- India over-regulates the economy resulting in regulations being ineffective even with relatively good compliance with process
- The root cause of the problem of overregulation is an approach that attempts to account for every possible outcome
- Increase in complexity of regulations, intended to reduce discretion, results in even more non-transparent discretion
- The solution is to simplify regulations and invest in greater supervision which, by definition, implies greater discretion
- Discretion, however, needs to be balanced with transparency, systems of ex-ante accountability and ex-post resolution mechanisms
- The above intellectual framework has already informed reforms ranging from labour codes to removal of onerous regulations on the BPO sector
Industry and Infrastructure
- A strong V-shaped recovery of economic activity further confirmed by IIP data
- The IIP & eight-core index further inched up to pre-COVID levels
- The broad-based recovery in the IIP resulted in a growth of (-) 1.9 % in Nov-2020 as compared to a growth of 2.1 % in Nov-2019 and a nadir of (-) 57.3 % in Apr-2020
- Further improvement and firming up in industrial activities are foreseen with the Government enhancing capital expenditure, the vaccination drive and the resolute push forward on long pending reform measures
- Atma Nirbhar Bharat Abhiyan with a stimulus package worth 15 % of India’s GDP announced
- India’s rank in the Ease of Doing Business (EoDB) Index for 2019 has moved upwards to the 63rd position in 2020 from 77th in 2018 as per the Doing Business Report (DBR):
- India has improved its position in 7 out of 10 indicators
- Acknowledges India as one of the top 10 improvers, the third time in a row, with an improvement of 67 ranks in three years
- It is also the highest jump by any large country since 2011
- FDI equity inflows were US$49.98 billion in FY20 as compared to US$44.37 billion during FY19:
- It is US$30.0 billion for FY21 (up to September-2020)
- The bulk of FDI equity flow is in the non-manufacturing sector
- Within the manufacturing sector, industries like automobile, telecommunication, metallurgical, non-conventional energy, chemical (other than fertilizers), food processing, petroleum & natural gas got the bulk of FDI
- Government has announced a Production-Linked Incentive (PLI) Scheme in the 10 key sectors under the aegis of Atma Nirbhar Bharat for enhancing India’s manufacturing capabilities and exports:
- To be implemented by the concerned ministries with an overall expenditure estimated at Rs.1.46 lakh crores and with sector specific financial limits
- India’s services sector contracted by nearly 16 % during H1: FY 2020-21, during the COVID-19 pandemic mandated lockdown, owing to its contact-intensive nature
- Key indicators such as Services Purchasing Managers’ Index, rail freight traffic, and port traffic, are all displaying a V-shaped recovery after a sharp decline during the lockdown
- Despite the disruptions being witnessed globally, FDI inflows into India’s services sector grew robustly by 34% Y-o-Y during April-September 2020 to reach US$ 23.6 billion
- The services sector accounts for over 54 % of India’s GVA and nearly four-fifths of total FDI inflow into India
- The sector’s share in GVA exceeds 50% in 15 out of 33 States and UTs, and is particularly more pronounced (greater than 85%) in Delhi and Chandigarh
- Services sector accounts for 48% of total exports, outperforming goods exports in the recent years
- The shipping turnaround time at ports has almost halved from 4.67 days in 2010-11 to 2.62 days in 2019-20
- The Indian start-up ecosystem has been progressing well amidst the COVID-19 pandemic, being home to 38 unicorns – adding a record number of 12 start-ups to the unicorn list last year
- India’s space sector has grown exponentially in the past six decades:
- Spent about US$ 1.8 billion on space programmes in 2019-20
- Space ecosystem is undergoing several policy reforms to engage private players and attract innovation and investment
Innovation: Trending Up but Needs Thrust, Especially from the Private Sector
- India entered the top-50 innovating countries for the first time in 2020 since the inception of the Global Innovation Index in 2007, ranking first in Central and South Asia, and third amongst lower middle-income group economies
- India’s gross domestic expenditure on R&D (GERD) is lowest amongst top ten economies
- India’s aspiration must be to compete on innovation with the top ten economies
- The government sector contributes a disproportionately large share in total GERD at three times the average of top ten economies
- The business sector’s contribution to GERD, total R&D personnel and researchers is amongst the lowest when compared to top ten economies
- This situation has prevailed despite higher tax incentives for innovation and access to equity capital
- India’s business sector needs to significantly ramp up investments in R&D
- Indian resident’s share in total patents filed in the country must rise from the current 36% which is much below the average of 62% in top ten economies
- For achieving higher improvement in innovation output, India must focus on improving its performance on institutions and business sophistication innovation inputs
Source: PIB & Economic Survey
