10 POINT PROGRAM FOR POLICY

CHANGES THAT WILL FUEL

ECONOMIC GROWTH FOR INDIA

CONTENTS

Improving the business environment Improving regulation, public governance and transparency Reducing trade and FDI barriers Strengthening innovation Improving transport infrastructure Financial sector reform Promoting greener growth Lowering poverty and inequality Reforming labour markets Increasing productivity in agriculture Conclusion

CHANGE NO.1IMPROVING THE BUSINESS ENVIRONMENT

CURRENT SCENARIO

• There are wide differences in extent of regulation across states.• Some states have achieved greater economic performance

through enhancement of regulatory frameworks (in terms of investment, starting up and conducting business).

• Example: the IT and ITeS industry is deemed as an essential service in Andhra Pradesh under section 2 of the ap essential services maintenance act, 1971. In the event of a strike or a city-wide bandh, the act legally protects IT industry employees who can continue uninterrupted.

• The Central and State Governments need to adopt a “whole of government” regulatory policy.

What Does This Mean

• All levels of government should lower the barriers to entrepreneurship by re-defining procedures with an aim to reducing administrative burdens on new and existing firms and thus reducing the extent of inspections, as well as the number of returns.

• This will improve the regulatory environment across the whole country.

IMPROVING REGULATION, PUBLIC GOVERNANCE AND TRANSPARENCY

CHANGE NO.2

Reducing Administrative Regulation And Administrative Burdens

• Regulatory reforms concerns with improvement to the quality of government regulation.

• Badly designed and administered regulations impose major constraints to growth and productivity.

• A critical lack of appropriate regulatory tools and approaches may create obstacle to their reform aspirations and efforts.

• An administrative simplification program is needed to reduce the burdens and costs on businesses.

• Public sector governance should be made more transparent and accountable by separating operational and regulatory functions in the provision of public services.

RESTRICTIVENESS OF OVERALL ADMINISTRATIVE REGULATION

Access To Information, Transparency And Corruption Prevention

• Open government policies promote a government that is transparent and exposed to public scrutiny, accessible to anyone, anytime and responsive to new ideas and demands. •Citizens are increasingly demanding strict measures that hold decision makers to account, including those at the highest levels in government.

RECOMMENDATIONS

• Conduct an administrative simplification program to reduce the burdens and costs on businesses.

• Create the necessary policies, institutions and processes to implement a transparent, evidence based regulation-making system.

• Focus efforts to increase public transparency and reinforce public trust.

• Strengthen the independence of the lokpal mechanism.

REDUCING TRADE AND FDI BARRIERS

CHANGE NO.3

• India`s trade sector has been led by services rather than manufacturing.

• Over the past 3 decades services exports have been growing twice as fast as goods exports.

• The share of services in India’s exports is

35% higher than the world average of 20%.

• India’s share in world services exports

> 3.2 % in 2010

• India’s share in world`s good export

> much lower (1.5%)

SERVICE SECTOR

FURTHER REDUCING TRADE BARRIERS

• Barriers in both goods and services sectors are still higher than in some other BRIICS and OECD countries.

• The simple average most favored nation (mfn) tariff rate declined to 12% by 2010-11 from 15.1% in 2006-07

• As bound tariffs are much higher than the actually applied rates, there is considerable uncertainty regarding future rates for producers and investors.

• India should reduce import tariffs for all manufactured goods to 5%

What is FDI ?

“FOREIGN DIRECT INVESTMENT”

FDI REGULATORY RESTRICTIVENESS INDEX

RECOMMENDATIONS

• Continue to reduce trade and FDI barriers, especially in goods and services sectors with strong links to the manufacturing sector.

• Further simplify and improve the transparency of the trade and investment regimes, as well as rationalise the export regime, including export restrictions.

FINANCIAL SECTOR REFORM

CHANGE NO.4

Ensuring the financing of the economy • Indian banks have strong balance sheet positions, but a small

number of state-owned banks remain dominant, their market share has fallen rapidly.

