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Industrial Policy - 2017 A Discussion Paper

Industrial Policy - 2017 A Discussion Paper - News and Press Release - Dated:- 11-9-2017 - Industrial Policy - 2017 A Discussion Paper Department of Industrial Policy and Promotion, Ministry of Commerce and Industry This discussion paper reviews the progress made in the last quarter century since the 1991 Industrial Policy and provides thoughts to facilitate discussions for formulation of a new Industrial Policy aimed at building a globally competitive Indian industry equipped with skill and sca .....

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oreign Investment (c) Foreign Technology Agreements (d) Public Sector Policy (e) MRTP Act 1.3 The first key reform was abolition of industrial licensing except those included in a small specified negative list. 1.4 In order to attract foreign investment in high priority industries requiring large capital and advanced technology, approval for direct foreign investment upto 51% of equity in high priority sectors known as Appendix I industries was provided. 1.5 Access to advanced technology was ena .....

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a very low rate of return on the capital invested. Government, therefore, decided to adopt a new approach for public enterprises, which inter-alia indicated priority areas for growth of public enterprises in: (i) Essential infrastructure goods and services (ii) Exploration and expansion of oil and mineral resources (iii) Technology development and building of management capabilities in areas crucial for long term development of the economy where private sector investment is inadequate (iv) Manuf .....

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es in respect of which industrial licensing was compulsory was 18. This list has progressively shrunk and currently license is required only in four areas, namely, cigars and cigarette on the tobacco, industrial explosives, electronic, aerospace and defence equipment, industrial explosives and hazardous chemicals. 2.2 Giant strides have been made in liberalising the Foreign Direct Investment policy. Foreign investment in most sectors is allowed upto 100% under automatic route. Around 90% of tota .....

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15 bn in 2014-15, USD 55.56 bn in 2015-16 and USD 60.08 in 2016-17). Highest ever annual inflow (US$ 60.08 bn) was received in 2016-17. FDI equity inflows increased by 52% during 2014-16 and 62% since the launch of Make in India. India is now ranked amongst top 3 FDI destinations (World Investment Report 2016, UNCTAD) and 9th in the FDI Confidence Index in 2016, up 2 places from 2015 (AT Kearney) 2.4 The change in public sector policy led to private sector participation in sectors of iron and st .....

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estricting the size of enterprises. The removal of the requirement for pre-entry scrutiny and the clearance of the industrial projects of big business houses by the MRTP Commission removed the barrier for growth of businesses. The Competition Act 2002 by bringing all public sector enterprises and departments of the governments at the Centre and State, barring a few which perform sovereign functions, under the Act, has obliterated the distinction between public and private enterprises and contrib .....

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ffected cost competitiveness of Indian goods in global markets. 3.2 Restrictive labour laws: The tenor of labour laws has been overly protective of labour force in the formal sector. Though labour protection and security are required, the flipside is that it discourages employers from hiring workers on a regular basis. It has probably also led to entrepreneurs choosing to stay away from labour intensive sectors and opt for highly capital or skilled-labour intensive technologies sectors. 3.3 Comp .....

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e of Indian products in international markets. 3.5 Low productivity: Productivity as measured by value added per worker and average wages in manufacturing in India are only one-third of that in China. Differences in productivities across sectors and across firms within the same sector make matters worse. Workers in India are overwhelmingly employed in low productivity and low wage activities. 3.6 Challenges for trade: Manufacturing sector especially exporters are facing challenges of stagnant/sh .....

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ns. 3.8 It is also to be understood that these factors work in tandem to increase costs of goods and services. They are strongly entwined, one feeds into another thereby exacerbating the disadvantages. The nexus needs to be broken at more than one link to ensure that the spin-off is in the positive direction. 4. INDIA AT AN INFLECTION POINT 4.1 India today, as it was in 1991 is at an inflection point. In 1991 the country rose to change from the brink of a financial crisis with foreign exchange r .....

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ry s long run potential growth rate is estimated to be around 8-10 per cent. India is showing improvement on every important metric and several internationally reputed indices such as the Global Competitiveness Index, Logistic Performance Index and the Global Innovation Index. India holds large untapped potential. India is rated first among 100 countries on the growth, innovation and leadership index (Frost & Sullivan: 2015). The economy has all the right conditions to take-off and is expect .....

