msmes in india
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MICRO, SMALL ANDMICRO, SMALL ANDMICRO, SMALL ANDMICRO, SMALL ANDMICRO, SMALL ANDMEDIUM ENTERPRISESMEDIUM ENTERPRISESMEDIUM ENTERPRISESMEDIUM ENTERPRISESMEDIUM ENTERPRISES
(MSMES) IN INDIA(MSMES) IN INDIA(MSMES) IN INDIA(MSMES) IN INDIA(MSMES) IN INDIA
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MICRO, SMALL AND MEDIUMMICRO, SMALL AND MEDIUMMICRO, SMALL AND MEDIUMMICRO, SMALL AND MEDIUMMICRO, SMALL AND MEDIUM
ENTERPRISESENTERPRISESENTERPRISESENTERPRISESENTERPRISES
(MSMES) IN INDIA(MSMES) IN INDIA(MSMES) IN INDIA(MSMES) IN INDIA(MSMES) IN INDIA
The Micro, Small & Medium enterprises(MSMEs) is one of the most vital sectors of anyeconomy in general and India in particular inensuring equitable, inclusive & employmentfriendly economic growth. MSMEs have beenplaying a momentous role in overall economicdevelopment of a country like India wheremillions of people are unemployed orunderemployed. This sector solves manyproblems viz. poverty & unemployment byproviding immediate large-scale employment,with lower investments and proves to be thesecond largest manpower employer, afteragriculture. By contributing to more than fiftyper cent industrial production in valueaccumulation terms, this sector occupies aposition of prominence in Indian economy. Inthis regard, Prime Minister Dr. ManmohanSingh stated, “the key to our success inemployment lies in the success of manufacturingin the small scale sector”.
MSMEs play very important role in socio–economic development of Indian economy onaccount of their inherent advantages like lowcapital requirement, high employmentgeneration, decentralization of industrialactivity, utilization of locally available resourcesand widening of entrepreneurial base. MSMEshave a place of pride in Indian economy. The
growth rate recorded by this sector has normallybeen higher than that of the industrial sectoras a whole. The small scale industrial sectorhas emerged over five decades as a highlyvibrant and dynamic sector of the Indianeconomy. MSMEs has performed exceedinglywell and enabled the country to achieve a widemeasure of industrial growth and diversification.The employment generating potential of thissector reveals its aptness for labour surpluseconomy like India.
The Micro, Small and Medium Enterprises(MSME) or Small and Medium enterprises(SMEs) are also known as small scale industries.(SSIs) are defined on the basis of theirinvestment in plant and machinery (formanufacturing enterprises) as well as inequipments for service enterprises. The Ministryof Micro, Small and Medium Enterprises,Government of India imposed the Micro, Smalland Medium Enterprises Development(MSMED) Act in 2006 which defines MSMEfor both manufacturing and service sector. Incase of manufacturing sector, micro enterpriseis where the investment in plant and machinerydoes not exceed twenty five lakh rupees; smallenterprise is that enterprise in which theinvestment in plant and machinery is more than
TABLE 1: CLASSIFICATION OF MSMEs BASED ON INVESTMENT SLABSSource: Small & Medium Enterprises Development Act, 2006.
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twenty five lakh rupees but does not exceedfive crore rupees; medium enterprise is thathaving investment in plant and machinerymore than five crore rupees but does not exceedten crore rupees.
In case of the enterprises engaged inproviding or rendering of services, microenterprise is that one in which the investmentin equipment does not exceed ten lakh rupees;small enterprise is where the investment inequipment is more than ten lakh rupees butdoes not exceed two crore rupees; mediumenterprise is where the investment in equipmentis ranging between two crore rupees and fivecrore rupees. The ceilings on investment for themicro, small and medium enterprises both inmanufacturing sector and service sector can besummarized in Table 1.
Role of MSMEs in Economy
The Micro, Small and Medium enterprisesector has recorded a high growth rate sinceindependence in spite of stiff competition fromthe large sector and not so encouraging supportfrom the government. Presently, there arearound 29.81 million MSMEs in India. The sizeof the registered MSME sector is estimated tobe 1563974. Of the total working enterprises,the proportion of micro, small and mediumenterprises are 94.94 per cent, 4.89 per centand 0.17 per cent respectively. This comprisesof 67.10 per cent manufacturing enterprises and32.90 per cent services enterprises. About 45.23per cent (7.07 lakh) of the units were locatedin rural areas. MSMEs are producing widerange of products, from simple traditional craftsand consumer goods to highly sophisticatedproducts like micro–processors, mini computers,
electronic components, electro–medical devices,etc. The growth of MSME sector can be shownthrough Table 2.
Table 2 highlights the growth performanceof MSME sector during 2001-02 to 2010-11. Itis clear that the total numbers of MSMEs haveincreased from 105.21 lakh in 2001-02 to311.52 lakh i.e. in 2010-11 at the compoundannual growth rate (CAGR) of 16.1 per cent.The fixed investment in this sector have alsoraised in a considerable manner from Rs154349 crore in 2001-02 to Rs 773487 crore in2010-11 with a significant CAGR of 24.1 percent. The value of production of MSMEs hasgrown at the compound rate of 17.6 per cent
during the period of ten years. A major pointto be noted here that is the explosive growth ofMSMEs in the year 2006-07. Despite, the globalmeltdown, MSME sector registered aconsiderable growth rate in terms of units,production, and investment etc.
However, MSME sector has maintained ahigher rate of growth vis-a-vis the overallindustrial sector which can be observed fromthe comparative growth rates of productionover the period of time for both the sectors.The growth rate of MSME sector, in terms ofindex of industrial production (IIP) (base 2001-02) reached to 13 per cent in 2007-08. Whilethe overall industrial sector achieves only 8.70
TABLE 2 : GROWTH RATE OF MSMEs IN INDIAN ECONOMY
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per cent growth rate in terms of IIP for thesame year. It is also cleared that MSME sectorhas also consistently attained a higher growthrate as compared to the overall industrial sectorin each year during 2002-03 to 2007-08.Another important point here is that the sharpdecline in the growth rate of industrial sectorin the year 2008-09, which may be due to theimpact of global economic crises.
The development of MSMEs has beenviewed as a powerful instrument for acceleratedindustrial growth, productive employmentopportunities and export earnings in anyeconomy in general and India, in particular.This sector is contributing to the manufacturingoutput, employment and exports in Indianeconomy since long time. This sector accountsfor about 45 per cent of the manufacturingoutput and 40 per cent of the total exports ofthe country. The sector is estimated to employ
about 60 million persons in over 26 millionevents throughout the country.
MSMEs are labour-oriented and labourintensive with relatively high labour-investmentratio. A given amount of capital invested inthis sector of industries is likely to provide moreemployment, at least in short run, than the sameamount invested in a large industry. It has beenestimated that a lakh rupees of investment infixed assets in the small scale sector generatesemployment for four persons. It will not bewrong to say that small scale sector in Indiacreates largest employment opportunities for theIndian populace, next only to agriculture.
