nadu: vaccines and recombinant therapeutics; bioactive therapeutic proteins; stem cell research, cell engineering and cell-based therapeutics; agriculture; animal biotechnology; contract research; 166 clinical trials and outsourcing; and bioinformatics. Thrust on knowledge and emerging sectors opening up new avenues of growth Apart from the traditional manufacturing sectors, the state government plans to focus on certain other sectors identified as growth engines of manufacturing in the country, namely aerospace, defence, electronics and chemicals and pharmaceuticals. The state government has also been laying special emphasis on the sunrise sectors such as bio-technology, nano technology, and solar and clean energy. The Government of Tamil Nadu aims to develop the state as the Innovation Hub and the Knowledge Capital of India, on the strength of world-class institutions and quality human talent. Tamil Nadu has an enrolment of over 182,000 graduate engineers from 553 engineering colleges, 120,000 diploma holders from 501 polytechnic institutes, 905,000 science and arts graduates and over 35,000 software engineers. On the back of abundant skilled manpower, robust IT infrastructure and real estate, the state, particularly Chennai, has emerged as a major hub for back office operations of several international finance majors and a significant operating hub for 1,780 IT-ITeS companies. MSMEs: Backbone of the Tamil Nadu economy Tamil Nadu has a diversified manufacturing sector, with traditional industries such as textile, hosiery and leather industries. In the present status, the MSME sector forms the backbone of the manufacturing sector in Tamil Nadu. MSMEs in Tamil Nadu produce over 8,000 types of products including engineering products, electrical, electronics, chemicals, plastics, steel, cement, paper, matches, textiles, hosiery and readymade garments. As of Feb 2013, there were 8.44 lakh registered MSMEs in Tamil Nadu, with a total investment of about ` 481.89 bn and provided employment to 5.88 mn persons. The MSME sector accounts for 10% of the GSDP of the state. During
  • 170. the Twelfth Plan period, the state government aims to generate 15 lakh direct and indirect additional employment opportunities in the MSME sector. Power sector tops investments in Tamil Nadu As of March 2014, Tamil Nadu had outstanding investment projects totaling ` 9.61 tn. Of this, the electricity sector attracted outstanding investments of ` 4.66 tn, accounting for 48.5% of total outstanding investment projects in the state. The services sector had the second largest share of 29.5%, attracting outstanding investments of ` 2.83 tn as of March 2014. 167 Chart 3.48: Break-up of outstanding investments by sector* (%) *As of March 2014 Source: CMIE As per the Department of Industrial Policy & Promotion (DIPP), investment intentions (in terms of IEMs filed, LOIs/DILs issued) for Tamil Nadu increased by 29% in 2013 (y-o-y) to ` 273.80 bn. The DIPP data indicates that FDI equity inflows to the tune of US$ 13.6 bn were received by Tamil Nadu (& Puducherry) between April 2000 and May 2014. Chart 3.49: FDI equity inflows in Tamil Nadu* (US$ bn) Note: FDI inflows classified as per RBI’s – Regional Office received FDI inflows *Includes Tamil Nadu & Puducherry Source: DIPP website
  • 171. Tamil Nadu is one of the most favoured investment destinations due to its supply of skilled manpower, adequate availability of physical and social infrastructure and the proactive policies of the state government. During FY13, 17 Memoranda of Understanding (MoU) were signed with domestic and foreign investors, for an investment totaling ` 266.25 bn, which will generate direct and indirect employment for over 1.45 lakh persons. Infrastructure status in Tamil Nadu Tamil Nadu has a well-developed system of roads, railways, ports, power and communication. All the villages and towns in the state are electrified. Chennai, Tiruchirapalli, Madurai, Coimbatore and Thoothukudi have domestic airports while Chennai also has an international airport. Ports & highways Tamil Nadu has a coast line of about 1,076 kms, within which there are three major ports, namely Ennore, Chennai and Tuticorin, notified under the Major Port Trust Act, 1963 and 23 non-major (minor) ports notified under the Indian Ports Act, 1908. The National Highways roads in Tamil Nadu traverse a total length of 4974 km, out of which 1,500 km are being maintained by the State National Highways wing and the remaining 3,474 km by the National Highways Authority of India (NHAI). 168 Table 3.35: Road network in Tamil Nadu Category Length (km) National Highways 4,974 State Highways 10,764 Major District Roads 11,247 Other District Roads 35,032 Total 62,017 Source: Highways and Minor Ports Department Policy Note 2013-14, Tamil Nadu Investments planned in the port sector As per its VISION 2023 document released in 2012, the Government of Tamil Nadu targets the development of three large greenfield ports and five minor ports with an incremental aggregate capacity of 150 mn tonnes to handle dry bulk; imported and domestic coal for power generation, liquid cargo and containerised cargo, at a proposed investment of ` 150 bn. With this target in mind, the Tamil Nadu Maritime Board aims to attract investments of ` 50 bn in the next five years and another ` 100 bn in the subsequent five years. These investments are expected to increase the cargo throughput through the non-major ports to about 50 mn metric tonnes (MT) in the first five years and further to about 150 mn MT in the subsequent five years ending 2023.
