ECONOMY MATTERS 2

1

FOREWORD

SEP-OCT 2015

Global growth has moderated, especially in emerging market economies (EMEs) and G-4 econ-omies, global trade has deteriorated further and downside risks to growth have increased. Consequently, our exports growth is in shaky territory, given the fact that bulk of our exports

are going to these economies. Evidently, exports have now contracted for ten consecutive months. Though improving domestic competitiveness through structural reforms is crucial to improve ex-ports performance, we believe that can only materialize in the medium-term. In the near-term, a weaker Rupee can act as a catalyst to revive competitiveness. Japan, one the G-4 countries, slipped into recession in the third quarter, for the second time in two years. Weakness in business invest-ment and shrinking inventories drove the contraction as slow growth in China and a weak global outlook prompted Japanese companies to hold back on spending and production.

On the domestic front, a tentative economic recovery is underway, but is still far from robust. In-dustrial growth moderated in September after growing at a robust rate in the month before on the back of weakness in manufacturing sector. However, the resumption of growth in production of con-sumer durables in recent months, after a protracted period of contraction over the last two years, is indicative of some pick-up in consumption demand, primarily in urban areas. In some bad news for the economy, rising prices for some food products and firm demand during the festival season pushed up India’s retail inflation to a four-month high in October 2015. But this rise might prove to be temporary and we are likely to see inflation moderate once festival demand softens and prices of lentils and vegetables fall as imports increase. Supply constraints due to lower production and higher demand due to rising incomes have contributed to the spike in the price of pulses in recent months.

In the present environment where both external and domestic growth is weakening, it’s important to lay stress on strengthening the drivers of demand. One of the challenges ahead, therefore, is to create the jobs to employ India’s rapidly growing youth base, and the only means of doing so is to catalyze increased private and public investment in India. Today’s investment equals tomor-row’s jobs, and so the Government of India has embarked on the ambitious Make in India initiative to create jobs. But attracting investment means that the environment for investment must be made friendly. It is encouraging to note that the Government of India has embarked on ambitious reforms focused on improving India’s performance in the World Bank’s Doing Business rankings. These ef-forts, among other things, focus on implementing reforms relating to starting a business, resolving insolvency, enforcing contracts, and trading across borders. The earnest efforts on the part of gov-ernment have started to bear fruit and it’s heartening to note that India’s ranking has improved by 12 notches to 130 in the latest rankings released last month.

Chandrajit BanerjeeDirector General, CII

3 SEP-OCT 2015

EXECUTIVE SUMMARY

ECONOMY MATTERS 6

Global Trends

China’s economy grew at its slowest pace since the global financial crisis in the third quarter, reviving expectations of further stimulus to avert a stalling of the world’s growth engine. The world’s second largest economy expanded by 6.9 per cent in the July-September quarter, slowing from a 7 per cent in-crease in the previous quarter. With this, the GDP in the first three quarters of this year increased by 6.9 per cent. As the world’s biggest trader in goods and a giant market in itself, China is a key driver of the glob-al economy, and stock exchanges around the world have been pummelled in recent weeks by concerns over its future. China’s neighbor, Japan’s economic output too shrank in the third quarter of the current year, throwing the world’s third-largest economy back into recession. Gross domestic product declined an annualized 0.8 per cent in the three months ended Sept. 30, following a revised 0.7 per cent drop in the second quarter, meeting the common definition of a recession.

Domestic Trends

Index of Industrial Production (IIP) growth moderat-ed to 3.6 per cent in September 2015 over a year ago compared with the revised growth of 6.3 per cent in August 2015, on the back of lower growth in manufac-turing and capital goods sector. In contrast, output of the eight core industries rose by 3.2 per cent in Sep-tember 2015 on a y-o-y basis. This was the steepest rise in output recorded in the past four months. Five out of eight sectors recorded positive growth rates during the month. In some more bad news for the economy, rising prices for some food products and firm demand during the festival season pushed up In-dia’s retail inflation to a four-month high in October 2015. Annual consumer price inflation edged up to 5.0 per cent in October 2015, up for the third straight month, compared with 4.41 per cent a month ago. In-flation may moderate once festival demand softens and prices of lentils and vegetables fall as imports increase. On the external front, exports growth dis-appointed for the eleventh consecutive month, con-

tracting by 17.5 per cent to US$21.3 billion in October 2015 as against contraction to the tune of 24.3 per cent in September 2015.

Sector in Focus: Employment Potential of the Road Transport SectorThe transport sector in India is diverse consisting of the land transport, water transport and air transport. The employment potential of the transport sector is however mainly concentrated in the land transport and in particular the roadways. Road transport is one of the important employment generating sectors es-pecially in the rural areas and concerted efforts need to be taken to promote employment in this sector. A policy stand needs to be taken to look at the users of the road i.e the drivers and proper rules for their working, defined wages, social security etc need to be introduced so that more and more youth are at-tracted to the sector. And to top it all skill develop-ment of the drivers is essential to teach them the best practices of safe driving, healthy and pollution free maintenance of vehicles etc.

Focus of the Month : State of Compe-tiveness in India

As per World Bank by, 2020, India will be home to working population of 906 million in need of jobs to sustain India’s growth, which in turn demands sustained growth of the manufacturing and service sectors in India. The challenge ahead, therefore, is to catalyze increased private investment in India. This translates into need for an investor-friendly environ-ment. According to World Bank’s Enterprise Survey, businesses in India rank corruption as number one constraint to growth, ahead of factors like electric-ity, access to finance and access to land. India ranks 130 out of 189 economies in World Bank’s Doing Busi-ness 2016 report. The World Economic Forum’s Global Competitiveness Report ranks India as 55 out of 144 economies. In this month’s Focus of the Month, we analyze the three recently released reports, which evaluate the state of competitiveness and doing busi-ness in India.

7

GLOBAL TRENDS

China’s Economy Facing Difficulties

SEP-OCT 2015

China’s economy grew at its slowest pace since the global financial crisis in the third quarter, re-viving expectations of further stimulus to avert a

stalling of the world’s growth engine. The world’s sec-

ond largest economy expanded by 6.9 per cent in the July-September quarter, slowing from a 7 per cent in-crease in the previous quarter. The numbers were still better than market expectations. With this, the GDP in the first three quarters of this year increased by 6.9 per cent. As the world’s biggest trader in goods and a giant market in itself, China is a key driver of the global econ-omy, and stock exchanges around the world have been pummelled in recent weeks by concerns over its future.

ECONOMY MATTERS 8

GLOBAL TRENDS

According to the preliminary estimate from China’s na-tional bureau of statistics (NBS), value added growth of the primary industry was 3,919.5 billion yuan, up 3.8 per cent year-on-year, while that for secondary industry was 19,779.9 billion yuan, an increase of 6.0 per cent. Growth in the nation’s tertiary industry, the largest component of all three, was 25,077.9 billion yuan, up by 8.4 per cent.

The official release noted that, “Under the tough situa-tion, the Central Party Committee and the State Council took full consideration of domestic and global situa-tions, adopted scientific measures to stabilize economic growth, promote reforms, enhance restructuring, ben-efit people and control risks, implemented effective range-based, targeted and discretionary macro regu-lation, further deepened the reform and opening up, encouraged mass entrepreneurship and innovation and increased supply of public goods and services. As a re-sult, the overall performance of national economy was stable and moving in a positive direction.”

China’s stock market went into meltdown between June and August this year, triggered by a host of factors, including an unwinding of margin trades and concerns over lofty valuations. This would have likely reduced the financial sector’s contribution to third-quarter growth. Aside from financial sector woes, a sluggish real estate market continues to weigh on the economy. Real estate is linked to dozens of other key sectors, including steel and cement that are already grappling with oversupply. While property sales and prices have been on the rise in

response to increasingly accommodative housing poli-cy, housing construction is still in the doldrums. Given the large inventory of unsold housing, strong housing sales momentum for a sustained period was needed before housing construction could recover meaning-fully

In other economic data, China’s value-added industrial output decelerated to 5.6 per cent year on year in Octo-ber 2015, down from 5.7 per cent in September 2015. By sector, manufacturing grew the most by 6.7 per cent, followed by mining (+0.4 percent). In contrast, utilities dropped by 0.3 per cent. From January to October 2015, industrial output expanded by 6.1 per cent. Industrial Production in China averaged 12.8 per cent from 1990 until 2015, reaching an all time high of 29.4 per cent in August of 1994 and a record low of -21.1 per cent in January of 1990.

