Economic Survey 2021-22: Ch. 8 INDUSTRY AND INFRASTRUCTURE

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ECONOMIC SURVEY 2021-22: CHAPTER 8

INDUSTRY AND INFRASTRUCTURE

 

BIRD'S EYE VIEW

  • Global Industrial activity continued to be affected by the disruptions caused by the COVID-19 pandemic.
  • While the Indian industry was no exception to these disruptions, its performance has improved in 2021-22.
  • Gradual unlocking of the economy, record vaccinations, improvement in consumer demand, continued policy support towards industries by the government in the form of AtmaNirbhar Bharat Abhiyan and further reinforcements in 2021-22 have led to an upturn in the performance of the industrial sector.
  • The growth of the industrial sector, in the first half of 2021- 22, was 22.9 per cent vis a vis the corresponding period of 2020-21and is expected to grow by 11.8 percent in this financial year. Buoyant FDI inflows amid improvements in overall business sentiments foretell a positive outlook for the industry.
  • Several initiatives such as the PLI scheme, National Infrastructure Pipeline (NIP), National Monetization Plan (NMP), amongst others, have been taken to propel the infrastructure investment.

INTRODUCTION

  • The share of the industrial sector in the nominal GVA(at current prices) was 25.9 percent in 2020-21.
    • With the industrial sector recovering and expected to grow at 11.8 percent, as per advance estimates for 2021-22 by National Statistical Office, the industry’s share is expected to increase to 28.2 percent.
  • Manufacturing, with an average share of 16.3 per cent in nominal GVA over the last decade, has a dominant presence within the industrial sector.
    • In 2020-21, the share of manufacturing fell to 14.4 per cent but is expected to improve to15.3 per cent in 2021-22

INDEX OF INDUSTRIAL PRODUCTION (IIP)

  • The impact of the pandemic on the industrial sector is reflected in the negative growth of 8.4 percent in 2020-21.
    • In April-November 2021-22 the IIP grew by 17.4 per cent as compared to (-15.3) per cent in the corresponding period of the previous year
  • The IIP also provides data for 23 subgroups of the manufacturing sector.
    • In the period, April-November 2021-22, all the 23 sectors recorded positive growth.
  • The supply-side measures as also steps to bolster demand, taken to address the contraction, are responsible for the significantly improved performance of the industrial sector in 2021- 22.

EIGHT CORE INDEX

  • The growth rate of the ICI index during the period of April-November2021-22was 13.7percent as compared to (-)11.1 percent in the corresponding period of the last financial year.
    • This acceleration in ICI is mainly driven by improved performance in steel, cement, natural gas, coal and electricity.
  • The Index of eight core industries has shown a pickup in growth in almost all its components barring crude oil and fertilizers in 2021-22(April-November) as compared to 2019-20(April-November)

  • RBI’s Business Expectation Index (BEI).
    • This index gives a glimpse of the demand conditions in the manufacturing sector by combining parameters which include overall business situation, production, order books, inventory of raw material and finished goods, profit margin, employment, exports and capacity utilization
  • BEI remained stable with only a slight downturn in the second quarter of 2020-21 owing to the onset of the pandemic in the first quarter of that year.
    • Since then, it has been on an upswing

GROSS FIXED CAPITAL FORMATION

  • During 2019-20, the share of industrial sector in total GFCF in the economy (at current prices) was recorded at 30.1 per cent

FDI IN INDUSTRIES

  • FDI inflows in India stood at US $ 45.14 billion in 2014-15 and have continuously increased since then.
  • India registered its highest-ever annual FDI inflow of US$ 81.97 billion (provisional) in 2020-21.
  • Over the last seven financial years (2014-21), India received FDI inflow worth US$ 440.27 billion which is nearly 58 per cent of the FDI received by the country in the last 21 years (US$ 763.83 billion).

FDI POLICY REFORMS AND OTHER MEASURES DURING COVID-19 PANDEMIC 

  • Defence: FDI in defence sector is allowed up to 74 per cent through automatic route (from earlier 49 per cent) for companies seeking new industrial licenses.
    • FDI beyond 74 per cent and up to 100 per cent will be permitted under the Government route.
  • Insurance: Raised the permissible FDI limit from 49 per cent to 74 per cent in Insurance Companies under the automatic route and allowed foreign ownership and control with safeguards.
  • Telecom: Permit foreign investment up to 100 per cent under automatic route in Telecom services sector
  • Petroleum & Natural Gas sector: Permit foreign investment up to 100 per cent under the automatic route in cases where the Government has accorded ‘in-principle’ approval for strategic disinvestment of a Public Sector Undertaking (PSU) engaged in the Petroleum and Natural Gas Sector
  • Government amended the FDI policy according to which an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
  • FDI Monitoring Cell’ has been formed which follows up with applicant/ investor, to expedite FDI proposals with a view identify and hurdles if any.