  • 172. Investments planned in the roads & highways sector The proposed outlay for roads and bridges for the 12th Five Year Plan is ` 169.11 bn. Largest of these include Comprehensive Road Infrastructure Development Programme – State Highways Roads, involving works for a length of 4,744 kms and 180 bridges, involving proposed outlay of ` 31.97 bn, and a proposal to complete 75 Roads over Bridges/Roads under Bridges with a proposed outlay of ` 30 bn, for the construction works and land acquisition. Future Plans for infrastructure development The state government has set the following targets for capacity addition during the 12th Five Year Plan: • To invest not less than US$ 30 bn, through private and public sectors, in infrastructure development • To increase the power generation capacity adequately to meet the future demand by commissioning Mega and Ultra Mega Power Projects • To establish a land bank of at least 53,000 acres throughout the state • To augment industrial water supply • To augment capacities for handling and safe disposal of industrial effluents and solid wastes • To establish Corridors of Excellence • To improve port connectivity; to upgrade the minor ports at Nagapattinam, Colachel, Cuddalore and Manappadu as major ports and to upgrade other ports as Intermediate ports • To augment social infrastructure like housing, healthcare, technical education/ skill development, etc to support the manufacturing sector. Source: Tamil Nadu Industrial Policy 2014 Infrastructure projects planned • An Aero Park • A logistics hub close to the airport • A Biotechnology Enterprise Zone • A Heavy Engineering Hub • Four Special Investment Regions for Manufacturing industries • High-speed passenger trains in the Chennai-Coimbatore, Chennai–Madurai– Kanniyakumari and Madurai–Salem–Bengaluru sectors • Industrial Corridor of Excellence between Madurai–Tirunelveli–Thoothukudi • Creating Expressways, widening major national highways and four-laning of major State Highways • Peripheral Ring Road and Outer Ring Road for Chennai and other major cities • A Liquefied Natural Gas (LNG) Terminal and gas transmission and distribution pipeline infrastructure. Source: Tamil Nadu Industrial Policy 2014 169
  • 173. 170 Social infrastructure in Tamil Nadu Education Tamil Nadu is one of the most progressive states in India. The literacy rate in the state stands at 80.3%, which is the 8th highest among the Indian states. Tamil Nadu has a good education infrastructure, with over 55,000 primary, middle, high and higher secondary schools. Vocational education was introduced in higher secondary schools during the 10th Five Year Plan period. The state government has set a target of raising the Gross Enrollment Ratio (GER) in higher education to 25% by 2020 from the present level of 11.73%. For the 12th Plan, secondary and vocational education has received the highest Plan Outlay in the education sector. Table 3.36: Education infrastructure in Tamil Nadu: 2013 Category Number Schools* 55,667 Arts & science colleges 1,328 Engineering colleges 553 Polytechnic colleges 464 Govt. medical institutions 47 Note: *Primary, middle, high & higher secondary Source: Various govt. documents Table 3.37: 12th Five year plan outlay in education (` bn) Category Outlay Elementary Education 55.17 Secondary and Vocational Education 66.75 Higher Education 36.59 Technical and Professional Education 20.30 Sports and Youth Welfare 13.4 Tamil Development 2.11 Science and Technology 1.77 Source: 12th Five Year Plan Document, Tamil Nadu Healthcare Tamil Nadu is well equipped with healthcare facilities. Chennai, the state capital, is popularly known as the healthcare capital of India, while Tamil Nadu is increasingly being recognised as the medical hub in South Asia. During the Eleventh Plan, an outlay of ` 27.30 bn was allocated for the health sector and the expenditure incurred was ` 47.19 bn. The proposed outlay for Health and Family Welfare for the Twelfth Five Year Plan is ` 108.32 bn, out of which nearly 82% is for Healthcare Delivery and Services.
  • 174. 171 Table 3.38: Tamil Nadu: 12th plan outlay on health & family welfare (` bn) Category Proposed Outlay Healthcare Delivery and Services 88.71 Medical Education and Research 18.55 Indian Medicine and Homoeopathy 1.06 Source: Tamil Nadu 12th Plan Document As per the Vision Tamil Nadu 2023 document, the state government plans to establish 15 new medical colleges attached to district hospitals and upgrade already existing 17 medical colleges attached to hospitals to international standards. Apart from this, two medi-cities will be created in southern and western Tamil Nadu with an aim to serve the medical tourism industry by investment in hospital and education facilities, logistics and hospitality services. The way forward As per the Vision Tamil Nadu 2023 document, the state government has laid down the following objectives for Tamil Nadu by 2023: • Become poverty free by 2023 • Achieve an average growth rate in GSDP of 11% per annum • Improve per capita income to US$ 10,000 • Employment for all willing persons • Care for the disadvantaged and vulnerable sections With a view to enhance the industrial development of the Southern districts of Tamil Nadu, namely Madurai, Dindigul, Theni, Sivagangai, Ramanathapuram, Virudhunagar, Pudukkottai, Thoothukudi, Tirunelveli and Kanniyakumari, the state government plans to implement the Madurai-Thoothukudi Industrial Corridor. The state government has already permitted SIPCOT to establish new industrial parks in these districts. To ensure inclusive development of the state, the Government should focus on the southern districts where industrial development has been lagging. As per the State Budget FY15, around 53,000 acres of land will be developed for industrial purpose across the state, with a special focus on the southern districts namely Madurai, Dindigul, Theni, Sivagangai, Ramanathapuram, Virudhunagar, Pudukkottai, Thoothukudi, Tirunelveli and Kanniyakumari.
  • 175. 172 Kerala –Tourism and Information Communication Technology sectors to support economic growth
  • 176. In the last few years, Kerala has garnered leading position in the country in human capital development. With the vision of ‘development with care and compassion’, the 12th Five Year Plan upholds social development in the state. Kerala has also emerged as a popular tourist destination in India owing to aggressive marketing and development of tourist destinations. The tourism industry has become one of the backbones of the Kerala economy. During FY05-FY13, the state economy registered an annual average growth rate of 8.3%. However, growth slowed down during global recession. While Kerala has performed well in the field of social development, its industrial performance remains a serious concern. Plagued by high unemployment and stagnant industrial growth, the state government intends to achieve growth of 9.5% (at constant prices) during the 12th Five Year Plan period, with an emphasis on the development of service sector and infrastructure. 173 Chart 3.50: Gross State Domestic Product of Kerala • Per capita income (at current price) in the state has risen from ` 36,278 in FY05 to ` 99,977 in FY13 • The government intends to achieve a growth of 7% for industry sector, 12% for services and around 1% for agriculture during the 12th Five Year Plan • During FY15-FY20, D&B expects GSDP of Kerala to grow at around 8% • Remittances from emigrants are significantly high in Kerala. Total remittances received in Kerala during FY13 crossed ` 650 bn Note: GSDP at constant price (2004-05), f: D&B forecast Source: CSO, MOSPI and D&B Research Chart 3.51: Sectoral GSDP of Kerala (FY13) (%) • In FY13, service sector contributed around 66.7% in Kerala’s GSDP, whereas industrial sector contributed around 24% • During FY05-FY13, share of agricultural and allied activities in GSDP decreased significantly from 17.5% (FY05) to 9% (FY13) while share of service sector surged from 59.6% to 66.7%. Share of industry remained at the same level during this period, with a share of about 22% • Within services sector, trade, hotels and restaurant sector is the major contributor to the Kerala economy. In FY13, this sector contributed around 17% to state GSDP Note: at constant (2004-05) price Source: MOSPI
