States of the Indian Economy: Towards a Larger Constituency for Second Generation Economic Reforms

States of the Indian Economy 2 STATES OF THE INDIAN ECONOMY States of the Indian Economy Towards a Larger Constitu...

Author: Amir Ullah Khan | Harsh Vivek

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States of the Indian Economy

2

STATES OF THE INDIAN ECONOMY

States of the Indian Economy Towards a Larger Constituency for Second Generation Economic Reforms

Amir Ullah Khan Harsh Vivek

Copyright © Amir Ullah Khan & Harsh Vivek, 2007 All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 2007 by Sage Publications India Pvt Ltd B1/I1, Mohan Cooperative Industrial Area Mathura Road, New Delhi 110 044 www.sagepub.in Sage Publications Inc 2455 Teller Road Thousand Oaks, California 91320 Sage Publications Ltd 1 Oliver’s Yard 55 City Road London EC1Y 1SP Sage Publications Asia-Pacific Pte Ltd 33 Pekin Street #02-01 Far East Square Singapore 048763 Published by Vivek Mehra for Sage Publications India Pvt Ltd, typeset in 10.5/12.5 pt Minion by Star Compugraphics Private Limited, Delhi and printed at Chaman Enterprises, New Delhi. Library of Congress Cataloging-in-Publication Data Khan, Amir Ullah. States of the Indian economy: towards a larger constituency for second generation economic reforms / Amir Ullah Khan and Harsh Vivek. p. cm. Includes bibliographical references and index. 1. India—Economic conditions—1947– 2. India—Economic policy—1991– I. Vivek, Harsh, 1982– II. Title. HC435.3.K43 330.954—dc22 2007 2007036648 ISBN: 978-0-7619-3591-6 (HB)

978-81-7829-752-1 (India-HB)

The Sage Team: Sugata Ghosh, Samprati Pani and Amrita Saha

Contents List of Tables List of Figures List of Boxes List of Abbreviations Preface Acknowledgements Introduction

6 10 12 13 16 18 20

1 Making Sense of a Fast Growing Economy

31

2 Services in Rural India

65

3 Progressive States

110

4 Emerging States

153

5 Infrastructure Growth and Investment

178

6 Industrial Renaissance

212

Conclusion—The Unfinished Agenda References and Select Bibliography Index About the Authors

238 248 252 257

List of Tables 1.1 1.2 1.3 1.4

India at a Glance (2001–06) Demographic Profile of India Aging in Selected Countries India Inc.—Global Shopping Spree

34 46 47 59

2.1 (a) 2.1 (b) 2.1 (c) 2.2 (a) 2.2 (b) 2.2 (c)

Rural Access to Education Infrastructure Rural Access to Health Infrastructure Rural Infrastructure for Market Access Education Infrastructure—Andhra Pradesh Health Infrastructure—Andhra Pradesh Infrastructure for Market Access— Andhra Pradesh Education Infrastructure—Assam Health Infrastructure—Assam Infrastructure for Market Access—Assam Education Infrastructure—Bihar Health Infrastructure—Bihar Infrastructure for Market Access—Bihar Education Infrastructure—Gujarat Health Infrastructure—Gujarat Market Access—Gujarat Education Infrastructure—Haryana Health Infrastructure—Haryana Infrastructure for Market Access—Haryana Education Infrastructure—Karnataka Health Infrastructure—Karnataka Infrastructure for Market Access—Karnataka Education Infrastructure—Kerala Health Infrastructure—Kerala Infrastructure for Market Access—Kerala Education Infrastructure—Madhya Pradesh Health Infrastructure—Madhya Pradesh Infrastructure for Market Access—Madhya Pradesh

84 84 84 85 85

2.3 (a) 2.3 (b) 2.3 (c) 2.4 (a) 2.4 (b) 2.4 (c) 2.5 (a) 2.5 (b) 2.5 (c) 2.6 (a) 2.6 (b) 2.6 (c) 2.7 (a) 2.7 (b) 2.7 (c) 2.8 (a) 2.8 (b) 2.8 (c) 2.9 (a) 2.9 (b) 2.9 (c)

86 86 86 87 87 88 88 88 89 89 90 90 90 91 91 92 92 92 93 93 94 94

List of Tables

7

2.10 (a) 2.10 (b) 2.10 (c) 2.11 (a) 2.11 (b) 2.11 (c) 2.12 (a) 2.12 (b) 2.12 (c) 2.13 (a) 2.13 (b) 2.13 (c) 2.14 (a) 2.14 (b) 2.14 (c) 2.15 (a) 2.15 (b) 2.15 (c) 2.16 (a) 2.16 (b) 2.16 (c) 2.17

Education Infrastructure—Maharashtra Health Infrastructure—Maharashtra Infrastructure for Market Access—Maharashtra Education Infrastructure—Orissa Health Infrastructure—Orissa Infrastructure for Market Access—Orissa Education Infrastructure—Punjab Health Infrastructure—Punjab Infrastructure for Market Access—Punjab Education Infrastructure—Rajasthan Health Infrastructure—Rajasthan Infrastructure for Market Access—Rajasthan Education Infrastructure—Tamil Nadu Health Infrastructure—Tamil Nadu Infrastructure for Market Access—Tamil Nadu Education Infrastructure—Uttar Pradesh Health Infrastructure—Uttar Pradesh Infrastructure for Market Access—Uttar Pradesh Education Infrastructure—West Bengal Health Infrastructure—West Bengal Market Access—West Bengal Rural Infrastructure—Gap Index

94 95 95 96 96 96 97 97 98 98 98 99 99 100 100 100 101 101 102 102 102 104

3.1 3.2

Haryana at a Glance Salient Features—Haryana Industrial Policy (2005) Salient Features of Haryana Food Processing Policy (2002) Salient Features of IT Policy of Haryana Punjab at a Glance Punjab Industrial Policy at a Glance (2003) Sector-specific Policies in Punjab— Salient Features Gujarat at a Glance Gujarat Industrial Scenario Gujarat State Policies at a Glance Maharashtra at a Glance Maharashtra State Policies at a Glance

113

3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12

118 120 121 124 130 132 133 135 137 140 146

8


3.13 3.14

Tamil Nadu at a Glance Tamil Nadu State Policies at a Glance

148 152

4.1 4.2 4.3 4.4

Andhra Pradesh at a Glance Kerala at a Glance Karnataka at a Glance West Bengal at a Glance

155 162 167 172

5.1

Power Grid Stations to be Established in Northern India (Tenth Plan) Power Grid Stations to be Established in Western India (Tenth Plan) Power Grid Stations to be Established in Southern India (Tenth Plan) Share (%) of Future Energy Supply Month-wise Electricity Production in India (1999–2000 to 2005–06) State/Circle-wise Tele-density in Rural and Urban Areas State-wise Projections of Non-plan Revenue Expenditure for Roads and Bridges (in INR Crores) Projections for Freight Traffic Flow in the Indian Railways Projections for Passenger Traffic Flow in the Indian Railways State-wise Density of Rail Routes in India Expected Air-traffic in India Domestic and International Air Freight and Passenger Movements in Major Airports State-wise Funds Released under Remote Village Electrification Programme (in INR million)

5.2 5.3 5.4 5.5 5.6 5.7

5.8 5.9 5.10 5.11 5.12 5.13 6.1 6.2 6.3

Performance of Small-scale Enterprises Strikes and Lockouts in India Growth Rates of Industrial Production by Use-based Classification

183 183 184 185 185 190

193 198 198 199 201 203 209 219 223 227

List of Tables

6.4 6.5 6.6 6.7

Net Capital Stock in Industry and the Share of the Public Sector Region-wise/State-wise Major FDI Destinations (2004–05) Major Pharmaceutical Players in India SWOT Analysis

9 228 229 233 235

List of Figures 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12

India’s GDP Growth Conquering Inflation Inflation External Vulnerability Net Accretion to Forex Reserves Opening of the Economy FDI Confidence Index The FDI Route Lowering Dependency Ratio Availability of Skilled Manpower, 2003 Availability of Qualified Engineers, 2003 Total Compensation for Workers in Heavy Manufacturing Changing Profile of a Young India Sectoral Contribution to GDP Index of Industrial Production Leveraging Technology Public Capital Expenditure as a Percentage of GDP Fiscal Stress Sectoral Contribution to GDP (Haryana) Composition of Exports (Haryana) Sectoral Breakdown of FDI Trends in Installed Capacity and Electricity Generation Export Performance Sectoral Contribution to GDP (Punjab) Principal Industries in Punjab Composition of Exports (Punjab) Composition of Electricity Consumption Sectoral Contribution to GSDP Sectoral Policies Sectoral Contribution to NSDP

35 36 37 38 39 41 42 44 48 50 50 51 53 55 58 60 62 63 114 116 117 118 123 126 127 128 129 134 136 142

List of Figures

11

3.13 3.14 3.15 3.16 3.17 3.18 3.19

Key Industries Composition of Exports Top Rank in Investment Attracted (1991–2004) FDI—Sectoral Break-up Knowledge Corridor: Mumbai–Pune Sectoral Shares Sectoral Policies

142 143 144 145 145 150 151

4.1 4.2 4.3 4.4

Sectoral Shares Software—The Biggest Share Power Generation Sources Investment Opportunities and Business Potential in Andhra Pradesh Sectoral Shares Growth Business and Investment Potential in Kerala Sectoral Contribution to GDP Contribution of Various Sectors to Exports in 2003–04 Business and Investment Potential in Karnataka Sectoral Contribution to GDP Composition of Electricity Consumption

156 158 159

4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 5.1

160 163 164 165 168 169 171 173 176

5.2 5.3 5.4 5.5

International Comparison—Per Capita Consumption India’s Share—World Electricity Generation (2002) Tele-density and Telephone Subscribers in India India vs China in Comparable Years of Service Regulatory Structure

181 182 188 188 189

6.1

Auto Exports from India: Destinations (2004–05)

231

List of Boxes 1.1 1.2

FDI Equity Limit: Automatic Route FDI Requiring Prior Approval

4.1

West Bengal: Recent Initiatives for IT and ITES Companies

6.1 6.2

Policy Initiatives for SSI Initiatives to Control Environmental Pollution in India

45 45 175 218 234

List of Abbreviations AEZ AIBP APEDA APMC BARC BCG BOT BPL CCA CCFS CGWB CMIE COAI CONCOR CRF CSIR DoT DRDA DRDO EPCG EPZ ERM FDI FPO FRA GDP HACCP HMRDC HYV IARI IAY IBEF

Agri Export Zones Accelerated Irrigation Benefit Programme Agriculture Produce Export Development Authority Agriculture Produce Marketing Committee Bhabha Atomic Research Centre Boston Consulting Group Build-Operate-Transfer Below Poverty Line Culturable Command Area Central Committee of Food Standards Central Ground Water Board Centre for Monitoring the Indian Economy Cellular Operator Association of India Container Corporation of India Central Road Fund Council of Scientific and Industrial Research Department of Telecommunications District Rural Development Agency Defence Research and Development Organisation Export Promotion Capital Goods Export Promotion Zone Extension, Renovation and Modernisation Foreign Direct Investment Fruit Products Order Food Regulatory Authority Gross Domestic Product Hazard Analysis and Critical Control Point Hassan–Mangalore Rail Development Company High Yielding Varieties Indian Agricultural Research Institute Indira Awaas Yojana India Brand Equity Foundation

14


ICAR ICD ICDS IIIT IIM IISc IIT IMF INR IOC IRCON IRCTC ISI ISP ISRO KRCL KVK KWh LIC LPG MFI MMPO MW NABARD NASSCOM NCAER NEP NHPC NLC NREGA NRI NSS NTP NTPC PCA

Indian Council of Agricultural Research Inland Container Depots Integrated Child Development Scheme Indian Institute of Information Technology Indian Institute of Management Indian Institute of Science Indian Institute of Technology International Monetary Fund Indian Rupee Indian Oil Corporation Indian Railway Construction Company Indian Railway Catering and Tourism Corporation Indian Statistical Institute Internet Service Provider Indian Space Research Organisation Kutch Railway Company Limited Krishi Vigyan Kendra Kilowatt Hour Life Insurance Corporation Liquefied Petroleum Gas Micro-Finance Institution Milk and Milk Products Order Mega Watt National Bank for Agriculture and Rural Development National Association of Software and Services Companies National Council of Applied Economic Research New Economic Policy National Hydroelectric Power Corporation National Lignite Corporation National Rural Employment Guarantee Act Non-Resident Indian National Sample Survey National Telecom Policy National Thermal Power Corporation Primary Census Abstract

List of Abbreviations

PDS PFA RBI RITES ROI SAARC SAFTA SAIL SAP SEB SEZ SHG SLR SPS SPV SSI STPI TISCO TQM TRAI UNCTAD UPA USD UT VSNL WDR WEF WPI WTO TRIPS

Public Distribution System Prevention of Food Adulteration Reserve Bank of India Rail India Technical and Economic Services Return on Investment South Asian Association for Regional Cooperation South Asia Free Trade Agreement Steel Authority of India Limited Structural Adjustment Programme State Electricity Board Special Economic Zone Self-Help Group Statutory Liquidity Ratio Sanitary and Phyto-Sanitary Special Purpose Vehicle Small-Scale Industry Software Technology Parks of India Tata Iron and Steel Company Total Quality Management Telecom Regulatory Authority of India United Nations Conference on Trade and Development United Progressive Alliance US Dollars Union Territory Videsh Sanchar Nigam Limited World Development Report World Economic Forum Wholesale Price Index World Trade Organisation Trade Related Intellectual Property Rights

15

Preface

J

awaharlal Nehru, India’s first Prime Minister, in his first speech in independent India, on the 15 August 1947, had said ‘A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends and when the soul of a nation, long suppressed, finds utterance.’ India occupies centre stage in the global arena, and economists the world-over are bullish on India’s unprecedented economic growth in the last 10 years, and its growth prospects for the future. The 21st century is slated as the century of the rise of Asia in the global economic and political scenario, and both China and India are set to play increasingly proactive and predominant roles. It is believed that in the next couple of decades, both India and China will surpass most developed economies at least in terms of national incomes. India’s GDP growth was 9.2 per cent for the year 2006–07. During the same time, the US economy grew at 3.2 per cent, Japan at 2.6 per cent, UK at 1.9 per cent and the European Union at 1.7 per cent. There are countries like Azerbaijan and Angola, which are growing at more than 20 per cent but, this is sporadic and unstable growth. Any increase in Gross Domestic Product (GDP) of a country is generally taken as an increase in the standard of living of its inhabitants. Over a long period of time, even small rates of annual growth can have large effects. A growth rate of 2.5 per cent per annum will lead to a doubling of GDP within 28 years, and a growth rate of 8 per cent per annum (experienced by India now) will lead to a doubling of GDP within nine years. The phenomenal rise of India in the global economy has been attributed to a whole host of factors, the major ones being the focus on economic reforms and the young population that India currently enjoys due to its demographic transition. The large pool of human capital—young, talented and well-educated workforce—is one of the major drivers of economic growth in the country. Rapid strides in knowledge-based industries, especially information technology (IT), biotechnology and pharmaceuticals, and resurgence in exports have made India one of the fastest growing economies in the world.

Preface

17

Opening of the economy and the growing economies of scale and scope for Indian enterprises, access to ‘modern’ technology, especially IT, and the growth in entrepreneurship have made India a sought-after destination for foreign investments. But India is no ordinary sized country; it is an entire subcontinent, with large states and within these states, there are at least 15 districts that are big enough to be countries themselves. Economic reforms started in earnest in 1991 and within the next three to four years, almost the entire reform agenda at the federal level was achieved. There are some exceptions to this where reforms are still awaited. But by and large, issues that could be handled at the central level, through amending policies and rules, were taken care of even by the mid-1990s. The focus has now shifted entirely to the states. In India’s federal structure, states have a greater role to play in areas like agriculture, education and healthcare. The infrastructure of states varies, depending on the state government’s preoccupation with maintaining and building it. States now compete for investments, both domestic and foreign, and therefore are at the centre stage of India’s second-generation reforms agenda. In the next few years, the spotlight will indeed be on those states that lead the pack by way of better investment and social climates, clearer policies, and better law and order situations. In this, it is but obvious that different states will perform differently, and it would be interesting to note this varied progress in India.

Acknowledgements

I

owe a great deal to two people who died far too early. Dad, a librarian all his life, had constantly pushed me into the world of books. He would, in his own quiet style, enquire about the pace of my research and subtly cajole me to complete my work faster. Nearly 12 years ago, my dear friend Hanumantha Charya got me a job in Delhi. He continued to encourage me in my entire academic endeavour. And then he too suddenly died. Both these people would have been so happy to see this published book. The job Hanumantha got me was at Project LARGE of the UNDP and the Ministry of Finance, Government of India, where I would work for several years with Bibek Debroy. Professor Debroy taught me all that I know of economics. My debt to him is infinite. As I went on with my career, my bosses kept changing, but they were all such wonderful people—Ashhar Farhan and Aalok Wadhwa earlier and now Shubhashis Gangopadhyay. I owe them more than they could ever imagine. Dr Suleman Siddiqui, Vice Chancellor at my alma mater, the Osmania University, has been my inspiration and my hero. My younger brother Umair, who is a famous doctor abroad, funds most of my excesses. Harsh, my co-author, is one of those really smart and bright youngsters who are at once meticulous, imaginative and dedicated. It is entirely his hard work that has made this book possible. There are a large number of family members and friends whom I owe so much, and I give them my silent thanks. Finally for the women in my life. My wife Saleema, who quietly and often firmly made me get back to work. In her own meticulous manner, she would magically manage our children, her academics and her career, leaving me with lots of time to do exactly as I pleased. Not for her the stereotypical complaint at my getting home late while pretending to work hard. I wish I could return her favours somehow. Hafsa, my sister who manages to write and is quite prolific even as she handles a rowdy son, a boisterous daughter and seven other jobs as a busy doctor. And lastly my mother, who read, wrote and taught all her life. Who introduced me to all the poetry I know and admire.

Acknowledgements

19

Who taught me patience and understood my shortcomings and me more than anyone else. I must sincerely thank Sugata and his team, who bore with all my missed deadlines and edited this manuscript so thoroughly. My gratitude to all these people for having helped me along.

Introduction The growth story

E

conomic growth is the increase in value of the goods and services produced by an economy. It is conventionally measured as the rate of increase in real gross domestic product (GDP) calculated in percentage. The GDP is nothing but the total money value of production in any economy during a period of time. The real GDP per capita of an economy is often used as an indicator of the average standard of living of individuals in that country, and economic growth is, therefore, often seen as indicating an increase in the average standard of living. There are some deficiencies in using the GDP as an indicator of economic well-being, thus, it should always be viewed merely as an indicator. However, there is no other indicator in economics that is as universal or as widely accepted as the GDP. India’s GDP growth, now estimated to be moving upwards at 8 to 9 per cent for the year 2007–08, is remarkable for its sustained growth rate of more than 5.5 per cent over the last two decades. During this time, the developed and the industrialised world has been growing at the rate of 1–3 per cent. Some countries in Africa and Latin America have indeed registered very high growth rates, but these are nowhere as consistent as in India. What is even more interesting is the way growth in India has been fundamentally different from that in other parts of the developing world. In China, as also in Southeast Asia, economic growth has been led by manufacturing and industry. India’s growth has been a service sector-led growth. Exports have dominated growth in these ‘tiger’ countries and in China, while India’s growth is based on a booming domestic sector. The East Asian growth story emerged out of the comparative advantage the region had in terms of an abundance of cheap labour. Indian industry has grown in a capital intensive mode. And finally, while growth in China and other countries in Asia has been predicated on high savings rates, India’s growth is a based on increasing consumption levels.

Introduction

21

More than anything else, what characterises India’s growth story is the manner in which the international community has redefined its perception of India. Even ten years ago, this part of Asia was considered the exotic land where Gods drank milk and people rioted for no reason. It was perceived as a precarious and fragile nation, somehow managing to retain its democracy. First the Indian movie industry and then the Information Technology (IT) sector helped change India’s international image drastically. This poor country now came to seen as one that was creative and talented and a nation you could turn to if mind boggling problems like the millennium bug threatened your future. In a vulnerable hinterland, India now stands tall as a firmly democratic country that is growing fast despite its limitations. The early 1990s were characterised by a severe balance of payment crisis, when the forex reserves dipped to an all-time low—just enough to meet fifteen days worth of imports. The balance of payments crisis was also an outcome of several shocks that the economy was facing— both endogenous and exogenous. The sudden spurt in oil prices in the late 1980s, the pressure on NRIs due to the Gulf War and the mounting import bills became a big drain on India’s foreign exchange reserves. Indian exports, under years of neglect by the government, finally succumbed to growing global competition and were not able to generate enough foreign exchange to allow India to pay for its imports. The fixed exchange rate regime also acted against the interests of Indian exporters and made Indian exports price uncompetitive. Growing import bills, spiralling oil prices due to political turmoil in the Middle Eastern countries, especially Iraq and Kuwait, and stagnating exports triggered the balance of payments crisis in the late 1980s and forced India into a systematic policy of economic reform. In the decade of the 1980s and the 1990s, the economy also faced one of the worst droughts in the history of independent India. There was also the largest cyclone (Orissa) in India’s recorded history. The states of Uttaranchal, Maharashtra and Gujarat witnessed mammoth earthquakes causing colossal damages to life and property. Natural disasters put a lot of strain on the country’s limited financial resources, and a lot of money assigned for asset creation and capital formation had to be used for relief and rehabilitation. As if this was not enough, there were man-made calamities like the demolition of the Babri Masjid, which resulted in a shock to the economy. On the political front

22


there were frequent changes—large parties, rightist formations and leftist coalitions came and went. Despite all the problems and struggles on the political and economic front, the Indian economy recorded an impressive growth rate of 5.7 per cent per annum on an average for more than two decades. In the post-reform period, the economy has shown a secular growth path of more than 6 per cent on an average, with growth rates in the last few years moving upwards at 7.5 per cent per annum. For the fiscal year 2007–08, GDP growth in the country is expected to be more than 8 per cent. As Wilson and Purushothaman (2003) put it, ‘India has the potential to deliver the fastest growth over the next 50 years….’

The union budget— Why is it so important in India? On the last working day of February each year, the Finance Minister presents the Union budget for the year. There is great excitement and apprehension as the country awaits this document. The word budget comes from the French word, bougette, which was the term used then for little bags of leather that were used to carry money. The Constitution of India does not use the term budget anywhere. Under Article 112 of the Constitution, a statement of estimated receipts and expenditure of the Government of India has to be laid before the Parliament for every financial year from 1 April to 31 March. This statement titled the ‘Annual Financial Statement’ is what we know commonly as the budget. A budget is what each one of us prepares every month. Some of us do this carefully on spreadsheets while some of us do so in our minds. And what our budgets feature is a tabulation of all of our expenses and incomes. Our offices too prepare budgets and take approvals from the management to spend money according to what has been approved. The Union budget does the same exercise for the country. It shows the receipts and payments of the Government under the three heads in which national accounts are maintained—Consolidated Fund, Contingency Fund and Public Account. All income received by the Government, the loans it takes and the money it recovers from loans it has given out is placed in the Consolidated Fund. All expenditure of the Government is incurred from the Consolidated Fund and no

Introduction

23

amount can be withdrawn from the Fund without authorisation from the Parliament. Just as there is a small fund that most of us keep aside for emergencies, the Government has a corpus of INR 5,000 million in its Contingency Fund. This fund is kept at the disposal of the President for use in unforeseen circumstances. The details of the amount spent are subsequently approved by the Parliament and the money is replaced in the contingency fund. The third head is the Public Account, where the government keeps funds that it has collected in its role as a banker. All collections from provident funds, small savings accounts, pension funds, and so on, are kept in the Public Account. Sometimes the government keeps a part of its revenue aside for spending on development programmes like mid-day meal schemes. These funds are withdrawn from the Consolidated Fund and kept in the Public Account. This is done so that the government does not need to go back to the Parliament for approving these expenditures again. After the amount is spent, the government submits the account to the Parliament for approval.

The deficit debate Responsible financial management implies that any individual should finance his current expenditure through his current income and should not spend more than his salary, even if he has a number of houses to sell and can, therefore, generate a large amount of money through capital sales. However, people do tend to spend more than what they earn and find that their salaries are not enough to match their monthly expenditure, at least once in while. The difference between current income and current expenditure is referred to as the revenue deficit. Most governments in most years, like most of us, have a revenue deficit, where they realise that the money they would earn through taxes and other sources of current incomes is less than what they have to pay out by way of salaries to their employees and other current expenditures. The excess of the government’s revenue expenditure over revenue receipts constitutes the revenue deficit of the government. The government mainly borrows from the market through the issue of dated securities. The amount of money it borrows to overcome deficit is called the fiscal deficit. In India, fiscal deficit has been high for a large number of years. This is because a developing country needs to often borrow money for

24


investment. It is when the borrowing is used for non-plan expenditure and for interest payments that the fiscal deficit becomes a problem. In order to impose some discipline on government expenditure and borrowing, the UPA government had passed a law that would make the government accountable. The Fiscal Responsibility and Budget Management Act (FRBMA) was notified on 2 July 2004 and came into force on 5 July 2004. This Act requires the reduction of fiscal deficit and elimination of revenue deficit by 31 March 2009. The FRBMA requires the Government of India to reduce fiscal deficit by a minimum of 0.3 per cent of the GDP every year and revenue deficit by 0.5 per cent each year, so that the fiscal deficit is not more than 3 per cent of the GDP by 31 March 2009. However, the government is having a tough time reaching the target. Since 1995–96, the component of interest payments in the annual Budget has been greater than plan expenditure. Non-plan expenditure for subsidies, pensions, salaries, and so on, has also been going up. This shows that India is spending more on interest payments and other non-planned expenditure than on development. The government needs to invest in infrastructure, power, primary education, health and water supply to put India on the fast track to growth. But it simply does not have the money to implement its strategy. The deficit is essentially servicing current consumption and not financing capital investment, which should be the case. Conventional wisdom states that fiscal deficit should not be more than 1.5 per cent of the GDP, but India’s GDP has always been more than three times the amount. Large fiscal deficits cause loss of confidence, dampen investment and most importantly lead to an increase in inflation. On 28 February 2008, when the new budget is announced, it will be interesting to see how the government explains this problem and what revised figure it gives for the year. It will also tell us what it plans to do to reduce this deficit in the following year, without reducing the amounts required for its various developmental activities.

The political economy of price rise Unlike other developing countries in Latin America, Africa or Eastern Europe, the Indian growth experience has been remarkable as it has

Introduction

25

kept prices in check. While the mean growth rate of the economy showed an upward trend in the post-reform era, the price volatility has consistently been on a decline in the country. India, in the post reform era, never really let inflation run out of hand. Inflation has always been under the double-digit mark in the country. Why does it always appear that prices are going up in the market place when we go and shop, when inflation figures are low? Inflation is calculated in several ways. The government uses wholesale prices and this is what figures in the inflation index we see. There is yet another set of indices that are calculated based on consumer prices, and these indices are different for different sets of people—the industrial worker, the urban non-manual worker and the rural labourer. It is because different people buy different things that any inflation index suffers from shortfalls and is seen as not being reflective of the general price rise at the marketplace. A rise in the price of firewood does not affect the urban consumer, nor does a fall in the price of sulphur. The inflation figure we see is a weighted average of all these commodities and, therefore, while one commodity might become expensive, it is averaged out by the fall of prices in some other commodity or service. The Reserve Bank of India (RBI) has a thumb rule that 5.5 per cent inflation is tolerable and is now worried as inflation has crossed this threshold. The finance ministry has a more stringent target of 4 per cent but that is indeed too low for a fast growing economy. It is almost axiomatic to suggest that growth is inherently linked to price rise. Wages go up, consumption goes up and by the time production catches up, prices will increase. What is important therefore is that this time lag is as small as possible and that inflation does not shoot up drastically. Inflation in India based on wholesale prices had zoomed to a twoyear high of 6.56 per cent in February 2007. The year-on-year inflation, measured by the official wholesale price index, stood at 6.12 per cent for the week ending 7 January 2007, compared to 5.58 per cent for the week before. It has dropped below 4 now as of August 2007. Inflation surged to this year’s highest level due to some expensive food products and fuel items. Wholesale prices-based inflation crossed 6 per cent for the first time in this financial year. One of the major drivers of recent inflation in the country has been the consistent increase in the prices for fuel (petrol, diesel and cooking gas [LPG]) and power (electricity rates). Inflation was just 3.86 per cent during the week ending 7 January 2006.

26


Prices of fruits, vegetables, maize, arhar pulse, wheat, groundnut seed, cotton seed, rapeseed, mustard seed, aviation turbine fuel, naphtha and furnace oil moved up. The moot question is whether this price rise is unhealthy enough for the government to react as sharply as it has done? But these will now stabilise, and in time with increased production the supply–demand gap will close and then there will be a reversal to the inflation spike. The suspicion is that the increase in interest rates and the cutting down of certain import duties has been for political purposes and not for economic reasons. Seven state elections are being fought this year, including the big battle in UP, therefore politics must prevail. India, even in the post-reform era, never really let inflation run out of hand. Inflation has always been under the two-digit mark in the country. Countries like Russia, Israel, Brazil, Italy, Indonesia and Pakistan have seen double-digit inflation in the recent past. For these countries, inflation accompanied by growth seems to be a logical fallout and little was done to pull the prices back immediately. However, a low inflation regime in our country, under constant fiscal and monetary check of the RBI, allowed prices to be stable, especially for essential commodities such as food items. The most important reason inflation was always kept well under control in India was on account of the fact that no democratically elected government can afford to let prices escalate. The Bhartiya Janta Party (BJP) government in Delhi in 1997 realised much to its shock that onion prices alone can cause a government to tumble. In fact in India, the prices of onions and potatoes are the most important barometer of electoral success. The reason why onions and potatoes are such political vegetables is that they together constitute nearly 70 per cent of the total fruit and vegetable consumption in India. No government can afford to let their prices go up. There is great political turmoil whenever the prices of either onions or potatoes go up. The present government is, therefore, following the same practice. However, it might be doing more harm than good if it goes to the extremes. The Central Statistical Organisation (CSO) has reported that the Indian economy grew by 9.2 per cent in the second quarter of 2006–07. This is the highest growth recorded in any quarter since the Central Statistical Organisation (CSO) started reporting quarterly GDP figures 10 years ago. The growth in the first half of 2006–07 has gone up to

Introduction

27

9.1 per cent and this way the government’s forecast that growth in the current financial year would be more than 9 per cent is almost a certainty. India has now seen four successive years of 8 per cent plus growth, and has therefore clearly accelerated away from a trend of 6.5 per cent. The 11th Five Year Plan’s target of 10 per cent now seems conservative. The annual rate of population growth is around 1.6 per cent now and 9 per cent growth means per capita income growth of 7.4 per cent, ensuring an unprecedented growth in consumption and prosperity. However, this happy story has a sad ending. Prices have gone up. Newspapers have been discussing how inflation has increased and there is a sense of panic everywhere. Inflation is sustained price rise, where the prices of goods and services go up due to an increase in demand, a fall in production or an excess of money supply. Inflation is also seen as a fall in the value of the rupee. The same amount of currency now can buy fewer goods as prices have risen. Prices go up when the cost of production goes up. In growing economies like India, one of the ways in which costs go up is through rapid increases in wage rates. In the last two years, Indian workers have recorded the highest wage hikes worldwide. Also as a result of oil prices going up, a large number of inputs have registered price rises. On the other hand, there has been a more than generous infusion of liquidity in the market. With interest rates having fallen in the last 10 years, there is a large amount of cash at hand. This has caused consumption to go up and has increased the demand for goods and services. The increase in per capita income has been phenomenal and while it used to take more than 18 years for income to double in the 1980s, now for an average Indian, income doubles every nine years. Given this impressive rise in income in India, a small amount of inflation is to be expected. Food prices, on an average, went up by 10 per cent in 2006. Wheat prices have increased by 12 per cent. A poor harvest for wheat in Australia resulted in a decrease in supply. Banning wheat exports from India was a laughable measure as domestic prices were already higher than international prices. Edible oil prices have increased by 43 per cent. Prices for pulses have increased by more than 50 per cent with urad leading the way. The country that supplies us with dal is Myanmar and production this year there has been low too. Property prices in most cities have risen like never before. Whether you buy or rent a

28


residential or commercial space, the amount one pays has gone up dramatically in most Indian cities this year. Petrol and diesel costs went up last year and fuelled further price rise. The government reacted and increased interest rates. Loans became more expensive. Fuel prices were lowered, but that made no difference. On the other hand, wages have been increasing in India at record-breaking levels. In 2006, wages in India went up by 13.9 per cent, the highest wage hike anywhere in the world.

Employment guarantees In the rural sector, in 2005, the National Rural Employment Guarantee Programme was lauched. This promised 100 days of work to each family in rural areas at minimum wage rates. As most farm labour does not even get minimum wages, this programme was seen as one that would indeed result in wage growth. This scheme was launched last year in 200 districts and this year will cover a total of 330 districts. Last year, the number of districts covered varied from state to state. Let us take a look at what has happened as a result of this scheme. We have seen wages rise in rural areas across the country. This wage rise has, however, been marginally higher than the increase in inflation. We do not have wage data for each state, but we do have inflation data for individual states. If we now look at state-wise inflation and the National Rural Employment Guarantee Act (NREGA) spending, we see some interesting results. The scheme covered more districts in the north and lesser in the south. In the south, the price rise has been lower than in the north. Among the southern states, price rise has been the highest in Andhra Pradesh, where we also see the highest spending on NREGA. The highest spending among all states is seen in Madhya Pradesh where the government disbursed INR 15.6 billion on account of NREGA last year. Spending was very low in Kerala and Tamil Nadu. Now let us see what has happened with price rise in these states. The lowest level of price rise is in Tamil Nadu, where we see only a 1.1 per cent increase in inflation. In Kerala, the price rise has been 3.1 per cent, whereas in Andhra Pradesh, the Consumer Price Index (CPI) went up

Introduction

29

by 8.2 per cent. In the north, the highest price rise was seen in Orissa where prices went up by 11.9 per cent. Bihar saw an 11.5 per cent rise and Madhya Pradesh registered a 10.9 per cent increase. One look at the states and the spending on the employment guarantee programme clearly tells us that there is a coincidence between money spent and price rise. This stands to reason as prices go up when money supply in an economy goes up and this is what increased wages have done. As expected, the NREGA has increased wage levels and the increased wages have contributed to increased prices. When more money chases few goods, prices increase, especially when supply does not catch up immediately. Dal production suffered as most pulse producing states saw poor rainfall last year. The wheat crop was poor and the edible oil production suffered following a poor harvest. Most industrial plants are working at near capacity and any increase in capacity will only happen after a delay. All this while, demand has been growing rapidly, imports have been growing, vehicle sales increasing rapidly and bank lending going up despite higher interest rates. The RBI has already said that practically all of India’s manufacturers are operating at full capacity, as consumer demand has risen first and companies have been slower to respond. Many factory expansions and new factories will be ready in 18 months to two years. In India, supply is constrained because of various institutional bottlenecks. Laws are archaic, roads are bad, and electricity is usually not available. With poor quality trucks, roads and the absence of refrigerated vans, the country loses more than 40 per cent of its annual agricultural produce, which gets destroyed in transit. The money value of agricultural output we lose every year is a little over INR 540 billion. And till this is corrected, the wage rise we have will ensure price rise as supply side constraints rule the market. But there is another point that is far more serious. Let us go back to the differential in price rises across states, more particularly the difference across neighbouring states. Why is it that agricultural prices are different in different states? Is it not but natural that prices should be the same for dal, vegetables and food grains in all states in India? Part of the answer is the abysmal state of transportation in the country. But the bigger problem is the various laws and regulations that act as barriers to free movement of agricultural goods across the country. The tragedy is that while we have liberalised our industrial sector and

30


allowed our manufacturers to freely move their products from state to state, we still bar our farmer from carrying his harvest to a market where he gets better prices. As a result, prices seldom stabilise and vary widely across states. In a fast moving market economy, such a system of barriers and bottlenecks to trade is indeed a matter of serious concern. Strange political priorities have kept the agricultural market fragmented and resulted in a sector that is unable to improve itself and gain from a new economic order. Poor politics often brings about a poor economy. But in this case, we are seeing poor economics resulting in higher prices, and higher prices are bad news for any political party.

Making Sense of a Fast Growing Economy

1

Historical perspective

T

here has been a massive transformation in the nature and outlook of the Indian economy. However, in order to understand and appreciate the present status and accomplishments of the Indian economy, one must trace India’s short, yet chequered, economic history in the post-independence era. The economic policies at the time of independence were guided by the dominant development paradigms of those years. India was one of the first colonial nations to have gained independence. The unprecedented rise of the Soviet Union, under a ‘command and control’ economy, caught the fancy of policy makers and thinkers across the Third World, including those in India. The colonial hangover of exploitation by the ‘capitalists’ and the fear of market-failures led India to adopt a policy of the ‘welfare state’. The State in India was bestowed with absolute power for planning the trajectory of economic growth and development, and the publicsector enterprises were made to assume the ‘commanding heights’ of the economy. India adopted a policy of import substitution, where self-reliance and self-sufficiency were treated as interchangeable objectives. The policy of import substitution was also an outcome of ‘export pessimism’ as the Indian Government and the Indian business houses felt that they could not withstand competition in the global market. As a result of the inward-looking growth policy of the government, India became one of the most regulated and protected economies of the world.

32


Industrialisation, under the Mahalonobis Plan, started with capital patronage from the State. Heavy engineering, railways, iron and steel, locomotives and power generation saw massive investments, and a number of public sector undertakings emerged as State monopolies. Since these industries were to be heavily capital intensive, they could not have addressed the issue of employment generation. The small-scale sector was, thus, entrusted with the task of employment generation. There was no concerted effort to boost exports as the policy of export pessimism never anticipated it. The overall industrial policy till the 1960s did fairly well initially, but later ran into trouble due to the neglect of agriculture in the overall planning and development process. The terms of exchange were artificially turned against agriculture for primitive capital accumulation in the industrial sector of the economy. In the 1950s and the 1960s, India faced acute food shortages. Ensuring food security was one of the prime development objectives of the government. The country had to still recuperate from the sufferings of the Great Bengal Famine of the 1940s. Also, the per capita availability of food remained low even after independence. The wars with Pakistan and China further aggravated the food shortage and forced the government to accelerate the process of agricultural development in the country. The Green Revolution in the 1960s saw an agricultural renaissance for the first time in the history of independent India. The government launched the Public Distribution System (PDS) to ensure access to food to a large majority of the poor in the country. Similarly, Operation Flood in the 1960s and 1970s brought about a dramatic increase in the country’s milk production through the setting up of a chain of village cooperative societies and cooperative dairy unions. Though today the cooperatives in the country are in the midst of numerous controversies, their importance as a powerful tool for economic organisation and rural development cannot be ignored. The development trajectory of the economy was contained by the recurring financial constraints in the public sector. In order to generate additional financial resources, the government resorted to deficit financing and nationalisation of financial institutions in the late 1960s. The government also brought in a regime of fixed interest rates for all commercial and development banks. Nationalisation brought a decline in private investments in the economy, especially in the priority sectors like agriculture, infrastructure and exports. Investments were stepped up by the government through mandatory requirements for


33

commercial banks like the Statutory Liquidity Ratio (SLR) and by setting targets for priority-sector lending. The Lead Bank Scheme also tied commercial banks with development objectives in the relatively underdeveloped regions in the country. However, despite all attempts by the government to raise additional resources for investment and capital formation, the aggregate rate of capital formation in the country remained close to 25 per cent of the Gross Domestic Product (GDP). To add to this, India also had the problem of handling its burgeoning fiscal deficit due to heavy deficit financing that the government had resorted to so as to generate additional financial resources. State-led capitalism degenerated into populism and rent-seeking policies in the 1970s and the 1980s. Consequently, there was retardation in the rate of capital formation in the economy, especially by the private sector. India has always been highly vulnerable to external shocks, especially oil shocks. With a rise in economic growth, India’s demand for energy increased manifold. The domestic production of oil was never sufficient to meet the energy demands of the economy and India had to resort to oil imports. The spiralling oil prices, especially in the 1970s, put tremendous pressure on forex reserves. Absence of a concerted effort to boost exports implied that India could never generate sufficient forex reserves to meet its import requirements. The crisis took an alarming turn in 1991 when India’s foreign exchange reserves were not even sufficient to allow for two weeks worth of imports. India was on the brink of an economic disaster in 1991. Something dramatic had to be done and done swiftly, but with vision and precision, to revive the sagging image and spirit of the world’s largest and youngest democracy. It was at this juncture that India initiated its economic reforms. Post reforms in 1991, India entered a new era of globalisation and liberalisation. The reforms paid rich dividends and the results were favourable. By the turn of the 20th century, India had accelerated its rate of economic growth and become the fastest growing ‘free-market democracy’ in the world.

Indian economy: The current scenario There are four major reasons that have made India a powerful economic force to reckon with in the post-reform era. These are macro-stability,

34


a young and aspiring population, a democratic free-market and the use of modern technology. Table 1.1 is a snapshot of India’s current economic situation, reflective of a large growing economy. The Indian economy has a macro-resilience which enables the economy to grow despite shocks and political uncertainties. For instance, in the early 1980s and the 1990s, India witnessed considerable political uncertainty and turmoil. The assassination of Mrs Indira Gandhi in 1984 led to widespread unrest in northern India, especially in New Delhi, the political capital of the country. Rife with protests and public outcry on Mrs Gandhi’s assassination and the subsequent anti-Sikh riots in the northern part of the country, India was almost on the brink of a civil war. The confidence of investors, both domestic and foreign, in the Indian economy hit an all-time low during this period. Table 1.1

India at a Glance (2001–06)

Population Gross Domestic Product GDP Growth Rate Inflation Foreign Exchange Reserves Percentage Poor

1.1 billion 900 billion USD 8–9% 4–5% 220 billion USD 22%

Source: India Development Foundation.

The early 1990s was marked by a colossal balance of payment crisis, when the forex reserves dipped to an all-time low—just enough to meet 15 days worth of imports. The balance of payments crisis was also an outcome of several shocks, both endogenous and exogenous, that the economy was facing. The sudden spurt in oil prices in the late 1980s became a big drain on India’s foreign exchange reserves. Indian exports, under years of neglect by the government, finally succumbed to the growing global competition and were not able to generate enough foreign exchange to allow India to pay for its imports. The fixed exchange rate regime also acted against the interests of Indian exporters and made Indian export prices uncompetitive. The growing import bills, spiralling oil prices due to political turmoil in the Middle East, especially Iraq and Kuwait, and stagnating exports triggered the balance of payments crisis in the late 1980s and forced India to adopt a systematic policy of economic reforms. In the 1980s and the 1990s, the economy faced one of the worst droughts in the history of independent India. There was also the largest


35

cyclone (Orissa) in India’s recorded history. The states of Uttaranchal, Maharashtra and Gujarat witnessed mammoth earthquakes causing colossal damages to life and property. Natural disasters put a lot of strain on the country’s limited financial resources, and a lot of money assigned for asset creation and capital formation had to be used for relief and rehabilitation. Yet, despite all the problems and struggles on the political and economic front, the Indian economy braved a decent growth rate of around 5.7 per cent per annum on an average for this period. In the post-reform period, the economy has shown a secular growth path of more than 6 per cent on an average, with growth rates in the last few years being upwards of 7 and 7.5 per cent per annum. Figure 1.1 shows the steep growth registered by the Indian economy after a decade of reforms. For the fiscal year 2007–08, the GDP growth in the country is expected to be more than 8 per cent. Wilson and Purushothaman estimate ‘India has the potential to deliver the fastest growth over the next 50 years with an average rate of more than 5 to 6 per cent for the entire period.’ Figure 1.1

India’s GDP Growth

% Growth

10 8.1

8 6 4 2

Mar 00 Jun 00 Sep 00 Dec 00 Mar 01 Jun 01 Sep 01 Dec 01 Mar 02 Jun 02 Sep 02 Dec 02 Mar 03 Jun 03 Sep 03 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jun 05 Sep 05

0


The low inflation regime in the country, under the constant fiscal and monetary guidance of the Reserve Bank of India (RBI), allowed prices to be stable, especially for essential commodities such as food items. (See Figure 1.2; except for one peak 10 years ago, inflation has

36

STATES OF THE INDIAN ECONOMY Figure 1.2

Conquering Inflation

18

Year-on-Year WPI growth

16 14 12 10 8 6 4 2

Jan 04

Jan 03

Jan 02

Jan 01

Jan 00

Jan 99

Jan 98

Jan 97

Jan 96

Jan 95

Jan 94

0


always been kept under check.) Another reason why inflation was always kept well under control in India was on account of the fact that no democratically elected government could afford to let prices escalate unrestrained! The figures released by various economic surveys in the 1990s show inflation at an average of 4.5 per cent. As shown in Figure 1.3 although the overall inflation is well under 5 per cent, the rate of change in the Wholesale Price Index (WPI) for power, fuel and mining has been well above 10 per cent in the year 2006–07. However, the change in the WPI for manufactured goods has been low at around 2 per cent. Thus, one of the major drivers of inflation in the country has been the consistent increase in the prices for fuel (petrol, diesel and cooking gas, that is, LPG) and power (electricity rates). Indeed, the rate at which energy consumption is on a rise in India is alarming. It is stated that in the years to come, both India and China will become the energy guzzlers of the world as both these economies would need large reserves of reliable energy sources to power their economies. Ensuring energy security has become one of the major challenges for the Government of India.

Making Sense of a Fast Growing Economy Figure 1.3

14

37

Inflation

WPI: Fuel, Power, Mining

12

%

10 8 WPI

6 4 2

WPI: Manufactured Products

Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04 Jan 05 Feb 05 Mar 05 Apr 05 May 05 Jun 05 Jul 05 Aug 05 Sep 05 Oct 05

0


The recent nuclear deal signed by the Prime Minister of India, Dr Manmohan Singh, and the President of the United States, George W. Bush Jr, at New Delhi is significant as far as India’s energy requirements are concerned. This deal provides India with an access to advanced nuclear technology and fuel for using nuclear energy for civilian purposes—something hitherto denied to India. This deal also marks a paradigm shift in India’s strategic standing in the world, as India, under this deal, gets recognised as a ‘responsible’ nuclear power in the world. Other initiatives by the Indian government and Indian oil firms to enter into long-term strategic partnerships with Chinese oil firms to jointly bid for international oil and gas reserves are also steps in the right direction. There is a pressing need and a growing realisation in the government that India needs to look beyond its borders for alliances that ensure her a stable source and supply of energy. The growth in India’s foreign exchange reserves is one of the major success stories of India’s reforms. Nearing bankruptcy on external accounts in 1991, India was close to defaulting on its external account obligations in January and June 1991. Devoid of substantial foreign exchange reserves, the Government of India accessed the Compensatory and Contingency Financing Facility of the International Monetary Fund (IMF) in January 1991 in order to meet the external obligations.

