The Ministry of Commerce is expected to soon unveil a new industrial policy aimed at modernising India’s industry. In a freewheeling interaction with The Dollar Business, C. R. Chaudhary, Union Minister of State for Commerce & Industry and Consumer Affairs, Food & Public Distribution, talks about the focus areas of the new industrial policy and how his ministry plans to improve ease of doing business across sectors.
Interview by Ahmad Shariq Khan | March 2018 Issue | The Dollar Business
TDB: The Commerce Ministry has, of late, been talking about unveiling a new industrial policy. What areas will the new policy focus on?
C. R. Chaudhary (CRC): The new policy is aimed at creating jobs for the next two decades. The major themes of the new policy this time are to strengthen ease of doing business and reduce compliance costs for the industries across the spectrum. This, in turn, will boost private investments and entrepreneurship, thereby creating more jobs.
This exercise, being done after 25 years, will objectively equip Indian industry for the future. We have held consultations with all stakeholders and we recognise the dual challenge of dealing with existing issues and preparing the industry in the wake of global mega-trends such as servification, Industry 4.0, responsible industrialisation and rising protectionism world over. And these are the reasons why the new industrial policy envisions creating a competitive Indian industry that is equipped with skills, scale and technology to cater to the requirements of the future.
The policy’s key ideas include the introduction of a single ID and a digital platform for all G2B services across the business lifecycle, a paradigm shift toward self-certification and third-party certification, plug and play infrastructure for SMEs, privatising maintenance of industrial estates and creating a national R&D vision. Further, the policy also aims to prevent future job losses that may arise due to Industry 4.0, the global phenomenon of automation in manufacturing. The new policy will also tackle the issue of foreign direct investment as it has provisions that will give weightage to the quality of foreign direct investment (FDI), with a strong preference to investments that are expected to create domestic value additions.
Also, since now we are at the threshold of the digital economy, the new policy will focus on pushing new technologies of automation and data exchange in manufacturing technologies such as Internet of Things (IoT), robotics, artificial intelligence (AI) and cloud computing, among others. We have already constituted a task force to explore possibilities to leverage AI for our country’s economic transformation. The new policy also has components aimed at incentivising R&D with the objective of positioning India as a laboratory for emerging technologies and creating an environment for ease of innovation. Overall, the new industrial policy is going to be very forward-looking in its approach and would prepare India to best capture the opportunities of the future.
TDB: The SEZ sector has, for some time, been urging the government to revisit the MAT, DDT and the Sunset Clause. As per the EPCES, these policies have hurt the sector’s growth and therefore require immediate attention. Can the SEZs expect the new policy to address these issues?
CRC: We are fully aware of the key role being played by the SEZ sector of the country as a vital contributor to the country’s economic growth story. And from time to time we are being apprised of the challenges currently faced by the sector and we are actively working on addressing the same.
We do understand some of the issues raised can be resolved sooner compared to those that are structural in nature and would require a longer time window. However, I must say here, leaving aside some complaints about the misuse of the SEZ policy, the government still believes that the idea of SEZ holds good for the Indian economy. We are aware of the fact that SEZs have started losing sheen after the imposition of Minimum Alternate Tax, DDT and introduction of the Sunset clause. At this point in time, all I can say is that the government is in the process of constituting a group to study the necessary changes required in the SEZ policy to keep them competitive in the global market and is actively conducting interdepartmental discussions with concerned ministries, including the finance ministry, on how to best to ease the tax pressure on the SEZs/EOUs.
TDB: The Commerce Ministry recently held a stakeholders’ consultation with leading exporters, including export promotion councils (EPCs), associations and Chambers, to work out issues related to exporters such as GST, ease of doing business and logistics. What does the new industrial policy hold in store for exporters?
CRC: The government fully understands the importance of export-led growth and the need to enhance competencies that ensure exports. We are actively listening to the exporting fraternity of the country in this regard. All our endeavours are focused on strengthening ease of doing business and reducing compliance costs for the industry. The government, under Hon’ble Prime Minister Modi, has taken several measures to ensure that exporter’s problems are addressed at the earliest possible instance. We understand many exporters have raised issues related to blockage of working capital and timely refunds of GST. I believe our E-wallets are now able to address GST refund issue of exporters, making use of which exporters now do not have to pay and seek refunds as notional credit would now be transferred to exporter’s accounts automatically based on their past records and this credit can be used to pay tax on inputs. With regard to GST refund, I would like to say that the process will be made simpler going forward.
