Manufacturing and Industries

MANUFACTURING AND INDUSTRIES

 To prepare for INDIAN ECONOMY  for any competitive exam, aspirants have to know about Manufacturing and Industries.  It gives an idea of all the important topics for the IAS Exam and the Economy syllabus (GS-II). Important Manufacturing and Industries terms are important from Economy perspectives in the UPSC exam. IAS aspirants should thoroughly understand their meaning and application, as questions can be asked from this static portion of the IAS Syllabus in both the UPSC Prelims and the UPSC Mains exams.

In Manufacturing and Industries, we will study about People employed in the secondary activities manufacture the primary materials into finished goods.

Introduction

  • People employed in secondary activities manufacture the primary materials into finished goods.
  • The workers employed in steel factories, car, breweries, textile industries, bakeries etc. fall into this category. Some people are employed in providing services.
  • In this chapter, we are mainly concerned with manufacturing industries which fall in the secondary sector.
  • The economic strength of a country is measured by the development of manufacturing industries.

Importance Of Manufacturing:

Manufacturing sector is considered the backbone of development in general and economic development in particular mainly because:

  • Manufacturing industries not only help in modernising agriculture, which forms the backbone of our economy, they also reduce the heavy dependence of people on agricultural income by providing them jobs in secondary and tertiary sectors.
  • Industrial development is a precondition for eradication of unemployment and poverty from our country. This was the main philosophy behind public sector industries and joint sector ventures in India. It was also aimed at bringing down regional disparities by establishing industries in tribal and backward areas.
  • Export of manufactured goods expands trade and commerce, and brings in much needed foreign exchange.
  • Countries that transform their raw materials into a wide variety of furnished goods of higher value are prosperous. India’s prosperity lies in increasing and diversifying its manufacturing industries as quickly as possible.

 

Agriculture and industry are not exclusive of each other. They move hand in hand. For instance, the agro-industries in India have given a major boost to agriculture by raising its productivity. They depend on the latter for raw materials and sell their products such as irrigation pumps, fertilisers, insecticides, pesticides, plastic and PVC pipes, machines and tools, etc. to the farmers. Thus, development and competitiveness of manufacturing industry has not only assisted agriculturists in increasing their production but also made the production processes very efficient.

 

In the present day world of globalisation, our industry needs to be more efficient and competitive. Self-sufficiency alone is not enough. Our manufactured goods must be at par in quality with those in the international market. Only then, will we be able to compete in the international market.

Contribution of Industry to National Economy:

  • Over the last two decades, the share of manufacturing sector has stagnated at 28 per cent of GDP – out of a total of 28 per cent for the industry which includes 10 per cent for mining, quarrying, electricity and gas.
  • This is much lower in comparison to some East Asian economies, where it is 30 to 35 per cent.
  • The trend of growth rate in manufacturing over the last decade has been around 7-9 per cent per annum. The desired growth rate over the next decade is 12 per cent.

 

Agriculture: 16.5%

Service: 55.3%

Industry: 28.6%

  • With appropriate policy interventions by the government and renewed efforts by the industry to improve productivity, economists predict that manufacturing can achieve its target over the next decade. The National Manufacturing Competitiveness Council (NMCC) has been set up with this objective.

 

Classification of Industries

If we classify the various industries based on a particular criterion then we would be able to understand their manufacturing better. Industries may be classified as follows:

 

1. On the basis of source of raw materials used:

Agro based: Cotton, woollen, jute, silk textile, rubber and sugar, tea, coffee, edible oil.
Mineral based:

 

Iron and steel, cement, aluminium, machine tools, petrochemicals.

 

2. According to their main role:

Basic or key industries which supply their products or raw materials to manufacture other goods e.g. iron and steel and copper smelting, aluminium smelting.
Consumer industries that produce goods for direct use by consumers – sugar, toothpaste, paper, sewing machines, fans etc.

 

   .Ideal location of an industry

    • Decision to locate factory at site
    • Cost of production at site
    • Cost of obtaining raw materials at site
    • Cost of distribution of production

 

  3. On the basis of capital investment:

    • A small scale industry is defined with reference to the maximum investment allowed on the assets of a unit. This limit has changed over a period of time.

 

 

4. On the basis of ownership:

Public sector Industries: Public sector, owned and operated by government agencies – BHEL, SAIL etc.
Private sector Industries: Private sector industries owned and operated by individuals or a group of individuals –TISCO, Bajaj Auto Ltd., Dabur Industries.
Joint sector Industries Joint sector industries which are jointly run by the state and individuals or a group of individuals. Oil India Ltd. (OIL) is jointly owned by public and private sector.
Cooperative sector Industries Cooperative sector industries are owned and operated by the producers or suppliers of raw materials, workers or both. They pool in the resources and share the profits or losses proportionately such as the sugar industry in Maharashtra, the coir industry in Kerala.

 

5. Based on the bulk and weight of raw material and finished goods:

Heavy industries: Heavy industries such as iron and steel
Light industries: Light industries that use light raw materials and produce light goods such as electrical industries.

 

 

Industrial Location

  • Industrial locations are complex in nature. These are influenced by availability of raw material, labour, capital, power and market, etc.
  • It is rarely possible to find all these factors available at one place. Consequently, manufacturing activity tends to locate at the most appropriate place where all the factors of industrial location are either available or can be arranged at lower cost.
  • After an industrial activity starts, urbanisation follows. Sometimes, industries are located in or near the cities.
  • Thus, industrialisation and urbanisation go hand in hand. Cities provide markets and also provide services such as banking, insurance, transport, labour, consultants and financial advice, etc. to the industry.
  • Many industries tend to come together to make use of the advantages offered by the urban centres known as agglomeration economies. Gradually, a large industrial agglomeration takes place.
  • In the pre-Independence period, most manufacturing units were located in places from the point of view of overseas trade such as Mumbai, Kolkata, Chennai, Consequently, there emerged certain pockets of industrially developed urban centres surrounded by a huge agricultural rural hinterland.
  • The key to decision of the factory location is the least cost. Government policies and specialised labour also influence the location of industry.

Before LPG Reforms

1948 First industrial policy by India’s Minister for industries Shyama Prasad Mukherjee.
1956 Industrial Policy Resolution. It focused on public sector led heavy industries (Oil, mining, shipbuilding, steel, chemicals, machinery manufacturing etc). PM Nehru presumed this will help in:

1.       Employment generation

2.       Self-reliance

3.       Provide Raw material, intermediate goods and machinery to help other industries to produce consumer goods.

1991 BoP crisis forces PM Narsimha Rao to launch New Industrial Policy with LPG reforms.
Post LPG The contribution of secondary and tertiary in India’s GDP & employment increased.

 

 

LIBERALIZATION, PRIVATIZATION AND GLOBALIZATION (LPG)

  1. Liberalization
  • Liberalization implies the withdrawal of controls and regulations by the government on the industries.

 

Till 1991:

  • Ministerial interference in the functioning of CPSEs led to fall in professionalism and inefficiency.
  • License was mandatory for any private individual to start any industrial activity.
  • Even on licensed industries, govt. would impose ‘production quota’. Government would appoint inspectors to ensure the compliance.
  • Outcomes – Delays, corruption, No ease of doing business.
  • The big corporates were not allowed to enter in the sectors reserved for the Small Scale Industries (SSI) / MSME. For e.g. wax candles, glass bangles, steel almirah etc.

 

After LPG Reforms:

  • signed Memorandum of Understanding (MoUs) with CPSEs granting them operational freedom through ‘Ratna’ status.
  • Production quota & Inspector was abolished. Licenses required only for a selected number of industries. Namely,
  1. Alcoholic drinks
  2. Tobacco products
  3. Electronic aerospace and Defence equipment
  4. Industrial explosives, gun powder, nitrocellulose and matches;
  5. Hazardous chemicals: Hydrocyanic acid, Phosgene, Isocyanates & their derivatives.
  • For remaining sectors, a private entrepreneur can start the business by simplifying an Industrial Entrepreneur Memorandum (IEM) with Commerce Ministry (except for the industries reserved for public sector). The purpose of IEM is merely to collect data about investment, employment and industrial activities.
  • Govt gradually shrunk this list. By the end of 2015, no item was reserved for SSI/MSME industries.

 

  1. Privatization
  • Privatization implies allowing private sector to enter into the sectors which were previously reserved for public sector companies only;
  • Converting public sector companies to private sector companies by reducing Government shareholding to below 50% (alternatively called as Strategic Disinvestment)

 

Till 1991

  • Most of the industrial sectors were reserved for the public sector Industries only. This resulted into no competition, lack of innovation.
  • Government would nationalise private sector industries in the national interest such as banking, insurance, aviation.

 

After LPG-reforms

  • Only following industries are reserved for public sector undertakings:
    • Atomic Energy
    • Railway Transport
  • Stopped the practice of nationalisation.
  • Private sector companies were allowed in Banking, Insurance, aviation, telecom and other sectors.

 

  1. Globalization

Globalization is a process in which nations allow free flow of goods, services, labour, capital investment, technology, ideas and innovations.

 

Till 1991

  • Inward looking economy, Import substitution policy, variety of tariff and non-tariff barriers on the imported goods and services → problem of smuggling.
  • Very strict controls on currency convertibility, foreign companies, and foreign investment.

 

After LPG-reforms

  • India joined the WTO-regime, we gradually relaxed the tariff and non-tariff barriers on the imported goods and services.
  • Norms where relaxed

 

TOWARDS 4TH INDUSTRIAL REVOLUTION

 

Timelines Industrial Revolutions
1.0 (1800 onwards) Powered by coal, iron machines and factories, railways, steamships and telegraph.
2.0 (1900 onwards)

 

Powered by electricity, oil, motor-vehicles, planes, telephone, TV, cinema and radio.
3.0 (1980 onwards)

 

Electric and hydrogen powered vehicles, drones, flexible robots, 3D printers and nanotechnology.
4.0 (2016’s WEF – Davos summit onwards)

 

It further optimizes the computerization of Industrial revolution 3.0 using cloud computing, Artificial Intelligence and Internet of Things (IoT: e.g. using smartphone app to turn on AC before you arrive at home.)

 

  • The Fourth Industrial Revolution will result in automation of manufacturing processes through “smart factories” where Cyber-Physical Systems (CPS) will make decisions, minimizing wastages, optimizing the use of energy and raw material.
  • Germany, France, China, USA etc. have already launched government funded programs for this.

 

2017 Commerce ministry set up a task force on AI for India’s economic transformation under Dr. V. Kamakoti of IIT Madras.
2018 Defense ministry set up a taskforce on AI for national security under N. Chandrasekharan of Tata Sons.
2018 Budget gave ₹100 crore to Department of Science & Technology for a mission on cyber physical systems.

NITI Aayog working on National Artificial Intelligence Mission.

