Indian Economy II
India is one of the newly industrialized countries, and the country was economically mostly dependent on agriculture post independence. Even today, most of her people are dependent on agriculture and the economy is mostly dependent on service sector. India is one of the very few countries which skipped industrialisation and jumped directly to services after agriculture.
Industrial Policy Resolution, 1948
The Industrial Policy Resolution of April, 1948 classified industries into four categories, which are as follows:
1. Defence and strategic industries such as manufacture of arms and ammunition, production and control of atomic energy and ownership and management of railways were to be the exclusive monopoly of Central Government.
2. In the case of basic and key industries such as coal, iron and steel, aircraft manufacture, ship building etc. all new units were to be set-up by the state while the old units were to continue to be run by the private entrepreneurs for the next ten years when the question of their nationalisation was to be decided.
3. Some industries were to remain in private ownership but subject to overall regulation and control by the government. Such industries included automobiles and tractors, sugar, cement, cotton and woollen textiles etc.
4. Rest of the industries were to remain with the private sector where government were to exercise only an overall general control.
Policy towards Foreign Capital:
The Industrial Policy 1948 made it clear that the Government would welcome foreign capital provided it comes without any strings or conditions attached to such foreign investments. It also emphasized that foreign capital will be allowed in joint participation with Indian capital and that majority in management and control will remain in Indian hands.
Role of Cottage and Small Scale Industries:
The Industrial Policy 1948 emphasised the role of cottage and small scale industries in economic development. It sought to provide encouragement to these industries in India’s industrial development programmes because these industries make use of local resources and provide larger employment opportunities.
The Industrial Policy of 1948 thus laid down the foundation of a mixed economy wherein the public sector (the state) and the private sector were to co-exist and work in their demarcated areas.
Industrial policy resolution 1956
In December 1954, the Parliament adopted the ‘Socialistic Pattern of Society’ as the goal of economic policy which called for the state or the public sector to increase its sphere of activity in industrial sector and thus prevent concentration of economic power in private hands. In view of ail these developments, a new industrial policy was announced in April 1956. The main features of this Industrial Policy Resolution of 1956 were as follows:
New Classification of industries:
The Industrial Policy of 1956 adopted the classification of industries into three categories viz. Schedule A industries, (ii) Schedule В industries, and (iii) Schedule С industries according to the degree of state ownership and participation in their development:
1. Schedule A, which contained 17 Industries. All new units in these industries, such where their establishment in the private sector has ready been approved, would be set up only be the state.
2. Schedule В which contained 12 industries, such industries would be progressively state owned, but private enterprise is expected to supplement the efforts of the state in these fields.
3. Schedule C. All remaining industries fell in this category; the future development of these industries had been left to the initiative and enterprise of the private sector.
Assistance to Private Sector:
While the Industrial Policy of 1956 sought to give a dominant role to public sector, at the same time it assured a fair treatment to the private sector. The ‘policy’ said that the state would continue to strengthen and expand financial institutions that extend financial assistance to private industry and cooperative enterprises. The state would also strengthen infrastructure (power, transport etc.) to help private sector.
Expanded role of Cottage and Small-Scale Industries:
The Industrial Policy of 1956 laid stress on the role of cottage and small scale industries for generating larger employment opportunities, making use of local manpower and resources and reducing- regional inequalities in industrial development. It stated that the Government would continue pursuing a policy of supporting such industries through tax concessions and subsidies.
Balanced Industrial Growth among Various Regions:
The Industrial Policy, 1956 helped to reduce regional disparities in industrial development. The policy stated that facilities for development will be made available to industrially backward areas. The state, apart from setting up more public sector industries in these backward areas, would provide incentives such as tax concessions, subsidized loans etc., to the private sector to start industries in these backward regions.
Role of Foreign Capital:
The industrial Policy of 1956 recognised the important role of foreign capital in country’s development. The foreign capital supplemented domestic savings. The country therefore welcomed the inflow of foreign capital. But the ‘Policy’ made it clear that inflow of foreign capital will be permitted subject to the condition that major share in management, ownership and control should be in the hands of Indians.
Development of managerial and Technical Cadres:
The Industrial Policy, 1956 noted that the programme of rapid industrialisation in India would create a large demand for managerial and technical personnel. Therefore, the policy emphasised the setting up and strengthening of institutions that provided such personnel. It was also announced that proper technical and managerial cadres in the public services would be established.
Incentives to labor:
The Industrial Policy, 1956 recognised the important role of labour as a partner in the task of development. The ‘policy’ therefore put emphasis on the provision of adequate incentives to workers and improvement in their working and service conditions. It laid down that wherever possible the workers should be progressively associated with that management so that they are enthusiastically involved in the development process.
The Industrial Policy 1956 thus provided a comprehensive framework for industrial development in India. However, this policy has been criticised on the grounds that by enormously expanding the field of public sector it had drastically reduced the area of activity for the private sector.
The supporters of the 1956 Industrial Policy, however felt that there were no undue restrictions or curbs on the private sector. Except for 17 industries in schedule A, all other industries remained open for the private sector. Even in the case of schedule A industries, the state could permit private entrepreneurs to set up undertakings if in the interest of development it was thought to be desirable.
The expansion in the sphere of public sector was made with a view to ensuring larger state participation for achieving rapid industrial development, and for achieving the ideals of the socialistic pattern of society such as preventing concentration of economic power and protecting common people from capitalist exploitation.
The policy thus visualised a more cordial rather than the competition between public and private sectors. It aimed at better со-ordination between the two sectors and to make them work together towards achieving the goal of rapid and harmonious industrial development.
Industrial policy resolution, 1969
This was basically a licencing policy which aimed at solving the shortcomings of the licencing policy started by the Industrial Policy of 1956. The experts and the industrialists (new comers) complained that the industrial licencing policy was serving just the opposite purpose for which it was mooted. Inspired by the socialistic ideals and nationalistic feelings the licencing policy had the following reasons:
1. Exploitation of resources for the development of all
2. Priority of resource exploitation for the industries
3. Price-control of the goods produced by the licenced industries
4. Checking concentration of economic power
5. Channelising investment into desired direction (according to planning process)
In practice, the licencing policy was not serving the above-given purpose properly. A powerful industrial house was always able to procure fresh licences at the cost of a new entrepreneur. The price regulation policy via licencing was aimed at helping the public by providing cheaper goods but it indirectly served the private licenced industries ultimately (as central subsidies were given to the private companies from where it was to benefit the poor in the form of cheaper goods).
Similarly, the older and well-established industrial houses were capable of creating hurdles for the newer ones with the help of different kinds of trade practices forcing the latter to agree for sell-outs and takeovers. A number of committees were set up by the government to look into the matter and suggest remedies. The committees on industrial licencing policy review pointed out several shortcomings of the policy but it also accepted the useful role of industrial licencing. Finally, it was in 1969 that the new industrial licencing policy was announced which affected the following major changes in the area:
The Monopolistic and Restrictive Trade Practices (MRTP) Act was passed. The Act intended to regulate the trading and commercial practices of the firms and checking monopoly and concentration of economic power.
The firms with assets of ‘25 crore or more were put under obligation of taking permission from the Government of India before any expansion, greenfield venture and takeover of other firms (as per the MRTP Act). Such firms came to be known as the ‘MRTP Companies’. The upper limit (known as the ‘MRTP limit’) for such companies was revised upward to ‘50 crore in 1980 and ‘100 crore in 1985. For the redressal of the prohibited and restricted practices of trade, the Government did set up a MRTP Commission.