On the inflation front, falling prices have kept the risk of deflation looming large since past many months now. Keeping up this falling trend, Chinese inflation came in at 1.3 per cent in October 2015 versus prior of 1.6 per cent. Further, producer price index remained in defla-tion territory for record 44 months, flagging persistent deflationary pressure in the world’s second largest economy. The weak inflation print continues an already well-established trend of falling producer prices and tepid consumer price rises, in part a result of sharply lower commodity prices in 2015 but also reflecting slowing demand growth for many goods.

9

GLOBAL TRENDS

SEP-OCT 2015

In view of the low inflation rate, the central bank of China has cut benchmark interest six times since No-vember last year and repeatedly reduced banks’ reserve

Japan’s economic output shrank in the third quarter of the current year, throwing the world’s third-largest economy back into recession. Gross domestic product declined an annualized 0.8 per cent in the three months ended Sept. 30, following a revised 0.7 per cent drop in the second quarter, meeting the common definition of a recession. To be sure, two consecutive quarterly con-tractions is commonly considered a technical recession.

A drop in inventories cut 2.1 percentage points from total growth, outstripping positive contributions from private consumption and exports. That could turn into a positive in coming months, though. When inventories are low, companies usually increase output, leading to faster growth in subsequent quarters. Business invest-ment shrank an annualized 5.0 per cent during the quar-ter, a second-straight decline, as a global slowdown weighed on corporate earnings. Private consumption, which accounts for some 60 per cent of Japan’s GDP, grew 2.1 per cent after contracting 2.3 per cent in the previous quarter. Consumer spending has picked up from the hit it took last year from an increase in sales

requirement ratio. However, more stimulus is needed to secure Beijing’s growth target of no less than 6.5 per cent in the next five years, and pave the way for a the transition to more a consumption-led growth model.

It was the second in two years for Japan. In contrast, in year-on-year terms, Japanese economy actually grew by 1.1 per cent in the third quarter as compared to 1.0 per cent in the quarter before. Weakness in business in-vestment and shrinking inventories drove the contrac-tion as slow growth in China and a weak global outlook prompted Japanese companies to hold back on spend-ing and production.

tax in April, which contributed to the recession in 2014.

Mr. Shinzo Abe took office nearly three years ago pledg-ing to restore Japan to robust, sustainable growth with a package of unprecedented monetary stimulus, fiscal spending and structural changes. But Japan’s economy has struggled to gain traction, contracting in five of 11 quarters. In order to provide a boost to economic growth, Japanese government is planning to inject fiscal stimulus package by the end of the year, which would focus on targeted measures such as direct help for the poor and more child-care facilities for working parents. The package is expected to total around ¥3 tril-lion (US$25 billion).

Japan’s Economy Falls Back into Recession Again

ECONOMY MATTERS 10

GLOBAL TRENDS

US non-farm payrolls (NFP) came in significantly higher than expected, increasing by 271K in October 2015. The September 2015 print was revised lower to 137K (from 142K earlier). However, the August 2015 print was re-vised up, taking the total August-September 2015 re-

Decomposition of the payrolls data shows that the pri-vate service providing segment led the gains, recording an 82K increment over the September 2015 number. Within this segment, professional and business ser-vices, retail trade posted the steepest gains. Deviating from the recent trend, construction and manufacturing (within private goods-providing sector) aided job addi-tions. Further, government payrolls displayed a job ad-dition of 3K in October 2015. Employment in other major industries, including manufacturing, wholesale trade, transportation and warehousing, information, financial activities, and government, showed little or no change over the month.

In October 2015, average hourly earnings for all em-ployees on private nonfarm payrolls rose by 9 cents to $25.20, following little change in September 2015 (+1 cent). Hourly earnings have risen by 2.5 percent over the year. Average hourly earnings of private-sector pro-

visions to +12K. The less volatile three-month average NFP print picked up to 187K (prior: 171K). In October 2015, job gains occurred in professional and business services, health care, retail trade, food services and drinking places, and construction.

duction and nonsupervisory employees increased by 9 cents to $21.18 in October 2015.

According to the household survey data, the unemploy-ment rate fell to 5.0 per cent in October 2015 from 5.1 per cent in September 2015. The labour force participa-tion rate remained unchanged at 62.4 per cent. Mean-while, the U-6 unemployment rate (which is a broader measure that includes part-time and discouraged work-ers) maintained its steadily declining trend and fell to 9.8 per cent from 10.0 per cent.

The number of persons employed part time for eco-nomic reasons (sometimes referred to as involuntary part-time workers) edged down by 269K to 5.8 million in October. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. Over the past 12 months, the number of persons employed part time for economic reasons has declined by 1.2 million.

Nonfarm Payroll Data for US Shows Improve-ment

11

GLOBAL TRENDS

SEP-OCT 2015

Encouraging details of the US Q3 2015 GDP growth coupled with the continued improvement in the labour market (since early this year) keeps the US economy on a path of gradual recovery. Consequently, a December lift-off remains on the table. This is further supported by the hawkish tone of the October FOMC policy and

recent commentary by Fed officials (Fed Chair Janet Yellen, Vice Chairman Stanley Fischer and New York Fed President William Dudley). Further, majority of the Fed members (13 of 17) continue to see an interest rate hike in 2015.

ECONOMY MATTERS 12

DOMESTIC TRENDS

Bridges Across the Indian Ocean

The partnership of India and Africa has stepped into a new era. Close political relationships are being reinvigorated by flourishing trade and in-

vestment ties. These new trade and investment bonds could be crucial in the struggle to lift millions out of poverty. India and Africa’s strong trade and investment relations are rooted in the huge complementarities between their economies. This foundation has further deepened in the post-crisis period, as India and other large developing economies have emerged as stronger economic powers. This shift in global growth poles has resulted in both India and African countries looking to-wards each other for mutual trade and investment op-portunities.

Total trade between India and Africa grew from approx-imately $30.75 billion in 2007 to $75 billion in 2014, with a compound annual growth rate of 13.6 per cent. For the next five years, a growth rate of 15 per cent may be expected, with total trade crossing $150 billion by the end of 2019. Indian private investments in Africa have also surged, with big-ticket investments in the telecom-munications, IT, energy and automobile sectors. Capital investments from India to Africa have grown to $54.5 billion between 2003 and 2014.

While the two-way trade and investment ties have deep-ened, the future potential is higher. With the changing architecture of global trade agreements, the focus is shifting towards creating value chain- and investment-led trade. The Indian private sector can leverage avail-able institutional mechanisms to further deepen its trade and economic footprint in African nations. A key mechanism is the effective utilisation of India’s DFTP (duty-free tariff preference) scheme, the genesis of which goes back to the first India-Africa Forum Summit

13

DOMESTIC TRENDS

SEP-OCT 2015

in 2008. The DFTP is a unilateral duty-free market access scheme, which India has provided to all least developed countries, including 34 in Africa.

Since it came into force in August 2008, only a few Afri-can less developed countries (LDCs) have managed to increase their exports to India, notably Tanzania. Con-trary to similar schemes provided by other developing countries, the DFTP programme offers much deeper market access into India. After the amendment of the DFTP scheme in April 2014, its coverage has gone be-yond 98 per cent of India’s total tariff lines.

Contrary to perception that this scheme will benefit only LDCs, Indian industry, too, can make use of it to advance its trade and investment relations. It can source inter-mediate products from beneficiary countries at zero duty and invest in African LDCs to manufacture locally to export back to India through the DFTP route. By doing this, Indian industry can also access third-country mar-kets like the EU, US and so on, making use of the African

Growth and Opportunity Act and Everything But Arms Proposal.

Relocating part of the production process in Africa to build a robust India-Africa value chain will help Indian industry avoid the duty disadvantage it faces in big mar-kets of the EU and US. For instance, in the textiles and apparel sector, Indian exporters face 8-30 per cent duty in the US and 10-12 per cent in the EU.

The second important instrument is the Exim Bank/ Union government’s lines of credit (LoCs). LoCs have helped Indian companies enter the African market, as well as expand their foot-print on the continent. This is evident from the fact that LoCs to African countries constitute 60 per cent of all LoCs. However, there is still a gap between LoC commitments and actual disburse-ment, which needs to be bridged.

Across the Indian Ocean, India and Africa have enjoyed age-old connectivity. It is time to build new bridges of friendship between our two regions, and Indian indus-try will be a key partner in this endeavour.