2019 Interim-Budget announced a National Programme & Centre & web portal on ‘Artificial Intelligence’.

 

 

New Industrial Policy

  • 1991: Our last industrial policy was made.
  • 2017: Commerce ministry began formulating a New industrial policy for India focusing on the Fourth Industrial Revolution with six thematic areas viz.
  1. Technology & Innovation: Govt to provide incentives for artificial intelligence, internet of things, and robotics.
  2. Manufacturing & MSME,
  3. Ease of Doing Business
  4. Infrastructure & Investment
  5. Trade & Fiscal Policy
  6. Skills & Employability for Future
  • 2019: This policy is awaiting cabinet approval.

 

Samarth Udyog Bharat 4.0

  • It aims to propagate technological solutions to Indian manufacturing units to make them ready for Industry 4.0 by 2025.
  • Strategy: Awareness generation, demo centres, training, networking between industry and academia, international corporation.
  • Nodal Agency: Ministry of Heavy Industries & Public Enterprises (Department of Heavy Industries)

 

CIRCULAR ECONOMY

  • A circular economy is an alternative to a traditional linear economic model (make, use, dispose). In circular economy, resources are kept in use for as long as possible, the maximum value is extracted from them, and ultimately waste is recovered and regenerated in the end.
  • NITI Aayog, in 2019 proposed the concept of ‘Circular Economy and Resources Efficiency in India’.

 

 

The Circular Economy

  • Recycle
  • Design
  • Produce
  • Distribute
  • Consumer Use
  • Reuse / Repair

 

 

Business Models of Circular Economy:

A Circular Economy functions on following business models:

  1. Circular Supply Chain: recyclable input materials. E.g. र Used newspapers → pulp → paper rims for printing new newspapers.
  2. Recovery & Recycling:
  3. Nike uses scraps of used shoes for filling sports surfaces like basketball courts, tennis courts, etc.
  4. Japan decided to manufacture gold, silver and bronze medals for the 2020 Olympics by extracting precious metals from electronic waste only.
  5. India can extract $1 billion worth gold from e-waste, 8 million tonnes of steel from scrapped vehicles. In India, only 60% plastic is recycled, if we achieve 100% → about 14 lakhs jobs.
  6. Product Life Extension: through R&D, we can extend working lifecycle of products, encourage their repair, refurbishment, upgrading and reselling of second-hand goods esp. in mobile, laptop, TV, other consumer electronics and vehicle through olx, quikr etc.
  7. Sharing Platform / ownership: Airbnb app allows homeowners to rent their property for short term to tourists. Uber uses taxis to deliver food. Thus, asset owners can gain a new revenue stream, while construction for separate hotel, separate food-delivery trucks decline = resource conservation.
  8. Product as a Service:
  9. Microsoft Office disk costs $150, however, they also offer Office365 as a ‘software subscription service’ with deep discount for students so they can afford it at $1 per month. This discourages piracy, increases more revenue to company and led to more R&D for future upgrades.
  10. Some companies allow short term renting of computers, cameras and other gadgets. This results into less generation of e-waste by consumers who don’t want the gadget on 24/7 basis.
  11. In some countries, Philips offers lighting as a service, wherein users are required to pay for the consumed intensity, rather than how many bulbs purchased.

 

Roadmap to achieve Circular Economy:

  • Enact a dedicated policy and law for waste to resource management.
  • Create synergy between ongoing initiatives like Swachh Bharat Abhiyan, Smart Cities, Make in India, Start-up India, Digital India, Corporate Social Responsibility (CSR) etc. for efficient resources management.
  • Setting up a national coordinating body- Bureau of Resource Efficiency, and state level bodies to monitor this initiative.
  • More taxes on using virgin raw materials, less taxes on using secondary / recycled raw materials.
  • More funds for R&D in recycling, supply chain management using AI & blockchain technology.

 

Circular Economy aims at minimising waste and making the most out of the available resources. SDG Goal-12 requires nations to ensure sustainable consumption and production patterns. Therefore, we must focus on Circular Economy on war-footing.

 

NATIONAL MANUFACTURING POLICY 2011:

  • The Government of India has announced a National Manufacturing Policy with the objective of enhancing the share of manufacturing in GDP to 25% (by 2022) within a decade and creating 100 million jobs.
  • Commerce ministry’s DIPP / DPIIT is nodal for national manufacturing policy.
  • For this target, Govt will pursue ease of doing business, skill upgradation for young workforce, funding for innovation & green Technologies.
  • Creating National Investment and Manufacturing Zone (NIMZ).

 

 

National Investment & Manufacturing Zones (NIMZ):

  • National Investment & Manufacturing Zones (NIMZs) are an important instrumentality of the manufacturing policy.
  • The NIMZs are envisaged as integrated industrial townships with state of the art infrastructure; land use on the basis of zoning; clean and energy efficient technology; necessary social infrastructure; skill development facilities etc. to provide a productive environment for persons transitioning from the primary to the secondary and tertiary sectors.
  • The policy is based on the principle of industrial growth in partnership with the States.
  • The Central Government will create the enabling policy frame work, provide incentives for infrastructure development on a Public Private Partnership (PPP) basis through appropriate financing instruments, and State Governments will be encouraged to adopt the instrumentalities provided in the policy.

 

  • NIMZ are given additional support by government e.g.
    • Tax incentives, Relaxed norms for FDI approval.
    • Providing Rail, Road, energy, communication connectivity, schools-hospitals & other social infrastructure for the workers, etc. in a time bound manner.
    • Relaxations in the labour laws e.g. women allowed to work in night shift, easier hiring-firing norms.

 

  • NIMZ will be treated as self-governing bodies under Article 243(QC) of the Constitution. So the traditional norms related to Municipality, its functions, election of ward members etc. will not apply for this township area.
  • We have more than 15 NIMZ such as Ahmedabad-Dholera Investment Region in Gujarat, Dadri-Noida-Ghaziabad investment Region in Uttar Pradesh, Manesar-Bawal Investment Region in Haryana etc.
  • Previously, Delhi Mumbai Industrial Corridor (DMIC) had setup Special Investment Regions (SIR) in its region. They’re converted into NIMZ.
  • In 2017, Commerce ministry launched Industrial Information System (IIS), a GIS-enabled database of industrial areas and clusters across the country. This helps the entrepreneurs to find out availability of raw material, distance from key transport hubs, layers of terrain and urban infrastructure.

 

Industrial Corridors

Significance of Industrial Corridors

    • Job Creation
    • Cascading Socio Economic Benefits
    • Export Surplus – Economic Growth
    • Environmental Significance
    • Prevent Distress Migration

 

  • Industrial corridors offer effective integration between industry and infrastructure, leading to overall economic and social development.
  • Industrial corridors constitute:
  • High-speed transportation network – rail and road
  • Ports with state-of-the-art cargo handling equipment
  • Modern airports
  • Special economic regions/industrial areas
  • Logistic parks/transhipment hubs
  • Knowledge parks focused on catering to industrial needs
  • Complementary infrastructure such as townships/real estate
  • Other urban infrastructure along with enabling policy framework
  • Commerce Ministry’s National Industrial Corridor Development and Implementation Trust (NICDIT) is Nodal Agency.
  • They provide funding for industrial and commercial areas, townships, Warehousing and container depots, Rental Factories, Social infrastructure like- schools, technical institutions, hospitals etc, Housing and Residential Complexes; Connectivity for roads, railways, airports, Oil and gas pipeline etc.

 

 

Notable (ongoing and proposed) industrial corridors of India:

  • Delhi Mumbai Industrial Corridor: (DMIC-2006 onwards) passing through Uttar Pradesh, Haryana, Rajasthan, Madhya Pradesh, Gujarat and Maharashtra. IT’s implemented by a Special Purpose Vehicle (SPV) with ownership: 49% NICDIT, 26% Japanese Bank for International Cooperation (JICA) and remainder with India’s Public Sector Financial Intermediaries.
  • Other notable corridors: Amritsar Kolkata Industrial Corridor, Chennai Bengaluru Industrial Corridor, Bengaluru Mumbai Economic Corridor, Vizag – Chennai Industrial Corridor, East Coast Economic Corridor from Kolkata to Chennai.
  • 2017: Commerce Ministry approved Defence Park at Pallakad, Kerala.
  • 2018: Budget announced two Defence Industrial Production Corridors:
    • Tamil Nadu
    • Uttar Pradesh.

 

MAKE IN INDIA (2014)

Previous Economic Surveys observed that nations improve their GDP using three ways:

Geology: ·         Energy & Minerals resources e.g. W. Asia, Australia, Canada.

·         India’s challenges – Not enough crude oil resources, we still lack cost-effective technologies for large-scale exploration of Shale gas and nuclear minerals.

Geography ·         Tourism e.g. Barbados, Mauritius, Caribbean.

·         India’s challenges – While India has great tourism potential due to its geographical, climatic and cultural diversity. But, tourism income alone cannot sustain a large nation like India.

Jeans to Jets: ·         As agrarian economy evolves, it will begin producing low-skill items like jeans → further growth & technological advancements to produce jets, software & other high-skilled goods and services → then country will outsource the jean mfg. to other third world nations. USA grew like this. China, Thailand, Indonesia, Malaysia and other East Asian economies pursuing this model.

 

  • India’s case is unique because post LPG-reforms we directly jumped from Agriculture to IT/service sector. Our growth in (low skill) manufacturing sector has been sub-optimal due to:
  • Electricity, road and other infrastructural bottlenecks
  • Outdated factory and labour laws that prevent ease of doing business.

 

Demographic Dividend and the need to shift agricultural labour :

  • In the advanced economies, not more than 25% of the population is engaged in agriculture. For E.g. USA 4%, UK 5%, France 14%, Australia 16%.
  • Whereas in India more than 49%, because the non-agricultural sector has not been adequately developed to absorb the labourers from the growing population.
  • Demographic dividend has direct correlation with economic growth potential when share of the working-age population becomes larger than the non-working-age population. In India 65% population is below the age of 35 age.
  • Industries use raw materials from agriculture and agriculture sector needs industrial equipment and machinery such as pump set, tractor, electricity etc. So both are complementary to each other. But, industrial activities provide higher wages / remuneration than agricultural labour.
  • So, industrialization is the only answer to reap India’s demographic dividend. Further, to double farmers’ income, some of the small-marginal farmers should opt for industrial / service sector jobs so that land consolidation-mechanization can help doubling the incomes for rest of the farmers.
  • Keeping these angles in mind, govt. launched ‘Make in India’ for facilitating investment, fostering innovation, building manufacturing infrastructure, making it easy to do business and enhancing skill development.

 

 

Strategy for Make in India:

  • Nodal agency: Commerce ministry.
  • Objective is to promote India as global hub for manufacturing goods & services, design and innovation in 25 sectors. Later it was expanded to total 27 sectors.
  • Strategy:
  • Updating the Policies, relaxing the FDI norms
  • Fiscal incentives (Tax breaks, subsidies, procurement)
  • Infrastructure Creation
  • Ease of Doing Business by relaxing the factory-labour-tax laws & administrative procedures
  • foster Innovation and R&D
  • Skill Development.
  • Challenge and obstacles: Most of the jobs in above 27 sectors are skill intensive while India is burdened with vast pool of unskilled labour. So, government has to pay more attention to education and skill development schemes including Skill India (2015).

