economy trade and technology in india

7/24/2019 Economy Trade and Technology in India

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Economy, Trade and Technology in India, Job opportunities for Youth

under the new initiatives of Government of India

Utkarsh Pratap Singh,

New Delhi, India.

Abstract:

Foreign Equity caps have now been increased for establishment & operation of satellites, credit information

companies, non-scheduled air transport & ground handling services from 74% to 100% due to the process of

attracting investment to create jobs by amending the FDIpolicy, also underlined in the Union Budget for

2015-16, was initiated by National Democratic Alliance government in August 2014. Economists have noted

that with the globalization becoming a reality, Indian manufacturers will have to compete with the best and

cheapest the rest of the world has to offer even in the domestic market. A recent urge for providing tax

concessions to any industry which would set up manufacturing facility in the country is being increased. This

paper will focus on what impact will it hold on the Foreign Investment Policy of the government in various

sectors and also on the youth with respect to their jobs availability in the country. Besides, a critical aspect ofthe Make in India programme is the countrys huge small and medium-sized industries which could play a big

role in making the country take the next big leap in manufacturing.

Keywords:

Economy, Trade, Jobs, Technology, Youth Situation, Defence Sector, Foreign Investment Policy.

Contact:

Utkarsh Pratap Singh, [email protected], +918588860149.


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Ever since this NDA government has taken over there has been an overwhelming surge for the fixing of the

diminishing attractiveness of India as an evergreen manufacturing base and the investment destination also

creating more employment opportunities for the youth, but not as a market. The short term major challenges to

this government being, the end of quantitative easing in the US, i.e. the rise of the dollar and Western interest

rates, and the decline of oil prices to levels between US $ 70-80 will surely contribute to this. Albeit in the

longer term, we are seeing that China and the US are concentrating on building their own economic blocs suchas the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP)while

simultaneously preparing to be able to come to their own stable bilateral understandings. Such structural

changes in the advanced economies, and with an exception being lag in China, will see them taking a definite

move into various sectors like medical services, pharmaceuticals, services and other innovation based sectors,

minimising the significance of labour sector in manufacturing and changing its due course of nature. These

changes are making issues like intellectual property rights and market access in services increasingly critical to

our relationships with those countries, and also the issues that the government of India has found difficult to

handle or resolve in the past. They will authoritatively result in the increased pressure to the open Indian

markets and also be able to limit the domestic regulatory frameworks and protections, with limited or less

foreign investment or willingness to integrate the India into global manufacturing chains except to avail the

access to the Indian market. Until those big foreign firms see Indian companies itself investing in India, odds are

that they are unlikely to do so themselves in any substantial measure.

India en route to make itself an evergreen productive and profitable manufacturing base, the NDA government

Make in Indiaumbrella has to succeed there is no other alternative. Recently India and Russia agreed to the

NDA governments much feted flagship Make in India programme to the fulcrum of their strategic

relationship, as the New Delhi and Moscow decided to build nuclear reactors components and military

helicopters in India. Also, this agreement has paved the way for the construction of the 12 atomic plants with the

involvement of various Indian firms. This meant that the economic cooperation between the two countries is all

set to overcome the current bilateral annual trade of USD 10 billion to an expected USD 30 billion in next 10

years. Russia is the first country to have actually agreed to take the real initiative under the Make in India

umbrella in two major strategic sectors being nuclear sector and defence sector. Some scholars are also

perceiving this as a move towards the vote of confidence in the Indias economy and also being able to put asmall pit stop-at least, for the time being-on the growing concerns over the recent closeness between Moscow

and Islamabad in New Delhi.

In spite of all these steps the governments much ambitious project Make in India is floundering due to the

slow pace of the bank sanctions and the delay in disbursement of the margin money. According to the Ministry

of Micro, Small and Medium Enterprises (MSME) the bank sanctions are quite slow during the first two

quarters of the financial year which deters the fund release by the government and will result in the cuts in funds

due to the serious non-utilization of the funds at the stipulated rate by the Finance Ministry. To make it more

clear, for instance, the margin money disbursed in the first quarter of 2014-15 was Rupees 29.44 crore, which is

just 2.60 per cent of the wholesome total fiscal year disbursal of the Rupees 1,122 crore. The total disbursal in

the period of years 2013-14 was, Rupees 1,075 crore. More than 60 per cent of the margin money was disbursed

during the last quarter of the 2014-15.

