Government’s ‘5P’ Formula On Manufacturing Augurs Well : CII President

“Prime Minister Modi’s ‘5P’ approach to manufacturing has been transformational for the sector, specifically, and the Indian economy as a whole”, according to Sumit Mazumder, President, Confederation of Indian Industry (CII). Elaborating on the ‘5P’ formula, Mr Mazumder “defined this as – Perspective, Profile, Policy, Projects, People – which, together have created a new scaffolding on which the future of manufacturing in India is being built.  The architectural vision is a long-term one by design and the ‘Make in India’ campaign is central to this new edifice.  The long-term vision for Indian manufacturing that is being rolled out will play a key role in Indian industry being a critical part of global supply chains,” according to Mr Mazumder.

Commenting on the first ‘P’ – Perspective – Mr Mazumder said that the “Make in India’ campaign – whose vision is to increase the share of manufacturing in GDP, from the current 15% to 25% by 2022 – has become the fulcrum to the realization of a new vision for India and Indian manufacturing.  This one vision has created a unifying aspiration across the country and the 25 sectors which have been identified as the catalysts for making this a reality. According to Mr Mazumder, the 230-odd specific recommendations for the immediate, short and medium terms that were identified in December 2014 along with a strategy for improving the ease of doing business as well as focusing on skills, have laid the foundation stones for a robust framework for Indian manufacturing as well as for the Indian economy as a whole. While these are early days, the IIP index has already clocked a growth of 2.3% in FY2015 as opposed to negative growth witnessed in FY2014.

In the process, the ‘Profile’ that has been created by the Hon’ble Prime Minister in articulating this vision has firmly put manufacturing in India in the mindspace of all constituents – domestic and international. Today, all Ministries in the Central Government are encouraged to keep ‘Make in India’ as a pivotal focus for their activities.  The Co-operative Federalism strategy propagated by the Hon’ble Prime Minister and empowering of states further support this endeavour.  Further, the foreign investor community is extremely cognizant of this driver and a number of foreign investors are aligning their investment decisions to this mission, stated a CII press release.

According to the CII President, the Policy agenda has been the key anchor to the transformational aspiration of “Make in India”. The relaxation of Foreign Direct Investment (FDI) permissible in Railways, Construction and Defence has made the sectors attractive for investment as well as acted as important bellwethers for the economic direction of the Government.  Coal auctions have triggered a new impetus to overall economic activity. The notification of the Mines and Mineral Development and Regulation (MMDR) Act has given impetus to reviving mining activity in the country.  According to CII, the last 12 months have witnessed the drafting of new policies w.r.t. Capital Goods, Chemicals, Steel and Textiles which are currently in various stages of finalization.  Also, a slew of measures under the umbrella of Ease of Doing Business have been initiated such as third-party certification and self-certification, expediting of grants of environmental clearances, online labor inspection system, introduction of Unique Account Numbers for members of the EPFO and a dedicated Investor Facilitation Cell (IFC).

The impact of the above measures can be seen on the fourth pillar, Projects. According to CMIE, the total value of stalled projects has decreased from INR 2.5 Lakh Crores in December 2013 to INR 0.9 Lakh Crores in March 2015. New projects announcements have also gone up.

The fifth pillar – People – is a critical factor in the success of ‘Make in India’. To help build the talent pipeline to support India’s manufacturing potential, CII has been delighted to see focus given to the entire spectrum of the talent pipeline – by creating a new Ministry of Skill Development & Entrepreneurship to coordinate over 70 skill development schemes run by more than 20 Ministries/Departments in the country as well giving a fillip to the network of IITs and IIMs. The Skill Development Initiative has also been aligned to the 25 Sectors of ‘Make in India’ with Sector Specific Skill Councils. Skill gap studies have also been conducted for high priority sectors including key manufacturing sectors. As part of the creating the necessary Skill Infrastructure in India an apprenticeship scheme and a revamped‎ Rashtriya Swasthya Bima Yojana have been launched.

CII outlines a 4 point Action Plan to Reduce Trade Deficit with China

The Confederation of Indian Industry (CII) has outlined a 4-point action agenda to reduce the growing trade deficit with China. “Both governments recognize that strong efforts must be made to redress alarming trade imbalance. The needs of the two economies are complementary and CII suggests four measures to balance trade,” said Mr Chandrajit Banerjee, Director General, CII.

The CII publication Report on “Accelerating Indo-China Economic Engagement” notes that bilateral trade between India and China has grown rapidly in the past decade. Bilateral trade crossed $65 billion in 2013 and $72 billion in 2014-15. Chinese imports have grown sharply relative to Indian exports resulting in a record deficit of $35 billion in 2013. Latest figures released by the Department of Commerce, India, reveal that trade deficit has expanded to $48 billion in 2014-15, more than four times India’s total exports to China.

