Sectors of Economy: Primary, Secondary, Tertiary,Quaternary and Quinary

Human activities which generate income are known as economic activities.Economic activities are broadly grouped into primary, secondary, tertiary activities. Higherservices under tertiary activities are again classified into quaternary and quinary activities.

Let us first understand the differences between the different sectors of the economy, so thatit will be easier for us to understand the factors responsible for the location of primary,secondary, and tertiary sector industries in various parts of the world (including India).

Primary activities

Primary activities are directly dependent on environment as these refer to utilisationof earth’s resources such as land, water, vegetation, building materials and minerals.It, thus includes, hunting and gathering, pastoral activities, fishing, forestry, agriculture,and mining and quarrying.

People engaged in primary activities are called red-collar workers due to the outdoor natureof their work.

Secondary activities

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Secondary activities add value to natural resources by transforming raw materialsinto valuable products. Secondary activities, therefore, are concerned with manufacturing,processing and construction (infrastructure) industries.

People engaged in secondary activities are called blue collar workers.

Tertiary activities

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Tertiary activities include both production and exchange. The production involvesthe ‘provision’ of services that are ‘consumed. Exchange, involves trade, transport andcommunication facilities that are used to overcome distance.

Tertiary jobs = White collar jobs.

Quaternary activities

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Quaternary activities are specialized tertairy activities in the ‘Knowledge Sector’ whichdemands a separate classification. There has been a very high growth in demand for andconsumption of information based services from mutual fund managers to tax consultants,software developers and statisticians. Personnel working in office buildings, elementaryschools and university classrooms, hospitals and doctors’ offices, theatres, accounting andbrokerage firms all belong to this category of services. Like some of the tertiaryfunctions, quaternary activities can also be outsourced. They are not tied to resources,affected by the environment, or necessarily localised by market.

Quinary activities

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Quinary activities are services that focus on the creation, re-arrangement and interpretationof new and existing ideas; data interpretation and the use and evaluation of newtechnologies. Often referred to as ‘gold collar’ professions, they representanother subdivision of the tertiary sector representing special and highly paid skills ofsenior business executives, government officials, research scientists, financial andlegal consultants, etc. Their importance in the structure of advanced economiesfar outweighs their numbers.The highest level of decision makers or policy makers performquinary activities.

Quinary = Gold collar professions.

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Factors Responsible for the Location of Primary,Secondary and Tertiary Sector Industries in VariousParts of the World (Including India)

Factors Responsible for the location of primary, secondary, and tertiary sector industries invarious parts of the world (including India) is a topic mentioned in General Studies Paper1(GS1) for UPSC Mains. Basic concepts related to Primary, Secondary, and TertiarySectors are covered in our post on Sectors of Economy: Primary, Secondary, Tertiary,Quaternary, and Quinary. In this section, we shall see an outline of factors. In comingposts, we shall see some specific examples of certain industries in UPSC examperspective. We have used NCERT texts for geography as the starting material, takingextra inputs from online and offline sources.

Factors responsible for location of IndustriesIndustrial locations are complex in nature. These are influenced by the availability of manyfactors. Some of them are: raw material, land, water, labor, capital, power, transport, andmarket.

For ease of convenience, we can classify the location factors into two: geographical factorsand non-geographical factors.

Geographical Factors1. Raw material: Availability of natural resource that can be used as raw material.

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2. Technology: To turn the resource into an asset with value.3. Power: To utilize the technology.4. Labour: Human resource in the area who can function as labor to run the processes.5. Transport : Road/rail connectivity.6. Storage and warehousing.7. Marketing feasibility.8. Characteristics of land and soil.9. Climate.

10. Precipitation and water resources.11. Vulnerability to natural resources.

Explanation:

Raw materials are one of the important factors in an industrial location. The merelocation of industries itself may be determined by the availability or location of the rawmaterials.Power – conventional (coal, mineral oil or hydro-electricity) or on- conventional innature is a necessity for any industrial establishment.Availability of labor or skilled workforce is the success mantra for the growth of allindustries.Availability of easy transportation always influences the location of the industry. Sothe junction points of waterways, roadways and railways become humming centers ofindustrial activity.The finished goods should reach the market at the end of the process ofmanufacturing. Thus nearness to the market is an add-on quality in the process ofselecting a location for industry.Availability of water is another factor that influences the industrial location. Manyindustries are established near rivers, canals, and lakes, because of this reason. Ironand steel industry, textile industries and chemical industries require large quantities ofwater, for their proper functioning.The site that is selected for the establishment of an industry must be flat and wellserved by adequate transport facilities.The climate of the area selected for the industry is important, very harsh climate arenot suitable for the successful industrial growth.

Non-geographical Factors1. Capital investment.2. Availability of loans.3. Investment climate.4. Government policies/regulations.5. Influence of pressure groups.

Explanation:

Capital or huge investment is needed for the establishment of industries.Government policies are another factor that influences industrial location. The

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government sets certain restriction in the allocation of land for industries in order toreduce regional disparities, to control excessive pollution and to avoid the excessiveclustering of industries in big cities.Industrial inertia is the predisposition of industries or companies to avoid relocatingfacilities even in the face of changing economic circumstances that would otherwiseinduce them to leave. Often the costs associated with relocating fixed capital assetsand labor far outweigh the costs of adapting to the changing conditions of an existinglocation.Efficient and enterprising organization and management are essential for runningmodem industry successfully.The location that has better banking facilities and Insurance are best suited for theestablishment of industries.

It is rarely possible to find all these factors available at one place.Consequently, manufacturing activity tends to locate at the most appropriate place whereall the factors of industrial location are either available or can be arranged at lower cost. Ingeneral, it should also be noted that both lower production cost and lower distribution costare the two major factors while considering the location of an industry. Sometimes, thegovernment provides incentives like subsidized power, lower transport cost, and otherinfrastructure so that industries may be located in backward areas.

Industrial SystemAn industrial system consists of inputs, processes, and outputs. The inputs are the rawmaterials, labor, and costs of land, transport, power and other infrastructure. The processesinclude a wide range of activities that convert the raw material into finished products.The outputs are the end product and the income earned from it. In the case of the textileindustry, the inputs may be cotton, human labor, factory and transport cost. The processesinclude ginning, spinning, weaving, dyeing, and printing. The output is the shirt you wear.

Connection between Industrialization and UrbanizationAfter an industrial activity starts, urbanization follows. Sometimes, industries are located inor near the cities. Thus, industrialization and urbanization go hand in hand. Cities providemarkets and also provide services such as banking, insurance, transport, labor, consultantsand financial advice, etc. to the industry.

Agglomeration EconomiesMany industries tend to come together to make use of the advantages offered by the urbancenters known as agglomeration economies. Gradually, a large industrial agglomerationtakes place.

Industries in pre-Independence period

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In the pre-Independence period, most manufacturing units were located in places from thepoint of view of overseas trade such as Mumbai, Kolkata, Chennai, etc.Consequently, there emerged certain pockets of industrially developed urban centerssurrounded by a huge agricultural rural hinterland.

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Agricultural Marketing Reforms: Model APMC Act andNAM

India is an agrarian economy with 70% of its population dependent on agriculture. Over theyears we have improved our agricultural production which has been a boon. But finding amarket for the marketed surplus and getting fair prices have always been a majorchallenge. This clearly points out the need of agricultural marketing in the present times.

What is agricultural marketing?

Agricultural marketing covers all the activities in the movement of agricultural products fromthe farms to the consumers.

Why is agricultural marketing so important?Advanced agricultural practices resulted in the surplus production which changed thesubsistence face of Indian agriculture.Approximately 33% of the output of food grains, pulses and nearly all of theproductions of cash crops like cotton, sugarcane, oilseeds etc. are marketed as theyremain surplus after meeting the consumption needs of the farmers.

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As agriculture sector produces raw materials for many of the other industries,marketing of such commercial products assumes significance.Increased efficiency of the marketing mechanisms would result in the distribution ofproducts at lower prices to consumers having a direct bearing on national income.An improved marketing system will stimulate the growth in the number of agro-basedindustries mainly in the field of processing.

History of Agricultural Marketing in IndiaFor a long time, a traditional market system was existent in India. It was characterized bythe village sales of agricultural commodities, post-harvest immediate sale by farmers etc. In1928, the Royal commission has pointed out the problems of traditional marketing such ashigh marketing cost, unauthorized deductions, and prevalence of various malpractices. Thisled to the demand of having regulated markets in India.

What is a regulated market?The regulated market aims at the elimination of unhealthy and unscrupulous practices,reducing market costs and providing benefits to both producers as well as the sellers in themarket.

Post the independence period in the sixties and seventies, most of the states enacted theAgricultural Produce Market Regulation Acts (APMR Acts). It authorized the States to setup and regulate marketing practices in wholesale markets. The objective was to ensurethat farmers get a fair price for their produce.

Drawbacks of regulated markets

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However, regulated markets had some drawbacks such as:

Under this regulation, no exporter or processor could buy directly from farmers. Itdiscouraged processing and exporting of agricultural products.Under the act, the state Government could only set up markets, thus preventingprivate players from setting up markets and investing in marketing infrastructure.Formation of cartels with links to caste and political networks resulting in pricevariations.An increased number of middlemen formed a virtual barrier between the farmer andthe consumer.The licensing of commission agents in the state regulated markets has led to themonopoly of the licensed traders acting as a major entry barrier for newentrepreneurs.The fragmentation of markets within the State hinders the free flow of agro-commodities from one market area to another and multiple handling of agri-produceand multiple levels of mandi charges end up escalating the prices for the consumerswithout commensurate benefit to the farmer.