• While world class stock exchanges have emerged, India’s corporate bond market is still relatively underdeveloped.

Promoting financial inclusion• Credits provided by rural banks are generally controlled by state

governments and tend to be poorly managed, leading to repeated substantial government assistance.

• It is essential to provide the poor with financial instruments to

cope with high income variability, banks have often failed to reach the poor directly.

SHARE OF PRIVATE BANKS IN TOTAL BANKS ASSETS

KEY RECOMMENDATIONS

• Liberalise the allocation of bank credit.

• Further open the capital of public-sector banks while allowing new private banks, including foreign ones.

• Transform rural banks and cooperatives into smaller privately-owned banks free of governmental shareholding and concurrently modernise their regulation.

REFORMING LABOUR MARKET

CHANGE NO.5

Meaning Of Labour Market Reform• Also known as labour market deregulation

• Includes a series of actions to assure that resources are allocated efficiently

• Generally changes to a system where wages and conditions are closely depicted

Labour Market Structure• Labour market consists of 3 sectors.

• Rural workers constitute over 60% of the workforce.

• Organised sector employs 8% of the workforce, producing 40% of gdp. But its employment share declining.

• Thus, urban informal sector is the growing sector – represents the residual.

Labour Legislations

KEY RECOMMENDATIONS

LOWERING POVERTY AND INEQUALITY

CHANGE NO.6

THERE IS REDUCTION IN ABSOLUTE POVERTY IN INDIA OVER THE PAST DECADES BUT INEQAUALITY IS RISING

Population below the Government’s official absolute poverty line

2004-2005

• Rural population :42%

• Urban population :25.5%

2009-2010

• Rural population :33.8%

• Urban population :20.9%

PROBLEMS IN REDUCTION OF INEQAULITY

• Traditional caste system

• Gender issues

• Enormous over-supply of unskilled labour

POLICIES TO REDUCE POVERTY AND INEQAULITY

• Improvement in health, nutrition and educational outcomes.

• Reformation of labour market .

• Increasing the tax free-threshold.

• Making social spending a more powerful tool.

• Better targeting of inefficient subsidies offers and correcting the serious problems of “leakages” in the subsidies.

• Programmes national rural employment guarantee scheme (NREGS).

• Tackling the regulatory and infrastructure barriers.

RECOMMENDATIONS

• Adopt a comprehensive reform approach to further lower the incidence of poverty and reverse the pattern of growing inequality. This multi-dimensional approach must include > education> health care >labour market reforms.

• Enhance the cost effectiveness properties of the NREGS.

• Re-target environmentally-harmful subsidies.• Tackle regulatory and infrastructure barriers.

INCREASING PRODUCTIVITY IN AGRICULTURE

CHANGE NO.7

AGRICULTURE TFP GROWTH

ENHANCING MARKETS EFFICIENCY

• Lifting agricultural sector productivity requires increasing the productivity of staple crops, essential to feeding a growing population, and diversifying agricultural production to higher value products (e.g. Dairy and poultry products, aquaculture, non-food grains, fruits and vegetables).

• Indian farmers have started to diversify their production, and adopted new technologies, such as improved seed varieties. Moreover, farm inputs (fertilisers, electricity, water) are often subsidised in India.

AGRICULUTURE R&D INTENSITY

RECOMMENDATIONS

•Begin to shift public expenditures away from price support and input subsidies towards productivity-enhancing investments that support the long-term competitiveness of the agriculture sector. •Improve agriculture innovation systems, including research and development, technology adoption and transfer, education, and farm training and extension services. •Develop water resources and irrigation management institutions to improve the sustainable use of water. •Improve rural finance by enhancing regulatory oversight, creating an enabling environment for the development of micro finance institutions in rural areas, and strengthening the legal framework for loan recovery.

IMPROVING TRANSPORT INFRASTRUCTURECHANGE NO.8

Road Transport

• The growth of motorised traffic has outstripped the capacity ofroad infrastructure and traffic management systems.

