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Launch of NCAER’s State Investment Potential Index: The 2016 N-SIPI

The National Council of Applied Economic Research, NCAER, released a new NCAER State Investment Potential Index (N-SIPI) at a full-day launch workshop inaugurated by Ramesh Abhishek, Secretary, Department of Industrial Policy and Promotion (DIPP) in the Ministry of Commerce and Industry.  Covering all 29 States and the Delhi Union Territory, NCAER will release N-SIPI in March every year as a credible yardstick of how the investment climate of India’s States is changing. Gujarat and Delhi top the list of states in 2016 on the first N-SIPI index.

India is currently the fastest growing large economy globally. These global trends and the NDA Government’s focus on creating a more friendly investment climate are expanding opportunities for doing business in India. These opportunities inevitably lie in India’s States, influenced not just by New Delhi’s policies but conditioned very much by what is happening in each State.  N-SIPI measures each State’s investment climate and will track it over time.  The NCAER State Investment Potential Index provides a composite indicator of how India’s States are positioned to encourage and attract investment, bridging the many information gaps surrounding questions of what, how much and where to invest.  It will provide an entry point for domestic and overseas investors in thinking about their investment decisions and will also encourage a more competitive ethos among India’s States.

N-SIPI complements the policy initiatives of the Modi Government on its Make in India, Skill India, and Start-up India campaigns by helping guide potential domestic and overseas investors with relevant, high-quality data and analysis of the policy framework in each State. N-SIPI fully complements the Government of India’s initiative through DIPP to improve India’s ranking on the Ease of Doing Business Index of the World Bank. The Ease of Doing Business index is much more procedure- and transactions-driven, while N-SIPI focuses on the policy and structural backdrop that determines the business environment in any State.  N-SIPI complements the work of DIPP with the States on their September 2015 assessment of how the States had implemented DIPP’s 98-point action plan to improve the ease of doing business and the resulting 340-point Business Reform Action Plan for 2016.

While launching N-SIPI, Mr Ramesh Abhishek, Secretary, Department of Industrial Policy and Promotion, observed that while the results and rankings of the NCAER report are different from the DIPP survey conducted last year, both their contents supplement each other and function as vital platforms for assessing investment potential of the states. He noted the significance of this work, highlighting the fact that the “criteria for gauging the investment potential of States used in the NCAER N-SIPI—among them, labour and infrastructure conditions, economic conditions, governance and political stability, and industry perceptions—complement the parameters that DIPP considers important for assessing the business potential of states. The NCAER Report is also significant in that it provides useful feedback from industry and business regarding the pace and implementation of reforms in the states.”

NCAER’s 2016 N-SIPI consists of two indices, N-SIPI 21 and N-SIPI 30.  N-SIPI 21 covers 20 States and the Delhi Union Territory, and in addition to being based on four pillars–labour, infrastructure, economic climate, governance and political stability—fundamentally driving investment decisions, it also includes a fifth pillar comprising an extensive perception-based industry survey to capture State level differences. It comprises 51 sub-indicators, identified after discussions with industry, academics, and central and State government functionaries. N-SIPI 30 on the other hand provides national coverage of all States, covering all 29 States and the Delhi Union Territory, but excludes the perception pillar since the perception survey was not done in nine States.

As with the DIPP September assessment, Gujarat tops the list in N-SIPI 21. Gujarat is followed by Delhi and Tamil Nadu. States like Bihar, Uttar Pradesh and Jharkhand appear much lower in the rankings. If the pillar based on industry perceptions is omitted, the results, as revealed by N-SIPI 30, change significantly. Gujarat slips to second place in the modified index without the perception-based survey, while Delhi is placed at the top. States like Kerala, West Bengal and Punjab move up the rankings, while others like Andhra Pradesh, Chhattisgarh and Madhya Pradesh move down.

Dr Shekhar Shah, Director-General, NCAER, emphasized India’s place as the world’s third largest market, just behind the United States and China, and the need for India’s States to drive their investment climates to convert this market potential into business reality. He said, “With the focus of policy reforms shifting so much to the States, whether in labor reforms, in land acquisition, or in service delivery in health and education, this systematic, credible, evidence-based evaluation of the investment potential of States will be timely.  We hope the work being done at NCAER on the investment climate, of which N-SIPI is the first product, will offer potential investors a reliable tool to guide their investment decisions by ranking States based on their openness to attract investment, business and entrepreneurship, and job creation potential.”  