Similarly, MSMEs play a major role inpresent export performance of India becauseabout 45-50 per cent of the Indian exports arebeing contributed by this sector. The role ofMSMEs in employment generation as well as inexports can be seen through following Table 3:
The above table 3 clearly depicts the criticalrole of MSMEs in employment generation andin Indian exports during 2001-02 to 2010-11.The number of persons employed in this sectorstood at 249.33 lakh in 2001-02 and reached to732.17 lakh in 2010-11 at the CAGR of 15.5per cent. Besides, the growth rate ofemployment achieved by this sector in 2006-07was more than hundred per cent. Similarly,the contribution of MSMEs in exports is quitesignificant. The value of production exportedby this sector has grown at the compound rate
of 20.1 per cent over the period. However,export-oriented MSMEs are impacted fromimminent global slowdown; as a resultpercentage increase in exports during 2007-08was less in comparison to earlier five years.
MSMEs constitute an important and crucialsegment of the industrial sector in Indianeconomy. By contributing to the overall growthof the gross domestic product, employmentgeneration and exports, the sector is emergedas the engine of growth for Indian economy.The performance of MSMEs has a direct impact
TABLE 3: ROLE OF MSMEs IN EMPLOYMENT GENERATION & IN EXPORTS IN INDIA
Source: Ministry of MSMEs, Annual Report, 2011-12, GOI
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Similarly, the contribution of the MSME sectorto the gross domestic product (GDP) hasincreased from 5.77 per cent in 2001-02 to 8.72per cent in 2008-09 which justifies the need forcontinuous efforts to sustain the progress ofMSME sector.
Despite the appreciable performance ofMSME sector and its significant contribution inIndian economy, the problem of industrialsickness is persisting in this sector. It is not soeasy to define a sickness. Generally, a sickindustry is defined as one which is not able toearn a reasonable return on capital employedand to build up reserves after providingreasonable depreciation. According to ReserveBank of India, a small scale industrial unit isconsidered as sick when any of its borrowableaccounts has become a doubtful advance thatis most important or interest in respect of anyof its borrowal accounts has remained overduefor a period more than two and half years andthere is wearing away in the net worth due toaccumulated cash losses to the extent of 50 percent or more of its climax net worth during theforgoing two accounting years.
Industrial sickness is a continuing processwith distinct stages taking some years to corrodethe health of a unit beyond cure. It starts withdownturn in the industry whose continuationleads to setting in of industrial sickness. Thenumber of sick units among MSMEs declinedto 0.85 lakh in 2008-09 from 1.77 lakh in 2001-02. Their percentage in total MSMEs has also
reduced from 1.68 per cent in 2001-02 to 0.36per cent in 2008-09. The total investment inMSME units stood at Rs. 154349 crore in 2001-02 out of which 3.12 per cent of investmentwas incurred on sick units of MSME sector.The percentage of investment on sick unitsranged from 0.55 per cent to 3.52 per cent overthe years.
PROBLEMS FACED BY MSMEs IN INDIANECONOMY
The small and medium scale enterpriseshave suffered with many problems, which aremainly depending on the level of economic andsocial development of the country. India as adeveloping country is not an exception to theabove condition. Though, there are unlimitedproblems connected with MSMEs, some of themare given below. They are:
• Difficulties in obtaining credit, competingwith imported products, identifyingappropriate technology & technicalassistance, investment promotion andmaladjusted project preparation andevaluation.
• Inability to offer liberal credit terms in thesale of their products, absence ofmanagement expertise, under capitalizationand bureaucratic red tapism andregulations.
• Lack of industrial training & skill formation,quality control & testing facilities, proper
on the growth of overall economy. Thecontribution of MSMEs in total industrialproduction and gross domestic product ishighlighted in the Table 4:
It can be seen from the table that thecontribution of the MSME sector to overallindustrial production has increased from 39.12per cent in 2001-02 to 44.86 per cent in 2008-09.
TABLE 4: CONTRIBUTION OF MSMEs IN GDP IN INDIASource: Ministry of Micro, Small & Medium Enterprises, Annual Report, 2010-11, GOI
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market promotion, both domestic & export,scientific & industrial research, lack ofmanagement & reorganization of small &medium scale enterprises through variousschemes and productivity increase throughmodernization.
Thus, MSMEs are facing multi-dimensionalproblems. However, this sector in India has beenconfronted with an increasingly competitiveenvironment due to:
(i) liberalization of the investment regimein the 1990s, favouring foreign directinvestment at the international level,particularly in socialistic anddeveloping countries;
(ii) the formation of the World TradeOrganization (WTO) in 1995, forcingits member- countries (including India)to drastically scale down quantitativeand non-quantitative restrictions onimports, and
(iii) domestic economic reforms.
The cumulative impact of all thesedevelopments is a remarkable transformationof the economic environment in which MSMEsoperate, implying that this sector has no optionbut to ‘compete’.
Opportunities and constraints ofglobalization from the view point ofMSMEs:
Globalization may be defined as the processof integrating various economies of the worldwithout creating any hindrances in the free flowof goods and services, technology, capital andeven labour or human capital. Therefore, itsignifies internationalization plus liberalization,through which the world has become a smallglobal village.
OPPORTUNITIES:
(i) Exposure to foreign markets:Globalization has opened up theeconomy and integrated it with theworld economy. The MSMEs enjoy thebenefits of selling their products andservices to the world market ratherthan being confined into domesticmarket. The free economy ushers in
accessibility to bigger markets, greaterlinkages for SMEs with largercompanies and marketing outfits,improved manufacturing techniquesand processes.
(ii) Flow of foreign investment andtechnology: The MSMEs in India sufferfrom outdated technology and sub-optimal scale of operation. Manyforeign companies have tied up withIndian MSMEs and helped them touse better technology, managerial skilletc. Thus, a proper collaborationbetween the small and largecompanies can help small firms todevelop technology base throughResearch & Development activities,contribution from the technologicalinstitutes, universities, etc.
(iii) Emerging areas of business: MSMEshave been able to identify manyuncommon but highly promisingbusiness areas like outsourcing,medical transcription, clinical researchtrials, sub-contracting, ancillarizationand many new technologies likebiotechnology, nanotechnology, etc.which are attractive for the newgeneration MSME entrepreneurs.
(iv) Less Govt. Intervention: As theeconomy is mainly market driven;there is less Govt. intervention, redtapes, less control on import andexport etc. The MSMEs would beallowed to work in a freeenvironment.
(v) Employment generation: Being labour-intensive in nature, the MSMEs makesignificant contribution in employmentgeneration and expanding industrialnetwork in rural areas. This sectornurtures the traditional skills andknowledge based small and cottageindustries. The workers inherit andtransfer skills from generation togeneration. The handicrafts and otherproducts produced by this sector havegood demand in market. The MSMEshave been a good source ofemployment generation and can beeven more if the sector gets supportin terms of infusion of technology,capital and innovative marketingtechniques, etc.
