Fruits of Focused Approach

 

The Modi Government’s focus on promoting in ‘Ease of Doing Business’ is driven by the philosophy of ‘Minimum Government, Maximum Governance’

The Doing Business 2019 Report of the World Bank has ranked India at 77th position in terms of ‘Ease of Doing Business’ (EoDB), an improvement of 23 ranks over the last year. In the last two years, India has improved its rank by a massive 53 positions and looks set to storm into Top 50 by next year, a target the Modi Government set, when it came to power in 2014. This improvement is being made possible because the Government believes that Indian youth are full of entrepreneurial energy, which the economy and the country were failing to harness and something had to be done about it and therefore it invested its political capital and energy in it.

 Top 10 Most Reforming Economies

It is not only the improvement in ranking of EoDB, but India is amongst the top 10 most reforming economies. In fact, Djibouti and India are the only economies to make to the list of 10 top improvers for the second consecutive year. We have made significant achievement in ‘dealing with construction permits’ (184 to 52), ‘getting electricity’ (137 to 24), ‘trading across borders’ (126 to 80) and ‘resolving insolvency’ (137 to 108) from the year 2014 to 2018 respectively in these catagories. In fact, if we compare India’s ranking on the 10 parameters of EoDB for the year 2014 and 2018, we see we have improved on all the parameters except for ‘registering property’.

Concerted efforts have been made to eliminate the ‘Inspector Raj’ and simplify compliances further. Under the latest changes made by PM Narendra Modi for Micro Small & Medium Enterprises (MSMEs) under PSB-59 initiatives, factory inspections will be done only through a computerised random allotment and inspectors must upload their reports on the portal within 48 hours, giving reasons. MSMEs now are required to file one annual return for compliance for eight labour laws and 10 central rules. An Ordinance has also been promulgated to simplify levy of penalties for minor offences under the Companies Act, 2013 and in the coming session of the Parliament, the necessary amendment Act would be passed.

 Reaching the Unreached

There are a number of areas where India can still improve its ranking to join top 50 nations. The work is already under progress in these areas and the results would be visible in due course of time. At present, we are at 137 rank in ‘starting a business’, at 166 in ‘registering property’, 163 in ‘enforcing contracts’ and so on. Proactive measures are being taken in these areas. For example, with an objective to have a faster resolution of matters relating to commercial disputes and to create a positive image about the independent and responsive Indian legal system, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act was enacted in 2015 and commercial courts are being established. Even Insolvency and Bankruptcy Code whose effect is captured in ‘Resolving insolvency’ and GST whose effect is captured under paying of taxes etc, are in progress and will affect the ranking positively in the coming years. Some of reform measures like registration of property can only be addressed at the State level and the states are being encouraged by the Centre to do the same.

A concern has been expressed that the rankings capture only the improvements made in the cities of Delhi and Mumbai and ignores the rest of the country; this is a limitation of this ranking. But the Government’s focus is not limited to improving the headline grabbing EoDB ranking.

Effective Delivery of Services

Department of Industrial Policy and Promotion (DIPP) in collaboration with the World Bank launched an annual reform exercise for all States and UTs under the Business Reform Action Plan (BRAP). The aim of this exercise is to improve delivery of various Central Government regulatory functions and services in an efficient and transparent manner. The reform plan under BRAP expanded from 285 to 372 action points in 2017 and further to 405 points in 2018. States and UTs have conducted reforms to ease their regulations and systems in areas such as labour, environmental clearances, single window system, construction permits, contract enforcement, registering property and inspections. The focus on ‘EoDB’ has spawned off a culture where the states are competing with one another in the ease of doing business to attract investment to their states.

