April trade deficit widens to $13.2 bn, highest since Nov. ’14

source

Note4Students

Important. The changing trends in India’s import and export sector need to be analysed.

From UPSC’s perspective, the following things are important:

Prelims Level: What is trade deficit, BoP and other related terms.

Mains level: Well Even though 1 month data is not much relevant for mains but you need to track this news as if this trend continuous in long run this could effect India’s external sector stability which then becomes an important topic for mains.


News

  1. The country’s goods trade deficit in April, the first month of FY’18, widened to $13.2 billion — the highest since the $16.2 billion clocked in November 2014, data released on Monday by the Commerce Ministry showed

Why this happened?

  1. This was due to goods imports in April recording a historic 49.07% year-on-year growth to $37.9 billion — following a surge in gold, oil, coal, chemicals, pearls and precious stones, machinery, transport equipment and electronics imports
  2. and outpacing exports despite shipments rising for the eighth consecutive month

Stats: (The figures need not be remembered, but note the share of various commodities in import and exports)

  1. In India, gold imports continued to surge when it jumped 211.35% in April to $3.8 billion
  2. Oil imports in April rose 30.12% to $7.3 billion
  3. In this connection, it is mentioned that the global Brent prices ($/bbl) have increased by 25.4% in April 2017 vis-à-vis April 2016 as per World Bank commodity price data(The pink sheet)
  4. On the exports side, petroleum products shipments rose 49% to $2.94 billion while readymade garments exports increased 31.7% to $1.7 billion
  5. Exports of engineering goods went up 28.2% to $6.1 billion, while chemicals increased 24% to $1.29 billion and gems and jewellery exports rose 15% to $3.97 billion

Positives:

  1. Increase in imports of oil and pearls and precious/semi-precious stones augur well for exports of petroleum products and gems and jewellery respectively as such imports are inputs for the exports.

Back2basics

Trade deficit(Explained)

A trade deficit is when a country imports more than it exports. It is also called a negative balance of trade. It is one way of measuring international trade. To calculate the trade deficit, subtract the total value of exports from the total value of imports.

What Causes a Trade Deficit?

A trade deficit occurs when a country does not produce all it needs. Most nations must borrow from foreign states to pay for the imports.Therefore, a country with a trade deficit will also have a current account deficit.

A trade deficit also results when domestic companies manufacture in foreign countries. When raw materials are shipped overseas to factories, they count as exports. When the finished goods are shipped back home, they count as imports. That’s true even though they’re made by domestic companies. The imports are subtracted from the country’s gross domestic product. That’s despite the fact the earnings benefit the company’s stock price and the taxes increase the country’s revenue stream.

Effects of a Trade Deficit (Hint: It’s not always bad)

Initially, a trade deficit is not a bad thing. It raises a country’s standard of living. Its residents have access to a wider variety of goods and services for a more competitive price. It reduces the threat of inflation, since it creates lower prices. A trade deficit indicates that the country’s residents are feeling confident and wealthy enough to buy more than the country produces.

Over time, a trade deficit creates jobs outsourcing. As a country imports certain goods rather than buying domestically, the local companies start to go out of business. The domestic industry will lose the expertise needed to remain competitive. As a result, the home country creates fewer jobs in that industry.

Instead, the foreign companies hire new workers to keep up with the demand for their exports.

 

[op-ed snap] Trading away our digital rights

Context:

  1. WTO ministerial in Argentina in December 2017 will be a key battleground for whether WTO should start negotiating digital trade issues
  2. These issues also figure in the Regional Comprehensive Economic Partnership talks among ASEAN-plus countries (including India)
  3. India must resist any digital trade negotiations at this time
  4. It has little to gain from them, and much to lose
  5. It must first build its digital sovereignty — and digital rights — before it can begin negotiating a part of it in global trade talks

Global trade:

  1. Global trade treaties are no longer just about reducing tariff
  2. They represent a whole new global legal system supplanting national policy space and sovereignty, in the interest of global big business
  3. With digital phenomenon restructuring most social sectors, the global trade negotiations are now eyeing the digital area in an attempt to pre-emptively colonise it

Who owns big data:

  1. Big data is the key resource in the digital space
  2. It is freely collected or mined from developing countries, and converted, or manufactured, into digital intelligence in developed countries, mostly the U.S
  3. This digital intelligence forms a kind of “social brain” that begins to control different sectors and extract monopoly rents
  4. Uber’s chief asset, for instance, is not a network of cars and drivers
  5. It is digital intelligence about commuting, public transport, roads, traffic, city events, personal behavioural characteristics of commuters and drivers, and so on

Who owns data?

