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Shubhada RaoSenior President & Chief Economist, Economics Knowledge Banking

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TITLE ‘Make in India - Pressing the Pedal

AUTHOR Economics Knowledge Banking, YES BANK

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The Associated Chambers ofCommerce and Industry of India

Mr. D. S. RawatSecretary General

ASSOCHAM Corporate Office5, Sardar Patel Marg, Chanakyapuri,New Delhi – 110021, India

Tel : +91 11 4655 0555Fax : +91 11 4653 6481/82Email : [email protected] : www.assocham.org

By 2025, India's manufacturing sector is expected to generate over 100 million new domestic jobs and contribute 25% of national GDP compared to ~15% currently. However,

for India to grow at 9–10% over the next 3 decades, we must aim to be a part of the global supply chain and produce for both domestic as well as international markets.

Hon'ble Prime Minister of India, Shri Narendra Modi has launched the landmark 'Make in India' campaign aimed at steering investments, infrastructure development,

employment generation as well as financial inclusion, thereby making it one of the most transformational initiatives to augment India's economic development.

'Make in India' and domestic manufacturing are also the central plank of India's 2015-16 Union Budget with focus on job creation through revival of growth and investment. I am

confident that the progressive proposals of the Union Budget, such as liberalization of foreign investments will enable companies to raise long term capital at competitive prices

and immensely boost the dual agenda of 'Invest in India' and 'Make in India' – thereby making India a global manufacturing hub of excellence.

To support the efforts of the Government of India, ASSOCHAM, India's apex Knowledge Chamber, has formed the Global Investors' India Forum to attract foreign investments

into India by leveraging the newly established network of 14 International Offices as well as 14 International Business Promotion Councils in India. The Forum will aim to

improve Ease of Doing Business, promote cross-border business development, initiate strategic collaborations and focus on policy advocacy, thereby actualizing the 'Make in

India' strategy.

I am pleased to present this ASSOCHAM – YES BANK special publication which is being released at this highly significant Interactive Investment Forum - Fast tracking India's

Growth Story with Confidence & Conviction, under the aegis of ASSOCHAM Global Investors' India Forum in New York. This special occasion also marks the formal launch of

ASSOCHAM's US office which will further strengthen India-US strategic and economic partnership.

The publication provides an overview of India's manufacturing sector and suggests key recommendations for actualizing the transformational 'Make in India' strategy. I am

confident that the contents of this publication will be insightful for the Government, policy makers and industry towards heralding a manufacturing-led economic resurgence.

FOREWORD

Thank You.

Sincerely,

Rana Kapoor

President

Chairman, ASSOCHAM Global Investors' India Forum

Founder & CEO

Contents

01‘Make in India’ - Pressing the Pedal

1 ‘Make in India: Overview and Synopsis

2 Strengths of Indias Manufacturing Sector

3 Realizing Indias Comparative Advantage

4 Key Challenges for India's Manufacturing Sector

5 Analysis of Key Sectors: Short, Medium and Long Term Measures

6 Summary of Key Recommendations

7 ASSOCHAM Global Investors' India Forum

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‘Make in India’: Overview and Synopsis

1.

Make in India: Overview and Synopsis

Economic theories and empirical studies have postulated that manufacturing is the main engine of growth in an economy. In order to develop India into a global manufacturing

giant, the NDA Government unveiled the national program of 'Make in India' last year with an aim to facilitate investments, foster innovation and build the best in class

manufacturing infrastructure.

The 'Make in India' pitch assumes significance for its criticality. Igniting the manufacturing sector is the key to kick-start a virtuous cycle of higher economic growth in India.

Manufacturing sector has for long been the Achilles heel of our economy. The contribution of manufacturing to India's GDP has largely been stagnant at 15.5% over the last 35

years and its contribution to India's export basket remains meager vis-à-vis offshore competitors.

In the first section of this report, we assess India's structural strengths that are in some sense pre-requisites for manufacturing led growth to kick-off. In the second section, we

draw from classic economic theories of comparative advantage - Hecksher Ohlin and Factor Price Equalisation, to justify a focussed manufacturing of labour intensive goods (basis

India's comparative advantage, given a cheap and abundant labour) in Textiles and Garment, Leather, Food Processing and Gems & Jewellery sectors. Thereafter, we argue how

technology can also prove to be a key determinant of manufactured exports from India. A decomposition of domestic value added for India's current export basket indicates a

higher share of non-labour (i.e capital) inputs, reflecting a pervasive process of technological change that has already taken place. To reaffirm our validation, we draw from two

trade theories of – Technology Gap and Product Cycle Hypothesis which suggest that technological capability is not only in terms of creating 'new products' but minor innovations

around a given technology have historically succeeded in augmenting exports for less developed economies. India, too can replicate this by focusing on 'know-why' and 'know-

how' in sectors such as Pharma, Electronics, Auto, Biotechnology and Defence, which are most effectively expected to give India a competitive edge in order to become a

meaningful player in the global supply chain.

The third section identifies the key challenges riddled in the Indian manufacturing sector which have been a deterrent to investment. We explicate that India fares extermely poorly

as compared to not only advanced economies (AEs) but even Emerging Market Economies (EMEs) when it comes to infrastructure & logistics, R&D spending, taxation structure

and labour productivity; which have been stumbling roadblocks for manufacturing led growth to taking root.

The last section concludes with key recommendations that in our opinion would enable the groundbreaking 'Make in India' campaign to achieve the vision of transforming India

into a global manufacturing hub.

04 ‘Make in India’ - Pressing the Pedal

While India has metamorphosized from an agrarian economy into an economy driven by the services sector, the desired dynamism in the manufacturing sector has remained

elusive. The share of agriculture in Indias GDP has declined from 35% in 1980 to 18% in 2013 and the corresponding share of services has risen from 40% to 57%; however the

share of manufacturing has largely remained stagnant averaging around 15.5% of GDP over the last 35 years (see chart 1).

The share of manufacturing in Indias GDP stood at a meagre 12.8% in 2013, falling behind both EMEs and AEs (see chart 2). Further, India is still struggling for a manufacturing

led export growth to take root. Of Indias export basket, 62% comprise of manufacturing exports (as of 2013) which is the lowest among most Asian economies (China 94%,

Japan 88%, Phillipines 77%, Singapore 70% and Thailand 74%).

Harnessing Indias manufacturing potential is the key to ensure a sustainable long term growth. The most significant and comprehensive policy initiative by the Government in this

regard has been the National Manufacturing Policy (NMP) in 2011, which envisioned to increase manufacturing sector growth to 12-14% per annum, share of manufacturing to

25% of GDP, and create additional 100 mn jobs in the sector by 2022.

After averaging at 6% from 2000-04, manufacturing growth accelerated to an average 10.1% between 2005-11, but thereafter

slipped to a negative 0.7% in 2013. Further, with the contribution of manufacturing to GDP averaging around 15% of GDP from th2000-13, total employment in manufacturing sector stood at 52.4 mn in 2011-12. While data from the 68 NSSO (National

Sample Survey Organisation) round indicates a growth in manufacturing employment between 2009-12 (versus a contraction

over 2004-05 and 2009-10), India seems to be far from the envisioned target of creating an additional 100mn jobs in

manufacturing sector by 2022. Although NMP was a step in the right direction, the lingering slowdown in global economy,

alongwith a slack in domestic policy push, meant Indias manufacturing sector underperforming its intended targets.

Reinforcing the vision to develop India into a global manufacturing giant, the NDA Government last year unveiled a national

program of ‘Make in India with an aim to facilitate investments, foster innovation and build world class manufacturing

infrastructure. A strong political mandate and push for reforms, Reserve Bank of India (RBI) commencing its rate easing cycle,

benign global commodity prices along with gradually improving global growth have created a favourable setting for Indias manufacturing sector. The envisaged creation of smart

cities and investment corridors, allowing higher FDI in sectors such as defence and railways, actions to foster project execution including faster approvals and clearances,

appeasing investor sentiment, correcting inverted duty structures amongst others, have been some of the encouraging efforts that the Government has undertaken over the last

10 months. However, these efforts needs to be supplemented with proper implementation here on along with overhauling some of the fundamental factors such as labour laws,

poor infrastructure, and tax policies that have held back Indias manufacturing potential.

Pressing the Pedal – Make in India

Ongoing reform efforts need to be

s u p p l e m e n t e d w i t h p r o p e r

implementation hereon along with

overhauling some of the fundamental

factors such as labour laws, poor

infrastructure, tax policies that have

held back India’s manufacturing

potential.


Chart 1: Stagnant share of manufacturing in India's GDP (in %)

Source: World Bank Database, YES BANK Limited

Chart 2: Share of manufacturing lags Advanced Economies (AE) and EmergingMarket Economies (EMEs)


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Strengths of India’s Manufacturing Sector

2.

Strengths of India’s Manufacturing Sector


Cheap abundant labour gives India a natural comparative advantage in low-value added, labour intensive manufacturing goods

Demographic Dividend to Indias advantage: With a population of 1.2 bn people, and the worlds highest youth population (India has 572 mn people under the age of 24);

labour is a vital factor of production for India. As per the Economic Survey 2014, the proportion of working-age population in India is likely to increase from around 58% in 2001 to

more than 64% by 2021. Demographics indicate that India will soon surpass China, with Indias dependency ratio declining from 61% in 2002 to 36% in 2020 and Chinas

remaining stagnant at 44% (UN department of Economic and Social affairs) (See chart 3).

Low Labour costs in India: Indias harnessing of its manufacturing potential will lie in tapping its low cost labour. India fairs as the most competitive economy in terms of both

average monthly wages and minimum monthly wages as compared to its Asian peers. Cheap semi-skilled and unskilled labour intensive products give India a natural

competitive advantage (See chart 4).

Additional advantage stemming from abundant raw material

th Adequate availability of raw material inputs: India has rich availability of raw materials inputs such as cotton, coal and iron ore. India has the worlds 5 largest coal reserves,

India is the fourth largest iron ore producer accounting for 5% of global production, and is likely to overtake China as the largest cotton producer. Abundant raw materials give

India a comparative advantage in terms of low-cost manufacturing inputs, reducing the overall cost of production. Further, domestic availability of raw materials can insulate

Indias manufacturing sector from global commodity cycles.

Rising wages in China is creating room for India

Rising incomes with rising exports: With growing labour intensive exports and increasing prosperity, the low cost wage dynamics in China are gradually seeing a shift (see

chart 5). Average Chinese wages have grown 14.2% YoY from 2000 to 2013. Average wage in China is more than three times of India, and about double the wage in other Asian

manufacturing hubs. This suggests that China is losing advantage as a low–cost manufacturing destination and inducing investors to shift to other South and South-East

destinations for low-end manufacturing bases. Further, demographic dividend is expected to cap labour force growth in China as population ages; hence creating room for India

in the global markets to export labour intensive products like clothing, textiles, footwear, furniture, plastic products, bags and toys

‘Make For India: Indias domestic demand offers tremendous potential to tap economies of scale in manufacturing consumer goods segment

Recognition of Indias neo-middle class: Indias domestic consumer market is the most rapidly growing consumer market in Asia. The new aspiring Indian middle class is

expected to touch 267 mn over the next 5 years as per National Council of Applied Economic Research (NCAER), presenting tremendous opportunities to realize economies of

scale for fast moving manufacturing consumer goods. With consumerism and disposable incomes on the rise, retail sector has experienced rapid growth in the past decade

with many global players entering the Indian market

Chart 4: Wages in India lower than offshore competitors

Source: ILO (2012), National Wages and Productivity Commission, YES BANK Limited

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Chart 3: Dependency ratio for India expected to improve up to 2040

Source: UN Population Statistics, YES BANK Limited

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Empirical Experience from Trade TheoriesStudies and empirical findings have shown that international trade has a direct correlation with economic growth and very few countries have sustained high growth over long periods

without experiencing an increase in the share of foreign trade in their GDP. To draw policy recommendations for Indias manufacturing sector, we rely on popular economic trade

theories, as outlined below:

Hecksher-Ohlin Model

This pioneering model of international trade states that relative endowments of the factor of production (land, labour, capital) determine a country's comparative advantage. In other

words, countries have comparative advantage in those goods for which the required factors of production are relatively abundant, such that a rich country (i.e an advanced economy)

that is capital abundant would export a capital intensive good and import a labour intensive good (from a developing economy) and vice-versa.

Factor Prize Equalization Theory

The factor price theorem asserts that that if commodities were freely tradable we would see the wage to rental ratio (payments to factors of production i.e. wage to labour and rent to

capital) equalize across trading partners. Free trade which results in a unified market (of the trading partners) would lead to rising capital costs in the rich country as a consequence of

exporting the capital intensive good rise (rising demand); and rising labour costs in the labour abundant country until the wage to rental ratio in both the countries is equalized.

Chinas Export Miracle

The expansion of China's exports has been one of the most remarkable features of Chinas economic development. Chinese exports rose on average by 5.7% in the 1980s,

12.4% in the 1990s, and 20.3% during 2000-03. By 2003, China's export growth rate was seven times higher than the world export growth. Chinese economy comprised of

one fourth of the worlds population and a low-wage labour market. In 1990s, light manufacturing unskilled products comprising of toys, footwear, apparels among other labour

intensive goods, accounted for more than 42% of Chinas exports. The cheap abundant labour resource supplemented with its sheer size played a strategic role in terms of

generating economies of scale and enabling China to realize its export potential. Chinas top four trading partners - EU, US, Japan and Hong Kong, which accounted for 54% of

Chinas merchandise trade with the world, were nations characterized by high capital intensity. However, since the 1990s, the composition of Chinese manufacturing exports

has been gradually undergoing a transformation from traditional and unskilled to skilled labor exports. As a consequence, the share of light manufactures in Chinas export

basket has declined from 42% in 1990s to 28% in 2003 and further to 20% in 2013; while corresponding share of machinery and transport (including electronics) has increased

from 17% in 1990s to 41% in 2003 and further to 57% in 2013 (see chart 6). While the Chinese economy is gradually shifting from relatively simple manufactured goods

towards more sophisticated products; these products are low-cost, high-volume labour intensive products with not much technological sophistication. The share of high-tech

exports remains low in Chinas exports.

China's endowment structure gives it a huge comparative advantage in labour-intensive goods. Thus Chinese trade pattern is an exposition of Hecksher-Ohlin model with trade

stemming from Chinas comparative advantage in cheap labour exports to AEs (capital abundant economies).


Chart 5: Rising wages in China Chart 6: Changing composition of China’s exports

Source: National Bureau of Labour Statistics of China, YES BANK Limited Source: IMF, YES BANK Limited

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Technology Gap Model (Posner, 1961)

The Technology Gap Theory describes an advantage enjoyed by a country that introduces a new good in a market. As a consequence of research activity and entrepreneurship, new

goods are produced and the innovating country (i.e rich capital intensive Advanced Economy (AE)) enjoys a monopoly for a period of time the innovations remain unique until the other

countries learn to imitate these goods. Until the imitation is complete the AE (innovating country) enjoys an export advantage. The intuition behind this is the fact that time elapses

before the other countries' consumers come to know of the new good and acquire a taste for it (i.e demand lag). Hence, imports of the new good take place only during the time period

between the imitation lag and the demand lag.

Product Cycle Hypothesis (Vernon, 1966)

This theory postulates that a new product is produced by a country which has an advantage in producing innovations (capital intensive rich country). At the early stages of production of

the new product, the production unit is located in the innovating country as a high level of skill is required to produce the good. Gradually, as the product matures and becomes more

standardized, production of the commodity gets passed to other countries (Less Developed Countries - LDCs) which have cost advantage in production (like cheaper raw materials,

cheap labour). Thus according to Vernon, in the country where the product originated, production dwindles while the demand keeps on increasing gradually turning the nation into a net

importer from exporter.