The Industrial Policy Statement, 1973
The Industrial Policy Statement, 1973 set the tone for the 5th Five-Year Plan. It stated that preference was to be given to small and medium enterprises for setting up new capacity and they along with co-operatives would be encouraged to produce mass consumption goods. The size of asset base for qualification as a large industrial house was reduced from Rs.35 crore to Rs.20 crore to effectively control the concentration of economic power.
Simultaneously certain basic, critical and strategic industries were opened to Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) companies and foreign concerns. Also subject to certain exception, undertakings with an investment of less thanRs.1 crore in land, building and machinery were exempted from licencing provisions for expanding an existing undertaking or setting up a new one.
The Industrial Policy Statement, 1977
A government with a different political ideology came to power in 1977. The Industrial Policy Statement, 1977 (IPS77) followed. It contained an indictment of the previous industrial policies—low growth of industrial output and per capita national income, increased unemployment, widening rural-urban disparities, failure to restrain the disproportionate growth of large houses, inadequate power availability and widespread incidence of industrial sickness.
The main thrust was on ‘effective promotion of cottage and small industries’. The number of items exclusively reserved for production in the small-scale sector was increased from 180 to 500. Within this sector, a tiny sector was carved out which was eligible for margin money assistance. District industry centres were set up in each district to provide under a single roof ‘all the services and support required by small and village industries’.
Measures for ‘effective financial support’ and marketing support to the small-scale sector via purchase preference and reservation for exclusive purchase by the government and public sector units were outlined.
It also stressed the importance of development and application of appropriate technologies, development of indigenous technologies and outright purchase and adaption of foreign technologies, where Indian technology was not available.
The areas for large-scale industry were specified. The MRTP Act and licencing provisions would be the main instruments to regulate the activities of large houses which would have to henceforth depend on their internally generated resources to finance new or expansion of projects.
An intent to liberalise imports was stated, while asserting that ‘self-reliance must continue to be a paramount objective of the country’s industrial and economic policy’. Incentives for export of manufactures and some relaxation in compulsory export obligations were also announced.
The other pronouncements were with regards to expanding the role of the public sector, dispersal of industries, basis of pricing of products subject to price control, workers’ participation, measures to deal with industrial sickness and removal of irritants in industrial approval procedures. Assistance for shifting large industries from existing metropolitan areas to approved locations in backward areas and denial of licences and financial assistance to industries proposed to be set up within certain limits of urban agglomerations whose population was more than 500,000, as per the Census of 1971, were stated.
The Industrial Policy Statement, 1980
The Industrial Policy Statement, 1980 outlined its policy on industrial development with Industrial Policy Resolution, 1956 once again as its philosophical basis. Socioeconomic objectives such as maximising production, higher employment generation, correction of regional imbalances, promotion of economic federalism, promotion of export-oriented and import substitution industries, consumer protection and strengthening of agriculture base were enumerated.
While blaming the previous governments for choking industrial growth, it set its first task to revive the economic infrastructure, followed by rehabilitating faith in the public sector and promoting the concept of economic federalism through setting up of nucleus plants.
Development of the private sector ‘in consonance with targets and objectives of national plans and policies’, measures for rapid growth of small-scale industries, easing licencing procedures and locational policy to maximise production, productivity increase through induction of advanced technology, transfer of technology and modernisation packages, incentivising adoption of technologies for optimal utilization of energy, use of alternative sources of energy and measures to control pollution, streamlining licencing procedures and dealing with industrial sickness were some of the other priority areas identified for action.
To accelerate industrial growth, a number of policy and procedural changes were introduced in 1985 and 1986. In 1989, setting up of 71 growth centres with basic infrastructural facilities were touted as the way forward. These efforts met with limited success. None of these measures could stall the onset of the foreign exchange crisis which descended on the country during 1989-1991.
The absence of a structural transformation in the form of increased contribution of manufacturing to gross domestic product, as first envisaged in the Bombay Action Plan, was a significant contributing factor to this unprecedented financial crisis. A surgical operation was required, since the idea of industrial licencing on large scale was inherently flawed and in practice had impeded, rather than accelerated, the country’s industrial development.
Industry Policy of 1985 and 1986
The Seventh Plan recognised the need to consolidate and to take initiatives to prepare the Indian industry to respond effectively to emerging challenges. A number of policy and procedural changes were introduced in 1985 and 1986, aimed at increasing productivity, reducing costs and improving quality. The focus was on opening the domestic market to increased competition and readying our industry to stand on its own in the face of international competition. The public sector was freed from a number of constraints and given a larger measure of autonomy.
1. The technological and managerial modernisation of the industry was pursued as the key instrument for increasing productivity and improving our competitiveness in the world.
2. The Government pledged to launching a reinvigorated struggle for social and economic justice, to end poverty and unemployment and to build a modern, democratic, socialist, prosperous and forward-looking India.
3. The Government also committed to development and utilisation of indigenous capabilities in technology and manufacturing as well as its upgradation to world standards.
4. The Government would provide enhanced support to the small-scale sector so that it flourished in an environment of economic efficiency and continuous technological upgradation.
New Industrial policy 1991
The New Industrial Policy of 1991 comes at the center of economic reforms that launched during the early 1990s. All the later reform measures were derived out of the new industrial policy. The Policy has brought comprehensive changes in economic regulation in the country. As the name suggests, these reform measures were made in different areas related to the industrial sector.
As part of the policy, the role of public sector was redefined. A dedicated reform policy for the public sector including the disinvestment programme was launched under the NIP 1991.
The most important reform measure of the new industrial policy was that it ended the practice of industrial licensing in India.
The new policy contained policy directions for reforms and thus for LPG (Liberalisation, Privatisation and Globalisation). It enlarged the scope of private sector participation to almost all industrial sectors except three (modified). Simultaneously, the policy gave welcome to foreign investment and foreign technology. Since 1991, the country’s policy on foreign investment gradually evolving through the introduction of liberalization measures in a phasewise manner.
Perhaps, the most welcome change under the new industrial policy was the abolition of the practice of industrial licensing. The1991 policy limited industrial licensing to less than fifteen sectors. It meant that to start an industry, one had to go for license and waiting only in the case of these few selected industries. This ended the era of license raj or red tapism in the country. The 1991 industrial policy contained the root of the liberalization, privatization and globalization drive made in the country in the later period. The policy brought changes in the following aspects of industrial regulation:
1. Industrial delicensing
2. Deregulation of the industrial sector
3. Public sector policy (dereservation and reform of PSEs)
4. Abolition of MRTP Act
5. Foreign investment policy and foreign technology policy.
1. Industrial delicensing policy or the end of red tapism
The most important part of the new industrial policy of 1991 was the end of the industrial licensing or the license raj or red tapism. Under the industrial licensing policies, private sector firms had to secure licenses to start an industry. This created long delays in the start up of industries. The Industrial policy of 1991 almost abandoned the industrial licensing system. It reduced industrial licensing to fifteen sectors. Now only 13 sector needed license for starting an industrial operation.