38


In June 1991, negotiations were initiated for loans under the Stand-by Arrangement lending facility of the IMF. With more than USD 220 billion as foreign exchange reserves, India has come a long way in controlling her external account vulnerability. What is interesting to note is that India’s external debt has not come down over the years. In other words, India has not reduced her dependence on imports. What has improved over the years is India’s ability to pay for her imports and to meet her external obligations. Figure 1.4 shows how external debt has been kept under check while reserves are mounting. Gone are the days when even a slight increase in oil prices would put the economy in frenzy and make the policy makers burn midnight oil in trying to restore normalcy. Today, thanks to the growing pile of foreign exchange reserves, India has the ability to service its external debt well. Even at oil prices of more than USD 70 per barrel, the economy is growing strong and steady! Figure 1.4

External Vulnerability

120,000

USD Million

100,000 80,000

External Debt

60,000 40,000 20,000 0

External Reserves Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 l l

Oil at USD 60+ per barrel—economy still going steady!! Forex reserves (2005)—USD 140 billion


The balance of payment crisis in the early 1990s was an eye-opener for the Indian policy makers. India had long ignored the voices of domestic business houses and leading economists for putting in place a more liberal economic policy that would allow for greater private participation in economic activities. Though the initiation of the economic reform programme was ‘crisis-driven’, there was a growing domestic


39

opinion favouring privatisation and liberalisation of the economy. Figure 1.5 shows how a near crisis in 1990–91 has now changed into a comfortable situation, thanks to handsome foreign exchange reserves. The 1991 crisis led to the implementation of the conventional IMF-World Bank prescription of short-term stabilisation consisting of currency devaluation, temporary import controls, and fiscal and monetary firmness with a concomitant rise in interest rates. However, India adopted a more long-term perspective and launched a structural adjustment programme (SAP), which sought to restructure the Indian economy, redesign the architecture of the Indian financial system and open up for global competition. The New Economic Policy (NEP) launched in 1991 was an outcome of this SAP. In the last decade and a half of India’s economic liberalisation, there has emerged a consensus at the level of both the Centre and state governments on the need for simplification of policies, procedures and regulatory aspects. State governments have been encouraged to enter into healthy competition for foreign investments. Several state governments have set up ‘single window clearance facilities’ and ‘investor escort services’ to streamline the process of investment proposals. The political consensus on economic liberalisation, both at the Centre and state levels, has ensured that the reforms process is irreversible and not contingent upon any one political party being in power. Figure 1.5

Net Accretion to Forex Reserves

8 6

$ Bn

4 2 0

FY 03 : $25.2 b (Calendar Year)

FY 04 : $24.7 b


Oct 05

Jul 05

Apr 05

Jan 05

Oct 04

Jul 04

Apr 04

Jan 04

Oct 03

Jul 03

Apr 03

Jan 03

–2 –4

FY 05 : $22.5 b

40


Reforms have helped to greatly transform the Indian economy. The economic growth process has accelerated significantly. The current account deficit has been maintained at sustainable levels (2 to 3 per cent of the GDP), inflation has been kept under check, the savings rate in the country has increased to around 30 per cent of the GDP and a lower fiscal deficit of around 4 per cent of the GDP has been sustained. The investor community has responded positively to the process of economic liberalisation in the country. India has consistently attracted net foreign investments to the tune of USD 25 billion on an average per year for the past couple of years. Though India’s recent haul of foreign investments has been impressive compared to her own past records, she still needs to reform and liberalise many of its sectors to match China’s performance. The hallmark of India’s economic reforms has been an outward looking and liberal trade policy, characterised by removal of quantitative restrictions, rationalisation of tariff levels to match the tariffs in other developing countries, especially the Association of South East Asian Nations (ASEAN), removal of licences for the establishment of industrial units and removal of licences and quotas for exports and imports. The reforms have marked a paradigm shift from India’s earlier policy of import substitution and export pessimism. Figure 1.6 shows how tariffs were promptly reduced in 1991 and then stabilised over the years. Today, more and more Indian firms are trying to establish global linkages, acquire firms abroad, explore markets in other developing and developed countries, and benchmark against the best in the world. Almost all the major Fortune 500 firms have opened offices in India and are looking at the Indian market. In the words of the Chairman of the World Economic Forum, Klaus Schwab (2007), ‘I see a big change in corporate India. I am impressed by how well Indian companies have moved from a management style rooted in a protected environment to (one) which is exploiting global competitiveness’. The economy has moved from a protected and inward-looking policy regime to an outward-oriented, trade-led economy. The mean tariffs on Indian borders for foreign goods have been consistently brought down to meet the country’s World Trade Organization (WTO) obligations and also to bring parity between tariffs in India and elsewhere in the world. From a mean tariff level of around 110 per cent in 1991, the mean tariffs have been brought down to less than 20 per cent on


41

Opening of the Economy


most products, and are likely to further reduce. Most goods are freely importable on payment of the specified customs duty without any licencing requirements. A small number of goods fall in the ‘restrictive list’ of imports, the restrictions being principally on account of security, health and environment protection issues. There are some import restrictions on goods reserved for production by the small-scale sector units in the country and those that are home- or village-based, requiring low skills and employing a large number of people. However, the reserved list of products for the small-scale sector is also shrinking in size and more and more products are getting de-reserved. The days of protection even for the small-scale sector in the country are numbered; small and medium enterprises (SMEs) will have to now consciously come out of the shadows of government support and subsidy and face the growing competition. Except for a few items on the negative list of exports, all other items are allowed for exports. The NEP of the Government of India provides huge incentives for industrial units engaged in production for export purposes. A large number of Export Promotion Zones (EPZs) and Special Economic Zones (SEZs) are being established in order to provide incentives to firms for establishing industrial units for export purposes. Except for those items on the Prohibited List, import of all

42


items is permissible and free of duty for export production in these SEZs. Import of capital goods, either new or second-hand, is also permitted at concessional custom duties (at times duty free) for industrial units in these SEZs under the Export Promotion Capital Goods (EPCG) scheme, subject to the fulfilment of time-bound export obligations. There are several critical features of India’s policy on Special Economic Zones. For firms engaged in the development of SEZs, there is income tax exemption for a period of 10 years. There is also an exemption from minimum alternate tax and the dividend distribution tax. There are customs and excise exemptions on goods for development, operation and maintenance of SEZs. There is complete freedom to SEZ developers to allocate space and assign charges for such space within the SEZ on commercial terms. For the firms operating in the SEZs, there is 100 per cent income tax exemption for the first five years of operation in the SEZ, 50 per cent tax exemption for the next five years and 50 per cent on the ploughed back profits for the next five years. There are eight functioning export processing zones (EPZs) in the country which have been converted into SEZs. Sixty-seven new SEZs have been approved by the Government of India, of which six are fully operational, and another six are getting ready. Out of the 67 SEZs Figure 1.7

Source: AT Kearney 2005.

FDI Confidence Index


43

approved by the government, 25 are multi-product SEZs and 42 are product-specific SEZs. Among the product-specific SEZs approved by the government, 18 are for Information Technology (IT), three each for gems and jewellery, handicrafts, apparels and auto-components, one for telecom and two free trade warehousing zones. An investment of Rs 10,000 crores in SEZs is expected in the next three to four years. At Kearney is one of the many institutions subscribing to India’s growth prospects in the 21st century (see Figure 1.7). Some major operational SEZs in the country are Nokia at Sriperumbudur (Tamil Nadu); Reliance Energy at Ghaziabad (Uttar Pradesh); WIPRO at Bangalore (Karnataka), Hyderabad (Andhra Pradesh), Pune (Maharashtra), Chennai (Tamil Nadu) and NOIDA (Uttar Pradesh); Biocon at Bangalore (Karnataka); and port-based SEZs at Dahej (Gujarat) and Cochin (Kerala). The India-fever is fast catching on with foreign investors. Global majors have announced mega investments in India over the next five years—Microsoft USD 1.7 to 2 billion, Intel USD 1 billion and AMD USD 3 billion. In the words of the Finance Minister, P. Chidambaram, ‘FDI will continue to be encouraged and actively sought, particularly in the areas of infrastructure, high technology and exports’ (Ministry of Finance, 2004). The Foreign Direct Investment (FDI) outlook in India has been positive. The AT Kearney Index in 2004–05 ranked India as the third most attractive destination for foreign direct investment after China and the United States. India, on this index, had moved to the third position from the sixth position in 2003 and 15th position in 2002. AT Kearney in 2004 had also ranked India as the second most attractive destination for manufacturing. The United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2005 puts India as the second most attractive investment destination for transnational corporations. The UNCTAD corporate location index had put India among the top three ‘hot spots’ in 2004. In case of services, India was ranked as the most preferred destination for investment in services by AT Kearney’s Global Services Location Index in 2005 (previously referred to as the Offshore Location Attractiveness Index). Investing in India has basically two routes—the automatic route and the prior permission route. Under the automatic route of foreign investment, no prior permission is required from the Central government to issue shares. All that is required is to inform the Reserve

44


Bank of India (RBI) within 30 days of inflow/issuance of shares. In case of FDI requiring prior sanction, the government approval needs to be taken explicitly before making the investment/issuance of shares. The decision of the government usually takes four to six weeks. In 2000, almost all sectors were opened to 100 per cent FDI under the automatic route. The timeline given in Figure 1.8 shows a steady opening up of an economy that has traditionally been state controlled. The major FDI policy initiatives between 2000 and 2005 have been as follows. New sectors have been opened up for FDI and 100 per cent FDI is permitted in development of new townships, e-commerce and for Internet Services Providers (ISP). FDI equity limits have been raised for private-sector banks from 49 to 74 per cent; for defence production and print media up to 26 per cent; for drugs and pharmaceuticals from 74 to 100 per cent; for advertising from 74 to 100 per cent; and for private-sector refineries, petroleum products marketing, exploration and petroleum pipelines from 74 to 100 per cent. In June 2004, a host of initiatives were taken by the Government to attract FDI in the country. FDI in domestic airlines was increased from 40 to 49 per cent and the automatic route of FDI was allowed. Boxes 1.1 and 1.2 provide a summary of the initiatives taken in this Figure 1.8

The FDI Route

More sectors opened; equity caps raised in many other sectors; 2000–05 procedures simplified. Up to 100% under Automatic Route in all sectors except 2000 a small negative list. 1997 Up to 74/51/50% in 112 sectors under the Automatic Route; 100% in some sectors. FDI up to 51% allowed under the 1991 Automatic Route in 35 priority sectors. Pre-1991 Allowed selectively up to 40%.



45

regard. Foreign investment limit in telecom sector was increased up to 74 per cent (despite strong resistance from the Left parties in the United Progressive Alliance [UPA] government). FDI and portfolio investment up to 20 per cent was allowed in FM broadcasting. Earlier only portfolio investments were allowed in FM broadcasting. A WTO (Trade Related Intellectual Property Rights [TRIPs])-compliant Intellectual Property Rights (IPR) regime was put in place in 2005—the Patents Act was amended to provide for product patenting in pharmaceuticals and agro-chemicals. Different states have been able to garner different amounts of FDI. For the period 1997–2004, the leading FDI-recipient states were Maharashtra (17.62 per cent of total FDI in India came into this state), Delhi (12.04 per cent), Tamil Nadu (8.56 per cent), Karnataka (8.24 per cent), Gujarat (6.42 per cent), Andhra Pradesh (4.71 per cent), West Bengal (3.18 per cent), Madhya Pradesh (3.16 per cent), Orissa (2.81 per cent), Uttar Pradesh (1.68 per cent), Haryana (1.32 per cent) and Rajasthan (1.03 per cent). Box 1.1

FDI Equity Limit: Automatic Route

Insurance Domestic airlines Telecom services—Foreign equity Private sector banks Mining of diamonds and precious stones Exploration and mining of coal and lignite for captive consumption

– – – – –

26% 49% 74% 74% 74%

–

74%

– – – – – – – –

26% 20% 26% 49% 100% 100% 100% 100%

Source: Ministry of Commerce, Government of India. Box 1.2

FDI Requiring Prior Approval

Defence production FM Broadcasting—foreign equity News and current affairs Broadcasting—cable, DTH, up-linking—foreign equity Trading—wholesale cash and carry, export trading, etc. Tea plantation Development of airports Courier services Source: Ministry of Commerce, Government of India.

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Drivers of growth We have thus far seen how India has transformed from a laid-back, sloppy, inward-looking economy in the 1950s and the 1960s to become the fastest growing free market ‘democracy’ in the world, and a soughtafter destination for investment in manufacturing and services in 2007. There are two major drivers of growth for the Indian economy—first, the demographic dividend that the economy shall reap courtesy its demographic profile, and second, the surge that the Indian economy is presently witnessing owing to the growing demand and aspirations of its middle-class and the rising disposable incomes. India had the highest average salary increase in the Asia Pacific region in 2006, gaining 13.8 per cent in 2006 as compared with 14.1 per cent gain in 2005, according to the human resources consulting firm Hewitt Associates Inc. Salaries in India may rise by 12.3 per cent to 15 per cent in 2007 (Thomas, 2006). The Indian cities are rapidly becoming the ‘engines’ of growth for the economy as bulk of the growth is being driven by the youth residing in Indian cities. Growth is not just restricted to the metropolitan cities like Delhi, Mumbai, Kolkata or Bangalore, but many Class B and Class C towns are also joining the growth bandwagon—for instance, Jaipur, Bhopal, Lucknow, Chandigarh, Pune, Nagpur and Guwahati. With rapidly increasing urbanisation in the economy, the urban centres are likely to become the mega centres for economic power.

The demographic dividend The demographic dividend is the advantage that the Indian economy is reaping (or going to reap) due to the change in the population Table 1.2 Age-group 0–14 years (%) 15–59 years (%) 60+ years (%) Population (Million)

Demographic Profile of India 2001

2006

2011

2016

35.60 58.20 6.30 1,027.00

32.50 60.40 7.10 1,113.70

29.70 62.50 7.90 11,194.40

27.10 64.00 8.90 1,267.50

Source: Planning Commission of India.


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structure. Estimates by the Planning Commission show a rising share of the working age population (15–59 years) over the longterm and a relative decline in the dependent age-groups (0–14, 60 and above). This implies the creation of a large pool of labour that can support industrial growth without putting excessive pressure on wages. A larger share of wage earners in the population also means a higher demand for consumer goods and services. This will support growth in these sectors. The Planning Commission figures given below estimate the increasing youth population in India. The median age of the Indian population in 2005 was around 24 years. This implies that more than 50 per cent of the Indian population is below 25 years of age. It is this young population that shall become the workforce for tomorrow. India has this unique window of opportunity of reaping the labour advantages of a young workforce, provided two critical challenges are well taken care of. First, there needs to be a rapid expansion in the capacities in the manufacturing and services sector because the economy needs to create massive employment avenues for this young population. Second, education and skills have to be imparted to this vast pool of young workforce in order to enable them to seek gainful employment. India’s demographic advantage is all the more pronounced when compared with the demographic profiles of other nations of the world. Table 1.3

Aging in Selected Countries

Median Age (Years) United States Canada Mexico France Germany Italy Spain United Kingdom Russia Japan China India

Old-Age Dependency Ratio

2000

2025

2050

2000

2025

2050

35.5 36.9 23.3 37.6 40.1 40.2 37.7 37.7 36.8 41.2 30.0 23.7

39.3 42.9 32.5 43.3 48.5 50.7 49.2 44.5 43.8 50.0 39.0 31.3

40.7 44.0 39.5 45.2 50.9 54.1 55.2 47.4 50.0 53.1 43.8 38.0

18.6 18.5 7.6 24.5 24.1 26.7 24.8 24.1 18.0 25.2 10.0 8.1

29.3 32.6 13.8 36.2 39.0 40.6 36.1 34.8 27.6 49.0 19.4 12.1

34.9 40.9 30.0 46.7 54.7 68.1 73.8 47.3 47.1 71.3 37.2 22.6


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Compared to the countries in Europe, India has a distinctly younger population. For instance, in 2025, while the median age in India would be around 31.3 years, it would be 50.7 years in Italy, 49.2 years in Spain and 48.5 years in Germany! Even in 2050, India’s median age would be less than 40 years. Thus, as shown in Table 1.3 and Figure 1.9, for the medium- to long-term, India has an assured supply of young manpower to work in her manufacturing units and service centres without putting too much upward pressures on wages. The corresponding benefit of a young population is the reduction in dependency ratio. Estimates by Boston Consulting Group show that the proportion of working population in the total population is on a rise in India. For instance, the proportion of working population was 46 per cent of the total population in 1991, which is expected to increase Figure 1.9

Lowering Dependency Ratio

Source: UN Population Division.


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to 54 per cent in the year 2011. The number of dependents (children and the aged) per 100 persons of working age is also expected to drop sharply from 65 in 2000 to around less than 45 by 2040. The old-age dependency ratio in India is expected to be 12.1 per cent in 2025 and 22.6 per cent in 2050. This is in stark contrast to some of the European nations where the old-age dependency ratio will be significantly higher. For instance, the dependency ratio in Italy shall be 40.6 in 2025 and 68.1 in 2050, in Germany 39 and 54.7 in 2025 and 2050 respectively, and in Spain 36.1 in 2025 and 73.8 in 2050. In other words, most of these nations will have a large number of healthy, but aged people, who may not be able to work on the shop floor in the manufacturing units, but would require huge healthcare support. No wonder, we see that most European nations are now opening their doors for Indian technocrats, engineers and workers to work in their manufacturing units. Germany has announced relaxation in visa regimes for Indian IT professionals to work in its firms. Similar offers are being put up by other countries like Canada, Russia and Italy as well. India’s competitive advantage today clearly lies in the strengths of its human capital. The entire world envies the intellectual congregation that we have—a vast pool of brilliant workforce in IT, Research and Development, and Biotechnology and Pharmaceuticals. India has established one of the finest education systems in the developing world. Some of India’s leading educational institutions are at par with institutions even in the developed world. The Indian Institute of Technology (IIT), the Indian Institute of Management (IIM), Indian Institute of Science (IIS), the Indian Institute of Information Technology (IIIT), Indian Statistical Institute (ISI) and a multitude of research institutions like the Council of Scientific and Industrial Research (CSIR), Indian Agricultural Research Institute(IARI), Indian Space Research Organisation (ISRO), Defence Research and Development Organisation (DRDO) and Bhabha Atomic Research Centre (BARC) are some of the finest institutions in the world in terms of their intellectual capital. India has over 380 universities with more than 11,000 colleges spread across the length and breadth of the country. There are 1,500 research institutions in the country doing research in varied spheres like science and technology, economics and developmental issues. Every year India produces more than 2,00,000 engineering graduates, 3,00,000 postgraduates from non-engineering colleges, 21,00,000 other graduates and

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9,000 doctorates. The knowledge workforce in the software industry has increased from around 56,000 in 1990–91 to over 1 million by the year 2004–05. India would continue to be surplus in working population for a long period of time, and as per the estimates of Morgan Stanley, it would contribute 25 per cent to the additional working population globally for the next seven years. The World Economic Forum’s Global Competitiveness Report (2004) ranked India third among 102 countries in terms of availability of scientists and engineers, eighth in the quality of management schools, 20th in the quality of scientific research institutions and 36th in the quality of the overall education system. The IMD Competitiveness Yearbook (2003) also has a similar story to portray for the Indian workforce (see Figures 1.10 and 1.11). India came third after Singapore and the United States on the availability of skilled manpower index with a score of 7.2 out of 10. The corresponding scores for Singapore and USA on this index were 7.4 and 7.3 respectively. China, to the contrary, had a score of 4.3 on this index. The IMD Competitiveness Yearbook (2004) ranked India as the economy with the highest availability of qualified engineers, with a score of 8.9 out of 10. Singapore and USA came second and third on this Figure 1.10 Availability of Skilled Manpower, 2003

Source: IMD Competitiveness Yearbook (2003).

Figure 1.11 Availability of Qualified Engineers, 2003



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index with a score of 7.9 and 7.3 respectively. Even on this index, China had a score of 3.9 in 2003. Thus, in terms of the availability of skilled workforce, India has a distinct advantage over other developing countries. India also has a large section of her population well-versed with the English language. The ease with which Indians have adopted English as a means of communication makes them adept in working in global environments and handling international clients. The stock of trained scientific and technical personnel in the country increased from 4.8 million in 1991 to 7.7 million in 2001. India is of strategic importance as its developer and skill base continue to grow. India has a fantastic pool of software professionals. The world needs to benefit from this, said Bill Gates, at a press conference in New Delhi, 7 December 2005. The cost advantage of the workforce also makes India attractive. As per NASSCOM, the cost of offshore work in India is 30–50 per cent lower than in the United States or Europe. For instance, the average wage per annum (in thousand USD) in India for well-qualified software professionals is approximately 6,000 USD; it is 7,200 USD in Malaysia, 8,900 USD in China, 25,000 USD in Israel and 28,000 USD in Ireland. The cost advantage is not merely in the IT sector. As per the IMD Competitiveness Yearbook (2004), the total compensation for workers in heavy manufacturing in USD per hour is far lower in India as compared to other developing countries. For instance, while a worker in heavy Figure 1.12

Total Compensation for Workers in Heavy Manufacturing (USD per hour)


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manufacturing in USA costs USD 20.32 per hour, a similar quality worker would cost USD 8.35 per hour in Korea, USD 2.27 per hour in Mexico, USD 0.75 per hour in China and 0.43 USD per hour in India. While there is no dearth in the quantity of human resource in the economy, there are concerns on the issue of quality of human resource, especially among the blue-collar workers. However, there are positive signs to show that the economy as a whole has started paying, attention towards improving the quality of human resources even among the poor. In the period 1983–1999, per capita real expenditure on education has increased by more than 6.5 per cent per annum. The poor, who used to spend a mere 0.32 per cent of their income on education in 1983, were spending more than 2.32 per cent of their income on education by 1999. This increase in private expenses on education by the poor sections of the population has come despite the government making available free education facilities for them. There is a growing realisation that in order to break the vicious cycle of poverty, educating children is essential. Private expenses on education showed an increase for the rich in the economy as well—from 1.60 per cent of their income in 1983 to 4.35 per cent in 1999. This is on account of two factors. First, the cost of higher education in India has gone up, especially in private educational institutions. Second, more and more Indians are now taking up professional courses like management, IT, hospitality and legal services as compared to mere graduation or post-graduation programmes. This too has put an upward pressure on the proportion of income spent on education services. The growing Indian consuming class: Reaping the demographic dividend

The demographic dividend also manifests itself in the form of increasing the Indian consuming class—the target market for most domestic and international firms. There are estimates by McKinsey and others who put the size of the Indian middle-class at around 300 million. It is this mammoth size of the consumer segment that drives the demandled growth of the Indian economy. Due to the demographic transition, growing disposable incomes and increasing aspirations, every year 30 to 40 million are added to this middle-class. The middle-class in India now demands the latest, best-quality, international standard


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products and services. Growing awareness about quality standards have made the Indian consumers quite discerning. There lies a huge market for processed food products, Fast Moving Consumer Goods (FMCG) goods, white goods or consumer durables, small cars, budget travel (like low-cost airlines), financial services, cellular phones, restaurants and communications (multiplexes). As The Economist (7 December 2005) puts it, ‘Over 3.5 million mobile phone subscribers are being added every month in India. It is the world’s fastest growing telecom market’. The National Council of Applied Economic Research (NCAER), New Delhi published a report that depicted the changing consumer profile in the country (2006). The study divided the entire consumer population into five different strata based on household incomes— the destitutes (poorest section), the aspirants (lower middle-class), the climbers, the consuming class (upper middle-class) and the very rich. As compared to 1995–96, the number of households in the strata of the destitutes and the aspirants came down in 2001–02 and is expected to decrease further. The climbers’ stratum showed an increase in the number of households from 54.1 million in 1995–96 to 74.4 million in 2001–02 and is expected to increase to 81.7 million in 2006–07. Figure 1.13 shows the increasing number of high spending consumers in India. The biggest jump has happened in the consuming class from 32.5 million households in 1995–96 to 46.4 million households in 2001–02 and is expected to touch 75.5 million in 2006–07. In fact, the rate of increase in the number of households in the very rich segment and the consuming class is 10.1 and 7.06 per cent per annum respectively. The poor segment of the population (the destitutes and the aspirants) is actually reducing at a rate of 2.31 per cent per annum as per this study. India has thus become an important market for companies the world over, given the size of its market, the purchasing power of its consumers and the growth in disposable incomes in the country. In the words of Mr Kamal Nath, Minister of Commerce and Industry, Government of India, ‘The question for CEOs the world over is no longer “should my company go to India” but rather “can my company afford not to be in India”’. (Address at the World Economic Forum, Davos, January 2006).

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Changing Profile of a Young India

1995–96

2001–02

2006–07

1.2 (7)

2.6 (15)

5.2 (30)

32.5 (186)

46.4 (265)

75.5 (432)

THE CONSUMING CLASS

54.1 (312.2)

74.4 (429)

81.7 (472)

THE CLIMBERS

44.0 (253.9)

33.1 (192)

20.2 (117)

THE ASPIRANTS

33.0 (190.4)

24.1 (140)

16.6 (96)

THE DESTITUTE

THE VERY RICH

Source: India Market Demographics Report, NCAER. Note: Figures refer to households (and population) in million.

Economic surge—A virtuous growth path The contribution of agriculture in the total GDP of the country has reduced from 30.9 per cent in 1990–91 to 18.5 per cent in 2006–07. Simultaneously, there has been an increase in the share of the industrial sector in the GDP from 25.4 per cent in 1990–91 to 26.4 per cent in 2006–07. However, there has been a dramatic increase in the share of the services sector in the GDP from 43.7 per cent in 1990–91 to 55.1 per cent in 2006–07 (see Figure 1.14). The Indian economy, upbeat with growing investor-confidence and robust macroeconomic fundamentals, has entered a cycle of virtuous growth. The demand-led growth in the last 15 years has made most industries reach their peak capacities. There is now a need to infuse a fresh round of investments in increasing installed capacity in almost all the major sectors of the economy. The future of millions of Indian farmers depends upon the success of the food industry as India’s prosperity is predominantly linked to the growth of incomes in the agrarian sector of the economy. Agriculture continues to be the mainstay of India’s rural economy, and


1990–91

55

Sectoral Contribution to GDP

Agriculture 30.9

Services 43.7

18.5 Industry 25.4

55.1

26.4 2006–07

Source: Ministry of Finance.

its importance in providing employment and livelihood to the rural populace cannot be understated. Increasing liberalisation of the economy has lifted the protection that the food and agriculture sector once enjoyed in the country. This has exposed the sector both to the opportunities and challenges of the global food economy. Market forces are compelling Indian agricultural producers to improve the quality of their farm produce while continuing to maintain their cost competitiveness in order to be able to effectively compete in the global food market. Even in the domestic market, rising per capita incomes and changing demographic profile of the population has ensured a growing demand for processed and convenience foods. Increasing consumer awareness about health and hygiene has shifted the focus of the market to ‘safe’ foods. Truly, the Indian food processing sector is undergoing a veritable revolution—all the way from the plate to the plough! In the agriculture sector, there has been an upward movement in growth. Courtesy favourable monsoons, India is expecting a record agricultural output this year, including the wheat (rabi) harvest. There is now a focus on taking agriculture from ‘cereals-dominated’ to more ‘high-value commodities’ like horticulture, dairy and poultry with special emphasis on value-addition through processing. An average Indian household spends 50 per cent of its income on food items.

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The 350 million strong growing urban middle-class and its changing food habits augur well for investments in agriculture and the processed foods and packaging industries. India has a USD 70 billion food processing and packaging industry that accounts for 6.3 per cent of the GDP. The National Food Policy aims to raise the level of food processing to 25 per cent by the year 2025. Global majors are looking at high returns from this sector. Big ticket investments by leading firms like PepsiCo, Unilever, Dabur, Coca Cola, Nestle and Britannia have borne fruit. Corporates are promoting ‘contract farming’, providing the Indian farmers with access to finance and technical know-how. The cooperative movement has also strengthened and the government has taken positive steps to de-politicise cooperatives. Cooperatives like Amul (Gujarat), Milkfed (Punjab), MahaGrapes (Pune, Maharashtra) and many horticulture cooperatives in south Gujarat are redefining benchmarks for agri-business in the country. There has been a lot of talk on India’s comparative advantage in several horticulture products in the world market. However, despite the comparative advantage in terms of cheap labour, long growing seasons, diverse agro-climatic zones and vast biodiversity, India’s presence in the global trade in most horticulture products (both fresh and processed) is much below its potential. To increase horticulture exports, there has to be a package of infrastructure facilities, fiscal incentives and other support services. Setting up of Agri Export Zones (AEZs) is one of the important policies of the Government of India that provides a bundle of services to producers and processors, especially for export purposes. The Ministry of Agriculture, Ministry of Food Processing Industries and Agriculture Produce Export Development Authority (APEDA) look after the growth and development of AEZs in the country. AEZs were introduced in the national Export–Import policy in the year 2001–02. With the opening of world trade under the WTO, the Government of India has put horticulture in its priority list. There is a general understanding emerging among government authorities that comprehensive assistance should be meted out to units involved in food processing (including fruits and vegetables) to be able to successfully compete in the world market. The AEZs are so designed that the entire value chain—starting from the farm up to the final retailing unit—can be strengthened.


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Provision for good quality inputs like modern seeds for exportable and processable varieties of fruits and vegetables; pre- and post-harvest technologies for farmers; storage and warehousing facilities; good transportation and communication networks; sources of finance; export-friendly infrastructures like ports, Inland Container Depots (ICD); and quality assurance laboratories all come as one package to units in an AEZ. Convergence is the modus operandi in an AEZ, where government authorities and private entrepreneurs converge to devise solutions and build synergies for boosting exports in agriculture. Since their inception, the AEZs have notched up total exports of USD 100 million which is expected to grow to USD 2.8 billion by the year 2008. In case of manufacturing, India has established itself as a global manufacturing hub with a diversified base of world class capabilities. After 15 years of reforms in the economy, the markets in India have come to attain the critical minimum size required for establishing production plants of global standards. The size of the market is an important determinant in the decision to establish production plants as any plant of sub-optimal size would render the plant non-competitive in the global markets. India today has some of the largest manufacturers in the world. For instance, Hero Cycles is the world’s largest cycle manufacturer, Mahindra and Mahindra the world’s third largest producer of tractors and farm-implements, Bharat Forge the world’s second largest forging company, Essel Propack the largest manufacturer of laminated tubes in the world and Sundaram Fasteners the world’s third largest manufacturer of brake lining, fastener and radiator caps. The quality movement has also gained momentum in the Indian manufacturing sector. The concept of Total Quality Management (TQM), adopted from Japan, has found great acceptance among Indian manufacturers—right from the largest firms like the Tatas, the Birlas and Reliance to small and medium enterprises. In recognition of the growing quality consciousness among Indian firms, the ‘Made in India’ brand is slowly gaining acceptance and recognition among consumers across the world. Fifteen Indian companies have won the coveted Deming Prize—the manufacturing sector’s equivalent of the Nobel Prize. In 2005, the manufacturing sector in India grew at a rate of 9.5 per cent. Easy availability of raw materials, access to skilled human resource, quicker turnaround time and lower processing and redesign costs have

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made Indian manufacturing units globally competitive. Figure 1.15 shows the increasing index of industrial production. For instance, in the steel sector, the operating profit margins of the Indian steel majors such as Tata Steel, Steel Authority of India Limited (SAIL) and Jindal Steel Works (JSW) are higher than that of Korea’s Posco and US Steel. According to a recent study by McKinsey, India’s manufacturing exports could see an exponential annual growth of 17 per cent to cross the USD 300 billion mark by the year 2015. In the words of Martin Graham, Director, Marketing Services, London Stock Exchange, ‘India is growing fast and everyone seems to want a piece of the action’ (Welcome note for India’s Finance Minister, P. Chidambaram at London Stock Exchange, February 2005). In their quest for scale and markets, Indian firms are making strategic overseas investments and acquisitions (see Table 1.4). In the first nine months of 2005, India Inc. invested USD 1.38 billion in 62 deals. In the period 2001–03, 120 foreign companies were acquired by Indian firms making an investment of USD 1.6 billion. USD 2.2 billion was the value of business generated by 92 Indian-American owned companies in the US in 2002. India is the eight largest investor in UK with around 440 investments and 1,441 Indian companies have operations in Singapore. Figure 1.15

Index of Industrial Production

12

% YOY Growth

10 8 6 4 2 Jun 05

Index of Industrial Production IIP: Manufacturing IIP Mining and Electricity


Sep 05

Mar 05

Dec 04

Jun 04

Sep 04

Mar 04

Dec 03

Jun 03

Sep 03

Mar 03

Dec 02

Sep 02

Jun 02

Mar 02

0

Making Sense of a Fast Growing Economy Table 1.4 Indian Investor Tata Tea Videocon Industries Limited Matrix VSNL Tata Motors Tata Technologies Bharat Forge Limited

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India Inc.—Global Shopping Spree Foreign Company (Acquired) Tetley Thomson Global (colour picture tube business) Docpharma TeleGlobe International Daewoo Commercial Vehicles INCAT International Scottish Stampings

Value of Deal (USD million) 466.10 289.80 263.40 239.00 102.00 94.50 57.50

Source: www.ibef.org.

Top destinations for Indian investments are South Africa, United States, Mauritius, Singapore, British Virgin Islands, United Kingdom, Australia, Germany, Sri Lanka and China. The top 10 Indian investors are Videsh Sanchar Nigam Limited (VSNL), Tata Iron and Steel Company (TISCO), Zee Telefilms, Mahanagar Telephone Nigam Limited (MTNL), Tata Tea, Wipro, Reliance Industries, Indian Oil Corporation (IOC), Hindalco industries and Wockhardt. In the services sector, India has amply demonstrated her prowess in the field of IT and is now making successful forays into other knowledgebased sectors like pharmaceuticals and biotechnology. For the year 2007–08, a growth rate of 8.5 per cent is expected for the services sector. One of the major growth drivers in the service sector is the massive use of advanced, latest, cutting-edge technology. For instance, take a look at ICICI Bank, a leading private sector universal banking institution in the country. The share of non-electronic transactions in the total transactions at the ICICI Bank has consistently come down—from around 55 per cent in 2000 to less than 20 per cent in 2003 (see Figure 1.16). Thus, more and more transactions are being automated in order to reduce time and costs and increase operating efficiency. This is not an isolated example, but a reflection of the technological revolution that almost all institutions in the country are undergoing. The leveraging of technology has been made possible due to the growing number of tech-savvy people in the country, especially the youth. With a favourable demographic profile, a young and skilled workforce, and the latest technology at its disposal, the Indian economy is

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Leveraging Technology

Source: ICICI, Analysis: IDF.

witnessing an unprecedented growth and wealth creation. The growing number of Indians in the list of emerging billionaires in the world is a testimony to the fact that the entrepreneurial ‘jinn’ is finally out of the bottle in the Indian economy and the stage is set for India to play a more predominant role in the global economy.

Challenges that India continues to grapple with Though India has shed the yoke of the Hindu rate of growth (3.5 per cent per annum) and has become the youngest and the fastest growing free market democracy in the world, there are major challenges that she continues to grapple with. While it is time to rejoice at India’s unprecedented economic growth and its prospects for the future, it is equally important and worthwhile to pause and take stock of the challenges that mar India’s economic progress. Poverty continues to be the major challenge facing the Indian economy. Though the percentage of poverty in the country has been consistently


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on a decline, the problem of poverty is still very pronounced with regard to absolute numbers. The poverty ratio in India has declined from 54.9 per cent in 1973–74 to 44.5 per cent in 1983, 38.9 per cent in 1988, 36 per cent in 1993 and 26.1 per cent in 2000. Thus, we see that the reform process has not been anti-poor and there has been a sharp decline in the poverty ratio in the post-reform era. However, though there has been a decline in the poverty ratio, the problem of poverty in absolute numbers still remains grim. Even today close to 220 million people in India live below the poverty line. This is equivalent to the entire population of the United States! This size of the absolute poor in the country has been arrived at by the lowest possible definition of the poverty line—an intake of minimum calories of food per day. By the definition of poverty line as a dollar a day, more than 350 million people in the country would fall below the poverty line. Regional disparity in economic development is another challenge that is now taking on alarming proportions. While there are areas or pockets in the country which are growing at a fast rate such as the National Capital Region, or the Bangalore-Hyderabad region, there are many areas in the country where there has been practically no growth at all. In fact, growth rate has been rather slow for most of the states in the eastern and the northeastern region of the country, especially Uttar Pradesh and Bihar. Ironically, it was the eastern region which used to be the fastest growing region historically. If we scan the annals of Indian history, we will find umpteen instances of eastern India being the centre of business and education. In British times as well, eastern India (the Bengal Province) was the richest region in the country. Today, eastern India is one of the poorest regions in the country. This has partly happened due to a decline in governance and the deteriorating infrastructure here. So, maintaining regional balance in development is important in order to keep the federal structure of the economy intact. The infrastructural bottlenecks are at present the biggest impediment in India’s economic growth. The economy is in dire need of fresh investments in construction of new, modern, state-of-the-art infrastructure facilities. However, what is worrying is that despite realising the need for heavy investments in infrastructure, the share of public capital expenditure as a percentage of GDP has been coming down over the years. For instance, while the share of public capital expenditure was

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around 5.6 per cent of the GDP in 1990–91, it decreased to around 3.9 per cent in 2004–05 (see Figure 1.17). Public investment in infrastructure should be at least 6 per cent of the GDP. Simultaneously, more private investment in infrastructure is required in order to accelerate the pace of infrastructure development so as to be able to maintain 8 per cent per annum growth over the short and the medium term. Figure 1.17

5.6%

2004–05RE

2003–04

2002–03

2000–01

2001–02

1999–00

1997–98

1998–99

1996–97

1995–96

1994–95

1993–94

1992–93

1991–92

3.9%

1990–91

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

Public Capital Expenditure as a Percentage of GDP

Source: Planning Commission, Analysis: IDF. Note: RE—Revised Estimate.

Unemployment is yet another area of concern for the Indian economy. Although the unemployment rate in the country is only expected to be around 7 per cent of the labour force, there are serious issues pertaining to the quality of employment. Given the fact that the organised workforce in the country accounts for a total employment of around 30 million, most of the workforce in the country takes recourse to employment in the informal sector. The informal sector in India is typically characterised by poor working conditions, low wages, long working hours and a complete absence of any social security system. There is a need to address the issue of improving the quality of employment in the informal sector in order to make a clear value addition in the living standards of a vast majority of the workforce. Recent initiatives by several non-governmental organisations (NGOs) and corporates to devise micro group insurance products to bring a

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large number of the poor in the work-force under insurance cover could be steps in the right direction. Fiscal Stress

6.2

6.6

4.4

Fiscal Deficit Primary Deficit Revenue Deficit Target 05–06

4.2

2.7

2.2

Projected (2005–06)

4.5

2004–05 RE

2003–04

2002–03

2001–02

2000–01

3.3 2.8

1999–00

7 6 5 4 3 2 1 0

1990–91

% GDP

Figure 1.18

Revenue Deficit Fiscal Deficit Target 05–06

Source: Economic Survey, Analysis: IDF.

Prudent fiscal management by the government is also important for the economy to move sustainably on the high growth path. The World Bank and the International Monetary Fund have been pushing for compression in the fiscal deficit. There are now tighter controls on governments to check wasteful ‘consumption’ expenditure by them. As a rule of thumb, fiscal deficit to the tune of 1.5 per cent of the GDP is considered normal for any economy. However, despite government efforts throughout the last 15 years of reforms, the fiscal deficit has not been able to come down below 4.5 per cent of the GDP. As shown in Figure 1.18, the fiscal and revenue deficits have come down but are still higher than advisable. However, in the period 2004–07, deficits have indeed been brought down substantially and look all set to come down further. There is a school of thought in the country which believes that fiscal deficit has not really made any adverse impact on the economy and it is only the IMF and the World Bank that make fiscal deficit the ‘devil’ for all that goes wrong in government finances. Despite fiscal deficit being

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far higher than the minimum stipulated norms of financial prudence in the last 15 years, the growth rate of the economy has accelerated and inflation has been kept in check. Thus, some economists and planners believe that though it is vital to keep a check on the fiscal deficit, it should not be so stringent that the government finds it exceedingly difficult to finance its development and welfare programmes. Military expenditure in India is also very high. If we look at military expenditure as a percentage of the GDP, India is way above many developing nations. For instance, military expenditure as a percentage of GDP for Latin America is 1.24 per cent, 2.19 per cent for East Asia and the Pacific, but 2.41 for South Asia, especially India. India has always had serious security concerns in the region. The wars that India fought with Pakistan and China, and the growing insurgency in Kashmir and the northeast have also added to the increase in the military budget in the country. However, the moot question is should a developing country like India spend so much for military purposes at the expense of curtailing financial support for more expedient development programmes and infrastructure? There are two solutions cited for the above problem. One takes into account that India’s defence industry does not have adequate linkages with the rest of the economy, unlike countries like Israel where a number of industrial establishments have emerged as ancillary units catering to the needs of the defence industry. There lies a need in India to integrate the defence industry with the local manufacturing industries in order to create the spill over effect and multipliers from big-ticket expenditure on defence and military. The other solution is to create an environment in the South Asian region that promotes peace and harmony. This can be done through stepping up economic ties and trading relations among the different countries in South Asian Association for Regional Cooperation (SAARC). International trade certainly increases the opportunity cost of going to war. Also, as history has shown, trading nations usually do not go to war. In this context, trading agreements like the South Asia Free Trade Agreement (SAFTA) have a lot of potential and promise. The success of SAFTA largely depends on the political commitment and harmony among all the signatory members and on the vigour and vision with which India leads the path through meaningful trade reforms.

Services in Rural India

R

2

ural India, though at the centre stage of all major development plans of the government, continues to suffer from lack of basic infrastructure for education, health and market access. Caught in a vicious poverty-cycle, rural India, in the absence of adequate infrastructure, finds it difficult to undertake activities that can accelerate the rate of economic growth. Home to close to 65 per cent of India’s total population, rural India faces the daunting task of providing sustainable income and employment opportunities to a major section of the population, especially the lower-income households. In the absence of infrastructure facilities, there is lack of market-access to the rural population and, thus, limited livelihood opportunities, stagnation in agriculture and aggravation of rural poverty levels. Absence of infrastructure also makes rural markets fragmented, characterised by high costs of transactions and high information asymmetry. Casual observation suggests that the economic prosperity in any region is closely associated with the availability of infrastructure facilities in that region. However, the causal link between infrastructure and growth is a complex issue. Economic literature has debated two opposing notions—of infrastructure leading to economic growth and that of growth leading to a greater demand for infrastructure facilities. For example, the construction of a new road from place A to place B allows goods to move between the two places. This opens up new opportunities for economic exchange between A and B, increasing incomes and, hence, growth, in both the regions. On the other hand, unless there is enough surplus production in A, there will be no need for a road to transport goods to B. Nevertheless, in the modern world where technology is tradable and factor markets (labour and capital) have become integrated both locally

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(farm labour moves from Bihar to Punjab) and globally (through foreign direct investment), infrastructure plays an enabling role in bringing world markets to local areas. Since infrastructure enables growth, any growth strategy must actively plan for producing the necessary infrastructure to support growth targets. Indeed, instead of trying to engineer growth through interventions in the production of goods and services, governments are better off providing for the infrastructure that supports such growth. Numerous studies the world over have revealed that investment in rural infrastructure is one of the most potent tools that governments could use to enhance growth and reduce poverty in rural areas. Investments in roads, telecommunications, power supply, drinking water facilities, schools and healthcare facilities have a positive effect on the quality of life in rural areas. However, there has been stagnation in the level of public investment in rural infrastructure in India, as well as in most developing countries. Even post reforms, in the period from 1993–94 to 2002–03, there has not only been a decline in the share of budgetary expenditure on all rural development and poverty alleviation programmes from 2.08 to 1.87 per cent, but also the share of rural infrastructure development in all social services and poverty alleviation programmes has declined from 32 per cent to 25 per cent (Das 2001). The decline in public investment in rural infrastructure development has been on account of the fact that the total government expenditure has been curtailed due to the structural adjustment programmes (SAPs), and also due to the low priority attached to rural infrastructure by most governments in developing countries (Fan et al. 2000). In the absence of complementary and supporting infrastructure from the government, even private investments in infrastructure in rural India have not really taken off (ibid.).

Infrastructure and economic growth There is a wealth of literature in economics which debates the role of infrastructure in economic growth and tries to establish the precedence of one over the other. Kessides (1993), the World Bank (1994, 2001),


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Canning and Bennathan (1999) and Jalan and Ravollion (2002) have all demonstrated through rigorous theoretical, statistical and econometric modelling the role played by infrastructure in poverty reduction. Kessides, in her paper ‘The Contributions of Infrastructure to Economic Development—A Review of Experience and Policy Implications’, highlights that infrastructure contributes to economic growth, both through demand and supply channels. It reduces the cost of production, contributes to the diversification of the economy, provides access to application of modern technology and raises the economic returns to labour and capital. Infrastructure contributes to raising the quality of life by creating amenities and provides consumption goods. She, however, argues that infrastructure does not create economic potential, but only develops it where appropriate conditions (inputs like labour and capital) exist. Canning and Bennathan (2000) argue that a conducive macroeconomic environment is essential for efficient resource allocation to reap the positive impact of infrastructure development. An orientation to economic demand considerations like service prices and user charges is essential as the most enduring benefit of infrastructure is the reliability and quality of the services demanded by the users. User charges should reflect supply and demand conditions and non-market externalities as far as possible to ensure that infrastructure is more economically efficient and environmentally favourable. Canning and Bennathan, however, posit that physical infrastructure investment is a form of ‘complementary capital’ that supports services necessary for the operation of productive private capital. Jalan and Ravollion (2002) have attempted to establish a direct link between infrastructure and economic growth through extensive studies in rural China. As per their estimates, for every 1 per cent increase in the road density per capita, private consumption expenditure increases by 0.08 per cent in rural China. Similarly, poor households living in communes with paved roads have a higher probability of escaping poverty than households living in communes without paved roads. The paper also highlights the importance of rural infrastructure, such as public assets like roads, in lowering transaction costs and improving incomes for farmers in rural China by providing market access.

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The ‘World Development Report 1994: Infrastructure and Development’ stressed the importance of efficient utilisation of infrastructure facilities. While in most underdeveloped and developing regions, it is important to increase the existing stock of infrastructure facilities, there should also be a focus on improving the effective utilisation of existing infrastructure facilities. Take for instance, irrigation infrastructure. On the one hand, it is important to invest in expanding the network of irrigation facilities and bring more area under irrigation cover. On the other hand, it is equally important to improve the utilisation rate of the existing irrigation facilities. The effectiveness of infrastructure is significantly dependent on its quality at the time of its construction, as well as how well it is maintained over time. Finally, there is the question of measuring infrastructure. While there do exist many infrastructure indices in India like the AKC Index, the CMIE Index and the India Today Index, each of these indices has some inherent contradictions. Take for instance, the CMIE Index. The CMIE index does not capture the dispersion of facilities; it looks at an aggregated availability of facilities, that is, the index value could be high but access low. Consider two districts with similar population size and the same number of schools, hospitals, road length and so on. In one of them, all the infrastructural facilities are in and around the district headquarters (town) while in the other, they are more dispersed across the villages. For most of the CMIE variables that make up their index, the two districts will be judged to be similar. This is because the CMIE index normalises every infrastructure variable they use by the size of the population. However, as one has learnt from Kerala, it is more important to uniformly disperse facilities rather than have them concentrated in one place. Indeed, the former Indian President A.P.J. Abdul Kalam’s call for the provision of urban amenities in rural areas is of great significance in this regard. Also, merely the presence or absence of an infrastructure measure is not sufficient. Apart from the availability of the resource, the accessibility of the resource is also of paramount importance. None of the infrastructure indices we currently have takes this into account in a systematic fashion. For instance, for proper development planning at the district level, one needs to know at what distance the infrastructure facility is available to the people. Are primary schools situated in such a way that they are accessible to all the children in the district? Is the


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primary school in the village, or within a reasonably accessible range of the village? Is it at a walkable distance? If not, are bus services available? Also, more infrastructure may not necessarily be better, especially when it is not in tune with the economic needs of the region. A predominantly agricultural region requires different types of infrastructure than a predominantly industrial region. The existing indices, which use the same economic model for all regions are unable to take account of the particularities of each region.