Likewise, we are also assuring the readymade garment exporters assistance in their various export-related issues. I believe the main issues being faced by readymade garment exporters today relate to aspects such as the Rebate of State Levies, GST paid, amended technology upgradation fund scheme, capital subsidy impacting the export growth, etc.
On similar lines, we are reaching out to many industry bodies and resolving their issues. Going forward, I believe, streamlining taxation along with healthy competition among states to attract domestic and global investors will help India break into the top 50 in the World Bank’s Ease of Doing Business rankings.
I also wish to urge the industry to take steps to improve the quality of their products, thereby adhering to zero defect and zero effect policy of the government. We must maintain quality otherwise it will become very difficult for us to do business in the international markets. In this regard, we can cite the example of the European Union’s recently placed ban on India’s basmati rice exports on the grounds of certain technical points. Indian suppliers need to better prepare themselves for these challenges that fall under non-tariff barriers, else they risk losing markets to competition. Worth mentioning here is, in order to continue the vision for credible inspection and certification and to strengthen the confidence on Indian produce, Export Inspection Council (EIC) has recently launched three useful online portals which will further facilitate ease of exporting and reduce transaction time, particularly in the trade of agri-food items. Further, the newly launched ‘The Export Alert Monitoring’ portal will not only monitor non-compliances raised by importing countries, but will also enable monitoring of alerts and action taken by multiple organisations involved in initial certification in the food safety and bio-security. By analyzing the trends and understanding the trade barriers we should be able to enhance our exports. This initiative, I believe, will give a huge boost to our MSMEs that will now find it easier to join the global value chain.
TDB: The Commerce Ministry is also currently working on a comprehensive policy on agri-exports. What are the key issues the government hopes to address with this new policy?
CRC: India, with a large and diverse agricultural sector, is amongst the world’s leading producer of cereals, milk, sugar, fruits, vegetables and spices. India is supporting 17.84% of the world’s population with merely 2.4% of the world’s land and 4% of its water resources. Hence, continuous innovation and efforts towards productivity, pre and post-harvest management, processing and value-addition, technology and infrastructure creation are imperative for Indian agriculture.
Going forward, challenges for the agri sector, however, are aplenty – low farm productivity, poor infrastructure, global price volatility and market access are just some of them. Further, India has so far remained at the lower end of the global agri-export value chain given that majority of its exports are low value, semi-processed and marketed in bulk. Other problems such as lack of consistent policies in the areas of farm production, support prices and R&D, inland transportation, exit point infrastructure and export restrictions have the potential to result in uncertainty among the stakeholders and loss of opportunity. Therefore, we believe, if we are to realise the vision of doubling farmer’s income by 2022, we require a series of interventions to improve production and productivity along with economising the cost of production. This would also require India to augment its exports to the global market to ensure that farmers get a remunerative price and a marketing channel for their production. With globalisation of value chains in the agricultural sector the time is ripe for us to create a dedicated agri-export framework.
Therefore, the new National Agriculture Export Policy is being formulated in line with the vision to increase the share of agricultural exports from present $30+ billion to $60+ billion by 2022. We aim to achieve this by boosting high value and value-added agricultural exports, focusing on perishables, and by providing an institutional mechanism for tackling market access barriers and dealing with sanitary and phytosanitary issues. The Agri-export policy will analyse top agri commodities on the basis of current global and domestic trade to provide Indian exporters with data so that they make better informed decisions. Each commodity will be studied in detail based on five key criteria: global trade, five-year impact potential, India’s current competitiveness, scope for value addition and future market potential.
We also believe the presence of robust infrastructure remains a critical component of a strong agricultural value chain. This involves pre-harvest and post-harvest handling facilities, storage & distribution, processing facilities, roads and world-class exit point infrastructure at ports facilitating swift trade. Given their perishable nature and stringent import standards, efficient and time-sensitive handling is extremely vital to agricultural commodities. The new policy would seek to comprehensively find solutions to all the aforementioned issues and help agri-exports from India grow.
TDB: How important is the ASEAN for India in terms of exports? And what are the win-wins that the two sides should explore?