This article appeared in The Indian Express dated October 31, 2015. Online version of the article can be accessed from: http://indianexpress.com/article/opinion/columns/india-africa-summit-bridges-across-the-indian-ocean/

ECONOMY MATTERS 14

DOMESTIC TRENDS

India’s Index of Industrial Production (IIP) growth mod-

erated to 3.6 per cent in September 2015 over a year

ago compared with the revised growth of 6.3 per cent

in August 2015. The IIP growth shows an improved from

2.6 per cent growth recorded in September 2014. The

IIP growth in August 2015 was scaled down to 6.3 per

cent in the first revision compared with 6.4 per cent

reported provisionally. Meanwhile, the growth in June

2015 was reduced to 4.2 per cent at the final revision

Output of the eight core industries rose by 3.2 per cent

in September 2015 on a y-o-y basis. This was the steep-

est rise in output recorded in the past four months. Five

out of eight sectors recorded positive growth rates dur-

ing the month. Output of the fertiliser industry rose by a

robust 18.1 per cent in September 2015. Production has

risen by more than five per cent in each of the past four

months. Growth in electricity generation accelerated to

10.8 per cent in September 2015. This was the steepest

rise in generation recorded in the past 11 months. Coal

production rose marginally by 1.9 per cent.

Natural gas output expanded for the second consecu-

tive month in September, rising by 0.9 per cent. Refin-

ery throughput was up by just 0.5 per cent. Crude oil

production fell marginally by 0.1 per cent in September

2015 on a y-o-y basis. Steel production contracted by

2.5 per cent in September 2015. Output fell for the third

consecutive month. Cement production contracted by

1.5 per cent during the month. This was the first instance

against the first revision from 4.4 per cent at first revi-

sions, while it remained above 3.8 per cent reported

provisionally. On a cumulative basis, industrial produc-

tion growth has improved at higher pace of 3.9 per cent

in April-September 2015 compared with 2.9 per cent in

the corresponding period last year. In FY16, we expect

industrial production to grow at a higher rate as com-

pared to the previous fiscal on the back of improving

global conditions and policy aided domestic upturn

of a fall in output since April 2015.During April-Septem-

ber 2015, growth in the output of the eight core indus-

tries more-than halved to 2.3 per cent as compared to

the same period a year ago. Electricity generation rose

by just 4.1 per cent, much lower than the 10.4 per cent

growth recorded a year ago. Growth in coal produc-

tion decelerated to 4.2 per cent from 7.7 per cent. Ce-

ment production grew by 1.3 per cent as against 9.7 per

cent. Production of steel contracted by 0.4 per cent as

against a rise of 6.6 per cent.

On the other hand, the decline in natural gas output

was lower during April-September 2015, with produc-

tion falling by 2.1 per cent as against a fall of 5.8 per cent

in the same period a year ago. Production of crude oil in

India rose by 0.4 per cent as compared to a contraction

of 1.2 per cent. Growth in the output of refinery prod-

ucts accelerated to 3.6 per cent from a decline of 2.7 per

cent. Fertiliser production grew by a healthy eight per

cent during the period.

IIP Growth Decelerates in September 2015

15

DOMESTIC TRENDS

SEP-OCT 2015

On the sectoral front, growth of manufacturing sector,

which constitutes over 75 per cent of the index, deceler-

ated to 2.6 per cent in September 2015 compared with

6.6 per cent growth in the previous month. In terms of

industries, eleven (11) out of the twenty two (22) indus-

try groups (as per 2-digit NIC-2004) in the manufactur-

ing sector showed positive growth during the month

of September 2015 as compared to the corresponding

month of the previous year. The industry group ‘Furni-

ture; manufacturing n.e.c.’ grew at the highest positive

growth of 69.9 per cent, followed by 21.6 per cent in

‘Electrical machinery & apparatus n.e.c.’ and 9.8 per

cent in ‘Chemicals and chemical products’. On the other

hand, the industry group ‘Publishing, printing & repro-

duction of recorded media’ showed the highest nega-

tive growth of (-) 13.3 per cent, followed by (-) 12.8 per

cent in ‘Wearing apparel; dressing and dyeing of fur’ and

(-) 12.8 per cent in ‘Medical, precision & optical instru-

ments, watches and clocks’.

Electricity output continued to grow at robust rate of

grew at a higher rate of 11.4 per cent in September 2015

as compared to 5.6 per cent in the previous month.

Mining output too reduced to 3.0 per cent, after grow-

ing at robust rate of 4.2 per cent in August 2015. The

recent auction of coal mines by the government could

provide some impetus to coal production in the months

to come.

On the use-based front, the volatility in capital goods

continued. Capital goods growth decelerated to 10.5

per cent in September 2015, which was a considerable

reduction from Augusts’ 21.4 per cent growth rate.

However, it is difficult to conclusively determine the

sustainability of capital goods output as it continues

to be a significantly volatile component. In sharp con-

trast to last month, growth of consumer goods reduced

sharply to 0.6 per cent as compared to healthy growth

to the tune of 6.0 per cent posted in August 2015 pri-

marily on account of the negative print of non-durables.

Consumer durables growth came down to 8.4 per cent,

after showing impressive growth in the last 2 months.

Non-durables continued to stay in the red territory in

September 2015 as it posted -4.6 per cent growth rate

as compared to contraction to the tune of 1.0 per cent

in August 2015. Notably, non-durables have a signifi-

cant share in IIP at 21.4 per cent. Basic and intermediate

goods posted positive growth.

ECONOMY MATTERS 16

DOMESTIC TRENDS

WPI inflation was in the negative territory for the 10th consecutive month as it fell to 3.8 per cent in October 2015 from -4.5 per cent in September 2015 as major com-modity prices continue to fall. Deflation in WPI has seen a broad –base deepening due to several factors such as declining crude oil prices due to supply glut and low demand from world’s major economies which have not only brought down retail prices of petroleum products but have also helped producers’ cut down on transpor-tation costs. WPI has been experiencing deflation on annual basis from November last year. Sustained de-cline in WPI is good news for corporate as WPI is input price for manufacturing process.

Rising prices for some food products and firm demand during the festival season pushed up India’s retail in-

flation to a four-month high in October 2015. Annual consumer price inflation edged up to 5.0 per cent in Oc-tober 2015, up for the third straight month, compared with 4.41 per cent a month ago. Inflation may moderate once festival demand softens and prices of lentils and vegetables fall as imports increase. Retail food inflation in October 2015 came in at 5.25 per cent, higher than 3.88 per cent recorded in September 2015, as prices of pulses rose 42.2 per cent because of domestic short-ages. Supply constraints due to lower production and higher demand due to rising incomes have contributed to the spike in pulses prices. Global pulses prices are high and the rupee is weak, suggesting that resorting to imports could provide limited comfort to domestic prices.

OutlookIndustrial production growth slowed in September 2015 on the back of lower growth in manufacturing and capital goods sector. Volatility in capital goods production is continuing, providing no clear evidence of a revival in invest-ment demand, which would need to build on the tentative indications of unclogging of stalled investment projects, stabilising of private new investment intentions and improving sales of commercial vehicles. Government is aware of this situation and has already taken a number of policy and reform initiatives. We are hopeful that the initia-tives taken by the government in terms of expeditious project clearances, simplification of procedures and new investment announcements as well as the ‘Make in India’ initiative would improve the order book position, revive demand and help effect a turnaround in the investment cycle..

CPI Inflation Moves Up in October 2015

17

DOMESTIC TRENDS

SEP-OCT 2015

Primary products continued to face deflation to the tune of 0.4 per cent in October 2015 as compared to 2.1 per cent in the previous month. Inflation in primary food articles stood at 4-month high of 2.4 per cent in October 2015 as compared to 0.7 per cent in the previous month. Food prices were driven mainly by pulses prices. Pulses were 52.9 per cent costlier in the wholesale markets from a year ago, compared with 38.5 per cent rise in September. Pulses prices have been climbing up since last six months, reached 36.5 per cent in August 2015 compared to 35.8 per cent in July 2015. Wholesale infla-tion in the case of onions moderated to 85.6 per cent in October 2015 from 113.7 per cent in September 2015. Further, primary non-food inflation witnessed inflation

to the tune of 5.1 per cent in October 2015 as compared to 2.6 per cent in the previous month.

Deflation in fuel sector stood at 16.3 per cent in October 2015 as compared to 17.7 per cent in the month before. Both petrol and diesel too showed deflation during the month. Benign crude oil prices have helped to keep fuel prices in check in the last couple of months.

Manufacturing sector too posted deflation to the tune of -1.7 per cent in October 2015, remaining unchanged from the previous month. Non-food manufacturing or core inflation, which is widely regarded as the proxy for demand-side pressures in the economy remained sub-dued at -2.1 per cent during the month as compared to -1.9 per cent during the previous month.