Improving Ease of Living

The reforms being undertaken also feeds into the manufacturing sector focus of the Government and is therefore not limited to the parameters that go into determining the EoDB ranking. For example, compliance with labour laws do not figure in the EoDB parameters but the Government has still initiated a number of reforms to encourage the manufacturing sector. Under Ease of Compliance, Government has pruned the number of registers mandatory for all establishments to maintain under 9 Central Acts to just 5 from 56, and the relevant data fields to 144 from 933. Prime Minister has repeatedly said that he is focused on improving the ‘Ease of Living’ of Indian citizens and EoDB forms a small part of it. The larger goal is to create an ecosystem of transparent level playing field so that entrepreneurs have peace of mind and focus on business development instead of managing government department. Such an environment will also promote entrepreneurship.

New labour for new India

Any discussion on the unemployment challenge in India should be grounded in the following facts: One, the Indian economy needs to generate employment for about 5-7 million people that enter the labour force annually; two, over 90 per cent of the workforce has informal employment — they have neither job security nor social security; and three, there has been a growing infomalisation in the organised sector. Informal workers are the most vulnerable section of our society and the trade unions have focused their attention on only protecting the rights of workers in the organised sector.

The Narendra Modi government has tried to address the problems of the informal sector through a focused approach which rests on two legs. The first is to promote formalisation and the second is the provision of social security to those remaining in the informal sector.

The most important reform is the introduction of “fixed term contract” employment. According to the notification introducing it, fixed contract workers must be employed under the same working conditions (such as wages, working hours, allowances and other benefits) as permanent workers. Fixed-term workers are also eligible for all statutory benefits available to a permanent workman proportionately, according to the period of service rendered by him/her. Allowing fixed-term employment would help employers to respond to the fluctuating demand and seasonality in their businesses and facilitate the direct employment of workers.

Formal employment is also sought to be promoted by reducing the compliance cost for companies. Under the Ease of Compliance rules, the government has pruned the number of registers mandatory for all establishments to be maintained under nine central Acts to just five from 56, and the relevant data fields to 144 from 933. The government has also taken numerous technology-enabled transformative initiatives such as the Shram Suvidha Portal, universal account number (UAN) and national career service portal in order to reduce the complexity burden and ensure better accountability. In order to reduce the labour law compliance cost for start-ups, the central government has also managed to persuade state governments and Union Territories (UT) to allow self-certification and regulate inspection under six labour laws wherever applicable.

One of the major achievements of the government is the increased Employees’ Provident Fund (EPF) coverage. The Employees’ Enrolment Campaign (EEC) was launched by the government in January 2017 to enrol employees left out of the EPF and provided incentives to employers in the form of a waiver of administrative charges, nominal damages at the rate of Re 1 per annum and waiver of employees share, if not deducted. In this drive, close to 1.01 crore additional employees were enrolled with EPF Organisation between January to June 2017. The government also launched the Pradhan Mantri Rojgar Protsahan Yojana in 2016 (revised this year) under which the government will pay the full employers’ EPF contribution for three years for new employment.

The construction sector employs the highest number of casual workers outside of agriculture. As a result of the massive campaign and effort by the Union of India, state governments and UTs, the approximate number of building and other construction workers registered as beneficiaries under Building and Other Construction Workers (BOCW) Act up to March 31 has increased to 3.06 crore. The most important reform for this sector is the introduction of Universal Access Number (UAN). If a construction worker migrates from one state to another (which is common), the benefit of registration will not be lost due to the portability of the UAN. The central government also amended the Building and Other Construction Worker Rules, 1998, on December 29, 2017, so as to make the process of filing of the Unified Annual Return transparent for registered establishments.

The amendment of the Payment of Wages Act in 2017 introduced a provision that the government may, by notification in the official gazette, specify that an industrial or other establishment shall pay wages only through its bank account. A notification to this effect with respect to the railways, air transport services, mines and oil field sectors covered under central sphere has been issued on April 25, 2017.

The government is also in the process of finalising Labour Code on Social Security. The Code aims to simplify, rationalise and consolidate the hitherto fragmented laws into one consolidated law, which will be simpler both in terms of comprehension and enforcement. The code has drawn inspiration from the Constitution and follows a rights-based approach.

