SECONDARY SECTOR

MANUFACTURING

The Indian Manufacturing Sector has immense potential to resolve various issues as well as promote growth. India has the raw materials, labour, and the right global economic demand to create a robust and dynamic manufacturing sector.

Potential of the Manufacturing Sector

1. Natural Resources
   • Mineral Wealth: India has vast reserves of minerals like iron ore, bauxite, metals etc. which reduce any import dependency.
   • Energy Security: India has the largest consumption and availability of Coal and has a rising renewables sector for energy.
   • Renewables: High Solar Insolation and long coastlines benefit development of the renewable sector and its integration with the manufacturing industry.
   • Large Agricultural Sector: Many exports are agri-based like cotton-based garments and leather-based manufactured products, both of which India produces in large quantities.
2. Human Resources
   • Large Labour Force: A large labour force and those seeking employment can boost the manufacturing sector.
   • Textiles Craftsmen: India has a large population of craftsmen and those engaged in production of various ethnic textiles and handicrafts.
   • Low Cost Labour: Indian labour cost is much cheaper than those in western nations, making manufacturing more attractive in India.
   • Demographic Dividend: 65% of India is below the age of 35, thus an advantage for manufacturing sector labour requirements.
3. Infrastructure
   • High Value Chains: India has 11 value chains for manufacturing and with a potential of $320 Billion in the next 7 years.
   • Special Economic Zones: India has 8 SEZs that facilitate export processing and also aid in increasing exports.
   • Manufacturing Corridors: India has a presence of multiple corridors like Mumbai – Aurangabad, Chennai, Gurgaon – Neemrana, which can enhance the sector.
   • Export Potential: It has high potential through established FTAs and to fill the gaps being made with more anti-Chinese sentiments.
4. Demand

• Rising Consumption: As the standard of living increases in India, it also increases the demand for automobiles and engineering goods.
• Pharma: In the post-Covid world, Indian pharma exports will be in huge demand, especially in the developing world.
• Domestic Demand: Rising incomes have helped create a demand for electronics, automobiles, and others.

1. Government Support
   • Lenient Taxation: The reduction of Corporate Income Tax for existing businesses to 25% helps attract more to manufacturing.

Benefits of a Robust Manufacturing Sector

1. Economic
   • Economic Growth: Manufacturing holds a considerable share in the GDP and thus can help in increasing the overall economic growth.
   • Boost Other Sectors: It is seen that for every job created in the manufacturing sector, 2-3 jobs are created in the service sector.
   • Trade Surplus: A robust manufacturing sector and higher exports can bridge the trade deficit with multiple nations.
   • Regional Development: Setting up industrial units around the nation can reduce industrial and economic inequality.
   • Import Localisation: An opportunity to reduce India’s spending on imports from 30% of all manufactured goods to 15-20% is indicated here.
   • Infrastructure Development: A robust manufacturing sector can aid in India’s infrastructure development.
   • Higher Tax Revenues: Growth in the sector can attract more investments and higher revenue and profit generation, which in turn would aid the government through taxes.
   • Attract Investments: A growing manufacturing sector will likely also attract foreign investors and credit agencies to India.
   • Indigenous Strength: It can help in domestic defense manufacturing and complement our domestic industry strength.
2. Social
   • Bridging Inequality: Addressing regional disparities through holistic industrialization can bridge regional gaps. Examples include the lack of industry in the North East.
   • Unemployment: The sector can absorb large quantities of unemployed labor force.
   • Increase Standard of Living: High outputs and higher exports can increase growth and thus incomes.
   • Social Infrastructure: With output being used for schools, hospitals, roads, and water works, development of social infrastructure takes place.
   • Boost Traditional Crafts: Handicrafts and ethnic textiles, even geotextiles, can be attractive for exports.

Challenges/Issues

1. Access
   • Credit Shortages: Due to the NPA rise and twin balance sheet issues, banks have been lending credit at much lower rates.
   • Regional Disparities: Many areas of the country are underdeveloped or have no domestic industry to support manufacturing.
   • Low Skilled Labour: There is an industry-academia mismatch, and thus many of the labour are unskilled or untrained to function in the domain.
   • Access to Technology: Many sectors have not been able to access and adopt modern technology in their processes.
   • Lack of Innovation: There is also a lack of innovation that could increase output and efficiency.

1. Operations
   • Labour Laws: Labour laws and trade unions often stall proper industrial operations and impede output growth.
   • Land Reforms: The absence of land reforms has made land acquisition difficult, thus hindering industries from setting up.
   • Tax Issues: Inverted duty structures make the output product uncompetitive in the market.
   • Labour Productivity: Labour productivity in India is less when compared with other nations like China due to the lag in supply chain management.
   • Discriminatory: Most of the attention is towards capital-intensive sectors rather than boosting small-scale industries.
   • Pandemic/Lockdowns: The ongoing health crisis has made industrial growth suffer, and manufacturing is the worst hit.
2. Infrastructure
   • Energy: The electricity generation may not be enough in an area to provide or may not be continuous.
   • Logistics: Industries face logistical delays of raw materials due to poor road conditions, border checks, and natural disasters.
   • Fossil Fuels: Industries face uncertainty over the global demand for coal reduction, which is vital for many industries.
   • Poor R&D: Only 0.5% of GDP is dedicated to R&D.
3. Environment Related
   • Pollution: Higher manufacturing can result in higher levels of air pollution and wastewater discharge.
   • Land Use: Setting up large industries can disrupt forested land and biodiversity.
   • E-Waste: The electronics sector must engage in proper producer responsibilities, or the sector can flood e-waste without disposal.
   • Automobiles Manufacturing: This can cause issues of urban congestion and subsequent air pollution.
4. Others
   • Rural Demand: Most of India lives in rural areas, and the consumption in rural India is far less than in urban areas.
   • Trade Competition: Bangladesh and Vietnam have emerged as big competitors to Indian products. Example: EU-Vietnam FTA poses a threat to Indian exports to the EU.
   • Automation: Automation threatens to replace labour with machines, creating a potential for huge job loss.

Way Forward

• Increase Productivity: Make smart investments in asset productivity, which will ensure total outcome productivity.
• Skill Development: The manufacturing industry can take collective and individual actions to grow a skilled labor pool.
• Reduce Cost of Doing Business: By improving logistics efficiency, smoothing regulations, and faster credit, etc.

