report of the working group on usd five trillion indian ... · 10.2 per cent, the overall growth...

Report of the Working Group on USD Five trillion Indian Economy

Table of contents

Sr No Content Page No

I Context 1

II Structure of Economy and Emerging Dynamics 3

III Approach of the Working Group 4

IV USD 1 Trillion from Agriculture and Allied Activities 4

V USD 1 Trillion from Manufacturing 7

VI USD 3 Trillion Services 15

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CONTEXT

1. India is one of the fastest growing major economies and is currently ranked as the world’s

sixth largest economy. India’s commitment to fiscal discipline, sound external position,

unprecedented foreign direct investment (FDI) inflows, comprehensive structural reforms,

efficient delivery of services through the India stack and enhanced emphasis on social

protection and financial inclusion have provided a robust framework for sustaining strong

and inclusive growth going forward. India’s performance in the Doing Business Ranking,

Global Competitiveness Index, Logistics Performance Index and Global Innovation Index

are all positive and encouraging.

2. There are several underlying strengths that are indicative of the latent potential of the

economy. India is currently bestowed with a “youth bulge” – by 2020, the average age in

India will be 29 years. India offers an expanding market with income levels and size of

the middle class increasing. Investments in infrastructure are projected over the medium

term to lead to better connectivity and reduced logistics costs for businesses. State

Governments have been proactive in helping improve business environment. Digital

technology has led to positive disruption in both governance and businesses.

3. The International Monetary Fund projects that India would reach Gross Domestic Product

(GDP at current prices) USD 4.6 trillion in 2023. India’s growth in real terms is expected

to rise from 6.7 per cent in 2017 to 7.3 per cent in 2018 and 7.4 percent in 2019 and move

to 7.7 per cent in the subsequent years upto 20231. According to Morgan Stanley2, India's

GDP could reach USD 6 trillion in 2027 if its digitisation drive succeeds. A PwC Report3

suggests India can become a USD 10 trillion economy in the next 20 years with a

compound annual growth rate of 9 per cent.

4. The GDP (at constant 2011-12 prices) during April-September 2018-19 is estimated at Rs.

67.71 lakh crore (as against Rs. 62.97 lakh crore in April-September 2017-18) showing a

growth rate of 7.6 per cent. The GDP (at current prices) during April-September of 2018-

19 is estimated at Rs. 89.87 lakh crore showing a growth rate of

12.8 per cent over the corresponding period of previous year. Forecast for the immediate

future and the medium term are positive and reflects the optimism that India projects.

5. India’s potential to achieve a USD 5 trillion GDP by 2024-25 is within the realm of

possibility. Government’s efforts towards accelerating growth and development are

ongoing, and there is a sense of dynamism and optimism in the country.

1https://www.imf.org/en/countries/ind?selectedfilters=Article%20IV%20Staff%20Reports#ataglance 2India's Digital Leap: The Multi-Trillion-Dollar Opportunity 3Future of India The Winning Leap, PwC

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6. Sector-wise projections in terms of average annual growth rate and share in GDP are given

in the table below. The projections are made at current prices and the underlying targets

for average annual growth rates are based on the past trend. GDP (at current prices) of Rs.

3,60,00,000 crore in 2024-25 is equivalent to approximately USD 5 trillion at the assumed

exchange rate of Rs. 72/- per USD. In an optimistic scenario, this target may be attained

by fiscal year 2023-24. Within the industry sector, targets are projected for manufacturing

sector only. Projections for the remaining segments of industry, namely, mining,

electricity and construction are not given explicitly in the table. However, it is presumed

that the share of these segments will continue to remain between 12 to 13 per cent of GDP.

Tentative sectoral projection to achieve US$ 5 trillion GDP by 2024-25

Sectors

GDP (in 2017-18) Projected GDP 2024-25 Value at current prices (Rs in crore)

Share in

GDP

Value at current prices (Rs in crore)

Value at current prices

(US$ billion)

Share in

GDP

Required nominal Growth

Rate

GDP 16773145 100 36000000 5000 100 11.7 GVA Agriculture

2594729 17.1 5040000 700 14 10.1

GVA Manufacturing

2530311 16.8 6480000 900

18 14.6

GVA Services 8176002 53.9 19800000 2750 55 13.7 Average exchange rate of 1 US$ = Rs. 72/- has been used for the calculations NB- Mining, Electricity and Construction share assumed to remained constant between 12 to 13 per cent of the GDP.

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A. STRUCTURE OF ECONOMY AND EMERGING DYNAMICS

7. The process of development inter alia resulting in declining share of agriculture in Gross

Value Added (GVA), with increasing share of both secondary and tertiary sectors, has

been witnessed in India too. Larger contribution and faster growth of services sector, has

provided the country with both opportunities and challenges.

8. Currently agriculture and allied sector contributes 17 per cent of GVA in the economy and

is equivalent to USD 402.5 billion4. In the last six years on an average the sector has

grown at 9.6 per cent (nominal growth rate). As per projections, it is expected to grow at

an average growth rate of 10.1 per cent and achieve USD 700 billion size by 2025.