Historically, due to well-intentioned but poorly-designed labour laws, only a small section of India’s labour force has had job security and social security, while a very large section has had neither. The government has taken a number of steps to change this and the same is being reflected in monthly data released by EPFO, which shows that there is a shift from the unorganised to organised sector, and those remaining in the former will be covered under income and social security schemes.

Road map to affordable medicines

It goes without saying that no government can allow market forces a free hand in the pricing of medicines. Affordability of medicines has to be ensured so that no person in need of it has to suffer. This is especially true in India where a large number of people are still poor. The Narendra Modi government has been focusing on making medicines affordable by making them available through Jan Aushadhi Kendras, enabling price control of essential medicines, promoting prescription of generic medicines by medical practitioners and focussing on a conducive intellectual property regime (IPR).

Generic drugs

Generic drugs tend to cost less than branded ones. These drugs form the largest segment of the Indian pharmaceutical sector. The increasing prevalence of chronic diseases and ever-rising costs of hospitalisation and medicines are responsible for the growth of the generic drugs market. In this context, the National Health Protection Scheme (NHPS), also known as ‘Ayushman Bharat’, launched in 2018 — which seeks to insure 10 crore families for ₹5,00,000 — is expected to exponentially increase the demand for medicines. A well-functioning, end-to-end generic medicine supply chain will keep costs low.

Targeted implementation

An initiative to ensure affordable medicines through dedicated outlets was launched in the form of the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) in 2008. The mission was to create awareness among the public about generic medicines and provide commonly used generic medicines and health-care products. However, as on March 31, 2012, only 157 stores were opened; later, many became non-functional. Till the end of 2014-15, there were 99 stores.

In 2014, the impetus came from the Modi government.A ‘Strategic Action Plan’ was prepared. The product basket now has more than 600 medicines and 154 surgical and consumables in all therapeutic categories. There are over 4,000 Jan Aushadhi Kendras in the country. These centres are gradually becoming ubiquitous and government-procured generic medicines are sold at prices that are between 50% and 90% cheaper than the branded medicines in the open market.

Directive on prescriptions

Due to sustained efforts by the government to put in place a legal framework to promote generic medicines, the Medical Council of India issued a directive in September 2016, making it mandatory — by amending the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 — to prominently mention the generic names of drugs along with brand names in prescriptions. There is an advisory to State drug controllers that all branded drugs, imported or domestically manufactured, should mandatorily have generic names mentioned in bold letters while packaging.

The instrument of price control is also being used to restraint companies from pricing their medicines exorbitantly. ‘Every few years, the Health Ministry, in consultation with experts, draws up a National List of Essential Medicines (NLEM). These medicines, deemed essential for the treatment of common conditions, automatically come under price control. Under NLEM 2015, a total of 376 drugs are under price control. In addition, the government has the power to bring any item of medical necessity under price control — paragraph 19 of the Drugs (Prices Control) Order, 2013. This provision was used to regulate the prices of cardiac stents and knee implants’. There has been an attempt by the government to strike a fine balance between the health interests of consumers and the financial health of Indian pharmaceutical companies.

India has also emerged as the low-cost supplier of medicines to other countries and is the largest provider of generic medicines globally in terms of volume. The Indian pharmaceutical sector industry supplies over 50% per cent of the global demand for various vaccines, 40% of generic demand in the U.S. and 25% of all medicines in the U.K. At present, over 80% of antiretroviral drugs (used globally to combat AIDS) are supplied by Indian pharmaceutical firms.

A serious threat to affordability of medicines comes from big global firms. These pharmaceutical companies and their governments have been trying to lobby with the Indian government to make patent protection more stringent despite the fact that both compulsory licensing and prohibition of evergreening, provided under the Indian Patents Act, 1970, are valid under the TRIPS agreement of the World Trade Organisation. India has resisted any change in its intellectual property laws that can have the effect of making medicines unaffordable.