• Integrating with Global Supply Chains: By judicial use of trade agreements and achieving specialization in products, which could become a part of global value chains.
• Improving Supply Chains: Manufacturers that collaborate closely with suppliers to improve the suppliers’ operations also improve their own operations, reducing lead times and costs.
• Streamlining GST: Proper implementation of the GST will further make India a common market with a GDP of US$ 2.5 trillion along with a population of 1.32 billion people.
• Incentivize Small Businesses: Especially after the pandemic, smaller businesses, which comprise 72% of manufacturing, must be incentivized.
• Labour Reforms: The pending labour codes and implementation of the remaining reforms must be done at a faster pace.
• Forward Linkages: Warehouses, logistics, and industrial components must be streamlined, and bottlenecks must be removed.
• Revised Curriculum: With more emphasis on vocational training. Currently, only 5% of students go for vocational training.
• DISCOM Issues: Issues related to DISCOM debt and profitability must also be solved.
• Worker Welfare: The manufacturing sector can help formulate India’s workforce, but proper social security measures must also be taken.
• Trade Pacts: FTAs with the EU, US, and nations with India’s trade surplus can help increase the manufacturing sector’s output.
• Manufacturing Corridors: These corridors would assist in integrating, monitoring, and developing industries and will promote advanced practices in manufacturing.
• Credit Dispersal: Industries need vital credit, and banks must not stifle in extending credit requirements to industries.

Government Initiatives

• Production Linked Incentive Scheme: The scheme provides incentives to companies for enhancing their domestic manufacturing.
• Mega Investment Textiles Parks: This scheme aims to build world-class infrastructure, enabling global industry champions to be created.
• Make in India: The scheme focuses on augmenting India’s domestic capability and reducing reliance on imports.
• MUDRA Yojana: The scheme helps small businesses and MSMEs to access vital credit for operation and expansion.
• Atmanirbhar Bharat: The Atma Nirbhar Bharat Abhiyan is a mission started by the Government of India on 13th May 2020, towards making India self-reliant and boosting the domestic industry.
• FDI Policy: The government of India increased FDI in defense manufacturing under the automatic route from 49% to 74%.
• SKILL India Initiative: It seeks to develop skills necessary to be employable in various industries, including manufacturing.
• Defence Procurement Policy: This boosts India’s domestic defense sector and also reduces the need for imported products for the defense sector.
• Technology Acquisition and Development Fund: To aid access to modern technology by the MSMEs.
• National Policy on Electronics 2019: Creation of an ecosystem for the globally competitive ESDM sector by promoting domestic manufacturing and export.

The sector has immense scope to reduce unemployment, boost exports, and boost economic growth in general. However, the industry must be incentivized through government support, and a conducive climate must be created to attract investors to the sector.

MSME

India is expected to emerge as one of the leading economies in the world over the next decade in light of a positive political and economic scenario. The Micro, Small & Medium Enterprises (MSME) segment is expected to play a significant role in the emergence of the Indian economy.

Significance/Importance of MSME

1. Economic

• Export Potential: MSME exports over 45% of total Indian exports and thus have a vital role in increasing the trade balance and subsequent forex revenue.
  • Example: IndiaXports Scheme aims to grow the number of exporting MSMEs and increase MSME exports by 50% in 2022, contributing towards the US $5 Trillion Economy.
• Inclusive Growth: MSME falls under the ownership of women, rural groups, and traditional craftsmen, promoting balanced growth.
  • Data: Women-led MSMEs in India rose by 75% to 8.59 lakh units in FY22.
• Ancillary Products: MSMEs produce products for other sectors.
  • Example: The recent Chandrayaan mission used components made by MSMEs.
• Generating Foreign Interest: MSMEs comprising ethnic products and handicrafts attract much revenue from foreigners.
  • Example: With plastic bans being incorporated worldwide, Indian jute exports can effectively capture the disposable carry bag market. Jute is mostly produced through MSMEs.
• Rural Development: MSME is the largest employer after agriculture in rural India and promotes the growth of rural India.
  • Example: Rural development can be ensured as more people take up entrepreneurial initiatives in the MSME sectors, supporting the agro-economies of rural India.
• High Growth Rate: In recent years, the MSME sector has consistently registered a higher growth rate compared to the overall industrial sector in India.
  • Example: Focus to develop MSMEs and their growth in India, with nearly 50% of India’s exports coming from the sector.
• Boosts Domestic Capability: MSMEs form the backbone of India’s domestic capability.
  • Example: The high share of MSME in exports can be utilized to increase domestic capacities.
• Employment Transition: The MSME sector is one of the key drivers for India’s transition from an agrarian to an industrialized economy.
• Supporting Industries: MSMEs can support larger industries by becoming part of the industrial ecosystem and acting as ancillary units for large enterprises.

• Export Potential: Global manufacturing has shifted to developing nations, thus the potential to increase exports to developed nations increases for India.
• Value Added Services: There is a clear opportunity in terms of global demand for value-added products and services.
• Building Brand India: Participation in global markets will not only help MSMEs grow their business but also become globally competitive enterprises.
• E-Commerce: Traditional handicraft clusters, independent artisans, and entrepreneurs are now connected to the world and operate in the global market via e-commerce.
  • Data: Currently, only less than 10% of Indian MSMEs sell online, and 85% are unregistered.
• Indigenous Growth: MSMEs can help develop India’s domestic strength and substitute foreign products.
• Reduce Import Bill: By strengthening domestic industry, they reduce the need for more imports for industrial parts and requirements.
• Domestic Supply Chain: MSMEs can create an environment where they act as an ancillary to larger industries and integrate the whole supply chain.

2. Social

• Self-Reliance: These industries promote the value of self-reliance and self-employment, reducing the government’s welfare burden.
• Social Justice: It can give marginalized groups a chance at economic growth and overall welfare.
  • Example: Tribal handicrafts generate a flow of revenue to underdeveloped tribal areas.
• Showcasing Cultural Heritage: Ethnic handicrafts and craftsmanship showcase India’s cultural diversity.
• Women Empowerment: MSMEs see a large women participation rate and ownership, leading to economic empowerment of women.
• Employment: MSMEs employ millions of Indians and are the 2nd largest employer after agriculture in India.
• Balance Regional Development: With an almost even distribution of MSMEs across India, they can ensure balanced regional development.
• Reduces Work-based Migration: Inclusive development is a main feature of MSMEs, potentially reducing migration due to work.
  • Example: Employment generated from MSMEs can give dual benefits—both skill development and retaining talent within the state.
• Removes Income Inequality: MSMEs promote self-employment, reducing wage gaps.
• Rural Development: MSMEs facilitate self-reliance in rural areas, promoting inclusive rural development.
• Tribal Development: Tribal products have seen a huge demand in markets, offering growth opportunities for tribal economies.
• North-East: There is significant demand for agro-products from the North East, with growth in tourism, hospitality, and handicrafts.
• Self-Employment: MSMEs economically empower people, especially those currently unemployed.
• Formalisation: Growth in MSMEs can lead to a rise in registration, thus formalizing the workforce.
• Inclusive Employment: MSMEs create employment opportunities for special segments, such as women, the physically challenged, and those in traditional industries.