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(vi) Better performance by the MSMEs:Before globalization, the MSME sectorwas a highly protected sector.Suddenly, after globalization theydiscovered that many of suchprotective measures were withdrawnand they had to fight for theirexistence. This competitiveness indomestic and global market mightbring out superior performance.
(vii) Better Customer Satisfaction - As thedomestic market gets competitive,small and medium firms try to satisfythe consumers in every possible way.They try to produce products as perthe needs and preferences of theconsumers and satisfy the customersin the best possible way.
(viii) Short and long term capital - In aliberalized economy, banks would tryto find out new avenues of givingcredits to increase their profitability.Thus, supply of funds may be easier.Development in money market wouldinitiate development in capital market.
(ix) Export contribution - The productsproduced by MSME sector (like sportsgoods, readymade garments, woollengarments and knitwear, plasticproducts, processed food and leatherproducts, handicrafts, etc.) have anexcellent foreign market. As per theresults of fourth MSME census (2006-07), this sector registered an exportearning of Rs. 202017 crores in 2007-08.
(x) Removal of Regional disparity -People from remote areas have thetendency to migrate to urban areas insearch of jobs. This creates excessivepressure on urban areas and initiatessocial and personal problems. Thisproblem can be addressed by settingup a network of micro, small andmedium enterprises in economicallybackward areas. MSME sector cantake care of local needs, improveeconomic condition of the area andmost importantly, can bring aqualitative change in the economy ofthe country.
(xi) Better industrial relations - TheMSMEs are less prone to industrialdisputes. However, the truth behind
the scene is the workers in smallsectors are mostly from unorganizedsector and cannot raise their voicecollectively. Thus, apparently, theyshare harmonious relations with thefirm owners.
CONSTRAINTS: Process of globalizationhas resulted in some serious constraints on theMSMEs:-
(i) Financing Problems: Financing hasalways been a major problem for thesmall and medium industries in India.The MSMEs mostly depend on internalsources of finance (personal savings,loan from relatives, and loan fromlocal money lenders) than that ofinstitutional financing by banks andother financial institutions. TheScheduled banks do not consider theMSMEs as preferred area ofinvestment. Traditionally, bankingsector considers Small industries arisky field of investment due toreasonably low growth rate of thesmall firms, firms following informalbusiness practices, inability of theMSME entrepreneurs to maintaincollateral securities, lack ofcreditworthiness, relatively highprocessing cost, and poor flow ofinformation. Moreover, incidence ofNon-Performing Assets (NPA) inSmall and Medium Sector is about 15percent compared to about 9 percentin large business houses.
(ii) Extreme competition: The MSMEsface ruthless competition from thelarge domestic firms andmultinationals armed with improvedtechnology, managerial ability, skilledworkers, marketing skills, betterproduct quality, and wide range ofproducts. The small firms find itdifficult to maintain their existence asthe cases of merger and acquisitionare continuously increasing.
(iii) Poor Technology Base: There existsconsiderable heterogeneity among theMSMEs in India. A small percentageof firms operate with sophisticatedtechnology base whereas majority offirms use outdated technology. Theysuffer from low productivity and poor
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product quality. Due to their smallsize, they cannot enjoy large-scaleproduction economies.
(iv) Lack of infrastructure: Infrastructurallacking includes inadequate powersupply, transportation, water supplyetc. Small firms cannot bear the cost ofsetting up independent power supplyunit. They have to depend on irregularpower supply from the electricityboards. Inadequate transportationsystem increases cost of production.The MSMEs producing beverages,tobacco products, medicines, etc. facethe problem of inadequate watersupply. As per the study conducted byKeshab Das and Sebastian Morris(2001), out of 1063 surveyed firms, 716firms (more than sixty-seven percent)confessed that they have seriousinfrastructural problems.
(v) Lack of Skilled workers: ThoughIndia has no shortage of humanresource, most of them are unskilledworkers. Large firms pay higherremuneration and employ skilledworkers. The MSMEs have to operatewith unskilled or semi-skilled workers.Thus, the MSMEs suffer from lowmanagerial capabilities.
(vi) Marketing and Distribution Problems:Marketing is probably the mostneglected and less explored problemfor Micro and Small firms. Most ofthem do not have any well formulatedmarketing strategy, market researchprogrammes, innovative advertise-ment techniques, etc. Most of theMSMEs do not have adequatemonetary support to developmarketing section and many are notaware of modern low-cost marketingtechniques (blogging, sending mails,developing website for the company).
(vii) Delayed payments: The small firmsfind it difficult to recover their duesfrom the large firms and even fromGovt. departments due to complexpayment procedure and corruption.Due to lack of funds, they cannotemploy credit collection machineries(like factoring services). The largefirms force them to offer long credit
period and even pay advance toensure timely supply of materials.
(viii) Gradual withdrawal of ReservationPolicy : Reservation Policy, introducedin 1967 emphasized that someproducts would be earmarked forexclusive production by the smallenterprises and Non-MSME units canundertake manufacture of reserveditems only if they undertake 50 percentexport obligations. Withdrawal ofreservation policy allowed MNCs andlarge domestic firms to producereserved items without any restrictionsand increased the degree ofcompetition for the small firms.However, Several Expert Committeeslike Abid Hussain (1995), Shri T.S.Vijayaraghavan (1997), Confederationof Indian Industries (CII) (1997), etc.concluded that reservation policy isno longer helpful for MSMEs asMSME units with no reservationfacility have performed better thanthose units with reservation support.Moreover many MSMEs do notproduce the reserved items and manyMSME Entrepreneurs do not considerit a relevant policy.
(ix) Mindset Problems: The mindset of themany MSME entrepreneurs has notyet changed. They still expectprotection policies and preferentialtreatment for the MSMEs. Fortunately,this tendency is low in the newgeneration entrepreneurs. Workshops,success story based approach mayhelp reduce this tendency even more.
(x) Outflow of wealth: Globalizationprocess seems to favour the developedcountries and the multinationals morethan that of developing countries andthe MSMEs. The MNCs use domesticwealth, infrastructure, and localunskilled workers at a lower cost andrepatriate huge profits to their owncountries.
(xi) More prone to global fluctuations: Awell liberalized economy reacts moresharply with the changes in globalmarket. The demand and supplywould be determined by globalfluctuations and not by the needs ofthe consumers.
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(xii) Social welfare areas neglected: TheMNCs are more willing to produceconsumer goods to maximize theirprofit. The qualitative services likehealth, education, etc. which requirehuge investment but generate less andtime taking return on investment,would be neglected.
Government Schemes for SMEs
There are various schemes run by theIndian Government to boost the SME’s in thecountry to help them become more innovative,efficient and competitive. The enactment of theMicro, Small and Medium EnterprisesDevelopment (MSMED) Act, 2006 was alandmark initiative taken by the Governmentof India to enable the SMEs’ competitivestrength, address the issues and challenges andreap the benefits of the global market. SMEpolicy initiatives at the national and state levelare aimed at strengthening the role of SMEs atthe base as well as at the higher level.
