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Rebooting Economy: Govt’s wave of reforms to reboot economy

Govt’s wave of reforms to reboot economy

Approx Read Time: 7 minutes
Govt’s wave of reforms to reboot economy
Govt’s wave of reforms to reboot economy

In News: Govt’s wave of reforms to reboot economy

  • The government has announced a major opening up of Defense production, power, space and coal and mining sectors for private participation as part of the fourth set of announcements aimed at giving a boost to the economy.
  • The fourth set of measures are less of a stimulus and more of industrial reforms, which could have been announced at any time.
  • However, the government has used this crisis to utilize the ordinance route and other ways to fast-track industrial reforms, which would have faced resistance otherwise.
  • Though the reform moves do not immediately address concerns over the need to improve demand, the measures are intended to signal India’s readiness to pro-actively seek investment and instill confidence in business circles.
  • It is hoped that the measures being announced will create a better environment for investment and enable companies to get back to business as soon as the lockdown is relaxed.

Reforms in the Defense sector:

Hike in FDI limits:

  • The government has decided to increase the FDI limit for Defense production under the automatic route to 74%, from the current 49%.
  • Several global arms majors have for long been demanding the hike in the FDI limit to have more management control of the Joint Ventures to step up investments in India.
  • However, India has attracted only Rs 1,834 crore as FDI in the Defense and aerospace sectors since 2014. In the same timeframe, the country has signed over 120 “capital procurement” contracts roughly worth around Rs 2 lakh crore with foreign armament companies.

Negative list of imports:

  • With an annual Defense budget of about $70 billion, India is behind only the US ($732 billion) and China ($261 billion) in terms of military expenditure around the globe.
  • It is also the second-largest buyer of foreign weaponry after Saudi Arabia in the world, accounting for 9.2% of the total global arms imports during 2015-2019.
  • Going forward there will be a notified list of weapons and platforms that will be banned for imports and there will be a push towards “indigenization of imported spares”.
  • The list of equipment banned for imports will be prepared by the Department of Military Affairs headed by the Chief of Defense Staff. The government will, however, allow import of necessary equipment not manufactured in India.
  • The government would also make a separate budgetary provision for domestic Defense procurements.
  • The separate budget provision for domestic capital procurement would help reduce the Defense import bill and encourage domestic manufacture.

Time bound procurement process:

  • Framing of unrealistic” technical parameters or GSQRs (general staff qualitative requirements) for weapon systems that DRDO-domestic industry cannot deliver in specified timeframes, will not be allowed.
  • This is being done to avoid the situation where, unrealistic GSQRs often result in a lengthy search for weapons and lead to single-vendor situations that are against the rules.
  • Instead, there would be a time-bound Defense procurement process, with faster decision-making through the setting of a project management unit to support contract management.
  • This would be done along with realistic framing of GSQRs and a revamp of the inconvenient trial and testing procedures.

Corporatization of Ordnance Factory Boards:

  • In another major policy change, Ordnance Factory Boards would be corporatized and eventually listed on the stock market to improve autonomy, efficiency and accountability, however, they would not be privatized.
  • The draft note for the Cabinet Committee on Security on corporatization of the OFB says, it would help increase the state-owned entity’s turnover to Rs 30,000 crore by 2024-25, enhance its exports to 25% of the turnover, and increase self-reliance in technology from the existing 20% to 75% by 2028-29.

Coal and Mining sector reforms:

Auction on revenue sharing basis:

  • Unleashing a wave of reforms in the mining sector that counts as one of the largest employers in the country, the FM said, mines will be auctioned on revenue-sharing basis under a simplified regime to increase ease of doing business.
  • A revenue sharing mechanism instead of the earlier fixed price per tonne will introduce competition, transparency and private sector participation in the market.

Removal of distinction of captive and non-captive mines:

  • The government will auction 500 mineral mines by removing the distinction between captive and non-captive blocks. The distinction will be removed to allow transfer of mining leases and sale of surplus unused mineral blocks.
  • Elimination of distinction between captive mines and non-captive will ensure a level playing field for players in the integrated metals space and allow the mines to be auctioned for better value instead of states reserving them for captive use.

Other reforms in coal and mining sector:

  • The government monopoly on coal would be removed with the introduction of commercial mining, allowing any private player to bid for a coal block and sell it in the open market. Earlier, only captive consumers with end-use ownership could bid for coal blocks.
  • Almost 50 blocks will be offered immediately, with no eligibility conditions for bidding, apart from upfront payment with a ceiling. In other words, companies can bid even if they do not have experience in coal mining and can sell the output in the open market.
  • Addressing a major concern of prospective investors, successful bidders will be allowed to raise production by up to 40% from a mine every year without seeking green clearance afresh.
  • Further, steps will be taken to rationalize stamp duty as part of reforms to stimulate the sector, which will help in reducing the burden on the sector that is highly taxed by the government.
  • A Rs 50,000-crore investment plan has been made for creating infrastructure such as railway tracks and conveyors to evacuate coal from old and new mines and support Coal India’s plan to raise production from 600 million tonne to a billion tonne in 2023-24.
  • The government also indicated that it will provide a fresh push to coal gasification and coal bed methane extraction.

Other reforms:

Power distribution reforms:

  • The government has also decided to push privatization of power distribution companies after a gap of over a decade. As per the announcement discoms in Union Territories will be privatized, an experiment that has previously helped consumers in Delhi.
  • The move will open lucrative markets such as Chandigarh and Pondicherry, with the possibility of power distribution in Jammu and Kashmir also being run by the private sector.
  • However, to ensure that consumers are not treated unfairly, the step will come with the new tariff policy, which will ensure that inefficiencies of discoms do not burden consumers.

Reforms in Space Sector:

  • A big change in policy came in the space sector, where the government for the first time announced its intent to allow the private sector to be a co-partner in future planetary exploration and outer space travel initiatives such as Chandrayaan and Mars mission.
  • This came with the promise to provide a level-playing field for private companies in satellites, launches and space-based services.

Reforms in Civil aviation:

  • With regard to civil aviation, six more airports are up for auction on private public partnership mode, while additional private investment will be invited at 12 airports in a move expected to bring ₹13,000 crore for the Airports Authority of India.
  • Steps will be taken to ease restrictions on Indian airspace, of which only 60% is currently available. This will save flying time and aviation fuel, leading to a ₹1,000 crore per year benefit for the sector.
  • The tax regime is also being rationalized to help make India a global hub for aircraft maintenance, report and overhaul.

PPP in atomic energy sector:

  • Public-private partnerships will also be introduced in the atomic energy sector, to set up a research reactor for production of medical isotopes and irradiation facilities for food preservation.

Also Read: Editorial Analysis: A multisector road map for recovery

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