ECONOMY MATTERS 18

DOMESTIC TRENDS

Exports growth disappointed for the eleventh consecu-tive month, contracting by 17.5 per cent to US$21.3 bil-lion in October 2015 as against contraction to the tune of 24.3 per cent in September 2015. Besides a global slow-down, the severe fall is attributed to a decline in global commodity prices. Exports had last recorded growth in November 2014, rising 7.27 per cent year-on-year. Cu-mulatively, April-October 2015 saw exports dropping by 17.6 per cent. Among high-value export items, refined petroleum products plummeted over 57 per cent in Oc-tober year-on-year. Among the major items of exports, only drugs and pharma and readymade garments grew by 21.5 per cent and 3.2 per cent respectively, while ship-ments of gems and jewellery, chemicals and engineer-ing goods contracted by 12.8 per cent, 8.2 per cent and 11.6 per cent respectively. India aims to take exports of goods and services to

The trade deficit for October 2015 stood lower at US$9.8 billion, lower than the deficit of US$10.5 billion in previous month. For August this year, the deficit stood at US$12.48 billion. Though improving domestic

US$900 billion by 2020 and raise the country’s share in world exports to 3.5 per cent from 2 per cent now. Ex-ports in the past four fiscal years have been hovering at around US$300 billion.

Imports too contracted by 21.2 per cent to US$31.1 billion in October 2015, compared to prior month’s contraction of 25.4 per cent. Oil imports stood at US$6.8 billion in October this year, 45.3 per cent lower than US$12.5 bil-lion a year ago. For the April-October period, oil imports stood at US$54.9 billion, 42.1 per cent lower than the oil imports of US$94.8 billion in the year-ago period. Non-oil imports in October 2015 were estimated at US$24.2 billion, 9.9 per cent lower than US$26.9 billion in Octo-ber 2014. This is attributed to the slow growth in the domestic industrial sector. For April-October, non-oil imports stood at U$177.0 billion, 0.89 per cent lower as compared with US$178.6 billion in the year-ago period.

competitiveness through structural reforms is crucial to improve exports performance, we believe that can only materialize in the medium-term. In the near-term, a weaker Rupee can act as a catalyst to revive competi-tiveness.

OutlookThe WPI index has declined for the tenth consecutive month in October 2015 indicating slackness in economic activity across sectors. Given that CPI inflation has remained more-or-less range bound in RBI’s target range, it reaf-firms the moderation of inflation print which in turn would have a beneficial impact on inflationary expectations. CII hopes this (easing inflation) would provide the requisite space to RBI to continue with its rate easing cycle in its forthcoming monetary policy announcement to provide a fillip to growth.

Weak EXIM Performance Continues

19

SECTOR IN FOCUS

Employment Potential of the Road Transport Sector

SEP-OCT 2015

The transport sector in India is diverse consist-ing of the land transport, water transport and air transport. The employment potential of the

transport sector is however mainly concentrated in the

land transport and in particular the roadways. The em-ployment scenario of the transport sector may be ascer-tained from the data emerging from Table-1.

Ms. A. SrijaDirector, Labour & Employment, NITI Aayog

ECONOMY MATTERS 20

SECTOR IN FOCUS

In the National Industries Classification, 2008 transport sector is clubbed along with the storage sector. Hence in Table-1 Section –I shows the employment at the two-digit NIC classification of the transport & storage sec-tor. In Section-II the sectors where employment in the transport sector is taking place is shown at four digit NIC code to get a clear idea of the employment generat-ing sectors. The overall workforce participation rate in the transport and storage sector was 506 per 10000 in 2011-12 or 5.06 percent of the total workforce. Of this it is the land transport which is the major employment generator at 3.69 percent. The proportion of women in the transport and storage sector is less than one percent of the total workforce. Further among the dif-

A look at the contribution of gross value added by the transport sector shows that maximum value added from the sector is generated from road transport, whose share however is seen declining from 65.7 per cent in 2011-12 to 64.4 per cent in 2013-14. The share of the transport sector to the gross value added shows an increase from 4.8 per cent in 2011-12 to 5.0 per cent in 2013-14 of which the major contributor is road trans-port. Of the share of road transport to value added nearly 47.9 per cent is from the rural areas1. Thus among all modes of transport, road transport has a major role both in terms of job creation and contribution to gross value added

Roads & high ways and railways are the two transport

ferent modes of transport it is the land transport that contributes to employment while the share of the other two modes of transport i.e. water and air is almost insig-nificant. (Table-1)

In Section-II of Table-1 at the four digit NIC classification it is noticed that the significant employment generators are the road transport as compared to the rail trans-port. Among road transport the two major generators of employment is the private modes of transport such as taxis, autos etc (NIC Code 4922) and freight trans-port by road (NIC Code 4923) where the workforce par-ticipation rate was 1.62 percent and 1.35 percent respec-tively in 2011-12.

sectors highlighted under the Make in India initiative. Indian Railways is the largest carrier of passenger traffic and the fourth largest rail freight carrier in the world. But within the country it is the road transport that over-takes railways in the movement of freight which is an indicator of the network of road transport in movement of freight across the length and breadth of the country. Despite this the road transport is highly disintegrated and heterogeneous. Apart from the organized public transport system such as buses and metros or trams there are many different types of private road trans-port such as buses, vans, taxis, auto-rickshaws, tempos, lorries/trucks, cycle rickshaws, bullock carts, pull carts, battery operated vehicles etc which account for bulk

1 CSO, MOSPI

21

SECTOR IN FOCUS

SEP-OCT 2015

of the freight and passenger movement. These set of road transport is largely in the unorganized sector. The owners are single owners or entrepreneurs and mostly family based.

Under the Make in India programme on roads & high ways the focus is on construction of national highways and rural roads under the Prime Minister’s Gram Sadak Yojana and Construction of Rural Road Project. The em-ployment potential is therefore mainly for the construc-tion workers engaged in the building of the roads and highways.

But we also need to look at the human manpower be-hind the wheels on the road. Majority of the freight movement today is by road and carried by private driv-ers who drive trucks/lorries or vans/tempos. These drivers are largely unorganized; do not have any fixed working hours, benefit of minimum wages, defined rest period or social security coverage etc. Though the Mo-tor Vehicles Act, 1988 defines the hours of work for driv-ers the unorganized sector drivers remain outside its purview. On the other hand these drivers are penalized under the Motor Vehicles Act, 1988 in the name of vio-lating the various provisions of the Act. Of late the Delhi Government is also planning to impose pollution tax on the truck drivers to contain the high level of air pollu-tion in the capital. They pay the penalties or bribes to evade penalty as to run the vehicles on the road is their livelihood. But it only eats into their margins and right to decent living. Being from the unorganized sector majority are low educated and learn the skill of driving while on the job. The freight that is being transported is a public good but the truck and other freight carriers are being penalized as if they are carrying private goods in their personal interest. Among the causes of road ac-cident identified the fault of the driver stands at 77.5 percent while the other causes such as defect of the ve-hicle accounted for 1.6 percent, defect in road condition 1.5 percent2. A greater proportion of these accidents happen in roads other than national or state highways which indicate that there could be other externalities in the cause of accidents.

We need a change in strategy. Why not tax the auto-mobile manufacturers for not producing pollution com-

pliant vehicles? Why not penalize the wholesalers or contractors or manufacturing units for not using the services of a skilled and certified truck or lorry driver or for overloading? Why not fine the PWD for not keeping the roads in good condition?

Road transport is one of the important employment generating sectors especially in the rural areas and con-certed efforts needs to be taken to promote employ-ment in this sector. A policy stand needs to be taken to look at the users of the road i.e the drivers and proper rules for their working, defined wages, social security etc need to be introduced so that more and more youth are attracted to the sector. And to top it all skill devel-opment of the drivers is essential to teach them the best practices of safe driving, healthy and pollution free maintenance of vehicles etc.

The currently prevailing Motor Vehicles Act, 1988 only talks of issuing license and registration of motor ve-hicles, penalties etc. A new legislation viz; the Road Transport and Safety Bill 2015 is being debated which is a much more comprehensive legislation which em-phasize on bringing in road safety practices through regulation, which involves extending its authority even to the design of motor vehicles, construction of roads, fuel quality and emission norms etc. This Bill lays down the competency standards that have to be cleared for issue of a driving license which is considered as a wel-come move for upgrading the status of the driving profession. We may have qualified and skilled drivers driving passenger and transport vehicles which in turn can reduce the incidence of over speeding, over-loading and better adherence to traffic rules. Respectability to the profession would encourage more youth to choose driving as a profession which in turn would reduce the shortage of skilled drivers in the sector. The Road Trans-port and Safety Bill 2015 is inclusive of the provisions of the Motor Vehicles Act, 1988 and is set to replace the MV Act after being cleared by the Parliament.

To conclude, road transport is the nerve of the coun-try. Apart from building highways and roads we also need to focus on the betterment of the drivers on these roads who are rendering a public service through their livelihood.

