Industry of India
During the first term of the NDA regime, as per World Bank, the GDP growth in India was 6.6% in 2017. In the short term, the growth was adversely impacted by Modi government measures like demonetization and introduction of GST. On the other hand, World Bank has projected its growth forecast at 7.5% for FY2019-20 and retained the same forecast for the next two years as well. This shows a strong industrial outlook for India.
According to the Index of Industrial Production (IIP), our country’s industrial output grew at 3.4% on YoY basis in April 2019. The estimated contribution of various sectors to the GDP is agriculture 16%, industry 30% and services 54% respectively. Promoting industrial growth through infrastructure development, easy access to credit, and through research and skill development measures remain the government’s priority, as evidenced in ‘Make in India’ initiative.
As far as industries are concerned, 12 out of 23 groups in the manufacturing sector have performed very well during May 2019. Some industries have shown positive growth like wood and products of wood and cork. The best possible result has come from the manufacture of articles of straw and plating materials. Its growth rate is 24.8 percent; then comes the food products at 15.9 percent and computer, electronic and optical products at 9.4 percent.
In the present scenario, experts suggest that right now defense is one area that can significantly revive the stalled industrial scene of India, especially the manufacturing sector. If the ‘Make in India’ programme of Modi is to materialize, then this is the most obvious bet.
Accordingly, in the 2019-20 budget, Rs 3.19 lakh crore money has been allocated to the defense sector. This was mentioned by the Finance Minister Nirmala Sitharaman, while presenting her maiden budget in Modi 2.0 government. She further stated that, “This is a national priority.” So, defence equipments which are not manufactured in the country would be exempted from the basic duty. Indian air force requires replacing its old Soviet-era aircrafts. Indian navy has also planned to have dozen submarines to cope with the presence of the Chinese navy in the Indian Ocean.
Can India Be Industrially Self-Sufficient?
Industrialists like Rattan Tata opine that in the last few years, India has been able to significantly increase its capacities to achieve self-sufficiency from an industrial point of view. He says with the introduction of the liberal economic policies from 1991 onwards, the Indian economy is in much better health than before. Problems such as License Raj are no more, and new domains of business are opening on a regular basis. This is especially true of infrastructure sector, as well as other areas that were previously the sole preserve of the government.
Indian industrial sector has been forced to restructure itself and thus has become significantly modern than before. There is more focus on reducing costs of production and achieving the levels of technological competence that can help one stay globally relevant and deal with cutthroat competition.
He feels that companies that were previously used to monopolizing certain areas of business because of protective legislations will find it hard to survive in the new environment. However, he feels that companies that are willing to change with the need of time will be able to sustain and do well in the days ahead.
Industrial Rules and Policies in India
If the industrial sector in India has to flourish, then there has to be sufficient foreign capital in the country. However, as many foreign firms would attest, it is not that easy to invest in India. The stock prices of some companies witness volatility because of their issues with the ongoing tax regime. However, the Modi government is attempting to make things better for international companies interested in investing in India. Foreign Direct Investment (FDI) rules have been amended significantly so as to allow interested Non-Resident Indians (NRIs) to invest in India.
A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. Special dispensation is available to companies and firms incorporated abroad and owned by NRIs.
FIIs and FPIs can invest in the capital of an Indian company under the Portfolio Investment Scheme (subject to sectoral or statutory caps). It also stated recently that in sectors where there is provision for automatic rules for FDI, foreign companies need not get permission from the Foreign Investment Promotion Board (FIPB) if they want to merge with a company in India or just acquire it. In certain sectors, FDI is permitted up to 100% on the Automatic route. These include mining and exploration, coal and lignite, oil and natural gas fields, DTH and cable networks, airports etc.
This information has been revealed by a circular emanating from the Department of Industrial Policy and Promotion (Chapter 5: Sector Specific Conditions on FDI, Consolidated FDI Policy 2017). The same circular has also stated that in cases where automatic rules are applicable, one does not need to take government’s permission for issuing employee stock options. It is expected that such initiatives will increase the levels of credibility of the FDI policy and make India a far more attractive business destination for international investors.