Issues/Challenges

1. Procedural
   • Entry Red-Tapism: Multiple procedures and delayed setup of businesses discourage new investors.
   • Poor Insolvency: The insolvency process takes around 7.9 years, according to the World Bank.
   • Unorganised: 94% of MSMEs are in the unorganized sector, taking them out of the social security net.
   • Regulatory Hurdles: MSMEs require various government services and approvals, forcing entrepreneurs to navigate multiple departments.
   • Delayed Payments: Many units experience delayed payments from ancillary clients and large buyers, which hampers their functioning.
2. Operational
   • Infrastructural Issues:
     • Availability of land
     • Access to power and water
     • Distance from established marketplaces
   • Issues Faced by Women: About 90% of SMEs owned by women still rely on informal methods for securing capital or loans. Social attitudes and socioeconomic constraints also hinder women from becoming entrepreneurs.
   • Logistics: There is a lack of cost-effective and efficient logistics/supply chain infrastructure, as well as dedicated infrastructure like ready-to-move-in, built-in factories with plug-and-play facilities.
   • Low Production Capacity: Most MSMEs lack efficiency and streamlined production, leading to poor output.
   • Skilling: Non-availability of skilled labor at affordable costs also hampers the sustainability of the sector.
   • Delayed Payment: Despite the SAMADHAAN portal, which was created to help enable faster payments, applications for relief are still piling up.
   • Lack of Access to Credit: Poor procedural awareness, loan processing delays, and even denial due to a lack of collateral contribute to poor access to credit.
     • Data: MSMEs still find access to formal credit challenging, with roughly 40% of MSME lending done through the informal sector.
   • Lack of Awareness: The MSME sector is largely unaware of the benefits and existing government schemes.
   • Issues of Scale: The MSME space mostly consists of small and local shops, making scaling challenging, especially with limited access to funding.
   • International Competition: Increased competition from countries like China, Vietnam, and Bangladesh.
   • Infrastructure: Many MSMEs lack adequate infrastructure for maintenance.
   • COVID-19 Impact: The pandemic led to bankruptcies and shutdowns due to inactivity and mounting losses.
3. Technology
   • Poor Technical Infrastructure: India’s MSME sector relies on obsolete technology, reducing production efficiency.
   • Automation and AI: These pose a threat to the future of MSMEs as many handicrafts can now be produced on a mass scale in factories
   • Poor Digital Presence: MSMEs must adopt new technologies, accept e-payments, and foster in-house innovation, which will help them manage their businesses digitally.
   • Poor R&D: This makes MSMEs less price competitive, keeping them as “dwarf” firms.

Government Initiatives

• Doubled Budgetary Allocation: Budget allocation for MSMEs in FY22 more than doubled vis-à-vis FY21.
• Incentivising Foreign Players: Disallowing global tenders in procurements up to INR 200 crore to create attractive opportunities for domestic players.
• Udyog Aadhaar Memorandum (UAM): Replaces the filing of manual Entrepreneurs’ Memorandum (EM Part-I & II) with an online facility for filing EM.
• Stand Up India: Recently, the government approved the “Stand-Up India Scheme” to promote entrepreneurship among SC/ST and women entrepreneurs.
• ASPIRE: Launched with the objective to set up a network of technology centers and incubation centers to accelerate entrepreneurship.
• Prime Minister Employment Generation Programme (PMEGP): Aims to generate employment opportunities in both rural and urban areas for MSMEs through new self-employment projects.
• Labour Reforms: Introduction of the Shram Suvidha Portal for compliance with labor laws, a flexible and time-bound labor inspection scheme, and Unique Labour Identification Number (LIN) to every unit.
• Raising and Accelerating MSME Performance (RAMP) Scheme: A World Bank-assisted Central Sector Scheme supporting COVID-19 resilience and recovery interventions of the Ministry of Micro, Small, and Medium Enterprises.

1. Financial

• Credit Linked Capital Subsidy Scheme: Implemented by the government for technology upgradation.
• Mudra Scheme: The first-ever credit scheme designed for micro-entrepreneurs or household enterprises for availing credit-free loans.
• Credit Line: The government announced funds for a “Guarantee Emergency Credit Line” facility to eligible MSME borrowers, boosting the sector.
• SFURTI: Organizes traditional industries and artisans into clusters to make them competitive and support their long-term sustainability.
• ZED Scheme: Provides financial support to MSMEs for the Zero Effect Zero Defect Certification Scheme.

2. Skill Development

• Entrepreneurship Skill Development Programme: Aims to nurture youth talent by building capacity in various aspects of industrial activity required for setting up MSEs.
• Assistance to Training Institutions: This scheme provides capital grants to training institutions at the country level, operating under the Ministry of MSME.

3. Market Promotion

• International Cooperation: Covers activities such as visiting MSME delegations to other countries for exploring new areas of technology.
• Marketing Assistance Scheme: Provides assistance for activities like organizing exhibitions abroad and participating in international exhibitions.
• Procurement and Marketing Support Scheme: Encourages MSEs to develop domestic markets and promotes new market access initiatives.
  • Example: The government announced that foreign retailers should be required to source 30% of each item from “small industries” instead of meeting the requirement based only on total procurement.

• IndiaXports: IndiaXports aims to orient MSMEs free of cost, with the objective of focusing on the untapped export potential in existing tariff lines and supporting MSMEs to grow the number of exporting MSMEs. It aims to increase MSME exports by 50% in 2022, contributing to the PM’s dream of a US $5 Trillion Economy.

Way Forward

• Infrastructure: Developing infrastructure facilities to improve the business environment and capabilities.
• Cluster Manufacturing: Efforts should be made to develop self-sufficient clusters of manufacturing competence.
• E-Commerce and Marketing: The MSME sector and e-commerce can collaborate on various roles and supply links, resulting in better supply chains.
• Women Entrepreneurship: Women entrepreneurs make a significant contribution to the Indian economy and should be encouraged to participate in the MSME growth story.
• Global Competitiveness: India should create an environment for MSME joint ventures to enable Indian MSMEs to partner with global businesses.
• Promoting a Culture of Innovation: As an emerging investment destination for foreign capital, technology, and products, there is a strong need for an innovation strategy.
• Leveraging Industrial Revolution 4.0: Disruptive technology, while leading to job losses in traditional areas, also presents new job opportunities.
• Boost Women Participation: It is essential for government agencies, NGOs, and civil society to foster women’s education and encourage funding institutions to grant loans to women entrepreneurs.

