Growth problems for India’s medium-size cities

In countries like the US and China, they are engines of economic progress—but in India, megacities still dominate

Although India has experienced rapid growth over the last two decades, spatial disparities have increased. India’s growth is concentrated in mega cities. This stands in sharp contrast with the spatial development in China and the US, where intermediate cities have become the new drivers of growth and job creation. Why is economic activity concentrated in high-density clusters in India? Have the manufacturing and services sectors shown similar or different patterns of spatial development? Will megacities experience decreasing returns in future? Why are medium-size cities not growing? Do they suffer from poor infrastructure? We examined these questions with the help of enterprise data in 900 districts (Klaus Desmet, Syed Ejaz Ghani,Stephen D. O’Connell and Esteban Rossi-Hansberg, The Spatial Development Of India, policy research working paper series 6060, World Bank).

Spatial transformation

The spatial development of the manufacturing and services sectors behaves very differently. Globally, manufacturing has been dispersing from high-density clusters to less-dense areas, whereas services have been experiencing increasing concentration, except for the densest locations where congestion is the dominating force.

Empirical evidence has shown that “young” industries tend to become spatially more concentrated, whereas “old” industries have a tendency towards greater dispersion. The manufacturing sector is now an old industry. The fourth Industrial Revolution is still evolving, with informational technology making services more tradable and a young industry.
The services sector in India shows some similarities with the services sector in the US, with both exhibiting agglomeration economies. However, there are also some differences. In the US, agglomeration economies in services dominate in medium-density locations. Three of the main high-tech counties in the US are in Santa Clara, California (Silicon Valley); Middlesex, Massachusetts (Route 128); and Durham, North Carolina (Research Triangle). In contrast, in India, agglomeration economies are more dominant in high-density locations, such as Hyderabad and Chennai.
The evidence of agglomeration in the services sector in the US is in cities with densities of employment below 150 employees per sq. km, while in India, agglomeration is found in cities with densities above this threshold. In other words, if the US is used as the efficient benchmark, then 150 employees per sq. km is the ideal density to take advantage of agglomeration economies. In India, these medium-density cities are the worst places.
For Chinese locations with a density above 150 employees per sq. km, service employment growth strongly decreases with size, indicating important congestion costs. China looks more like the US, where congestion costs also dominate for locations above the 150 employees per sq. km threshold. Given that the overall level of local infrastructure is better in China than in India, this finding is consistent with the interpretation of frictions holding back the growth of medium-density cities in India, but not in China.
Identifying the frictions and barriers to growth in medium-density cities in India can be a challenging task. There is evidence to suggest that two policy variables have the potential to account for the relative advantage of high-density clusters—the percentage of the population with post-secondary education and the percentage of households with access to telecommunication services. Controlling for either of these two variables, there is no longer evidence of high-density service clusters growing particularly fast. In other words, if all locations had the same percentage of their population with post-secondary education, or if households’ access to telecommunication services in all locations was the same, then high-density service clusters would lose their attractiveness in India.
If India had the same scale dependence in growth rates as the US, different areas of the country would benefit from growth in the services sector. Growth would be more concentrated in the coastal regions, especially in southern states such as Tamil Nadu and Kerala, as well as in northern states such as West Bengal, Bihar and Uttar Pradesh. Of the well-known IT clusters in India, the medium-density cities such as Ahmedabad and Pune, and especially Bengaluru, would grow much faster in the future, whereas the high-density cities, such as Chennai and Mumbai, will face slower growth.
What should policymakers do?

India’s rapid growth has been accompanied by increasing spatial disparities within India. India’s megacities have continued to grow, fed by a steady stream of migrants from the countryside. The spatial evolution of India has continued to favour districts with high levels of employment density. This is especially the case in services. The evidence in manufacturing is more mixed. In the services sector, agglomeration forces still dominate dispersion forces in high-density areas. In other words, these high-density clusters of economic activity continue to be India’s engines of growth.