Solution: Amendments in APMC ActsConsequently, the inter-ministerial task force on agricultural marketing reforms (2002)recommended the APMC Act be amended to allow for direct marketing and theestablishment of agricultural markets by the private and co-operative sector toprovide more efficient marketing and creating an environment conducive to privateinvestment.In response, the Union Ministry of Agriculture proposed a model act on agriculturalmarketing in consultation with State governments for adoption by the States. (Here,you should note that agriculture is a state subject and hence Central government canonly give guidelines. It is within the powers of state government to decide whether tomake amendments or not.)

Model APMC Act 2003 – Salient features:As per the act, the State is divided into several market areas, each of which isadministered by a separate Agricultural Produce Market Committee (APMC) whichimpose its own marketing regulation (including fees).Apart from that, legal persons, growers, and local authorities are permitted to applyfor the establishment of new markets for agricultural produce in any area.There will be no compulsion on the growers to sell their produce through existingmarkets administered by the Agricultural Produce Market Committee (APMC).Separate provision is made for notification of ‘Special Markets’ in any market area forspecified agricultural commodities.Provision for Contract Farming, allowing direct sale of farm produce to contractfarming sponsor from farmer’s field.Single point levy of market fee on the sale of notified agricultural commodities in anymarket area.Provision made for resolving disputes arising between private market/ consumer

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market and Market.Provides for the creation of marketing infrastructure from the revenue earned by theAPMC.

National Agriculture Market (NAM)

The motivation for a unified market platform can be traced to the Rashtriya e-MarketServices (ReMS), an initiative of Karnataka State Agricultural Marketing Board withNational e-Markets Limited (NeML), erstwhile National Commodity and DerivativesExchange (NCDEX) Spot Exchange.

NAM, announced in Union Budget 2014-15, is a pan-India electronic trading portal whichseeks to connect existing APMCs and other market yards to create a unified nationalmarket for agricultural commodities.

Features of NAM:NAM is a “virtual” market but it has a physical market (mandi) at the back endNAM creates a unified market through online trading platform both, at State andNational level and promotes uniformity.The NAM Portal provides a single window service for all APMC related informationand services.While the material flow of agriculture produce continues to happen through mandis,an online market reduces transaction costs and information asymmetry.

However, in order for a state to be part of NAM, it needs to undertake prior reforms inrespect of

A single license to be valid across the state.Single point levy of market fee.Provision for electronic auction as a mode of price discovery.

Persisting ChallengesThe model APMC act that promoted the participation of private sector has not beenimplemented by all the states and the monopoly of APMC continues.

Summary

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In current days of mass production and marketing which is being replaced by customer-based or market-driven strategies, an effective marketing extension service is the need ofthe hour. This has added significance in the light of post-WTO scenario. If the Indianfarmers have to withstand the possible onslaught of international competitors, both indomestic as well as overseas markets, agricultural marketing services have to bestrengthened.

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Food Processing and Related Industries in India

Food processing is the transformation of raw ingredients into food, or of food into otherforms (ie. food processing may denote direct manufacturing of food or value addition onexisting food). Food processing typically takes harvested crops or butchered animalproducts and uses these to produce long shelf-life food products.

Food processing dates back to the prehistoric ages when crude processing incorporatedslaughtering, fermenting, sun drying, preserving with salt etc. Modern food processingadopts latest technologies and practices.

Processes in a food processing industryThere are two types of processes in a food processing industry :

1. Manufacturing: Raw materials → Food.2. Value Addition: Increase shelf life and value of a manufactured food.

Products in food processing industryWe can divide the products in food processing industry into two:

1. Primary (Eg: Fruits and Vegetables).2. Secondary or Value Added (Jams and Squashes)

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Food Processing Industry : Image Courtesy : The Hindu

Why are food processing industries significant?1. India is a land famous for

food production. More than50% of Indian population workin Agriculture relatedactivities. If there are goodfood processing industries inIndia, raw materials like grainsor meat can be converted intofood for domestic and foreignconsumption.

2. Food processing units acts asa link between agriculture andindustries.

3. Food processing industries can absorb a major share of workers from the agriculturesector, who face disguised unemployment. It can lead to better productivity and GDPgrowth.

4. Food processing prevents food wastage and help in attaining food security.5. Processed food requires less space for storage.6. Processed food can be exported. This may help us in getting foreign exchange

reserves.

Scope and Significance of Food Processing Industries in IndiaWhat is the scope of India in food processing industry? (Have you ever wondered whyUPSC specially mentioned food processing as a topic in Mains syllabus? – Because it is asector which has huge potential for growth in future!)

1. India’s position as a major food producer : India ranks 1st in the production of –milk, ginger, banana, guava, papaya, mango etc. It ranks 2nd in the production ofrice, wheat, potato, sugarcane, cashew nut, tea etc. It is among the top 5 countries inthe production of coffee, tobacco, spices, seeds etc. With such a huge raw materialbase, we can easily become the leading supplier of food items in the world.

2. Resource advantage of India : Different soil types and different climate types forcultivation of diverse food crops, long coastal line suitable for fishing, huge resourceof domestic animals etc.

3. Increasing employment : Expected to create more than 10 lakh new jobs.4. Curbing Migration : Provides employment in rural areas, hence reduces migration

from rural to urban. Resolves issues of urbanization.5. Curbing food inflation : Removes issues of wastage or middle man. Curbs food

inflation. Indirect relief on non-food inflation too.6. Crop Diversification : Because of long shelf life, farmers can diversify their products.7. The demand potential : Expected to reach 250b$ turnout by 2015 and 350b$ by

2020. Youth population, middle class, rising income, nuclear families, mediapenetration etc cited as positive factors.

8. Government initiatives to boost food processing: Various government initiatives2/8

like attracting FDI, reduction in excise duties etc have boosted food processing.9. Future driver of Indian growth : Food processing corresponds to around 10% of

GDP in agriculture-manufacturing sector. It has potential for more.

Location of food processing industries in India :India has more than 35000 registered units. But majorities of the food processing factoriesare concentrated in the coastal states ( one reason being, accessibility to marine foodprocessing)Major coastal states includes: Andhra, Maharashtra, Karnataka, Kerala, Gujarat, Punjaband WB. Non-coastal states include UP, Punjab etc.

Major segments of food processing1. Fruits and Vegetables.2. Milk and Milk Products.3. Meat and Poultry.4. Marine Products.5. Grain Processing.6. Consumer Food.

Upstream and Downstream requirements of food processingindustries

Upstream stage: The upstream stage of the production process involves searching for3/8

and extracting raw materials. The upstream part of the production process does not doanything with the material itself, such as processing the material. This part of the processsimply finds and extracts the raw material. Thus, any industry that relies on the extractionof raw materials commonly has an upstream stage in its production process.

Downstream stage: The downstream stage in the production process involvesprocessing the materials collected during the upstream stage into a finished product.The downstream stage further includes the actual sale of that product to other businesses,governments or private individuals. Downstream process has direct contact with customersthrough the finished product.

Upstream requirements:1. Accessibility to raw materials.2. Modern extraction techniques.3. Good linkages with farmers.4. Storage facilities for raw materials like Grains, Meat, Fish etc.5. Quality testing facilities.6. Transport facilities.7. Work force.

Downstream requirements:1. Latest processing techniques.2. Latest processing machinery.3. Quality testing facilities.4. Organized retail stores for faster distribution.5. Work force.

Supply Chain ManagementSupply chain management (SCM) is the management of the flow of goods. It includes themovement and storage of raw materials, inventory and finished goods from point of originto point of consumption.

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Let’s analyse the case of Supply Chain Management for Food Processing Industry. Rawmaterials like grains, raw meat, fish etc are collected by different sources. These sourcesmay do preliminary processing of these to make components of a food product beforepassing over them to the main manufacturer through many middle men. The manufacturerdoes the final processing of these components to make the food product. This completesonly the first stage of supply management.

Now the finished product has to be delivered to the consumer. Here also there will be anumber of middle men and stages. The manufacturer normally hands over the food productto a whole sale dealer. The wholesaler pass the product to a retailer from where theconsumer buys the processed food item for his personal use.

Thus, Supply Chain Management is the management of upstream and downstream valueadded flow of materials from suppliers→ company→ retailer→ final consumers.

Importance of Supply Chain Management in Food Processing Industry : If there aregood Supply Chain Management practices in a country, then it will boost economy as awhole. Good supply chain links helps farmers, manufactures, wholesalers, retailers andconsumers. Every one in the supply chain link will get inputs at a faster rate, at the righttime and at a cheaper cost.

Obstacles in the growth of food processing Industries1. Small size companies: Indian food processing companies are small and can’t

compete with global giants which invest heavily on R & D.2. Lack of good laboratories in India : Food export to US and EU demands high quality

standards. India lack good laboratories to check heavy metal and other toxiccontamination in food.

3. Lack of skilled work force. We have only a few graduates in Food Technology.4. Lack of right vision and support from the government at the right time.5. Lack of good transportation facilities. Roads are overburdened.

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6. Lack of storage facilities and good production techniques.7. Lack of organised retail.8. Limitations in supply chains.9. Limitations in the quality.

