Economy Matters: State of Competitiveness in India

1
FOREWORD
SEP-OCT 2015
G
lobal growth has moderated, especially in emerging market economies (EMEs) and G-4 econ-
omies, global trade has deteriorated further and downside risks to growth have increased.
Consequently, our exports growth is in shaky territory, given the fact that bulk of our exports
are going to these economies. Evidently, exports have now contracted for ten consecutive months.
Though improving domestic competitiveness through structural reforms is crucial to improve ex-
ports performance, we believe that can only materialize in the medium-term. In the near-term, a
weaker Rupee can act as a catalyst to revive competitiveness. Japan, one the G-4 countries, slipped
into recession in the third quarter, for the second time in two years. Weakness in business invest-
ment and shrinking inventories drove the contraction as slow growth in China and a weak global
outlook prompted Japanese companies to hold back on spending and production.
On the domestic front, a tentative economic recovery is underway, but is still far from robust. In-
dustrial growth moderated in September after growing at a robust rate in the month before on the
back of weakness in manufacturing sector. However, the resumption of growth in production of con-
sumer durables in recent months, after a protracted period of contraction over the last two years,
is indicative of some pick-up in consumption demand, primarily in urban areas. In some bad news
for the economy, rising prices for some food products and firm demand during the festival season
pushed up India’s retail inflation to a four-month high in October 2015. But this rise might prove to
be temporary and we are likely to see inflation moderate once festival demand softens and prices of
lentils and vegetables fall as imports increase. Supply constraints due to lower production and higher
demand due to rising incomes have contributed to the spike in the price of pulses in recent months.
In the present environment where both external and domestic growth is weakening, it’s important
to lay stress on strengthening the drivers of demand. One of the challenges ahead, therefore, is
to create the jobs to employ India’s rapidly growing youth base, and the only means of doing so
is to catalyze increased private and public investment in India. Today’s investment equals tomor-
row’s jobs, and so the Government of India has embarked on the ambitious Make in India initiative
to create jobs. But attracting investment means that the environment for investment must be made
friendly. It is encouraging to note that the Government of India has embarked on ambitious reforms
focused on improving India’s performance in the World Bank’s Doing Business rankings. These ef-
forts, among other things, focus on implementing reforms relating to starting a business, resolving
insolvency, enforcing contracts, and trading across borders. The earnest efforts on the part of gov-
ernment have started to bear fruit and it’s heartening to note that India’s ranking has improved by 12
notches to 130 in the latest rankings released last month.
Chandrajit Banerjee
Director General, CII

EXECUTIVE SUMMARY
ECONOMY MATTERS 6
Global Trends
China’s economy grew at its slowest pace since the
global financial crisis in the third quarter, reviving
expectations of further stimulus to avert a stalling
of the world’s growth engine. The world’s second
largest economy expanded by 6.9 per cent in the
July-September quarter, slowing from a 7 per cent in-
crease in the previous quarter. With this, the GDP in
the first three quarters of this year increased by 6.9
per cent. As the world’s biggest trader in goods and a
giant market in itself, China is a key driver of the glob-
al economy, and stock exchanges around the world
have been pummelled in recent weeks by concerns
over its future. China’s neighbor, Japan’s economic
output too shrank in the third quarter of the current
year, throwing the world’s third-largest economy
back into recession. Gross domestic product declined
an annualized 0.8 per cent in the three months ended
Sept. 30, following a revised 0.7 per cent drop in the
second quarter, meeting the common definition of a
recession.
Domestic Trends
Index of Industrial Production (IIP) growth moderat-
ed to 3.6 per cent in September 2015 over a year ago
compared with the revised growth of 6.3 per cent in
August 2015, on the back of lower growth in manufac-
turing and capital goods sector. In contrast, output of
the eight core industries rose by 3.2 per cent in Sep-
tember 2015 on a y-o-y basis. This was the steepest
rise in output recorded in the past four months. Five
out of eight sectors recorded positive growth rates
during the month. In some more bad news for the
economy, rising prices for some food products and
firm demand during the festival season pushed up In-
dia’s retail inflation to a four-month high in October
2015. Annual consumer price inflation edged up to
5.0 per cent in October 2015, up for the third straight
month, compared with 4.41 per cent a month ago. In-
flation may moderate once festival demand softens
and prices of lentils and vegetables fall as imports
increase. On the external front, exports growth dis-
appointed for the eleventh consecutive month, con-
tracting by 17.5 per cent to US$21.3 billion in October
2015 as against contraction to the tune of 24.3 per
cent in September 2015.
Sector in Focus: Employment Potential of
the Road Transport Sector
The transport sector in India is diverse consisting of
the land transport, water transport and air transport.
The employment potential of the transport sector is
however mainly concentrated in the land transport
and in particular the roadways. Road transport is one
of the important employment generating sectors es-
pecially in the rural areas and concerted efforts need
to be taken to promote employment in this sector.
A policy stand needs to be taken to look at the users
of the road i.e the drivers and proper rules for their
working, defined wages, social security etc need to
be introduced so that more and more youth are at-
tracted to the sector. And to top it all skill develop-
ment of the drivers is essential to teach them the best
practices of safe driving, healthy and pollution free
maintenance of vehicles etc.
Focus of the Month : State of Compe-
tiveness in India
As per World Bank by, 2020, India will be home to
working population of 906 million in need of jobs
to sustain India’s growth, which in turn demands
sustained growth of the manufacturing and service
sectors in India. The challenge ahead, therefore, is to
catalyze increased private investment in India. This
translates into need for an investor-friendly environ-
ment. According to World Bank’s Enterprise Survey,
businesses in India rank corruption as number one
constraint to growth, ahead of factors like electric-
ity, access to finance and access to land. India ranks
130 out of 189 economies in World Bank’s Doing Busi-
ness 2016 report. The World Economic Forum’s Global
Competitiveness Report ranks India as 55 out of 144
economies. In this month’s Focus of the Month, we
analyze the three recently released reports, which
evaluate the state of competitiveness and doing busi-
ness in India.

7
GLOBAL TRENDS
China’s Economy Facing Difficulties
SEP-OCT 2015
C
hina’s economy grew at its slowest pace since
the global financial crisis in the third quarter, re-
viving expectations of further stimulus to avert a
stalling of the world’s growth engine. The world’s sec-
ond largest economy expanded by 6.9 per cent in the
July-September quarter, slowing from a 7 per cent in-
crease in the previous quarter. The numbers were still
better than market expectations. With this, the GDP in
the first three quarters of this year increased by 6.9 per
cent. As the world’s biggest trader in goods and a giant
market in itself, China is a key driver of the global econ-
omy, and stock exchanges around the world have been
pummelled in recent weeks by concerns over its future.

ECONOMY MATTERS 8
GLOBAL TRENDS
According to the preliminary estimate from China’s na-
tional bureau of statistics (NBS), value added growth
of the primary industry was 3,919.5 billion yuan, up 3.8
per cent year-on-year, while that for secondary industry
was 19,779.9 billion yuan, an increase of 6.0 per cent.
Growth in the nation’s tertiary industry, the largest
component of all three, was 25,077.9 billion yuan, up by
8.4 per cent.
The official release noted that, “Under the tough situa-
tion, the Central Party Committee and the State Council
took full consideration of domestic and global situa-
tions, adopted scientific measures to stabilize economic
growth, promote reforms, enhance restructuring, ben-
efit people and control risks, implemented effective
range-based, targeted and discretionary macro regu-
lation, further deepened the reform and opening up,
encouraged mass entrepreneurship and innovation and
increased supply of public goods and services. As a re-
sult, the overall performance of national economy was
stable and moving in a positive direction.”
China’s stock market went into meltdown between
June and August this year, triggered by a host of factors,
including an unwinding of margin trades and concerns
over lofty valuations. This would have likely reduced the
financial sector’s contribution to third-quarter growth.
Aside from financial sector woes, a sluggish real estate
market continues to weigh on the economy. Real estate
is linked to dozens of other key sectors, including steel
and cement that are already grappling with oversupply.
While property sales and prices have been on the rise in
response to increasingly accommodative housing poli-
cy, housing construction is still in the doldrums. Given
the large inventory of unsold housing, strong housing
sales momentum for a sustained period was needed
before housing construction could recover meaning-
fully
In other economic data, China’s value-added industrial
output decelerated to 5.6 per cent year on year in Octo-
ber 2015, down from 5.7 per cent in September 2015. By
sector, manufacturing grew the most by 6.7 per cent,
followed by mining (+0.4 percent). In contrast, utilities
dropped by 0.3 per cent. From January to October 2015,
industrial output expanded by 6.1 per cent. Industrial
Production in China averaged 12.8 per cent from 1990
until 2015, reaching an all time high of 29.4 per cent
in August of 1994 and a record low of -21.1 per cent in
January of 1990.
On the inflation front, falling prices have kept the risk of
deflation looming large since past many months now.
Keeping up this falling trend, Chinese inflation came in
at 1.3 per cent in October 2015 versus prior of 1.6 per
cent. Further, producer price index remained in defla-
tion territory for record 44 months, flagging persistent
deflationary pressure in the world’s second largest
economy. The weak inflation print continues an already
well-established trend of falling producer prices and
tepid consumer price rises, in part a result of sharply
lower commodity prices in 2015 but also reflecting
slowing demand growth for many goods.

