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The state of India’s manufacturing sector is concerning. Especially when compared to the massive transformation registered in this sector by other Asian countries in similar stages of development. Contributing around 16 per cent of India’s GDP manufacturing remains far below its potential which should be at least 25 per cent.

Kandla one of India’s busiest ports looks deserted as containers and cargo await loading onto stranded ships in western India. (Photo: AAP).

The much acclaimed ‘Make in India’ campaign launched by the Indian government has been the key strand of the strategy for India’s economic revival. This campaign aims to establish India as a major manufacturing hub creating millions of employment opportunities and pushing India onto a high and sustainable growth trajectory.

The Indian government is building corridors across the country to boost manufacturing and project India as a global manufacturing destination of the world. The most important of these corridors is the Delhi–Mumbai Industrial Corridor which is one of the largest infrastructure projects planned in India spanning six states — Uttar Pradesh Haryana Madhya Pradesh Rajasthan Gujarat and Maharashtra. It intends to boost India’s manufacturing capabilities by inviting foreign capital and technology.

The program embodies a manufacturing and export-led growth model. This model has to be understood in the context of global production systems in which intermediate goods are shipped numerous times in multiple countries prior to being assembled together. As a result global supply chains have become more complex and risky.

The ‘Make in India’ strategy has to place itself within the global supply chain network to contribute a greater share in world trade. Even if global production was to shift to India due to its skilled and low cost work force availability of industry specific clusters and a reduction in non-tariff barriers high logistics costs would negate all these advantages. Indian logistics costs are estimated to be of around 13 to 14 per cent of GDP almost double the 7 to 8 per cent of GDP in developed countries.

India has 12 major and 187 non-major ports. Cargo traffic which recorded 1052 million metric tonnes in 2015 is expected to reach 1758 million metric tonnes by 2017. The Indian ports and shipping industry is vital in sustaining growth. India is the 16th largest maritime country in the world with a coastline of about 7517 kilometres.

The government plays an important role in supporting the ports sector. It has allowed huge volumes of foreign direct investment under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop maintain and operate ports inland waterways and inland ports.

None of India’s major ports can routinely handle ships with large loads so Colombo Dubai and Singapore transship Indian containers. Indian roads are congested and railways have capacity constraints. Air cargo which now constitutes 35 per cent of total international trade by value faces similar problems.

Dwell time in the air cargo terminal is a critical bottleneck that compromises the competitiveness of the Indian industry. A high dwell time slows down the entire process. For the last 7–8 years the dwell time in India has been 72 hours far higher than the 24 hours it takes to clear 80 per cent of inbound air cargo at major international air cargo hubs like Singapore. The dwell time in Hong Kong is just 4 to 8 hours. All this points to a significant logistics deficiency in India.

Despite targeting a surge in trade share India has never viewed its logistics competencies from a specific trade-enabling perspective.

A trade logistics network unifies elements of transportation warehousing trade facilitating institutions information and communications technology and logistics service providers. When compared with the international trade logistics networks the Indian logistics network lags on all aspects be it infrastructure customs or quality of services resulting in high cost outcome uncertainty and low reliability. Out of 160 countries India ranks 54 in the World Bank’s 2014 Logistics Performance Index way behind South Africa (34) Chile (42) Panama (45) and Vietnam (48).

‘Make in India’ necessitates a complete integration in the international trade logistics network so that exporters can move store and deliver goods faster and at a lower cost to retain their competitive advantage. As India moves higher up in the value chain for specialised tasks the regional national and international movement of goods will increase. Fortunately the logistics obstacles faced by India are self-imposed and are not due to any geographical disadvantages. A focused program to redesign build and upgrade the overall logistics network from the perspective of trade is essential for the success of the ‘Make in India’ strategy.

Saurabh Bandyopadhyay is Associate Fellow at the National Council of Applied Economic Research.

Highest incidence of trips is seen in J&K with 836 per 100 households followed by Himachal. Delhi at the bottom.

NEW DELHI: Indians are going places—travelling fast and furious. Domestic tourism is not only driving economy it is also an indicator of consumption pattern of the country’s citizens.

A tourism ministry study has put the Sikhs at the top of the heap when it comes to making most number of trips by a person in a year followed by the Jains.

“The overall average number of overnight trips made by a person was estimated at 2.09. The averages differed among the religions. The average overnight trips by the Sikhs was (2.35) followed by Jains (2.19) Hindus (2.13) Christians (1.94) Muslims (1.82)” says the study conducted by the National Council of Applied Economic Research (NCAER) for the ministry.

New Delhi: The average number of nights spent on overnight trips was about three for the rural population and about four for the urban. However the average duration of overnight trips undertaken by the urban population varied from two nights in case of shopping trips to 5.6 in case of medical trips.