10. Lack of modern regulations.

Government Initiatives for Development of food processingIndustry in IndiaGovernment of India is now encouraging food processing industries by providing :

1. 100% FDI in this sector.2. Agri Export Zones.3. National Mission on Agriculture.

Major Schemes by Government include :1. Vision 2015 for food processing : The Ministry of Food Processing Industries (FPI)

has sponsored a study to suggest a roadmap for the growth of food processingsector. M/S Rabo Bank has conducted a study and submitted a Vision Documentsuggesting strategy & action plan for food processing sector in India namely Vision2015. Vision Document suggested strategy to ensure faster growth of the sector. Theadopted Vision 2015 provides for enhancing the level of processing of perishablefrom 6% to 20%, enhancing value addition from 20% to 35% and increasing India’sshare in global food trade from 1.5% to 3% by the year 2015. To achieve thesetargets, investment of Rs.100 thousand crores was estimated by year 2015, out ofwhich Rs.10,000 crores was to come from the Government. Accordingly, Ministry ofFPI formulated its 11th Plan schemes to attract the required investment in the sector.

2. National Mission on food processing : Ministry of Food Processing Industries(MOFPI) launched a new Centrally Sponsored Scheme(CSS) – National Mission- onFood Processing (NMFP) on 1st April 2012 for implementation through States/UTs.The NMFP envisages establishment of a National Mission as well as correspondingMissions in the State and District level. The basic objective of NMFP isdecentralization of implementation of food processing related schemes for ensuringsubstantial participation of State Governments/UTs. The mission is expected toimprove the Ministry’s outreach significantly in terms of planning, supervision,monitoring of various schemes apart from playing a more meaningful role in policyformation.

3. Mega food parks : The Scheme of Mega Food Park aims at providing a mechanismto link agricultural production to the market by bringing together farmers, processorsand retailers so as to ensure maximizing value addition, minimizing wastages,increasing farmers’ income and creating employment opportunities particularly inrural sector. The Mega Food Park Scheme is based on “Cluster” approach andenvisages a well-defined agri/ horticultural-processing zone containing state-of-the artprocessing facilities with support infrastructure and well-established supply chain.

4. Modernization of abattoirs : The scheme aims at providing facilities for scientific

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and less painful slaughtering, chilling, effluent treatment plant, by-product utilization,water and power with required sanitary / phyto sanitary conditions for modernizationof abattoirs. Modernization of abattoirs will also augment essential supply base ofhygienic raw material to the meat processing industry, both for domestic consumptionand exports, besides discouraging unauthorized slaughtering. Scheme of Setting up/Modernization of Abattoirs provides for induction of private capital, better technology,backward and forward linkages. The scheme also provides for implementation ofprojects preferably under PPP mode with the involvement of local bodies and has theflexibility for involvement of private investors/exporters on a BOO/BOT/JV basis.

5. Cold Chain Infrastructure : Scheme for Integrated Cold Chain, Value Addition andPreservation Infrastructure aims to encourage setting up of cold chain facilities toprovide integrated cold chain and preservation infrastructure facilities without breakfrom the farm gate to the consumer.

6. R&D, QA, Codex and Promotion : Scheme for Quality Assurance, Codex, R&D andOther Promotional Activities is being implemented to create infrastructure of foodtesting laboratories in the country to establish quality monitoring system for foodprocessing, implement HACCP/ISO22000, ISO14000/GHP/GMP and other qualitymanagement systems and to promote research and development for innovativeproducts and process etc.

Boards and InstitutionsNIFTEM – National Institute of Food Technology and Entrepreneurial Management.IGPB – Indian Grape Processing Board.IICPT – Indian Insitute of Crop Processing Technology.NMPPB – National Meat and Poultry Processing Board.

The Present Status and Future of Food Processing Industriesin India

Estimated worth of Indian Food Processing Industry is 121 b dollars.India has already witnessed green and white revolution ie Agriculture and Milk.Now the focus is upon Pink Revolution : Meat and poultry sector.The packaged food sector in India is likely to double in 2015 to touch 30 b dollars.India is currently the world’s second largest producer of food (next only to China). Wehave the potential to become the No.1 player in this sector.

Important Websites Related to Food Processing [for further reference]1. Ministry of Food Processing.2. Food Processing.3. Food Processing Articles in Mrunal.org

Revolutions related to Food Production and Food Processing1. Pink Revolution – Meat and Poultry Production.2. Red Revolution – Meat & Tomato Production.

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3. Round Revolution – Potato Revolution.4. Silver Fiber Revolution – Cotton Revolution.5. Silver Revolution – Egg/Poultry Production.6. White Revolution – Milk/Dairy production (Operation Flood).7. Yellow Revolution – Oil Seeds production.8. Evergreen Revolution – Overall development of Agriculture.9. Blue Revolution – Fish Production.

10. Brown Revolution – Leather /Cocoa production.11. Golden Fibre Revolution – Jute Production.12. Golden Revolution – Overall Horticulture development/Honey Production.13. Green Revolution – Agriculture in general.

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Pink Revolution in Food Processing Industry

Pink Revolution is a term used to denote the technological revolutions in the meat andpoultry processing sector. India has already seen the ‘green’ and ‘white’ revolutions in itsfood industry – related to agriculture and milk respectively, now thrust is upon meat andpoultry sector. India being a country of huge cattle and poultry population, has highpotential for growth if this sector is modernized.

Potential and challenges of Pink Revolution in India

Meat and poultry processing sector in the country has great potentials for growth.

The present meat consumption per capita of around 6 grams per day will improve to50 grams a day in the next decade or so. When such phenomenal increase in meatconsumption occurs, the sector will witness a tremendous growth.Despite India’s large live stock population, India accounts only around 2 percent ofglobal market.Challenges include creating standard policies for meat production and export,standardizing the quality and safety aspects of meat and poultry, and creatinginfrastructure facilities for modern slaughter houses, meat testing facilities and coldstorages for the growth of the meat and poultry processing sector.Authority = National Meat and Poultry Processing Board under Ministry of FoodProcessing.India needs more hygienic methods in meat and poultry processing and increasedinvestment in the sector.

Government Policies To Promote Meat and Poultry Sector

There is no income tax or central excise in this sector.There are no restrictions on the export of poultry and poultry products,and the government provides some transport subsidiaries. Restrictions onForeign Direct Investment (FDI) have also been lifted, meaning that 100per cent FDI is now permitted to tap into available opportunities across the sector. The government has launched a comprehensive scheme for the modernization of abattoirs across the country in order to address quality standards, contamination and deterioration of produce, and the amount of meat wasted.The Indian poultry industry has been growing at varying rates of between 8-15 per cent annually, and is now worth more than 700 billion dollars.

For further reading related to Pink Revolution, refer :1. foodindustryindia.com2. foodproductiondaily.com3. http://in.reset.org/

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Update: UPSC Questions related to Pink Revolution

1. 2013 Mains GS3 : India needs to strengthen measures to promote the pink revolutionin food industry for better nutrition and health. Critically elucidate the statement.

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Land reforms in India

Land reforms in India usually refers to redistribution of land from the rich to the poor. Landreforms is often connected with re-distribution of agricultural land and hence it is relatedwith agrarian reforms too.

Background and History of Land Reforms in India

Land reforms includes regulation of ownership, operation, leasing, sales, and inheritanceof land (indeed, the redistribution of land itself requires legal changes).

In any country, the basis of all economic activity is the land. If we examine the history ofIndia, though there are instances of considering land as a private property by individualswho had control over it, the practice of communities like that of tribals with collectiveownership of land stands out. Land like many other gifts of nature, were considered freefor all by many communities who didn’t bother fix boundaries for private ownership. But thecolonial rule by British saw a dramatic shift in the land ownership pattern of India. Land ofmany tribal/forest communities were seized by British cultivators and Zamindars, and landtax was widely collected through systems like Zamindari, Ryotwari or Mahalwari.

A rich-minority-landowning class and poor-landless-peasant class became symbols ofIndian agrarian society. As the ownership of the land for some reason or other stayed withthe rich Zamindar class, they became more powerful year after year, accumulating wealth.The peasants, who actually cultivated the land, was often in poverty and remained

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landless. When India adopted socialistic principles after independence, equality in allspheres – social, economic and political was envisioned. Land reforms are essential stepstowards social and economic equality as land is a fundamental asset needed for healthydevelopment of an individual. As per the Indian constitution, land reform comes under thelist of state subjects, and hence the responsibility for bringing up regulations for effectingland reforms lies with individual states.

States which implemented land reforms in IndiaZamindari Abolition Act was passed by UP, Tamil Nadu, Bihar, Madhya Pradesh,etc. Surplus lands were confiscated from zamindars. As in Golaknath case, Supreme courtruled that the provisions of Zamindari Abolition act contradicted with Article 31 of IndianConstitution, the parliament took steps to repeal Article 31. Later Land Ceilings Act waspassed by different states.

Successful legislation for redistribution of land withceilings on private land property happened only in afew states. The most notable and successful landreforms happened in states of Kerala and WestBengal (Operation Barga). Only pockets of India likeJammu and Kashmir witnessed commendable stepsin land reform but attempts in states like AndraPradesh, Madya Pradesh and Bihar led to clasheswithin the communities. Though the Central landreforms committee has laid guidelines for landceilings, there was purposeful delay in theimplementation land reform policy in many states,giving gap for transactions to escape the tooth of land reform laws.