9
GLOBAL TRENDS
SEP-OCT 2015
In view of the low inflation rate, the central bank of
China has cut benchmark interest six times since No-
vember last year and repeatedly reduced banks’ reserve
Japan’s economic output shrank in the third quarter
of the current year, throwing the world’s third-largest
economy back into recession. Gross domestic product
declined an annualized 0.8 per cent in the three months
ended Sept. 30, following a revised 0.7 per cent drop in
the second quarter, meeting the common definition of
a recession. To be sure, two consecutive quarterly con-
tractions is commonly considered a technical recession.
A drop in inventories cut 2.1 percentage points from
total growth, outstripping positive contributions from
private consumption and exports. That could turn into
a positive in coming months, though. When inventories
are low, companies usually increase output, leading to
faster growth in subsequent quarters. Business invest-
ment shrank an annualized 5.0 per cent during the quar-
ter, a second-straight decline, as a global slowdown
weighed on corporate earnings. Private consumption,
which accounts for some 60 per cent of Japan’s GDP,
grew 2.1 per cent after contracting 2.3 per cent in the
previous quarter. Consumer spending has picked up
from the hit it took last year from an increase in sales
requirement ratio. However, more stimulus is needed
to secure Beijing’s growth target of no less than 6.5 per
cent in the next five years, and pave the way for a the
transition to more a consumption-led growth model.
It was the second in two years for Japan. In contrast,
in year-on-year terms, Japanese economy actually grew
by 1.1 per cent in the third quarter as compared to 1.0
per cent in the quarter before. Weakness in business in-
vestment and shrinking inventories drove the contrac-
tion as slow growth in China and a weak global outlook
prompted Japanese companies to hold back on spend-
ing and production.
tax in April, which contributed to the recession in 2014.
Mr. Shinzo Abe took office nearly three years ago pledg-
ing to restore Japan to robust, sustainable growth with
a package of unprecedented monetary stimulus, fiscal
spending and structural changes. But Japan’s economy
has struggled to gain traction, contracting in five of
11 quarters. In order to provide a boost to economic
growth, Japanese government is planning to inject
fiscal stimulus package by the end of the year, which
would focus on targeted measures such as direct help
for the poor and more child-care facilities for working
parents. The package is expected to total around ¥3 tril-
lion (US$25 billion).
Japan’s Economy Falls Back into Recession
Again

ECONOMY MATTERS 10
GLOBAL TRENDS
US non-farm payrolls (NFP) came in significantly higher
than expected, increasing by 271K in October 2015. The
September 2015 print was revised lower to 137K (from
142K earlier). However, the August 2015 print was re-
vised up, taking the total August-September 2015 re-
Decomposition of the payrolls data shows that the pri-
vate service providing segment led the gains, recording
an 82K increment over the September 2015 number.
Within this segment, professional and business ser-
vices, retail trade posted the steepest gains. Deviating
from the recent trend, construction and manufacturing
(within private goods-providing sector) aided job addi-
tions. Further, government payrolls displayed a job ad-
dition of 3K in October 2015. Employment in other major
industries, including manufacturing, wholesale trade,
transportation and warehousing, information, financial
activities, and government, showed little or no change
over the month.
In October 2015, average hourly earnings for all em-
ployees on private nonfarm payrolls rose by 9 cents to
$25.20, following little change in September 2015 (+1
cent). Hourly earnings have risen by 2.5 percent over
the year. Average hourly earnings of private-sector pro-
visions to +12K. The less volatile three-month average
NFP print picked up to 187K (prior: 171K). In October
2015, job gains occurred in professional and business
services, health care, retail trade, food services and
drinking places, and construction.
duction and nonsupervisory employees increased by 9
cents to $21.18 in October 2015.
According to the household survey data, the unemploy-
ment rate fell to 5.0 per cent in October 2015 from 5.1
per cent in September 2015. The labour force participa-
tion rate remained unchanged at 62.4 per cent. Mean-
while, the U-6 unemployment rate (which is a broader
measure that includes part-time and discouraged work-
ers) maintained its steadily declining trend and fell to
9.8 per cent from 10.0 per cent.
The number of persons employed part time for eco-
nomic reasons (sometimes referred to as involuntary
part-time workers) edged down by 269K to 5.8 million
in October. These individuals were working part time
because their hours had been cut back or because they
were unable to find a full-time job. Over the past 12
months, the number of persons employed part time for
economic reasons has declined by 1.2 million.
Nonfarm Payroll Data for US Shows Improve-
ment

11
GLOBAL TRENDS
SEP-OCT 2015
Encouraging details of the US Q3 2015 GDP growth
coupled with the continued improvement in the labour
market (since early this year) keeps the US economy on
a path of gradual recovery. Consequently, a December
lift-off remains on the table. This is further supported
by the hawkish tone of the October FOMC policy and
recent commentary by Fed officials (Fed Chair Janet
Yellen, Vice Chairman Stanley Fischer and New York Fed
President William Dudley). Further, majority of the Fed
members (13 of 17) continue to see an interest rate hike
in 2015.

ECONOMY MATTERS 12
DOMESTIC TRENDS
Bridges Across the Indian Ocean
T
he partnership of India and Africa has stepped
into a new era. Close political relationships are
being reinvigorated by flourishing trade and in-
vestment ties. These new trade and investment bonds
could be crucial in the struggle to lift millions out of
poverty. India and Africa’s strong trade and investment
relations are rooted in the huge complementarities
between their economies. This foundation has further
deepened in the post-crisis period, as India and other
large developing economies have emerged as stronger
economic powers. This shift in global growth poles has
resulted in both India and African countries looking to-
wards each other for mutual trade and investment op-
portunities.
Total trade between India and Africa grew from approx-
imately $30.75 billion in 2007 to $75 billion in 2014, with
a compound annual growth rate of 13.6 per cent. For
the next five years, a growth rate of 15 per cent may be
expected, with total trade crossing $150 billion by the
end of 2019. Indian private investments in Africa have
also surged, with big-ticket investments in the telecom-
munications, IT, energy and automobile sectors. Capital
investments from India to Africa have grown to $54.5
billion between 2003 and 2014.
While the two-way trade and investment ties have deep-
ened, the future potential is higher. With the changing
architecture of global trade agreements, the focus is
shifting towards creating value chain- and investment-
led trade. The Indian private sector can leverage avail-
able institutional mechanisms to further deepen its
trade and economic footprint in African nations. A key
mechanism is the effective utilisation of India’s DFTP
(duty-free tariff preference) scheme, the genesis of
which goes back to the first India-Africa Forum Summit

13
DOMESTIC TRENDS
SEP-OCT 2015
in 2008. The DFTP is a unilateral duty-free market access
scheme, which India has provided to all least developed
countries, including 34 in Africa.
Since it came into force in August 2008, only a few Afri-
can less developed countries (LDCs) have managed to
increase their exports to India, notably Tanzania. Con-
trary to similar schemes provided by other developing
countries, the DFTP programme offers much deeper
market access into India. After the amendment of the
DFTP scheme in April 2014, its coverage has gone be-
yond 98 per cent of India’s total tariff lines.
Contrary to perception that this scheme will benefit only
LDCs, Indian industry, too, can make use of it to advance
its trade and investment relations. It can source inter-
mediate products from beneficiary countries at zero
duty and invest in African LDCs to manufacture locally to
export back to India through the DFTP route. By doing
this, Indian industry can also access third-country mar-
kets like the EU, US and so on, making use of the African
Growth and Opportunity Act and Everything But Arms
Proposal.
Relocating part of the production process in Africa to
build a robust India-Africa value chain will help Indian
industry avoid the duty disadvantage it faces in big mar-
kets of the EU and US. For instance, in the textiles and
apparel sector, Indian exporters face 8-30 per cent duty
in the US and 10-12 per cent in the EU.
The second important instrument is the Exim Bank/
Union government’s lines of credit (LoCs). LoCs have
helped Indian companies enter the African market, as
well as expand their foot-print on the continent. This
is evident from the fact that LoCs to African countries
constitute 60 per cent of all LoCs. However, there is still
a gap between LoC commitments and actual disburse-
ment, which needs to be bridged.
Across the Indian Ocean, India and Africa have enjoyed
age-old connectivity. It is time to build new bridges of
friendship between our two regions, and Indian indus-
try will be a key partner in this endeavour.
This article appeared in The Indian Express dated October 31, 2015. Online version of the article can be accessed from:
http://indianexpress.com/article/opinion/columns/india-africa-summit-bridges-across-the-indian-ocean/