9. Currently manufacturing sector contributes about17 per cent of GVA and is about USD

390 billion in size, accounting for less than 2 per cent of global manufacturing. Growth of

the manufacturing sector has been around 10 per cent (nominal growth rate) in the last six

years. Thus, there is scope for expansion. As per projections, it is expected to grow at 14.6

per cent and achieve USD 900 billion size by 20254.

10. The services sector contributes more than 50 per cent of GVA, 55 per cent of FDI equity

inflows and 30 per cent of India’s exports. The high rate of growth of the services sector

has been pulling up the overall rate of growth of the Indian economy over the last two

decades. During the period 2004-05 to 2010-11, while the services sector grew at

10.2 per cent, the overall growth rate was 8.8 per cent. The share of India’s services

exports in global services exports increased from 1.1 per cent in 2000 to 3.4 per cent in

2016 which is double the share of India’s merchandise exports in global merchandise

exports (1.7 per cent).

11. Industry is being redefined by disruptive forces of technology. The new industrial

revolution or the fourth industrial revolution has begun changing the industrial landscape.

Set of technologies like artificial intelligence, robotics, big data, block chain, built on the

backbone of digitisation, are fast changing manufacturing. Digitisation has also changed

the dynamics of the market with the emergence of innovative business models. The

traditional separation of manufacturing and services is becoming increasingly irrelevant.

The predominant role that services sector plays in the economy today and the emerging

trends emphasise the role that services will play in the future.

4Assuming average exchange rate of Rs 64.46 per USD for 2017-18. Higher if purchasing power parity Re-USD is applied.

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B. APPROACH OF THE WORKING GROUP

12. The effort of this Working Group in the above context, through this report is to provide an

economy wide framework. The Group has adopted the following approach:

i. The Working Group acknowledges ongoing efforts of the government in each of the

sectors and sub sectors and seeks to provide a fresh impetus. Policy recommendations

made for each of the sectors highlight the priorities but are not comprehensive.

The role of the individual sectoral policy/plan is not in any way undermined by the

recommendations of this report.

ii. This report chooses to focus on three specific segments of the economy namely

agriculture and allied activities, manufacturing and services. The aim to attain USD 1

trillion from agriculture, USD 1 trillion from manufacturing and USD 3 trillion from

services emerges from the understanding of the current structure of the economy and

the emerging dynamics.

iii. The Industrial Policy 2018 being drafted proposes to provide an overarching and

sector-agnostic agenda for enterprises of the future. It envisions creating a globally

competitive Indian industry that is modern, sustainable and inclusive. The strategies

include horizontal enablers that promote business enterprises irrespective of their form

and size. Promotion of horizontal enablers such as physical and digital infrastructure,

factor market reforms (land, capital, and labour), education and skilling, investment in

innovation and R&D and improving the ease of doing business are proposed to be

strengthened. Report of the Working Group should be considered complementary to

the proposed industrial policy.

iv. The report presents specific policy recommendations in identified sectors in each of the

three areas. Recommendations included in the report reflect the priorities for

development of the respective sectors.

C. USD 1 TRILLION FROM AGRICULTURE AND ALLIED ACTIVITIES

13. Agriculture sector and rural economy have a significant role not only in ensuring food

security and providing livelihoods but also providing impetus to the growth of industries

and service sectors. The following observations/findings show the gradual structural

change happening in agriculture5:

5 Economic Survey 2017-18

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i. The share of livestock in GVA in agriculture has been rising gradually; the share of the

crop sector in GVA has been on the decline, from 65 per cent in 2011-12 to 60 per cent

in 2015-16. The change is also manifested in farm incomes of households6.

ii. Monoculture remains predominant and crop diversification has not increased across the

country. This has led to decrease in soil health, productivity and declining profitability

for farmers.

iii. Use of mechanical and electrical sources of power has increased overtime and the rate

of adapting farm mechanisation is faster at present.

iv. There is ‘feminisation’ of agriculture sector, due to growing rural to urban migration

by men. Women are playing multiple roles as cultivators, entrepreneurs, and labourers

and are predominant at all levels - production, pre-harvest, post-harvest processing,

packaging, marketing- of the value chain.

v. Increasing value added in the post production phase due to emphasis on reducing post-

harvest losses and expansion of food processing sector.

vi. Increasing frequency of crop loss and yield uncertainty due to droughts/floods and

disease/insect, the impact of these factors heightened as a consequence of climate

change.

14. Agriculture sector has also to contend with the following challenges;

i. Quality seeds and fertilizers – lack of awareness, inadequate access and high cost have

limited the use of these inputs constraining productivity levels far below potential.

ii. Water management – expansion of irrigated area has been slow despite government

efforts over decades and adoption of micro-irrigation is increasing but not adequate to

address the concerns.

iii. Inadequate risk mitigation against crop loss - low coverage of crop insurance

iv. Inadequate credit availability from institutional sources

v. Inadequate market reforms to enable better prices for produce

15. The Government is aiming to reorient policy focus of the agriculture sector from being

production-centric to becoming income-centric. The explicit emphasis on incomes

provides a broader scope along with an implicit emphasis on expanding output of the

sector. It is a good starting point towards achieving the needed expansion of the sector.

