Economics Immersion (Batch 2021-23)

Topic 2: Importance of Health Infra

Topic 4: Domestic Business Environment
Khanindra Ch. Das
Assistant Professor (Economics)
Birla Institute of Management Technology
khanindra.das@bimtech.ac.in
@ChKhanindra

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Topic 4: Changes in the domestic business
environment and business practices
• https://youtu.be/b_0yoc_x1OE (understanding India’s GDP fall)

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Furlough income?
Household balance sheet problem

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What is PMI?

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LFPR?
• Labor force: sum of employed + unemployed
• All people who supply labour for production of goods and services during a
specified period

• Unemployment rate: Number of unemployed / Labor force (*100)

• LFPR: Labor force / Adult population (*100)

• Proportion of population ages 15-64 that is economically active (employed or
unemployed) (ILO)

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 Labor force participation rate, female (% of female
population ages 15-64) (modeled ILO estimate)
Country 1996 2001 2006 2011 2016 2017 2018 2019 2020
Name [YR1996] [YR2001] [YR2006] [YR2011] [YR2016] [YR2017] [YR2018] [YR2019] [YR2020]

Bangladesh 26.668 28.016 28.834 31.678 34.591 37.954 38.209 38.388 38.574
China 78.412 76.112 71.816 69.597 68.992 68.865 68.698 68.455 68.16
Indonesia 50.899 51.089 47.375 53.244 52.943 54.206 55.224 55.368 55.518
India 32.033 32.252 32.067 25.495 22.718 22.43 22.16 22.007 21.852
Malaysia 46.915 46.77 46.262 47.844 54.313 54.423 54.535 54.848 55.171
Brazil 49.54 54.989 59.289 57.222 59.4 60.502 60.899 61 61.101
Mexico 39.645 40.515 45.137 46.404 47.126 46.89 47.477 47.642 47.81

Philippines 48.832 48.981 49.337 50.914 50.353 47.39 47.936 48.139 48.333
Turkey 32.209 28.387 25.015 30.995 36.149 37.446 38.152 38.237 38.315
Vietnam 78.706 78.438 77.621 78.206 78.629 79.06 79.026 79.163 79.266

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Institution?
• Rule of law?
• Control of corruption?
• Regulatory quality?

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Regulatory institutions
• Reserve Bank of India
• Security and Exchange Board of India
• Insurance Regulatory and Development Authority of India
• Competition Commission of India
• Telecom Regulatory Authority of India
• Central Drug Standard Control Organisation
• Food Safety and Standards Authority of India
• All India Council for Technical Education
• Directorate General of Civil Aviation
• Bar Council of India
• Medical Council of India
• Central Electricity Regulatory Commission
• Central Board of Film Certification
• Registrar of Companies
• Central Pollution Control Board

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Ease of Doing Business
• Economies are ranked on their ease of doing business, from 1–190. A
high ease of doing business ranking means the regulatory
environment is more conducive to the starting and operation of a
local firm. The rankings are determined by sorting the
aggregate scores on 10 topics, each consisting of several indicators,
giving equal weight to each topic.

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Rank (refer next slide for 1, 2,…,10)
DB 1 2 3 4 5 6 7 8 9 10
India 63 136 27 22 154 25 13 115 68 163 52
Turkey 33 77 53 41 27 37 21 26 44 24 120
China 31 27 33 12 28 80 28 105 56 5 51
Thailand 21 47 34 6 67 48 3 68 62 37 24
UAE 16 17 3 1 10 48 13 30 92 9 80
Malaysia 12 126 2 4 33 37 2 80 49 35 40
USA 6 55 24 64 39 4 36 25 39 17 2
Singapore 2 4 5 19 21 37 3 7 47 1 27

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DB
1. Starting a business
2. Dealing with construction permits
3. Getting electricity
4. Registering property
5. Getting credit
6. Protecting minority investors
7. Paying taxes
8. Trading across borders
9. Enforcing contracts
10. Resolving insolvency