ECONOMY MATTERS 14
DOMESTIC TRENDS
India’s Index of Industrial Production (IIP) growth mod-
erated to 3.6 per cent in September 2015 over a year
ago compared with the revised growth of 6.3 per cent
in August 2015. The IIP growth shows an improved from
2.6 per cent growth recorded in September 2014. The
IIP growth in August 2015 was scaled down to 6.3 per
cent in the first revision compared with 6.4 per cent
reported provisionally. Meanwhile, the growth in June
2015 was reduced to 4.2 per cent at the final revision
Output of the eight core industries rose by 3.2 per cent
in September 2015 on a y-o-y basis. This was the steep-
est rise in output recorded in the past four months. Five
out of eight sectors recorded positive growth rates dur-
ing the month. Output of the fertiliser industry rose by a
robust 18.1 per cent in September 2015. Production has
risen by more than five per cent in each of the past four
months. Growth in electricity generation accelerated to
10.8 per cent in September 2015. This was the steepest
rise in generation recorded in the past 11 months. Coal
production rose marginally by 1.9 per cent.
Natural gas output expanded for the second consecu-
tive month in September, rising by 0.9 per cent. Refin-
ery throughput was up by just 0.5 per cent. Crude oil
production fell marginally by 0.1 per cent in September
2015 on a y-o-y basis. Steel production contracted by
2.5 per cent in September 2015. Output fell for the third
consecutive month. Cement production contracted by
1.5 per cent during the month. This was the first instance
against the first revision from 4.4 per cent at first revi-
sions, while it remained above 3.8 per cent reported
provisionally. On a cumulative basis, industrial produc-
tion growth has improved at higher pace of 3.9 per cent
in April-September 2015 compared with 2.9 per cent in
the corresponding period last year. In FY16, we expect
industrial production to grow at a higher rate as com-
pared to the previous fiscal on the back of improving
global conditions and policy aided domestic upturn
of a fall in output since April 2015.During April-Septem-
ber 2015, growth in the output of the eight core indus-
tries more-than halved to 2.3 per cent as compared to
the same period a year ago. Electricity generation rose
by just 4.1 per cent, much lower than the 10.4 per cent
growth recorded a year ago. Growth in coal produc-
tion decelerated to 4.2 per cent from 7.7 per cent. Ce-
ment production grew by 1.3 per cent as against 9.7 per
cent. Production of steel contracted by 0.4 per cent as
against a rise of 6.6 per cent.
On the other hand, the decline in natural gas output
was lower during April-September 2015, with produc-
tion falling by 2.1 per cent as against a fall of 5.8 per cent
in the same period a year ago. Production of crude oil in
India rose by 0.4 per cent as compared to a contraction
of 1.2 per cent. Growth in the output of refinery prod-
ucts accelerated to 3.6 per cent from a decline of 2.7 per
cent. Fertiliser production grew by a healthy eight per
cent during the period.
IIP Growth Decelerates in September 2015

15
DOMESTIC TRENDS
SEP-OCT 2015
On the sectoral front, growth of manufacturing sector,
which constitutes over 75 per cent of the index, deceler-
ated to 2.6 per cent in September 2015 compared with
6.6 per cent growth in the previous month. In terms of
industries, eleven (11) out of the twenty two (22) indus-
try groups (as per 2-digit NIC-2004) in the manufactur-
ing sector showed positive growth during the month
of September 2015 as compared to the corresponding
month of the previous year. The industry group ‘Furni-
ture; manufacturing n.e.c.’ grew at the highest positive
growth of 69.9 per cent, followed by 21.6 per cent in
‘Electrical machinery & apparatus n.e.c.’ and 9.8 per
cent in ‘Chemicals and chemical products’. On the other
hand, the industry group ‘Publishing, printing & repro-
duction of recorded media’ showed the highest nega-
tive growth of (-) 13.3 per cent, followed by (-) 12.8 per
cent in ‘Wearing apparel; dressing and dyeing of fur’ and
(-) 12.8 per cent in ‘Medical, precision & optical instru-
ments, watches and clocks’.
Electricity output continued to grow at robust rate of
grew at a higher rate of 11.4 per cent in September 2015
as compared to 5.6 per cent in the previous month.
Mining output too reduced to 3.0 per cent, after grow-
ing at robust rate of 4.2 per cent in August 2015. The
recent auction of coal mines by the government could
provide some impetus to coal production in the months
to come.
On the use-based front, the volatility in capital goods
continued. Capital goods growth decelerated to 10.5
per cent in September 2015, which was a considerable
reduction from Augusts’ 21.4 per cent growth rate.
However, it is difficult to conclusively determine the
sustainability of capital goods output as it continues
to be a significantly volatile component. In sharp con-
trast to last month, growth of consumer goods reduced
sharply to 0.6 per cent as compared to healthy growth
to the tune of 6.0 per cent posted in August 2015 pri-
marily on account of the negative print of non-durables.
Consumer durables growth came down to 8.4 per cent,
after showing impressive growth in the last 2 months.
Non-durables continued to stay in the red territory in
September 2015 as it posted -4.6 per cent growth rate
as compared to contraction to the tune of 1.0 per cent
in August 2015. Notably, non-durables have a signifi-
cant share in IIP at 21.4 per cent. Basic and intermediate
goods posted positive growth.

ECONOMY MATTERS 16
DOMESTIC TRENDS
WPI inflation was in the negative territory for the 10th
consecutive month as it fell to 3.8 per cent in October
2015 from -4.5 per cent in September 2015 as major com-
modity prices continue to fall. Deflation in WPI has seen
a broad –base deepening due to several factors such
as declining crude oil prices due to supply glut and low
demand from world’s major economies which have not
only brought down retail prices of petroleum products
but have also helped producers’ cut down on transpor-
tation costs. WPI has been experiencing deflation on
annual basis from November last year. Sustained de-
cline in WPI is good news for corporate as WPI is input
price for manufacturing process.
Rising prices for some food products and firm demand
during the festival season pushed up India’s retail in-
flation to a four-month high in October 2015. Annual
consumer price inflation edged up to 5.0 per cent in Oc-
tober 2015, up for the third straight month, compared
with 4.41 per cent a month ago. Inflation may moderate
once festival demand softens and prices of lentils and
vegetables fall as imports increase. Retail food inflation
in October 2015 came in at 5.25 per cent, higher than
3.88 per cent recorded in September 2015, as prices of
pulses rose 42.2 per cent because of domestic short-
ages. Supply constraints due to lower production and
higher demand due to rising incomes have contributed
to the spike in pulses prices. Global pulses prices are
high and the rupee is weak, suggesting that resorting
to imports could provide limited comfort to domestic
prices.
Outlook
Industrial production growth slowed in September 2015 on the back of lower growth in manufacturing and capital
goods sector. Volatility in capital goods production is continuing, providing no clear evidence of a revival in invest-
ment demand, which would need to build on the tentative indications of unclogging of stalled investment projects,
stabilising of private new investment intentions and improving sales of commercial vehicles. Government is aware
of this situation and has already taken a number of policy and reform initiatives. We are hopeful that the initia-
tives taken by the government in terms of expeditious project clearances, simplification of procedures and new
investment announcements as well as the ‘Make in India’ initiative would improve the order book position, revive
demand and help effect a turnaround in the investment cycle..
CPI Inflation Moves Up in October 2015

17
DOMESTIC TRENDS
SEP-OCT 2015
Primary products continued to face deflation to the
tune of 0.4 per cent in October 2015 as compared to 2.1
per cent in the previous month. Inflation in primary food
articles stood at 4-month high of 2.4 per cent in October
2015 as compared to 0.7 per cent in the previous month.
Food prices were driven mainly by pulses prices. Pulses
were 52.9 per cent costlier in the wholesale markets
from a year ago, compared with 38.5 per cent rise in
September. Pulses prices have been climbing up since
last six months, reached 36.5 per cent in August 2015
compared to 35.8 per cent in July 2015. Wholesale infla-
tion in the case of onions moderated to 85.6 per cent
in October 2015 from 113.7 per cent in September 2015.
Further, primary non-food inflation witnessed inflation
to the tune of 5.1 per cent in October 2015 as compared
to 2.6 per cent in the previous month.
Deflation in fuel sector stood at 16.3 per cent in October
2015 as compared to 17.7 per cent in the month before.
Both petrol and diesel too showed deflation during the
month. Benign crude oil prices have helped to keep fuel
prices in check in the last couple of months.
Manufacturing sector too posted deflation to the tune
of -1.7 per cent in October 2015, remaining unchanged
from the previous month. Non-food manufacturing or
core inflation, which is widely regarded as the proxy for
demand-side pressures in the economy remained sub-
dued at -2.1 per cent during the month as compared to
-1.9 per cent during the previous month.