  1. It is important to frame who owns data and digital intelligence, and how their value should be socially distributed
  2. Most key data required for policymaking is increasingly with global data companies

Free and unhindered access:

  1. Free and unhindered access to the “network” running throughout our society to mine social and personal data from every nook and corner is demanded
  2. This includes full access to local networks, right to set up networks, no custom duties on digital goods, no requirement of local presence, no local technology use or technology standards commitments, and no source code transparency for digital applications that run through our social and personal spaces
  3. Basically, India must give up its right to regulate digital technologies and networks within its territory
  4. Such regulation is required to ensure an equal playing field, open standards, privacy and security-related protections, promoting local technology content and other positive discriminations, like for open-source software which is Indian policy for public sector use, and for economic and social protections
  5. We are being asked to give up our technology or digital sovereignty even before we have been able to identify and institute our digital rights, policies, laws and regulation

Free flow of data across borders:

  1. The second demand in trade discussions is of ensuring completely free flow of data across borders, with no requirement of local storing, even for sensitive sectors like governance, banking, health, etc.
  2. Free global flow of data is a significant expression of self-declared ownership by global digital corporations over the social and personal data that they collect from everywhere, including India

Exclusion from future regulation:

  1. The third key demand is the exclusion from future regulation of all services other than those already committed to a negative list, which will of course include e-versions of every sector
  2. India has been resisting global digital trade negotiations
  3. Attempts will be made to flatter its self-image of an IT or digital superpower to seek concessions
  4. India’s global IT business relationships are largely B2B where the principal party is abroad, and owns the involved data

India’s strengths:

  1. India has native technical and entrepreneurial capabilities in the digital area, and to match them, a huge domestic market
  2. Conditions are extremely good for developing strong domestic digital industry
  3. For this, India must stave off pressure for entering into binding global commitments that would forever kill any such prospects
  4. Indian policymakers should not regulate the digitisation of various sectors

 

India trade grew 10% in 2016: Maersk

  1. Source: Estimates by Maersk Lines, the world’s biggest container shipping line
  2. Amid weak global trade, India reported a 10% growth in export-import (EXIM) trade in 2016 as compared with that in 2015
  3. Higher imports: Trade growth was also more balanced across both exports and imports as against 2015, where import volumes grew four times faster than exports
  4. Demonetisation: Contrary to belief, the demonetisation exercise had limited impact on exports of select commodities, especially the ones that rely on cash for trading, mainly meat exports
  5. Reasons: India’s EXIM trade growth was due to strong surge in exports and a consistent increase in imports owing to:
    • a series of economic reforms undertaken by the government
    • increase in domestic demand
    • improved performance by key sectors such as textiles, agriculture, pharmaceuticals and automobiles
    • Increased demand from countries such as Saudi Arabia and Kenya contributed to the overall export growth of 11%
    • In 2016, India forayed into new exports markets
    • Exporters increased focus in the Middle East and in East Africa thus reaping benefits, even as they entered into new markets such as Central America, the report said

Note4students:

Important for mains- note the change of trade scenario, demonetisation impact and the reasons.

[op-ed snap] The need for a business cycle dating committee

Context:

  1. The idea of a business cycle dating committee (BCDC) for India has not received sufficient attention
  2. Most of the research in business cycles is done keeping in mind advanced industrial economies
  3. The scarcity of research for studies of business cycles in India along with data limitations might be some of the reasons why policymakers in India are not too concerned about this issue

What are business cycles?

  1. Business cycles are the short-run fluctuations in aggregate economic activity around its long-run growth path
  2. It is the “ups and downs” in economic activity, defined in terms of periods of expansion or recession
  3. The US’ National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales

What does a BCDC do?

