CII Hopes for a More Accomodative Monetary Policy Early Next Year : CII President

Commenting on the status quo approach adopted by RBI in its fifth monetary policy statement released today, Mr Ajay S Shriram, President, CII stated that the “RBI, has leaned in favour of anchoring inflationary expectations in its pursuit of finding a solution to the growth – inflation conundrum which is as per market expectations.”

CII feels that at this juncture, even a symbolic cut in policy rates would have sent a strong signal down the line that both the government and the RBI are acting in concert to harness demand and take the economy to the higher orbit of growth. Industry was particularly hopeful of a rate cut considering that China has surprised the market by reducing interest rates by 40 basis points to attract investments. A rate cut would have propelled investment demand, spurred spending in rate sensitive consumer durable and given a fillip to construction activity.

 

At a time when economic recovery is still fragile and industry is growing at a faltering pace, the bold decision of the RBI to ease interest rates would have particularly benefitted the credit starved SME and improved the poor credit offtake by industry. What is more, the recent softening of inflationary momentum and the movement of consumer price index towards the RBI’s comfort zone indicates that most of the conditions for bringing interest rates down are being fulfilled.

“Going forward, CII hopes that the RBI would move in favour of growth in its next monetary policy and the new year would witness a cut in policy rates by at least 50 basis points,” added Mr Shriram.

 

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

 

Emerging Business Opportunities for Indian MSMEs in Electronic System Design and Manufacturing Sector

Aggregate demand for electronic hardware in India is expected to increase to a total value of $400 billion by year 2020, up from $40 billion in 2009, whereas domestic production of electronic hardware will only reach an estimated value of $100 billion in the next six years. The ensuing demand-supply mismatch of about $300 billion will encourage global electronic system and design manufacturing (ESDM) companies to consider India as their next investment destination.

The National Policy on Electronics provides for the establishment of some 200 electronic manufacturing clusters (EMCs) which in turn will create new business opportunities for MSMEs. The EMCs will help the ESDM enterprises to raise their productivity levels, cut costs and promote innovations by leveraging shared infrastructure and resources, making the ICTE manufacturing sector more competitive.

Government is offering various schemes and incentives to encourage MSMEs to foray into electronic manufacturing. These include schemes for promotion of lean manufacturing, use of information and communication tools, setting up of mini tools rooms in the PPP mode, and entrepreneurial management development through incubators.

Reflecting on the emerging trends in the ESDM sector, in a session organized by CII on Emerging Opportunities for SMEs in Electronics Manufacturing, Dr Ajay Kumar, Joint Secretary, Department of Information Technology, Ministry of Information Technology & Communications, Government of India, said that today electronics are key components of various devices. Most medical devices are electronically operated. Likewise, traditional lighting is giving way to LED lighting. Electronics is pervasive in areas like IT, telecom, automotive, solar PV, smart cards, etc.

Demand for electronics hardware in India is growing at 20-21% per annum, but most of it is being met through imports. Taking cognizance of the imperative for promoting electronics manufacturing, Government has introduced a variety of schemes to encourage Indian electronics manufacturing companies. Dr Kumar said that India will be able to increase its share of global electronics manufacturing output by leveraging its low-cost manpower resources (vis-a-vis China). China accounts for nearly 40% of global electronics manufacturing output.

Dr Kumar said the National Policy on Electronics has underlined the need to develop new chips to meet local needs at affordable costs (‘Billion Needs, Million Chips’). On a larger plane, Government aims to increase domestic electronics manufacturing growth at the same rate as the demand growth.

To accelerate electronics manufacturing, Government has decided to meet 50% of the cost of creating common facilities in Greenfield EMCs. This amount will be subject to a ceiling of Rs 50 crore for every 100 acres, but with no upper limit. Likewise, Government will meet 75% of the cost of creating common facilities in brownfield EMCs, subject to a ceiling of Rs 50 crore.

Dr Kumar said that since the introduction of this scheme, Government has granted in-principle approval for 7 greenfield EMCs — GMR is setting up an EMC in Hosur, Tamil Nadu; Andhra Pradesh Industrial Development Corporation is setting up 2 EMCs near Hyderabad; ELCINA is setting an EMC in Bhiwadi; Madhya Pradesh Electronics Development Corporation, plans to set up 2 EMCs in Bhopal and Jabalpur; Kerala Industrial Infrastructure Development Corporation is setting up an EMC in Kochi. To encourage MSMEs to set up EMCs, Government offers to meet the costs incurred in the preparation of DPRs.

Dr Kumar informed that the brownfield EMC in Electronic City, Bangalore has decided to create common infrastructure for which Government will meet 75% of the total cost (Rs 70-80 crore). He added that Government is developing two incubators – one, in the area of chip design and the other to enable small companies to test their new design chips. The first incubator is coming up in Bangalore. It will be a centralised facility that can be accessed online.  The second incubator is being set up in collaboration with Delhi University and STPI.

