Make in India Opportunities and Challenges February 2015
Contents Setting the Context Key Opportunities Challenges to be Overcome 2
Setting the Context FDI Inflows from Japan FDI Inflow in India - from Japan ($ mn) FDI Inflows from Japan ($ bn) 4470 Japan has contributed about 5% of total FDI to India around $16 bn in 2013-14 The total number of Japanese companies registered in India is 1,209 2972 Top sectors that attracted FDI inflows from Japan: 2237 Drugs & Pharmaceuticals (28%) 223 178 412 78 126 208 815 1562 1183 1718 Automobile Industry (16%) Services Sector (15%) 85 Metallurgical Industries (9%) Electrical Equipment (4%) Source: Department of Industrial Policy and Promotion, Government of India FDI inflow from Japan to India is not substantial 3
Setting the Context Japanese FDI Outflow FDI Outflow from Japan to World and India 45.5 Total Japan's Outward FDI (USD bn) Japanese FDI outflow to India as %age of Total FDI Outflow 50.2 0.6% 1.0% 73.5 4.2% 2.0% 130.8 74.7 57.2 108.8 122.4 135.0 4.9% 5.0% 2.1% 2.3% 1.6% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Japan External Trade Organisation (JETRO) India got a share of only 1.6% of total FDI from Japan in 2013 Manufacturing Sector accounts for over 60% of the total FDI outflow from Japan Top Countries and Sector that attracted FDI outflows from Japan: Top 5 Countries (% of total outflow) Top 5 Manufacturing Sectors (% of total outflow) 1. USA (34.3%) 1. Food ( 23.6%) 2. Singapore (6.2%) 2. Transportation Equipment (8.6%) 3. China (5.7%) 3. Metals (5.9%) 4. Thailand (4.5%) 4. Chemicals (5%) 5. UK (4.3%) 5. Gen. Machinery (4.1%) vis-à-vis other countries 4
Setting the Context The Stage is set for more India was cited as among the most promising destinations for expanding businesses in areas of Smart Cities Urban & High-speed Railways Power Generation (Coal and Nuclear Electricity Transmission and Distribution Advanced IT networks Sewage Systems Roads and Bridges Water Supply Wind power Generation Smart grids Photovoltaic power generation Positive Sentiment A JBIC Survey (November 2014) of Japan s manufacturers ranked India 1 st among countries with promising prospects for business operations both over mid-term (next three years) and long term (next ten years) The Top 4 reasons for viewing India as promising were 1. Future growth potential of local market 2. Inexpensive source of labor 3. Current size of local market 4. Supply base for assemblers India present advantages of not just market size, opportunities and skilled resources, but can be leveraged as a hub for serving the region and global supply chain 5
Key Opportunities Significant Spend in Infrastructure Planned 11th Plan Actual (2007-2012) 12th Plan Outlay (2012-2017) Outlay on Infrastructure for 12 th Five year Plan is around $ 1 tn 130% growth over actual 11 th Five year Plan Expenditure on Infrastructure 250 All figures in bn $ Power and Transport Infrastructure accounts for about 50% of outlay 121 157 152 107 76 64 40 41 84 15 53 43 20 33 25 24 7 10 9 Two major themes of opportunities in Infrastructure sector are : Smart Cities - Brownfield (around $113 bn over 20 years) and Greenfield (about $85 bn over 10 yrs) Industrial Corridors (investment outlay* estimated at $ 400 bn) Source: Planning Commission Significant Outlay in Infrastructure favors an improved investment environment and an opportunity for Japan to invest * Estimated based on investment outlay of $100 bn for Delhi Metro Industrial corridor 6
Key Opportunities Land Acquisition Related Reforms The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (Amendment) Ordinance, 2014 The Ordinance exempts land acquisition for infrastructure projects for public purposes to be exempt from provisions on social impact assessment and consent clause for affected parties The Infrastructure purposes are: national security or defense production rural infrastructure including electrification Affordable housing Industrial corridors infrastructure and social infrastructure projects including PPP projects where land ownership continues to vest with the Government Expected to reduce the time taken to acquire land for select infrastructure based projects States like Gujarat has empowered GIDC to collate a land bank Linked with GIS applications ensures land possession application disposal within 45 days AP also has GIS based Land Management to enable investor to understand locational feasibility Post Acquisition processes (State Level) Computerised land records, registration and title (e-dhara Bhulekh) in Gujarat - Time to issue various land certificates reduced to less than a day IT based registration processes and access to digitized land records (Karnataka, AP) time taken to register land takes 1 to 3 days 7
Key Opportunities Simplification of Labour Laws Improving the Compliance Unified Shram Suvidha Portal - manufacturers to register and file a single harmonized annual report for 16 Central labour laws Curb the arbitrariness of labour inspections by four central agencies EPFO, Employees State Insurance Corporation, Central Labour Commissioner and Director General of Mines Safety Apprentices (Amendment) Act, 2014- Removes need for compliance and replaces penal imprisonment provision with Monetary fine For compliance at State level, Rajasthan, Haryana and Uttar Pradesh have made online portals for registration/ renewal under Factories Act Maharashtra (Mahashramm - Labour Management Sytem) has reduced compliance period from 15 days to 0.5 days (DIPP study) Leveraging the Demographic Dividend India offers significant demographic dividend with nearly 50% of population under 25 years & about 200 million expected to enter the workforce over the next decade. A multipronged approach has been conceived as follows: About 17 ministries are currently engaged in undertaking various skill development initiatives, with a combined target of imparting skills to 350 million people by 2022 Key agencies to play the role National skill Development Authority (Apex level) State Skill Development Missions (state level) National skill Development Sector specific Skill council Apprentices (Amendment) Act, 2014 - aims to augment the number of apprentices from the existing 0.2 million (Japan has 3 million) 2014 Deloitte Touche Tohmatsu India Private Limited 8
Challenges to be Overcome But there are Challenges Infrastructure Underdeveloped Infrastructure ranked 1 st among issues faced by Japanese Manufacturers in India 1 Power and Transport Infrastructure cited as major bottlenecks Land Acquisition Procedural delays in Land acquisition is a key bottleneck 2 Average time taken to acquire land is 14 months 2 Land Related Approvals post Acquisition Labour and Skill 2015 Deloitte Touché Tohmatsu India Private Limited India ranked 121 on indicator pertaining to property registration 3 land end use conversion may take more than 6 months 4 On an Average it takes 47 days to register a property 3 Labour problems feature among the top 5 issues reported by Japanese Manufacturer in India Renewal of factory license may take more then a month 4 Arbitrary inspections reported 4 1. JBIC Survey of Japanese Manufacturers 2014 2. CII Ease of doing Business Survey 2014 3. World Bank Study on Doing Business 2015 4. Planning Commission - Survey on Business Regulatory Environment for Manufacturing State Level Assessment 2014 9
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