2. Dereservation of the industrial sector:
Previously, the public sector was given reservation, especially in the capital goods and key industries. Under industrial deregulation, most of the industrial sectors was opened to the private sector as well. Previously, most of the industrial sectors were reserved to the public sector. Under the new industrial policy, only three sectors- atomic energy, mining and railways continued as reserved for public sector. All other sectors were opened for private sector participation.
3. Reforms related to the Public sector enterprises:
Reforms in the public sector were aimed at enhancing efficiency and competitiveness of the sector. The government identified strategic and priority areas for the public sector to concentrate. Similarly, loss making PSUs were sold to the private sector. The government has adopted disinvestment policy for the restructuring of the public sector in the country. at the same time autonomy has been given to PSU boards for efficient functioning.
4. Foreign investment policy:
Another major feature of the economic reform measure was that it welcomed foreign investment and foreign technology. This measure enhanced the industrial competition and improved business environment in the country. Foreign investment including FDI and FPI were allowed. Similarly, loan capital was also introduced in the country to attract foreign capital.
5. Abolition of MRTP Act:
The New Industrial Policy of 1991 abolished the Monopoly and Restricted Trade Practice Act. In 2010, the Competition Commission emerged as the watchdog in monitoring competitive practices in the economy.
Evaluation of new industrial policy 1991
The new Industrial Policy radi¬cally differs from the fundamental Industrial Policy of 1956. It is said that these policy deci¬sions of the Government are “a series of measures to unshackle the Indian industrial economy from the cobwebs of unnecessary bu¬reaucratic controls.” The new policy is a bolder step towards the process of deregulating the economy so that Indian industry becomes more competitive internally and internation¬ally.
The delicensing of a large number of in¬dustries, scrapping the asset limit of the MRTP companies, and the abolition of registration schemes will free Indian entrepreneurs from needless controls.
This new policy had been hailed as a ‘land¬mark’ in the opening up of the Indian economy. This policy was a great leap towards privatisation.
The Policy said that pri¬vate sector—rather than public sector—should be viewed as an ‘ideal’ institution for indus¬trialisation. That is why it scrapped the asset limit for the MRTP compa¬nies and abolished industrial licensing for all projects except for 18 (now 5) specific groups.
The other area in which the government had taken a giant leap was with respect to for¬eign participation in Indian companies and al¬lowing access to foreign technology. But it was apprehended that most of the foreign invest¬ment would be channelised in the direction of non-priority sectors rather than priority sec¬tors.
Finally, seeing the ills of the public sector for a couple of years, the Government, in its new Industrial Policy, went for privatisation of the public sector. Privatisation or the so- called part-privatisation was not the solution to the ills of the public sector. Without diagnos¬ing the problems and curing those, the policy envisaged disinvestment of government eq¬uity in the public sector.
Thus, the government’s statement of Industrial Policy overnight altered the industrial scenario in India. The new policy was definitely a step towards privatisation of In¬dian industries. It was then up to the industry to show that it had the will and ability to respond.
Disinvestment is aimed at reducing the financial burden on the government due to inefficient PSUs and to improve public finances. It introduces competition and market discipline and helps to depoliticise non-essential services. The equity allocation provides long-term growth and the debt exposure reduces the volatility of the returns, thus offering the benefits of asset allocation in a single product.
Complete privatisation is a form of majority disinvestment wherein 100 per cent control of the company is passed on to a buyer.
The policy of disinvestment has largely evolved through the policy statements of Finance Ministers in their Budget Speeches. In the Interim Budget of 1991-92, it was announced that the Government would disinvest up to 20% of its equity in selected PSEs in favour of mutual funds and financial and institutional investors in public sector. In the Budget speech of 1992-93, the cap of 20% was reinstated and the list of eligible investors was enlarged to include FIIs, employees and OCBs.
In April 1993, the Rangarajan Committee recommended disinvesting up to 49% of PSEs equity for industries explicitly reserved for the public sector and over 74% in other industries. But the then Government did not take any decision on the Committee’s recommendations.
In 1996, as per the Common Minimum Programme (CMP), the Budget speech of 1996-97 announced the setting up of Disinvestment Commission for 3 years. CMP also emphasized adding more transparency to the disinvestment process and examine the non – core areas of public sector.
In the Budget speech of 1998-99, it was announced that the Government shareholding in CPSEs should be brought down to 26% on case-to-case basis, excluding strategic CPSEs where the Government would retain majority shareholding. The interest of workers was to be protected in all the cases. For this purpose, on 16 March 1999, the Government classified the PSEs into Strategic and Non-Strategic areas. It was decided that Strategic PSEs would be those in areas of:
1. Arms and ammunition and allied items of defence equipment, defence aircraft and warships
2. Atomic energy (except in the areas related to the generation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries)
3. Railway transport
4. All other PSEs were to be considered Non-Strategic.
In the Budget speech of 1999-2000, it was announced that the Government would continue to strengthen the Strategic units and “privatizing” the Non-Strategic ones through gradual disinvestment or strategic sale and devise viable rehabilitation strategies for weak units.
The 2000-01 Budget speech focused on restructuring and revival of viable CPSEs, closure of PSEs which could not be revived; bringing down Government shareholdings in Non-Strategic CPSEs to 26% or lower, if necessary, and protection of the interest of workers. The receipts from disinvestment would be used for the social sector, restructuring of CPSEs and for retirement of public debt.
In the suo motu statement of 2002, specific aim was given to the Disinvestment Policy- modernization and upgradation of PSEs, creation of new assets, generation of employment and retiring of public debt.
In the Budget speech of 2003-04, the Government announced details regarding the setting up of Disinvestment Fund and Asset Management Company to hold, manage and dispose the residual holdings of Government. In May 2004, the Government adopted National Common Minimum Programme, which outlined the policy of the Government with respect to the Public Sector.
The UPA Government pledged to devolve full managerial control and commercial autonomy to successful, profit-making companies operating in competitive environment; they won’t be privatized. ‘Navratna’ companies can raise resources from the capital market. Efforts will be made to modernize and restructure sick PSEs. It favoured sale of small proportions of Government equity through IPO/FPO without changing the character of PSEs. In regard to this, it approved listing of unlisted profitable CPSEs subject to residual equity of the Government remaining at least 51% and Government retaining the control of management.
It also constituted the formation of the ‘National Investment Fund’, where the proceeds from disinvestment of CPSEs would be channelized. 75% of annual income of NIF would be used to finance selected Social Sector Schemes- education, health, employment and the rest 25% to meet the capital investment requirements of profitable and revivable CPSEs. On 27 January 2005, the Government approved in principle:
Listing of currently unlisted profitable CPSEs, each with a Net Worth in excess of Rs.200 crore, through an Initial Public Offering (IPO) either in conjunction with a fresh equity issue by the CPSE concerned or independently by the Government, on a case-by-case basis, subject to the residual equity of the Government remaining at least 51% and the Government retaining management control of the CPSE
Sale of minority shareholding of the Government in listed, profitable CPSEs either in conjunction with a Public Issue of fresh equity by the CPSE concerned or independently by the Government, subject to the residual equity of the Government remaining at least 51% and the Government retaining management control of the CPSE
Constitution of a “National Investment Fund”
And on 25 November 2005, the Government decided, in principle, to list large, profitable CPSEs on domestic stock exchanges and to selectively sell small portions of equity in listed, profitable CPSEs (other than the Navratnas).
Types of disinvestment
The types of disinvestment are:
1. Initial Public Offering (IPO) – offer of shares by an unlisted CPSE or the Government out of its shareholding or a combination of both to the public for subscription for the first time.