• In many rural areas economic expansion is severely constrained bythe poor quality of roads and the inadequate and unsafe highwaysystem.

• A standardised public private partnership (PPP) contract has beenintroduced for highway construction and as a result, theproportion of roads financed by the private sector and the rate atwhich new roads have been completed has soared since the mid-2000s (Figure 1).

• However, construction companies are now highly leveraged andthe capacity to take on more projects may be waning.

RECOMMENDATIONS

•Monitor highway PPP contracts in relation to demand risk as economic conditions weaken. •Include road safety indicators in developing indicators of welfare to complement GDP. •Issue guidelines to ensure safe and adequate space and protected infrastructure for pedestrians, cyclists and public transport. •Streamline land titling and improve land record management. •Initiate reform of railway accounting and finance to address cross-subsidies.

CHANGE NO. 9STRENGTHENING INNOVATION

CURRENT SCENARIO

• India shows relatively low capacity in science, technology and innovation (STI).

1. Government Spending

• India’s gross expenditure on research and development (GERD) was 0.8% of GDP in 2007 (compared to 1.4% in China), a figure essentially unchanged since 2000.

2. Research output

• Research output in terms of patents are still limited.

• According to SCImago Journal Rankings, India’s output for 2012 was 98,081 documents whereas USA’s output was 5,37,308 documents.

3. Number of researchers

• Professionals and technicians account for only 7% of employment.

• The researcher population is relatively small (fewer than one researcher per 1000 employed in 2005).

WHAT NEEDS TO BE DONE - ACTION 1

• Ensure steady increase in investments in R&D and innovation as a share of GDP.

• Example-In 2011, South Korea’s R&D expenditure was 3.74% of its GDP which increased to 4.03% in 2012.

WHAT NEEDS TO BE DONE - ACTION 2

Strong IPR protection

• The main benefit claimed for strong IPR protection is that by giving innovators a share of the benefits of their creations, R&D is encouraged.

• The patent system in place in Japan in the post world war period encouraged incremental and adaptive innovation.

• This resulted from the use of patents of a shorter duration awarded to incremental inventions that build upon more fundamental discoveries.

• Such model was found to have a large positive impact on Japanese TFP (total factor productivity) growth.

PROMOTING GREENER GROWTH

CHANGE NO.10

Meaning Of Promoting Greener Growth

• A path of economic growth which uses natural resources in a sustainable manner

• Help economies and societies become more resilient to meet demands for food production,transport,housing, energy and water

In A Green Economy• Public and private investments in forests are catalyzed and

supported by targeted policy reforms,regulation changes and capacity building

• Forest management hinges critically on an effective and transparent accounting system

• Forests are managed and invested in as an asset class and are important factors of production

CLIMATE CHANGE INTEGRATED PLANNING

• Extension of conservation and management programmes to vulenerable ecosystems

• Reforms in the energy and power sector

• Awareness,training,research and capacity building

• Development of institutional frame work

KEY RECOMMENDATIONS

• Continue efforts to reduce fossil fuel subsidies

• Evaluate the use of environmentally ralated taxes

• Continue promoting a balanced expansion of renewable energy sector

CONCLUSION

To improve INDIAN ECONOMY

• India should adopt new policies to strengthen the environment in which businesses operate.

• Reduction in the regulatory burdens for the services sector.

• Strengthen the independence of the lokpal to improve transparency.

• Reduce bariers on FDI and TRADE.

• Improve conditions and incentives for business R&D and innovation.

• major improvements to the quality of transport services and infrastructure like highways, Railway etc.

• Efforts should be made to make the financial sector stronger and more efficient and to ensure optimal allocation of capital.

• Efforts are needed to increase energy and resource efficiency, and accelerate the adoption of clean technology.

• Enhance the cost effectiveness properties of the NREGS to reduce powerty and ineqaulity.

• Improving the functioning of the labour market is essential to long-term growth but also to reduction of inequalities.

• A key challenge for India is to make its agricultural sector more productive and more sustainable.

THANK YOU