Bangladesh’s largest and most significant neighbour is India. Relationship between the two neighbours is rooted in a common civilisation, culture, linguistic heritage and values defined by aspirations of struggle for independence and democracy. Though India’s humanitarian and material assistance was instrumental in Bangladesh achieving independence through a nine-month long Liberation War in 1971, Bangladesh’s relations with India, has not been smooth in the past four decades. Issues like sharing of trans-boundary river water, land boundary disputes, political controversiesand security concerns from both sides overshadowed the prospects of cooperation.However, significant efforts have been made to resolve the longstanding disputes through constructive bilateral engagements in the past few years through political initiatives and pragmatism from both sides. Under Indian Prime Minister Narendra Modi’s Neighbourhood First Policy and Bangladesh Prime Minister Sheikh Hasina’s 21st century style of proactive diplomacy, the India-Bangladesh relationship has now entered a new age. With the Indo-Pacific emerging as the most significant region in global strategic discourse, this article aims to examine the emerging scope and potential of the relationship for securing mutual interests.

Overview of the Bangladesh-India Relations

Background
During the 1971 Liberation War, India’s military and diplomatic support was crucial for the emergence of Bangladesh as an independent state. Moreover, India hosted about ten million Bengali refugees during the war and also delivered significant assistance for post-war reconstruction projects. As a result, a cordial relationship developed between Dhaka and New Delhi in the early years of Bangladesh’s independence led by the Awami League (AL) and its leader Sheikh Mujibur Rahman. However, the warmth in the relationship was short lived.

Following the assassination of Sheikh Mujibur Rahman on 15 August 1975, Bangladesh went under several military and quasi-military regimes for more than a decade. Those regimes used ‘anti-Indian’ and Islamist sentiments to generate domestic support in order to legitimise and prolong their rule. Although a democratic transformation took place in Bangladesh in 1991, the country’s relations with India did not improve because the then ruling party—the Bangladesh Nationalist Party (BNP)—was founded by former military ruler General Ziaur Rahman. As a result of General Zia’s legacy, the BNP government continued to endorse ‘anti-Indian’ sentiments.

Bangladesh-India relationship improved significantly following the AL victory in the 1996 general elections. From 1996 to 2001, some crucial developments took place including the signing of the 30-year water sharing agreement for the Ganges. However, the level of cooperation from both sides reduced again after the BNP-led coalition returned to power in 2001. Insurgent groups operating in India’s northeastern states allegedly got support from Dhaka during that time. Moreover, the BNP-led alliance harboured two Islamist parties and was also supported by numerous conservative factions. There was a significant spread of Islamisation at all levels of Bangladeshi society and anti-Indian rhetoric got momentum across the political discourse. Moreover, there was a rise in radical terrorist activities in the country that threatened communal harmony and stability of the entire region.

State of Relations since 2009: A New Normal
Since 2009, when Sheikh Hasina became prime minister for the second time, the bilateral cooperation between Bangladesh and India began to achieve constant growth.One major agenda that has brought New Delhi and Dhaka close has been counter-terrorism as both the governments have been committed to crack down decisively on regional and trans-regional extremist groups. The improved cooperation resulted in the signing of a number of agreements during Prime Minister Narendra Modi’s June 2015 visit to Dhaka. These included the agreement on the longstanding land boundary and ‘enclave’ disputes, India’s power export to Bangladesh, India’s usage of Bangladeshi sea-ports and Bangladesh’s export of internet bandwidth to India’s north-east region ³. New Delhi has given specific importance to improving connectivity and transit facilities to economically connect the isolated north-east region with the Indian mainland. During Prime Minister Sheikh Hasina’s visit to New Delhi in April 2017, 22 agreements were signed in the areas of cultural exchange, nuclear energy, power plants and cyber security⁴. India has extended two lines of credit (LOCs), a USD 2-billion LOC in 2015 and USD 4.5 billion in 2017, for implementing 17 priority projects in various sectors including power, railways, roads, shipping and port infrastructures in Bangladesh⁵. In addition, the two countries signed three major defence agreements.These agreements include extending defence cooperation, collaboration between the naval forces, and a USD 500 million worth soft loan to Bangladesh for buying Indian military hardware⁶. In May 2018, Indian Prime Minister Narendra Modi and Bangladesh Prime Minister Sheikh Hasina inaugurated Bangladesh Bhavana at Visva-Bharati University in West Bengal, as a symbol of the cultural ties between the two countries⁷. It houses a museum showcasing Rabindranath Tagore’s historical association with Bangladesh, Bangladesh’s Liberation War and Indo-Bangla relations. To facilitate people to people connectivity, new railway lines and bus services between Kolkata, Dhaka and Agartala have been inaugurated recently.

Significance of Bangladesh-India Relations
In general, geographical location, population, size of the economy, and socio-cultural orientation of a country determine the significance of its relations with its neighbour. The Bangladesh-India relationship is very significant for both nations, considering the emerging dynamics in today’s South Asian sub-system. From security, economic, and strategic perspectives, mutual interests of both the neighbours are mostly overlapping. Each country’s importance to each other is appended below:

Importance of India to Bangladesh

Security Considerations
Bangladesh shares a 4,096-kilometre long land border with India, the fifth-longest international border in the world. It also has a 271-kilometre long border with Myanmar in its south-eastern part. The Bay of Bengal, with shared coastline with India and Myanmar, makes up its southern frontier. A roughly 20-kilometre wide Indian territory separates Bangladesh from the two landlocked Himalayan States, Nepal and Bhutan. A further 160-kilometre wide Indian territory separates south-western part of China from the northern frontier of Bangladesh. Therefore, India geographically surrounds Bangladesh on three sides. Moreover, the Indo-centric South Asian regional order has created an ‘India factor’ in Bangladesh’s foreign policy behaviour since its independence in 1971⁸. In the past four decades, Bangladesh’s bilateral relations has faced ups and downs, but the ‘India factor’ has continued to remain constant in Bangladesh’s foreign policy endeavours within and beyond South Asia. Bangladesh always needs to remain sensitive to India’s legitimate security and economic concerns. Thus, cooperative relations with India is crucial for Bangladesh to ensure national security, sharing of trans-boundary river waters, economic development, and environmental protection.

Economic Considerations
Today, India is the sixth largest economy in the world and is expected to be the second largest by 2030. The growth of the Indian economy has captured the attention of Bangladesh as means to grow its own economy. Bangladesh wants to capitalise on this opportunity and benefit from the exceptional economic rise of it neighbour. Indian investments in Bangladesh are rising. During Prime Minister Sheikh Hasina’s visit to New Delhi in November 2017, several Indian companies signed investment deals worth of USD 9 billion. Recently, Bangladesh has identified 13 sectors including agro-processing, automobiles, ICT, pharmaceuticals, and textiles where it is seeking ‘mega investment’ from India. Bangladesh has also agreed to set up special economic zones (SEZs) in designated locations across the country for Indian investors. In recent years, India has also emerged as a formidable export destination for Bangladeshi goods and services. According to Export Promotion Bureau (EPB), Bangladesh’s exports to India stood at USD 1.25 billion in 2018-19 fiscal year (FY), an increase of 42.91 percent over 2017-18 FY, where exports stood atUSD 873.27 million⁹.

Strategic Considerations
Bangladesh has been trying to maintain a delicate balance with regard to India, China and the United States (US). Bangladesh has been pragmatic enough to endorse the Belt and Road Initiative (BRI) and welcomes loans from China while remaining committed to India’s core strategic interests in the region¹⁰. Increasing US and Chinese interests in South Asia and the Indian Ocean Region (IOR) have offered Bangladesh a unique opportunity to actively cooperate with all crucial stakeholders. India is a key US partner in the Trump Administration’s Free and Open Indo-Pacific (FOIP) strategy. Thus, Bangladesh needs India’s support to diversify its sources of investment, and position itself as an active security contributor to the Indo-Pacific region within the FOIP initiative¹¹.

Importance of Bangladesh to India

Security Considerations
Although Bangladesh is a relatively small neighbour, its importance to New Delhi in terms of security has been wide-ranging. First, Bangladesh almost separates India’s insurgent-prone seven north-eastern states from the rest of its territory. A roughly 12-mile wide strip, known as Siliguri corridor, is the only available land route between India and its north-eastern region. For India, Bangladesh provides additional options to connect with its North East Region. New Delhi also cannot ignore the importance of Dhaka in neutralising insurgent groups operating there. Secondly, both New Delhi and Dhaka need each other’s cooperation to fight terrorist groups linked to international terror networks. If any terror group finds a stronghold inside Bangladesh, it could have a spillover effect on India (and vice versa). Thirdly, New Delhi has inherited a security perception from the British Raj that considers India’s security in terms of the subcontinental security. Thus, Bangladesh falls under the internal security matrix of India and is important to India¹², both on account of geographic proximity as also the very nature of India’s security perception.

Economic Considerations
Bangladesh’s economic importance to India is also wide ranging. After the end of the Cold War in the early 1990s, India liberalised and de-centralised its economy to expand its market abroad. Since then, her exports to Bangladesh has been increasing significantly. Currently, Bangladesh is the largest export destination for Indian goods and services in South Asia. For almost four decades, India has sought transit facility from Bangladesh to integrate its resource rich but relatively less developed north-east region to its mainstream economy. But the lack of political will from Dhaka was a major obstacle for India’s transit. However, Dhaka’s policy in this regard changed when AL-led government returned to power in 2009. Since then, the two countries have come a long way to establish the transit facility which New Delhi has sought for decades. Moreover, due to Bangladesh’s relatively cheap labour costs and closer proximity to north-east markets, the country can be an ideal destination for investment from Indian manufacturing companies.

Strategic Considerations
Bangladesh is situated between the Himalayan foothills in the north and the Bay of Bengal in the south. The country is the only geographical real-estate that connects South Asia with South East Asia. As a result, Bangladesh is an important country to operationalise India’s ‘Act East’ policy. With support from Bangladesh, land-based connectivity with South East Asian emerging economies gets enhanced. Today, Bangladesh is located in between India’s strategic backyard and China’s strategic periphery¹³. This unique geographic location of the country has resulted in a ‘Sino-Indian geopolitical tug-of-war’ to win over Dhaka¹⁴. With China’s increasing economic and maritime inroads into South Asia, India has started to provide aid and make strategic investments in Bangladesh to counter Chinese influence in its neighbourhood.

Opportunities for Future

Transport Connectivity
Regional and sub-regional trade has been the primary incentive to introduce initiatives like Bangladesh-China-India-Myanmar (BCIM) Economic Corridor and Bangladesh-Bhutan-India-Nepal (BBIN) Motor Vehicle Agreement. Bangladesh and India should play the leading role to materialise the proposed initiatives (e.g. BBIN and BCIM economic corridors). These will facilitate integration of inter-regional and intra-regional markets for greater productivity.

Cooperation on Power and Energy
Industries in Bangladesh cannot run full time through the year due to lack of power supply. Currently, Bangladesh is planning to import 9000MW electricity from neighbouring Nepal and Bhutan and thus needs India’s help. Moreover, most of the power plants in Bangladesh are thermal (about 95.78%). The country is looking for alternative environment friendly sources to meet its domestic needs. So, India can provide technical assistance to Bangladesh in renewable energy production.

Trade with North-East India
India’s seven north-eastern states have access to the mainland only through the narrow Siliguri Corridor. Easing the process of Bangladeshi export to the region will be beneficial for both countries, since it will help boost the economy of the north-east by lowering product prices also. Moreover, many Bangladeshi investors are also interested in investing in north-east India. Therefore, Bangladesh also can play a direct role in the socio-economic development of that region.

Maritime Cooperation
In this age of blue economy, seaborne trade and commerce and freedom of navigation are becoming increasingly important to the littoral states of the Bay of Bengal. Bangladesh-India maritime connectivity has become a reality following the signing of a bilateral agreement on coastal shipping in June 2015. The agreement is a milestone in developing maritime connectivity between the two countries as it is aimed at facilitating commercial maritime activities for mutual benefits. Both the countries also signed a Memorandum of Understanding (MoU) in the field of ‘Blue Economy and Maritime Co-operation in the Bay of Bengal and the Indian Ocean Region’. According to Article II of the MoU, Bangladesh-India will focus on (a) Developing inclusive and people-centric ocean based blue economy and maritime cooperation; (b) Research & Development in marine biotechnology and the creation of centres of excellence; (c) Capacity building and skill development in the field of marine science and blue economy; (d) Sharing knowledge and expertise on marine aquaculture and deep sea fishing and safeguarding economic interests including fishing fleets in the areas beyond national jurisdiction; (e) strengthening maritime pollution response cooperation¹⁵. As both Bangladesh and India have shared security interest in the Bay of Bengal they can introduce a ‘Joint Naval Task Force’ for secure peace and security at the Bay. Both Bangladesh and India must play a constructive role in maritime cooperation in the Bay of Bengal region and beyond.