In terms of the five pillars in N-SIPI 21, Gujarat leads on governance and industry perceptions. Delhi is ahead of the others on infrastructure and economic climate. Odisha consistently occupies the top half of the bracket across all parameters, though faring better in the sphere of labour and perceptions as compared to the others.

While introducing N-SIPI, the lead author of the study and Senior Fellow at NCAER, Dr Indira Iyer, remarked, “A novel aspect of N-SIPI 21 is that the index factors in the business climate across the States as captured by a perception-based industry survey –a signature strength of NCAER for doing which it has a lot of experience. The findings of the survey reinforce the perception that corruption is the most significant impediment to business, followed by difficulties in getting approvals. Contrary to the popular perception, labour laws are not as important as the availability and quality of skilled labour.”

NCAER plans to update the index annually, so that N-SIPI, along with the World Bank’s Ease of Doing Business surveys and DIPP’s assessments of the progress made by states on their action plans, will allow both Indian and foreign investors to take informed investment decisions and, as importantly, aid the central and States governments in policy making, monitoring, and implementation.

In ending, Dr Shekhar Shah said, “N-SIPI 2016 represents a significant initiative at NCAER as part of its 60th Anniversary celebrations.  It is aimed at helping fulfil the vision of India’s founding fathers and their dream of building a Union composed of competitive, inclusive, and opportunity-creating Indian States.”  

Release of NCAER Research Study for Indian Railways, “Factors Impacting Railway Freight Traffic in India”

NCAER  presented its study on Factors Impacting Railway Freight Traffic in India to Mr Suresh Prabhakar Prabhu, Union Minister for Railways, Mr A K Mital, Chairman of the Railway Board, and Mr Mohd. Jamshed, Member Traffic, Railway Board at the Rail Bhavan today. Present were Dr Shekhar Shah, Director-General of NCAER, Dr Saurabh Bandyopadhyay, Associate Fellow and the study’s author, and Dr D B Gupta, Senior Adviser at NCAER.

The bottom line forecast made in NCAER’s study is that Indian Railways  freight volume is likely to grow by 2.1 percent in 2016-17, as compared to its 1 percent growth in 2015-16.  This doubling of the growth rate is likely to be possible without any major policy shifts. The Railway Board requested NCAER for this short-term study to focus on Indian Railway’s freight business and to identify the reasons for the recent plateauing of its growth to around 1 percent per annum for bulk freight commodities, including coal, iron ore, cement, steel, fertilisers and food-grains, and container traffic.
The NCAER study also estimates the likely volume demand in 2016-17 for railway freight.  Freight accounts for nearly two-thirds of IR’s revenue spread over two broad categories, bulk and other goods. Indian Railway’s freight business is estimated to have grown at about 1 percent in 2015-16.  The NCAER study finds that there are several reasons for the nearly flat growth in IR’s freight business in 2015-16. The Indian economy has been passing through a difficult and challenging time since 2014-15. Deficient rainfall and two drought years in a row have lowered rural demand. Industry too remains sluggish due to low investment demand. Services, which have been a key driver for growth, have also not remained immune to the slowdown. Alongside industry, growth in gross value added in 2015–16 for the mining and quarrying sector, IR’s largest client, is estimated to be 6.9 per cent as compared to 10.8 percent in 2014–15. Crucial components of core infrastructure, coal, steel, cement, and electricity, also showed a decline in their growth rate for April–December 2015 as compared to their performance in 2014–15.
The study notes a number of commercial, operational and policy-related issues that could have an impact on IR’s freight traffic.  Said Dr Shekhar Shah, Director-General of NCAER, “The NCAER study shows that there is tremendous untapped potential for improving IR’s freight business if it can begin to meet the growing competition from the road sector. The railways need to compete on price, punctuality, and predictability, the keys to a successful logistics business.”  IR’s freight charges have gone up by 67 percent in the last five years while there has been a decline in fuel prices. Road transport for freight has now become much cheaper than rail.  Among the policy reforms suggested by the NCAER study are correcting the fare/freight ratio; providing for periodic reviews of surcharges like the port congestion surcharge and busy season surcharge; steps to encourage short lead traffic; a review of the dual pricing for iron ore; review of transportation product design to cater to market requirements of smaller parcel sizes; and liberalisation of two-point and three-point loading rules. The short-term study did not go into tariff issues, but a longer study is planned in the future to look at tariff, price sensitivity, and cross-subsidization issues.
Dr Saurabh Bandyopadhyay, the author of the NCAER study, noted “The NCAER study provides substantial insights into how the Railways’ freight revenues are closely tied to international and domestic industry developments and the need to track these developments in order to plan strategically for its brighter future.”