This raises a number of important policy questions. Should India focus on the development of infrastructure, and in general facilitate the location of employment, in its large cities in order to exploit the still important agglomeration effects? Or should India develop infrastructure in medium-density locations in order to remove some of the impediments to growth present in these areas?
The future drivers of growth and jobs will be the medium-size cities in India, just like in China and the US. But the medium-density locations currently are the worst places. What is preventing medium-density locations in India from growing and taking full advantage of agglomeration forces? Why is their evolution so different from that in advanced economies? This is a major concern in India’s spatial development.

India’s dominance in Indian Ocean is intact

India does not have to match China in the number game. The former has the geographical advantage

China recently launched its first indigenous aircraft carrier. Construction of the 70,000 tonne Type 001A carrier which may be named Shandong started in 2013 and it is likely to be commissioned in 2020. It will be China’s second carrier after it commissioned a modified Ukrainian Kuznetsov class aircraft cruiser Varyag into its navy as Liaoning in 2012.

Many Indian commentators have written about the implication of China acquiring its second aircraft carrier on India’s security. A column in Bloomberg View said the Shandong “will give China an edge for the first time in the carrier race with its Asian rival, a literal two-to-one advantage”. The premise is wrong on various counts.
First, China’s existing carrier, the Liaoning, is being used to train the crew to operate aircraft carriers and is not on operational deployment yet. Compare this with India’s aircraft carrier: The INS Vikramaditya is fully operational. And India also has decades of experience in operating aircraft carriers, it has used them in warfare.
Second, the Shandong has only been launched, it doesn’t mean it’s ready for operational deployment. It will undergo outfitting with various systems and then undergo sea trials before being commissioned around 2020. India launched its first indigenous carrier, Vikrant, in 2013 and it is likely to be commissioned in the early 2020s after delays for various reasons.
Imagery expert Colonel Vinayak Bhat, who analysed the pictures of the Shandong, says it is at least two years away from commissioning. He says that the engines of the carrier have not yet been started and no radar or weapons installed. It also does not have the arrestor cables and the pictures suggest a lot of areas being covered up where work probably has not been completed, such as the ammunition elevator and jet blast deflectors. Moreover, they don’t have enough J-15 fighter jets for the carrier.
Third, even after China commissions the Shandong, it will not send both its carriers on permanent deployment in the Indian Ocean. China’s primary areas of interest are the hotly contested waters and islands of the East and South China Sea. The US maintains a potent naval presence in the area. China will maintain both its carriers there although it will make symbolic port visits in the Indian Ocean region especially to Gwadar in Pakistan.
China plans a four- to six-carrier navy which will give it the capability to permanently deploy in the Indian Ocean. But that will take a couple of decades at best and depends on the trajectory of the Chinese economy, which is slowing down. By that time, India will have three aircraft carriers in service.
Fourth, the two Chinese carriers are conventionally powered, not nuclear, which means they cannot be put on extended deployment. They lack the logistics capability to operate far away from Chinese shores.
Fifth, China has to contend with India’s two unsinkable aircraft carriers: the Andaman and Nicobar Islands located close to the choke point of Malacca Strait and the Indian mainland itself which juts into the Indian Ocean. The Andamans has India’s only tri-services command and there are plans to beef up military presence there. India will be able to target PLAN (People’s Liberation Army Navy) warships and interdict supplies using land-based assets like aircraft and missiles. India has deployed its premier fighter aircraft, the Su-30MKI, in the Andamans and also in southern India.
To break India’s dominance in the Indian Ocean, China has invested in a number of port projects in India’s neighbourhood, referred to as string of pearls. All of them, including China’s expected naval base in Gwadar in Pakistan, are within range of India’s land-based fighters and missiles.
Finally, India does not have to match China in the numbers game. The former has the geographical advantage. With over 40 warships under construction, it will have nearly 200 warships by 2025. China has to contend with multiple naval powers in its core areas of interest. The US navy looms large. Japan has a powerful navy with advanced warships and submarines. It recently commissioned its second helicopter carrier, which could carry the F-35B stealth fighter. South Korea has a potent navy and Vietnam has acquired Russian Kilo-class submarines to counter the mightier Chinese navy.
India has multinational cooperation in the maritime domain primarily with the US and Japan. India and the US share information on China’s maritime movements and train extensively during Exercise Malabar. India’s chief of naval staff has said that India has plans in place for China’s naval presence in Gwadar.
India has to prepare for any Chinese threat. It should beef up its air defence and land-based anti-ship missiles in the Andaman and Nicobar Islands as well as peninsular India. Stationing the S-400 surface-to-air missile system that India plans to acquire in the Andamans will cover 500,000 sq. km of airspace over the Bay of Bengal. All major Indian warships are being equipped with Barak 8 long-range surface-to-air missiles along with the supersonic Brahmos anti-ship cruise missiles. India is going to acquire nuclear and diesel-electric attack submarines. While there are delays in the acquisition process, there is no need to panic as the Chinese dragon will not be in a position to breathe fire on India in the Indian Ocean anytime soon.
Yusuf Unjhawala is editor of Defence Forum India and a commentator on defence and strategic affairs.