The Committee on Doubling Farmers’ Income is conducting extensive analysis and has

come up with thirteen volumes of its report. The Working Group while encouraging the

6http://mofapp.nic.in:8080/economicsurvey/pdf/099-119_Chapter_07_Economic_Survey_2017-18.pdf

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Government to give serious consideration to the recommendations of the Committee

suggests that the following measures need to be implemented on priority.

16. SHORT-TERM MEASURES

i. Private traders account for a disproportionately large share in revenue from the sale of

agricultural produce relative to the services they provide because under the erstwhile

Agriculture Produce Market Committee Act, the auction system in wholesale markets

has been quite opaque. State Governments may be encouraged andincentivised to

reform their respective agricultural marketing systems on the pattern of Model APLM

Act 2017 for enabling better price realisation by the farmers.

ii. Promotion of awareness and extension efforts on identified technologies to improve

and optimise overall input efficiency. Eg. Zero-tillage, system of rice intensification,

mechanisation of specific agricultural operations, integrated pest management,

integrated farming systems.

iii. Allocation of greater resources towards minor and micro irrigation, accounting for the

fact that marginal efficiency of capital is much higher in minor and micro irrigation

than major and medium irrigation systems.

iv. Encourage investments, public and private, to develop integrated cold chain,

warehouses, pack-houses and other integrated agri-logistics systems. Incentivise

private corporate sector participation in these activities.

v. Credit support to individual farmer and clusters channelised towards diversification to

horticulture, high value crops, post-harvest and food processing ventures. Special

attention needs to be paid to the north-eastern, eastern and rainfed State/regions for

augmenting the scope of access to institutional credit.

vi. Strengthen the input delivery mechanism, especially with regard to seeds and

extension services, and enhance the efficiency of public agencies within the existing

institutional set-up.

vii. Rationalisation and targeting of input subsidies towards small and marginal farmers in

the less developed states to trigger growth through increased input use.

viii. Reform land leasing laws to promote land consolidation and contract farming.

ix. Strengthen government’s investments in agriculture by convergence of resources

through various schemes being implemented in different Departments and Ministries.

Eg. utilisation of funds under MGNREGA for the creation of small irrigation facilities

and water harvesting structures.

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17. MEDIUM/ LONG-TERM MEASURES

i. Accelerating the pace of public investment in agriculture and ensure greater efficiency

in capital use. Inter-ministerial coordination to converge public investments by

targeting common outcomes can decrease the Incremental Capital Output Ratio

(ICOR) across States.

ii. Continued emphasis towards agricultural research and extension to improve crop

productivity.

iii. Strengthened linkages with micro, small and medium enterprises (MSMEs)

iv. Efforts to take advantage of India’s comparative advantage in fresh produce and

expand exports of value added/processed foods. For this a more stable trade regime is

recommended.

v. Encourage aggregation and pooling of output from farms and in organising the market

linkages, reducing post-harvest losses as well as optimising transaction costs. Scaling

up post-harvest operations and directly linking them with markets beyond the local

mandi/market.

D. USD 1 TRILLION FROM MANUFACTURING

18. The Working Group suggests a three-pillar strategy to achieve required expansion of the

manufacturing sector output.

i. Focus on existing high impact sectors

ii. Focus on emerging sectors

iii. Focus on MSMEs

19. There is a need for renewed focus on existing high impact sectors. The large labour-

intensive sectors should be the thrust sectors to ensure that the job creation challenge is

met.

20. DEFENCE: India is the third largest military and sixth biggest defence spender in the

world. The defence budget (2018-19) is about Rs 2.95 lakh crore, about 12 per cent of the

total central government expenditure for the year 2018-19. However, India is significantly

dependent on imports (60 per cent of defence-related requirements being met through

imports). India is amongst the largest importers of conventional defence equipment and

spends around 30 per cent of its total defence budget on capital acquisitions. The

following measures are suggested:

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i. Identify key components and systems and encourage global leaders in these

components and systems to set up manufacturing base in India, by offering limited-

period incentives. Ensure incentives result in technology / process transfer.

ii. Where applicable, leverage Government purchases (‘Offset Policy’), particularly for

technology transfer.

iii. Work with engineering/technical colleges and Industrial Training Institutes to ensure

that defence relevant technologies and skills are part of the curriculum.

iv. Forge industry – R&D labs – academia collaborations.

v. Set grand challenges for new concepts, technologies and its adaptation.

vi. Expose companies and R&D labs and academia to latest global technologies in

defence.

vii. Expedite the existing defence corridors in Tamil Nadu and Uttar Pradesh.

viii. Ensure high-quality anchor investors capable of spurring growth of associated

suppliers (including MSMEs). Offer limited period incentives to anchors, if required.

ix. Institute priority-sector funding and encourage long-term funding mechanisms

21. ELECTRONICS: India’s Electronics System, Design & Manufacturing (ESDM) sector is

expected to more than double in 3 years’ time, from USD 100 billion in 2016-17 to USD