 

In an exclusive interview for a programme titled ‘Ask Rail Mantri’, organised by Ministry of Information & Broadcasting soon after the Rail budget 2016 was presented on 25 February 2016, Mr Suresh Prabhakar Prabhu, Union Minister for Railways quotes this evidence-based NCAER study while discussing the challenges faced by Indian Railways in terms of freight.

 

State of the Economy Seminar April 2016

NCAER’s Quarterly Review of the Economy

Quarter 3, 2015–16

The NCAER QRE team presented its quarterly review & forecast of the major macroeconomic variables based on NCAER’s modelling work. It included NCAER’s observations, reviews and projections for 2016-17 covering various sectors including agriculture; industry and services; public finance, money; credit and finance; external sector as well as the GDP forecasts. On this occasion NCAER released its widely-reported Quarterly Review of the Economy or QRE as it is popularly known.

Key Highlights

NCAER’s annual model predicts that GDP growth rate (GDP market prices at 2011–12 prices) will grow at 7.4 per cent for 2015–16 and 2016–17

NCAER’s annual model for GDP Market prices at 2011–12 prices forecasts GDP growth rate for 2016–17 at 7.4 per cent. The quarterly model suggests that Gross Value Added at Basic Prices (2011–12) will grow at 7.2 per cent for 2015–16 and 2016–17.

The prospects for agricultural sector in 2015–16 remain weak owing to poor monsoon rainfall for the second year in a row. Agricultural growth during the first half of the current financial year reduced to 2.0 per cent from 2.4 per cent growth witnessed in the first half of 2014–15. NCAER estimates, however suggest that Rabi output may perform comparable to previous year and the overall food grain output for this year may be marginally higher, approximately 1 per cent to 2 per cent.

Index of Industrial Production (IIP) contracted sharply in November 2015, with the index declining 3.2%, down from a five-year high of 9.8% in October 2015 and a growth of 3.8% in the comparable period last year. Manufacturing sector, accounting for 75 per cent of the total industry, became the biggest contributor to the fall in industrial growth with the manufacturing IIP witnessing a steep fall of (–) 4.4 per cent in November 2015. Nonetheless, the cumulative industrial growth during April–November period in FY16 (fiscal year 2015–16) stood at a decent 3.8% (Figure I.1), comfortably outpacing the growth seen during the same period for the last three years

The leading indicators of services sector present mixed signals in the first three quarters of current fiscal. Growth of tourist arrivals dipped on a y-o-y basis (5.5%) during third quarter of the current fiscal compared to growth of (6.5%) in the second quarter. The growth of banking indicators have been mixed with lower growth in aggregate deposits and higher growth in bank credit to the commercial sector. The third quarter growth of Revenue earning goods traffic by railways declined to 0.2 per cent compared to 1.5 per cent rise in earlier quarter. The growth in Cargo handled at major ports dipped and domestic aviation cargo traffic has also dipped. The domestic aviation sector picked up growth momentum in passenger segments during April–November of current fiscal.

The external sector persisted on a dismal trend during April–November 2015–16. Exports decreased by 18.1 per cent and touched US$ 196.6 billion given the subdued global demand. The steepest decline was posted by export of petroleum products (51.7 per cent) followed by ores and minerals (22.5 per cent) and agricultural products (20.5 per cent). Manufactured goods exports fell by 7.9 per cent on the whole, with transport equipment and engineering goods registering the highest decline of 17.9 and 15.6 per cent, respectively. Total imports declined by 15.9 per cent to US$ 447.5 billion, mainly on account of a 41.6 per cent fall in the value of oil imports. Non-oil imports too fell by 3.1 per cent.