The Escherichia coli, or E. coli, is undoubtedly the most studied bacterium on our planet today and our planet is a better place for humans, as a result

E. coli: Why so famous?

The Escherichia coli, or E. coli, is undoubtedly the most studied bacterium on our planet today and our planet is a better place for humans, as a result

Escherichia coli” rings a vague bell in many heads. And if I say the famous abbreviation “E. coli” to break the silence that follows, many of these vague faces light up in recognition. A brave soul then utters, what most are wondering, “Isn’t it like a virus or something which causes a fever of some sort?” My insides squirm with a strong desire to blurt “No, it ain’t no virus and it does a lot more than causing a fever”. Earth is home to billions of different kinds of bacteria and yet only a few, one of them being E. coli, have attained some fame. Why? What makes E. coli special? Not so fast! Let us begin from the beginning.

Discovery
German-Austrian paediatrician, Theodor Escherich, is credited with the discovery of this bacterium. He isolated a new bacterium from the faeces of his patients suffering from diarrhoea, then studied it carefully under the microscope, noted its properties and selflessly named it Bacterium coli commune. Escherich noticed one very important property: its immense speed to grow in laboratory conditions. By the time of Escherich’s death in 1911, his discovery was already being used in several laboratories and in 1919 the bacterium was re-christened as Escherichia coli in his honour.
Size and shape
We, microbiologists, are not unlike fashion pundits when it comes to our subject of interest. Size, shape and colour are the first things we like to notice. The protagonist of our story, the bacterium Escherichia coli, can be usually found shaped like a rod approximately 1-3 µm long and 0.5 µm wide; a single grain of salt can comfortably harbour hundreds of E. coli bacteria. The E. coli, however, can also change its shape. When the environmental conditions are unfavourable —less food, high temperatures, etc.—the bacterium can increase its length many times or form long chains or even adopt an attractive L shape too. This skill—of changing its shape and size—is not a rare talent in the bacterial world, and is known as “pleomorphism”. The colour identification in case of microbes is much simpler though, unlike the daunting array of begonia, beige and bisque that a fashion critic usually frets over. The very small size of bacteria demands staining procedures before they are put under the microscope.
Danish bacteriologist Hans Christian Gram developed a simple technique to stain bacteria, which at the same time classifies them into two kinds: Gram positive (violet in colour) and Gram negative (pink in colour).
E. coli appears vivid pink after Gram staining and hence it is a Gram negative rod.
Sighting
If you want to hunt for an E. coli, you need to look within. This is factual advice and not a philosophical one, as E. coli resides in the gut of all mammals, including humans. You might assure me that you haven’t got any diarrhoea currently. But E. coli not only lives in the gut of a healthy human being, but also contributes to keeping its host healthy.
Within a year after birth, it occupies part of the mucous-rich lining (yum! if you were a bacterium) of the large intestine, along with other neighbours. If not for these early settlers, our intestine would be a holiday resort for disease-causing bacteria. But this cooperative relation between host and bacteria can be formed with only some kind of E. coli and not with others.
What we know as “E. coli” actually contains a diverse group which shares the properties of being “E. coli”—for instance, the shape of a rod or a certain gene. On the other hand, these kinds differ in other aspects which will decide whether a particular E. coli can cause an infection or not, and more importantly where will that infection occur. Urinary tract? Digestive tract? Skin? Gastrointestinal infections are the most common kind, and food or water sources contaminated with animal waste matter are the likely culprits. In fact, absence of disease-causing E. coli is used as one of the indicators of clean water. In spite of its versatile infective abilities, most groups of E. coli are rarely life-threatening and the associated mortalities remain low.
Why so famous?
But then, if it isn’t a deadly pathogen, why so famous? The part of the answer lies in the question. The fact that most varieties of E. coli are benign make the bacterium an excellent lab pet. You can perform experiments without a hell lot of sophistication.