The Ministry of Micro, Small and MediumEnterprises (MSME) is implementing thepromotional schemes for the development ofmicro, small and medium enterprises. Theschemes and programmes generally focus oncapacity building in states and regions;nevertheless, there are a few schemes andprogrammes, which are individual beneficiary-oriented.
Some of the schemes by the Ministry ofMicro, Small and Medium Enterprises (MSME)are as below.
• Scheme of Surveys, Studies and PolicyResearch.
• Entrepreneurship Development InstitutionScheme.
• Scheme of Fund for Regeneration ofTraditional Industries (SFURTI).
• Rajiv Gandhi Udyami Mitra Yojana(RGUMY).
• Marketing Assistance Scheme(Implemented through NSIC).
• Performance and Credit Rating Scheme(Implemented through NSIC).
• Prime Minister’s Employment GenerationProgramme (PMEGP) (Implementedthrough KVIC).
• Product Development, Design Interventionand Packaging (PRODIP) (Implementedthrough KVIC).
• Khadi Karigar Janashree Bima Yojana forKhadi Artisans (Implemented throughKVIC).
• Interest Subsidy Eligibility Certification(ISEC).
While there are no specific reservations forwomen, there are some concessions/incentivesavailable under these programmes for thebenefit of women entrepreneurs. In respect ofentrepreneurship/skill development trainingprogrammes, under the National Awards forEntrepreneurial Development (QualityProducts) and Trade Related EntrepreneurshipAssistance and Development (TREAD)Programme for women, the necessary guidelineshave been issued and specific reservationprovided for women. Similarly, under twoemployment generation programmes beingimplemented by the Ministry like RuralEmployment Generation Programme (REGP)and Prime Minister’s Rozgar Yojana (PMRY),some concessions have been provided forwomen beneficiaries. Besides, the Coir Board isimplementing the Mahila Coir Yojana, whichis a women oriented self-employmentprogramme.
There are certain schemes which NationalSmall Industries Corporation carries forwardto assist small enterprises with a set of speciallytailored schemes designed to put them in acompetitive and advantageous position. Theschemes comprise of bank credit facilitation,Export credit Insurance, SME Credit Rating,Bill discounting schemes, Government storespurchase programme, infomediary services,facilitating marketing support, technologysupport and other support services.
Besides these schemes, the Government ofIndia also runs a International CooperationScheme for Technology infusion and/orupgradation of Indian MSMEs, theirmodernisation and promotion of their exportsare the principal objectives of assistance underthe International Cooperation Scheme.
SPECIAL ECONOMIC ZONES (SEZs) inINDIA
An SEZ is a trade capacity developmenttool, with the goal to promote rapid economic
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growth by using tax and business incentives toattract foreign investment and technology. AnSEZ can also be identified as a geographicalregion which has more liberal economic lawsthan a country’s typical economic laws. Today,there are approximately 3,000 SEZs operatingin 120 countries, which account for over US$600 billion in exports and about 50 million jobs.By offering privileged terms, SEZs attractinvestment and foreign exchange, spuremployment and boost the development ofimproved technologies and infrastructure.
Most developing countries, like India, acrossthe world have recognized the importance offacilitating international trade for the sustainedgrowth of the economy and increasedcontribution to the GDP of the nation. As apart of its continuing commitment toliberalization and to trigger larger flow offoreign and domestic investment for thegeneration of additional economic activity andcreation of employment opportunities,government of India started promoting SEZs.India was one of the first in Asia to recognizethe effectiveness of the Export Processing Zone(EPZ) model in promoting exports. Asia’s firstEPZ was set up in Kandla in 1965. EPZ‘s couldnot prove their efficacy in Indian economy andso could not attract larger foreign investments.Therefore, due to the shortcomings experiencedon account of the multiplicity of controls andclearances; absence of world-classinfrastructure, and an unstable fiscal regime,the Special Economic Zones (SEZs) Policy wasannounced in April 2000. This policy intendedto make SEZs an engine for economic growthsupported by quality infrastructurecomplemented by an attractive fiscal package,both at the Centre and the State level, with theminimum possible regulations. SEZs in Indiafunctioned from 1.11.2000 to 09.02.2006 underthe provisions of the Foreign Trade Policy andfiscal incentives were made effective throughthe provisions of relevant statutes.
To instill confidence in domestic as well asforeign investors and signal the Government’scommitment to a stable SEZ policy, extensivediscussions with the stakeholders were held toevolve a comprehensive draft of SEZ Bill, 2005.A number of meetings were held in variousparts of the country both by the Minister forCommerce and Industry as well as senior
officials for this purpose. And thereafter, theMinistry of Commerce and Industry laid downthe regulations that govern the setting up andadministering of the SEZs. State Governmentsplay a significant lead role in the developmentof SEZs in their respective States by stipulatingthe conditions to be adhered to by an SEZ andgranting the necessary approvals. The policyframework for SEZs has been enacted in theSEZ Act and the supporting procedures arelaid down in SEZ Rules.
The Special Economic Zones Act, 2005, waspassed by Parliament in May, 2005 whichreceived Presidential assent on the 23rd of June,2005. After extensive consultations, the SEZAct, 2005, supported by SEZ Rules, came intoeffect on 10th February, 2006, providing fordrastic simplification of procedures and forsingle window clearance on matters relating tocentral as well as state governments.
The main objectives of the SEZ Act are:
• Generation of additional economic activity
• Promotion of exports of goods and services;
• Promotion of investment from domestic andforeign sources;
• Creation of employment opportunities;
• Development of infrastructure facilities;
The Special Economic Zones Act, 2005 wasdeveloped to overcome the shortcomings ofexisting statutes governing the SEZ‘s in Indiaand to simplify the procedures for development,operation, and maintenance of the SpecialEconomic Zones and for setting up units andconducting business in SEZs.
The SEZ Rules provide for:
• Simplified procedures;
• Single window clearance for setting up ofan SEZ;
• Single window clearance for setting up aunit in a Special Economic Zone;
• Single Window clearance on mattersrelating to Central as well as StateGovernments;
• Simplified compliance procedures anddocumentation with an emphasis on self-certification.
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Incentives and Facilities Offered To SEZs InIndian Economy:
The incentives and facilities offered tothe units in SEZs for attracting investmentsinto the SEZs, including foreign investmentinclude:-
• Duty free import/domestic procurement ofgoods for development, operation andmaintenance of SEZ units.
• 100% Income Tax exemption on exportincome for SEZ units under Section 10AAof the Income Tax Act for first 5 years,50% for next 5 years thereafter and 50% ofthe ploughed back export profit for next 5years.
• Exemption from minimum alternate taxunder section 115JB of the Income Tax Act.
• External commercial borrowing by SEZunits upto US $ 500 million in a yearwithout any maturity restriction throughrecognized banking channels.
• Exemption from Central Sales Tax. • Exemption from Service Tax. • Single window clearance for Central and
State level approvals. • Exemption from State sales tax and other
levies as extended by the respective StateGovernments.The major incentives and facilities
available to SEZ developers include:-
• Exemption from customs/excise duties fordevelopment of SEZs for authorizedoperations approved by the BOA.