 

 

Assemble In India:

  • Economic Survey 2020 suggested we move one step ahead from ‘Make in India’ towards Assemble in India.

 

  Make in India Assemble in India
What

 

textiles, clothing, footwear, toys

 

Products of Apple, Samsung, Sony, Nike, Adidas etc.

 

How

 

Traditional Unskilled Labour

 

Semi-skilled labour

 

 

 

Assemble in India and “Network Products”

  • Network Products are those products whose production occurs across Global Value Chains (GVCs) operated by Multinational Companies (MNCs) such as Apple, Samsung, Sony, Nike, Adidas etc.
  • Product is designed by their Headquarter (HQ) located in a rich country for instance in US, EU, Japan. But Product assembly or manufacturing in done low wage countries.
  • Further, these products are not produced from start to finish within a single country.
  • Instead, countries specialize in particular stages of production sequence. E.g. Iphone:
  • LCD screen In South Korea
  • Processor in Taiwan
  • WiFi chip in Malaysia and above parts are finally assembled in Foxconn Factory in China.

 

Advantages of Assemble in India

IF India joins the assembly chain of Network Products esp. computers, TV, mobile, electronics, road-vehicles, then:

 

Assemble in India 2025 2030
New Jobs in India 4 cr 8 cr
India’s share in World Export 3.5% 6%

 

 

ES20 observed:

  • India is presently at a stage where it can become part of Geese flying model.
  • India has experience of Network products in the Automobile sector: Suzuki, Honda, Ford, Fiat, and Renault etc. import some of the components and finally ‘assemble’ Car in India. But such cars are made for domestic consumers (and not ‘exported’ to rich countries, unlike the China-assembled iPhone & Sony TV).

 

Policy recommendations for Assemble In India:

  • US and EU Protectionism: higher duties on China-made products led to companies are shifting production away from China.
  • So, India should attract these MNCs by reforming its taxation, FDI and labour laws.
  • Skill training of Indian youth as workers and middle-level supervisors.
  • Improve infrastructure for transportation, broadband communication etc.
  • Shipping Delays, Electricity Failure, Political Disturbances, Labour Disputes etc could disrupt the entire production chain & thereby discourage the MNCs. So, Govt should try to monitor them closely.
  • 2018: top 3 mobile handset manufacturers
  1. China
  2. India

STARTUP INDIA (2016)

  • Nodal Agency – Commerce Ministry.
  • Startup company was defined originally as a company which is:
    • Not older than 7 years. (10 years if Biotech Company).
  • Doesn’t have annual turnover above ₹ 25 crore.
  • Works towards innovation & development of goods / services.
  • These norms were changed to 10 years for any company & upto 100 cr. Turnover in 2019-Feb.
  • Under Startup India initiative such start-up companies are given 3 years exemption from Income Tax / Corporation Tax.
  • Self-certification permitted with respect to (WRT) EPFO act, ESIC Act etc.
  • Relaxed norms in public procurement.
  • Relaxed norms for exit i.e. winding up the companies.
  • Govt established “Fund of Funds for Startups” (FFS) in Commerce Ministry. This fund will provide money to other startup related schemes.
  • Industry-academia partnership, incubation and hand holding, Mobile app and Portal, Legal and Technical Support for filing the patent, lower / zero fees for patent applications etc.
  • Foreign venture capital investors (FVCI) given certain technical relaxations by Income Tax Dept (for TDS/ tax withholding) and Reserve Bank of India (for currency convertibility).

 

 

Budgets on Start-Ups:

Budget-2019 Start-Ups:

 

·         Govt. will stop pursuing the Angel Tax cases, if the entrepreneurs and investors provide the required data.

·         Govt. will launch special Doordarshan TV channel for helping startup entrepreneurs- how to register and manage business, how to mobilize capital, tax planning, marketing strategies etc.

·         Govt. will extend the Stand-Up India Scheme till 31 march 2025.

Budget-2020 on Start-ups

 

·         Startup can claim 100% deduction on its profits, for 3 years out of the first 10 years of incorporation. (as such they get tax benefits under Startup India scheme, but new budget fine-tuned those technical definitions further.)

·         Start-ups generally use Employee Stock Option Plan (ESOP) to attract talented employees. But ESOP was subjected to various direct taxes → New budget gave some technical reliefs to them.

 

Startup: Misc Terms and trends:

  • Unicorn club – A startup company whose valuation is $1 billion or above. Swiggy, Paytm, Byjus etc. Indian startups are in this list.
  • As of Jan-2020 – Total 27,084 startups registered in India. 43% of them have at least 1 woman director.

 

Rank – 1 2 3 4 5
Largest number found in state Maharastra Karnataka Delhi Up Haryana
Largest number found in sector IT Services Healthcare and life science Education Professional services Food Beverges

 

Economic Survey 2020 observed:

  • World Bank’s Data on Entrepreneurship: Top 3 nations with largest number of new firms registered:
  1. USA
  2. Brazil
  • As per Ministry of Corporate Affairs (MCA)-21 database of new firms created in India rised from 70,000 (2014) to 1,24,000 (2018).
  • Largest number of new firms are created in the Services sector than in (manufacturing, infrastructure or agriculture).
  • 10% increase in registration of new firms in a district = 1.8% increase in that district’s Gross Domestic District Product (GDDP)
  • Thus, entrepreneurship at district – has a significant impact on wealth creation at the grassroot level.

 

 

ES2020: Factors affecting new Startup firms creation

  • Eastern India: lowest literacy rate (59.6%, census of 2011). This region has the lowest registration of news firms. In the past, the privatization of engineering colleges helped improve India’s software exports. So, governments could also explore the privatization of education further (allow more private colleges) → education → Rise in of new firms at district level.
  • West Bengal, Assam, Jharkhand, Kerala and Bihar have inflexible labour laws so entrepreneurial activity is lowest here.
  • Physical infrastructure such as road, electricity, water/ sanitation facilities, and telecom services.

 

NATIONAL POLICY ON ELECTRONICS 2019:

  • 2019 replaces the previous policy of 2012.
  • Nodal Agency: Ministry of Electronics and Information Technology (MeitY).
    • To make India a global hub for Electronics System Design and Manufacturing (ESDM), Government will do following:
      • Tax benefit, subsidies and other incentive for R&D, innovation, Training and skill development for 5G, Internet of Things (IoT), Artificial Intelligence (Al), Machine Learning, Virtual Reality (VR), Drones, Robotics, Nano-based devices, Medical Electronic Devices, Automotive Electronics Industry, Strategic electronics for the defence sector etc.
      • Sovereign Patent Fund (SPF): Govt will buy Patents / Intellectual Property Rights (IPR) from the innovators / Corporate Companies → allow MSME industries to use those IPR for electronics manufacturing, without having to pay hefty royalties to original patent holder..

Targets for 2025: Turnover of $400 billion. Produce 100 crore units of mobile handsets & export 60 crores units out of that. Create 1 crore jobs.

 

Electronics Development Fund (EDF)

  • Nodal Agency: MeiTY gave money to Canara bank’s CANBANK Venture Capital Funds Ltd.
  • EDF was set up in 2015 as a “Fund of Funds” → money is given to “Daughter Funds”g. SEBI registered venture capital funds who are investing in electronics related startup companies.

 

National Digital Communications Policy (2018)

  • 2018 Policy replaces National Telecom Policy of 2012.
  • Nodal Agency: Ministry of Communications, Dept of Telecom
  • Target-2022: 50mbps broadband to every citizen, 10 Gbps to all Gram Panchayats, jobs to 40 lakh people covering 8% GDP.
  • Bodies:
  • DoT’s Telecom Commission transformed into ‘Digital Communications Communication’.
  • National Fibre Authority (proposed)
  • : for creating broadband National Digital Grid
  • Focus on data privacy, digital security, 5G, Internet of Things (IOT), Machine to Machine Communication (M2M), etc.
  • International Telecommunication Union (ITU) (Specialized agency – UN) releases ICT Development Index à improve India’s ranking. (presently below 100, have to get into top-50.)

 

National Policy on Software Products – 2019

  • Nodal Agency: MeiTY
  • Target-2025: 10000 start-ups, 35 lakh jobs, 10% of India’s GDP.
  • For this we will help the start-up companies, setup Software Technology Parks, Research, Innovation, Training, Skill Upgradation, Linkages Between Industry- Academia, IPR Protection.
  • Software Product Development Fund (SPDF) of ₹ 1000 cr as ‘Fund of Funds’ which will give ₹ ₹ to Venture Capital Funds to software developers.

 

Quantum Technology 2020

  • Conventional computers process information in ‘bits’ or 1s and 0s.
  • Quantum computers compute in ‘qubits’ (or quantum bits). They work on quantum mechanics principles related to how matter behaves on the atomic scale.
  • Google’s quantum computer ‘Sycamore’ claimed ‘quantum supremacy’ because it finished a task in 200 seconds that would have taken a conventional supercomputer 10,000 years to complete.
  • Applications – computing, communications, cyber security etc.
  • Budget-2020: National Mission on Quantum Technologies for a period of 5 years.

 

Conclusion:

Electronics and IT Technology permeates all sectors of economy. It plays vital role in economic growth, employment generation and strategic security of nation. R&D, IPR and Training are the critical components for the success of an Electronics and IT Technology company. Aforementioned policy, initiative, scheme will play a significant role in this regard.

 

Challenges To The Startup:

  • “Valuation game”: Startup try to increase subscribers with cashback and discounts, show the data to investors about company’s projected sales/growth/valuation to get more funding. Eventually convert the private limited company into public limited company & launch IPO to get even more capital. People subscribe in IPO hoping large amount of dividend while the promoter leaves with money & company sees fall in revenue once the cashbacks and discounts are stopped.
  • Past Economic Surveys: Most of the startups are focused on e-commerce aggregatione. Connecting the buyers with sellers (Uber, Zomato, Flipkart, Pepperfry etc.) due to ‘valuation game’, whereas India needs more startups in Agriculture, Manufacturing, Healthcare and Education.
  • Raghuram Rajan (2019): There is no ‘free lunch’ in economy so when ‘superstar’ companies are giving free products / cashback to consumer – who is paying for it? is it company itself or the government (through tax-holidays & subsidies given to that company!)
  • While Start-up entrepreneurs must be encouraged but at the same time, (fake) Angel investors’ tax evasion and avoidance has to be discouraged.

 

Startup: “Exit” Of Sick Industries

  • Sick industries is an entity that has accumulated more losses than its entire capital. Industrial sickness can be a result of:
    • Internal factors like mismanagement, workers low morale & strikes etc.
    • External factors like rising cost of energy & raw material, fall in product demand etc.

 

In 1985, PM Rajiv Gandhi in enacted Sick Industrial Companies Act. Board for Industrial and Financial Reconstruction (BIFR) is Statutory body in Finance Ministry.