Tourism
Both Bangladesh and India share the Sundarbans, the world’s largest mangrove forest. The two countries signed a MoU on 16 November2015 to operate passenger and cruise services on costal and predetermined routes. On 29 March 2019 Bangladesh and India have started cross-border passenger and cruise services which are expected to create a new horizon for cross-border tourism. Further cooperation between the two countries is necessary to develop tourist infrastructure and facilities while also taking environmental sensitivityinto consideration. Moreover, India, Bangladesh and other BBIN partner countries can introduce a regional tourism circuit that will attract more foreigner tourists and thusgenerate more revenue.

Impediments and Challenges
High non-tariff barrier
Bangladeshi products face great trade difficulty to export in India for non-tariff barriers. Although there is South Asian Free Trade Area (SAFTA) agreement but it has a very limited effectiveness. Moreover, India also imposes some other non-tariff barriers to Bangladeshi products. For example, India imposessome restrictionsoncertain Bangladeshi goods while importing the same products from other countries¹⁶.

Water Dispute
Despite the growing warm relationship between India and Bangladesh, the longstanding agreement on the sharing of waters of the Teesta River has not yet materialised. Moreover, waters of more than 50 rivers come to Bangladesh through India. Thus, cooperation on trans-boundary water sharing will be a significant factor in the bilateral relationship in the coming years.

Border Issues
Bangladeshi and Indian border protection forces need to increase cooperation to halt the cross-border human trafficking, drug and small arms smuggling. Moreover, both the countries should introduce ‘zero killing’ principle in the border.

Rohingya Issue
Following a militant attack, a military campaign was launched by the Myanmar armed forces in Rakhine State on 25 August 2017 against the country’s minority Rohingya community. As result, more than 723,000 Rohingya have fled to neighbouring Bangladesh, creating one of the largest humanitarian crisis of our times. Following the violent crackdown, Myanmar’s leader Aung San Suu Kyi and her government faced condemnation by the international community for gross violation of human rights. India, while remaining neutral in the crisis, has provided humanitarian and economic aid to both Bangladesh and Myanmar¹⁷. More is however expected of India in terms of playing a constructive role by mediating between Bangladesh and Myanmar to resolve this highly complex humanitarian crisis.

Recommendations
To further foster cooperation and ensure the securing of mutual interest, the following is recommended:
• The recently demarcated Bay of Bengal provides the two countries a new avenue to exploit vast marine resources. India and Bangladesh could therefore establish an institutional framework for sustainable exploitation of oceanic resources in the Bay of Bengal.
• The sharing of the trans-boundary rivers has been a key point of disagreement between the two countries. Solving this issue through mutual talks and deliberations will improve the overall relationship between the two countries.
• Both India and Bangladesh can look into developing joint hydro electric projects in Nepal and Bhutan. This will help in meeting the energy requirements of both countries as well as remove mutual misunderstandings.
• Bangladesh is already in the process of fulfilling its promise of providing trans-shipment facilities. In this regard, supporting Bangladesh to establish road and rail connectivity to Nepal and Bhutan will be a good gesture of reciprocation from India.
• Removal of the non-tariff barrier has been the long time demand of Bangladeshi businessman. Taking further steps for the removal of non-tariff barrier will revitalise the psyche of Bangladeshi people and help improve the relationship between the two countries.
• Bangladesh will soon graduate from Least Developed Country (LDC) status and will no longer be able to enjoy certain benefits in Indian market. Thus, there’s a need for new bilateral trade agreement between the two countries.
• Because of sustained economic growth and political stability, Bangladesh is now an attractive destination for investment. Compared to Japan and China’s investments, the investment from India to Bangladesh has been significantly low. Indian stakeholders could consider investing in Bangladesh at a higher level with giving a particular focus in the IT and manufacturing sectors.

Conclusion
Despite experiencing different historical trajectories, Bangladesh and India share a common history. Their relationship should go far beyond strategic calculations. Recent developments in the bilateral relations demonstrate that political will and constructive engagement can be mutually beneficial. It is hoped that responsible stakeholders across the political spectrum in both the countries will recognise the emerging scopes and potentials to attain new heights in future Indo-Bangladesh cooperation. We should remember the statement made by former Indian Minister of External Affairs, Ms Sushma Swaraj, “Our desire is that India and Bangladesh should flourish together as two equal partners. We share not just our past but also our future.¹⁸”

References:

¹ Md. Sharif Hasan is a Lecturer at the Department of International Relations, University of Rajshahi, Bangladesh.
He is currently teaching international relations at University of Rajshahi, Bangladesh. Previously, he has worked as a Field Researcher at Centre for Genocide Studies, University of Dhaka. He can be reached at: sharifhasan.ir@ru.ac.bd
² Taufiq –E- Faruque is a final year researcher at the Department of International Relations, University of Dhaka, Bangladesh. He can be reached at: tefduir@gmail.com
³Hasan, Mahmood. 2015. “Modi’s Charm Offensive in Dhaka”. The Daily Star. https://www.thedailystar.net/op-ed/politics/modis-charm-offensive-dhaka-93628.
⁴Abedin, Syed Zainul, and Adil Sakhawat. 2017. “PM’s India Visit: A Qualified Success”. Dhaka Tribune. https://www.dhakatribune.com/bangladesh/foreign-affairs/2017/04/11/pms-india-visit-qualified-success.
⁵ Kallol, Asif Showkat. 2017. “Bangladesh Signs $4.5Bn 3Rd LOC Deal with India”. Dhaka Tribune. https://www.dhakatribune.com/bangladesh/development/2017/10/04/bangladesh-signs-4-5bn-3rd-loc-deal-india/.
⁶ “Defence Cooperation: Dhaka, Delhi Sign Deal”. 2018. The Daily Star. https://www.thedailystar.net/backpage/dhaka-delhi-sign-3-deals-1575109.
⁷ “PM Hasina, Narendra Modi Unveil Bangladesh Bhaban at Santiniketan”. 2018. The Daily Star. https://www.thedailystar.net/country/bangladesh-prime-minister-sheikh-hasina-kolkata-modi-1581442.
⁸ Bhardwaj, Sanjay. 2003. “Bangladesh Foreign Policy Vis‐A‐Vis India”. Strategic Analysis 27 (2): 263-278. doi:10.1080/09700160308450087.
⁹ “Bangladesh Exports to India Cross $1Bn Mark”. 2019. Dhaka Tribune. https://www.dhakatribune.com/business/economy/2019/07/10/bangladesh-exports-to-india-cross-1bn-mark.
¹⁰ Chakma, Bhumitra. 2019. “The BRI and Sino-Indian Geo-Economic Competition in Bangladesh: Coping Strategy of a Small State”. Strategic Analysis 43 (3): 227-239. doi:10.1080/09700161.2019.1599567.
¹¹ Carafano, J. James, and Jeff M. Smith. 2018. “How Bangladesh Can Improve Indian Ocean Security”. The Heritage Foundation. https://www.heritage.org/asia/commentary/how-bangladesh-can-improve-indian-ocean-security.
¹² Pattanaik, Smruti S. 2010. “India’s Neighbourhood Policy: Perceptions from Bangladesh”. Strategic Analysis 35 (1): 71-87. doi:10.1080/09700161.2011.530985.

¹³ Xiaoping, Yang. 2018. “When India’S Strategic Backyard Meets China’S Strategic Periphery: The View from Beijing”. War on the Rocks. https://warontherocks.com/2018/04/when-indias-strategic-backyard-meets-chinas-strategic-periphery-the-view-from-beijing/.
¹⁴ Cookson, Forrest, and Tom Felix Joehnk, 2018. “China and India’s Geopolitical Tug of War for Bangladesh | East Asia Forum”. East Asia Forum. https://www.eastasiaforum.org/2018/04/11/china-and-indias-geopolitical-tug-of-war-for-bangladesh/.
¹⁵ Hossain, Delwar, and Md. Shariful Islam. 2019. “Unfolding Bangladesh-India Maritime Connectivity in The Bay of Bengal Region: A Bangladesh Perspective”. Journal of The Indian Ocean Region, 1-10. doi:10.1080/19480881.2019.1646570.
¹⁶ “Shows Ways to Cut Indo-Bangla Trade Gap”. 2018. The Daily Star. https://www.thedailystar.net/business/Analystanalyst-shows-ways-cut-indo-bangla-trade-gap-1560508.
¹⁷ Choudhury, Angshuman. 2017. “Opinion: China Leveraged Rohingya Crisis. India was Timid.”. WION. https://www.wionews.com/world/opinion-china-leveraged-rohingya-crisis-india-was-timid-28018.
¹⁸ “Speech by External Affairs Minister at Bangladesh Institute of International and Strategic Studies (June 26, 2014)”. 2014. Mea.Gov.In. https://mea.gov.in/outoging-visit-detail.htm?23487/Speech+by+External+Affairs+Minister+at+Bangladesh+Institute+of+International+and+Strategic+Studies+June+26+2014.

The economic development of India is shouldered by its industries. Since the early days of modern India, industrial policymaking has almost always concentrated on the upliftment and the augmentation of agriculture and industry. Empirical data shows that the manufacturing sector contributes to almost 29.73% to India’s GDP. The Indian State, in the early days of freedom, faced severe illiteracy, poverty, low per capita income, industrial backwardness, and unemployment. Resultantly, policymakers strived to incubate a climate for industrial development. The first industrial policy introduction (1948) became a significant part of the first five year plan marked out by India’s founding fathers. The introduction of the industrial policies paved way for breakthrough policy statements to follow (1956, 1973, 1977, and 1980). After what seemed like an indentation in the economic progression of Indian industries for a few decades preceding the 90s – an all-around change was introduced in 1991, in the framework giving a new direction to liberalisation and open markets. There appeared encouraging trends on diverse fronts as a direct result of this move. The industrial growth that was 1.7 per cent in 1991-92 increased to almost 9 per cent within a decade. With the devaluation of the overpriced Rupee, the industrial structure balanced domestic demand with the newfound world market. The impact of the reform was reflected in multiple increases in investments, both domestic and foreign.

It was in such an environment that India woke up to the advent of Foreign Direct Investment (FDI). Foreign investment brought India closer to the different economies of the world, thereby updating various sectors in India like manufacturing, infrastructure, transport, technology, services, productivity, hospitality etc, to their external counterparts. Global trade and foreign investment make for great parameters to determine India’s global openness. Without a global presence, the Indian economy like any other would have perished under the boulders of market forces. With the times, FDI has taken on various mantles to facilitate international trade and finance. This article aims to analyse the role of FDI in India’s journey towards the new tomorrow, with revised industrial aspirations, and refined industrial production means.

Prologue: Globalisation in Industrial Development

Industrial Policy of Investment as an instrument has perpetually been perceived in dichotomy. While one section champions it as a means of rapid economic growth and development (cite East Asian economies), others condemn its import-substitution policy failures (cite sub-Saharan Africa and Latin America). But what cannot be forsaken is the idea that industrial policies of investment is responsible for resource transfer on a transnational basis. FDI generates externalities in the form of technology transfer through various rates of spill-overs on the productivity of domestic firms (Liu, 2006). A new theory to have emerged in this context is that the level and rate effects of spill-overs can go in opposite directions. While the negative level effect highlights the costliness of technology transfer, iterating that scarce resources must be devoted to learning, the positive rate effect proposes technology spill-overs behind enhanced domestic productive capacity. What cannot be missed in this context is that industrial policy finds itself as a primary apparatus for economic development in the global setting. Notwithstanding the inescapable market failures, internationalised industrialisation in India is perceived to be necessary—the approach being a smooth amalgamation of private participation and state intervention.