  • 177. Tourism industry – Growth engine of the state economy Owing to rich culture, unique natural beauty and various historical attractions, Kerala is one of the most sought after tourist destinations in India. The tourism sector remains crucial for the economic growth of Kerala. 174 Chart 3.52: Performance of tourism sector in Kerala Source: Department of Tourism, Government of Kerala Amongst the important initiatives undertaken in recent times are Seaplane project and the Muziris Heritage project. Seaplane project is beneficial to boost tourist destinations near sea and lakes in the state. Further, in order to achieve sustainable and inclusive growth of tourism industry, the government plans to launch various programs under 'Mission 676'. The state government has received support from UNESCO for bringing the ancient 2,000-year old Spice Route back to life through tourism. ‘God’s Own Country, People’s Own Tourism’ aims to involve local people in the tourism development in Kerala. Initiatives under Kerala Tourism Policy 2012 1. Introduction of fast track clearance to tourism projects for investment above 100 mn 2. 15% of the total investment subject to a maximum ceiling limit of 2 mn will be provided for investors classified under Responsible Tourism (RT) practices 3. Provision of industrial tariff on electricity charges by tourism department for the first five years for establishments under RT 4. Marketing assistance to new investors in tour operations, homestays, serviced villas and Ayurveda centres to participate in international and national tourism promotional events for the first three years 5. Change in ratio between international and domestic marketing fund allocation from 70:30 to 50:50 to promote domestic tourism With aggressive marketing, the government aims to achieve a yearly growth rate of 15%, which is likely to yield 3 mn foreign tourist arrivals by 2021 Source: Kerala Tourism Policy 2012, Department of Tourism, Government of Kerala
  • 178. In Budget FY15, the government has allocated an amount of ` 2.1 bn to the tourism sector, which consists of marketing and infrastructure development in the tourism sector, development of tourist destinations along with ‘sea life leisure park’ at Varkala and Nilambur Eastern Corridor tourism project. India consumes about 1,000 tonnes of gold every year, with one-fourth of this consumption taking place in Kerala. Consumption of gold in Kerala has surged from 177 tonnes in 2006 to 218 tonnes in 2010 to 270 tonnes by 2012. In value terms, consumption of gold in the state increased from ` 138.41 bn in 2006 to ` 344.63 bn in 2010 to ` 704.70 bn in 2012. Thrissur district in Kerala is also known as the Gold capital of India. All major jewellers in Kerala have branches in Thrissur and 70% of manufacturing of plain gold and rolled gold takes place in the city. Source: Kerala Budget Watch Infrastructure development – highest priority in 12th Five Year Plan Transport and communication sector contributed around 15.5% in state GSDP in FY13. Transport policy 2011 aims to rehaul public transportation system in order to increase its share from existing 33% of total passenger traffic in state to 80% in 2025. It further plans to give more autonomy to public sector bus transport service provider 'Kerala State Road Transport Corporation' (KSRTC) to promote public transport. Ports Government of Kerala has laid thrust on port development to cater to the increasing shipping activities and to promote industrial activity in the state. New non-major ports to be developed through PPP are given below: 1. Azhikkal in Kannur district 2. Beypore in Kozhikode district 3. Ponnani in Malappuram district 4. Alappuzha 5. Kollam 6. Vizhinjam international sea port Road transport The government aims to increase the share of KSRTC buses in the total state carriage services from present 27% to 50% by 2025. To tackle the increasing urbanisation, the government intends to build mass transport system and a network of ring and radial roads, bypasses, link roads, fly-overs, multi-level off-street parking facilities in the coming years. Kerala State Transport Project is another important project undertaken by the Government of Kerala with the help of the World Bank. Phase 2 of this project received loan from the World Bank in 2013. This project aims to upgrade 363 km of state highways and strengthen road safety measures by 2018. In phase 175
  • 179. 1 of this project, 254 km of roads were upgraded and improved 1,150 km of roads. Major ongoing projects 1. Greenfield Tourist Highway between Kottayam – Cherthala: The highway is likely to increase connectivity of National Highway No 47 and State Highway No 1 and boost tourism and commercial activities. 2. State Road Improvement Project: An amount of ` 1.7 bn is provided for 176 this scheme in the Budget FY15. Railway Government aims to establish the ‘High Speed Rail Corridor Project’ connecting Thiruvananthapuram to Kochi and Kochi to Mangalore. Phase 1 of this project is likely to be completed by 2020. Mission 676 Launched on May 8, 2014 ‘Mission 676’ determines the action plan for implementation of crucial projects in remaining 676 days of existing government. The most important ‘navaratna’ projects cover the following 9 projects which will be governed by the Chief Minister: 1. Kochi Metro 2. Smart city 3. Vizhinjam port 4. Kannur airport 5. National waterway 6. Monorail at Kozhikode and Thiruvananthapuram 7. Suburban railway 8. Surface transport development 9. Student entrepreneurship programme Implementation of these projects in the coming years is expected to increase the efficiency of infrastructure in Kerala and lift industrial as well as social development. Power There are 14 ongoing hydro projects which are expected to generate capacity of 179.9 MW by 2017 and 11 other new schemes to be tendered and completed by FY17, which are expected to generate 68.2 MW of capacity. First unit of Brahmapuram power plant of 350 MW and 1,200 MW gas-based power plant at Puthuvypin are likely to be commissioned by the end of the 12th Five Year Plan period. Further, currently 6 thermal projects of 5,976 MW are under consideration.
  • 180. Table 3.39: Projections of electricity sector for the 12th Five Year Plan Period Parameter/Period 2012-13 2013-14 2014-15 2015-16 2016-17 Peak Load (MW)- Demand 3,683 3,903 4,137 4,386 4,669 projection Total Consumption (MU) 17,238 18,400 19,644 20,979 22,410 T&D Loss (%) 17.8 17.2 16.6 16 15.7 T&D Loss (MU) 3,733 3,822 3,910 3,996 4,174 Total energy requirement 20,971 22,223 23,554 24,975 26,584 (MU) 177 Source: 12th Five Year Plan, Government of Kerala E-governance – An initiative towards e-literacy and rural empowerment IT policy 2012 aims to achieve up to half a mn direct employment in the ICT (Information and communication technologies) sector and create at least 3,000 technology startups in Kerala by 2020. Government’s major e-governance initiative, Kerala State Wide Area Network (KSWAN) is being set up as a backbone of the State Information Infrastructure (SII), connecting Thiruvananthapuram, Kochi and Kozhikode, extending to 14 districts and 152 Blocks of the State. The network will also connect 1,500 offices of government departments through wireless, leased lines and LAN. The infrastructure would support integration of a large number of G2G (government to government), G2C (government to citizen), services in hand with the applications hosted in the State. ‘Akshaya’ is another innovative initiative undertaken by Kerala government, which is an e-literacy project. As of now, 3.3 mn families have been made e-literate by Akshaya. 75% of total UID (Unique Identity) enrollment in Kerala has been done through Akshaya centers. Akshaya provides roadmap towards rural development and women empowerment. Almost 88% Akshaya centers are in rural areas and this project also promotes women entrepreneurship in the state. Malappuram and Kannur districts in the states are 100% e-literate and Kollam, Kozhikode, Thrissur and Kasargodu districts have achieved e-literacy above 90%. Social development Kerala has shown impressive performance in terms of health and education related indicators. According to Census 2011, Kerala has the lowest decadal population growth rate and the highest sex-ratio in India. Further, it has the lowest poverty ratio of 7.1% in India. The 12th Five Year Plan aims to bring down the infant mortality rate to 6 from the current level of 12 and the maternal mortality rate is targeted to be brought down from 81 to 30. The urban-rural disparity is significantly low in Kerala, with average monthly per