228 billion by 2020 7 . Of the total domestic demand for electronics, between

50-60 per cent of the products and 70-80 per cent of the components are imported. It is

expected that nearly 75 per cent of the total domestic demand for electronic goods will be

met through imports by 2020. The following measures are suggested:

i. Earmark clusters including Coastal Economic Zones (CEZs) for electronics, which

will permit greater flexibility in labour laws and other regulations (such as

environment) and provide quicker and easier approvals.

ii. Correct any inverted duty structure in Custom duty and GST rate structures.

iii. Identify specific components and/or systems for integration into global value chains

(GVCs), in consultation with Industry.

iv. Encourage focused Electronics associations or technical experts to create a ‘ready-

reckoner’ of best-in-class efficiency parameters for the identified specific components

and/or systems for integration into GVCs.

v. Offer additional fiscal incentives such as a limited-period tax holiday to players

investing more than an identified threshold of investment.

7https://www.investindia.gov.in/sector/electronic-systems

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vi. Ensure high-quality anchor investors in clusters, capable of spurring growth of

associated suppliers (including MSMEs) and offer limited period incentives to them.

vii. Revise the curriculum of academic / technical institutions and skilling centres, in line

with industry demand and future requirements.

22. AERONAUTICAL: There is high domestic demand. India is now the third largest buyer

of aircrafts. India is expected to take deliveries of 2,100 new planes worth USD 290

billion in the next 20 years, accounting for more than 5 per cent of the total global demand

of 41,030 aircrafts. However, the entire requirement will be largely met through imports.

The following measures are suggested:

i. Strengthen existing clusters by improving flexibility in regulations and incentivise

anchor investors to set up manufacturing bases and facilitate integration with GVCs.

ii. Support measures to develop the Maintenance, Repair and Operations segment.

iii. Support measures to develop the air cargo segment.

iv. Revise the curriculum of academic/technical institutions and skilling centres, in line

with the demands of the sector.

23. AUTO AND AUTO-COMPONENTS:A sizeable industry exists in India, estimated at

USD 93 billion (2016), contributing 7.1 per cent of India’s GDP, and expected to reach

USD 251-283 billion by 20268. Globally, Indian auto industry is the sixth largest by

production. India’s share in exports of auto-components is only 4 per cent and its share in

exports of overall automotive sector is only 0.9 per cent. There is huge scope for further

integration with GVCs. It is also a large employment-generator. It provides direct

employment to 1.5 million people and indirect employment to another 1.5 million. The


i. Work with industry to identify specific components and/or systems for greater

integration into GVCs.

ii. Encourage global leaders for the identified components to set up manufacturing bases

/ facilities in India.

iii. Incentivise players willing to invest more than a threshold in identified areas. Ensure

incentives result in technology / process transfer.

iv. Facilitate setting up of specialised auto design courses, with direct link to the industry

and enhance curriculum of auto engineering / technical institutes accordingly.

8http://www.makeinindia.com/documents/10281/114126/Automotive+Sector+-+Achievement+Report+%281%29.pdf

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v. Explore public private partnership with global auto majors for investments into R&D

for the sector.

24. SPACE: Global space industry is estimated at USD 335 billion (2015). India has

demonstrated capability as a cost-effective, high success-rate player in the sector. The

Indian private sector is also now proving its capability in launch vehicles (e.g., Godrej

Aerospace manufacturing components for PSLV) and satellites (e.g., IRNSS – 1I satellite).

Such capabilities need to be nurtured to scale up. The following measures are suggested:

i. Institute models for technology transfer.

ii. Build a network of innovative small (start-up) companies to service the needs of larger

manufacturers.

iii. Set up ‘Grand Challenges’.

iv. Identify key customers (governments, private players) for targeted brand building

exercises.

25. JEWELLERY: India is the largest exporter of gems and jewellery. Total exports under

the gems and jewellery sector was about USD 35.5 billion (2017)9. Its market size is about

US$ 75 billion as of 2017 and is expected to reach US$ 100 billion by 2025. It contributes

29 per cent to the global jewellery consumption. The sector contributes 6-7 per cent of

GDP10. India is also integrated in the GVC in some areas. India is the largest player in

diamond cutting and polishing segment. However, there is still scope for further

integration into the global value chain and moving up the value-chain. Another advantage

with the sector is that it is labour-intensive and employs over 2.5 million workers. The


i. Identify potential clusters, based on discussions with industry, which will permit

greater flexibility in labour laws and other regulations, and quicker and easier

approvals.

ii. Work with State governments for implementation, including attracting companies to

the clusters.

iii. Facilitate setting up of specialised jewellery design courses, with direct link to the

industry, and curriculum in line with international designs and techniques.