2 Ministry of Road Transport & Highways, 2011. (The views expressed are personal)

ECONOMY MATTERS 22

FOCUS OF THE MONTH

State of Competitiveness in India

As per World Bank by, 2020, India will be home to working population of 906 million in need of jobs to sustain India’s growth, which in turn

demands sustained growth of the manufacturing and service sectors in India. The challenge ahead, therefore, is to catalyze increased private investment in India. This translates into need for an investor-friendly environ-ment. According to World Bank’s Enterprise Survey, businesses in India rank corruption as number one con-straint to growth, ahead of factors like electricity, ac-cess to finance and access to land. India ranks 130 out of 189 economies in World Bank’s Doing Business 2016 report. The World Economic Forum’s Global Competi-tiveness Report ranks India as 55 out of 144 economies. The growth of business in India requires concerted action on several fronts – infrastructure, capital mar-kets, trade facilitation and skills - but the stark reality

is that India remains a difficult place to do business. A disproportionately high regulatory burden is borne by businesses. In December, 2014, at the “Make In India” workshop, state governments agreed to a 98-point ac-tion plan for business reforms to all States and UTs aim-ing to lay out the first of a series of recommendations targeted at increasing transparency and improving the efficiency and effectiveness of various government reg-ulatory functions and services for business. Many states have already embarked on ambitious reform programs or expanded their ongoing reform efforts since the an-nouncement. However, on average, only 32 per cent of the proposed reforms have been implemented across the country. It is important to ensure that reforms are actually being felt by the beneficiaries, the private sec-tor. It is critical that these reforms be properly commu-nicated, monitored and evaluated, to ensure that the impact of the reforms are being felt on the ground.

In this month’s Focus of the Month, we analyze the three recently released reports, which evaluate the state of competitiveness and doing business in India .

23

FOCUS OF THE MONTH

SEP-OCT 2015

Assessment of State Implementation of Business Reforms : DIPP & World Bank

In December 2014, states agreed to a 98-point action plan to suggest potential reforms to improve the regu-latory framework for business nationwide. This assess-ment by the Department of Industrial Policy and Promo-tion aims to take stock of the progress made by each state and Union Territory. The article evaluates imple-mentation status of reforms across the following eight areas: Setting up a business; Allotment of land and ob-

States have been divided into 4 groups. Those with an overall implementation status of 75 per cent and above have been termed as ‘Leaders’ and no states had at-tained this status. States with an overall implementa-

taining construction permit; Complying with environ-ment procedures; Complying with labour regulations; Obtaining infrastructure related utilities; Registering and complying with tax procedures; Carrying out in-spections; Enforcing contracts.

The implementation status of each state has been con-verted to a percentage, and, ranked as below.

tion status between 50 per cent and 75 per cent are ‘Aspiring Leaders’. 7 states were found to be within this group - Andhra Pradesh, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Odisha and Rajasthan.

# In Collboration with CII, FICCI & KPMG

ECONOMY MATTERS 24

FOCUS OF THE MONTH

States with an overall implementation status between 25 per cent and 50 per cent have been classified under ‘Acceleration Required’. 9 states were found to be with-

States with an overall implementation status between 0 per cent and 25 per cent. 16 states were found to be within the group – ‘Jump Start Needed’ - Andaman and Nicobar, Arunachal Pradesh, Assam, Bihar, Chandigarh,

in this group - Delhi, Haryana, Karnataka, Maharashtra, Punjab, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal

Goa, Himachal Pradesh, Jammu and Kashmir, Kerala, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Tripura and Uttarakhand.

25

FOCUS OF THE MONTH

SEP-OCT 2015

States have made good progress in terms of tax re-forms. 29 states allow VAT to be paid online, and 28 states allow CST to be paid online. 30 states allow e-fil-ing of VAT, 27 states allow e-filing of CST. 21 states have established helplines for users. 25 states have defined timelines for VAT registration, and 21 have defined time-lines for CST registration.

Online filing and payment of VAT and CST seem to be popular reforms implemented in a vast majority of states. These are joined by clear timelines for building plan approval and construction permits, VAT registra-

29 states are yet to begin implementing electronic courts. On average, 26 states are yet to introduce re-forms along a wide range of labour inspections under various acts, or on inspections related to building per-

Construction Permits and land allotment procedures take up the fourth and fifth spots respectively. 28 states have defined clear timelines for granting construction permits, and 19 states issue a single completion-cum-occupancy certificate. 16 states have identified clear timelines for change in land use approvals.

tion and electricity connection. Majority of states have established dedicated single windows, backed by legis-lation or state notifications to establish and empower them.

mits. 25 states on average lack online availability of information on land banks, and use of GIS systems to track industrial land parcels.

ECONOMY MATTERS 26

FOCUS OF THE MONTH

No state has been able to demonstrate a fully compre-hensive list of all licenses, NOCs and registrations re-quired by a business to set up and operate. Similarly, no state has focused on integrating data at sub-registrar, municipality and land records offices comprehensively to provide a sense of conclusive title on each property.

Mutation is also not integrated with registration in most states. On the inspections front, no state allows for all compliance inspections to be solely based on com-plaints with approval from the Head of Department. There is scope for improvement in how inspections are administered in all states.

27

FOCUS OF THE MONTH

SEP-OCT 2015

20 states have comprehensive details of land banks available. Andhra Pradesh, Chhattisgarh, Goa, Haryana, Kerala, Madhya Pradesh, Maharashtra, Odisha, Ra-jasthan and Tamil Nadu define the criteria used in land allocation and make this information available online, while providing clarity on the timelines involved in de-ciding on applications. 28 states and UTs have defined clear timelines for construction permitting. AutoCAD based online verification of building plans is currently practiced in 8 states. Single or joint inspections are the norm in Arunachal Pradesh, Goa, Jharkhand, Mad-hya Pradesh, Maharashtra and West Bengal. Andhra

Pradesh and Madhya Pradesh are the only states where the building plan approval process features all param-eters. Gujarat and Maharashtra lack downloadable and verifiable certificates.

Integration of the three databases - sub-registrar, land records office, local municipality office is still not preva-lent. Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Har-yana, Madhya Pradesh, Orissa, Tamil Nadu, Telangana and West Bengal have digitized former two offices. In Maharashtra and Rajasthan, all three offices are digi-tized. Currently, no state has fully integrated mutation with property registration processes.

Only 8 states have thus far implemented centralized help lines that meet these criteria – of which 4 are from the 7 member Aspiring Leaders group. A single window system exists in all 7 of the Aspiring Leader states, and it is backed by a legislation or notification in all of them. 24 states have single window systems operational, all of which are notified by law. Punjab is the only state in which the single window system allows application for all of the licenses studied in this assessment. While many, including 6 of the 7 Aspiring Leaders, have imple-mented common application forms thus far, only a total

of 6 states have converted their single window system into truly effective online portals - Andhra Pradesh, Madhya Pradesh, Maharashtra, Punjab, Telangana and Uttar Pradesh.

Only 3 states – Odisha, Rajasthan and West Bengal – is-sue a single Tax ID to cover all state taxes. Gujarat, Mad-hya Pradesh and West Bengal mandate the issuance of both registrations in a single day. Chhattisgarh, Delhi and Uttar Pradesh also mandate VAT registrations in a single day, but Professional Tax is not applicable in these states.

ECONOMY MATTERS 28

FOCUS OF THE MONTH

12 states and UTs differentiate their inspection requirements by category of industry. All Aspiring Leaders except Odisha exempt green industries from Pollution Control Board clearance prior to business startup. Punjab, Maharashtra, West Bengal, Uttar Pradesh and Telangana also do the same. Currently, only Gujarat, Rajasthan and Odisha offer all three facilities simultaneously: they allow for auto renewal for both environmental Consents on the basis of self- or third-party certification, and their Consents to Operate are valid for 5 or more years. Andhra Pradesh allows for auto-renewal, but does not offer extended validity. West Bengal and Madhya Pradesh allow for auto-renewal of CTEs only.

16 states, including all 7 Aspiring Leaders, allow for self-certification under the Minimum Wages Act, 1948, the Shops and Establishment Act and the Payment of Wages Act, 1936. 14 and 13 states respectively allow self- certification under Factories Act, 1948 and Contract Labour (Regulation and Abolition) Act, 1970. However, only 7 state and UTs allow for self-certification under Indian Boiler Act.

