Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
General Studies 2
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
In news: Commerce and Industries minister held meeting with Invest India team looking to up investments and encourage companies to make in India. Invest India is the official investment promotion and facilitation agency of the government.
It was concluded that there is a need for paradigm shift in the approach of enhancing investments. This should be in line with rolling out red carpet for investors. There was also a call for setting up war room (metaphorically) to ensure that investment proposal materialize and are not held up due to hurdles.
Challenges in commerce and industries
The biggest challenge is going to be reviving the process of industrial investment and accelerating export growth that has not happened so far. There is FDI coming in but the part problem is that lot of it is in capping the Indian market where no significant job growth is possible. Lot of stuff is coming into e-marketing side is basically oriented at competing the market share within India, there are foreign companies buying Indian companies etc. This doesn’t add to creating new jobs or broadly design the technological capacity. This is the same thing that happened at other palces such as FDI in manufacturing. Here, more was invested in machines and bringing technology and not in people and increasing their skills. Thus a paradigm shift is required.
The world trade is not expanding now at the rate at which it was when china had its boom. Now the world is showing the protectionist trend.
How can be foreign investors enthused when domestic companies are not enthusiastic about investments? Anyway, the role of FDI in Indian capital formation has invariable been very small. At present, partly there is a slowdown in demand growth. The capacity utilization in corporate sector is 75%. The small sector has been heavily hit by demonetization and GST. This loss of employment is related to it. Companies are not going to invest unless the demand grows. India continues to have issues pertaining with aggregate demand being low and there being access capacity available. Now wherever there is some demand being created, the twin balance sheet problem emerges.
Unavailability of skilled labour
China has a workforce which is healthier and better educated. In India, the school system doesn’t help people to read even at the age of 10 years. Thus there is a hard job ahead in terms of skill training so that to ensure that when jobs are created, there will be people to do those jobs.
There is also a need to make the macro issues right. The manufacturing growth in first quarter has been 1.2%, the lowest in 5 years.
Steps to tackle the challenges
Investments have to be though from point of view of direct jobs created and not in million and billion dollars. There are huge number of declaration of FDI. But where it goes? It goes into automated plant in outskirt of a city while employs 20 people but has investment of 300 million dollar in land, 400 million in robots. The rest goes into dealership and trade promotion and all. So these are not labour intensive units. This one paradigm needs to be changed now.
Second, then there should be look out for industries which are labour intensive which need these investments. Questions such as
Which are the next 10 big industries that are labour industries that can be created over next 20 years?
Which are the next 10 industries that will come up, can be created now for next 20 years?
What are the enabling factors needed at district level and state level?
Ease of doing business is must to get competitive and efficient and then to survive. This will give possibility to create jobs. For this, labour reforms also need to be done.
The small and medium sector should be encouraged and promoted. This can provide an important point of intervention which could accelerate not just industrial growth but find ways of connecting foreign capital with startup programme, infrastructure for small industries. However, there shouldn’t be concessions as it ruins the business prospects.
At a time when private investment is at all time low, the onus on government to boost investments. There are many industries which had borrowed heavily during 2008-10 period. The demand is still lagging behind the capacity. Now the new capacities shouldn’t be added but focus on optimally utilizing existing ones and then investing in new.
Sectors to be focused- Print media, automobiles, dedicated freight corridors which are abbot to be completed and money is not an issue. This will have lot of forward and backward linkages.
With GST, improve the logistics sector as the competitiveness has been affected due to high cost of moving the goods.
The focus should be ‘Make in India’ and also ‘Design in India’. This should be a part of the entire value chain where preparation of district wise plan and creation of core competencies for states based on district wise plan should be carried out.
In commerce, there are 70 FTAs which have to be yet reviewed. There are big bilateral and multilateral trade agreement coming up. The services have to be incorporated in FTAs. In last 5 years, India has lost lot of ground because of the FTAs. India did not incorporate requirement of movement of people, benefits accruing to the country as more interest was in signing the agreements quickly. India’s biggest resources is its manpower. The manpower has to be allowed to travel and work anywhere in the world and need not be entered into any agreements signed.
Thus, there needs to be a strategic shift from the previous decision which will spearhead the desired growth of investments in the country.
Connecting the dots:
The environment of investments seems to be de-lustrous. Critically examine the reasons and practical way forward to revive it.