  1. A BCDC maintains a chronology comprising alternating dates of peaks and troughs in economic activity
  2. It analyses and compares the behaviour of key macroeconomic variables such as consumption, investment, unemployment, money supply, inflation, stock prices, etc., which may have different dynamics before, during and after the recession
  3. It identifies turning points which act as a reference point for the construction of coincident, leading and lagging indicators of the economy
  4. Timely identification of economic contraction and its severity allows policymakers to intervene, and thereby reduce its amplitude and duration
  5. In addition, firms can re-evaluate projections of sales and profits, and the consumers their purchasing and investment plans, based on information on transitions to new business cycle phases

International experiences of business cycle dating committees:

  1. The NBER’s BCDC maintains a chronology of the US business cycle
  2. NBER is a private, non-profit, non-partisan organization conducting economic research and regarded as authoritative by both academic researchers and the public at large
  3. The committee was created in 1978 and has been chaired by Robert Hall from Stanford University since its inception
  4. The committee waits long enough so that the existence of a peak or trough is not in doubt and does not follow a fixed time rule
  5. For the euro area, it is the Centre for Economic Policy Research (CEPR) which does this job
  6. Like the NBER, CEPR is also an independent, non-profit organization
  7. CEPR dates the business cycle for the euro area as a whole and not for any individual country
  8. Although the countries in the euro area have adopted a common monetary policy since 1999, countries have heterogeneous institutions and policies
  9. An emerging market economy such as Brazil has a BCDC known as O Comitê de Datação de Ciclos Econômicos (Codace), created by the Brazilian Institute of Economics

Why does India need a BCDC?

  1. By maintaining a chronology of business cycles, India will be able to better monitor the economy
  2. A BCDC can also maintain an index of coincident, leading and lagging indicators for the Indian economy
  3. Currently, India relies mostly on individual studies for the dating of business cycles
  4. The Reserve Bank of India (RBI) set up a working group of economic indicators in 2002 and a technical advisory group (TAG) on the development of leading indicators for the Indian economy in 2006, both under the chairmanship of B. Barman
  5. The working group proposed a standing committee for business cycle analysis
  6. Its job was the same as a BCDC, i.e., maintaining historical dating of business cycles
  7. TAG suggested a methodological framework for the construction of coincident, leading and lagging indicators along with a composite index for the Indian economy

Who should be in charge of a BCDC?

  1. Whether a BCDC should be part of the government, the RBI or an independent research organization with high credibility is debatable
  2. Notably, the members of all the aforementioned BCDCs are independent scholars. As a result, the decision regarding the dating of business cycles is not political
  3. This is important in a country like India where GDP numbers are contentious and political parties try to score points on these numbers
  4. Also, the BCDCs are created by independent non-profit organizations
  5. This responsibility does not lie with the government or with the central bank

Note4Students:

Creating a BCDC will go a long way in maintaining transparency, strengthening the information base for the Indian economy and helping gauge better the changing nature of the Indian economy. This will also help India to be more in synchronization with the other developed and emerging market economies. An important op-ed for Mains.

₹600 crore scheme launched to create export-related infrastructure

  1. The Centre launched a new scheme- Trade Infrastructure for Export Scheme (TIES)
  2. The scheme would have a budgetary allocation of ₹600 crore, with an annual outlay of ₹200 crore per year, and it would be implemented from FY’18 till FY’20
  3. Aim: To enhance export competitiveness by bridging gaps in export infrastructure, creating focused export infrastructure, first mile and last mile connectivity for export-oriented projects and addressing quality and certification measures
  4. Simply, to create export-related infrastructure and boost the competitiveness of India’s shipments
  5. It replaces a centrally sponsored scheme — Assistance to States for creating Infrastructure for the Development and growth of Exports (ASIDE)
  6. The focus is not just to create infrastructure, but to make sure it is professionally run and sustained
  7. There will be an Empowered Committee to periodically review the progress of the approved projects in the scheme and will take necessary steps to ensure achievement of the objectives of the scheme
  8. Benefits: The scheme would provide assistance for setting up and upgradation of infrastructure projects with overwhelming export linkages — like the border haats, land customs stations, quality testing and certification labs, cold chains, trade promotion centres, dry ports, export warehousing and packaging, Special Economic Zones (SEZ) and ports/airports cargo terminuses
  9. Eligibility: The Central and State Agencies, including Export Promotion Councils, Commodities Boards, SEZ authorities and Apex Trade Bodies recognised under the Centre’s Export-Import policy are eligible for financial support under this scheme
  10. Funding: The Centre’s funding will be in the form of grant-in-aid, normally not more than the equity being put in by the implementing agency or 50% of the total equity in the project
  11. In case of projects located in North Eastern States and Himalayan States including Jammu and Kashmir, this grant can be up to 80% of the total equity
  12. Ceiling: The grant in aid shall, normally, be subject to a ceiling of ₹20 crore for each infrastructure project
  13. Projects that can be covered under sector-specific schemes and not related to exports will not be supported under TIES