Additionally, it grows very fast. A single bacterium placed on a nutritious jelly can form more than millions of its own kind within 24 hours. This makes it further amenable for experimentation.
Unravelling the questions of biology demands that you look inside the living being. And when it comes to the building blocks of life, humans, mice, plants, E. coli, and pretty much everything that lives, have vast similarities. Now, imagine a scientist in the beginning of 20th century. He wants to study why kids are similar to parents. But it is impossible to study it in humans or cows or even mice for that matter.
Then he sees the same is true for E. coli. The daughter cell has properties similar to the mother cell. It is easier to look at them under the microscope, follow multiple generations, even break the envelope of the cells and take out what is inside for further investigation. And while he works with one of the million things inside that envelope, someone else can investigate some other thing inside the E. coli, using the same lab protocols. Putting their findings together will be much less hassle due to the use of same kind of bacteria. In fact, this is exactly what happened. As more and more people started using the same “model system”, more and more was known about it and more people wanted to use it further.
The number of biological insights assisted by use of E. coli is thus humungous—a complex, long chain-like molecule called DNA is the basis of heredity which can harbour errors; the position of the errors is necessarily random; enzymes are machines that help draw energy from food; viruses can infect bacteria (yes, there exist such a thing); bacteria have sex (again, yes)—the list is never-ending. These insights have further allowed us to utilize bacteria for our benefit. We effectively control the cellular “factories” of bacteria that can ferment sugars to form yogurt or alcohol or idli. We can utilize the same machinery to make antibiotics and insulin. E. coli is undoubtedly the most studied bacterium on our planet today and our planet is a better place for humans, as a result!
“Anything found to be true of E. coli must also be true of elephants,” Jacques Monad, a French biochemist and a Nobel prize winner, had said. Nineteenth century research primarily exploited these similarities to understand how life works and how we can mould these systems for our own use.
Recently, which means 20-odd years in the slow world of science, we have also started asking “what if” questions. Answers to these questions can allow us to predict the possible outcomes of certain conditions. For instance, large changes in climatic conditions are now evident, over short as well as long time periods. Such fluctuations can affect all living beings, albeit to different extents.
What if the environment changes every day? What are the ways in which living beings can respond to such changes? How are these responses relevant to us human beings? These and many such questions can be answered by conducting a ‘laboratory evolution experiment’. Imagine Age of Empires with real populations of E. coli and real environments created by the experimenter (sounds like fun, doesn’t it). These evolution experiments, when repeated enough number of times, can provide very important insights. For example, if E. coli is exposed to ever-changing doses of salts and acids, as it might in sewage water, it can evolve to make cellular machines which will protect the cell from such insults. These evolved machines are nothing but pumps which can remove the unwanted. But then, the same machines can also protect the E. coli against the antibiotics that we use for treating the infections. The changes in the environment can surprisingly result in serious ramifications for us.
What next?
Of course many properties of life cannot be studied using E. coli. How does an entire animal or plant develop from an embryo? Why do there exist only two sexes in sexually reproducing animals? How did photosynthesis evolve? And so many more. In fact, with golden age of biology in effect, scientists want to know more about the “non E. coli” species and use them for research or efficient production of fermented foods. Some might argue that E. coli is at the end of its days of glory. But many grad students are still found gawking at the E.coliwiki for hours and coli-poems are still being written with deep passion. Younger model systems (with better growth rates) still have a long way to go before they replace E. coli. And whatever the future may be, E. coli has made a permanent mark on 20th century biology.