ECONOMY MATTERS 18
DOMESTIC TRENDS
Exports growth disappointed for the eleventh consecu-
tive month, contracting by 17.5 per cent to US$21.3 bil-
lion in October 2015 as against contraction to the tune of
24.3 per cent in September 2015. Besides a global slow-
down, the severe fall is attributed to a decline in global
commodity prices. Exports had last recorded growth in
November 2014, rising 7.27 per cent year-on-year. Cu-
mulatively, April-October 2015 saw exports dropping by
17.6 per cent. Among high-value export items, refined
petroleum products plummeted over 57 per cent in Oc-
tober year-on-year. Among the major items of exports,
only drugs and pharma and readymade garments grew
by 21.5 per cent and 3.2 per cent respectively, while ship-
ments of gems and jewellery, chemicals and engineer-
ing goods contracted by 12.8 per cent, 8.2 per cent and
11.6 per cent respectively.
India aims to take exports of goods and services to
The trade deficit for October 2015 stood lower at
US$9.8 billion, lower than the deficit of US$10.5 billion
in previous month. For August this year, the deficit
stood at US$12.48 billion. Though improving domestic
US$900 billion by 2020 and raise the country’s share in
world exports to 3.5 per cent from 2 per cent now. Ex-
ports in the past four fiscal years have been hovering at
around US$300 billion.
Imports too contracted by 21.2 per cent to US$31.1 billion
in October 2015, compared to prior month’s contraction
of 25.4 per cent. Oil imports stood at US$6.8 billion in
October this year, 45.3 per cent lower than US$12.5 bil-
lion a year ago. For the April-October period, oil imports
stood at US$54.9 billion, 42.1 per cent lower than the oil
imports of US$94.8 billion in the year-ago period. Non-
oil imports in October 2015 were estimated at US$24.2
billion, 9.9 per cent lower than US$26.9 billion in Octo-
ber 2014. This is attributed to the slow growth in the
domestic industrial sector. For April-October, non-oil
imports stood at U$177.0 billion, 0.89 per cent lower as
compared with US$178.6 billion in the year-ago period.
competitiveness through structural reforms is crucial
to improve exports performance, we believe that can
only materialize in the medium-term. In the near-term,
a weaker Rupee can act as a catalyst to revive competi-
tiveness.
Outlook
The WPI index has declined for the tenth consecutive month in October 2015 indicating slackness in economic
activity across sectors. Given that CPI inflation has remained more-or-less range bound in RBI’s target range, it reaf-
firms the moderation of inflation print which in turn would have a beneficial impact on inflationary expectations.
CII hopes this (easing inflation) would provide the requisite space to RBI to continue with its rate easing cycle in its
forthcoming monetary policy announcement to provide a fillip to growth.
Weak EXIM Performance Continues

19
SECTOR IN FOCUS
Employment Potential of the Road Transport Sector
SEP-OCT 2015
T
he transport sector in India is diverse consist-
ing of the land transport, water transport and
air transport. The employment potential of the
transport sector is however mainly concentrated in the
land transport and in particular the roadways. The em-
ployment scenario of the transport sector may be ascer-
tained from the data emerging from Table-1.
Ms. A. Srija
Director, Labour & Employment, NITI Aayog

ECONOMY MATTERS 20
SECTOR IN FOCUS
In the National Industries Classification, 2008 transport
sector is clubbed along with the storage sector. Hence
in Table-1 Section –I shows the employment at the two-
digit NIC classification of the transport & storage sec-
tor. In Section-II the sectors where employment in the
transport sector is taking place is shown at four digit
NIC code to get a clear idea of the employment generat-
ing sectors. The overall workforce participation rate in
the transport and storage sector was 506 per 10000 in
2011-12 or 5.06 percent of the total workforce. Of this
it is the land transport which is the major employment
generator at 3.69 percent. The proportion of women
in the transport and storage sector is less than one
percent of the total workforce. Further among the dif-
A look at the contribution of gross value added by the
transport sector shows that maximum value added
from the sector is generated from road transport,
whose share however is seen declining from 65.7 per
cent in 2011-12 to 64.4 per cent in 2013-14. The share of
the transport sector to the gross value added shows
an increase from 4.8 per cent in 2011-12 to 5.0 per cent
in 2013-14 of which the major contributor is road trans-
port. Of the share of road transport to value added
nearly 47.9 per cent is from the rural areas1
. Thus among
all modes of transport, road transport has a major role
both in terms of job creation and contribution to gross
value added
Roads & high ways and railways are the two transport
ferent modes of transport it is the land transport that
contributes to employment while the share of the other
two modes of transport i.e. water and air is almost insig-
nificant. (Table-1)
In Section-II of Table-1 at the four digit NIC classification
it is noticed that the significant employment generators
are the road transport as compared to the rail trans-
port. Among road transport the two major generators
of employment is the private modes of transport such
as taxis, autos etc (NIC Code 4922) and freight trans-
port by road (NIC Code 4923) where the workforce par-
ticipation rate was 1.62 percent and 1.35 percent respec-
tively in 2011-12.
sectors highlighted under the Make in India initiative.
Indian Railways is the largest carrier of passenger traffic
and the fourth largest rail freight carrier in the world.
But within the country it is the road transport that over-
takes railways in the movement of freight which is an
indicator of the network of road transport in movement
of freight across the length and breadth of the country.
Despite this the road transport is highly disintegrated
and heterogeneous. Apart from the organized public
transport system such as buses and metros or trams
there are many different types of private road trans-
port such as buses, vans, taxis, auto-rickshaws, tempos,
lorries/trucks, cycle rickshaws, bullock carts, pull carts,
battery operated vehicles etc which account for bulk
1
CSO, MOSPI

21
SECTOR IN FOCUS
SEP-OCT 2015
of the freight and passenger movement. These set of
road transport is largely in the unorganized sector. The
owners are single owners or entrepreneurs and mostly
family based.
Under the Make in India programme on roads & high
ways the focus is on construction of national highways
and rural roads under the Prime Minister’s Gram Sadak
Yojana and Construction of Rural Road Project. The em-
ployment potential is therefore mainly for the construc-
tion workers engaged in the building of the roads and
highways.
But we also need to look at the human manpower be-
hind the wheels on the road. Majority of the freight
movement today is by road and carried by private driv-
ers who drive trucks/lorries or vans/tempos. These
drivers are largely unorganized; do not have any fixed
working hours, benefit of minimum wages, defined rest
period or social security coverage etc. Though the Mo-
tor Vehicles Act, 1988 defines the hours of work for driv-
ers the unorganized sector drivers remain outside its
purview. On the other hand these drivers are penalized
under the Motor Vehicles Act, 1988 in the name of vio-
lating the various provisions of the Act. Of late the Delhi
Government is also planning to impose pollution tax on
the truck drivers to contain the high level of air pollu-
tion in the capital. They pay the penalties or bribes to
evade penalty as to run the vehicles on the road is their
livelihood. But it only eats into their margins and right
to decent living. Being from the unorganized sector
majority are low educated and learn the skill of driving
while on the job. The freight that is being transported
is a public good but the truck and other freight carriers
are being penalized as if they are carrying private goods
in their personal interest. Among the causes of road ac-
cident identified the fault of the driver stands at 77.5
percent while the other causes such as defect of the ve-
hicle accounted for 1.6 percent, defect in road condition
1.5 percent2
. A greater proportion of these accidents
happen in roads other than national or state highways
which indicate that there could be other externalities in
the cause of accidents.
We need a change in strategy. Why not tax the auto-
mobile manufacturers for not producing pollution com-
pliant vehicles? Why not penalize the wholesalers or
contractors or manufacturing units for not using the
services of a skilled and certified truck or lorry driver or
for overloading? Why not fine the PWD for not keeping
the roads in good condition?
Road transport is one of the important employment
generating sectors especially in the rural areas and con-
certed efforts needs to be taken to promote employ-
ment in this sector. A policy stand needs to be taken to
look at the users of the road i.e the drivers and proper
rules for their working, defined wages, social security
etc need to be introduced so that more and more youth
are attracted to the sector. And to top it all skill devel-
opment of the drivers is essential to teach them the
best practices of safe driving, healthy and pollution free
maintenance of vehicles etc.
The currently prevailing Motor Vehicles Act, 1988 only
talks of issuing license and registration of motor ve-
hicles, penalties etc. A new legislation viz; the Road
Transport and Safety Bill 2015 is being debated which
is a much more comprehensive legislation which em-
phasize on bringing in road safety practices through
regulation, which involves extending its authority even
to the design of motor vehicles, construction of roads,
fuel quality and emission norms etc. This Bill lays down
the competency standards that have to be cleared for
issue of a driving license which is considered as a wel-
come move for upgrading the status of the driving
profession. We may have qualified and skilled drivers
driving passenger and transport vehicles which in turn
can reduce the incidence of over speeding, over-loading
and better adherence to traffic rules. Respectability to
the profession would encourage more youth to choose
driving as a profession which in turn would reduce the
shortage of skilled drivers in the sector. The Road Trans-
port and Safety Bill 2015 is inclusive of the provisions of
the Motor Vehicles Act, 1988 and is set to replace the
MV Act after being cleared by the Parliament.
To conclude, road transport is the nerve of the coun-
try. Apart from building highways and roads we also
need to focus on the betterment of the drivers on these
roads who are rendering a public service through their
livelihood.
2
Ministry of Road Transport & Highways, 2011. (The views expressed are personal)