1. UK Sinha Committee Recommendations

• Collateral Free Loans: Recommended doubling the cap on collateral-free loans to Rs 20 lakh from the current Rs 10 lakh.
• Restructuring Stressed Loans: Suggested mainstreaming the restructuring of stressed loans.
• Fund of Funds: Proposed forming a government-sponsored Fund of Funds of Rs. 10,000 crore.
• SIDBI: Called for SIDBI to deepen credit markets for MSMEs in underserved districts and regions.
• Technology: Acknowledged the inevitability of technology, especially digital platforms.

2. Measures by RBI

• Priority Sector Lending: Banks are the primary source of formal credit to MSMEs, with all such loans qualifying for Priority Sector Lending classification.
• External Benchmarks: Improved monetary policy transmission by linking new floating rate loans for micro and small entrepreneurs to the external benchmark.
• TReDS: TReDS is an electronic platform where receivables of MSMEs, drawn against buyers, are financed through multiple financiers at competitive rates.

The Government of India has envisioned doubling the Indian economy to US$ 5 trillion in five years. To achieve this goal, career opportunities for the young population have been generated, and MSMEs have the potential to serve as a key employment generator.

ELECTRONICS SECTOR IN INDIA

The Indian Electronic Sector has been seen as one of the key areas with a potential for growth in the long run and also to resolve various issues regarding employment, domestic capacity, and manufacturing.

Importance/Potential/Need

1. Economic

• Rapid Growth: The IT & Electronics industry is one of the fastest-growing industries in India, both in terms of production and export.
• Employment: Economic Survey predicts 4 crore well-paid jobs by 2025 and eight crore jobs by 2030 in the sector.
• Qualified Unemployment: India has one of the highest rates of graduate unemployment, which would find jobs in a rising electronic sector.
• Rising Demand: As technology penetration increases in India, there is a demand for such products.
• Diversify Economy: The economy must be diversified from agro-based to technology and services-based.
• Boost Manufacturing: The currently stagnating manufacturing sector needs a fresh makeover, and consumer demand for electronics can fuel manufacturing growth.
• Export Potential: Export-led growth can gain momentum with a rise in electronic exports, especially to LDCs and other developing countries.
• Integrating with Global Value Chains: A robust electronics sector can help with more global supply integration.
• Foreign Investment: Large electronic companies can be attracted to set up factories and assembly units in India.
  • Examples:
    • Samsung relocated its factory to India from China, with an investment of $650 million.
    • Nokia started production of 5G equipment in India near Chennai.
    • Amazon announced a partnership to set up its first device manufacturing line in India.
• Import Substitution: Many components for the sector are currently sourced from China. With enhanced domestic industries, these can be produced in India.
  • Example: 80% of electrical components are imported, and 67% are from China, which is a concern due to strained bilateral ties.
• Replacing China: Rising labor costs in China are causing companies to move out, presenting an opportunity for India.

2. Social

• Reduce Regional Disparities: More industrial setups can extend opportunities to other states beyond those currently leading the sector.

• Industry-Academia Convergence: This can also reduce graduate unemployment and address the absence of jobs for engineering graduates.
• Technical Inclusion: A robust sector provides more access to these goods, allowing more people to own and buy electrical and electronic goods.
• Skill Development: It boosts demand for skilled labor, motivating more people toward skill development.
• Shift from Primary Sector: Reducing the burden on agriculture to support livelihoods and employment.
• Healthcare: In the post-pandemic world, the healthcare sector will be a significant demand creator for electronic products.

3. Technical

• Augment IT Sector: Helps develop parts and components that the IT sector currently imports, fostering mutual growth.
• Technology Transfer: As foreign investors set up in India, they can aid in technology transfer.
• Boost R&D: The sector will be incentivized to invest more in R&D as growth and demand rise.
• Support Digitisation: Complements India’s efforts toward greater digitization and use of digital media.
• Automation: Fills jobs lost to automation while also enhancing automation-based infrastructure.
• Defense and Aerospace: Growing geopolitical challenges require strengthening the domestic manufacturing industry.
• 5G Technology: Vital for Enhanced Mobile Broadband, Massive IoT, and Ultra-Reliable Low Latency Connectivity.

Issues/Challenges

1. Economic

• Poor Local Value Addition: Despite the growth of electronic production in India, the net value added by production units is low.
  • Data: Local value addition is only USD 7-10 billion out of a global market of USD 2.1 trillion.
• High Import Dependence: Imports currently cover 80% of these components, with 67% sourced from China.
• Poor Infrastructure: Lack of adequate infrastructure, supply chains, and logistics.
• Poor Credit Access: Indian banks are over-leveraged, making it difficult to extend credit to industries.
• Absence of Foundries: Lack of semiconductor and component foundries needed to support the electronics sector.
• High Imports: Limited spare parts and component manufacturing require costly imports.
• Inverted Duty Structure: Finished goods face lower duties than raw materials, affecting competitiveness.
• Domestic Reluctancy: High investment costs discourage local investment.
• Poor FDI: Less than 1% of total FDI inflows into India go to this sector.

2. Social

• Unskilled Labour: The sector faces a labor crunch due to untrained staff, and industries are reluctant to invest in training.

• Labour Reforms: Labour reforms need to be implemented properly to make hiring and layoffs easier.
• Regionalism: There is an absence of incentives to set up industries in many interior and northeastern states, leading to migration and growth inequality.

3. Environmental

• Water Pollution: Electronic industry discharges include highly toxic chemicals, which leach into water bodies and pollute them.
• Tribal Rights: Industrial setups in many areas can impact tribal rights and habitat.
• E-Waste: Electronic manufacturing without proper producer responsibility creates challenges in managing the end-of-life use of electronics.
• Land Use: Large industrial setups can disrupt forested land and biodiversity.
• Absence of Rare Earths: China dominates the market for rare earth metals, which are vital for electronics.

Way Forward

• Boost Investments: Increase the total outlay for the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS).
• Reducing the Duty Structure: Removal of inverted duty structures can attract investors to the sector.
• Tax Benefits: Offer tax benefits to manufacturers for a set period to stimulate interest in the sector.
• Special Economic Zones: Maximize utilization of SEZs to increase the export potential of products.
• Fill in Global Gaps: India can benefit by filling gaps left by anti-China sentiments and companies moving out of China.
• Recycling: Proper implementation of E-waste rules to enhance end-of-life use of products.
• Industry-Academia Convergence: Collaborate with academia to streamline industry requirements and ensure proper employment.
• Post-COVID: Increase medical electronic manufacturing to augment healthcare infrastructure.
• R&D: Enhance investments in research and development to support industry growth.
• Local Sourcing: Increase local sourcing norms for foreign companies to boost the domestic industry.