Realizing India’s Comparative Advantages

3.

Realizing India’s Comparative Advantage in Labour Intensive Manufacturing Goods

Given the availability of cheap and abundant labour, Indias true comparative advantage lies in labour intensive goods.

However, we estimate, that of aggregate exports, Indias share to developing economies is double that of Chinas and higher than that of South Asia and Low and Middle Income

nations (see chart 7). Between FY11-14, Asia and Africa accounted for 66.8% of Indias total exports, more than double the combined share of Europe and US at 30.6%. The lower

export realizations of India with advanced economies, with whom India enjoys a comparative advantage, defies the conventional wisdom of international trade. (i.e a labour abundant

country should have higher trade with capital abundant countries)

At the same time, employment share of workers in manufacturing sector is roughly 10% in India, which is less than half of China and the lowest among BRIC economies. The share of

manufacturing employment in India is infact comparable to advanced Economies like UK and USA where manufacturing sector is largely capital intensive (see chart 8). The lower

engagement of employment in manufacturing activity demonstrates that Indias manufacturing sector is yet to tap the potential of its low cost and abundant labour endowment.

Chart 8: India’s share of manufacturing employment less than EMEs but comparable to AEs

Source: International Labor Organization, YES BANK Limited

Chart 7: Significant share of export realizations with developing economies (in %)


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Textile and Garments

Indias vast endowment of cheap unskilled and semi-skilled labour gives India a natural comparative advantage in low value added manufacturing goods. Basis this, we

recognize four sunrise sectors which are expected to most effectively tap Indias labour endowment.

Skilled and semi skilled cheap abundant manpower: With over 45 mn people, the industry is one of the largest sources of employment generation in India

Raw Material: India accounts for about 14% of the worlds production of textile fibre and yarn, and is the largest producer of jute and the second largest producer of silk and cotton

Exports in textiles and apparel from India are expected to increase to USD 65 bn by FY17 from USD 40 bn in FY14

Comparative Advantage

With consumerism, favourable demographics, rising per capita income and shifts in preferences for branded products is expected to be a major boost

in demand for textiles and apparels

The domestic textile and apparel industry in India is estimated to reach USD 100 bn by Fy17 from USD 67 bn in FY14

Domestic Demand

The sector contributes 14% to industrial production, 4% to Indias GDP and constitutes 13% of the countrys export earnings

India has the second largest manufacturing capacity in textile sector, globally

The Indian textile industry accounts for about 24% of the worlds spindle capacity and 8% of global rotor capacity

India has the highest loom capacity (including hand looms) with 63% of the worlds market share

Reasons to

Invest


Leather Industry

Semi skilled cheap abundant manpower: With 55% of the workforce below the age of 35, the Indian leather industry has one of the youngest and most productive workforces

Raw Material: India is endowed with 21% of the worlds cattle and buffalo and 11% of the worlds goat and sheep and produces 2 bn sq. feet of leather, accounting for 10% of the world's leather

Exports have grown from USD 1.42 bn in 1990-91 to an all time high of USD 6 bn in 2013-14 and are projected to grow at 24% per annum over the next five years


Rising purchasing power and growing middle class, domestic demand for light manufactures and consumer goods in the leather industry, offers

tremendous opportunities

The domestic market is expected to double in the next five years

Domestic Demand

The total production of the Indian leather industry stands at USD 11 bn with great potential for exports and a huge domestic market

High growth potential of exports, the ready availability of leather, the abundance of essential raw materials and rapid strides in the areas of

capacity modernization offer significant growth potential to the sector

Reasons to

Invest


Food Processing Industry

Skilled cheap abundant manpower: The sector is also one of the largest employment creators, with growth in direct employment in the organised food processing sector growing 6.05% YoY in FY12

Raw Material and Geographical Advantage: With a large agricultural resource base, abundant livestock and cost competitiveness, India is fast emerging as a sourcing hub of processed food

A total of 127 agro-climatic zones have been identified in India

Strategic geographic location and proximity to food-importing nations


One-third of the population is expected to be living in urban areas by 2020

Increasing desire for branded food as well as increased spending power

Large and distinct consumer brackets to support customised offerings, new categories and brands

Consumption in India is driven towards packaged and ready-to-eat foods

There is an awareness and concern for wellness and health, for high protein, low-fat, wholegrain, organic food

Domestic Demand

A global outsourcing hub with large retailers sourcing from India due to abundant raw materials, supply and cost advantagesth

Food processing sector ranks 5 in the world in exports, production and consumption, and has grown at 8.4% for the last 5 years

Value addition of the food processing sector as a share of GDP manufacturing was 9.8% in 2012-13

Investment in registered food processing sector had grown by 20.1% at the end of 2012

Reasons to

Invest


Gems and Jewellery

India is deemed to be the hub of the global jewellery market because of its low costs and availability of semi-skilled labour

India is the worlds largest cutting and polishing centre for diamonds, with the cutting and polishing industry being well supported by Government policies. Moreover, India exports 95% of the worlds diamonds, as per statistics from the Gems and Jewellery Export promotion Council (GJEPC).


The sector is witnessing changes in consumer preferences, as the westernization of lifestyle is responsible for changes in the buying habits of the

consumer. Increase in per capita income has led to an increase in sale of jewellery, as jewellery is a status symbol in India.

The domestic gems and jewellery industry had a market size of USD 40.45 bn in 2013, and has the potential to grow to USD 80.59 - 85.43 bn by 2018

The country's gems and jewellery market is expected to double in the next five years. The growth will be driven by a healthy business environment

and the Government's investor friendly policies

Domestic Demand

The Gems and Jewellery sector contributes around 6-7% of the countrys GDP

The Government has declared the sector as a focus area for export promotion based on its potential for growth and value addition. The

relaxation of restrictions of gold import is likely to provide a fillip to the industry

India's Gems and Jewellery sector has been contributing in a big way to the country's Foreign Exchange Earnings (FEEs). In FY14, it

contributed USD 34.74 mn to the country's FEEs

Reasons to

Invest


Realizing India's Comparative Advantage in Capital Intensive Manufacturing Goods

The decomposition of domestic value added for India's exports allows examination of how the benefits of international trade are being distributed between domestic capital and labour.

The domestic value of exports is divided into two components - labour and non-labour (i.e capital). Using this classification, an academic study (Estimating Value Added and Foreign

Content of India's exports, Indian Council for Research on International Economic Relations, ICRIER) shows that the combined share of non-labour component is significantly higher in

India's merchandise exports at 42.9% vis-à-vis services exports (at 35.8%). This reflects a pervasive process of technological change in India's export basket across goods and

services, alike.

At a disaggregated level, the labour component in domestic value added of India has increased mainly for agriculture, food processing, whereas capital contribution has

increased for machinery, metal products among other sectors.

Sector 1998-99

Merchandise exports 34.2 32.1 27.9 50.7 47.3 42.9

Services exports 48.8 51.4 50.9 42 41.4 35.8

Total exports 39.2 38.9 39.1 47.8 45.2 39.5

Labour component Non-labour component

Decomposition of India's Domestic Value Added of exports by factor components

2003-04 2007-08 1998-99 2003-04 2007-08


Source: Economic Survey 2014-15, Government of India

India's Comparative Advantage stems not only from low labour costs but also technological capability

These encompass major innovations or shifting of the technological frontierKnow-why related technological progress:

We must broaden the definition of comparative advantage to not only include major innovations but minor changes, which Know-how related technological progress:

reflects the ability of developing countries to adapt and invent around a given technology. This absorptive capacity of developing countries gives countries like India a

competitive edge that enables them to compete in global markets with the advanced industrial nations.

The technology factor can prove to be a key determinant of manufactured exports from Emerging Market Economies (EMEs) even for high-technology products. Technological

capability is not only in terms of shifting the technological frontier but minor innovations around a given technology, which have historically succeeded in augmenting exports for

Less Developed Countries (LDCs) and made them successful in competing in global markets.

There are significant inter - industry differences in developing countries. For some industries the 'know-how' variable generates significant results and for others the

'know-why' variable plays an important role. It is not the absolute level of technological capability which augments exports but the efficiency with which R&D is employed.

Therefore, comparative advantage of developing countries like India lies not only in low labour costs, but even technological capability.

Japan's comparative advantage in technological capability and lessons for India:

To cite historical examples, electronic products such as television receivers were for many years a prominent export of the US, but Europe and especially Japan emerged

as competitors, causing the US share of the market to diminish dramatically. More recently, Japan has been threatened by South Korea and other Asian producers. The

textile industry is another example where developing countries such as China, Taiwan, South Korea and India have become major suppliers in the world displacing in

particular US and Japan.

After 1960's Japan started developing comparative advantage over USA in several high technology industries such as automobiles, semiconductors and electronic

goods. According to Technology Gap Model and Product Life Cycle hypothesis, this phenomenon was initially attributed to labour cost advantage of Japan. But later on, it

was acknowledged that technological capability of Japan and know-how oriented technological progress i.e. its ability to invent around a given technology was the

reason behind its growing competitiveness. Therefore we need to attach the importance of technological capability to the comparative advantage of developing

countries.


We identify five key industries with tremendous growth potential where India enjoys a competitive advantage in terms of technological capability

Pharmaceutical Industry

In India's pharmaceutical exports, comparative advantage stems from both know-how and know-why-oriented technological capabilities (reverse engineering). Product development, in

the context of the pharmaceutical industry in general, implies development of formulations using a particular bulk drug and in the Indian context it means simple alteration of dosage forms.

Indias cost of production is significantly lower than that of the USA and almost half of that of Europe

A skilled workforce as well as high managerial and technical competence

Indias generic drugs account for 20% of global exports in terms of volume, making the country the largest provider of generic medicines globally


The healthcare sector in India is expected to grow to USD 250 bn by 2020 from USD 65 bn currently

The generics market is expected to grow to USD 26.1 bn by 2016 from USD 11.3 bn in 2011

In 2011, Indias OTC drug market stood at USD 3 bn and a rise to USD 6.6 bn is forecasted by 2016

Pharma companies have increased spending to tap rural markets and develop better infrastructure. The market share of hospitals is expected to

increase from 13.1% in 2009 to 26% in 2020

The purported rise of lifestyle diseases in India is expected to boost industry sales figures

Rising levels of education are set to increase the acceptability of pharmaceuticals

Indias patient pool is expected to increase to over 20% in the next 10 years, due to the rise in population

Domestic Demand

India's pharmaceuticals industry accounts for about 2.4% of the global pharma industry by value and 10% by volume

Industry revenues are expected to expand at a CAGR of 12.1% during 2012-20 and reach USD 45 bn

Between 2011 and 2016, patent drugs worth USD 255 bn are estimated to go off-patent, leading to a huge surge in generic product and

tremendous opportunities for companies

Following the introduction of product patents, several MNCs are expected to launch patented drugs in India

Over USD 200 bn is to be spent on medical infrastructure in the next decade

Reasons to

Invest


Electronic Systems

In Electronic Systems Industry in India, know-how or production engineering rather than know-why would better explain export success in this sector. Rather than absolute levels

of technological capability it is the efficiency with which technological capability which is acquired is likely to play an important role. The sector comprises Electronic Products,

Electronic Components, Semiconductor Design and Electronics Manufacturing Service.

India has the third largest pool of scientists and technicians in the world

Skilled manpower available in abundance in Semi-conductor Design and Embedded Software

Strong design and R&D capabilities in auto electronics and industrial electronics

Rising manufacturing costs in alternate markets


Large demand generated due to Government schemes like the National Knowledge Network (NKN), National Optical Fibre Network (NOFN), tablets

for the Education sector, a digitisation policy and various other broadband schemes

Growing consumerism and rising middle class contributing to significant local demand

Domestic Demand

The Indian Electronic System Design & Manufacturing (ESDM) Industry was estimated to be worth USD 68.31 bn in 2012 and is anticipated to be

worth USD 94.2 bn by end of 2015 with a CAGR of 9.88% between 2011-15

Existing R&D capabilities can be encouraged to develop ‘Made in India products and generate local Intellectual Property (IP)

Adequately developed Electronic Manufacturing Services (EMS) industry is set to be a significant contributor to the entire industrys development

Reasons to

Invest


Bio-Technology

In this sector, India's comparative advantage stems from both know-how oriented and know-why-oriented technological capabilities. The sector is divided into five major segments

— bio-pharma, bio-services, bio-agri, bio-industrial and bio-informatics.

rd India is in the top 12 bio-tech destinations in the world and ranks 3 in the Asia-Pacific region

India has the second-highest number of USFDA–approved plants, after USA. No. 1 producer of Hepatitis B vaccine

India has the potential to become a major producer of transgenic rice and several genetically modified or engineered vegetables

A strong pool of scientists and engineers and cost-effective manufacturing capabilities

Global companies looking to economise, outsourcing to lower cost economies results in a cost arbitrage of more than 50%


The market size of the sector is expected to rise up to USD 11.6 bn by 2017 due to a range of factors, such as, growing demand for healthcare services,

intensive R&D activities and strong Government initiatives

India constitutes around 8% of the total global generics market, by volume, indicating a huge untapped opportunity in the sector

Domestic Demand

The sector has seen high growth with a CAGR in excess of 20% and the key drivers for growth in the biotech sector are increasing investments,

outsourcing activities, exports and the governments focus on the sector

The industry is expected to grow at an average growth rate of around 30% per annum to reach USD 100 bn by 2025

The Indian bio-economy grew to USD 4.3 bn at the end of 2013, up from USD 530 mn in 2003

Reasons to

Invest


Defence Sector

The opening up of defence sector provides significant opportunity for know-how oriented technological progress in defence modernization and advanced weaponry. The

Government aims to promote self-reliance, indigenization, technology upgradation, achievement of economies of scale and development of capabilities in the defence sector.

India has one of the largest defence budgets in the world, but is also the worlds largest arms importer

Developing institutional mechanisms to identify technologies that need to be developed for defence does not only offer potential to be self sufficient but also to transform into an exporter in the long term

India's modernization plans, increased focus on homeland security and growing attractiveness as a defence sourcing hub


The opening of the strategic defence sector for private sector participation will help foreign original equipment manufacturers to enter into strategic

partnerships with Indian companies and leverage the domestic markets by building domestic capabilities Domestic Demand

Defence Production Policy, 2011, to encourage indigenous manufacture of defence equipment. The Policy has been amended to provide for the

following: -

1. Preference to ‘Buy (Indian) 2. ‘Buy and Make (Indian) over ‘Buy (Global)

3. Simplification of the procedure for ‘Buy and Make (Indian) 4. Clear and unambiguous definition of indigenous content

5. Provision for Maintenance Terms of Trade (TOT) to Indian Industry partners

Reasons to

Invest


Auto Sector

Growing population and an expanding middle class are expected to remain massive drivers for know-how oriented production progress. This along with Government support can

allow know-why technological progress.