The other sides of land reformsLand reforms has an angle other than cultivation purpose. The redistribution of landbecomes a necessity often for development and manufacturing purposes too. Thisnecessitates a proper land policy, which gives due importance to nature, development andinclusion. Deeper structural reforms will ensure that the exercise of land redistributionactually becomes meaningful, enabling small farmers to turn their plots intoproductive assets. When every citizen of the country enjoys the benefits of ownership ofland, it can lead to social and economic upliftment.

There are arguments in favor and against land reforms.

Arguments in Favor of Land ReformsEquity – now majority of land in India is enjoyed by a minority of landlords.Inverse relationship between land size and efficiency – the smaller the land, betterwill be the productivity and efficiency.Owner-cultivation is more efficient than share-cropping.

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Arguments Against Land ReformsIf a centrally managed large agricultural land is divided among individual privateowners, the peasants who take it up may not be efficient enough to individually carryout the cultivation.Results in Fragmentation of land and pockets of inefficiency. For large scalecultivation, the fragmentation of land normally won’t help (this has other side too –see the inverse relationship).Evidence suggests that land reforms had a negative effect on poverty.Land reforms had led to economic decline and food insecurity in countries likeZimbabwe.

Reference:

Land Reform in India by Kaushik BasuLand Reforms – Planning CommissionLand Reforms – Issue and Challenges – Food FirstLand Policy in India – FAOLand Reforms in India – Hub Pages

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National Land Records Modernization Programme(NLRMP)

The National Land RecordsModernization Programme (NLRMP)was launched by the Government ofIndia in August 2008, aimed tomodernize management of landrecords, minimize scope ofland/property disputes, enhancetransparency in the land recordsmaintenance system, and facilitatemoving eventually towardsguaranteed conclusive titles toimmovable properties in the country.

Why are we discussing NLRMP now?A topic under Rural Development – can be asked under GS2 or GS3 (UPSC Civil ServicesMains). The source of this article is PIB, from where we are planning to write about manymore topics important for UPSC Civil Services Exam.

Objective of NLRMPThe main objective of the NLRMP is to develop a modern, comprehensive and transparentland records management system in the country with the aim to implement the conclusiveland-titling system with title guarantee, which will be based on four basic principles, i.e.,

(i) a single window to handle land records (including the maintenance and updating oftextual records, maps, survey and settlement operations and registration ofimmovable property)(ii) the ―mirror principle, which refers to the fact that cadastral records mirror theground reality(iii) the ―curtain principle which indicates that the record of title is a true depiction ofthe ownership status, mutation is automated and automatic following registration andthe reference to past records is not necessary(iv) title insurance, which guarantees the title for its correctness and indemnifies thetitle holder against loss arising on account of any defect therein.

Major Components of the NLRMP ProgrammeThe major components of the programme are :

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1. computerization of all land records including mutations.2. digitization of maps and integration of textual and spatial data.3. survey/re-survey and updation of all survey and settlement records including creation

of original cadastral records wherever necessary.4. computerization of registration and its integration with the land records maintenance

system5. development of core Geospatial Information System (GIS) and capacity building.

Activities under NLRMP Project· Scanning, digitization, updation of mussavies/ cadastral maps· Geo-linking of RoR data with updated digitized maps· Scanning of old Revenue documentsfor virtual record room· Survey/Resurvey using ETS· DGPS Survey· Satellite data processing

Benefits of NLRMP Projecta modern, comprehensive and transparent land records management system ineach state.a single window system to handle land records, including maintenance and updatingof textual records, maps, survey and settlement operation and registration ofimmovable property.up-dated land records and push them into public domain so that people can accessthe records with ease.integration of the diverse processes in land administration and provide an integratedland records information system.land value assessment.preparation of field level soil health cards.smart cards for farmers to facilitate e-governance and e-banking.settlement of compensation claimsland acquisition and rehabilitationcrop insurancegrant of agricultural subsidiescommunity/ village resource centresprecision farming etc.

NB: An example of a state which implemented NLRMP with satellite data is Haryana.

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Index of Industrial Production (IIP): Made Easy toUnderstand

You all know that GDP measures the overall activity (production) in the Indian Economy.But is there any index which specifically captures the industrial activity in the IndianEconomy? Yes, this index is known as Index of Industrial Production (IIP).

What is IIP?

Index of Industrial Production (IIP) is an index which helps us understandthe growth of various sectors in the Indian economy such as mining, electricity andmanufacturing.IIP is a short term indicator of industrial growth till the results from Annual Survey ofIndustries (ASI) and National Accounts Statistics (Eg: GDP) are available.The base year of the index is given a value of 100. The current base year for the IIPseries in India is 2011-12. So, if the current IIP reads 180, it means that there hasbeen 80% industrial growth compared to the base year, ie 2011-12.

Who releases IIP?Index of Industrial Production (IIP) is released by the Central Statistics Office (CSO) ofthe Ministry of Statistics and Programme Implementation.

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IIP is published monthly, six weeks after the reference month ends.

IIP Old Series Data: 2004-05The current base year for the IIP series in India is 2011-12. The old series data is givenjust for reference/comparison.

IIP data 2004-05 is sourced by 16 agencies!IIP is compiled using data received from 16 source agencies viz. Department of IndustrialPolicy & Promotion (DIPP); Indian Bureau of Mines; Central Electricity Authority; Joint PlantCommittee; Ministry of Petroleum & Natural Gas; Office of Textile Commissioner;Department of Chemicals & Petrochemicals; Directorate of Sugar; Department ofFertilizers; Directorate of Vanaspati, Vegetable Oils & Fats; Tea Board; Office of JuteCommissioner; Office of Coal Controller; Railway Board; Office of Salt Commissioner andCoffee Board.

IIP 2004-05 covers 682 items!We have already seen that IIP measures industrial growth. It measures the short termchanges in the volume of production of a basket of industrial products. The current IIPbasket covers 682 representative items.

Mining (61 items) – 14.16% weightManufacturing (620 items) – 75.53% weightElectricity (1 item) – 10.32% weight.

Note: Even though United Nations Statistics Division suggests to also include Gas steam,Air conditioning supply, Water supply, Sewerage, Waste Management and Remediationactivities in the IIP, due to data constraints Indian IIP only covers three sectors – mining,manufacturing and electricity. These three are called broad sectors.

IIP also gives us an idea about use-based sectors – another classification. User-basedsectors include Basic Goods, Capital Goods and Intermediate Goods.

Weighted arithmetic mean of quantity relatives with weights being allotted to various itemsin proportion to value added by manufacture in the base year by using Laspeyres’ formula.

Core Industries and IIP 2004Coal, Crude Oil, Natural Gas, Refinery Product, Steel, Cement and Electricity are known asCore Industries. The eight Core Industries comprise nearly 37.9 % of the weight of itemsincluded in the Index of Industrial Production (IIP). The 8 core industries are their relativeweight in IIP is as below:

1. Coal (weight: 4.38 %).2. Crude Oil (weight: 5.22 %).3. Natural Gas (weight: 1.71 %).

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4. Refinery Products (weight: 5.94%).5. Fertilizers (weight: 1.25%).6. Steel (weight: 6.68%).7. Cement (weight: 2.41%).8. Electricity (weight: 10.32%)

Annual Survey of Industries (ASI) Vs Index of IndustrialProduction (IIP)The Industrial Output data is captured and monitored, primarily, through two statisticalactivities – Annual Survey of Industries (ASI) and Index of Industrial Production (IIP).

ASI

ASI is calculated on an annual basisThe ASI is conducted under the Collection of Statistics Act, since 1959.The objective is to obtain comprehensive and detailed statistics of industrial sectorwith the objective of estimating the contribution of registered manufacturing industriesas a whole to the national income.ASI data is based on the actual book of accounts and other documents maintained byregistered factories.

IIP

IIP is calculated on a monthly basis.Data for IIP are collected by various source agencies under different Acts/statutes.The IIP is compiled on the basis of data sourced from 16 ministries/ administrativedepartments.

Industry vs ManufacturingThough often interchangeably used, the terms industry and manufacturing are different.

The term industry is comprehensive and may be considered as a superset ofmanufacturing. Industry, in general, refers to an economic activity that is concerned withthe production of goods, extraction of minerals and sometimes even for the provision ofservices. Thus we have iron and steel industry (production of goods), coal mining industry(extraction of coal) and tourism industry (service provider).

So what is manufacturing then?Manufacturing: Production of goods in large quantities after processing from raw materialsto more valuable products is called manufacturing.

Industry = Manufacturing + Mining + Electricity + much more.

Share of Industrial Sector in the total GDP of India

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The total Industrial sector has only around 27 percent share in the total GDP of India. Overthe last two decades, the share of the manufacturing sector has stagnated at 17 per cent ofGDP – out of a total of 27 per cent for the industry which includes 10 per cent for mining,quarrying, electricity and gas.

The share of Manufacturing in the GDP of India – 17%.The share of Mining, quarrying, electricity and gas in the GDP of India – 10%.Total share of Industrial Sector = 27%

Steps to boost manufacturing1. National Manufacturing Competitiveness Council (NMCC): The National

Manufacturing Competitiveness Council (NMCC) has been set up by the Governmentto provide a continuing forum for policy dialogue to energise and sustain the growthof manufacturing industries in India.

2. Make in India Initiative.3. National Investment and Manufacturing Zones (NIMZs).4. Delhi-Mumbai Industrial Corridor (DMIC).