When it comes to the 7 Labour Department registrations, on average 11 of the assessed states offer

14 states have published detailed information on the process, documentation and checklists for applications for Hazardous Waste authorizations and CTEs & CTOs under the Water Act and Air Act. Only 10 states have published detailed information on the process, documentation and checklists for applications for Municipal Solid Waste authorizations. Gujarat Pollution Control Board adopted a web based application called eXtended Green Node (XGN) to provide an IT solution for effective implementation of various pollution control board procedures. XGN provides hassle free, 24 X 7 anywhere e-access to businesses to apply online, track application approvals, file returns and statements and getting online permissions under various Acts and rules.

clear procedures with checklists of detailed documents across all 7 Labour Department registrations studied above. 17 states on average offer clear timelines for all processes, while an average of 7 have fully online systems for application and payment. However, only an average of 2 states offer downloadable and verifiable certificates. Jharkhand’s Labour Department is the only one in the country to score 100 per cent on all parameters across all 7 processes. Andhra Pradesh provides clear information, timelines and online solutions, but lack downloadable and verifiable certificates.

29

FOCUS OF THE MONTH

SEP-OCT 2015

Nearly 81 per cent of the states and UTs have clearly defined timelines for connection of the electricity, compared to 44 per cent and 34 per cent for water and sewer connections. Andhra Pradesh, Goa, Haryana, Kerala, Maharashtra, Punjab, Telangana and West Bengal are the only states that have defined timelines for all three utilities.

Only 11 states and UTs feature online applications for obtaining electricity connections, while 11 states offer

14 states and UTs have mandated e-registration for VAT, but only 11 for CST. All states except Arunachal Pradesh and A&N Islands allow online filing of VAT returns. Karnataka and Madhya Pradesh are the only states that allow online filing of returns for all six state taxes - Value Added Tax (VAT), Central Sales Tax (CST), Professional Tax, Entry Tax Entertainment Tax, and Luxury Tax. Andhra Pradesh, Jharkhand, Chhattisgarh, Goa, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Uttar Pradesh and West Bengal allow online payment for all state taxes that are applicable in the state.

all-inclusive fixed cost estimates for connections. Only Madhya Pradesh scored positively on all parameters assessed. There has been very little progress on reducing the number of documents to two – only Assam, Chandigarh, Madhya Pradesh, Tamil Nadu and Uttar Pradesh require 2 documents. Assam, Delhi, Gujarat, Karnataka, Madhya Pradesh and Maharashtra are the only states that mandate that connections will be given within fifteen days.

21 out of 32 states and UTs – including all 7 Aspiring Leaders and 6 of the 9 Acceleration Required states – offer a helpline for returns filing. 18 states also provide assistance at service centers. 18 states have provisions for risk-based compliance inspections. Only Karnataka’s state tax registration systems score positively on all parameters across all six state registration processes assessed. Himachal Pradesh and Gujarat score positively on all parameters of four registrations processes. On average, 10 states offer clear information on the tax registration procedures, 15 feature defined timelines, and 9 have fully online registration systems, while 7 allow for downloadable certificates.

ECONOMY MATTERS 30

FOCUS OF THE MONTH

No state has yet implemented the provision for all compliance inspections across the state. Gujarat, Haryana, Jharkhand, Madhya Pradesh, Rajasthan, Tamil Nadu and West Bengal have introduced single joint inspection. On average, only 5 states publish well-defined procedures, 11 states mandate the submission of inspection reports within 72 hours, 5 states allocate inspectors online, and only 3 use computerized risk

13 states have thus far introduced e-cause lists for commercial disputes at the District Court level; however, progress on other parameters has been weak. E-filing is not yet in practice in any state in India. Madhya Pradesh has enabled e-summons, Maharashtra allows online payment of court fees, and Sikkim has introduced digitally signed court orders.

20 states have begun to recruit judges to fill the district

assessment.

Chhattisgarh, Jharkhand and Rajasthan feature inspections that meet all criteria of assessment under The Factories Act, 1948. Gujarat also has a robust process, but lacks computerized risk assessment. Maharashtra’s process would benefit from improving the available information on the procedure.

courts. Only 8 – Andaman and Nicobar, Chandigarh, Chhattisgarh, Madhya Pradesh, Maharashtra, Sikkim, Tamil Nadu and Telangana – have filled 80 per cent of the vacancies in the court. Unfortunately, only 2 states – Delhi and Maharashtra – have introduced specialized commercial courts, and only Gujarat has made available model contract templates and guidelines on the department website.

31

FOCUS OF THE MONTH

SEP-OCT 2015

ECONOMY MATTERS 32

FOCUS OF THE MONTH

It is encouraging to note that many states have responded eagerly to DIPP’s 98-point action plan with ambitious reform initiatives. Further, the best way to ensure reform is being felt is to engage the private sector throughout the reform process.

Many reforms that have been implemented are very recent. To ensure that the private sector is aware, it is recommended that states undertake communications campaigns to inform businesses and increase usage and uptake of the reformed services. This will also allow businesses to test the effectiveness of the measures and incentivize them to report on problems.

Implementation gaps may exist in various forms. Feedback loops may therefore be critical in reducing information asymmetry, and helping governments bridge the implementation gaps.

States should capitalize on its satisfied users to engage into a series of structured public-private dialogues to understand the constraints facing business, and to explore ways to alleviate these constraints. Effective dialogue can help identify more second-generation reforms, and more importantly it can communicate to business that the government is ready to facilitate their investments.

33

FOCUS OF THE MONTH

SEP-OCT 2015

Doing Business 2016: World Bank Report

According to the Doing Business 2016 study, published by the World Bank Group, Singapore continues to be the economy with the most

business-friendly regulation. And while there was some reordering of economies within the top 20 in the ease of doing business ranking, the list remains very similar to last year’s: 18 economies stayed on the list, while 2 entered this year (Lithuania and the former Yugoslav Republic of Macedonia) and 2 were nudged out (Geor-gia and Switzerland).

Economies in the top 20 continued to improve their business regulatory environment in the past year. For example, Hong Kong SAR, China, made four regulatory reforms in the areas measured by Doing Business. One was implemented at the Companies Registry, which also serves as the main collateral registry for movable property. The registry launched a full-scale electronic fil-ing service on March 3, 2015, and now security interests can be registered, amended, renewed and canceled online. New Zealand provides another example: Vec-tor, the electricity distribution utility, cut six days from the time needed to provide external connection works to customers. The 20 economies at the top of the ease of doing business ranking perform well not only on the Doing Business indicators but also in international data sets capturing other dimensions of competitiveness. The economies performing best in the Doing Business rankings therefore are not those with no regulation but those whose governments have managed to cre-ate rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector.

Moreover, even outside the top 20 economies there is a strong association between performance in the ease of doing business ranking and performance on measures of competitiveness and of quality of government and governance. Economies that rank well on the ease of doing business also score well on such measures as the Global Competitiveness Index and Transparency Inter-national’s Corruption Perceptions Index. The distance to frontier scores underlying the ease of doing business rankings reveal some regional patterns. OECD high-in-

come economies have the highest distance to frontier scores on average, indicating that this regional group has the most business-friendly regulation overall. But good practices in business regulation can be found in almost all regions. In six of the seven regions the high-est distance to frontier score is above 70. The difference between the best and worst scores in a region can be substantial, however, especially in Sub-Saharan Africa, the Middle East and North Africa and East Asia and the Pacific.

Doing Business 2016, by the World Bank Group, sheds light on how easy or difficult it is for a local entrepre-neur to open and run a small to medium-size business when complying with relevant regulations. It measures and tracks changes in regulations affecting 10 areas in the life cycle of a business: starting a business, dealing with construction permits, getting electricity, register-ing property, getting credit, protecting minority inves-tors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

The ease of doing business ranking compares econo-mies with one another; the distance to frontier score benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best per-formance on each Doing Business indicator. When com-pared across years, the distance to frontier score shows how much the regulatory environment for local entre-preneurs in an economy has changed over time in abso-lute terms, while the ease of doing business ranking can show only how much the regulatory environment has changed relative to that in other economies.

India is the South Asian economy recording the biggest increase in the distance to frontier (DTF) score since 2004. One of the areas of greatest improvement has been starting a business. In 2004 India cut time from the process for obtaining a permanent account number (an identification number for firms), and in 2006 it speeded up the process for obtaining a tax registration number. In 2010 India established an online system for value added tax registration and replaced the physical stamp previously required with an online version. And in the

ECONOMY MATTERS 34

FOCUS OF THE MONTH

India jumped up four places while improving DTF by 2.01 per cent. While it used to take monumental 127 days in 2004 to set up a business, it now takes a swooping mere 29 days in 2015. India ranks closely, only two places be-hind, the regional average for South Asia. While it still lags much farther behind the double digit rank of China, it is certainly taking baby steps in the right direction. In

past year India eliminated the paid-in minimum capital requirement and streamlined the process for starting a business. More reforms are ongoing—in starting a busi-

India achieved a single digit rank in one of the 10 are-as - protecting minority investors, standing 8th. It has been ranked 42 and 70 respectively in getting credits and getting electricity. However, it has ranked rather poorly in enforcing contracts, where it stood 178th, and

2014 the government of India launched an ambitious program of regulatory reform aimed at making it easier to do business. Spanning a range of areas measured by Doing Business, the program represents a great deal of effort to create a more business-friendly environment, particularly in Delhi and Mumbai.

ness and other areas measured by Doing Business—though the full effects have yet to be felt.

in dealing with construction permits, where it figures in the bottom seven countries. In the spheres of starting a business, registering property, getting credit, paying taxes, trading across borders, and resolving insolvency too it does not figure in the top 100 countries.