According to the same note given by the Ministry of Micro, Small and Medium Enterprises (MSME) to the

several banks, there are various complaints from the different quarters the MSEs borrowers are returned rapidly

by the banks and or their loan applications are not being acknowledged soon. The average number of days taken

by the banks for the margin money disbursement was 142 days in case of the State Banks of Bikaner and Jaipur

closely being followed by the State Bank of Travancore. If we are to look into the stats, sadly as many as 19

PSU banks, i.e. out of 26 PSU banks, have been failed to achieve the desired target.

Till now the target for the year-on-year growth in credit with the Micro, Medium and Small Enterprises is to be

fixed at 20 per cent per year, the growth in the MSEs credit during the 2014-15 in respect of the Public Sector

Banks, Private Banks and Foreign Banks stood at the 13.3 per cent, 15.6 per cent, and 4.56 per cent, respectivelyindicating shortfalls. Thus it enables the borrower to bring in its own contribution of 10 per cent of the project
http://thewire.in/glossary/tpp/http://thewire.in/glossary/tpp/


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cost (5 per cent for SC/ST and other weaker sections) with also helping in the banks sanctioning loans for the

balance of 90 or 95 per cent of the project cost. Also after the sanctioning of the credit by the bank, the required

beneficiaries have to undergo EDP training and the given eligible amount will be definitively kept in a terms

deposit for three years in the account of the given borrower. Thus, the scheme is being plagued by the slow pace

of the banks sanctions and the delay in the disbursement of the much required margin money.

The primary reason why the Indias investment and export in information technology sector is heavily

dependent on the imports of components and finished goods is due to the increased focus on the employment

generation instead of being on capability building and a liberal import regime. For instance when we talk about

the electronic industry, since India does not have the luxury of semiconductor chip fabrication facilities and this

makes the industry highly import-intensive. Albeit imports of technology per se have been found to have a

positive impact on the research and development (R&D) of the high-tech firms. However so, R&D in the Indian

electronics industry is negligible and this, is in turn, increases the dependence on the imports. This import-

intensive nature of the industry makes the supply chain very horizontal in structure, rather than being vertical,

given the absence of backward linkages with raw material suppliers and component manufacturers in India. Im

giving the example of the electronic industries here in this paper because it is very important because of the

defence sectors dependence on it.

Although India has always boasted of its IT-led growth, the contribution of electronics to the gross domestic

product (GDP) and in creating more job opportunities for the youth is still lopsided, with more weight being

given to the designing vis--vis hardware manufacturing and import favouring designed policies. According to

the study of the electronics industry in Chennai conducted by the Institute for the Human Development and the

International Labour Organization the one-third of firms surveyed had imported raw materials costing up to 30

per cent of total material costs and one-fifth had imported raw materials costing up to 90 per cent. Also one of

the firms surveyed imported 100 per cent of its raw materials from Taiwan and neighbouring countries. This

much increased import dependence in the electronics sector firms which were surveyed and it is safe for me to

me to say about all of this field in general indicates the absence of any backward linkages in this industry.

Export markets are very difficult to break through for many MSEs and small and medium sized firms. Also in

some of the very small component categories like connectors, manufacturers have stated that it is a segmentedmarket with every buyer having its patented designs and dedicated components may be like an oligopoly with

high costs of market entry.

Indias foreign exports stats have fallen for the 12th consecutive month in December 2015 by more than a

quarter to $20 billion that is which the different exporters describe as a worse situation than the 2008-09 global

financial crisis period. I here like to quote a leading rating agency, Crisil, the local subsidiary of Standard &

Poors to make the current situation very clear, Indias trade (exports plus imports) to GDP ratio has fallen

drastically from 55.6 per cent at peak in fiscal 2013 to 46 percent in the second quarter of the current fiscal.

The decline of such magnitude is the first since the start of economic liberalisation in 1991, it said. While the

slowdown in both exports and imports has largely contributed to this trend, the greater worry should be here is

the decline in exports, the agency notes. Imports too have fallen in November by a sharp 30 percent, led by a 63

percent decline in fertiliser imports, and a 45 percent dip in oil imports. This is a reason why there isnt much

impact on the trade deficit.

But the critical point here is that the slowdown in imports is largely temporary and the drastic slowdown in

exports can be lasting. This is much more worrying and severe. While imports would rise as domestic demand

and investments pick up and commodity prices stabilize, exports are likely to remain weak because of subdued

global growth -- especially when there is structural weakness in trade, Crisil said in their report. Also the

Federation of Indian Export Organizations estimated that this years (2015-16) exports are to be in the range of

$260-$270 billion, whereas in 2014-15, the countrys total exports stood at $470 billion in value terms. Indias

merchandise exports, which are almost two-thirds of Indias total exports, have been declining in the last 12

months. Cumulatively, they have fallen 18.5 percent in dollar terms in the first eight months of this fiscal, after

seeing a 1.5 percent decline in fiscal 2015.