Rural access to infrastructure facilities Development in economics has been broadly defined as a sustained increase in the individual’s choices for decision-making, accompanied by an increase in the capabilities of the individual to capitalise on those choices for his or her well-being. Access to education and health facilities is imperative for increasing the capabilities of the people and their choices for decision-making. Similarly, market access provides new avenues to the people for earning a living and expands their livelihood choices by providing opportunities which were hitherto not available to them. Thus, for true economic development to take place, access to education and health facilities along with provisions for market access are necessary prerequisites. There is a growing class of economists and development planners the world over which believes that once there is equality of opportunities in terms of access to education, health and markets, a broadbased economic growth sets into motion and creates a virtuous cycle of inclusive and equitable economic development in the state. Should the government (and the private sector) ensure access to health, education and market infrastructure to every individual in the society, the problem of development (or the lack of it) shall be taken care of automatically. In this section, we analyse the status of rural access to infrastructure facilities for the country as a whole, followed by a similar analysis for the 15 major states in the country. Infrastructure facilities have been categorised as education infrastructure, health infrastructure

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and infrastructure that enables market access. Tables 2.1 (a)–2.16 (c) show the extent of rural infrastructure facilities—health infrastructure, market access and access to education—in various states in India. Table 2.17 uses the index to arrive at the access gap that exists within states in infrastructure provision (see Appendix). Under education infrastructure, we have looked at pre-primary schools, primary schools, middle schools, secondary schools, higher secondary schools, colleges, industrial training institutes and vocational training centres. Under health infrastructure, the services looked at are integrated child development centres (anganwadi or balwadi), subcentres or a dispensaries, primary health centres, government hospitals, private hospitals, private clinics and medicine shops. Under the category of infrastructure services that enable market access, we have taken into consideration metalled roads, all-weather roads, bus stops, railway stations, post offices, telephone/e-mail connections, banking facilities, agriculture inputs shop, fair-price shops, markets and weekly markets or haats. The data used in the analysis for rural access to infrastructure (education, health and market access) is from the National Sample Survey (NSS) 58th Round, coupled with the village amenities data from the Primary Census Abstract (PCA) of the Census of India (2001). In the analysis, a village is said to have no access to any particular infrastructure facility if that infrastructure facility is beyond a radius of 10 km from the village. The data does not suggest the exact distance (beyond 10 km) and thus such infrastructure facilities are not taken as a part of the basket of services accessible to a village. Different weights have been assigned to different infrastructure variables depending upon the distance from the village at which they are located. Highest weight of 0.5 has been assigned to all infrastructure variables that are present within the village. A weight of 0.3 has been assigned to infrastructure facilities present within a radius of 2 km from the village. A weight of 0.15 has been assigned to infrastructure facilities present at a distance of 2 to 5 km from the village. Finally, a weight of 0.05 has been assigned to infrastructure facilities present at a distance of 5–10 km from the village. Note that the weights sum up to unity. The gap index is the difference between 100 (the desired index score) and the score for a state on a particular infrastructure facility. Clearly, the higher the gap, the lesser the dispersion of infrastructure among villages in the state and, thus, lesser the access to infrastructure facilities to the rural population.


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All India rural access to infrastructure services In India, almost 66.5 per cent of the villages have pre-primary schools within the village. Seventy-two per cent villages have primary schools within the village. However, 88.5 per cent of the villages have primary schools within a radius of 2 km from the village. Eighty-four per cent of the villages have middle schools within a radius of 5 km from the village. As far as higher education is concerned, most villages do not have access to college facilities. As per the data, 73 per cent of the villages have colleges at a distance of more than 10 km. Since the exact distance (how much more from 10 km) is not known, we take these villages as having no access to college facilities. Similarly, 91 per cent of the villages and 79 per cent of the villages do not have access to any industrial training institutes and vocational training centres respectively. Much of the unemployment problem in India can be understood from these figures. While there is an access to primary and middle schools in most villages in the country, there is hardly any access to vocational training and industrial training centres. In the absence of such training centres, most rural people are not able to acquire training to become ‘skilled’ labour. In the absence of proper skill-development, these people find it difficult to seek gainful employment and end up working as unskilled labour in the unorganised, informal sector, or as agriculture labour in the farm sector of the economy. Increasing the access to ‘employment-oriented’, skill-based institutions is the first step towards increasing employment opportunities for the rural workforce. As far as access to health infrastructure is concerned, the scenario is not very encouraging. While basic healthcare facilities like an integrated child development centres (anganwadi or balwadi) exists within the village in around 55 per cent of the villages in the country, higher order healthcare facilities are not accessible to a vast majority of villages. For instance, for more than 55 per cent of the villages, a government hospital is more than 10 km away from the village. In case of private hospitals, more than 61 per cent of the villages do not have any access to such facilities. However, 79 per cent of the villages in the country have private doctors/clinics within a distance of 10 km from the village. Infact, around 56 per cent of the villages have private clinics within a manageable distance of less than 5 km from the village. While only

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6.5 per cent villages have a primary health centre within the village, more than 20 per cent villages have private clinics within the village. Thus, much as we would like to deny, majority of the healthcare delivery in rural areas is through private doctors and clinics. In the absence of a robust public healthcare system in India, the cost of healthcare facilities is also higher for the poor (usually in rural areas, or urban slums) as compared to the rich (usually in urban areas). For instance, a comparison between Dharavi (a slum in Mumbai) and Warden Road (an upmarket suburb of Mumbai) shows a vast disparity in the cost of healthcare services for the poor (slum-dwellers) (Prahalad and Hammond 2002). While diarrhoea medication in Warden Road costs on an average USD 2, it costs around USD 20 in Dharavi. Thus, there is a poverty premium in Dharavi equivalent to 10-times the cost of the service in Warden Road. Clearly, the cost of health services is higher for the poor than the rich. Similarly, there exists a disparity in the cost and quality of health services in rural areas as compared to urban areas—the rural people have to spend a larger proportion of their incomes on health services as compared to the urban people. As per the estimates of the National Commission on Macroeconomics and Health (2005), the proportion of total outpatient expenditure in total household expenditure is 4.72 per cent in rural areas as compared to 3.62 per cent in urban areas. Also, the proportion of total inpatient and outpatient expenditure in total household expenditure is 6.09 per cent for rural areas as compared to 5.06 per cent in urban areas. Thus, despite the supposed government subsidies on rural healthcare, rural people spend a larger proportion of their household incomes on medical expenses as compared to the urban people. The relatively widespread presence of private clinics and private doctors (at times even quacks) as compared to public healthcare services like primary health centres have led to serious cost (and quality) implications for the rural people, especially the poor. With respect to the infrastructure facilities for market access, around 45 per cent of all villages in India have metalled roads in the village, and around 80 per cent villages have metalled roads within a radius of 5 km. Fifty-seven per cent of the villages are connected through allweather roads, and around 70 per cent of the villages have all-weather roads within a radius of 2 km. Seventy-one per cent of the villages have a bus-stop within a manageable distance of less than 5 km from


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the village. Connectivity through railways, however, is not present for most villages; as close to 75 per cent of the villages in India do not have any railway station within a radius of 10 km. The postal service in India covers the length and breadth of the country and a large section of the rural population has access to communication services through post offices. Almost 80 per cent of the villages in the country have postal facilities available within a radius of 5 km. There has been a substantial improvement in telecommunications infrastructure in the country as well. In a short span of a decade and a half, the network of telephone facilities has expanded to rural areas. As per the data, in 2002 around 60 per cent villages had access to telephone facilities within a distance of 5 km. This has also opened up opportunities for providing Internet connectivity through telephone lines to the rural population as the telephone booths can be converted into Internet kiosks. Many corporations in India, both in the public and the private sector, are looking to expand the reach of mobile and Internet services to rural India. However, despite the giant strides in the growth of telecommunication infrastructure in rural India, there still needs to be substantial investment as more and more villages are required to be brought under the ambit of telecommunication services. Even a distance of 5 km may be quite high for availing such services as these services have high user-frequency. It may not be cost-effective for any rural household to travel 5 km to make a phone call. By making these services accessible right in the village, there would be an upward spiral in the consumption of such services by the rural people. However, only 20 per cent villages have telecommunication facilities available within the village, thus, quite a daunting task lies ahead for telecom firms in providing greater access to such services in rural areas. Banking facilities are present within the villages in only 6.5 per cent of the villages in the country. Another 12 per cent villages have banking services available at a distance of less than 2 km from the village. Around 34 per cent of the villages have banking services available within a radius of more than 2 but less than 5 km. Thus, despite the rapid developments made in extending banking infrastructure, a large proportion of villages in the country do not have access to banking services. It is in this context that the micro-finance movement through self-help groups (SHGs) gains importance in bridging

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the gap between the formal banking systems and the rural demand for credit. Many micro-finance institutions (MFIs) are operating in different regions of the country and are expanding the coverage of banking facilities in rural areas. The SHG-Bank linkage programme of National Bank for Agriculture and Rural Development (NABARD) is a step towards linking the micro-finance system to the formal banking system. Under this programme, more than 3.5 million SHGs have been linked to the formal banking system (NABARD 2003). This has contributed to enhancing the spread of banking infrastructure to remote corners of the country. The weekly markets or haats are the markets where rural people sell their produce, and also buy the items for consumption and daily use. Around 11 per cent villages have haats or weekly markets within the village, while 15 per cent villages have haats within a radius of less than 2 km. A sizeable 33 per cent of the villages have such haats available within a distance of 2 to 5 km. The presence of weekly markets or haats in close proximity to the village provides the rural workforce (especially weavers, artisans, potters and so on) an outlet for sale of their goods. These weekly markets and haats are the nodal business-centres in rural India, and numerous transactions take place on a weekly basis in these markets providing income to many rural households.

State-wise analysis of rural access to infrastructure facilities The states present a diverse picture on rural access to services or infrastructure facilities. While states like Punjab, Haryana, Maharashtra and Tamil Nadu have relatively better access to infrastructure facilities in rural areas, states like Uttar Pradesh, Madhya Pradesh, West Bengal, Rajasthan and Assam have to make considerable endeavours to bridge the gap between the demand and the supply of infrastructure facilities in rural areas. Rural access to education infrastructure

While 83.80 per cent villages in Punjab have primary schools within the village, only 60 per cent villages in Uttar Pradesh have primary schools within the village. Similar figures for Haryana and Maharashtra


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are 94 per cent and 98 per cent respectively. Some relatively backward states like Rajasthan and Madhya Pradesh also have comparable figures to Punjab in terms of the percentage of villages with access to primary schools. In Rajasthan and Madhya Pradesh, 89.60 and 84 per cent of the villages have primary schools within the village respectively. Colleges, vocational training centres and industrial training institutes are inaccessible to most villages in almost all the states in the country. For instance, in Rajasthan, 86.80 per cent villages do not have access to college facilities, while industrial training institutes are not accessible to 94 per cent of the villages. In West Bengal, while colleges are inaccessible for 68 per cent of the villages, industrial training institutes are out of reach of approximately 93 per cent villages. In Assam, 96.8 per cent and 81.4 per cent of the villages do not have access to industrial and vocational training centres respectively. Relatively better off states like Gujarat, Maharashtra and Haryana, too, have a similar story to tell when it comes to education infrastructure for higher education (degree courses) or vocational courses (skillbuilding). In Gujarat, 80.80 per cent of the villages do not have access to colleges, while industrial training institutes and vocational training institutes are inaccessible to 84.80 and 87.90 per cent of the villages respectively. In Maharashtra, only around 27 per cent of the villages have colleges within a radius of 10 km from the village. Vocational training institutes are inaccessible for 81.90 per cent of the villages in Maharashtra. Haryana too has a similar picture with 79.70 and 92.10 per cent of the villages not having access to industrial and vocational training centres respectively. The picture in southern India is no better than northern India, with the exception of Kerala. In Tamil Nadu, college facilities are inaccessible for 75.80 per cent of the villages, while 82.50 per cent of the villages do not have access to any vocational training centre. In Andhra Pradesh, industrial training institutes are not accessed by 85 per cent villages, while vocational training centres are relatively more accessible as only 69.50 per cent villages do not have access to vocational training centres (as compared to industrial training centres). In Kerala, close to 58 per cent of the villages have access to college facilities within a radius of 10 km from the village. Even vocational training centres are accessed by a majority of villages (around 52 per cent). Industrial training institutes are, however, inaccessible to 56.70 per cent of the villages in Kerala.

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As a result of the National Literacy Mission and the linking of the rural education programme with the local self-governance institutions like the village Panchayats, most states in India, whether developed or developing, have been able to ensure access to primary schools for a vast majority of the rural population. What has been lacking is the access to higher education facilities for rural population in most of the states in the country. Most high schools and colleges in the country are established in urban areas and it becomes difficult, expensive and time-consuming for rural people (especially women) to access such services. While the outreach of high schools and colleges has been poor, what has been the greatest cause of disappointment is the poor spread of industrial training institutes and vocational training centres. The skewed distribution of such skill-building institutes shows a lack of focus on the part of the government and the civil society in India to address the issue of ‘skills’ in the Indian population. Skills from vocational training centres or industrial training institutes enable a person to become ‘employable’. This is especially important in the rural context, when we talk of shifting people from farm to non-farm employment in agro-based industries. In order to seek gainful employment in rural agro-based industries, most rural youth—literate or illiterate—would require training in a host of skills. In the absence of skills, most people end up working as ‘unskilled labour’, and thus remain caught in the vicious low-income, low expenditure syndrome. To increase employment opportunities for the rural youth, the government and the private sector need to make the youth more employable by imparting training in skill-building. The National Rural Employment Guarantee Act (NREGA) (2005) emphasises on providing non-farm employment to the rural youth in asset-building activities. These activities require more skilled labour than unskilled labour if the asset to be constructed is done with a long-term view in mind. This further necessitates the need for making industrial training institutes and vocational training centres accessible to more and more villages so that a larger proportion of the rural population can avail of their services and benefit from them. Rural access to health infrastructure

The scenario in the case of rural access to health services is a mixed bag. While most states have tried to ensure access to basic healthcare


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services in a large proportion of villages, access to speciality healthcare facilities to a vast majority of rural population still remains a distant dream. The Integrated Child Development Programme, through the Ministry of Health, has led to a phenomenal increase in the numbers of integrated child development centres in rural areas. In Punjab, for instance, almost every village has access to an anganwadi or a balwadi (integrated child development centres) within a radius of 5 km from the village. Basic healthcare facilities like a health sub-centre is also present within a radius of 5 km for around 95 per cent of the villages in Punjab. In Gujarat, 95 per cent of the villages have integrated child development centres within a radius of 5 km, of which more than 70 per cent of the villages have such centres within the village premises and 95 per cent villages have a health sub-centre within a distance of 10 km from the village, of which 52 per cent of the villages have access to such facilities within a distance of 5 km or less from the village. States like Maharashtra and Haryana have also made significant strides in ensuring primary healthcare facilities to a large number of villages. In Maharashtra, 86 per cent villages have integrated child development centres within the village, while the same figure for Haryana is 95.60 per cent. In Haryana, 59 per cent of the villages have health sub-centres within a distance of 2 km or less from the village, of which 41 per cent of the villages have them in the village itself. Maharashtra, as compared to Haryana, lags behind in providing access to health sub-centres. For instance, in Maharashtra, 68 per cent of the villages have access to such facilities within a distance of 5 km or less, of which only 23.70 per cent of the villages have such facilities present within the village. The southern states in India too have a significant presence in ensuring rural access to basic healthcare facilities. In Kerala, for instance, 98.60 per cent of the villages have access to integrated child development centres within the village and 97.50 per cent of the villages have access to health sub-centres within a radius of less than 5 km from the village. Unlike other states, Kerala has a wider coverage of villages under primary health centres as well. As per the data, 93 per cent of the villages have access to primary healthcare centres within a distance of less than 5 km, of which close to 20.20 per cent of the villages have such centres within the village. Contrast this figure (20.20 in Kerala) with corresponding figures for states like Haryana (12.20 per cent),

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Maharashtra (7.70 per cent), Gujarat (9.80 per cent) and Punjab (8.00 per cent), and we find that a higher percentage of villages in Kerala have access to primary healthcare centres than in most other developed states in the country. Rajasthan is a notable exception; despite being a relatively underdeveloped state, around 26 per cent villages have access to primary healthcare centres in the village. The presence and availability of private healthcare facilities is, on an average, fairly high in most states. As per the estimates by the National Commission on Macroeconomics and Health (Ministry of Health and Family Welfare, Government of India), majority of the service delivery in health in rural India (78 per cent) is through private clinics and private doctors. This puts a question mark on the efficacy of government subsidies on healthcare. In Tamil Nadu, while primary health centres and government hospitals are present in 16.80 per cent and 3.70 per cent of its villages respectively, private clinics and private doctors are present in 20.90 per cent. In Andhra Pradesh, while primary healthcare centres and government hospitals are present in 6.70 and 4.60 per cent of its villages respectively, private clinics are established in more than 31.50 per cent of the villages in the state. The picture is much the same in Uttar Pradesh as well where the government health machinery (primary health centres and government hospitals) are present only in 4.80 per cent of the villages, while private hospitals and clinics are present in more than 21 per cent of the villages in the state. Even in states like Kerala, where the government healthcare system has a relatively more widespread presence as compared to other states, 49.50 per cent of the villages have a private clinic or a private doctor within the village premises, and 29.60 per cent of the villages have private clinics within a radius of 2 km from the village premises. The outreach of private clinics in rural areas is far higher than government healthcare facilities like primary health centres or a government hospital even in states like Haryana and Maharashtra where 56 per cent and 39 per cent of the villages in the respective states have private clinics within the village. Assam has a much lower outreach of health services as both the public and the private healthcare systems (primary health centres and private clinics) are present in only 1.90 and 2.20 per cent of the villages respectively.


79

Rural access to metalled and all-weather roads

Infrastructure for market access generates access to income-sources and livelihood opportunities. Developed states like Punjab and Haryana in the north have a wide network of metalled and all-weather roads covering a majority of villages in the state. In Punjab, for instance, 81.10 per cent of its villages have metalled roads right upto the village and 78.50 per cent of the villages are connected through all-weather roads. Haryana has outperformed Punjab in road network in rural areas. Around 98 per cent villages in Haryana have metalled roads and 99 per cent villages are connected through all-weather roads. While in Punjab, bus connectivity in the village exists in about 44 per cent of the villages, 70 per cent villages in Haryana have bus connectivity right upto the village premises. Southern states like Kerala and Tamil Nadu have a wide coverage of villages through metalled and all-weather roads. Around 97 per cent of the villages in Kerala have metalled roads in the village and 99.30 per cent villages are connected through all-weather roads. Close to 96.40 per cent villages have connectivity through buses. In Tamil Nadu, 87.60 per cent villages have access to metalled roads right in the village and 85.20 per cent villages are connected through all-weather roads. Bus connectivity is present upto the village in almost 78 per cent of the villages. States like Gujarat and Maharashtra also have a majority of villages connected through all-weather roads (78.10 per cent and 74 per cent respectively). Bus connectivity is higher in Gujarat as compared to Maharashtra (76.20 per cent and 52 per cent respectively). The relatively underdeveloped states like Uttar Pradesh, Madhya Pradesh, Rajasthan and West Bengal have a lower coverage of villages through metalled and all-weather roads. Uttar Pradesh, for instance, has less than half of the total villages (46.90 per cent) connected through metalled roads upto the village premises. All-weather roads also connect only 57.60 per cent villages in the state. Bus connectivity till the village is only present for 10.20 per cent villages. Around 23 per cent villages have bus connectivity at a distance of around 2 km and 27.50 per cent villages have bus connectivity at a distance of 2 to 5 km from the village. In Madhya Pradesh, metal roads connect 21 per cent of all of the villages. At the same time, all-weather roads connect only 44.70 per cent of the villages in the state. Bus connectivity till the village is also limited

80


to approximately 22 per cent of the villages in the state. In West Bengal, while only 29.20 per cent of its villages have access to metalled roads till the village, 71.10 per cent are connected through all-weather roads. Bus services till the village are, however, limited to only 18.20 per cent of the villages in the state. In Rajasthan, while metalled roads till the village are accessible to 59 per cent of the villages, all-weather roads till the village are present in 74.60 per cent of the villages in the state. Bus connectivity till the village is present in 48.50 per cent of the villages. Rural access to post offices and telecommunication facilities

Post offices and telecommunication facilities (PCO) display more or less a similar picture in almost all states. In Punjab, post offices are accessible to 56 per cent of the villages within a distance of 2 km or less. However, 95 per cent of the villages in Punjab have access to postal services within a radius of 5 km from the village. Telecommunication facilities through public telephone kiosks are also accessible to 53.70 per cent of the villages within a radius of 2 km from the village, and accessible to 90 per cent of the villages within a radius of 5 km from the village. Similarly, in West Bengal, 87.50 per cent of the villages have post offices within a radius of 5 km from the village, while telecommunication facilities are accessible to 67 per cent within a radius of 5 km from the village. In Haryana, around 94.50 per cent of the villages have access to post offices within a radius of less then 5 km from the village. Similarly, telecommunication facilities are accessible to 81.50 per cent of the villages within a radius of less than 5 km from the village. In Rajasthan, 86.80 per cent of the villages have access to post offices within a radius of less than 5 km from the village, while telecommunication facilities are accessible to 71 per cent of the villages within a distance of less than 5 km from the village. Access to post offices and telecommunication facilities is better in Kerala as compared to most other states in the country. In Kerala, 88.10 per cent of the villages have access to post offices within a range of less than 2 km from the village. Similarly, 76 per cent of the villages have access to telecommunication facilities within a radius of 2 km from the village and 91 per cent of the villages have access to telephone facilities within a radius of less than 5 km from the village.


81

Developed states in the west like Gujarat and Maharashtra also have a wide presence of postal facilities than telecommunication facilities in rural areas. In Gujarat, 86 per cent of the villages have access to post offices within a radius of less than 5 km from the village, while telecommunication facilities are accessed by 58 per cent of the villages within a radius of less than 5 km from the village. Similarly in Maharashtra, 85 per cent of the villages have access to post offices within a range of less than 5 km, while telecommunication facilities are accessible to only 50 per cent of the villages within a radius of less than 5 km from the village. The picture is much the same in the relatively underdeveloped states like Uttar Pradesh and Madhya Pradesh. Post offices are accessible to 94.50 per cent of the villages within a radius of less than 5 km in Uttar Pradesh, while telecommunication facilities are accessible within a similar radius to 67 per cent villages. In Madhya Pradesh, 82.30 per cent of the villages have access to postal services within a radius of 5 km from the village, while telecommunication facilities are accessible to 54 per cent villages within similar distance. In Tamil Nadu, 89.50 per cent of the villages have access to postal facilities within a radius of 5 km from the village. Telecommunication facilities are accessible to 82.30 per cent of the villages in Tamil Nadu within similar distance. In Andhra Pradesh, 77.70 per cent of the villages have access to postal facilities within a radius of 5 km. Telecommunication facilities are inaccessible to 35 per cent of the villages, and only 53 per cent have access to telecommunication facilities within a range of 5 km from the village. Rural access to banking facilities

In Punjab, 89.80 per cent of the villages have access to banking and credit facilities within a distance of less than 5 km, of which 22.20 per cent of the villages have banking facilities present within the village itself. In Rajasthan, however, banking facilities are not as widespread as in the case of Punjab. Less than 50 per cent of the villages have access to banking services within a radius of 5 km from the village. Only 6.70 per cent of the villages have banking facilities within the village. Even in West Bengal, 52.50 per cent of the villages have access to banking facilities within a radius of 5 km from the village. Banking infrastructure is rather weak in Assam. Only 29.20 per cent of the villages in Assam have access to banking infrastructure within a

82


distance of 5 km from the village. Even in Gujarat, a relatively developed state, rural access to banking facilities is rather poor with only 30 per cent of the villages having access to banking facilities within a radius of 5 km from the village. However, in Gujarat, if we increase the radius from 5 to 10 km, another 44.40 per cent of the villages show accessibility to banking facilities. In Maharashtra, approximately 50 per cent of the villages have access to banking facilities within a distance of less than 5 km from the village. In Haryana, 89 per cent of the villages have access to banks within 5 km from the village, while 87.20 per cent of the villages in Kerala have access to banking facilities in similar range. In Madhya Pradesh, 57.30 per cent of the villages have access to banking facilities within a radius of 5 km from the village, while in Uttar Pradesh 53.80 per cent of the villages have access to banking facilities in similar range. The picture is the same in Andhra Pradesh with 53.30 per cent of the villages having access to banking facilities within a range of 5 km from the village, while in Tamil Nadu, 68.70 per cent of the villages have access to banking infrastructure within 5 km from the village.

Concluding remarks Whether or not a statistical link is established between economic growth and infrastructure, it is clear that infrastructure and economic growth are inherently related. Infrastructure enables development in rural and urban areas by providing market access to the people, and ensures linking the producers with the buyers in an integrated market. Infrastructure ensures speedier flow of information and reduces transaction costs in doing business. Social infrastructure facilities like health and education infrastructure ensure a better quality of life for the people—both in rural and urban areas. Since a vast majority of the population resides in rural areas, and development challenges are more pronounced in the villages as compared to the cities, provisioning for infrastructure facilities in rural areas enables a more marketled growth. Infrastructure also enables diversification of the rural


83

economy by opening newer vistas for economic activities, especially non-farm activities and agro-based industries. Keeping the above imperatives in consideration, and the pressing need for rural development through provisioning of infrastructure facilities, the Government of India in the year 2004–05 announced the ‘Bharat Nirman’ programme for rural reconstruction. Under this programme, the government has allocated INR 17,600 billion. This fund is to be utilised in constructing infrastructure facilities, especially in rural India. Irrigation infrastructure would get an allocation of INR 6,850 billion, while roads and housing shall be allocated INR 4,755.4 billion and INR 1,110 billion respectively. Rural electrification has a share of INR 2,330 billion, while drinking water has an allocation of INR 2,530 billion in the fund (www.indiastat.com). In an enabling environment, infrastructure reduces the transaction cost of doing business. Viewed in this fashion, it is easy to identify what constitutes basic infrastructure that all businesses need, whether in rural or urban areas, and specialised infrastructure that specific businesses need. Almost by definition, the general infrastructure is a public good and requires government involvement; demand for specific infrastructure, on the other hand, being a result of growth in particular sectors and types of economic activity may be more conducive to private participation and government facilitation. Health, education and physical connectivity across villages are obvious examples of the first category; warehousing facilities, cold storages and airports are examples of the second. The other advantage of classifying infrastructure in this way is that it is easier to develop the monitoring parameters. While the government needs to play a proactive role in developing rural infrastructure, there is also a need for the private sector to contribute their share. There are examples from Indian corporates like the ITC Limited, which have invested heavily in providing rural access to Internet and telecom facilities (e-choupals). However, such examples are exceptions and not the norm in rural India. A robust public–private partnership for developing rural infrastructure is the need of the hour, and such a joint effort between the government and the corporates shall open new business opportunities both for the corporates as well as the rural populace.

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Appendix Table 2.1 (a)

Rural Access to Education Infrastructure

All India: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km

Pre-primary schools Primary schools Middle schools Secondary schools Higher secondary schools Colleges Industrial training institutes Vocational training centres

66.50 72.30 28.90 11.90 4.10 0.60 0.30 6.80

14.30 16.20 21.60 14.50 8.30 1.60 0.70 2.10

4.70 6.20 35.10 38.50 24.90 7.80 0.30 5.10

1.40 1.50 7.80 20.00 24.70 16.10 6.30 5.50

13.10 3.80 6.60 15.10 38.00 73.90 92.40 80.50

Source: NSS 58th Round, Report 487, Census of India (2001). Table 2.1 (b)

Rural Access to Health Infrastructure

All India: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km

Anganwadi/balwadi Sub-centre/dispensary Primary health centre CHC/govt. hospital Private hospital Private clinic/doctor Medicine shop

54.80 16.30 6.50 1.80 1.90 20.10 10.30

11.30 16.00 10.10 3.70 3.80 12.60 13.20

14.00 31.80 27.80 15.50 13.30 24.60 27.10

5.90 18.90 26.80 22.20 18.10 20.00 21.70

14.00 17.00 28.80 56.80 62.90 22.70 27.70

Source: NSS 58th Round, Report 487, Census of India (2001). Table 2.1 (c)

Rural Infrastructure for Market Access

All India: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km

Railway station Bus stop Metalled roads

1.20 30.50 44.60

2.30 17.10 16.00

8.30 24.40 19.10

12.80 15.00 8.90

75.40 13.00 11.40

(Table 2.1 [c] continued )

85

Services in Rural India (Table 2.1 [c] continued ) Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km

All-weather roads Post offices PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market

57.40 21.60 19.60 6.60 13.30 43.10 11.00

13.50 25.80 14.10 11.70 14.70 21.80 14.80

16.20 35.40 25.50 33.60 27.60 22.30 32.30

5.70 10.40 14.30 23.60 20.30 7.70 18.80

7.20 6.80 26.50 24.50 24.10 5.10 23.10

Source: NSS 58th Round, Report 487, Census of India (2001). Table 2.2 (a)

Education Infrastructure—Andhra Pradesh

Andhra Pradesh: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km


69.60 82.70 45.60 23.70 4.50 1.50 1.40 17.50

0.00 0.00 8.10 9.50 1.70 0.90 0.10 0.30

>2 and 5 and 10 km

3.90 13.20 23.60 29.70 12.80 3.10 1.60 6.30

0.00 0.00 3.10 9.40 23.30 16.20 12.10 6.40

26.50 4.10 19.60 27.70 57.70 78.30 84.80 69.50


Health Infrastructure—Andhra Pradesh

Andhra Pradesh: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km


70.80 25.90 6.70 4.60 3.40 31.50 17.80

4.50 5.80 3.20 2.90 2.00 4.90 5.00

>2 and 5 and 10 km

14.10 28.90 20.90 11.70 12.40 14.60 15.20

1.00 14.60 27.30 20.60 22.30 12.40 22.70

9.60 24.80 41.90 60.20 59.90 36.60 39.30

Source: NSS 58th Round, Report 487, Census of India (2001).

86

STATES OF THE INDIAN ECONOMY Table 2.2 (c)

Infrastructure for Market Access— Andhra Pradesh

Andhra Pradesh: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

Railway station Bus stop Metalled roads All-weather roads Post offices PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market

1.80 64.80 68.00 65.70 50.30 31.50 23.10 17.90 70.40 12.90

0.60 7.50 6.60 6.40 6.50 5.90 4.40 4.30 5.00 8.90

>2 and 5 and 10 km

4.50 6.10 9.00 18.50 20.90 15.40 25.20 14.90 5.90 18.10

12.20 10.20 11.00 2.90 7.30 12.20 17.40 33.00 14.00 25.70

80.90 11.40 5.40 6.50 15.00 35.00 29.90 29.90 4.70 34.40


Education Infrastructure—Assam

Assam: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


70.90 74.10 26.90 8.20 2.70 1.00 0.00 1.50

10.40 10.70 32.50 22.80 8.90 1.30 0.50 3.10

11.40 14.30 25.20 34.50 25.70 12.10 0.70 4.20

5.10 0.90 15.40 30.00 28.10 20.90 2.00 9.80

2.20 0.00 0.00 4.50 34.60 64.70 96.80 81.40


Health Infrastructure—Assam

Assam: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km

Anganwadi/balwadi Sub-centre/dispensary

52.90 8.20

15.20 20.60

17.80 36.30

3.90 22.40

10.20 12.50

(Table 2.3 [b] continued )

87

Services in Rural India (Table 2.3 [b] continued ) Facility (Health) Primary health centre CHC/govt. hospital Private hospital Private clinic/doctor Medicine shop

Within village

< 2 km

>2 and 5 and 10 km

1.90 0.30 0.10 2.20 1.90

13.70 6.30 2.20 8.60 12.40

33.60 14.80 5.00 25.70 19.80

16.90 13.30 5.10 29.70 20.10

33.90 65.30 87.60 33.80 45.80


Infrastructure for Market Access—Assam

Assam: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


0.10 15.30 20.40 36.90 10.40 3.30 1.10 5.80 55.10 5.60

2.60 21.80 17.80 22.00 25.50 12.70 7.30 27.10 25.50 33.30

6.80 19.70 18.00 9.80 39.30 22.10 20.80 22.60 16.80 45.20

15.10 37.00 29.60 21.30 23.80 19.90 28.20 25.70 2.50 12.40

75.40 6.20 14.20 10.00 1.00 42.00 42.60 18.80 0.10 3.50


Education Infrastructure—Bihar

Bihar: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


44.90 50.60 14.70 5.20 0.60 0.10 0.00 3.70

13.80 14.40 21.40 12.40 2.90 2.10 1.50 1.60

0.90 3.70 27.30 28.40 13.60 7.00 1.20 5.90

0.20 0.40 4.70 17.60 17.70 14.00 3.00 4.10

40.20 30.90 31.90 36.40 65.20 76.80 94.30 84.70


88

STATES OF THE INDIAN ECONOMY Table 2.4 (b)

Health Infrastructure—Bihar

Bihar: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


21.70 11.30 7.60 1.10 1.20 13.50 15.60

11.30 17.40 15.70 4.90 5.60 13.60 18.30

13.80 27.70 25.90 18.80 16.60 23.50 25.50

5.30 8.60 11.50 20.70 16.90 13.50 7.70

47.80 35.00 39.30 54.60 59.80 35.90 32.90


Infrastructure for Market Access—Bihar

Bihar: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


1.20 12.00 22.10 35.70 14.90 18.90 3.30 12.70 39.00 10.50

3.00 15.80 18.00 13.20 27.90 14.70 15.00 13.00 20.70 21.50

11.10 37.00 31.00 27.20 23.80 35.80 31.80 25.00 8.80 26.70

11.50 12.60 9.20 6.10 2.70 10.80 29.80 12.80 16.20 7.50

73.20 22.70 19.60 17.80 30.90 19.80 20.20 36.40 15.30 33.90


Education Infrastructure—Gujarat

Gujarat: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km 2.10 0.00 2.10

(Table 2.5 [a] continued )


89

(Table 2.5 [a] continued ) Facility (Education)

Within village

< 2 km

Secondary schools Higher secondary schools Colleges Industrial training institutes Vocational training centres

17.40 5.30 1.90 0.70 1.30

4.30 1.00 0.20 0.70 0.20

>2 and 5 and 10 km

44.90 11.30 5.30 3.90 2.10

20.80 39.50 11.80 9.90 8.50

12.60 42.90 80.80 84.80 87.90


Health Infrastructure—Gujarat

Gujarat: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km


70.50 24.10 9.80 2.70 1.20 25.40 3.10

0.00 1.60 2.60 0.70 0.20 4.10 1.30

>2 and 5 and 10 km

24.30 26.50 22.80 6.70 9.80 20.20 14.00

5.20 43.20 48.90 16.00 13.40 44.20 18.60

0.00 4.60 15.90 73.90 75.40 6.10 63.00


Market Access—Gujarat

Gujarat: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


2.00 76.20 79.00 78.10 35.80 16.80 5.60 18.20 44.30 4.60

1.10 5.30 8.70 8.70 5.20 2.00 2.10 0.20 21.90 0.50

7.70 9.00 6.20 7.10 45.00 39.30 22.30 18.00 18.50 12.40

13.60 8.90 6.10 5.20 12.40 19.80 44.40 38.50 13.90 20.90

75.60 0.60 0.00 0.90 1.60 22.10 25.60 25.10 1.40 61.60


90

STATES OF THE INDIAN ECONOMY Table 2.6 (a)

Education Infrastructure—Haryana

Haryana: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


87.40 94.50 62.80 35.40 12.40 0.30 0.90 1.90

4.50 4.50 18.30 25.20 14.50 0.00 0.00 0.90

0.00 1.00 17.80 26.30 40.90 11.80 5.70 0.00

0.00 0.00 1.10 8.20 14.10 13.00 13.70 5.10

8.10 0.00 0.00 4.90 18.10 74.90 79.70 92.10


Health Infrastructure—Haryana

Haryana: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


95.60 41.20 12.20 2.80 1.40 56.80 18.20

3.40 17.10 11.20 5.40 2.50 15.80 21.20

0.00 29.20 32.10 18.50 21.20 11.70 38.40

1.00 7.80 19.50 16.00 16.30 6.50 12.10

0.00 4.70 25.00 57.30 58.60 9.20 10.10


Infrastructure for Market Access—Haryana

Haryana: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km

Railway station Bus stop Metalled roads All-weather roads

2.30 69.40 98.00 99.30

1.80 11.10 0.70 0.70

11.10 16.30 1.30 0.00

19.90 1.20 0.00 0.00

64.90 2.00 0.00 0.00



91

(Table 2.6 [c] continued ) Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km

Post offices PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market

38.20 34.60 37.00 18.20 89.90 7.60

29.00 5.80 23.00 10.60 1.30 5.00

27.30 41.20 29.00 42.80 7.80 28.50

5.50 7.50 5.10 8.70 0.00 19.30

0.00 10.90 5.90 19.70 1.00 39.60


Education Infrastructure—Karnataka

Karnataka: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


74.10 74.30 47.50 16.60 3.20 1.10 1.10 3.70

3.10 3.10 11.10 8.00 4.20 2.60 0.20 0.30

22.60 22.60 36.80 45.60 21.20 11.90 9.30 7.70

0.00 0.00 3.60 10.00 28.90 21.50 18.30 12.50

0.20 0.00 1.00 19.80 42.50 62.90 71.10 75.80


Health Infrastructure—Karnataka

Karnataka: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


67.90 15.90 10.10 2.70 2.00 19.50 7.90

6.30 9.90 10.40 4.60 5.20 7.70 8.60

22.90 36.10 35.30 18.30 13.80 38.90 24.60

2.10 13.70 15.00 24.10 24.50 15.90 25.20

0.80 24.40 29.20 50.30 54.50 18.00 33.70


92


Infrastructure for Market Access—Karnataka

Karnataka: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


0.80 40.00 54.00 60.60 31.90 19.40 8.90 12.30 44.30 5.80

3.30 16.40 14.40 6.80 15.90 3.90 6.20 5.10 16.10 5.20

3.40 30.00 27.40 28.70 49.40 38.60 41.30 33.40 34.60 32.10

15.90 13.00 3.20 3.00 1.10 10.00 15.70 18.80 3.90 23.20

76.60 0.60 1.00 0.90 1.70 28.10 27.90 30.40 1.10 33.70


Education Infrastructure—Kerala

Kerala: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


80.80 68.40 38.50 20.20 11.60 1.20 1.90 19.80

17.10 26.20 38.20 37.40 24.40 6.90 3.50 15.80

2.10 5.40 18.80 33.60 35.20 16.20 12.00 4.90

0.00 0.00 4.50 7.50 22.00 33.00 25.90 10.90

0.00 0.00 0.00 1.30 6.80 42.70 56.70 48.60


Health Infrastructure—Kerala

Kerala: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km 0.00 0.70 1.20


93

Services in Rural India (Table 2.8 [b] continued ) Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km

CHC/govt. hospital Private hospital Private clinic/doctor Medicine shop

8.60 14.30 49.50 41.00

18.20 32.30 29.60 31.00

31.40 34.80 14.10 21.20

25.80 13.50 4.80 4.20

16.00 5.10 2.00 2.60


Infrastructure for Market Access—Kerala

Kerala: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


0.90 96.40 97.20 99.30 47.60 51.80 17.60 38.60 80.70 49.70

5.80 2.90 2.80 0.00 40.50 23.70 34.90 36.90 14.10 20.00

14.30 0.00 0.00 0.70 10.60 15.60 34.70 16.30 3.30 16.90

20.00 0.00 0.00 0.00 1.30 6.40 10.30 7.60 1.90 7.90

59.00 0.70 0.00 0.00 0.00 2.50 2.50 0.60 0.00 5.50


Education Infrastructure—Madhya Pradesh

Madhya Pradesh: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


72.80 84.60 27.60 5.10 3.20 0.10 0.10 10.10

11.80 11.80 13.70 2.40 1.20 1.00 0.20 0.20

1.40 3.50 52.90 51.90 41.20 11.30 3.30 11.20

0.00 0.00 5.80 21.00 24.50 13.90 2.20 4.60

14.00 0.10 0.00 19.60 29.90 73.70 94.20 73.90


94


Health Infrastructure—Madhya Pradesh

Madhya Pradesh: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


60.40 9.00 4.70 0.30 0.70 16.90 4.80

13.90 3.70 0.50 0.00 0.20 5.30 1.50

22.40 50.80 34.00 17.00 9.70 47.80 39.50

2.60 19.20 27.60 14.50 15.20 12.60 23.40

0.70 17.30 33.20 68.20 74.20 17.40 30.80


Infrastructure for Market Access— Madhya Pradesh

Madhya Pradesh: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


1.10 21.80 21.00 44.70 15.60 19.40 6.70 6.80 22.60 4.30

0.70 25.00 19.90 17.90 10.40 1.60 3.40 2.90 7.80 5.90

7.50 29.80 27.60 17.90 56.30 34.00 46.90 46.50 51.40 43.70

8.60 15.20 15.10 12.50 10.30 16.10 21.80 26.60 13.90 26.00

82.10 8.20 16.40 7.00 7.40 28.90 21.20 17.20 4.30 20.10


Education Infrastructure—Maharashtra

Maharashtra: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km 4.20 0.00 1.00



95

(Table 2.10 [a] continued ) Facility (Education)

Within village

< 2 km

Secondary schools Higher secondary schools Colleges Industrial training institutes Vocational training centres

24.60 5.70 1.20 0.70 7.80

9.80 6.40 1.00 1.30 0.30

>2 and 5 and 10 km

44.60 19.90 10.70 5.80 6.30

13.30 23.30 14.00 14.10 3.70

7.70 44.70 73.10 78.10 81.90


Health Infrastructure—Maharashtra

Maharashtra: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km


85.80 23.70 7.70 2.10 5.20 39.00 10.20

0.00 9.80 4.50 2.60 3.20 7.40 6.30

>2 and 5 and 10 km

10.20 35.40 31.50 14.70 16.10 21.60 27.70

1.40 19.30 28.30 19.30 22.20 24.30 27.10

2.60 11.80 28.00 61.30 53.30 7.70 28.70


Infrastructure for Market Access—Maharashtra

Maharashtra: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


2.00 52.00 69.30 74.00 31.10 15.50 12.80 18.90 68.10 12.40

0.30 18.40 9.70 8.80 13.10 8.90 7.30 7.40 9.80 7.20

7.60 23.30 17.30 14.60 40.90 23.90 30.90 25.80 19.90 33.80

9.80 5.00 1.50 1.40 13.20 16.80 27.80 22.10 2.20 29.50

80.30 1.30 2.20 1.20 1.70 34.90 21.20 25.80 0.00 17.10


96


Education Infrastructure—Orissa

Orissa: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


61.50 64.80 30.80 14.20 1.20 1.00 0.20 5.00

7.40 9.60 16.40 16.20 3.60 2.30 0.70 1.60

0.00 2.80 20.80 25.90 10.20 6.00 0.70 3.60

16.30 16.70 8.20 18.70 23.60 20.20 3.60 2.80

14.80 6.10 23.80 25.00 61.40 70.50 94.80 87.00


Health Infrastructure—Orissa

Orissa: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


51.80 5.80 2.00 0.30 0.30 4.10 5.60

15.60 9.50 3.50 0.80 1.50 3.00 6.00

11.20 21.70 14.40 6.80 1.40 15.40 23.70

2.70 25.60 25.90 16.10 11.10 22.20 23.80

18.70 37.40 54.20 76.00 85.70 55.30 40.90


Infrastructure for Market Access—Orissa

Orissa: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km

Railway station Bus stop Metalled roads All-weather roads Post offices

0.30 10.10 31.50 47.60 16.20

1.80 12.90 11.90 14.80 19.00

3.80 27.40 26.30 12.00 28.10

7.80 19.20 7.60 9.00 26.40

86.30 30.40 22.70 16.60 10.30



97


Within village

< 2 km

>2 and 5 and 10 km

PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market

13.50 3.60 4.80 27.20 6.70

8.60 4.80 10.50 12.80 7.00

9.80 22.20 26.60 34.10 26.20

15.90 24.20 18.90 8.60 27.40

52.20 45.20 39.20 17.30 32.70


Education Infrastructure—Punjab

Punjab: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


78.50 83.80 34.90 21.80 8.10 0.20 0.10 7.30

2.40 3.60 24.90 26.00 18.10 3.30 1.70 0.00

13.80 12.60 37.80 47.20 43.10 18.90 9.70 10.80

0.00 0.00 2.40 5.00 17.30 26.90 6.40 5.40

5.30 0.00 0.00 0.00 13.40 50.70 82.10 76.50


Health Infrastructure—Punjab

Punjab: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


67.50 25.40 8.00 1.20 2.40 54.50 20.80

15.70 26.10 18.70 3.20 14.60 19.10 23.60

16.00 44.20 38.10 28.70 38.70 14.60 40.30

0.30 2.10 16.40 21.40 18.50 9.70 10.60

0.50 2.20 18.80 45.50 25.80 2.10 4.70


98


Infrastructure for Market Access—Punjab

Punjab: Market Access Infrastructure—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


2.50 44.20 81.10 78.50 26.90 28.10 22.20 15.90 54.40 4.20

4.20 22.00 15.10 12.10 28.80 25.60 21.60 16.60 17.80 13.10

18.50 27.80 3.80 9.40 40.10 36.60 46.00 49.80 25.50 24.00

20.30 6.00 0.00 0.00 2.40 9.70 8.80 16.50 1.20 10.70

54.50 0.00 0.00 0.00 1.80 0.00 1.40 1.20 1.10 48.00


Education Infrastructure—Rajasthan

Rajasthan: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


77.60 89.60 30.50 12.20 4.30 0.20 0.10 12.40

3.10 8.00 23.30 12.40 2.30 0.00 0.00 8.80

2.50 1.70 39.00 41.30 24.40 0.70 0.10 8.60

0.00 0.00 6.20 21.90 27.50 12.30 3.20 6.00

16.80 0.70 1.00 12.20 41.50 86.80 96.60 64.20


Health Infrastructure—Rajasthan

Rajasthan: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km

Anganwadi/balwadi Sub-centre/dispensary Primary health centre

12.40 55.50 26.60

8.80 18.70 15.80

8.60 20.10 38.60

6.00 4.40 13.20

64.20 1.30 5.80


99

Services in Rural India (Table 2.13 [b] continued ) Facility (Health)

Within village

< 2 km

CHC/govt. hospital Private hospital Private clinic/doctor Medicine shop

6.50 0.70 10.50 6.60

3.60 1.40 5.00 8.30

>2 and 5 and 10 km

29.00 12.30 26.30 22.10

31.50 14.20 19.70 33.70

29.40 71.40 38.50 29.30


Infrastructure for Market Access—Rajasthan

Rajasthan: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


3.50 48.50 59.00 74.60 23.60 27.20 6.70 9.70 31.10 7.10

0.50 15.10 11.50 8.80 23.60 11.60 3.90 10.60 16.00 3.60

7.30 17.60 18.60 10.40 39.60 32.50 28.90 33.40 33.40 22.90

18.80 14.70 7.10 3.30 11.00 12.40 27.10 20.70 15.20 28.90

69.90 4.10 3.80 2.90 2.20 16.30 33.40 25.60 4.30 37.50


Education Infrastructure—Tamil Nadu

Tamil Nadu: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


79.10 82.60 35.40 15.60 7.20 0.40 1.50 3.30

5.30 4.70 18.40 14.60 8.20 1.60 2.40 1.70

1.10 5.10 30.80 43.80 38.60 9.70 10.70 4.80

0.00 0.00 4.50 12.30 20.40 12.50 13.20 7.70

14.50 7.60 10.90 13.70 25.60 75.80 72.20 82.50


100


Health Infrastructure—Tamil Nadu

Tamil Nadu: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


75.60 33.90 16.80 3.70 4.80 20.90 15.00

9.10 10.30 9.90 7.20 8.90 14.80 10.20

6.60 28.90 30.80 23.70 27.90 30.60 36.10

1.00 11.90 23.40 22.10 23.30 13.90 15.80

7.70 15.00 19.10 43.30 35.10 19.80 22.90


Infrastructure for Market Access—Tamil Nadu

Tamil Nadu: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


1.20 78.00 87.60 85.20 45.20 45.30 17.70 25.20 80.10 24.70

4.30 5.20 3.00 4.40 23.10 17.10 14.90 11.80 8.00 8.00

11.70 7.70 0.80 0.80 21.20 20.00 36.00 36.40 4.20 27.80

15.40 0.60 0.00 0.00 2.80 5.90 11.20 9.90 0.00 18.10

67.40 8.50 8.60 9.60 7.70 11.70 20.20 16.70 7.70 21.40


Education Infrastructure—Uttar Pradesh

Uttar Pradesh: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km 8.70 0.10 0.70 5.80


