Indian Economy, 5th edition (44 page)

Foreign Direct Investment (FDI):
FDI, being a
non-debt capital flow
, is a leading source of external financing, especially for the developing economies. It not only brings in capital and technical know-how but also increases the competitiveness of the economy. Overall it supplements domestic investment, much required for sustaining the high growth rate of the country. Since 2000, significant changes have been made in the FDI policy regime by the government to ensure that India becomes an increasingly attractive and investor-friendly destination.

The current phase of FDI policy is characterised by
three broad entry options
for foreign direct investors –

(i)
in few sectors, FDI is not permitted (negative list);

(ii)
in another small category of sectors, foreign investment is permitted only till a specified level of foreign equity participation; and

(iii)
the third category, comprising all the other sectors, is where foreign investment up to 100 per cent of equity participation is allowed. The third category has two subsets:

(a)
one consisting of sectors where automatic approval is granted for FDI (often foreign equity participation less than 100 per cent) and

(b)
the other consisting of sectors where prior approval from the Foreign Investment Approval Board (FIAB) is required.

Cumulative amount of FDI inflows from April 2000 to December 2011 stood at US$ 240.06 billion, out of which FDI
equity inflows
amounted to US$ 157.97 billion. FDI inflows declined globally in 2009 and 2010. While India was able to largely insulate itself from the decline in global inflows in 2009-10, FDI flows moderated in 2010-11.

Services (financial and non-financial), telecom, construction, drugs & pharmaceuticals, Metallurgical Industries and power were the sectors that attracted maximum (around 84 per cent) FDI during 2011-12. Cabinet cleared 100% FDI in Single Brand retail and 51% FDI in Multi Brand Retail. The decision regarding Multi Brand Retail is suspended till the consensus is developed through consultation among various stakeholders.

NEW STEPS TO BOOST
MANUFACTURING

The GoI has taken several specific initiatives have to strengthen industry, particularly the manufacturing sector. The 12th Plan document lays down broad strategies for spurring industrial growth and recommends sector specific measures covering micro, small, medium and large industries in the formal as well as informal sector. Some of the major initiatives that can change the manufacturing landscape of India are as follows
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–

National Manufacturing Policy (NMP)

It was approved by the government in October, 2011. The major objectives of the policy are:

•
Enhancing the share of manufacturing in gross domestic product (GDP) to 25 per cent and creating an additional 100 million additional jobs over a decade or so.

•
providing special focus to industries that are employment intensive, those producing capital goods, those having strategic significance, small and medium enterprises, and public sector enterprises besides industries where India enjoys a competitive advantage.

•
Promotion of clusters and aggregation, especially through the creation of National Investment and Manufacturing Zones (NIMZs).

•
Out of twelve NIMZs so far announced, eight are along the DMIC. Besides, four other NIMZs have been given in-principle approval –

(i).
Nagpur in Maharashtra,

(ii).
Tumkur in Karnataka,

(iii).
Chittoor district in Andhra Pradesh, and

(iv).
Medak district in Andhra Pradesh.

DMIC Project

The industrial development initiatives under DMIC (Delhi-Mumbai Industrial Corridor)
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project presently cover
eight
industrial cities that are proposed to be developed along the railway corridor. The Master Planning for the investment regions and industrial areas taken up initially to be developed as
new cities
in Gujarat, Madhya Pradesh, Haryana, Rajasthan and Maharashtra have been completed and master planning in Uttar Pradesh has started. The State governments have initiated the process of obtaining land for the new industrial regions/areas as well as for the Early Bird Projects. For five industrial cities EIA (Environmental Impact Assessment) studies have been initiated.

FDI Policy

Following the policy reform process, the FDI policy is being progressively liberalized on an ongoing basis in order to allow FDI in more industries under the automatic route. Some recent changes in FDI policy, besides consolidation of the policy into a single document include FDI in multi-brand retail trading up to 51 per cent subject to specified conditions; increasing FDI limit to 100 per cent in single-brand retail trading; FDI up to 49 percent in civil aviation and power exchanges; FDI up to 49 percent in broadcasting sector under the automatic route and FDI above 49 percent and up to 74 percent under the Government route both for teleports and mobile TV.

The e-Biz Project

The government has announced the setting up of –
Invest India
– a joint-venture company between the Department of Industrial Policy and Promotion and FICCI, as a
not-for-profit
, single window facilitator, for prospective overseas investors and to act as a structured mechanism to attract investment. In addition, the Government has initiated implementation of the e-Biz Project, a mission mode project under the NeGP (National e-Governance Plan) for promoting an
online single window
at the national level for business users. The objectives of setting up of the
e-Biz
portal are to provide a number of services to business users, covering the entire life cycle of their operation. The project aims at enhancing India’s business competitiveness through a service oriented, event-driven
G2B
(Government to Business) interaction.

New IIP

The Ministry of Statistics & Programme Implementation recently (May 2011) released
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the
new series
of
Index of Industrial Production (IIP)
with 2004-05 as its base which was released on 10th June, 2011. The old series of IIP (Base: 1993-94=100) was discontinued from the month of September, 2011.