35

FOCUS OF THE MONTH

SEP-OCT 2015

India ranks 155 in starting a business as compared to 164th position a year ago. China currently ranks 136. The regional average for South Asia is ranked at 96. It takes 12.9 procedures and 29 days to set up a business as com-pared to 13.9 procedures and 34 days a year ago. China currently requires 11 procedures and 31.4 days. The cost as per cent of income per capita stands at 13.5 per cent in India currently, down by 1.8 percentage points from a year ago. For China, it’s a meagre 0.7 per cent. In deal-ing with construction permits, India has been ranked at 183rd position this year, one up from last year. China stands at 176th. The regional average for South Asia is

ranked at 103. While China requires less procedures, it takes considerably more time, yet manages to gain an advantage since the cost as a percentage of ware-house value is a fraction of the figures for India. India has a better building quality control index than China. In getting electricity, India has improved significantly this year, jumping from 99th to 70th position this year and beating China which is currently at 92nd spot. The regional average for South Asia is ranked at 122. In get-ting credit, India worsened its performance ranking at the 42nd position as compared to 36th last year. The re-gional average for South Asia is ranked at 105.

ECONOMY MATTERS 36

SECTOR IN FOCUS

One important focus is to make starting a business eas-ier. In May 2015 the government adopted amendments to the Companies Act that eliminated the minimum cap-ital requirement. Now Indian entrepreneurs no longer need to deposit 100,000 Indian rupees ($1,629)—equiv-alent to 111 per cent of income per capita—in order to start a local limited liability company. The amendments also ended the requirement to obtain a certificate to commence business operations, saving business found-ers an unnecessary step and five days. Several other ini-tiatives to simplify the start-up process were still ongo-ing on June 1, 2015, the cutoff date for this year’s data collection. These include developing a single application

form for new firms and introducing online registration for tax identification numbers.

In 2011 India had eased business start-up by establish-ing an online VAT registration system and replacing the physical stamp previously required with an online ver-sion. Further, India made starting a business easier by considerably reducing the registration fees, but also made it more difficult by introducing a requirement to file a declaration before the commencement of busi-ness operations. These changes apply to both Delhi and Mumbai. In 2013, India reduced the time required to ob-tain a building permit by establishing strict time limits for preconstruction approvals.

37

FOCUS OF THE MONTH

SEP-OCT 2015

Another focus is to make the process for getting a new electricity connection simpler and faster. Toward that end the utility in Delhi eliminated an internal wiring inspection by the Electrical Inspectorate—and now in-stead of two inspections for the same purpose, there is only one. The utility also combined the external con-nection works and the final switching on of electricity in one procedure.

The utility in Mumbai reduced the procedures and time for connecting to electricity by improving internal work processes and coordination. It combined several steps into one procedure—the inspection and installation of the meter, the external connection works and the final connection. Now companies can get connected to the grid, and get on with their business, 14 days sooner than before.

Improvements have also been initiated in other areas measured by Doing Business. To make dealing with con-struction permits easier, for example, a single-window system for processing building permit applications is being started in Mumbai—with the promise of greatly reducing the associated bureaucratic burden once fully implemented. And online systems for filing and paying taxes are being further improved to simplify tax compli-ance.

India strengthened minority investor protections by requiring greater disclosure of conflicts of interest by

board members, increasing the remedies available in case of prejudicial related-party transactions and in-troducing additional safeguards for shareholders of privately held companies. This reform applies to both Delhi and Mumbai.

In 2011, India reduced the administrative burden of paying taxes by abolishing the fringe benefit tax and improving electronic payment. In 2012, India eased the administrative burden of paying taxes for firms by in-troducing mandatory electronic filing and payment for value added tax.

While efforts at improving India’s ranking in the Doing Business Report do cover some of the regulatory issues pertaining to state governments, much more is required to be done at state governments’ level to achieve the vision of making India an easy place to do business. A majority of the regulatory burden imposed on business is due to the plethora of laws, rules, regulations and procedures enforced by the States. This gives rise to a wide number of registrations, licenses and NOCs that businesses must obtain and file compliance returns on.

Fostering an environment more supportive of private sector activity will take time. But if the efforts are sus-tained over the next several years, they could lead to substantial benefits for Indian entrepreneurs—along with potential gains in economic growth and job crea-tion.

ECONOMY MATTERS 38

FOCUS OF THE MONTH

The Global Competitiveness Report 2015-2016: WEF

A failure to embrace long-term structural reforms that boost productivity and free up entrepre-neurial talent is harming the global economy’s

ability to improve living standards, solve persistently high unemployment and generate adequate resilience for future economic downturns, according to The Glob-al Competitiveness Report 2015-2016, published by the World Economic Forum.

Assessing the factors driving productivity and prosper-ity in 140 countries, a correlation has been found be-tween highly competitive countries and those that have either withstood the global economic crisis or made a swift recovery from it. The failure, particularly by emerg-ing markets, to improve competitiveness since the re-cession suggests future shocks to the global economy could have deep and protracted consequences. The re-port’s Global Competitiveness Index (GCI) also finds a close link between competitiveness and an economy’s ability to nurture, attract, leverage and support talent. The top-ranking countries all fare well in this regard. But in many countries, too few people have access to high-quality education and training, and labour markets are not flexible enough.

First place in the GCI rankings, for the seventh consecu-tive year, goes to Switzerland. Its strong performance in all 12 pillars of the index explains its remarkable re-silience throughout the crisis and subsequent shocks. Singapore remains in 2nd place and the United States 3rd. Germany improves by one place to 4th and the Nether-lands returns to the 5th place it held three years ago. Japan (6th) and Hong Kong SAR (7th) follow, both stable. Finland falls to 8th place – its lowest position ever – fol-lowed by Sweden (9th). The United Kingdom rounds up the top 10 of the most competitive economies in the world.

In Europe, Spain, Italy, Portugal and France have made significant strides in bolstering competitiveness. Thanks to reform packages aimed at improving the functioning of markets, Spain (33rd) and Italy (43rd) climb two and six places respectively. Similar improvements in the product and labour market in France (22nd) and Portugal

(38th) are outweighed by a weakening performance in other areas. Greece stays in 81st place this year, based on data collected prior to the bailout in June. Access to finance remains a common threat to all economies and is the region’s greatest impediment to unlocking invest-ment.

Among the larger emerging markets, the trend is for the most part one of decline or stagnation. However, there are bright spots: India ends five years of decline with a spectacular 16-place jump to 55th. South Africa re-enters the top 50, progressing seven places to 49th. Elsewhere, macroeconomic instability and loss of trust in public institutions drag down Turkey (51st), as well as Brazil (75th), which posts one of the largest falls. China, holding steady at 28, remains by far the most competi-tive of this group of economies. However, its lack of progress moving up the ranking shows the challenges it faces in transitioning its economy.

Among emerging and developing Asian economies, the competitiveness trends are mostly positive, despite the many challenges and profound intra-regional dispari-ties. While China and most of the South-East Asian coun-tries performing well, the South Asian countries and Mongolia (104th) continue to lag behind. The five largest members of the Association of Southeast Asian Nations (ASEAN) – Malaysia (18th, up two), Thailand (32nd, down one), Indonesia (37th, down three), the Philippines (47th, up five) and Vietnam (56th, up 12) – all rank in the top half of the overall GCI rankings.

The end of the commodity super cycle has strongly af-fected Latin America and the Caribbean, and is already having repercussions on growth in the region. Greater resilience against future economic shocks will require further reform and investment in infrastructure, skills and innovation. Chile (35th) continues to lead the region-al rankings and is closely followed by Panama (50th) and Costa Rica (52nd). Two large economies in the region, Colombia and Mexico, improve to 61st and 57th, respec-tively.

It’s a mixed picture in the Middle East and North Africa.

39

FOCUS OF THE MONTH

SEP-OCT 2015

Qatar (14th) leads the region, ahead of the United Arab Emirates (17th), although it remains more at risk than its neighbour to continued low energy prices, as its economy is less diversified. These strong performances contrast starkly with countries in North Africa, where the highest placed country is Morocco (72nd), and the Levant, which is led by Jordan (64th). With geopolitical conflict and terrorism threatening to take an even big-ger toll, countries in the region must focus on reform-ing the business environment and strengthening the private sector.