2. Further Public Offering (FPO) – offer of shares by a listed CPSE or the Government out of its shareholding or a combination of both to the public for subscription.
3. Offer for sale (OFS) of shares by Promoters through Stock Exchange mechanism – method allows auction of shares on the platform provided by the Stock Exchange; extensively used by the Government since 2012.
4. Strategic sale – sale of substantial portion of the Government share holding of a central public sector enterprise (CPSE) of upto 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
5. Institutional Placement Program (IPP) – only Institutions can participate in the offering.
6. CPSE Exchange Traded Fund (ETF) –Disinvestment through ETF route allows simultaneous sale of GoI’s stake in various CPSEs across diverse sectors through single offering. It provides a mechanism for the GoI to monetize its shareholding in those CPSEs which form part of the ETF basket.
Strategic sale of a PSU is different from the ordinary disinvestment. This is because in the case of strategic sale, the control and a significant proportion of a PSU’s share goes to a private sector strategic partner. According to the Department of Disinvestment, in the strategic sale of a company, the transaction has two elements:
1. Transfer of a block of shares to a Strategic Partner and
2. Transfer of management control to the Strategic Partner
Understandably strategic sale aptly takes place when more than 51% of shares go to the private sector strategic partner. At the same time, it is not necessary that more than 51% of the total equity goes to the Strategic Partner for the transfer of management to take place. Or in other words strategic sale can take place even if the private sector partner gets less than 51% shares.
According to the strategic sale guidelines in India, the Strategic Partner, after the transaction, may hold less percentage of shares than the Government but the control of management would be with him. For example, in a PSU, where the government holding 51%, and out of this, sale of 25% to the strategic partner while the government holding 26% share also is a case of strategic sale. Here, the remaining shares (49%) will be dispersed among the public. But the necessary condition is that the control of the firms should be with the strategic partner.
Effectively, the two stakeholders of strategic sale are the government and the private sector partner. But at the same time, the interest of other related parties also to be considered. These parties are other shareholders and the employees.
The history of strategic sale in India shows that it was an important way for privatization. In many cases, the private sector firms got more than 51% shares in the final stages. For example in the case of BALCO, VSNL, Hindustan Zinc Limited the strategic investor holds more than 51% shares.
Token Disinvestment: On the other hand, token privatization is adopted in circumstances of acute budget deficit wherein a lump of shares is sold off.
Current disinvestment policy in India
The policy of disinvestment has evolved since the early 1990s and now, the government has brought some changes including bringing back strategic disinvestment. Budget 2016 has brought several notable changes including renaming of Department of Disinvestment as Department of investment and Public Asset Management (DIPAM). As per the latest policy, disinvestment now covers two types:
(1) Disinvestment through minority stake sale, and
(2) Strategic disinvestment.
Following are the main features of the current disinvestment policy:
1. Public Sector Undertakings are the wealth of the Nation and to ensure this wealth rests in the hands of the people, promote public ownership of CPSEs;
2. In the case of disinvestment through minority stake (share) sale in listed CPSEs, the Government will retain majority shareholding, i.e. at least 51 per cent of the shareholding and management control of the Public Sector Undertakings;
3. Strategic disinvestment by way of sale of substantial portion of Government shareholding in identified CPSEs up to 50 per cent or more, along with transfer of management control.
4. The government also separately mentioned disinvestment targets under the two types: disinvestment target for the current financial year is Rs. 56,500 crore comprising Rs. 36,000 crores from disinvestment of CPSEs and Rs. 20,500 crores from “Strategic Disinvestment”.
Proceeds of disinvestment
An important component of the economic reforms launched in 1991 was the reform for Public Sector Units. For the PSUs, the major policy change was the introduction of disinvestment. Here, a part of the PSU’s shares will be disinvested with government keeping custody of the majority shares or 51%.
The money obtained from such share selling through disinvestment will be kept with a special fund called National Investment Fund (NIF). The NIF money will be utilized for specific purposes set by the government. Working of the NIF since its inception indicate that in most occasions, the government has utilized the disinvestment revenue in the NIF for capitalizing PSUs.
The National Investment Fund (NIF) was set up in November, 2005 for channelizing the proceeds from disinvestment of Central Public Sector Enterprises. The money with the NIF is permanent in nature and NIF is professionally managed to provide returns to the Government, without depleting its value.
Selected Public Sector Mutual Funds, namely UTI Asset Management Company Ltd., SBI Funds Management Private Ltd. and LIC Mutual Fund Asset Management Company Ltd have the responsibility to manage the NIF money.
The money procured through disinvestment has been entered as ‘Other Receipts’ in the budget. Such proceeds and transferred to the NIF. In the past, especially from the difficult times of 2008 onwards around 75 per cent of the NIF money was used to finance social sector schemes and the remaining for capitalization of PSUs. But from 2013-14 onwards, the use of NIF proceeds were changed. In this context, the NIF corpus would be utilized for the following purposes:
Subscribing to the shares issued by the CPSEs including PSBs and Public Sector Insurance Companies, to ensure that 51% ownership of the Government in those CPSEs/PSBs/ Insurance Companies, is kept.
1. Preferential allotment of shares of the CPSE so that Government shareholding does not go down below 51% in all cases where the CPSE is going to raise fresh equity.
2. Recapitalization of public sector banks and public sector insurance companies.
3. Investment by Government in RRBs/IIFCL/ NABARD/Exim Bank;
4. Equity infusion in various Metro projects;
5. Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium Corporation of India Ltd.
6. Investment in Indian Railways towards capital expenditure.
During 2015-16, an amount of Rs 29,438.42 crore was utilized through NIF during the previous year for meeting capital expenditure of the Ministry of Railways and recapitalization of Public Sector Banks (PSBs).
According to a notification issued by the Cabinet Secretariat changing the Allocation of Business rules, the Department of Economic Affairs in the Finance Ministry will now be in charge of “financial policy in regard to the utilisation of the proceeds of disinvestment channelised into the National Investment Fund.”
In 2005 the debate over the virtue or otherwise of disinvestment of equity in public sector undertakings (PSUs) raged, with the Left parties supporting the Government from outside, stoutly opposing the disinvestment of profit-making PSUs. The UPA Government tried its best to pacify the opposition from within. At a meeting with the Central and Orissa units of the CPI(M) and the CPI on June 17, the Prime Minister, Dr Manmohan Singh, reassured them that the National Aluminum Company (Nalco) would not be privatised. He added that “privatisation and disinvestment cannot be equated”.
The Prime Minister maintained that the UPA government was keen on disinvestment of government equities in PSUs to ensure investible surplus for social investment and also to revive other potentially profitable PSUs. While the government equity will not be lowered below 51 per cent, the Government’s idea is to sell a small stake even in profit-making PSUs so that the proceeds so obtained could be funnelled into the “National Investment Fund”.
As such policy measures to end distortions in the economy are being opposed from so many quarters, the UPA government has perforce to give in at many places. The Government claims that the financial restructuring would clear the company’s balance-sheet and make its net-worth positive.
A moratorium on the repayment of loans or waiver of interest has been a constant feature of Government’s support to PSUs. Throwing good money after bad money does not get desirable results nor does it stand to reason when the government succumbs to duress to honour social obligations even when Constitutional bodies such as the CAG have documented the ill-effects of such an open-ended approach to governance.