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Thus, if we look at the bigger picture only the import dependence is not solely responsible for the absence of

backwards linkages. Large scale investments in manufacturing facilities and removal of infrastructural

constraints will surely go a long way towards the goal of the Make in India umbrella a reality. The problem

however can be tackled by creating an environment, where we can provide an environment where all sorts of

enterprise can flourish, and then leaving entrepreneurs, of whom we have plenty, to choose what they want to

do, not necessarily the manufacturing segment alone, according to the Reserve Bank of India Governor Mr.Rajan had also said that. Albeit his advice deserves merit in the current context of Indias export problem.

However it is very unlikely that exports will see any sudden and drastic major revival in the foreseeable future,

especially in the context of fresh warnings coming from economists like Larry Summers and Amartya Sen about

the possibility of another recession and fresh tensions emerging in the middle-east. The current phase of export

slowdown could perhaps offers a nice good reason for this National Democratic Alliance government to rethink

stressfully on its strategy on increasing the creation of Intellectual Property Rights in order to make the Make

in India programmeachieve its goal.

A not so very insignificant sum of Rs 67 crore has been spent merely on promoting it. But according to

an Outlookinvestigation reveals that after pumping in Rs 4,200 crore into the National Skill Development

Corporation (NSDC), the biggest beneficiaries are not Indias jobless youth but the fatcats of Indian business.

According to the same report published first, the Manmohan Singh regime spent Rs 2,700 crore on the project.Now, by changing its name a further Rs 1,500 crore has been promised vide the Pradhan Mantri Kaushal Vikas

Yojana (PMKVY). The very inconvenient and inescapable truth here is that the skilling India has so far been

mostly money down the drain and, shockingly, to the benefit of big and small corporations like Airtel and

Future Group. Rajiv Pratap Rudy, minister of skill development and entrepreneurship have also admitted to it I

quote him here: The NSDC is functioning without any accountability. We have given them a warning.

The numbers dont lie. The corporation claims to have skilled 55 million workers, of whom less than half (about

22 million) have more or less being apparently placed over the last five years. NSDC managing director and

CEO Dilip Chenoy had caught been saying to a leading political affairs magazine when he was asked that where

the millions have been placed, and at what pay, that, We have had problems tracking and monitoring

placements because of high attrition rates and migrant workers constantly changing phone numbers.... We aretrying to tackle this in the new scheme.The NSDCs skill development scheme, a PPP scheme i.e. 51 per cent

private and 49 per cent government equityit has now set a target of skilling 500 million by 2022. To help

achieve this, private trainers, in a for-profit model, charge a fee to teach skills across 21 sectors, from plumbing

and carpentry to data-entry. In 2010, NSDC began by giving out soft loans (at 6 per cent interest) to corporate

and NGO partners to set up training centres. Soon, training providers70 per cent corporate and 30 per cent

NGOsborrowed to set up thousands of for-profit skill centres across the country. So far, Rs 875 crore has

been disbursed to these training providers. According to these numbers, the centres either had very few people

to train or closed down after a while. Many of the centres couldnt survive for long because they were not able

to attract students into classrooms, says Prerit Rana, former skill development consultant at the ministry of

communications and IT. This was not because the poor didnt want to be skilled. After paying up, they realised

that they had to do the same jobs, for the same wages.

Indian companies are often seen routinely claiming the large tax concessions for alleged expenditure on R&D.

But if we are going by actual outcomes, in terms of creation of intellectual property that global companies want

to license, all Indian R&D might well be called alchemy, the quaint quest to convert base metal into gold. It is a

appreciable step that the government proposes to reduce the tax break for research and development (R&D) to

100 per cent. This must be supplemented with subsidy to the extent of not anything less than 100 per cent for

valid profitable research, whether in-house, contracted out to specialized labs or university departments.

Subsidies are very well scrutinized and audited far better than tax exemptions thus far.

Indias import duties are inefficient, often inverted, meaning, the duty on components is higher than that on the

finished productit is cheaper to import the final product than to assemble it locally using imported

components. Inversion of this inversion, however, will not help. A higher tax on the finished good than oncomponents will certainly encourage import of components and local assembly. But the resultant value addition


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would be make-believe, not made in India, the product of the duty differential. For instance Ill give an example

of phone components here, with zero import duty and zero countervailing duty (CVD) on them, the phone itself

has a 12% CVD, alongside zero import duty. So Indian brands import are being semi knocked down kits from

China at zero duty, add negligible value and sell at a mark-up while pocketing a fat excise duty concession these

days.