ECONOMY MATTERS 22
FOCUS OF THE MONTH
State of Competitiveness in India
A
s per World Bank by, 2020, India will be home
to working population of 906 million in need
of jobs to sustain India’s growth, which in turn
demands sustained growth of the manufacturing and
service sectors in India. The challenge ahead, therefore,
is to catalyze increased private investment in India. This
translates into need for an investor-friendly environ-
ment. According to World Bank’s Enterprise Survey,
businesses in India rank corruption as number one con-
straint to growth, ahead of factors like electricity, ac-
cess to finance and access to land. India ranks 130 out
of 189 economies in World Bank’s Doing Business 2016
report. The World Economic Forum’s Global Competi-
tiveness Report ranks India as 55 out of 144 economies.
The growth of business in India requires concerted
action on several fronts – infrastructure, capital mar-
kets, trade facilitation and skills - but the stark reality
is that India remains a difficult place to do business. A
disproportionately high regulatory burden is borne by
businesses. In December, 2014, at the “Make In India”
workshop, state governments agreed to a 98-point ac-
tion plan for business reforms to all States and UTs aim-
ing to lay out the first of a series of recommendations
targeted at increasing transparency and improving the
efficiency and effectiveness of various government reg-
ulatory functions and services for business. Many states
have already embarked on ambitious reform programs
or expanded their ongoing reform efforts since the an-
nouncement. However, on average, only 32 per cent of
the proposed reforms have been implemented across
the country. It is important to ensure that reforms are
actually being felt by the beneficiaries, the private sec-
tor. It is critical that these reforms be properly commu-
nicated, monitored and evaluated, to ensure that the
impact of the reforms are being felt on the ground.
In this month’s Focus of the Month, we analyze the
three recently released reports, which evaluate the
state of competitiveness and doing business in India .

23
FOCUS OF THE MONTH
SEP-OCT 2015
Assessment of State Implementation of Business
Reforms : DIPP & World Bank
In December 2014, states agreed to a 98-point action
plan to suggest potential reforms to improve the regu-
latory framework for business nationwide. This assess-
ment by the Department of Industrial Policy and Promo-
tion aims to take stock of the progress made by each
state and Union Territory. The article evaluates imple-
mentation status of reforms across the following eight
areas: Setting up a business; Allotment of land and ob-
States have been divided into 4 groups. Those with an
overall implementation status of 75 per cent and above
have been termed as ‘Leaders’ and no states had at-
tained this status. States with an overall implementa-
taining construction permit; Complying with environ-
ment procedures; Complying with labour regulations;
Obtaining infrastructure related utilities; Registering
and complying with tax procedures; Carrying out in-
spections; Enforcing contracts.
The implementation status of each state has been con-
verted to a percentage, and, ranked as below.
tion status between 50 per cent and 75 per cent are
‘Aspiring Leaders’. 7 states were found to be within
this group - Andhra Pradesh, Chhattisgarh, Gujarat,
Jharkhand, Madhya Pradesh, Odisha and Rajasthan.
#
In Collboration with CII, FICCI & KPMG

ECONOMY MATTERS 24
FOCUS OF THE MONTH
States with an overall implementation status between
25 per cent and 50 per cent have been classified under
‘Acceleration Required’. 9 states were found to be with-
States with an overall implementation status between
0 per cent and 25 per cent. 16 states were found to be
within the group – ‘Jump Start Needed’ - Andaman and
Nicobar, Arunachal Pradesh, Assam, Bihar, Chandigarh,
in this group - Delhi, Haryana, Karnataka, Maharashtra,
Punjab, Tamil Nadu, Telangana, Uttar Pradesh and West
Bengal
Goa, Himachal Pradesh, Jammu and Kashmir, Kerala,
Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim,
Tripura and Uttarakhand.

25
FOCUS OF THE MONTH
SEP-OCT 2015
States have made good progress in terms of tax re-
forms. 29 states allow VAT to be paid online, and 28
states allow CST to be paid online. 30 states allow e-fil-
ing of VAT, 27 states allow e-filing of CST. 21 states have
established helplines for users. 25 states have defined
timelines for VAT registration, and 21 have defined time-
lines for CST registration.
Online filing and payment of VAT and CST seem to be
popular reforms implemented in a vast majority of
states. These are joined by clear timelines for building
plan approval and construction permits, VAT registra-
29 states are yet to begin implementing electronic
courts. On average, 26 states are yet to introduce re-
forms along a wide range of labour inspections under
various acts, or on inspections related to building per-
Construction Permits and land allotment procedures
take up the fourth and fifth spots respectively. 28 states
have defined clear timelines for granting construction
permits, and 19 states issue a single completion-cum-
occupancy certificate. 16 states have identified clear
timelines for change in land use approvals.
tion and electricity connection. Majority of states have
established dedicated single windows, backed by legis-
lation or state notifications to establish and empower
them.
mits. 25 states on average lack online availability of
information on land banks, and use of GIS systems to
track industrial land parcels.

ECONOMY MATTERS 26
FOCUS OF THE MONTH
No state has been able to demonstrate a fully compre-
hensive list of all licenses, NOCs and registrations re-
quired by a business to set up and operate. Similarly, no
state has focused on integrating data at sub-registrar,
municipality and land records offices comprehensively
to provide a sense of conclusive title on each property.
Mutation is also not integrated with registration in most
states. On the inspections front, no state allows for
all compliance inspections to be solely based on com-
plaints with approval from the Head of Department.
There is scope for improvement in how inspections are
administered in all states.

27
FOCUS OF THE MONTH
SEP-OCT 2015
20 states have comprehensive details of land banks
available. Andhra Pradesh, Chhattisgarh, Goa, Haryana,
Kerala, Madhya Pradesh, Maharashtra, Odisha, Ra-
jasthan and Tamil Nadu define the criteria used in land
allocation and make this information available online,
while providing clarity on the timelines involved in de-
ciding on applications. 28 states and UTs have defined
clear timelines for construction permitting. AutoCAD
based online verification of building plans is currently
practiced in 8 states. Single or joint inspections are
the norm in Arunachal Pradesh, Goa, Jharkhand, Mad-
hya Pradesh, Maharashtra and West Bengal. Andhra
Pradesh and Madhya Pradesh are the only states where
the building plan approval process features all param-
eters. Gujarat and Maharashtra lack downloadable and
verifiable certificates.
Integration of the three databases - sub-registrar, land
records office, local municipality office is still not preva-
lent. Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Har-
yana, Madhya Pradesh, Orissa, Tamil Nadu, Telangana
and West Bengal have digitized former two offices. In
Maharashtra and Rajasthan, all three offices are digi-
tized. Currently, no state has fully integrated mutation
with property registration processes.
Only 8 states have thus far implemented centralized
help lines that meet these criteria – of which 4 are from
the 7 member Aspiring Leaders group. A single window
system exists in all 7 of the Aspiring Leader states, and
it is backed by a legislation or notification in all of them.
24 states have single window systems operational, all
of which are notified by law. Punjab is the only state
in which the single window system allows application
for all of the licenses studied in this assessment. While
many, including 6 of the 7 Aspiring Leaders, have imple-
mented common application forms thus far, only a total
of 6 states have converted their single window system
into truly effective online portals - Andhra Pradesh,
Madhya Pradesh, Maharashtra, Punjab, Telangana and
Uttar Pradesh.
Only 3 states – Odisha, Rajasthan and West Bengal – is-
sue a single Tax ID to cover all state taxes. Gujarat, Mad-
hya Pradesh and West Bengal mandate the issuance of
both registrations in a single day. Chhattisgarh, Delhi
and Uttar Pradesh also mandate VAT registrations in
a single day, but Professional Tax is not applicable in
these states.

ECONOMY MATTERS 28
FOCUS OF THE MONTH
12 states and UTs differentiate their inspection
requirements by category of industry. All Aspiring
Leaders except Odisha exempt green industries from
Pollution Control Board clearance prior to business
startup. Punjab, Maharashtra, West Bengal, Uttar
Pradesh and Telangana also do the same. Currently,
only Gujarat, Rajasthan and Odisha offer all three
facilities simultaneously: they allow for auto renewal
for both environmental Consents on the basis of self- or
third-party certification, and their Consents to Operate
are valid for 5 or more years. Andhra Pradesh allows
for auto-renewal, but does not offer extended validity.
West Bengal and Madhya Pradesh allow for auto-
renewal of CTEs only.
16 states, including all 7 Aspiring Leaders, allow for
self-certification under the Minimum Wages Act, 1948,
the Shops and Establishment Act and the Payment of
Wages Act, 1936. 14 and 13 states respectively allow self-
certification under Factories Act, 1948 and Contract
Labour (Regulation and Abolition) Act, 1970. However,
only 7 state and UTs allow for self-certification under
Indian Boiler Act.
When it comes to the 7 Labour Department
registrations, on average 11 of the assessed states offer
14 states have published detailed information on the
process, documentation and checklists for applications
for Hazardous Waste authorizations and CTEs &
CTOs under the Water Act and Air Act. Only 10 states
have published detailed information on the process,
documentation and checklists for applications for
Municipal Solid Waste authorizations. Gujarat Pollution
Control Board adopted a web based application called
eXtended Green Node (XGN) to provide an IT solution
for effective implementation of various pollution
control board procedures. XGN provides hassle free,
24 X 7 anywhere e-access to businesses to apply online,
track application approvals, file returns and statements
and getting online permissions under various Acts and
rules.
clear procedures with checklists of detailed documents
across all 7 Labour Department registrations studied
above. 17 states on average offer clear timelines for
all processes, while an average of 7 have fully online
systems for application and payment. However, only an
average of 2 states offer downloadable and verifiable
certificates. Jharkhand’s Labour Department is the only
oneinthecountrytoscore100percentonallparameters
across all 7 processes. Andhra Pradesh provides clear
information, timelines and online solutions, but lack
downloadable and verifiable certificates.