In 2009 the government was believed to be debating whether the proceeds from the much-talked about proposed disinvestment in unlisted public sector units should be used for financing the rising fiscal deficit or be ploughed to fulfill business needs of these firms and social sectors. However, the government did not set any definite target for the amount it wishes to raise through disinvestment in public sector units.
The government was deliberating whether it should give preference to issuing fresh shares in public sector undertakings or straightway divest its stake. In the first case the proceeds would go to Consolidated Fund of India, which could be used for financing fiscal deficit, and in the latter it may be channelised to National Investment Fund (NIF). The government may exercise both the options — issuing fresh shares and straightway diluting its equity in PSUs.
In 2011 proceeds from the disinvestment of government’s stake in PSUs were used to fund various social welfare programmes like MGNREGS.
The disinvestment proceeds were used for funding the capital expenditure, under the social sector schemes, of the government including Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and Jawaharlal Nehru National Urban Renewal Mission (JNNURN) . The government mopped up Rs 22,144 crore from divesting its stake in six state-owned companies like CILBSE 0.43 %, Engineers IndiaBSE 0.46 %, SAILBSE -2.50 % and MOILBSE -2.68 % during 2010-11.
Gross Capital Formation (GCF)
Gross capital formation consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed assets include land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings. Inventories are stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales, and work in progress. According to the 1993 SNA, net acquisitions of valuables are also considered capital formation.
Gross capital formation (% of GDP) in India was reported at 32.75 % in 2015, according to the World Bank collection of development indicators.
The Investment Intentions Survey draws on statistics from the Industrial Trends survey with information on purpose of investment, factors influencing investment and percentage change in the value of investment.
Since the inception of IEM Scheme in 1991 till the end of April 2016, a total of 11,593 IEMs with an investment of ` 6,95,771 crore have reported implementation.
Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generating employment.
The Indian government’s favourable policy regime and robust business environment have ensured that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.
According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments India received during April-June 2017 stood at US$ 14.55 billion, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms is yielding results.
Many changes have been made to the Foreign Direct Investment (FDI) policy in the last few years. Further, FDI is also allowed through two different routes namely, Automatic and the Government route. The erstwhile Foreign Investment Promotion Board (FIPB) has been phased out recently.
In the automatic route, foreign entities do not need the prior approval of the government to invest. However, they have to inform the RBI about the amount of investment within a stipulated time period. In the government route, any investment can be made only after the prior approval of the government. Various other conditions as defined in the consolidated FDI policy are applicable to various sectors. In specific sectors, the FDI is prohibited.
FDI is prohibited in the following sectors
1. Lottery Business including Government/private lottery, online lotteries, etc.
2. Gambling and Betting including casinos etc.
3. Chit funds
4. Nidhi company
5. Trading in Transferable Development Rights (TDRs)
6. Real Estate Business or Construction of Farm Houses (Real estate business does not include development of townships, construction of residential /commercial premises, roads or bridges )
7. Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
8. Activities/sectors not open to private sector investment e.g. Atomic Energy and Railway operations (other than permitted activities)
New Steps to Boost Manufacturing
National Manufacturing Policy (NMP)
In order to bring about a quantitative and qualitative change and to give necessary impetus to the manufacturing sector, the Department has notified the National Manufacturing Policy (NMP) with the objective of enhancing the share of manufacturing in GDP to 25% and creating 100 million jobs over a decade or so.
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. The Department has taken up the implementation of the policy in consultation with concerned Central Government agencies as well as the States.
The government hopes that the establishments along the DMIC industrial corridor will eventually contribute more than 25% of India’s GDP.
Two power plants, 24 smart cities, 23 industrial hubs, six airports, two ports and a six-lane expressway are being built, stretching 1,500 kilometres. When it is completed, it will be the world’s largest infrastructural project. Starting outside Delhi and ending in Maharashtra, the Delhi-Mumbai industrial corridor has been inspired by Japan’s Tokyo-Osaka industrial corridor.
It usually takes 13 or 14 days to transport goods manufactured near Delhi to the ports on India’s west coast. In order to sustain the freight corridor and bring down costs, more industries are needed along the route. For this, DMIC proposes to develop manufacturing hubs all through the corridor. The DMIC aims to provide such a boost to the manufacturing sector that the project’s contribution to India’s GDP would exceed 25%.
However, manufacturing also needs domestic markets. Hence, the creation of cities is considered essential. More than 350 million Indians will migrate to cities in the next seven years. Since urbanisation is considered inevitable and since existing Indian cities are bursting at their seams, 24 smart cities are planned in the corridor. Seven of those will be ready by 2019, he added. They are meant to be “green and self-sustaining” cities.
The third prospect of the DMIC is that agriculture has failed to create adequate livelihood opportunities. Therefore, setting up industrial nodes would help employment generation. The DMIC believes it can create more than 25 million jobs in the next seven years.
The DMICDC will raise funds, allocate funds and liaison between the Centre and six states on all matters relating to the execution of the project. The land for the project will be acquired by the respective state governments and the DMIC will only pay for it.
The government of India owns 49% stake in the DMICDC, the Japan Bank for International Co-operation owns 26% and other government-owned financial institutions share the remaining 25% equity. Even though the government owns the largest chunk of shares, the DMICDC is deemed to be a private company.
The whole project is estimated to cost $100 billion. Of this, $4.5 billion is being initially funded by the Japanese government as a loan for a period of 40 years at a nominal interest of 0.1%. On its part, the Indian government earmarked an initial sum of Rs 12 billion in the union budget. This will be used to build trunk infrastructure – non-profit-making but essential needs like sewage pipes, water supply and roads.
Outside the government, there are fears that in order to get private players to fund a chunk of the projects, the government might end up diluting existing rules. For instance, each smart city along the DMIC will be overseen by a separate Special Purpose Vehicle – a body of bureaucrats and private companies – that will govern the city under Article 243Q of the Constitution. The article which provides for governing bodies in industrial areas which need not be elected like municipalities was earlier used to set up Special Economic Zones. This could mean a CEO-mayor with specified powers would be in charge of each city. Activists say this would amount to suspension of municipalities and gram panchayat, which are elected bodies.
More real and immediate are the concerns of local people who fear that they will lose their land and livelihoods to the project. Many people living along its length are not convinced that the industrial corridor will actually bring the millions of jobs that the government promises. The project could also end up further straining existing water resources and hamper agriculture.
The Department of Industrial Policy and Promotion (DIPP) recently released the consolidated foreign direct investment (FDI) policy circular of 2017 (New FDI Policy). The New FDI Policy is effective immediately from the date of its publication, i.e., 28 August 2017.
Key changes introduced through the New FDI Policy:
1. FDI in LLPs: The Erstwhile FDI Policy was silent with respect to conversion of an FDI funded Limited Liability Partnership (LLP) into a company and vice versa. The New FDI Policy allows conversion of an FDI funded LLP operating in sectors/activities where (i) 100% FDI is allowed through the automatic route; and (ii) there are no FDI linked performance conditions, into a company, under the automatic route. Similarly, conversion of an FDI funded company operating in sectors/activities where (i) 100% FDI is allowed through the automatic route; and (ii) there are no FDI linked performance conditions, into an LLP, is permitted under the automatic route.