Inflation rates have seen an increase over the last quarter (October –December 2015), mainly driven by the increase in food prices. The headline inflation rate calculated from the Consumer Price Index (CPI) jumped from 4.5 per cent in 2015–16:Q2 to 5.5 per cent in 2015–16:Q31. The outlook suggests that price movement would be contingent upon monsoon, global commodity prices and expectations of the households.

Fiscal Front which was 68.1 per cent of the Budget Estimate (BE) 2015-16 till September, 2015 increased to 87 per cent by November 2015 but is still well below the number (98.9) for the comparable period last year.

National Workshop on Indian Agricultural Outlook: the 2016 Rabi Season and Medium-term Prospects

Battling extremes of drought and, unseasonal rains, complicated now by a warm winter, the Indian farmer had a difficult year in 2015 and his prospects are unlikely to improve in 2016. This has resulted in farmer distress and may lead to a decline in food-grain output in 2016 for the second straight year, says NCAER’s latest report on the short-term agricultural outlook for the 2016 rabi season released today. The NCAER 2016 Rabi Report estimates growth in agriculture and allied sector gross value added in the second quarter of FY 2015-16 to be 2.2 per cent, as compared to 1.9 per cent in first quarter. Overall, agricultural growth in 2015-16 is likely to be moderate at best, and is expected to remain unchanged from the 2014-15 growth rate of 0.2 per cent. The NCAER report also throws light on the scenario for prices of major food articles (primary articles like vegetables, fruits, and cereals) predicting higher inflation in the next 3-4 months, while prices remain moderate for manufactured or processed food products (such as dairy, edible oil, and grain mill).

These and other findings were discussed today at a national workshop on the Indian Agricultural Outlook: the 2016 Rabi Season and Medium-term Prospects. The findings come from ongoing research at NCAER, the National Council of Applied Economic Research in New Delhi that is supported by the National Food Security Mission of the Ministry of Agriculture & Farmers Welfare. It is also been supported by the UN’s Food and Agricultural Organisation.

Smt. Sangeeta Verma, Economic and Statistical Adviser in the Directorate of Economics and Statistics in the Ministry of Agriculture, in releasing the NCAER Rabi Report today noted that “The Government is taking the challenges facing the agricultural sector, particularly farmers, very seriously. It has initiated a string of measures to tackle these challenges. These measures include the launching of an e-marketing portal for farmers, promotion of irrigation schemes at various levels that replicate successful schemes at the state level, and the launch of a comprehensive national crop insurance program.” She noted the Government’s concern about the high and rising prices of pulses, and emphasized that “this necessitates extensive agricultural research done in an academically robust and professional manner.” She mentioned that these issues are under intense discussion in the Government.

The workshop offered an important opportunity for the Indian policy and economic research community to discuss agricultural policies in ways that allow them to trace the economy-wide implications of such policies using specialized tools developed at NCAER. The daylong discussion by economists and agricultural experts on a variety of policies and their impacts provided insights for government policymakers to improve their understanding of India’s short and medium-term agricultural prospects in the next 3 to 5 years.

While launching the National Workshop, Dr Shekhar Shah, Director-General, NCAER, noted, “Between droughts and downpours, it is the Indian farmer who pays the price. The poor crop and price outcomes expected this rabi season is a graphic reminder of the vulnerability that Indian agriculture still faces. Between the vagaries of the weather and the inability of policymakers to design and implement sensible policies in agriculture, whether to do with irrigation, subsidies, marketing, or supply chains, the India farmer ultimately gets squeezed. And this then leads to more sops rather than structural reforms. Breaking out of this vicious cycle does not require rocket science. We have the answers. But it does require policymakers to take a realistic view of both technical solutions and the politics of agricultural reforms, and map a strategy for sequencing successful reforms, whether it is in cereals or sugar-cane or oil-seeds or pulses, based on solid evidence of what works and what the rural voter will accept. This has to be one of the highest reform priorities for the government.”

The findings of the NCAER report are based on a comprehensive assessment of farm input prices and availability, monsoon rainfall, market demand conditions and government policies impacting this year’s rabi and kharif crop production. Wheat production in marketing year 2016-17 is expected to be lower at 85 million tons as compared to the already poor 2015 production of 88.9 million tons due to poor weather, and wheat exports are likely to remain negligible. The 2015-16 rabi rice production is expected to be somewhat lower than the 2014-15 production due to poor post-monsoon rains and lower water levels in reservoirs. Rabi rice exports are forecast to decline to 9.0 million tonnes from 11.8 million tons in marketing year 2014-15.