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Index of Industrial Production (IIP) – All About The NewIIP Series (2011-12)

No country can be great without a robust manufacturing base. In India, Index of IndustrialProduction (IIP) is the index which measures the growth in the industrial sector. In this post,we explain the concept of IIP, the changes in the new IIP series (2011-12), limitations, andthe future.

What is Index of Industrial Production (IIP)?IIP is an important composite indicator in India that measures the changes in thevolume of production of a basket of industrial products.IIP measures the growth of manufacturing, mining, and electricity sectors.The aim of IIP is to capture the direction and the trend of industrial production in thecountry, not the absolute value of industrial production.It measures the short-term changes in the volume of production of a basket ofindustrial products.In India, the periodicity of IIP is one month with a six-week lag.The basket of the new series contains 407 item groups ( 405 manufacturing sectoritem groups (comprising of 809 items) and one item group each of mining andelectricity).

Note: We have covered the concepts of IIP and the old series (the base year 2004) inanother article. If you need to refer the same, check – IIP: Made easy to understand.

Who releases the IIP?The Index of Industrial Production (IIP) is published by the Central Statistics Office

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(CSO) of the Ministry of Statistics and Programme Implementation.

Which are the sources for compiling the new IIP Series?The new series has 14 sources namely -(i) Department of Industrial Policy andPromotion (DIPP); (ii) Indian Bureau of Mines; (iii) Central Electricity Authority; (iv)Joint Plant Committee, Ministry of Steel; (v) Ministry of Petroleum and Natural Gas;(vi) Office of Textile Commissioner; (vii) Department of Chemicals andPetrochemicals; (viii) Directorate of Sugar & Vegetable Oils; (ix) Department ofFertilizers; (x) Tea Board; (xi) Office of Jute Commissioner; (xii) Office of CoalController; (xiii) Railway Board; and (xiv) Coffee Board.

How does the new IIP differ from the old IIP? A Comparison:The table below compares some major additions in the new IIP series and their possibleimpacts in brief.

CHANGE OLDSERIES

NEWSERIES

COMMENT

Base Year 2004-05 2011-12 Will be able to capture structural changes in theeconomy and improve the quality andrepresentativeness of the indices.

Selection ofitems

Done at 2 digitlevel of NationalIndustrialClassification(NIC)-2004

Done at 3digit level ofNIC- 2008

Better representation possible

Number ofitems inManufacturingsector

620 (397 itemgroups)

809 (405 itemgroups)

149 new items like Steroids, Surgical accessories,Palm oil etc. added124 items like Calculators, Colour TV picturetubes, Gutka have been omitted

SectorialWeightage

Manufacturing –75.527Electricity –10.316

Mining -14.157

Manufacturing-77.633Electricity -7.994

Mining –14.373

Increase weightage to the Manufacturing sector,while weightage of Electricity and Mining hasdropped.

Electricitysector

Renewablesources- Absent

AddedElectricityproducedfromrenewableenergy

Shows the significance of renewable energy, alsofall in line with the COP-21 target of 40%production of energy via renewable sources

Mining Sector 27 non-metallicminerals notbe covered

These were declared minor minerals in MCDRAmendment Rules, 2016. Thus Indian Bureau ofMines won’t cover them

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The numberof sourceagencies

15 14 Data on ‘Iodised Salt’ will be provided by DIPP.Because, the Salt Commissioner is not in aposition to supply Salt production data after theabolition of Salt Cess Act, 1953 in Finance Bill2016.

Use-Based Classificationchanges

There are two new categories introduced in the new series namely“Primary goods” and “Infrastructure/ Construction goods”replaced the category “Basic goods” in use-based classification.

Working in Progress Many items have production span of more than one month forwhich data will now be reported on ‘work in progress’ so thatcontinuous production is accounted. It will address the fluctuationsin production data.

Why was a revise needed in the IIP series?The amendment in item list brings the production data of products that are relevantaccording to the changing time. For example, the production of colour TV picturetubes holds little relevance in a time of LCD, LED and OMLED technology. Yet fall incolour TV picture tube affected the IIP.Change in series maintains representativeness of the items and producing entitiesand also address issues relating to the continuous flow of production data.By changing base year to 2011-12, now GDP, WPI and IIP, the three major indices;are in sync.Also, a change in base year is done to shave off the base effect. It increases thesensitivity of the index to changes over the previous year.The IIP was criticised for being unable to get the true picture. It focussed onredundant items while many vital aspects were left untouched, like the renewableenergy production. Therefore a drastic change became a necessity.

What are the impacts after IIP revision?A Technical Review Committee, chaired by Secretary, Ministry of Statistics andProgram Implementation, is being set up to facilitate dynamic revision of the item listand panel of factories. It will meet once a year to amend the list. It will make the IIPdynamic, time relevant and an organic index.The average industrial output growth for last five fiscal was 1.42%, as per 2004-05series. It increased to 3.82% according to the new IIP series (2011-12).Also, the old series showed 0.7% expansion in 2016-17. While the new seriesshowed 5% rate of growth till March 2017 ( 2016-17).

What are the limitations of IIP?Quality Vs Quantity: IIP is still reliant on quantity based growth projection. It facesproblem in assessing the growth of high-value, low output products. Take theexample of two cars, Maruthi Alto and Mercedes Benz. The value of one MercedesBenz is more than 10 Maruthi Alto. Yet, a production increase of 2 units of Benzwould be equal to 2 Maruthi Alto. So a little fall in the mass produced Alto will negatethe increase in Benz production.

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Unorganised Sector: The unorganised sector is still out of reach of the index.According to the employment and unemployment survey (EUS 2011-12, conductedby NSSO), employment in the informal component is to be about 75 per cent of totalusual status employment (principal and subsidiary) in the rural areas and 69 per centin urban areas. So IIP leaves about 70% of employment providing sector (i.e.,unorganised sector) out of its reach.Manufacturing Sector and PMI: While assessing manufacturing sector, IIP stilllacks the sensitivity that PMI (Purchasing Managers’ Index- by Nikkei) is supposed tohave. PMI also covers service sector.

What is the future?We are moving through an era of disruptive technology, where the boundaries betweenservice and manufacturing are becoming hazy with each moment. With the fourth industrialrevolution approaching, there is a need to change the way of assessing parameters ofproduction and its direction. The formation of Technical Review committee is a good stepbut merely changing the items won’t be enough in this fast changing world. The need is toredefine IIP where it covers not just production flow, but also its quality, impact andsustainability. It’s sometimes joked that only if we have a Richter scale to judge economicquakes. Well, IIP’s future lies in becoming that scale.

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Indian Companies Act 2013 : Salient Features

The Indian Companies Act 2013 replaced the Indian Companies Act, 1956. TheCompanies Act 2013 makes comprehensive provisions to govern all listed and unlistedcompanies in the country. The Companies Act 2013 implemented many new sections andrepealed the relevant corresponding sections of the Companies Act 1956. This is alandmark legislation with far-reaching consequences on all companies incorporated inIndia.

Comparison of Companies Act 1956 and Companies Act 2013

Indian Companies Act 2013 has fewer sections (470) than Companies Act 1956 (658). Thenew act empowers shareholders and gives high value for Corporate Governance.

Details 1956 Act 2013 Act

Parts 13 NA

Chapters 26 29

Sections 658 470

Schedules 15 7

Key Highlights of Indian Companies Act 2013

Maximum number of members (share holders) permitted for a Private LimitedCompany is increased to 200 from 50.One-Person company.Section 135 of the Act which deals with Corporate Social Responsibility.Company Law Tribunal and Company Law Appellate Tribunal.

Salient features of the Companies Act 2013

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1. Class action suits for Shareholders: The Companies Act 2013 has introduced newconcept of class action suits with a view of making shareholders and otherstakeholders, more informed and knowledgeable about their rights.

2. More power for Shareholders: The Companies Act 2013 provides for approvalsfrom shareholders on various significant transactions.

3. Women empowerment in the corporate sector: The Companies Act2013 stipulates appointment of at least one woman Director on the Board (for certainclass of companies).

4. Corporate Social Responsibility: The Companies Act 2013 stipulates certain classof Companies to spend a certain amount of money every year on activities/initiativesreflecting Corporate Social Responsibility.

5. National Company Law Tribunal: The Companies Act 2013 introduced NationalCompany Law Tribunal and the National Company Law Appellate Tribunal to replacethe Company Law Board and Board for Industrial and Financial Reconstruction. Theywould relieve the Courts of their burden while simultaneously providing specializedjustice.

6. Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplifiedprocedure for mergers and amalgamations of certain class of companies such asholding and subsidiary, and small companies after obtaining approval of the Indiangovernment.

7. Cross Border Mergers: The Companies Act 2013 permits cross border mergers,both ways; a foreign company merging with an India Company and vice versa butwith prior permission of RBI.

8. Prohibition on forward dealings and insider trading: The Companies Act2/4

2013 prohibits directors and key managerial personnel from purchasing call and putoptions of shares of the company, if such person is reasonably expected to haveaccess to price-sensitive information.

9. Increase in number of Shareholders: The Companies Act 2013 increased thenumber of maximum shareholders in a private company from 50 to 200.

10. Limit on Maximum Partners: The maximum number of persons/partners in anyassociation/partnership may be upto such number as may be prescribed but notexceeding one hundred. This restriction will not apply to an association orpartnership, constituted by professionals like lawyer, chartered accountants,company secretaries, etc. who are governed by their special laws. Under theCompanies Act 1956, there was a limit of maximum 20 persons/partners and therewas no exemption granted to the professionals.