• Income Tax exemption on income derivedfrom the business of development of theSEZ in a block of 10 years in 15 years underSection 80-IAB of the Income Tax Act.
• Exemption from minimum alternate taxunder Section 115 JB of the Income TaxAct.
• Exemption from dividend distribution taxunder Section 115O of the Income Tax Act.
• Exemption from Central Sales Tax (CST). • Exemption from Service Tax (Section 7, 26
and Second Schedule of the SEZ Act).
Efficacy of Special Economic Zones:
Benefit derived from SEZs is evident fromthe investment, employment, exports andinfrastructural developments additionally
generated in Indian economy. The benefitsderived from multiplier effect of the investmentsand additional economic activity in the SEZsand the employment generated thus has faroutweighed the tax exemptions and the losseson account of land acquisition. Stability in fiscalconcession is absolutely essential to ensurecredibility of Government intensions. Tables anddiagrams given hereinafter containing theinformation regarding “Level of investment infunctional SEZs in India”, “Level ofEmployment in Functional SEZs in India”,“Exports from SEZs during the last Five Years(from2003-04 to 2007-08)”, gives clear pictureof efficacy of SEZs in Indian economy.
SEZs – Engines of Economic Growth:
The Special Economic Zone policy waspromulgated by the Government of India inyear 2000 to correct the shortcomings of theEPZs like size, infrastructure constraints,location handicaps and lack of policyframework. This policy aimed to make the SEZsengines of economic growth, supported byquality infrastructure and complemented by anattractive fiscal package and a plethora of sopslike:
Tangible benefits:
• Contribution to respective State’s GDP. • Employment generation (Direct & Indirect). • Creation of world class self-contained
infrastructure. • Improvement in fiscal position of the state
due to consequential benefits- cascadingeffect on economic activity.
• Increase in State’s revenues from VAT,Property taxes, Stamp Duty, etc.
Intangible benefits:
• National and International recognition asPreferred Investment Destination
• Facilitates urbanization – shift fromagriculture to industry.
• Creation of high quality social infrastructure. • Reduction in pressure on existing urban
infrastructure. • Better standard of living. • Improved competitiveness of the local
industry. • Absorption of latest technology and
managerial capabilities.
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• Environmental benefits from planneddevelopments.
• Rehabilitation of Project Affected Persons
India must not fail to encash the benefitsthat SEZs could bring to the country. India must
areas are difficult/not possible - must definitelybe encouraged without getting intoapprehensions about their numbers, lower landarea requirement etc., in the interest of quickimplementation of SEZs.
SEZs as vehicle for Job Creation – Reaping thedemographic dividend:
India needs to convert its demographicprofile into a beneficial cycle of creatingproductive jobs for the rising work forceresulting into higher savings, which in turnleads to investments and economic growth.India’s median age is just under 25 years whichmeans that there are over 500 million peoplebelow 25 years of age. Two-thirds of these 500million are supported by the agricultural sector,
try to emulate the success of Chinese SEZ model,but by customizing their model to our specificrequirements. For example, sectors where Indiahas inherent strengths, like IT and gems &jewellery - the manpower requirements forwhich only being available in cities where large
a sector which contributes just 21 per cent tothe GDP. These people have rising aspirationsand must find jobs in manufacturing andservices sectors. If substantial job creation doesnot take place, it would have serious, if notdisastrous, social and economic implications forthe country.
SEZs are job creators - it was estimated thatclose to 15,00,000 jobs (by end of 2010) wouldbe created by SEZs.
Manufacturing needs a leg up - SEZs are theanswer:
Poor infrastructure, an interferingadministration and unfriendly tax lawenvironment, and unfavourable labour laws aresome of the factors affecting manufacturing
Exports from SEZs during the Years (2003-04 to 2008-09)
Level of Employment in Functional SEZs in India
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competitiveness in India. This is reflected inIndia’s poor ranking on the list of global goodsexporting countries. In 2005, India’s share inworld goods exports was under 1 percent,which is lower than many other smalleconomies, including Thailand and Indonesia.
It has become imperative for India toimprove its manufacturing environment. Giventhe current political and economic set-up,improving conditions nationwide formanufacturing will be difficult. Hence, it maybe a better strategy for India to create theenabling environment in pockets - high qualityinfrastructure, a liberal and supportive businesspolicy environment, which will give thenecessary push to manufacturing growth. SEZscan be particularly helpful for small and mid-sized entities, which cannot afford to set upcaptive infrastructure facilities like large Indiancompanies but can share the costs in a largegroup. Lastly, it can help attract foreign capitaland technology.
SEZs – Means to attract Mobile Investors &Infrastructure Development:
National borders have lost importance inthe global competition for internationalinvestment capital. There is a global competitionbetween countries for international investmentcapital more intensively in recent years. Indiacan become a global manufacturing hubinviting mobile investors to set upmanufacturing base in India for worldwideexports from the beneficial tax and other
incentives available in the SEZs. If India fails towoo the mobile investments, there are otherlow cost countries waiting in the wings. TheSEZs are ideally suited for attractingInternational investors – not only big investorsbut also mid-sized investors.
“Indian SEZs will be engines of growth,supported by quality infrastructure andcomplemented by an attractive fiscal packagewith the minimum possible regulations”. Giventhe country’s poor infrastructure, sorry state ofpublic finances and huge unemployment,getting private investment in infrastructure andattracting huge amounts of foreign directinvestment (FDI) especially into labour intensivemanufacturing sectors is the prime objective ofthe policy makers. This becomes moreimportant, since India has been ranked at adisappointing 134th on the ease of doingbusiness in the latest World Bank-IMF listing.Thus, the Indian policy makers need to takeradical and bold changes to emerge as a globalinvestment hotspot.
SEZs have emerged as a perfect tool to doaway with the above infrastructure and socialwoes of the country.
Infrastructure Development:
Modern infrastructures are the arteries ofcommerce within a country. Commerce requiresroads, rail lines, sea ports, airports, and reliable
Level of Investment In Functional SEZs In India
Source: Special Economic Zones In India, Ministry of Commerce and Industry.
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sources of energy at reasonable prices or elsegoods cannot be transported rapidly,production is interrupted, the supply chaincollapses, and the economy suffers. Similarly awell functioning communications system is aprerequisite for investment; in today’s globalmarkets, if companies lack reliablecommunications, they cannot operate.
The infrastructural development within SEZhas been very widely defined, to mean allfacilities needed for development, operation andmaintenance of an SEZ, including industrial,business and social amenities like roads,buildings, sewerage and effluent treatmentfacilities, solid waste management facilities,ports, airports, railways, transport system,generation and distribution of power, gas andother forms of energy, telecommunication,networks and social & recreationalinfrastructure like hospitals, hotels, educationalinstitutions, residential and business complexesetc.
The beauty of SEZs is that this infrastructurewould be created by the private sector, throughprivate funding.
