Indian Economy, 5th edition (45 page)

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Continued monitoring of water quality of aquatic resources has revealed that organic pollution continues to be the predominant pollutant of aquatic resources. It has also been estimated that 75 per cent of the water pollution is on account of disposal of untreated/partially treated
sewage
by local bodies.

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The problem of water quality has further been aggravated because of
diminishing water flow in rivers.
The Central Pollution Control Board (CPCB) is monitoring water quality of rivers at 980 locations covering 353 rivers in terms of Dissolved Oxygen (DO), Bio-chemical Oxygen Demand (BoD), and fecal coliforms. One hundred and fifty stretches on 105 rivers have been identified as polluted.

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It is estimated that around 57 million tonnes per annum of municipal solid waste (MSW) is presently generated in the country. Based on its physico-chemical characteristics, the MSW generated in Indian cities is suitable for composting. However, presently the country has a rated capacity of processing around 6,000 tonnes per day of mixed waste into compost. Lack of proper enforcement for disposal of hazardous waste results in abandoned hazardous waste dumps, some of which bioaccumulate through the
food chain,
thereby posing long-term health risks.

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Approximately 15,722 tonnes of plastic waste is generated in the country per day, only
60 per cent of which is recycled
due to low collection efficiency. Fly ash, phospogypsum, and iron and steel slags are the major forms of industrial solid wastes- around 160 million tonnes per annum of fly ash is generated, of which only 91.2 million tonnes per annum is utilized by cement plants, road embankments, fly ash bricks, and back filling of mines, etc.

ECONOMIC SURVEY 2012-13 ON
INDUSTRY

The inputs and advice of the government document on industry may be summarised as has been given below –

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After recovering to a growth of 9.2 per cent in 2009-10 and 2010-11, growth of value added in industrial sector, comprising manufacturing, mining, electricity and construction sectors, slowed to 3.5 per cent in 2011-12 and to
3.1 percent in 2012-13
.

•
Industrial growth still remains vulnerable to several domestic factors and external shocks – Infrastructure and energy constraints, decline in demand for India’s exports, and fragile recovery in investment are the risk factors. The latest lead indicators suggest mixed signals about whether a growth upturn is underway. The policy initiatives taken by the government in the recent months made the business sentiment buoyant and have generated some optimism.

•
Revival of investment in industry and key infrastructure sectors is the key challenge. Industrial sector has been hit hard by the deceleration in investment for the
second successive year
. As per the latest first revised estimates of GDP, gross capital formation in the manufacturing sector in 2011-12 (at 2004-05 prices) had declined by 18.8 per cent as compared to 2010-11.

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Lower foreign direct investment inflows in key industry and infrastructure sectors during April-October 2012 at $ 6.19 billion as against the inflow of $18.66 billion during the same period of the previous year. Investment intentions indicated in the industrial entrepreneur memorandum (IEMs) filed, which are lead indicators of likely investment flows to industry, also declined in 2011 and 2012.

•
A marginal pickup in the gross bank credit deployment into industrial sector in recent months, year on year increase in gross bank credit deployment as on end December 2012 has been 13.8 per cent as compared to 19.8 per cent a year ago.

•
Besides weak investment climate, industrial sector performance remained subdued due to
infrastructure bottlenecks
. Industrial growth rate moderated due to sharp decline in output of natural gas; subdued performance of the coal sector and its resultant impact on thermal power generation; and slow pace of project implementation in rail, road, and ports sectors. In the medium term, it is therefore crucial to accelerate the output of core sectors and speed up implementation of crucial big ticket projects.

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The key underpinning cause of the recent industrial slowdown has been the manufacturing sector. India’s manufacturing value-added (MVA) as share of GDP, has remained sticky at around 15 per cent. As per the
latest
competitive industrial performance index (CIP) compiled by
UNIDO
for the year 2009, India was placed 42nd out of the 118 countries. India’s low CIP ranking hints at the
underlying weaknesses
and
vulnerabilities
despite being one of the top ten manufacturing nations. India’s manufacturing sector, therefore, needs to acquire dynamism and technological sophistication to become one of the leading manufacturers. From the long term point of view, low level of R&D and inadequate availability of skilled manpower would adversely affect India’s competitiveness and the manufacturing growth.

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India has not improved significantly in terms of the ease of doing business and ranks very low in comparison to other industrial peers. The MSME sector in particular faces multiple approval and operational restrictions. The process of setting up and exiting business is time consuming and complicated requiring expensive third party assistance. Since states have the major role in administering MSME sector, the prevailing ecosystem therefore varies from state to state. Exit rules as per the Companies Act, 1956 are complex and costly and do not permit reaping the benefits from reallocation of resources.

•
Finance
at competitive cost is another major constraint for both the organized and the unorganized MSME enterprises. Financing other than internal accruals is costly and prohibitive. The Prime Minister’s Task Force on MSMEs had recom ended a 20 per cent year-on-year growth in credit to micro and small enterprises to ensure enhanced credit flow. It had also recomended allocation of 60 per cent of the micro and small enterprises advances to the micro enterprises to be achieved in a phased manner. The resource flow, however, needs to improve.

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Research and technology upgradation activities also need to be scaled up. Presently only a small number of incubators operates in the country which is very low relative to other countries. New incubators will need to be set up on a Public-Private Partnership basis. To attract more investment and talent, incubators need to be allowed to distribute profits back to investors. With some of these changes indutrial growth could become steadier.