101

Services in Rural India (Table 2.15 [a] continued ) Facility (Education) Higher secondary schools Colleges Industrial training institutes Vocational training centres

Within village

< 2 km

>2 and 5 and 10 km

4.60 0.20 0.00 4.20

18.00 1.40 0.20 1.50

29.90 9.80 2.40 3.80

27.40 15.90 4.10 2.20

20.10 72.70 93.30 88.30


Health Infrastructure—Uttar Pradesh

Uttar Pradesh: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


37.20 10.40 3.60 1.20 2.10 19.80 10.70

11.00 24.80 17.00 3.50 6.00 27.60 28.10

9.90 28.70 26.90 15.40 17.70 22.80 32.00

13.80 27.50 38.50 34.20 28.20 24.60 23.40

28.10 8.60 14.00 45.70 46.00 5.20 5.80


Infrastructure for Market Access— Uttar Pradesh

Uttar Pradesh: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km


0.80 10.20 46.90 57.60 13.60 16.70 3.80 10.90 42.90 11.90

4.00 22.80 24.90 19.00 47.10 27.50 19.70 29.20 42.30 24.40

13.10 27.50 13.70 21.50 33.90 22.70 30.30 29.40 10.20 45.70

17.40 20.40 2.80 1.50 4.90 14.40 23.60 13.70 1.50 11.50

64.70 19.10 11.70 0.40 0.50 18.70 22.60 16.80 3.10 6.50


102


Education Infrastructure—West Bengal

West Bengal: Education Infrastructure (Rural)—% Villages Facility (Education)

Within village

< 2 km

>2 and 5 and 10 km


74.70 76.30 19.60 13.30 5.70 0.60 0.00 14.70

13.80 17.20 28.10 21.30 10.40 1.10 0.00 3.90

2.30 6.00 36.90 39.70 37.10 7.70 1.30 3.60

0.90 0.50 15.30 15.20 27.20 22.20 6.00 7.40

8.30 0.00 0.10 10.50 19.60 68.40 92.70 70.40


Health Infrastructure—West Bengal

West Bengal: Health Infrastructure (Rural)—% Villages Facility (Health)

Within village

< 2 km

>2 and 5 and 10 km


70.80 24.70 8.90 2.80 2.00 39.20 9.80

17.70 27.50 11.30 4.60 0.30 13.00 12.00

4.50 26.40 27.40 14.00 5.00 19.40 21.10

4.70 12.20 24.40 19.80 18.50 18.00 21.60

2.30 9.20 28.00 58.80 74.20 10.40 35.50


Infrastructure for Market Access—West Bengal

West Bengal: Market Access Infrastructure (Rural)—% Villages Facility (Market Access)

Within village

< 2 km

>2 and 5 and 10 km

Railway station Bus stop Metalled roads All-weather roads Post offices

1.00 18.20 29.20 71.10 23.40

4.20 20.10 20.90 9.60 32.10

11.40 30.70 26.00 9.90 32.00

19.30 20.40 14.50 6.10 7.20

64.10 10.60 9.40 3.30 5.30



103


Within village

< 2 km

>2 and 5 and 10 km

PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market

24.10 8.30 26.70 35.60 18.20

16.30 13.10 23.30 35.00 22.90

26.70 31.10 26.60 25.90 39.60

16.70 21.80 11.70 2.60 10.70

16.20 25.70 11.70 0.90 8.60


76.63 84.03 53.17 34.15 19.02 5.51 1.44 10.14

66.37 37.33 23.58 10.89 9.98 37.04 28.52

6.35 49.58

Facility (Health) Anganwadi/balwadi Sub-centre/dispensary Primary health centre CHC/govt. hospital Private hospital Private clinic/doctor Medicine shop

Facility (Market Access) Railway station Bus stop 93.65 50.42

33.63 62.67 76.42 89.11 90.02 62.96 71.48

23.37 15.97 46.83 65.85 80.98 94.49 98.56 89.86

All India

4.73 72.15

77.83 39.51 17.62 11.91 10.55 40.06 27.63

70.77 86.66 57.85 39.25 11.69 4.59 3.15 20.21

95.27 27.85

22.17 60.49 82.38 88.09 89.45 59.94 72.37

29.23 13.34 42.15 60.75 88.31 95.41 96.85 79.79

Andhra Pradesh

5.21 37.99

67.75 33.69 21.89 9.85 3.43 18.04 17.29

81.07 84.90 55.50 35.23 18.56 7.50 0.71 5.60

Assam

94.79 62.01

32.25 66.31 78.11 90.15 96.57 81.96 82.71

18.93 15.10 44.50 64.77 81.44 92.50 99.29 94.40

7.48 33.84

33.15 30.91 25.94 11.75 11.23 30.06 35.00

53.47 60.39 36.20 22.92 8.19 4.86 1.56 6.84

Bihar

92.52 66.16

66.85 69.09 74.06 88.25 88.77 69.94 65.00

46.53 39.61 63.80 77.08 91.81 95.14 98.44 93.16

Score index Gap index Score index Gap index Score index Gap index Score index Gap index

Facility (Education) Pre-primary schools Primary schools Middle schools Secondary schools Higher secondary schools Colleges Industrial training institutes Vocational training centres

Infrastructure facility

Table 2.17: Rural Infrastructure—Gap Index

39.18 29.07 51.26 62.86 73.94 67.57 36.36 68.55

88.00 89.82 55.30 35.53 13.24 4.79 3.28 2.90

78.31 37.33 23.09 6.73

Facility (Health) Anganwadi/balwadi Sub-centre/dispensary Primary health centre CHC/govt. hospital 21.69 62.67 76.91 93.27

12.00 10.18 44.70 64.47 86.76 95.21 96.72 97.10

Gujarat

60.82 70.93 48.74 37.14 26.06 32.43 63.64 31.45


Metalled roads All-weather roads Post offices PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market

24.24 24.62 38.80 59.12 64.96 71.75 23.43 73.76

97.74 61.00 30.50 13.19

90.10 97.50 79.23 59.23 34.78 5.14 3.98 2.95 2.26 39.00 69.50 86.81

9.90 2.50 20.77 40.77 65.22 94.86 96.02 97.05

Haryana

75.76 75.38 61.20 40.88 35.04 28.25 76.57 26.24

60.56 44.83 60.13 80.46 85.46 68.59 24.31 59.62

78.76 34.04 28.43 13.36

82.74 82.94 65.56 36.08 14.97 8.38 5.84 7.44 21.24 65.96 71.57 86.64

17.26 17.06 34.44 63.92 85.03 91.62 94.16 92.56

Karnataka

39.44 55.17 39.87 19.54 14.54 31.41 75.69 40.38

0.56 36.40 46.07 68.48

8.31 14.26 32.49 46.53 61.00 86.50 89.81 68.16

56.88 47.61 60.95 60.46 75.18 70.72 44.32 67.84

(Table 2.17 continued )

99.44 63.60 53.93 31.52

91.69 85.74 67.51 53.47 39.00 13.50 10.19 31.84

Kerala

43.12 52.39 39.05 39.54 24.82 29.28 55.68 32.16

93.67 17.03 13.31 14.03 46.34 68.23 82.01 72.43 35.62 89.29

94.40 61.66 90.06

80.30 92.73 52.27 24.21

19.70 7.27 47.73 75.79

Madhya Pradesh

6.33 82.97 86.69 85.97 53.66 31.77 17.99 27.57 64.38 10.71

Facility (Market Access) Railway station Bus stop Metalled roads All-weather roads Post offices PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market

Facility (Education) Pre-primary schools Primary schools Middle schools Secondary schools

5.60 38.34 9.94

Gujarat

91.30 18.93 1.19 0.28 35.66 48.81 39.99 61.73 6.98 78.92

89.11 29.56 56.35

95.80 99.48 63.77 45.19

4.20 0.52 36.23 54.81

Maharashtra

8.70 81.07 98.81 99.72 64.34 51.19 60.01 38.27 93.02 21.08

10.89 70.44 43.65

Haryana

67.57 73.07 47.70 33.56

Orissa

5.39 60.14 71.18 73.59 56.37 34.32 26.58 27.26 64.73 20.87

11.71 37.38 22.96

32.43 26.93 52.30 66.44

94.61 39.86 28.82 26.41 43.63 65.68 73.42 72.74 35.27 79.13

88.29 62.62 77.04

Karnataka

84.08 89.74 61.42 52.06

Punjab

10.67 98.14 98.88 99.51 75.21 71.34 49.98 66.39 90.34 67.56

45.47 71.97 66.38

Kerala

15.92 10.26 38.58 47.94

89.33 1.86 1.12 0.49 24.79 28.66 50.02 33.61 9.66 32.44

54.53 28.03 33.62


Private hospital Private clinic/doctor Medicine shop



18.73 5.48 1.43 14.04

75.72 28.38 17.96 6.85 5.25 35.68 19.89

4.63 47.26 42.73 62.06 39.76 32.17 24.99 25.15 44.09 23.55

Higher secondary schools Colleges Industrial training institutes Vocational training centres

Facility (Health) Anganwadi/balwadi Sub-centre/dispensary Primary health centre CHC/govt. hospital Private hospital Private clinic/doctor Medicine shop

Facility (Market Access) Railway station Bus stop Metalled roads All-weather roads Post offices PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market 95.37 52.74 57.27 37.94 60.24 67.83 75.01 74.85 55.91 76.45

24.28 71.62 82.04 93.15 94.75 64.32 80.11

81.27 94.52 98.57 85.96

5.44 70.53 80.46 83.80 52.55 29.69 29.23 33.29 80.17 29.81

89.00 42.13 22.68 10.00 14.17 52.35 25.00

17.84 6.41 4.63 10.24

94.56 29.47 19.54 16.20 47.45 70.31 70.77 66.71 19.83 70.19

11.00 57.87 77.32 90.00 85.83 47.65 75.00

82.16 93.59 95.37 89.76

3.30 27.98 47.29 60.98 38.67 23.19 15.56 20.97 45.97 21.50

64.79 20.57 11.01 4.43 2.73 12.74 18.69

8.78 6.20 1.19 7.32

96.70 72.02 52.71 39.02 61.33 76.81 84.44 79.03 54.03 78.50

35.21 79.43 88.99 95.57 97.27 87.26 81.31

91.22 93.80 98.81 92.68

87.40 33.66 8.70 11.42 43.55 44.59 50.16 57.55 27.15 79.67

18.25 45.47 67.71 86.13 75.38 28.69 51.89

66.38 89.46 95.33 88.92


12.60 66.34 91.30 88.58 56.45 55.41 49.84 42.45 72.85 20.33

81.75 54.53 32.29 13.87 24.62 71.31 48.11

33.62 10.54 4.67 11.08

80.21 94.91 56.80 34.22 15.75 1.64 0.45 20.86

20.86 73.19 48.98 20.51 6.65 23.36 21.58

Facility (Health) Anganwadi/balwadi Sub-centre/dispensary Primary health centre CHC/govt. hospital Private hospital Private clinic/doctor Medicine shop 79.14 26.81 51.02 79.49 93.35 76.64 78.42

19.79 5.09 43.20 65.78 84.25 98.36 99.55 79.14

Rajasthan

83.14 49.94 34.32 17.34 20.84 40.35 33.53

82.61 86.95 56.13 38.73 25.74 5.52 7.47 6.53 16.86 50.06 65.68 82.66 79.16 59.65 66.47

17.39 13.05 43.87 61.27 74.26 94.48 92.53 93.47

Tamil Nadu

48.15 36.64 25.72 11.34 13.83 45.66 39.50

75.57 83.24 50.60 33.83 27.11 5.57 1.25 6.46 51.85 63.36 74.28 88.66 86.17 54.34 60.50

24.43 16.76 49.40 66.17 72.89 94.43 98.75 93.54

Uttar Pradesh

83.24 50.34 26.34 11.74 5.53 54.62 25.49

83.76 88.47 49.06 39.51 25.79 5.79 0.99 18.86

16.76 49.66 73.66 88.26 94.47 45.38 74.51

16.24 11.53 50.94 60.49 74.21 94.21 99.01 81.14

West Bengal





7.87 64.31 72.19 83.33 50.74 45.15 20.42 28.15 52.24 19.02

92.13 35.69 27.81 16.67 49.26 54.85 79.58 71.85 47.76 80.98

8.83 83.49 89.64 88.08 65.70 62.15 38.56 44.19 86.16 39.65

91.17 16.51 10.36 11.92 34.30 37.85 61.44 55.81 13.84 60.35

Source: India Development Foundation. Note: The figures indicate the score and the gap in infrastructure provision across states.

Facility (Market Access) Railway station Bus stop Metalled roads All-weather roads Post offices PCO/e-mail Bank Agri. inputs shop Fair price shop Market/weekly market 8.87 34.17 66.23 75.60 52.52 41.45 27.07 38.61 71.49 41.40

91.13 65.83 33.77 24.40 47.48 58.55 72.93 61.39 28.51 58.60

8.87 41.51 50.99 80.44 52.98 43.56 27.67 49.83 64.63 44.89

91.13 58.49 49.01 19.56 47.02 56.44 72.33 50.17 35.37 55.11

Progressive States

3

Introduction

T

he economic growth performance of different states in India has never been uniform but the inter-state difference in economic growth has sharpened in the post-reform period. This has put the focus back on to the question of why some states perform better than others when all states are subject to a similar policy environment at the federal or the macro level. The divergent patterns of economic growth in major states in India do not necessarily imply that the economic policies at the Central level were biased in favour of some states than others! However, it does hint at the fact that with the decentralisation process set into motion, the growth trajectory of the Indian economy shall depend, to a large extent, on the policies and programmes adopted at the state-level, and not only at the Central level. There is a growing realisation in the government and the policy circles that unless the states perform well, India as a whole cannot do well. As a result, greater emphasis is now being laid on initiating reforms and strengthening governance in the states. For instance, in the Tenth Five Year Plan (2002–07), the Planning Commission has set specific targets for states in order to make them consistent with the target of achieving an overall 8 per cent growth per annum. There are several reasons why an analysis of economic performance of different states in India should be done with just as much fervour as performance analysis done for the nation as a whole. Balanced regional development is one of the pronounced objectives of India’s national policy. It deserves to be seen whether this objective is being met since the initiation of economic reforms. Also, the Indian political scenario is

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witnessing an unprecedented domination by regional political parties. National elections are now won and lost on regional issues and regional parties are exercising greater influence on the decision-making at the federal level. Economic reforms and the resultant liberalisation and decentralisation processes have put limits to the control that the Central government can exercise on the state governments on several major domains of economic importance. State governments have a larger decision-making space made available to them, and most policy implementation issues are now under their purview. Thus, economic performance at the state-level has become an issue of national importance and has moved out of the shadows of regional political debates. The effect of the growing importance of economic performance of the states on the overall economic performance of the country is beginning to reflect in all the major policy debates and forums. The public policy in India has debated for long the issue of balance between efficiency and equity. However, from a very equivocal stand on this issue in the 1980s, the debate has started to show a marked inclination towards efficiency over equity. The controversy involving the Finance Commission in allocation of funds and resources to different states, especially Andhra Pradesh during the tenure of Chandrababu Naidu, is a classic example of how state governments in the fast-developing states are clamouring for performance based allocation of funds. The western states in India, especially Gujarat and Maharashtra, have been better performing states in the country for quite sometime. The southern states, like Tamil Nadu, Karnataka and Andhra Pradesh, backed by good governance and infrastructure development, have also started performing well in the post-reform period and have improved their status vis-à-vis other states in the country. Kerala too has relatively been a better performer, at least in terms of social development, if not primarily in the strict sense of economic growth. However, with growth in the knowledge economy and the resultant focus on educated workforce, Kerala’s economy is also witnessing a massive transformation. The northern states, however, have not performed well. Barring Haryana and Punjab, most of the northern states have fared badly in the post-reform era. While the bulk of India’s population resides in the

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northern states—especially Uttar Pradesh and Bihar—the record of economic growth of these states has been rather disappointing. This has increased inter-state disparities between the north and the south. A serious attempt needs to be made to understand the root causes of under-performance in the northern states as compared to their southern counterparts. While not much can be attributed to political and socio-cultural factors, it is very clear that the southern growth story is a story of better governance, infrastructure development and investment in social upliftment through spread of literacy and market access. Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh (referred to as the BIMARU states) are the poor performing states in the country. Even Orissa has not been historically a better performing state. However, the BIMARU states may not be taken as a monolithic homogenous block. There are wide variations within these states especially in the post-reform period. Bihar and Uttar Pradesh performed very poorly in the 1990s, and are almost at the bottom of the list in terms of Gross State Domestic Product (GSDP) as well as Per Capita Income. Rajasthan and Madhya Pradesh have performed reasonably well, especially in the latter half of the 1990s. Rajasthan and Madhya Pradesh grew at an average rate of 5.9 per cent in the 1990s, which is commendable keeping in mind the socio-economic constraints these states grapple with. This chapter shall attempt to distinguish between the better performing states in the country and their under-performing counterparts. It shall also outline the underlying factors for better economic performance in these states and their implications on poverty alleviation and employment generation. The chapter shall also explore the impact of high growth in some states over others on account of regional economic disparities and the ‘probable’ economic and social consequences. It shall draw common lessons from the growth experiences of the progressive states in the country and suggest policy strategies for replication in other states.

Haryana at a glance Formed on 1 November 1966 from the southern districts of the state of Punjab, Haryana is a small state in the northern belt of India. Situated

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adjacent to the national capital Delhi, Haryana makes the most of its proximity to the corridors of power. Parts of Haryana under the National Capital Region (NCR) have witnessed unprecedented industrial and urban growth due to the progressive policies of the state, investments in infrastructure and urban townships, and improved connectivity with Delhi. With an area of 44,212 sq km, Haryana supports a population of 21 million people as per the 2001 census. With Net State Domestic Product (NSDP) more than USD 7.5 billion in 2005, Haryana is one of the most economically progressive states in the country. Table 3.1 shows how Haryana, a small state, is easily among the most progressive in India. Table 3.1 Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Haryana at a Glance

Characteristic Area (sq km) Population (2001 census) in million Urban population (%), 2001 census Population density (2001 census) Birth rate (2002) Death rate (2002) Net Irrigated Area (in hectare) Sex ratio (2001 census) Literacy rate (2001 census) Per capita income NSDP NSDP Growth (last 10 years) Human Development Index

Value 44,212 21 28.9 478 per sq km 26.5 per 1,000 population 7 per 1,000 population 28.8 million 861 females/1,000 males 68.59% (79.25% males, 56.31% females) USD 592 per annum USD 7.5 billion 6.5% (average annual) 0.509 (all India 4th rank)

Source: Haryana Statistical Abstract, Government of Haryana, 2006.

Haryana is primarily an agricultural state with 80 per cent of its workforce dependent on agriculture for livelihood. However, unlike agriculture in other parts of India, agriculture in Haryana is highly modern, scientific with well-developed irrigation facilities. Bound by Uttar Pradesh in the east, Punjab in the west, Himachal Pradesh in the north and Rajasthan in the south, Haryana lies entirely in the northern plains drained by the river Yamuna. Haryana’s agriculture is a diversified basket of food grains as well as cash crops. Rice, wheat, maize, barley, sugarcane, cotton and oilseeds are the major agricultural crops in Haryana. Most of these crops require

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intensive irrigation, and Haryana’s extensive canal networks provide timely irrigation facilities to farmers for a copious production. Haryana ranks amongst the largest contributors of food grains to the Central pool after meeting its own requirements. In the year 2004–05, the total food grain production in Haryana was at a record of 13 million tonnes. New crops like sunflower, soya bean and horticulture crops like fruits and vegetables are being encouraged in an attempt to further diversify agriculture in the state and reduce the dependence on food grains. Agriculture contributes to nearly a third of the GDP in Haryana (see Figure 3.1). Haryana has been a beneficiary of the various multi-purposed hydel projects on rivers like Sutlej and Beas. Major irrigation projects in Haryana are Western Yamuna canal, Bhakra canal and the Gurgaon canal. Haryana pioneered the concept of lift irrigation in the country. Several irrigation schemes like Jui, Sewani, Loharu and the Jawaharlal Nehru lift irrigation programme helped to carry irrigation water against the gravity flow to arid areas. This also helped in containing the advance of the Rajasthan desert by developing a green-belt circumspecting the desert boundary. Figure 3.1

Sectoral Contribution to GDP (Haryana)

29%

43%

Services Agriculture Industry

28%

Source: Haryana Statistical Abstract Government of Haryana, 2006.

Though rich in agricultural resources, the economy of Haryana has diversified into high-value industrial products like automobiles, telecommunications, food processing, textiles and garments, petrochemicals and information technology (IT). In fact, the IT sector in

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Haryana, especially with regard to information technology enabled services (ITES), has put Haryana on the international map of Business Process Outsourcing (BPO). Haryana also attracts one of the largest share of Foreign Direct Investment (FDI) in the country primarily in the IT and ITES sector. In the year 2003–04, the share of the manufacturing sector in the GSDP of Haryana was 28 per cent (at constant prices), while the share of the service sector was 43 per cent at constant prices. By the end of 2005, Haryana had more than 1,250 large and medium scale industrial units with an investment of more than INR 227 billion, providing employment to approximately 2,18,793 people. There are close to 80,000 small-scale industries (SSIs) in operation in the state with investments around INR 19 billion and employment of around 4,78,225 people. Keeping pace with the demands of a fast globalising world, Haryana integrated itself with the world economy through concerted efforts to boost exports. In the year 2004–05, Haryana exported goods and services worth INR 200 billion, which increased from INR 120 billion in the year 2003–04. The major export items are automobiles and auto components, software applications, leather and leather products, scientific equipment, handloom and readymade garments, basmati rice and handicrafts. Software is one of the major sunrise sectors in the export basket of Haryana with exports touching INR 60 billion in 2004–05 and increasing annually at a rate of more than 30 per cent. Haryana is the largest exporter in the country for basmati rice and the third largest exporter of software (see Figure 3.2). With a view to encourage exports, the Government of Haryana is establishing a Special Economic Zone spanning more than 3,000 hectares in the district of Gurgaon. Manesar is another industrial town being developed over an area of more than 700 hectares by the Government to provide world class infrastructure to firms to establish production units there. A hi-tech technology park is being developed in Gurgaon over 28 hectares of land along with a world class cyber city over 72 hectares to attract leading IT multinationals to open offices and to start operations in the state. In order to accelerate growth in the traditional sectors, industrial estates for food processing and textile industries are being developed in Rohtak, Kundli, Sirsa and Manesar. Haryana has been the recipient of some large FDI inflows and Figure 3.3 shows that a bulk of this FDI comes to the energy sector.

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Composition of Exports (Haryana)

13% 45% 12%

Software Basmati rice

15%

Readymade garments Handloom 15%

Others

Source: Industrial Assistance Group India Brand Equity Fund, Haryana State Report, 2005. Figure 3.3

Sectoral Breakdown of FDI

30%

36%

Fuels Electrical equipment including software Transportation industry Paper and pulp including paper product Food processing industry

15%

4% 7%

8%

Others

Source: Secretariat for Industrial Development Newsletter Government of Haryana, 2006.

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Infrastructure has been the backbone of Haryana’s growth. Haryana was the first state in the country to achieve 100 per cent electrification of all urban and rural settlements. It was also the first state to provide metalled road connectivity to all villages and drinking water to all urban and rural settlements. The Tenth Finance Commission puts Haryana fourth in the country in terms of aggregate economic and social infrastructure after Punjab, Kerala and Goa. With more than 1,400 km of National Highways and 22,384 km of State Highways, road infrastructure in Haryana is superior to many other north Indian states. z

z

z

z

Major National Highways connecting Delhi to major metropolitan cities in the country run through Haryana. National Highway 8 (NH-8) connecting Delhi and Jaipur passes through Gurgaon and Manesar and links Haryana to Ahmedabad and Mumbai. A major exercise to widen and modernise NH-8 is underway. Once completed, it shall immensely enhance connectivity between Gurgaon and Delhi. Similarly, National Highway 1 (NH-1) connects Delhi to Amritsar and passes through industrial towns in Haryana like Ambala, Karnal and Panipat. National Highway 2 (NH-2) connecting Delhi and Mathura passes through Faridabad linking it to Uttar Pradesh, Madhya Pradesh and Mumbai. Keeping in mind the residential boom in the NCR areas in Haryana and the growth in commuter traffic for the forthcoming Commonwealth Games in Delhi in 2010, an expressway is being constructed, linking Delhi to Kundli, Manesar and Palwal on a Build-Operate-Transfer (BOT) basis. In 2004–05, the total installed power generation capacity in Haryana was 4,033.30 MW where the state’s own installed capacity was to the tune of 1,587.40 MW. The state government plans to install an additional capacity of 3,000 MW in the 10th Plan period (2002–07). A massive investment of INR 80 billion has been planned towards expansion of power transmission and distribution over the next 10 years. There has been a gradual increase in installed capacity and power generation in the state (see Figure 3.4).

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Trends in Installed Capacity and Electricity Generation

3500

25000

3000

MW

2000

15000

1500

10000

1000

Million Units

20000

2500

5000

500 0

0 1998

1999

2000

2001

2002

2003 Generation (MU)

Installed Capacity (MW)

Source: Haryana Statistical Abstract, Government of Haryana, 2006. Table 3.2

Salient Features—Haryana Industrial Policy (2005)

Objectives z

To establish industry as a key driver of economic growth.

z

To facilitate spatial dispersion of economic activities particularly in economically and socially underdeveloped regions in the state.

Approach z

z

Develop economic hubs through infrastructure initiatives by encouraging public–private partnership. Focus on economic activities enjoying comparative advantage such as food processing, information technology, automobiles and textiles.

Delivery systems z

Haryana Investment Promotion Board to attract FDI in the state.

z

Investment Promotion Centre in Delhi and Chandigarh for single-point clearance to entrepreneurs. Act as High Powered Clearance Committee to reduce clearance time delays. (Table 3.2 continued )

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(Table 3.2 continued) Objectives z

z

To generate employment and entrepreneurial opportunities across all sectors of the economy. To ensure sustainable development through investments in key sectors of the economy.

Approach z

Adopt sector-specific approach focusing on incentivising growth of key enterprises.

z

Industry–Government Joint Task Force to facilitate hassle-free operation of industry.

z

Develop service sector especially tourism, transport, education, healthcare and financial services.

z

z

Enhance export competitiveness to achieve compounded annual growth rate of 20 per cent.

New economic hubs and industrial estates by Haryana State Industrial Development Corporation (HSIDC).

z

Special Economic Zones (SEZs) with special incentives for FDI. Industrial model townships on similar lines.

z

Theme parks such as food parks for food processing units, gems and jewellery parks, apparel parks, and footwear and leather garments parks.

z

Free Enterprise Zones for SSIs in backward and semi-industrial areas.

Thrust Areas z

Agro-based and food processing industry.

z

Electronics and information and communication technology.

z

Automobiles and auto components.

z

Handloom, hosiery, textiles and readymade garments manufacturing units.

z

Export-oriented units.

z

Footwear, leather garments and accessories.

Delivery systems

z

z

z

Create investor focused approach in administrative processes bringing efficiency, transparency and accountability. Tax reforms and fiscal discipline—first state to adopt Value Added Tax (VAT) (VAT revenue in the year 2004–05 was INR 37.24 billion). Incentives for rural industrialisation, mega projects in backward areas and exemption from electricity duty to new industrial units for a period of 5 years.

Source: PHDCCI Haryana Investment Guide (2005–06), www.haryana.nic.in. Note: Haryana clearly has a thrust on the auto industry and the electronics and telecom sectors. Its proximity to Delhi and to the factories in Punjab and Himachal makes it attractive for most investors in these sectors.

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Haryana state food processing policy (2002) The food processing industry has been identified as the sunrise sector with the maximum potential for rural development, employment generation, value-addition in the agriculture sector and poverty alleviation. Haryana has already established its credibility in the food processing sector and has demonstrated productivity improvement in case of many high-value horticulture and agricultural products. Adoption of modern technology, availability and accessibility to stateof-the-art logistics facilities, effective transfer of technology to the farmers through extension services, post-harvest handling facilities, marketing infrastructure, upgradation of agriculture mandis, setting up of large collection and processing centres, packaging facilities, and linking producers and processors through vertical coordination are essential for unearthing the potential of this sector. The Government of Haryana, through its ambitious Food Processing Policy, aims to promote this promising sector. The results of the policy have already started to show. Haryana exported more than INR 2 billion worth of processed food items such as juices, sauces, pickles, confectionaries and beverages in the year 2003–04. Table 3.3

Salient Features of Haryana Food Processing Policy (2002)

Salient features z

Greater employment generation, higher household incomes and reduction of poverty through dispersed industrial growth and labour-using technologies.

z

Strengthening of food research, development, education and extension with active involvement of the private players.

z

Expansion of infrastructure through increased public and private investments in the sector.

Fiscal and monetary incentives z

Food processing industries except wheat and rice will be considered as seasonal industry and exempted from payment of minimum demand charges for electricity during the closure period of more than three months.

z

No market fee shall be levied on agriculture and horticulture produce used as raw material by food processing industries in the state except rice, wheat, mustard oil and cotton.

z

Interest-free loan at the rate of 7.5 per cent of the tax paid on the sale of goods (Table 3.3 continued )

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(Table 3.3 continued ) Salient features z

z

z

z

z

Fiscal and monetary incentives

Ensuring remunerative prices for food products through strengthening of the marketing institutions and infrastructure, and creation of a favourable economic environment for the growth of the sector. Value addition to farm products through agro-processing and improved post-harvest facilities. Revitalisation of institutional finances for credit. Higher exports and integration of local markets with global markets. Adoption of international food standards in safety, quality and hygiene to meet the competitive challenges.

produced in such industrial units shall be given under the Haryana VAT 2003 for a period of five years from the date of start of commercial production. This would be repayable after a period of five years. z

Charges for change of land use for food processing units shall be levied at 50 per cent of normal rates in state declared backward areas.

z

Wines, liquors, etc., made from 100 per cent fruits produced in the state will be exempted from the excise duty in backward areas.

z

Special priority is given for release of electric connection to mega projects, 100 per cent export-oriented units (EOUs) and FDI projects.

Source: PHDCCI Haryana Investment Guide, www.mofpi.gov.in, www.haryana. nic.in.

Haryana state information technology policy Table 3.4

Salient Features of IT Policy of Haryana

IT policy—Public domain z

Computerisation of government records and digitisation of government forms and documents.

z

Re-engineering and recasting the structure of administrative departments to facilitate adoption of IT systems and procedures.

z

Electronic delivery of services with IT applications in transaction,

IT policy—Private domain z

z

Promotion of B2B and B2C electronic commerce such as ebanking, etc. Development of an international electronic commerce hub in Gurgaon in collaboration with the private sector. Promotion of IT and ITES firms in Haryana by creation of investorfriendly environment, escort automation and creation of (Table 3.4 continued )

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(Table 3.4 continued) IT policy—Public domain

z

z

z

z

z

z

z

information databanks for efficiency and transparency All government bodies and departments to earmark 5 per cent of their annual budgets for IT applications. Smart cards—citizens ID with multi-functions to enable citizens to interface with government agencies for services like ration cards, passports, driving licences, vehicle registration, etc. Electronic tendering and procurement for all government purchases/procurements. Government department-specific IT based Decision Support Systems and Management Information Systems (MIS) for efficient and effective decision-making. Geographical Information Systems (GIS) technology for spatial planning, environment protection, utility management and traffic regulation. State-wide area network for voice, data and video transmission. Creation of a Centralised Data Repository for ‘Anytime-Anywhere’ use. Portal website for every government department, which is updated dynamically—one-stop-shop for all government-related information.

IT policy—Private domain

z

z

z

z

services, speedy clearances and reliable infrastructure. Communication backbone using optical fibre, wireless and satellite communication with adequate bandwidth for meeting mass connectivity needs and facilitate IT-enabled services such as BPO. Cyber city to be established at Gurgaon with satellite centres in other towns like Faridabad and Manesar. This would have quality infrastructure, pleasant and attractive surroundings, uninterrupted power, hygienic living spaces, institutional areas and entertainment facilities. IT based human resource development with establishment of several public and private institutions imparting quality training on IT. These centres shall be developed as centres of excellence for IT training and education. IT sector has been designated as the priority sector for lending by the Haryana Government. IT hardware, software and IT enabled units are exempted from the purview of Haryana Pollution Control Act, provided the number of workers in such units is less than 300.

Source: PHDCCI Haryana Investment Guide, www.haryana.nic.in.

Haryana state export policy: Salient features z

Special Economic Zones in Gurgaon and Manesar are to be established to provide tax-free and hassle-free movement of goods for export purposes. Haryana’s exports have been growing

Progressive States

z

z

z

z

123

steadily, led by a large and exciting software sector (see Figure 3.5). Its export growth has been steadily above the national average. The Salient features of the state export policy are as follows. Existing Inland Container Depots (ICDs) are to be strengthened and new ones established across different locations in Haryana through the Haryana Warehousing Corporation and the private sector. 10 per cent of plots in newly developed industrial estates have been reserved for EOUs having at least 33 per cent export commitment and units having minimum foreign equity of 33 per cent. Monetary assistance is to be provided to export-oriented SSIs participating in foreign trade fairs and exhibitions: { 50 per cent of stall charges up to a maximum of INR 50,000; { 50 per cent of airfare up to a maximum of INR 15,000 for one person; { INR 50,000 or 50 per cent of total expenses, whichever is lower, for launching a website; { INR 25,000 or 50 per cent of expenses, whichever is lower, on airfare/courier charges for sending samples to export buyers; { INR 50,000 or 50 per cent of cost, whichever is lower, to be reimbursed as assistance for obtaining ISO 9000 or ISO 14000 certification. Export transport assistance has been granted in freight charges paid from ICD to the gateway airport in the form of INR 1 per kg Figure 3.5

Export Performance

Source: Haryana Statistical Abstract, Government of Haryana, 2005. Nore: Exports from Haryana are now predominated by the IT and ITES sectors.

124

z

z


exemption subject to a maximum of INR 50,000 per unit annually for a period of five years. INR 10,000 or 50 per cent of fees, whichever is lower, is reimbursed to exporting SSI entrepreneurs for attending courses on technology, productivity, quality and management. All 100 per cent EOUs are brought under ‘public utility’ to prevent any labour problems in those units.

Punjab at a glance Situated in the northwestern corner of the country and bounded by Jammu and Kashmir in the north, Himachal Pradesh in the northeast, Haryana and Rajasthan in the south and Pakistan in the west, Punjab is a small state in India covering about 50,000 sq km. However, it is one of India’s most progressive states and is recognised for its modern agriculture, vibrant culture and diversified industrial base. Topographically divided into sub-Shivalik and Sutlej-Ghaggar plains, Punjab is characterised by fertile soils, semi-arid monsoon climate and severe climatic conditions. With five major rivers—Sutlej, Ravi, Beas, Chenab and Ghaggar running through the state and with an abundance of extremely fertile soil, Punjab is ideally suited for agriculture and allied activities. Punjab, an industrial state, is equally an agricultural state. Table 3.5 Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Punjab at a Glance

Characteristic Area (sq km) Population (2001 census) in million Urban population (%), 2001 census Population density (2001 census) Birth rate (2002) Death rate (2002) Net irrigated area (hectare) Sex ratio (2001 census) Literacy rate (2001 census) Per capita income NSDP NSDP Growth (last 10 years)

Value 50,362 24 33.9 484 per sq km 20.8 per 1,000 7.1 per 1,000 40.0 million approximately 876 females per 1,000 males 70% (75.63% males, 63.55% females) USD 574 per annum USD 9 billion approximately 4.6% (average annual)

Source: Statistical Abstract of Punjab, Government of Punjab, 2006. Note: Punjab’s status as an attractive investment destination has been fluctuating.

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125

Several factors may be cited for Punjab’s spectacular growth performance ranging from infrastructural factors to socio-cultural aspects of the population. However, the main attributes of Punjab’s growth story are investments in infrastructure, promotion of activities of comparative and competitive advantage (such as agriculture, food processing, dairy and cotton textiles), investor-friendly business environment (resulting in massive investments by Punjabi diaspora) and improvements in health and education facilities especially in rural areas. Punjab’s growth, cycle accelerated with acceleration in agricultural growth, which increased rural incomes and wealth. This made the growth broad-based; unlike other states where growth was concentrated only around a few urban centres, in Punjab economic growth could be seen in its vast rural hinterland. Massive investments made in irrigation facilities enabled the farmers in Punjab to capitalise on the opportunities put forth by the Green Revolution. Slowly, with diversification of the economy into agro-based industries, Punjab was able to strike a balance between agricultural and industrial development on a complementary basis and consolidate its growth trajectory. With an SDP of over USD 9 billion, Punjab is a forerunner in consumer market prosperity and infrastructure in the country. According to the estimates by the Centre for Monitoring the Indian Economy (CMIE), Punjab ranks first in the country in infrastructure development. As per their estimates, on a national average of 100, Punjab’s relative score on infrastructure was 186 (www.cmie.org). The economy is primarily agrarian with a majority of the population engaged in agriculture and allied activities. In 2005, agriculture contributed 38 per cent of the state’s GDP, while the manufacturing and service sectors accounted for 23 per cent and 39 per cent respectively (see Figure 3.6). Thus, Punjab’s economy, though being dependent on agriculture, has diversified into the non-farm sector, especially the service sector. Within the service sector, Punjab has focused on IT, healthcare, entertainment, transport and communication, and financial services. There are more than 675 medium and large enterprises operational in Punjab, while the number of small-scale units in Punjab is approximately 0.2 million (2005). Punjab placed a lot of importance on rural development, especially through the provision of infrastructure facilities. In Punjab, 100 per cent

126


Sectoral Contribution to GDP (Punjab)

39% 38%


23%

Source: Punjab Economic Survey, Government of Punjab, 2006.

villages have been electrified. Also, 99.24 per cent of villages have been connected with metalled roads. This has enabled market access to the rural population and triggered a market-oriented growth in its vast rural hinterlands. Roads also enabled farmers to transport agricultural produce to the agricultural markets and mandis in nearby urban towns in a timely manner and receive a fair price for the produce. Rural infrastructure linked Punjab into a unified market and facilitated easy flow of goods from one corner to the other, especially from rural to urban areas. The major industries in Punjab are agro-processing, textiles, hosiery and woollens, light engineering goods, bicycles, auto components, IT and biotechnology. Agro-processing is an important and promising industry in the state (see Figure 3.7). The annual production of food products in Punjab increased by more than 300 per cent between the period 1990–91 and 2000–01. However, Punjab’s share in India’s output of processed foods stands at 3 per cent and there are ample opportunities for further developing this industry. The Government of Punjab has introduced measures to permit contract farming on 20,000 hectares for basmati rice and 80,000 hectares for wheat for companies like Tata and UB Group respectively. Nestle, Pepsi, Milkfed, Metro Cash and Carry International are some of the major processed food firms operating in the state.

Progressive States Figure 3.7

127

Principal Industries in Punjab

25%

29%

Textiles Food and beverages Chemical and chemical products Other transport equipment

7% 19% 7%

Paper and paper products

13%

Others

Source: Punjab Statistical Abstract, Government of Punjab, 2006.

The textile industry in Punjab is worth more than USD 2.5 billion (2005). It is the second largest producer of cotton and blended yarn and third largest producer of mill-made fabrics in the country. Punjab has 40 per cent of the country’s wool units, especially in and around Ludhiana. Punjab has a vibrant bicycle industry and accounts for more than 15 per cent of total production in the country. It also holds 80 per cent share in the production of bicycle parts, and 7 per cent share in the total tractor production in the country. Also, the value of exports from Punjab in 2005 was approximately INR 100 billion. Agriculture and textiles dominate Punjab’s exports (see Figure 3.8).

Infrastructure in Punjab z

Irrigation infrastructure: Punjab is the most irrigated state in the country. In Punjab, 40 per cent of irrigation comes from hydel projects on its rivers, while 60 per cent comes from its groundwater aquifers. However, extensive extraction of groundwater for irrigation purposes has now started triggering environmental concerns and the Government of Punjab is consciously trying to encourage water-saving methods of irrigation.

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Composition of Exports (Punjab)

23%

19% Cycles and cycle parts Food products Engineering goods

10%

Rice Readymade garments and hosiery Yarn and textiles Others

18%

9% 11%

10%

Source: Punjab Statistical Abstract.

z

An important irrigation project in Punjab is the Bhakra-Nangal complex on river Sutlej which includes the Bhakra dam, Bhakra mainline canal, Nangal hydel channel, Ganguwal and Kotla project, Harike barrage, Sirhind feeder channels, Pong dam and Sutlej–Beas link project. As a result of the extensive irrigation facilities, Punjab has the highest cropping intensity, net irrigated area as a percentage of total cultivated area, yield rates per hectare, fertiliser consumption and number of tube-wells. Punjab contributes more than 50 per cent to the national food pool, especially rice and wheat. Power: Punjab has the highest per capita consumption of electricity in the country, primarily due to the extensive use of power in irrigation and relatively lower power tariffs as compared to other states. In 2004–05, the per capita power consumption in Punjab was 900 Kwh. The generation capacity installed in the state in 2005 was approximately 5,964 MW, which increased from 4,452 MW in 2003. The consumption of power in Punjab has been increasing at a rate of more than 5 per cent per annum on an average for the last 10 years with industry being the largest consumer (see Figure 3.9). In the 11th Plan Period, the Punjab State Electricity Board has plans for installation of additional capacity of 2,277 MW through two mega power projects–the Guru HarGobind Thermal Plant

Progressive States

z

129

(GHTP) Lehra Project and the Bharat Heavy Electricals Limited (BHEL) Hydro Project. An additional 1,000 MW gas power plant is being constructed near Doraha by the Gas Authority of India Limited (GAIL) involving an investment of USD 850 million. The National Hydel Power Corporation (NHPC) is also constructing a 168 MW Shahpur Kandli Hydel Project. Transportation and communication: Punjab has more than 54,000 km of roads, with more than 1,800 km of National Highways and 49,000 km of provincial roads. Under the National Highway Development Programme (NHDP), more than 350 km of National Highways are to be modernised into 4–6 lanes and more than 12 road corridors aggregating 845 km are to be developed through public–private partnership. Air transport has got a boost in Punjab, with Amritsar being developed as an international airport, which handles more than 50 international flights per week. Amritsar also has an air-cargo complex, while Ludhiana has an ICD to facilitate trade activities. Container freight stations are being planned at Jalandhar, Ludhiana, Amritsar and Rajpura. Communication infrastructure got a fillip in Punjab after the announcement of the National Telecommunications Policy (1999). Fixed-wire telephone connections have increased in Punjab from 0.4 million in 1995 to more than 2.5 million while mobile subscribers increased to around 3 million in 2005. Figure 3.9

Composition of Electricity Consumption

2% 23% 29%

23%

5%

Industrial Agricultural Commercial Domestic Others

Source: Punjab Statistical Abstract.

41%

To create a conducive investment climate through infrastructure creation, reduced regulations and general facilitation.

To rejuvenate and make the existing industry competitive, particularly in the small-scale sector through improved technology, product-quality and marketing.

To create special thrust in the areas where Punjab has comparative and competitive advantage.

Diversify the agriculture base and promote value addition through focus on food processing and supply-chain management for reducing wastage.

z

z

z

z

Objectives

Table 3.6

USD 4.25 million corpus called Punjab Infrastructure Initiative Fund to finance projects on public–private partnership basis. Freight neutralisation assistance for export units to neutralise the locational disadvantage for exporters.

z

Introduction of ‘off-the-shelf ’ scheme for land allotment, which allows easy transfer of land from one use to another.

z

z

Hassle-free dealing with the government: Scheme for SelfCertification adopted for inspection on a number of Acts concerning pollution, labour and employment.

z

Approach

Monitoring Committees established at the state and district levels for monitoring self-certification. Single-window clearances through a special cell called ‘Udyog Sahayak’ for all units in IT, biotech, pharmaceuticals and electronics. Punjab Infrastructure Development Board as a nodal agency for all infrastructure projects. Punjab Infrastructure Regulatory Authority (2002) to provide transparent legal framework for private infrastructure project investments. Punjab Biotechnology Promotion Board to develop infrastructure for R&D for biotech companies.

z

z

z

z

Delivery Systems z

Punjab Industrial Policy at a Glance (2003)

z

Restructure and empower public– sector units to maximise their potential value.

z

Establishment of SEZs, theme parks and industrial clusters.

‘Second-push programme’ for setting up cold chain infrastructure and food processing units to maximise valueaddition. z

Punjab State Industrial Development Corporation, Punjab Small Industries and Export Corporation, Punjab Agro Industries Corporation, Punjab Information and Communication Technology Corporation and Punjab Financial Corporation—major nodal agencies.

Source: PHDCCI Punjab Investment Guide (2004–05), www.punjab.nic.in. Note: A robust automobile sector coupled with an advanced agriculture base has made Punjab a prosperous state.

z

Promote the development of industrial clusters to strengthen their competitive position to face competition in domestic and international markets.

z

Exemption from the Punjab Apartment and Property Regulation Act (1995). Exemption from stamp duty on first sale/transfer of developed infrastructure by the developer. For the sugar industry, automatic clearance for manufacture of ethanol and setting up of distilleries and allowing co-generation of power; also, allowing wheeling of surplus power to other industries/Punjab State Electricity Board. Exemption from market fee and rural tax on commodities excluding wheat and rice. Also waived for integrated paddy processing plants with investments of INR 300 million or above. Sales tax on packaging materials and ISI marked pumps and motors to be reduced to a minimum floor level. Promotion of contract farming, cooperatives and vertical coordination in the farm sector, especially for horticulture and high-value agriculture. Promotion of organic produce with a special focus on export market. Input credit tax for all units except for those processing wheat and paddy with aggregate investments more than INR 500 million. z

z

z

z

z

z

z

z

z

Investment incentive at 30 per cent of fixed capital investment. Exemption from sales tax for a period of 10 years, and from electricity duty for a period of five years. Human resources development grant for a period of five years and exemption from stamp duty and registration fee. Permission to install Electric Power Transformer up to 10 KVA without locational restrictions. A venture capital fund to support the growth of the IT and biotech industry. General permission to operate three shifts and relaxation of Floor Spacing Index (FSI) in towns to the extent of 50 per cent. Financial support for quality certification, especially to small firms and exemption from obtaining No Objection Certificate from the Pollution Control Board. Self-certification allowed under various laws. Human Resource development for IT and biotech through establishing new institutes (public and private) and strengthening existing institutes with funds and infrastructure.