 

  • BIFR would:
    • Help the Sick industry with new funds or
    • Shut down the Sick industry on case to case basis.
    • Authority for Industrial and Financial Reconstruction (AIFR) will be higher appellate authority.
  • Ideally, a sick industry should be liquidated so its labour and capital can be shifted to healthy companies.
  • But, above bodies’ decision making was very slow so sick companies will not quickly shut down, and continue to receive Government funding/support, as if Abhimanyu entered the ‘‘Chakravyuh’ but never exits. So previous economic surveys used the term ‘Chakravyuh challenge’.
  • In 2016, Govt. repealed this Act & its statutory bodies. Their pending cases referred to National Company Law Tribunal (NCLT). So now if a firm becomes sick then:
    • If wilful defaulter or incapable defaulter then, liquidation under the SARFAESI Act
    • Otherwise I&B Code: IP will make a resolution plan within “specified” number of days. If IP’s resolution plan is not agreeable to the lenders, liquidation will be initiated.
  • If a startup company wants to (voluntarily) shut down, it can make application under I&B Code, IP will liquidate it within 90 days. This helps the entrepreneur to pull out his portion of capital.

 

Conclusion:

Startups have always been the engine of progress. The mega corporations of today were startups of yesterday. Startups can be effective instruments for reaping India’s demographic dividend, catalyze employment generation and augment its economic growth. The aforementioned policies and schemes are significant in this regard.

 

INTELLECTUAL PROPERTY RIGHTS

  • WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS1995) protects following types of IPR: Copyright, Trademarks, Geographical Indications, Industrial Designs, Patents, Integrated Circuits & Trade Secret.

 

  • Intellectual Property Rights
  • Patents
  • Design Rights
  • Performances Rights
  • Copyright
  • Trademarks
  • Database Rights
  • Nodal agency: World Intellectual Property Organization (WIPO: HQ Geneva, Switzerland) – UN specialized agency

 

WIPO is known for:

  1. Global Innovation Index
  2. Marrakesh Treaty 2013 which requires nations to increasing accessibility of copyrighted books to Visually Challenged. India was first to ratify.

 

IPR and Indian Laws

Year Act Nodal ?
1952 Cinematograph Act Ministry of Information and Broadcasting Budget-2019 promised to amend it with anti-camcording provisions.
1957 Copyright Act Previously HRD ministry, now Commerce Ministry. Copyright Office Intellectual Property Appellate Board (IPAB)
1970 Patents Act Commerce Ministry’s Controller General of Patents, Designs and Trademarks. (CGPDTM)
1999 Trademarks Act
1999 Geographical Indications of Goods (Registration and Protection) Act Commerce Ministry’s Geographical Indications Registry at Chennai
2000 Designs Act CGPDTM
2000 Semiconductors Integrated Circuits Layout-Design Act MEITY: Ministry of Electronics and Information Technology
2001 Protection of Plant Varieties and Farmer’s Right Act Agro Ministry
2002 Biological Diversity Act Environment Ministry

 

IPR and Patents:

Following inventions cannot be patented:

  • Frivolous inventions. E.g. schoolbag, laptop bag
  • Anything seriously harmful to public order, morality, humans, animals, plants or environment. E.g. Stone-pelting machine
  • Atomic energy related inventions.
  • Mere discovery of a scientific principle or the formulation of an abstract theory or discovery of any living thing or non-living substance occurring in nature;
  • Plants-seeds varieties, biological process to create them;
  • Animals breeding; Medical treatment of humans and animals
  • Mere discovery of a new form of a known substance which does not result in the increased efficiency.
  • Mere re-arrangement or duplication of known devices.
  • Mere aggregation of properties of the components e.g. lemon + sugar + water = juice
  • Traditional knowledge. E.g. Ayurvedic information.
  • Mathematical formula, business method, method of playing game e.g. Dhoni’s helicopter shot.
  • Computer program, presentation of information, integrated circuit
  • Literary, dramatic, musical or artistic work; cinema-TV shows

 

 

Q. Find correct statement(s): (CSE-2019)

  1. According to the Indian Patents Act, a biological process to create a seed can be patented in India.
  2. In India, there is no Intellectual Property Appellate Board.
  3. Plant Varieties are not eligible to the patented in India.

Answer Codes:

  1. 1 and 3 only
  2. 2 and 3 only
  3. 3 only
  4. 1,2, and 3

 

Patents And Compulsory Licensing:

  • If public interest is involved: Government can use, manufacture, import or sell a patented invention without the patent-owner’s consent. Permitted under WTO’s TRIPS agreement.
  • 2012: Shortage of an anticancer drug Nexavar in Indian market. Bayer Pharma (Germany) held the patent and production rights & sold it price of ₹ 2.50 lakhs per 120 tables.
  • So, Indian Govt used powers of Indian Patent Act to ‘Compulsory License’ to an Indian company NATCO to produce this drug, sell it at ₹ 8880 per 120 tablets & pay 6% royalty to Bayer.
  • US & EU are apprehensive of Indian Govt issuing CL, because their MNCs will suffer, if such low prices and royalty % are forced.

 

IPR And Evergreening Of Patents:

  • Patent is a statutory right given for an invention for a limited period of time.
  • Patent protection is a territorial right and therefore it is effective only within a country.
  • Suppose a pharma company is given 20 years patent for “x” drug in India, others cannot manufacture it during that period.
  • But when the patent is about to expire, the company just slightly modifies the original drug formula to create a new drug and seeks patent for that new drug. This unethical practice is called “Evergreening”.
  • Indian Patent Act prohibits Evergreening. (under Section 3(d)).
  • In 2013, a Swiss pharma company Norvatis’s blood cancer drug Glivec’s patent was about to expire, they had sought patent for similar new anti-cancer drug but lost the case in Supreme Court India. SC allowed Indian companies can produce generic version of this anti-cancer drug. As a result, patient will get it at cheaper price.

 

IPR And Utility Patents:

  • Utility patents or ‘petty patents’ recognize the minor (mechanical) improvements of existing productsg. adding speaker in a microwave oven to announce when food is prepared.
  • Commerce ministry is not in favour of amending the Patent Act to allow Utility Patent because otherwise it could aggravate the problem of ‘Evergreening of Patents’.

 

National IPR Policy 2016:

  • Nodal agency: Commerce ministry.
  • Aim: Creative India; Innovative India.
  • This policy shifted the Copyright Office and its statutory body Intellectual Property Appellate Board (IPAB) from HRD ministry to commerce ministry.
  • Conduct IPR awareness programs for industry, police, customs and judiciary so they can combat counterfeiting and piracy in a more efficient manner.

 

 

Q. With reference to the ‘National Intellectual Property Rights Policy’, consider the following statements: (CSE-2017)

  1. It reiterates India’s commitment to Doha Development Agenda & TRIPS Agreement.
  2. Department of Industrial Policy and Promotion is the nodal agency for regulating intellectual property rights in India.
  3. Both a and b
  4. Neither a nor b

 

Notable Schemes related to IPR:

SIPP

 

·         Commerce Ministry’s Startups Intellectual Property Protection (SIPP) scheme valid from 2016 to 2020.

·         Startup entrepreneurs are given free training on how to file the patents. No patent fees for them.

AIM & SETU In NITI in 2015

 

·         Atal Innovation Mission in NITI Aayog to help the innovators. E.g. launch challenges / competitions and award prize money.

·         Self-Employment and Talent Utilisation (SETU) in NITI Aayog to setup incubators for innovation. Incubators are centers that help aspiring entrepreneurs to develop /experiment with products without investing in all the machineries beforehand.

Smart India Hackath on

 

·         Organized by the HRD Ministry in 2017, 18, 19.

·         2019: College students asked to give innovative ideas to solve the challenges faced by public sector organisations, industries and even NGOs. 36 hrs software development competition, 5 days hardware development competition etc.

Misc Dept of Science Technology launched:

·         INSPIRE (Innovation in Science Pursuit for Inspired Research) – scholarship and awards given to students and faculty.

·         MANAK (Million Minds Augmenting National Aspiration and Knowledge)

·         NIDHI (National Initiative for Developing and Harnessing Innovation)

·         NIDHI-PRAYAS (Promoting and Accelerating Young and ASpiring technology entrepreneurs)

·         HRD Ministry launched Uchhattar Avishkar Yojana (UAY) for IITs
All these schemes provide some type of grant, funding, scholarship, award the innovator. By default they’re 100% Union fund.

 

 

Conclusion:

Innovations and Startup can turn Indian youths from job seekers into job creators. They encourage entrepreneurship, innovation and creation of revolutionary new products that can be used by people around the world. Hence startups are important and protecting their IPR is important. Aforementioned initiatives and schemes are important in that regard.

 

Q. Atal Innovation Mission is set up under the____(CSE-2019)

  1. Department of science of technology
  2. Ministry of labour and employment
  3. NITI Aayog
  4. Ministry of skill development and entrepreneurship

 

IPR: Indices & Rankings

  1. Global Innovation Index (GII):
  • By WIPO, Cornell University (USA), Insead Business School (Paris). \
  • In 2019, for the first time WIPO held event in a developing country (New Delhi) to release this report to the Press.
  • GII ranks a country based on performance across 7 pillars
  • knowledge and technology outputs,
  • market sophistication,
  • human capital and research,
  • institutions,
  • business sophistication,
  • infrastructure,
  • creative outputs.
  • Among these individual 7 pillars, India’s performance improved in 1 to 4; but it degraded in 5-6-7 compared to last year.
  • Theme 2019: Creating Healthy Lives – The Future of Medical Innovation
  • Ranking 2019: 1. Swiz (since 2011) 2. Sweden 3. USA 4. Netherlands 52. India (improved by 5 positions than last year). Total 129 nations ranked.
  • India is identified as the ‘regional leader’ in reforms in Central And Southern Asia, continuously since 2011. India’s overall rank continuously improving since 2015.

 

  1. Global Talent Competitiveness Index (GTCI)
  • By INSEAD business school (Paris) in partnership with Tata Communications and Adecco Group.
  • Ranking 2019: 1. Switzerland, 2. Singapore, 3. USA,…. 80. India

 

  1. Global Competitiveness Index (GCI)
  • By World Economic Forum ranks nations on GCI 4.0 framework with 12 drivers of productivity: Institutions, Infrastructure; Technological readiness; Macroeconomic context; Health; Education and skills; Product market; Labour market; Financial system; Market size; Business dynamism; and Innovation.
  • Ranking 2019: 1) Singapore 2) USA 3) Hong Kong….68) India. India has fallen by 10 places.

 

 

IMD World Digital Competitiveness Ranking 2019

  • By Switzerland-based International Institute for Management and Development (IMD).
  • Ranking 2019: 1. Singapore 2. Hong Kong 3. USA….. 43. India

 

India Innovation Index (NITI)

  • Ranking 2019: NITI Aayog released it. Institute for Competitiveness (a private organization) acted as knowledge partner. It monitors the States and UT on two dimensions viz:

 

Enablers

 

Includes five pillars:

1.       Human Capital,

2.       Investment,

3.       Knowledge Workers,

4.       Business Environment, and

5.       Safety and Legal Environment

Performance

 

Includes two pillars:

1.       Knowledge Output and

2.       Knowledge Diffusion.

 

The Innovation ranking has three categories:

Category Major States North East and Hill States UT & Small States
Best #1 karnataka >TN> Maharashtra #1: Sikkim> HP > Uttarakhand #1 Delhi>Chandigarh>G
Worst Jharkhand Meghalaya Lakshadweep

 

Q. Global Competitiveness Report is published by the_________(CSE-2019)

  1. International Monetary Fund
  2. UNCTAD
  3. World Economic Forum
  4. World Bank

 

Ease Of Doing Business (EoDB) Report

  • EoDB Report is an index by the World Bank to measure how easy or difficult it is to run a business organisation in a given country, based on simple average (equally weighted) of 10 parameters – such as no. of documents, time & cost involved in registering a property, getting an electricity connection, paying taxes etc.
  • As such no specific themes are given in these reports.