As far as spending is concerned Jains have the highest per­trip expenditure (`2444 per trip) among all religions followed by Christians (`1740) Hindus (`965) Sikhs (`906) and Muslims (`879).

The report of the study ‘How households of different socio­economic background spend on tourism’ submitted recently relied on the 2008­09 National Sample Survey (NSS) data to make its observations.

“The average number of overnight trips made by a rural person was estimated at 2.10 while for urban person it was 2.07. Incidence of overnight trips is observed as the highest among Sikh persons in rural areas (2.37) and among Jains (2.34) in urban areas. While analysing incidence of trips by age groups of the visitors highest trips per person is made by those belonging to 30­59 years of age­groups and this is followed by persons belonging to 15­29 years age­group” the report says.

The study took into account domestic travel for various purposes ranging from social reasons religious medical and leisure.

The urban Indian on an average made overnight trips of two nights for shopping; the number was 5.6 for medical trips. In rural areas the least average duration was for shopping­related trips (1.5 nights) while the highest average duration pertained to leisure trips (4.3 nights).

“In India shopping is the most important item of expenditure for Scheduled Tribe Scheduled Caste and Other Backward Class” the report states.

Legislators senior officials and managers among all professionals record the highest per overnight trip expenditure in India of about `2294.9.

In another study NCAER took into account how states performed on the domestic tourism front. Average trips made by a household are four during a year.

The highest incidence of trips is seen in Jammu & Kashmir with 836 per 100 households followed by Himachal Pradesh with 769 trips per 100 households. Delhi is at the bottom with only 232 average number of trips per 100 households.

On an average at all­India level contribution of social trips to total trips works out to be 74 per cent. This is followed by religious trips and medical trips which account for 10 per cent and 6.2 per cent respectively of the total overnight trips. Business and leisure trips together account for only 5.3 per cent of the total trips.

Leisure or holiday is among the least popular purposes of domestic overnight trips across all the states. The highest share (6.7 per cent) of leisure trips in total is seen in Delhi.

Social trips are undertaken the most in Uttar Pradesh while Maharashtra Andhra Pradesh and Tamil Nadu together account for 44 per cent of total religious trips. Tamil Nadu is the most sought­after by domestic leisure tourists (12.5 per cent of total interstate leisure trips) according to the tourism ministry study.

Jains spend highest per trip with `2444 followed by Christians (Rs 1740) Hindus (Rs 965) Sikhs (Rs 906) and Muslims (Rs 879).

Mumbai: Is it true that people tend to marry within their profession or occupation? Data available from the Indian Human Development Survey (IHDS-II) suggests so if we analyse marriages within and across broad occupation categories. For example among those female teachers who were married 19% were married to fellow teachers (CHART 1A) the highest among the 14 occupation categories we constructed. This pattern holds for male teachers too—14% of male teachers are married to fellow teachers (CHART 1B) more than any other group if we exclude housewives. In fact for all the male teachers whose spouses were not housewives 55% of them were married to a fellow teacher.

There is little doubt that Foreign Direct Investment (FDI) is associated with the diffusion of global best practices professionalism technology and work culture essential for market efficiency and competitiveness.

In the presence of internationally competitive environment ensured by FDI the domestic agencies are also motivated towards changes that bring efficiency. Studies have shown positive impact of FDI on economic growth and poverty reduction in several countries.

In the case of agriculture conditioned FDI up to 100% is already permitted in activities including floriculture horticulture apiculture and cultivation of vegetables and mushrooms under controlled conditions; development and production of seeds and planting material; animal husbandry (including breeding of dogs) pisciculture aquaculture under controlled conditions; Services related to agro and allied sectors and tea sector. As far as retail trading is concerned 100% FDI is permitted in single brand and 51% FDI is permitted in Multi-Brand Retail Trading (MBRT) with certain conditions.

These policies have yielded good results in attracting FDI. Since April 2000 the cumulative FDI in food processing including vegetable oil and vanaspati has increased from $1.366 billion (1.08% share in total FDI) in December 2010 to $6696.82 billion (2.81% share in total FDI) in December 2015. However during the same period FDI in the Agriculture Services had a modest increase from $1.54 billion (1.22% share) to $1.740 billion only (0.73% share).

Going further the Finance Minister while presenting the General Budget (2016-17) has made an announcement of allowing 100% FDI in marketing of food products that are produced and manufactured in India. It is believed that FDI in marketing of farm produce will provide impetus to food processing sector and it will also increase employment and income opportunities for farmers.

Why such a move of the government is important for the farm sector can be appreciated if we look at the macroeconomic data across related sectors.