Social Infrastructure:
With a large-scale migration of populationfrom rural to urban areas taking place, there isalso a need to ensure adequate socialinfrastructure like houses, hospitals, schools, etc.This aspect is often ignored by critics of theSEZs on the grounds that in the garb ofdeveloping non-processing areas in SEZs,developers would actually be conducting realestate business.
SEZ: Does size matter?
Detractors of the SEZ policy often take issuewith the minimum land area requirements forsector-specific SEZs. They point out to ChineseSEZs which are massive, and indicate that Indiais going wrong in allowing sectors like IT, gems& jewellery etc. to have small sized SEZs. Thefact is, the development of large, multi-productSEZs will requires a lot of time. We have theexample of China where several big SEZprojects were approved in the 1980santicipating investment of approximately $30billion. These SEZs became fully operationalonly towards the end of the 1990s because ofthe size.
The pertinent question is, Can we afford towait that long? An IT SEZ, for example, doesnot need large land area– it could very wellwork out of a multi-storied building. Therefore,a sector with lower minimum land arearequirement could have an operational SEZ ina quicker time-frame, even in cities – whereland is scarce but manpower is available.
An IT SEZ could be developed and madeoperational within a period of six months fromthe date of notification. IT companies are usingSEZ units for EPOs (Engineering ProcessOutsourcing). The world class technical trainingthat these IT companies will be required toimpart to its employees would ignite knowledgerevolution resulting into exponentialprogression of our economy. According to theMcKinsey report 2005, out of the total globalmarket size of $300 billion in IT and BPOindustry, the Indian IT and BPO industry shareis at $22 billion. The IT Specific SEZs in Indiacan help capture more than 50 per cent of thisopportunity. IT SEZs will play an importantrole towards this and the policy must providean enabling environment. We have to see ourrequirements and the resources available to usand then refine our policy. A one-size-fit-allapproach may not be the best one for India.
Revenue loss to the government?
A lot is being said about revenue loss to thegovernment due to the tax holidays given tothe SEZ developer and units. We now need tostep back and look at the issue like this: clearly,the government will only lose in case thegovernment gains. Only if the SEZs are asuccess, does the government stands to loserevenue. But then again success of SEZs wouldmean generation of so much additionaleconomic activity that the revenue gains fromadditional economic activity would be manytimes the revenue loss.
Competition in Industrial Land:
Industrial land, particularly developed withgood infrastructure has been a scarcecommodity in India. With the number of SEZscoming up, a lot of land would be developed.Moreover, competition between developerswould ensure better operation and maintenanceof the infrastructure for investors looking forunits in SEZs.
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THE ISSUE OF LAND ACQUISITION
The national debate on Nandigram is byno means any different in nature from earlierprotests regarding acquisition of land forprojects, and one need not look further backthan 2006 to note similarities. Indeed, 2006 sawthe notification of the rules under the SEZ Act(2005) – and they are on the way to creatingno less than 300 land-intensive, enclaves. Theyear 2006 also witnessed popular, anti-SEZagitations –especially in UP (Dadri, Ghaziabad),Haryana and Maharashtra. Ghaziabad’s DehatMorcha had kept alleging that there were 4.20lakh acres (1 acre = 0.4 hectares) in the NCRregion that government agencies had acquiredonly in order to re-sell it to property developersand corporates. SEZs have even been creatingfissures inside the UPA. It needs no very greatpolitical acumen to gauge how embarrassed theCPM must be in West Bengal following theState’s Nandigram debacle. However, this is notwhat is so often alleged as the “unbridledprivatisation of land for purely commercial usedevoid of public purpose”. It might even beargued that things are much more upfront, anddraconian, in China, where SEZs are few, butthe whole economy is run by the governmenton quasi-market principles (and certainly, thereis no place for unionised labour).
As for those who seek a “public purpose”it should suffice if they understand that anexpanding cake is one very important part ofthat story – but one that had been totallymissing during India’s long (initial) years of‘planned’ development. The other half of thestory is that India’s political class has kept theeconomy’s main landowners timelessly trappedin crystal – with neither education, electricity(except for the farmers of the North West) noreven basic health care. It is that long history ofdefaults that has kept farmers chained to theirland and made a bogey out of out-migration.
Only after they have garnered thewherewithal to tap into this cornucopia willthe farmers feel comfortable enough to let goof their land. Meanwhile, the government – likeCaesar’s wife – must be above suspicion, andthe best way it can attain that status would beby revisiting the question of the power ofeminent domain for land acquisition for publicpurposes. That should be accompanied byproper land pricing (with industry preferably
in direct negotiation with landed farmers andthe government keeping out of their way).
Land pricing, and particularly whereagricultural land is acquired by Stategovernments, needs to be carefully andtransparently done. The existing process ofarbitration and adjudication on appeal needsto be reexamined and sharpened. Failing that,we will have to live with the perception ofinequity in the land acquisition process –something that will surely spike the actions ofthe buyer on the one hand, and farmers on theother. Worse, executive clumsiness has alsoplayed into the hands of the opposition: rivalparties have often been able to garner aconstituency based on their demonstrativedissent on the matter of dispossessing farmersfrom their land. As for the real extent of theproblem, there is land aplenty – but even thatis not enough for the degree of politicalopportunism that infuses this debate.
In this context, it is interesting to note thatthe total land area in India is 2,973,190 sq. kmsand total agricultural land is 1,620,388 sq. kms.What is being sought for SEZs is in the regionof 2058 sq. kms – which would be just about0.069 per cent of India’s total land area. Norwould it exceed 0.12 per cent of totalagricultural land.
There is, anyhow, no immediate alternativeto SEZs for India. However, the land transfersthat these would entail would also mean thatreal estate pricing must be got right for asmooth transition. Alternatively, valuations maybe arrived at in several different ways – i.e., viarevenue records, acquisition price, and so on,but they would mostly differ. Ideally, though,what farmers get should reflect not only theopportunity cost of losing their holdings (interms of future earnings); it must also factor onthe inevitable jump in land prices once it looksas though the area might be declared an SEZ.(That would be easy to extrapolate, based onthe type and fertility of the land in question,and the expected value of the product forwhich the SEZ seems likely to be earmarked.)Land acquisition at submarket rates set by Stategovernments would be the biggest let-down forlandholders – especially if they know that anarea is destined for much bigger things. That,actually, is the biggest argument for lettingintending investors talk directly to landholders.
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The latter could then bargain for better prices.The experience of Nandigram, Singur (althoughthe latter is not an SEZ) and similar areas showsthat cultivators and villages, are no longerwilling to take State governments at their wordor make big saleprice sacrifices. Even the officialclaim that landholders should sell at a discountto partially defray the State’s costs of re-location, training and job placement ringshollow. It merely holds out the promise ofemployment, little more. Also, it totally ignoresthe fact that persons who have been cultivatorsby tradition may set a very low, zero, or evennegative, weight on the relocation/retrainingpromised by the State. Indeed they might eventurn the State government’s logic on its headand claim supra-market rates. Their logic: theymust be compensated for the traumas of re-location, loss of profession and the arduousbusiness of retraining.