IT and biotech

Sector-specific Policies in Punjab—Salient Features

Source: PHDCCI Punjab Investment Guide, www.punjab.nic.in. Note: Punjab has been losing out to Himachal Pradesh in the recent past, largely due to poor electricity supply and the tax benefits being provided by the Himachal government. Punjab will have to do more than just enunciating policy to get back to its pre-eminent position in north India.

z

z

z

z

z

z

z

z

Food processing industry

Table 3.7

Progressive States

133

Gujarat at a glance Gujarat has been one of the most investor-friendly states in the country, despite its politics. Backed by the industry and business acumen of its people, Gujarat has had a track record of superior economic performance, especially in the manufacturing sector. Petrochemicals, cotton textiles, gems and jewellery, cement and heavy engineering are the major industries in the state. Being a coastal state, Gujarat also has a thriving salt-making, fishing and shipping industry. The Kandla port provides excellent facilities to exporters from across the northern and western part of the country to export goods to the Middle East, the Mediterranean and Northern and Central Africa. Agro-based industry especially cash crops like tobacco and oilseeds are popular. Dairy ooperatives are well established in Gujarat and many successful cooperatives like Amul have their base in this state. Table 3.8 shows that Gujarat is an important state in western India, both for its size and industrial output. Gujarat has the longest coastline in the country. The state has mainly three main geographical regions—the mainland, the peninsular region of Saurashtra and the Kutch region. The state is interspersed with plain land with low lying hills. Soil is basically alluvial and black and is good for cultivation of cotton, sugarcane and oilseeds. The state has moderate Table 3.8 Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Gujarat at a Glance

Characteristic Area (sq km) Population (2001 census) in million Urban population (%), 2001 census Population density (2001 census) Birth rate (2002) Death rate (2002) Sex ratio (2001 census) Literacy rate (2001 census) Per capita income NSDP Net irrigated area NSDP Growth (last 10 years)

Value 1,96,024 50 37.4 258 per sq km 24.6 per 1,000 7.6 per 1,000 920 females per 1,000 males 69.97% (60.5% males, 58.6% females) USD 450 per annum USD 24 billion 2.98 million hectares 12.4% (average annual)

Source: Statistical Abstract of Gujarat, Government of Gujarat, 2006.

134


rainfall and is characterised by dry arid climate. Saurashtra and Kutch are water-deficient and in general have brackish groundwater. Water supply is mainly met through hydel projects on the major rivers that drain the state—Narmada, Tapi, Sabarmati and Mahi. The major portion of command area of the Sardar Sarovar dam and the Narmada canal lies in Gujarat, providing water for drinking, irrigation as well as for industrial use. Agriculture comprises only 22 per cent of Gujarat’s GSDP, but provides employment to a vast section of Gujarat’s population (see Figure 3.10). The major food crops are rice, wheat, maize, gram and groundnut, while non-food crops are cotton and tobacco. Animal husbandry, especially dairy, has played a vital role in Gujarat’s rural development. Gujarat produces 7 million tonnes of milk, 400 million eggs and 3 million kg of wool per year. A robust manufacturing sector has been the basis of Gujarat’s economy. As per the latest estimates of the Annual Survey of Industries, Gujarat ranks second in respect of state-wise percentage share in the Net Value Added to the manufacturing sector of the country. Gujarat accounts for 20 per cent of India’s manufacturing output, 21 per cent of exports and 30 per cent of stock market capitalisation. Its rate of growth of industrial output is more than 18 per cent per annum and as per the estimates of KPMG, more than USD 7.5 billion worth of industrial projects are under different stages of implementation in the state (see Table 3.9). Figure 3.10

Sectoral Contribution to GSDP

21.80% 40.10%

Tertiary Primary Secondary

Source: Socio-Economic Review, Government of Gujarat, 2006.

38.10%

Progressive States Table 3.9 Sl. No. 1.

135

Gujarat Industrial Scenario

Item

Unit

Value

Annual Survey of Industries (2003–04) Working Factories Total Fixed Capital Average daily employment Value of output Net Value Added by manufacture

Numbers INR billion ’000 INR billion INR billion

15,587 800 770 1,350 200

(b)

Government and non-govt. joint stock companies at work, 2003–04 Paid-up capital, 2003–04

Numbers INR billion

40,080 352.69

(a) (b) (c)

Minerals Oil and natural gas Major minerals Minor minerals

INR billion INR billion INR billion

42.12 5.01 1.69

(a) (b) (c) (d) (e) 2. (a)

3.

Source: www.gujaratindia.com. Note: Gujarat has been at the forefront of industrial development in western India. Despite the various governance problems faced by the state, investment has been pouring in and getting diverted from neighbouring Maharashtra, which has been riddled with problems on the infrastructure front.

Gujarat has a rich industrial base backed by rich mineral reserves. It is the second largest producer of lignite, oil and natural gas with production of 7 million tonnes, 6.5 million tonnes and 3.62 million cubic metres respectively in 2004–05. Gujarat is the fourth largest producer of bauxite and is one of the largest producers of soda ash and limestone in the country. Gujarat has a well-developed infrastructure for transport and communications and market access. The road network spans more than 74,000 km and the railway network is more than 5,000 km, connecting all the major cities and ports. With more than 1,600 km of indented coastline, Gujarat has more than 40 ports (one major port called Kandla, 11 intermediate and 29 minor) which handle 75 per cent of the total port traffic in the country. Kandla is the largest port in India and Kandla SEZ is the largest in Asia, handling 20 per cent of India’s total cargo traffic. Gujarat’s Pipavav port in Saurashtra and Adani port at Mundra (Kutch) were developed by private players on a BOT basis.

136


The country’s only chemical handling port has been commissioned at Dahej in Gujarat. Gujarat is the only state in the country where the private sector is encouraged in construction, operation and management of ports. KPMG has analysed the policy as well as sector attractiveness of Gujarat. The policy environment is extremely favourable and investorfriendly in areas like food processing, infrastructure and pharmaceuticals industry. Chemical industry, and gems and jewellery have good sector attractiveness, but need greater policy support from the government. The chemical industry in Gujarat has recently been in the midst of controversies regarding environmental compliance and pollution control norms. The gems and jewellery industry in the state was caught in labour standard disputes. The government needs to strengthen its policy and regulatory framework for these sectors in order to address their concerns and re-position them in the international markets. Figure 3.11 and Table 3.10 indicate the policy direction in Gujarat’s industrial and economic development. Figure 3.11

Proactive ¡ Exclusive policy ¡ Special incentives ¡ Special infrastructure (SEZ, STPI, AEZ, etc.)

Sectoral Policies

Infrastructure

Policy Proactiveness

Agro-based

Moderate ¡ Generic policy incentives ¡ Exemptions given on request

Engineering Drugs and Pharma

Textile, Leather and Knitwear

Mine and Mineral-based

Chemical Industry Gems and Jewellery

Sector Attractiveness Drivers Natural resources driven

Source: India Brand Equity Foundation, www.ibef.org.

Capability driven

Strengthen SMEs by encouraging use of modern technology, innovation, patents and TQM.

Emphasis on total quality—build a global brand in industrial products.

Encourage private investment and FDI through policy incentives.

Promote entrepreneurs (assist in project financing—from concept to commissioning).

z

z

z

z

Single window clearance for all projects, especially those involving FDI. Gujarat Infrastructure Development Board to facilitate infrastructure investments and projects in the state.

z

z

Equip local industries in Gujarat to handle issues arising out of the WTO. To encourage NRIs to invest in Gujarat and also to set up industrial units in the state.

z

z

z

Doubling the processing of agroproducts in the next five years.

z

Prosperity through Green Wealth— irrigation facilities to additional 2 million hectares of land.

z

District Industries Development Centre to facilitate information flow to all industries in the district.

z

Cluster development for SMEs (more than 76 clusters in 90 locations exist today).

z

(Table 3.10 continued)

Promotion of cooperatives in dairy and horticulture.

Good governance—use of modern technology to speed up government procedures.

z

Flexibility in labour laws through labour reforms on hiring and retrenching.

z

Self-certification system for businesses for environmental and social compliances.

Creation of SEZs with a host of tax exemptions and infrastructure facilities. z

Delivery systems

z

Approach

Gujarat State Policies at a Glance

Food Processing Policy (Gujarat Agro-industrial Policy)

Benchmarking Gujarat against the Asian Tigers, targeting a growth of more than 15 per cent per annum.

z

Industrial Policy (2003)

Objectives

Table 3.10

Venture capital fund for prospective entrepreneurs for setting up innovative projects in horticulture, sericulture, food processing and aquaculture. Backward and forward linkages to agroindustries—certified seeds distribution, pre- and post-harvest management, HACCP certifications etc. Participations in exhibitions and fairs in India and abroad to build a brand and search for newer markets.

z

z

z

Creation of AEZs in collaboration with APEDA.

Introduction of quality systems, biofuels and organic farming.

Revamping of the APMC—establish linkages with multi-commodity exchanges, strengthen future’s market and eliminate intermediaries through promotion of e-transactions.

Effective and continuous linkages with agriculture universities, R&D institutions and farmers.

z

z

z

z

Provide land on a long-term lease basis at concessional rates to agro-industries and agro-infrastructure projects.

z

Establishing food parks of international standards by utilising cool energy of LNG at Dahej and Hazira.

Approach

z

Objectives

(Table 3.10 continued)

Department of food processing and agro-industries. AEZ Committee in collaboration with APEDA. Gujarat Infrastructure Development Board for agriculture infrastructure.

z

z

z

Delivery systems

Establishment of trade centres, SEZs and industrial parks and upgradation of GIDC and industrial estates.

z

Source: www.gujaratindia.com.

Gauge conversion of railway tracks.

z

Accord highest priority to infrastructure projects in the state and make necessary finances available for them.

z

Emphasis on urban infrastructure especially drinking water, sanitation, drainage and power supply; build pipelines for bulk supply of water.

z

Vision 2010—to attract private sector investments, especially FDI, in infrastructure projects by providing lucrative policy incentives.

z

Strengthening the roads network by converting highways into multi-lane roads and expressways depending on traffic requirements.

z

Benchmark Gujarat against the developed countries in terms of infrastructure quality and quantity made available to both industries and citizens.

z

Infrastructure Policy

Industrial Estate Development Fund for upgradation of industrial estates. District Level Pricing Committee to assess land rates for allotment to priority sector firms in the government industrial estates. Critical Infrastructure Fund to bridge financial resource gaps in key infrastructures like power and ports.

z

z

Gujarat Industrial Development Corporation (GIDC) for establishing industrial parks and estates.

z

z

140


Maharashtra at a glance Maharashtra has always been a forerunner in the development race in India. Even during the British days, the Bombay region was one of the most industrially and commercially advanced regions of the country. Maharashtra has much to its credit in shaping the development landscape on the country. Maharashtra’s economy is the largest among all the Indian states and it accounts for more than 20 per cent of the country’s industrial investment, more than 17 per cent of FDI, 20 per cent of the overall industrial output and 40 per cent of India’s exports. The economy of Maharashtra grew at a rate of more than 13.5 per cent in the year 2005. Located in the western India, Maharashtra is bounded by the Arabian Sea in the west, Gujarat on the northwest, Madhya Pradesh on the north, Andhra Pradesh in the southeast and Karnataka and Goa in the south. With a land area of more than 3,00,000 sq km, Maharashtra is one of the largest states in the country and supports a population of more than 96 million people (2001 census). Topographically, Maharashtra comprises the Konkan coastal strip, the Western Ghats (Sahyadri range) and the Deccan plateau. Drained by major rivers like Godavari, Krishna and Tapi, most parts of Maharashtra are well endowed with natural resources especially water (both surface and ground), fertile soils, forests and biodiversity. Table 3.11 indicates that Table 3.11 Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Maharashtra at a Glance

Characteristic Area (sq km) Population (2001 census) in million Urban population (%), 2001 census Population density (2001 census) Birth rate (2002) Death rate (2002) Sex ratio (2001 census) Literacy rate (2001 census) Per capita income NSDP NSDP Growth (last 10 years)

Value 3,07,713 96 million 28.57 314 per sq km 21.0 per 1,000 7.5 per 1,000 922 females per 1,000 males 77.27% USD 625 USD 38 billion 5% (average annual)

Source: Statistical Abstracts, Government of India, 2006.

Progressive States

141

Maharashtra has a higher per capita income than the average in India and this indicates its importance in the Indian economy. Maharashtra may be one of the leading industrial states in the country, but agriculture continues to play an important role in the economic growth of the state as well as for employment to its people (see Figure 3.12). Around 60 per cent of the people in the state, especially in rural areas depend on agriculture for their livelihoods. Agriculture in Maharashtra has a diversified basket of crops ranging from food grains like rice and wheat to oilseeds like groundnut, sunflower and soya bean, and to cash crops like sugarcane, cotton and turmeric. Horticulture in Maharashtra is quite developed as compared to other states in the country and fruits like grape, orange, banana, mango, pomegranate and cashew are quite popular. There are many thriving horticulture cooperatives in the state such as MahaGrapes which is one of the leading farmer cooperatives in the country exporting fresh grapes to supermarkets like Tesco in the UK. In 2004–05, more than 1.2 million hectares of land was under horticulture in Maharashtra. Floriculture is another high-value segment within agriculture where Maharashtra is making a foray into and is slowly emerging as a significant player in the exports of flowers from the country. Maharashtra represents the industrial backbone of the country and accounts for more than 25 per cent of the total industrial output. It has a wide array of industrial output ranging from agro-industries, heavy engineering, textiles, chemicals, petroleum, electrical equipment, pharmaceuticals, media and entertainment, and IT (see Figure 3.13). The state accounts for approximately 15 per cent of the GDP of India and more than 20 per cent of the Net Value Added to industrial produce of the country. The strengths of the industrial base in Maharashtra lie in the strong forward and backward linkages and infrastructure facilities developed in the state. Bulk of the economy of Maharashtra comprises the service sector. Mumbai is reckoned as the financial capital of the country. The growth of the service sector in the state is far higher than that of the manufacturing sector (7–8 per cent and 3–4 per cent respectively). Increasing urbanisation (more than 42 per cent of Maharashtra’s population is urban compared to 30 per cent for the rest of the country) and rising disposable incomes have made Maharashtra one of the most sought after destinations for investment and operations by leading service firms in the country.

142


Sectoral Contribution to NSDP

16%

58%

Primary

26%

Secondary Tertiary

Source: Economic Survey of Maharashtra, 2005–06, Government of Maharashtra, 2006. Figure 3.13

Key Industries

17% 44% 5% Engineering Food products and beverages Chemicals, petrochemicals, oil and gas Automobiles

9%

10%

Textiles Others

15%

Source: Annual Survey of Industries Report, Government of India, 2003. Note: Total Net Value Added = USD 7.75 billion.

Maharashtra can boast of some of the finest infrastructure facilities available in the country. Be it in highways, power supply, educational infrastructure, telecommunication links or industrial estates, Maharashtra has pioneered unparalleled systems for attracting private

Progressive States

143

investments. Extensive infrastructure facilities have been developed to facilitate the potential of the chemicals, petrochemicals and oil and gas industry in the state. The state has state-of-the-art offshore drilling facilities, an extensive network of pipelines and modern ports for shipping services that make the chemicals, petrochemicals, and oil and gas industry the largest industry in the state in terms of the net value added. Along the 720 km long coastline in the state, there are two major ports—Mumbai port and the Nava Sheva (Jawaharlal Nehru Port Trust—JNPT) port—along with 48 small and minor ports with a total handling capacity of 55 million tonnes per annum. JNPT, built by public–private partnership on a BOT basis, is one of the most hightech ports in Asia and is among the 30 largest container ports in the world. Infrastructure investments worth more than USD 250 million are under various stages of implementation in the state which upon completion shall give a further push to exports from the state (see Figure 3.14 for composition of exports). Mumbai, Pune, Nashik, Nagpur and Aurangabad are the major industrial centres in the state. Pune has been developed as a major educational and IT centre which attracts investment from all the leading MNCs in the country. The government is planning to develop Nagpur as an international cargo hub for Asia and intends to invest heavily in upgrading the infrastructure facilities in and around the Figure 3.14

Composition of Exports

25%

26%

Gems and jewellery Textiles Chemicals, petroleum crude Machinery and electronic equipment Software Agro and food products Others

Source: Annual Report MIDC, 2005.

2% 7% 17%

11% 12%

144


60.0

Top Rank in Investment Attracted (1991–2004)

52.8

USD billion

44.7 40.0

29.3

20.0

MAH

GUJ

AP

13.8

13.6

TN

KRN

Investment

Source: Secretariat for Industrial Development, Annual Survey of Industries, Government of India, 2006.

city. A state-of-the-art SEZ is being developed around Mumbai as the largest SEZ in India and one of the largest in Asia. Being developed with private participation (Reliance industries being a major investor), the Maha-Mumbai SEZ shall span more than 6,000 hectares. In the course of next five years, this SEZ will see an investment of an estimated USD 10 billion. In the post-reform period, Maharashtra has seen maximum FDI inflows as compared to other states—this investment is spread out across various sectors (see Figures 3.15 and 3.16). Gujarat comes a close second, followed by Andhra Pradesh. Bulk of the investments has gone into the sectors where Maharashtra has long-standing competence and comparative advantage such as oil and gas, petrochemicals and textiles. Major investments are in the pipeline for the service industry, especially knowledge-based industries like IT and biotechnology. The Mumbai–Pune corridor has been developed as the principal destination for investments in such industries (see Figure 3.17). All major players like Tata Consultancy Services, Wipro, Infosys, Patni Computers, i-Flex Technologies, Xansa and Convergys have operations in this corridor.

Progressive States Figure 3.16

145

FDI—Sectoral Break-up

17% 29% 17% Telecommunications Fuels Transportation Service Sector Electrical equipment including software Others

9% 14% 14%

Source: Statistical Abstracts, Government of India, 2006. Figure 3.17

Knowledge Corridor: Mumbai–Pune

Airoli Knowledge Park

Kharadi Knowledge Park

SEEPZ++ SEEPZ

IIP Vashi

Millennium Business Park

Kalamboli Junction

Talegaon

Talawade STP

Bhosari Mumbai

STP Pune

Navi Mumbai Navi Mumbai SEZ

Lonavala

Chinchwad

Pune

Hinjewadi Pune Infotech Park

C–DAC

Source: India Brand Equity Foundation, www.ibef.org. Note: This corridor that lies on one of the better highways in India has been an epicentre of industrial activity for more than 50 years now.

Develop world class infrastructure.

Promote knowledge-based industry, especially IT, biotech, and pharmaceuticals.

Augment exports from industrial units, including SMEs.

Create large-scale employment in the manufacturing and services sector.

Achieve regional balance in development and environmental sustainability.

z

z

z

z

z

Industrial Policy z Accelerate the flow of investments into the state (both private as well as FDI).

Objectives

Waiver of stamp duty and registration fees and octroi refund for certain industries.

z

Establishment of SEZs, promotion of EOUs, setting up industrial estates, theme parks like IT and biotech parks, food parks and better port facilities.

z

Exemption from electricity duty to firms in SEZ for a period of 5 years.

Innovative financing systems for financing massive infrastructure projects, rural development programmes and heavy industries.

z

z

Introducing structural changes by rationalising taxation system, creation of conducive business climate for private sector growth and rearranging public spending on prudent lines.

Approach

Maharashtra Small Scale Industries Development Corporation. Maharashtra Agro Industries Development Corporation.

z

z

Mumbai Metropolitan Region Development Corporation. Maharashtra Housing and Areas Development Authority.

z

z

Leather Industries Development Corporation of Maharashtra.

Maharashtra State Road Development Corporation.

z

z

City and Industrial Development Corporation of Maharashtra.

z

Maharashtra State Electricity Board.

Maharashtra State Finance Corporation.

z z

Maharashtra Industrial Development Corporation.

Delivery systems z

Maharashtra State Policies at a Glance

z

Table 3.12

Providing legal framework for data protection and consumer piracy.

Encourage exports of IT from the state.

z

z

Source: www.maharashtra.gov.in.

Creating 24x7x365 working environment.

z

Information Technology Policy z Make Maharashtra the most favoured destination for IT and ITES investment.

Computer labs with Internet costing INR 1.5 million each will be set up in 637 government/semi-government secondary and higher secondary schools.

Digital library to be set up with centralised data repository at Pune with content in English as well as local language (Marathi).

Promotion of IT parks.

Ensuring reliable and quality power supply to IT parks by permitting unlimited backup power, captive power generation and status as independent power producers.

100 per cent stamp duty exemption to all IT and ITES in public IT parks and 75 per cent exemption in private IT parks.

z

z

z

z

Special capital incentives for SSI and 75 per cent capital subsidy for technological upgradation and diversification.

z

z

Santa Cruz Electronics Export processing Zone. Software Technology Parks of India (STPI), Maharashtra.

z

z

Centre for Development of Advanced Computing.

z

Maharashtra Centre for Entrepreneurship Development.

z

Empowered Committee for Development of IT and ITES.

Udyog Mitra (Single-window clearance).

z

z

Maharashtra Agriculture Development and Fertiliser Promotion Corporation.

z

148


Tamil Nadu at a glance Tamil Nadu is one of the most industrialised states in the country and the most advanced state in south India. With the GSDP at around USD 28 billion, Tamil Nadu is the third largest economy in the country. Tamil Nadu has an area of more than 1,30,000 sq km and supports a population of around 62 million (2001 census) resulting in a population density of 478 persons per sq km. The state is relatively more urbanised as compared to most north Indian states. In the last decade, Tamil Nadu has emerged as one of the most sought after investment destinations in the country primarily on account of investor-friendly state policies, superior quality infrastructure facilities, progressive taxation regime and flexible labour laws. Chennai, the capital of Tamil Nadu, is emerging as the leading IT and export centre in the country and is recognised as the ‘Detroit of India’ on account of a heavy presence of major automobile companies there. The state has shown a remarkable growth rate in the recent past (see Table 3.13). Bounded by Andhra Pradesh and Karnataka in the north, Kerala in the west, the Bay of Bengal in the east and the Indian Ocean in the south, Tamil Nadu has two prominent natural divisions—the coastal plains and the hills. Nilgiri is the highest mountain range in the state Table 3.13 Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Tamil Nadu at a Glance

Characteristic Area (sq km) Population (2001 census) in million Urban population (%), 2001 census Population density (2001 census) Birth rate (2002) Death rate (2002) Sex ratio (2001 census) Literacy rate (2001 census) Per capita income NSDP NSDP Growth (last 10 years)

Value 1,30,058 62 million 33.33% 478 per sq km 19.3 per 1,000 7.9 per 1,000 986 females per 1,000 males 73.47% USD 460 per annum USD 28 billion 8% (average annual)

Source: Statistical Abstract of Tamil Nadu 2005. Note: Tamil Nadu’s recent progress is clearly on account of its improving social indicators and basic infrastructure.

Progressive States

149

and lies mostly in the north and west of the state. The state has a large number of rivers—Kaveri being the principal river—flowing from the Western Ghats into the Bay of Bengal. Periyar and Vaigai are other major rivers. Agriculture is the mainstay of the economy with a major section of the population dependent on agriculture and allied activities for their livelihoods. The major crops grown are rice, maize, pulses and the commercial crops include cotton, sugarcane, coconut, tea, coffee, rubber, sunflower, cardamom, cashew, groundnut, chillies, seasame and ginger. The state has a number of forest produce like timber, sandalwood, pulp, honey, medicinal herbs and fuel wood. Irrigation facilities are extensive through the use of rivers and groundwater. The ill effects of reckless groundwater use have started to show in the state and efforts are being made to introduce more scientific water-conserving irrigation technologies with the support of local NGOs. Important surface irrigation projects implemented are Mettur, Lower Bhavani, Amaravathi, Vaigai, Parambikulam-Aliyar, Krishnagiri, Sathanur, KullambadiKattalai high level canal, Gomukhi Nadhi, Chithar Pattinamkal and Pennaiyar. Priority is now being given to the canal system of irrigation over groundwater to modernise the existing large and medium size irrigation projects and to increase the utilisation of the irrigation potential in surface water existing in the state. Manufacturing sector contributes approximately 30 per cent to the state’s GDP, while a majority is accounted for by the services sector (56 per cent) (see Figure 3.18). Nevertheless, the industrial base of Tamil Nadu is strong and robust with a wide array of industries. Major industries in the state are cotton textiles, automobiles, auto components, railway coaches and locomotives, cement, paper and pulp, and engineering products. The ‘State Report—Tamil Nadu’ (2006) by the Centre for Monitoring the Indian Economy (CMIE) puts Tamil Nadu as the leading state in the country in terms of inflow of investment approved and implemented in the manufacturing sector. The industrial landscape in Tamil Nadu has an eclectic presence of industries both in the public and private sector. Global automobile giants like Ford, Mitsubishi and Hyundai Motors and leading domestic private players like TVS Group and Ashok Leyland have thriving operations in the state. There are various important public-sector undertakings as well, such as Neyveli Lignite Corporation, Integral Coach Factory, Madras Refineries, Hindustan Tele-printers,

150


Sectoral Shares

14.2%

56.2%

Services

29.6%

Manufacturing Agriculture

Source: Statistical Abstracts, Government of India, 2006.

Hindustan Photo Films, Madras Fertiliser, Heavy Vehicles Factory, and the Salem Steel Plant. With the availability of state-of-the-art port facilities at the Chennai International Port, industrial units in Tamil Nadu have easy access/connectivity to international markets. Infrastructure facilities in Tamil Nadu are superior to other states, and the state government, deeply cognisant of the need for further upgradation and modernisation of infrastructure, has put in place investor-friendly policies to attract private-sector investment and FDI. z

z

Power infrastructure: Tamil Nadu has three types of power generation systems—hydel, thermal and atomic. The state encourages private-sector participation in power generation, transmission and distribution. In 1999, a private power project was established near Chennai with a capacity of 196 MW. South Madras Thermal Power Project and Cheyyur Thermal Power Project are the important thermal power projects at the implementation stage in the state in collaboration with the National Thermal Power Corporation (NTPC). The Kalpakkam Atomic Power Station has been set up with Russian collaboration to produce more than 2,500 MW of power. Communication infrastructure: Tamil Nadu has state-of-the-art communications infrastructure facilities for high-speed data transfer, video conferencing, voice transfer and so on. The world’s biggest and India’s first private submarine, Optical Fibre Cable

Progressive States

z

151

project with a bandwidth of 8.4 tpb, is being executed in Chennai. The USD 100 million project connecting Chennai and Singapore through submarine cables shall give further boost to IT connectivity in Chennai. Chennai, along with being the Detroit of India, is all set to emerge as the ‘Connectivity Gateway of India’ as well. Accessibility to infrastructure: The roads network in Tamil Nadu is made up of 3,758 km of national highways, 4,216 km of state highways, 51,010 km of major district roads and 72,470 km of village roads. The state also has an extensive railway network with approxim-ately 4,200 km of railway track length and 625 railway stations. Aviation in the state is handled by the international airport at Chennai and domestic airports at Madurai, Salem, Coimbatore and Trichy.

An international consulting firm—KPMG—analysed the business opportunities in Tamil Nadu and identified IT, ITES, automobiles, biotechnology and agro-processing as the key industries with good growth potential in the state (see Figure 3.19). Figure 3.19

Moderate ¡ Generic Policy Incentives Reactive ¡ No Specific Mention in State Policy ¡ Exemptions given on request

Biotech Infrastructure


Proactive ¡ Exclusive Policy ¡ Special Incentives ¡ Special Infrastructure (SEZ, STPI, AEZ, etc.)

Sectoral Policies

Agro-based

IT and ITES

Auto Textile, Knitwear and Leather Engineering Chemicals/ Pharma

Sector Attractiveness Drivers Natural Resources Capability Driven Driven

Source: India Brand Equity Foundation, www.ibef.org. Note: Andhra Pradesh’s progress owes a lot to its early permission to privatise higher education delivery particularly in Engineering and Technology.

Capital subsidies and exemption to electricity tax to firms investing in fixed assets.

z

z

z

To increase FDI in the manufacturing and services sector.

To consolidate existing industrial base by facilitating forward and backward linkages.

To increase focus on infrastructure investments by public-private partnerships.

z

z

z

IT Parks. Tamil Nadu Industrial Development Corporation. Single window clearance for all private investments and FDI.

z

z

Biotechnology Enterprise Zones.

z z

Tamil Nadu Information Technology Council (TNITC).

Special Working Group on e-governance.

z

Project Approvals Authority (PAA).

z

State level Investment Promotion Board (SIPB).

z

z

Delivery systems

Source: www.tn.gov.in. Note: The focus on manufacturing has enabled the state to become the hub of engineering design and development.

Infrastructure subsidy, particularly to attract investment in water.

Incentives for patents registration through a one time reimbursement for the process.

Exemption on entry and sales tax on imports of manufacturing units.

z

To encourage new manufacturing capacity based on areas of comparative and competitive advantage.

z

Tailor made investment packages for infrastructure investments.

z

To achieve a growth rate of more than 8 per cent per annum.

Approach

Tamil Nadu State Policies at a Glance

z

Objectives

Table 3.14

Emerging States

4

Introduction

T

he economic growth story in India has transcended from the traditionally better performing states like Punjab, Haryana, Gujarat, Maharashtra and Tamil Nadu and has included emerging economies like Andhra Pradesh, Karnataka, Kerala and West Bengal. In fact, through the 15 years of reforms (1991–2006), these emerging states have dominated media headlines and have really caught the fancy of policy makers and development planners. For instance, Andhra Pradesh and Karnataka have put India on the global Information Technology (IT) map, with cities like Hyderabad and Bangalore emerging as international centres for IT businesses. Massive private participation from domestic and international firms have given a thumbs up to the reforms process in these states and encouraged the state governments to further expedite the reforms process and liberalise businesses. States like Kerala and West Bengal have implemented economic reforms with a human face. With heavy investments in social sectors like health and education, these states are now reaping rich economic dividends by making use of their educated and skilled workforce in a knowledge-driven economy. Each of the above states has demonstrated that there is no one single, unique route to economic growth and prosperity. Each state needs to try and experiment and develop innovative ways to exploit the potential that exists and provide ample opportunities to the workforce to take up entrepreneurial activities with self-belief and confidence. States like Andhra Pradesh and Karnataka have better economic growth performance than social development while Kerala

154


and West Bengal have relatively better social indicators than economic indicators. However, all these states have invested in areas of their comparative and competitive advantages, encouraged infrastructure development and private participation, liberalised businesses, and eased government procedures and systems, facilitating global linkages through development of export and import channels. All these progressive steps have made these states accelerate the process of economic growth and usher in unprecedented prosperity to their people. Distribution of wealth, equity and regional balance in development may still be pressing challenges for these emerging states—these are not only regional problems but also national concerns. In fact, all states in India (progressive, emerging as well as laggards) are grappling with the issues of equitable distribution of income and wealth, and regional balance in growth and development, and thus it may be unfair to only single out these emerging states for such concerns. In all likelihood, the ‘Kuznets inverted U-curve of growth and equity’ shall repeat itself in these emerging states in the medium to long run, which indicates that in the initial years of economic growth, there will be an increase in inequality and regional imbalances in development, but as growth tends to stabilise at higher levels, the process of social inclusion set in motion due to reforms and good governance practices, redistributes income down to the bottom of the pyramid. For instance, upon tasting success of IT in BPO and other business activities, the Government of Andhra Pradesh launched an ambitious e-governance project— Janmabhoomi—to improve the efficacy of development programmes targeted at the poor and the needy.

Andhra Pradesh at a Glance One of the largest states in south India, Andhra Pradesh is often in the news for extreme reasons. On the one hand, the state is hailed for its progressive outlook and its reforms, especially in the IT sector, while on the other, the state faces media ire for recurring farmer suicides due to stagnation and underdevelopment in rural areas. However, a lot has changed in Andhra Pradesh since economic reforms and its economy has been on an upswing due to massive private investments in technology and infrastructure. Table 4.1 shows how a large state like Andhra Pradesh is grappling with a large, predominantly rural population.

Emerging States Table 4.1 Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

155

Andhra Pradesh at a Glance

Characteristic Area (sq km) Population (2001 census) in million Urban population (%), 2001 census Population density (2001 census) Birth rate (2002) Death rate (2002) Sex ratio (2001 census) Literacy rate (2001 census) Per capita income (2005) NSDP

Value 2,75,069 76 27.3 277 per sq km 20.6 per 1,000 8.0 per 1,000 978 females per 1,000 males 61.11 per cent USD 410 per annum USD 32 billion

Source: Statistical Abstract, Government of Andhra Pradesh, 2006.

Andhra Pradesh is bounded by Orissa, Madhya Pradesh and Chhattisgarh (north), Maharashtra and Karnataka (west), Tamil Nadu (south) and Bay of Bengal (east) and has a long coastline of around 1,000 km. Drained by Godavari and Krishna rivers, the economy of Andhra Pradesh traditionally centred on agriculture, animal husbandry and fishing in coastal regions. However, in the last 10 years, Andhra Pradesh had put in enormous endeavour in diversifying its economy and expanding its industrial and services base. Today, though 70 per cent of Andhra’s population is engaged in agriculture, the state’s economic growth is being spearheaded by sectors like IT, oil and gas exploration, and biotechnology. Understanding the importance of the role played by agriculture in fostering rural economic growth, Andhra Pradesh has stepped up investments in irrigation and watershed development. About 40 per cent of the cultivated area is presently irrigated through major and minor irrigation projects. With increasing spread of commercial crops in the state, new irrigation schemes are being introduced to expand the irrigation cover. After independence, several important schemes were implemented like Nagarjunasagar project, Prakasam Barrage, Sir Arthur Cotton Barrage, Tungabhadra Low-level canal, KurnoolCuddapah canal, Kadam project, Romperu drainage project and Upper Pennar project. The projects under the implementation phase are Sriramsagar, Vamsadhara, Srisailam right branch canal, Yeluru Reservoir Scheme and Godavari delta system. However, the Telangana area in the

156


state continues to grapple with poor irrigation and water facilities and has the maximum reported cases of farmer distress. Rice is the main crop grown in the state, while maize, barley, millets, pulses, oilseeds are other crops. Cotton, tobacco, sugarcane, castor, mangoes and banana are other cash crops. The state accounts for about 55 per cent of the country’s entire production of castor and 94 per cent of Virginia tobacco. Forests cover about 25 per cent of the state’s area, especially on the Eastern Ghats. Important forests products are teak, eucalyptus, cashew, bamboo, sandalwood and soft wood. Andhra Pradesh is the second biggest storehouse of minerals in India after the Chhotanagpur plateau and this reflects in the wide array of mineral based industries that are found in the state. There are several industries in the Hyderabad–Visakhapatnam belt such as machine tools, synthetic drugs, pharmaceuticals, heavy electric engineering, fertiliser, aeronautical parts, cement and cement products, glass and ship-building. Visakhapatnam has some of the country’s largest ship building facilities in place. However, despite an impressive basket of industrial units in place, the manufacturing sector in Andhra Pradesh only comprised 19 per cent of the State Domestic Product (SDP) in 2005 (see Figure 4.1). Andhra Pradesh is replete with various minerals. As per the estimates of ‘State Report—Andhra Pradesh’ (2006) by the Centre for Figure 4.1

Sectoral Shares

25.8% 55.4%

Agriculture Manufacturing Services

Source: IBEF, www.ibef.org.

18.8%

Emerging States

157

Monitoring of the Indian Economy (CMIE), Andhra stands second in terms of deposits of minerals of strategic importance and sixth with regard to the value produced by them. The state has the largest deposit of quality chrysolite asbestos in the country and accounts for more than 93 per cent of total production of barites. The state also ranks sixth in the production of manganese ore, and ranks second in mica, limestone, bauxite, graphite, phosphate and, copper ore. The Singareni Coal Mines in Andhra Pradesh supply coal to the entire south India. The biggest driver of growth of Andhra’s economy is the service sector which accounts for more than 55 per cent of the SDP. Andhra Pradesh pioneered the IT revolution in the country and established the largest IT parks in India at Hyderabad. Major global IT giants like Microsoft, Oracle, Cisco systems, Lucent Technologies and Bell Laboratories have operations there. Hyderabad is recognised as the ‘Silicon valley’ of India due to the large number of IT companies present there. The Government of Andhra Pradesh started the Indian Institute of Information Technology (IIIT) as an industry-driven, industryfinanced and industry-managed institution to ensure regular supply of trained manpower for the IT industry in the state. In collaboration with foreign institutions, several world class academic and research institutions have been opened to ensure easy availability of skilled manpower; for instance, the Indian School of Business, which has been established at Hyderabad in collaboration with Kellogg School of Business, Wharton Business School and London Business School. With increasing globalisation and integration with the world economy, exports have become important to the growth of the economy of Andhra Pradesh. Software is the biggest export from Andhra Pradesh, followed by agro-based and forest-based products (see Figure 4.2). Drugs and pharmaceuticals come third on the contribution to the export basket of the state. Dr Reddy’s Laboratories and Aurobindo Pharmaceuticals form the backbone of the pharmaceutical exports from the state. The total value of exports from Andhra Pradesh has been approximately USD 3.2 billion in 2005. The acceleration of economic growth in the state has been a result of the conscious efforts of the government to encourage infrastructure growth in the state by mobilising private sector participation in the true sense of public–private partnership. For rural infrastructure (especially irrigation), community empowerment has been done through transfer

158


Software—The Biggest Share

5.4% Software 8.4% Agriculture and agro-based, and forest products Drugs and pharmaceuticals, chemicals and allied products 14.2% Leather, animal and marine products Engineering items Minerals and mineral products

5.0% 26.9%

19%

17.8%

22.3%

Others

Source: Economic Survey, Government of Andhra Pradesh, 2006.

of resources and decision-making to local self-governance bodies and civil society organisations. For instance, Andhra Pradesh is the first Indian state involved in farmers’ management of irrigation sources. The Andhra Pradesh Farmers’ Management of Irrigation Systems Act, 1997 came into effect from 19 April 1997. Water user associations were formed as per this act. There are, till date, 10,292 water user associations and 174 distributory committees which look after watershed and minor irrigation development in rural hinterlands of the state. As per the government estimates in 2005, there were 4,038 km of national highways, 8,763 km of state highways and 1,41,079 km of district roads (including village roads) in the state. Total rail tracks including broad gauge and metre gauge is approximately 5,135 km. Civil aviation is developing fast in the state and both national and international flights operate from the state. Important airports are located in Hyderabad, Tirupati, and Visakhapatnam. International flights operated from the state are Hyderabad to Kuwait, Muscat, Sharjah, Thailand, Hong Kong, Australia and Singapore. The 1,000 km long coastline provides many opportunities for Andhra Pradesh to develop maritime port facilities. Visakhapatnam is a major port of the country. Minor ports are located in Kakinada, Machilipatnam, Bheemunipatnam, Krishnapatnam, Vadarevu and Kalingapatnam.

Emerging States

159

Andhra Pradesh is the country’s only power surplus state. The total installed capacity in the state was approximately 11,000 MW in 2005 (see Figure 4.3). The state has effectively carried out reforms in the power sector and privatised power distribution, encouraged private participation in power generation and separated generation from transmission and distribution. Many projects are underway to add additional 5,000 MW of power by the year 2010. Figure 4.3

Power Generation Sources

1.0%

1.5%

34.6%

Thermal Hydel Wind

62.9%

Nuclear

Source: India Brand Equity Fund, ‘Andhra Pradesh Report’, 2006.

The major power projects of the state are—the Nagarjunasagar and Neelam Sanjiva Reddy Sagar (Srisailam Hydel Project), Upper and Lower Sileru, Tungabhadra Hydel Projects and Nellore, Ramagundam, Kothagudem, Vijayawada and Muddanur thermal projects. The main Hydel power generation projects are Srisailam Hydro Electric Project (installed capacity of 770 MW) and Nagarjunasagar Complex (installed capacity of 960 MW), whereas the Vijayawada Thermal Power Station and the Kothagudem Thermal Power Station are the main sources of thermal power generation with an installed capacity of 1,260 MW and 1,180 MW respectively. Simhadri Thermal Power Station with an installed capacity of 1,000 MW aims at supplying the entire power generated to the state. The leading management consulting firm KPMG has mapped the investment and business potential of the state of Andhra Pradesh.

160


Figure 4.4

Investment Opportunities and Business Potential in Andhra Pradesh


Biotech

Food Processing

Policy Proactiveness Moderate ¡ Generic policy incentives

IT and ITES

Infrastructure

Chemicals/ Pharma

Mineral-based Industry Engineering Tourism

Sector Attractiveness Drivers Natural Resources Driven

Capability Driven

Source: India Brand Equity Foundation, KPMG, www.ibef,org.

Based on a proactive government policy aimed at establishing Special Economic Zones (SEZs), development of state-of-the-art infrastructure like expressways and optical fibre networks and economic incentives like tax holidays, biotechnology and IT/ITES have emerged as the sectors with the maximum business potential in the state. As per NASSCOM, Hyderabad is the number one destination for IT and ITES in the country. Andhra Pradesh is the first in the country to put in place a comprehensive ITES/BPO policy as well as to launch world class training programmes for ITES/BPO. Andhra Pradesh has 23 per cent of the software and biotech professionals in the, country, which provide the biggest driver for growth of these sectors. Agro Biotech Park, IT Parks, Genome Valley, Gems and Jewellery Park, Marine Biotech Park, Pharma Park and Export Promotion Industrial Park are some of the major SEZs established in Andhra Pradesh to capitalise on its growth potential in these sunrise sectors of the economy. The Industrial Policy of Andhra Pradesh, drafted after due consultation with major stakeholders, is one of the most progressive and forward-looking, comparable to the ones propounded by some of the

Emerging States

161

progressive states in the country. Salient features of the Industrial Policy of the state are as follows: z

z

z

z

To promote Andhra Pradesh as an attractive destination for industrial development and market it as an ideal destination for foreign investment To attract and develop appropriate entrepreneurship capabilities, management and HRD facilities in the state to capitalise on the growth potential in the sunrise, knowledge-sectors of the economy To improve and create a world class infrastructure by facilitating investments by private sector on a public–private partnership basis (Industrial Infrastructure Development Fund), and develop effective regulatory systems for easy entry and exit of firms To encourage micro, small and medium enterprises to achieve the twin objectives of employment generation and utilisation of local resources, and making industrial clusters in the state globally competitive through creation of market-driven environment and fostering healthy competition among firms

Kerala at a glance God’s own country, Kerala, has been a source of inspiration to many developing economies in India and elsewhere, striving for accelerating social and human development. Despite only a moderate record of economic growth, Kerala has an impressive record of social development comparable to the developed economies of the West. Focused on expansion of education and health services to the masses, Kerala’s growth experience has been extensively studied and researched by scholars the world over and is recognised as the ‘Kerala Model of Development’. Kerala is a small state in south India, located in the southwestern corner of the country, covering 1.3 per cent of the total area of India. Bounded by Karnataka in the north, in the east by Tamil Nadu, in the south by Indian Ocean and in the west by Arabian Sea, Kerala is characterised by extensive backwaters, lagoons, coconut groves and beaches. Table 4.2 shows how a small state like Kerala can show handsome results from its literacy and development policies.

162

STATES OF THE INDIAN ECONOMY Table 4.2

Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Kerala at a Glance


Value 38,863 31.8 million 25 per cent 819 per sq km 17.9 per 1,000 6.4 per 1,000 1,058 females per 1,000 males 90.92 per cent USD 550 per annum USD 18 billion (including repatriation)

Source: Statistical Abstract, Government of Kerala, 2006.

Kerala’s economy is predominantly agrarian with more than half of its working population dependent on agriculture and allied activities (see Figure 4.5). The share of agriculture to SDP in Kerala is however approximately 16 per cent. Unlike agriculture in other parts of the country, agriculture in Kerala is dominated by cash crops. Spices like cardamom, cloves, cinnamon and pepper, tea, coffee, coconut, rubber, vanilla, ginger and cocoa are the major crops grown in the state. Coconut is the most important cash crop of Kerala. Kerala is the largest producer in the country of coconut (45 per cent), pepper (97 per cent), rubber (92 per cent) and cocoa (63 per cent). Pepper earns the maximum foreign exchange. About 70 per cent of the India’s cardamom production is from this state. Banana, pineapple, mango and jackfruit are major fruit crops. Rice and tapioca are important food crops. Tapioca is generally consumed locally but some of it goes to feed the starch factories, and mills manufacturing tapioca flour. Kerala has large forest reserves with more than 30 per cent of the state covered with thick evergreen forests. Teak, rosewood and timber are major forest produce in the state. The plantation agriculture in Kerala requires timely irrigation and thus a multitude of irrigation projects—medium and minor— have been created along with the provision for groundwater and command area development. The major schemes are Chalakkudy, Peechi, Malampuzha, Gayatri, Walayar, Vazhani, Neyyar, Pamba, Periyar, Mangalam, Chimmini and Cheerakuzhy. Several other irrigation

163

Emerging States Figure 4.5

Sectoral Shares

15.7%

10.0%

Agriculture Manufacturing Services

74.3%

Source: Kerala Economic Survey, Government of Kerala, 2006.

schemes have been commissioned and construction works on seven major irrigation projects—Kallada, Pazhassi, Muvattupuzha, Idamalayar, Karappara-Kuriarkutty, Chaliar and Kanjirappuzha—are in progress. Kerala has good industrial potential due to availability of good infrastructure facilities and an educated workforce. However, rigid labour laws, labour militancy and industrial sickness due to populist government schemes never allowed industrial development to flourish in the state. In the post-reform era, with increasing domestic and global competition, Kerala has been relaxing its labour laws, especially for firms located in its SEZs and industrial parks. This has attracted a large number of private firms, domestic as well as international, for a wide array of products. Kerala has been an attractive destination for traditional industries like handloom, cashew processing, coir, handicrafts, and khadi and village industry products. However, the industrial basket in Kerala has expanded in the last decade to include tea, ceramics, electric and electronic appliances, telephone cables, transformers, bricks and tiles, drugs and chemicals, general engineering, plywood splints and veneers, cigar, soaps, oils and fertilisers. A number of manufacturing units have emerged in sectors like precision instruments, machine tools, petroleum products, paints, paper and pulp, newsprint, glass and nonferrous metals.

164


The service sector in Kerala has been on an upswing in the last decade capitalising on the easy and cheap availability of educated manpower. Sectors like IT are becoming the major drivers of growth in the state. The service sector has been growing at a rate of more than 10 per cent in Kerala for over a decade now. Kerala is also one of the major tourist destinations in the country for both domestic and international travellers. Internationally acclaimed for its beaches, backwaters and ayurveda, Kerala attracts one of the highest number of tourists in the country contributing to more than 7 per cent of SDP in 2005. Figure 4.6

Growth

CAGR: 10.79%

10 8

9

7

1999–00

2000–01

2001–02

2002–03

Source: IBEF. Note: CAGR—Compound Annual Growth Rate.

Infrastructure in Kerala has become better due to massive public and private investments in basic infrastructure facilities. Kerala has the highest road density in the country, approximately 4 times the national average. The state has more than 1,500 km of national highways, 3,800 km of state highways, 20,000 km of major district roads and 1,10,000 km of village roads. The continuous settlement pattern in Kerala makes it important to have a wide network of roads and highways in the state. Due to the undulating terrain of Kerala, the railway network is rather sparse with only about 1,000 km of railway lines. However, with the construction of the Konkan railway link, railways have got a boost in the state.