Global car majors have been ramping up investments in India to cater to growing domestic demand. These manufacturers plan to leverage Indias competitive advantage to set up export-oriented production hubs

An R&D hub: strong support from the Government in the setting up of NATRiP (National Automotive Testing and R&D Infrastructure Project) centres. Private players such as Hyundai, Suzuki and GM are keen to set up an R&D base in India

A low cost market and engineering skills are likely to give India a competitive edge when it comes to ‘frugal engineering


By 2015, India is expected to be the fourth largest automotive market by volume in the world

Over the next 20 years, India will be a part of the big global automotive triumvirate

Tractor sales in the country are expected to grow at CAGR of 8-9% in the next five years

Two-wheeler production has grown from 8.5 mn units annually to 15.9 mn units in the last seven years. Significant opportunities exist in rural markets

Indias car market has the potential to grow to 6 mn+ units annually by 2020

Domestic Demand

The sector currently accounts for ~7% of the countrys GDP and employs about 19 mn people both directly and indirectly

th India is currently 7 largest producer in the world with an average annual production of 17.5 mn vehicles, of which 2.3 mn are exported

The total turnover in 2010-11 was USD 58.5 bn turnover by 2016 is slated to be USD 145 bn

Reasons to

Invest


Key Challenges for India's Manufacturing Sector

4.

Key Challenges for India's Manufacturing Sector

Ease of Doing Business

According to World Banks ‘Ease of Doing Business survey 2014, India ranks 142 out of a total of 189 countries, significantly behind its Asian peers (Singapore ranks 1, Hong

Kong ranks 3, Malaysia 18, China 90, Philippines 95 and Indonesia 114), highlighting that the procedures and costs of doing business are particularly cumbersome for India.

Start up procedures to register a business requires 12 days in India as compared to 5 days in OECD nations and 8 days in Low and Middle Income nations. Further, 1420 days

are required to enforce a contract in India as compared to 527 days in OECD nations and 655 days in Low and Middle income nations. India is characterized by multi-tier

regulatory frameworks and complex procedures making it tedious for investors to venture into manufacturing projects.

Labour Related Issues

Manufacturing entails enhancing labour productivity and a sustained availability of skilled workforce. Relative labour productivity in India falls Labour Productivity:

behind its global peers, despite a cheap and abundant labour resource. Only 14% of labour force in India is endowed with primary education, 36% with secondary

education and 10% with tertiary education. Literacy rate in India stands at 62%, much below comparable levels of above 90% in other EMEs. The public expenditure on

education is a meager 3.3% of GDP as compared to 5.5% of GDP in OECD nations and 4.4% in lower middle income nations, respectively. As a result of poor

education, labour productivity remains low in India, serving as a deterrent for attracting investment and manufacturing opportunities.

Rigid labour laws and limited adsorptive capacity of the manufacturing sector, have led to restricted job creation in the High concentration of Informal Labour:thorganised sector. As per the latest NSSO 68 round Employment-Unemployment Survey, nearly 72% of the workforce is employed in the informal sector. The

corresponding figure for developing countries is 40%. Waged and salaried workers comprise a meager 18% of workforce, with close to 84% of the workers being self

employed.


Chart 11: Low level of educated workforce

Source: World Bank, YES BANK Limited

70

60

50

40

30

20

10

0

Indonas

ia

Bra

zil

Phili

ppens

Sin

gap

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Hongko

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SA

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India

Russ

ian

Federa

tion

80 Labor force with primary education (% of total)

Labor force with Secondary education (% of total)

Labor force with tertiary education (% of total)

Chart 12: Public spending on education

Source: World Bank

7

6

5

4

3

2

1

0

UK

Mal

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Indonesi

a

Sin

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Low

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Public spending oneducation, total (% of GDP)

Low & Middle Income NationsOECD MembersIndia

11.9

28.4

47

105.7

1420

185.9

4.8

8.9

24.4

81.8

527.3

146.5

7.6

25.2

54.8

113.7

654.5

159.1

Start-up procedures to register a business (number)

Time required to start a business (days)

Time required to register property (days)

Time required to get electricity (days)

Time required to enforce a contract (days)

Time required to build a warehouse (days)


Chart 9: Cumbersome costs and procedures of doing business in India Chart 10: Labour productivity lags behind both AE's and EME's


110

90

70

50

30

10

Chin

a

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US

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anka

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land

Sout

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fric

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India’s labour productivity as a proportion to others (%)

Infrastructure Bottlenecks

Infrastructure and logistics in India lag far behind international standards adding significantly to the cost of doing business. Highways, bridges, world-class airports, reliable

power and clean water are in short supply. Power shortage is estimated at 12% at peak levels and 8% at non-peak levels. Indian ports have a vessel turnaround time of 3-5

days as against only 4-6 hours in Singapore and Hong Kong. Lack of clear-cut policies on land acquisition, multiplicity of authorities and bureaucratic hurdles lead to delays

in the implementation of industrial and infrastructure projects in India.

29“Make in India” - Pressing the Pedal‘Make in India’ - Pressing the Pedal

Low

inco

me


Chart 13: Frequency with which shipments reach consignee Chart 14: Ease to arrange competitive priced shipment


Chart 15: Competence and quality of logistic services

Source: World Bank, YES BANK Limited Source: World Bank, YES BANK Limited

Chart 16: Efficiency of customs clearance

0 1 2 3 4 5

Low & middle income

Philippines

India

Indonesia

China

Malaysia

OECD members

Hong Kong SAR, China

United States

Japan

Singapore

United Kingdom

Logistics

performance

index:

Frequency with

which

shipments reach

consignee

within

scheduled or

expected time

(1=low to

5=high)

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

Low & middle income

Indonesia

India

Philippines

OECD members

United States

Japan


China

United Kingdom

Malaysia

Singapore

Logistics performance index: Ease of arranging competitively priced shipments (1=low to 5=high)

0 1 2 3 4 5

Low & middle income

Philippines

India

Indonesia

China

Malaysia

OECD members


United States

United Kingdom

Japan

Singapore

Logisticsperformanceindex: Competenceand quality of logisticsservices (1=low to 5= high)

0 1 2 3 4 5

Logistics performance index: Efficiancyof costomsclearance process (1=low to 5=high)

Low & middle income

Indonesia

India

Philippines

OECD members

United States

Japan

Hong Kong

China

United Kingdom

Malaysia

Singapore


Chart 17: Logistics Performance Index fairs poorly Chart 18: Poor development of Port infrastructure



0 1 2 3 4 5

Low & middle income

Philippines

India

Indonesia

China

Malaysia

OECD members


United States

United Kingdom

Japan

Singapore

Logisticsperformanceindex: Overall (1=low to 5= high)

7

6

5

4

3

2

1

0

Chin

a

Mal

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Phil

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US

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Afr

ica

Japan

Bra

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WEF (1=extremely underdeveloped to 7=welldeveloped and efficient by international standards)

Low R&D Spending

Productivity is a function of innovations and technology which relates to both know-how and well as know-why oriented technological progress. India's expenditure on R&D

as a share of GDP is a paltry 0.8% as compared to 2.4% in OECD nations and 1.2% in Low & Middle income nations.

Tax Structure

Currently the taxation regime faces challenges such as double taxation, inverted duty structure and lower incentives which have rendered the manufacturing sector

uncompetitive. Taxes on international trade account for 15% of revenue (as compared to 5.6% in Low & Middle income nations and 0.3% in OECD nations) taking a toll on

manufacturing exports. The indirect taxation regime is riddled with double taxation such as sales tax on cenvat, sales tax on central sales tax, entry tax on sales tax, and

income tax on service tax. Further, the current direct tax structure is a major impediment towards building an investor friendly ambience and boosting consumer

sentiment. Taxes on income profits and capital gains comprise 45% of total revenues in India with comparable ratios at 23% in OECD nations and 21% in low income

nations, reflecting disincentives the current tax structure at present imposes. In the recent FY16 budget, the Government proposed to reduce the corporate tax rate to

25% from 30% over a four-year period along with removal of exemptions. While this may imply a higher tax rate vis-à-vis the current effective tax rate of 23%, it

nevertheless imparts predictability to the tax regime.

31“Make in India” - Pressing the Pedal‘Make in India’ - Pressing the Pedal

Chart 19: R&D expenditure is amongst the lowest Chart 20: Researchers engaged in R&D lag global peers

Chart 21: High Taxes on international trade


0

0.5

1

1.5

2

2.5

3

3.5

4

Japan

United S

tate

s

OE

CD

mem

bers

Research and development expenditure (% of GDP)

Sin

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United K

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Hong K

ong S

AR


0 2,000 4,000 6,000 8,000

Singapore

Japan

United Kingdom

United States

OECD members

Russian Federation

Hong Kong SAR

Malaysia

China

Brazil

India

Indonesia

Korea, Dem. Rep.

Philippines

Researchers in R&D (per mn people)


0

5

10

15

20

25

30

Taxes on internationaltrade (% of revenue)

Russ

ia

Phili

ppin

es

India

Low

& m

iddle

Chin

a

Bra

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Indonesi

a

Mal

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Japan

United S

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OE

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m

em

bers

Hong K

ong

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R

Chart 22: Direct taxes on the higher side


0

10

20

30

40

50

Taxes on income, profits and capital gains (% of revenue)

India

Phili

ppin

es

Indonesi

a

Hong K

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Sin

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United K

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Bra

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Chin

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OE

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mem

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Low

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Russ

ian


Four Policy Choices that India Faces

Centre versus States

The onus of success of ‘Make in India rests as much with the States as with the

Centre, as several decisions pertaining to land and labour are State subjects. Further,

States have innovated with unique business practices benefiting industry at large,

which can be replicated on a national basis.

Labour Management Solutions by Maharashtra: Designed to provide businesses

an online interface with the Labour Department such that license applications and

renewal of applications can be applied online. It has led to 50-75% reduction in the

service delivery timelines along with greater transparency and accountability.

Land related interventions in Gujarat: Gujarat Industrial Development Corporation

(GIDC) has been entrusted to oversee and ensure reduction in complexity across all

processes in getting land. GIDC has been able to bring down the days taken to

provide land possession to less than 45 days from the date application. Further, Land

allotment increased by 4 folds with the launch of online portal in 2010.

Measured or Ambitious Integration

One of the fallouts of the recent proliferation of regional / bilateral Free Trade

Agreements has been the inverted duty structure (that makes domestic products

less competitive against imported products) which has adversely impacted Indias

manufacturing industry. While some of the inverted duty issues were addressed in

FY15 Budget (certain chemicals, battery waste and scrap, coal tar among others)

and more recently in FY16 budget (electronics and several raw materials), several

sectors (aluminum, steel, tyres) still continue to suffer from Inverted Duty Structure.

Given the limited success of FTAs so far, on the front of international trade, India has

two policy choices in the form of measured integration or ambitious integration.

India must carve its space in global value added chains by forging measured regional

integrations, but strategizing its policy keeping in view the progress of TPP (Trans

Pacific Partnership) and TIPP (Trans-Atlantic Trade and Investment Partnership).

Skilled versus Unskilled jobs

The experience so far shows that India has not been able to reap its comparative

advantage in labor albeit for skilled labour. Industries especially services-

oriented such as IT, Business Processing Outsourcing have shown tremendous

growth over the last two decades. Against this backdrop, the obvious question

arises as to whether India should focus on developing a comparative advantage

in unskilled (labour) intensive sector or continue focus on skill-intensive sector.

The answer lies in a dual policy mandate, which focuses on education and

skilling along with the ‘Make in India program. Such an approach will allow the

current inelastic supply of skilled labour to become more elastic while ensuring

that ‘Make in India absorbs the countrys large unskilled labour workforce – its

biggest comparative advantage.

Make for India versus Make for the World

There is a rampant economic debate whether India should produce for itself or

for the global markets. Given the slowdown in global growth, replicating an

export oriented growth strategy aka East Asian Economies might be difficult for

India. India must develop as a manufacturing hub, but cater to both domestic and

external demand. Import Substitution and satiation of domestic demand must

be accompanied by Export Optimism. A low share of India in global trade leaves

ample scope for tapping global markets.


Analysis of Key Sectors: Short, Medium and Long Term Measures

5.

In order to actualize the Government's 'Make in India' objective and to build Confidence, Conviction and Growth in the Indian economy, ASSOCHAM launched the 'Believe in India' National print media campaign in May 2014, focused on reviving key sectors of the Indian economy that can act as engines of growth, with huge job creation and income potential, such as Affordable Housing, Urban Infrastructure, Food & Agribusiness, MSME, Tourism, Manufacturing, Defence, Education, Railways and Renewable Energy, amongst others. Through this campaign, A S S O C H A M e n d e a v o u r s t o p a r t n e r t h e Government on policy imperatives for driving growth in aforementioned priority sectors to further create a multiplier effect on India's economic growth. The campaign has appeared nationally in leading publications such as The Economic Times, The Times of India, Hindustan Times, MINT, Hindu Business Line, Business Standard, The Indian Express and The Financial Express as well as prominent business magazines in India such as BusinessWorld, Business Today and Business India.

OPPORTUNITIES

DIRECT BENEFITS FOR THE INDIAN ECONOMY

Vital Reforms in Business Regulations

Review Land Acquisition, Rehabilitation & Resettlement Act, 2013 and Companies Act, 2013 to align with industry

Improve ease of doing business by setting up single window clearance through eBiz platform in the Centre and all States

Clarity in FDI/FII policy across sectors with better Centre-State coordination to stimulate investments and improve business confidence

Capitalize on Domestic demand

Reduce duty on raw materials and components vis-à-vis finished goods to strengthen domestic value addition

Implement nationwide GST while allowing for input tax credit, and reduce MAT

Create a vibrant labour market - reform existing 44 Central and 160-odd State labour laws

Develop industrial corridors with regional mapping of strengths and capabilities, and investment regions (FTZs) to build manufacturing scale and competencies

Develop domestic manufacturing base for power equipments to ensure consistent power at competitive prices

1 Manufacturing projected to generate 100 million new domestic jobs and contribute 25% of national GDP by 2025, from existing ~15%6 Reduction in manufacturing imports from USD 127 billion in FY14 to USD 40-50 billion possible in next 5 years

4 Productivity improvement to boost skill intensive manufacturing in India by 2025

One of the top 2 low cost exporters in auto components, power equipment, pharma

Among the top 5 low cost exporters in machinery, electronics, automobiles, textiles7 28 million new jobs in hi-tech and electronic hardware sector to cater to USD 400 billion domestic market by 2020

REFORMS IN THE MEDIUM - LONG TERM: RECOMMENDATIONSREFORMS IN THE SHORT TERM: RECOMMENDATIONS

OPPORTUNITIES


REFORMS IN THE SHORT TERM: RECOMMENDATIONS REFORMS IN THE MEDIUM - LONG TERM: RECOMMENDATIONS

1 2 3 4 5 6 7 Source: National Manufacturing Policy – 'Make in India'; Deloitte Survey; DGCI&S Data 2013-14; McKinsey Quarterly Report; ASSOCHAM Internal Study; YES BANK Analysis; Department of Electronics & IT

Corporate Office: 5, S. P. Marg, Chanakyapuri, New Delhi – 110021 | Ph: +91 11 4655 0555 | Fax: +91 11 2301 7008 | E-mail: [email protected] | www.assocham.org

We invite valued inputs from bankers, bureaucrats, economists, industry leaders and regulatory agencies to make India a Global Manufacturing Hub. Do write to us with your advice.We invite valued inputs from bankers, bureaucrats, economists, industry leaders and regulatory agencies to make India a Global Manufacturing Hub. Do write to us with your advice.