2. Downstream Investment Intimation: Under the Erstwhile FDI Policy, an entity was required to notify the Secretariat of Industrial Assistance (SIA), DIPP and Foreign Investment Policy Board (FIPB) of its downstream investment. The New FDI Policy requires such intimation to be made to the Reserve Bank of India (RBI) and the Foreign Investment Facilitation Portal.
3. Cash & Carry Wholesale Trading: Press Note 12 (2015 series) dated 24 November 2015 (PN 12) allowed a wholesale/ cash & carry trader to undertake single brand retail trading, subject to the conditions related to FDI in single brand retail trading sector. This change was subsequently incorporated in the Erstwhile FDI Policy. The New FDI Policy, by doing away with the reference of ‘single brand’, allows wholesale/cash & carry traders to undertake retail trading by way of both single brand retail trading as well as multi brand retail trading, through the same entity, subject to prescribed conditions.
4. FDI in Single Brand Retailing: Press Note 5 (2016 Series) dated 24 June 2016 (PN 5) has relaxed the local sourcing norms for a period of 3 years from commencement of business i.e., opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible.
Apart from consolidating the aforesaid changes in the New FDI Policy, the New FDI Policy further provides that a committee under the chairmanship of Secretary, DIPP, with representatives from NITI Aayog, concerned administrative ministry and independent technical expert(s) on the subject will examine the claim of applicants on the issue of the products being in the nature of ‘state-of-art’ and ‘cutting-edge’ technology where local sourcing is not possible and give recommendations for such relaxation.
The Erstwhile FDI Policy permitted a manufacturer to sell its products manufactured in India through wholesale and/or retail, including through e-commerce, without government approval. The New FDI Policy does away with provisions in respect of an Indian manufacturer.
As part of Government’s initiative to improve the business environment and the ease of doing business in the country, the Department of Industrial Policy & Promotion (DIPP) launched the eBiz portal comprising License and Permits Information Services component.
This will allow business users to obtain a customized list of licenses, permits, and regulations that they require or need to comply with across all levels of government i.e., Central, State and Local governments.
E-Biz will serve as 24X7 online single-window system for providing efficient and convenient Government to Business (G2B) services to the business community in India .Since, business users will get services from single contact point it will result in savings of time, effort and cost. The benefits will accrue across all sectors, including, Manufacturing, Information Technology, construction services among others.
Subsequent to the commencement of eBiz project in June 2009, requests were received from the states of Odisha, Punjab, Rajasthan, Uttar Pradesh, Gujarat and West Bengal for inclusion in eBiz project during the pilot phase. The States of Odisha, Punjab, Rajasthan, Uttar Pradesh and West Bengal have since been included in the pilot phase of the project.
Eease of doing Business
The Ease of Doing Business (EODB) index is a ranking system established by the World Bank Group. In the EODB index, ‘higher rankings’ (a lower numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
The research presents data for 189 economies and aggregates information from 10 areas of business regulation:
1. Starting a Business
2. Dealing with Construction Permits
3. Getting Electricity
4. Registering Property
5. Getting Credit
6. Protecting Minority Investors
7. Paying Taxes
8. Trading across Borders
9. Enforcing Contracts
10. Resolving Insolvency
Rankings and weightages on each of the above mentioned parameters are used to develop an overall EODB ranking. A high EODB ranking means the regulatory environment is more conducive for starting and operating of businesses.
Among the chosen 189 countries for this index, India was ranked 134 in 2015 on the World Bank’s Doing Business index. Since then there has been a remarkable improvement. Since 2014, the Government of India launched an ambitious program of regulatory reform aimed at making it easier to do business in India. The program represents a great deal of effort to create a more business-friendly environment. The efforts have yielded substantial results with India jumping 4places on the World Banks’ Doing Business rankings.
Make in India
The Make in India initiative was launched by Prime Minister in September 2014 as part of a wider set of nation-building initiatives. Devised to transform India into a global design and manufacturing hub, Make in India was a timely response to a critical situation: by 2013, the much-hyped emerging markets bubble had burst, and India’s growth rate had fallen to its lowest level in a decade.
The promise of the BRICS Nations (Brazil, Russia, India, China and South Africa) had faded, and India was tagged as one of the so-called ‘Fragile Five’. Global investors debated whether the world’s largest democracy was a risk or an opportunity. India’s 1.2 billion citizens questioned whether India was too big to succeed or too big to fail. India was on the brink of severe economic failure.
Make in India was launched by Prime Minister against the backdrop of this crisis, and quickly became a rallying cry for India’s innumerable stakeholders and partners. It was a powerful, galvanising call to action to India’s citizens and business leaders, and an invitation to potential partners and investors around the world. But, Make in India is much more than an inspiring slogan.
It represents a comprehensive and unprecedented overhaul of out-dated processes and policies. Most importantly, it represents a complete change of the Government’s mindset – a shift from issuing authority to business partner, in keeping with Prime Minister’s tenet of ‘Minimum Government, Maximum Governance’.
The Department of Industrial Policy & Promotion (DIPP) worked with a group of highly specialised agencies to build brand new infrastructure, including a dedicated help desk and a mobile-first website that packed a wide array of information into a simple, sleek menu. Designed primarily for mobile screens, the site’s architecture ensured that exhaustive levels of detail are neatly tucked away so as not to overwhelm the user. 25 sector brochures were also developed: Contents included key facts and figures, policies and initiatives and sector-specific contact details, all of which was made available in print and on site.
The Make in India initiative has been built on layers of collaborative effort. DIPP initiated this process by inviting participation from Union Ministers, Secretaries to the Government of India, state governments, industry leaders, and various knowledge partners. Next, a National Workshop on sector specific industries in December 2014 brought Secretaries to the Government of India and industry leaders together to debate and formulate an action plan for the next three years, aimed at raising the contribution of the manufacturing sector to 25% of the GDP by 2020.
This plan was presented to the Prime Minister, Union Ministers, industry associations and industry leaders by the Secretaries to the Union Government and the Chief Secretary, Maharashtra on behalf of state governments.
These exercises resulted in a road map for the single largest manufacturing initiative undertaken by a nation in recent history. They also demonstrated the transformational power of public-private partnership, and have become a hallmark of the Make in India initiative. This collaborative model has also been successfully extended to include India’s global partners, as evidenced by the recent in-depth interactions between India and the United States of America.
In a short space of time, the obsolete and obstructive frameworks of the past have been dismantled and replaced with a transparent and user-friendly system that is helping drive investment, foster innovation, develop skills, protect Intellectual Property (IP) and build best-in-class manufacturing infrastructure. The most striking indicator of progress is the unprecedented opening up of key sectors – including Railways, Defence, Insurance and Medical Devices – to dramatically higher levels of Foreign Direct Investment.
An Investor Facilitation Cell (IFC) dedicated for the Make in India campaign was formed in September 2014 with an objective to assist investors in seeking regulatory approvals, hand-holding services through the pre-investment phase, execution and after-care support.
The Indian embassies and consulates have also been communicated to disseminate information on the potential for investment in the identified sectors. DIPP has set up a special management team to facilitate and fast track investment proposals from Japan, the team known as ‘Japan Plus’ has been operationalized w.e.f October 2014. Similarly ‘Korea Plus’, launched in June 2016, facilitates fast track investment proposals from South Korea and offers holistic support to Korean companies wishing to enter the Indian market.