 

 

 

 

 

Rank 2020 (Released in 2019):

·         New Zealand > Singapore > Hongkong > India (63) >……. Somalia (190)

·         Report acknowledges India as one of the top 10 improvers, third time in a row. India’s rank in 2017 (130) to 2020 (63), shows a jump of 67 steps- this is highest by any large country since 2011.

 

 

Ease of Doing Biz Parameters :

  1. Starting a Business
  2. Construction Permits
  3. Getting Electricity
  4. Registering Property
  5. Getting Credit (loan)
  6. Protecting Minority Investors
  7. Paying Taxes
  8. Trading across Borders
  9. Enforcing Contracts
  10. Resolving Insolvency

 

Q. Which one of the following is not a sub-index of the World Bank’s ‘Ease of Doing Business Index?_______(CSE-2019)

  1. Maintenance of law and order
  2. Paying taxes
  3. Registering property
  4. Dealing with construction permits

 

ES2020 on Ease of Doing Biz in India:

  • To open a restaurant, China and Singapore require only 4 four licenses, but India requires more than 20.
  • 45 documents required to get Delhi Police’s permission for opening a restaurant. Far less number of documents required for a gun license!
  • Hong Kong construction permits available within 2 months, India takes 4 months.

 

Pro-Business Vs Pro-Crony: ES2020

Crony capitalism is an economic system in which businessmen thrive not by their hard work or risk taking capacity, but through a nexus between a business class and the political class.

 

ES2020 found that:

Across the world, crony capitalist firms pay lower taxes than their actual profits.

 

India: After election results, road contractors associated with the ruling party were given large numbers of contracts to build Pradhan Mantri Gram Sadak Yojana. But 25% of such roads exist only on paper.
Brazil Brazil’s public sector banks are more likely to approve loan applications of a company if the company owner gave election donation to the ruling party.
Eastern Europe: When politically connected firms fail in business then Government will usually bail them out using taxpayers’ money.
China Politically Connected Underwriters increase the likelihood of clients’ IPO applications being approved by the Chinese share market regulator.

 

 

Cronyism: Related Party Transaction (RPT)

  • RPT transactions involve company’s directors, their relatives and their related companies. RPTs may harm the interests of the company’s shareholders.
  • g. Minister gives 2G spectrum / coal auction / highway construction rights to a company. THEN company appoints that minister’s wife/son as a consultant/director & pays a hefty salary.
  • Companies Act has norms to regulate RPT. But, often Crony capitalists, wilful defaulters and tax-avoiders misuse RPT using loopholes.

 

 

Cronyism: Economist David Ricardo & Rent Seeking

  • A Mobile company pays political bribes to get spectrum/license from the Government.
  • Then the Company will charge very high prices on the prepaid plans and data packs to recover:
  1. Operational Costs
  2. Profit
  • Similar examples could be cited in the coal-power based thermal electricity prices, Toll fees charged by highways developers, heavy fees in private hospitals/ schools/colleges.
  • Ricardo called it “rent seeking behaviour” It doesn’t help in (new) wealth creation because abnormal profits extracted at common citizens’ expense. Further, such crony capitalists do not invest their high profit for research and innovation, they use it for building more relationship with politicians.

 

ES20 observed:

  • This type of rent-seeking behaviour was more prevalent till 2011.
  • After CAG / Media reported the scam, the profits, share prices, SENSEX performance of such crony firms greatly declined, since they couldn’t compete with the innovative firms.
  • CEA Subramanian K. used ‘Herfindahl Index’ to prove this. Economist Herfindahl’s Index (1950) is used for monitoring the level of competition among the companies.

 

Crony Capitalism and SENSEX’s 30 companies:

Before liberalization After liberalization
If a company entered this list, it could stay there for 60 years. So, CEA Subramanian K. is hinting that:

·         Pre-LPG firms paid political bribes to prevent any new entrepreneurs from getting a license to even start the business or getting a quota to expand business production.

·         So, rival’s company will never grow large enough to get noticed by BSE- officials so they’ll not add its name in BSE-SENSEX-30

Decreased to only 12 years. Within that time, some new firm will replace old firm in the BSE-30 list. E.g. Bombay dyeing replaced by Arvind Mills etc.

·         It shows a continuous influx of new firms, products and technologies into the economy.

·         Thus, crony capitalism is finding less domination in post-LPG India.

·         Austrian economist Joseph Schumpeter coined the term “Creative Destruction ” i.e. Older firms/products are destroyed by newer firms/products, which is necessary.

BSE-SENSEX-30 list Majority had manufacturing firms Service sector firms

 

Pro-business vs Pro-Crony Policies:

Pro-business policies Pro-crony Policy
Make it easy to start a business, Register property, enforce contracts, increased competition When existing companies pay political bribes to restrict entry of new companies / import restrictions of rival brands. This decreased competition and increase in heavy profits, but at the expense of the customer.
Make it easy to obtain loans, resolve insolvency. This helps in biz expansion and wealth creation

 

When political masters pressurize public sector banks to lend money to unviable biz projects.

When wilful defaulters are not given strict treatment.

They’ve destroyed a total ₹1.4 lakh cr of loan assets. Majority of wilful defaulters belong to mfg. sector

Transparency in bidding for natural resources Government gives preferential treatment to crony companies.
Result: Competition, innovation, lower prices and better service quality for citizens → Rise in demand  → Rise in production → GDP → (new) wealth created. Reverse will happen → Wealth is destroyed

 

 

Cronyism doesn’t foster competitive markets. It fosters inefficiencies & results in erosion of wealth. As Dr. Raghuram Rajan said, “There is a need for saving capitalism from the crony capitalists”.

 

Ease Of Doing Biz and Judicial Reforms:

 

Economic Survey 2018-19 observed:

  • Theory of Matsyanyaya: If no ruler or Government → big fish will eat little fish.
  • 5 crore cases pending in the judicial system.
  • More than 80% of them are concentrated in the district and subordinate courts. Out of these pending cases, about 70% are criminal cases, about 30% are civil cases. Some economists say poor performance of the criminal justice system is of no direct consequence to the economy. But, a behavioural economics: general lawlessness leads to thriving of Mafias. So investors are discouraged (e.g. UP and Bihar).
  • World Bank’s Ease of Doing Business: in “Enforcing Contracts” Indicator, India’s ranking is in the range of 160+. And it is not improving at a faster rate.
  • Compared to many European countries we are 4-6 times slower.
  • Punjab and Delhi are performing much better than the national average.
  • But, Odisha, Bihar, West Bengal, Uttar Pradesh very slow rate. And these states are also lagging behind in SDG India Index, Health Index.

 

Reforms need in judicial system:

  • Recruit more judges: At the district and subordinate level courts: sanctioned strength is around 23,000 judges but at present we have about 18,000 judges. So we have to fill up the vacant posts through faster recruitment.
  • High Court: Each HC Judges disposes about 2300 cases per year. So to clear all the backlog cases In the next five years, about 360 additional HC judges required.
  • Similarly a few more judges also required at the supreme court.
  • Create a new Judicial Administrative Service: For faster clearance of cases, judicial staff’s efficiency also matters – Whether it is the Court Manager, Bailiff, Judicial clerks, Legal assistants, Translators, Typists/Stenographers. But there recruitment, syllabus, eligibility conditions and training mechanism is not uniform across India. Many tribunals recruit staff on adhoc- contractual basis, and do not impart adequate training.
  • Canada, USA and UK have separate cadre of Government employees for this. Therefore, ES19 proposed to create a specialized service called Indian Courts & Tribunal Services (ICTS) with following functions:
    • Provide administrative support to judges
    • Improving administrative aspects of the legal system – Document storage, data processing etc. back-office functions through Information and Communications Technology (ICT) and re-engineering.
      o Identify process inefficiencies and advise the judiciary on legal reforms.

 

Budget-2020:

  1. We’ll reform the recruitment system for tribunal to attract best talents and professional experts.
  2. Reform the Contracts Act.

 

  • Increase courts’ working days: Presently Central Government offices are open for 244 days per year. Whereas High Courts are open for only 232 days and Supreme Court open for only 190 days in a year– Because they take longer vacations in summer, winter, Holi, Diwali and Dussehra.
  • E-governance, ICT-Technology:
    • Lower courts consume a lot of time in sending Notice or summons, recording witness statements. Higher court cannot proceed until it receives case’s records from the lower court.
    • Computers are used as mere ‘modern typewriters’. Their scanning, email, computation facilities are not fully used.
    • So we have to focus on E-governance, ICT-Technology to increase the efficiency of the court administration. Even Artificial Intelligence may be deployed for ordinary disputes e.g. Traffic challan, or Cheque dishonour.
    • Ministry of Law and Justice started eCourts Mission Mode Project – creation of the National Judicial Data Grid (NJDG), digitalization of cases. It allows stake-holders to keep track of individual cases and their evolving status. We must ensure its speedy implementation and connectivity with all the courts.

 

Conclusion on Judicial reforms:

  • Thus, case pendency can be reduced through recruitment of additional judges, creating separate cadre of Judicial Administrative Services, increase in working days of court, and deploying ICT technology.
  • Preamble to the Constitution of India defines that the first role of the State is to secure social, economic, and political justice for all citizens.
  • Therefore, need of the hour is to pursue judicial reforms on a war footing.
  • Judicial delays discourage the victims from approaching the court. Victims silently continue to suffer injustice or approach Mafia elements. It also fuels the atmosphere of insecurity, vigilantism and mob lynching.
  • SDG Goal 16: provide access to justice for all.

 

Corruption Perceptions Index 2019

  • Released by: Transparency International.
  • Transparency International is a global civil society organisation fighting against corruption. Setup in 1993, HQ – Berlin, Germany.
  • Ranking for 2019: 1. Denmark and New Zealand, then directly given 3. Finland, 4. (Tie) Switzerland, Singapore, Sweden.
  • India in 2019: 81 (in 2018 it was 78, meaning rank fallen and corruption increased)
  • To control corruption, the report recommends:
  • Focus on conflicts of interest, preferential treatment given to wealthy.
  • Regulate electoral financing, election integrity.
  • Regulate lobbying activities.

 

Labour Reforms :

  • There are multiple Central laws related to labour g. Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976.
  • Entrepreneur has to fill up multiple forms to prove his compliance, and he’s subjected to multiple annual inspections by the govt officials, results into poor ease of doing biz.
  • Therefore, Second National Labour Commission (2002) recommended govt to simplify & consolidate these laws. 2017-18: Govt announced to replace existing central laws with just four laws namely:

 

Old Laws Merged in
·         Payment of Wages Act, 1936

·         Minimum Wages Act, 1948

·         Payment of Bonus Act, 1965

·         Equal Remuneration Act, 1976

·         Labour Code on Wages, 2019

·         Both houses have passed and the President has signed it in 2019.