So, it would really be best if intendingindustrialists got into direct contact – either withparticular landholders, or with any institu-tionalized body that has been put togetherthrough all-round agreement from the localfarming community. The latter can even retainreal estate professionals to determine the salevalue of the land that they currently hold andwould like to sell to industry at a fair price.Attempts to include dispossessed landholdershave, on occasion, gone even beyond justpromises of ‘employment guarantees for oneperson per family’ – the most prominent ofwhich have been the mooted idea of land-equityswaps. The way that would work would bethrough a handover by the SEZ developer ofequities (shares) to the seller of land. Thequantum of handover would, in turn, bedetermined by the total value of the land beingrelinquished – over and above the pre-agreedprice-based consideration. The only problem isthat other, existing shareholders might feel thatsuch handouts would lower the total dividendkitty and force them to settle for less. That couldpunish the company in the bourses by inducingstock sell-offs and lowering the value of itsequity. But even this added burden on thecompany might be lightened if the lattermanages to strike a contract with those whoare parting with their land. The modusoperandi, in that case, would be for both sidesto agree to treat the equity as though it werebonds (or borrowings by the unit from erstwhile
landholding shareholders). The company, inthat case, would have to only pay out intereston a regular basis until (say) it feels that it willbreak even – after a pre-agreed interval. Onlythereafter would it start distributing dividendsbased on profits. Not only would that be a helpto the unit which might face the usual cash-flow problems initially; it would also dispel theincome (dividend) uncertainty whichlandholders dread. They would get an initialincome flow that is guaranteed but, when theunit is on a sounder footing, exchange that forprofit-based dividend earnings.
National Manufacturing Policy
Economist Nicholas Kaldor theorisedmanufacturing as the engine of growth andstipulated that there exists a close relationshipbetween the growth of manufacturing outputand the GDP of a country. Post-independence,thanks to the legacy of a good industrial andinfrastructural base left over by the Britishregime, India held an advantageous position inmanufacturing in Asia. However, the next 50years saw our ‘socialist’ bent of industrialpolicies stifle the growth of the infantmanufacturing sector. Even though the reformsof the early 90s removed illogical growthbarriers and turned the tide for the Indianindustry, manufacturing still accounts for only16% of GDP comparing weakly to other Asiancountries of similar economic maturity.
The major factors constraining growth ofIndian manufacturing are well-documented -poor core infrastructure, lethargic bureaucracy,high cost of capital, an agonising landacquisition process and labour issues. An earlierinitiative to further manufacturing growth bysetting up of SEZs met with limited success.This was due to deficient land acquisitionreforms, and lack of power and logisticsinfrastructure. The services sector including IT/ITES, already on a healthy growth trajectory,was the only real beneficiary of SEZs.
The need to raise the global competitivenessof the Indian manufacturing sector is a keyimperative for the country’s long term growth.The National Manufacturing Policy (NMP) isby far the most comprehensive and significantpolicy initiative taken by the government.
Government of India decided to bring outthe National Manufacturing Policy to bring
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about a quantitative and qualitative changewith the following six objectives:
(i) Increase manufacturing sector growthto 12-14% over the medium term tomake it the engine of growth for theeconomy. The 2 to 4 % differentialover the medium term growth rate ofthe overall economy will enablemanufacturing to contribute at least25% of the National GDP by 2022.
(ii) Increase the rate of job creation inmanufacturing to create 100 millionadditional jobs by 2022.
(iii) Creation of appropriate skill setsamong the rural migrant and urbanpoor to make growth inclusive.
(iv) Increase domestic value addition andtechnological ‘depth’ in manu-facturing.
(v) Enhance global competitiveness ofIndian manufacturing throughappropriate policy support.
(vi) Ensure sustainability of growth,particularly with regard to theenvironment, including energyefficiency, optimal utilization ofnatural resources and restoration ofdamaged/ degraded eco-systems.
In order to achieve these goals:-
(i) Foreign investments and technologieswill be welcomed while leveraging thecountry’s expanding market formanufactured goods to induce thebuilding of more manufacturingcapabilities and technologies withinthe country;
(ii) Competitiveness of enterprises in thecountry will be the guiding principlein the design and implementation ofpolicies and programmes;
(iii) Compliance burden on industryarising out of procedural andregulatory formalities will be reducedthrough rationalization of businessregulations.
(iv) Innovation will be encouraged foraugmenting productivity, quality, andgrowth of enterprises; and
(v) Effective consultative mechanism withall stakeholders will be instituted toensure mid-course corrections.
Specific policy instruments have beenconceptualized to achieve the objectives statedabove, including the following areas:-
(i) Rationalization and simplification ofbusiness regulations;
(ii) Simple and expeditious exitmechanism for closure of sick unitswhile protecting labour interests;
(iii) Financial and institutionalmechanisms for technologydevelopment, including greentechnologies;
(iv) Industrial training and skill up-gradation measures;
(v) Incentives for SMEs;(vi) Special Focus Sectors;
(vii) Leveraging infrastructure deficit andgovernment procurement -includingdefence;
(viii) Clustering and aggregation: NationalInvestment and Manufacturing Zones(NIMZs);
(ix) Trade Policy.
Key challenges in industrial development:
Currently, the following critical issuesimpede the growth of manufacturing in India:
Infrastructure deficit: There is an urgentneed to bridge the gap in physical infrastructureand address the equipment and raw materialsrequirements in key sectors such as power andtransport. Poor connectivity results in highlogistics costs, long lead times and impactsmarket penetration. For example - “a truckcarrying goods from Gurgaon to Mumbai hasto pass through 36 checkpoints and takes upto 10 days to reach its destination. While 57%of goods in India are transported by road (themost inefficient, expensive and emissionsintensive mode of transport), the figure in Chinais just 22%”. It is estimated that addressingthis deficit can enhance growth in India’smanufacturing sector by 3% annually.
Land acquisition: Multiple land acquisitionpolicies, variation in rules on how land can beacquired, compensation paid to land seller, haveadded to the complexity of doing business andis a major impediment in establishing newindustrial projects (e.g., Tata Motor’s landacquisition in Singur, West Bengal had an in-principle approval but later ran into hurdles
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and political opposition leading to majorproduction delays. Eventually, the companypulled out of the project.).
Environmental clearances: Securingenvironmental clearances for new projects havebeen a key roadblock for investors in the pastdue to long delays and social hurdles (e.g.,Posco’s project in Orissa).
Labour-related issues: A universal concernfor manufacturers is enhancing labourproductivity, ensuring sustained availability ofskilled and highly qualified workforce, resolvinglabour disputes during closures or bankruptcyand managing rigid and archaic labour laws.These are impediments in attractinginvestments.
Multi-tier regulatory framework andcomplex procedures: Multi-tier regulatoryframeworks and complex procedures,prevailing at the central, state and localjurisdictions, increase the burden on investorsand deter them from venturing into capitalintensive projects. e.g., a manufacturer has tocomply with almost 70 regulations and file 100returns a year. Recent attempts to streamlineprocedures for bringing down compliancerequirements (e.g., single window systems) haveonly been partially successful.