The report recommends a 4 point action plan. This includes:

• Leverage India’s importance as a market for Chinese products as well as an investment destination for Chinese companies
• Push for market access in key sectors of China – Pharma, IT, Tourism, Media and Entertainment, Auto Components and others
• Prioritise Chinese FDI in 18 identified industry sectors and establish a sovereign deal to attract investment in Indian infrastructure
• Set up an institutional committee of Government and industry led by the Prime Minister’s Office or Department of Commerce to direct and monitor the achievement of goals

The report recommends that to promote exports and investments:

• India will need to push for specific actions in certain identified sectors like IT Services, Pharmaceuticals, Auto Components, Tourism and Entertainment
• Across these targeted sectors, India has a potential to generate revenues in excess of US $10 billion in 4-5 years i.e. nearly 80% of the exports of India to China in 2013
• Indian companies need to change their mindset towards China and invest for the long term by committing resources in terms of technology, capital and senior management and work in close co-ordination with the Indian Government, which has a critical role in enabling market access in China.

In order to promote Chinese investment in India, the two countries have agreed to set up two Investment Parks for Chinese manufacturing companies. Indian industry believes that this would be the right way to step up manufacturing investments in India and help Chinese companies leverage our cost competitive environment and skilled workforce. This also works well with the government’s overall objective to promote the manufacturing sector in India.

However, these need to be prioritised in sectors which are mutually beneficial like power equipment, industrial machinery, apparel, footwear, API and Intermediates, etc., and specific propositions need to be thought through to attract Chinese investment in these sectors. The states will play a crucial role in this process.

The infrastructure sector is another area where India and China can work together. China has about $ 3 trillion in accumulated foreign exchange reserves which are mostly invested in US treasury bonds and some EU bonds. Even if a small fraction of that amount were to be invested in long term infrastructure financing bonds in India, with an assured rate of return in RMB over a 20+ year period, it would alleviate the resource crunch being faced in this sector.

According to the report, India has emerged as one of the key markets for China growing at a faster rate than most of the other key trading partners except Vietnam. Today, India’s imports from China continue to be dominated by high-skill and technology intensive manufactured products and exports by primary commodities.

On the investment front, close to 100 Chinese companies have established operations in India. These companies operate in diverse sectors ranging from iron and steel to electronics, IT and hardware manufacturing. However, this is far below potential and investments from China in India totals less than $900 million from April 2000 to February 2015.

China, in turn, has presented itself as a good location for business for Indian IT companies. Several Indian IT companies have invested in China to cater to their clients in Asia-Pacific region. Indian manufacturing companies, especially in the automotive sector – both in OEM and component space – are investing in China to take advantage of the large domestic Chinese market.

Government is committed to Restructure Speed-up Reforms in Railways – Shri Manoj Sinha, Minister of State for Railways

Consistency in Policy is the key to Attract Investments

Inaugurating the CII India Rail Summit today,   Shri Manoj Sinha, Hon’ ble Minister of State for Railways stated that Railway is waiting for the recommendations of the Dr. Bibek Debroy Committee on Mobilisation of Resources and Restructuring of Railways, initiating a long term perspective plan.  This will provide consistency in policies and approach which are the key requirements to attract private sector participation and investment in railways.  He further emphasized that railways is committed to speed-up reforms in order to augment capacity, induction of new technologies and improve throughput with a view to increase freight share and improve passenger facilities.The present government has adopted an industry-friendly approach with a key focus on fulfilling the transportation needs of the common masses and the country.

Elaborating further, Hon’ble Minister stated that this government emphasizes on execution and implementation of projects as reflected in the last Railway budget.     He assured industry that he would consider the request for setting up a Joint Task Force to have constant dialogue and interactions with them, leading to better understanding and implementation of projects.     Reacting to industry concerns with regard to payment cycle, minister assured that they would shortly come out with measures which would make the system more responsive and transparent.  He also reiterated that the present system will closely look at the risk-sharing mechanism to provide comfort to investors.

Earlier addressing the gathering, Mr. Pankaj Jain, Additional Member, Railways, outlined PPP models that Railways has been contemplating to introduce to attract private sector investments in Railways.   These include Non-Government Private Lines Model, Joint Venture Model, BOT-Competitive Bidding Route, Customer Funded Model.   7 projects under PPP have already been executed, leading to addition / guage conversion of 950 line kms at a total investment of 950 crore, he added.

In addition to setting up a Joint Task Force on Railways,  CII proposed that projects where private sector participation were being sought can be divided into three categories, namely projects related to infrastructure, those related to manufacturing and projects with regard to operation of railways.   These three categories will require three distinct models, taking into consideration the dynamism and issues of risk reward mechanism associated with each of the segment.

The Inaugural Session of the Summit was addressed by Mr. Naresh Aggarwal, Chairman, CII Railway Transportation and Equipment Division and Managing Director & Co – Chairman, VAE VKN Industries Pvt Ltd and Mr. Tilakraj Seth, Vice Chairman, Rail Transportation & Equipment Division, and Executive Vice President, Siemens Ltd.