MANUFACTURING: Actualizing ‘MAKE IN INDIA’ MANUFACTURING: Actualizing ‘MAKE IN INDIA’ Driven by Creative DESIGN and INNOVATION for Domestic & Global Markets Driven by Creative DESIGN and INNOVATION for Domestic & Global Markets

1 Manufacturing sector growth rate of 12-14% targeted in the medium term2 India ranked 4th in Global Manufacturing Competitiveness Index (2013)

3 Capitalize on strong domestic demand and expand geographical base of manufacturing exports to reduce reliance on the US (12%) and UAE (10%)4 Scope for 4-5 times increase in labour productivity, and 50% increase in capital productivity

5 Exports to rise by USD 64 billion annually if India captures 20% share of low-end exports, where China is losing advantage

Prioritize Sectoral approach

Help create strong brand - geographic appellation for Indian products and trustmarks & traceability in key sectors with globally competitive capabilities

Integrate Foreign Trade Policy with ‘Make in India to promote sectors with high domestic value addition component as textiles, electrical goods

Facilitate growth of exports in labour intensive sectors akin to capital intensive sectors for higher employment generation driven by MSMEs

Incentivize investments in IT, Electronic hardware manufacturing with special financial packages and dedicated industrial clusters

Increase private sector involvement in aerospace and defense value chains to reduce import dependence (currently ~70%)

Build private sector capabilities in manufacturing through public linkages

Empower 3P India - build robust PPP framework with clear dispute resolution mechanism to encourage private sector participation in ‘Make in India

PPP to augment skill development capacity through dual program of ITI training cum industrial apprenticeship

Improve R&D capabilities to Design and Innovate with greater industry-academia collaboration - encourage international tie-ups for technology transfer

Stipulate offset program in capital goods production to promote domestic vendor-supplier ecosystem

A strong manufacturing sector

driven by a creative innovation and

design ecosystem will be a game

changer to revive the investment cycle

and accelerate economic growth and

job creation. With its buoyant

consumption patterns, India offers a

very large domestic market for value

added manufactured goods in addition

to the export markets.

India ranked 142 out of 189 countries in Ease of Doing Business Index 2015. While India ranks high (No. 7) on Protecting Minority Investors, 1 simplifying the business regulations can hugely improve India's overall rank.

Huge untapped potential to attract FDI across manufacturing, infrastructure, agribusiness and services. 2 During 2004-13, India received USD 258 billion net FDI inflows, compared to USD 1.65 trillion by China .

Progressive tax regime for efficient resources allocation, and to reinvigorate the manufacturing sector.

Overhauling the labour laws to act as an important enabler for industrial development and employment generation.

e-Governance initiatives remain unexplored in important areas like Legal and Judiciary, Telemedicine, Healthcare, amongst others.

OPPORTUNITIES

Clarity in FDI/ FII policy across sectors, with better Centre-State coordination to stimulate investments and improve business confidence.

Review and update 105 archaic laws and business regulations to make them relevant to 6the current business context and boost investments.

Improve labour market vibrancy by rationalising laws to create a conducive business environment

Reduce multiplicity of legislation by grouping laws under 4 broad categories: industrial relations, wages, employment standards and social security.

Review laws on process for rationalizing workforce and factory closure.

Reduce the number of procedures and approvals involved in starting and doing business by creating a single window approval mechanism in each state.

Prioritize key reform-oriented bills in the Winter Session of the Parliament to improve business sentiment, including Insurance Laws (Amendment) Bill, 2008, The Factories (Amendment) Bill, 2014, amongst others.

Replicate best practices of IT and ITeS sectors in ongoing e-Governance projects through Public Private Partnership models.

Implement 3P- new agreement for implementing sectoral contractual frameworks, and bidding guidelines for infrastructure acceleration.

Simplify the land acquisition process for investors by creating land banks and reorienting the Land Acquisition, Rehabilitation and Resettlement Act, 2013 Act, with support from State Governments.

Expand Industrial clusters/corridors model in all states with dedicated land and tailored laws for a particular cluster.

Create online government to business (G2B) interfaces at the State level with the eBiz platform as a template.

Roll out a single Goods and Services Tax (GST) through consensus of all states, as well as reorient the Direct Taxes Code to create a business friendly tax structure.

Avoid retrospective application of tax laws and strengthen the scope of advance ruling mechanism for cross border transactions to improve investor confidence.

Foster swift and transparent dispute resolution mechanism, including further developing e-courts and e-rulings.

Create an enabling regulatory environment across all states to effectively implement the “Swachh Bharat campaign by calibrating existing environmental laws.

Develop deeper equity and debt (both corporate & structured) capital markets to facilitate increased FDI and FII inflows.

Ensure effective People-Public-Private-Partnership for governance and development through empowered agencies with powers to authorize key investment projects.


Expeditious and timely approval process, including forest and environmental clearances, will expedite on-ground execution of projects, revive the investment cycle and result in huge job creation.

3 0.9-1.7% potential increase in GDP annually and 3.2-6.3% y-o-y gains in exports estimated through a comprehensive rollout of GST alone.4 Over Rs. 1 trillion of taxes locked up in litigation in indirect taxes . A comprehensive plan to reduce litigation and expedite dispute resolution will

tremendously boost investor sentiment.5 Each 1% increase in FDI inflows can add about 0.4% to India's GDP growth.

Improved governance interface between Government and industry will boost entrepreneurial activity through simplified procedures.

A refreshed, strong and stable

regulatory and business environ-ment is

critical for revitalizing the Indian economy

and boosting investor confidence. A

dedicated focus on building trust, trans-

parency, clarity, consis-tency and

predictability in the laws of the land

and business regulations, will hugely

encourage investors, both foreign and

domestic, to invest in the India growth

story and help actualize the 'Make in

India' initiative combined with Create in

India.

REFORMS IN THE SHORT TERM: RECOMMENDATIONS

We invite valued inputs from regulatory agencies, bureaucrats, economists, industry leaders and bankers to improve the ease of doing business in India. Do write to us with your advice.

1 2 3 4 5 6Source: World Bank; UNCTAD - FDI inflows, by region and economy, 1990-2013; National Council of Applied Economic Research; CAG (Mar 2013); Economic Times, Sep 23, 2014; ASSOCHAM analysis

BUSINESS REGULATIONS: vital REFORMS BUSINESS REGULATIONS: vital REFORMS Key for Catalyzing Investments and Capital FormationKey for Catalyzing Investments and Capital Formation

REFORMS IN THE MEDIUM - LONG TERM: RECOMMENDATIONS


1 Widen individual taxpayers base from 3.6 Crore to over 5 Crore in the short term and increase tax revenues Single and unified GST as indirect tax for efficient resource allocation and to boost the manufacturing sector Progressive and reoriented Direct Taxes Code (DTC) to consolidate all direct taxes and simplify the taxation

structure Promote infrastructure development and investments in Power and Housing sectors through increased tax incentives

Opportunity

Direct Benefits for the Indian Economy

Streamline indirect tax regime through a pan-India Goods and Services Tax (GST) roll out through: Concurrence of all states for the rollout Nationwide uniform rate to prevent tax arbitrage Mechanism to compensate states for tax revenue shortfall Constitutional amendment to operationalize GST

Revisit the DTC bill by rationalizing taxes to create a more investor and business friendly environment and improve tax collections

Provide tax relief to corporates for mandatory CSR spend Institute an efficient arbitration mechanism for speedy resolution of tax disputes Extend tax holiday by 5 years under Sec 80-IA of the Income Tax Act to encourage

investments in the Power sector and help realize the vision of 24x7 electricity for all Treat infrastructure projects, particularly water, roads, power at par with SEZ

projects to extend all applicable exemptions and tax benefits Extend sunset clause under Sec 80-IC of the Income Tax Act to facilitate industrial

growth of specified areas, including the North East Facilitate manufacturing sector growth by introducing investment allowance and

increasing rate of depreciation on machineries

IMMEDIATE / SHORT Term Recommendations

Review existing Double Taxation Avoidance Agreements (DTAAs) particularly with Mauritius, to improve investor confidence leading to higher tax revenues

Avoid retrospective application of tax laws and defer General Anti Avoidance Rules (GAAR) rollout to reassure industry concerns and investor sentiments

Institute e-governance in tax system and consider merging Direct and Indirect Tax departments for more efficient compliance

Strengthen and widen the scope of advance ruling mechanism for cross border transactions to reduce tax disputes and litigation

Rationalize tax liability from transfer pricing through more robust Advance Pricing Agreements and Safe Harbor Rules

Overhaul customs and excise duty structure and favorably review tax benefits of SEZ for Minimum Alternate Tax (MAT)/ Dividend Distribution Tax (DDT) to catalyze exports and industrial growth

Encourage technology up-gradation through foreign collaborations and investments by abolishing the R&D Cess Act

MEDIUM - LONG Term Recommendations

The taxpayer should be treated as a valued stakeholder in the economic development of our nation. A simpler, reformed tax regime, along with implementation of GST and revised DTC, will play a pivotal role in driving growth and act as the central plank of the new Government's fiscal agenda. Increasing efficiency, transparency and incentivisation in tax administration, along with expeditious dispute resolution and streamlining the redressal mechanism will positively boost investor sentiment and business confidence.

2 Gross Taxes-GDP ratio projected to increase from the current 10.6% to 11.9%3 0.9-1.7% potential increase in GDP annually, accrued to comprehensive rollout of GST

3 3.2-6.3% y-o-y gains in exports estimated subsequent to GST implementation

TAX SIMPLIFICATION FOR BETTER GOVERNANCE AND BOOSTING ECONOMIC GROWTH

Corporate Office: 5, S. P. Marg, Chanakyapuri, New Delhi 110021 | Ph: +91 11 4655 0555 | Fax: +91 11 2301 7008 | E-mail: [email protected] | www.assocham.org

We invite valued inputs from regulatory agencies, economists, industry leaders and bankers for inclusion in the policy submission to the Government of India by ASSOCHAM. Do write in to us with your advice.

1 2 3 Tax Administration Reforms Commission; Planning Commission 12th Five-Year Plan; National Council of Applied Economic Research

A strong domestic defence manufacturing industry can improve production and indigenization in defense procurement from 1current 30% to the target 70%

2 USD 248 billion defence outlay projected over the next 10 years with scope for USD 75 billion offset business3 Capital equipment spending for defence expected to be USD 18-20 billion dollars annually by 2020

3 Scope for USD 16 billion of domestic supply of components and sub-systems for defence aircraft over the next 10 years

Integration of national resources is vital and collaboration between government and industry (PPP) will be in the national interest

Common framework for defence procurement across Research Establishments, Ordnance Factories and Defence PSUs

Indian private sector to be at par with PSUs, foreign suppliers for defence contract bids and liberalize guidelines on partnering foreign firms for know-how

Industry status for aerospace, infrastructure industry status for defence to provide tax incentives and facilitate funding to increase role of private sector

Mechanism to provide protection against Foreign Exchange Rate Variation to the private sector akin to that for Defence PSUs

Tax incentives, accelerated depreciation benefits and exemption of cess, duties on capital investments and R&D expenditure for production/shipyard companies

Private sector involvement in artillery gun, submarine and warship programs where proven domestic capabilities can expedite order fulfillment for armed forces

Focus on building indigenous capabilities in critical aircraft components like aerostructure, engine, avionics, armaments

Target defence expenditure at 2.5% of GDP from current 1.7-1.9% - indigenous manufacturing capabilities through defence industrial clusters, mandate to locally procure certain percentage of ancillary requirements

Flexibility in key areas like management control, product diversification and scaling up clauses to attract investments and ease transfer of technology from foreign firms post the recent hike in the FDI cap

Investor friendly tax treatment for the defence sector in the proposed GST framework

Implement corporatization of Ordnance Factories & liberalize investment through private sector strategic alliances with Defence PSUs, including ‘BUY vs BUILD acquisition of private sector shipyards by financially strong PSUs

Defence and aerospace incubators with common R&D infrastructure and support facilities for MSMEs; PPP to support sector specific skill development initiatives

Allocate products and services for MSMEs in support and maintenance activities related to high value-contracts

Increase allocation for Technology Development Fund from INR 100 crores to INR 500 crores; set up Patent Pool Fund to support Intellectual Property development by MSMEs

Prioritize development of propulsion, weapon systems, military electronics and communications as core manufacturing capabilities

4 Higher defence production in India to increase growth of manufacturing sector by 8-14%

4 Estimated savings of 30-50% from import substitution and low cost of maintenance due to strong domestic defence sector

1 Additional 1.2 lakh direct and 5-10 lakh overall jobs to be created from increased involvement of domestic players

Cost advantages in manufacturing and growing talent pool of engineers to drive USD 6-10 billion exports of engineering services 3and components for defence by 2020

Very high potential for spillover effects in other adjacent sectors like automobile, high-precision engineering, homeland security, etc.

I n c r e a s e d i n d i g e n i z a t i o n a n d

modernization of defence products and

services is an imperative for India to

achieve self reliance in National Security,

and to strengthen geopolitical and

d i p l o m a t i c r e l a t i o n s h i p s .

A vibrant domestic defence manufacturing

industry will be the cornerstone of the

‘Make in India initiative, with multiplier

effects on employment generation.


We invite valued inputs from bureaucrats, economists, strategic affairs experts, industry leaders and bankers for inclusion in the policy submission by ASSOCHAM. Do write to us with your advice, Email: [email protected] invite valued inputs from bureaucrats, economists, strategic affairs experts, industry leaders and bankers for inclusion in the policy submission by ASSOCHAM. Do write to us with your advice, Email: [email protected]

REFORMS IN THE SHORT TERM: RECOMMENDATIONS REFORMS IN THE SHORT TERM: RECOMMENDATIONS

DIRECT BENEFITS FOR THE INDIAN ECONOMYDIRECT BENEFITS FOR THE INDIAN ECONOMY

OPPORTUNITIESOPPORTUNITIES

REFORMS IN THE LONG TERM: RECOMMENDATIONS REFORMS IN THE LONG TERM: RECOMMENDATIONS

1 2 3 4 – BCG Report on Defense Manufacturing Sector, 2012; – Edelweiss Report on Defense, 2014; – McKinsey Report on Indian Defense Industry, 2013; – Vijay Kelkar Committee Report, 2004

DEFENCE & AEROSPACE: MAKE for INDIADEFENCE & AEROSPACE: MAKE for INDIAIndigenization and Modernization to boost MANUFACTURINGIndigenization and Modernization to boost MANUFACTURING


The MSME sector is critical to our nations

economic growth. Employing nearly 10 crore people,

MSMEs are the vehicles for inclusive growth and

Indian entrepreneurship. An enabling business

environment with strong focus on industry clusters and

leveraging technology can help harness the true

potential of the sector. The forthcoming Union Budget

provides an excellent opportunity to steer policy

impetus towards improving the competitiveness of

MSMEs and incentivizing exports to actualize the

benefits from ‘Make in India initiative.