While introducing NCAER’s short and medium-term agricultural scenarios, the principal author and team leader of the NCAER study, Dr Rajesh Chadha, NCAER’s Senior Research Counselor, remarked that, “The present Rabi report provides a comprehensive assessment of the challenges arising due to aberrant rainfall patterns despite extensive investment in irrigation technology and sharing of best practices. The report covers indicators of supply and demand for major food commodities, both in the domestic economy and the global markets. External factors continue to remain less conducive to agricultural exports this year due to a better global production outlook and large carryover stocks for most traded commodities such as wheat, rice, maize, and soybean/soybean meal, except in the case of sugar.”

The study highlighted the severe supply-side bottlenecks that persist in Indian agriculture, including poor logistics, outdated marketing arrangements, inadequate cold storage facilities, and lack of processing facilities. These continue to hurt supply and the availability of food items such as pulses and perishable food products. Dealing with these domestic structural distortions affecting the production, storage, transport and marketing of agricultural production should be at the top of the agenda for Indian policymakers if they wish to take Indian agriculture into the 21st century.

On the external front, the NCAER report finds that global food markets are likely to have remain well stocked and therefore were less volatile in 2015-16. As a result, international prices of most commodities have remained well below their prices a year ago, although projections show that most commodity prices are likely to firm up modestly in 2016-17. The report noted that external factors continue to remain less conducive to Indian agricultural exports this year as was the case last year. This was due to a better global production outlook and large carryover stocks for most commodities traded by India. Indian exports could face tough competition in the global market as domestic prices are likely to rule above world prices. There could be an increase in the import of pulses, which along with the recent weakening of the Indian rupee against the U.S. dollar, could lead to higher prices for Indian consumers.

The World Bank’s India Development Update 2015: Fiscal Policy for Equitable Growth

NCAER organised a seminar by Dr Frederico Gil Sander to discuss the World Bank’s recently released India Development Update 2015: Fiscal Policy for Equitable Growth.

Dr Sander, World Bank’s Senior Country Economist presented an overview on the report which projects that India’s GDP will grow by 7.5 percent in FY2015-16 and by 7.8 and 7.9 percent in the next two fiscal years.  The dramatic decline in crude oil prices since 2014 has played an important role in driving this favourable economic outlook. He spoke on the extent to which India reaped the benefits of this oil price bonanza and its implications for growth prospects. The fall in oil prices helped through decline in inflation, reducing fuel  subsidies and narrowing current account deficit. The resulting fiscal consolidation created space to increase capital spending on infrastructure especially roads and for RBI to cut policy rates to boost investments. However, global economic conditions remain uncertain and key structural reforms are necessary to maintain pace of growth. Fiscal policy reforms, in particular GST and devolution of funds to states in 14th Finance Commission would further help in transforming India to a single market and enhance capacity of state and local governments to deliver better public services.

Joining the seminar as a discussant, Dr Pinaki Chakraborty, Professor, NIPFP presented his views on implementation of GST bill and recommendations of 14th Finance Commission, specifically problems with making GST tax rate of 18% constitutional, origin based 1% additional tax and leaving petroleum out from perview of GST given its huge cascading effect.  He also recommended relooking at all Centrally Sponsored Schemes and reorganizing them into core and  non-core based on top national priorities.

Dr. Anusha from NCAER highlighted that although growth projections are optimistic, it is important to estimate the magnitude of output gap more carefully given low capacity utilization and slowdown in investments.   Dr Bornali Bhandari from NCAER, while agreeing with the overall outlook, commented on the lack of discussion on agriculture; not emphasising enough the role non-performing assets in the banking sector, which was restricting the public sector banks in passing on the lower interest rate to customers; high inflationary expectations and; mixed services outlook.

About Dr Frederico Gil Sander 

He is the World Bank’s Senior Country Economist based in New Delhi. He was most recently the Bank’s Senior Country Economist for Malaysia and has worked on macro and debt management for Thailand, Laos, Cambodia, and Myanmar, and on debt relief for low-income countries. Before joining the Bank he worked on emerging market debt & capital markets at the New York firm of Bear Stearns.  Sander has a PhD in Political Economy from Princeton’s Woodrow Wilson School.

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