Indian brands doing such sham value addition in India do not pay royalty on the patented technologies

incorporated in the phones they sell, because these are actually manufactured in China, and come to India after

having paid royalty and bearing the cost of royalty in their pricing. So the tax on the royalty payments for

crucial technologies that go into the phones sold by Indian brands accrues to the government of China. If actual

manufacture were to take place in India, royalty payments would be made from India and India would get the

withholding tax.

Albeit it is very clear now that the Make in India umbrella is not delivering on the rate as it was expected to

but PM's first priority is to get India's growth rate to surge as high as possible, and he believes that "Make in

India" is key for this. What "Make in India" really implies is simple, fundamental and essential. It implies

accelerated and state of the art manufacturing and production. But this in turn needs requisite skills and

technology. Only Make in India can provide employment to the aspiring "neo middle class" that has justemerged out of the poverty line through functional literacy and some access to capital; to the rural-urban

migrants for whom income from agricultural activity is not enough aspiration for a decent quality of life. Make

in India and resultant jobs is the promise that the PM has made to the people of India.

It comes with a great satisfaction that we read the IMF/World Bank forecast that India's economic growth for

the next two years will overtake China at 7.5%, to become the world's fastest growing major economy, as

against China's expected growth of about 7.1% this year No doubt, cheaper import of oil has been a boon, which

has contributed to a rapid deceleration of inflation. In order in doing so, Indias jurisprudence will have to

evolve a lot, not only to increase itsworth but also to value more patents. This would be a tricky affair

especially when the royalty is for one component of a multi-component gadget. Sometimes, it would also be

gone wrong to limit the base value for royalty payment to the value of the component itself, as when that

component alters the capability of the entire gadget itself. In other cases, using the entire product as the base

value on which the royalty rate has to be applied would be grossly unfair.

Foreign Equity caps have now been increased for establishment & operation of satellites, credit information

companies, non-scheduled air transport & ground handling services from 74% to 100% due to the process of

attracting investment to create jobs by amending the FDI policy, also underlined in the Union Budget for

2015-16, was initiated by National Democratic Alliance government in August 2014, while the FDI policy tries

to distinguish between various types of investors, FDI per se is merely being seen as a source of funds.

Economists have noted that with the globalization becoming a reality, Indian manufacturers will have to

compete with the best and cheapest the rest of the world has to offer even in the domestic market. A recent urge

for providing tax concessions to any industry which would set up manufacturing facility in the country is being

increased. In my research paper the biggest impact it had held on the Foreign Investment Policy of thegovernment in various sectors and also on the youth with respect to their jobs availability in the country is not

that up to the mark than it was supposed to be. Besides, a critical aspect of the Make in India programme was

the countrys huge small and medium-sized industries which could have played a big role in making the country

take the next big leap in manufacturing and it could have been the case, but it does not seem so after giving this

much feted Make in India umbrella programme enough time to prove itself.

Before the reforms, trade policy was characterized by high tariffs and pervasive import restrictions. Imports of

manufactured consumer goods were completely banned. For capital goods, raw materials and intermediates,

certain lists of goods were freely importable, but for most items where domestic substitutes were being

produced, imports were only possible with import licenses. The criteria for issue of licenses were non

transparent, delays were endemic and corruption unavoidable. The economic reforms sought to phase out import

licensing and also to reduce import duties. Import licensing was abolished relatively early for capital goods and

intermediates which became freely importable in 1993, simultaneously with the switch to a flexible exchange


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rate regime. Quantitative restrictions on imports of manufactured consumer goods and agricultural products

were finally removed on April 1, 2001, almost exactly ten years after the reforms began, and that in part because

of a ruling by a World Trade Organization dispute panel on a complaint brought by the United States. In order to

avoid both killing domestic production with inverted duties as well as the spurious local value addition that well

aversely reaps duty differentials, and to promote true manufacture in India, which takes advantage of its

closeness to Indias huge market and low wage costs, cheap labour, import duty has to be the exact self-samerate on all imports, whether raw material, component or finished good, each of which will enjoy that rate of real

effective protection. And this rate should be kept very low. This value addition that comes up on the basis of

such a duty structure will be the real thing, not trading profits masquerading as under the umbrella of Make in

India. And it would surely spare the Indian consumer the burden of high prices.It was realized that the import

substituting inward looking development policy was no longer suitable in the modern globalising world.


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Images Source: FDI in post-reform India (Paper by ISID, New Delhi).


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