MSME - Actualize ‘MAKE in INDIA’MSME - Actualize ‘MAKE in INDIA’Inclusive Economic Growth and Comprehensive Jobs CreationInclusive Economic Growth and Comprehensive Jobs Creation

1 MSMEs in India account for over 95% of the total number of industrial enterprises2 Diverse manufacturing base, with 8000+ products ranging from traditional to high-tech

2 Labour intensity of the MSME sector 4 times higher than that of large firms3 Scope to provide institutional finance of USD 418 billion to MSMEs

Contributes about 45% of the industrial production and 37.5% of the national GDP4

Accounts for 40% of the total exports from India4

Employment for 500 million non-graduates including women in the 700+ million working age population by 20222

Enhanced technology adoption to increase MSME economic output by USD 56 billion5


DIRECT BENEFITS FOR THE INDIAN ECONOMYDIRECT BENEFITS FOR THE INDIAN ECONOMY

REFORMS IN THE SHORT TERM: RECOMMENDATIONS REFORMS IN THE SHORT TERM: RECOMMENDATIONS REFORMS IN THE LONG TERM: RECOMMENDATIONS REFORMS IN THE LONG TERM: RECOMMENDATIONS

Priorities for Union Budget 2015-16

Broaden the definition of MSE by doubling the present threshold investment in Plant & Machinery with 10% annual escalation clause

Interest subvention for exports, tax breaks for investment or lease/rental of premises and capital goods

Capital Gains Tax exemption for One Time Settlement with banks and enable payment of Service Tax on realization of receivables

Overall procurement of 20% from MSME to be mandatory w.e.f. 1st April, 2015 under Public Procurement Policy

Certification of payments due towards MSMEs, by auditors of large firms to address receivable related burden of MSME vendors-suppliers

Improved access to capital

Include finance to medium enterprises by all banks as Priority Sector Lending

Classify loans to Food & Agro processing units as ‘Direct Agri to reduce cost of credit

Improve global competitiveness of MSMEs by linking refinance rate with LIBOR based international rate

Growth enablers

Simplified norms and incentives to invest in cutting edge technology ventures for alternate sources of capital like Private Equity, Venture Capital, Angel Funding and focused Investment Fund for MSME

Set up a mechanism for small firms to convert their trade receivables into liquid funds and improve their finances

Improve shared resource pool for tooling, testing, marketing to help small firms reduce business overheads

Implement MSME specific guidelines for restructuring or closure of distressed units to improve ease of doing business

Reform the archaic labor laws linked with various acts like The Factories Act, 1948, The Industrial Disputes Act, 1947 into a single labor code

External linkages

Initiate tie-ups with overseas MSME clusters & industrial establishments and increase MSME presence in industrial fairs to improve exports potential

Large corporates to anchor Industry-Academia collaboration through PPP to promote cost effective technology upgradation & incubate small units with Intellectual Property potential in facilities akin to STPI

Promote partnership among industry associations and trade bodies to roll out skill development programs for small businesses

1 2 3 4 5 CARE Ratings Research; Centre for MSME (IICA) Research, IFC Report: MSME Finance in India, Consultation Paper on MSME National Policy, Ministry of MSME, BCG Report: Ahead of the curve

We invite valued inputs from bureaucrats, economists, industry leaders, regulatory agencies and bankers to realise the full growth potential of the MSME sector in India. Do write to us with your advice.We invite valued inputs from bureaucrats, economists, industry leaders, regulatory agencies and bankers to realise the full growth potential of the MSME sector in India. Do write to us with your advice.


OPPORTUNITIES IN INDIAN INFRASTRUCTURE

DIRECT BENEFITS FOR THE INDIAN ECONOMY AND INDIAN CITIZENS

Priorities for Union Budget 2015-16

Formulate overarching Infrastructure Regulatory Authority for structured and time bound development

Mechanism to speed up environment & forest clearances and land disputes relating to stalled infrastructure and

construction projects - 70-90% of road projects delayed by upto15-20% of their planned project timelines

Digitize records and reform Land Acquisition laws to facilitate acquisition of land for infrastructure projects

Implement 'Indian Customs Single Window Project' to improve timelines at Ports and help importers and

exporters

Improved access to Capital

Channelize surplus funds of Government PSUs and long term finance towards infrastructure investments

Facilitate investment through land-monetization, deepening municipal bond market and augmenting fiscal

transfer to Urban Local Bodies (ULB)

Financial Sector reforms - 'approved investments' status for investments into SPVs of infra projects by

insurance and pension funds; Eased regulations to promote M&A deals in infrastructure and reduce under-

performing projects

Incentivize investments in renewable energy through tailored banking products and innovative financing

instruments such as Infrastructure Debt Funds (IDFs), RE Green Bonds and REITs / InvITs

Develop innovative infrastructure financing models, such as Urban Infrastructure Fund and India Infrastructure

Fund, with relaxed KYC provisions and tax incentives for investors

Enhance Synergies Develop and replicate a ‘model slum-free Tier I city through slum rehabilitation programs, creation of affordable and rental

housing inventory over the next 5 years - collaborate with global technical and financial agencies to develop each city Increase competitiveness of Indian Ports – smart satellite cities, road and rail connectivity, SEZ development, enhancing

containerization, mechanized handling facilities, dredging and break-water development by Major Port Trusts Develop new and upgrade existing roads to minimize logistics cost and provide comprehensive support to the industry Ensure last mile connectivity and efficient supply-chain management through development of roads, integrated public

transport, track and pit head rail infrastructure, 100 new airports in Tier II and III cities and upgrading over 300 unused air strips Utilize Indian Railways' land bank and buildings for creating revenue generating assets, large fiscal surpluses and

harnessing solar energy through roof top panels Make India a Trans-shipment cargo hub by developing world-class automated cargo and material handling facilities, 24x7

customs operations and establishing air-freight stations Implement Smart Grid projects to integrate renewable energy sources for developing efficient power generation and

transmission projectsGrowth Enablers for Infrastructure Develop robust framework for People Public Private Partnerships (PPPP) in urban infrastructure projects to enhance

efficiency in delivery of urban services Expedite resolution of cancellation of coal blocks - crisis affecting power, steel and several other sectors ‘Infrastructure' status for Value Added Services (3PL), Shipping, Shipyards, and other Defense supporting segments

REFORMS IN THE LONG TERM: RECOMMENDATIONS

The Union Budget will usher incremental

reforms to boost infrastructure development, with

an increased thrust on Smart Cities and the National

Urban Development Mission which are critically

interlinked for India's 'Rurban' push. A visionary

framework for developing 100 Smart Cities, aided by

enhanced Infrastructure spending, will further

accelerate investments through People-Public-

Private Partnerships, thereby creating jobs and

inclusive growth. Innovative financing options such

as an 'India Infrastructure Fund' and Green Bonds or

Smart City Bonds can play a key role in attracting

investments. Critical gaps in healthcare, education,

sanitation, affordable housing, logistics and public

transportation need to be addressed to actualize this

mission critical objective of growing Indias

Infrastructure - the biggest investment opportunity

in the country and in the world.

REFORMS IN THE SHORT TERM: RECOMMENDATIONS

10 Increase in Infrastructure investment of 1% of GDP results in additional 34 Lakh jobs in India (Compared to 15 Lakh in USA and 13 Lakh in Brazil)2 5 ` 70 Lakh Crore investment required till 2030 for development of urban roads, affordable housing and transportation systems - ` 39 Lakh Crore to be invested over the

next 20 years to build urban infrastructure for Smart Cities alone Wide-spread rail network with DMIC will promote tourism and position India as a global manufacturing hub and investment destination - contribution of Railways to GDP to

6 11increase to 3% in 2020 from 1% in 20127 Investment of ` 7,800 Crore by 2017 in civil aviation to improve regional connectivity with industrial hubs through modernization and up-gradation of existing airports and

development of 'no-frills' airports12 13 ` 2 Lakh Crore to be invested in solar and wind power projects in wastelands and uninhabited regions - 50,000 villages to receive electricity through off grid solar by 2030

5 Multiplier effect on core and ancillary sectors through inter-linkages between over 250 industries , including manufacturing, logistics, modern retail with improved health, education and social outcomes

OPPORTUNITIES IN INDIAN INFRASTRUCTURE


REFORMS IN THE SHORT TERM: RECOMMENDATIONS REFORMS IN THE LONG TERM: RECOMMENDATIONS

INFRASTRUCTURE: Accelerate Investments forachieving 10% sustainable economic growth INFRASTRUCTURE: Accelerate Investments forachieving 10% sustainable economic growth

We invite valued inputs from bureaucrats, economists, industry leaders, regulatory agencies and bankers to realise the full growth potential of the Infrastructure sectors in india. Do write to us with your advice.We invite valued inputs from bureaucrats, economists, industry leaders, regulatory agencies and bankers to realise the full growth potential of the Infrastructure sectors in india. Do write to us with your advice.


Affordable Housing | Smart Cities | Ports | Roads | Railways | Aviation | Power | Renewable EnergyAffordable Housing | Smart Cities | Ports | Roads | Railways | Aviation | Power | Renewable Energy

1 2 India's Urban population will grow to 40% by 2030 from current 31% - critical gaps in healthcare, education, sanitation, affordable housing, logistics and public rd 3transportation to be addressed - India poised to be world's 3 largest construction market by 2025

3 4 7,500 km coastline with opportunities for port and harbour development - nearly ` 2 Lakh Crore allocated by Interim Union Budget 2014 nd 5 World's 2 largest road network handling more than 60% of freight and 90% of passenger traffic in the country - 64,000 kms of new highways to be developed rd 6 World's 3 largest rail network spanning over 64,600 kms – 25,000 kms of new lines to be added by 2020

rd 7 Airline traffic expected to nearly treble to 450 million by 2023 from 169 million in FY14 and make India world's 3 largest aviation market by 20208 9 25% of total infrastructure investments directed towards Power ; Share of renewable energy in total power generation to increase from present 6.5% to 15% by 2019 -

9Green Energy Commitments worth 266 GW received by the Government against a target of 175 GW of additional capacity to be installed by 2022

2 3 31% of India’s population resides in cities – during 20012011 urban population grew at a CAGR of 2.8% resulting in a net addition of

391 Mn

1 By 2030, India will have 6 megacities (10 Mn+ population) Mumbai and Delhi will be among the 5 largest cities in the world

1 In addition, cities with 1 Mn + population will increase from 53 to 68 huge potential for job creation and workforce addition

4 As our urban population grows to 590 Mn by 2030 (approximately 40% of total population), critical gaps in healthcare, education,

clean drinking water, sanitation, affordable housing and public transportation need to be addressed

Opportunity

Direct Impact on Economy

• Develop basic infrastructure like public transport, flyovers, drainage, sanitation and waste management

• Incentivize REITs and Urban Development Funds to invest in public utility services like slum rehabilitation, water supply and waste management and sanitation

• Deepen egovernance mechanisms for electronic delivery of public services

• Establish regulatory authority to monitor work of Urban Local Bodies (ULBs) – build capacity in research, planning, HRD facilitated by State Governments

• Strengthen fiscal standing of ULBs through improved revenue collection, expense management, budgetary allocations and developing Municipal Bond Markets by providing suitable tax incentives to investors

• Rehabilitate slums and create affordable housing inventory and rental housing facilities for various income groups at city outskirts

• Improve quality of life in Tier 1 and Tier 2 cities by maintaining and developing recreation facilities and public parks


• Develop greenfield integrated smart cities along industrial corridors such as DMIC

• Upgrade civic amenities, health services, urban transport and intercity connectivity for Tier II cities

• Innovation in Public Transport through Intelligent Transportation systems incorporating vehicle telematics to reduce commuting time

• Integrate Disaster Management Systems and a comprehensive Risk Management Framework into Urban Planning, with periodic audits

• Develop suitable framework for People Public Private Partnership (PPPP) in urban infrastructure projects to enhance efficiency in delivery of urban services

• Effectively use Indian Railways' urban land banks to set up Central Business Districts with facilities for holding conventions and exhibitions, transportation hubs, affordable housing and shopping centers

• Develop an Urban Infrastructure Fund with special dispensations such as relaxing KYC provisions for investors, tax incentives, excluding investment by Banks into such funds from SLR/CRR requirements


Urbanization has put India’s cities and towns at the center of our growth story. Investing in sustainable development of our urban centers will play a critical role in achieving accelerated economic growth. No other area requires better CenterStateLocal Government coordination than Urban Development. A combination of good governance and comprehensive capacity building at all levels of the Government is essential to make our urban cities pillars of job creation, comfort,

2• India’s rapid urbanization requires an aggregate capital investment of over R 70 Lakh Cr till 2030, mainly in urban roads, affordable 2

housing and transportation entailing annual per capita investment on urban services to grow eightfold from ~R 1000 to ~R 8000

• Potential to create huge demand in various core and ancillary sectors multiplier effect through interlinkages between 254 5

industries , including infrastructure, logistics, modern retail and also improved synergy between rural and urban centers

• Promotion of social stability and economic equality through sustainable all round development of urban economic centers

URBAN INFRASTRUCTURE: INDIA’S SUSTAINABLE GROWTH ENGINE1Urban cities are growth catalysts and likely to create 70% of net new jobs and contribute over 70% to India’s GDP by 2030

Corporate Office: 5, S. P. Marg, Chanakyapuri, New Delhi – 110021 | Ph: +91 11 4655 0555 | Fax: +91 11 2301 7008 | Email: [email protected] | www.assocham.org

1 2 3 4 5India’s Urban Awakening – McKinsey Global Institute Reserve Bank of India Financing Strategies for Urban Infrastructure – Trends & Challenges Census 2011 World Resources Institute (http://www.wri.org/blog/2013/04/5keyssustainabledevelopmentindiancities) Planning Commission


Out of 7,935 cities and towns in India, there are 495 urban cities

1with population over 1 Lakh

Demand for an additional 1.9 Crore houses, of which approximately 96% is for the Economically Weaker Section (EWS) and Lower Income

2Group (LIG)

Potential to add 11.5 Crore new non-3

agricultural jobs by 2022 – concurrent investments required in Affordable Housing

A n e s t i m a t e d 4 0 - 4 5 % o f households earning INR 10,000 - 25,000 per month live in rented

4accommodation

Infrastructure status for sector to attract greater capital and investment formation

Improve credit availability and implement interest subvention schemes for the sector

Insurance and Pension funds to be allowed to be invested in the sector

Ease conditions for FDI in real estate and reduce minimum capital requirement from INR 59 Crore (USD 10 million) to INR 29.5 Crore (USD 5 million) and minimum tenure before repatriation from 3 years to 1 year

Review Section 43C of the Income Tax Act (taxation at circle rate) and restore 80 IB (10) (tax exemption on income derived by an undertaking engaged in development and construction of small dwelling units)

Review RBI norms for project finance; Uniformity in end user income ceiling norms for Affordable Housing units for EWS/LIG/MIG

IMMEDIATE RECOMMENDATIONS FOR THE BUDGET/ st th1 SESSION OF THE 16 LOK SABHA

OPPORTUNITY

Real estate projects under construction, including Affordable Housing, valued at INR 8.7 Lakh

5Crore (FY12) – if expedited, these projects are expected to add INR 1.6 Lakh Crore to steel, cement and other construction material

6sectors

Development of sector will lead to betterment of general health conditions and overall reduction in healthcare costs

DIRECT IMPACT ON ECONOMY

Impetus to essential infrastructure in outskirts of Tier I and II cities to ensure Affordable Housing clusters are well connected and cities are decongested

Digitization of land records

Rationalisation of Direct and Indirect taxes in real estate sector to enable competitive pricing for end user

Single window approval mechanism for Housing Sector, compared to approvals through approximately 150 tables across 40 departments of Centre and State

7Governments and Municipal Corporations

Mandating developers across the country to construct EWS/LIG/MIG units and authority to create enabling environment with increased Floor Area Ratio (FAR)

Incentivize low cost, innovative technologies, such as prefab, for producing large volumes of Affordable Housing units

Foolproof mechanism for rental housing and ensuring implementation of REITs and REIMFs

Availability of higher FSI with relaxed density norms for Affordable Housing projects

MEDIUM AND LONG TERM RECOMMENDATIONS

1 2 3Sources: Census of India - 2011, Report of The Technical Group on Urban Housing Shortage - 2012-17 (MoHUPA), From poverty to empowerment:4Indias imperative for jobs, growth, and effective basic services, MGI (2014), State of the Low-Income Housing Market (Report by Monitor Deloitte),

5 6 7Real Estate Intelligence Service, Jones Lang LaSalle, YES BANK Analysis, Bridging the Urban Housing Shortage in India (Report by KPMG)

Affordable Housing policy measures to ensure every Indian family has a HOME by 2022

India is at the crossroads of experiencing rapid urbanization in the current decade. Addressing the Affordable Housing shortage will create a multiplier effect, while improving the living standards of

Indian citizens and contribute towards

making our cities pillars of comfort,

efficiency and security.

