Indian opportunities

RBI Speech: Rising opportunities in India

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This article share highlights of RBI governor speech given to CII in July 2020. The agenda of RBI speech covers over rising opportunities in various industrial sectors in India. Readers can visit RBI website for complete speech.

Rising opportunities in India post Covid era

Rising Farm Sector in India

farm sectors reforms in india

Highlights of Indian agriculture sector

  • The total production of food grains reached a record 296 million tonnes in 2019-20, registering an annual average growth of 3.6 percent over the last decade.
  • Total horticulture production also reached an all-time high of 320 million tonnes, growing at an annual average rate of 4.4 percent over the last 10 years.
  • India is now one of the leading producers of milk, cereals, pulses, vegetables, fruits, cotton, sugarcane, fish, poultry and livestock in the world.
  • Buffer stocks in cereals currently stand at 91.6 million tonnes or 2.2 times the buffer norm

Changes required in Indian agriculture sector

  • Main instrument in Indian agriculture has been minimum support prices, but it has proven to be costly, inefficient and even distortive.
  • India has now reached a stage in which surplus management has become a major challenge.
  • We need to move now to policy strategies that ensure a sustained increase in farmers’ income alongside reasonable food prices for consumers.

Reforms in Agriculture sector

The Committee on Doubling Farmers Income expects the total quantum of private investment in agriculture to increase from ₹61,000 crore in 2015-16 to ₹139,424 crore by 2022-23, thus leading to increase in jobs and farm incomes. Following reforms are being undertaken to improve farm income and get most benefits for the farmers.

  • Amendment of the Essential Commodities Act (ECA) is expected to encourage private investment in supply chain infrastructure, including warehouses, cold storages and marketplaces.
  • Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 is aimed at facilitating barrier-free trade in agriculture produce.
  • Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 will empower farmers to engage with processors, aggregators, wholesalers, large retailers, and exporters in an effective and transparent manner.

Key focus in future for agriculture sector

  • crop diversification, de-emphasizing water-guzzlers;
  • food processing that enhances shelf life of farm produce and minimizes post-harvest wastes;
  • agricultural exports which enable the Indian farmer take advantage of international terms of trade and technology;
  • public and private capital formation in the farm sector.

Tapping renewable sources of energy

renewable energy potential india

India’s Power Sector highlights

  1. India has now become a power surplus country, exporting electricity to neighbouring countries.
  2. While the demand for electricity grew at an average rate of 3.9 per cent in India during 2015-16 to 2019-20, supply grew at an average rate of 4.5 per cent and installed capacity increased at an average rate of 6.7 per cent during the same period.

India’s renewable sector highlights

  • The share of renewable energy in overall installed capacity has doubled to 23.4 per cent at end-March 2020 from 11.8 per cent at end-March 2015.
  • 6 per cent of the addition to total installed capacity during the last five years has been in the form of renewable energy, which contributed 33.6 per cent of the incremental generation of electricity.
  • About 90 per cent of this jump stems from solar and wind energy.
  • India is targeting to scale up the share of renewable energy in total electricity generation to 40 per cent by 2030.
  • The shift to greener energy will reduce the coal import bill, create employment opportunities, ensure sustained inflow of new investments and promote ecologically sustainable growth.
  • Renewable power generation technologies have become the least-cost option for new capacity creation in almost all parts of the world. The weighted-average cost of addition to renewable capacity in India was one of the lowest in the world in 2019.

Future of Power Sector

  • Overhaul of the power sector, encompassing deregulation, decentralisation and efficient price discovery.
  • Policy interventions in the form of renewable purchase obligations (RPO) for DISCOMs, accelerated depreciation benefits and fiscal incentives such as viability gap funding and interest rate subvention will have to go through a rethink/need review.
  • Reforming retail distribution of electricity while reducing commercial, technical and transmission losses remains a key challenge. Speeder reforms required to close gap between average cost of supply (ACS) and average revenue realised (ARR)
  • A nationwide Grid integration that can take supply from renewable sources as and when generated is needed to take care of daily/seasonal peaks and troughs associated with renewable sources.
  • India’s per capita electricity consumption is currently among the lowest in the world. This need to be improved.

