Services Exports Should Grow at Faster Pace to Offset Deficit in Merchandize Trade – Finance Minister

Mr. Arun Jaitley, Union Minister  for Finance, Corporate Affairs and Information and Broadcasting  has said that the services exports from the country should grow faster to  offset  the deficit in the merchandize  trade.

While inaugurating the  Services Conclave 2014 today in New Delhi, the Finance Minister said that within the services sector “ we should focus on low lying fruits like tourism, research & development  education etc., where it is easier and quicker  to achieve results,” he added.

(L-R) Shri Arun Jaitley, Minister of Finance, Corporate Affairs and Information & Broadcasting and Mr Ajay S. Shriram, President, Confederation of Indian Industry at the Inaugural Session of the Services Conclave 2014

The Conclave is the joint initiative of  the Union Ministry of Commerce & Industry and CII. Over 250 stakeholders from various segments of services sector are attending the two-day event.

Mr Jaitley said that the services sector contributing close to 60 per cent of the GDP  could  be the driving force not only for exports but for generation of gainful employment. In this regard, he said that the manufacturing sector has shrunk its contribution to GDP to 15 per cent.  “Our effort is to increase its share  to 25 per cent to provide sustainable employment to the people,” he added.

Referring to the WTO negotiations which are at a standstill, the Finance Minister underscored that the definition of globalization has changed over the years.  “It is now consumer driven and no amount of patriotism and jingoism can drive the consumers to buy products.   They go for quality and price competitiveness”, he added.  The positions taken by various developed countries against Business Process Outsourcing (BPO) in the case of IT and IT enabled services (ITeS) has fallen flat because the consumers wanted to have best products at affordable prices, he added.

“Make in India” campaign was evolved to make the Indian products more competitive in terms of quality and price, Mr Jaitley added. There are many issues that have to be addressed, such as labour reforms, facilitating capital flows,  strengthening of infrastructure  and trade facilitation measures.  He assured that the Government would address these issues in right earnest to enable different segments of industry to grow faster.

Mr Jaitley said that a few areas of services sector had to be identified and capabilities built around  them  to seize the emerging opportunities.  In this regard, he said that India could  emerge as a regional educational hub.  This not only would reverse the trend of Indian students going abroad for higher studies but also could attract students from developing countries to come to India. For this, the quality of education should be considerably enhanced and the objective should be to catch up with the best education institutions in the world.

The Finance Minister also referred to the huge potential India has in the health sector for attracting patients from other countries, who could undergo complex treatments at very affordable prices.  A competitive environment was important to upgrade the skills and expertise, he added.

Ms Nirmala Sitharaman, Minister of State for Commerce and Industry, said that the services sector in India had grown without much support from the Government. Some of the sectors like IT and ITeS, films, entertainment, professional service etc. had become world class.  The changes brought about in these segments were driven by the industry itself.  She wanted this trend to continue since there was a huge untapped potential in various segments of services sector, be it services for domestic consumption or exports.  The two day conclave, she hoped , could map the potential and identify strategies to tap them on a sustainable basis.

Mr Rajeev Kher, Union Commerce Secretary, said that India’s share in the world services exports was only 3 per cent as compared to EU’s share of 42 per cent and China’s 4 per cent.  “It is a huge challenge for us to increase our  share to the global services trade.  For this, all stakeholders should come together. Quality of services whether it is for domestic consumption or for exports should considerably go up.  The success of IT and ITeS should inspire us to aim high to reach higher orbit of growth in other sectors as well,” he said.

Mr Kher said that Department of Commerce would act as an anchor for permeating Rule based exports. Other ministries and organizations are also involved in the exercise. This would help achieve Indian exporters to penetrate into markets more aggressively.

Mr Ajay Shriram, President, CII, said that a reform agenda was imperative for enhancing the services exports for the country.  In this regard, skill development and laying of physical and digital infrastructure were important.  Services Trade Agreements both bilateral and multilateral also could help the services sector exports to grow faster.   He wanted earliest    signing of Totalization agreements with countries, where there are a large number of Indians working.

Mr Malvinder Mohan Singh, Chairman, CII Services Council, said that the services sector should grow faster from the present level of 9 per cent per annum to enable India to achieve 10 per cent growth in GDP in a given timeframe.  At this rate, the share of services sector to GDP would increase to 65 per cent.  Referring to the health sector, he cited the example of Singapore where it was empirically proved that one dollar investment would have a significant multiplier effect  on the community.  He underscored the need for creating a strong IT backbone  and a  regulatory mechanism.