Do write to us with your advice.

Email: [email protected]

ASSOCHAM Corporate Office: 5, S. P. Marg, Chanakyapuri, New Delhi – 110021. Ph: +91 11 4655 0555, Fax: +91 11 2301 7008

www.assocham.org

We invite valued inputs from regulatory

agencies, economists, real estate industry

leaders and bankers for inclusion in the

policy submission by ASSOCHAM.

Introduce last mile connectivity, including developing track and pit head rail infrastructure to support 8 to 10 critical coal and iron ore corridors in mineral rich states

Maximise global collaboration opportunities with partner countries towards heavy haul freight transportation, raising speed of trains, and station re-development into community centres

Push for integrated ICT based logistics operations across the Railway system and connected ports, warehouses and logistics parks; focus on the rapidly emerging e-Commerce logistics market

Accelerate and segregate passenger traffic by building high speed passenger lines on high density routes; focus on high speed Agri-Rail network to cater to specific needs of perishable Agricultural products, thereby reduce wastage of agriproducts

Utilize atleast 10% of the total energy requirement from renewable sources - deepen eco-friendly waste management systems with green toilets in all passenger sources

Augment skill development capacity through PPP and strengthen R&D capabilities with industry-academia collaboration

Improve safety standards through mechanized track maintenance, upgraded disaster management facilities, eliminating unmanned levelled crossings and construction of over bridges and under passes

Set-up dedicated Project Management Groups consisting of professionals, Railway Board and State Government Officials for coordinating and expediting project management with respective State Governments

Generate large fiscal surpluses with monetizing assets, greater agility and efficient cost and productivity measures

Adequately mechanize warehouse operations, train logistics and port managers to help meet growing freight demand

Increase coal transport capacity for Railways to 2.5 - 3 times - coal transportation crucial for producing power and infrastructure development

Regularize rail land records where titles are either absent or outdated. Huge values can be unleashed

Segregate regulatory, policy and operational roles currently being carried out by the Railway Board with larger decentralization of operational powers and complete delegation of tendering powers to GMs of Zones

Institutionalize singe window clearance mechanisms for time-bound approvals

Award larger proportion of rail projects on Engineering Procurement & Construction (EPC) basis and incentivize for timely completion of projects

Implement passenger friendly initiatives through modernized e-ticketing system, wi-fi enabled trains and stations, and improved on-board catering

Channelize surplus Railway PSU resources towards Railway infrastructure projects and community centres, given excellent locations

Establish a Rail Tariff Committee, introduce ‘flexi fares with differential pricing, and explore ancillary revenue options by offering seat selection and special meals

Raise funds through the IPO of its profit making e-Commerce company Indian Railway Catering and Tourism Corporation (IRCTC)

Efficiently utilize Railways' land bank and buildings to generate revenue and harness solar energy through roof top solar panels

Revamp Railways accounting practices into business accounting framework to facilitate easy access to financial performance of Railways for prospective investors

1 2 Indian Railways' earnings expected to double from ` 1.4 Lakh Crore in FY14 to ` 2.7 Lakh Crore by 2020 rd 3 2 3 largest rail network in the world, spanning over 64,600 kms - 25,000 kms of new lines to be added by 2020

th 1 3 World's 4 largest freight carrier and the largest passenger carrier 2 4 9% GDP growth to increase demand for transport by 11% - Rapid urbanization to increase rail traffic at 7.4% CAGR during FY12-17

Diamond Quadrilateral Network of bullet trains to connect metro cities; PPP to increase Private investment in Mass Rapid Transit Systems (MRTS) from 13% 3in 2012 to 42% in 2017

3 6 Dedicated Freight Corridors (DFC) to be constructed along the Golden Quadrilateral and its diagonals

100% FDI allowed in Railway infrastructure – opportunity for capital intensive modernization and capacity augmentation projects

2 5 Contribution of Railways in GDP to increase to 3% by 2020 from 1% in 20123 Over 13 Lakh people directly employed by the Indian Railways ; millions employed in ancillary industries

3 Investment outlay of ` 61 Lakh Crore through PPP mode to modernize overall Railways infrastructure and passenger amenities

Delhi - Mumbai Industrial Corridor (DMIC) to leverage the western DFC to become a global manufacturing hub and investment destination

Wide-spread rail network will promote eco-tourism, education tourism in North East and special pilgrim circuits across India 6 Moderate shift from road to rail will save 0.7% of India's total commercial energy consumption- rail emits 28g of CO per ton-km compared to 84g for roads2

As one of the worlds largest rail

networks, Indian Railways is the most critical

part of multimodal transport system in India

which is crucial for the economy, particularly

food & agri-business and manufacturing.

Hence, it requires consistent modernization,

capacity building and investment in

infrastructure. Immediate measures such as

I P O o f I n d i a n R a i l w a y s s t a r

e-Commerce entity IRCTC and monetization

of rail land banks will not only help in funding

the Railways but also significantly contribute

towards reducing the nations fiscal deficit.

OPPORTUNITIES


REFORMS IN THE SHORT TERM: RECOMMENDATIONS REFORMS IN THE LONG TERM: RECOMMENDATIONS

INDIAN RAILWAYS: Lifeline of the NationINDIAN RAILWAYS: Lifeline of the NationTransforming Transportation, Logistics, Tourism, Trade and Transforming Transportation, Logistics, Tourism, Trade and ManufacturingManufacturing


We invite valued inputs from regulatory agencies, bureaucrats, economists, industry leaders and bankers to realise the full growth potential of the Indian Railways. Do write to us with your advice.

DIRECT BENEFITS FOR THE INDIAN ECONOMY AND CITIZENSDIRECT BENEFITS FOR THE INDIAN ECONOMY AND CITIZENS


RENEWABLE ENERGY: Sustained conviction RENEWABLE ENERGY: Sustained conviction for making India a Green Nationfor making India a Green Nation

A Ministry of New & Renewable Energy

initiative in partnership with IREDA

RECOMMENDATIONS FROM ASSOCHAM: SHORT TERM RECOMMENDATIONS FROM ASSOCHAM: LONG TERMRECOMMENDATIONS FROM ASSOCHAM: SHORT TERM RECOMMENDATIONS FROM ASSOCHAM: LONG TERM Provide debt financing at feasible interest rates to bridge the debt gap for development of 100 GW solar

power by 2022

Permit banks / NBFCs to raise ‘Haryali bonds

Introduce ‘Model PPA and ‘Guarantees against default by DISCOMs for large scale RE projects

Promote R&D in low-cost renewable energy technology through dedicated research institutes and also higher depreciation and tax incentives

Set up an independent entity, on lines of Solar Energy Corporation of India (SECI), to promote inter-state sale of wind power

Promote manufacturing hubs to establish domestic capability to meet large renewable energy targets

Implement integrated policies for development of off-grid rooftop solar units across States and efficiently utilize PSU land banks and buildings to harness solar energy

1 Share of renewable energy in total power generation to increase from present 6.5% to 15% by 20191 78.1% of wind energy potential, and 99.6% of solar energy potential still remains untapped

1 Solar power capacity target for 2022 to be revised from 20 GW to 100 GW ; tremendous growth potential in Solar Photovoltaic (PV) industryth 2 3 5 largest wind energy producer and capacity to increase from 22.4 GW to 60 GW by 2022

Various Government incentives - tax holidays, Generation Based Incentives (GBIs), capital and interest subsidies, feed-in-tariffs and concessional finance4 ` 2 Lakh Crore to be invested in solar and wind power projects in wastelands and uninhabited border regions

100% FDI allowed for renewable energy generation, distribution and manufacturing projects

Increased focus on indigenous renewable energy to reduce import of expensive fossil fuels, create millions of jobs and make India a 'Green Nation'

Solar power has the potential to meet 7% of our power needs by 2022, mitigate 2.6% of carbon emissions, and reduce coal import by 71 million tonnes per annum i.e. 5` 33,000 Crore

Distributed generation of energy for meeting rural energy needs and empowering people at grass roots level; 50,000 villages to receive electricity through off grid solar 6by 2030

7 Address electricity and power shortage challenges which cost ` 4.2 Lakh Crore a year8 Solar PV to create more jobs per unit of energy produced than any other energy source

YES BANK patron member of ASSOCHAM, is the Knowledge Partner of RE-INVEST Global Investor Meet stand the 1 Private Sector Bank to provide GEC for financing 5 GW of Renewable Energy projects.

1. Ministry of New and Renewable Energy 2. Department of Industrial Policy & Promotion (DIPP) 3. RE-INVEST 2015 Investors Guide 4. India Brand Equity Foundation (IBEF)5. KPMG Report 2011– The Rising Sun: A Point of View on the Solar Energy Sector in India 6. Mckinsey Report 2014 – India: Towards Energy Independence 2030 7. Easia 8. Natural Resources Defense Council (NRDC)

Corporate Office: 5, S. P. Marg, Chanakyapuri, New Delhi – 110021 | Ph: +91 11 4655 0555 | Fax: +91 11 2301 7008 | E-mail: [email protected] | www.assocham.orgCorporate Office: 5, S. P. Marg, Chanakyapuri, New Delhi – 110021 | Ph: +91 11 4655 0555 | Fax: +91 11 2301 7008 | E-mail: [email protected] | www.assocham.org

ASSOCH proud partner of RE-INVEST, congratulates the Government of India on securing over 200 GW of Green Energy Commitments (GECs).ASSOCHAM Patron Members, Corporate Members and Affiliates have mobilized significant GECs of over 66 GW.

GECs starting as low as 1 MW can be made at www.re-invest.in/greenenergycommitment.aspx

India has the potential to be amongst the

top 3 countries globally in the next five years in

terms of installed capacity of renewable

energy, thereby creating millions of new jobs,

reducing poverty and achieving sustained

socio- economic development. Bold initiatives,

such as Green Energy Commitments, with

proactive involvement of industry, will enable

the Government to achieve its target of

generating 100 GW of Solar, 60 GW of Wind,

10 GW of Bio-Energy and 5 GW of Small Hydro

power by 2022.

Institutionalize time-bound declaration of preferential multi-year tariffs for renewable energy projects for policy stability

Expedite implementation of Single Window Clearance mechanism for all renewable energy project development across states

Grant ‘Must-Run status for renewable projects and priority access to grid for power evacuation and smart grid management for integration of renewables

Create a deep nation-wide market for renewable energy projects by encouraging States to remove impediments to Group Captive Structure and Open Access

Coordinate with State Governments to ensure land availability and ‘Change in Land Use within the notified solar / wind zones, with minimum documentation and standardized processes

Address irregular nature of power generation by encouraging use of Energy Storage Devices through incentives such as 150% depreciation on equipment

Strict enforcement and upward revision of Renewable Purchase Obligations (RPOs) on the lines of NAPCC targets by all State Electricity Regulatory Commissions (SERCs) and revival of REC markets

Incentivize investments in Solar Power through tailored bank products and innovative financing instruments such as Infrastructure Debt Funds (IDFs) and RE bonds

Channelize funds earmarked by International Development Banks for renewable energy towards funding renewable energy projects

Create spot market for renewable energy and ancillary market for grid balancing

1 India's tourism and hospitality industry, currently at ` 7 Lakh Crore, is estimated to grow to over ` 25 Lakh Crore by 20222 3 India has one of the highest per-capita tourist spends in the world – Tourism and Hospitality is India's third largest foreign exchange earner

Boom due to increase in Foreign Tourist Arrivals (FTA) and larger number of Indians travelling to domestic destinations than ever before – enabled by India's diverse offerings ranging from heritage and ecotourism to adventure, rural and wildlife tourism

4 FTAs estimated to increase from 75 Lakh currently, to over 1.3 Crore by 2024 ; revenue from domestic tourism likely to grow by 8.2% in 2014 4from 5.1% last year

Opportunity


'Infrastructure' status for hotel projects with minimum 50-100 rooms, from current cost-based criteria of ` 200 Crore or more; reduce availability constraints by expanding mid-segment hotels of 2-3 star category

Single window clearance for all approvals and permissions for developing hotels and attractive incentives for setting up hotels in hinterland destinations

Fast track E-Visa facility, especially for SAARC, BIMSTEC, GCC and ASEAN nations – explore 'combined visa' to encourage stopovers

Enable cashless payment ecosystem through travel cards ande-payments

Create strong tourism footprint around international sporting events such as Under-17 FIFA World Cup 2017, Indian Premier League, Hockey India League

Revive Inter-State Council's recommendations on Ecotourism

Differentiate campaigns for target countries and repeat visitors, create 24X7 tourism guidance cells, information centres and tourist-focused mobile applications

Promote India as a safe destination - register all tour guides and operators with State Governments

SHORT TERM RECOMMENDATIONS

Introduce uniform tax structure across States and VAT refunds for international tourists leaving India

Develop 50 affordable tourist circuits around themes such as Religion, Heritage, Culture, Himalayas, Desert, North-East Region, Coastal, Sports and Films

India is home to most major religions of the world – significant enabler for Religious Tourism such as Buddhist Tourism Circuit and Hindu pilgrimage beyond Char Dham – also explore synergy with the North East, SAARC and South East Asian countries

Promote several regional festivals for year round tourist footfall - Kumbh, Pushkar and Hornbill – akin to 'Oktober Fest' of Germany

Develop world class Convention Centres for growth in MICE tourism

Develop 100 new airports in Tier II and III cities to improve air connectivity in the hinterland –upgrade over 300 unused air strips

Effective collaboration with Railways to promote 'Go beyond' tourism destinations and develop Pilgrimage Rail Network

Implement River Front Development Projects in major cities, such as the 'Clean Yamuna' initiative and linking Delhi - Agra waterway

Address skill gap and provide vocational training, including soft skills for on-ground service providers at transit hubs and monuments

Tourism and Hospitality industry to integrate disaster management plan through better coordination with the Government, NDMA and other key agencies

Align Centre and State policies to promote collaborative community-based tourism as a source of sustainable livelihood for local communities

LONG TERM RECOMMENDATIONS

Indias vibrant Tourism industry has the potential to

grow four-fold, to over 25 Lakh Crore by 2022. To build an

inclusive, modern India, the best foundation is our culture,

heritage and natural beauty. The Tourism and Hospitality

sector can contribute significantly to economic growth by

accelerating infrastructure development, generating

livelihoods, bringing in foreign exchange and facilitating

social upliftment through education, skill development

and cross-cultural interface. Development of 50 thematic,

affordable Tourism circuits will unleash the sectors

untapped potential and create a transformational shift for

‘BRAND INDIA, in addition to creating new jobs by 2024.

TOURISM AND HOSPITALITY: FOR ECONOMIC GROWTH AND SIGNIFICANT JOB CREATION


1. Ministry of External Affairs. 2. World Tourism Organization (UNWTO). 3. investindia.gov.in. 4. Economic Impact on India, 2014 – WTTC. 5. Economic Impact on India, 2013 – WTTC. 6. Report Of The Working Group On Tourism – Planning Commission 7. Cushman & Wakefield.

We invite valued inputs from regulatory agencies, economists, industry leaders and bankers to realise the full growth potential of the Tourism and Hospitality sector. Do write to us with your advice.