Problems to be dealt with

For the last several years the economic situation in the primary agriculture sector has been marked with miniscule investment poor output growth and increasing labour cost. Huge expenditures made through MGNREGA have not translated into sustainable development of the sector. The real value added in agriculture and allied sector has inched from Rs 15.02 lakh crore in 2010-11 to Rs 15.84 lakh crore in 2014-15 at about 1.8% annual real growth. The crop sector which forms the bulk of the sector’s output has remained almost stagnant. Most of the gains are due to export led growth in fisheries and livestock based segments.

While many would like to put onus of the plight of farmers on weather conditions like draught it cannot be less emphasised that the real gross capital formation in agriculture sector has contracted from Rs 2.74 lakh crore in 2010-11 to Rs 2.54 lack crore in 2014-15 at almost -2.2% annually in real terms.

The value added in manufacturing of food products beverages and tobacco decreased from Rs 1.68 lakh crore to Rs 1.65 lakh crore in real terms during the same period. Thus one can say that the entire production system of the agriculture sector has remained under stress for several years.

In contrast the real value added in trade repair hotels and restaurants services which includes intermediary services like transport wholesale market/mandi unorganised/organised retail increased from Rs 8.84 lakh crore to Rs 11.63 lakh crore recording an annual real growth of 9.16%.

There is robust growth in trade of agriculture products during 2010-11 to 2014-15. Imports increased from $12.3 billion to $19.83 billion growing at 12.29% annually while export has increased from $21.4 billion to $37.38 billion recording an annual real growth of 13.93%. Domestic consumption of food and non-alcoholic beverages increased from Rs 15.00 lakh crore to Rs 16.5 lakh crore recording an annual real growth of 3.88%.

Clearly there is a perceptible difference in the growth of production sector and trading sector related to agriculture produce. High value addition in trading and almost stagnant value addition in production reflects inefficiency in procurement and marketing system of agriculture produce and it’s processing which is also reflected in the wide gap in wholesale prices and retail prices of vegetable and other food products. There is asymmetry in price formation price discovery and cost of cultivation.

Swaminathan formula

Realising these problems successive governments have tried to find a solution through the system of Minimum Support Price (MSP). Recently a progressive system of MSP (generally known as Swaminathan formula) has been proposed to keep it at least 50% above the cost of production. However this arrangement is less likely to yield a balanced outcome as traders would tend to pass the entire price increase to consumers. Thus while farmers may benefit from such a progressive MSP consumers would still suffer due to additional inflation. An efficient market that reduces trade and transport cost would still be essential for political sustainability of gains extended to farmers.

It is in this context that promoting organised marketing with FDI support aimed at reduction in cost of intermediation may be a preferred policy. This arrangement is likely to motivate cultivation and processing of high value products through concepts of contract farming. Involvement of corporate sector in marketing agriculture produce would also help in unifying the market at national level and solve the problems of fragmented farming and storage.

This can be further strengthened through application of modern technologies in production process and information sharing which could bring markets to the doorstep of farmers. Storage and transportation of perishable products is another area that can be benefitted with the introduction of state of art practices. It may be noted that the problem of agriculture sector are complex involving provisioning and efficient management of resource and inputs such as irrigation water soil health seed quality fertilizer pesticides among others which need financial and technical assistance for improving productivity.

Need to address concerns 

It is also important to allay the concerns of opponents of FDI who tend to argue that the entry of Multi National Organisations would harm small traders. However the macroeconomic data presented earlier shows that value added in trading far outperform the value added at farm and processing level in agriculture and allied sector. Therefore a middle ground needs to be obtained.

Studies have shown that while it may be true that introduction of organised retailing tend to displace unorganised retail but such developments have clear benefits for the consumers in terms of price and variety; and provide greater employment opportunities for educated youth. Interestingly it is also found to be significant that displaced unorganised retailers quickly find ground and start earning even more profit at newer places in expanding cities (see for example several papers by Kalirajan and Singh). Thus the concerns raised against FDI in retail seem to be based on weak grounds.

The benefits of organised retail have been reported from several parts of India both in terms of increases in employment and remuneration. However there are some concerns also with respect to contracts and its enforcement inconsistencies in pricing process of product grading payment terms etc.

Substantial market power is demonstrated by the corporate purchaser as farmers do not have sellers power. For example once a vegetable product is grown it has to be sold. So the competition among buyers and the market concentration of buyers are the two main factors that decide the procurement price. High concentration (less number of buyers) of buyers or collusion among buyers is likely to force farmers to settle for lower price and undesirable payment terms.

Therefore it is expected that the New Policy would provide a framework that would be progressive fair and at the same time protect marginal farmers from exploitation. It should design a model code of contract leading to healthy environment of engagement between organised retailers and farmers.