The side proposing structural industrial policies houses arguments that allow governments precedence to manoeuvre policy routes, despite with the presence of private stakeholders. In this view, economic development is founded by the country’s endowment structure, in terms of its relative abundance of labour, capital, and natural resources. Now the industrial construction of India is endogenous to this endowment; changing the endowment correspondingly alters the industrial policy. The policymaking is also rooted in the operational mechanics of the private sector, which responds effectively to prices reflecting the relative abundance of scarcity of its own set of factor endowments (Justin Lin, 2012). In India therefore, the government pursues economic development in collective effort with the corporates, facilitating entry of firms into industries with the country’s latent comparative advantages. In a side-track, the Indian markets absorb the large externalities that might be later engaged for infrastructural upgradations and improvements. The government’s role here is to ensure the launch the economy in the process of said upgrading.

There is however a flip side to it. The side opposing the structural industrial policy put the full onus on the government. Unlike their peers, this section does not assume that there is or will be a private sector mature enough to respond to the coordinated activities between and with the state.

Contrasted to Lin’s approach of assuming the production factors to be allocated to a country’s comparative advantages, Ha Joon Chang (Lin and Chang, 2009: 490–91) shows many poor countries to exhibit limited factor mobility and access to technology, thereby impeding industrial upgrading efforts.

This side of the policy debate asserts a pronounced role of the government in overcoming the many complications to industrial upgrading. Less affluent countries such as Angola and Mozambique are likely to face structural hindrances owing to their low endowment levels that the coordinating method may not be equipped to handle. This might mangle the industrial upgrades, making it impossible for the countries to follow market signals. As a result, Chang fears that the country risks entering an industry its endowment level cannot afford, thereby defeating the aim to smoothly plug into the comparative-advantage-conforming strategy.

As divergent as these two sections of the policy debate may appear, they share a bit of common ground is acknowledging the importance of industrial upgrades for economic development, and the government’s substantial role in the process. Now, how far the regulatory easements might be tolerated by a government depends on the target industry, as well as the country. Restrictions, for instance, remain common in a specific stage of the procedure – entry regulations for infrastructure industries have remained restrictive¹ owing to new screening procedures developed by the NIR-driven models (New Industrial Revolution, as I discuss later). More generally, most measures adopted over the past decade have considerably relaxed restrictions. Manufacturing has hardly faced the brunt of regulation, with more than 95 per cent economies allowing full foreign ownership of facilities.

Today, with as much as 80 per cent of industrial policy measures taken since 2010 abolishing FDI limits, the point of initiation of a resolve to this dichotomy has been found. The broad openness to foreign investment in industrial sectors in most countries is the result of an ongoing trend to relax formal FDI restrictions. This sense of responsible investment policy in industrialisation, without undermining the presence of the government, is allied to the idea of the structural industrial policy. For example, India in 2015 had adopted a comprehensive FDI liberalisation strategy and relaxed FDI rules in 15 major sectors, including manufacturing. In a way, Indian policymaking has struck a balance between laissez faire and regulation.

Academia has churned out a considerable amount of literature on this over the decades, emphasising on this middle path to be taken. Economics submits a host of literature championing FDI as a growth performance enhancer for the host country. However, there is a lacuna of unanimous agreements among empiricists about positive impacts of FDI on Gross Domestic Product (GDP). In fact, studies by Konings (2001), Damijan et al. (2001), Zanfei (2002a, 2002b) and Zukowska-Gagemann (2002), found a negative relationship between these two variables. While there are opinions advocating both sides, I seek rationale behind the operational mechanics of FDI in the search for a reason behind the positive (or the negative) relationship between GDP and FDI and Mello’s (1990) findings on FDI’s role in growth simulation. He states that FDI simulates growth through i) capital spill-overs by encouraging the adoption of new technology in the production process, and ii) stimulating knowledge transfers by bringing in alternative management practices in place.Both Mello and OECD, in another study, stress on the host country’s attainment of a certain degree of development in education and/or infrastructure before being able to enjoy the results of FDI. Alternatively, the host has to settle for a weak or an insignificant impact on economic growth
Several studies have discussed the conditions necessary for identifying FDI’s positive impact on economic growth, each accentuating on different closely related aspects of development. It is comprehensible therefore, that there exists a relationship between a country’s developmental aspirations and foreign investment. This analysis focuses exclusively on the industrial connotations of foreign investment, especially how investment policy is fundamental to the overarching industrial policy.

An often overlooked aspect of FDI is also one of the most important: upgrading current industrial infrastructure. With the flow that FDI ensures, the government has a choice to distribute the resources into industrial factions for optimal upgrading. It is however, recommended for governments to concentrate activities that are in their nascent stages more than those already well-established (Rodrik, 2004). In economics, this is also referred to as the new technology (or a new good/service). As a nod to Ha Joon Chang’s conclusion, policymaking in India must tread farther from its comparative advantages (agricultural trade and agribusiness) towards the endorsements of new ways of producing (manufacturing sector)² . In this relation, Indian institutions need to further learning in the economy to upgrade the end that ties the slackest knot.

Unlike allocating resources to a comparatively advantageous section, upgrading current infrastructure is nuanced in nascent industries. It is not like India is not in pursuance of excellence, but today industrial policy warrants ideas out of the convention. Weiss (2011) offers a broad perception to utilise FDI in ensuring industrial upgrading:
1. Micro economy: A collaboration between the governance and the local industries for
A. Identification and alleviation of constraints to industrial upgrading;
B. Establishment of public-private “deliberation councils” to identify roadblocks and propound solutions to upgrading;
C. Creation of centralised budgets for allowing public institutions to draw on state resources (Hausmann et al., 2008: 5–10).
2. Macroeconomy: A government can promote upgrading through, for instance, making credit available for risk-taking ventures as well as choosing to focus on promoting a priority sector instead of an industry. Enhancing efficiency for these promoted sectors however need to be time-bound, be transparent, and have clear performance criterion.

Amidst a multitude of interventions that are deemed necessary by aforementioned literature, a distinguished characteristic of a new industrial policy has been called for. There is now a need to harness a country’s potential for capacity-building, promote Higher Value Additions (HVA activities) in the economy and therefore participate in and capture the gains of higher levels of Global Value Chains (GVC)³ . It marks a significant departure from literature discussing an FDI-GDP relationship unilaterally.

Another idea that it successfully defeats is that of the conventional policy forms that advocated protectionism. Such policies have met limited success in achieving industrial perfections, primarily by substituting foreign trade and investments by half-baked scarce levels of domestic demand and investment. A successful global integration is key to realising positive developmental effects in any country (sufficient condition). Yet it also stands, a successful integration is by no means solely dependent on FDI levels (necessary condition), but rather an assortment of quality FDI, good governance, and the ability of the county’s investors to responsibly promote industrial boost.

The need for and the shape of the New Industrial Policy

The temporal journey of industrial policymaking has been through several phases and models, with the deployed instruments evolving along the way. While more “primitive” policies of import substitution restricted foreign investment, those export oriented engaged in measures to maximise positive spill-overs (Zhan, 2011). For certain specific industries currently, almost as much as 40 per cent industrial strategies are vertical. From the remaining rest, a bit over 33 per cent focuses on the more recent horizontal investment facilitation, whereas over 25% on NIR. Other measures to garner incoming FDI – like investor targeting – have also become more prominent⁴ .

1. Box 01

UNCTAD’s global survey of industrial policy shows for at least 84 countries comprising of about 90 per cent of global GDP to have formalised an industrial policy for their respective selves over the past half-decade alone. Investment policies accommodate for several model prescriptions—the New Industrial Revolution (NIR) especially is a prospect for the world, and especially Indian industrial development. After three previous stages of Industrial Revolutions marked by steam-powered mechanical manufacturing (IR1), electrically powered mass production (IR2), and automated IT-controlled systems (IR3), the NIR heralds the flag for IR4 based on Big Data, cloud-computing, and cyber systems. Based on digitalisation of supply chain technologies, the NIR is changing the way we perceive cross-border investment patterns. India has seized the opportunity to join the bandwagon, specifically with the Centre for the Fourth Industrial Revolution in Maharashtra. The Indian efforts started taking shape with the steps to become an e-government (introduction of biometric demographic database). The government closely works with leaders from business, academia, start-ups and international organisations to co-design new policy frameworks and protocols for emerging technology. India’s aspirations to become a technological power and an AI hub has been reflected on the Global Innovative Index, where the subcontinent currently ranks 52 out of 125⁵ .

The NIR affects key decisions for productivity boosts, transparency in operations, and reducing inefficiency. Questions like ‘whether to invest,’ ‘where to invest,’ or ‘investment in what capacity’ can be addressed through smartly made strategies. For instance, the choice of location for an investment has become more flexible in the wake of new technologies such as 3d printing and M2M (machine-to-machine). Economics therefore gets modified when decision-making no longer solely rests on conventional variables like labour costs, skill distribution, infrastructure or policy environment. The NIR is also likely to affect investor behaviour in host countries, affecting the readiness of firms to strategise production styles (regional mass production, distributed manufacturing, etc.), data-sharing, training, as well as the relative foot-looseness of operations.

This paper claimed that investment policy is fundamental to an industrial policy. For India’s impetus towards NIR, FDI is more than a stimulant to economic growth. The idea of investment in Indian market encompasses a host of assets that include long-term capital and technology (skills, know-how, physical capital, etc.). These are crucial for industrial development because they are the harbingers of how well a market is doing – availability of scarce financial resources, employment levels, export capacities; skill distribution and transfer, and fiscal revenue levels. FDI here can support the industrial proliferation and upgrading (capacity building). On a global level, this can also imply a connection between a global supplier and a local enterprise through linkages, subsequently leading to the latter’s financial strengthening. So the characteristic of investment policy is ingrained in the measures that in confluence comprise industrial policies.

Today, the stage has been set for innovative industrial policies more out of necessity than convenience. With the change in production processes and reliance on conventional production factors, the entire market for industrial manufacture has transformed. The foremost reason is very obvious – price alterations to suit market necessities. But that also means that there appear economic agents, who incur losses as well as those who profiteer. Market directions in the wake of this new era require updating the existent industrial policies.
A. According to the business cycle, a global financial crisis might be followed by a reduced unemployment and stimulated growth. Governments therefore are more proactive to address negative effects of globalisation.
B. Industry-friendly policies to counter deindustrialisation and opportunity loss of developing countries (both emerging and mature markets) are being deliberated on.
C. Intensified trade competition from East and South-East Asia has pressurised the developed nations, and inspired the low and middle-income countries to ensure greater participation in Global Value Chains (GVC).
D. Through concomitant supportive policies and facilitating regimes, more is being focussed on GVC in the hope of capacity building in the secondary sector.
E. Commitment to the Sustainable Development Goal is to be honoured.

Foreign investment promotion maximises positive spill-overs for domestic industrial development. In a globalised market, foreign ownership limitations or joint venture projects are not uncommon. Joint ventures in particular fosters domestic industrial enhancement and protect key industries from a wholesome foreign takeover. With ease of doing business, also comes stipulations of investment promotion measures and incentivises facilitation approaches. Spill-overs therefrom have capabilities to turn this process into a virtuous cycle of giving (Fig. 01)

1. Fig. 01

Broadly speaking, investment policy is ingrained in a host of closely interlinked policy areas, including trade, competition, tax, intellectual property, labour and other policies⁶ . Take for example the following policies from India:

• National Policy on Skill Development
• National Policy on Universal Electronic Accessibility
• National Manufacturing Policy
• Science, Technology & Innovation Policy (2013)
• National Policy for Skill Development and Entrepreneurship (2015)
• National Steel Policy (2017)

Investment policy in India recorded post 2010 are directed mostly at the industrial policy purpose. While manufacturing plays a front-running role in the new Industrial policy now, complementary services and industrial infrastructure serve an incentivised and performance oriented purpose. Why India actively chooses an investment heavy route to growth-based development is explained by examining the goal at the end of said route – FDI. In line with industrial policy models, some of the measures that promote direct investments are:
• SEZs – Establishment and endorsement of Special Economic Zones – specialised high-tech zones as the Electronic City in Bangalore, that reflect economic strengths in specific industries or activities (e.g. business process outsourcing). Incubator zones comprising of aerospace and biotech parks have been developed in places like Bangalore or Hyderabad to create a competitive advantage in new industries.
• Investor facilitation (Creation of an investment-friendly environment – for instance, the Invest India Initiative provides the necessary facilitation services for attracting investments into the critical sectors of the economy. Using a host of nodal offices across the government, the ‘cell’ interacts with states in a Hub & Spoke Model to feed the State policies on land, labor and capital to the investor)
• Investor targeting (Utilising existing resources to attract high-end investments)
• Screening and Monitoring

Depending upon the requirements, SEZs can be and have been used for various forms of activities – of course depending on the industrial structure of the country. In India, SEZs serve to not only alleviate high poverty levels, but also are used a part of the broader economic reforms. SEZ is predominantly used in part for economic purposes should be able to diversify exports while keeping barriers in place, and partially as a laboratory to experiment with new ideas. For instance, China had its FDI, land, legal and labour policies tested at its largest SEZs, being extended to the rest of the economy. Indian SEZs often facilitate rapid transfer of good for cheap, offering commute linkages for connectivity, aid investors meet sustainability target (form of incubation), assistance with labour disputes, and environmental compliance issues.