  • 181. capita expenditure (MPCE) of ` 2,669 in rural areas and MPCE of ` 3,408 in urban areas during FY12. Further, literacy rate in the state stood at almost 94%, with female literacy at 92% and male literacy at 96%. The 12th Five Year Plan envisages to achieve 100% literacy rate. Kerala envisages creating a knowledge-based economy in upcoming years. High literacy and increasing e-literacy in the state is likely to promote inclusive growth and boost knowledge driven service sectors in the state. Industries and Employment: High unemployment – a major hindrance in economic growth In FY13, construction and manufacturing sectors contributed around 15% and 7.7% in state GSDP, respectively. Handloom, handicraft, coir and cashew industries are few major industries in the state. According to Annual Report on MSME FY13, Kerala had 2.2 mn enterprises and employment in MSME stood at around 5 mn. Coir and handloom sectors are major employers in the state; hence thrust areas in the 12th Five Year Plan are to increase export earnings and upgrade technology in these sectors, along with skill development and market promotion. The labour market in the state shows a dismal picture with high unemployment rate. During FY12, rural unemployment stood at 68 (per 1,000 persons) and urban unemployment at 61. Despite high literacy rate, the state has been unable to improve the employment situation. Hence, the government has undertaken many initiatives for skill development and entrepreneurship promotion. Major incentives under annual plan FY15 1. Acquisition of land for industrial parks - Allocation of ` 10 mn 2. Capacity Building Programme with more emphasis on skill development, 178 capacity building and training etc 3. Entrepreneurial promotional activities- Allocation of ` 19 mn 4. Entrepreneur Support Scheme (ESS)- Extensive support to MSMEs and one-time support to entrepreneurs 5. Micro and Small Enterprises – Cluster Development Programme 6. Construction of Multi-storied Industrial Estates 7. Financial Assistance to Industrial Co-operative Societies 8. Startup subsidy for creation of new employment opportunities with an outlay of ` 20 mn Source: Annual Plan 2014-15, Government of Kerala
  • 182. The economic reforms ushered in during the early 1990s brought about an unprecedented change in India’s economic landscape as it encompassed the liberalisation and reform of trade, tariffs, exchange rate, industry, financial markets and taxes. These changes, along with higher savings rate, gave a robust boost to the economy. The accomplishments of the past decade are dwarfed only by what remains to be done. A number of items of the reform agenda, even after two decades or more after their initiation, still remain to be completed. This continued hiatus in reforms has inevitably taken a toll on the economy’s growth performance. Almost every sector of the Indian economy is impatient for major policy initiatives. Take the case of public finance - persistent large deficits are beginning to erode macroeconomic stability and investor confidence. Labour -young and unskilled-which is in abundance in India is the most disregarded area. India has to make great strides to improve the quality of her numerically immense human resources through major reforms in the provision of education and health. Large private firms will not enter into labour-intensive manufacturing without flexible labour market reforms. India will find it increasingly difficult to lift the country’s sagging investment rate unless the bottlenecks in key infrastructure sectors of power, roads, and ports and various restrictions on mining coal and other ores are unshackled. The unfinished agenda of reforms is very long. ROADMAP A stable Government at the Centre has revived business sentiment on expectations that the new Government would soon create an environment conducive to doing business, through proactive implementation of key economic reforms. What India will be like in 2020 would depend on the progress in expediting pending reforms and implementing those that have already been passed. In this chapter, we have made an attempt to identify major policy initiatives that are expected to be implemented by GoI in next few years. These reforms POLICY have the potential to catapult India on a high growth trajectory. I) Agricultural sector reforms The policy environment is the key to progress in agricultural development and poverty alleviation. Although agriculture is a source of income for majority of our population, the sector has lagged behind owing to lack of conducive policy environment for stimulating and sustaining growth. In order to take agriculture on a higher growth trajectory, reforms should not be constricted to farming alone but extend to other activities along the agri-system such as logistics, processing, and marketing. Elucidated below are the areas wherein key reforms have been initiated/ needs to be initiated in the short and medium 179
  • 183. term and that could transform the performance of the agriculture sector going forward: 180 Policy imperatives • Increase productivity by increasing yields • Facilitate diversification to higher value commodities • Promoting new technologies and stimulating agricultural research • APMC Act Increase productivity by increasing yields A regular feature of Indian agriculture in recent years has been low yield per unit area across major crops. The lack of timely availability of quality seeds, fertilizers for providing all major and minor nutrients for the crops remain one of the key deterrent to accelerate yields across the country. The Seeds Bill, 2010, an amended form of the Seeds Bill, 2004, is presently pending for consideration in the Upper House of the Parliament. The main aim of the proposed Bill is to regulate the quality of seed for sale, import and export and to facilitate production and supply of quality seed. The proposed Bill has a number of well-intentioned amendments and once enacted can potentially to improve farmers’ access to quality seed and realizing the yield potential of agricultural technologies. Irrigation is a vital link in the value added chain of agriculture. Lack of irrigation facilities in major part of the cultivated land has severely impeded yield improvement. About 58% of the replenishable groundwater in the country has already been exploited and around 62.4% of the irrigation potential is created from groundwater resources alone, mainly through tube wells and dug wells. Groundwater irrigation suffers from over-exploitation particularly in the alluvial belts of the states of Punjab, Haryana, Rajasthan, Uttar Pradesh, and other areas in Gujarat and Tamil Nadu, where the groundwater table is depleting drastically. There is a need for collective action to regulate this resource. Some major areas of reforms needed in irrigation include: • Stepping up and prioritizing public investment • Augmenting ground water resources and raising profitability of groundwater exploitation • Efficiency of irrigation water use • Involvement of user farmers in the management of irrigation systems A number of states have scripted a success story in agriculture by taking newly created sources of water to farms. Innovations in irrigation, particularly in the construction of check dams, have been central to the success of Gujarat Agri