INDIAN INFRASTRUCTURE

An Introduction

Infrastructure is the ‘lifeline’ of an economy as protein is the lifeline for the human body. Whichever sector be the prime moving force of an economy i.e. primary, secondary or tertiary, suitable level of infrastructure presence is a pre-requisite of growth and development. This is why the government in India has always given priority to the developmental aspects of the sector. But the level of preparedness and performance had been always less than required by the economy. Which sector are called the infrastructure?
Basically, the goods and services usually requiring higher investment, considered essential for the proper functioning for an economy is called the infrastructure of an economy
(
definition
)
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. Such sector might be as many as required by a particular economy such as power, transportation, communication, water supply, sewerage, housing, urban amenities, etc.

There are three sectors which are considered as the infrastructure universally around the world namely power, transportation and communication. Since, the infrastructure benefits the whole economy, it has been often argued by the economists that the sector should be funded by the government by means of taxation, partly in not wholly.

Indian infrastructure sector is clearly overstrained and has suffered from underinvestment in the post-reforms period
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. Infrastructure bottlenecks are always constraint in achieving a higher growth for the economy. India needs massive investment both from the public and private sectors to overcome here infrastructure bottlenecks. Investments by the public and private sectors are not alternatives but complimentary to each other as the required investment is very high. Public investment in the sector depends upon the ability to raise resources (capital) in the public sector and this in turn depends upon the ability to collect the user charges from the consumers. To make this happen following
three
factors are extremely important:

(i)
Reform of the power sector,

(ii)
Introduction of road user charges (either directly via tolls or indirectly via a cess on petrol diesel), and

(iii)
Rationalisation of railway fares.

The experts
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have suggested for expanding public investment in the sector supplemented duly by a vigorous effort of attracting private investment (domestic as well as foreign). Creating the conducive environment to attract private investment in the infrastructure should include:

(i)
Simplification and transparency in the clearance procedures;

(ii)
Unbundling an infrastructure project so that the private sector may go for only those unbundled segment of the project whose they are able to bear; and

(iii)
Providing credible and independent regulatory framework so that the private players get fair treatment.

Official Ideology

Putting in place the quality and efficient infrastructure services is essential to realise the full potential of the growth impulses surging through the Indian economy. There is now a widespread consensus
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(now clearly accepted by the Planning Commission) that exclusive dependence on government for the provision of all infrastructure services introduces difficulties concerning adequate scale of investment, technical efficiency, proper enforcement of user charges, and competitive market structure. At the same time, complete reliance on private production, particularly without appropriate regulation, is also not likely to produce optimal outcomes
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. India, while stepping up public investment in infrastructure, has been actively engaged in finding the appropriate policy framework, which gives the private sector adequate confidence and incentives to invest on a massive scale, but simultaneously preserves adequate checks and balances through transparency, competition and regulation.

The 11th Plan
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emphasised the need for removing infrastructure bottlenecks for sustained growth – proposed an investment of US $500 billion in infrastructure sectors through a mix of public and private sectors to reduce deficits in identified infrastructure sectors. As a percentage of the gross domestic product (GDP), investment in infrastructure was expected to increase to around 9 per cent. For the first time the contribution of the private sector in total investment in infrastructure was targeted to exceed 30 per cent. Total investment in infrastructure during the Eleventh Plan is estimated to increase to more than 8 per cent of GDP in the terminal year of the Plan, which was higher by 2.47 percentage points as compared to the Tenth Plan. The private sector is expected to be contributing nearly 36 per cent of this investment.

An analysis
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of the creation of infrastructure in physical terms indicates that while the achievements in some sectors have been remarkable during the Eleventh Plan as compared to the previous FiveYear Plans, there have been slippages in some sectors. The success in garnering private-sector investment in infrastructure through the public-private partnership (PPP) route during the Plan has
laid solid foundation
for a substantial step up in private-sector funding in coming years. PPPs are expected to augment resource availability as well as improve the efficiency of infrastructure service delivery.

The Planning Commission
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, in its aproach paper has projected an investment of over Rs. 45 lakh crore (for about US $1 trilion) during the
Twelfth Plan (2012-17).
It is projected that at least 50 per cent of this investment will come from the private sector as against the 36 per cent anticipated in the Eleventh Plan and public sector investment will need to increase to over Rs. 22.5 lakh crore as against an expenditure of Rs. 13.1 lakh crore during the Eleventh Plan. Financing infrastructure will, therefore, be a big challenge in the coming years and will equire some innovative ideas and new models of financing.

Sectoral Situation & Initiatives
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Power deficit:
The deficit in power supply in terms of peak availability and total energy availability declined during the Eleventh Five Year Plan. While the energy deficit decreased from 9.6 per cent in the terminal year of the Tenth Plan (2006-7) to 7.9 per cent during April-December 2011, peak deficit declined from 13.8 per cent in 2006-7 to 10.6 per cent during the current financial year (up to December 2011).
Capacity addition
during the Eleventh Plan is, therefore, expected to be about 50,000 to 52,000 MW.

Ultra Mega Power Projects (UMPPs) Initiative
for development of coal-based super critical UMPPs, each of about 4000 MW capacity, under Case II bidding route.
National Grid
helps to even out supply-demand mismatches. The existing inter-regional transmission capacity of 23,800 MW connects the northern, western, eastern, and north-eastern regions in a synchronous mode operating at the same frequency and the southern region asynchronously operating in the same mode. This has enabled inter-regional energy exchanges of about 39,275 million units (MUs) during April-November 2011, thus contributing to better utilisation of generation capacity and an improved power supply position. Proposals are under way for synchronous integration of the southern region with other regions.