Recommendations of Confederation of Indian Industries (CII)

• Development of Components Base: Enhance the integrated supply chain and reduce import dependency.
• Increase Domestic Demand: Implement national projects, like Digital India and Smart City initiatives, using domestically-manufactured products.
• Encouraging R&D: Provide facilities for the ICT industry and encourage the use of domestic components in final products, with a focus on domestic design.
• Compensation of Disabilities: The sector faces disadvantages compared to international counterparts due to high costs of finance, power, and logistics.

Government Initiatives

1. National Policy on Electronics 2019
   • Revenue: Aims to achieve a turnover of 400 billion dollars for the electronics sector by the year 2025.
   • Mobile Usage: The objective is also to produce 1 billion mobile handsets in India by 2025.
   • Sovereign Fund: Requires the creation of a Sovereign Patent Fund (SPF) for the promotion, development, and acquisition of Intellectual Property (IPs) in the ESDM sector.
   • Employment: Seeks to create employment opportunities for one crore people.
2. Make in India: The electronics sector has been declared a priority sector.
3. FDI Policy: Allows 100% FDI in the electronic systems sector under the automatic route. For electronics items related to defense, FDI equity inflows are allowed up to 49%.
4. Digital India: Provides policy incentives to the electronics sector, emphasizing digital media.
5. M-SIP Fund 2012: Promotes large-scale manufacturing, announced by the Government to attract investments in the electronics system.
6. Electronics Development Fund (EDF): An important strategy for creating an electronics industry ecosystem in the country.
7. Electronics Manufacturing Clusters (EMC) Scheme: The EMC 2.0 scheme provides financial assistance up to 50% of the project cost.
8. Production Linked Incentive (PLI) Scheme: Proposes a financial incentive to boost domestic manufacturing and attract large investments in electronics.
9. Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS).
10. Atmanirbhar Bharat: Aims to increase domestic capacity, thus boosting investment in the domestic electronics industry.

As global giants move out of China and anti-China sentiments rise, India must attract investors to its resilient economy, addressing issues of employment, growth, and inequality in the process.

SEMICONDUCTOR MANUFACTURING IN INDIA

The main application of semiconductors is in the creation of semiconductor devices essential for various electronic products. Semiconductor devices conduct electric currents in the solid-state, replacing vacuum tubes in almost all applications.

Uses/Applications

1. Modern Gadgets: There would be no smartphones, radios, televisions, laptops, computer systems, or even advanced medical devices without semiconductor chips. They are used in the production of electronic devices.
   • Data: Electronics manufacturing in the country had increased to $75 billion over the past seven years and is expected to reach $300 billion in the next six years.
2. Electric Vehicles: E-Vehicles are becoming more of a norm in the struggle against climate change and reducing pollution levels; semiconductors are also used in these vehicles.
   • Example: A petrol car typically uses roughly 300 chips, whereas new electric vehicles can have up to 3,000 chips.
3. Embedded Systems: Embedded systems are small computers that form part of larger machines. They control devices and allow user interaction. Common examples include central heating systems, digital watches, GPS systems, fitness trackers, televisions, and engine management systems in vehicles.
4. Thermal Conductivity: Some semiconductors have high thermal conductivity, making them suitable as cooling agents in certain thermoelectric applications.
5. Lighting and LED Displays: Some semiconductors, usually in amorphous form as a thin-coated film, produce light and are used in LEDs and OLEDs.
6. Solar Cells: Silicon is the most commonly used semiconductor in the production of solar panel cells.

Need for Domestic Manufacturing

1. Strategic
   • Global Supply Shocks: Indian manufacturers should be insulated from international sanctions and supply chain constraints. Importantly, chips form an integral part of the defense and aerospace industries, making it critical.
   • Chinese Presence: China maintains robust growth in building out its semiconductor manufacturing supply chain, with 28 additional fab construction projects totaling $26 billion in new funding announced in 2021.
2. Economic
   • Aatmanirbhar Bharat: Semiconductor manufacturing can reduce India’s import dependence on others for critical semiconductor parts.
   • Reduce Imports: Reducing imports and achieving self-sufficiency, as India currently imports 100% of its chips from Taiwan, Singapore, Hong Kong, Thailand, and Vietnam.
   • Export Revenues: Domestic semiconductor manufacturing would not only help companies reduce dependence on imports but also generate revenue from exports.
   • Reduction in Prices: Current prices are high as nearly all semiconductors are imported; domestic manufacturing can help reduce costs.
   • Boost Industries: Domestic manufacturing can support industries like electric vehicles and solar cells that rely on semiconductors.
3. Social
   • Employment: Establishing a manufacturing ecosystem can boost employment and skill development in many regions of India.
   • Skill Development: Due to the technical aspects of semiconductor manufacturing, employees will need skill upgrades.
   • Assembly, Testing, and Packaging (ATP) Segment: With low-cost skilled technical manpower, India is a natural choice to take some part of the business. This segment captures 10% of the value, with China as the current leader.

Challenges

1. High Investments Required: Semiconductor and display manufacturing is a highly complex, technology-intensive sector involving substantial capital investments.
   • Data: Semiconductor foundries are the world’s most expensive factories, accounting for 65% of industry capital expenditure but only 25% of the value addition.
2. Importing Raw Material: Silicon is the most commonly used raw material in semiconductor fabrication. Germanium, Gallium arsenide, and Silicon carbide are also sometimes used in the fabrication process.
3. Infrastructure Issues: Manufacturing even a single chip requires hundreds of gallons of pure water, which may be hard to find in India in the necessary quantities. Additionally, an uninterrupted power supply is a significant challenge.
4. Insufficient Government Aid: India’s Production Linked Incentive (PLI) scheme intends to cover only 50% of the cost of setting up two greenfield semiconductor fabs. The current scheme outlay (about $10 billion) may not sufficiently support other elements.
5. Issues with Value Chain: The semiconductor value chain comprises design, fabrication, assembly, and testing. Research and Development (R&D) and Intellectual Property (IP) protection are crucial to the chip design component, making it costly.
6. Lack of Fab Capacities: Although India has decent chip design talent, it lacks chip fabrication capacity. The ISRO and DRDO have their own fab foundries, but they are primarily for internal requirements and not as advanced as the latest international fabs.
7. Lockdown Issues: Global lockdowns forced chip-making facilities to shut down in countries like Japan, South Korea, China, and the US, causing many orders to be delayed.
8. Geopolitical Issues: The Russia-Ukraine conflict has implications for raw material supplies essential to the semiconductor value chain, prompting investments to strengthen the semiconductor supply chain.
9. Chinese Stockpiling: Chinese companies have built up inventory to ensure they can survive potential U.S. sanctions cutting off primary suppliers.
10. Competitive Pricing: Constant price pressure from global players, especially China, is a challenge. China is also advancing its homegrown chip program, aiming for 70% adoption of local semiconductors by 2025.