On the other hand, Industrial policies can also selectively restrict FDI through screening. The screening and monitoring procedures in foreign investment can primarily be classified into three broad categories, on the basis of some flexibly defined review criteria (general criteria), and on the basis of the sectoral sensitivities. For the first case, the flexible broad criteria are more often directly related to the national and international interests of the respective countries. Although manufacturing is rarely included in such reviews, sectors of security, labour, society (interest), net benefit, and environment feature mostly commonly across nations. The second case on the other hand, not only provides predictability for a certain investor (knowing well the policies of the respective country), but also ensures that the inspection procedures are carefully followed. Screenings based on sector specific sensitivities might include any sector of the host country that it deems mandatory to be under strict governmental supervision. For instance, the Indian Brownfield Projects in pharmaceuticals is a classic example of sectoral sensitivity, where the entire screening criteria is governed by the statutory act of the Foreign Exchange Management Regulations (2017).

Adding trivia to sector-based restrictions of FDI – much of it has been done keeping in mind the purpose of protecting smaller indigenous businesses, which would otherwise have been crippled by strong international market forces. Such screenings have an unintended consequence of fettering the economy down, thereby keeping it away from harbouring a market economy. The result is the lack of a foreign-local corporate linkage structure in large segments (capacity building).

Being one of the fastest growing nations of the world, India has a balanced amalgamation of giant home-grown corporates and the striving infant industries. In the post-independence era, India has championed protectionist policies to foster these infant industries and provide them equal ground to compete with external competition. This and a handful of sociocultural reasons might have pushed Indian policymakers to pursue restrictive FDI policy. In the present however, this relatively narrow policy scope has given way to a broader approach of strengthening FDI-related instruments. As opposed to the blatant protectionist ideology previously upheld, the current change emboldens approvals for direct and portfolio investments into Indian markets. The beneficiaries of government protection still include national champions, strategic enterprises and critical infrastructure. Moreover, the government finds reason in protection of ailing domestic industries in times of financial crises or to restrict outward investment in order to keep the national employment rate stable. Therefore, the archaic policies that justified FDI restrictions have blurred over time, having been replaced by policies that protect and invite internationalisation of Indian markets without compromising the intervention scope of State in the domestic sectors. In this context, even the Indian markets are being invested on – strengthening the government to better govern the industrial home-grounds. The role of instruments that improve the flow of FDI and provide greater stability becomes an important aspect of industrial policy.

It can be conclusively said that dependence of new industrial policy on investment policy is a key aspect in determining the fabric of the economy. Policymakers can invoke a vast body of economic research on the potential contribution of FDI in industrial development over the years, as well as the former’s effect on investor behaviour. The latest phase witnesses the NIR – the driver of the emerging sustainable and inclusive development – being motivated by investment choices. But the opposite might just as well be true – the NIR’s operations may very well alter the current logical nexus between investment and industrial policies.

India’s path to Industrial Modernisation

A. Investment in Indian Industries

Industrial Policy is essentially a modern phenomenon – as the evolution in industrial policies and new themes revolutionised the way we look at the secondary sector, a global change in policymaking was noticed. From the dawn of the 1900s, industrialisation has thrown out myriad opportunities for modernising the economy. Admittedly, India was one country to jump at the opportunity to bring the manufacturing sector into organised policymaking at the earliest opportunity. These policies have historically been diverse and complex, including a multifaceted objective to drive the growth figures.

Since FDI has been an important source of funds for companies in an otherwise capital choked country, India effectively juggles market forces and regulations under the governance of the Foreign Exchange Management Act (2000). FDI is automatically routed in most sectors, implying minimal supervision by government. A regular revision is nonetheless done for FDI inflow, through prior approvals and scrutiny of prohibited lists ⁷. After a string of liberalisation reforms in 2016, applications relating to issues of equity capital import and pre-incorporation costs are managed by DIPP. In the industrial sector (like any other), various categories of investment – portfolio, institutional, venture capital, NRI – can hold stakes in Indian entities if they meet the conditions for the sectoral caps on ownerships. Venture capital has in fact boosted start-ups in sectors of high growth potential in India, often with international funding to promote the NIR-mandated growth of IT.

India thus has become more habitable for FDI over the last few years, owing possibly to a change of regime. After a promise of a more globalised economy and a freer Indian Rupee at the Monterrey Consensus, the vision of the country is to shift gears toward the corporate. The reorientation reflects an increasing realisation that private international capital flows are likely to develop finance to boost the industry sector. This is possibly why we discuss more about the modernisation and the empowerment of SEZs, or regarding the dissemination of investment promotion agencies through the promise of incubation.

Analysis of the FDI’s role in the Indian industrial policymaking should answer the question: how does foreign investment capture the idea of new industrial policy. In its recent incarnation, even the Indian industrial policy is driven towards more foreign investment in the hopes to marry it with measures aimed at (i) capacity building in infrastructure and financial systems; (ii) skill development for human capital and technology upgrade for physical capital; (iii) raising internal demand flooding export markets to tackle trade deficit. Instead of focussed investments on one stage and relying on linkage effects for dissemination of resources, such objectives warrant initiatives at all levels of a market economy. India adopts explicit investment strategies such as its Consolidated FDI Policy to attract foreign investment. This policy push enhances domestic capital, technology (for physical capital) and skill (for human capital) to accelerate economic growth. To be specific, the direct investments operates somewhat to the effect of establishing a lasting interest in an enterprise that is nationally resident, additional to the investor.

B. The GVC Factor

A prime engagement for FDI is also the integration of an industry into GVCs. A wider adoption of Information and Communication Technologies (ICTs) in firms across India has provided multiple opportunities to improve productivity and boost capacity building measures. Through this upgrade, the industrial sector is no longer fettered to a singular focus of just manufacturing. Through its GVC participation owing to IT-based outsourcing operations, India’s trade operations is part of the global trade linked to production networks of MNEs (around 80 per cent).

Modernised industrial policy connotes importance to GVC and GVC-led development strategies to encourage export-generation across industry value chains, based on competitive advantages. In focussing on GVC participation, India needs to consistently deliver quality products on time. GVC works on such deliveries being made within the value chain, with a combination of goods and services facilitating it. Therefore, the regulatory mechanisms that India needs to follow must address the increasing significance of private standards in global markets. It technically creates a virtuous cycle:

2. Fig. 02

Indian industrial policies interact closely with (foreign) investment policies. While the former directs on the usage of FDI in the economy, the latter provides the government with the rationale to maintain conduciveness in the markets. Additionally, investment into the Indian economy brings along a set of regulatory instruments – exclusive to each of the money-pots (industries) the FDI has flown to – as well as the endorsement to integrate domestic industries into GVCs and the technological upgrading of the domestic base. In this synergistic operation, the kind of policy tools the country uses is determined by performance requirements. There can be some mandatory requirements (like incentive based proliferation) or voluntary (investment choices based on an industry matrix). Broadly speaking, skilled labour management, trade-related physical capital, proximity to markets, tariff rates, compliance with standards, etc. are some of the many variables that can be had at India’s disposal to formulate said policy tools. Additionally, there is good reason behind GVC being an important factor in the canon of ‘new industry’. Along with the value chain comes facilities such as export promotion, job creation, technology transfer, infrastructure upgrades, etc. Indian development strategies have historically been heavily reliant on industrial pushes, formulated keeping in mind financial support programmes. One of the many such programmes comes in the form of global incentives.

Therefore is it normal to strategise on promoting exports and increase participation in GVCs as an integral part of investment policy? Therein lies a matter of contention for India. Even after being part of the revised ambitions for the new (investment-based) industrial policy, GVC continues to be a developed country story. What we might look at to explain the problem is how the gains are shared, and at what stage. The only countries playing a key role in the forward and backward linkages are the developed economics (US, UK, Japan, etc.). This is possibly because they are the only ones who add more value to other countries’ exports than the value added by countries like China or India in their exports. For instance, China adds a low value to the imported inputs despite having a high participation in GVC. Hence the gains are low on the Chinese end. Owing to GVC, an iPhone of retail price $700 will only have $9 worth of value added in China. The lead firms (Party 1) in the developed end of the GVC integration outsource the lower-value-adding activities to a China or an India, while retaining control over the higher-value-adding areas of core competency. The lead suppliers profiteer out of the fierce competition among numerous participants at the lower end of the integration. What happens with the network suppliers (Party 2) is that they lack specialised skills and readily available physical infrastructure to effectively coordinate value chains. Hence, the higher ends comprising of R&D, Intellectual Property (IP), design and distribution yield more than (let’s say) a final assembly of an iPhone. GVCs invite a discrepancy in market power – a high-VA adding country has the financial authority over a lower-VA adding nation on distribution of gains. As the network suppliers have difficulty accessing technology, inputs, market information and credit, local producers (low-VA end) face hindrances in upgrading their capacity. An Indian producer’s unit price of $20/m, is retailed at 5-6 times in the US markets, the required finance for upgrade will majorly be swallowed by the retailer before reaching the producing unit. Even a bargain is not forthcoming, as a sector with a low entry barrier witnesses high competition. A competitive market increases substitution possibilities in the low-VA end, thereby felling the bargaining power of any one firm. Indian manufacturing sector stands witness to the decreasing barriers to entry – at the same time facing stricter barriers in the branded marketing sector.

However, in an economy where shifting comparative advantage leads to the expulsion of producers from the market, the manufacturing sector in would generate a very low VA in a GVC.

Idea in Industrialisation

The idea of industrialisation is founded on the allied concepts of implementation plans and their accompanying legislatures. The alliance (of plans and legislatures) typically set out horizontal measures ⁸ supporting the technological upgrades and skill building. Although the classical industrial policy instruments continue to be a part of the toolbox, the newer methods have overwhelmingly taken over – most strategies specifically detail policy objectives to attract investment required for industrial development. In the initial days after the Indian independence, policymaking was based on low level of domestic industrialisation ⁹ and the need to protect local companies at its early stages. This idea required the environment of the Indian industries to incubate nascent industries or promote temporary tariffs.

The industrial sector has also stood witness to Public-private partnerships (PPPs) – either purely for financing purposes, or to link public and private research or educational institutions. Such partnerships symbiotically stimulate activity in niches where private investment is reluctant. The rural areas, for example, is a case where PPP is envisaged. Almost 90 per cent of industrial policies strategise private investment, out of which almost 60 per cent is dedicated to FDI promotion.

Conclusion

The economic impetus behind the establishment of the industrial policy the way it has been, is a work in progress for India. As the country steps from strengths to strengths, so does the policy package – the adoption of new technologies in industrial value chains to realise increased productive capabilities.

The content and focus of key policy instruments, including investment policy tools, differ across countries and evolve depending on development paths and objectives. The evidence from the survey of industrial policies of over 100 countries has also shown that they are increasingly multifaceted and complex, addressing myriad new objectives such as participation in GVCs, strategic positioning for the new industrial revolution (NIR) and support for the achievement of the SDGs.

For modern industrial policies to contribute towards a collaborative and sustainable development strategy, they need to be part of an integrated framework. Overall development strategy, industrial policy, macroeconomic policy, trade and investment policies, and social and environmental policies are interdependent and interactive. This requires a holistic and “whole-of-government” approach to mutually reinforce and create synergies among different sets of policies in order to avoid inconsistency and offsetting effects. A crucial condition for successful industrial policies is effective interaction with investment policies, with the aim to create synergies. Countries need to ensure that their investment policy instruments are up-to-date, including by reorienting investment incentives, modernising SEZs, retooling investment promotion and facilitation, and crafting smart foreign investment screening mechanisms. The new industrial revolution, in particular, requires a strategic review of investment policies for industrial development.