RBI’s Viral Acharya calls for reprivatization of nationalized banks

RBI deputy governor Viral Acharya says reprivatization of nationalized banks will reduce the amount govt has to inject as part of bank recapitalization

ome nationalized banks need to be re-privatized, to reduce the amount of capital that the government needs to infuse in them and help maintain fiscal discipline, said Viral Acharya, deputy governor of the Reserve Bank of India (RBI) on Friday.

“This (reprivatization) will reduce the overall amount that the government needs to inject as bank capital and help preserve its hard-earned fiscal discipline, along with stable inflation outlook and the diverse nature of our growth engine,” Acharya said at an event in Mumbai.
The gross bad loans of government banks stood at Rs6.15 trillion as of December 2016.
“Clearly more recapitalization with government funds is essential. However, as a majority shareholder of public sector banks, the government runs the risk of ending up paying for it all. The expectation of government dole-outs has been set by the past practice of throwing more good money after bad,” he said.
To curb this practice, Acharya spelt out five options for resolution of the stress on public sector banks’ balance sheets:
One, healthier public sector banks could raise private capital and thus reduce the government’s burden of recapitalizing banks.
Two, some banks with assets or loan portfolios that are in good shape can sell them on the market. Such asset sales can generate some of the needed capital.
Three, a consolidation exercise that leads to fewer but healthier banks.
Four, under-capitalized banks could be subjected to corrective action, such as under the revised Prompt Corrective Action (PCA) guidelines recently released by the RBI. Such action would entail no further growth in deposit base and lending for the worst-capitalized banks. This would ensure a gradual “run-off” of such banks, and encourage deposit migration away from the weakest public sector banks to healthier public sector banks and private sector banks.
Under the PCA framework, banks will be assessed on three parameters, namely capital ratios, asset quality and profitability. Failure to meet any of these norms could invite RBI action, which could include restrictions on branch expansion, change in management and reduction in assets.
Five, the measures listed above would improve the overall health of the banking sector, creating an opportune time for the government to divest some of its ownership in the restructured banks.
The government is infusing Rs70,000 crore in state-owned banks over four years starting from financial year 2015-16 under the Indradhanush programme. Of this, Rs50,000 crore is the allocation for the first two years, with the balance split between financial years 2017-18 and 2018-19.
On Wednesday, RBI governor Urjit Patel had also hinted at a consolidation in public sector banks.
“The weaker banks are losing market share (and) that is a good thing. The stronger banks are gaining market share...those who need to shrink are shrinking,” Patel said.
The finance ministry recently laid down specific targets for 10 public sector banks for receiving future capital infusion under the Indradhanush programme.
“It (re-privatization) would be a viable way for the government to realize value. The regulator can make suggestions but it is up to Parliament to decide, being a policy matter,”

SAMPADA, for 2016-20,Rs 6,000 crore scheme for food processing sector

Govt clears Rs 6,000 crore scheme for food processing sector

The CCEA has given its approval for re-structuring the schemes of the ministry of food processing industries under a new scheme-, SAMPADA, for 2016-20

During 2015-16, the food processing sector contributed 9.1 and 8.6% of gross value added in manufacturing and agriculture sector, respectively.

The government on Wednesday approved a new Rs6,000 crore central scheme ‘SAMPADA’ for the 2016-20 period with an aim to boost processing of marine and agriculture produce.