5 Indirect and induced contribution of the industry to GDP is three times that of its direct contribution

Multiplier effect in sectors such as agriculture, retail, transportation and financial services – an investment of ` 10 Lakh creates 78 jobs in the 6Tourism sector while the same generates 18 jobs in Manufacturing and 45 in Agriculture

5 India will become the third fastest growing tourism destination over the next decade - by 2024 , the industry will create 4.38 Crore jobs and 4account for almost 8% of total employment

7 52,000 new hotel rooms likely to be added by 2017 – a growth of over 65% in total hotel inventory in India4 Investment in Tourism and Hospitality is expected to grow by 6.5% p.a. over the next 10 years to reach almost ` 40 Lakh Crore by 2024

1 India's total healthcare expenditure is 4% of GDP (compared to 9.3% in a developing country like Brazil) – Public expenditure to more than double from 2current 1.2% of GDP to 3% by 2022

3 Healthcare Industry to almost treble to ` 16.8 Lakh Crore by 2020 from ` 6.25 Lakh Crore in 20144 5 nd Indian Pharma Industry currently ` 1.92 Lakh Crore and 10% of global production – to grow to ` 3.3 Lakh Crore at (9.5% CAGR) and become 2 largest in

volume terms by 2020 6 1 70% of India's Healthcare Infrastructure concentrated in Top 20 Cities ; Bed density of 0.9 per 1000 (WHO guideline: 3.5 beds per 1,000)

India a preferred destination for medical tourism with significant cost advantage, skilled medical professionals and world-class hospitals, coupled with globally differentiated offerings like Ayurveda, Yoga, and Unani

OPPORTUNITIES


Implement the 'National PPP Policy Framework for Healthcare' and convert under - utilized Government hospitals into high - quality medical colleges to increase bed and doctor density as per WHO standards

Include Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homeopathy (AYUSH) in mainstream healthcare at a National level to reduce urban and rural healthcare inequality

Encourage revenue sharing and leasing models for medical equipment suppliers in Government hospitals to increase private sector participation in healthcare delivery

Single - window clearance for approvals to commission hospitals; tax breaks and annuity - based financing for setting up hospitals with over 100 beds in Tier II & III cities

Set global standards for service quality and care provisions in healthcare delivery

Accredit Indian Healthcare through Joint Commission on Accreditation of Healthcare Organizations (JCHO) for attracting international patients - incentivize Indian accreditors to partner with JCHO to design cost - effective healthcare delivery solutions

Streamline swift payment mechanism under CGHS, ECHS and other Government healthcare schemes to enhance viability of hospitals

Promote R&D in Pharma by incentivising capex for research and easy access to finance through Government schemes

Encourage international linkages to adopt R&D best practices for critical illnesses and specialized treatments for disease management

Develop flagship, nodal medical institutions in each State, equivalent of AIIMS in Delhi

Modernize Government hospitals and medical centres with latest equipment and world-class infrastructure with enhanced capacities

Promote PPP and Build - Operate - Transfer (BOT) models to set up Affordable Hospitals and Medical Colleges

Ensure strong delivery of healthcare services in remote areas by setting up Primary Healthcare Centres (PHC), Telemedicine terminals and mobile vans, trains and boats as Mobile Health Units (MHUs) with adequate staff and equipment

Improve accessibility and affordabilit y by implementing Universal Health Coverage (UHC) and deeper penetration of medical insurance - schemes such as Rashtriya Swasthya Bima Yojana to provide healthcare for citizens without insurance

Increase investment in alternate medicines like Ayurveda, Unani, Homeopathy to develop export markets; increase public expenditure on medicine to 0.5% of GDP from current 0.1%

Optimize healthcare value chain by setting up medical technology parks for manufacturing medical equipment and scaling up availability of risk funding to SMEs in the sector

MEDIUM / LONG-TERM RECOMMENDATIONS

HEALTHCARE : EXCEPTIONALOPPORTUNITIES FOR GROWTH BY 2020


1. World Health Organization (WHO) 2. Planning Commission 3. IBEF Analysis 4. KPMG 5. McKinsey – Indian Pharma 2020 6. PwC – The Future of Healthcare 7. McKinsey - India Healthcare: Inspiring possibilities, challenging journey 8. AIMA report - 'India's New Opportunities-2020' 9. PwC - Enhancing access to healthcare through innovation Medical technology in India 10. Corporate Catalyst India Report

We invite valued inputs from doctors, medical fraternity, regulatory agencies, bureaucrats, economists, industry leaders and bankers to realise the full growth potential of the Healthcare sector in india. Do write to us with your advice.

7 Capital investment of ` 19 Lakh Crore by 2022 to fulfil healthcare infrastructure requirement of 25-30 Lakh beds8 Healthcare industry and related sectors employ nearly 90 Lakh people in India - expected to generate additional 40 Lakh jobs by 2020

5 Retail Pharmacy sector to grow to ` 2.4 Lakh Crore by 2020 , accounting for nearly 75% of Indian pharma market9 Cascading effect on development of allied sectors – Medical technology sector expected to grow from ` 36,000 Crore in 2014 to ` 84,000 Crore by 2020 at

(CAGR of 15%)7 Increased public expenditure to reduce 'out of pocket' expenditure from present 61% to 23% in 2022 resulting in growth in per capita disposable income

10 Medical Tourism in India to grow by 30% becoming a ` 62,000 Crore industry by 2020

AWARENESSAVAILABILITYACCESSIBILTYAFFORDABILITY

India is at the inflection point of a major transformation of our healthcare sector, driven by high quality service delivery, cutting edge research, technology, innovation and enhanced skill-sets to achieve scalability and coverage for all. A comprehensive social health protection mechanism will ensure a safety net, adequate healthcare infrastructure, skilled healthcare human resources, access to affordable drugs, special medical devices and efficient delivery models.

IMMEDIATE / SHORT -TERM RECOMMENDATIONS

rd 1 India is the world's 3 largest education system with 700 universities, 35,000 colleges and over 2.5 Crore students enrolled

To grow Gross Enrolment Ratio (GER) in Higher Education from 19.4% in 2012-13 to 30% by 2020, investment of ` 9.5 Lakh Crore is required to 2establish an additional 10,510 technical institutes, 15,530 colleges and 521 universities

3 With 100% FDI allowed through automatic route, Education sector expected to nearly double from ` 3.4 Lakh Crore in 2012 to ` 6 Lakh Crore by 20154 India is fast emerging as a knowledge economy with 67 Crore people in the working age group of 15 - 59 years

5 8% year-on-year GDP growth can generate 24 Crore jobs in key sectors such as Manufacturing, Housing & Construction, Retail, IT by 2022 ; DMIC 6alone expected to employ 30 Lakh skilled workers

OPPORTUNITIES

Grant 'Deemed University' status and allow necessary accreditations to private universities on clearly established criteria of strong research programs and evolution as a comprehensive, full scale university

National Skill Development Corporation (NSDC) to engage in integrated development programs with Government and Private Sector to complement skill augmentation and ensure livelihood security

Revitalize ITIs and similar vocational training institutes to cater to local industry and labour intensive manufacturing segments, such as textile and hardware, with customised skill sets

Performance audits to ensure effective implementation of 'Right to Education' and 'Mid-Day Meals' scheme and similar schemes for primary, secondary and higher education to increase enrolment and reduce dropouts

Improve equity in higher education for women, marginalized and the differently-abled; for enhanced induction in the formal workforce

Promote Non-Formal Education (NFE) and Open & Distance learning which are at par with full time programs; establish and provide access to e-libraries to empower teachers and students

Complementary sources of funding other than State funding; encourage philanthropy from society and alumni as well as professional fundraising from Industry

Greater financial prudence – education trusts or societies can effectively utilise better returns as a result of deregulation of savings account interest rates

Align standardized training to national occupation standards developed by NSDC Sector Skill Councils (SSCs) for suitable skilling and greater traction with employers

IMMEDIATE / SHORT TERM RECOMMENDATIONS

Ensure effective implementation of National Education Policy, and increase 9Government expenditure in Education from 3.3% to 6% of GDP

Establish University Innovation Clusters (UIC) as proposed by National Innovation Council

Brownfield initiatives to set up 80 new universities by converting autonomous colleges into a cluster of State Universities

Infrastructure grants to upgrade existing universities and colleges and greater collaboration in faculty training, curriculum design, joint R&D, and student exchange programs with global counterparts

Facilitate greater FDI flows through clarity of regulations - create a framework for enhanced participation of investors in formal education

Promote PPP or Build-Operate-Transfer (BOT) models for setting up schools, universities and vocational training institutes in rural and semi-rural areas

Set up large scale teacher training institutes with improved performance driven pay scales to address teacher shortfall and improve teacher-student ratios

Effectively adopt technology-driven teaching including Flipped class rooms, Massive Open Online Courses (MOOCs) and Central Online Knowledge Repository

Incentivize NSDC to establish framework and policies for greater focus on soft skill development, employability, design, innovation and entrepreneurship

MEDIUM - LONG TERM RECOMMENDATIONS

rd India has the 3 largest higher education system in the world rd and the 3 largest scientific and technical manpower globally. Yet

our public expenditure on higher education is a miniscule 0.6% of GDP. Existing challenges in Indias higher education – access, equity and quality – will only intensify, unless we transform our education and skill development model.

We will be the youngest nation in the world by 2030 - hence high quality education and skilling of 50 Crore Indians over the next 10 years is a gigantic but critical mission. Seamless integration of Academia, Research and Industry is critical to leverage Indias Demographic Dividend. We need to mobilize existing resources and expand education infrastructure with support from the Industry, leverage our nations potential to build outstanding academic and research institutions.

EDUCATION: Key to Employment, Entrepreneurship, and Empowerment

7 1% increase in Government expenditure on education can lead to 0.11% increase in per capita GDP

Bridging demand gap for skilled manpower - nearly 1.2 Crore people added to workforce every year in India; nearly 35 Crore skilled employees 8expected in key sectors by 2022

5 Enhance competitiveness in specialised skills e.g. R&D, IT, Biotech, Design, Innovation & Architecture – 50 Crore Indians need to be job ready by 2022

Significant improvement in job creation, earning capacity, poverty reduction and key health indicators and mortality rate



We invite valued inputs from academicians, educationists, bureaucrats, regulatory agencies, economists, industry leaders and bankers to realise the full growth potential of the Education sector. Do write to us with your advice.

1. Annual Status of Higher Education of States and UTs in India - Deloitte 2. International Journal of Social Science & Interdisciplinary Research 3. India Brand Equity Foundation (IBEF) 4. Consolidated Working Group Report - 12 Five Year Plan 5. Forbes India (July 10, 2013) 6. Ministry of Commerce and Industry, GoI 7. Journal of International Academic Research - The Impact of Education Expenditure on India's Economic Growth 8. NSDC 9. The National University of Educational Planning and Administration (NUEPA)

EEE

E

1 47% of India's workforce is employed in agriculture, however contribution to GDP is a meagre 14%, compared to Industry (26%) and 2

Services (60%) rational policies, required technologies and efficient utilization of farm resources are essential3 Total global agriexports are USD 1.7 trillion – India's present contribution is only 2.6%

2 Attracted only 2.3% of total FDI in 201213

3 Over 400 million MT of perishables produced in India but less than 15% currently processed – scope to substantially enhance value addition in fruits and vegetables, dairy and poultry/meat

Opportunity


Implement Model APMC Act in all states to boost agrimarketing and supply chain efficiencies

Replace input based subsidies to farmers with low cost credit, direct cash transfers and investment subsidies link MGNREGA to ‘agriculture for asset creation’

Develop effective communication systems between farmers and research institutes by setting up broadband connections and regional Kisan TV channels to disseminate real time data

100% FDI allowed in Food Processing Industries encourage private and foreign capital and grant priority sector status for all food processing credit requirements

Adopt scientific approach to roll out biotech applications for better yield and nutrition

Encourage high value agriculture like horticulture, floriculture, fisheries, poultry and dairy to enhance job creation and anchor an inclusive growth model

Setup dedicated GAF (Geographical Appellation Fund) to promote Geographical Appellations of various Indian brands Darjeeling Tea, Nagpur Oranges, Ratnagiri Alphonso which have the potential to become global food brands, akin to Kiwi fruit


Facilitate further investments in agri infra and PDS storage, logistics and distribution through PPPP allow greater role of States under Decentralized Procurement Scheme and build regional focus centred around storage deficit with fullest involvement of States

Demarcate Agri Zones and have better policies and technologies to increase pulses and oilseeds production will 3contain inflation and curb imports (over 60% of current Agriimport bill )

Promote alternate usages of noncultivable land to boost job creation soil and seed testing labs in villages, processing units, mega food parks

Reduce postharvest loss develop crosscountry rail network, promote clusterbased storage systems for different crops, set up Food Processing Industries, include pulses and perishables in public distribution and mid day meal schemes

Revamp agriexports through consistent and stable trade policies and focus on integrated food processing clusters for high value exports

Develop robust water supply network promote optimum utilization through microirrigation, rain water harvesting, linking of waterways and rivers

Focus on dairy as a key high value segment integrated dairy farms, breed improvement, fodder management and quality enhancement of milk

Focus exclusively on fisheries, poultry and meat for domestic and exports growth


The agriculture sector has the potential to generate significant employment and grow at over 8% as demonstrated by Gujarat, Madhya Pradesh and Chhattisgarh. Growth in high value agriculture, increased farm productivity and enhanced investments will boost the sector's GDP contribution. An enabling policy environment, appropriate technology and supply chain efficiency are urgently needed to address inflation, boost investmentled growth and ensure food and nutritional security

4 Agri output will more than double from R 13 Lakh Crore in 2011 to R 30 Lakh Crore by 2030 4% growth in Agriculture will ensure 58% overall GDP growth; 8% growth in agriculture as in Gujarat, Madhya Pradesh and Chattisgarh can get India to 10% GDP growth

4 Food consumption will increase by 4% p.a. to R 22.5 Lakh Crore by 2030, from R 11 Lakh Crore in 2010

4 Per capita consumption will increase from R 9,360 per year to R 15,390 , primarily driven by high value foods indirect multiplier

impact on growth in manufacturing and services sectors3

Increased processing levels (CAGR of 10 % p.a. Vs. current 8% ) will help Processed Food GDP contribution grow to over USD 250 billion and create over 10 Lakh new jobs by 2020

AGRICULTURE: ENGINE OF SUSTAINABLE AND INCLUSIVE ECONOMIC GROWTH, INFLATION MANAGEMENT AND RURAL DEVELOPMENT

Corporate Office: 5, S. P. Marg, Chanakyapuri, New Delhi – 110021 | Ph: +91 11 4655 0555 | Fax: +91 11 2301 7008 | Email: [email protected] | www.assocham.org


th1. World Bank 2. Central Statistical Organization, MoSPI 3. MoFPI, Ministry of Agriculture 4. Food and Agriculture Integrated Development Action III – McKinsey Global Institute 5. Planning Commission 12 Five Year Plan

Summary ofKey Recommendations

6.