Policymakers of foreign investment in any sector of India, must acknowledge the role markets play – a critical role in resource allocation, catalysed by the enabling support from the government against market and system failures. Investment and industrial policies are essentially national-level policy efforts having extensive consequences for the international communities. In the era of the New Industrial Revolution, global integration has compelled the strengthening of regional and multilateral collaboration. Paper exercises on industrial policy deliberations will fail to achieve developmental goals if the practicality of ‘openness’ is not realised. High-level policy formulation, and its effective implementation is ensured by empowered institutions, flexible policy-monitoring, and correction systems built on feedback. For the impetuous run of India’s tall ambitions, an embrace of the global world is deeply necessary.

Biography –

Adri Chakraborty- Adrij Chakraborty is currently working as an Economic Analyst with the University of Mumbai (School of Economics and Public Policy). He is an alumnus of Edinburgh University and his areas of interest are Applied Economics, Labour Economics, Empirics and Econometrics, and Development Studies.

Bibliography

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References:

¹ Restrictions are mostly confined to transportation and media inter alia because of their operational sensitivity (Source: World Bank).
² Balassa’s Revealed Comparative Advantage (RCA) Index
³ A system of borderless production, where the production processes is fragmented in several stages performed across different countries and connected by services links. GVCs are typically coordinated by transnational corporations (TNCs), with cross‐border trade of production inputs and outputs taking place within their networks of affiliates and contractual partners.
⁴ New Indian Industrial Policy Directions in Box 01; more themes of industrial policies are included in Box 02
⁵ GII depends on technological indicators including the incubation for stat-ups, priorities in blockchain systems, and AI
⁶ More explicit explanations can be found in UNCTAD’s Investment Policy Framework for Sustainable Development (IPFSD).
⁷ The automatic route does not require approval from RBI; the Government Route requires prior approval from the concerned Ministries/Departments through the Foreign Investment Facilitation Portal (FIFB), jointly administered by the DIPP and Ministry of Commerce and Industry
⁸ Economic growth, Job Creation and Competition
⁹ This was in pursuance with the vertical policies of sectoral development

A new government is in place in New Delhi, with an absolute majority, which in itself, should give it enough courage to put in place reforms that will ramp up a slowing-down economy. The Prime Minister held a meeting attended by about 40 experts—economists, leaders in industry and agriculture, water resources, etc. as also the Minister for Commerce and Industry and the Minister of State for Statistics. The state of the economy has been a matter of concern, the economy growing at it’s slowest pace in the last 17 quarters (that is more than four years prior to 2018-2019). The growth percentage is down to 6.6% in the last quarter of 2018¹. The government also announced a third straight fall in growth to 5.8% in the first quarter of the financial year 2018-2019. This figure means that India is no longer the fastest growing economy, having ceded that place to China which grew at 6.4% in the first three months of 2019. India has thus fallen behind China for the first time in nearly two years. The data for unemployment is also not very encouraging with the statistics ministry stating that the unemployment rate was at 45-year high at 6.1%, for 2017-2018² , confirming the figure which was leaked to the Business Standard, which said it was the worst since 1972-73.

No sector beckons support as much as the farm sector does, because that is the life line of India. If rural India’s economy looks up, that acts as a strong precursor for the manufacturing sector and other allied services. Thus, one can definitely see a positive “ripple effect,” indeed, for the overall growth of India. When the agricultural economy slumps, the country’s growth engine nose dives that is the actual reality³. Nothing highlights this as much as the country-wide farmers’ agitation did, some months preceding the Lok Sabha election. Now an environmental disaster is looming large, caused by global warming. The United Nation’s Secretary General, Mr. Antonio Guterres, is convening a summit of the global heads of governments for a summit on global warming early September. In this connection, it would not be out of place to mention that my book, “Combating Global Warming: The Role of Crop Wild relatives For Food Security,” being published by Springer Global, is being launched just prior to the global summit, in New York, and all over the world. This simply speaks of the urgency of this matter. To be precise, water is at the center of this grave environmental hazard, because, rising ambient temperature will affect the water stored underground. In addition to this, the global warming could have catastrophic environmental effects. It has been estimated that nearly 1 billion people in the tropics, including India, could be affected by mosquito borne diseases like dengue and zika virus. A year round transmission in dengue can take place. India has witnessed this catastrophe, and, will witness it in the future as well, because of the unfolding global warming hazards in the country. To illustrate, the “water havoc” Kerala is an apt example. In August 2018, the State was lashed by heavy torrential rains, which was a new phenomenon for this region. The dams were full and overflowing, and, an ill-informed electricity minister ordered the dam shutters to be opened. This created a manmadedisaster rendering thousands to abandon their homes, and over 370 loss of lives. It was not that the state was caught by surprise. The Indian Meteorological Department (IMD) had provided adequate prior information of unprecedented rainfall and the issue had also been raised by the state’s Members of Parliament (MP), who had questioned in the Lok Sabha, the administration’s response measures if major flooding was to take place. It appears that the warnings were not heeded which led to inadequate response measures when Kerala was flooded. Larger issues of uncontrolled exploitation of natural resources and ignoring ecology were also raised by the MPs in Parliament⁴.

While unprecedented floods were seen in 2018, by mid June 2019, the delayed south west monsoon made it evident that a drinking water shortage would clearly appear. Tragically, all those “policy planners” in the government never had a clear plan to harvest the rain water and 99 per cent of the water received from the skies in August 2019, simply flowed into the Arabian sea, after causing enough havoc to human life. This brings us to the central question: is there a clear level headed water management policy in India? At the time of writing this article, India’s South West Monsoon rainfall is deficient by 43 per cent.

TABLE 1: DETAILS OF CROPPING PATTERNS

Note: Primary report on area (in lakh hectares) under kharif crops as on June 21, 2019
Important to note: The area covered under all crops is down, except for sugarcane, which is a water-guzzling crop, which will further aggravate the water crisis in India, as discussed in the article.

The President of India, during the inaugural session of the Parliament said that the government was aware of the farm crisis and it would invest Rs 25,000 crore to mitigate the woes of the farmers. In particular, he made a mention of the expansion of the Pradhan Mantri Kisan Samman Nidhi, an income support scheme, to all land owning farm families. Earlier, the scheme was only open to small and marginal farm families owning less than 2 hectares of land. The expansion of the scheme, in keeping with a BJP poll promise, would increase its annual allocation to Rs 90,000 crore from the previous Rs 72,000 crore. The President added that Rs 12,000 crore has already been disbursed during the last three months⁵. While the union government has expanded the PM-Kisan Samman Nidhi scheme to reach all farmers with great fanfare, only one in four of the intended beneficiaries have received the income support from the scheme so far, Agriculture Minister Narendra Tomar told the Rajya Sabha recently. With a long verification process delaying payments, the Centre has now announced that farmers will get benefits retrospectively from the time their names have been uploaded in the data base, rather than from the time the details are verified. This, indeed, is a relief to the poor farmers.

Reverting to the central question of water, one could look at Israel, carved out of large tracts of the desert in West Asia, where the Americans, French and British wished the Jews of Europe, principally Germany, to be settled, after the Second World War. The place was dry as dust. Look at Israel now, seven decades hence. It produces the best orange in the world, “Jaffa” and the system of drip and sprinkler irrigation was the brain child of Israel’s hydrologists. But the neighboring Arabs held tract, is still as dry as dust. The country has world’s best desalinization plant. Prime Minister Modi visited the country two years ago and, while a lot was said and written about the visit in the newspapers, no joint package in water management and desalinization project has been put in place in India. Why? The same is true of water rich Kerala. Almost a decade ago, when an LDF government was ruling the state, a delegation was sent to Israel “to study” water management. A decade later, nothing is seen on the ground.

The new government will have to face three major challenges in the long run. First and foremost would be to end the water woes of the perennially drought-prone areas. In India, agriculture, to a large extent, is still rain fed. Intensive irrigation systems are confined to only States like Punjab and Andhra Pradesh. Take the case of the Bt cotton in Maharashtra. If it has failed in the Vidharbha region, leading to thousands of suicides by the cotton farmers, it is because of failed rains, because, the Bt cotton needs copious water to produce well⁶. And, in the dry season, starting August-September, when cotton is sown, the land is parched, and, if the North-East monsoon fails, the cotton crop simply withers. Vidharbha can turn into a dust bowl. The Pradhan Mantri Krishi Sinchayee Yojana was formulated to enable completion of 99 projects by 2019. Yet, 93 projects remain uncompleted⁷. On account of assured prices for paddy and sugarcane, farmers continue to grow these water-guzzling crops, even in regions unsuitable for them. When the NDA government came to power in 2014, very disappointingly, it did not do enough to encourage farmers from switching from the perennial paddy-wheat rotation to other crops, and also, in between them to grow soil-nitrogen (fertility enhancing element) enriching legume crops, such as, sesbania, sunhemp, glyricidia etc., to replenish the degraded soils of fertility, in the “green revolution” belt of Punjab, Haryana and Western Uttar Pradesh. Similarly, India continues to produce more sugarcane thus more sugar than what domestic consumption requires, but, sugar price is higher here than in the global market, clearly pointing an accusing finger to the dirty politics of sugar barons and the sugar lobby. It should be noted that the World Trade Organization has questioned subsidy to sugarcane farmers.

The next challenge would be on marketing of agricultural produce. It is high time India thought of a “Common Market” for agricultural produce, like the European Common Market of the European Union. Take for example the price of an agricultural produce like grapes. When one travels from Northern Belgium to southernmost tip of Spain, the price of grape would not vary more than one Euro a kilo. On the contrary, in India, it can vary by as much as Rs. 40-50 a kilo when we move from grape producing states like Madhya Pradesh or Maharashtra to down South in Chennai or Kerala. The difference is simply gobbled up by the middlemen, and, the actual grape farmers are cheated. An “Indian Common Market” would solve all these problems. Of course Delhi and State governments will have to join hands to make the venture a success. It would be the best gift to the Indian farmer, at first, and, to the consumer, at large. More than a decade and a half have elapsed since the Model Agricultural Produce Market Committee Act came into being, but, New Delhi has failed to persuade States to adopt it. New Delhi brought forth the State/UT Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act 2017, yet, it is still in limbo.

Perhaps no other factor is of more concern than the question of minimum support price (MSP) for agricultural produce. In principle, it has been agreed by New Delhi that the MSP would be 50 per cent more than what it costs for the farmer to produce a crop. This was effective since kharif 2018. But, procurement was so very tardy that millions of farmers were left uncovered, and, remained deprived of the benefit. A tardy procurement policy led to this dismal situation. This was one reason why farmers began to dump their produce on roads as a sign of protest. Most poor and marginal farmers felt cheated.

Before concluding this article, I would like to touch upon two aspects of Indian agriculture that is of utmost importance. First, the role of intelligent and sustainable soil management, and, second, the place of genetically modified crops in Indian agriculture. With respect to soil management, global agriculture, in particular Indian agriculture, is at a crossroads. The highly soil extractive farming, euphemistically known as the “green revolution” has run out of steam and has taken a terrible toll on our soil resources. Of the 328.73 million hectares of India’s geographical area, as much as 120.40 million hectares have now degraded soil, thanks to the mindless use of chemical fertilizers and pesticides. Punjab, the “cradle” of the green revolution is the best example. There are hundreds of acres there where even a blade of grass will not grow. The mindless use of chemical fertilizers, primarily urea, has degraded the soil, polluted the ground water, loading excess nitrate residues making ground water non-potable and the indiscriminate use of pesticides and weedicides has led to many environmental hazards, leading even to the large scale incidence of cancer. The Gurdaspur district is the prime example of this.