Sub-Saharan Africa continues to grow close to 5 per cent, but competitiveness and productivity remain low. This is something countries in the region will have

to work on, especially as they face volatile commodity prices, closer scrutiny from international investors and population growth. Mauritius remains the region’s most competitive economy (46th), closely followed by South Africa (49th) and Rwanda (58th). Côte d’Ivoire (91st) and Ethiopia (109th) excel as this year’s largest improvers in the region overall.

India

India ranked 55th in the Global Competitiveness Index, an improvement by 16 positions since last year nd the best position in last four years. It scored 4.3 on a scale of 1-7, 7 being the best, a marginal improvement over last year.

ECONOMY MATTERS 40

FOCUS OF THE MONTH

An increase in score in institutions sphere led to an improved rank. Public institutions contributed posi-tively to the improvement led by intellectual property protection (50TH rank) even as property rights area contributed negatively. Enhancement was seen in the ethics and corruption area (38th rank) as the situation of diversion of public funds (40th rank), public trust in politicians (31st rank) and irregular payments and bribes showed an improvement. Score in undue influence area improved as the favoritism in decisions of government officials reduced (32nd rank). Public sector performance

(41st rank) improved as wasteful government spending dropped, burden of government regulation decreased (27th rank), efficiency of legal framework in settling dis-putes increased and there was more transparency in policy making. Costs related to terrorism and crime saw a surge. Private institutions also contributed positively (48th rank). Scores in ethics and accountability saw an improvement led by strength of auditing and reporting standards, efficacy of corporate boards and strength of investor protection. In fact, India stood 6th in investor protection.

41

FOCUS OF THE MONTH

SEP-OCT 2015

Transport infrastructure saw a moderate fluctuation (32nd rank). Quality of roads and port improved while that of railroad and air transport deteriorated. India scored poorly in electricity and telephone infrastruc-ture (115th rank). The quality of electricity supply stands

India stood at the 23rd position when it comes to gross national savings as a percentage of GDP, which stands at 30 per cent. The government debt as a percentage

at 3.7 (98th rank) on a scale of 1-7, 7 being the best. There are 74.5 mobile-cellular telephone subscription per 100 population (121st rank) and 2.1 fixed-telephone lines per 100 population (116th rank).

of GDP stood at 65 per cent, (103rd rank) lowest over last four years. Inflation stood at 6 per cent (105th rank). Government budget balance as a percentage of GDP stood at a negative rate of 7.2 per cent (131st rank).

ECONOMY MATTERS 42

FOCUS OF THE MONTH

In higher education and training, India scored 3.4 on the 1-7 scale and stood 103rd in quantity of education and

India scored 4.2 in competition standing 108th. In ex-tent of market dominance, effectiveness of anti-mo-nopoly policy and effect of taxation on incentives to invest, it stood 41st, 41st and 38th respectively. It ranked poorly in domestic competition intensity of local com-petition, total tax rate, number of days and time to set up a business. In agriculture policy costs it stood t 53rd spot. It scored poorly in foreign competition standing

India scored 4.5 on a 1-7 scale and ranked 58th in flex-ibility. It ranked 86th in cooperation in labor-employer relations, 120th in flexibility of wage determination and

67th in quality of education. It ranked 56th in on-the-job training and 48th in extent of staff training.

at 112th rank. It ranked 82nd in non-tariff barriers, 124th in trade tariffs (12.7% duty), 96th in prevalence of foreign ownership, 92nd in business impact of FDI and 116th in imports as percentage of GDP (29.8 per cent). It scored somewhat better in custom procedures standing at 54th position. It ranked 52nd in quality of demand conditions, 97th in degree of customer orientation and 26th in buyer sophistication.

70th in redundancy costs. It ranked better in other areas like 25th in hiring and firing practices and 36th in effect of taxation on incentives to work. It ranked poorly in ef-

43

FOCUS OF THE MONTH

SEP-OCT 2015

ficient use of talent, standing at 119th position. It stood at 47th spot in pay and productivity, 86th in reliance on

India scored 4.0 on a 1-7 scale and ranked 41st in effi-ciency. It rnked 81st in availability of financial services, 71st in affordability of financial services, 45th in financing through local equity market, 29th in ease of access to

India scored poorly in all parameters in this pillar. It ranked 102nd in technological adoption, 108th in avail-ability of latest technologies, 102nd in firm level technol-

professional management, 40th in capacity to attract and retain talent and 132nd in female participation in la-bor force.

loans, 70th in trustworthiness and confidence, 100th in soundness of banks, 69th in regulation of securities ex-changes and 44th in legal rights index. It scored a hearty 13th in venture capital availability.

ogy absorption, 95th in FDI and technology transfer, 121st in ICT use and 107th in internet users (18 per cent of population).

ECONOMY MATTERS 44

FOCUS OF THE MONTH

This was one pillar where India scored well, but this is largely result of natural factors given the huge popu-lation base of India as against policy initiatives. India

India ranked decently in this pillar. It stood 54th in local supplier quantity, 66th in local supplier quality, 29th in state of cluster development, 47th in nature of competi-

scored 6.4 on a 1-7 scale and was ranked 3rd in domestic market size. It scored 6.5 in foreign market size and was ranked at 3rd spot. Exports as percentage of GDP stood at 23.3 per cent, ranking the country at 114th place.

tive advantage 29th in value chain breadth, 48th in con-trol of international distribution, 61st in production pro-cess sophistication, 82nd in extent of marketing and 56th in willingness to delegate authority.

45

FOCUS OF THE MONTH

SEP-OCT 2015

India scored decently in this pillar as well. It ranked 50th in capacity for innovation, 45th in quality of scientific research institutions, 31st in company spending on re-search and development, 50th in university–industry collaboration, 26th in government procurement of ad-vanced technology products, 49th in availability of scien-tists and engineers and 61st in PCT patent applications.

After five years of decline, India has jumped 16 ranks to 55th place. This dramatic reversal is largely attributable to the momentum initiated by the election of Narendra Modi, whose pro-business, pro-growth, and anti-cor-ruption stance has improved the business community’s sentiment toward the government. The quality of In-dia’s institutions is judged more favorably (60th, up 10), although business leaders still consider corruption to be the biggest obstacle to doing business in the country. India’s performance in the macroeconomic stability pil-

lar has improved, although the situation remains worri-some (91st, up 10). Thanks to lower commodity prices, inflation eased to 6 per cent in 2014, down from near double-digit levels the previous year. The government budget deficit has gradually dropped since its 2008 peak, although it still amounted to 7 per cent of GDP in 2014, one of the world’s highest (131st). Infrastructure has improved (81st, up six) but remains a major growth bottleneck—electricity in particular. The fact that the most notable improvements are in the basic drivers of competitiveness bodes well for the future, especially the development of the manufacturing sector. But oth-er areas also deserve attention, including technological readiness: India remains one of the least digitally con-nected countries in the world (120th, up one). Fewer than one in five Indians access the Internet on a regular basis, and fewer than two in five are estimated to own even a basic cell phone.

Valve Division, Chemtrols Industries Limited, Amar Hill, Saki Vihar Road, Powai, Mumbai - 400 072, INDIABoard : +91 (22) 67 15 12 00 | Fax : +91 (22) 67 15 14 05 | E-mail : chemtrols@chemtrols.com | Web: www.chemtrols.com

Chemtrols Other Proven Products :De-superheaters

Pressure Reducing and De-superheating Systems

Turbine Bypass Systems

Control Valves for process applications

REGD.OFFICE : 910, Tulsiani Chambers, 212, Nariman Point, Mumbai – 400 021, Tel. : 2283 0636, Fax : 00-91-22-2287 3573REGIONAL OFFICES : MUMBAI | DELHI | KOLKATA | CHENNAI | VADODARA | SECUNDERABAD | BENGALURU | NAGPUR | VIZAG | GUWAHATI | JEBEL ALI

Globe Control Valves from 1” to 12”

(DN 25 to DN 300)

End Connections flanged according to ANSI or

DIN or with butt-weld ends

Pressure Class up to 2500#

Single-Stage or Multi Stage

Leakage Class V

Outlet can be delivered with enlarged size for

steam applications

Piston and Diaphragm Actuators

Certification by IBR, Stampings as per PED, CE

Combining the best in technology and excellence in competency,

Chemtrols manufactures control valves for severe services,

featuring :

And incorporates exceptions to meet your

exact specifications.

Contact :

47

ECONOMY MONITOR

SEP-OCT 2015

ECONOMY MATTERS 48

ECONOMY MONITOR

49

ECONOMY MONITOR

SEP-OCT 2015