CRC: India and ASEAN represent a combined population of two billion people and an economy close to $5 trillion. The region is also India’s fourth largest trading partner. The trade between India and ASEAN stood at $71 billion in FY2017, registering an 8% rise year-on-year. I feel deepening trade and economic relations with the ASEAN region is an important component of India’s Act East policy. Our Hon’ble Prime Minister Narendra Modi has been pushing the Act East Agenda under which the two sides are now aiming to scale the bilateral trade up to $200 billion by 2022.
Going forward, it’s imperative that India looks forward to working closely with ASEAN in a range of activities in various sectors such as commerce, tourism, agriculture, environment, renewable energy, telecom, infrastructure, manufacturing, financial services, energy, green economy and skill development. It has been our continuous endeavour to promote dialogue amongst ASEAN and Indian business and trade associations to further enhance bilateral trade and investment. Our offer of a $1 billion line of credit is one such initiative.
We also need to enhance physical and digital connectivity with the region. And, in my view, the government’s ‘Make in India’ initiative provides excellent opportunities for ASEAN countries to enhance trade and investments with India. New initiatives towards ease of doing business and implementation of the GST have paved the way for major opportunities to invest in India. Also, relaxed FDI norms in key sectors, simplified industrial licensing are presently the key attractions of the Indian economy. I am of the view that the ASEAN-India FTA on Trade in Goods, signed in 2009, and upgraded by including services and investment will have an extremely deep strategic impact. However, I believe the said FTA’s true potential is yet to be realised. On the same note, I am positive that once the Regional Comprehensive Economic Partnership (RCEP) comes into effect, it would further give a boost to India’s existing engagement in the region.
TDB: You have recently said that early conclusion of a balanced Regional Comprehensive Economic Partnership (RCEP) agreement is needed to provide a fillip to trade and investment ties with the ASEAN countries. Why have we been unable to conclude the RCEP negotiations?
CRC: RCEP will ensure better regional economic integration with the 10-member Association of Southeast Asian Nations (ASEAN). We believe it’s a logical extension of India’s Act East Policy. Keeping this in view, India will be working closely and constructively with all RCEP member countries towards an early conclusion of negotiations. But you must understand that domestic interests need to protected during the talks. This is also the case with all RCEP member countries. We should all aim to achieve an RCEP that results in the realisation of the potential of the three key pillars of RCEP – goods, services, investment – in a manner that is balanced and collectively satisfactory. Also, I believe, since the services sector constitutes almost two-thirds of India’s GDP and surplus in services trade finances almost half of our trade deficit, it’s the need of the hour that RCEP needs a strong mutually beneficial services pact. India is pushing for greater liberalisation in the services sectors, especially for easier movement of its professionals to RCEP member countries. However, many member countries are resisting this Indian initiative in services under RCEP while insisting that India further expand its tariff liberalisation offer on goods. So far, eight countries have already ratified the ASEAN-India services and investment agreement which came into force in July 2015. We are hopeful that other members will soon complete their national process to ratify the deal.
We also believe provisions for movement of natural persons, especially through the ASEAN-India services and investment agreement, should be supported for efficient mobility of professionals across member countries.
TDB: Some believe that there is a slowdown in the India economy and that has impeded investments. What are we doing to project India as a global investment hotspot? Which sectors hold the most promise for investments?
CRC: I don’t think there is a slowdown. There could be temporary issues as a result of demonetisation and GST’s rollout. However, you must understand that large-scale reforms like GST may lead to hiccups and inconvenience during inception but will be beneficial for the country’s long-term economic growth.
In recent years the government has initiated many pro-investment measures that include laying the base for a less-cash economy with the ultimate goal of moving towards a cashless economy. I believe, Prime Minister Modi’s relentless push on AADHAR has made it significantly easier to do business in India since this has helped to eliminate middlemen, thereby reducing red tape and corruption. Also, banking reforms are a must to give a push to various schemes such as Make in India, Startup India and Standup India that will take the country on a high growth path and create more and better jobs for our youth coming into the workforce. Our government is creating an ecosystem for innovation through these programmes and the country has been receiving huge investments under Make in India and has also become a major startup hub.
In the coming times, the sunrise sectors where there are going to be many opportunities include the services sector, new technology areas like robotics, artificial intelligence, Internet of Things, cloud computing, among others. We are making efforts to prepare the Indian industry and workforce for the future.