Pharmaceutical Industry in India- the Sunrise Sector

Indian pharmaceutical sector could be the next IT industry for our economy, both its ability to leverage our skilled manpower and to emerge as a global powerhouse. According to a report, in 2017 the pharmaceutical sector in India was valued at US$ 33 billion and in May 2018, the Indian pharmaceutical market grew at 10.8 per cent year-on-year. The country’s pharmaceutical industry is expected to expand at a CAGR (compound annual growth rate) of 22.4 per cent over 2015–20 to reach US$ 55 billion and is likely to be among the top three pharmaceutical markets by incremental growth and 6th largest market globally in absolute size. India contributes the second largest share of pharmaceutical and biotech workforce in the world.

The row over faulty hip-resurfacing system provided in India by Johnson & Johnson shows shortcomings in the legal and institutional mechanism to deal with quality issues in pharmaceutical industry. This episode has made it abundantly clear that global pharmaceutical companies would continue to treat Indians as second rate patient-customer. The conduct of Central Drugs Standard Control Organisation (CDSCO) in the whole affair also leaves much to be desired. India should use this experience to plug gaps in the legal and institutional framework applicable to the pharmaceutical industry and ramp up the working of the CDCSO. All these will bode well for the domestic pharmaceutical industry and place it on a firmer footing.

Generic drugs form the largest segment of the Indian pharmaceutical sector. A generic drug is a medication created to be the same as an already marketed brand-name drug in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use. Generic drugs tend to cost less than their brand-name counterparts because generic drug applicants do not have to repeat animal and clinical (human) studies that are required of the brand-name medicines to demonstrate safety and effectiveness. The market for the generic drug has been accelerated by increasing number of patent expiration of branded drugs and government initiatives in all the countries. Increasing prevalence of chronic diseases and ever-rising cost of hospitalization and medicines are responsible for the growth of generic drugs market.

India is the largest provider of generic medicines globally in terms of volume. Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK. Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immuno Deficiency Syndrome) are supplied by Indian pharmaceutical firms. Around 40.6 per cent of India’s US$ 16.8 billion pharmaceutical exports in 2016-17 were to the American continent, followed by a 19.7 per cent to Europe, 19.1 per cent to Africa and 18.8 per cent to Asian countries.

Apart from the global demand for Indian pharmaceutical products increase in the size of middle class households coupled with the improvement in medical infrastructure and increase in the penetration of health insurance in the country will also influence in the growth of pharmaceuticals sector. In this context National Health Protection Scheme (NHPS), also known as ‘Aayushman Bharat’ which seeks to provide insurance cover to 10 crore families for an amount of Rs. 5,00,000 is expected to be a watermark for the Indian pharmaceutical industry. A vastly improved access to medical facilities under this scheme to the hitherto excluded population is expected to provide a significant boost to the domestic health service and pharmaceutical industry.

A serious threat to the Indian pharmaceutical industry comes from its global counterparts. The big international pharmaceutical companies and their governments have been trying to lobby with the Indian government to make patent protection more stringent despite the fact that both compulsory licensing and prohibition of ever greening, provided under the Indian Patents Act, 1970, are valid under the TRIPS agreement of the WTO. It should not surprise us that India regularly figures on the ‘Priority Watch List’ of the Office of the United States Trade Representative (USTR) for providing ‘weak’ intellectual property protection. The annual ranking by ‘Global Innovation Policy Centre’ of the US Chamber of Commerce also ranks India poorly for its IPR climate. Any change in Indian IPR law made under foreign pressure will prove to be detrimental to the interest of the domestic companies.

Another threat emerges from manufacturing practices of some of the domestic pharmaceutical companies. As of 2016 there were around 10,000 generic manufacturers in India, of which only 1,400 were WHO GMP (Good Manufacturing Process) –compliant and only 523 of them were US FDA-approved. Now that the Indian companies have captured a significant part of the global generic drug market, it faces a very intense international scrutiny regarding its systems and processes. Any instance of poor manufacturing by one company is likely to attract global attention and affect the brand equity of Indian pharmaceutical industry as a whole. It is time that CDSCO sets higher benchmarks for quality standards for the drug and pharmaceutical industry.

