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 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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India 2020 Economy Outlook

  1. 1. Risk Management Solutions Sales & Marketing Solutions Learning Solutions Economic Analysis Group Dun & Bradstreet
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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,