  • 184. Model. The gross irrigated area has increased from 33 lakh hectare in FY01 to 53 lakh hectare by the end of FY13. The mantra of "Per drop - more crop" has been adopted following which 9.06 lakh hectares have been brought under micro irrigation till Mar 13. With increased Government focus towards the development of the irrigation sector through various schemes such as Pradhan Mantri Krishi Sinchayee Yojana, Accelerated Irrigation Benefit Programme, Vidarbha Intensified Irrigation Development Programme, Viability Gap Funding scheme, formation of a specialized government firm by the name Irrigation and Water Resource Finance Company, India’s irrigation sector is expected to get a boost during next few years. Imbalanced fertilizer use has contributed significantly to stagnating or declining agricultural productivity. Weak government policies (Nutrient-based subsidy regime that kept urea out of its ambit) have led to excessive application of fertilizers by the farmer without information on soil fertility status and nutrient requirement. In order to make agriculture more productive and sustainable, soil testing assumes importance as it helps diagnose soil health and evolve soil specific and crop specific solutions. It provide basic information for the farmer to decide, the extent of fertilizer and farm yard manure to apply at various stages of the growth cycle of the produce. Setting up more soil testing labs and ‘agri clinics’ is critical to assure national food security, nutritional security, maintenance of soil health and enhancement of soil fertility. The Gujarat government has undertaken a massive drive to issue Soil Health Cards (SHCs) in order to benefit farmers at the grass-root level. The SHCs, which are given under the Soil Health Programme of the agriculture department, is prepared after the soil is tested scientifically for various properties like productivity, mineral composition, water retaining capacity and others. The SHCs also contain information on what kind of pesticides, fertilisers, seeds and how much water should be used to get better productivity from the land. SHCs have been provided to 12 lakh 70 thousands farmers of the state till now. The new Government has replicated the successful Soil Health Card scheme of the Gujarat government at the national level. A sum of ` 1 bn has been kept for this purpose and an additional ` 560 mn to set up 100 Mobile Soil Testing Laboratories across the country. A national network of advanced soil testing laboratories is likely to boost productivity in agriculture in the coming years. Diversification to higher value crops Diversification of agriculture in favour of high-value commodities (HVCs) such as milk, eggs, fish, meat products, vegetables and fruits should be amongst 181
  • 185. the top priorities to reverse the declining growth in agricultural sector and ensure long term food and nutrition security. There has been a diversification of Indian diets away from foodgrains to high value agriculture products in the face of rising household income (especially rural income) and urbanisation. Therefore, unlike the supply driven Green Revolution, the production of HVCs is more demand driven. The fast growing demand of HVCs is outpacing their supply growth. Constraints in production and distribution of high value products partly explain the higher levels of food inflation witnessed over the last few years. The price support policy has been a major deterrent to crop diversification. The cropping pattern has been tilted in favour of food grains like rice and wheat due to high MSPs, giving little incentive for the farmer to move away from the food grains to the production of other crops. It is therefore imperative to work out price parity for perishable horticultural crops based on production costs. This would encourage diversification of production portfolios towards HVCs that generate higher returns and are labour intensive. The perishable nature of produce, seasonal production, and bulkiness of HVCs makes it imperative to expand and improve post-harvest infrastructure and strengthen linkages between farms and firms. This includes development of specialized markets, cold chains, refrigerated transport, rapid transit facilities, processing and organised retailing. Reduction of post-harvest loss assumes much significance, as in India lack of storage facilities, lack of back-end infrastructure, post-harvest management facilities are responsible for as much as 25-30% of wastage in fruits and vegetables. The existing marketing channels for HVCs are inefficient and fragmented. Encouraging innovative institutional models be it cooperatives, farmer’s associations, contract farming are necessary to facilitate farmers’ access to the market, reduce their transaction costs, reduce uncertainty and minimise risk. The success stories of SAFAL (Mother dairy for fresh fruits and vegetables), Mahagrapes (marketing wing of grape growers’ cooperative in Maharashtra) demonstrate efficient supply chain involving producer, wholesaler and consumer and which can be further experimented and scaled up. The widespread use of contract farming in India necessitates formulation of legal and regulatory mechanisms to address enforceability issues. This involves: • Special attention to clauses dealing with quality standards, withdrawal conditions, pricing standards, paying arrangements, acts of God clauses and arbitration mechanism. • Development of comprehensive, clean, equitable and farmer centric 182 agreements. The process of delisting perishable items such as vegetable and fruits from the Agriculture Produce Marketing Committee (APMC) Act has been initiated.
  • 186. Implementation of this measure can offer enormous benefits to the farmer as a new line of supply chain will be created that will enable farmers to sell their produce freely without being tied down to traders. However, a perceptible impact on retail prices would be evident only once major grower-states - Punjab, Maharashtra and Uttar Pradesh - also come forward. In sum, to sustain diversification towards HVCs improved infrastructure in the form of cold storage, better road connectivity, post-harvest technology and a supportive policy to attract private players is pivotal. This would require notification of APMC Model Act and Warehousing (Development and Regulation) Act by all the states. Thailand: A model of agricultural diversification Thailand, which once exported largely rice and teak, now produces highly competitive exports, based on increasingly diversified and specialised farming. Much of what has taken place has been due to private initiative, both from farmers and from agribusiness. Moreover, the state also facilitated and encouraged this transition by focusing on key strategic interventions. These include: • The building of roads that provided access to new lands and replacement of large-scale irrigation investments by policies supporting private investment on small-scale schemes. • Investments in agriculture research and rural education, which have contributed to agricultural labour productivity growth. Investments in public infrastructure have often been supported by foreign assistance. • Thailand government played a major role in developing the food processing industry in the country. The Thailand Board of Investment offers a wide range of fiscal and non-tax incentives for investments in the Food and Agro Processing Industry: -- Tax incentives include exemption or reduction of import duties on machinery and raw materials, and corporate income tax exemption and reduction. -- Non-tax incentives include facilitation as regards the entry and sojourn of expatriates and the right to own land • Contract farming was given priority by the government from the sixth plan and it has emerged as a major method of production in the country in a lot of agricultural produce. Source: Government of Thailand Promoting new technologies and reforming agricultural research The output of new technology has gradually slowed down over the years. Substantial yield gaps still exist in major crops with the available technology. Available technologies have not been adopted effectively and efficiently. Also, it has been observed that unevenness and distortions exits wherever adopted. There is an urgent need to strengthen agricultural research and technology development to rejuvenate India's agriculture. 183
  • 187. While research focuses on the technical aspects for generating useful technologies, extension focuses on the acceptance and adoption of those technologies by users. Countries like the United States of America, Canada, Australia and Denmark, which have very advanced agriculture, enjoy strong extension services, public and/or private. However in India, constraints on non-plan expenditure have resulted in weak linkage between farmers and Universities. As a result, farming practices in large parts of the country are sub-optimal. To overcome this, the ATMA (Agricultural Technology Management Agency) scheme was launched in 2005 to support state government’s efforts to revitalize the extension. Even as ATMA has been successful in addressing many extension problems, sufficient administrative, financial and implementation flexibilities are required to reach large sections of small and marginal farmers. APMC act The adverse impact of the APMC Act has come to fore with skyrocketing food prices. There is an urgent need for states to amend their APMC Acts as it would imply reduction in cost of intermediation, improving marketing efficiency, increase in farmers’ price realization and reduction in consumer paid price. Though various States/ UTs have taken initiatives to bring reforms in their existing APMC