29
FOCUS OF THE MONTH
SEP-OCT 2015
Nearly 81 per cent of the states and UTs have clearly
defined timelines for connection of the electricity,
compared to 44 per cent and 34 per cent for water and
sewer connections. Andhra Pradesh, Goa, Haryana,
Kerala, Maharashtra, Punjab, Telangana and West
Bengal are the only states that have defined timelines
for all three utilities.
Only 11 states and UTs feature online applications for
obtaining electricity connections, while 11 states offer
14 states and UTs have mandated e-registration for
VAT, but only 11 for CST. All states except Arunachal
Pradesh and A&N Islands allow online filing of VAT
returns. Karnataka and Madhya Pradesh are the only
states that allow online filing of returns for all six state
taxes - Value Added Tax (VAT), Central Sales Tax (CST),
Professional Tax, Entry Tax Entertainment Tax, and
Luxury Tax. Andhra Pradesh, Jharkhand, Chhattisgarh,
Goa, Karnataka, Madhya Pradesh, Maharashtra, Odisha,
Rajasthan, Uttar Pradesh and West Bengal allow online
payment for all state taxes that are applicable in the
state.
all-inclusive fixed cost estimates for connections. Only
Madhya Pradesh scored positively on all parameters
assessed. There has been very little progress on
reducing the number of documents to two – only
Assam, Chandigarh, Madhya Pradesh, Tamil Nadu and
Uttar Pradesh require 2 documents. Assam, Delhi,
Gujarat, Karnataka, Madhya Pradesh and Maharashtra
are the only states that mandate that connections will
be given within fifteen days.
21 out of 32 states and UTs – including all 7 Aspiring
Leaders and 6 of the 9 Acceleration Required states –
offer a helpline for returns filing. 18 states also provide
assistance at service centers. 18 states have provisions
for risk-based compliance inspections. Only Karnataka’s
state tax registration systems score positively on all
parameters across all six state registration processes
assessed. Himachal Pradesh and Gujarat score positively
on all parameters of four registrations processes. On
average, 10 states offer clear information on the tax
registration procedures, 15 feature defined timelines,
and 9 have fully online registration systems, while 7
allow for downloadable certificates.

ECONOMY MATTERS 30
FOCUS OF THE MONTH
No state has yet implemented the provision for all
compliance inspections across the state. Gujarat,
Haryana, Jharkhand, Madhya Pradesh, Rajasthan,
Tamil Nadu and West Bengal have introduced single
joint inspection. On average, only 5 states publish well-
defined procedures, 11 states mandate the submission
of inspection reports within 72 hours, 5 states allocate
inspectors online, and only 3 use computerized risk
13 states have thus far introduced e-cause lists for
commercialdisputesattheDistrictCourtlevel;however,
progress on other parameters has been weak. E-filing is
not yet in practice in any state in India. Madhya Pradesh
has enabled e-summons, Maharashtra allows online
payment of court fees, and Sikkim has introduced
digitally signed court orders.
20 states have begun to recruit judges to fill the district
assessment.
Chhattisgarh, Jharkhand and Rajasthan feature
inspections that meet all criteria of assessment under
The Factories Act, 1948. Gujarat also has a robust
process, but lacks computerized risk assessment.
Maharashtra’s process would benefit from improving
the available information on the procedure.
courts. Only 8 – Andaman and Nicobar, Chandigarh,
Chhattisgarh, Madhya Pradesh, Maharashtra, Sikkim,
Tamil Nadu and Telangana – have filled 80 per cent of
the vacancies in the court. Unfortunately, only 2 states
– Delhi and Maharashtra – have introduced specialized
commercial courts, and only Gujarat has made available
model contract templates and guidelines on the
department website.

31
FOCUS OF THE MONTH
SEP-OCT 2015

ECONOMY MATTERS 32
FOCUS OF THE MONTH
It is encouraging to note that many states have
responded eagerly to DIPP’s 98-point action plan with
ambitious reform initiatives. Further, the best way to
ensure reform is being felt is to engage the private
sector throughout the reform process.
Many reforms that have been implemented are very
recent. To ensure that the private sector is aware, it is
recommended that states undertake communications
campaigns to inform businesses and increase usage
and uptake of the reformed services. This will also
allow businesses to test the effectiveness of the
measures and incentivize them to report on problems.
Implementation gaps may exist in various forms.
Feedback loops may therefore be critical in reducing
information asymmetry, and helping governments
bridge the implementation gaps.
States should capitalize on its satisfied users to engage
into a series of structured public-private dialogues to
understand the constraints facing business, and to
explore ways to alleviate these constraints. Effective
dialogue can help identify more second-generation
reforms, and more importantly it can communicate to
business that the government is ready to facilitate their
investments.

33
FOCUS OF THE MONTH
SEP-OCT 2015
Doing Business 2016: World Bank Report
A
ccording to the Doing Business 2016 study,
published by the World Bank Group, Singapore
continues to be the economy with the most
business-friendly regulation. And while there was some
reordering of economies within the top 20 in the ease
of doing business ranking, the list remains very similar
to last year’s: 18 economies stayed on the list, while 2
entered this year (Lithuania and the former Yugoslav
Republic of Macedonia) and 2 were nudged out (Geor-
gia and Switzerland).
Economies in the top 20 continued to improve their
business regulatory environment in the past year. For
example, Hong Kong SAR, China, made four regulatory
reforms in the areas measured by Doing Business. One
was implemented at the Companies Registry, which
also serves as the main collateral registry for movable
property. The registry launched a full-scale electronic fil-
ing service on March 3, 2015, and now security interests
can be registered, amended, renewed and canceled
online. New Zealand provides another example: Vec-
tor, the electricity distribution utility, cut six days from
the time needed to provide external connection works
to customers. The 20 economies at the top of the ease
of doing business ranking perform well not only on the
Doing Business indicators but also in international data
sets capturing other dimensions of competitiveness.
The economies performing best in the Doing Business
rankings therefore are not those with no regulation
but those whose governments have managed to cre-
ate rules that facilitate interactions in the marketplace
without needlessly hindering the development of the
private sector.
Moreover, even outside the top 20 economies there is a
strong association between performance in the ease of
doing business ranking and performance on measures
of competitiveness and of quality of government and
governance. Economies that rank well on the ease of
doing business also score well on such measures as the
Global Competitiveness Index and Transparency Inter-
national’s Corruption Perceptions Index. The distance
to frontier scores underlying the ease of doing business
rankings reveal some regional patterns. OECD high-in-
come economies have the highest distance to frontier
scores on average, indicating that this regional group
has the most business-friendly regulation overall. But
good practices in business regulation can be found in
almost all regions. In six of the seven regions the high-
est distance to frontier score is above 70. The difference
between the best and worst scores in a region can be
substantial, however, especially in Sub-Saharan Africa,
the Middle East and North Africa and East Asia and the
Pacific.
Doing Business 2016, by the World Bank Group, sheds
light on how easy or difficult it is for a local entrepre-
neur to open and run a small to medium-size business
when complying with relevant regulations. It measures
and tracks changes in regulations affecting 10 areas in
the life cycle of a business: starting a business, dealing
with construction permits, getting electricity, register-
ing property, getting credit, protecting minority inves-
tors, paying taxes, trading across borders, enforcing
contracts and resolving insolvency.
The ease of doing business ranking compares econo-
mies with one another; the distance to frontier score
benchmarks economies with respect to regulatory best
practice, showing the absolute distance to the best per-
formance on each Doing Business indicator. When com-
pared across years, the distance to frontier score shows
how much the regulatory environment for local entre-
preneurs in an economy has changed over time in abso-
lute terms, while the ease of doing business ranking can
show only how much the regulatory environment has
changed relative to that in other economies.
India is the South Asian economy recording the biggest
increase in the distance to frontier (DTF) score since
2004. One of the areas of greatest improvement has
been starting a business. In 2004 India cut time from the
process for obtaining a permanent account number (an
identification number for firms), and in 2006 it speeded
up the process for obtaining a tax registration number.
In 2010 India established an online system for value
added tax registration and replaced the physical stamp
previously required with an online version. And in the