Regulatory complexity is another obstacle faced by the Indian pharmaceutical industry. One of the most commonly cited reason for the growth of Indian Information Technology industry is the lack of governmental interference. While such a scenario is not possible for the pharmaceutical industry considering it literally deals with matters of life and death, the regulatory burden can certainly be reduced. Currently, five ministries of the Government of India are involved in regulating drug and pharmaceutical industry. ‘Price control’ under which the Government fixes the maximum price that can be charged for a medicine also needs to strike a fine balance between the health interests of the consumers and the financial health of Indian pharmaceutical companies.

The bulk import of cheaper Active Pharmaceutical Ingredients (API) from China has led to an evisceration of the Indian manufacturing capacity in the sector. In order to ensure the long term health and independence of the Indian pharmaceutical industry, it is required that instances of dumping of API from China are quickly identified and remedial measures taken. It is equally important that issues that hobble Indian manufacturing are removed.

Gopal Krishna Agarwal

National Spokesperson of BJP on Economic Affairs

Member Board of Governors Indian Institute of Corporate Affairs (IICA)

gopalagarwal@hotmail.com

Petroleum Pricing in India – Economics override political expediency

Petroleum prices are always a contentious issue. Historically, political expediency overrode economic considerations. Central government has some compelling reasons not to interfere into market forces, which are currently being effected by global factors. 

India imported 256.32 million metric tonnes of crude oil and petroleum products in 2017-18 and paid Rs. 6,52,896 lakh crore. The import dependence of India in the case of crude oil is over 80 percent. Further the Indian basket of Crude Oil represents a derived basket comprising of Sour grade (Oman & Dubai average) and Sweet grade (Brent Dated) of Crude oil processed in Indian refineries in the ratio of 72.38:27.62 during 2016-17. The price of Indian crude oil basket was $106.85 per barrel (1 barrel=159 litres) in May, 2014. It fell down to $39.88 per barrel in April 2016 and has gradually increased since then and is around $78 per barrel.

It is also important that we look into the tax structure and petroleum prices. On 3^rd September 2018, the price build-up for Diesel and Petrol in Delhi was as follows:

Sl. No.	Description	Unit	Petrol	Diesel
1.	C&F (Cost & Freight) Price (Moving average basis)	$/bbl	84.20	90.59
2.	Average Exchange rate	Rs/$	70.22	70.22
3.	Price Charged to Dealers (excluding Excise Duty and VAT)	Rs/Ltr	39.21	42.85
4.	Add : Excise Duty	Rs/Ltr	19.48	15.33
5.	Add : Dealer Commission (Average)	Rs/Ltr	3.63	2.51
6.	Add : VAT (including VAT on Dealer Commission)	Rs/Ltr	16.83	10.46
7	Retail Selling Price at Delhi- (Rounded)	Rs/Ltr	79.15	71.15

(Data from Indian Oil Corporation Limited)

With every dollar increase in the international price of crude oil, the cost of petrol and diesel in India increases by Rs. 0.50/ litre and a fall in the exchange rate of Indian rupee against US dollar increases the cost of petrol and diesel in India by Rs. 0.65/ litre.

The revenue generated by the taxes on petroleum products is very important for both the Central as well as State Governments. The contribution to central and state exchequer by the petroleum section is significant and in the last few years is as follows:

Year		2014-15		2015-16	2016-17	2017-18 (P)
1.	Contribution to Central Exchequer (in crore) through Tax/ Duties on Crude oil &  Petroleum products	1,26,025		2,09,354	2,73,225	2,84,442
2.	Contribution to State Exchequer (in crore) through Tax/ Duties on Crude &  Petroleum products	1,60,526		1,60,114	1,89,587	2,08,893
3.	Total Contribution of Petroleum Sector to Exchequer through Tax/ Duties      (1+2)	2,86,551	3,69,468		4,62,812	4,93,335

We have to remember that, 42% of the Basic Excise Duty collection at the Centre is given to State governments for infrastructure and welfare programs and 60% of the balance 58% of the Basic Excise Duty collection is spent on Centrally Sponsored Welfare Schemes in the States i.e. total amount transferred to States is (42+34.8)= 76.8 percent. And every one rupee reduction in central duty leads to a loss on about Rs 14000/= crores to the central exchequer.