26. FOOD PROCESSING: The sector is considered to be crucial in terms of value addition

to agriculture. Here India can leverage its vast potential in agriculture produce. There is

9http://www.careratings.com/upload/NewsFiles/Studies/Gems%20&%20Jewellery%20crisis.pdf 10https://www.ibef.org/industry/gems-jewellery-india.aspx

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also potential for greater integration into the GVCs as global trade of processed foods is

estimated to be USD 767 billion while India constitutes only USD 9.34 billion, a

negligible 1.22 per cent11.The following measures are suggested:

i. Create structures (e.g., cooperatives) for aggregated supply to manufacturers.

ii. Channelise investments in cold-chain infrastructure.

iii. Encourage focused food processing associations or technical experts to create a

‘ready-reckoner’ of best-in-class processes as benchmarks/best-practices. Encourage

companies to move towards these benchmarks by building awareness and creating

case studies in clusters.

iv. Work with industry to document list of parameters to be included in key quality

certifications.

v. Design and implement campaign to identify key markets for targeted brand-building.

27. READY-MADE GARMENTS: India already has a sizeable industry here. India's textile

market is expected to touch USD 250 billion in the next two years from USD150 billion

(2017). The sector is somewhat integrated into GVCs at early stages of the textile value-

chain, although significant scope for further integration exists. India’s share in global

export of textiles is 5.7 per cent and 4.0 per cent in clothing (2016). The sector is also

labour-intensive and employs over 45 million people. The following measures are

suggested:

i. Earmark clusters (including CEZs) for textiles (fashion garments), which will permit

greater flexibility in labour laws and other regulations (such as environment, etc.) and

quicker and easier approvals.

ii. Correct any inverted duty in Customs and GST rate structures.

iii. Identify global best practices in the sector and encourage adoption to improve

efficiency and competitiveness.

iv. Facilitate setting up of specialised fashion designing courses, with direct link to the

industry, and curriculum in line with international designs and techniques.

28. ORGANIC/AYURVEDIC PRODUCTS: There is a significant market for these

products. Global herbal products industry is estimated at USD 80 billion and is expanding

fast. The domestic market size of ayurvedic products is expected to increase from USD 2.5

billion (2017) to USD 8 billion by 2022. India can leverage its expertise and global

11http://www.businessworld.in/article/India-s-Share-In-Global-Trade-Of-Processed-Food-Negligible-Devendra-Kumar-Singh-Chairman-APEDA/05-11-2017-130559/

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reputation of being an ‘ayurvedic’ destination. The sector is labour-intensive as well. The


i. Encourage companies to upgrade technology by building awareness, creating case

studies.

ii. Work with industry to document and commercialise traditional knowledge in

alternative medicine systems.

iii. Strengthen the standards, quality and certification ecosystem to ensure product safety.

iv. Design and implement campaign to identify key markets abroad for targeted brand-

building.

29. FOCUS ON EMERGING SECTORS: Initial assessments indicate that the following

eight sectors are expected to contribute in excess of USD 170 billion to the manufacturing

GVA by 2025-26. These sectors have exponential growth potential which need to be

explored. Detailed assessment of the potential of these sectors should be taken up and

actionable roadmaps drawn up to harness the potential.

i. BIOTECHNOLOGY & GENOMICS: India is among the top 12 biotech

destinations in the world and ranks third in the Asia Pacific and has the second highest

number of United States Food & Drug Administration approved plants. Indian biotech

industry is expected to touch USD 100 billion by 2025.

ii. ELECTRIC MOBILITY & STORAGE: India’s vehicle ownership is still

minuscule if one counts the number of cars. In Delhi, for instance, it is estimated that

roughly 21 per cent people own cars and some 40 per cent own motorcycles. The 2011

Census found that roughly 10 per cent of urban Indians owned a car. Thus, there is a

huge market potential.

iii. UNMANNED AERIAL VEHICLES (UAV): According to global market

intelligence and advisory firm BIS Research, by 2021, the Indian UAV market will

reach USD 885.7 million, while the global market size will touch USD 21.47 billion.

The report notes that customer-focused innovation in UAV technology and the rise in

demand for UAVs for surveillance, civil, and commercial applications from global

markets will drive this growth.

iv. ACTIVE PHARMACEUTICAL INGREDIENTS (APIs): APIs, which are needed

for drug manufacture (formulation), are now mostly imported from China. This makes

India highly vulnerable to disruptions in supply and cost escalations. It is high time

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that India developed both public and private sector capacity within the country, with

suitable government support and incentives, to ensure uninterrupted availability of

APIs. In 2016, the API market of India held a share of around 8 per cent in the global

API market. The Indian API domestic consumption market will grow at a CAGR of

around 10 per cent from 2016 to 202212.

v. MEDICAL DEVICES: The medical devices industry in India is presently valued at

USD 5.2 billion and contributes 4-5 per cent to the USD 96.7 billion Indian health

care industry. Currently, India has about 750–800 medical device manufacturers in the

country, with an average investment of Rs 170–200 million and an average turnover of

Rs 450–500 million. The industry has steadily grown and witnessed a surge from USD

2.02 billion in 2009 to USD 3.9 billion in 2015 at a CAGR of 15.8 per cent. As per

industry estimates, the Indian medical devices market will grow to USD 50 billion by