ECONOMY MATTERS 34
FOCUS OF THE MONTH
India jumped up four places while improving DTF by 2.01
per cent. While it used to take monumental 127 days in
2004 to set up a business, it now takes a swooping mere
29 days in 2015. India ranks closely, only two places be-
hind, the regional average for South Asia. While it still
lags much farther behind the double digit rank of China,
it is certainly taking baby steps in the right direction. In
past year India eliminated the paid-in minimum capital
requirement and streamlined the process for starting a
business. More reforms are ongoing—in starting a busi-
India achieved a single digit rank in one of the 10 are-
as - protecting minority investors, standing 8th. It has
been ranked 42 and 70 respectively in getting credits
and getting electricity. However, it has ranked rather
poorly in enforcing contracts, where it stood 178th, and
2014 the government of India launched an ambitious
program of regulatory reform aimed at making it easier
to do business. Spanning a range of areas measured by
Doing Business, the program represents a great deal of
effort to create a more business-friendly environment,
particularly in Delhi and Mumbai.
ness and other areas measured by Doing Business—
though the full effects have yet to be felt.
in dealing with construction permits, where it figures in
the bottom seven countries. In the spheres of starting
a business, registering property, getting credit, paying
taxes, trading across borders, and resolving insolvency
too it does not figure in the top 100 countries.

35
FOCUS OF THE MONTH
SEP-OCT 2015
India ranks 155 in starting a business as compared to
164th position a year ago. China currently ranks 136. The
regional average for South Asia is ranked at 96. It takes
12.9 procedures and 29 days to set up a business as com-
pared to 13.9 procedures and 34 days a year ago. China
currently requires 11 procedures and 31.4 days. The cost
as per cent of income per capita stands at 13.5 per cent
in India currently, down by 1.8 percentage points from
a year ago. For China, it’s a meagre 0.7 per cent. In deal-
ing with construction permits, India has been ranked
at 183rd position this year, one up from last year. China
stands at 176th. The regional average for South Asia is
ranked at 103. While China requires less procedures,
it takes considerably more time, yet manages to gain
an advantage since the cost as a percentage of ware-
house value is a fraction of the figures for India. India
has a better building quality control index than China.
In getting electricity, India has improved significantly
this year, jumping from 99th to 70th position this year
and beating China which is currently at 92nd spot. The
regional average for South Asia is ranked at 122. In get-
ting credit, India worsened its performance ranking at
the 42nd position as compared to 36th last year. The re-
gional average for South Asia is ranked at 105.

ECONOMY MATTERS 36
SECTOR IN FOCUS
One important focus is to make starting a business eas-
ier. In May 2015 the government adopted amendments
to the Companies Act that eliminated the minimum cap-
ital requirement. Now Indian entrepreneurs no longer
need to deposit 100,000 Indian rupees ($1,629)—equiv-
alent to 111 per cent of income per capita—in order to
start a local limited liability company. The amendments
also ended the requirement to obtain a certificate to
commence business operations, saving business found-
ers an unnecessary step and five days. Several other ini-
tiatives to simplify the start-up process were still ongo-
ing on June 1, 2015, the cutoff date for this year’s data
collection. These include developing a single application
form for new firms and introducing online registration
for tax identification numbers.
In 2011 India had eased business start-up by establish-
ing an online VAT registration system and replacing the
physical stamp previously required with an online ver-
sion. Further, India made starting a business easier by
considerably reducing the registration fees, but also
made it more difficult by introducing a requirement to
file a declaration before the commencement of busi-
ness operations. These changes apply to both Delhi and
Mumbai. In 2013, India reduced the time required to ob-
tain a building permit by establishing strict time limits
for preconstruction approvals.

37
FOCUS OF THE MONTH
SEP-OCT 2015
Another focus is to make the process for getting a new
electricity connection simpler and faster. Toward that
end the utility in Delhi eliminated an internal wiring
inspection by the Electrical Inspectorate—and now in-
stead of two inspections for the same purpose, there
is only one. The utility also combined the external con-
nection works and the final switching on of electricity in
one procedure.
The utility in Mumbai reduced the procedures and time
for connecting to electricity by improving internal work
processes and coordination. It combined several steps
into one procedure—the inspection and installation of
the meter, the external connection works and the final
connection. Now companies can get connected to the
grid, and get on with their business, 14 days sooner than
before.
Improvements have also been initiated in other areas
measured by Doing Business. To make dealing with con-
struction permits easier, for example, a single-window
system for processing building permit applications is
being started in Mumbai—with the promise of greatly
reducing the associated bureaucratic burden once fully
implemented. And online systems for filing and paying
taxes are being further improved to simplify tax compli-
ance.
India strengthened minority investor protections by
requiring greater disclosure of conflicts of interest by
board members, increasing the remedies available in
case of prejudicial related-party transactions and in-
troducing additional safeguards for shareholders of
privately held companies. This reform applies to both
Delhi and Mumbai.
In 2011, India reduced the administrative burden of
paying taxes by abolishing the fringe benefit tax and
improving electronic payment. In 2012, India eased the
administrative burden of paying taxes for firms by in-
troducing mandatory electronic filing and payment for
value added tax.
While efforts at improving India’s ranking in the Doing
Business Report do cover some of the regulatory issues
pertaining to state governments, much more is required
to be done at state governments’ level to achieve the
vision of making India an easy place to do business. A
majority of the regulatory burden imposed on business
is due to the plethora of laws, rules, regulations and
procedures enforced by the States. This gives rise to a
wide number of registrations, licenses and NOCs that
businesses must obtain and file compliance returns on.
Fostering an environment more supportive of private
sector activity will take time. But if the efforts are sus-
tained over the next several years, they could lead to
substantial benefits for Indian entrepreneurs—along
with potential gains in economic growth and job crea-
tion.

ECONOMY MATTERS 38
FOCUS OF THE MONTH
The Global Competitiveness Report 2015-2016: WEF
A
failure to embrace long-term structural reforms
that boost productivity and free up entrepre-
neurial talent is harming the global economy’s
ability to improve living standards, solve persistently
high unemployment and generate adequate resilience
for future economic downturns, according to The Glob-
al Competitiveness Report 2015-2016, published by the
World Economic Forum.
Assessing the factors driving productivity and prosper-
ity in 140 countries, a correlation has been found be-
tween highly competitive countries and those that have
either withstood the global economic crisis or made a
swift recovery from it. The failure, particularly by emerg-
ing markets, to improve competitiveness since the re-
cession suggests future shocks to the global economy
could have deep and protracted consequences. The re-
port’s Global Competitiveness Index (GCI) also finds a
close link between competitiveness and an economy’s
ability to nurture, attract, leverage and support talent.
The top-ranking countries all fare well in this regard. But
in many countries, too few people have access to high-
quality education and training, and labour markets are
not flexible enough.
First place in the GCI rankings, for the seventh consecu-
tive year, goes to Switzerland. Its strong performance
in all 12 pillars of the index explains its remarkable re-
silience throughout the crisis and subsequent shocks.
Singapore remains in 2nd
place and the United States 3rd
.
Germany improves by one place to 4th and the Nether-
lands returns to the 5th place it held three years ago.
Japan (6th
) and Hong Kong SAR (7th
) follow, both stable.
Finland falls to 8th
place – its lowest position ever – fol-
lowed by Sweden (9th
). The United Kingdom rounds up
the top 10 of the most competitive economies in the
world.
In Europe, Spain, Italy, Portugal and France have made
significant strides in bolstering competitiveness. Thanks
to reform packages aimed at improving the functioning
of markets, Spain (33rd
) and Italy (43rd
) climb two and
six places respectively. Similar improvements in the
product and labour market in France (22nd
) and Portugal
(38th
) are outweighed by a weakening performance in
other areas. Greece stays in 81st
place this year, based
on data collected prior to the bailout in June. Access to
finance remains a common threat to all economies and
is the region’s greatest impediment to unlocking invest-
ment.
Among the larger emerging markets, the trend is for
the most part one of decline or stagnation. However,
there are bright spots: India ends five years of decline
with a spectacular 16-place jump to 55th
. South Africa
re-enters the top 50, progressing seven places to 49th.
Elsewhere, macroeconomic instability and loss of trust
in public institutions drag down Turkey (51st
), as well as
Brazil (75th
), which posts one of the largest falls. China,
holding steady at 28, remains by far the most competi-
tive of this group of economies. However, its lack of
progress moving up the ranking shows the challenges
it faces in transitioning its economy.
Among emerging and developing Asian economies, the
competitiveness trends are mostly positive, despite the
many challenges and profound intra-regional dispari-
ties. While China and most of the South-East Asian coun-
tries performing well, the South Asian countries and
Mongolia (104th
) continue to lag behind. The five largest
members of the Association of Southeast Asian Nations
(ASEAN) – Malaysia (18th
, up two), Thailand (32nd
, down
one), Indonesia (37th
, down three), the Philippines (47th
,
up five) and Vietnam (56th
, up 12) – all rank in the top
half of the overall GCI rankings.
The end of the commodity super cycle has strongly af-
fected Latin America and the Caribbean, and is already
having repercussions on growth in the region. Greater
resilience against future economic shocks will require
further reform and investment in infrastructure, skills
and innovation. Chile (35th
) continues to lead the region-
al rankings and is closely followed by Panama (50t
h) and
Costa Rica (52nd
). Two large economies in the region,
Colombia and Mexico, improve to 61st and 57th
, respec-
tively.
It’s a mixed picture in the Middle East and North Africa.