Emerging States

165

Civil aviation is well developed in Kerala with all three airports— Cochin, Trivandrum and Calicut—being international airports. There is good connectivity to the Gulf and the Middle East from the airports of Kerala. Cochin International Airport is the country’s first privately developed and managed airport and is on its way to become a state-ofthe-art airport in the country. Bestowed with a large, rugged coastline, Kerala has a large number of small and minor ports and fish landing centres. Cochin Port is one of the biggest and most modern ports in the country and is fast emerging as a leading destination in the Arabian Sea for cargo handling purposes. Kerala’s power projects are mostly hydro-based because of heavy rainfall and a large number of swift flowing rivers. To meet the fast growing energy requirements, the government has decided to introduce alternative power generating systems. Peppara hydel power project with a capacity of three MW has been commissioned. The work on the first stage of diesel power station, Brahmapuram, is nearing completion. The Kerala State Electricity Board wholly controls the power Figure 4.7

Business and Investment Potential in Kerala


Infrastructure

Agro-based

Textile

Coir-based

Tourism

IT and ITES

Policy Proactiveness Moderate ¡ Generic policy incentives ¡ Exemptions given on request

Biotech

Sector Attractiveness Drivers Natural Resources Driven

Capability Driven

Source: India Brand Equity Foundation, KPMG, www.ibef.org. Note: The focus on food processing is important for a state that for thousands of years has been a spice enporter.

166


generation and distribution in the state. Agency for Non-conventional Energy and Rural Technology (ANERT) acts as a nodal agency for the non-conventional source of energy in the state. The total installed power capacity in Kerala in 2005 was approximately 4,000 MW. KPMG provides a map of business and investment potential in Kerala. According to them, industrial policy in Kerala is favourable for growth and development of biotechnology and agro-based industries. These sectors are also natural resource-driven wherein Kerala has a distinct comparative and competitive advantage. IT and ITES also have potential in the state, though Kerala faces stiff competition from states like Karnataka and Andhra Pradesh. However, Kerala’s endeavours in expanding the use of IT in rural areas through innovative projects like the Information Kerala Mission and the creation of online Geographical Information System (GIS) databases shall go a long way in providing fruitful employment to educated rural workforce. Kerala has emphasised on e-governance to take IT services to the masses and increase the efficiency of government programmes and schemes. The Kerala Institute of Entrepreneurship Development is also playing a pivotal role in fostering IT related entrepreneurship among educated youth in the state. Salient features of Industrial Policy (2001) of Kerala are as follows: z z

z z z

z

Enhance industrial growth rate and generation of employment in the state. The creation of an investment friendly climate to attract domestic and foreign private investment especially in areas like infrastructure, IT, biotechnology, agro-processing, ayurveda and tourism. The maximisation of value addition within the state. Emphasis on e-governance measures to make governance more transparent and effective. Relaxation of a number of restrictive labour laws to attract firms in sunrise sectors such as IT and ITES (flexi-time, three shift operations, women in night shifts in BPOs, easy hire and fire, and so on). Establishment of apex level regulatory and facilitative authorities with focus on key development sectors—Kerala Industrial Infrastructure Development Corporation (KINFRA) for infrastructure, Kerala Biotechnology Commission for bio-technology, and Kerala Institute of Entrepreneurship Development (KIED) for development of micro, small and medium enterprises in the state.

Emerging States z

167

Fostering rural development through sustained focus on SHG development, micro-finance and other sustainable development schemes.

Karnataka at a glance Karnataka, the eighth largest state in the country both in terms of area and population, is fast emerging as one of the main economies in the country (see Table 4.3). Bangalore, the capital of Karnataka, has emerged as one of the major technology destinations in the country as well as in the world. Known as the ‘IT capital of India’, Bangalore has put Karnataka on the global IT and technology map with a vast conglomeration of Fortune 500 technology companies and R&D institutions. Situated on the south-western edge of the Deccan plateau, Karnataka is bounded by Maharashtra and Goa in the north, Kerala and Tamil Nadu in the south, Andhra Pradesh in the east and Arabian Sea in the west. With more than 300 km of coastline, Karnataka has some of the finest beaches in southern India after Kerala. Karnataka is well endowed with abundant natural resources especially forests and water resources. Cauvery, Sharavati, Shimsha, Kapila, Hemavati and Kalindi are major rivers in the state which provide water for irrigation, drinking and industrial uses. The highlands of the Nilgiris provide Table 4.3 Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Karnataka at a Glance


Value 1,91,791 52 34 per cent 276 per sq km 22 per 1,000 7.2 per 1,000 965 females per 1,000 males 67 per cent USD 400 per annum USD 26 billion

Source: Statistical Abstract, Government of Karnataka, 2006. Note: The state has benefited by allowing private players in education and the large number of IT professionals it produces is testimony to this initiative.

168


a conducive environment for coffee and tea plantations. Coffee is a major plantation crop grown in Karnataka and the state accounts for a major share (70 per cent) in India’s coffee production. Around 50 per cent of the SDP in Karnataka comes from the service sector. But, this does not undermine the importance of the agriculture and allied sector in the state, especially in terms of rural employment (see Figure 4.8). Out of 19.1 million hectares of land, 10.4 million hectares of land is under cultivation with major crops being rice, maize, wheat, oilseeds and pulses. The important cash crops of this state are coffee, tobacco, cashew, coconut, cardamom, chilly, sunflower and sugarcane. Karnataka also has a considerable horticulture production especially dominated by fruits like pomegranate, jackfruit, lemon, banana and grapes. The state also has a fairly vast forest cover comprising more than 22 per cent of its area. There are 21 wildlife sanctuaries which protect Karnataka’s rich biodiversity in flora and fauna. Major forest produce in the state are sandalwood, teakwood, rosewood, timber, bamboo and rubber. Figure 4.8


24.50% 49.90%

Services Agriculture

25.60%

Industry

Source: Economic Survey, Government of Karnataka, 2006.

The industrial base in Karnataka is impressive with a 26 per cent contribution to SDP. There are more than 1,100 large and medium manufacturing firms in the state with an aggregate investment of more than USD 7 billion by domestic and international players. Karnataka stands first in the production of electronic equipment and raw silk.

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Emerging States

Bharat Earth Movers, Bharat Electronics, Bharat Heavy Electricals, Hindustan Aeronautics Limited, Hindustan Machine Tools, Indian Telephone Industries, Wheel and Axle, New Government Electric Factory and Mangalore Chemicals and Fertiliser are among the major public sector undertakings. There are a number of factories with different arrangement—under the joint sector, the private sector and also small-scale industries in sectors like rail coaches, telephone instruments, electronic and telecom instruments, glass, batteries, spark plugs, electric motors, textiles, silk, sandal oil, electrical goods, porcelain, sugar, caustic soda, paper, newsprint, capacitors, mining metal tools, cement, motor cycles and fertiliser. Figure 4.9

Contribution of Various Sectors to Exports in 2003–04

31% 49%

Electronics and computer software Readymade garments Engineering Iron ore and minerals Silk products

2% 5% 4% 9%

Others

Source: Statistical Abstract, Government of Karnataka, 2006.

The state has, however, emerged as a front runner in the services sector, especially in IT and biotechnology (see Figure 4.9). Karnataka has the highest share in IT exports in the country and accounts for more than 35 per cent of the total software exports from India valued at approximately USD 4 billion. The state also has the highest number of biotechnology firms and boasts of the highest employment rate in urban areas in the country. Out of the total value of exports from Karnataka, 49 per cent is accounted for by electronics and computer

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software, 9 per cent by readymade garments, 4 per cent by engineering, 5 per cent by iron-ore and minerals, and 2 per cent by silk products. There has been an emphasis on infrastructure development in the state to provide world class facilities to investors. The road network in the state is more than 1,50,000 km while the rail network is approximately 4,000 km. There are plans to construct a metro-rail system in Bangalore with an investment of USD 900 million. Belgaum, Mangalore and Hubli are the main domestic airports. The Bangalore Airport is an international airport and efforts are on to upgrade and modernise the facilities at the airport by involving private firms. The Airport provides direct access to destinations like Singapore, Thailand, Australia, Malaysia, Middle East and Europe. The long coastline provides ample scope for development of maritime ports in the state. The port infrastructure includes a network of 10 ports including the New Mangalore Port. New Mangalore is the main all-weather seaport of the state. This port mainly handles cargo vessels. Special facilities for export of Kudremukh iron ore and to handle crude, oil, coal, LPG, and so on, are being developed in collaboration with Sea Bird Project of the Indian Navy near Karwar. For irrigation, a number of small and medium projects have been implemented in the state. As per the estimates of the Central Water Commission, the ultimate irrigation potential of the state is about 5.5 million hectares of land, out of which 3.5 million hectares are under major and medium projects, 1.0 million hectares under minor irrigation projects and the remaining 1.0 million hectares fall under ground water resources. The business and investment potential analysis done by KPMG for Karnataka reveals similar potential for the state as for Andhra Pradesh. Both these states are pioneers in IT and biotechnology and there are good opportunities in these states to further strengthen their position in these knowledge-oriented, sunrise sectors both domestically and internationally. The Government of Karnataka has put in place numerous policy incentives to attract firms and investments in these sectors. A special thrust is also laid on infrastructure development for both rural and urban areas. Especially for Bangalore, in its quest to become a world class city, several measures have been taken to involve civil society organisations, private corporations and public

Emerging States Figure 4.10

171

Business and Investment Potential in Karnataka



Biotech

Infrastructure

Food Processing

Tourism

Auto

Moderate ¡ Generic policy incentives

IT & ITES

Engineering

Chemicals/ Pharma Sector Attractiveness Drivers Natural Resources Driven

Capability Driven

Source: India Brand Equity Foundation, KPMG, www.ibef.org.

groups to engage in a consultative process to shape the nature of urban development. In the Industrial Policy, thrust has been laid on technological upgradation and quality management. Among the many clauses of the policy, the salient features are interest subsidy to firms (especially SMEs) on loans for technological upgradation and modernisation, assistance to firms to obtain ISO certifications with 50 per cent costs being borne by the state, and exemption from entry tax and stamp duty to firms in special thrust areas (such as eco-tourism) in the under-developed regions in the state. There is a heavy focus on e-governance in the state with single-window clearances.

West Bengal at a glance West Bengal has been the strong hold of the Left parties in the country and for the last three decades, the Left has been continuously winning the state elections. One of the reasons for the same may be found

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in the progressive policies that the Left adopted in West Bengal, especially to accelerate the pace of social development and the empowerment of communities. Land reforms, which failed in most states in the country, were highly successful in West Bengal. The land reforms set the base for the social inclusion process in West Bengal and laid the foundations for an economic growth process with a heavy focus on the poor and the vulnerable sections of society. West Bengal has seen the best and the worst periods in Indian history. During the British rule in India, the Bengal province (comprising of West Bengal, Bihar, Orissa and Bangladesh) was one of the most well-developed regions. Calcutta (now Kolkata) in those days was hailed as the jewel in Queen’s crown and was the most welldeveloped city in Asia and was second only to London. However, by mid-20th century, around the Second World War, Bengal’s economy had got completely ruined due to years of neglect, and in the 1940s, it witnessed the biggest famine in the history of India—The Great Bengal Famine—which killed around 3 million people. The partition of Bengal at the time of independence into West Bengal (India) and East Pakistan (now Bangladesh) also left a scar on the psyche of the people. It has taken quite an effort and time for the state government, in the post-independence era, to bring the economy of West Bengal back on rails. Table 4.4 shows that the state has a large population and low per capita incomes. Table 4.4 Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

West Bengal at a Glance


Value 89,000 80 28 per cent 903 per sq km 20.3 per 1,000 6.6 per 1,000 934 females per 1,000 males 69 per cent USD 395 per annum USD 22 billion

Source: Statistical Abstract, Government of West Bengal, 2006. Note: West Bengal has been growing at a steady pace, leveraging its large base in the food processing industry.

Emerging States

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West Bengal is located in the eastern part of the country and stretches from the Himalayas in the north to the Bay of Bengal in the south. The state is bounded in the north by Sikkim and Bhutan, in the south by Bay of Bengal, in the east by Assam and Bangladesh, and in the west by Orissa, Bihar and Nepal. West Bengal has four major geographical regions—the Chhotanagpur plateau region in its northwestern parts, the Himalayan mountain region, the lower Gangetic plain region and the coastal belt. Drained by major rivers like Ganga (Hoogly) and Damodar, West Bengal has some of country’s the most fertile fields. Sunderbans is a part of the Ganga-Brahmaputra delta which constitutes the coastal plains of West Bengal (and the whole of Bangladesh). Agriculture is the mainstay of West Bengal’s economy with the bulk of the population dependent on agriculture and allied activities for livelihood (see Figure 4.11). Nearly 75 per cent of the state’s population is engaged, directly or indirectly, in agro-based activities. The contribution of agriculture to the SDP is, however, only 27 per cent. West Bengal is one of the leading producers of rice in the country and contributes more than 15 per cent to the total rice production in the country. The state is also a leading producer of fruits and vegetables. Mangoes, lychees, lemons, guavas, papayas, potatoes, onions, brinjals, cabbage, Figure 4.11


27% 51%


Source: ‘Report on West Bengal’, India Brand Equity Fund, 2006.

22%

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cauliflowers and okra are the major fruits and vegetables grown in the state. The state also has a thriving poultry and fishing sector. Arambagh, a completely vertically integrated poultry firm, operates out of West Bengal. Fishing is a prominent economic activity and there exists a huge demand for fish and fish products in the domestic economy of West Bengal. Fishing is carried out in rivers, freshwater lakes, ponds, tanks as well as in the coastal belt. In the highlands in the state, especially in the north, plantation agriculture is practised. Tea is the main cash crop grown in the state and it is where the world renowned Darjeeling tea is grown. Jute, tobacco and betel are other major cash crops grown in the state. West Bengal is one of the largest producers of jute in the world. West Bengal is one of the leading industrial states in the eastern part of India. In fact, the capital city Kolkata has a rich industrial base. However, till about recently, most of the industrial establishments in West Bengal were in the public sector, established with the financial and technical assistance from the West Bengal Industrial Development Corporation (WBIDC). Durgapur Steel Plant and Haldia Petrochemical Refinery are the major Public Sector Undertakings (PSUs) in West Bengal. The Tea Board of India as well as the Jute Board of India also operate from Kolkata and are respectively responsible for growth and development of the tea and jute industry in the country. Some of the major industries are engineering, automobiles, chemicals, pharmaceuticals, aluminium, ceramics, leather, footwear, bicycle, jute, cotton, tea, paper, glass, textiles, timber processing and fertiliser. Smallscale and village cottage industries occupy an important position in the state’s industrial development. The handicraft items of this state are world famous. It holds a good position in terms of foreign exchange earnings. Some of the handicrafts items include objects of wood carving, bamboo items brass and copper items, ivory products and products of embroidery. Bengal sari is very popular in the country. West Bengal, like the rest of the states in the country, has made giant strides in the service sector. As a result, bulk of the SDP of West Bengal comes from the service sector industries. Catching up with other states, especially the southern states, West Bengal has also started to put emphasis on growth and development of IT. The Government of West Bengal has put in place a progressive policy regime for growth of IT and ITES in the state. As a result, major

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175

IT firms like TCS, Infosys, Wipro and HCL have opened operations in the IT Parks established in the state. Box 4.1

z

z z

z

z

West Bengal: Recent Initiatives for IT and ITES Companies

All IT companies are granted the status of public utility services and work under a 24 × 7 × 365 model. Self-certification allowed for IT companies to the extent possible. IT companies are awarded special status to improve infrastructure availability. Several data protection rights, anti-piracy measures and R&D support from appropriate institutions. Fiscal incentives such as exemption from consumption tax and quality linked incentives.

Source: IBEF.

The population density in West Bengal is very high and thus there is immense pressure on resources for competing uses, especially infrastructure. Thus, the Government of West Bengal has made concerted efforts to boost infrastructure development in the country. The national highways in the state make up for more than 2,000 km, the state highways 3,500 km and the district roads 45,000 km. The railways network is extensive in the state and important railway junctions in the state are Kolkata, Howrah, Sealdah, Kharagpur, Durgapur and New Jalpaiguri. The total rail route in the state in 2005 was approximately 3,700 km (including broad, metre and narrow gauge). Civil aviation is also relatively well developed in West Bengal as compared to the other states in eastern India. Calcutta (Dumdum) is the international airport handling bulk traffic to the Far East, China, Singapore, ASEAN nations and Australia. Other domestic airports in the state are Bagdogra, Kalaikunda (Kharagpur), Panagarh (Bardhaman district), Malda, Barrackpore, Behala, Balurghat and Coochbehar. West Bengal has both maritime and riverine ports. Kolkata on river Hoogly (Ganga) is the main riverine port of the state. Now, Haldia has been developed as a major port of the country. Besides this, a number of jetties, minor ports and fish landing centres are present in the state.

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Composition of Electricity Consumption

9% 7% 42% 12% Industrial Domestic Commercial Agriculture Others

30%

Source: ‘Report on West Bengal’, India Brand Equity Fund, 2006.

Power is surplus in West Bengal, and is generated mostly from its thermal power stations (97 per cent of the total power generated in the state) (see Figure 4.12). The state has an installed capacity of approximately 6,000 MW, with additional 1,000 MW expected to be added in the next five years. The surplus power from West Bengal is transferred to the National Power Grid to be transmitted to other power deficient regions in the country. The Government of West Bengal recognises the importance of fast economic growth and has put in place a progressive industrial policy. The salient features of its policy are as follows: z

z

z

Focus on industries of comparative and competitive advantage— mining (coal, iron-ore), iron and steel, jute and jute products, agro-processing (tea, tobacco), food-processing (fruits and vegetables) and IT/ITES. Restructuring of PSUs—given the socialist underpinnings of the government, there is a focus on restructuring of public-sector enterprises to make them economically viable, technologically sound and financially robust. The state is not in favour of disinvesting PSUs. Maintain a balance between the needs of the industry and the demands of labour—the government has laid out certain basic

Emerging States

z

z

177

minimum labour rights that need to be assured of by every firm to its employees. However, it has relaxed some labour laws (like three shift operations, women in night shifts, hiring of workers on contracts, retrenchment of staff) in special sectors and in SEZs. This has been done to attract firms in sunrise sectors like IT and ITES. Encourage private-sector participation and investments—this is where the socialist model followed in West Bengal is not ‘purely’ socialist but more of a socialist adaptation of capitalism as is the case in China. The Government of West Bengal aggressively seeks private capital investment in the state. Not surprising, major corporate conglomerates like Tata and Mittal Steel are ready to open new business ventures in West Bengal. Creation of SEZs to provide world class infrastructure and working ambience to firms. The government has also introduced a system of single-window clearance for big-ticket investments to curb red tape in such projects. Efforts are being made to introduce e-governance systems to streamline government systems and procedures and bring about greater transparency in government dealings to check corruption and malpractices.

Infrastructure Growth and Investment

T

5

he recent development debate in India is focused on ‘inclusive growth’—a growth that involves a vast majority of the population, is broad-based, inequality reducing and provides equal opportunities to every section of the population. As an outcome of this dominant paradigm of development, we find that the buzz word has become ‘infrastructure’. Right from the multi-billionaire corporates to multinational corporations, from the government both at the Central and state levels to the civil society organisations and local self-governance institutions—everyone is clamouring for provision of infrastructure. Infrastructure forms the backbone of any economy. Roads, railway networks, telecommunication facilities, airports, power supply, drinking water facilities, Internet facilities, banking and financial services, and so on, are all the necessary ingredients that go into the making of any successful growth story. In the late 1970s and the early 1980s, the East Asian nations, referred to as the ‘Asian Tigers’, held the world spellbound by recording unprecedented economic growth. One of the main catalysts for their spectacular economic performance was heavy investments in infrastructure. In the decade of the 1990s, China too embarked upon a journey of modernising its infrastructure and made massive investments. The results are there for all to see—the ‘Chinese dragon’ has been registering a growth rate of around 10 per cent on an average, for more than a decade now! India today stands at the crossroads of development. While on the one hand, the prospects of rapid economic growth and development are looking the brightest today, on the other hand, there are serious


179

stumbling blocks in the growth trajectory on account of poor infrastructure. Supply bottlenecks of critical services can hamper growth and development. The urgency to revamp infrastructure stems not only from the need to service the existing sectors, but also from the rapidly growing needs of the ‘sunrise sectors’. The world is waiting with bated breath for the ‘Indian elephant’ to come out of its slumber and start jogging! The window of opportunity that now beckons India is available only for a limited period. How much and how fast we are able to realise the potential of the economy largely depends on the policy environment we choose to adopt and the investment decisions we choose to make today. If India seizes this moment and makes wise decisions, She can replicate the success story of the Asian Tigers and wriggle out of poverty in the medium term. Failure to encash on our strengths and opportunities today shall condemn a vast majority of our population to poverty for many decades to come, maybe forever! There appears to have been a growing realisation within the government that for any broad-based growth, which is sustainable in the long run, investment in infrastructure is mandatory. Despite government attention to infrastructure, the quality and quantity of infrastructure in the country has been abysmal. India not only lags behind the developed countries, but also her developing peers. For instance, as reported in the World Development Report (2004), while India had 46 per cent of her roads paved, Malaysia had 76 per cent of her roads paved, South Korea 75 per cent, Thailand 98 per cent and Singapore 100 per cent. Rapid urbanisation in the country has put tremendous pressures on the quality of infrastructure. The floods in Mumbai and Chennai were a big reminder to all of us that the single biggest gap in India is the poor quality of infrastructure. Similar is the case with other major cities in the country. For instance, Bangalore is already fast reaching the limits to its growth due to absence of adequate infrastructure! Deeply cognisant of the fact that in order to accelerate the pace of economic development the investments in infrastructure have to be stepped up, the Government of India has launched a series of policy initiatives and reforms to address the critical bottlenecks in the infrastructure sectors. Most importantly, the Government has tried to remove the barriers to greater private participation in these sectors,

180


including FDI. Despite mounting pressures from the Left Parties, the Government has given a go-ahead to private players for modernisation of Delhi and Mumbai airports. Affirmative steps like this are the need of the hour, and these steps should soon become the norm rather than exception. We have seen in case of progressive states in India (Punjab, Haryana, Maharashtra, Gujarat and Tamil Nadu) that investments in infrastructure have been the key drivers shaping economic growth. Most of these states have relatively much better infrastructure facilities as compared to other states in the country. Efforts made by the government to encourage private participation in provisioning for infrastructure facilities have also started to show dividends. Numerous infrastructure projects involving public–private partnership have been launched in these states, with capital and advisory assistance from international development organisations. The emerging states in the country (Andhra Pradesh, Karnataka, Kerala and West Bengal) have also stepped up their investments in infrastructure in the post-reform era. Development of modern highways and expressways, modernisation of railway corridors, upgradation of maritime ports and airports, and laying of optical fibre networks are the major thrust areas for the governments in these states. Infrastructure today may be factored out as the key to economic growth and development and there are numerous examples within the country which explain the close linkages between infrastructural growth and economic growth. Given below is a snapshot of infrastructure development in the country with a specific mention of reforms at the Central as well as the state level.

The Power Sector Domestic consumers, industrial users and the irrigation sector consume 85 per cent of India’s electrical energy. The per capita power consumption in India has grown from 15.6 KwH in 1950 to 600 KwH, but this is still much lower than consumption standards in most other countries. PricewaterhouseCoopers (India) has estimated that the demand for power is expected to rise at a rate of more than 8 per cent per annum over the next decade.

181


India has an installed power generation capacity of 112 GW per year. The total power generation in the country is close to 550 billion units. This compares poorly with the rest of the world (see Figure 5.1). Over the next 10 years, the minimum capacity addition needed is estimated to be over 83,000 MW. At an average cost of USD 1 million per MW, the investment called for in power generation in India is USD 83 billion. If the investment required in transmission and distribution are also taken into consideration, the total figure rises to USD 200 billion.

25000

India

China

Brazil

Malaysia

Korea

UK

5000

Singapore

10000

Japan

15000

Australia

20000

US

Per Capita Consumption (KwH)

30000

International Comparison—Per Capita Consumption

Iceland

Figure 5.1

0

Source: Human Development Report UNDP, 2003. Note: India’s consumption of power is very low but, with spectacular growth, is poised to shoot up.

India’s share in the world’s electricity generation has increased from 2.4 per cent in 1994 to 3.6 per cent in 2002 (see Figure 5.2). Much of the power generation in India (around 65 per cent) is owned and operated by the State Electricity Boards (SEBs), and 29 per cent by corporations set up by the Central government. The main power corporations in India are the National Thermal Power Corporation (NTPC), National Hydro-electric Power Corporation (NHPC), National Lignite Corporation (NLC) and the Damodar Valley Corporation created on the lines of the Tennessee Valley Corporation in the US. Nuclear stations under

182


the Central government owned Nuclear Power Corporation account for 3 to 4 per cent of the installed generating capacity. The public sector Power Grid Corporation of India Limited is in charge of interstate transmission. Figure 5.2

India’s Share—World Electricity Generation (2002)

25.0%

10.0%

South Koria

Brazil

United Kingdom

France

India

Germany

3.7% 3.6% 3.6% 3.5% 2.4% 2.1% 2.1%

Canada

5.5%

Russian Federation

Japan

China

USA

6.7%

Source: ‘Energy Report’, India Brand Equity Fund, 2006. Note: Electricity generation growing at the rate of 7–8 per cent per year is not enough.

There are two major legislations that regulate the electricity in India: the Indian Electricity Act (1910) and the Electricity Supply Act (1948). Other key legislations are the Companies Act (1956), the Water (Prevention and Control of Pollution) Act (1974) and the Air (Prevention and Control of Pollution) Act (1981). The Ministry of Power in the Central and the state governments along with the Central Electricity Authority and the State Electricity Boards are the key bodies comprising the institutional framework for the power sector. Despite growth in power generation, there are severe power shortages throughout the country. It is estimated that energy deficiency is approximately 11 per cent and the shortage during peak hours is to the tune of 20 per cent of the current capacity. Growing urbanisation,


183

increasing industrialisation and mechanisation has widened the gap between the demand and supply of power in the last four to five years. Table 5.1

Sub-station Mainpuri Patiala Kaithal New Lucknow Maharani Bagh Amritsar Bahadurgarh Gorakhpur Ludhiana Bhiwadi Meerut

Power Grid Stations to be Established in Northern India (Tenth Plan) Voltage level (kV)

Capacity of S/S (MVA)

Estimated cost (INR crore)

400/220 400/220 400/220 400/220 400/220 400/220 400/220 400/220 400/220 400/220 400/220

2 × 315 2 × 315 2 × 315 2 × 315 2 × 315 2 × 315 2 × 315 2 × 315 2 × 315 2 × 315 2 × 315

57.79 51.06 47.35 47.27 77.15 22.84 26.21 50.44 50.00 82.11 66.94

Source: Ministry of Power, Government of India, www.indiastat.com. Note: The pace of setting up power stations is too slow, causing much agony, especially in rural parts of north India. Table 5.2

Sub-station Ponda (Mapusa) Boisar Vapi Khandwa Seoni Rajgarh Malanpur Bhatapara Raigarh Bina

Power Grid Stations to be Established in Western India (Tenth Plan) Voltage level (kV) 400/220 400/220 400/220 400/220 765/400 400/220 400/220 400/220 400/220 400/220

Capacity of S/S (MVA)

Estimated cost (INR crore)

630 630 630 630 2,000 630 630 630 630 630

47.00 42.00 42.00 50.00 198.00 49.00 60.00 45.00 58.00 66.00

Source: Ministry of Power, Government of India, www.indiastat.com. Note: Industry is seriously getting affected by the lack of adequate power generation.

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The Power Policy announced in 1991 marked a watershed in the management and regulation of the power sector in India. Through amendments in the Indian Electricity Act and the Electricity (Supply) Act, private participation has been encouraged in the area of power generation. Private companies can set up thermal, gas or liquid fuel, solar or hydel based power plants of any size. Foreign investors are allowed up to 100 per cent ownership of power projects—generation, transmission and distribution. Profit on investments made in the power sector during any block of 10 years in the first 15 years is exempt from income tax. Capital import duties have been waived for mega power generation projects (above 1,000 MW for thermal and 500 MW for hydel). Import duties on transmission and distribution equipment have been reduced to 10 per cent with custom duties on imported coal also having been reduced to 15 per cent. Table 5.3

Sub-station Kolar Hosur Thiruvanthapuram Narendra Mysore Kozhikode Melakottaiyur Pugalur Arasur Pondicherry

Power Grid Stations to be Established in Southern India (Tenth Plan) Voltage level (kV) 400/220 400/220 400/220 400/220 400/220 400/220 400/220 400/220 400/220 400/220

Capacity of S/S (MVA) 500 630 630 630 630 630 630 630 630 630

Estimated cost (INR crore) 55.00 45.00 45.00 61.00 60.00 60.00 60.00 60.00 60.00 60.00

Source: Ministry of Power, Government of India, www.indiastat.com. Note: South India is growing the fastest and, therefore, its power needs are the most urgent.

A major breakthrough in the power sector has occured through the Electricity Act (2003). The Electricity Act aims to steadily dismantle state monopoly through creation of competitive power markets in the country and encouragement for private investments. There has been a focus on transmission and distribution bottlenecks in this Act and an


185

effort has been made to address those issues. The failure of the Dabhol Power project was not on account of lack of demand or absence of funds, but largely on account of the inability of the SEBs to clean up the mess in transmission and distribu-tion of power. Table 5.4 Year 1997–98 2001–02 2006–07 2010–11 2024–25

Share (%) of Future Energy Supply Coal

Oil

Gas

Hydel

Nuclear

55 50 50 53 50

35 32 32 30 25

7 15 15 14 20

2 2 2 2 2

1 1 1 1 3

Source: India Hydrocarbon Vision (2025), Ministry of Petroleum and Natural Gas. Table 5.5

Months

Month-wise Electricity Production in India (1999–2000 to 2005–06) (in million kwh) 1999– 2000

2000– 01

2001– 02

2002– 03

2003– 04

2004– 05

2005– 06

5,685 5,409 6,226 7,834 9,782 8,655 6,940 6,576 6,117 5,734 5,256 6,414

6,365 6,307 6,039 7,578 8,010 8,051 6,536 5,768 5,160 4,870 4,778 5,019

4,429 5,795 6,265 8,113 8,685 7,495 5,888 5,584 5,356 5,288 4,692 6,350

5,573 5,778 5,890 6,570 6,603 7,322 5,747 4,505 4,132 3,736 3,471 4,506

4,494 5,764 6,069 7,201 7,501 7,759 6,402 6,402 5,736 5,281 5,159 5,759

5,252 6,312 7,591 8,687 10,659 9,218 7,939 6,546 5,751 5,392 4,790 6,612

6,370 8,346 7,735 9,565 13,350 – – – – – – –

32,817 32,814 30,487 30,441 30,436

33,275 34,419 32,371 31,548 32,066

35,290 36,177 32,905 32,566 32,374

36,348 36,845 34,681 36,660 36,324

38,211 39,171 36,803 35,414 36,081

42,238 40,334 37,710 40,343 36,487

42,436 43,117 41,580 38,272 36,894

Hydro April May June July August September October November December January February March Thermal April May June July August


186


(Table 5.5 continued) 1999– 2000

2000– 01

2001– 02

2002– 03

2003– 04

2004– 05

2005– 06

September October November December January February March

30,566 30,439 30,950 33,909 34,546 33,458 35,924

31,729 34,660 34,597 36,052 36,296 37,945 37,606

34,277 35,161 35,285 36,430 37,636 34,399 38,574

34,197 38,200 37,849 40,028 41,201 36,051 40,062

36,559 38,773 38,400 41,152 42,529 39,580 43,924

38,540 39,139 39,986 43,273 43,696 39,790 44,623

– – – – – – –

Nuclear April May June July August September October November December January February March

1,027 1,178 1,173 1,003 875 1,099 944 1,206 1,115 1,227 1,162 1,258

1,065 1,227 1,401 1,182 1,453 1,444 1,533 1,235 1,667 1,590 1,396 1,735

1,588 1,405 1,478 1,581 1,617 1,375 1,589 1,726 1,864 1,551 1,738 1,728

1,516 1,527 1,637 1,582 1,517 1,459 1,650 1,744 1,762 1,548 1,527 1,766

1,579 1,564 1,638 1,538 1,383 1,253 1,421 1,417 1,503 1,537 1,345 1,559

1,440 1,335 1,269 1,253 1,179 1,250 1,557 1,533 1,508 1,421 1,433 1,638

1,463 1,446 1,472 1,496 1,513 – – – – – – –

Months

Source: www.indiastat.com. Note: The month-wise production often fails to deliver adequate power when demand peaks.

The salient features of the Electricity Act (2003) are abolition of any form of licencing for setting up power plants except in case of hydrogeneration, immediate open access in transmission and distribution, focus on rural power development (stand-alone generation and distribution permitted), introduction of power trading as a separate business activity, strong anti-theft provisions and functional unbundling of integrated SEBs and setting up of Electricity Regulatory Commissions by states made mandatory. With the passing of the Electricity Act, a number of private players have entered the power market in the country. There is Reliance Energy in power generation and distribution, there is Tata Power in all three stages of generation, transmission and distribution, and RPG Group and Torrent in generation and distribution. There is a realisation within


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the power sector that efficiency and improvement in distribution are the critical requirements for ensuring financial viability of the sector. Many states have taken up power reforms on a priority basis. Power distribution privatisation by states like Orissa and Delhi have been good examples and have encouraged other states to include privatisation of distribution as an important milestone in their power reforms agenda. The Electricity Act (2003) provides a golden opportunity to reform the power sector in the country. With active private participation, conducive environment, control on power thefts and constructive regulation, the power woes of India could become a thing of the past.

The telecommunication sector The Indian telecommunication sector is high on opportunity and has been registering sustained high rates of growth for the past half a decade. Being the eighth largest telecom network in the world, India has about 43 million fixed lines and 36 million wireless subscribers. The base of telecom users in the country has been increasing per annum at a rate of more than 20 per cent. The tele-density in the country, however, continues to be low at around 8 per cent (see Figure 5.3). Most of the telecom infrastructure till now has been deployed in the urban areas, raising urban tele-density to about 18 per cent compared to a rural tele-density of about 1.5 per cent. In the urban areas, there has been a marked shift in preference for cellular phones over fixed landline telephones, making India one of the fastest growing cellular phone markets in the world. The country is witnessing a veritable cellular phone revolution with more than two million lines getting added to the network every month. Compared to China, which in a span of nine years was able to garner 6.8 million cellular subscribers in 1996, India, starting in 1995 was able to manage 28 million cellular subscribers by the end of 2003 (see Figure 5.4). While there has been considerable expansion of tele-density over the last few years, the levels are low compared to both developed and developing economy standards. Recognising the sector’s importance and role in the overall economic growth, the Government of India undertook a series of reform measures. The National Telecom Policy

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Tele-density and Telephone Subscribers in India

Source: Indian Telecommunications Statistics 2002, Ministry of Communication, Government of India. The Indian Telecommunication Industry Performance Indicators 2002–03, TRAL. Note: The spectacular growth in tele-density in the past is still a long way off from satisfying demand. Figure 5.4

India vs China in Comparable Years of Service

30 China India

25 20 15 10 5 0

1

2

3

4

5

6

7

8

9

Source: ‘Telecom Report’, India Brand Equity Fund, 2006. Note: The Chinese market grew faster but India is catching up too, as telephones go rural.


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(NTP) explicitly recognises the role of the sector and emphasises the provision of universal services to all uncovered areas, and creation of a modern and efficient telecommunications infrastructure taking into account the convergence of media, telecom and consumer electronics. PricewaterhouseCoopers (India) treats the National Telecom Policy (1999) as the point of inflexion in the trajectory of growth in telecommunications in India. The policy takes concrete steps in ensuring availability of affordable and effective communication for citizens in every stratum of the economic ladder. Some of the salient features of the telecom sector reforms are as follows. The telecom equipment manufacturing was regulated in 1991 and cellular phone services and basic telephony services were thrown open to the private sector in 1992 and 1994 respectively. The Telecom Regulatory Authority of India (TRAI) was set up in 1997 as an independent regulatory body. The new policy launched a revenue sharing regime replacing the former fixed licence fee regime in 1999. The Telecom Disputes Settlement and Appellate Tribunal through TRAI (Amendment) Act (2000) was established as a dispute settlement mechanism for speedier trials and Figure 5.5

Regulatory Structure

Government of India Ministry of Communication Department of Telecom (Policy, Licencing and Monitoring Agency)

Telecom Regulatory Authority of India (TDSAT)

Private operators

State-owned operators Licence fees

Source: Telecom Disputes Settlement Appellate Tribunal (TDSAT). Note: India’s nascent attempts at developing regulatory structures where the public and private sectors compete have been a mix of the good and the bad.

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settlements of disputes among the different telecom service providers in the country. National Long Distance (NLD) service was opened to competition in August 2000, and the International Long Distance (ILD) services and Internet telephony were opened to competition in 2002. In 2004, there was a reduction in the licence fee for basic/cellular/ unified access services announced by the Government of India. Table 5.6

State/Circle-wise Tele-density in Rural and Urban Areas 2004–05

State/Circle Andhra Pradesh Bihar Chhatishgarh Gujarat Haryana Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra (–) Mumbai Orissa Punjab Rajasthan Tamil Nadu (–) Chennai Uttaranchal Uttar Pradesh West Bengal (–) Kolkata Kolkata Chennai Delhi Mumbai Total

2005–06 (as on 30.6.2005)

Urban

Rural

Overall

Urban

28.53 17.63 6.50 28.88 28.78 8.42 29.98 44.74 17.36 25.23 19.68 49.21 21.27 22.96 17.08 17.15 14.85 24.22 47.56 50.94 45.43 26.88

2.39 0.57 0.54 2.63 2.80 0.50 2.49 9.74 0.66 2.56 1.04 5.33 1.44 2.73 1.63 0.52 1.04 0 0 0 0 1.73

9.48 2.36 1.80 12.73 10.83 2.30 12.19 18.77 5.21 9.96 3.96 21.94 6.12 11.21 5.74 4.06 2.98 24.22 47.56 50.94 45.43 8.95

30.19 19.71 7.18 30.12 29.21 8.56 31.26 47.61 17.15 27.71 21.35 51.57 22.94 23.10 17.05 18.89 17.14 25.09 48.03 52.09 45.81 28.25

Rural Overall 2.37 0.57 0.46 2.63 2.90 0.51 2.49 9.74 0.67 2.59 1.05 5.34 1.45 2.86 1.68 0.52 1.05 0 0 0 0 1.74

9.92 2.58 1.90 13.24 11.06 2.34 12.66 19.50 5.16 10.71 4.24 22.89 6.52 11.48 5.78 4.43 3.26 25.09 48.03 52.09 45.81 9.37

Source: TRAI, www.indiastat.com. Note: The inter state differences are stark.

The telecom sector is administered centrally through the Department of Telecommunications in the Ministry of Information and Communication. For purposes of service provision, the country is divided into ‘telecom circles’, corresponding generally to the territories of the states of the Union. The establishment of TRAI was a crucial step


191

in the reform process. It divested the Department of Telecommunications (DoT) of several regulatory functions and brought DoT’s service providing and tariff-setting under the regulatory jurisdiction of an independent agency. Responsibilities entrusted to TRAI include tariff fixation, access charge revenue sharing between the DoT and private operators, dispute settlement and consumer protection. TRAI has to see to it that suitable arrangements are in place to protect consumer interest and to ensure fair competition.

Transportation sector—Roads, railways and civil aviation The roads in India Increasing industrialisation and urbanisation have brought in demand for better roads. A well-built, extensive road network by reducing transportation time, facilitating easy and faster movement of traffic and cargo leads to enormous savings for the economy. National Council for Applied Economic Research (NCAER) estimates that savings per annum on account of better road infrastructure shall be to the tune of USD 6 to 8 billion. With more than 3.5 million km of roads in the country, the road network in India is the second largest in the world. However, the quality of Indian roads is far below the minimum satisfactory levels even from developing country standards. In advanced industrial nations, commercial vehicles run more than 600 km per day on an average compared to India where the average distance travelled by commercial vehicles is only around 300 km per day. This is largely on account of poor roads infrastructure. The freight and passenger traffic in the country has increased more than 100 times in the period 1951–2001, but the road network has gone up by only 10 times leading to massive congestion on roads, traffic jams, increased travel time and subsequent rise in fuel costs and pollution. Roads in India are categorised as National Highways, state highways and village roads, with National Highways coming under the jurisdiction of the Central government, state highways under the state

192


governments and village roads under the village panchayats. The National Highways have a length of about 65,000 km and carry about 40 per cent of the road-based traffic. The state highways cover about 5,98,000 km and the village roads cover about 2,650,000 of road length in the country. The principal legislations governing the National Highways are the National Highways Act (1956) and the National Highways Authority Act (1988). The National Highways Act (1956) was amended in 1995 to allow for private participation in construction, operations and maintenance of national highways in the country. All matters pertaining to the National Highways come under the purview of the Ministry of Surface Transport, Government of India. The National Highways Authority of India (NHAI) is the regulatory agency for overseeing the private-sector participation in the highway sector. In order to step up the construction of roads in the country, the Government of India has announced some sweeping reform measures. Major highway infrastructure projects have been commissioned by the government for private-sector participation. The Golden Quadrilateral Project (5,846 km), is going to link the four major metropolitan cities—Delhi, Kolkata, Mumbai and Chennai—through multi-laned expressways. The North–South–East–West corridor (7,300 km) is yet another ambitious highway project currently underway which links the four corners of the country—from Jammu (North) to Kanyakumari (South), and from Kandla (West) to Kohima (East). An additional 1,133 km of roads connecting the ports with the major towns in the hinterland is also on the anvil. The Ministry of Surface Transport puts the investment required in the modernisation and upgradation of national highways at USD 40 billion. Some of the major road sector initiatives taken by the government are as follows. A system of annuity based Build-Operate-Transfer (BOT) system has been put in place to attract private-sector investors. A Central Road Fund (CRF) has been created to mobilise resources through cess to finance road construction. The government has imposed a cess of USD 0.03 per litre of petrol and diesel to mop up funds for the development of roads; 100 per cent FDI is allowed in the road sector projects and duty-free import of specified modern high capacity equipment for roads construction is permitted. State governments have taken initiatives such as enacting infrastructure development

2005–06

675.37 0 675.37

258.90 0 258.90

203.23 0 203.23

435.62 0 435.62

141.92 0 141.92

Andhra Pradesh Normal Expenditure Grant Total NPRE

Bihar Normal Expenditure Grant Total NPRE

Chhatisgarh Normal Expenditure Grant Total NPRE

Gujarat Normal Expenditure Grant Total NPRE

Haryana Normal Expenditure Grant Total NPRE 149.01 45.68 194.69

457.40 223.80 681.20

213.39 65.60 278.99

271.84 77.34 349.18

709.14 245.03 954.17

2006–07

156.46 45.68 202.14

480.27 223.80 704.07

224.06 65.60 289.66

285.44 77.34 362.78

744.60 245.03 989.63

2007–08

164.29 45.68 209.97

504.29 223.80 728.09

235.26 65.60 300.86

299.71 77.34 377.05

781.83 245.03 1026.86

2008–09

784.18 182.72 966.90

2407.08 895.20 3302.28

1122.96 262.40 1385.36

1430.58 309.36 1739.94

3731.86 980.12 4711.98

2005–10


172.50 45.68 218.18

529.5 223.8 753.3

247.02 65.60 312.62

314.69 77.34 392.03

820.92 245.03 1065.95

2009–10

State-wise Projections of Non-plan Revenue Expenditure (NPRE) for Roads and Bridges (in INR crores)

States

Table 5.7

92.05 0 92.05

237.96 0 237.96

448.92 0 448.92

259.31 0 259.31

1065.74 0 1065.74

Karnataka Normal Expenditure Grant Total NPRE

Kerala Normal Expenditure Grant Total NPRE

Madhya Pradesh Normal Expenditure Grant Total NPRE

Maharashtra Normal Expenditure Grant Total NPRE

2005–06

Jharkhand Normal Expenditure Grant Total NPRE

States


1119.03 297.42 1416.45

272.28 146.72 419

471.36 160.58 631.94

249.86 364.53 614.39

96.65 102.26 198.91

2006–07

1174.98 297.42 1472.40

285.89 146.72 432.61

494.93 160.58 655.51

262.35 364.53 626.88

101.48 102.26 203.74

2007–08

1233.73 297.42 1531.15

300.18 146.72 446.90

519.68 160.58 680.26

275.47 364.53 640

106.56 102.26 208.82

2008–09

1295.42 297.42 1592.84

315.19 146.72 461.91

545.66 160.58 706.24

289.24 364.53 653.77

111.89 102.26 214.15

2009–10

5888.90 1189.68 7078.50

1432.85 586.88 2019.73

2480.55 642.32 3122.87

1314.88 1458.12 2773

508.63 409.04 917.67

2005–10

170.59 0 170.59

106.27 0 106.27

181.37 0 181.37

474.06 0 474.06

555.23 0 555.23

Orissa Normal Expenditure Grant Total NPRE

Punjab Normal Expenditure Grant Total NPRE

Rajasthan Normal Expenditure Grant Total NPRE

Tamil Nadu Normal Expenditure Grant Total NPRE

Uttar Pradesh Normal Expenditure Grant Total NPRE 582.99 600.79 1183.78

497.77 303.60 801.37

190.43 158.33 348.76

111.58 105.24 216.82

179.12 368.77 547.89

612.14 600.79 1212.93

522.66 303.60 826.26

199.96 158.33 358.29

117.16 105.24 222.40

188.08 368.77 556.85

642.75 600.79 1243.54

548.79 303.60 852.39

209.95 158.33 368.28

123.02 105.24 228.26

197.48 368.77 566.25

3068 2403.16 5471.16

2619.51 1214.40 3833.91

1002.16 633.32 1635.48

587.2 420.96 1008.16

942.63 1475.08 2417.71


674.89 600.79 1275.68

576.23 303.60 879.83

220.45 158.33 378.78

129.17 105.24 234.41

207.36 368.77 576.13

189.35 0 189.35 6417.66 0 6417.66

46.11 0 46.11

2005–06

198.82 103.23 302.05 6738.53 3750 10488.53

48.41 81.14 129.55

2006–07

208.76 103.23 311.99 7075.46 3750 10825.46

50.83 81.14 131.97

2007–08

219.2 103.23 322.43 7429.24 3750 11179.24

53.37 81.14 134.51

2008–09

Source: Report of the 12th Finance Commission, Ministry of Finance, Government of India. Note: Non-plan expenditure, largely due to pay salaries, has always been large.

West Bengal Normal Expenditure Grant Total NPRE Total Normal Expenditure (TNE) Total Grant Grand Total

Uttaranchal Normal Expenditure Grant Total NPRE

States


230.16 103.23 333.39 7800.69 3750 11550.69

56.04 81.14 137.18

2009–10

1046.29 412.92 1459.21 35461.58 15000 50461.58

254.76 324.56 579.32

2005–10


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acts, introducing amendments to the Indian Tolls Act and setting up State Road Development Corporations to speed up construction and upgradation of state highways. With the amendment in the Indian Tolls Act, fee revisions linked to the Wholesale Price Index (WPI), after the highway gets commissioned for traffic, are allowed. Full inflation-offset compensation will be provided for an initially specified period. Also, should the developer complete the project ahead of schedule, he or she can start collecting user fees immediately at the rates applicable for the year when the road was originally expected to open for traffic. The Land Acquisition Act empowers the government to quickly take possession of land for National Highway development. Once the government decides to acquire the land, the owner has to surrender it; the owner can only raise issues over compensation. The reforms in the road sector has started showing results and a number of domestic and international players are now bidding for road construction projects in the country. The National Highway Authority of India (NHAI) and the CIDB Inventure, Malaysia have entered into an agreement to build four-lane NH-5 and NH-9 for USD 0.15 billion. Similarly, AIDC Group of USA and STRADC of Philippines have put forward a bid for the Vivekananda Bridge Project and DS Constructions (UK) along with Jaiprakash Industries for the Delhi–Gurgaon Expressway. Model Concession Agreements (MCA) for large BOT projects costing more than USD 21 million, small BOT projects costing upto USD 21 million and annuity based projects have been finalised by the government. Around 50 national highways have been opened for private participation on BOT basis. Projects worth USD 1,950 million are at different stages of construction or operation with extensive private participation. Participation in construction of bridges, bypasses and other highway related en-route activities have also seen a greater involvement by private players after road-reforms.