The term “green revolution” is, ironically, coined by a scientist of the United States Department of Agriculture (USDA) Dr William Gaud, who later became the Director of USAID (United States Aid for International Development), albeit, an American organization with a political intent to influence the developing nations on the Asian continent and poorly developed nations on the African continent. Henry Kissinger, the former United States Secretary of State and National Security Advisor under the presidential administrations of Richard Nixon and Gerald Ford, often would say, “Control oil and you control nations; control food you control people”. Hence the idea behind the “green revolution” was to control food production, and, thus, indirectly Indians. India was the prime target to put in place a farming technology that was similar to the “Land Grant Pattern,”practiced in the USA. The technology centered on a high input of chemical fertilizers to boost the crop yield of both rice and wheat, where the “miracle dwarf” varieties developed overseas, at CIMMYT (Center For Maize and Wheat Research, Mexico) and IRRI (International Rice Research Institute, at Los Banos, Laguna, in The Philippines) played a major role. Both are arms of the Consultative Group for International Agricultural Research, (CGIAR), a primarily US funded “research” grouping with a hidden political mandate to influence the developing and poorly developed nations. In India we have the International Crops Research Institute for Semi-Arid Tropics, (ICRISAT), in Patancheru, Andhra Pradesh, which has a research mandate of its own, apart from the Indian Council of Agricultural Research, New Delhi. We have such similar institutions in other parts of the developing and poorly developed regions, as well. The State of Punjab played a pivotal role in the green revolution campaign.

This author, who had an opportunity to interact with a high level delegation of Indian agricultural scientists during the World Soil Science Congress held at Hamburg, Germany, had warned that the Indian “green revolution” would no more be sustainable as the Indian soil resources were fast getting degraded. By early eighties the green revolution fell on its face, yields of both wheat and rice were fast plummeting in Punjab as there was a steep decline in soil carbon, the repository of soil fertility. Admittedly, for a short time, India produced a massive increase in grain yield, but, the environmental cost was heavy. It is in this context a revolutionary soil management technique, now globally known as “The Nutrient Buffer Power Concept” began to make a tremendous positive impact on global farming.

Space would not permit to explain the science behind the concept, for which the foundation was laid while author held the prestigious Senior Fellowship of the world renowned Alexander von Humboldt Research Foundation, The Federal Republic of Germany, and affiliated to the very prestigious Institute of Plant Nutrition, Giessen, at the Justus von Liebig University, named after Justus von Liebig, the father of modern soil science. The author received a further scientific impetus to test his concept when in 1982 he was named as Professor, National Science Foundation, The Royal Society, Belgium. He could further examine the validity of the concept when he was selected as Professor and Head of the Department of Agriculture and Soil Sciences at The University Centre, The Republic of Cameroon, further buttressed when late Nelson Mandela invited him as Senior Professor to build a Faculty of Agriculture at the University of Fort Hare, Alice, his alma mater in The Republic of South Africa, from where the great Statesman launched his anti-apartheid struggle. The above invitations gave the author an opportunity to test the validity of his concept in different crops, such as, wheat, maize, rye, white clover etc., in different parts of the world. The Indian Council of Agricultural Research invited the author as Distinguished Visiting scientist to be located at the Indian Institute Spices Research (IISR) in Calicut, Kerala State, where he could successfully test the validity of his concept on Black pepper and Cardamom. Thus the author could test the validity of the concept in a string of crops in Europe, Africa and Asia (both South India and Central Turkey). He has been invited to many countries, all over the world, to present his concept in international conferences, workshops and symposia. Currently he has been nominated for the prestigious 2019 Norman Borlaug Award for Excellence in Crop Nutrition Research instituted by the International Association for Fertilizer Industry. It is this author’s conviction that exclusive organic farming will not be the right answer to sustain Indian agriculture. Chemical fertilizers will be needed to be used, but how much and how best to use, to augment the native nutrient supplying power of the soil so that appropriate fertilizer recommendations can be made, can be found in the concept, which has resulted in this author receiving a string of international awards, including the Swadeshi Sastra Puraskar, of the Swadeshi Science Movement of the Government of India, for developing this revolutionary soil management concept.

The second aspect in this article is about the relevance of genetically modified crops for Indian agriculture. It is the author’s deep conviction that the GM crops are loaded with many inherent risks and problems and totally unsuited to Indian Farming. There are inherent problems like the glyphosate toxicity—a great health hazard. Glyphosate has been banned in many countries⁸ and is found in chemical herbicidal sprays used in the cultivation of “Herbicide Tolerant” crops like Bt brinjal, which has been clandestinely cultivated in India – the recent example of what happened in Haryana⁹.

The Bt cotton is a total failure. As early as 2002, when the Genetic Engineering Approval (then Approval now Appraisal) Committee (GEAC) okayed the first Bt cotton, this author had vehemently opposed it. But, he was over ruled. The recent farmer experience in Punjab, Haryana and Vidharbha region is ample testimony to this¹⁰. In sum, I would conclude, Modi government has its hands full, and, it must start urgently with agriculture, lest five years hence, Indians, again complain that the promises during the election were not honored

Prof KP Nair is an internationally acclaimed agricultural scientist, formerly Professor, National Science Foundation, The Royal Society, Belgium & Senior Fellow, Alexander von Humboldt Research Foundation, The Federal Republic of Germany. He can be reached at drkppnair@gmail.com

References:

¹https://www.businesstoday.in/current/economy-politics/indias-gdp-grows-at-66pct-in-q3-retains-fastest-growing-economy-tag/story/323275.html
²https://economictimes.indiatimes.com/jobs/indias-unemployment-rate-hit-6-1-in-2017-18/articleshow/69598640.cms?from=mdr
³Dash, LN, World Bank and Economic Development of India, APH Publishing Corporation, New Delhi, p128.
⁴Jha, Ramanath, Lessons from Kerala Floods, ORF Online, available at https://www.orfonline.org/expert-speak/43550-lessons-from-kerala-floods/
⁵https://presidentofindia.nic.in/speeches-detail.htm?683
⁶Venkat, Vidya, “Bt Cotton responsible for suicides in rain-fed areas, says study”, available at https://www.thehindu.com/news/national/bt-cotton-responsible-for-suicides-in-rainfed-areas-says-study/article7337684.ece
⁷ https://www.dnaindia.com/india/report-8214-irrigation-projects-remain-incomplete-parliamentary-panel-2639369
⁸ https://www.baumhedlundlaw.com/toxic-tort-law/monsanto-roundup-lawsuit/where-is-glyphosate-banned/
⁹Aga, Aniket, Serious concerns over Bt brinjal, available at https://www.thehindu.com/opinion/op-ed/serious-concerns-over-bt-brinjal/article28022577.ece
¹⁰A report submitted to Department of Agriculture & Cooperation, Ministry of Agriculture, Government of India, Global Agri System (Katra Group) may be read to consider the relative merits and demerits of impact of use of Bt cotton. The report is available at http://re.indiaenvironmentportal.org.in/files/file/Final%20Report%20%20-%20BT%20Cotton.pdf

“Our aim is to build a 5 trillion dollar economy.” Through these words, spoken a day after his newly sworn-in Government’s first full-budget was presented on 5 July 2019, Prime Minister Narendra Modi elucidated the aim set by the Government of India¹. He further expressed his confidence in the 130 crore Indians and their efforts to catapult India’s economy to reach this target by 2024. A major factor that shall determine the attainment of this objective is the digitising of the Indian Economy. In 2017, Nandan Nilekani, former Chairman of the Unique Identification Authority of India (UIDAI), the institution that steers the Aadhaar platform and the centre-stage of the digital inclusion drive, stated that India is on the path of becoming data-rich within the next 3 years and that proactive policy measures can further the economic prosperity of the country².

Digitisation: A Tool for Accelerating Growth

As we delve into the subject of digitisation and its effects on the economy, it is necessary to understand the concept of Digitisation. A discussion paper, published by the International Telecommunication Union (ITU)³ in the year 2017 refers to digitisations as ‘the transformations triggered by the massive adoption of digital technologies that generate,process, share and transfer information’.

The first two decades of the 21st century have witnessed how the use of technology has accelerated the growth and prosperity in human lives. The increasing penetration of smartphones and the consequent creation of gigantic quantities of Big Data has created unlimited opportunities for usage of technology to further human progress andcreate massive economic benefits for the world economies.The use of technology has allowed governments to take services to citizens efficiently and transparently. Technology has also enabled the use of social media to connect citizens and in the process has opened new avenues of economic opportunities. Christine Balagué, Vice-President of the French Conseil national du numérique (Le Monde, 23/08/2015), put forth a microcosm of these opportunities when she said, ‘any individual equipped with a mobile phone can now ‘become a producer, create services, or at least place services on offer’ for earning a little spare cash, making it through to the next salary payment, or topping up their benefits’.

Technology has created a systemic shift in the manner in which existing businesses are undertaken. In a wide range of sectors—logistics,industry, agriculture, communications, etc, digitisation has caused a metamorphosis in each of these fields. The rise of the world of mobile phone apps (applications), a phenomenon unthinkable even till two decades ago, has taken place due to the arrival of high quality and low cost internet, which coupled with smartphones have led to creation of a new set of ‘tech-preneuers’ who use technology as a basic platform to enhance their business activities and also create positive value-addition in the lives of their users.

In a research paper written on the subject, ‘Tackling the digitalization challenge: how to benefit from digitalization in practice’⁴ (Paivi and others, 2017), the potential benefits of digitalisation for internal efficiency were enunciated as follows:
• Improved business process efficiency, quality, and consistency via eliminating manual steps and gaining better accuracy.
• A better real-time view on operation and results, by integrating structured and unstructured data, providing better views on organisation data, and integrating data from other sources
• Better work satisfaction for employees through automation of routine work, thus freeing time to develop new skills.
• Improves compliance via standardisation of records and improves recovery via easier backups and distribution of storage.

Digitising the Indian Economy: Creating a Trillion Dollar Digital Economy

As the Indian economy marches ahead on the path of becoming a 5 trillion dollar economy, it becomes imperative to harness the power of technology and unleash the animal spirits of the millions of entrepreneurs in the country through the efficient use of technology. The Ministry of Electronics and Information Technology (MEITY), Government of India has undertaken an initiative of creating a ‘Trillion-Dollar Digital Economy’ in the country. In its report released on December 2018, it stated that India can create up to USD 1 trillion of economic value from the digital economy in 2025.⁵

The Government of India is also making strides in enhancing its cooperation with partner countries across the world to increase the use of technology for boosting trade and commerce, and connectivity between India and these nations. On a recent visit to France by Prime Minister Modi (August 2019), the two sides (India-France) were expected to explore new areas of cooperation such as artificial intelligence, supercomputing and developing digital technology among others.⁶

Understanding the significance attached to digitising the economy, the Government of India launched its flagship Digital India programme in the year 2015. The statement of intent was as under:

“To Transform the entire ecosystem of public services through the use of information technology, the Government of India has launched the Digital India programme with the vision to transform India into a digitally empowered society and knowledge economy.”⁷

Accordingly, the government has undertaken a series of measures to boost the process of digitising the economy in recent years. Some highlights are:
• The persistent efforts made towards making India’s economy a cashless economy (Cashless India) have led to a multi-fold increase in the digital transactions being undertaken in the country. The usage of platforms such as UPI (Unified Payment Interface) and the marquee mobile application for simplified, digital payments BHIM- Bharat Interface for Money has made digital mobile payments possible across the country. A large number of private mobile applications have also initially on their interface and now through the UPI interface been aggressively promoting the use of digital payments as a mode for payments for a wide range of services including bill payments, making person-to-person transfers as well as for making daily purchases among others.According to an ASSOCHAM-PWC India study report that came out in June 2019, digital payments in India will more than double to USD 135.2 billion in 2023 from USD 64.8 billion this year.⁸
• The JAM Trinity (Jan-Dhan, Aadhaar, Mobile) has been a cornerstone of the push made by the Government to enable a digital revolution in the country during the past five years. Over a billion-plus mobile connections which comprise of half a billion smartphones with low-cost internet coupled with a Jan-Dhan bank account in each household in the country along with the Aadhaar coverage to over 1.2 billion people ⁹ in the country (August 2019) have set the foundations for a digital revolution in the country.
• The country also witnessed a transformational change in its tax-structure as the Goods and Services Tax (GST) era ushered in the country two years ago. To create a ‘One Nation- One Tax- One Market’, the GST regime in the country, notwithstanding several technical and procedural issues with regards to its implementation, have greatly contributed to the ease of doing business in the country.
• Since 2014, the extensive focus has been laid on improving the Ease of Doing Business in India with a mission of bringing India among the top 50 countries in the World Bank’s Ease of Doing Business (EODB) rankings. As a result of these efforts, India’s position on this list has improved from 134th rank in 2014 to 77th rank in 2018 with consistent efforts still being made to achieve the target of breaking into the top 50 of this list¹⁰. Apart from focusing on the big picture reforms,the Government of India has also been undertaking a large number of small but impactful reforms (removal of requirement for attestation of documents, reforms for the MSME-Medium, Small and Microenterprises including providing credit within 24 hours to these units etc.) that shall go a long way in achieving the PM’s vision of ‘Minimum Government, Maximum Governance.’
• Through initiatives such as Start-up India, Stand-up India and providing credit to a large number of first-time borrowers (with a focus on female borrowers) through Mudra Loans, a concerted effort has been made to promote entrepreneurship in the country.Through novel initiatives such as the Atal Innovation Mission (AIM) and the creation of world-class research facilities and tinkering labs, the youth is being facilitated to execute their ideas and develop world-class products and services.