Mr Chandrajit Banerjee, Director General, CII, has referred to the initiatives of CII  in skilling people, particularly in the health sector.  This, he hoped, would plug the skill gap in the country.

‘Make in India’, ‘Skill India’ and ‘Digital India’ to enable MSMEs attain Exponential Growth: Madhav Lal, Secretary, Ministry of MSME

CII in Partnership with the Ministry of MSME, Government of India organized the Global SME Business Summit 2014. The day one of the event focused on connecting Global SMEs for mutual business development and explore emerging markets. During the event, Mr Madhav Lal, Secretary, Ministry of MSME, discussed the intent of the Government of India and the Ministry of MSME to lead Indian MSMEs on a high growth path. After highlighting the role played by MSMEs in the economic landscape of the country, he spoke about the dual role that the Ministry of MSME plays in assisting MSMEs in terms of providing them with a supportive framework through policy advocacy and by bringing about institutional reforms in areas of policy vacuum including taxation reform, regulatory systems’ reforms, finance provisioning reforms, etc. He shed some light on the recent initiatives of the Prime Minister of India, Mr. Narendra Modi, for support to MSMEs. The most significant measures include the Make in India initiative, Skill India for skill development, Digital India for ICT interventions, etc. He also made a mention of the announcements in the Union Budget 2014-15 for the provision of a Rs 10,000 crore venture capital fund and a Rs 200 crore technology centres fund, accreditation of enterprises in this sector, virtual clusters, online filing of EM I and II, incubation centres, etc. These initiatives make it clear that the government is focused on supporting the MSMEs. He illustrated the need for identifying important verticals within this sector with differing interests with regards to government’s policy interventions and highlighted the merits of adopting a focused approach to benefit these verticals. Mr Madhav Lal inaugurated the 11^th edition of Global SME Business Summit 2014 today in New Delhi.

Mr R C Bhargava, Chairman, Maruti Suzuki India Limited in his Keynote Address, disclosed the role played by MSMEs in assisting Maruti Suzuki in its journey to become the biggest car manufacturing company. He spoke about the diversity of opportunities evolving in the auto components sector for MSMEs. He discussed the role played by Maruti in cluster development, skill formation, etc. He also added that, to make the PM’s call to grow manufacturing a reality different rules and incentives need to be devised for MSME’s working as vendors to modern manufacturing. A capital investment based criteria is inappropriate and in fact creates a disincentive to improving technology, productivity, quality and reducing costs. He said that industry will not become competitive if this persists. This applies not only to auto but aerospace, capital goods, power generating and transmission equipment, consumer durables and so on. The entire package of incentives should lead to enhancing competitiveness of manufacturing, and upgrade of all aspects of their work, commented Mr Bhargava.

The report “The New Wave Indian MSME: An Action Agenda for Growth” was released by Mr Madhav Lal at the Session.

The report “The New Wave Indian MSME: An Action Agenda for Growth” was released by Mr Madhav Lal at the Session. This report suggests an alternative framework for the definition of MSMEs. This report outlines relevant recommendations for an opportunity framework built around five growth enabling pillars comprising: infrastructure, regulatory framework, funding, performance incentives and skill India. It also contains global best practises and is in line with the government’s vision of policy incentives for the MSME sector in India.

Ms Patricia Hewitt, Chair, UK India Business Council, emphasized on building a healthy India UK SME partnership. She explained that through improvements in factors like gaining access to networks and contacts; establishing a dialogue and building a relationship with actors in the market; navigating unfamiliar business environments, including differences in language and culture; procedural barriers such as product standards and other aspects of the legal and regulatory framework; assessing the competitive environment and identifying potential opportunities and risks; etc., the small and medium enterprises of both countries can be enabled to explore and expand their businesses in each other’s domain.

Mr T T Ashok, Co-Chairman, CII National SME Council, shared about the various features of the session which include 8 sectoral sessions on emerging sectors with relevance for SME penetration and internalization, 6 country sessions to explore cross-border partnership opportunities of mutual benefit, the India SME expo showcasing 50 national as well as international SMEs, their products and services and a special National Vendor Development Program with leading CPSEs in India to enable Public Sector Enterprises to identify suitable vendors in the MSE category and to provide SMEs with an opportunity to interact with these CPSEs and cement long term partnerships. He added that looking ahead, the challenge lies in building the next generation of SMEs that will collectively function as the powerhouse of the global economy. To achieve this, governments and industry around the world would need to make many collaborative efforts to create conducive eco-systems for MSMEs within their respective geographies and across regions.