The Indian railways The Indian Railways is one of the world’s largest and oldest railway systems with a capital base of USD 12 billion. The railway network in India comprises more than 65,000 km of railway routes of which more than 46,000 km is broad gauge, around 15,000 km metre gauge

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and 3,000 km is narrow gauge. Around 26 per cent of the railway network is electrified. The year 2005 has been a landmark year for the Indian railways. The railways carried 688 million tonnes (MT) of cargo—an 11 per cent volume growth on a year-on-year basis. This has generated an even more impressive 18 per cent or INR 50 billion as additional revenues. With this, the railways have overshot the target of 624 MT at the end of the Tenth Plan a year ahead of schedule. The total passenger haul by the railways was more than 5,885 million passengers in 2005. Table 5.8

Projections for Freight Traffic Flow in the Indian Railways

Freight traffic Originating Freight (Million Tonne) Freight Tonne km (Billion Tonne)

2001–02

2006–07

489 323

624 396

Source: www.indiastat.com.

Steps have been taken by the Ministry of Railways to increase its operating efficiency. For instance, the utilisation of existing 0.25 million wagon-fleet has improved from an average 60,000 wagons per day in 2001–02 to 75,000 in 2004–05 and as much as 85,000 in 2005–06. Improving the turnaround time of wagons and increasing loading capacity have helped accommodate the surge in volumes generated by the industrial boom in the economy. As per the estimates of the Ministry of Railways, an increase of just 1 tonne in the loading capacity of each wagon improves the annual loading capacity by about 10 million tonnes. Table 5.9

Projections for Passenger Traffic Flow in the Indian Railways

Passenger traffic Originating Passengers (Million) Passenger km (Billion)

2001–02

2006–07

5000 473

5885 625


The government has also realigned the tariff structure to make the railways more cost-competitive in comparison to road transport— 15 per cent price discount on the incremental lean period traffic and


199

20 per cent on incremental empty flow direction freight announced in the Railway Budget (2006) are expected to have a marginal impact on the railways’ market share of 34 per cent. Ten MT of cargo capacity stays unutilised between July–November every year, and these discounts could at best bring cargo weighing around 3 to 4 MT to cover a part of this unutilised capacity. Table 5.10

State-wise Density of Rail Routes in India As on 31.3.2001

States/U.T.

As on 31.3.2005

Route km per lakh population

Route km per ’000 sq km

Route km per ’000 sq km

8.65 4.56 4.15 5.16 7.34 6.74 10.5 3.3 6.68 6.78 5.64 10.49 7.93 5.64 6.29 5.68 4.2

41.73 41.26 36.55 35.93 35 32.21 27.1 27.02 22.54 18.67 17.74 17.32 15.52 15.51 14.83 8.73 6.37

41.64 43.45 35.89 35.82 36.12 32.07 26.96 27.02 24.35 18.92 17.96 17.06 15.93 15.55 14.64 8.52 6.45

Punjab West Bengal Bihar Uttar Pradesh Haryana Tamil Nadu Gujarat Kerala Jharkhand Andhra Pradesh Maharashtra Rajasthan Madhya Pradesh Karnataka Orissa Chhattisgarh Uttaranchal Source: www.indiastat.com.

Some of the major reforms in railways are as follows. Focused business organisations within the railways have been created, such as Rail India Technical and Economic Services (RITES) for consultancy in transportation, Indian Railway Construction Company (IRCON) for construction, Container Corporation of India (CONCOR) for container operations, Indian Railway Catering and Tourism Corporation (IRCTC) for catering and tourism and RailTel for telecom, to improve the overall efficiency and profitability. Direct purchase of power from the producers at a lower tariff and closure of uneconomic branch lines have been allowed. In the passenger segment, the world’s largest

200


reservation system that connects 2,500 terminals through the Internet has been extended to more than 100 major cities in India. In the freight segment, the first phase of computerised Freight Operation Information System has been completed to enable online tracking of cargo. High speed goods trains, timetabled parcel trains and integrated transport facilities are being developed through the terminal warehousing scheme. The National Rail Vikas Yojana has been announced in 2002 which focuses on strengthening the Golden Quadrilateral to enable the railways to run more long-distance mail, freight and passenger trains at a higher speed at an investment of USD 12 billion, and strengthening of rail connectivity to ports and development of multi-modal corridors to the hinterland at an investment of USD 0.63 billion. Investment of USD 152 million is required for execution of new lines, doubling gauge conversion and electrification of routes. The Yojana also calls for private participation for commercial exploitation of rail space and investments in railway infrastructure. The Railways are actively encouraging public–private partnership by launching special purpose vehicles (SPV) in certain key sectors. A special purpose vehicle called PRCL (Pipapav Railways Corporation Limited) has been formed with equal equity participation from the Ministry of Railways and the Gujarat Pipapav Port Limited for construction, operation and maintenance of Surendranagar–Pipapav Gauge Conversion/New Line Project. Another SPV named HMRDC (Hassan–Mangalore Rail Development Company) has been formed for construction (gauge conversion), operation and maintenance of the broad gauge track between Hassan and Mangalore with the participation of the Government of Karnataka and Karnataka Rail Development Company. On similar lines, the Kutch Railway Company Limited (KRCL) has been instituted as an SPV for gauge conversion work between Palanpur and Gandhidham providing a short route to ports of Mundra and Kandla. A 54-km long railway line from Adipur to Mundra has been constructed by Gujarat Adani Port Limited to be operated by the Indian Railways under an agreement.

The civil aviation sector The Indian civil aviation sector holds the promise of offering one of the fastest growing markets in the world in both passenger and


201

cargo traffic. Domestic and international passenger traffic is projected to grow annually at 12.5 and 7 per cent per annum respectively over the next 10 years, and domestic and international cargo traffic at respectively 4.5 and 12 per cent. In 2005, all operational airports handled 58 thousand aircraft movements (excluding defence and other non-commercial movements), 5 million passengers and 105 thousand tonnes of cargo. In domestic air services, the number of passengers availing of private airlines has increased from 15,000 in 1990–91 to more than 7 million in 2000–01. In 2004–05, private operators catered to nearly 60.1 per cent of the domestic air traffic. The domestic air traffic is projected to achieve the 55 million mark by 2010. The international passenger traffic in the country is expected to touch the 23 million mark by 2010. Table 5.11

Year 1996–97 (Actual) 1997–98 1998–99 1999–2000 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17

Expected Air-traffic in India

Domestic passengers (in million)

Increase (in per cent)

International passengers (in million)

Increase (in per cent)

12.00 13.26 14.65 16.20 17.57 19.06 20.68 22.44 24.35 25.05 27.87 29.82 31.91 34.15 36.54 39.09 41.44 43.93 46.56 49.35 52.32

10.50 10.25 10.50 10.50 10.50 8.50 8.50 8.50 8.50 7.00 7.00 7.00 7.00 7.00 7.00 7.00 6.00 6.00 6.00 6.00 6.00

10.80 11.60 12.40 13.30 14.10 14.90 15.80 16.80 17.80 18.80 19.80 20.90 22.10 23.30 24.60 25.90 27.20 28.50 29.90 31.40 32.90

7.00 7.00 7.00 7.00 7.00 6.00 6.00 6.00 6.00 5.50 5.50 5.50 5.50 5.50 5.50 5.50 4.90 4.90 4.90 4.90 4.90

Source: Airports Authority of India—Foundation for Aviation and Sustainable Tourism, www.indiastat.com.

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There are 125 airports in the country, controlled by the Airports Authority of India (AAI), of which 11 are international airports. India’s air traffic is highly concentrated around the gateway airports—Mumbai, Delhi, Chennai, Kolkata and Bangalore—which handled more than 75 per cent of the total air traffic in the country in 2005. The next 10 major airports are Hyderabad, Trivandrum, Goa, Ahmedabad, Guwahati, Cochin, Calicut, Jaipur, Varanasi and Nagpur, which together accounted for 16.3 per cent of the total air traffic in the country. However, there are 62 airports in the country, which handle, on an average, less than two aircraft landings a day or 50 passengers (both departing and arriving) in a day! Till about 1994, the State carriers (Indian Airlines and Air India) had a monopoly over the Indian skies as private players were debarred from participating in civil aviation. However, post-1994, the Air Corporation Act (1953) was repealed, which ended the monopoly of the public sector carriers in the country. The country adopted a policy of ‘open skies’, which encouraged many private players to enter the domestic and international civil aviation market. The Ministry of Civil Aviation and the offices of the Directorate General of Civil Aviation (DGCA) are responsible for the regulatory and development functions for this sector. Civil aviation in India is governed by the Aircrafts Act (1934), the Aircraft Rules (1937) and the Air Corporations (Transfer of Undertaking and Repeal) Act (1994). The Ministry of Civil Aviation along with the Directorate General of Civil Aviation are entrusted with the following duties—regulation of air transport services to, from and within India; registration of civil aircraft in India; formulation of standards of airworthiness for civil aircraft registered in India and grant of certificate of airworthiness; licencing of pilots, aircraft maintenance engineers and flight engineers; licencing of aerodromes in India; and coordinating regulatory functions with the International Civil Aviation Organisation. The expert committee on Civil Aviation in 2003 submitted a report outlining a series of reform measures to enhance the quality of service and creation of incentives for new investments in the sector. Under the Airports Infrastructure Policy (1997), private equity participation in development of airport infrastructure was permitted to bridge the resource gap as well as to bring greater efficiency. Foreign equity up to 40 per cent and investments by non-resident Indians up to


203

100 per cent are permitted in domestic air transport services. However, no direct or indirect equity participation by foreign airlines is permitted in domestic air transport services. Table 5.12 Domestic and International Air Freight and Passenger Movements in Major Airports

(2005–06) Mumbai Delhi Chennai Bangalore Kolkata Hyderabad Ahmedabad Goa Trivandrum Calicut Guwahati Srinagar Amritsar Jaipur Nagpur Total

Domestic freight (in tonnes)

Domestic passengers (in number)

142,361 109,642 38,118 56,861 42,335 19,572 13,273 3,812 1,300 1,437 4,342 2,665 68 1,853 3,180 440,819

11,682,444 10,468,028 4,173,345 4,792,051 3,664,631 2,994,021 1,441,957 1,267,864 322,597 191,506 717,101 457,000 77,974 394,452 351,236 42,996,207

International International freight passengers (in tonnes) (in number) 288,960 273,410 167,853 81,991 32,164 16,949 3,615 1,356 23,280 9,193 140 0 1,331 509 0 900,751

6,727,790 5,767,394 2,606,632 862,652 742,132 1,001,082 451,633 404,802 999,930 768,856 9,865 17,921 409,167 52,389 25,210 20,847,455

Source: Airports Authority of India, www.indiastat.com.

The International Air Transport Policy permits domestic private carriers to utilise international air transport bilateral traffic rights subject to clearance from the Ministry of Civil Aviation. Entry and exit barriers have been removed—there is only a scrutiny of applications to verify financial soundness and maintenance, security and safety aspects of operations. The choice of aircraft type and size has been left to the operator. To achieve economies of scale, the minimum fleet size for a scheduled operator has been raised to five aircraft. The minimum amount of shareholder’s funds have been increased from USD 1.4 million to USD 2.9 million for aircraft of all-up weight below 40,000 kg and from USD 2.9 million to USD 8.7 million for all-up weight exceeding 40,000 kg. All scheduled operators have to mandatorily deploy 10 per cent of their capacity in the northeast

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of India, Jammu and Kashmir, Andaman and Nicobar Islands and Lakshadweep.

The maritime ports India enjoys an envious location in South Asia on the international maritime trade routes. With more than 7,500 km of coastline, India has a huge potential to develop an unmatched prowess in maritime trade. With a growing volume of international trade in the Indian economy, India will require to modernise and upgrade her ports to benchmark against the best in the world. Indian port productivity does not measure up to international standards. For instance, the average ship turnaround time in India, on an average, is 3.9 days as compared to less than 12 hours in Singapore and Hong Kong. India has 12 major ports and 185 minor ports and fish landing centres. The major ports are Kandla, Mumbai, Navi Mumbai, Marmagoa, New Mangalore, Cochin, Tuticorin, Chennai, Visakhapatnam, Paradip, Kolkata–Haldia and Ennore. The major ports account for nearly 95 per cent by volume and 70 per cent by value of the total traffic handled. The total traffic handled in the country was 227 million tonnes in 1997, 390 million tonnes in 2001 and 650 million tonnes in 2005. An additional capacity of 350 million tonnes needs to be created in the major ports in the country to be able to handle the surge in the volume of traffic. The traffic-to-capacity ratio in Indian ports have been increasing—from 1.147 in 1995 to 1.207 in 2005—signalling a need for fresh investments in capacity building in the major ports in the country. Investments worth USD 8 billion are required to create the additional 350 million tonnes of capacity required in 2006. The internal resources of the ports shall be used to finance USD 4 billion; rest of the money will have to be raised from the capital market. The investment requirements in the maritime sector are expected to increase to USD 20 billion by 2012. The ports in India are governed by the Indian Ports Act (1908) and the Major Ports Act (1963). The Major Ports Act provides that the administration, control and management of major ports lie with the respective Port Trusts. The Government, keeping in mind the importance of ports in the overall economic growth of the country, has focussed on the modernisation and upgradation of the major and minor ports


205

in the country. During the ninth Five Year Plan, an additional capacity of 125 million tonnes was created per annum in the 12 major ports. The Ministry of Surface Transport has issued guidelines to major ports to lease out existing assets of the port to private partners for management and operations. Private-sector participation has been allowed in the major ports for construction of new berths and terminals, warehousing and storage, container freight stations and tank farms for dry docking facilities and ship repair on BOT basis. Maritime states are responsible for planning the development of other ports within their region. For speedier implementation, states like Gujarat, West Bengal, Maharashtra and Tamil Nadu have constituted Maritime Boards. Measures initiated by the government to improve ports and shipping are as follows. Automatic approval for FDI up to 100 per cent in ports and shipping is allowed. Facilities at par with 100 per cent exportoriented units are provided to the ship repairs industry. Action has been initiated to formulate the National Maritime Policy to provide for fiscal, financial, administrative and legislative measures for growth and development of the maritime sector in the country. The government has taken steps for phased corporatisation of the major ports. The government has rationalised the tax structure for the shipping industry and introduced the tonnage tax regime. Most categories of ships have been brought under the Open General Licence (OGL) to facilitate acquisition at competitive rates. The shipping companies are now permitted to get their ships repaired in any shipyard without seeking prior approval from the government. The Reserve Bank of India (RBI) releases foreign exchange for ship repair/dry docking and spares for imported capital goods without any value limit. Full repatriation benefits are given to NRIs on 100 per cent investments in shipping projects. Several international private shipping firms have entered the Indian ports through the BOT route. For instance, P&O Australia has commissioned new container terminals at the Jawaharlal Nehru Port and the Chennai Port. Similarly, United Liner Agencies and PSA have opened new container terminals and docking facilities at the Visakhapatnam and Tuticorin Port respectively. The government has approved the contract for development, management and operation of an International Container Trans-shipment Terminal at the Cochin Port on BOT basis by Dubai Port International. Upon completion, this shall enable Cochin

206


to compete with the ports of Dubai and Colombo, which are currently used as trans-shipment hubs. Container terminals at the Kandla Port are also up for grabs for the private sector. Ennore Port Limited is in the process of constructing a container terminal, an iron-ore berth, a liquid cargo terminal and a coal berth on BOT basis. Many private ports have also emerged on the scene, especially in Gujarat. Ports like Pipapav and Mundra are exemplars in terms of development of private ports in the country.

Rural reconstruction—Bharat Nirman Bharat Nirman will be a time-bound business plan for action in rural infrastructure for the next four years. Under Bharat Nirman, action is proposed in the areas of irrigation, road, rural housing, rural water supply, rural electrification and rural telecommunication connectivity. We have set specific targets to be achieved under each of these goals so that there is accountability in the progress of this initiative. —Dr Manmohan Singh (Independence Day Speech, 2005)

The United Progressive Alliance (UPA) government has laid heavy emphasis on the development and mainstreaming of the rural economy. Aware of the livelihood importance of the farm and the non-farm sector in rural India, the government has launched a series of initiatives to give a boost to economic activities in the rural hinterlands of the country. Once again, in continuation of the present dominant paradigm of development, the government has decided not to rely upon poverty alleviation schemes, but to rely on provision of infrastructure. The Bharat Nirman programme has been launched to develop rural infrastructure to accelerate the pace of rural development, and to usher in an era of inclusive and broad-based growth. Bharat Nirman is a time-bound plan for rural infrastructure by the Government of India in partnership with state governments and the Panchayati Raj institutions. The main objectives of the Bharat Nirman programme are as follows. Every village will be provided with electricity by 2009. There are


207

1,25,000 un-electrified villages in the country with a total population of 250 million households, which shall be covered under this programme. Every inhabitation over 1,000 population and above (500 in hilly and tribal areas) shall be provided an all-weather road. There are 66,802 such inhabitations as per the estimates of the Ministry of Rural Development, Government of India. By 2009, 55,607 uncovered inhabitations shall be provided with safe drinking water. In addition, all inhabitations which have slipped back from full coverage to partial coverage due to failure of sources, and inhabitations which have water quality problems will also be considered. Every village is to be connected with telephone facilities by 2007. There are 66,822 such villages as per the government estimates. An additional 10 million hectares of irrigation capacity is to be created and 6 million houses have to be constructed for the rural poor by 2009.

Rural drinking water mission The Department of Drinking Water Supply of the Ministry of Rural Development is responsible for meeting this goal in partnership with state governments. The programme instrument of the Government of India is a centrally sponsored scheme of Accelerated Rural Water Supply Programme under implementation since 1972–73, which is funded on a 50 per cent matching share basis between the Government of India and the state governments. Since 1972, over 3.7 million hand pumps and 0.15 million pipe water supply systems have been set up to provide safe water to over 15 lakh habitations in the country at a cost of over INR 500 billion. The norms for coverage for drinking water are as follows: 40 litres per capita per day (lpcd) of safe drinking water for human beings, 30 lpcd additional for cattle in the Desert Development Programme Areas, one hand pump or stand post for every 250 persons and the water source should exist within 1.6 km in the plains and within 100 metres elevation in the hilly areas. The backlog for coverage is under estimation, based on a habitation survey for the categories of uncovered villages, slipped-back villages and villages affected with a problem of water quality; 55,067 villages remain uncovered and are targeted for coverage as first priority. The category of slipped-back villages as estimated by the Planning Commission at the

208


beginning of the Tenth Plan included 0.28 million habitations. These are so on account of a number of factors like sources going dry or lowering of the ground water table, sources becoming quality affected, systems outliving their lives, systems working below rated capacity due to poor operation and maintenance, increase in population resulting in lower per capita availability and emergence of new habitations. According to the data received from state governments, based on a survey undertaken in 2000, 216,968 habitations, are affected due to a variety of water quality problems—excess fluoride: 31,306; excess arsenic: 5,029; excess salinity: 23,495; excess iron: 1,18,088; excess nitrate: 13,958 and multiple quality problems: 25,092.

Rural electrification mission The Ministry of Power has the responsibility of providing electricity to the remaining 1,25,000 villages through the programme instrument of Rajiv Gandhi Gramin Vidyutikaran Yojana. In addition, it will also provide 23 million households with electricity. As per the Census of 2001, 1,25,000 villages remained uncovered. To be able to achieve this objective, Rural Electricity Distribution Backbone with at least a 33/11 KV sub-station would be set up in each block, at least one distribution transformer in each habitation of every village or hamlet as part of the village electrification infrastructure and a stand-alone grid for generation where grid supply is not feasible. These stand-alone grids would also be set up in partnership with the Ministry of Non-conventional Energy. A village will be deemed electrified if the following conditions are met. Basic infrastructure such as distribution transformer and distribution lines are provided in the inhabited locality as well as the dalit hamlets (For electrification through non-conventional energy sources, a distribution transformer may not be necessary.) Electricity is provided to public places like schools, panchayat offices, health centres, dispensaries and community centres, and the number of households electrified should be at least 10 per cent of the total number of households in the village. Under the scheme, 90 per cent capital subsidy is provided for overall cost of the projects. The capital subsidy for eligible projects under the scheme will be available through the Rural Electrification Corporation

Infrastructure Growth and Investment Table 5.13

209

State-wise Funds Released under Remote Village Electrification Programme (in INR million)

State Andhra Pradesh Chhattisgarh Gujarat Haryana Jharkhand Karnataka Madhya Pradesh Maharashtra Orissa Rajasthan Tamil Nadu Uttaranchal Uttar Pradesh West Bengal

2002–03

2003–04

2004–05

2005–06

10.850 59.500 0.00 0.00 10.580 0.00 10.925 0.00 0.00 0.00 0.00 34.461 0.00 35.700

0.00 33.213 0.861 8.388 83.741 0.00 0.00 31.363 0.00 18.450 36.700 72.005 134.270 238.895

0.00 0.80 0.00 0.00 0.00 0.00 0.00 0.00 4.289 17.622 0.00 5.052 0.57 7.205

0.00 27.550 4.500 0.00 119.700 4.900 2.800 28.500 0.550 24.700 0.00 14.700 0.00 95.300


Limited, which will be the nodal agency. The electrification of unelectrified below poverty line households will be financed with 100 per cent capital subsidy at INR 1,500 per connection in all rural habitations. Others will be paying for the connections at prescribed connection charges and no subsidy will be made available.

Rural irrigation mission The ultimate irrigation potential for the country has been estimated at 139.88 million hectare (Mha), which includes potential through major and medium irrigation projects (58.46 Mha), surface water based minor irrigation schemes (17.42 Mha) and ground water development (64.00 Mha). So far, the irrigation potential of 99.36 Mha has already been created. However, the created potential has not been fully utilised and the gap between created and utilised potential has been estimated to be of the order of 14 Mha. For the country as a whole, 66 per cent of the ultimate irrigation potential of major and medium projects has been created—388 major and medium irrigation projects which were taken up prior to or during the ninth Plan are still on, which would result in creation of 12.1 Mha

210


of additional irrigation potential. In addition, the states have proposed 204 Major and Medium projects during tenth Plan and the potential likely to be created is of the order of 4.99 Mha. So far, 173 major and medium, 4,169 minor and 21 Extension, Renovation and Modernisation (ERM) projects have been provided with Central Loan Assistance under the Accelerated Irrigation Benefit Programme (AIBP). The potential creation through projects supported under AIBP has been found to be 0.35 Mha per year with about 0.47 Mha per year in the last two years. As per the existing Plan, the projected creation of irrigation potential through AIBP is 0.50 Mha per year for the remaining period of the tenth Five Year Plan. The average rate of creation of irrigation potential through major and medium projects from 1951 to 1997 has been found to be of the order of 0.51 Mha per year. During the year 1997 to 2005, the rate of creation has been found to be 0.92 Mha per year. The pace of creation of new irrigation potential through major and medium projects has increased in the recent past. This is probably due to fruition of projects started much earlier, which have been expedited due to increased support through AIBP. Minor irrigation through surface water covers water sources (tanks and small reservoirs) with a culturable command area (CCA) of less than 2,000 ha. About 70 per cent of the ultimate potential through surface water based minor irrigation schemes has since been created. The Report of the National Commission for Integrated Water Resources Development points out that the carrying capacity of tanks has decreased over time for a variety of reasons and that the restoration and renovation of tanks and other local sources is a priority task. From the surveys conducted for estimation of availability and status of ground water, the Central Ground Water Board (CGWB) has identified areas that are over-exploited (where exploitation is more than natural recharge of ground water) and areas that are ‘critical or dark’ (where draft is 70 per cent to 100 per cent of the natural recharge of ground water). The recent survey indicates that out of 7,414 identified units (blocks or talukas or watershed), 471 are ‘over-exploited’ and 318 are ‘critical or dark’ units. Thus, less than 11 per cent of the total units fall under the categories of ‘over-exploited’ and ‘critical’. The ultimate irrigation potential to be created is based on the assessed replenishable ground water after duly accounting for the domestic and


211

industrial uses (about 10 per cent). It has been assessed that ground water is still available for utilisation in many parts of the country, particularly in the eastern parts of the country, Madhya Pradesh and Chhattisgarh and in specific pockets of Andhra Pradesh, Karnataka, Maharashtra and Jammu and Kashmir. In Punjab, Haryana, Rajasthan, Gujarat and Tamil Nadu, the rechargeable quantum of ground water has been exceeded and mining of static reserves has commenced. This reinforces the need to take urgent steps to increase recharge and conservation.

Rural housing mission The Ministry of Rural Development through the Indira Awaas Yojana (IAY) undertakes this activity as a centrally sponsored scheme where the cost is shared between the Centre and states on 75:25 basis. The 2001 Census places the rural housing shortage figure in India at around 14.9 million. Construction of 6 million houses over the next four years across the country is envisaged, starting from 2005–06, to address a significant portion of this backlog. The criteria adopted for allocation of financial resources among the states/UTs give greater emphasis to the states with higher incidence of shelterlessness; 75 per cent weightage is given to housing shortage and 25 per cent to the poverty ratios prescribed by the Planning Commission for state-level allocations. For district-level allocations, 75 per cent weightage is given again to housing shortage and 25 per cent to SC/ST population of the districts concerned. Grant assistance is provided to the extent of INR 25,000 per house for normal areas and INR 27,500 for hilly areas. Funds are released to the DRDAs in two instalments. Implementation guidelines of the scheme specifically target the rural below poverty line (BPL) households. The respective Gram Sabha does the selection of beneficiaries from the BPL list and no higher level approval is required. The guidelines also clearly specify that the house allotment should be in the name of the female member of the family as a first priority.

Industrial Renaissance

6

Introduction

T

here is a silent revolution underway in the Indian manufacturing sector. From an era of operating in a protected environment, the Indian manufacturing sector is now bracing up for the challenges of a new world economic order guided by the forces of liberalisation and globalisation. The present decade is the decade of the growth of the Indian multinationals. Many Indian business houses are now benchmarking against the best in the world. Quality and efficiency seem to be the new mantras guiding the Indian manufacturing sector—the buzzwords being cost and quality competitiveness, financial restructuring and brand equity. Though in the global consumer markets there may still be a conspicuous absence of the ‘Made in India’ brand, the ‘Made in India’ brand has carved a niche for itself and gained widespread acceptance in the intermediate product segment within manufacturing. India is fast emerging as a major manufacturing destination of industrial products and intermediate goods which are then assembled into final end-products. What is remarkable is the change in the attitude of the Indian business houses over the last 15 years. Today, the Indian companies do not look up to the government for protection, support and subsidy. Rather, there is a renewed confidence in the business groups to face the challenges of the changing world on their own inherent strengths and core competencies. Indian industry today is clearly poised for growth, having emerged out of an inward looking controlled atmosphere, and is emboldened by competition domestically and from overseas.


213

The beginning of control In modern India, policy objectives have usually been directed towards equity and a balanced growth of various productive sectors of the economy with the haloed attempts at growth with social development through justice and equality. However, medieval India was characterised by a lack of policy. Villages existed as little republics with almost no contact with the rest of world. Local kings or rajas collected revenue in various forms and this funded the state treasury that looked after the well-being of the king, his staff and sustained the modest administrative structure. Towns, on the other hand, relied primarily on trade that passed through, and each town specialised in a few commodities. India came under British rule in 1858 and then followed a policy regime that was clearly a new economic system rooted in colonialism. The focus was on generating surpluses through stringent land revenue collections. After the industrial revolution, India became increasingly a source for raw materials and a market for manufactured goods. Investment was largely in plantations, transportation and mining. Food grains were the mainstay of Indian agriculture but productivity remained stagnant.1 Non-food grain production grew handsomely. Tea, coffee, sugarcane and spices saw a healthy growth in exports. Railways and electricity reached a large part of the country. However, infrastructure was far too deficient to harness any real benefits for the economy. Before the Industrial Revolution, India was extremely primitive industrially. A major part of India, with the exception of some coastal towns particularly on the western coast, lacked administrative and legal conditions necessary for industrial development in the 16th and 17th centuries. The exploitative policies of the State largely accounted for this state of affairs. But a change started before the end of the 17th century and by the end of the 18th century, India had attained a significant degree of industrial development. Though spinning and weaving were the national industries even up to the commencement of the 19th century, a variety of other industries including building, lime manufacturing, leather works, copper, iron works, ship-building, sugar and salt manufacturing, and indigo manufacturing flourished. In fact,

214


around 1800, India’s economic development was almost at par with that of several European countries which are considered industrially advanced now. Before the Industrial Revolution, the socio-economic situation in India was marked by the following features. The population was engaged mostly in agriculture. In their spare time, agriculturists and the members of their families engaged themselves in the manufacture of goods, chiefly cloth. Some people were wholly engaged in the manufacture of goods, but this manufacture depended only on manual labour and on the special skill of the workers. Self-sufficiency was the rule, so that the produce and manufactured articles of a locality were sold within a small local area, and there was little trade except in costly articles. Following the Industrial Revolution, India’s manufacturing industries particularly the handmade textiles had to face a stiff competition from the machine-made goods of Lancashire, Sheffield and other centres of British industry. This was backed by the commercial policies of the Indian Government which were unfavourable to the Indian economy. For example, during the 19th century, not only did the Government not start an iron and steel industry in India, but it also refused permission to the great Indian entrepreneur, J.N. Tata, to manufacture iron in the then Central Provinces in the 1880s. Only towards the close of the 19th century did modern large-scale industry make a beginning in this country. The British merchants became managing agents and started establishing new industries. After the First World War, there was a change in the economic policy of the government. This, coupled with the enterprise shown by such pioneers as J.N. Tata, Lala Shriram and Walchand Hirachand, brought about the development of industries like steel, metal fabricating and shipbuilding, besides cement, sugar, matches and, of course, textiles. But it must be noted that even with all the courage and enterprise shown by the entrepreneurs in introducing the factory system of production in India, the factory establishments accounted for only 6.6 per cent of the total national income in 1948–49 after independence. All these factors weighed heavily on policy makers as they sat together to evolve an economic and industrial policy for independent India. The first casualty was free enterprise. It was felt that in an economy where infrastructure facilities were poor, per capita income and


215

the levels of savings extremely low2 and with great inequality in the distribution of income, free enterprise could not be allowed. Exports, seen as a drain of resources, were considered dangerous and the idea of free trade ridiculous. Foreign investment had been and continued to be considered synonymous with foreign domination, and hence was ruled out. But foreign exchange reserves had to be built to pay for essential imports and that is why it was felt that it would be easier and safer to take foreign loans. Domestically it was believed that rapid industrialisation was desirable with an emphasis on capital goods and heavy industries. This would in effect spur growth in agriculture, employment generation and the service sector. Underlying all this was the belief that the State must play an active and central role in the development process through the five-year plan model. Out of this thinking emerged India’s post-independent economic policies—a course of planned economic development that would ensure rapid growth in production with a view to achieving a higher level of national and per capita income, full employment and a reduction of inequalities in income and wealth. The socialistic pattern of society, with a democratic framework, would pave the way for justice and absence of exploitation.

The colonial legacy The scene was dismal immediately after independence. In 1950–51, the population of the country stood at 361 million, the literacy rate was a poor 18 per cent, per capita income (at 1980–81 prices) was INR 1,127, only 3,000 villages were electrified, and the banking sector boasted of a little more than 5,000 branches. It is in this backdrop that India’s political economy sought to define itself and chose the path of import substitution, foreign exchange controls, public sector led growth and a savings oriented economy. The fiscal policy was aimed at increasing tax revenue and managing debt servicing. The monetary and credit policy managed under the aegis of the Reserve Bank of India worked its way through crises by way of large-scale bank nationalisation and a tightly controlled credit policy. The pricing policy was based on administered prices, cost plus pricing and discriminatory and dual pricing. Industrial policy was founded on the principles of

216


licencing, clearances and a centralised investment policy. And the labour and employment policy was aimed at securing employment in the organised labour sector, provisioning of social security for the labour force within the organised sector and through monopolised government-owned insurance schemes. In the pre-British period, the advanced sectors of the Indian economy were agriculture and manufacturing. The 1871 census showed that 56 per cent of the adult male population was engaged in agriculture. In manufacturing, technical skills for spinning, weaving, dyeing, gold making, silver making, handicrafts and perfumes were predominant. However, trade suffered as the communication systems were poor and transportation networks inadequate. Yet, there was enough evidence of external trade. India enjoyed a trade surplus and earned gold and silver. There were virtually no roads but shipping was of a very high standard. Individuals and families operated banks with the main instrument of credit being the ‘Hundi’. All in all, a predominance of rural life, an economy that was almost entirely rural in its simple division of labour and an emphasis on hereditary skills were what largely defined India. A very small urban population was found in a very few centres. The British period saw large-scale stagnation when India became an underdeveloped economy. This downward slide came about as a result of the following major factors. There was a reduction in the per capita income during the British rule. The living standards were low with a high birth rate of 45 per 1,000, considered the biologically maximum rate. Death rate went up to 47 per 1,000 in 1941 with the literacy rate being only 17 per cent. There was low growth in national income, coupled with having little addition to the stock of real capital. Net investment was low. Capital stock in fact declined due to the Second World War. The Partition led to further depletion as the fertile lands in Punjab were partitioned and 23 per cent of the territory went to Pakistan with about 18 per cent of the population. The British had encouraged feudal relations marked by interdependent but exploitative landlord–tenant relationships. As a result, the number of workers in agriculture went up from 74 per cent in 1881 to 76 per cent in 1931. In manufacturing, employment came down from 18 per cent in 1881 to 15 per cent in 1931. The causes of stagnation were many. Meagre resources, low levels of technology and anti-growth attitudes,3 population pressure,4 state


217

apparatus used in the interests of British industry and against Indian economy with heavy import duties in Britain, high excise duties in India, and a lopsided Government procurement policy were some of them. On top of all this, the country was squeezed of its surpluses from the budget and the foreign trade sector—several payments being made for which there were no returns. The drain is estimated to be at least 2 to 3 per cent of national income in the period 1757–1939. Nehru was anti-authoritarian and had rejected Marxism. He had also rejected the concept of a non-industrial society rooted in rural democracies because he thought that such a system would do nothing to raise people from their poverty. Nehru believed in a strong public sector and envisioned mighty industrial plants as the temples of modern India. He made economic self-reliance a national cause. Of the top 50 Indian companies in 1939, 32 were British. Not one of them has survived today. The events of 1947 have influenced this outcome.

The five year plans—Blueprint for Indian industrialisation Nehru presided over the first three five year plans. The annual growth rate averaged more than 4 per cent between the beginning of the 1950s and 1964. In the First Plan, not much could be done to expand industrial capacity. The First Plan laid greater stress on agriculture, irrigation and power. Industry received only 8.4 per cent of the total budgeted outlay of INR 206.90 million. But starting from the Second Plan, development of a large industrial sector had taken about 20 per cent of the total Plan outlay in the successive plans. Together with private-sector industrial investment, this has succeeded in diversifying India’s industrial structure and in reducing dependence on industrial imports. From all accounts, the government made a determined bid to industrialise the country at as rapid a pace as possible. At the same time, the small and cottage industries using simple tools and machinery co-existed with the large-scale factory establishments. The Government realised the importance of these industries particularly from the point of view of employment opportunities offered by them. The response of the small-scale industries has been a rather

218


mixed bag. On the one hand, the small-scale industries have worked well to generate employment by using relatively more labour-intensive technology compared to the large-scale industrial units, the smallscale industries, on the other, have not been able to withstand the test of competition without government support or subsidy. In a rapidly liberalising and globalising economy, where most governments are under severe fiscal stress, support and subsidies to small-scale units have been on a decline. The economy has witnessed widespread sickness and stagnation in the small-scale sector. However, under the structural adjustment programme and the new economic policy (1991), the government cannot (and should not) continue to patronise small-scale units on the crutches of subsidy and soft-budgets. It is encouraging to note today that many of the small-scale industries have adopted a more enlightened and progressive attitude with regard to the calculation of costs, use and choice of technology, and protection from the government against domestic and international players. Box 6.1 z

z

z

z

z

z

Policy Initiatives for SSI

For allowing small enterprises to grow, 193 items reserved for exclusive manufacturing in the SSI sector dereserved in 2004–05 to bring down the total number of reserved items to 506. After consultations with stakeholders, more items were proposed to be dereserved in 2005–06. As announced in the Budget 2005–06, the turnover eligibility limit under the General SSI Excise Exemption Scheme raised from Rs 3 crore to Rs 4 crore. With a view to integrating small and medium enterprises, facilitating their growth and enhancing their competitiveness (including measures to reduce the rigours of the ‘Inspector Raj’ faced by the sector), the ‘Small and Medium Enterprises Development (SMED) Bill 2005’ introduced in the Lok Sabha on l2 May, 2005. A ‘Policy Package for Stepping up Credit to Small and Medium Enterprises’ announced on 10 August, 2005. Under the ‘Credit Linked Capital Subsidy Scheme’ (CLCSS) for technology upgradation, amendments made with effect from 29 September 2005, which, inter alia, raise ceiling on loans from Rs 40 lakh to Rs 1 crore and the rate of subsidy from 12 per cent to 15 per cent. RBI formulated the scheme of ‘Small Enterprises Financial Centres’ (SEFC) to encourage banks to establish mechanisms for better coordination between their branches and branches of Small Industries Development Bank of India (SIDBI) in the identified clusters for more efficient credit delivery.

Source: Economic Survey of India (2005–06).

13.10

13.75

14.68

15.54

16.57

2000–01

2001–02

2002–03

2003–04

2004–05

102.02

98.41

94.81

91.46

88.00

Unregd. 101.10 (4.1) 105.21 (4.1) 109.49 (4.1) 113.95 (4.1) 118.59 (4.1)

Total 2,61,289 (11.5) 2,82,270 (8.0) 3,11,993 (10.5) 3,57,733 (14.7) 4,18,263 (16.9) * 1993–94 prices.

1,84,401 (8.2) 1,95,613 (6.1) 2,10,636 (7.7) 2,28,730 (8.6) 2,51,511 (10.0)

(at current prices) (at constant prices)*

Source: Economic Survey of India (2005–06). Note: Figures in parentheses indicate percentage growth over previous years.

Regd.

Year

Production (Rs crore)

Performance of Small-scale Enterprises

No. of units (lakh)

Table 6.1

239.09 (4.4) 249.09 (4.2) 260.13 (4.4) 271.36 (4.3) 282.91 (4.3)

Employment (in lakh)

69,797 (28.8) 71,244 (2.1) 86,013 (20.7) 97,644 (13.5) N.A.

Exports (Rs crore)

220


The attempt was to boost the domestic savings rate, which has indeed gone up from 8.9 per cent in 1950–51 to approximately 30.1 per cent in the current financial year. The average domestic savings rate in the economy has been around 25 per cent per annum. With the Second Five Year Plan (1956–61), there began a process of import-substituting industrialisation with an emphasis on capital goods, the entire planning experiment being influenced by the Soviet model. An era in India’s political economy came to an end with Nehru’s death in 1964.5 Lal Bahadur Shastri, who succeeded Nehru, was immediately faced with severe crises. The devastating war with Pakistan in 1965 came within three years of the battle against the Chinese in 1962. The drought and failure of monsoons in 1965 and 1966 heaped further misery, even as the United States suspended aid to both India and Pakistan. The Second Five year Plan (1956–61) had neglected agriculture and focused on industry, especially heavy industry. The Third Plan did try to give more emphasis on agriculture but failed. Stagnant growth from 1961 to 1963 saw a break with increased production in 1964, but then the drought came. The successive wars and the fall in agricultural output paved the way for double digit inflation with the food price shooting up to 20 per cent. Defence expenditure rose from about 1.6 per cent of the GDP in 1960–61 to 3.2 per cent in 1965–66. The balance of payments’ position slid further as exports suffered, despite the devaluation in 1966. This further increased the government’s dependence on aid and loans.6 The rupee was devalued by 36.5 per cent in 19667 and a rationalisation of export subsidies and tariffs followed. This was also the time when corruption was on the rise in the civilian life and was getting institutionalised in government departments. To check this rot in the system, the government passed anti-corruption laws in 1967. The parallel economy in India has often been a subject of much attention. However there are no clear estimates on the amount of money floating in the black economy. Clearly, complex tax laws and excise policies went a long way in creating this system. Restrictions on convertibility and stringent laws on foreign exchange regulation helped create a Hawala8 market, and a stage was set for several major scams that broke out subsequently. The study made by S.N. Acharya and associates estimates India’s black economy to be 18–21 per cent of the GDP in 1980. There is no


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reason to believe that this figure would have reduced over the years.9 And it has been argued that if the growth of the black economy has been the same as the white economy, and that the black economy constitutes 20 per cent of the GDP, better tax compliance could work wonders. If 10 per cent of the black economy were converted into white, the GDP would increase by 2 per cent, and the fiscal deficit would go down from 5 per cent to 3 per cent automatically. However, this would need a concerted effort from the governments and a far simpler tax structure, and not just tax amnesty schemes, to ensure lesser evasion.10 Black income came to be generated through smuggling, drug trafficking, gambling and bribes.11 It is also revealing to analyse why the black economy upsets so many people. First, the larger the parallel economy, the weaker is the GNP as a measure of welfare. Second, national accounting suffers as tax evasion and under-reporting of incomes distorts data. Third, black money, usually generated through illegal means spawns other illegal activities and encourages bribes. It must be pointed out here that a large amount of property in India, especially in Mumbai and Delhi, is transacted in black money. And black transactions inherently are insecure contracts. One major reason for the large number of property disputes and unclear rights is the shady nature of the transaction. Another problem with black money is that it is normally invested in less productive activities such as gold purchases and property, residential, commercial and agricultural. On one hand, it artificially inflates prices, and on the other, it causes returns to fall further.12

The government clamps down The 1970s was an eventful decade. The government was clamping down on many prevailing ills of the times. Major legislations passed in the 1970s included the Indian Patents Act, 1970; MRTP Act, 1969; Contract Labour (Regulation and Abolition Act), 1970; Medical Termination of Pregnancy Act, 1971; Antiquities and Art Treasures Act, 1972; Election Laws, 1975; Coking Coal Mines (Nationalisation) Act, 1972; Coal Mines (Taking Over of Management) Act, 1974; COFEPOSA, 1974; Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976; Bonded Labour System

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(Abolition) Act, 1976; Urban Land Ceiling and Regulation Act, 1976; and Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act, 1980. The objectives of the Government in framing industrial policies were based on a historical set of priorities and parameters in light of the exploitation seen in a society beset with problems of caste and class hierarchies. Over the years, a comprehensive set of minimal labour laws has not evolved. There are a number of laws dealing with different subjects that at times are overlapping, thereby leading to confusion and uncertainty. The reason for such diversity is the intention to address varying concerns from time to time, such as the number of persons employed, location restrictions on industrial units, divergence in scope of employment and wages drawn. For example, the legislature had failed to make a distinction in relation to the size of enterprise and frame laws accordingly. This makes it difficult for the smaller enterprises to comply with the rules which are intended for larger units, since such smaller enterprises often do not have sufficient manpower to comply with procedural formalities like maintenance of registers, records and other compliance requirements. The Trade Union Act has often been blamed. It has been found that sometimes intra union disputes arise when two rival bodies of executives and office bearers claim to have been elected at the Annual General Meeting of the Trade Union concerned. There is no provision in the Trade Unions Act, 1926, to deal with such contingencies. The registrar of trade unions generally maintains status quo in his file, on the basis of the status existing prior to the dispute. The registrar advises the body opposing the claim, citing the existing facts in his file to approach the proper civil court for a resolution of the dispute. This causes serious difficulties for employers, as they are in a quandary and have to find out which body of executives they would have to deal with for negotiating wages and other service conditions. There are at least 45 different labour laws in operation today, all this amidst great opposition to any reform in the labour legislation and to an exit policy.13 In the last few years, there has been a secular decline in the number of strikes and lockouts in the industrial sector in the country. The total number of strikes and lockouts went down by more than 13 per cent in 2004 (477) compared to 2003 (552). In 2005, the number of strikes


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and lockouts was 340. West Bengal, Tamil Nadu and Gujarat were the states where maximum instances of strikes and lockouts were recorded. The major sectors where industrial disturbances were concentrated are textiles, engineering, chemicals and food processing. Table 6.2

Strikes and Lockouts in India

Strikes

Year 1999 2000 2001 2002 2003 2004 2005 (Jan–Sept) (P)

Lockouts

Mandays Mandays lost (in lost (in Number million) Number million) 540 426 372 295 255 236 155

10.62 11.96 5.56 9.66 3.21 4.83 2.83

387 345 302 284 297 241 185

Total Mandays lost (in Number million)

16.16 16.80 18.20 16.92 27.05 19.04 4.47

927 771 674 579 552 477 340

26.79 28.76 23.77 26.58 30.26 23.87 7.30

Source: Economic Survey of India (2005–06). Note: P–Provisional, Total may not tally due to rounding off.

In the 1970s, corruption was not limited to public life alone. It had become a way of life in other sectors too. Smuggling of gold, foreign exchange and antiques had become the major issues. The government passed legislations such as Antiquities and Art Treasures Act, 1972; COFEPOSA, 1974; and Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 to tackle these crimes. Policy-wise, one of the most important steps was the nationalisation of the coalmines. This was a logical step after the nationalisation of all banks in the country. The government nationalised all coalmines in the country through Coking Coal Mines (Nationalisation) Act, 1972 and Coal Mines (Taking Over of Management) Act, 1974. Normally, India’s energy needs are met through both commercial and noncommercial energy sources. The primary commercial sources are coal, oil, natural gas, nuclear fuel and hydro electricity.14 However, almost all energy resources are monopolised by the Government. All five-year plans have lavished budgetary support on the public sector involved in the energy sector, and the support has been often been at a range of 30 per cent of the total plan outlay. This amount of support and

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protection has, not surprisingly, made the public-sector complacent and what is seen is a vast network of waste and inefficiency.15 Coal contributes to more than 50 per cent of India’s commercial energy supply. Till 1972, the private sector had played an active part in coal production. Small mines, privately owned, dotted the landscape in the coal producing regions located in the east, in Bihar, West Bengal and Orissa. The government nationalised coking coalmines in May 1972 and non-coking coalmines in 1973. Since 1975, Coal India Ltd and its subsidiaries have been the major producers of coal. However, the coal mafia continues to be a major stakeholder and the industry is mired in a number of violent conflicts, bottlenecks and delays. Reforms in the energy sector are now urgently called for, with competition at all levels ensured, and the vast subsidies rationalised. The decade of the 1970s was also the time of rapid urbanisation. In Mumbai, massive land areas were turned into flats and residential cooperatives to house the burgeoning middle-class. As urban infrastructure burst at its seams, a spate of legislations followed. Continuing its agenda towards redistribution of land, the government passed a number of laws putting a ceiling on the number of land holdings that could be owned. Land prices shot up as those available for transaction shrunk in size. A large number of builders rushed in, flouting all kinds of building norms that had been enacted, and big money was now involved in this business. Amidst all this, the government passed the Urban Land Ceiling Act in 1976. However, the ingenuity of the builders always found ways to circumvent regulations.