Extent of Industrialization:
Differences in the extent of industrializationare one of the most glaring aspects of thevariations in the levels and structure of stateeconomies. The share of manufacturing in theGross State Domestic Product (GSDP) variesvery widely among the Indian states. In termsof this indicator, Gujarat with about 30 percent share of manufacturing in GSDP was themost industrialized state among the major statesof India in 2008–09. Other major states whichhad a higher than the national figure of 17 percent were Maharashtra (23.46 per cent), TamilNadu (23.32 per cent),Haryana (20.0 per cent),Karnataka (19.85 per cent) and Orissa (17.04percent). Kerala had the lowest 9.96 per centof its SDP originating in manufacturing.
Andhra Pradesh followed by Bihar andUttar Pradesh were other states with low levelof industrialization with only 12 to 14 per centof their SDP originating in manufacturing.
Among the three new states—Chhattisgarh,Jharkhand and Uttarakhand—Chhattisgarhand Jharkhand feature as relatively betterindustrialized states with 21.94 and 32.02 percent share of manufacturing in their SDP.Uttarakhand with 14.12 per cent of its SDPfrom manufacturing is among the states with alow level of industrialization. All states in theNorth Eastern Region except Assam (10.74percent) had less than 10 per cent of their SDPfrom manufacturing industry. Among UTs andother states Puducherry (65.49 per cent) andGoa (30.08 per cent) showed a relatively highdegree of industrialization. The share ofindustry in GDP ranged between 9.96 per centin Kerala, the least industrialised state to 29.94per cent in Gujarat, the most industrialised state,in 2008–09. The range of variation seems tohave marginally declined from 1980–81, whenthe least industrialised state (Kerala) had 9.52per cent of its SDP originating frommanufacturing while in the most industrialisedstate (Tamil Nadu) manufacturing contributed31.47 per cent. But the states in the mostindustrialised category have changed theirrelative positions. In fact, West Bengal whichheld second position in 1980–81 has gone outof the group of top five, to the seventh position.Haryana, which was below national average,has acquired fourth position. Tamil Nadu hasyielded its first position in 1980–81 to Gujaratin 2008–09, the latter held fourth position in1980–81. Orissa, which was amongst the leastindustrialised states in 1980–81, rose to thenational average in 2008–09. Other states whichhave experienced relatively rapidindustrialization during the 28 year period, interms of a significant increase in the share ofmanufacturing in GSDP are: Karnataka,Punjab, Madhya Pradesh, Rajasthan and UttarPradesh. Gujarat, of course, had the fastestadvance in industrialisation, raising itsmanufacturing share in SDP from 19 per centin 1980–81 to 30 per cent in 2008–09. Amongsmaller states and UTs, Himachal Pradesh (from3.01 per cent in 1980–81 to 13.64 per cent in2008–09) and Puducherry (from 20.39 per centin 1980–81 to 65.49 per cent in 2008–09) maderapid advance in industrialisation.
Delhi Mumbai Industrial Corridor (DMIC):
Government of India plans to develop Multi-modal High Axle Load Dedicated Freight
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Corridor (DFC) between Delhi and Mumbai,covering an overall length of 1483km, with endterminals at Tughlakabad and Dadri in theNational Capital Region of Delhi andJawaharlal Nehru Port at Mumbai.
Government of India is further establishing,promoting and facilitating “Delhi MumbaiIndustrial Corridor (DMIC) along the alignmentof DFC between Delhi and Mumbai. Theobjective of DMIC, supported by world-classinfrastructure, would be to optimize on thepresent potential, enhance investment climateand promote the economic development of theregion through creation of a long term enablingenvironment.
Vision for DMIC:
The vision for DMIC is to create strongeconomic base with globally competitiveenvironment and state-of-the-art infrastructureto activate local commerce, enhance foreigninvestments and attain sustainabledevelopment. Delhi-Mumbai IndustrialCorridor is to be conceived as a ModelIndustrial Corridor of international standardswith emphasis on expanding the manufacturingand services base and developing DMIC as the‘Global Manufacturing and Trading Hub’.
Project Goals:
The developmental planning for DMIC aimsto achieve certain end results withimplementation that would ensure realizationof envisaged vision for the project and lead toeconomic development. Accordingly the projectgoals for DMIC are:
• Double employment potential in five years(14.87% CAGR)
• Triple industrial output in five years (24.57%CAGR)
• Quadruple exports from the region in fiveyears (31.95% CAGR)
Sectoral Objectives:
The sectoral objectives for Delhi-MumbaiIndustrial Corridor (DMIC) envisage provisionof quality industrial investments and world classinfrastructure facilities which, inter alia,includes:
Industrial Infrastructure:
• Upgradation of existing industrial clusters/industrial estates with requisite facilities;
• Developing new industrial clusters ortownships and export orientedmanufacturing zones;
• Development of ‘Skill Development Centres(or) Knowledge Hubs’ consisting of schools,colleges, vocational institutes, engineering/technical institutes, agricultural collegeswith state-of-the-art research anddevelopment facilities with integratedresidential, health/recreational facilities;
• Developing agro-processing hubs with coldstorage, packaging and distribution andother allied infrastructure;
• Developing IT/ ITES Hubs/ other serviceoriented facilities.
Physical and Social Infrastructure:
• Efficient logistics chain with multi-modaltransshipment zones and logistic hubs;
• Provision of Feeder Road and Railconnectivity to ports, hinterlands andmarkets;
• Augmentation of existing portinfrastructure and developing Greenfieldports;
• Upgradation/ Modernization of Airports;
• Captive Power Generation Plants withpower transmission facilities;
• Ensuring effective environment protectionmechanism for sustainable long termdevelopment;
• Dovetailed residential, commercial,institutional, leisure/ recreationalinfrastructure to ensure attractiveinvestment climate.
Project Influence Area:
In order to optimize on the alignment ofDFC and the feeder transport infrastructurerequirements, influence region for developmentof high impact economic regions with qualityinfrastructure is considered to be extended upto150km to 200 km on both sides of thealignment of DFC. In addition to the influenceregion, development of DMIC would alsoinclude augmentation of feeder rail and road
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connectivity to hinterland, markets and theselect seaport locations along the western coast.
Project Influence Area (PIA) for DMICcomprises of 436,486 sq km area, whichconstitutes 13.8% of geographical area of overallIndia. Based on the area distribution, PIA ofDMIC comprises of seven states and two unionterritories:
• Project Influence States include Delhi, UttarPradesh, Haryana, Rajasthan, MadhyaPradesh, Gujarat, and Maharashtra.
• Project Influence Union Territories includeDiu & Daman, Dadra & Nagar Haveli.
Project influence area for DMIC comprisesof a combined population of 178 Millionconstituting approximately 17% of totalpopulation of the country. DMIC statescontribute 50% of agricultural produce ofprincipal crops of the country and 60% ofoverall exports from the country. Moreover, theforeign investment trends indicated that DMICstates cater to 52% of overall FDI equityinvestments into the country during January2000-December 2006.
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