SECTOR WISE PERFORMANCE AND ISSUES IN INDUSTRY

COAL

  • Coal is the most important and abundant fossil fuel in India and accounts for 55 per cent of the country’s energy needs.
    • Coal production increased by 12.24 per cent in April-October 2021 as compared to (-) 3.91 per cent in April-October 2020
  • Opening up of coal mining for the private sector is the most ambitious coal sector reform.
    • This will bring efficiency & competition in coal production, attract investments & best-in-class technology, and help create more jobs in the coal sector.
    • So far, 28 coal mines have been successfully auctioned.
    • Out of these, 27 coal mines have been auctioned to private companies.
    • Auction process for 88 coal mines is underway

MICRO SMALL MEDIUM ENTERPRISE

  • The relative importance of MSMEs can be gauged from the fact that the share of MSME GVA in total GVA (current prices) for 2019-20 was 33.08 per cent.
  • Reforms
    • The revision in the definition of MSMEs brought in w.e.f. 1st July 2020 as part of the AtmaNirbhar Bharat package introduced a composite criteria of investment and annual turnover- and identical limits for the manufacturing and services sector
    • Micro Small Enterprises- Cluster Development Programme (MSE-CDP), Prime Minister Employment Generation Programme (PMEGP) and Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
    • Udyam Registration Portal: Fully online, digital, paperless and is based on the self- declaration.
      • No documents or proof are required to be uploaded for registering as a micro, small and medium enterprise
    • CHAMPIONS portal: Information dissemination, Scheme/Programme wise mapping of officials of the Ministry for fast track responses of grievances.

TEXTILES

  • The textile industry is the second-largest employment generator in the country, next only to agriculture.
  • Production-Linked Incentive (PLI) Scheme for Man-Made Fiber (MMF) segment and technical textiles will focus on the promotion of 40 MMF apparel and 10 Technical textiles lines and create global champions.
  • Setting up of 7 PM Mega Integrated Textiles Region And Apparel Park ( MITRA) inspired from 5F’s -farm to fibre; fibre to factory; factory to fashion; fashion to foreign

ELECTRONIC INDUSTRY

  • The electronics industry is the world’s largest and fastest-growing industry and is increasingly finding applications in all sectors of the economy.
  • Initiatives
    • National Policy on Electronics 2019 (NPE 2019)
    • Production Linked Incentive (PLI) Schemes for Large Scale Electronics Manufacturing,
    • PLI Scheme for IT Hardware;
    • Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS); and
    • Modified Electronics Manufacturing Clusters 2.0 (EMC 2.0)
  • Government’s intervention to boost this industry has come at a time when the global economy is facing an acute shortage of semiconductors due to severe disruptions in supply chains.
    • The PLI and other schemes to boost semiconductors will not only help domestic companies to overcome the challenges posed by COVID 19 but also assist them to become globally competitive, especially in chip making.

PRODUCTION LINKED INCENTIVES SCHEME

  • This scheme is expected to make domestic manufacturing globally competitive and will create global champions in manufacturing.
  • The Government has already committed Rs.1.97 lakh crores, over 5 years starting from 2021-22 in 13 sectors.
  • Recently, PLI in the 14th sector – drones and drone components has been included with an additional layout of Rs. 120 crores.
  • The initial 13 sectors are Electronic/Technology Products, Medical devices, Drug intermediaries and APIs, Mobile Manufacturing and Specified Electronic Components, Pharmaceuticals drugs, Telecom & Networking Products, Telecommunications, Food Products, White Goods (ACs & LED), High-Efficiency Solar PV Modules, Automobiles & Auto Components, Advance Chemistry Cell (ACC) Battery, Textile Products: Man-Made Fabrics segment and technical textiles and Specialty Steel.