2025. Currently, India is counted among the top 20 global medical devices market and

is the fourth largest medical devices market in Asia after Japan, China and South

Korea13.

vi. ROBOTICS & AUTOMATION EQUIPMENT: Robotics & automation are

gradually having a significant impact on the efficiency of the entire manufacturing

process (starting at the product prototyping stage) and the product range made

available to customers. The result is a likely shift in success factors for

competitiveness. The relevance of factors such as labour cost and economies of scale

is likely to erode. The key will be to stay ahead of time by introducing relevant policy

interventions.

vii. ADVANCED MATERIALS: Advanced materials are at the heart of many

technological developments that touch our lives. Electronic materials for

communication and information technology, biomaterials for better health care,

sensors for intelligent environment, energy materials for renewable energy and

environment, light alloys for better transportation and materials for strategic

applications, are a few examples.

viii. CHEMICAL FEEDSTOCK/CHEMICALS: India is the sixth largest producer of

chemicals worldwide and third largest producer in Asia (by output). The size of Indian 12http://publication.assocham.tv/data/product-file/48%20-%20Indian%20API%20Market%20Outlook%202022.pdf 13http://www.makeinindia.com/article/-/v/sector-survey-medical-devices

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chemicals sector for the year 2015-16 was USD 142 billion. For the first two quarters

of FY 2017-18, production of total major chemicals and basic petrochemicals stood at

12.8 million tonnes, while that of major chemicals was 5.3 million tonnes 14 .

Chemicals sector also acts as a key enabling industry and provides support for variety

of other sectors like agriculture, construction, leather etc.

30. FOCUS ON MICRO SMALL AND MEDIUM ENTERPRISES (MSMES): Given the

predominance of MSMEs in the manufacturing sector, they need to be assisted in the

following way:

i. Improving access to funding:

a. Development of SME Credit Risk Databases and SME Credit Rating:

Developing a system of rating SMEs based on financial and non-financial data,

which are generally difficult to assess. Based on the analysis of risk (financial ratios

which will cover all characteristics of SMEs including activity, profitability,

coverage, leverage, and liquidity), the SMEs can be classified into three groups:

financially healthy SMEs, medium-risk SMEs, and financially risky SMEs. Banks

can determine interest rates and collateral requirements based on the risk

categorisation. Such categorisation when done regularly can also provide credit

history and reflect the market dynamics for banks to respond accordingly.

b. Development of Hometown Investment Trust (HIT) Funds for Risky SMEs:

Creating community-based funds (or hometown investment trust funds) to promote

lending to start-ups and riskier borrowers such as SMEs. Here the associated risks

will be borne by investors and the trust funds would not be guaranteed by a deposit

insurance corporation.

c. Insurance Scheme for MSME: MSME insurance regulation should be developed

to encourage insurers to design tailor-made and innovative insurance solutions for

MSMEs, for improving risk management of MSMEs. This will enable them to

access cheaper financing from formal sources. In addition, allowing insurers to

provide credit to MSMEs can create competition and open avenues for greater

supply of credit, thereby helping narrow the credit gap.

d. Fintech innovations: This will help in lowering the cost of financing especially for

small borrowers, simplify the process by reducing paperwork and therefore avoid

delays in disbursement.

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e. Explore inclusion of technology and quality upgradation as part of priority sector

funding.

ii. Facilitating their scaling up in terms of size, technology, product quality and value-add

to their products. To achieve the same, MSMEs need to be trained and exposed

through workshops. The disincentives for scaling up need to be removed.

iii. To enhance their profitability and operational efficiencies, shared infrastructure and

facilities need to be encouraged, like effluent plants, testing labs, expensive IT

Systems and Industry 4.0/ smart manufacturing technologies. Again, awareness needs

to be generated, including developing ‘model’ sharing plans, which can be adapted by

companies.

iv. The larger companies must step in to help MSMEs in their supply chain to improve

quality, productivity and technology. They also need to invest in shared infrastructure

and facilities.

v. Campaign to promote brand India for manufacturing. E.g., ‘Made in India, Served

from India’ (to take cognizance of servicification of products), similar to ‘Incredible

India’ for tourism.

vi. Facilitating access to larger markets (domestic and international) via e-commerce

E. USD 3 TRILLION SERVICES SECTOR

31. Services (other than construction) can be broadly divided into traditional and modern

services. Traditional services act as inputs for the manufacturing sector and their share in

GVA declines as a country’s income increases. ‘Modern services’ would include financial

services, communication services, real estate, ownership of dwelling & professional

services, hotels & restaurants and other services. Modern services tend to use information

and communication technology more intensively than traditional services and their share

tends to rise or move in tandem with increase in income. The share of modern services has

seen a rapid rise over the years and the share of traditional services has witnessed a

decline. The Working Group suggests that a focus on champion services sector would be

required to achieve the expansion of the services sector output and concerted efforts need

to be made to increase service sector exports.