Acts, the pace of reforms has been slow and uneven resulting in lukewarm response from private sector for making investment in development of marketing infrastructure. We anticipate that the states would gradually move toward full adoption and faster implementation of the APMC Act in the current decade. II) Reforms to achieve fiscal stability The health of the Central Government’s finance deteriorated considerably since FY09 on account of the fiscal stimulus package implemented by the Government to boost private and Government consumption. Even as the stimulus measures have been rolled back, the combined fiscal deficit is running at almost twice the level as it was in FY08. The current account deficit has widened substantially in the last three years and has left the country vulnerable to external shocks. Going forward, fiscal consolidation would depend upon (a) Improving the volume of tax revenue and expanding the tax base and (b) Rationalisation and restructuring of government’s current expenditure. In the coming years, the government’s focus on reforms on both the tax and expenditure fronts would act as a lever to achieve both fiscal consolidation and economic growth. Good and Service Tax & Direct Tax code: Regarding taxation, two major initiatives that shaped up during the last decade and are expected to be implemented over a two year horizon are Goods and 184
  • 188. Service Tax (GST) and Direct Tax Code (DTC). Ongoing deliberations over issues, such as revenue- sharing between the centre and states associated with the GST are likely to be resolved amicably by the new Government, which should aid smooth transition to the GST regime. GST would be one of the key levers for fiscal correction as it would simplify the indirect tax structure via elimination of multiple taxes, improve revenue mobility and re-define tax devolution between the Centre and the States. The roll out of the GST would go a long way in improving business environment and in-turn economic activity as companies can focus on doing business rather than navigating the administrative machinery. The other game changing event in the current decade would be the passage of the Direct Tax Code (DTC), in its revised form. The DTC aims at doing away with the highly complicated structure of the Income Tax Act 1961 and Wealth Tax Act 1957 and bringing about greater efficiency and effectiveness in the Indian tax system. The code seeks to increase the tax-free threshold, releasing many low-income taxpayers from the tax net, reduce the corporate tax rate, broaden the corporate tax base and amend norms for capital gains, housing rent allowance and tax on companies. There are many significant issues that need to be addressed while finalizing the provision of DTC and one hopes that the final code is enacted taking into consideration the current macro-fiscal context. Subsidy reforms The real danger in the path of fiscal consolidation is from the expenditure side. Fiscal consolidation would entail cutting down unproductive expenditure like subsidies and interest payments. Fuel subsidies, in particular, are fiscally expensive and at the same time inefficient and inequitable. As per an IMF Working Paper, petrol subsidies are the most regressive, with over 80% of the total benefits accruing to the top two quintiles. For diesel and liquefied petroleum gas (LPG), respectively, 65 and 70% of subsidy benefits accrue to the top two quintiles. Steps to rationalize fuel subsidies have been initiated through: a) Announcing a 12% diesel price hike in September 2012 b) Allowing oil marketing companies to raise diesel prices by ` 0.5/litre per 185 month until losses are recovered c) Mandating bulk users of diesel to pay market prices d) Capping the number of subsidized LPG cylinders to 12 per year while hiking prices of non-subsidized cylinders Over the next two-three years, these measures are likely to be supplemented with other reforms such as price revision on LPG and SKO, capping households’ entitlements of the number of subsidised cylinders of LPG per year (to 9 from the current 12). These subsidy reforms would generate substantial fiscal
  • 189. savings and provide more headroom to the Government to gradually increase the share of capital expenditure in total expenditure over the current decade and thereby revive economic growth. Strengthening direct transfers also need to be considered to reduce fuel subsidies. Other reforms areas - Committing to a cap on subsidies as a % of GDP would aid in improving the quality of Government expenditure to encourage investment led growth. - Fiscal consolidation over the medium term will necessitate consolidating several social sector schemes with overlapping objectives and correcting the design and delivery flaws, trimming of unproductive schemes. This would free up resources to boost productive spending. - The new Government must vigorously pursue disinvestment and strategic privatization of PSUs. This would serve the fundamental objective of releasing large amount of scarce public resources locked up in non-strategic PSUs. This could be redeployed in high priority social sectors such as public health, primary education and social and essential infrastructure. The benefits to the fiscal situation should also be viewed from the perspective of widening investors’ base and unleash productivity gains in the businesses, which in turn contribute to economic growth and hence government fiscal resources. III) Infrastructure reforms India’s infrastructure problems are legendary. The lack of effective infrastructure has been one of the key factors behind the inequalities emerging within India’s markets. Years of under- investment and inadequate governance have perpetuated the infrastructure deficit. Delineated below are some regulatory and policy stimuli, which we believe are critical to build an infrastructure necessary to accelerate growth and alleviate poverty. Land Acquisition Bill The process of acquiring land in India is neither fast nor fair. Delay in acquiring land in rural and forest area has been cited as one of the prime factors hindering the progress of big infrastructure projects. The need for land acquisitions and the problems surrounding it has assumed a much larger proportion over the last 2-3 years after the Special Economic Zones (SEZs) and mining and large development projects started coming up in a big way. A number of power projects which have achieved financial closure are paying up additional interest in debt servicing as their land acquisitions have been delayed. India desperately needs reforms that will speed up the process of acquisition even while ensuring the poor farmer or tribal is protected against exploitation. These reforms are not technically difficult but will require the 186
  • 190. political will to overcome the powerful interests who prefer the status quo. The legal framework around land is archaic with the most contentious being the “eminent domain” provision under which the state can acquire land at prices that do not reflect market prices. There is asymmetry of power (and information) between those wanting to acquire the land and those whose lands are being acquired. These and many other concerns such as inadequate compensation and rehabilitation and resettlement (R&R) have been addressed by the erstwhile Government through the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (Act), that came in force from 01- Jan-14. Key features of the bill include higher compensation for land, a comprehensive R&R package, special provisions for SCs/STs, restrictions on acquiring crop land, provision of infrastructural amenities in the resettlement area amongst others. The improved provision for compensation and rehabilitation within the Bill could streamline the process of land acquisition and reduce the incidence of disputes or litigation. On the flip side, these provisions within the Bill could also significantly increase the cost of land acquisition and escalate projects costs. More critically, the consent of 80% of affected families for private sector and 70% of affected families for public private partnership projects under ‘public purpose’, as proposed in the tabled amendments can hamper the process of acquiring land by stretching the whole process by 4-5 years. There are many ambiguities within the Bill that need to be addressed by the present Government to ensure that the Bill is not counterproductive. Easing funding constraints Financing is another major roadblock in implementation of infrastructure projects. Over the years, financing of infrastructure projects has been considered the responsibility of the government. Given that there is a limit to the Government’s financing of infrastructure given budgetary constraints and other priorities, it has become imperative for the Government to explore other avenues for financing infrastructure. The new Government has also announced a number of measures to support infrastructure financing. Setting up of ‘Infrastructure Investment Trust’ will open alternative source of funding for the infrastructure sector, which in turn is likely to reduce the pressure from the traditional source of financing such as banks. Initiatives such as permission for banks to raise long term loans at minimum regulatory rates for infrastructure financing, encouraging infrastructure financing for banks through flexible structure etc. are likely to provide the necessary impetus to infrastructure financing going forward. 187