PHARMACEUTICALS

  • The Indian Pharmaceutical industry ranks third in the world in pharmaceutical production by volume.
    • During 2020-21, total pharma exports US$ 24.4 Bn against the total pharma import of US$7.0Bn thereby generating a trade surplus of US$17.5 Bn.
  • India is the largest supplier of generic medicines with a 20 per cent share in the global supply.
  • Price competitiveness and good quality have enabled Indian medicines producers to be dominant players in the world market, thereby making the country the “Pharmacy of the world”.
  • FDI in the pharmaceutical sector has seen a sudden spurt in 2020-21 vis a vis the previous year showing a 200 percent increase.
  • Although a prominent player in formulations, the country is significantly dependent on the import of bulk drugs that are used in the formulation of the medicine.
    • In certain cases, import dependence varies between 80-100 per cent.

  • Initiatives:
    • The Scheme for Promotion of Bulk Drug Parks that envisages the creation of world-class infrastructure facilities in order to make the Indian bulk drug industry a global leader
    • Production linked incentive (PLI) scheme for Bulk drugs has been approved for promotion of domestic manufacturing of 53 critical APIs
    • Production Linked Incentive (PLI) Scheme for Promoting Domestic Manufacturing of Medical Devices
    • Production linked incentive (PLI) scheme for Pharmaceuticals

INFRASTRUCTURE

  • NATIONAL INFRASTRUCTURE PIPELINE (NIP)
    • As per the database of the World Bank on private participation in infrastructure, India is ranked second among developing countries both by the number of PPP Projects as well as the associated investments.
    • In order to achieve a GDP of $5 trillion by 2024-25, India needs to spend about $1.4 trillion over these years on infrastructure.
      • During FYs 2008-17, India invested about US$1.1 trillion on infrastructure.

  • NATIONAL MONETISATION PIPELINE (NMP)
    • Asset monetisation, entails a limited period license/ lease of an asset, owned by the government or public authority, to a private sector entity for upfront or periodic consideration
    • The pipeline includes a selection of de-risked and brownfield assets with stable revenue generation profiles (or long rights) which will make for an attractive investment option.
    • The total indicative value of NMP for core assets of the Central Government has been estimated at Rs 6.0 lakh crore over a 4-year period (5.4percent of total infrastructure investment envisaged under NIP).

PM GATI SHAKTI

  • It is an integrated plan ensuring multi-modal and seamless connectivity for people, goods and services.
  • It covers 16 ministries and infrastructure initiatives like Bharatmala, Sagarmala, inland waterways, dry/land ports, UDAN etc.
  • It is also expected to include social infrastructures like hospitals and universities.

PORTS

  • Initiatives
    • Sagarmala is a National Programme aimed at port modernization & new port development, connectivity enhancement, port-led industrialization, coastal community development, coastal shipping and Inland water transport.
    • The Major Port Authorities Act 2021 provides for inter alia regulation, operation and planning of major ports in India and vests the administration, control and management of such ports upon the Boards of Major Port Authorities.
    • The Maritime India Vision 2030 (MIV 2030), a blueprint to ensure coordinated and accelerated growth of India’s maritime sector in the next decade was released in March 2021.
    • The objective is to develop world-class mega ports, transshipment hubs and ensure infrastructure modernization

CIVIL AVIATION

  • Initiatives
    • UDAN is a regional airport development program of the Government of India and part of the Regional Connectivity Scheme (RCS) of upgrading underserviced air routes.
    • Till launching of UDAN in 2016, India had 74 airports have scheduled operations.
    • But, within 4 years under UDAN, four rounds of bidding under RCS- UDAN have taken place and 153 RCS airports including 12 water aerodromes & 36 Helipads have been identified for the operation of RCS flights
    • The government has liberalized drone rules 2021 in August 2021 and released PLI scheme for drones on 15 September 2021.
    • Disinvestment of Air India
    • Privatization of Airports: Airports Authority of India (AAI) has awarded six airports namely, Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru for Operations, Management and Development to the highest bidder i.e., M/s Adani Enterprises Limited (AEL) under Public-Private Partnership (PPP) mode for a lease period of 50 years