32. CHAMPION SERVICES SECTOR INITIATIVE: Union Cabinet approved the Action

Plan on Champion Sectors in Services in February, 2018. 12 service sectors, namely,

information technology &information technology enabled services (IT&ITeS), tourism

and hospitality services, medical value travel, transport and logistics services, accounting

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and finance services, audio visual services, legal services, communication services,

construction and related engineering services, environmental services, financial services

and education services have been identified as champion service sectors.

33. A dedicated fund of Rs.5000 crore to support initiatives in the identified Champion service

sectors has been approved. The Committee of Secretaries (CoS) chaired by Cabinet

Secretary, including Secretaries concerned for the Champion service sectors would

undertake timely and regular monitoring of sectoral action plans on a quarterly/more

frequent basis. The sectoral action plans are being prepared by Nodal

Ministries/Departments which need to be implemented with a renewed focus. The report

highlights certain priorities in these sectors.

34. INFORMATION TECHNOLOGY & INFORMATION TECHNOLOGY ENABLED

SERVICES: India has become the digital capabilities hub of the world with around 75 per

cent of global digital talent present in the country. Indian IT's core competencies and

strengths have attracted significant investments from major countries. Digital

transformation is the next frontier and India’s IT industry with its increasing focus on

digital opportunities is poised to be a leader in the next few years. The global digital

transformation market size is expected to rise at a CAGR of 18.56 per cent from USD 1.2

trillion in 2017 to USD 2 trillion in 2020.Export revenue from digital segment already

forms about 20 per cent of the total services export revenue and is expected to grow

further. The following measures are suggested:

i. Setup Centres of Excellence in identified technologies including Artificial

Intelligence.

ii. Fast track the Smart Cities projects to promote the adoption of next-gen technologies

in Government projects. Incentivise the use of these technologies in other better

governed cities.

iii. Strengthen digital infrastructure in the country.

iv. Support industry to transition to industry 4.0 / smart manufacturing in key sectors like

aviation, electric mobility and storage, medical devices etc.

v. Provide a robust data protection regime.

35. TOURISM AND HOSPITALITY SERVICES: Tourism in India has significant

potential considering the rich cultural heritage, variety in ecology, terrains and places of

natural beauty spread across the country. Tourism is also a potentially large employment

generator besides being a significant source of foreign exchange for the country. The

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travel and tourism sector in India accounted for 8 per cent of the total employment

opportunities generated in the country in 2017, providing employment to around 41.6

million people during the year. India is the most digitally-advanced traveller nation in

terms of digital tools being used for planning, booking and experiencing a journey.

Foreign tourist arrivals increased to 5.97 million in January-July 2018, achieving a growth

rate of 7.3 per cent year-on-year. The sector has the potential to expand by 2.5 per cent on

the back of higher budgetary allocation and low-cost healthcare facility15.The following

measures are suggested:

i. Developing Destination Management Organisations in major attraction sites.

ii. Fast track the development of the 5 Special Tourism Zones.

iii. Encourage States to constitute Beach Development Boards to promote water sports

and adventure sports along the coast line.

iv. Improve rail connectivity and develop seamless connectivity to major attractions.

v. Focus on developing and promoting cruise tourism.

36. MEDICAL VALUE TRAVEL: Healthcare has become one of India’s largest sectors -

both in terms of revenue and employment. Healthcare comprises hospitals, medical

devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance and

medical equipment. The healthcare market can increase three-fold to Rs 8.6 trillion (USD

133.44 billion) by 2022. The country has also become one of the leading destinations for

high-end diagnostic services with tremendous capital investment for advanced diagnostic

facilities. India's competitive advantage lies in its large pool of well-trained medical

professionals. India is also cost competitive compared to its peers in Asia and Western

countries with cost of surgery in India being about one-tenth of that in the US or Western

Europe. The following measures are suggested:

i. Facilitative visa regime for medical travel.

ii. Creation of enclaves of hospitals for targeting foreign patients.

iii. Allowing expatriate professional to perform surgeries in identified hospitals.

iv. Improving transparency in rates and clinical outcomes.

v. Appropriate insurance products and cross border payment arrangements.

vi. Adoption of accreditation standards for AYUSH practitioners.

vii. Promoting tele-medicine.

37. TRANSPORT AND LOGISTICS SERVICES: Transport sector is integral to

development in India and 14.4 per cent of GDP is spent on logistics and transport. India 15Joint study conducted by ASSOCHAM and Yes Bank

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has the world’s largest passenger rail carrier, fourth largest rail freight carrier and ninth

largest civil aviation market. These services are also growing on the back of increasing

urbanisation and increased public investment in infrastructure. The sector is currently

estimated to be around USD 160 billion (2018). With implementation of GST the sector is

expected to benefit and touch USD 215 billion by 202016. The following measures are

suggested:

i. Developing optimal multimodal logistics arrangements in major routes – a transparent

policy that encourages private participation.

ii. Reviving capacities in unused and underutilised airports.

iii. Support digitisation of warehouses.

iv. E-commerce policy and regulatory framework.