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Production Linked Incentive (PLI) scheme
• Aims to give companies incentives (in 13 major sectors) on incremental
sales of products manufactured in domestic units, which is likely to attract
foreign firms to produce goods domestically
• An outlay of INR 1.97 lakh crore has been announced in Union Budget
2021-22 for PLI schemes for 13 key sectors for a period of 5 years starting
from fiscal year (FY) 2021- 22.
• Sectors covered (already existing 3 sectors before November 2020)
• Mobile manufacturing and specified electronic components
• Critical key starting materials/drug ingredients & active pharmaceutical ingredients
• Manufacturing of medical devices
• …

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+10 sectors
• (i) Automobiles and Auto Components,
• (ii) Pharmaceuticals Drugs,
• (iii) Specialty Steel,
• (iv) Telecom & Networking Products,
• (v) Electronic/Technology Products,
• (vi) White Goods (ACs and LEDs),
• (vii) Food Products,
• (viii) Textile Products: MMF segment and technical textiles,
• (ix) High efficiency solar PV modules, and
• (x) Advanced Chemistry Cell (ACC) Battery

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Incentive differs from sector to sector
• For example, incentive of 4% to 6% for large scale electronics
manufacturing
• 4% to 1% for IT hardware

• Under the PLI scheme, eligible companies can apply to receive financial
incentives for a specified period subsequent to a base year (e.g. financial
year 2019-20) based on incremental sales (over base year) of goods
manufactured in India and covered under targeted segments. Eligible
companies are subject to thresholds of incremental investment and
incremental sales of manufactured goods.
• In the case of large scale electronics manufacturing, in Year 1, incremental
investment over base year shall be Rs. 2.5 billion and the incremental sales
shall be Rs. 40 billion.

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Tax rate
• Announcement in September 2019 (effective FY 2019-20): FM
announced lowering of the base corporate tax rate to 22% from 30%
for companies that do not seek exemptions

• Reduced the rate for some new manufacturing companies (set up

after OCT 1) to 15% from 25%

• Including surcharges and cesses (levies to raise funds for specific

purposes), the effective corporate tax rate dropped by nearly 10
percentage points to 25.17%.

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FDI allowed?

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CORPORATE TAX CUT
(FROM 25% TO 15%)
Cut corporation tax for new
manufacturing companies that
are established on or after
October 1, and which begin
production before March 31,
2023
This will definitely attract a lot
of foreign investors
SINGLE-WINDOW
CLEARANCE (IN COAL
MINES)
bidders can obtain all required
clearances through single-window
attracting foreign bidders
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PRODUCTION LINKED INCENTIVE SCHEME
(PLI)
Aims to give companies incentives (in 13 major sector) on
incremental sales from products manufactured in domestic units
which will attract foreign firms (to domestically produce goods).
INTRODUCTION OF 3
WHY INVEST NEW LABOUR CODES
IN INDIA? (NOW BILLS)
• give industries/businesses
greater flexibility and
simultaneously protect
workers' rights and benefits
• they are also being seen as
enablers to boost India's
INDIA CAN BE THE HUB ranking in the Ease of Doing
FOR BUSINESS IF COVID IS Business index and attract
CONTROLLED higher inflows of foreign
Among other emerging-market direct investment (FDI)
economies, India has an advantage to
become the alternative investment
destinations, provided it controls the
Covid situation
Farm laws
• The Farmers (Empowerment and Protection) Agreement on Price
Assurance and Farm Services Act, 2020

• The Farmers’ Produce Trade and Commerce (Promotion and

Facilitation) Act, 2020

• The Essential Commodities Amendment Act, 2020

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https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2021/05/19/A-Proposal-to-End-the-COVID-19-Pandemic-460263 24
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Informality
• https://youtu.be/EKql9g0G8eg (The Long Shadow of Informality:

• http://niti.gov.in/index.php/preparing-post-pandemic-economy-
sunset-sunrise-areas-growth

• https://www.tpci.in/indiabusinesstrade/blogs/indian-economy-covid-
19-risk-aversion-may-be-higher-in-2nd-wave/

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Glossary
• Furlough income: Job retention scheme under which you can claim
employee’s wages from government if you have put them on furlough

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