TELECOM

  • India is the world’s second-largest telecommunications market.
  • In March 2021, 45 per cent of telephone subscribers were based in rural India and 55 per cent in urban areas.
  • Internet penetration in the country is increasing steadily with internet subscribers increasing from 302.33 million in march 2015 to 833.71 million in June 2021.
  • Under the flagship BharatNet project, as of 27.09.2021, 5.46 lakh km Optical Fiber Cable has been laid, a total of 1.73 lakh Gram Panchayats (GP) have been connected by Optical Fiber Cable (OFC) and 1.59 lakh Gram Panchayats are service ready on OFC.
  • The Government of India is implementing a Comprehensive Telecom Development Plan (CTDP) for the North-Eastern Region and Comprehensive Telecom Development Plan for Islands to provide mobile connectivity in the uncovered villages and along National Highways in the North-east.
  • Recent reforms
    • Rationalization of Adjusted Gross Revenue: Non-telecom revenue will be excluded on a prospective basis from the definition of AGR
    • Spectrum Tenure: In future auctions, tenure of the spectrum increased from 20 to 30 years.
    • No Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.
    • To encourage investment, 100 per cent Foreign Direct Investment (FDI) under automatic route has been permitted in Telecom Sector with all safeguards applying.
    • Moratorium/Deferment on due payments of spectrum purchased in past auctions (excluding the auction of 2021) for up to four years
    • Moratorium/Deferment of up to four years in annual payments of dues arising out of the AGR judgment

PETROLEUM, CRUDE AND NATURAL GAS

  • India depends on imports to meet more than 80 per cent of its requirements.
  • The petroleum sector played a critical role throughout the COVID 19 lockdown period by maintaining fuel supplies across the country, without any interruption.
  • The scheme of three free cylinders to Ujjwala beneficiaries provided much-needed relief to the poor households during Covid times.
  • The second phase of the Pradhan Mantri Ujjwala Yojana, Ujjawala 2.0, was launched on 10th August 2021 on a pan India basis to provide an additional one crore LPG connections along with free first refill and stove. Ujjwala 2.0 focuses on migrants and poor women from low LPG coverage areas.
  • Measures are taken to develop the national gas grid and city gas distribution network
    • National Gas Grid: With the aim to create a nationwide gas grid, Petroleum and Natural Gas Regulatory Board (PNGRB) has authorized approximately 33,764 km natural gas pipeline network across the country, as of 31.03.2021.
    • Pradhan Mantri Urja Ganga (2016):
    • North East Gas Grid (2020)
    • City Gas Distribution Network (CGD)

ELECTRICITY

RENEWABLE ENERGY

  • India has witnessed the fastest rate of growth in renewable energy capacity addition among all large economies, during the last 7.5 years
  • The share of renewable energy in electric installed capacity is estimated to be about 38.27 per cent (as of October 2021) and its share in electric energy generation is estimated to be about 26.96 per cent (for the month of August 2021)
  • The difference in the share of renewable energy in installed capacity and electricity generation is because of the variability in the sunshine hours or extent of wind which in turn will determine the utilization of the installed capacity
  • The energy losses in transformation, transmission and distribution during the year 2019- 20 was at 20.46 per cent for all India which was highest for the North East region – 29.98 per cent

CONCLUSION

  • Initiatives under Atma Nirbhar Bharat include the introduction of structural and procedural reforms, record vaccinations, various PLI schemes designed to attract investments in sectors of core competency and cutting edge technology, Make-in-India programme to boost domestic manufacturing capacity, reduction of the corporate tax rate, etc and steps to improve operational efficiency have helped the industrial sector to keep up its ante.
  • The sector has started to recover steadily and according to the National Statistical Office, is expected to grow at 11.8 percent in 2021-22

GLOSSARY

  • The Index of Industrial Production (IIP) is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
    • The base year for IIP is 2011-2012.
  • Eight Core Index:
    • The monthly Index of Eight Core Industries (ICI) measures the collective and individual performance of production in selected eight core industries like Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
    • This is an index of the eight most fundamental industrial sectors of the Indian economy and comprises 40.27 per cent of the weight in IIP
  • Capacity utilization (CU)
    • Capacity Utilization in the context of power generation is the percentage representing the extent to which a generating unit fulfilled its capacity in generating electric power over a given time period.
  • RBI’s Business Expectation Index (BEI)
    • This index gives a glimpse of the demand conditions in the manufacturing sector by combining parameters which include overall business situation, production, order books, inventory of raw material and finished goods, profit margin, employment, exports and capacity utilization.
  • Gross fixed capital formation (GFCF)
    • It is the gross addition to fixed assets like machinery and equipment, intangible assets and indicates the state of investments in the economy.



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