Government is also offering 25% investment subsidy to electronic manufacturing units being set up in non-SEZ areas, and 20% investment subsidy to units coming up in SEZs. This scheme is being extended to units across the entire electronic manufacturing value chain, with a low minimum threshold limit of Rs 1 crore. The threshold limit varies for each manufacturing segment. “MSMEs can take advantage of this,” he said. Earlier, the minimum threshold limit was as high as Rs 1,000 crore.

In addition, Government provides for reimbursement of counter-veiling duty and excise duty for capital invested in this sector. This is available for setting up new units as well as for expansion or relocation of existing units. Hence, a unit that is not viable in Europe can be relocated to India and the duty concessions can be availed thereof.

Referring to the Modified Special Incentive Package Scheme (M-SIPS), Dr Kumar said that Government has received proposals worth $12 billion under the scheme until end-March.

Stating that Union Cabinet has given its approval for setting up two wafer fabs in the country, Dr Kumar said an ecosystem will come up around the fabs which will create a host of business opportunities for MSME vendors and suppliers. The project involves Rs 65,000 crore worth of investments.

He also said that Government is giving preference to domestic manufactured electronic goods in public procurements. As a case in point, 12-13 Indian companies (working on both ARM-based and Intel-based platforms) have bid for the procurement of Akash tablets. Domestic manufacturers are also invited to participate in the tenders for the Gigabit Passive Optical Network (GPON) project.

Besides, DGS&D has finalised separate manual for procurements from domestic and non-domestic manufacturing companies. Dr Kumar said, “We also want to increase the items that Government buys.”

He informed that Government is planning to create venture funds to support start-up electronics manufacturing activities. Besides, 2-5% export incentives are being given to a large number of electronic items manufactured in the country.

Highlighting the importance of creating a strong manpower base, Dr Kumar said the training programmes related to this industry have to be aligned with current industry needs. Hence, Government is proactively promoting skill development for this industry through different schemes. Industry is required to identify the training needs and recommend the training centres for skilling people. Government will meet 75% of the training costs. Dr Kumar said that one lakh people will be trained under this scheme.

He added that Government is also aiming to increase the number of PhD submissions per annum in the electronics discipline to about 1,500 by 2017-18. Toward this, Rs 400 crore has been earmarked for all PhD granting institutes to increase their intake of scholars. The PhD topics will be identified by industry. “We will create a platform where industry can highlight the areas in which research is to be carried out,” he said. The Union Cabinet took this decision in February 2014 and the scheme will be implemented from the new academic year beginning in June-July 2014.

Underlining the importance of R&D, Dr Kumar cited the example of an SME in Taiwan where 50% of its 115 people have a PhD. The company is looking to export medical electronics items to India. He asserted that Indian companies should be keen to pursue research, innovation and IPs.

Government has also introduced a scheme to support MSMEs to comply with the electronics safety standards. These standards came into effect on January 3, 2014. Companies have to adhere to the standards, for both manufacturing and imports. Government has agreed to reimburse the testing and certification costs incurred by these companies.

In addition, Government has recently approved a scheme to help MSMEs meet the quality standards in export destination markets. Under the scheme, Government will reimburse the associated costs.

Dr Kumar said that his ministry is planning to fund technology development also through its partnership with Global Innovation & Technology Alliance (GITA). Besides, the MSME Ministry plans to set up a Technology Centre exclusively for electronics.

Later, while responding to the various queries raised by the participants, Dr Kumar said that to promote collaborations his ministry has created an online B2B platform and publishes an electronics newsletter that goes to over 1 lakh readers.

Referring to the plan for setting up EMCs, he said the primary objective is to support globally competitive clusters. However, the clusters will be market driven. He also said that the EMCs should come up in areas that have high success factors.

Stating that investments are mainly flowing into areas like automotive components, LED, consumer electronics, Dr Kumar said that due efforts are being made to draw investments in many other promising segments of electronics manufacturing. Toward this, the department is creating a joint working group for smart cards.

Further, Government is facilitating common sourcing from global suppliers to reduce MSMEs transaction costs and other sourcing costs.

Referring to solar product manufacturing, he said that the MSIPS will be revised to include solar products. Currently, the focus is on PV cells, sub-strata etc.

Noting that many defence offset opportunities are underutilised by MSMEs, Dr Kumar said an Inter-Ministerial Committee looks into the concerns of domestic manufacturers with regard to public procurements. He added that R&D costs will also be covered under MSIPS.

Mr Deepak Sharma, Joint Director, Department of Information Technology, Ministry of Information Technology & Communications, Government of India, also participated in the session.

Promoting virtual clusters stepping stone towards changing paradigm of cluster development: MSME Secretary at CII MSME Summit

Promoting virtual clusters stepping stone towards changing paradigm of cluster development: MSME Secretary at CII MSME Summit.