Way Forward

• Seeking FDI: There should be a targeted focus on making the sector attractive for Foreign Direct Investment (FDI) to offset the high costs involved.
• Establishing EEZ: Establishing an Export Processing Zone (EEZ) can ensure seamless manufacturing and improve linkages with related industries within the same area.
• Tax Incentives: Announce tax incentives for companies and startups focusing on semiconductor applications in military, strategic, and renewable energy sectors.
• Multilateral Collaboration: Collaborate with Japan and Taiwan, which have strong industry ties with India, to understand and adopt best practices in the semiconductor industry.

• Proactive Cooperation of States: Areas like stable power, large quantities of pure water, and land are state subjects, and it will be up to state governments to create the right climate for easy implementation of semiconductor projects.
• Larger Fund Availability: The $10 billion outlay is on the lesser side, considering fiscal support is needed for other sub-elements of the mission. The government should consider increasing the outlay in the future.
  • Example: The average fab unit incurs capital expenditures of several billion dollars. Samsung’s new advanced logic facility in Texas, United States, announced recently, will incur $17-18 billion.
• Forward Linkages: The semiconductor value chain is interrelated and linked with several industries. Governments must develop policies that address all crucial characteristics for long-term sustainability.
• R&D: R&D-intensive activities like electronic design automation (EDA), core intellectual property (IP), and chip design.

India’s Semiconductor Mission

• Total Outlay: The total financial outlay of the proposed schemes is INR 76,000 crore, which is fungible across different schemes.
• Scheme for Setting up of Semiconductor Fabs: Provides fiscal support to eligible applicants for setting up semiconductor wafer fabrication facilities aimed at attracting large investments in India.
• Display Fabs: Offers fiscal support to eligible applicants for setting up TFT LCD / AMOLED-based display fabrication facilities. The scheme provides support of up to 50% of project costs, capped at INR 12,000 crore per fab.
• Compound Semiconductors: Supports the establishment of compound semiconductors, silicon photonics, sensors fabs, and semiconductor assembly. The scheme provides fiscal support of 30% of capital expenditure to eligible applicants.
• PLI Scheme: The Design Linked Incentive (DLI) Scheme offers financial incentives and design infrastructure support across various stages of development and deployment for semiconductor design, including Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores, and semiconductor-linked design.

Importance of the Mission

• Innovation-Based Ecosystem: The Vision of ISM is to build a vibrant semiconductor and display design and innovation ecosystem, enabling India’s emergence as a global hub for electronics manufacturing and design.
• Collaborative Strategy: Aims to create a long-term strategy for developing semiconductor and display manufacturing facilities in collaboration with the government, industry, and academia.
• Consolidate Electronics Sector: Facilitates adoption of electronics through a secure semiconductor and display supply chain, including raw materials, specialty chemicals, gases, and manufacturing equipment.
• Indigenous IP: Promotes and facilitates the generation of indigenous Intellectual Property (IP) and incentivizes the transfer of technologies (ToT).
• International Collaboration: Enables collaborations and partnerships with national and international agencies.

SPECIAL ECONOMIC ZONES

A Special Economic Zone (SEZ) is an area in which business and trade laws are different from the rest of the country. The SEZ Act of 2005 enabled the establishment of SEZs, which are duty-free zones inspired by China and other Southeast Asia’s export-led growth strategies.

Objectives of SEZ

• Attract FDI: Attract export-oriented foreign direct investment.
• International Competition: Develop industrial skills and resources to successfully compete in the international economy.
• Trade Facilitation: Promote foreign trade and foster export-based growth in the region.
• Job Creation: Create employment opportunities for both local and skilled labor forces.
• Infrastructure Development: Develop infrastructure facilities to boost trade and India’s export potential.
• Social Mandate: Reduce disparities in socio-economic development.

Advantages of SEZ

1. Economic
   • Economic Growth: SEZs act as hubs for the growth and development of a country, boosting trade through simplified mechanisms.
   • Attract FDI: Relaxed trade rules make SEZs attractive to foreign investors with lucrative deals.
   • Employment Creation: SEZs create jobs for both skilled and unskilled workers.
   • Export Potential: Duty-free access and tax exemptions in SEZs effectively boost exports.
   • Timely and Efficient: Single-window clearances and on-site customs with self-certification streamline processes.
   • Supporting Global Value Chains: SEZs can support global value chain (GVC) participation, industrial upgrading, and diversification.
2. Social
   • Regional Development: SEZs bring jobs and growth to the regions where they are located.
   • Scope for Skilled Labor: SEZs encourage skill development in society.
   • Public Work: SEZs include the development of public infrastructure such as roads, airports, and transportation networks.
   • Women Empowerment: WEF data indicates that SEZs are traditionally significant employers of women, with about 60% female employees on average.
3. Technology
   • Digitisation: Digital service provision by SEZ operators, e.g., through online single windows for administrative procedures, has become an increasingly important factor for potential investors.
   • Innovation: SEZs create a conducive environment for research and innovation, especially in the IT-BPM sector.

Challenges of SEZ

1. Economic
   • Tax Expenditure: Tax holidays affect GDP as revenue losses occur due to various tax exemptions and incentives in SEZs.
   • Functional SEZs: Less than 60% of the approved SEZs are operational.
   • Land-Related Issues: SEZ land has sometimes been used for land grabbing by the real estate sector.
   • Regional Imbalance: Only six states account for approximately 90% of exports from SEZs.
   • Sectoral Imbalance in SEZ: Most investments have come from the IT industry, driven by tax holidays or SEZ tax policies.
   • Tax Havens: SEZs have often been used as tax havens by investors.
   • Existence of Various Models: There are many models, including coastal economic zones, food parks, and textile parks.
   • Sunset Clause: Units in SEZs receive a phased tax holiday for 15 years, though indirect tax benefits continue.
2. Social
   • Displacement: People are displaced due to land acquisition for SEZs, with limited rehabilitation efforts.
   • Alienation Among People: Loss of land and fewer employment opportunities can lead to alienation.
   • Food Security: Agricultural land is often taken over, impacting agricultural productivity.
   • Labour Laws: The exemption of SEZ units from certain labor laws raises concerns about worker exploitation.
3. Environmental
   • EIA Exemption: SEZ units are exempt from Environmental Impact Analysis under the Environment (Protection) Act.
   • Waste/Pollution: Large industrial areas have the potential to generate substantial waste.