A decision in this regard was taken at the meeting of the Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Narendra Modi in New Delhi.
“The CCEA has given its approval for re-structuring the schemes of the ministry of food processing industries under new central sector scheme—SAMPADA (scheme for agro-marine processing and development of agro-processing clusters) for the period 2016-20,” an official release said.
The new scheme has an allocation of Rs6,000 crore. It will help in generating an investment of Rs31,400 crore and facilitate handling of 334 lakh tonnes of agro-produce valuing Rs1,04,125 crore. This is expected to benefit 20 lakh farmers and create about 5,30,500 direct and indirect employment.
“The objective of SAMPADA is to supplement agriculture, modernise processing and decrease agri-waste,” finance minister Arun Jaitley said after the meeting.
SAMPADA is an umbrella scheme incorporating ongoing schemes like mega food parks, integrated cold chain and value addition infrastructure, food safety and quality assurance infrastructure, and others. It also includes new schemes like infrastructure for agro-processing clusters, creation of backward and forward linkages, creation/expansion of food processing and preservation capacities.
According to the statement, the SAMPADA will give a thrust to the food processing sector and help in providing better prices to farmers and achieve the government’s target to double farmers income by 2022. During 2015-16, the food processing sector contributed 9.1 and 8.6% of gross value added (GVA) in manufacturing and agriculture sector, respectively.

 

Understanding NITI Aayog’s action agenda NITI Aayog’s Three Year Action Agenda forms part of a larger vision document which spans a seven-year strategy and a 15-year vision till FY32

Understanding NITI Aayog’s action agenda

NITI Aayog’s Three Year Action Agenda forms part of a larger vision document which spans a seven-year strategy and a 15-year vision till FY32

On 23 April, NITI Aayog released its Three Year Action Agenda document, a comprehensive framework for proposed policy changes to be implemented in the short term in India. The Agenda is wide-ranging: It covers the different sectors of the economy—agriculture, industry and manufacturing—discusses the policies necessary for urban and rural transformation and a range of growth-enabling ingredients such as transport, digital connectivity and entrepreneurship.

As such, the Action Agenda forms part of a larger Vision Document which spans a seven-year strategy and a 15-year vision till fiscal year 2031-32. Let us recall the context. As of the end of the last fiscal year, the 12th Five-Year Plan breathed its last gasp, and as of 1 April, India is no longer officially a planned economy, with the old distinction between “Plan” and “non-Plan” expenditure, which lent the erstwhile Planning Commission its fearsome power, now relegated to the dustbin of history.

No longer do state chief ministers come to the imposing Yojana Bhawan on Parliament Street in Delhi cap in hand, but as equal partners in the development project in a new federalist conception. In short, India is now on the road to becoming a full-fledged market economy, with the legacy of planning behind us. But all governments need to look forward, if not explicitly to “plan” in the sense of the rubbished Stalinist five-year plans, but to set priorities and develop instrumentalities to achieve those priorities. That is the rationale for NITI Aayog’s approach.

A framework document of this scope could run the risk of saying something about everything, while offering nothing specific or actionable about anything. Contrary to the carping of some critics, this document pleasantly surprises. In just over 200 pages, it manages to inform, reason, and offer a distilled sense of priorities for policy reform.

The agenda describes well the fundamental dilemma concerning economic transformation of India: Roughly 50% of India’s workforce is employed in agriculture, which contributes only 15% of output. On the one hand, that suggests that workers should be moved away from this relatively low-productivity activity. On the other, it also requires that productivity in agriculture itself be improved to increase yields and benefit those workers who remain in the sector.

Equally, the service sector and manufacturing jobs that await workers exiting the agricultural sector are not always high-productivity jobs. Firms with less than 20 workers employ 72% of the manufacturing workforce and produce merely 12% of the manufacturing output. And nearly 40% of the services output is produced by merely 2% of the service sector workers, employed in the largest services firms.

These facts in themselves point to the urgent need for productivity-enhancing reforms—in agriculture, manufacturing as well as services. How can productivity be enhanced?

The Agenda offers a number of compelling proposals ranging from the use of high-yield seeds to improved irrigation techniques to the removal of the infamous tariff inversion problem (where the high level of trade barriers on intermediate inputs relative to final goods disincentivizes domestic production). In laying out these proposals, it also underscores the critical need to enhance the scale of production in each of the sectors: Landholdings in India are typically too small, the average manufacturing firm is small and under-productive, as are firms in the services sector.

On the issue of scale, a few proposals are especially noteworthy. To deal with small and fragmented landholdings, the document proposes the use of a modern land-leasing law that balances and protects the rights of the tenant and landowners as a potential solution.