 

 

·         Trade Union Act, 1926

·         Industrial Employment Act, 1946

·         Industrial Disputes Act, 1947

·         Labour Code on Industrial Relations, 2019

·         Pending in Lok Sabha

 

Nine Labour Acts like:

·         Employees’ Compensation Act, 1923

·         Maternity Benefit Act, 1961

·         Payment of Gratuity Act, 1972

·         Unorganized Workers’ Social Security Act, 2008 etc.

·         Labour Code on Social Security & Welfare, 2019

·         Pending in Lok Sabha

 

13 Labour Acts like:

·         Factories Act, 1948

·         Plantation Labour Act, 1951

·         Mines Act, 1952

·         Building and Other Constructions Workers’ Act, 1996 etc.

·         Labour Code on Occupational Safety, Health & Working Conditions, 2019

·         Pending in Lok Sabha

 

 

But, until above labour code bills are passed, Labour Ministry keeps amending the existing laws for ease of doing business and for workers welfare such as:

 

Maternity Benefit (Amendment) Act, 2017:

  • Applies to factory, mines, plantations, shops and other establishments.
  • Increased paid maternity leave from 12 weeks to 26 weeks (for the first two children only.)
  • If woman worker adopts a baby less than 3 years (or gets a baby through surrogacy) then 12 weeks paid leave for her as well.
  • If factory has 50 workers and above, then boss must install creche facility; allow mother to visit child min. 4 times a day.
  • After maternity leave is over, boss may even allow the woman worker to work from home.
  • Boss must inform every woman worker of her rights in writing.

 

Payment of Wages (Amendment) Act, 2017

  • Previously the employer was legally required to pay salary in ‘physical cash only’– in certain industries. Act reformed to allow salary payment in cheque/NEFT to encourage less cash economy.

 

Child Labour (Prohibition) Amendment Act, 2016:

  • It amends the 1986’s act to provide that,
    Children below 14 years can’t be employed anywhere, Except:
  • TV/ Cinema /Sports (but not circus)
  • Non-hazardous family enterprise work after the school hours. Adolescents between 14 to 18 age can be employed but only in non-hazardous work.
    • Any violations will attract Jail or penalty or both. District Magistrate given additional powers.
    • Issues with policy – Chemical mixing, battery acid recycling etc. occupations removed from the ‘hazardous list’ so Ease of doing business for their owners, but exploitation of adolescent workers.

 

Apprentices (Amendment) Act, 2014

  • The original 1961 Act regulated the training of apprentices in the industry. But rules were draconian e.g. Govt shall decide the apprentice youth’s stipend, holiday, overtime. If factory owner is violating any norm will result into imprisonment.
  • So, the 2014’s amendment relaxed the norms, Factory owner will decide stipend, holiday etc. and if any violations then only penalty, no jail for him.

 

Q. Which of the following statements is/are correct regarding the Maternity Benefit (Amendment) Act, 2017? _______(CSE-2019)

  1. Pregnant women are entitled for three months pre-delivery and three months post- delivery paid leave
  2. Enterprises with creches must allow the mother minimum six creche visits daily
  3. Women with two children get reduced entitlements.

Codes:

  1. 1 and 2 only
  2. 2 only
  3. 3 only
  4. 1,2 and 3

 

Fixed Term Employment 2018:

  • Fixed-term employee is a contractual worker hired for a fixed period. If his contract is not renewed on expiry then he’s deemed automatically terminated. No notice for termination is required.
  • Just like a permanent worker, a fixed-term worker is entitled to all benefits such as wages, hours of work, allowances, EPFO-ESIC and other statutory benefits (But only for the duration of contract).
  • 2016: Labour Ministry allowed Fixed term employment only to the textile sector using the powers under Industrial Employment (Standing Orders) Act.
  • Budget-2018: Finance Minister Jaitley permitted in all manufacturing sectors.

 

Positive: When factory owner has large production order to fulfill, he can hire more people for short duration without the compulsion of giving them ‘permanent jobs’. Ease of doing business will further improved.
Negative: Trade Unions fear the industrialist will convert all the permanent jobs into ‘fixed term contract jobs’. So employer may simply refuse to renew contract without giving reasons & replace them with cheaper younger labourers, job security is diminished. Although Govt clarified that industrialist can’t convert existing permanent jobs into fixed-term contract jobs.

 

Q. Find correct statement(s) about the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018:_______CSE-2019

  1. If rules for fixed-term employment are implemented, it becomes easier for the firms/companies to lay off workers.
  2. No notice of termination of employment shall be necessary in the case of temporary workman.

Codes:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

 

Minimum Wages

  • According International Labour Organization (ILO), minimum wage is the minimum amount of remuneration that an employer is legally required to pay to the worker. It’s usually expressed in amount per day or per hour.
  • The concept of minimum wages is not a modern day innovation. Even Arthashastra written in the 2nd Century BCE ordained the lowest wages for workers based on their skills and occupation.
  • While the Britishers in enacted Payment of Wages Act, 1936 in India to ensure workers are paid salaries in a timely fashion it did not provide for minimum wages computation or enforcement or equal remuneration for males and females.
  • After independence, the Directive Principles of State Policy mandated the State:
  • to secure a living wage, a decent standard of life for all workers (Article 43),
  • to provide adequate means of livelihood for all citizens & equal pay for equal work for men and women (Article 39)

 

 

Minimum Wages Act (1948):

The act protects both regular and casual workers Minimum Wages are fixed for different categories of workers according to skill levels, location and occupations. But suffers from following serious problems.

 

  1. Gender Injustice:
  • Minimum wages are the same for both male and female. But, minimum wages of security guards are higher than domestic workers (This work is mostly done by women).
  • So, minimum wages need to be accommodative of the gender justice angle as well.

 

  1. New-age workers not covered:
  • Minimum wage rates are set both by the Central and the State governments for employees working in selected ‘scheduled’ employment. But, with the advent of ICT and startups, there has been a massive expansion in job categories but the schedules are not updated.
  • Every 1 in 3 workers is not in the ambit of minimum wages.

 

  1. Unorganized workers not represented:
  • Act did not prescribe norms / formula for fixing minimum wage. However, it provided for tripartite advisory boards consisting of employers, employees of scheduled employments, and independent experts.
  • As a result, the unionized workers are able to get better wages compared to unorganized workers, because unorganized workers have no representation in such advisory boards.

 

 

Minimum Wage Reform: Anoop Satpathy Committee (2019)

This committee was setup by the Labour Ministry for Determining the Methodology for Fixation of the National Minimum Wage. It recommended:

 

Minimum wages should be decided based on the following factors:

  1. Cost of food basket: consisting of x units of calories, fats and proteins.
  2. Essential non-food items: such as clothing, fuel and light, house rent, education, medical expenses, footwear and transport.

 

Anoop: Frequently revise Minimum Wages:

  1. Minimum wages be updated every 6 months with changes in consumer price index (CPI)
  2. Consumption basket (food items, clothing etc.) should be reviewed every five years.

 

 

Code On Wages 2019:

This new act aims to merge the existing Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976 into a single Code on Wages, with following features:

Union Government

 

·         Sectors: Air transport service, Railways, Major Ports, mines, oil field, telecommunication, banking and insurance company, Central Government Jobs, CPSEs, autonomous bodies, their subsidiary bodies

·         To fix minimum wages here, Government will setup a Central Advisory Body of Employers, Employees, Independent Experts and 5 State representatives

·         Based on Central Advisory Body’s recommendations, the Union will fix Floor Wages, for different geographical areas Taking into account minimum living stds. (Meaning Anoop’s idea is accepted)

State Governments

 

·         Sectors: They’ll look after all the other sectors of employment which are not in Union’s domain.

·         They’ll have individual State Advisory Board.

·         They must keep Minimum wages more or Floor Wages.

Update Frequency – minimum wages norms will be revised every 5 yrs or less. − Here Minimum Wages à salary, allowance and other monetary components. But doesn’t include: bonus, travelling allowance.

 

 

Salient Features of Code on Wages 2019:

  1. Overtime Pay
  • Depending on sector: Union / State will fix max. hours in a normal working day.
  • If worker doing more: “Overtime Wage” = Min. 2x normal wages
  1. Payment Frequency
  • Employer may pay wages (i) daily, (ii) weekly, (iii) fortnightly, or (iv) monthly.
  • In coin, currency, cheque, bank money, e-transfer.
  1. Deduction
  • Employer may deduct worker’s wages for 1) penalty 2) absence 3) rental home 4) advance / loan etc.
  • But, deductions should not > 50% of the workers’ total wage.
  1. Right to Bonus
  • If worker’s salary less than “X” ₹ , then he is given Right to bonus
  • 33% of wages or ₹ 100 Whichever higher
  • But not more than 20% of his annual wages.
  1. Gender discrimination
  • It is forbidden. Employer must give equal pay for equal work
  1. Penalty for violation
  • Upto 3 months jail, ₹ 1 lakh fine

 

Above Code on Wages is already passed by Parliament and signed by the President. But to implement it in reality, the Government of India need to notify the rules & announce the minimum wages.

But, as of 2019-Dec, Government has not yet released it. Because, if minimum wages are raised then industrialists (who’re already suffering from economic slowdown) will suffer even more. So implementation is put on a backburner.

 

 

ES19 on Minimum Wages reforms (2019)

CEA Subramanian K. appreciated Code on Wages and suggested further reforms in this direction:

  • Simplification and Rationalisation
  • Present system is extremely complex with nearly 2000 minimum wages defined for various scheduled job categories. They should be clubbed together into six minimum wages based on skill category i.e. Unskilled, Semi-Skilled, Skilled And Highly Skilled.
  • Such Wage Code should be applicable on all jobs, all workers, and all sectors of economy – Whether it is organised or unorganised.
  • Use ICT to enforce Minimum Wage:
  • Bounded Rationality Humans can’t make the most rational and optimal decision because they do not have all the necessary information
  • So, spread MW related information through computer, mobile phones, rural haats, TV- Radio-Massmedia. Then both worker and boss can do effective bargaining.
  • Setup Digital dashboard to show updated minimum wages.
  • Easy to remember helpline / complaint number for the workers.
  • Labour ministry should announced we punished “X” number of violators, so it puts fear into other employers, and discourages them from violating minimum wages.
  • Adopt Best Practices from abroad
  • UAE: All companies are legally mandated to pay all types of salary through banks only.
  • South Africa: ‘Impimpi Alive’ system wherein workers can send anonymous SMS messages to Labour Department, and within 48 hrs, an inspector will come to the factory.
  • S.: They’ve apps to notify the minimum wages related updates to all the workers & companies.