11. One Person Company: The Companies Act 2013 provides new form of privatecompany, i.e., one person company. It may have only one director and oneshareholder. The Companies Act 1956 requires minimum two shareholders and twodirectors in case of a private company.

12. Entrenchment in Articles of Association: The Companies Act 2013 provides forentrenchment (apply extra legal safeguards) of articles of association have beenintroduced.

13. Electronic Mode: The Companies Act 2013 proposed E-Governance for variouscompany processes like maintenance and inspection of documents in electronicform, option of keeping of books of accounts in electronic form, financial statementsto be placed on company’s website, etc.

14. Indian Resident as Director: Every company shall have at least one director whohas stayed in India for a total period of not less than 182 days in the previouscalendar year.

15. Independent Directors: The Companies Act 2013 provides that all listed companiesshould have at least one-third of the Board as independent directors. Such otherclass or classes of public companies as may be prescribed by the CentralGovernment shall also be required to appoint independent directors. No independentdirector shall hold office for more than two consecutive terms of five years.

16. Serving Notice of Board Meeting: The Companies Act 2013 requires at least sevendays’ notice to call a board meeting. The notice may be sent by electronic means toevery director at his address registered with the company.

17. Duties of Director defined: Under the Companies Act 1956, a director had fiduciary(legal or ethical relationship of trust)duties towards a company. However, theCompanies Act 2013 has defined the duties of a director.

18. Liability on Directors and Officers: The Companies Act 2013 does not restrict anIndian company from indemnifying (compensate for harm or loss) its directors andofficers like the Companies Act 1956.

19. Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors andaudit firms in case of publicly traded companies.

20. Prohibits Auditors from performing Non-Audit Services: The Companies Act2013 prohibits Auditors from performing non-audit services to the company wherethey are auditor to ensure independence and accountability of auditor.

21. Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation

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process of the companies in financial crisis has been made time boundunder Companies Act 2013.

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Make In India Initiative

If we count the population employed, India is largely an agrarian country. Nearly 50 percentof Indian population depends on agriculture and allied activities for livelihood. But ifcontribution to GDP is taken as the parameter, India is predominantly a service economy,and service sector has near 60 percent share of total GDP. Whatever way we see India,there is no doubt that India lacks behind in one sector : The Manufacturing Sector. Yes, thisstructural problem of Indian economy is highlighted by many economists for many years,and all previous governments had taken some steps to boost manufacturing. The Make inIndia Initiative by the present government is a big step in this direction, towards makingIndia, an investment hub for manufacturing.

What is Make In India?

Make In India is a new national program designed to transform India into a globalmanufacturing hub. It contains lot of proposals designed to urge companies — local andforeign — to invest in India and make the country a manufacturing powerhouse.

Sectors covered under Make In India programmeThe focus of Make In India programme is on creating jobs and skill enhancement in 25sectors. These include:

1. Automobiles.2. Aviation.3. Chemicals.4. IT & BPM.5. Pharmaceuticals.

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6. Construction.7. Defense manufacturing.8. Electrical machinery.9. Food processing.

10. Textiles and garments.11. Ports.12. Leather.13. Media and entertainment.14. Wellness.15. Mining.16. Tourism and hospitality.17. Railways.18. Automobile components.19. Renewable energy.20. Mining.21. Bio-technology.22. Space.23. Thermal power.24. Roads and highways.25. Electronics systems.

Make In India Initiative : What’s new?1. Website for business queries : www.makeinindia.com.2. Social media pages to explain the idea : Eg: MakeinIndia Facebook page.3. Invest India Cell : Foreign investor facilitation cell.4. eBiz : single window online clearance portal.

In Pipe-line1. Single labour law for small scale industries.2. Online filing of all returns in a unified form.

Why ‘Make in India Initiative’?

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Narendra Modi stated the reason and motive to launch Make In India very clearly,

It is important for the purchasing power of the common man to increase, as this wouldfurther boost demand, and hence spur development, in addition to benefiting investors. Thefaster people are pulled out of poverty and brought into the middle class, the more opportunitywill there be for global business. Therefore, investors from abroad need to create jobs. Costeffective manufacturing and a handsome buyer – one who has purchasing power – are bothrequired. More employment means more purchasing power .

Vision: Zero Defect and Zero EffectIf each one of our millions of youngsters resolves to manufacture at least one such item,India can become a net exporter of goods. I, therefore, urge upon the youth, in particularour small entrepreneurs that they would never compromise, at least on two counts. First,zero defect and, second again zero effect. We should manufacture goods in such a waythat they carry zero defect, that our exported goods are never returned to us. We shouldmanufacture goods with zero effect that they should not have a negative impact on theenvironment.

Aggressive branding and marketingMany previous governments had taken different steps to attract foreign investment (FDI) toboost manufacturing. ‘Make in India initiative’ talks about nothing different, but this initiativeinvolves better branding and marketing to gain investor confidence. The need to give stressto manufacturing and industries is made clear. An entrepreneurial culture is encouraged,with relaxation in policies. Make in India is surely a visionary move considering the lowperformance of our industries in last 3-4 years.

How to use Make In India Portal for UPSC Exam preparation?

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Yes, UPSC aspirants and general public interested to know the details of Indian economy(particularly manufacturing sector) got a really good website to do research upon. We areadding www.makeinindia.com to the list of useful government websites for IAS preparationrealizing the value of its content. Aspirants are advised to take the best out of this portal,particularly focusing on the links given below.

1. Make In India Initiative Policies.2. Make in India Initiative Sectors.

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Insolvency and Bankruptcy Code: Why do we need itnow?

India did not have a single bankruptcy code. What we had were age-old laws which are inconflict with each other. Lack of an insolvency and bankruptcy code had proved costly forthe creditors (mainly banks) in many cases like the recent Kingfisher Airlines case. TheInsolvency and Bankruptcy Code seeks to create a unified framework to resolve insolvencyand bankruptcy in India.

The Code covers insolvency, liquidation, voluntary liquidation and bankruptcy. The billmakes it easier for weak companies to exit or restructure their businesses. The code seeksto amend 11 laws, including the Companies Act, 2013 and the Sick Industrial Companies(Special Provisions) Repeal Act, 2003.

Latest status: The Insolvency and Bankruptcy Code 2016 was introduced in the LokSabha by Finance Minister Arun Jaitley in December 2015 and the JPC’s report is expectednext week. The new Code is based on the report of the committee which studied the matter(Bankruptcy Law Reform Committee).

What are Insolvency and Bankruptcy?Insolvency is the situation where the debtor is not in a position to pay back the creditor. Fora corporate firm, the signs of this could be a slow-down in sales, missing of paymentdeadlines etc. Bankruptcy is the legal declaration of Insolvency. So the former is a financialcondition and latter is a legal position. All insolvencies need not lead to bankruptcy. Thenew code has a sequential procedure of Insolvency resolution, failing which, it leads toBankruptcy (following liquidation of assets).

Why do we need such a code?

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1. Such a unified code is essential because currently the issue is handled under at least13 different laws. This code seeks to replace the Presidency Towns Insolvency Act,1909 and Provincial Insolvency Act, 1920. In addition, it seeks to amend 11 laws,including the Companies Act, 2013, Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993 and Sick Industrial Companies (Special Provisions) Repeal Act,2003, among others.

2. Earlier, if a company defaults, there were at least four different legal routes availableto the debtors and creditors. This could lead to multiple negotiations, multiplepenalties etc. for the debtor, compounding his plight.

3. Such parallel proceedings had also given rise to numerous instances of conflictbetween the laws. Four different agencies, the high courts, the Company Law Board,the Board for Industrial and Financial Reconstruction (BIFR), and the Debt RecoveryTribunals (DRTs) have overlapping jurisdiction, giving rise to the potential of systemicdelays and complexities in the process. This new bill addresses these issues, bybringing in a new uniform Code.

4. Current insolvency proceedings take months, if not years (average time: 4 years).This delay can acutely devalue the assets involved, thus making the insolvencynegotiations redundant.

5. The current disposition involves the institution of official liquidator, which is prone tored-tapeism, chronic corruption, and nepotism. The new code seeks to keep the roleof the adjudicator to the minimum.

6. Currently, only 25% of the asset value is recovered by the creditors even after theliquidation process.

7. All these compounded to the pitiable position our Public Sector Banks findthemselves in. Rising NPAs and mounting Stressed Assets have also eroded theirprofits, as the recent SBI reports point out. The easing of liquidation process can helpthe banks recover a lot of bad debts.

8. India fares poorly in the Ease of Doing Business index of World Bank. Easiness ofExit is an important parameter in this index. The present morass of laws doesn’t helpin easing the exit of trouble-prone entities.

9. According to World Bank data, it takes more than four years to wind up an ailing

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company in India, almost twice as long as it does in China.10. Just like the US Bankruptcy Code that provides for fairly quick liquidation or

reorganisation of business, India too need a new code which will prevent theeconomy from tumbling southwards.

Current insolvency mechanisms or laws (which obviouslydidn’t work well!)