Strategies to Boost the Digital Economy in India:
The Discussion Paper for the Ministerial level Council Meeting held in 2017 on the subject: ‘Going Digital: Making the Transformation Work for Growth and Well-Being’¹¹ requires governments to reach across traditional policy silos and different levels of government to develop a whole-of-government approach to policymaking. While many policies need to be considered, some key building blocks can be usefully distinguished, namely:

1. Building the Foundations for the Digital Transformation
2. Making the Digital Transformation Work for the Economy and Society
3. Policy Coherence and Strategy Development

In broad parlance, in an economy, the Government, citizens and business entities transact daily which leads to the creation of a wide range of economic activity. To boost the creation of a digital economy, it is necessary to further the efforts to infuse digitisation and enhance the effectiveness and efficiency of the activity between these stakeholders through the use of technology. These measures shall go a long way in deepening the roots of a digital economy in the country.

Following are the three broad credible strategies described along with the range of allied policy measures that can help in giving a fillip to the digital economy in the country:

1. Utilising Behavioural Economics for a Digital Economy

The Economic Survey 2019 elucidated the Government’s focus to utilise various facets of behavioural economics¹² such as the concept of nudge to induce positive social transformation in the country. As a concept, nudge has been rigorously debated and results achieved through its usage discussed across various countries in the world. The ‘nudge theory’ is based on the premise that human beings, often need encouragement or intervention — a nudge — to get going and do what’s best for themselves or for the country or society at large.¹³ Swachh Bharat Mission has often been quoted as a compelling example in the Indian context as a successful example of the nudge theory whereby both tangible and intangible results could be achieved in the direction of making a cleaner India.

Efforts to further the objective of creating a digital economy can become the next possible avenue for utilising the concept of a nudge for ensuring the penetration of digital services in the economic sphere of the country. Following are some of the illustrations where nudge can be used to accelerate the pace of digitisation:

I. Default-isation of digital mode for transactions.

• Citizens and business entities possess an option to avail a government service in both physical and digital format for most services across the globe. Due to the limited penetration of digital services, there is a need to continue keeping the physical avenues open but that does not constrain policymakers from devising smart-tools and techniques using the concept of nudge that can further the habit of undertaking digital transactions among the citizens.
• A timely reminder to undertake periodic transactions (Registrar of Companies related paperwork, filing of tax-related forms, municipality services related documentation etc.) through emails, SMS;
• Expanding the scope of nudge communication done through ‘Save the Paper’ type messages for ATM receipts for a variety of digital transactions further reducing the use of paper even in existing digital transactions framework;
• Such efforts shall lead to not only enhancing the Ease of Living for the citizens which is a stated goal of the Central Government but also creating a transparent and effective system for imparting services to business entities and citizens alike.

II. Boosting Digital tools for making payments

• Digital payments bring a lot of advantages for both its users and the Government. The digital footprint of the transaction ensures that there is a verifiable trail that can be traced to its users thereby enhancing credibility and transparency in the economy. Moreover, the availability of a digital trail shall also lead to the creation of a robust tax net which can be seen in the case of GST through the GSTN (GST Network) which leads to broadening of the tax base in the country.
• Currently, the Government is imparting several incentives on using digital modes of payments. Payment applications such as the BHIM that run on the UPI interface provides a free-of-cost and effective means of making payments and transferring money up to the extent that a large section of society can undertake a majority of their transactions utilising the same. Measures such as introduction of digital financial literacy education in schools and creating a more conducive digital payments framework which has an appropriate incentive for both the banking institutions as well as the vendors providing the services etc. can play an important role in further boosting the digital payment ecosystem in the country.

2. Adopting an End-to-end Digitisation Framework

There is a need to create an approach of installing end-to-end digitisation (E2ED) framework in the country. This framework refers to the usage of technology to ensure the completion of an entire activity or a service in a digital mode at all levels with minimal human interface as possible. We often find a lot of Government services right from the municipality level to the Central Government to be available in a digital or an electronic format.E2ED framework helps in analysing the level of digitisation that has taken place in its current format. Focusing on two aspects of service delivery, the following are an illustrative list of various functions that are associated with the provision of the service:
• The request of service- availability of form, request initiation interface (Web, call, SMS, mail) etc.
• The provision of service- request making interface, request acceptance interface, the current status of the service management system, request completion information generator and manager

For a few services, the form is made available online but the same has to be submitted physically at a government office. In other cases, the status update system of the service is not created which leads to the creation of a human interface through frequent visits of the person intending to avail the service to a government office or the service intermediary. E2ED framework will be fully satisfied when all of the functions that are required to be fulfilled for availing service can be done in an electronic format. E2ED framework will ensure the elimination of the human interface which is considered to be one of the biggest causes of low-level corruption in the country.

OCR friendly India- OCR refers to the Optical Character Recognition (OCR), which is a format in which PDF documents get translated into a machine-readable format.The basic intent behind putting documents online is to ensure that paper is not wasted by taking physical copies. The non OCR documents do not give an option to make a search in the documents and hence it is as good as a photo or an image of the document thereby making it’s e-copy redundant. Government or business entity related forms, often running into multiple pages, become too tedious if they are uploaded in a non-OCR format as for every specific detail which otherwise could have been searched easily on the web, will not be possible as the document does not give that option.A small but a very important tool, OCR ensures that large sets of data that is uploaded on the internet become useful for researchers and citizens who are looking to find some meaningful information from the same. As a part of its efforts towards enhancing digitisation in providing government related services, the Government of Tripura initiated a drive in 2018 to ensure that all its documents are uploaded on its government websites in OCR format. A nation-wide movement to create an OCR friendly India,if initiated, can enhance citizen satisfaction, generating machine-readable Big Data-centric sets and also reduce paperwork and its subsequent effect on the ecology.

3. Creating a Robust Data Localisation Ecosystem

Data localisation has been an extremely sensitive and debated topic in the recent past in the country. The data generated in the country currently is passed on to the servers located in foreign locations and hence, they do not fall directly under the purview of the Indian laws per se. Digital Economy in India is also severely affected due to cyber frauds, security-related issues, thefts etc. More specifically, a large amount of data generated, some of which is sensitive to the national security and the cultural sensibilities of the Indian society on various social media platforms remain unscrutinised or partially scrutinised due to the lack of a data localisation ecosystem in the country. However, this issue does not only pose significant IT-related infrastructure issue but also has significant geo-strategic ramifications especially with respect to India-USA relations.

For a robust data localisation ecosystem in the country, robust data maintenance, storage and its security related apparatus must be put in place. High quality and low-cost internet are one of the foremost requirements as far as the creation of IT related infrastructure for data localisation in the country is concerned. During a start-up award function held on August 2019, Union Railway Minister of India, Shri Piyush Goyal said:

“More than 20% of the 20,000 startups are in tier 2 and 3 cities. All of this has been possible because we have taken fibre optics across India. The digital access in the last five years has been quick. From 357 km in 2014 to over 3 lakh km now, fibre optics connectivity is huge.”¹⁵

Dealing with this issue hence must be done sensibly without compromising the rights of the Indian internet users as also of the government to prosecute any wrongdoing in the country. The need of the hour is indeed to create such a framework in the country at the earliest. It will give a huge boost towards creating a safe and secured digital economy in the country.

Issues and Challenges

There are various issues with respect to the following:

Job Loss and Re-skilling.As changes take place in any system, it also leads to various legacy issues which must be dealt with carefully. The advent of the 4th Industrial Revolution and the Big Data has ensured that a lot of old-school job roles have now become extinct. However, there is also a large scale creation of new sets of jobs. The demographical supply of labour for both the jobs being lost and the jobs being created are posing serious challenges to nations across the world. Equally important is to pay attention to the significance of re-skilling and the role it can play to address this problem in society. In a country with the largest number of youth in the world, India continues to pose the single biggest challenge as far as the generation of meaningful employment in the economy is concerned.

Cybersecurity. As digital technologies have penetrated in the country at an exponential rate, there has also been a significant increase in the cybersecurity-related issues in the country. With the availability of low-cost smartphones laced with low-cost internet with good connectivity in the hinterland regions, cyber-crimes are no more an issue of merely urban regions. Providing a sound and secured cyber environment is a pre-requisite for the flourishing of trade and commerce on digital platforms in the country.

The Isolation of Human Touch.As machines take over nearly all forms of communication between humans, we witness an increasing sense of isolation being felt by humans especially the senior citizens in the society. The increase in the alarming nature of cases of depression among various sections of the society is a cause of the absence of the presence of human touch for these patients. The earlier physical forms of activity such as visiting a bank, shopping in local markets etc. has been overtaken by the world of mobile applications. Though it increases efficiency and also ostensibly provides services more effectively, there is a very large section of the society for whom such activities formed the core of their human interactions in society. This not so often discussed issue also holds tremendous significance while preparing a robust digital economy blueprint for the country.

Biography-

Jayraj Pandya is currently pursuing his Master’s in Advanced Global Studies at Science Po, Paris. Previously, Jayraj has served in official roles with different Ministries of the Government of India and with various state Governments assisting senior Ministers on subjects of policy and governance.

Conclusion

The objective of New India, focusing on creation of a prosperous nation with a robust economy is stated to be achieved by the year 2022. A rapidly growing Digital Economy shall play the role of a catalyst in achieving this objective and shall continue to give a boost to innovation, income and employment generation in the country.

References:
¹https://www.narendramodi.in/text-of-pm-s-speech-at-bjp-membership-drive-in-varanasi-uttar-pradesh–545723
²https://www.thehindu.com/news/cities/bangalore/india-to-become-data-rich-in-3-years-says-nilekani/article19451698.ece
³https://www.itu.int/en/ITU-D/Conferences/GSR/Documents/GSR2017/Soc_Eco_impact_Digital_transformation_finalGSR.pdf
⁴http://www.sciencesphere.org/ijispm/archive/ijispm-050104.pdf
⁵https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1565669
⁶https://www.dailypioneer.com/2019/india/india–france-to-clear-roadmap-for-cyber-security-during-modi-visit.html
⁷https://www.digitalindia.gov.in/content/about-programme
⁸https://www.livemint.com/politics/policy/digital-payments-to-more-than-double-to-135-2-bn-by-2023-1560711978627.html
⁹https://uidai.gov.in/images/state-wise-aadhaar-saturation.pdf
¹⁰https://www.business-standard.com/article/economy-policy/ease-of-doing-business-ranking-india-cites-reforms-to-get-top-50-spot-119063000795_1.html
¹¹https://www.oecd.org/mcm/documents/C-MIN-2017-4%20EN.pdf
¹²https://www.thehindubusinessline.com/economy/nudging-towards-positive-change/article28286102.ece
¹³Ibid
¹⁴https://www.narendramodi.in/pm-modi-south-african-president-cyril-ramaphosa-at-india-south-africa-business-forum-543165
¹⁵https://economictimes.indiatimes.com/articleshow/70808546.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

It is a well-known factthat leadingeconomies such as theUnited States, Europe and Japan,have established their dominance on a liberal economic model. They haveproved that governments cannot micromanage national resources and promote economic growth¹. These economieshad adopted free-market systems, which translates to less regulation. On the other hand, we have the world’s fastest growing economies including China, where State-owned Enterprises (SOEs) play a significant role in economic growth . The Indian concept of State-owned Enterprises or Central Public Sector Enterprises (CPSEs) follow a hybrid model which fall between the Chinese model and the United States model.

Despite the trend toward privatisation over the past few decades, the role of State capitalism can no longer be ignored. It has been observed globally that State-owned Enterprises play a critical role in sectors such as natural resources, banking & finance, and utilities. In many countries, Governments have established SOEs in competitive industries, large scale manufacturing and service sector. Globally, State-owned Enterprises account for up to 40 percent of economic output, 5 percent of employment and 20 percent of investment in some economies² .