 

 

Way Forward:

  • Indeed minimum wage enforcement is important.
  • Minimum wages is a subset of labour welfare policies. So we can always connect it with keyword such as inclusive growth, sustainable development, poverty removal, Social justice and accordingly we can make a conclusion linking them all:
  • India is witnessing a period of demographic dividend. But, even if the youth is equipped with vocational skills but unable to find well-paying jobs, then such circumstances will breed social unrest and perpetuate social injustice.
  • SDG Goal 8 requires India to promote full and productive employment and decent work for all. Minimum wages protect the vulnerable workers, reduce inequality and poverty.
  • Therefore, establishing an effective minimum wage system is important for sustainable development and inclusive growth.
  • Although for complying with the DPSP we have enacted multiple laws but successive Committees and economic surveys observed these laws have failed to bring about the change in letter and spirit so aforementioned reforms are necessary.

 

 

Factories Act Reforms:

  • Factories Act 1948 regulates safety, health & welfare of factory workers.
  • If an establishment is classified as ‘factory’, then the entrepreneur is required to install washroom, drinking water facility, spittoons, creche and other amenities depending on how many workers are employed.
  • He cannot engage women workers in night shift or near dangerous machineries.
  • His premises will be subjected to government inspection, If any violation he can be arrested and jailed. (entails more opportunity for the factory inspector to demand bribes)
  • The original act defines a factory as a premise where manufacturing is done using power and minimum 10 and above workers are employed during last 12 months. (20 workers, if no power used).

 

 

Factories (Amendment) Bill, 2014

  • Bill aims to relax definition of factory (20 or above workers) This will create ease of doing business for the small entrepreneurs because they will not have to comply with the factory act.
  • Allows the entrepreneur to engage women worker in night shift & near dangerous machineries subjected to various safety conditions – women equality & empowerment.
  • For smaller violations, the entrepreneur can pay specified penalty. No arrest or jail.
    The bill is still pending in the parliament, but Rajasthan and other state governments have amended their state laws to implement these reforms, because Labour is in concurrent list.

 

 

ES19 observed that

  • After initiating these reforms, Rajasthan has progressed much faster in terms of employment generation, attracting domestic and foreign companies.
  • Whereas inflexible states like W. Bengal, Bihar, Kerala are unable to create enough employment, cannot attract adequate capital into their states and their wages are lower as their productivity is lower.

 

Shram Suvidha Portal (2014)

 

Labour Ministry’s web-portal to facilitates ease of doing business in following manner:

  • Labour inspector has to upload reports within 48 hrs of inspecting the factory. This
  • reduces the scope of bribery, corruption & tempering of records.
  • Entrepreneur can do online registration & payment of ESIC and EPFO for his workers.
  • Entrepreneur can upload compliance documents under various factory / labour acts.

 

Separately, Labour Ministry also launched Samadhan portal (Software Application for Monitoring and Disposal, Handling of Industrial Disputes) for handling industrial disputes between workers’ trade union vs industrialist.

 

 

Real Estate Regulation & Development Act (RERA):

  • Ministry of Housing and Urban Poverty Alleviation.
  • While “land” is in the State List of the Constitution, but purchase of home, property and real estate ‘Contract’ comes under ambit of in the Concurrent List.
  • So, Parliament enacted, 2016 to regulate transactions between home or commercial property buyers and builders of the real estate projects, by setting up state level regulatory authorities called Real Estate Regulatory Authorities (RERAs). Higher appeal to Real Estate Appellate Tribunals.
  • The builder must get his project registered on RERA’s website, including the facilities like firefighting systems, sewage treatment plants, functional lifts etc. He can’t make advertisements or accept money from the buyers otherwise.
  • Real estate agents dealing in these projects also need to register with RERAs.
  • After RERA registration, project details will be published on RERA website where buyer can cross check / file complaints if any.
  • Then builder can accept money from buyers, but in a separate bank account (Escrow Account). If the project is not completed in time, builder will have to pay the home, shop, office – buyer’s monthly interest on bank loans (if any). RERA can order further relief, refund, arrange another builder to finish the project.
  • If defects found in building upto 5 years then, builder must repair free of cost.
  • Punishment – Penalty and jail upto 3 years.

 

Advantages: ·         RERA registration system is online & time bound. So this will improve ease of doing business for the Builder as he will not have to make repeated trips or bribes to govt. officials.

·         Consumer protection.

·         Since building has to be registered at RERA, money has to be deposited in separate bank account which will reduces the opportunities for tax evasion and avoidance; malpractice like selling same home to two buyers etc.

Challenges: ·         Since cost of compliance increases, builders may raise home prices prices (e.g. considering the additional business cost of doing ‘free repairs’ upto 5 years).

·         The building projects which were started before RERA act but still building construction is pending → difficult to get justice due to legal loopholes.

·         Some state governments have not yet appointed RERA chairman or setup RERA websites.

 

Conclusion:

World bank research indicates that countries that improve 10 points on the Ease of Doing business score create an additional 60 new businesses per 1 lakh population. Those new businesses create further job opportunities, which help reduce poverty & inequality in a country. Thus, ease of doing business for ‘corporates’ results into the ease of living for poor people. The aforementioned policies, act and challenges will play pivotal role in that regard  and must be addressed on priority basis.

 

TEXTILE And MSME Sector

Textiles Ministry:

Notable schemes and initiatives of Textile Ministry:

  • Indian textile industry, the second largest manufacturer and exporter in the world. Textile sector is the biggest employer after agriculture employing 4.5 crore people directly and another 6 crore people in allied sectors.
  • Jute Packaging Material (JPM) Act, 1987: requires the foodgrains and sugar companies to pack “specified%” of their produce in jute bags only. This ensures that jute bag industry can survive against the competition of cheap plastic bags.
  • Technical textiles: Fishing nets, bullet proof jackets, shoe laces, surgical gowns, parachute etc. items. They are lightest and toughest. They have a variety of applications in automobile, aerospace, architecture and building, occupational therapy, sport and apparel industries etc.

 

 

Budget-2020

India imports a technical textiles worth US$ 16 billion every year. So, to reverse this trend, we’ll launch a National Technical Textiles Mission from 2020-21 to 2023-24.

 

  • Project India Size: Presently the makers of shoe / shirt / pants etc. refer to size charts developed by UK / US standards e.g. Size 44 shirt, XL t-shirt etc. Textile ministry’s project aims to develop size charts specific to Indian consumers’ measurements.
  • India Handloom Brand logo (2015): It certifies that given handloom product – sari, dress material, bedsheet etc. is:
    1. Indeed handmade
    2. has zero defect
    3. has zero negative impact on the environment has authentic Indian traditional design. Such brand logo increases the appeal of Indian handcrafts to (mainly foreign) buyers. To obtain this logo, the weaver applies online to Textile Ministry and pays fees after his product is registered.
  • Previously, UPA had Mahatma Gandhi Bunkar Bima Yojana (MGBBY) – although gradually Modi switched those beneficiaries to Pradhan Mantri Suraksha Bima Yojana. So we need not worry about this obscure scheme.
  • In 2016, ‘Pehchan’cards given to handicraft artisans-linked with their Aadhaar numbers and bank accounts to help them avail various scheme benefits.
  • e-Cocoon App a mobile application for quality certification in silkworm seed sector.
  • E-Dhaga App, Bunkar Mitra helpline to advising the weavers on business.

 

 

Textile Ministry’s Central Sector Schemes:

  • National Handloom Development Programme: Weavers Mudra scheme – Textile ministry gives interest subvention and credit guarantee for the weavers’ bank loans upto prescribed limits.
  • Amended Technology Upgradation Funds Scheme (ATUFS): Provides funding to the textile industries to upgrade their machineries. Similarly Power Textiles scheme for power looms.
  • Ambedkar Hasthshilp Vikas Yojana, Handloom Weaver Comprehensive Welfare Scheme (HWCWS) etc. schemes to provide training / skill development / marketing support etc. to the artisans.
  • Samarth Scheme (2017) for Capacity Building in Textile Sector. Ministry of Skill Development & Entrepreneurship (MSDE) hires public & private sector institutes for giving training to youth for textile sector → Textile ministry pays ‘coaching fees’ to those institutes.
  • Pradhan Mantri Paridhan Rojgar Protsahan Yojana: Textile ministry pays ‘EPFO contribution of employer’s side’ for the first three years to encourage formal job creation in the textile sector. (Ref: Pillar1D Handout)

 

Textile & Leather Industry: Past Economic Surveys’ suggestions:

  • India is well positioned to get ahead of China in textile sector because wage costs in most Indian states are significantly lower than in China’s wages.
  • Textile leather industries should be encouraged to move to smaller towns so they can absorb the Indian women workers available there.
  • To increase export earning, we should go beyond textile i.e. readymade garments. But that requires R&D in foreigners’ fashion, style & size preferences.
  • Similarly, in leather industry, India primarily exports leather-based shoes, but nowadays foreigners prefer non-leather shoes for they are
  • Cheaper
  • More comfortable
  • More fashionable.
  • So, we’ve to do R&D for non-leather shoes targeted for them.

 

Challenges:

  • Getting quality cattle hides becoming difficult due to present socio- political atmosphere so leather industry facing problems
  • Bangladesh & Ethiopia emerging as textile/leather hubs and they get duty free access to USA/EU for being L.D.C. so India textile industry facing steep competition.

 

Conclusion:

Textile and Leather industry has great potential to generate new jobs especially for Indian women, & augment our income from exports. These industries can greatly help achieving SDG Goal 1 (End poverty), Goal 5: Gender Empowerment, Goal 8 (Promote sustained, inclusive and sustainable economic growth) Goal 10 (Reduce inequality within India). Aforementioned policy, scheme, initiative, challenges are crucial in that regard and must be addressed on priority basis.

 

Ministry of MSME:

PSU National Small Industries Corporation Limited (NSIC)
Attached offices Development Commissioner (MSME)
Statutory Bodies Khadi & Village Industries Commission (KVIC), Coir Board

 

MSME Amendment Bill 2018: Pending

Amendment Bill, 2018 aims to update old definitions:

  • Further, the bill empowers Union Govt to change these annual turnover limits through a notification up to three times the limits given above. (This saves the time in not having to introduce another bill in future to get permission of Parliament)

 

MSME Problems: RBI’s UK Sinha report (2019)

  • MSMEs contribute 45% to the manufacturing sector’s output and 40% to the nation’s exports. We should do following to help them:
  1. Easier registration:
  • MSMEs should be classified based on turnover, and not investment. (As given in above table)
  • Presently, MSMEs must do multiple registrations with various Departments and get different registration numbers. Better to use PAN number as their Unique Enterprise Identifier (UEI) number.
  1. Easier loans:
  • Non-availability of loan at reasonable rates is the most severe problem faced by MSME. So,
  • Mudra scheme offers three types of collateral free loans – Shishu (upto ₹50,000), Kishor (above ₹50k-upto ₹5 lakh), and Tarun (above ₹5 lakh- ₹10 lakh). UK Sinha suggested to double these loan amounts.
  • Loan application know-your-customer (KYC) processes require the MSME owner to come physically to the bank branch for verification. We should adopt video KYC.
  • Integrate data from GSTN, Income Tax, Credit Bureaus, Land ownership records, Fraud Reports, etc. & give it to banks so they can easily know the credit- worthiness of an MSME owner and process his loan applications.
  • PSB Loans In 59 Minutes: technical reforms to make it more easy for new MSME entrepreneur to get loans.
  • SIDBI should help venture capital funds to invest in MSME.
  1. Easier NPA resolution
  • Insolvency & Bankruptcy Code (IBC) technical norms should be fine-tuned for MSMEs’ NPA.
  • When Government bans plastic bags or SC puts limits on firecrackers, it affects MSME producing those goods, and turns their loans into NPA. So to help MSME during such ‘external shocks’, we need to create a Distressed Asset Fund to help them.
  1. Pending payments
  • MSME Act, 2006 need to be replaced with a better, more stronger law. So, MSME can get quick justice for delayed payments.
  • Setup an Information Utility portal. All MSME upload their invoices. If any client not paying on time, Government should punish him.
  1. Give them training & social security
  • Focus on technology adoption, capacity building, backward and forward linkages. Teach rural entrepreneurs how to register for GST, how to file IT return/PAN application, loan document preparation, etc.
  • Government should actively enroll MSME employees in pension & insurance schemes.