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up India and Skill India, in addition to the audacious demonetisation of select high denomination currency are only a few initiatives that have prepared the ground for a higher growth trajectory for the economy. 4.4 It is time to shift from a policy of continuity with change in 1991 to radical and accelerated reforms for greater strategic engagement with the world. As often summed up- it is time to Reform, Perform and Transform. A comprehensive, actionable, outcome oriented industrial policy wi .....

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, will be developed through engagement with stakeholders. Strategic objectives have to be delineated with measurable outcomes. The policy has to also ensure that it embeds into itself sectoral objectives and provides an overarching umbrella policy framework. The timeframe for implementation of the policy needs to be decided taking into consideration the changing economic and business cycles of the world and the Indian economy, geo-political trends and broad policy directions in the country. To b .....

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been raised about the brand value of Indian products, significantly low value addition done in India and the minimal positive externalities from FDI. 5.2.2 Brand building should gain importance alongside achieving quality and scale. The quantum of value addition has to be increased at all levels. Larger the value addition, greater the positive externalities from economic activity. Creating complete value chains domestically and globally or integrating into existing chains is vital to ensure that .....

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h complete value chains, within India or across countries, in select sunrise sectors like renewable energy, food processing, electronics etc. An FDI regime that balances the short term and long term benefits of inward and outward investments. Medium-term Attract $100 bn inward FDI annually and support outward FDI to assert Indian presence in world markets Increase the share of India in sourcing of top brands in sectors where India enjoys a distinct comparative advantage such as apparel and footw .....

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by reducing the cost of infrastructure such as power, logistics, easing regulatory/compliance burden, reducing the cost of capital and improving labour productivity. 5.3.2 Industrial infrastructure in India suffers from lack of funds and inefficiencies. Infrastructure financing relies heavily on banks due to the lack of developed debt and bond markets. Increased pressure on infrastructure from rapid urbanisation exacerbates inefficiencies leading to high cost of logistics. Similarly the cost of .....

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nologies has blurred the line between manufacturing and services and is predicted to impact all industries. The central role of technology in next generation business has to be acknowledged and appropriated to ensure greater productivity and competitiveness. 5.3.4 In an open world, domestic tax structure and duty rates are an important factor in deciding the direction of flow of raw materials and final products. High direct tax rates and a duty structure that favours import of final products can .....

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d services, with potential for sale and expansion for support. Eg Waste management, medical devices, renewable energy, green technologies, financial services etc. Leverage presence of a large public sector in core sectors and the forward and backward linkages created over the decades provides for captive source for investments and efficiency improvements. Medium-term Targeted measures to improve labour productivity in select sectors Creating a robust and safe digital infrastructure to support ne .....

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Can a credit rating mechanism for MSMEs be looked upon to provide them easier access to funds? Taxation How can the problem of inverted-duty structure be addressed and also be balanced against obligations under multilateral or bilateral trade agreements? How can incentives be linked to reforms and performance? Industry Standard Can industry-wide mandatory technical regulations be developed to address this gap? How can enterprises be encouraged to set up testing labs in India? 5.4 Employing gainf .....

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o existing inequalities Projected upward trends in automation leading to job losses Disproportionately slower growth in creation of jobs as compared to growth in output Poor outcomes in education, skill and health leading to an inability to harness the demographic dividend 5.4.3 Illustrative outcomes and trigger questions Long term Gainful employment of the millions of aspirants who join the workforce over the next two decades Medium term Creation of jobs at the bottom of the pyramid Jobs to emp .....

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that energy is a significant contributor to industrial growth as well as industrial emissions. Clean energy and cleaner industrial technologies have to be taken together. 5.5.2 Policies on utilisation of natural resources, including energy sources have to be aligned to support industrial growth. Sustainability has to be treated as integral to growth in all sectors and industry as a whole. A fine balance between industrial growth and improvement in environment and sustainability has to be achieve .....

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are the measures to ensure minimal/zero waste from industrial activities? Which sectors need to be targeted to radically cut emissions? 5.6 Enabling ecosystem for technology adoption and innovation 5.6.1 India has the potential to diversify its strengths in the field of information technology. It is not just the largest software service provider, but can provide products and solutions and also become the Digital factory of the world , by becoming the vanguard of digital revolution. Education and .....

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