  • 191. We expect the government to undertake more concrete policy and regulatory measures over the coming years: • Deepening and strengthening the corporate debt market assumes significance in view of the need for raising large amount of resources for infrastructure development. Some of the specific policy initiatives that could be undertaken towards achieving this goal include: - Stamp duty for creation of security for secured debentures varies from state to state. This increases the overall cost of the bond. Hence, the regulator should fix a rate of stamp duty on bonds which is comfortable for both the issuer and the government. We expect a uniform stamp duty to be introduced across states in the current decade. - Wider participation of retail investors in the market through stock exchanges and mutual funds. - Increase the scope of investment by provident/pension/gratuity funds and insurance companies in corporate bonds. - Calibrated opening of the corporate bond market to the foreign investors by increasing foreign investor limits, providing tax incentives and easing regulations. • Pension funds and Insurance companies, who have the access and ability to invest in long term funds, are restricted from channelizing these funds in the infrastructure sector owing to various prudential and regulatory guidelines imposed on them by their respective regulatory bodies. For instance, The IRDA (Investment) Regulations 2000 stipulates that not less than 75% of debt instruments excluding Government and Other approved Securities shall have a rating of AAA or equivalent rating for long term instruments and not less than P1+ or equivalent for short term instruments. Similarly, Pension Fund Regulatory and Development Authority (PFRDA) mandates at least 75% of investments made in credit risk bearing fixed income instruments to be made in instruments having an investment grade rating. The sectoral cap of 75% of the investment having an investment grade rating under Asset class C scheme, has led to Pension Funds missing on the opportunity to invest in infrastructure projects. In order to have a higher quantum of investment by these entities in infrastructure related facilities, it is likely that the above stipulations are reassessed in the current decade. Fuel supply Coal is considered to be the most important fuel source for power generation in India, due to its abundant availability compared to other fuels. At present India's coal dependence is borne out from the fact that 54% of the total 188
  • 192. installed electricity generation capacity is coal based. Furthermore, over 70% of the electricity generated is from coal based power plants. Coal production in the country however has not been keeping pace with the increasing demand of the power sector. The demand for coal is projected to reach 980 metric tonnes (MT) during the Twelfth Five Year Plan period whereas domestic production is expected to touch 795 MT in the terminal year (2016 -17).There is a need to strengthen regulatory and enforcement mechanisms so that coal needs of the country are met without hampering environment and social sustainability. Role of regulator: The setting up of a coal regulator is a positive development for the sector. The regulator does not have the authority to specify a price; however, can frame rules and methodologies for determining the price. The setting up of an independent regulator is likely to lead to more optimal development and conservation of coal resources, adoption of best mining practices, better coal distribution and creation of a level playing field for new entrants in the sector. Coal Mines (Nationalization) Amendment Bill, 2000: The continuing shortfall in availability of domestic coal necessitates Government intervention such as opening up coal production to private sector. This would also help to bring the latest clean coal mining technologies. The Coal Mines (Nationalization) Amendment Bill 2000, which aimed to introduce private participation in commercial mining without the existing restriction of captive mining, is still waiting parliamentary approval. It is pertinent for the new Government to reintroduce the Bill in the Parliament so as to augment coal production and reduce imports. It is also important to focus on introducing a series of policy reforms that impede competition in the sector. The Government should also improvise the existing coal distribution network across the country so as to evenly distribute the coal to coal based power plants. Though e-auction of coal has been introduced, awareness among the end users is required under proper supervision. Further a large number of gas based power projects are facing similar crisis in terms of securing long term gas supply for power projects. Proper gas allocation policy needs to be in place to address such issues. (IV) Industrial reforms National Manufacturing Policy We expect that the manufacturing policy, which has the goal to make India an international manufacturing hub, if implemented effectively would provide the much needed thrust to the manufacturing sector and bring about a rebound 189
  • 193. in economic growth. The Government has approved the long-awaited ambitious National Manufacturing Policy (NMP). The board will oversee the implementation of the National Manufacturing Policy. The major objectives of the National Manufacturing Policy are: • Increase manufacturing sector growth to 12.0–14.0% over the medium 190 term • To enable manufacturing to contribute at least 25.0% of GDP by 2025. • Increase the rate of job creation in manufacturing to create 100 mn additional jobs by 2025. • Increase domestic value addition and technological ‘depth’ in manufacturing. • To enhance global competitiveness • Environmental sustainability of growth Industrial infrastructure development is envisaged not only generally but also through the creation of large integrated industrial townships called National Investment and Manufacturing Zones (NIMZs) with state-of-the art infrastructure; land use on the basis of zoning; clean and energy efficient technologies; necessary social and institutional infrastructure in order to provide a productive environment to persons transitioning from the primary to the secondary and tertiary sectors. More importantly, land for these zones will preferably be waste infertile land not suitable for cultivation, making the process of land acquisition relatively easy. Besides the national manufacturing policy, we believe that more reforms need to be incorporated for further enhancing the competitiveness of the industrial sector. The manufacturing sector has not grown commensurate with India’s impressive GDP growth in the last 10 years. Employment in manufacturing has actually declined in recent years contributing to only 11% of total employment. Without adequate growth in employment opportunities, the much touted “demographic dividend” could spawn major problems of unemployment, underemployment and low incomes. Labour reforms India’s exceptionally restrictive labour laws are not conducive for the congenial development of the manufacturing sector. The labour laws and certain other regulations protect the small minority of existing organised sector employees while heavily discouraging fresh employment in the organised sector. From the employers’ perspective, lack of flexibility in being able to change the size and nature of the workforce depending on the volatility of the markets limits their ability to make investments.