For manufacturing, the document proposes the development of a few Coastal Economic Zones (CEZs) operating under a liberal economic environment (for instance, without the restrictive labour laws that bedevil the rest of the economy) and with an abundance of land—much as in China, where large firms, operating in its special economic zones, sometimes each employ hundreds of thousands of workers.

The document’s chapters on transport and physical connectivity, as also on digital connectivity, offer a detailed picture of the existing infrastructure framework, with many specific proposals on improving efficiency and closing gaps in coverage.

The government’s desire to leverage technology to improve efficacy, while laudable, requires a strong digital network and an ability to provide reliable end-to-end e-services. There is considerable unevenness across the country in access to the digital network and in the ability to benefit from such services. The Agenda highlights priorities in this area and offers its thoughts on how these gaps might be bridged.

The analysis and proposals provided in the Three Year Action Agenda range from the actionable to the aspirational. We shall, in the fullness of time, see how many of its proposals are taken up and implemented. Be that as it may, we believe that its primary contribution will be in serving as a base of knowledge and analysis to support any future discussions on policy reform; it should be welcomed.

Cabinet has approved the National Steel Policy, which seeks to outline a roadmap to increase the country’s annual steel production to 300 million tonnes by 2025.

Cabinet clears National Steel Policy that favours Indian steelmakers

Under the new National Steel Policy, priority will be given to Indian steelmakers in government tenders for infrastructure projects, says finance minister Arun Jaitley

Cabinet has approved the National Steel Policy, which seeks to outline a roadmap to increase the country’s annual steel production to 300 million tonnes by 2025.  

The cabinet cleared wide-ranging economic measures on Wednesday, including a national steel policy that favours domestic manufacturers in government projects.

“All government tenders will give preference to domestically manufactured iron and steel products. There will be a condition in it (tender) so that the surplus capacity is consumed,” said finance minister Arun Jaitley.
Indian steel makers who import raw materials or intermediate products can claim the benefits of the domestic procurement provision if they add a minimum of 15% value to the product.
The policy has a waiver for specific kinds of steel not manufactured in the country, or where domestic makers can’t meet the quality standards required by a project.
“This is a supportive mechanism to the domestic steel producers. This will also go a long way to address the growth appetite the government is envisaging. It will further boost demand,” said Anjani Agrawal, global steel leader at audit and consulting firm EY.
The National Steel Policy 2017 aims to make India self-sufficient in steel production. It projects crude steel capacity of 300 million tonnes (mt), production of 255mt and per capita consumption of 158kg of finished steel by 2030-31, as against the current consumption of 61kg. The policy also envisages adequate local manufacturing to meet the demand for high-grade automotive steel, electrical steel, special steels and alloys for strategic applications by the same year. It also sees an increase in domestic availability of washed coking coal so as to reduce import dependence on coking coal from about 85% to around 65% by 2030-31.
“The 300 million tonne (capacity by 2030-31) is an ambitious target; we should be careful in calibrating the capacity additions to real long-term domestic demand of steel rather than hoping to rely on export markets,” EY’s Agrawal added.
Among other key decisions, the cabinet approved modifications in the recommendations of the 7th Central Pay Commission (CPC) relating to the pension of pre-2016 pensioners and family pensioners based on suggestions made by a committee chaired by the secretary (pensions).
The modified formulation will entail an additional benefit to the pensioners and an additional expenditure of about Rs5,031 crore for 2016-17 over and above the expenditure already incurred in revision of pensions as per the second formulation. It will benefit over 5.5 million individuals.
The cabinet also approved the retention of percentage-based regime of disability pension implemented after the 6th CPC report, which the 7th CPC had recommended be replaced by a slab-based system.
The issue of disability pension was referred to the National Anomaly Committee by the ministry of defence on account of a representation received from the Defence Forces to retain the older system. The representation argued that the new system would reduce disability pension.
The cabinet also approved international status for the Vijayawada airport and the disinvestment of properties of the India Tourism Development Corporation Ltd (ITDC)