Various sectors have been opened up for investments like Defence, Railways, Space, etc. Also, the regulatory policies have been relaxed to facilitate investments and ease of doing business.
Six industrial corridors are being developed across various regions of the country. Industrial Cities will also come up along these corridors.
Skill India is an initiative of the Government of India which has been launched to empower the youth of the country with skill sets which make them more employable and more productive in their work environment. Skill India offers courses across 40 sectors in the country which are aligned to the standards recognised by both, the industry and the government under the National Skill Qualification Framework.
The courses help a person focus on practical delivery of work and help him enhance his technical expertise so that he is ready for day one of his job and companies don’t have to invest into training him for his job profile.
The target to train more than a crore fresh entrants into the Indian workforce has been substantially achieved for the first time. 1.04 crore Indians were trained through Central Government Programs and NSDC associated training partners in the private sector.
The skill ecosystem in India, is seeing some great reforms and policy interventions which is reinvigorating and re-energising the country’s workforce today; and is preparing the youth for job and growth opportunities in the international market.
Skill India harbours responsibility for ensuring implementation of Common norms across all skill development programs in the country so that they are all standardized and aligned to one object. The ITI ecosystem has also been brought under Skill India for garnering better results in vocational education and training.
The Unified Shram Suvidha Portal is developed to facilitate reporting of Inspections, and submission of Returns. The Unified Shram Suvidha Portal has been envisaged as a single point of contact between employer, employee and enforcement agencies bringing in transparency in their day-to-day interactions. For integration of data among various enforcement agencies, each inspectable unit under any Labour Law has been assigned one Labour Identification Number (LIN).
UAN stands for Universal Account Number to be allotted by EPFO. The UAN will act as an umbrella for the multiple Member Ids allotted to an individual by different establishments. The idea is to link multiple Member Identification Numbers (Member Id) allotted to a single member under single Universal Account Number.
This will help the member to view details of all the Member Identification Numbers (Member Id) linked to it. If a member is already allotted Universal Account Number (UAN) then he / she is required to provide the same on joining new establishment to enable the employer to in-turn mark the new allotted Member Identification Number (Member Id) to the already allotted Universal Identification Number (UAN).
Energy pricing in India
The current spike in spot prices has come about largely because of supply side issues rather than any sustained pick-up in demand. Shortfall arising from scheduled maintenance of 10 GW of thermal and nuclear capacity, reduced wind and hydro generation and an uptick in demand could not be compensated through India’s underutilized thermal fleet due to a seasonal coal shortage. The spike sends a signal to consumers and DISCOMs that they need to proactively manage their power procurement plans and that reliance on short-term trading comes with its own set of challenges.
DISCOMs meet bulk of their power requirement through long-term purchase contracts under fixed or cost-plus prices. The volume of power traded in the market is only about 150 million units per day, around 4 per cent of total generation of around 3,750 million units per day. Despite low trading volumes, spot prices can be a very useful indicator of supply-demand situation in the country.
The power deficit in India has reduced consistently over the past 5 years. This is primarily because power demand growth has been sluggish even as India continued to add generation capacity at a rapid pace. Co-relation between spot prices of power and power deficit can be seen in the chart below.
The current spike in spot prices has come about largely because of supply side issues rather than any sustained pick-up in demand. There have been slippages in hydro and wind power generation owing to reduced water levels in reservoirs in south India and shortfall in wind resource at the end of monsoon season.
This, combined with scheduled maintenance of some thermal and nuclear plants with capacities adding up to 10 GW, and a demand pick from agricultural and air-conditioning loads, has led to a short-term power deficit in the country. Thermal power plants were operating at 58% utilization rate in August but they have been unable to pick up the slack due to seasonal shortage of coal during monsoon season.
Most analysts are unanimous that spike in spot tariff is likely to be temporary given the moderate demand growth and low utilization of thermal projects.
Dedicated Freight Corridor
The Dedicated Freight Corridor Corporation of India Limited (DFCCIL) is a corporation to undertake planning & development, mobilisation of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors.
In May 2005, Committee on Infrastructure (COI) constituted a Task Force to prepare a concept paper on Delhi-Mumbai (Western) and Delhi-Howrah (Eastern) dedicated freight corridor projects, and to suggest a new organizational structure for planning, financing, construction and operation of these corridors.
Under the Eleventh Five Year Plan of India (2007–12), Ministry of Railways is constructing a new Dedicated Freight Corridor (DFC) in two long routes namely, the Eastern and Western freight corridors.
The two routes covers a total length of 3,360 kilometres (2,090 mi), with the Eastern Dedicated Freight Corridor stretching from Ludhiana in Punjab to Dankuni in West Bengal and the Western Dedicated Freight Corridor from Jawaharlal Nehru Port in Mumbai (Maharashtra) to Dadri in Uttar Pradesh. Upgrading of transportation technology, increase in productivity and reduction in unit transportation cost are the focus areas for the project.
DFCCIL has been designated by Government of India as a `special purpose vehicle`, and has been created to undertake planning & development, mobilization of financial resources and construction, maintenance and operation of the Dedicated Freight Corridors. DFCCIL has been registered as a company under the Companies Act 1956 on 30 October 2006
The Ministry of road, transport and highways linking the four metropolitan cities of Delhi, Mumbai, Chennai and Kolkata, commonly known as the Golden Quadrilateral; and its two diagonals (North-South Dedicated Freight Corridor and East-West Dedicated Freight Corridor), adding up to a total route length of 10,122 km (6,290 mi) carries more than 55% of revenue earning freight traffic of Indian Railways.
The existing trunk routes of Howrah-Delhi on the Eastern Corridor and Mumbai-Delhi on the Western Corridor are highly saturated, line capacity utilization varying between 115% to 150%. The surging power needs requiring heavy coal movement, booming infrastructure construction and growing international trade has led to the conception of the Dedicated Freight Corridors along the Eastern and Western Routes. Carbon emission reduction may help DFCCIL to claim carbon credits.
Restructuring of PPP model
The Finance Ministry appointed Vijay Kelkar Committee on revisiting PPP model in infrastructure (Committee on Revisiting and Revitalizing Public Private Partnership Model of Infrastructure) has made several far reaching recommendations for the restructuring of the PPP model.
A notable element throughout the findings of the committee was that it has put tremendous confidence in the capability of the PPP model in fulfilling the country’s infrastructure demands at this high growth phase.
Kelkar Committee’s remedies were anxiously awaited by the government and infrastructure sector players as the PPP model was jammed into a standstill because of many legal issues related to project implementation. Rising need and faster generation of quality infrastructure demanded that the country should settle infrastructure development problems as quickly as possible.
Over the last few years, several billions of rupees were stuck because of the hurdles faced by PPP projects and many public sector banks were having heavy NPAs in their books for financing the stalled projects.
The Committee has made several suggestions that necessitate total restructuring of the existing way in which PPP model in infrastructure is experimented. Following are the major suggestions:
The committee advised the government to end one –size fits all approach in dealing with infrastructure projects. The government has to follow Model Concession Agreements (MCA) on a project basis. Generalized approach to project design, financing, evaluation and monitoring is not suitable because each project has unique risk and financial commitments. The MCA for each sector be reviewed to consider the interests of all stake holders- users, project proponents, developers, lenders and markets.
The Committee recommended independent regulators for each sectors because of the specific nature of the projects. To sort out the delicate issue of graft, the committee suggested amendment to the Prevention of Corruption Act to clarify the difference between real and fraud decisions.