Growth of Information and Communication Technology (ICT) and Start-ups

Start ups and IT sector in India

Highlights of Information and Communication technology industry

  • ICT industry accounted for about 8 per cent of country’s GDP and was the largest private sector job creator across both urban and rural areas.
  • In 2019-20, software exports at US$ 93 billion contributed 44 per cent of India’s total services exports and financed 51 per cent of India’s merchandise trade deficit during the last five years.
  • IT sector plays an important part in economy, as there is direct association between the count of new firms born in a district and the gross domestic product of that district.
  • Indian IT firms are now at the forefront of developing applications using artificial intelligence (AI), machine learning (ML), robotics, and blockchain technology.
  • Strengthen India’s position as an innovation hub, with several start-ups attaining unicorn status (USD 1 billion valuation). India added 7 new unicorns in 2019, taking the total count to 24, the third largest in the world. According to Traxcn database, funding for Indian tech start-ups touched US$ 16.3 billion in 2019, over 40 per cent increase over the level a year ago.
  • The ‘Start-up India’ campaign recognizes the potential of young entrepreneurs of the country and aims at providing them a conducive ecosystem.

Challenges in Indian ICT sector

  • COVID-19 has impacted the outlook for startups, particularly availability of funding
  • Fierce competition from other developing economies with the potential to provide cost-effective IT services
  • Regulatory uncertainty relating to work permits and immigration policies
  • Concerns relating to data privacy and data security.
  • Promoting young firms and start-ups will be critical for greater employment generation and higher productivity-led economic growth in India.

Improving Global and Domestic Supply Chains

Indian supply chain

Efficient supply chain in our trade can enhance economic welfare like generate higher production, income and employment.

What is Global Value Chain (GVC) in supply chain?

  • GVC encompasses the full range of activities starting from the conception stage of a product to its designing, production, marketing, distribution and post-sale support services performed by multiple firms and workers located in different countries.
  • Strengthening the position of a country in the global value chain (GVC) can help maximise the benefits of openness.
  • The higher the GVC participation of a country, the greater are the gains from trade as it allows participating countries to benefit from the comparative advantage of others in the GVC.
  • More than two-thirds of world trade occurs through GVCs.
  • World Bank (2020) research findings suggest that one per cent increase in GVC participation can boost per capita income levels of a country by more than one per cent.
  • India’s GVC integration, as measured by the GVC participation index, has been low (34.0 per cent, as a ratio of total gross exports) relative to the ASEAN countries (45.9 per cent as a ratio to total gross exports).

Future of Indian supply chain

  • Global shifts in GVCs in response to COVID-19 and other developments will create opportunities for India.
  • Focus on greater strategic trade integration, including in the form of early completion of bilateral free trade agreements with the US, EU and UK.

Infrastructure sector boost in India

Infrastructure sectors reforms

Highlights of India’s infrastructure activities in last 5 years

  • Road: Road construction has increased from 17 kms per day in 2015-16 to close to about 29 kms per day in the last two years.
  • Aviation: India is the third largest domestic market for civil aviation in the world with 142 airports.
  • Airport: On airport connectivity, India ranked 4th among 141 countries in the Global Competitiveness Report, 2019 of the World Economic Forum.
  • Telecommunication: Tele-density (number of telephone connections per 100 persons) in India at end of February 2020 was 87.7 per cent.
  • Internet connectivity: Total broadband connections rose almost ten times – from 610 lakh in 2014 to 6811 lakh in February 2020 – enabling large expansion in internet traffic.
  • Internet data consumption: India is now the global leader in monthly data consumption, with average consumption per subscriber per month increasing 168 times from 62 MB in 2014 to 10.4 GB at end-2019.
  • Internet data cost: The cost of data has also declined to one of the lowest globally, enabling affordable internet access for millions of citizens.
  • Shipping: The average turnaround time of ships in Indian ports – which is an indicator of efficiency of ports – improved from 102.0 hours in 2012-13 to 59.5 hours in 2018-19.
  • Railways: A total of 15 critical projects covering around 562 km track length were completed in 2019-20 and railway electrification work of total 5782 route kms was also completed in 2019-20.

According to estimates of NITI Aayog, the country would need around US $4.5 trillion for investment in infrastructure by 2030. Since financial sector is still recovering from NPA on infrastructure projects, there are other options for financing projects.

  1. The setting up of the National Investment and Infrastructure Fund (NIIF) in 2015 is a major strategic policy response in this direction.
  2. Promotion of the corporate bond market, securitisation to enhance market-based solutions to the problem of stressed assets, and appropriate pricing and collection of user charges should continue to receive priority in policy attention.

Future scope of Indian infrastructure sector

  • Big push to certain targeted mega infrastructure projects (like golden quadrilateral) can reignite the economy.
  • This can be north-south and east-west expressway together with high speed rail corridors, both of which would generate large forward and backward linkages for several other sectors of the economy and regions around the rail/road networks..

End note

We have covered detailed speech of RBI governor to CII.

About Confederation of Indian Industry (CII) –

  • CII is Leading industry association in India
  • President of CII- Uday Kotak
  • Theme for 2020-21 – Building India for New World: Lives, Livelihood, Growth

If you have any questions or doubt, feel free to contact us.

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