Indian industry—Post reforms Fifty years after Jawaharlal Nehru decreed ‘the noble mansion of free India where all her children may dwell,’ the country remained for many a slum or a village with availability of neither sanitation nor clean water, nor primary school, nor jobs. For all its achievements, an audit of human development today, as in 1949, makes a sad copy. India’s billion people comprise one-sixth of humanity, but the country contains nearly one-third of the world’s absolute poor. More than 130 million people have no access to basic health facilities, 226 million have no safe drinking water, 70 per cent of the country lacks basic


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sanitation, and nearly half the population is illiterate: India has the biggest illiterate population in the world. Women and children fare the worst. More than 50 per cent in India’s under-fives are malnourished, worse than most countries in SubSaharan Africa. Almost 40 per cent of India’s female children do not attend schools. Altogether, the country today finds itself ranked in the UNDP’s annual human development index below such countries as Kenya, Guinea and Equatorial Guinea, and only higher than Nigeria, Zambia or Zaire. In part it is a question of resources—India’s annual per capita investment in health and education stands at just USD 14 against, for example, USD 160 in South Korea. In part, it is bureaucratic inertia, political bias towards the better-off and complex social inter-relationships of caste and gender. Things came to such a pass that in the year 1990, India’s foreign exchange reserves were barely sufficient to meet its 10 days need and the country had to mortgage tonnes of gold to the State Bank of England to raise resources. It then dawned on the political leadership that it had been following suicidal economic policies. A process of financial reforms was therefore initiated in 1991. Some sectors of the economy were opened to the private sector and foreign investors. The economic reforms of the last few years have now enabled India to attract multinationals who wish to tap into the huge Indian market. This market is expected to become even larger with the increase in people’s disposable incomes as a result of the recent budgets that has proposed sizable reductions in various taxes. For many years the industrial sector was strictly controlled by the Central government, but the level of intervention has decreased markedly over the past decade. The sweeping economic reforms of 1991 resulted in the discovery of the true potential of India. New policy initiatives are being announced on an almost daily basis. The economy has begun to pick up. The GDP growth is forecast at 8–10 per cent. The process of reforms has deepened. The second generation reforms involving the financial sector, automatic clearance of foreign investments, mergers and acquisitions and many other forward looking reforms have started taking place. The untapped potential of the country is slowly being released. The world has begun to recognise India’s efforts to modernise its economy. It is now considered as one of the most attractive investment destinations of the world.

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The Economic Survey of India puts the target for industrial growth at around 10 per cent for the Tenth Plan, consistent with an overall GDP growth of 8 per cent. The manufacturing sector recorded a growth of close to 9 per cent (advance estimates) for the year 2005–06. However, there was a deceleration in mining and quarrying, and electricity, which could put pressure on the overall manufacturing sector from achieving the Tenth Plan targets. The use-based classification puts growth in the capital goods industry at 15.7 per cent for 2005 as against 13.8 per cent in 2004. Consumer goods, both durables and non-durables, recorded an impressive growth in double digits. The intermediate goods sector, however, recorded a deceleration in recent years due to heavy imports of intermediate goods from countries like China. The growth in the manufacturing sector has become broad-based with the high growth sectors either being technology-intensive or sectors showing high export potential. In the recent years, significant growth performance has been recorded in sunrise sectors like processed foods, beverages and tobacco products, and pharmaceuticals. Even some traditional sectors like cotton textiles, basic metals and alloys, and non-metallic mineral products have also registered impressive growth on account of the growing demand for such products in the domestic economy. The Economic Survey also reports a major structural shift within the manufacturing sector in India towards consolidation of firms in the registered manufacturing sector. In 1970, while the registered manufacturing sector comprised only 58.8 per cent of the total manufacturing sector, its share has been consistently increasing over the past years. In the post reform period (1992–2004), the share of registered manufacturing sector has increased to nearly 70 per cent of the total manufacturing sector. This has resulted in checking the unending proliferation of unregistered, informal, unorganised manufacturing units in the country, which are unsafe and have poor working conditions and low wages. An increasing share of registered manufacturing units has also resulted in the widening of the tax base among industries, and more number of industries are now under the tax net. With the implementation of Value Added Tax (VAT), it is expected that the tax net for industrial units shall expand even further. There are two major sources for industrial growth—addition to capital stock (real investments) and improvement in total factor productivity. The Economic Survey reports that the net capital addition

5.5 6.9 8.8 5.7 14.1 3.2 6.7

100

5.0

3.7 1.8 4.7 8.0 14.5 5.8 21.7

2.6 –3.4 1.5 6.0 11.5 4.1

1999–2000 2000–01 2001–02

35.5 9.3 26.5 28.7 5.4 23.3

Weight

5.7

4.9 10.5 3.9 7.1 –6.3 12.0

2002–03

7.0

5.4 13.6 6.4 7.1 11.6 5.8

2003–04

8.4

5.5 13.9 6.1 11.7 14.3 10.8

2004–05

8.6

6.0 13.8 6.9 11.4 15.3 10.0

7.8

6.0 15.7 2.2 12.2 13.6 11.7

2005–06

Apr– Dec 2004–05

Growth Rates of Industrial Production by Use-based Classification

Source: Economic Survey of India (Base year 1993–94 = 100).

Basic goods Capital goods Intermediate goods Consumer goods of which Durables Non-durables IIP (Index of Industrial Production)

Sector

Table 6.3

94.3 24.1 92.8

75,199 5,04,658 2,15,585

1994

93.57 14.65 88.49

84,061 9,56,510 2,77,539

2000

2002

93.13 13.73 87.65

81,433 10,01,381 2,86,758

92.38 13.01 86.28

80,662 10,31,305 2,97,942

2003

92.31 12.67 85.81

79,351 10,70,999 3,03,762

in Rupees crore at 1993–94 prices

2001

92.77 11.72 85.58

82,604 11,23,391 3,10,832

2004

Net Capital Stock in Industry and the Share of the Public Sector

Source: Economic Survey of India (2005–06).

Mining Manufacturing Electricity, Gas and Water Supply

Share of the Public Sector (per cent)

Mining Manufacturing Electricity, Gas and Water Supply

Table 6.4

–0.16 –6.95 –0.81

0.94 8.33 3.73

CAGR in per cent

Bangalore Chennai Ahmedabad

3. 4. 5.

Delhi, Part of UP and Haryana Maharashtra, Dadra and Nagar Haveli, Daman and Diu Karnataka Tamil Nadu and Pondicherry Gujarat

State covered 4,840.2 3,921.1 1,418.5 1,116.7 611.5

17,815.62 6,416.03 5,089.62 2,793.23

USD in million

21,839.84

Rupees in crore

Amount of FDI inflows

Region-wise/State-wise Major FDI Destinations (2004–05)

Source: Ministry of Commerce, Economic Survey of India.

New Delhi Mumbai

RBI’s regional office

1. 2.

Rank

Table 6.5

21.18 7.63 6.05 3.32

25.96

Share of FDI inflows in rupees (in per cent)

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in the manufacturing sector in India has been close to 6.6 per cent per annum for the period 1993–94 to 2003–04. However, studies have shown that the total factor productivity in India has been growing at a slower rate than in the pre-reform period, where total factor productivity has been defined as the ratio of real output (or real value added) to a weighted sum of inputs used in the production process. Across sectors, Indian manufacturing units are redefining standards and slowly, but steadily, becoming major players in the world economy. Take for instance, the automobile sector. India is a huge market for passenger cars and other personal and commercial vehicles. All the major international auto-majors are opening shops in India, especially Suzuki, Hyundai, Honda, Toyota, Ford and the General Motors. Domestic auto-majors like the Tata Motors and Ashok Leyland are also making forays in different segments of the automobile industry. In an estimate done by the Ernst and Young, the Indian passenger car market (including the utility vehicles) totalled around 1 million units with a CAGR of more than 10 per cent for the last four years. India’s export of automobiles totalled around 1,30,000 units with a CAGR of more than 68 per cent for the last four years. The two-wheeler market in India is one of the largest in the world (estimated to be around 5.4 million units per annum). The average number of two-wheelers per 1,000 population in India is approximately 27 compared to eight in China. No wonder all the major two-wheeler manufacturers are queuing up to set up shop in India. Hero Honda, Bajaj, Kinetic and TVS Motors are the major players in the two-wheeler market in the country. It must be noted that the Hero Honda (joint venture between the Hero Group of India and the Honda of Japan) is the largest manufacturer of motorcycles in the world, and is also Honda’s most successful overseas joint venture ever. The auto-component market is growing in India at a compounded annual growth rate of more than 15 per cent. The present size of the autocomponents market in India is estimated to be USD 6.7 billion, and is expected to increase to USD 17 billion by the year 2012 as per industry estimates. Many Indian auto-component manufacturers supply auto parts to all the leading automobile manufacturers in the world. Sundaram Fasteners and Bharat Forge Limited are some of the leading auto-component manufacturers from India which have made a mark for themselves in the global market. Both these firms are also the winners

Industrial Renaissance Figure 6.1

231

Auto Exports from India: Destinations (2004–05)

Auto Components Expand Markets Abroad

Australia 2%

Asia 27%

Africa 11%

Others 4%

America 28%

Europe 28%

Source: Ernst and Young.

of Deming Award—the Nobel equivalent in the manufacturing world for quality standards. Similar advancements have been recorded in other manufacturing sectors such as petrochemicals, cement and drugs and pharmaceuticals. The size of the domestic oil and gas market is estimated to be around USD 90 billion (approximately 16 per cent of the GDP). It provides employment to more than 6,50,000 people and contributes more than 30 per cent to the treasury of the government. The domestic crude oil production is estimated to be around 34 million tonnes per annum, which is far less than the domestic demand for oil. Thus, India has to depend on imports of oil and other petroleum products to fulfil its thirst for oil. There are rapid advancements being made in the energy sector. For instance, private-sector participation has been encouraged in oil and gas exploration, which was earlier completely under government control. Reliance Industries Limited, a leading private petrochemical player in the country, has reported findings of huge gas deposits in the Krishna-Godavari basin in coastal Andhra Pradesh. The first Liquefied Natural Gas (LNG) terminal with a capacity of 5 Million Metric Tonnes per annum (MMTPA) has been commissioned. Similarly, the country’s first LNG ship has also been commissioned.

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The gas supply network through pipelines currently exists in only three cities in the country, but there are plans to extend the network to more than 72 major cities. India has the world’s 10th largest crude oil refining facilities with a capacity of more than 2.28 million barrels per day. With more than 20,000 petro-retail outlets and 8,000 LNG distributors across the country, the Indian petrochemical sector is one of the largest in Asia. The petrochemical sector offers an investment opportunity of USD 18 to 20 billion over the next five years, and USD 110 billion over the next 25 years, as per the estimates done by Ernst and Young. The Government of India has announced a policy package to encourage investments in the petrochemical sector in India. Under the automatic route in petroleum product marketing, petroleum product pipelines and oil exploration, 100 per cent FDI has been permitted. LNG has been exempted from excise duty, and 100 per cent FDI is also permitted for LNG pipelines. The New Exploration Licencing Policy has privatised the entire petrochemicals value chain, and the Common Carrier Pipeline Policy allows two or more companies to use single pipelines to share costs and increase efficiency. The Indian pharmaceuticals industry has evolved from a reverseengineering led industry to research-driven, export oriented, knowledgeled industry. Indian pharmaceutical players are carving their own niche in the global markets. Ranbaxy, Dr Reddy’s Laboratories, Nicholas Piramal, Cipla, Aurobindo Pharma and Wockhardt are some of the major pharmaceutical giants in India. McKinsey puts the size of the Indian pharmaceuticals industry at USD 25 billion by the year 2010. Keeping in mind the importance of this sunrise sector, the Government of India has offered a set of pertinent policy incentives to the pharmaceutical sector. The Indian Pharmaceuticals Policy (2002) reduced the number of drugs under price-control to 28 as against 74 in the 1995 policy; 100 per cent FDI has also been permitted. The government has also abolished industrial licencing for all bulk drugs, intermediates and formulations. India has amended its Patents Act to make it compliant with the WTO norms. The Indian Patents Act (2002) now provides for patent protection for 20 years (instead of the earlier 14 years). It also reversed the burden of proof from the patent


233

holder to the patent infringer. Pharmaceutical firms now enjoy tax benefits at par with information technology firms in the country. India is a net exporter of drugs and pharmaceutical products. It is a major supplier of generic drugs. US, UK, Germany, Russia and China are the major destinations for exports of generic drugs from India. Indian exports of pharmaceutical products are increasing at a rate of more than 25 per cent per annum. India is a leading low-cost supplier of generic anti-retroviral drugs the world over. India has the largest number of certified labs by the USFDA (United States Food and Drugs Authority) outside the United States. Table 6.6 Rank 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Major Pharmaceutical Players in India Company

Ranbaxy Laboratories Cipla Dr Reddy’s Laboratories Aurobindo Pharma Nicholas Piramal India Lupin Laboratories GlaxoSmithKline Pharmaceuticals Cadila Healthcare Sun Pharmaceuticals Industries Wockhardt

(USD million) 841.25 452.75 366.29 294.73 278.90 270.90 261.89 257.63 205.43 168.31

Source: The Economic Times (2004–05).

The growing industrial base in the country has raised concerns for environmental sustainability and the control of pollution. Many civil society organisations have become vocal and espoused the cause of an eco-friendly industrial development. The Narmada Bachao Andolan (NBA) spearheaded by social activists like Medha Patkar and Arundhati Roy is a burning example of how environmental concerns are shaping the decisions of the government and the business houses. Many companies, both domestic and international, have also started making their business operations eco-friendly and environmentally sustainable. ITC, ABB, Tata Steel, ACC, Gujarat Ambuja Cement and Hindalco are some of the major corporates in the country that have invested billions in making their businesses environment friendly. The Government of India has taken several initiatives, legislative and regulatory, preventive and promotive to control environment pollution in the country.

234


Box 6.2 z

z z z

z

z

z

z

z

z

z

Initiatives to Control Environmental Pollution in India

Existing policy initiatives to improve environment like the National Conservation Strategy and Policy Statement for Environment & Development, 1992, Policy Statement for Abatement of Pollution, 1992 and National Forest Policy, 1988. Stipulation of ambient and industry specific emission and effluent standards. Setting up of clean technology mechanisms in polluting industries. Setting up of Common Effluent Treatment Plants (CETPs) in industrial estates. Establishing waste minimisation circles (WMC) in clusters of small-scale industries. Implementing recommendations of Charter of Corporate Responsibility for Environmental Protection (CREP) in 17 categories of highly polluting industries. Prior environmental clearance of development projects based on impact assessment. Implementation of an Eco-mark scheme to encourage production/consumption of environment friendly products. For controlling vehicular pollution, progressive emission norms at the manufacturing stage have been notified, cleaner fuels like unleaded petrol, low sulphur diesel and compressed natural gas (CNG) introduced. Promotion of economic instruments to internalise the costs of pollution and fiscal incentives for pollution control equipment. Monitoring of ambient air and water quality, bio-monitoring of rivers/lakes and identification of hazardous wastes streams in various sectors/processes.

New Policy Initiatives: z z

z

z

z

Formulation of a National Environment Policy. Setting up of National Clean Development Mechanism (CDM) Authority as per Kyoto Protocol. Reengineering of environmental clearance process with a view to bringing greater transparency and efficiency in the clearance process. Revisiting the Coastal Regulation Zone (CRZ) Notification to enable environmentally sustainable use of coastal resources. Developing a National Chemical Management profile for the country.

Source: Economic Survey of India (2005).

Concluding remarks The Indian industry has come a long way from the command, control style of functioning rooted in an inward looking, import substitution


235

policy to an export oriented, globally competitive, quality-driven style of functioning. With a perceptible improvement in the investment scenario, coupled with government’s continued thrust on reforms, the industrial performance in the country is expected to be better in the medium term. In the long-term the performance of the industrial sector would depend on how well the reforms are initiated, the investments and growth in infrastructure, the continued availability of natural resources, the availability of low-cost, high skill workforce, Table 6.7

SWOT Analysis

Strengths z

z

z

z

z

Vast industrial presence in both public and private sectors. Huge domestic demand for industrial goods. Availability of low-cost, skilled human resource. Pro-active government— continued thrust on reforms— further liberalisation under process. Increasing investments in real assets (capacity expansion), inflow of FDI across industrial sectors.

Opportunities z

z z

z

z

z

Growing competitiveness of Indian industry due to focus on efficiency and quality. Vast export markets to explore. Growing recognition of the ‘Made in India’ brand in the global market. Major growth through outsourcing opportunities. Presence of Deming Award winning firms (focus on quality). Growing number of overseas investments and acquisitions by Indian firms.

Weaknesses z z

z

z z

Presence of vast industrial sickness. Outdated labour laws, and presence of too many political labour and trade unions. Nascent regulatory systems to check misuse of market power by firms. Dependency on subsidies (SSI). Inadequate and poor quality infrastructure—cost and time delays.

Threats z

z

z

z

z


Heavy competition in manufacturing from China. Power crises could end the virtuous growth cycle in the manufacturing sector. Large informal sector—poor working conditions and low wages. Inclusion of social (labour) issues in trade dialogues could hamper exports (e.g., child labour issue in Indian carpet industry). High corruption and inadequate environmental safety norms could affect sustainability.

236


and the scenario in the global market. However, one thing that can be said with a high level of confidence is that the wheel of growth has been set to motion, and it shall only gain momentum as years roll by.

Notes 1. The compound annual growth rate in food grain production has been in the range of 1.7 per cent in the 1950s to 3.5 per cent in the 1980s and now seems to be going back to the old pattern where it fails to match the rate of population growth. 2. The savings rate in India, as a result of the push for more, increased from about 10 per cent in 1950 to about 24 per cent lately. The domestic savings rate was even higher as foreign assistance came in. However, growth rates could never correspond with this increase (Bhagwati and Srinivasan, 1993). 3. Knowles (2004) lists these factors as religion, caste structure, and so on. 4. Kinsley Davis (1951) makes an argument that the population pressure seen as the major culprit is not the main reason. The problem is not that of sheer numbers but that of economic growth not keeping up with population growth. Dadabhai Naoroji and Romesh Dutt both put the blame squarely on the British Government’s colonial policy. 5. Jawaharlal Nehru, India’s first Prime Minister, died in May 1964 having held sway over the new nation’s ideology through his belief in the socialist thought and the welfare state for nearly two decades. Towards the end of his career, however, the national mood was one of despair. The war with China was a major disaster and many blamed Nehru for his optimism in peace between India and China. 6. The gross external assistance rose from about 2 per cent of the GDP in 1961–62 to 3.5 per cent of the GDP in 1966–67. Aid, however, came with a price. The US would not commit to a long-term agreement on PL 480 and wanted to push India towards a new agricultural policy, and towards liberalisation of its trade and industrial policies. 7. The exchange rate was lowered from Rs 4.76 to Rs 7.50 to a dollar on 6 June 1966. 8. Hawala is an Urdu word implying trust, where one party hands over a large amount of foreign exchange to another without any receipt or collateral, and receives the converted amount in Indian Rupees and vice versa. 9. The various estimates show that black money in India ranges form Rs 350 to Rs 700 thousand crores—Acharya’s work is discussed below, the others who have worked on this aspect are Ram L. Chugh and J.S. Uppal (1986), D.P. Pendse (1989) and S.K. Ray (1991).


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10. There have been no less than 10 tax amnesty schemes in the last 50 years. The first scheme worked between May and October 1951; the Finance Act of 1965 gave another amnesty schedule; the Voluntary Disclosure Act was passed in 1976; the Special Bearer Bond Scheme in 1981; the Finance Act again in 1985; the foreign exchange remittance scheme, the gold bond scheme, deposits with the National Housing Bank and the amendment 273A of the Income Tax Act in 1991; the Gold Bank Scheme of 1993; the Voluntary Disclosure of Income Scheme in 1997; and the Kar Vivad Samadhan Scheme in 1998. 11. In an interesting study in 1985, S.N. Acharya et al., in Aspects of the Black Economy in India, show how black was converted into white. Interestingly, the most significant manner was through showing black income as income through agricultural activities. The other popular measures are to show large monetary gifts from friends and relatives, the hawala channel, buying of lottery tickets from winners, loans from fictitious friends, fictitious sales, bearer bonds and by way of cash spending on consumer goods. 12. Arindam Das-Gupta and Dilip Mookherjee (1996), argue that it is possible for black investment made from black money to be far more productive than white investment, leading to a large multiplier effect. The white sectors on account of government control on bank deposit rates and administered interest rates are prone to abysmally low returns. The returns from black money investment, they argue, would trickle down to improve overall levels of life. 13. A casual look at some of these shows how much they obviously overlap and overkill—Payment of Wages Act, 1936; Minimum Wages Act, 1948; Employees Provident Fund Act, 1952; Employees State Insurance Benefit Act, 1948; Workmen Compensation Act, 1923; Payment of Gratuity Act, 1972; Payment of Bonus Act; the Bonded Labour System [abolition] Act, 1965; Child Labour Prohibition and Regulation Act, 1986; Trade Union Act, 1926; Industrial Employment [Standing Orders] Act and Industrial Disputes Act, 1946. 14. Per capita commercial energy consumption at 248 kgoe (kilogram of oil equivalent) continues to be far lower than the world average of 1,433 kgoe and is only 3 per cent of the per capita consumption in the US (World Development Report, 1997). 15. In 1997–98, the actual average rate of return for state electricity boards stood at 17.6 per cent.

Conclusion— The Unfinished Agenda

I

ndia’s economic reforms had begun in the mid-1980s as some sectors, notably the auto sector, started liberalising. The external sector was the first to get unshackled in the early 1990s. Tariff rates fell from their dizzying heights and export restrictions were removed on a large number of items. Banks, after the spree of nationalisation two decades ago, became relatively free again in 1993–94. A large number of areas reined in by the limitations of a small-scale sector policy were now free to scale up. Industrial licencing was almost overnight given up. The foreigner was welcome, not only as a guest, but also as an investor and a consultant. The cap on managerial remuneration, one of the most bizarre pieces of regulation, was removed. These measures helped the Indian economy push the pedal on its growth curve and from a miserly 3 per cent per annum growth rate, the Gross Domestic Product (GDP) now threatens to grow at more than 9 per cent, and if the rain gods smile, even at the magical 10 per cent per annum figure. However, what is now required is a serious look at the areas that have been ignored. For inclusive growth that would reduce poverty, take economic growth to the smaller towns and villages, and ensure a uniform economic prosperity, it is high time that the second generation of reforms be taken up. This phase will be tougher. First, the segments that have been ignored are areas where there is some serious debate on opening up of markets. Second, these sectors have traditionally been completely under government hands. Third, there is a suspicion that privatisation and liberalisation might not work well here. Fourth, these sectors are in the hands of state governments and the Central government has a limited role to play in restructuring many of these areas. Finally, there is a great deal misinformation and misunderstanding of these sectors.

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The rural and agricultural sectors India’s reforms concentrated on industry and services, while the sectors that have been left untouched are agriculture, land, labour and retail. Leading the pack of problems that have been left unsolved is, ironically, the sector where a bulk of the population resides. The rural sector in India got completely sidelined by the reform process. In India, ‘rural’ is synonymous with ‘agricultural’ and therefore, with the exception of a few issues that are non-agricultural, the rural tragedy is indeed the agricultural tragedy. In the 20th century, agricultural growth stagnated as a result of a series of droughts and famine. The Green Revolution in the 1960s raised productivity levels on the one hand, but was rather harshly criticised for widening income disparities between rich and poor farmers on the other. The late 1960s and early 1970s witnessed a modernised agriculture with new equipment and farm technology. New fertilisers led to high yielding varieties; tractors replaced cattle; and the immediate result was that the production of crops such as wheat and rice increased remarkably. But growth was far from uniform. In this context, it is important to take a look at some of the critical areas of concern with regard to the farmer and agriculture growth. First, it is important to focus on the skewed nature of agriculture production in India. Despite oft-repeated declarations of intent on the importance of crop diversification, the agriculture sector is heavily dependent on food grains. The relationship between food grains and food security is so strong that effectively nothing is done towards diversification. As food crops suffer because of monsoons and prices, the economy suffers. On the other hand, stocks pile up and lead to some embarrassment for the policy maker. Productivity levels continue to stagnate, putting greater pressure on land and other resources. Intensive agriculture gives way to an extensive route and yields do not show any growth. Second, there is a need to look at the rural employment scenario, an issue much neglected so far. The pattern of employment as it has emerged is indeed a cause of concern. In 1951, 70 per cent of the total work force was engaged in agriculture and has dropped to 54 per cent. The proportion of labourers increased from 20 to 27 per cent and that

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of cultivators declined from 50 to 32 per cent. However, these figures pale in comparison to the developed world. In Australia, 6 per cent and in France, only 7 per cent of the work force is engaged in agriculture. In the US and UK, the percentages are 3 and 2 respectively. Even in Egypt, the work force in agriculture is less than 35 per cent. Third, there is the disturbing trend in exports. Indian agriculture, according to Tenth Plan estimates, contributes only 14.7 per cent to total export earnings. What is worse is that almost all of this is due to export of primary goods and that very little produce is processed. Even within this, there is a predominance of just five crops, namely, tea, rice, oilseeds, tobacco, spices and sugar. If overall export growth rate is to be taken to the target of 25 per cent a year, it is imperative that agricultural exports are increased and that processed food replaces primary farm commodities in the export basket. However, these are but three of a large number of issues that confront any student of the agriculture sector. The number of problems is large and has been extensively discussed. Risk mitigation, credit availability, warehousing, infrastructure, marketing support, information issues, irrigation needs, extension services, quality of seeds, rural industrialisation, harsh regulation, movement controls and many others continue to haunt the farmer. What is important here is to realise that growth in agriculture and access to markets for the small farmer is critical if the agriculture sector is to grow. Further, this is crucial if the overall targeted growth rate of 10 per cent is to be sustained. That is why the importance of looking at growth rates and the small farmer. Given this context, the importance of freeing up agriculture and the need for markets, both domestic and foreign, cannot be neglected any more. The growth rate needs to be sustained and given the pervasive role of agriculture, it is axiomatic that reforms in the agriculture sector are imperative. Input subsidies leading to misuse and overuse, support prices causing market distortions and the absence of market information are some of the urgent reform issues that need to be tackled. Therefore, if one were to look at what needs to be done, it is simply the enabling and integration of agricultural markets. The farmer deserves the same access that industry has been bestowed with. Granting small mercies to the farmer like markets across state boundaries, export markets, access to information, bank credit, freedom to install machinery,

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including cold storages, warehouses and processing plans, would go a long way in modernising the sector and helping it grow.

Labour markets Labour mobility is restricted on account of several factors. Less than 8 per cent of the workforce in India works in the organised sector. Nearly 70 per cent of these work in the public sector. In addition to this problem of a vast majority in the unorganised sector, the work force also is remarkably heterogeneous. Laws that basically protect only the organised sector do not protect the unorganised sector. Added to this is the problem of the plurality of the workforce, which results often in conflicting interests and goals. Due to caste and regional factors, workers’ interests tend to get relegated. The worker profile in India gets more pluralistic when one takes into account that nearly twothirds of the labour force in India finds employment in the agricultural and rural industrial sector. Most people here are self-employed; there is a big problem with collecting data on the unemployed and the underemployed. Due to the difficulty in calculating the hours of work and the intensity of the work, what one sees is considerable amount of disguised unemployment. The legal regime governing industrial relations is a complex one, with nearly 50 major pieces of legislation covering labour welfare and dispute settlement matters. The labour dispute settlement system in India is no longer effective. Neither conciliation and compulsory adjudication nor arbitration any longer provides employees a fair and expeditious method of labour dispute settlement. The resolution of a labour dispute takes about 20 years. Part of the delay is attributable to excessive uncertainty and ambiguity about key legal concepts (including the definition of such crucial terms as ‘workman’ and ‘industry’). This contributes to uncertainty about the rights and obligations of employers and employees and to delays in the dispute settlement process. Although employment in a private enterprise is based upon a private, voluntary contract, once that contract is concluded for those who fall within the term ‘workmen’ in ‘industries’, the terms of the employment

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contract are substantially modified by statutory provisions, particularly with regard to change of the nature of the job, termination and dispute settlement. It is the government that controls the choice of dispute settlement mechanisms available to employees. Labour laws do not provide adequate freedom to the ‘workman’ to choose where and how he or she may protect his or her contractual rights. Prior government approval is required for employees to choose appropriate remedies against employers. Employment in the organised sector has declined and much of this is traceable to the 1976 and 1982 amendments to the Industrial Disputes Act. If an employer is required to take the prior permission of the government before laying off a worker, and if he knows that it is impossible to get that permission, he will try to avoid getting into such a rigid and inflexible commitment. He would buy machines instead of hiring a permanent worker, or he would try to perform the job with casual workers or by contracting out work to small enterprises that are not covered by stringent regulations. What the labour market cries for is flexibility. When the management is forced to take on principal liability for work that is contracted out, when worker timings are decided by the local municipal authorities, and where payments of bonuses and overtime are legislated, there is bound to be great rigidity and a race to the bottom. Local administrations that have been quick to amend rules regarding evening shifts and female workers, for instance, have seen an entire service sector grow at the expense of better locations, which refused to look at the logic and instead worked out sentimental arguments about protecting honour and dignity by restricting worker’s timings. The labour market needs urgent reform. A unified and simplified law, an enabling legal mechanism that allows flexibility to workers, a regulatory institution that is not prescriptive, a law that allows workers to migrate confidently and a mindset that allows free contracts between parties hiring and delivering labour is indeed what India’s unfinished agenda for reform essentially is.

Priority three—The other issues Having discussed the two issues that are most disturbing, let us now club all the other issues in priority three, lest the list gets too long to draw any attention. What unifies all these issues is the same sentiment

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and emotion that guides policy making in the areas concerning competition and anti-competitive practices, retail and the opening up of this sector to foreign investment, real estate and restrictions by way of land ceilings and zoning laws, trade by way of high tariffs, a poor level of trade within South Asia and, finally, the all important issue of judicial and legal reform. The debate on these has already begun, but the same emotional bottlenecks surface every now and then, preventing any movement. Just when a progressive step is contemplated, a plethora of sentimental objections ensure two steps backward and sometimes a single step forward. Trade and tariff barriers have been coming down, and there has been a great deal of talk on improving relations, especially trade relations with immediate neighbours. The real estate sector has seen some activity—some states have finally decided to clarify and record land titles, zoning restrictions are being reviewed and ceiling restrictions are being debated. The serious concerns in the unfinished business of reform therefore boil down to competition issues, retail trade and reform of the legal system.

Competition and regulation The process of amending and framing a new competition law is underway in the Parliament. The fear is that this new law will bring back the old regulatory mechanism that viewed the large corporation with suspicion and instead of concentrating on competition, focused more on size. It is important to ensure that the new law, therefore, aims at establishing an enabling system, guiding competition in India. It ought to bring into its ambit a clear definition of anti-competition agreements, the abuse of dominance, and the connections between intellectual property protection and competition. In theory, regulatory institutions govern sectors where there is market failure. Such failures usually result from natural monopolies, as in the power sector; network and network externalities, as in telecommunication; and asymmetric information, as seen in financial markets. In these situations, the objective of regulatory institutions is to provide third party monitoring where endogenous market forces are incapable of overall efficiency. The objectives of regulatory institutions and the Competition Commission are, therefore, the same—to ensure the best quality at the cheapest price to the consumers.

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In developing market economies like India, there is a more immediate issue that needs to be tackled. In almost all regulated markets, there is the presence of a state run enterprise, be it in power, telecommunications, banking or insurance. Since the government appoints regulatory bodies, and state-run enterprises are often vehicles of public policy, the independence of regulatory authorities, as well as their objectives, can be in serious conflict with what the Competition Commission is trying to achieve. The literature on regulation has developed a general framework in a closed economy setting and with private players. It is only recently that some literature has begun to evolve in an open economy set-up. This should be of special interest to us. In this as yet developing body of literature, the issue is essentially one of cross-border competition threatening state monopolies. The best examples are the postal monopolies in European countries that have to open up to competition from similar facilities in neighbouring countries. However, what is of interest to us is not the cross-border nature of the impending competition, but the fact that these are state-run enterprises. As in Indian public-sector units, they are often used for public policy purposes. In the Indian case, these would correspond to service rates that are loaded with elements of cross-subsidisation (for example, deficit charges in telephony, or free power to agriculture). It is important that public-sector units competing with the private sector do not get any unfair advantage in the name of doing some social good. At the same time, should the sector have public benefits, the government should be entitled to policy directives that affect all players in an equal manner. The competition law should look at specific sectors of the Indian economy where public-sector units co-exist with private units. These include telecommunications, power, aviation, banking, insurance, healthcare, education and so on.

Retail The retail sector in India employs nearly 21 million people, contributing to 7 per cent of the total employment. It is worth USD180 billion. At the moment more than 10 million sq ft of retail space is being developed and constructed across the country. However, the organised sector within retail accounts for 2 per cent of the total with a turnover

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estimated at USD 4.2 billion and growing at 8.5 per cent a year. This ratio is insignificant when compared to organised retail comprising 80 per cent of retail in the US, 40 in Thailand and 20 per cent in China. However, Foreign Direct Investment (FDI) is not permitted in this sector. Again, the reason FDI in retail trading is not allowed is sentimental and emotional, but this is encouraged by the domestic trader lobby that in pure rational self-interest does not welcome competition. In reforming retail, the current thinking in political circles seems to be that it would permit FDI only if the foreign investors dilute their equity within a fixed timeframe in favour of Indian investors and following a the time schedule yet to be decided. The irony is that the Foreign Investment Promotion Board (FIPB) allows foreign companies to test market products for a two-year period at the end of which they are required to roll out their manufacturing schedule. The firm usually reneges and seeks extensions. FDI in retail therefore slips in through the test-marketing route. Also manufacturing companies are allowed to carry out wholesale trading of high value items to institutional customers or wholesale distributors on a cash and carry forward basis. The government, in its traditional wisdom, clears such proposals on a case-to-case basis for sale and distribution of high-end products in the local markets from manufacturing companies. The approvals granted are on the condition that the companies do not go for domestic retail trading in any form and imports will have to follow the export import policy in force. Effectively what has happened is that while retailing is not permitted under the FDI statutes, it has not stopped foreign investors from entering the scene anyway, with higher costs and substantial delays. World over, retail has helped the small producer and the small farmer. Improved supply chains, better quality, increased competition and greater choice have helped both the producer and the consumer in retail markets.

Law and judiciary An efficient legal system is an essential pre-requisite for the achievement of the reform programme’s goal of strong, sustainable economic growth. Laws affect economic choices, business practices and costs, and the relative bargaining position of parties to commercial transactions. Law, in its generic sense, is a body of rules of action or

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conduct prescribed by a controlling authority, and having binding legal force. It must be obeyed and followed by members of a society, subject to sanctions or legal consequences. The country must also protect its citizenry against uncompetitive and unfair practices. New issues have emerged. The environment is indeed getting degraded. Pollution levels have been rising. Standards had to be laid, especially for food articles and others, where adulteration and non-conformity to standards could potentially cause damage to health. Banking has become a very intricate and important economic activity. Laws need to protect against frauds. The development of modern economic law is a mirror of technological and industrial development. As business practices become more and more specialised and complex, laws governing these activities also need to be dynamic and adaptive. Courts, as autonomous institutions, play an important role in the maintenance of the law and order situation in the society. But for some time, it is seen that courts in India are themselves in no good state. There is a heap of pending cases and a severe shortage of infrastructure to handle the workload. The absence of an efficient legal system almost always results in a higher crime rate in any society. There is a huge chunk of pending cases in the Indian courts, by some estimates exceeding 30 million. The state of Uttar Pradesh, characterised by some as a crime free state, has as many as 3 million criminal cases and 1.1 million civil cases pending in the district and other subordinate courts. Of these more than a quarter million have been pending for more than 10 years. Laws need to be changed, courts made more professional, some archaic laws repealed, some laws made in areas where none exist, arbitration enabled and procedure simplified. In effect, the second generation of reforms in India is one where the focus shifts to a large extent from the centre to the states. Land, labour and agriculture are all state issues, just as health and education are. It is important indeed to highlight that in the reform process in India, the main protagonist has been the federal government. In discharging its duties towards providing a market-based economy, the Central government, in its own characteristically stuttering manner, brought in far-reaching changes in most issues concerning its own constitutional jurisdiction. Apart from issues related to competition, to FDI and the broad functioning of the legal system, almost all

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other issues that this paper discusses fall squarely on the shoulders of state governments. Building constituencies for reform in states, with entrenched interest groups and smaller constituencies, is certainly going to be more difficult than it has been to push for reform at the centre. However, if inclusive growth is important, rural development critical and agriculture growth crucial, it stands to reason that the unfinished business of reform must be carried on at state capitals. The process seems to have begun, as states increasingly compete for investments and not for central subsidies and grants. This competition alone will steer the course away from a sentimental approach to governance to a more responsible political climate.

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Websites www.gujaratindia.com www.haryana.nic.in www.ibef.org www.indiastat.com www.maharashtra.gov.in www.mapsofindia.com www.mofpi.gov.in www.punjab.nic.in www.tn.gov.in www.cmie.org

Index Accelerated Rural Water Supply Programme 207 aging 47 Agri Export Zones (AEZs) 56, 57 agricultural sector 55, 239, 240 Air Corporation Act 202 airfreight and passenger movements 203 Airports Authority of India (AAI) 202 Airports Infrastructure Policy 202 Andhra Pradesh 85, 86, 111, 154–161 agriculture 155 banking facilities 82 exports 157 geography 155 health infrastructure 78 industrial policy 160 infrastructure 157 investments 160 irrigation schemes 155 minerals 156 national highways 158 postal facilities 81 power generation 159 sectoral shares to GDP 156 service sector 157 software 158 Special Economic Zones 160 Assam 81, 86, 87 balance of payment crisis 21, 34 balanced regional development 110 banking facilities 73, 81 Bharat Nirman programme 83, 206 Bihar 87, 88, 112 BIMARU states 112 black economy 220, 221

Central Road Fund (CRF) 192 civil aviation sector 200–204 Coal Mines (Taking over of Management) Act 223 Coking Coal Mines (Nationalisation) Act 223 Competition, and regulation 243, 244 Competition Commission 244 contingency fund 23 Credit Linked Capital Subsidy Scheme 218 CRF (see Central Road Fund) demographic profile of India 46, 47, 49, 52 Department of Drinking Water Supply 207 dependency ratio 48 economic growth 20, 26, 33, 34, 61, 110, 111, 178, 179 economic reforms 40, 41, 153, 225, 236 education 49 per capita real expenditure 52 state-wise access to infrastructure 75–76 Electricity Act, 2003 184, 186 electricity production in India 185– 186 energy sector 185, 231 environmental pollution control 234 EPCG (see Export Promotion Capital Goods) EPZ (see export processing zone) expert committee on the civil aviation 202

Index export earnings 240 export processing zone (EPZ) 41, 42 Export Promotion Capital Goods (EPCG) 42 Extension, Renovation and Modernisation (ERM) projects 210 FDI (foreign direct investment) 42, 43, 44, 45, 117, 229 financial institutions 32 FIPB (see Foreign Investment Promotion Board) fiscal deficit 23 fiscal management 63 Fiscal Responsibility and Budget Management Act (FRBMA) 24 Five Year Plans 217–221 food processing and packaging industry 55 food shortages 32 foreign exchange reserves 37, 38, 39 Foreign Investment Promotion Board (FIPB) 245 GDP (gross domestic product) 20, 35 Green Revolution 32 Gujarat 88, 89, 111, 133–139 educational infrastructure 75 agriculture 134 banking facilities 82 coastline 133 health facilities 77, 78 industrial scenario 135 infrastructure 135 manufacturing sector 134 sectoral contribution to GDP 134 sectoral policies 136 state policies 137–139 telecommunication facilities 81 transport infrastructure 79 agriculture 113 banking facilities 82 economy 114 educational infrastructure 75

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export policy 115, 116, 122–124 food processing policy 120–121 foreign direct investment 117 Gross State Domestic Product 115 Haryana 90, 111, 112–124 health facilities 77 industrial policy 2005 118–119 industry 115 information technology policy 121–122 infrastructure 116 irrigation schemes 113 national highways 116 power generation 117, 118 Special Economic Zone 115 telecommunication facilities 80 health infrastructure 72, 76–78, 84 heavy manufacturing 51 horticulture exports 56 human development 224 Indian growth experience 35 Indian industry 224–234 automobile sector 230, 231 overseas acquisitions 59 Indian manufacturing sector 212, 230 Indian Patents Act 232 Indian pharmaceuticals industry 232 Indian Pharmaceuticals Policy 232 Indian population age 47 Indian Ports Act 204 Indian Railways 197–200 Indian Tolls Act 197 Indira Awaas Yojana (IAY) 211 industrial policies 222 industrial production 58, 227–228 industrial training institutes 76 industrialisation 32, 213, 214 inflation 25, 27, 36, 37 infrastructure and growth 65, 66–69, 82 facilities 68, 69, 71,74, 82, 178, 179, 180

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infrastructure indices 68 Integrated Child Development Programme 77 International Air Transport Policy 203 International Container Trans-shipment Terminal 205 international private shipping 205 irrigation potential 209 Karnataka 91, 92, 111, 167–171 cash crops 168 coastline 170 exports 169 geography 167 Gross State Domestic Product 168 industries 168 infrastructure 170 investments 170, 171 irrigation 170 sectoral contribution to GDP 168 service sector 169 Kerala 93, 111, 161–167 agriculture 162 civil aviation 165 educational infrastructure 75, 92 economic growth 164 geography 161 health facilities 77, 78 industries 166 infrastructure 164 investment potential 165 irrigation projects 162 power projects 165 price rise 29 sectoral shares in GDP 163 service sector 164 social development 161 transport infrastructure 79 labour laws 242 labour markets 241–242 labour mobility in unorganised sector 241

legal system 241, 245, 246 liberalization 39, 40, 54, 111, 212 Madhya Pradesh 75, 79, 81, 82, 93, 94 Maharashtra 94, 95, 111, 140–147 agriculture 141 coastline 143 educational infrastructure 75 economy 140 exports 143 health infrastructure 77, 78 industries 141, 142 infrastructure 142 investments 144, 145 knowledge corridor 145 sectoral contribution to NSDP 142 state policies 146–147 telecommunication facilities 81 transport infrastructure 79 Major Ports Act 204 manufacturing sector 57, 226 maritime ports 204–206 military expenditure 64 Ministries Civil Aviation 202 Power 208 Rural Development 207 Surface Transport 205 mobile and Internet services 73 National Highways Authority of India (NHAI) 92, 197 national highways legislations 192 National Literacy Mission 76 National Maritime Policy 205 National Rail Vikas Yojana 200 National Rural Employment Guarantee Act (NREGA) 28, 76 National Rural Employment Guarantee Programme 28 natural disasters 21, 34, 35 New Economic Policy (NEP) 39, 41, 218

Index New Exploration Licencing Policy (NELP) 232 NHAI (see National Highways Authority of India) nuclear deal with USA 37 Operation Flood 32 Orissa 96 overseas investments and acquisitions 58 per capita consumption comparison 181 petrochemical sector, investments in 232 pharmaceutical players in India 233 postal and telecommunication facilities, state-wise access to 80 postal service 73 poverty 60, 61 power grid stations 183, 184 power sector 180–187, 184 price rise 25, 27 public account 23 public capital expenditure 62 Public Distribution System (PDS) 32 Punjab 97, 98, 111, 124–132 agriculture 125 banking facilities 81 contribution to GDP 126 economic growth 125 exports 128 geography 124 industries 126, 127 infrastructure development 125, 127–129 irrigation infrastructure 127 postal infrastructure 80 power consumption 128, 129 rural development 125 state industrial policy 130–132 transport and communication 129 Rail India Technical and Economic Services (RITES) 199

255

Rajasthan 80, 81, 98, 99 educational infrastructure 75 health infrastructure 78 transportation infrastructure 79 Rajiv Gandhi Gramin Vidyutikaran Yojana 208 reforms, second generation 117, 225, 238, 246 Remote Village Electrification Programme 209 retail sector 244, 245 RITES (see Rail India Technical and Economic Services) rural and agricultural sectors 206, 239–241 rural drinking water mission 207 Rural Electricity Distribution Backbone 208 Rural Electrification Corporation Limited 208 rural electrification mission 208–209 rural employment scenario 239 rural housing mission 211 rural infrastructure 66 rural infrastructure gap index 104– 109 rural irrigation mission 209–211 rural reconstruction 206–211 SAFTA (see South Asia Free Trade Agreement) SAP (see structural adjustment programme) services sector 59 SEZ (see Special Economic Zone) SHG-Bank linkage programme 74 Singareni Coal Mines 157 SLR (see Statutory Liquidity Ratio) Small and Medium Enterprises Development (SMED) Bill 218 Small Enterprises Financial Centres (SEFC) 18 small-scale industries 218, 219 South Asia Free Trade Agreement (SAFTA) 64

256


Special Economic Zones (SEZs) 42, 43 Statutory Liquidity Ratio (SLR) 33 structural adjustment programme (SAP) 39

TRAI (Amendment) Act, 2000 189 transport infrastructure 79–80, 191, 192, 197 transportation sector 191–206

Tamil Nadu 99, 100, 111, 148–152 accessibility to infrastructure 151 agriculture 149 banking facilities 82 communication infrastructure 150 educational infrastructure 75 geography 148 Gross State Domestic Product 148 health infrastructure 78 industries 149 irrigation 149 manufacturing sector 149 postal infrastructure 81 power infrastructure 150 price rise 29 sectoral policies 151 sectoral shares in GSDP 150 state policies 152 transportation infrastructure 79 technology growth 60 Telecom Disputes Settlement and Appellate Tribunal 189 telecommunication sector 187–191 telecommunications regulatory structure 189 telecommunications in India and China 188 Total Quality Management (TQM) 57 Trade Union Act 222

unemployment 62 Uttar Pradesh 81, 82, 100, 101, 112 health infrastructure 78 transportation infrastructure 79 vocational training centres 76 ‘welfare state’ policy 31 West Bengal 81, 102, 171–177 agriculture 173 civil aviation 175 economy 172 educational infrastructure 75 geography 173 industries 174 IT initiatives 175 land reforms 172 population 75 ports 175 poultry and fishing 173 power generation and consumption 176 sectoral contribution to GDP 173 service sector 174 telecommunication infrastructure 80 transportation infrastructure 79 West Bengal industrial policy 176–177 Wholesale Price Index (WPI) 36 world electricity generation, India’s share 182

About the Authors Amir Ullah Khan is a Fellow at the India Development Foundation. He graduated in Electronics Engineering from the Osmania University. He then studied at the Institute of Rural Management, Anand (IRMA). He has a Ph.D. from Jamia Millia Islamia Central University, Delhi, for his work on ‘Intellectual Property Protection and the IT Industry’. In 1993, he joined the Indian Civil Service after which he worked for four years with Project LARGE (Legal Adjustments and Reforms for Globalising the Economy) of the UNDP and the Ministry of Finance, Government of India. He headed the Academic Unit at the Indian School of Finance and Management, where he taught Economics and Management between1997 and 1999. Subsequently, he worked as Executive Director and Editor, Encyclopaedia Britannica India and as Deputy Secretary General at the PHD Chambers of Commerce and Industry (PHDCCI). He is also visiting faculty at the Bangalore Management Academy, Birla Institute of Management Technology and at the Indian Institute of Foreign Trade where he teaches Economics. Harsh Vivek graduated in Economics from the University of Delhi and has a post-graduate diploma from the Institute of Rural Management, Anand (IRMA). He has worked with leading research organisations like the International Water Management Institute (IWMI) and also with the country’s leading national industry association—the Confederation of Indian Industry (CII). He is currently a Research Associate with India Development Foundation. His areas of interest include small and medium enterprise development, economic reforms, market access for the bottom of the pyramid and the triple bottom line.

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