The committee advised against adopting PPP structures for very small projects. Here, the committee observed that the benefits may not be matched with the costs.
The committee strongly supported the Finance Minister’s brain child – 3P India, an infrastructure think-tank proposed in the budget last year. According to the committee, “the 3PI can function as a centre for excellence, enable research, and review and roll out activities to build capacity.”
Final decision for a renegotiated concession agreement must be based on full disclosure that include all factors – long-term costs, risks and potential benefits, a comparison with the financial position for the government at the time of signing the concession agreement and at the time of renegotiation.
For the dispute ridden highways sector, the committee recommended that all pending disputes may be disposed of in a time-bound manner through an independent body that includes representatives from the National Highways Authority of India, developers and lenders. The independent body can have a chairman.
The “Unsolicited Proposals or the “Swiss Challenge” mechanism is to be discouraged as they bring information asymmetries into the procurement process and result in lack of transparency and fair and equal treatment of potential bidders in the procurement process.
Creation of institutions to support PPP: A major recommendation of the committee is creation of facilitating institutions for the model. The committee recommended creating Infrastructure PPP Project Review Committee (IPRC), Infrastructure PPP Adjudication Tribunal (IPAT). Besides a national PPP policy is helpful. The responsibility of IPRC is to evaluate and send its recommendations in a time-bound manner when a PPP project is facing stress. The IPAT should be chaired by a judicial member (former judge of the Supreme Court or a high court chief justice) and is expected to mediate on disputes among stakeholders in a PPP.
Boosting energy sector
India’s economy is rapidly growing, and its renewable energy sector is ramping up to meet the insatiable need for energy that growth demands. Installed capacity in India’s renewable energy market jumped 12.9% in the last year, and the government is encouraging companies to find cleaner energy sources to sustain the breakneck pace of production.
The nation now boasts the world’s third largest capacity for electricity generation, with no signs of production slowing down.
India’s push for clean energy solutions is encouraging for another reason: the country is home to some the world’s most polluted cities. Increased investment in cleaner energy sources could help combat India’s pollution problem by reducing the country’s dependence on fossil fuels as the energy sector grows.
The government’s ambitions are driving both domestic and foreign companies to join the renewable energy bandwagon. Gurgaon-based ReNew Power is placing a $655 million bet on the expansion of wind and solar power projects in rural areas. While ReNew already has 17 operational wind projects in five states, the company says it has a development pipeline of more than 1 GW solar, wind and solar rooftop projects across eight different states—Gujarat, Haryana, Madhya Pradesh, Rajasthan, Maharashtra, Karnataka, Telangana, and Andhra Pradesh.
Railways as growth engine
Indian Railways currently is the only rail-based trans-city infrastructure provider and operator in the country. The various initiatives taken by the Railways in the recent past include:
1.Provision of All India Security Helpline ‘182’
All India Security Helpline ‘182’ has been provided over Indian Railway to facilitate the travelling passengers. The service is very important public service and may play an important role in any emergency like crime against women, onboard unlawful activity, train accidents, medical attention required fire etc.
2. Provision of All India Passenger Helpline ‘138’
The All India Passenger Helpline ‘138’ has been provided as a public interface for quarries/complaints related to Medical Emergency, Cleanliness, Food & Catering, Coach Maintenance, Linen etc. (Except Security).
3. Complaint Management System (COMS) Portal
For the help and assistance to bona fide railway passengers to give their feedback and also to register their complaints, the Railways launched Complaint Management System (COMS).
Upto the month of November, 2015 112 new trains and 15 extension of trains and 5 increase in frequency had been implemented as announced in Railway Budget 2014-15. No new train was announced in Railway Budget 2015-16.
The MoU between India and Japan has been signed on the cooperation and assistance in the Mumbai – Ahmedabad High Speed Rail Project. Japan has offered an assistance of over Rs.79,000 crores. The loan is for a period of 50 years with 15 years moratorium with the interest rate is 0.1 per cent. The project is a 508 Kilometer line costing a total of Rs. 97,636 crores.
Automotive rebate for Traditional Empty Flow Direction Traffic with a view to convert empty running of rakes into loaded one, automatic freight rebate scheme has been introduced wherein all rakes loaded in notified empty flow direction are charged at Class – LR1 (Train load) and at Class-100 (Wagon load), subject to certain terms and conditions.
Innovative Funding initiatives and non traditional sources of funding:
Many initiatives were taken to explore alternative sources of funding. These are listed as follows:
a) A Memorandum of Understanding with LIC of India was signed for committed long-term funding to the tune of Rs 1.5 lakh crore over 5 years for financing Railway projects.
b) Issue of tax free bonds by IRFC amounting to Rs.6,000 crore during the FY 2015-16; the entire amount has been raised from the market.
Working towards ‘Zero Accident’ Mission.
Train Protection Warning System (TPWS): TPWS is a safety Automatic Train Protection (ATP) system conforming to European Train Control System (ETCS) Level-1. It eliminates accidents caused by human error of Signal Passing at Danger or over speeding by loco pilot. TPWS trials at 160 Kmph were successfully conducted during the year on Nizamuddin-Agra Cantt. Section after completion of requisite works. This section was also made signalling fit for speed potential of 160 Kmph by executing required signaling system upgradations during the year.
Train Collision Avoidance System (TCAS): To overcome shortcomings of ACD system due to its dependence on GPS and for large scale deployment on Indian Railways, a cost effective indigenous safety system – Train Collision Avoidance System (TCAS) is being developed indigenously by RDSO in association with Indian Vendors.
Provision of Integrated Security System (ISS)
With a view to reduce the dependence on imported petroleum based energy and to enhance energy security to the Country, as well as to make the Railway System more eco- friendly and to modernize the system, Indian Railways have been progressively electrifying its rail routes.
The Railways have already provided Solar panel on roof top of coaches for train lighting system in 2 broad gauge coaches & 4 narrow gauge coaches plying on Pathankot-Joginder Nagar section in Kangra Valley and fourteen narrow gauge coaches plying on Kalka-Shimla section on trial basis.
An innovative Indian design of a Bio-Vac Toilets, a Hybrid of Vacuum Toilet and Bio-Toilet is working successfully. It has opened a new possibility to control the problem of human waste falling from trains.
State DISCOM restructuring
The financial re-structuring programme for the sick State Electricity Distribution Companies (Discoms) started in 2013-14.
The States include Tamil Nadu, Rajasthan, Uttar Pradesh, Haryana, Jharkhand, Kerala, Andhra Pradesh and Bihar. According to the Centre’s package, half of these losses would be taken up by the respective States, which will issue long-term bonds in phases. For the remaining 50 per cent of losses, the distribution companies would get a three-year moratorium on principal payment.
In the three-year first phase, the States would issue bonds based on their targets under the Fiscal Responsibility and Budget Management (FRBM) Act. All bonds would not be issued in the first year. After facilitating the stimulus successfully over three years, 25 per cent of benefit would go to the respective States as incentive. The coupon rates for these bonds would be at a premium to market rates. The Discoms will take steps to reduce distribution losses and increase the electricity tariff based on power purchase fluctuations. All these steps would be monitored by the Power Ministry.
In the second phase, the Government expects the distribution utilities to become cash-surplus. The remaining debt would, thereby, be restructured for seven years.