Key Recommendations

I. Tax Reforms

The execution of Goods and Service Tax (GST) is expected to improve profitability of the manufacturing sector by providing full-input tax credit at each stage of the

supply chain and henceforth reducing the cost of production. It is estimated that overall cost of indigenous manufacture will reduce by 10% to 15% on replacement of

existing multiple tax regime with GST

GST would metamorphose India in a single unified market which would enhance the realization of economies of scale

Cost of export production will reduce due to zero rating of all taxes, increasing export competitiveness. Currently only some of the central taxes are partially

neutralized in the form of refund

Tax sops for MSMEs to reduce dependence on imports and thereby encourage local sourcing. Sectors such as defence, telecom, petrochemicals and steel could get

considered for such incentives

Rationalize excise duty on consumer durables which compete against international producers. Auto sector specifically has been grappling with higher costs amidst

weak demand post the expiry of tax holiday in December 2014

Allowing issuance of long-term bonds by sectors to raise investment funds; establishment of finance windows / investment funds; special incentives to start-ups;

incentives to MSMEs and SEZs for manufacturing, possibly on the lines of lower Minimum Alternate Tax (MAT)

Issuance of infrastructure bonds, further easing of entry of private sector and service tax benefits to key sectors could be other measures that can support a

manufacturing revival

II. Simplification of Labour Laws and focus on Skill Development

Amendment to Industrial Disputes Act: On the lines of labour reforms in Rajasthan, companies can now employ up to 300 workers and will not need the approval of the

State Government if they want to retrench staff. Previously, the limit was capped at 100 employees

This will provide relief to a large number of companies to realign their businesses. Because of the old norms, even though the promoters wanted to exit loss-

making businesses or lay off workers due to tough market conditions, the lengthy process to get permission only added to their woes


Amending labour union membership: Replicating new laws in Rajasthan where labour unions would require a membership of 30% of the workforce against the 15%

earlier. The lower limit allowed several unions to emerge often increasing inter-union conflicts and multiplicity

To cater to manufacturing sector growth and to be able to effectively utilize Indias demographic dividend, training labour force is critical. Focus on both quantum and quality of

skills when accompanied by talent management would be a huge step forward in bridging the job market asymmetries. Towards this -

Promotion of sector-specific training for manufacturing: Initiatives to inform prospective employers about skill development courses and to encourage them to recruit

from skill institutes and investments by employers for imparting job-specific skills to the employees to cater to sectors such as textiles, food processing and defence

Vocational training to give fillip to labour intensive high value added exports

Focus on higher level education to catapult high skill intensity sectors such as pharma, bio-technology and electrical equipments

Enabling collateral free, small-ticket bank loans: With regard to funding, Government Subsidies have a legitimate place in the scheme of things, but the best way to

create an efficient ecosystem is to enable collateral free, small-ticket bank loans that cater exclusively to skill development

Encouragement of entrepreneurship

Via Angel investors, venture capital funds, and impact investors which are still at a nascent stage compared to global peers

Government funds through grants and seed funding programs such as Technopreneur Promotion Program, Technology Development Board, among others

III. A push to Infrastructure: The Government had earlier estimated that the country needs to spend at least USD 1 tn on infrastructure. In line with this goal, a

renewed focus on infrastructure in order to stir both domestic and international investments is warranted. The passage to build world-class infrastructure must

focus on:

Identification of ‘Brownfield Smart Cities

Typically, urbanization happens in one of three ways - suburbanization, corridors and sleeper towns. By this principle, the model of Smart Cities in India should adopt

the concept of ‘anchorage

History provides evidence of new cities generally getting created around an ‘anchor, like Detroit in US (anchor: auto industry), Jamshedpur in India (anchor: steel

plant). Government must identify similar anchors (industry, university) to create brown field ‘smart cities

Allow floating of Smart City Bonds, within the infrastructure bonds category to help finance infrastructure development in the proposed cities. Municipalities backed

by respective State Governments could act as issuers while the subscription could be open to domestic investors, FIIs, and multilateral institutions.


Monitoring of Public Private Partnership (PPP) projects, to

Encourage private investment in the infrastructure sector

Reduce public direct spending such that Government expenditure is channelized to other priority areas

Introduce innovation and increased efficiency from the private sector

Development of local capital market

A transparent resolution mechanism

To give an impetus to private sector investments, PPP models need to be modified such that ‘development risks or construction risks of the project rest with the

Government. Development risks such as environment and forest clearances are best resolved by Governments. In such a case, execution risk will be lower. After

construction, the asset created can be sold to private sector with better valuations

Port-led development

Despite the fact that India has 12 major and 187 minor ports, data shows that almost every sea-based cargo coming and going from India is trans-shipped first to

mega hubs like Colombo or Singapore

Trans-shipment of such nature, adds to the overall cost of shipping from India, making India lose its competitive advantage

In addition to modernizing existing ports and developing new ones, Government should:

Relax the 25-30% tax on fuels used by trans-shipment Indian ships. Official estimates show that the immediate impact of such a move will lead to an annual

revenue loss of just US 10 mn but its potential in driving the use of Indian sea route is seen at an additional USD 166 mn

India imports about 185 mn tonnes of crude annually, but only 13% of it is carried by Indian ships. The Shipping Ministry should take this up, under the

proposed hydrocarbon transportation policy with the Petroleum Ministry

Improve Ease of Doing Business and focus on ‘Sunrise sectors: The new Government has made a positive beginning to improve the ‘Ease of Doing Business in order

to establish a favorable, flexible, liberalized and a transparent business environment. Smarter regulations towards ‘Ease of Doing Business in high-growth multiplier

sectors (such as Affordable Housing, Tourism) must become the focus, going forward

Set-up a National Resource Policy: India needs a simple and transparent policy for natural resources. A clear outline of auctioning natural resources via a revenue-sharing

model can be a win-win situation for Government, industry as well as the people


Simplify Land Acquisition

st The Land Acquisition Rehabilitation & Resettlement Act that came into force on 1 January 2014, by repealing the Land Acquisition Act, 1894 mandates -

70% consent of affected families for PPP projects and 80% for private players

Social Impact Assessment studies

After much deliberation and debate, the Land Bill was recently passed in the Lok Sabha

Further efforts in the area could be channelized towards:

Creating a National Infrastructure Planning process: India must define a 6 stage application process for projects - Pre-application stage, Acceptance stage, Pre-

examination stage, Examination stage, Decision stage and Post-decision stage; along with clearly defining maximum permissible time limit for each stage

Government must allow a stage-by-stage tracking of the application by the applicant

This procedure should be applicable to only core infrastructure projects such as thermal and hydro projects, bridges and pipelines. Other linear projects such as

road, rail and power lines where the route is defined could be exempted

IV. Integration of Foreign Trade Policy with ‘Make in India program

Recognizing the need to develop a 'Common Economic Agenda' across all policy decisions, the Government has aligned the Foreign Trade Policy (2015-20) with ‘Make in

India

Reducing export obligation for capital goods purchased from Indian suppliers under the Export Promotion Capital Goods (EPCG) scheme

Granting higher level of rewards under Merchandise Exports from India Scheme (MEIS) towards export for goods with high domestic content and value addition

Announcing measures to facilitate and encourage exports of defence goods

Promoting Export Oriented Units (EOUs), electronics hardware technology parks, software technology parks and bio-technology parks, via:

EOUs, Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) have been allowed to share infrastructural facilities among

themselves

Inter-unit transfer of goods and services have been allowed among EOUs, EHTPs, STPs, and Bio-technology Parks (BTPs)

EOUs have been allowed facility to set up warehouses near the port of STP units, EHTP units, software EOUs have been allowed the facility to use all duty

free equipment / goods for training purposes


EOUs having physical export turnover of USD 1.66 mn and above, have been allowed the facility of fast track clearances of import and domestic

It is imperative that these measures be further supplemented by:

Rationalization of inverted duty structure on manufacturing goods for sectors such as Chemicals, IT products, Metals (Aluminum, Steel), Textiles among

others. In this spirit, FTA provisions with countries such as Japan, South Korea, Malaysia, and Singapore also need to be reassessed

Set up a Trade Facilitation Centre as an integral part of Indian embassies all over the world

V. Development of the Medium, Small and Micro Enterprise (MSME) sector: In India, the sector accounts for nearly half of domestic manufacturing output and 40%

of total exports; contributing close to 8% to GDP and creating 80 mn jobs. Going forward, key schemes in the sector must entail

Amend MSME definition: Raise cap for small and medium enterprises to USD 3.3 mn versus USD 0.83 - 1.6 mn currently, as this would enable more companies to avail

tax benefits available to the sector. Further, the definition should be in sync with international standards and also include manpower and turnover to reward employment

generation and efficiency besides investment in plant and machinery

Simplification of procedures and formulation of polices to provide safety nets to MSMEs in the form of refinance - facilities and special credit windows

Exclusive Marketing Structure: In order to withstand competition in the era of globalisation, MSMEs need to respond to changing dynamics of marketing and

innovations. In this regard, the Government has initiated various schemes such as MSME Marketing Development Assistance, establishment of Marketing Intelligence

Cell, among others. The scope of these schemes should be enlarged to include -

A comprehensive portal to enable MSME suppliers to interact with service providers, collaborate with B2C (business to customers) and offer competitive deals by

way of e-commerce platform.



ASSOCHAM Global Investors' India Forum

7.


ASSOCHAM, Indias apex Knowledge Chamber, has been playing a crucial role at

the International business level by working closely with the Government on various

foreign policy issues, expanding business opportunities for foreign investors, and

providing an effective platform for consensus building and networking, through its

focused 14 International Business Promotion Councils (BPC) based in India.

ASSOCHAM also initiated the Globalization campaign in September 2014 to

actualize the vision of 'Make in India', by opening 14 International offices at India's

top trading partner locations including UK, USA, UAE, Germany and Singapore,

amongst others, for inviting Multinational businesses to invest in India and be a part

of our nation's economic transformation.

To further strengthen the Chamber's international footprint by synchronizing the

efforts of its 14 International offices as well as 14 International BPCs and 77 Sector

and Regional Councils in India, ASSOCHAM has institutionalized the Global

Investors' India Forum (GIIF), under Mr. Rana Kapoor's Chairmanship, for

developing vibrant economic, social and cultural bonds between India and its

Strategic Partner nations. The Forum will provide a conducive and enabling platform

to Global investors for engaging and exploring investment opportunities in India to

actualize the vision of 'Make in India'.

About ASSOCHAM Global Investors' India Forum

India offers highly attractive investment opportunities for domestic and

international investors. Such investments are critical for fostering

entrepreneurship, innovation, improving infrastructure, creating jobs and

transforming India into a global manufacturing hub.

To actualize the vision of 'Make in India', ASSOCHAM is establishing the GLOBAL

INVESTORS' INDIA FORUM, which will galvanize investments into India through an

extensive network of International Business Promotion Councils and ASSOCHAM

offices/alliances across the world, and position India as the Number One

investment destination globally.


Advertisement published in The Times of India, Hindustan Times and Hindu Business Line on April 21, 2015 and the Indian Express & Financial Express and MINT on April 22, 2015

Formation of ASSOCHAM Global Investors' India Forum in March 2015

ASSOCHAM Global Investors' India Forum: Network of International Business Promotion Councils and International Offices

INDIA: International Business Promotion Councils

Central International Desk(ASSOCHAM Headquarters)

AMERICAS: • India-North America • India-Latin American Countries

EUROPE: • India-EU • India-Russia and CIS

AFRICA: • India-Africa

ASIA PACIFIC: • India-Gulf and Arab Nations • India-China • India-ASEAN • India-SAARC

GLOBAL: New International Offices and International MoUs signed

Rana KapoorChairman, ASSOCHAM Global Investors' India Forum

Key Objectives of the ASSOCHAM Global Investors' India Forum

Narendra ModiHon'ble Prime Minister

Provide a common platform to pursue the finest global companies and investors, business market leaders, financiers and key policy makers through Investor Road Shows and summits in various countries to highlight

Lead outbound delegations to leading trade and investment destinations across the world and host inbound business delegations and State visits to augment

Promote deeper dialogue and engagement for ensuring effective governance, simpler business regulations and creating a transparent, conducive, and stable business

Facilitate Investment and Ease of Doing Business

Cross-borderBusiness Development

Initiate strategic collaborations with bilateral and multilateral development organisations, International Capital Markets, Government agencies, and international chambers of commerce

StrategicCollaborations

Policy Advocacy

NUMBER ONE INVESTMENT DESTINATION

GLOBALLY

Our strategy for 'Make in India' requires urgent creation of new infrastructure. The substantial enhancement in financing in the federal budget for highways, railways and energy is a step in this direction. Work has begun on the development of Delhi-Mumbai Industrial Corridor. My Government has pledged a stable and transparent tax regime, reducing corporate taxes and implementing a single Goods & Services Tax in 2016.

We recognize that the availability of a skilled work-force is a pre-requisite for manu-facturing growth. My Government is giving the highest priority to the Skills India programme. We will focus on promoting models of vocational training according to specific needs of local industry, and to adopt best practices from abroad.

ASSOCHAM congratulates Prime Minister Narendra Modi for his successful visits to France, Germany and Canada

ASSOCHAM establishes GLOBAL INVESTORS' INDIA FORUMASSOCHAM, through its 14 new International Offices (launched in September 2014), 14 International Business Promotion Councils, and 77 Sectoral and Regional Councils, under the

chairmanship of Rana Kapoor, is committed to contribute significantly to policy frameworks, vital reforms in business regulations, along with knowledge interventions, to improve

EASE OF DOING BUSINESS in India and attract and mobilize leading global investors, business leaders and Indian policy-makers to address investor appetite and concerns, and facilitate capital flows.

For more information, please contact ASSOCHAM Global Investors' India Forum secretariat at [email protected]

Corporate Office: 5, Sardar Patel Marg, Chanakyapuri, New Delhi - 110021 • Ph: +91 11 4655 0555 • Fax: +91 11 2301 7008 • E-mail: [email protected] • www.assocham.org

The pictorial presentation of the world map does not purport to be political and geographical maps of the world and India and is not drawn to scale


ASSOCHAM Global Investors' India Forum Network


About YES BANK

YES BANK, Indias fifth largest private sector Bank with a pan India presence across all 29 states and 7 Union Territories of India, headquartered in the Lower Parel

Innovation District (LPID) of Mumbai, is the outcome of the professional & entrepreneurial commitment of its Founder Rana Kapoor and its top management team, to

establish a high quality, customer centric, service driven, private Indian Bank catering to the future businesses of India. YES BANK has adopted international best

practices, the highest standards of service quality and operational excellence, and offers comprehensive banking and financial solutions to all its valued customers.

YES BANK has a knowledge driven approach to banking, and offers a superior customer experience for its retail, corporate and emerging corporate banking clients.

YES BANK is steadily evolving as the Professionals Bank of India with the long term mission of “Building the Best Quality Bank of the World in India by 2020.

About ASSOCHAM

ASSOCHAM, acknowledged as the apex Knowledge Chamber of India, has emerged as a forceful, pro-active, effective and forward looking institution playing its role as a

catalyst between the Government and Industry. Established in 1920, the Chamber has been successful in influencing the Government in shaping India's economic, trade,

fiscal and social policies which will be of benefit to trade and industry. ASSOCHAM renders its services to over 4,00,000 members which include multinational companies,

India's top corporates, medium and small scale units and associations representing the interest of more than 400 Chambers and Trade Associations from all over India

encompassing all sectors.

ASSOCHAM has over 100 National Committees covering the entire gamut of economic activities in India. It has been acknowledged as a significant voice of the Indian

industry especially in the fields of Corporate Social Responsibility, Environment & Safety, Corporate Governance, Information Technology, Agriculture, Nanotechnology,

Biotechnology, Pharmaceuticals, Telecom, Banking & Finance, Company Law, Corporate Finance, Economic and International Affairs, Tourism, Civil Aviation, Infrastructure,

Energy Power, Education, Legal Reforms, Real Estate, Rural Development etc. The Chamber has its international offices in China, Sharjah, Moscow, UK and USA.

ASSOCHAM has also signed MoUs to set up partnerships with Business Chambers in more than 75 countries.

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