38. ACCOUNTING AND FINANCIAL SERVICES: India has a diversified financial

sector undergoing rapid expansion, both in terms of growth of existing financial services

firms and new entities entering the market. The sector is dominated by commercial

banking and insurance but includes sizable markets in non-banking financial companies,

cooperatives, pension funds, mutual funds, payment banks and other smaller financial

entities. India’s accounting and auditing sector is rapidly expanding with double digit

growth rates. The Finance and accounting services contribute 22 per cent to the USD 26

billion to business process management exports. The potential in these sectors is

unlimited. The following measures are suggested:

i. Facilitative and transparent regulatory framework for commercial presence of foreign

entities and foreign affiliates.

ii. Promote FDI in domestic accounting and auditing sector.

iii. Ease restriction on client base in the accounting and auditing sector.

iv. Mutual recognition of qualifications agreements with identified countries to promote

cross border movement of professionals.

v. Update standard of professional in these sectors, separation of regulators and

professional bodies.

vi. Build tier 2 and tier 3 level professionals to assist tier 1 professionals and businesses.

vii. Supportive policies and enabling regulatory framework for fin-tech based solution

providers.

39. AUDIO VISUAL SERVICES: It is closely related to other services like tourism,

software, cultural, recreational and sporting services. The media and entertainment

16https://www.ibef.org/blogs/indian-logistics-sector-shining-bright

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industry is one of the most dynamic industries in the country; it is fourteenth largest in the

world and contributes 0.4 per cent to the GDP. The advent of internet media strengthens

the potential to expand globally. The sector is also far ahead in technology adoption and is

a pioneer in technological advancement. The following suggestions are made:

i. Realignment of film festivals and circuits.

ii. Exploring the introduction of insurance in the film industry.

iii. Encourage screen density and digitisation.

iv. Promoting private investments in film schools and institutes.

v. Explore franchise business models like ‘Universal Studios’ to exploit the film

franchise for tourism and adventure.

vi. Set up Centres of Excellence in technologies like VFX, 3D animation, etc.

vii. Promote gaming industry value chains.

40. LEGAL SERVICES: The sector was estimated at USD 6.8 billion in 2012 and has

expanded with double digit growth rates in the recent past. The sector is one of the

restricted sectors in India. India has one of the largest pools of lawyers skilled in emerging

legal disciplines like mergers &acquisitions, infrastructure financing, public private

partnerships etc. which provides a competitive edge. The scope for expansion into

advisory, arbitration and mediation services is large and unexplored. It is suggested that a

clear roadmap for domestic reforms in the sector, liberalisation and promotion of

arbitration and mediation services, is developed.

41. COMMUNICATION SERVICES: All developed countries are moving towards

increased digitisation of their societies and economies. The goal of Digital India can be

achieved by enhancing access to IT education and access to internet in the rural areas and

is only the first step towards the future. Growth of all sectors including traditional sectors

like agriculture is expected to be driven by digital platforms and technologies. The global

demand of digital market offers huge opportunities for India provided professionals with

relevant educational qualifications and soft skills are prepared to cater to this demand. The

implementation of a National Digital Communications Policy is suggested.

42. CONSTRUCTION AND RELATED ENGINEERING SERVICES: The sector

contributes 8 per cent to the country’s GDP and is a large employer for semi-skilled and

unskilled workforce. It requires the use of several skill sets across the value chain from

architecture to interior designing, and skills form a large component of the value add.

Skills are the key component in the sector, which requires focussed attention followed by

technology. The following suggestions may be considered:

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i. Reform of local government regulations to enable employment of professional

services in local city and town planning, architecture, design etc.

ii. Strengthening of professional bodies in the sector to develop interactions between

industry and academia and setting of standards and qualification frameworks.

43. ENVIRONMENTAL SERVICES: This is an emerging area of profession and

specialisation which includes water management, energy management and waste

management. There are both supply and demand side constraints that the sector faces.

These need to be addressed for the sector to expand domestically and internationally. The

following suggestions would serve as good starting points:

i. Smart cities to have these projects and services integrated in their development plans.

ii. Integration of these services at the local government level in Tier II and Tier III cities.

iii. Reform regulatory framework to encourage private participation, technology

upgradation and capacity building of institutions.

iv. Framework for accreditation of environment professionals.

44. EDUCATION SERVICES: The higher education system in India is diversified. The

better quality of education in English language, and lower cost compared to other

developing and developed countries are key drivers for the growth in the inflow of

students from South and Southeast Asia, West Asia and Africa into India. Estimated

market size of Indian students studying abroad is between USD 15-20 billion.

Internationalisation of higher education has been overdue and will help exploit a globally

expanding demand for education services and capture a share of the outflow of students

studying abroad. The following suggestions would improve India’s international presence

in the sector:

i. Promotion of distance education, e-education or virtual education: remove regulatory

bottlenecks, provide recognition of online degrees and set up appropriate evaluation

techniques for online courses.

ii. Strengthen digital infrastructure and knowledge network efforts in bringing together

institutions of higher education.

iii. Explore allowing foreign universities to set up campuses in India.

iv. Facilitative visa regime for students and education service providers.

v. Government to explore signing of mutual recognition agreements and equivalence of

degrees and professional qualifications with identified universities internationally.

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