Undertaking reforms in key aspects of doing business in India critical to restoring growth trajectory: CII-KPMG Report on Ease of Doing Business in India.

CII released a report titled “Ease of Doing Business in India” in partnership with KPMG, India in Chennai today. Despite being one of the fastest growing economies in the world and potential investment hub, India lags behind in terms of ease of doing business. Taking cognizance of this anomalous situation, CII and KPMG have jointly prepared a report aimed at improving India’s position in the World Bank’s Ease of Doing Business rankings, where India has repetitively been ranked India low compared to 184 other economies. 

The report identifies key areas for reform which will enable doing business in India, including setting up of business, land acquisition, taxation and contract enforcement.

According to the report, despite two decades of economic reforms, India continues to falter on various sub-indices such as starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across border, enforcing contracts or resolving insolvency. In fact, the latest rankings place India 134^th among 185 countries; lower than all its BRIC counterparts. Therefore, there is an urgency to focus on improving the business environment and arrest the decline in relative performance against various determinants of investment attractiveness. 

On release of the report, Mr Chandrajit Banerjee, Director General, CII said, “CII hopes that the findings of this report would help bring the issues to the fore and also serve as a reference point for the imminent need to pursue reforms in business practices and processes. Indian industry hopes that the new Government would accord due importance to this extremely important and urgent agenda that would help churn the wheels of investment and growth.” 

The report is based on a survey conducted amongst Indian industry followed with extensive primary and secondary research to assess the prevailing business regulatory environment in the country. Key issues highlighted include lack of an effective land acquisition process, unfavorable taxation regime, high cost of starting a business, complicated and time consuming contract enforcement process. 

Commenting on the findings of the report Richard Rekhy, Chief Executive Officer, KPMG in India said, “Having an environment that facilitates entrepreneurship, promotes investments productivity and growth is critical for improving business climate in India. The ease with which this is achieved can be a source of strategic advantage. The vulnerability of our country’s current standing in the Doing Business index means that reforms in these areas have become critical.”  

Key issues and recommendations 

Survey identifies key issues against the four parameters studied, and suggests recommendations to arrest the rapid decline in ease of doing business. 

Parameter Studied	Issues	Recommendations
Land Acquisition Process	Average time taken to acquire the land is 14 months and often        could take longer 58% of the respondents feel the number of visits made to each department to obtain the permission pose major obstacles in the approval process 69% of the respondents feel that there is a lack of effective land acquisition process 83% of the respondents feel that unsecured land titles generate uncertainty Land mutation process is considered complex and time-consuming Setup large designated industrial zones with pre-clearances and ready to move in Single window registration and mutation process Move from a deed based registration to Title based registration(Torrens System) Streamlined process for land use conversion A market-based pricing system, where price is determined by an independent body
Starting a business	Approvals related to environment clearances, land procurement, construction permits, industrial safety permits and power connectionare top five obstacles in starting a business 85% of the respondents feel that the time required to obtain such clearances is not reasonable 78% of the respondents who feel the number of windows/ministries one has to visit is not reasonable Reduce approval turnaround – make eBiz portal more effective Wider and effective adoption of Deemed approval principle Automatic approval for power, water and sewerage Moving away from Department centric approach to Business centric approach Labor reforms Continuous skill development Access to funds for Micro Small and Medium Enterprises (MSME)
Taxation	90% of the respondents are in favor of reduction in tax rates. 92% of the respondents feel that there are challenges in transfer pricing assessments relating to distribution / agency 90% of the respondents believe that the tax authorities are not proactive in promoting investments 60% of the respondents feel that the neutralization of tax decision by Supreme Court through retrospective amendment has had damaging effect on investment sentiments More than half the respondents have faced delays in obtaining service       tax refund	Implement Goods & Service Tax (GST) Reduce the number of taxes and the ambiguity / discretionary nature of taxes, especially in Transfer pricing cases Efficient, effective and time-bound taxation related dispute resolution Ensure taxation does not hinder free flow of goods Implement independent Grievance Redressal Cell Operational reforms required to get the tax base right Administration reforms required for consistency and increased efficiency in approach to taxation
Contract enforcement	Time taken from filing to final judgment seems unreasonable to most of the respondents and poses major obstacles Costs involved (costs for engaging and retaining lawyers, miscellaneous costs, during the interim stage, enforcement costs) also pose significant obstacles 84% of the respondents have indicated that a review of laws & regulations needs to be taken up urgently Create a centralized contract repository with Non-repudiation Effective implementation of e-courts Increase number of courts and tribunals More international treaties for increasing “reciprocative territories” Update antiquated laws Recognize and update laws keeping in mind the trends of higher technology updation, greater trade based on IPR and greater global trade

 

CII Proposes 100-Day Agenda for New Government

Unveiling the CII action theme for the year as ‘Accelerating Growth, Creating Employment’, Mr Shriram noted, “With slowing growth and high inflation adversely impacting employment, CII will urge the nextGovernment to focus on reviving growth and generating new jobs.”