  • 194. Reforms are needed to create greater private demand for labour, which will boost wages and employment. A major overhaul in the current labour regulations is likely in the next five years with the new Government already taking the first initiative by clearing proposals to amend three key archaic labour laws: (1) Apprenticeship Act of 1961 (2) The Factories Act of 1948 and (3) Labour Laws (Exemption from furnishing returns and maintaining registers by certain establishments) Act, 1988. Proposed amendments Factories Act, 1948: • Enhance the limit of overtime hours from the present limit of 50 hours per quarter to 100 hours per quarter • Permission for employment of women for night work for a factory or group or class or description of factories with adequate safeguards for safety and provision of transportation till the doorstep of their residence. • Reducing the number of days that an employee must work before becoming eligible for benefits such as leave without pay from 240 days to 90 days. • Enhancing the quantum of penalty for offences. The Apprenticeship Act, 1961: • Removing the clause that called for the imprisonment of employers who did not adhere to provisions of the Act. • Including new trades under the purview of the Act Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988: Currently firms with up to 19 employees are covered under the Act. These firms can file a combined compliance report for up to 9 labour laws. • Allowing these firms to file a combined compliance report for up to 16 labour laws. • Exempting firms employing up to 40 workers from complying with certain labour regulations. Source: Ministry of Labour and Employment, Government of India These reforms, if implemented, would be the new Government’s first step towards boosting the competitiveness of the manufacturing sector. It will pave way for small firms to hire more workers and lower regulatory compliance burden. Changes in the Apprenticeship Act could, to a certain extent, address the serious skill shortage Indian firms are facing and help industries get job-ready 191 employees. If India is to push the growth of labour-intensive manufacturing to the rates comparable to China's there is a need to overhaul many other stringent and contentious labour regulations. Going forward, it is imperative to look at the Industrial Disputes Act afresh; it is not just Chapter V-B, rather it is the entire Act
  • 195. which needs to be redrafted. India needs to encourage contract employment, with adequate safeguard measures, including provision of social security measures; this would generate formal employment in the manufacturing sector. The multiplicity of labour laws and variations in concepts and definitions in different statutes needs to be streamlined, simplified and codified, so as to reduce transaction costs and minimize the avoidance of compliance. A time-bound programme of legislation to guarantee the minimum quality of working conditions and basic social protection to workers in the informal sector needs to be evolved. Also, there is an urgent need to move to a system that resolves labour market disputes more swiftly. Indian states need to transition towards making their labour laws more flexible relative to the provisions of the central acts in order to improve business environment and reduced transaction costs. Most of the labour reforms undertaken by the States so far have been aimed at improving procedures and reducing compliance cost. While this is a progressive step, there is a need to enact comprehensive structural changes, akin to the one recently brought about by the Rajasthan. State interventions • In Uttar Pradesh, labour inspectors can carry out inspections only after consent has been obtained from someone of the rank of a Labour Commissioner or District Magistrate and advance information about the inspection has been provided. • Andhra Pradesh has introduced self-certification for Information-Technology (IT) services, IT enabled services, bio-technology, export oriented units (EOUs) units in export processing zones (EPZs) and tourism-based enterprises. Rajasthan has done the same for IT, IT-enabled services and biotechnology. • Andhra Pradesh has introduced amendments relating to contract labour, separating core activities from non-core. Source: Economic Freedom of the States of India 2012 Labour market flexibility in developing countries • Malaysia does not limit the duration of fixed term contracts, prohibit night and weekend work, or require government permission to fire redundant workers. Labour regulations protect the interests of workers but are generally not too burdensome for employers and thus do not discourage them from hiring formal workers. • Colombia has reduced severance payments for employees and introduced a wider definition of fair dismissals. To process mass dismissals more quickly, it has eased the requirement for advance notice of firings. • The Czech Republic and Slovakia increased the maximum duration of fixed term contracts and reduced redundancy costs. Source: World Bank 192
  • 196. 193 (V) Financial sector reforms Product innovation and process re-engineering will be the key for the Indian banking industry There is an increase in competition among the existing Indian banking players. With the Reserve Bank of India introducing new banking licenses in India, the competition among the players are expected to increase thereby impacting its net interest margin. Banks will look for fee-based income to fill the gap in interest income. Hence, Indian banks are expected to deliver tailor made products to their customers through product and process innovation such as currency market linked deposits, customer specific deposits as per their risk capability, etc are likely to be introduced. These banks are therefore expected to deliver value added services to their clients who will also increase competition among the players. Increase the reach of banking services throughout the country With an increase in demand for financial assistance from small and mid-size investors, there is a need to develop different banks that are focused on these investors. In the current decade, we expect development of more small and mid-size banks, which would provide efficient banking services to these investors. However, thereafter, we might see some consolidation in the banking sector. Initiatives of banks to start some centres in rural/semi urban areas, offering financial education and credit counselling services, would ignite these changes. Moreover, we expect small private banks to have high deposit and lending capabilities under strict regulatory supervision. These small banks including the regional rural banks (may be under the umbrella of large banks) would focus on small and mid-size investors, which would encourage financial literacy among them. Initiatives such as Swabhimaan (campaign launched to extend banking facilities through business correspondents to habitations having more than 2000 population) are expected to facilitate the rural banking in India. Again, initiatives such as tax exemption against the services of business facilitators and correspondents to banks and insurance companies, setting up of ultra-small branches, etc are expected to further catalyse the process of rural banking in India.
  • 197. Our expectations of the overall economic scenario in the near future should be assessed with due consideration to certain developments – domestic as well as global. India currently stands at the threshold of a new phase of transformation. The foremost challenge for the policymakers is to strengthen macroeconomic framework. Reviving the economy without creating inflationary pressures will be one of the most important challenges for the new government. Natural calamities such as sudden earthquakes, timely arrival of yearly monsoons will play a vital role in achieving India’s desired growth objective. Bringing about a stable and low inflation through suitable measures would be key area of challenge for the government. Controlling inflation and enhancing the productivity in key sectors would help the Indian economy to grow at its potential level. GROWTH The other challenges which need to be overcome to place India’s growth momentum on a sustainable level would be better management of fiscal policies, improved governance, revival in investment and industrial growth and generating confidence among investors - both domestic and international. Ensuring better coordination between Centre and states or among the states would be a challenge, nonetheless, if achieved would lead to better TO management of policy and action. The rising population not only provides new opportunities but also poses challenges for India. The challenge for the new government would be to steer the demographic dividend into an opportunity rather than a curse. CHALLENGES The government’s failure to leverage on demographic dividend could pose further downside risk as India’s working age population is expected to increase significantly in the near future. The complete benefit of this demographic dividend would be realised only if the young population is healthy, educated and employed. One of the major challenges to growth emanate from increased geopolitical risks which could lead to sharply higher oil prices. Moreover, global recovery continues to remain uneven. Global growth could continue to remain weaker in the near term. While some advanced economies might witness stronger growth from next year, impact of supply side constraints and tightening of financial conditions in the emerging markets could continue to place restraints to the recovery in growth. Although substantial investment in irrigation projects are expected, given the long gestation period of these projects, the agriculture sector would continue to depend on monsoons to a certain extent. In the event of a poor monsoon season, agriculture growth would be impacted as this would further feed into WPI numbers through higher food article prices. 194