Earlier, Under Administered Price Mechanism (APM), petrol /diesel prices were not market linked and prices were being modulated, the steep increase in international prices of oil used to exert severe pressure on the oil marketing companies (OMCs). The retail prices of these commodities were kept below the cost resulting in large under-recoveries for OMCs. From the year 2004-05 to 2013-14, the total under-recoveries was Rs. 8,53,628 crores and there was significant subsidies for the same.

Year	Under-recovery (crore)	Cumulative Total (crore)
2004-05	20,146	20,146
2005-06	40,000	60,146
2006-07	49,387	1,09,533
2007-08	77,123	1,86,655
2008-09	1,03,292	2,89,947
2009-10	46,051	3,35,998
2010-11	78,190	4,14,188
2011-12	1,38,541	5,52,729
2012-13	1,61,029	7,13,759
2013-14	1,39,869	8,53,628

The subsidies for these under recoveries, during the period of 2004-08 when the international crude prices were increasing rapidly, proved grossly insufficient. Since the fiscal position of the Government was already precarious, it could not increase the subsidy to this sector. The UPA government then resorted to issuance of ‘oil bonds’ to the OMCs. These interest-bearing bonds called, The Oil Bonds were not even reflected on the balance sheet by the UPA Government, resulting in artificial measurement of the burgeoning fiscal deficit.

Between 2005-06 and 2009-10, the Oil Bonds worth Rs. 1,42,202 crore were issued by the Government with rate of interest ranging from 7.33 percent to 8.4 percent per annum repayable up to 2024-25 by successive governments. Oil companies have either sold these bonds or used them as collateral to raise cash. OMCs have sold oil bonds worth Rs 1,24,536 crore and had to bear a loss of around Rs 5,000 crore in selling of these bonds at discounted rate because the bond market did not have much appetite for these bonds. Till date the Government has repaid around Rs. 70,000 crore to the holders of these bonds and out of this amount, only Rs. 10,000 crore (approx) has gone into the repayment of the principal component and the rest towards the interest obligation. Thus the outstanding principal amount on these bonds is Rs. 1,30,000 crore. Most of these bonds will be matured by 2024-25, putting heavy burden on current as well future governments.

An important part of the solution to the problem can be focusing at the alternative energy source. In the year 2015-16, the source wise share in consumption of energy was as follows:

Sl. No.	Source	Share ( in percentage)
1.	Coal and Lignite	46.28
2.	Crude Petroleum	34.48
3.	Electricity from hydro, nuclear and other renewable sources	12.75
4.	Natural Gas	6.49

Therefore the policy of the Shri Narendra Modi government is to move towards renewable sources of energy. But one cannot readily switch between them and other sources of energy. To make our economy less dependent on oil would be a long drawn process, which can be accelerated by conducive government policies. Modi Government is working on this long-term solution.

It is evident than in order to reduce our dependence on imported oil, we need to generate more energy from coal and lignite, which we have in abundance and also focus on electricity generation from hydro and other renewable sources like wind and solar. Since the government is focussed on having 1 GWh of installed solar capacity by 2022, we will see an increase in its share in the source wise energy share in the coming years. Till then economic prudence should override political expediency.

Gopal Krishna Agarwal

National Spokesperson of BJP on Economic Affairs

Member Board of Governors Indian Institute of Corporate Affairs (IICA)

gopalagarwal@hotmail.com