Securitisation and Enforcement of Security.Corporate Debt Restructuring or CDR.Sick Industrial Companies Act or SICA

Insolvency Proceedings: Companies vs IndividualsThe code will apply to all sort of business entities including corporate companies,partnerships, limited liability partnerships, individuals etc. Broadly the insolvencyproceedings or the Insolvency Resolution Process (IRP) can be classified into twostreams:

1. Companies and Limited Liability Partnerships (LLP):

The process can be initiated either by the debtor or the creditor(s). In this case, ofcompanies and LLPs, the resolution process has to be completed in 180 days from the dateof registration of the intent. That means once an application for insolvency resolution isaccepted, an 180-day moratorium comes into place, during which no claims can bepursued against the debtor or its assets. This period of 180 days, can be extended byanother 90 days if 75% of the financial creditors agree. The process enables the debtorand creditor to hold negotiations and finalise a draft resolution plan. The draft plan is to beagreed up on by a majority of the creditors. If they do agree, the plan is finalised andsubmitted to the adjudicating authority, which in this case is the National Company LawTribunal. If the plan is not agreed up on by the majority of creditors, the company goes intoliquidation.

There will be a provision for hastening up the IRP, as far as companies with smalleroperations are concerned. Here the process will have to be completed within 90 days,which may be extended only if 75% of the financial creditors agree to it.

2. Individuals and Partnerships:

Here, there are steps to be followed even before the Insolvency Resolution Process, IRPstarts. Before going for IRP, the debtor may apply for forgiveness of specified amount ofdebt, provided his total assets are below a limit set by the Central Govt. This initialpardoning has to be done within 6 months. After that, the formal IRP starts, just like the firststream of companies, mentioned above. The negotiations between the debtor and creditorwill be supervised by an insolvency professional. If they negotiations succeed, the

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repayment plan is drafted. If the plan is agreed upon by the majority of the creditors, theplan is submitted to the adjudicator, which in this case is Debt Recovery Tribunal. If theyfail, the matter will proceed to the bankruptcy resolution.

Different parties associated with insolvencyNow that we have dealt with the insolvency process, we shall move on to the differentparties involved.

1. Insolvency professionals and agencies: as said earlier, the IRP will be managedand supervised by a licensed professional. The Insolvency Code also proposes to setup insolvency professional agencies, which can recruit the professionals and regulatethem. The professionals will also have the power and duty to control the assets of thedebtor during the process.

2. Information Utilities: The code also proposes to establish information utilities whichwill maintain a range of financial information about firms. Their duty is to collect anddisseminate the information to facilitate the insolvency resolution process.

3. Insolvency Regulator: The Code establishes the insolvency regulator, the Insolvencyand Bankruptcy Board of India, IBBI, which will have the mandate to oversee theinsolvency resolution in the country. The Board will have a membership of 10members, including those representing the Central Government & Reserve Bank ofIndia. The board will also act as the apex regulator, registering and regulating theinformation utilities, insolvency professional agencies, insolvency professionals etc.

4. Insolvency and Bankruptcy Fund, IBF: deposits of the fund will include grantsmade by the central government, the amount deposited by the persons, interestearned on investments made from the fund etc. any person, who has contributed tothe fund, may apply for withdrawal, in a case of proceedings against him.

5. Bankruptcy and Insolvency Adjudicators: as noted earlier, there are two differentadjudicators, proposed by the code, one each for the two streams for individuals andcompanies. The National Company Law Tribunal will have the jurisdiction overcompanies and Limited Liability Partnerships, whereas the Debt Recovery Tribunalwill have the jurisdiction over the individuals and partnership firms. Appeals againstthe orders of these tribunals may be challenged before their respective AppellateTribunals, and further before the Supreme Court.

6. Credit Committee: it is to be composed of financial creditors. The primary aim of thecommittee is to ensure payments to operating creditors on a pre-scheduled priorityorder (the priority proposed is listed later in the article).

7. Offences and Penalties: the offences committed by the debtor under the corporateinsolvency (first stream) like concealing the property, defrauding creditors etc. will bepunished with imprisonment up to 5 years, with a fine of up to one crore rupees.Whereas, the offences committed by an individual (second stream), like providingfalse information, the imprisonment will vary based on the evidence. For most ofthese offences, the fine will not exceed five lakh rupees.

Advantages of the New Code

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1. The bill seeks to shift from revival/recovery to resolution. This will ensure maximumassets recovered from the debtor, thus helping the balance sheets of the creditor.This would go a long way in helping the NPA-situation of the banks.

2. The new bill proposes to speed up both recoveries and restructuring procedures.There is significant a curb on the time involved, a maximum of 270 days. This willexpedite the insolvency process. Time is important as the value of the assetscorrodes very rapidly, when the firm is precariously placed.

3. The bill aims at promoting investments, freeing up banks’ resources for otherproductive uses, boosting credit markets and improving ease of doing business inIndia, thus making a cumulative positive impact on the economy

4. The fixed time-period and predictable procedural methods will encourage creditors tojoin the collective insolvency resolution, rather than initiate individual actions.

5. By keeping the role of the adjudicator to a minimum, the bill ensures that delaysarising from the bottlenecks in court proceedings are also reduced to the minimum.The principal business decisions such as the economic viability of the debtor, will bedetermined through negotiations between the debtor and creditors – an exercise thatwill be facilitated by insolvency professionals. The role of the NCLT is primarily toensure that the procedures are complied with and no illegality or fraud has takenplace.

6. The draft Bill also abolishes the institution of the official liquidator, which by allaccounts has been a failure in non-viable businesses. Instead, the functions of theofficial liquidator are to be performed by insolvency professionals.

7. Industry anticipates that the change will provide an easy exit option for insolvent andsick firms.

8. The new code will matter to private sector employees too. The Bill, by forcing failed5/7

firms to shut shop, can lead to a survival of the fittest in the job market too.9. Make it easy for the budding entrepreneurs to start or exit from the start-up business.

Commerce and Industry minister says it is going to make it easy to start up as muchas to get out of the start-ups because if they are not doing well, there shouldn’t be ataboo. They would be able to get out faster, thus helping the Start-up India Stand-upIndia campaign.

Concerns regarding the Bill:1. The draft Bill needs careful review, particularly on how the new law would interact

with existing laws in this space, including the Sarfaesi Act and other debt recoverylaws. Since it appears that the new Code doesn’t replace the existing laws (and onlyamends 11 laws), there must at least be a clear demarcation of when these lawswould apply and of overriding provisions in cases of conflict with the code, if we areto avoid reverting to the old regime of chaos and uncertainty.

2. The bill also provides for priority with regard to the distribution of proceeds followingliquidation of the company (who gets the bounty first!). In the order of priority, the firstcharge will be insolvency resolution process cost and liquidation costs to be paid infull. Liquidation proceeds will then be used to clear debts owed to secured creditors,and then to pay workmen’s dues for 12 months, unpaid dues to employees otherthan workmen, and financial dues owed to unsecured creditors, in that order.Government taxes for two years, other debts, preference shareholders and equityshareholders will receive last priority for payment (waterfall provision). Since equityshareholders could include the employees’ PF, pensioners’ fund etc., giving thepublic money the least importance has raised some eye brows.

3. The credit committee is to compose only of financial creditors. However, operationcreditors is to be paid out first. This could lead to a conflict of interest.

4. Only two year history is to be checked for diversion, to check for ascertainingmalfeasance. There is a suggestion that earlier history also should be taken intoaccount.

5. The proposed Bill is also quite ambitious in the creation of a new institutionalarchitecture to deal with insolvency. Among other things, it proposes theestablishment of a new regulator, the creation of a new profession of insolvencyprofessionals and the establishment of institutions known as information utilities thatare designed to provide accurate information on defaults. These institutions andpractices will take time to establish and there need to be well thought out transitionalarrangements in the interim. Equally essential is significant training for insolvencyprofessionals and judges if insolvency resolution and liquidation are to be the efficientand time-bound processes that the draft Bill envisages.

6. Promoters will have the option to buy-back the company at a certain price, withcertain debt restructuring. This has to be contemplated further to avoid bankruptcytool from becoming an instrument to be exploited to reduce debt and increase equityvalue.

7. There is also apprehension that the ease of exit, could lead to hire and fire,especially in the private firms and start-up companies.

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ConclusionThe proposed Insolvency and Bankruptcy Bill is only a starting point for easing exits fordebtors in distress, preserving value and providing creditors with greater certainty inoutcomes. Yet, by providing for a linear, time-bound and collective process for insolvencyresolution and liquidation, it is a step in the right direction.

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National Investment and Infrastructure Fund (NIIF)

Projects like Smart Cities, Dedicated Freight Corridors, High-speed railways etc requirehuge, long-term investment. From where does this money come from? Government of Indiahad announced setting up of National Investment and Infrastructure Fund (NIIF) in 2015budget. The fund was eventually set up in December 2015. The Fund aims to attractinvestment from both domestic and international sources.

Issues with infrastructure sector

The sector needs long term finance; but banks are helpless: One of thefundamental reason why Indian infrastructure is still not up to desired level is the lackof long term finance. This is despite the fact that 10.4% of bank lending waschannelled to Infrastructure in 2015.But of late, the banks in India especially the public sector banks are reeling under thepressure of Non-Performing Assets and Stressed assets, combing around 4.5%and 11% respectively.This has forced the banks to confine themselves to a shell and not committhemselves to long term financing portfolios and projects with long gestation periods.It is in light of this fund crunch situation that the Government of India announcedsetting up of National Investment and Infrastructure Fund in 2015 budget.The NIIF through its pass-throughs, such as the National Housing Bank and theIRFC, will fund for a longer window of 20 years or more.