The revision of base year of IIP was undertaken based on the recommendations of the
Standing Committee on Industrial Statistics (SCIS),
constituted by the Ministry of Statistics & Programme Implementation. The SCIS includes members from concerned Ministries, and it is presently chaired by Dr. Biswanath Goldar, Professor,
Institute of Economic Growth.
The National Statistical Commission (NSC) also recommended revision of base year of IIP to 2004-05.

The
salient features
of new series of IIP are as follows:

(a)
A representative item basket comprising 682 individual items has been selected for the new series of IIP. Further, and a new weighting diagram which better reflects the present structure and composition of the industry due to changes in the technology, economic reforms and production behaviour over time, is derived for the new series.

(b)
The new series of IIP covers the sectors of mining, manufacturing and electricity in its scope as in the current series. For the compilation of sectoral weights for these three main sectors, GDP at factor cost available from the National Accounts Statistics (2010) is used.

(c)
The result of the Annual Survey of Industries (ASI): 2004-05 is used as the basic frame for the selection of products for the manufacturing sector. However, for deciding the industry level (NIC 2 digit) weights of the manufacturing sector, the estimates of Gross Value Added (GVA) as per ASI: 2004-05 for the organised manufacturing sector and as per the 62nd round of the National Sample Survey for the unorganised manufacturing sector are used.

(d)
Sector-wise comparative statements of
weights, number of items
and
item groups
between the old series and new series are as given below:

(e)
The monthly production data for the compilation of new series of IIP are being made available to the CSO by sixteen (16) source agencies which includes the Indian Bureau of Mines (IBM), Directorate of Sugar, Office of the Salt Commissioner, etc. among others. Out of these, the Indian Bureau of Mines compiles the monthly indices for the mining sector and supplies the same to the CSO, which is suitably dovetailed with the indices for manufacturing and electricity sectors to arrive at the general index.

(f)
Some of the important
items newly included
in the series basket are ‘Milk, skimmed, pasteurised’, ‘Rice’, ‘Cattle and poultry feed’, ‘Woollen carpets’, ‘Apparels’, ‘Writing & printing paper’, ‘Newspapers’, ‘Propylene’, ‘Complex grade fertilisers’, ‘Antibiotics & it’s preparations’, ‘Polythene bags, ‘Glass sheet’, ‘Marble tiles/slabs’, ‘Aluminium’, ‘Steel structures’, ‘Colour TV sets’, ‘Lens of all kinds’, ‘Wood furniture’, ‘Coir mats & matting’, ‘Gems and jewellery’, ‘Copper and copper products’ and ‘Molasses’.

Major changes due to base revision

(i)
The base year of IIP for the new series is 2004-05, as against 1993-94 for the old series.

(ii)
The weighting diagram has undergone change due to base revision.

(iii)
The total coverage of products has increased at the overall level.

(iv)
National Industrial Classification (NIC)-1987 was used in the old series whereas for the new series,
NIC-2004
has been used.

(v)
As such, at industry level, monthly index and their growth is being published for 22 industry groups for the new series, whereas for the old series, the monthly index and growth was released for 17 industry groups.

(vi)
14 out of 15 source agencies are retained in new series. Department of Chemicals & Petrochemicals and Department of Fertilizers are included in the new series as independent source agencies because of growing importance of their respective industries.

(vii)
Ministry of Micro, Small & Medium Enterprises (MSME) is presently
excluded
as a source agency for new series of IIP, though bigger units of MSME sector, which are part of the coverage of Annual Survey of Industries (ASI) are already included in the item basket. CSO held dialogues with the representatives from Office of the Development Commissioner (DC), MSME for identifying products and units from the recently completed
4th all India Census-cum-Survey of MSME Sector
and accordingly putting in place a new system of regular monthly collection of data. After the system of data collection is in place, DC (MSME) may develop the
index for the MSME sector separately.
This monthly index will be finally dovetailed with the General Index of All-India IIP by assigning a proper weight through suitable methodological framework. This view was also endorsed by the CSO.

INDUSTRY & ENVIRONMENT

The development of a diversified industrial structure in India, based on a combination of large and small-scale industries, and growing urban and rural population have produced pressures on the environment as reflected in the growing incidence of air, water, and land degradation. Industrial pollution is
concentrated
in industries like petroleum refineries, textiles, pulp and paper, industrial chemicals, iron and steel, and non-metallic mineral products.
Small scale industries,
especially foundries, chemical manufacturing, and brick making, are also significant polluters. In the
power sector,
thermal power, which constitutes the bulk of installed capacity for electricity generation, is an important source of air pollution. Current situation
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of industrial pollution is as given below:

•
Analysis of long-term trends (1995-2009) of
air pollutants
shows that while SO
2
has been under control, NO
2
has exceeded permissible levels in 11-23 per cent cities during last the 15 years.

•
Discharge of untreated or partially treated industrial
emissions
and effluents is the main cause of industrial pollution. Industrial effluents comprising organic pollutants, chemicals, and heavy metals and run-off from landbased activities such as mining are a major source of water pollution. The
major water-polluting industries
include fertilisers, refineries, pulp and paper, leather, metal plating, and other chemical industries.
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