Government Initiatives

1. Incentives for SEZ

• Tax Exemption:
  • Complete exemption from income tax on profits for the first five years, with a 50% tax rate for the next two years.
  • Exemption from taxes or duties on all procurements of raw materials and implements, such as cement, steel, and electrical items.
• GST Exemption: SEZ units are exempt from Goods and Services Tax (GST) and other state levies.
• MAT Exemption: SEZ units are exempt from Minimum Alternate Tax (MAT).
• Designated Duty-Free Industrial Parks: These parks are considered foreign territories for trade operations, duties, and tariffs.

• License Free: No license required for import.
• Monitoring of Units: The performance of units will be monitored by a committee headed by the Development Commissioner with customer participation.
• 100% Foreign Direct Investment: Allowed in the manufacturing sector, with a few exceptions.
• No Separate Documentation: No need for separate documentation for customs and EXIM Policy.

2. Other Initiatives

• Incorporation of New Industry: Agro-based food processing Special Economic Zones are being introduced.
• Local Sourcing Norms: Detailed norms for single-brand retailers have been clarified.
• Deemed Status: All existing notified SEZs are now deemed to be multi-sector SEZs.
• Revision in Land Area: The minimum land area requirement for multi-product SEZs has been revised from 500 hectares to 50 hectares.
• Definition Clarity: The definition of “person” eligible to set up units in SEZs was broadened to include “trusts” or “any entity notified by the Central Government.”
• Boost to ‘Business Trusts’: Infrastructure Investment Trust (InvIT) or Real Estate Investment Trust (REIT) can help in mobilizing finances.
• Utilisation of Vacant Land: Recent amendments facilitate the use of vacant SEZ land.

Way Forward

• Farmer Issue: The government should conduct a comprehensive social-impact study to determine compensation for farmers losing livelihoods.
  • Returning unutilized land back to farmers.
• Implementation of Baba Kalyani Committee Recommendations: SEZ policy requires serious review, and performance-measuring mechanisms should hold promoters accountable.
• Sustainable Development: Establish a balance between agriculture, industry, and environmental needs when notifying land for projects.
• Forge Linkages: Link SEZs with the domestic economy through forward and backward linkages.
• Coastal Economic Zone: Inspired by China’s SEZ success, consider developing similar coastal economic zones with remote linkage.
• No Tax Havens: SEZs should not be mere tax havens, requiring timely updates to taxation rules.

Baba Kalyani Panel Suggestions

• Overhauling: Convert SEZs into Employment and Economic Enclaves (3Es).
• Import Substitution: Develop a plan for sectors like electronics to meet high domestic demand.
• Increase Connectivity: Connect remote SEZs through coastal areas.
• Improved Infrastructure: Ensure efficient transport infrastructure and uninterrupted water and power supply.
• Ease of Doing Business: Streamline entry and exit processes with time-bound online approvals.

SEZs promise more cluster-based and region-based growth, converging labor, capital, and economic strength to project the economy toward higher growth rates. However, care must be taken to ensure inclusive and sustainable growth.

PHARMACEUTICAL SECTOR

Historically, India enjoys an important position in the global pharmaceuticals sector, as India is the largest provider of generic drugs globally. Recently, India has decided to export the COVID-19 vaccine to many developed and developing countries, reaffirming India’s designation as a “pharmacy to the world.”

Current Status in India

1. World’s Leading Manufacturers:
   • Serum Institute of India and Bharat Biotech are producing COVID vaccines for India and the world.
   • Biological E Limited is permitted to produce the cheapest COVID vaccine (Corbeaux) in India.
2. Lowest Manufacturing Costs: India’s manufacturing costs are lower than those in the U.S. and almost half of the cost in Europe.
3. Largest Provider of Generic Drugs Globally: India meets over 50% of global demand for various vaccines, and 80% of antiretroviral drugs to combat AIDS are supplied by Indian firms.
4. Global Manufacturing and Research Hub: India’s pharmaceutical market is the world’s 3rd largest by volume and 13th largest by value.
5. Leading Innovator: Fixed Dose Combination (FDC) is considered an innovation of India’s national pharmaceutical industry.
6. Medical Diplomacy: India has supplied essential drugs like hydroxychloroquine (HCQ) and paracetamol to countries ranging from developed countries (USA, Russia, France, UK) to developing countries in Africa and Latin America.

Importance of the Sector

1. Economic

• Demographic Dividend: A healthy workforce is essential for achieving the potential of a demographic dividend.
• Longevity Dividend: Ensuring a healthy aging population highlights the importance of the pharmaceutical industry.

• Make in India: The pharmaceutical industry is an important pillar of the Make in India Initiative.
• Export Potential: India controls 20% of global generic medicine, and growth in the coming years promises revenue and investments through Forex.
• Comparative Advantage: India has one of the lowest manufacturing costs; manufacturing in India is approximately 33% cheaper than in the US.
• Lower Costs:
  • The cost of hiring a research chemist in the US is five times higher than in India.
  • The manufacturing cost of pharmaceutical products in India is nearly half of the cost in the US.
  • Performing clinical trials in India costs one-tenth of what it would in the US.
  • Performing research in India costs one-eighth of what it would in the US.
• Employment Creation: A growing industry also creates skilled jobs, reducing educated unemployment in India.

2. Social

• Universal Health Coverage: Supports SDG3 vision for affordable, quality healthcare for all.
• Reduce Out-of-Pocket Expenditure: Reduces drug costs in India, lessening the healthcare burden on individuals.
• Reduce Self Medication: Addresses self-medication practices due to fear of poverty traps from healthcare costs.
• Rising Burden of NCDs: India’s state-level disease burden report indicates a dual disease burden, with a rising share of non-communicable diseases (NCDs).
  • Data: NCDs contribute to around 5.87 million (60%) of all deaths in India.
• Reduce Child and Maternal Mortality: Improves medicine access for Indians, reducing mortality rates among children and women.
• Post-Pandemic World: The world and India will need large amounts of drugs and vaccines, making India vital for manufacturing.
• Eradication Plans: India’s pharma industry is critical to its TB eradication plan by 2025 and malaria eradication by 2030.