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To make it simple, National Investment and Infrastructure Fund (NIIF) is a fundcreated by the Government of India for enhancing infrastructure financing in thecountry.Securities and Exchange Board of India (SEBI) has already approved NIIF as analternate investment fund.The National Investment and Infrastructure Fund (NIIF) Limited has beenincorporated as a company under the Companies Act, 2013, duly authorized to act asinvestment manager of National Investment and Infrastructure Fund.The government will invest Rs 20,000 crore into the NIIF from the Budget, withanother Rs 20,000 crore expected to come from private investors.The government’s share of the NIIF’s corpus is envisaged to be under 50%.Will NIIF invest in stalled projects? Answer: YesWill NIIF invest in brownfield projects? Answer: Yes, both greenfield andbrownfield, if it’s commercially viable.

Note: You should not confuse National Investment Fund (NIF) and National InnovationFoundation (NIF) with National Investment and Infrastructure Fund (NIIF). All three aredifferent concepts.

NIIF as fund of fundsNIIF is a fund of funds. So there will be multiple alternate investment fundsunderneath.There could be a stressed-assets fund, renewable energy fund, brownfield projectsfund – sponsored by the NIIF.

How does this work?With the corpus of Rs 40K crore the Trust would be able to raise debt.NIIF would raise funds upto 10 times the corpus or up to Rs 2 lakh crore on a long-term basis.It can invest in equity through infrastructure finance companies such as IRFC(IndianRailway Finance Corporation) and NHB(National Housing Bank).The infrastructure finance companies can then leverage this extra equity, manifold.

National Investment and Infrastructure Fund (NIIF): What willit do?

1. Equity (capital) to Non-Banking Financial Companies (NBFCs)/FinancialInstitutions (FIs) that are engaged mainly in infrastructure financing. Theseinstitutions will be able to leverage this equity support and provide debt to theprojects selected.

2. Invest in funds engaged mainly in infrastructure sectors and managed by AssetManagement Companies (AMCs) for equity / quasi-equity funding of listed / unlistedcompanies.

3. Provides fund directly to commercially projects, both Greenfield and brownfield,including stalled projects. A government official said some key transportation projects

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could be taken up initially by the NIIF for funding.Greenfield: a Greenfield project is one that lacks constraints imposed by priorwork. Simply means: a new project.Brownfield: it is a term used to describe a land previously used for industrialpurposes or some other uses. Brownfield project simply means: an alreadyexisting/ stalled project.

NIIF working in a nutshell:

The fund is to be set up as a Trust. It is registered with SEBI as Category IIAlternative Investment Fund (AIF) on December 28, 2015. (Read ahead on differentcategories of AIF)NIIF would raise funds by issuing offshore credit enhanced bonds and also tap intoanchor investors.

Anchor investors or cornerstone investors are marque institutional investorslike sovereign wealth fund, mutual fund etc.Sovereign wealth fund: a state owned fund.

The fund thus developed will be used to finance Indian infrastructure financingcompanies like the IRFC (Indian Rail Finance Corporation), NHB (National HousingBoard) etc.The fund thus received by these companies is then channelled to their respectiveniche areas (railways and Housing respectively in this case), thus increasing theinvestment into these sectors manifold.Thus fundamentally NIIF is a Banker (NIIF) of the Banker (e.g.: NHB) of the Banker(e.g.: Housing loans).

NIIF: ObjectivesMaximize economic impact of each Rupee spent.Mainly through infrastructure development in commercially viable projects, both

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Greenfield and brownfield, including stalled projects.It could also consider other nationally important projects, for example, inmanufacturing, if commercially viable.

Functions of NIIF1. Fund raising through suitable instruments including off-shore credit enhanced

bonds, and attracting anchor investors to participate as partners in NIIF;2. Servicing of the investors of NIIF.3. Considering and approving candidate companies/institutions/ projects (including

state entities) for investments and periodic monitoring of investments.4. Investing in the corpus created by Asset Management Companies (AMCs) for

investing in private equity.5. Preparing a shelf of infrastructure projects and providing advisory services.

NIIF: Operational AspectsNIIF is not a single entity. There can be more than one fund. There could be astressed-assets fund, renewable energy fund, brownfield projects fund, all sponsoredby the NIIF.Thus NIIF will be established as one or more Alternative Investment funds(AIF) under the SEBI Regulations.

Alternative Investment funds (AIF): AIF as an investment vehicle wasestablished to pool in funds for investing in real estate, private equity andhedge funds. Till now, in India, pooling of capital was allowed only for Indianinvestors, and investment was done according to a pre-determined policy.However, selectively approval route for investment was used by overseasinvestors and non-resident Indians (NRIs). AIFs are primarily aimed at high networth individuals, and according to the Securities and Exchange Board of India(Alternative Investment Funds) Regulations, 2012, the minimum investmentfrom an individual is Rs.1 crore. The overall corpus of the AIF should be atleast Rs.20 crore and there should not be more than 1,000 investors at anypoint in time. Also, the fund manager or promoter should have contributed atleast 2.5% or Rs.5 crore, whichever is less, to the initial capital.

There are three categories of AIFs depending upon on their effect on the economy.Category-I AIFs have a positive spillover on the economy and may getconcessions from the regulator or the government. These include venturefunds, social venture funds and infrastructure funds, among others.Category-II includes private equity funds and debt funds and do not get anyconcessions. These cannot raise debt for investment purposes, but can do soto meet their day-to-day operational requirements.Category-III includes hedge funds, and are usually traded to make short-termreturns.If set up as Category I and II AIFs, then NIIF will be eligible for a pass throughstatus under the Income Tax Act.A ‘pass-through’ status means that the income generated by the fund would

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be taxed in the hands of the ultimate investor, and the fund itself would nothave to pay tax on the same.In the case of category III AIF, where pass through status is not available, allincome received by NIIF will be taxable at its level and any distribution made tothe unit holders (investors) would be tax exempt.

NIIF was formed as a category II AIF as a Trust under Indian Trust Act on 28December 2015 along with the formation of

National Investment and Infrastructure Fund Trustee Ltd. (IDBI Capital MarketServices Ltd as Advisor to NIIF Trustee Ltd for one year initially)andNational Investment and Infrastructure Fund Ltd. India (Infrastructure FinanceCompany Ltd (IIFCL) was appointed as Investment Advisor to NIIF Ltd for 6months initially.)

The government will invest Rs 20,000 crore into the NIIF from the Budget, withanother Rs 20,000 crore expected to come from private investors.Government’s contribution/share in the corpus will be 49% in each entity set up as analternate Investment Fund (AIF) and will neither be increased beyond, nor allowed tofall below, 49%. The whole of 49% would be contributed by Government directly.Rest is open for contribution from others.The contribution of Government of India to NIIF would enable it to be seen virtuallyas a sovereign fund and is expected to attract overseas sovereign/ quasi-sovereign/multilateral/bilateral investors to co-invest in it.Cash-rich Central Public Sector Enterprises (PSUs) could contribute to the Fund,which would be over and above the Government’s 49%.Similarly, domestic pension and provident funds and National Small Savings Fundmay also provide funds to the NIIF.NIIF may also utilize the proceeds of monetized land and other assets of PSUs forinfrastructure development.The NIIF will work out these details in consultation with the Ministry of Finance, tomatch different investors’ preferences.Example of non-governmental funding:

National Investment and Infrastructure Fund (NIIF) Ltd. signed a Memorandumof Understanding (MoU) with RUSNANO of Russia on 2 February 2016 to setup the Russia-India High Technology Private Equity Fund for jointimplementation of investments into projects in India. RUSNANO is a Russiandevelopment institute with interest to invest in projects in the field of hightechnologies and defence including the projects aimed at establishment ofmanufacturing industrial enterprises in India.International pension funds and sovereign wealth funds from countries such asRussia, Singapore have evinced interest in participating in India’s Rs 40,000-crore National Investment and Infrastructure Fund (NIIF)The Union Cabinet gave its ex-post facto approval for a Memorandum ofUnderstanding (MoU) between India and the United Arab Emirates (UAE) tomobilise up to $75 billion long-term investment in the National Investment andInfrastructure Fund (NIIF).

NIIF: Governance5/7

There will be a Governing Council of the NIIF which will have Governmentrepresentatives and experts in international finance, eminent economists andinfrastructure professionals. It could include representatives from other non-Government shareholders.The terms and period of appointment of the Governing Council of the NIIF will be asdecided by the Government.The Governing Council will oversee the activities of the Trust and will beconstituted as a separate legal entity, if necessary.Governing council headed is currently by Finance Minister, Arun Jaitley and its othermembers include the secretaries of economic affairs and financial services, SBIChairperson Arundhati Bhattacharya, former Infosys executive TV Mohandas Pai andHemendra Kothari.NIIF would be supported by one or more Chief Executive Officers (depending uponthe number of funds created) and a small investment team consisting of limitednumber of expert staff, at arm’s length from the Government.Their salaries would be market-linked.It would be possible for the NIIF Governing Council to appoint one or several FundManagers.NIIF would have full autonomy for project selection.NIIF would formulate guidelines and would follow due processes for selection criteriafor AMCs and Non-Banking Financial Companies (NBFCs) / Financial Institutions(FIs).

Conclusion:

Now that government has revitalized the financing arm of the infrastructure sector, it mustnow train its eyes on other obstacles which include an outdated labour law regime, massive

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dearth of skilled labour, problems in land acquisition, environment and other clearancesetc. to achieve the cherished dream of transforming India as the manufacturing hub of theworld through the Make in India Project.

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