In his press conference, Mr Shriram added that CII has proposed a strong 100-day action agenda for the new governmentto boost growth. “A strong economic revival package and right implementation of policies by a fresh Government can help create as many as 150 million jobs in the next ten years,” he stressed. “Industry is looking for top policy steps such as introduction of GST, easing of interest rates by 100 bps, keeping subsidies at 1.7 per cent of GDP, and restructuring of labour laws to promote mass manufacturing.”

CII further stated thatwithcontinuing robust reforms, GDP growth could be taken back to the 8 per cent level in the next three years. “Amarket-friendly environment is required that would proactively promote investments, business and entrepreneurship,” said Mr Shriram. Mass manufacturing sectors and labour-intensive services sectors need to be encouraged, he continued.

Key priorities for CII in the coming year will be in the following ten areas: education, skills, economic growth, manufacturing sector growth, investments, ease of doing business, export competitiveness, legal and regulatory architecture, labour law reforms and entrepreneurship.

CII has strongly called for implementation of the following policies, among others, in the first 100 days by the next Government:

–          Introduction of GST

–          Containment of subsidies and fiscal consolidation

–          Monetary easing – reduction in the repo rate by 100 bps

–          Maintenance of a competitive exchange rate

–          Fast-tracking stalled projects and increasing public capital investments

–          Timely implementation of DMIC and NIMZs

–          Setting up of state level mechanisms similar to Project Monitoring Group which will review and monitor projects at state level

–          A strong inter- Ministerial co-ordination group to resolve sticky issues like mining, raw material securitisation for sectors like Steel, etc

–          An institutional mechanism to renegotiate the terms of concession in Public Private Partnership Contracts to salvage stranded investments

–          Expansion of e-governance & technology based initiatives to simplify processes and online monitoring of application forms

–          Time-bound approvals by introducing ‘deemed approvals’ in case of delays beyond prescribed limit

–          Restructuring labour laws including introduction of Fixed Term Employment for industry to hire manpower on short term assignments

CII would continue to provide inputs in the areas of direct and indirect taxes to help India emerge as an attractive destination for business.

In agriculture, CII’s Food and Agricultural Center of Excellence (FACE)is studying the impact of Agricultural Produce Marketing Committee Act (APMC) which needs to be revamped to delist perishables. CII will also undertake a study on gas pricing and its impact on end-users, macro-economic indicators and the investment environment.

In manufacturing, it will work with concerned Ministries and State Governments on delayed projects and also on specific policies, particularly for labour-intensive sectors. CII has called for quick implementation of the National Manufacturing Policy and would bring out a report on Mass Manufacturing policy.For MSMEs, CII plans to launch a Finance Facilitation Centre and initiatives to link Indian SMEs with global value chains.

In services, CII will constitute National Services Competitiveness Council and develop a sectoral strategy for doubling of services export by 2025. It has targeted several sectors such as Tourism and Hospitality, Financial Services, Telecommunications and Professional Services for export promotion.

For better quality higher education, one of the CII interventions will be to launch the 100-100 program where 100 CII member companies will create 100 Faculty Sabbaticals who will spend two/ three months in industry to explore multi-level partnerships like research, curriculum, and skills development. In skills, CII will help implement the National Skill Qualification Framework (NSQF) and continue to work on Sector Skills Councils.

In labour laws, CII will create platforms for sharing best practices from industry which have helped in fostering better industrial relations within the current framework. In addition, it will work with its membership, Trade Unions, Central and State Governments for creating consensus on various issues.

To improve the ease of doing business in India, CII will present to the government best practices in the states which can be emulated in the areas of land acquisition, contract enforcement and taxation. CII has been strongly underscoring the need for a reduction in transactions cost of exports to overcome difficult business conditions abroad. In this context, CII has constituted a task force on transactions costs which proposes a framework for building an efficient trade facilitation mechanism in India.

In order to support entrepreneurship, CII will significantly expand its PPP initiative “India Innovation Initiative” to select the most innovative entrepreneurs through a pan-India competition.