Importance of State-owned Enterprises (SOEs) in BRIC economies

Source: OECD (2016), State-Owned Enterprises as Global Competitors: A Challenge or an Opportunity?

When we think of emerging economies, including the so-called BRIC countries i.e. Brazil, Russia, India and China, SOEs are playing a proactive role in the global market place.There is a growing importance of State-owned enterprises in the BRIC economies, which could be confirmed in relation to the world’s largest companies. Analysis of the Fortune –Global 2000 list indicates that the number of state-owned enterprises during the period 2005-2014, almost doubled. Data for South Africa was not available.

In 2014, out of 326 world’s largest SOEs, approximately 128 were headquartered in China and 13 in Hong Kong. A further observation is that 34 Indian SOEs, 7 Russian SOEs and 7 BrazilianSOEs, were also part of the list. This indicates that Federal Governments are now effectively managing an estimated 16 percent of the Fortune- Global 2000 companies. Many of these operate in mainstream sectors of economic importance such as banking & finance, manufacturing, oil & gas, metal & mining, public utilities etc., which play a vital role in international supply chains³ . The figures aboveindicate that among BRIC economies, after China, India has a large number of world’s biggest SOEs. However, their market size is smaller than comparable private Indian companies.

Role of State-owned Enterprises (SOEs) in India⁴

Since Independence, Public Sector enterprises have provided the much-needed momentum to India’s growth story. Indian Government at the time of the First Five Year Plan, established five Central Public Sector Enterprises (CPSEs) with a total investment of Rs 29 crore. They were established with the objective to meet broad economic objectives as well as meeting certain socio-economic obligations. Today there are approximately 339 CPSEs in the country with a total investment of Rs 13,73,412crore as on March 31, 2018.

Contribution to GDP

Source: Authors own calculation using data fromEconomic Survey of India 2018-19& Public Sector Enterprises Surveys

The above analysis indicates that there is an increase in the contribution of private sector in GDP and the share of CPSEs have fallen in the post reform period.The reduction in contribution may be probably because many business activities, which were earlier reserved for public sector, are now open for private sector. However, as per the Public Enterprises Survey 2017-18, CPSEs contribute to the Central Exchequer by way of dividends, interest on loans, and, payment of taxes and duties. An increase in the total contribution of CPSEs to the Central Exchequer from Rs. 275,840 crore in 2015-16 to Rs. 350,052 crorein 2017-18 was observed.

Employment Generation

Source: Economic Survey of India 2018-19

Although the latest data is not published by the Government, however, it is worth mentioning that the share of employment in Indian PSUs is higher than other indicators both at the beginning and the end of the analysed period. However, in 2012 the strength of women working in public sector stood at 18 percent as a comparison to private sector i.e. 24 percent.

Procurement from Micro & Small Enterprises (MSEs)

Source: Public Enterprises Survey 2017-18

From 2015 onwards, the Indian Government has mandated CPSEs to procure minimum 20 percent from Micro & Small Enterprises (MSEs) and has also earmarked a sub target of annual procurement of 4 percent from MSEs owned by scheduled casts and scheduled tribe enterprises. The trend is encouraging and as per the available data, in 2017-18, approximately 168 CPSEs made procurement of Rs161,652.98 crore from the private sector. Out of which Rs 24,226.51 crore was procured from the MSEs.

Financial Scorecard of CPSEs

Source: Economic Survey of India 2018-19

As per the available data, approximately one-third of CPSEs are making losses today. During 2017-18, BSNL, Air India and MTNL were the highest loss making CPSEs. During this period, the top ten-loss making CPSEs claimed 84.71 percent of the total losses incurred by total of 71 loss-making CPSEs. At the same time, IOCL, ONGC and NTPC were ranked the top profit making CPSEs. Out of 184 profit-making CPSEs, the share of top ten profit making CPSEs claimed 61.83 percent of the total profitable CPSEs.

Source: Economic Survey of India 2018-19

On analysing the profitability of CPSEs during 2008-2018, it was observed that the Average Annual Growth Rate (AAGR)of losses of Loss-making CPSEs was 10.4 percent. However, the AAGR of profitsof Profit-making CPSEs was only 5.8 percent. During the same period the Compounded Annual Growth Rate (CAGR) of losses of Loss-making CPSEs was recorded at 7.9 percent against the CAGR of 4.95 percent of profits of Profit-making CPSEs⁵.

Way Forward

India had established Public Sector Undertakings with a variety of public policy and social goals in mind. While many CPSEs are playing an important role in India’s development, still many CPSEs did not evolve with liberalisation and with the opening of Indian economy, lost ground very quickly to private sector. The reasons for the losses vary from enterprise-to-enterprise, which include micro level issues such no emphasis on modernisation, lack of business strategy, dependence on Government orders, high input cost etc.

It is true that profit margins of almost one-third of the CPSEs are under immense pressure in comparison to their private sector counterparts, which have become global businesses. Government of India’s concern for this issue is very much visible in the recent 2019-20 Union Budget speech of the Hon’ble Finance Minister of India where she mentioned that the government will undertake strategic disinvestment of select Public Sector Undertakings on priority. It was also announced that in view of the current macro-economic scenario, India will not only re-initiate the process of strategic disinvestment of the national carrier – Air India, but also, modify present policy of retaining 51 percent government stake in Indian State-owned Enterprises.

Against this backdrop,a strong view exists that Public Sector Enterprises serve broad macro-economic and social objectives, and hence should not be compared with corporate sector. Undoubtedly, they are generating employment more than private sector and creating necessary infrastructure for other stakeholders including big corporates, micro small enterprises and start-ups. The Government could consider divesting or closure of the loss making enterprises, which are not strategic in nature. At the same time, the government could establish more enterprises if they could fulfill the needs and aspirations of Indian citizens.

Although the scope of this article is limited to CPSEs, the following suggestions may also apply to departmental enterprises (railways and post), State-owned financial institutions (PSU banks and insurance companies) and State-owned Enterprises at State level.
Assessing the Need for Pubic Sector Enterprises
• In today’s world, which is governed by the principals of globalisation and rapidly changing technology, the Government may consider assessing the need for loss-making public-sector enterprises in every 3-year period. If they are not strategic in nature, then the decision to divest or closure could be taken at the earliest.

• At the same time, the Government could set-up new Public Sector enterprises if it fulfills the needs and aspirations of the Indian citizens.

• The board of a Public Sector Enterprise must be empowered to take various strategic decisions just like a board of a private sector company. In very limited cases, the matter should reach to the Ministry of Heavy Industries and Public Enterprises for approvals etc. This could support the CEO of the enterprise to undertake adequate business risk.

Distinguishing Strategic & Non-strategic Public Sector Enterprises

• NITI Aayogopined that CPSEs, which are serving national security purposes, sovereign or quasi-sovereign functions, could be categorized as ‘strategic’ and must be retained by the Indian Government.

• When we apply the aforesaid point of view on loss making CPSEs namely BSNL & MTNL, it is found that they address security needs in areas prone to insurgencies & conflict and at the same time help in connecting the rural areas with the mainland via its various projects and programmes such as BharatNet, Digital India programme, USOF etc.

• In Pharmaceutical sector, it will make sense for the government to consider closing or disinvesting loss making CPSEs, as indigenous private pharmaceutical companies are fully capable and competitive to serve the societal and Government needs.

Enhancing Autonomy for Efficient Functioning of Public Sector Enterprises
• The Government has given some operational freedom to various categories of profitable Public Sector Enterprises such as Ratnas, Maharatnas, Navratna and Mini-Ratna.

• Unless the Public Sector Enterprises are given the desired level of authority or independence in decision making especially in the matters of recruitment, procurement, or even in devising marketing strategy, they will not be able to compete in the current business environment.
Require Cautious Approach Towards Consolidation or Merger of Loss-making Public-Sector Sector Enterprises
• The Government’s efforts in past to merge two loss making entities –‘Indian Airlines’ and ‘Air India’ miserably failed⁶ . Furthermore, Government’s effort to merge a loss-makingentity i.e. Instrumentation Ltd. with a profit making BHEL did not materialize⁷ . However, the takeover of HSCL by NBCC is yielding some positive results⁸ .

• The policy makers are required to follow a cautious approach before taking any decision to merge Public Sector Enterprises, especially loss-making PSEs. It is very important to analyze all internal and external factors affecting the performance of the enterprises.
Fast Track Approvals and Support Required by Public-Sector Sector Enterprises from the Government
• It is a known fact that monetary support is required by the enterprises from the Government and any further delay in decision making from the Government of India could further deteriorate their performance.

• Government could consider developing standard operating procedures for various category of support required by the enterprises, such as technology up gradation, monetising assets, restructuring etc. This could fast track the process and help the enterprises to efficiently undertake business activities in a highly competitive business environment.
Technology Up gradation
• The Government could consider empanelment of technology experts or advisory firms, which could regularly undertake study of required technology up gradation in various Public Sector Enterprises, so that timely decision with respect to technology up gradation could be taken.
Human Resource Management
• Adequate steps to be taken by the Enterprises to make their human resource policies more market-based. This will motivate employees and drive profit and innovation at work.

• Furthermore, to motivate PSU employees, the Government could institute‘Best Practices Awards’ as well as regularly developing‘Compendium of Best Practices in PSUs’. In addition, efforts could be undertaken to replicate the best practices in various PSUs.
Diversification of Business Activities
• There are very limited case studies available to prove that diversification of business activities could support Public Sector Enterprises to become profitable. A loss-making PSU i.e. ‘Mecon Ltd’ turned profitable in 2017-18 as it diversified into infrastructure and energy sector. Earlier it was dealing in Metals only ⁹.

• Loss making CPSE such as Air India could consider diversifying into dedicated cargo & courier logistics, and digital aviation business to hedge the company from the risks of being in a pure aviation business. Its counterpart Spicejet is also exploring this option¹⁰ .
Monetising Assets of Loss-making Enterprises
• Currently, loss making enterprises cannot monetise their assets especially land & buildings at the premium location of the country and become profitable.

• A chronically loss-making Public Sector Enterprise will not gain much from sale of such assets being used for revival if its losses have mounted to very high levels and its products are technologically obsolete.

• In this scenario, the Government could create a ‘national fund’ and transfer the amount obtained through monetisation of assets of loss-making enterprises.
In conclusion, improving the performance of Public Sector Enterprises could be a complex task given the fact that many stakeholders are involved in their oversight and management. Many commissions and expert groups¹¹ which were set-up by the Government have studied this issue in-depth and made various recommendations. In short, there is no dearth of information: the steps to be taken to revive the CPSEs are well known.

The challenge going forward is what could be done differently to implement the aforesaid suggestions or already known recommendations made by various experts. To deal with this challenge we could study the best practices existing among Indian public sector enterprises as well as State-owned Enterprises in BRICS and Commonwealth countries. The good practices could be replicated among CPSEs to improve their profitability and design new age public sector enterprises.

References:
¹Bremmer, Ian. State Capitalism and the Crisis. Report. Mckinsey. 2009.
²Corporate Governance of State-Owned Enterprises: A Toolkit. Report. The World Bank. 2014.
³State-Owned Enterprises as Global Competitors: A Challenge or an Opportunity?.Report. Organisation for Economic Co-operation and Development (OECD). 2016.
⁴Public Enterprises Survey 2017-18. Publication. Department of Public Enterprises (DPE), Govt. of India. Vol. I.
Economic Survey of India 2018-19. Publication. Ministry of Finance, Govt. of India.
⁵Author’s own analysis using data from Economic Survey of India 2018-19
⁶Shukla, Geetanjali. “Anatomy of a Failed Merger.” Business Today, June 2012.
⁷Shaji, K. A. “Instrumentation Ltd. Not to Be Merged with BHEL.” The Hindu, April 24, 2015.
⁸Hindustan Steelworks Construction Ltd. (A subsidiary of NBCC) Annual Report 2017-18
⁹Mecon Ltd. Annual Report 2017-18
¹⁰ Raj, Yashwant. “SpiceJet Plans to Diversify beyond “pure Aviation” to Offset Fuel Price-related Risks.” Hindustan Times (Washington), July 13, 2018.
¹¹Review of Loss Making CPSUs. Report. Parliamentary Standing Committee on Public Undertakings, LokSabha. December 2018.