39
FOCUS OF THE MONTH
SEP-OCT 2015
Qatar (14th
) leads the region, ahead of the United Arab
Emirates (17th
), although it remains more at risk than
its neighbour to continued low energy prices, as its
economy is less diversified. These strong performances
contrast starkly with countries in North Africa, where
the highest placed country is Morocco (72nd
), and the
Levant, which is led by Jordan (64th
). With geopolitical
conflict and terrorism threatening to take an even big-
ger toll, countries in the region must focus on reform-
ing the business environment and strengthening the
private sector.
Sub-Saharan Africa continues to grow close to 5 per
cent, but competitiveness and productivity remain
low. This is something countries in the region will have
to work on, especially as they face volatile commodity
prices, closer scrutiny from international investors and
population growth. Mauritius remains the region’s most
competitive economy (46th
), closely followed by South
Africa (49th
) and Rwanda (58th
). Côte d’Ivoire (91st
) and
Ethiopia (109th
) excel as this year’s largest improvers in
the region overall.
India
India ranked 55th in the Global Competitiveness Index,
an improvement by 16 positions since last year nd the
best position in last four years. It scored 4.3 on a scale
of 1-7, 7 being the best, a marginal improvement over
last year.

ECONOMY MATTERS 40
FOCUS OF THE MONTH
An increase in score in institutions sphere led to an
improved rank. Public institutions contributed posi-
tively to the improvement led by intellectual property
protection (50th
rank) even as property rights area
contributed negatively. Enhancement was seen in the
ethics and corruption area (38th
rank) as the situation
of diversion of public funds (40th
rank), public trust in
politicians (31st
rank) and irregular payments and bribes
showed an improvement. Score in undue influence area
improved as the favoritism in decisions of government
officials reduced (32nd
rank). Public sector performance
(41st
rank) improved as wasteful government spending
dropped, burden of government regulation decreased
(27th
rank), efficiency of legal framework in settling dis-
putes increased and there was more transparency in
policy making. Costs related to terrorism and crime saw
a surge. Private institutions also contributed positively
(48th
rank). Scores in ethics and accountability saw an
improvement led by strength of auditing and reporting
standards, efficacy of corporate boards and strength of
investor protection. In fact, India stood 6th in investor
protection.

41
FOCUS OF THE MONTH
SEP-OCT 2015
Transport infrastructure saw a moderate fluctuation
(32nd
rank). Quality of roads and port improved while
that of railroad and air transport deteriorated. India
scored poorly in electricity and telephone infrastruc-
ture (115th
rank). The quality of electricity supply stands
India stood at the 23rd
position when it comes to gross
national savings as a percentage of GDP, which stands
at 30 per cent. The government debt as a percentage
at 3.7 (98th
rank) on a scale of 1-7, 7 being the best. There
are 74.5 mobile-cellular telephone subscription per 100
population (121st
rank) and 2.1 fixed-telephone lines per
100 population (116th
rank).
of GDP stood at 65 per cent, (103rd rank) lowest over
last four years. Inflation stood at 6 per cent (105th rank).
Government budget balance as a percentage of GDP
stood at a negative rate of 7.2 per cent (131st
rank).

ECONOMY MATTERS 42
FOCUS OF THE MONTH
In higher education and training, India scored 3.4 on the
1-7 scale and stood 103rd in quantity of education and
India scored 4.2 in competition standing 108th. In ex-
tent of market dominance, effectiveness of anti-mo-
nopoly policy and effect of taxation on incentives to
invest, it stood 41st
, 41st
and 38th
respectively. It ranked
poorly in domestic competition intensity of local com-
petition, total tax rate, number of days and time to set
up a business. In agriculture policy costs it stood t 53rd
spot. It scored poorly in foreign competition standing
India scored 4.5 on a 1-7 scale and ranked 58th
in flex-
ibility. It ranked 86th
in cooperation in labor-employer
relations, 120th
in flexibility of wage determination and
67th
in quality of education. It ranked 56th
in on-the-job
training and 48th in extent of staff training.
at 112th
rank. It ranked 82nd in non-tariff barriers, 124th
in trade tariffs (12.7% duty), 96th
in prevalence of foreign
ownership, 92nd in business impact of FDI and 116th
in
imports as percentage of GDP (29.8 per cent). It scored
somewhat better in custom procedures standing at 54th
position. It ranked 52nd
in quality of demand conditions,
97th
in degree of customer orientation and 26th
in buyer
sophistication.
70th
in redundancy costs. It ranked better in other areas
like 25th
in hiring and firing practices and 36th
in effect
of taxation on incentives to work. It ranked poorly in ef-

43
FOCUS OF THE MONTH
SEP-OCT 2015
ficient use of talent, standing at 119th position. It stood
at 47th
spot in pay and productivity, 86th
in reliance on
India scored 4.0 on a 1-7 scale and ranked 41st
in effi-
ciency. It rnked 81st
in availability of financial services,
71st
in affordability of financial services, 45th
in financing
through local equity market, 29th
in ease of access to
India scored poorly in all parameters in this pillar. It
ranked 102nd in technological adoption, 108th in avail-
ability of latest technologies, 102nd in firm level technol-
professional management, 40th
in capacity to attract
and retain talent and 132nd
in female participation in la-
bor force.
loans, 70th
in trustworthiness and confidence, 100th in
soundness of banks, 69th
in regulation of securities ex-
changes and 44th in legal rights index. It scored a hearty
13th
in venture capital availability.
ogy absorption, 95th in FDI and technology transfer,
121st in ICT use and 107th in internet users (18 per cent
of population).

ECONOMY MATTERS 44
FOCUS OF THE MONTH
This was one pillar where India scored well, but this is
largely result of natural factors given the huge popu-
lation base of India as against policy initiatives. India
India ranked decently in this pillar. It stood 54th
in local
supplier quantity, 66th
in local supplier quality, 29th in
state of cluster development, 47th
in nature of competi-
scored 6.4 on a 1-7 scale and was ranked 3rd in domestic
market size. It scored 6.5 in foreign market size and was
ranked at 3rd
spot. Exports as percentage of GDP stood
at 23.3 per cent, ranking the country at 114th
place.
tive advantage 29th
in value chain breadth, 48th
in con-
trol of international distribution, 61st
in production pro-
cess sophistication, 82nd
in extent of marketing and 56th
in willingness to delegate authority.

45
FOCUS OF THE MONTH
SEP-OCT 2015
India scored decently in this pillar as well. It ranked 50th
in capacity for innovation, 45th in quality of scientific
research institutions, 31st in company spending on re-
search and development, 50th in university–industry
collaboration, 26th
in government procurement of ad-
vanced technology products, 49th
in availability of scien-
tists and engineers and 61st in PCT patent applications.
After five years of decline, India has jumped 16 ranks to
55th
place. This dramatic reversal is largely attributable
to the momentum initiated by the election of Narendra
Modi, whose pro-business, pro-growth, and anti-cor-
ruption stance has improved the business community’s
sentiment toward the government. The quality of In-
dia’s institutions is judged more favorably (60th
, up 10),
although business leaders still consider corruption to be
the biggest obstacle to doing business in the country.
India’s performance in the macroeconomic stability pil-
lar has improved, although the situation remains worri-
some (91st
, up 10). Thanks to lower commodity prices,
inflation eased to 6 per cent in 2014, down from near
double-digit levels the previous year. The government
budget deficit has gradually dropped since its 2008
peak, although it still amounted to 7 per cent of GDP
in 2014, one of the world’s highest (131st
). Infrastructure
has improved (81st
, up six) but remains a major growth
bottleneck—electricity in particular. The fact that the
most notable improvements are in the basic drivers of
competitiveness bodes well for the future, especially
the development of the manufacturing sector. But oth-
er areas also deserve attention, including technological
readiness: India remains one of the least digitally con-
nected countries in the world (120th
, up one). Fewer
than one in five Indians access the Internet on a regular
basis, and fewer than two in five are estimated to own
even a basic cell phone.

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47
ECONOMY MONITOR
SEP-OCT 2015

ECONOMY MATTERS 48
ECONOMY MONITOR

49
ECONOMY MONITOR
SEP-OCT 2015

Economy Matters: State of Competitiveness in India

Economy Matters: State of Competitiveness in India

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