Defence FDI vital to boost growth

Industrial growth: Survey also seeks revival of special economic zones

Economic Survey, 2013-2014, has said to boost the sagging industrial growth, it is imperative to revive private sector investment through special economic zones (SEZs) and national investment and manufacturing zones (NIMZs). It has also said foreign direct investment (FDI) in the defence sector should be allowed.

The Survey indicates the downturn in industrial growth provides an opportunity to push the government’s reform agenda by removing impediments to infrastructure development. “In view of the ongoing industrial slowdown, the policy focus now needs to target key growth drivers in the short term. One of the crucial drivers can be revival of private corporate-sector investment…Allowing FDI in defence and some other sectors has huge potential for attracting large-scale investments…Existing SEZs and newly set up and proposed NIMZs can multiply investment, provided constraints are removed and a stable incentive structure is put in place,” it said.

The government has already floated a draft Cabinet note on allowing up to 49 per cent FDI in the defence sector, under the automatic route.

SEZ activity has come to a standstill, following the government’s move to impose minimum alternate tax (MAT) on these zones. Currently, there are 566 SEZs, of which 388 are notified. However, only 184 are operational and exporting.

The Survey said in 2013-14, industrial growth had slowed to 0.4 per cent from one per cent in 2012-13, primarily because of contraction in mining, and deceleration in manufacturing. It added to rejuvenate small businesses, the government’s industrial policy should have greater focus on labour-intensive and resource-based manufacturing in the informal sector. In the long run, upgrading from low-technology areas to high-technology ones would be a challenge for the manufacturing sector, the Survey said.

It stressed the need to remove infrastructure bottlenecks, saying a sluggish economic recovery augurs well for infrastructure improvement. Steps should be taken to augment coal production; permit coal mining and road & rail network upgrade; reduce delays in regulatory approvals and land acquisition and rehabilitation; and resolve financing constraints.

Though the Survey did not state why the National Manufacturing Policy, rolled out in 2011, did not take off, it highlighted the creation of 16 NIMZs, including eight industrial corridors, announced under the United Progressive Alliance government.

The Survey suggested several short-, medium- and long-term steps to improve the business environment in the country.

"The near term industrial outlook is conditional on continued improvements in the policy environment and quick return to peak investment rate. With the improvement in overall macroeconomic environment, industry is expected to revive and growth can accelerate gradually over the next two years," the survey said.

It said that there is an urgent need to build a consensus on best practices to be applicable to all states and to promote self-certification, e-filings and e-returns.