3. International

• Soft Power: Enhances India’s image, particularly among developing nations, positioning pharma as a niche industry.
• Medical Tourism: With affordable drugs and available medical devices, India attracts medical tourists for treatment.

Issues/Challenges

1. International/Multilateral

• Stronger IP Regulations: Developed countries push for TRIPS+ and compulsory licensing, creating friction between developed and developing countries.
  • Example: India granted a compulsory license (CL) for the anti-cancer drug Nexavar, leading to litigation from Bayer (the patent owner).
• Evergreening of Patents: Patent owners extend patents through minor modifications.
• Fading Export Market: Due to price attrition, increased buyer consolidation, and stronger competition, this market is declining.
• High Import Duty: The US and Europe criticize India’s patent law for invoking compulsory licensing to produce generic versions and ban or impose import duty on Indian drugs.

2. Regulatory Issues

• Price Capping: The National Pharmaceutical Pricing Authority (NPPA) capped prices for more than 1,000 drugs, which slowed production and impacted drug quality.
• Fragmented Regulation: Lack of coordination between central and state drug control organizations.
• Quality Issues: Spurious medicines in the market reduce public trust in generic medicines and pose a health hazard.
• Harmful FDCs in the Market: Thousands of Fixed Dose Combinations (FDCs) on the market were unapproved by CDSCO, leading to a ban.
• IPR Regulations: Patent owners litigate against private drug manufacturers to prevent use of the compulsory licensing (CL) route for generic drug manufacturing.

3. Structural

• Low R&D Investment: India invests only 0.7% of its GDP in R&D; the pharma sector needs higher investment.
• Heavy Dependence on Imports for APIs: 80% of Active Pharmaceutical Ingredients (APIs) are imported.
• Marketing: Unethical practices include Pharma companies providing freebies to doctors to promote drugs.
• Private Sector Bias: Private sector prioritizes profit, leading to low production of drugs for tropical and rare diseases.

4. Functioning

• Shortage of Skilled Labour: Lack of skilled labor hinders industry growth on the domestic front.
• Infrastructure: Insufficient labs, incubation units, and research funds impact innovation and production capacity.
• Poor MSME Strength: Poor public image and high product registration fees in other economies deter exports by SMEs.
• Struggling to Make Profits: Government and civil society pressure to make affordable generic drugs impacts profits.
• Pandemic Impact: The focus on antiretroviral and COVID-related drugs has detracted from innovation in other areas.
• Poor Staffing: Vacancies for Drug Inspectors in CDSCO contribute to weak oversight in the pharma industry.

COVID-19 and Indian Pharma Industry

1. Positive Impact

• Pharmacy of the World: COVID-19 vaccine provision to other countries established India as a manufacturing hub.
• Increased Exports: Boosted foreign exchange and global recognition for India.
• Vaccine Diplomacy: India exported vaccines to many developing nations, including its neighbors.

• Low-Cost Products: Innovations like the low-cost mechanical ventilator “Ruhdaar” and low-cost portable RT-PCR kits by IIT-Kharagpur are commendable examples.

2. Negative Impact

• Domestic Focus: The pandemic has pushed India to prioritize domestic requirements before exports, reducing vaccine exports.
• Supply Chain Disruptions: Disruptions have resulted in the non-availability or interrupted supply of raw materials and packing materials.
  • Example: The production facilities in Himachal Pradesh, Asia’s largest pharma hub, have warned of suspensions.
• Import Issues: Nations are protecting raw material exports to India due to their healthcare crises, impacting India’s imports.
• Lack of Waivers: Skepticism surrounds India’s demand for TRIPS waivers on vaccine development.

Way Forward

• Biotechnology: Investments in the biotech sector are essential, with an expected growth rate of 30% annually, reaching $100 billion by 2025.
• Revival of R&D: Reduce reliance on foreign countries, especially China.
• Independent Ministry: Establish a dedicated Union Ministry of Pharmaceuticals to simplify policy-making.
• Mashelkar Committee Recommendations:
  • Implement one drug inspector per 50 drug manufacturing units.
  • Propose granting patents for incremental innovations.
• Encourage MSMEs in Pharma: Support small-scale raw material manufacturing units and incubators across states.
• Improvement of Regulatory Policies: Strengthen policies in patents, price control, and sector growth.
• Regulatory Interventions:
  • Streamline clinical trial policies for innovative products.
  • Support health-tech startups and create an investor-friendly environment with business-friendly policies.
• Establish Quality Pharma Schools: Develop a workforce ecosystem with well-trained professionals.
• Promote E-Pharmacies: Enable access to medicines in remote areas.
• Industry-Academia Tie-Up: Set up pharma research centers in academic institutions to incentivize R&D.
• International Collaborations: Partner with international research organizations for R&D.
• Atmanirbhar- Make in India: Focus on developing Indian domestic API production capacity.

Government Initiatives

1. Budget Allocation: The 2021-22 budget announced a 137% increase for healthcare and nearly 200% boost for the pharma sector.

1. PM Bhartiya Jan Aushadhi Pariyojana: To enable easy and affordable access to drugs for the common man.
2. Production Linked Incentive: The PLI scheme aims to promote domestic manufacturing of critical Key Starting Materials (KSMs), Drug Intermediates, and Active Pharmaceutical Ingredients (APIs) in the country.
3. Promotion of Bulk Drug Parks Scheme: This scheme is expected to reduce manufacturing costs of bulk drugs in the country and reduce dependency on other countries for bulk drugs.
   • The government aims to develop three mega Bulk Drug Parks with a maximum limit of Rs. 1000 crore per park in partnership with states.
4. Establishment of Medical Device Park: To promote the manufacturing of medical devices in the country, an incentive of five percent of incremental sales over the base year 2019-20 will be provided for identified medical devices.
   • Example: Kerala is set to lay the foundation stone for MedSpark, one of the first medical device parks in the country, in Thiruvananthapuram.
5. FDI Policy: The government has allowed 100% FDI in Greenfield projects and 74% FDI in Brownfield projects under the Pharma sector.
6. Ayushman Bharat: This scheme covers 50 crore beneficiaries under affordable healthcare, promoting pharma investment with the intention to establish pharma parks.
7. National Biopharma Mission: The mission aims to enable and nurture an ecosystem for developing India’s technological and product development capabilities in biopharmaceuticals.
8. Pharma Vision 2020: Unveiled by the Government of India, this vision aims to make India a global leader in end-to-end drug manufacturing.

Apart from augmenting soft power, India’s Pharma sector is a sunrise sector for the economy. Therefore, there is a need to address existing gaps and invest in future medical technologies, such as biotechnology, to transform India into a global leader in low-cost generics, aligning with India’s Pharma Vision 2020.