 

PM’s Employment Generation Programme (PMEGP) 2008 (continued it till 31 March 2020).

  • Nodal Agency – MSME Ministry, KVIC.
  • Central Sector Scheme – 100% funded by the union.
  • Beneficiary – Min. std. 8 pass person / Self-help-group wanting to setup a new micro- enterprises in the non-farm sector.
  • Suppose the cost to start a business is 100% then entrepreneurs himself has to contribute 5-10% from his pocket, KVIC gives him 15-35%, rest is given as bank loans. Thus it’s a ‘Credit linked Subsidy’
  • These percentages depend on whether the business is to be started in rural area or urban area, and whether the Entrepreneur is General /SC/ ST/ Women/ PH/ Minorities/ Ex-Servicemen/ North East.

 

ASPIRE (2015)

  • A Scheme for Promoting Innovation, Rural Industry and Entrepreneurship.
  • Nodal Agency – MSME Ministry. Central Sector Scheme i.e. 100% funded by the union.
  • To encourage Innovation & Rural Entrepreneurship, this scheme will set up Business Incubators and Startup fund for agro-based industry.

 

Solar Charkha Mission(2018)

  • Nodal Agency – MSME Ministry –
  • Central Sector Scheme i.e. 100% funded by the union. –  KVIC to setup solar charkha clusters in rural areas.
  • KVIC will provide training, subsidy for purchasing Solar Charkha, and interest subvention on the loans taken by the weavers / entrepreneurs.
  • Target – Generating 1 new lakh jobs.

 

 

Other initiatives in MSME Sector:

UAM 2015 onwards

 

To register an enterprise as MSME, its entrepreneur has to fill up an Udyog Aadhaar Memorandum(UAM)-free online form to MSME ministry. (Previously it was cumbersome form called ‘Entrepreneurs’ Memorandum’) He’ll be allotted a unique Udyog Aadhar id linked with his personal Aadhar number.

Udyog Aadhar id helps applying for various Govt. schemes for MSME

Udyami Mitra Yojana Toll-free helpline mainly to help the first generation entrepreneurs.

 

India Inclusive Innovation Fund For promoting grassroot innovations

 

SFURTI

 

Scheme of Fund for Regeneration of Traditional Industries → to setup clusters of Khadi, Coir, Handicraft; & help the entrepreneurs inside them.
CGTMSE

 

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) funded by MSME Ministry and SIDBI to help the MSE Entrepreneurs get loans without collateral from the banks.
MSME Samadhaan

 

MSME Act, 2006 requires State Governments to establish Micro and Small Enterprise Facilitation Council (MSEFC). If a buyer (Govt org at Union/State) is not paying money to MSME supplier within specified time limit, then MSEFC can order him to pay money with interest rate. MSME Ministry’s ‘MSME SAMADHAAN’ web portal helps filing online complaint for delayed payments.
MSME- Sampark

 

MSME Ministry’s webportal to connect jobseekers (passed out trainees / students of MSME Technology Centres) to recruiters (various companies).
Udyam Sangam, Udyam Samvad MSME ministry organizes such Workshops, Conventions, Mela usually at Delhi.

 

 

Public Procurement Order (PPO):

MSME Ministry’s Public Procurement Order 2012  requires every Central Ministry/Department/PSU to procure annually:

  • At least 25% of their goods & services requirement from Micro and Small Enterprises (MSE). Further:
  • 3% of that 25% must be procured from MSE owned by Women Entrepreneurs: MSE
  • 4% of that 25% from SC/ST entrepreneurs.
  • Give first purchase preference to local suppliers. Try to ensure that procured goods/services have minimum 50% local content (to encourage Make in India).
  • ‘MSME- Sambandh’ webportal (by MSME Ministry) monitors the progress.
    MSME Ministry gets power to issue such order / quota under MSME development Act 2006.

 

Public Procurement: GeM Portal

  • Government e-Marketplace (GeM) is an online portal that helps Govt organizations at union, state, PRI/ULB and PSUs to buy common use goods & services in transparent and efficient manner e.g. pen, pencil, stationery.
  • Nodal Ministry: Commerce Ministry’s not-for-profit company named ‘GeM Special purpose vehicle (SPV)’.
  • Verified sellers list products in this portal, Govt organizations buy it online from here.
  • Ensures transparency, efficiency, cost saving (compared to individual organization giving newspaper ads inviting tenders).
  • SWAYATT is Commerce Ministry’s initiative to promote Start-ups, Women and Youth entrepreneurs through GeM portal.

 

PM’s Initiatives for MSMEs (2018):

  • Loans upto 1 crore within 59 minutes through an online portal.
  • Interest subvention of 2% for all GST registered MSMEs on fresh or incremental (additional) loans. (Same again announced in Interim-Budget-2019)
  • MSME / Corporates can borrow money from banks/NBFCs under Bill of exchange / Factoring / Trade Receivables Discounting System (TReDS). Technical norms are further tweaked to help them.
  • All govt organizations to compulsorily procure 25 percent from MSMEs, out of that 25%, 3% from women owned MSME. (previously women did not have internal quota)
  • All CPSUs to compulsorily procure through GeM portal.
  • Simplified forms under labour laws. Factory / labour Inspector will inspect MSME unit via computerised random allotment- to prevent any nepotism / collusion.
  • Self-declaration for air and water pollution laws. Only 10% MSME units to be inspected to checked.
  • For minor violations under the Companies Act, entrepreneurs no longer have to approach NCLT, but file penalties online using simple forms.
  • 100 Technology Centres will be established. Govt. will bear 70% cost for establishing Pharma clusters.

 

ES2019: MSME dwarfism:

CEA Subramanian K. observed: Following benefits are available to Small firms:

 

Acts \ Policy Only Application on Implications
Industrial Disputes Act, 1948 100/> workers Factory owner must get Government approval before retrenching workers/shutting units
Factories Act, 1948 Min 10-20 workers depending on whether power is used in mfg/ or not? Factory owner must provide restroom, creches and other facilities
Employees State Insurance Act 1948 10/> workers Factory owner required to co contribute Rupees  in insurance / pension accounts of low-salaried workers
Employees Provident Fund & Miscellaneous Provision Act 1952 20/> workers Factory owner required to co contribute in insurance / pension accounts of low-salaried workers

 

 

Similarly, small firms get benefit of :

  • Priority Sector Lending, Credit Guarantee Fund Scheme, Public Procurement Quota.
  • Benefits in Government tendering such as no need to pay fees / security deposits. Some tender/contracts are exclusively reserved for MSME.
  • GST Composition scheme: where they have to submit the collected GST to Government on a quarterly basis instead of monthly basis, if turnover less than “X” crores.

 

MSME ‘Dwarfism’ is caused by Govt schemes:

ES2019 observed above policies create a “perverse” incentive for firms to remain small.

  • If the firms grow beyond these worker or turnover thresholds they will be unable to obtain the said benefits.
  • So, entrepreneurs find it optimal to start a new firm to continue availing these benefits.
  • But then firm doesn’t benefit from economies of scale, as a result they can’t create large number of jobs.
  • Thus infant firms à giant companies…No; but infant firms à ‘dwarfs’. Such dwarf firm contribute neither to productivity or jobs.
  • As a result, a 40-year old firm in Mexico generates 40 per cent more employment than the average 40-year old Indian firm.
  • Productivity level for 40-year old enterprises in the U.S. was more than 4 times of a newly setup firm. Whereas in India, productivity level for 40-year old firms in India was only 60% greater than a newly setup firm.

 

MSME ‘Dwarfism’: Suggested Reforms by ES2019

  • Under Priority Sector Lending (PSL), banks are required to lend 7.5% of their annual loans to Micro enterprises. These norms should be tweaked to give first preference to loan applications by ‘start ups’ and ‘infants’ firms.
  • Sunset Clause for Incentives: MSME benefits should have a ‘sunset’ clause, say, after 5-7 years, the firm will no longer be able to claim it. If owner starts a new firm, then based on his Aadhar card number, the system should alert authorities, so he can’t claim the MSME benefits in the new firm.
  • Focus on High Employment Sectors such as rubber and plastic products, electronic and optical products, transport equipment, machinery, textiles and leather & leather products,
  • Focus on Service Sectors with high spillover effects such as Tourism. Because it can open up new jobs in tour and safari guides, hotels, catering and housekeeping staff, shops at tourist spots etc. It would also reduce the migration of the rural labour force to other States.

 

Way forward:

  • MSMEs contribute 45 per cent to the manufacturing sector’s output and 40 per cent to the nation’s exports.
  • India’s total exports and provide employment & entrepreneurship opportunities to weaker sections of the society.
  • Thus they play a pivotal role for both industrial development and human development of India.

 

Q. Find correct statement(s): (CSE-2018)

  1. The Food Safety and Standards Act, 2006 replaced the Prevention of Food Adulteration Act, 1954.
  2. The Food Safety and Standards Authority of India (FSSAI) is under the charge of Director General of Health Services in the Union Ministry of Health and Family Welfare.
  3. Both 1 and 2
  4. Neither 1 nor 2

 

MAINS QUESTIONS GSM2 and GSM3

Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports rather than capital-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports. 2017
Has the Indian governmental system responded adequately to the demands of Liberalization, Privatization and Globalization started in 1991? What can the government do to be responsive to this important change? 2016
Capitalism has guided the world economy to unprecedented prosperity. However, it often encourages short-sightedness and contributes to wide disparities between the rich and the poor. In this light, would it be correct to believe and adopt capitalism driving inclusive growth in India? Discuss. 2014
“Success of ‘Make in India’ programme depends on the success of ‘Skill India’ programme and radical labour reforms.” Discuss with logical arguments. 2015
While we found India’s demographic dividend, we ignore the dropping rates of employability. What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain. 2014
Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis industry in the country?
Can India become a developed country without a strong industrial base?
2014
Examine the impact of liberalization on companies owned by Indian. Are the competing with the MNCs satisfactorily? 2013

 

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