India Can Emulate Global Best Practices for the Development of the Corporate Bond Market: CII

To further the expansion of the economy, CII feels India must continue to work on removing infrastructure bottlenecks and further strengthen the financing of infrastructure development. CII projects investment requirement in infrastructure development to the tune of Rs 64.3 lakh crore during the period 2014/15 – 2018/19 and private sector will have to play a crucial role in achieving the desired goal.

Corporate Bond Market (CBM), as a stable and reliable source of finance, provides a pivotal mechanism for sustaining business investment, infrastructure development, and economic growth. CII in its report “Corporate Bond Market: Benchmarking Global Best Practices into Indian perspective” has analysed the role Corporate Bond Market has played in infrastructure development for many economies globally and brings out key recommendations for the policymakers to implement in the Indian context.

“Indian economy is at crossroads where development of Corporate Bond Market is required for meeting the funding requirements of the industry and the economy. Thus, it becomes imperative to study the successful global models for benchmarking best practices and devising an implementable roadmap for the Indian economy” said, Mr Chandrajit Banerjee, Director General, CII

For an emerging economy like India, Corporate Bond Market can play a pivotal role for financing infrastructure development as evidenced from the successful models of various countries. It is, therefore, possible for India to learn from the experiences of other countries in developing its CBM.

Speaking on the report, Mr Banerjee added, “CII has studied the global best practices and models for development of CBM with special emphasis on benchmarking global best practices for the Indian market and deriving policy solutions to guide the future reform agenda”.

The CII report analysed the models of both emerging and developed countries like Brazil, Chile, South Korea, China, Singapore, Japan and the United Kingdom, and noted that a variety of regulatory and market actions stimulated market growth in these economies. On careful examination, CII recommends, India needs to focus on few key measures (but not limited to) like broad based development of Government securities market, supportive taxation structure, uniform stamp duty, enhance institutional participation by re-visiting investment norms, institute a robust credit enhancement framework and most importantly strengthen bond holder protection mechanism.

 

CII’s key recommendations in the Indian context for the development of CBM:  

• Broad-based development of G-sec market as precursor to CBM development

 It is well established that a developed and well-functioning Government securities market acts as the most important pre-condition for the development of CBM. It is evident that global economies like Japan developed a healthy and vibrant Government bond market which played a vital role in development of CBM. In India, Government bonds form the major part of the Indian bond market, though, the development of G-sec market has not been uniform across maturities. Development of Government bond market across maturities is a pre-requisite to develop a smooth yield curve which may help the corporates to price their bond issues across maturities. 

• Rationalizing taxation and stamp duties structure

 Taxation is the most critical part of the structure of Capital Markets. Participants particularly retail investors are very sensitive to high rates of taxation on their investments in Capital Markets. High taxation rate particularly in the debt market is hampering the development of Indian CBM. India being an emerging market should undertake a review of their taxation regime / framework to enable the CBM to operate on a more level playing field with the equity market & government bond market for the investors and the loan segments of banking sector for the borrowers.

• Enhancing institutional investments in corporate bonds

In the Indian context, the investment norms of insurance companies, banks, pension funds are heavily skewed towards investment in government and public sector bonds which acts as a detriment to the corporate bond market development. As a broad-based demand side reform, a concentrated push is required to relax norms for long term institutional investors viz. insurance companies and pension funds, mutual funds and provident funds to enhance investment in corporate bonds.

• Instituting a robust credit enhancement mechanism

 In the Indian context, policy makers need to look at providing greater credit enhancement facilities. Currently, banks have been permitted to offer partial credit enhancements to corporate bonds by way of providing credit facilities and liquidity facilities to the corporates but this need to be enhanced further. It is recommended to increase availability of credit enhancements by different institutions including banks which would allow less than investment grade bonds to be eligible for investment by insurance companies, Provident Fund and Pension funds. 

• Addressing weakness in the secondary market

 In the Indian context, improving secondary market liquidity in the CBM will improve participation by a large number of investors and would reduce cost of raising resources. For creating an active secondary market for the Indian CBM, market infrastructure and trade transparency needs to be improved. Centralized database in respect of corporate bonds on outstanding amount, settlement value and traded volume to eliminate fragmentation of information is a must. Also, consolidation of the G-Sec outstanding should be undertaken. 

• Strengthening of bond holder protection mechanism

Measures to deepen and develop the CBM must be complemented by robust regulatory and supervisory frameworks.

In India, the main issue is the delay in enforcement of contracts. India ranks 186 and 121 out of 189 countries in enforcement of contracts and resolving insolvency respectively as per the Doing Business Report, 2014 of World Bank. The biggest hurdle to build the CBM is the uncertainity on the insolvency regime. Certainty on time frame for resolving a default and a trend line of recovery is necessary to build up investor confidence for investing in debt securities across all types of ratings. Thus India needs to enhance the quality of supervision as well as strengthen bankruptcy and restructuring regulations.