Note4students:

Important for pre and mains both. Note key features for prelims.

[pib] Launch of Trade Infrastructure for Export Scheme (TIES)

  1. What? Commerce and Industry Minister Smt. Nirmala Sitharaman launched the Trade Infrastructure for Export Scheme (TIES)
  2. Focus of the scheme: on addressing the needs of the exporters
  3. The focus is not just to create infrastructure but to make sure it is professionally run and sustained
  4. The scheme would provide assistance for setting up and up-gradation of infrastructure projects with overwhelming export linkages like the Border Haats, Land customs stations, quality testing and certification labs, cold chains, trade promotion centres, dry ports, export warehousing and packaging, SEZs and ports/airports cargo terminuses
  5. Objective: of the proposed scheme is to enhance export competitiveness by bridging gaps in export infrastructure, creating focused export infrastructure, first mile and last mile connectivity for export-oriented projects and addressing quality and certification measures
  6. Funding: The Central Government funding will be in the form of grant-in-aid, normally not more than the equity being put in by the implementing agency or 50% of the total equity in the project
  7. The grant in aid shall, normally, be subject to a ceiling of Rs 20 Cr for each infrastructure project

Note4Students:

Very important for pre and mains. Such information often becomes useful while penning down Mains answer.

PIB

Peru-India trade pact talks to begin soon

  1. In September 2016, Peru and India concluded the joint feasibility study for an accord in trade in goods, services, investment and cooperation
  2. Significance of Peru: It could be an attractive destination for Indian investors because the country has a stable, predictable and transparent regime for foreign investors
  3. It also has many sectors open for trade and investment
  4. It can act as a key bridge to Latin America for India

Note4students:

Locate Peru on atlas and see the bordering countries and oceans. Note the significance of Peru from mains perspective.

Exports record positive growth for a fifth consecutive month

  1. India’s goods exports recorded positive growth for the fifth consecutive month
  2. Shipments in January rose by 4.32% to $22.1 billion
  3. Reason: Good performance by major sectors such as engineering and petroleum as well as low base of 14.1% contraction in January 2016
  4. Way ahead: We need to revisit the challenges faced by drugs and pharmaceuticals, gems and jewellery, carpets and plantations commodities so that they may also contribute to export growth in coming months
  5. The slowdown in global trade continues to impact India as well
  6. India’s goods exports for 2016-17 would be about $270 billion
  7. Increasing protectionism, volatility in currencies and uncertainties clouding over global economy pose major challenges for India’s exports in 2017

Note4students:

This is just to drive home the point that export slump has started waning in a way but the danger still remains in 2017.

Government plans merger of commodity boards

  1. Merger: The Commerce Ministry is planning merger of the commodity boards and set up an umbrella organisation in order to improve production and exports of plantation crops like tea, coffee and spices
  2. Why merge? Some of these boards were set up way back in 1940s and their merger could help in harmonising their activities and in turn, enhance the quality and boost exports
  3. The five commodity boards, under the Ministry of Commerce, are responsible for production, development and export of tea, coffee, rubber, spices and tobacco
  4. Background: These crops play an important role in the economic growth as they contribute in the country’s exports and also create huge employment for people
  5. But dip in global demand and prices have impacted shipments of some of these commodities
  6. In December 2016, exports of tea and tobacco recorded positive growth, while shipments of coffee and spices grew by 15 per cent and about 3 per cent, respectively
  7. Fact: Agri-products account for over 10 per cent of the country’s total exports

Note4students:

Important for prelims.

Back2basics:

  1. The Coffee Board: A statutory organisation constituted under the Coffee Act, 1942
  2. Similarly, the Rubber Board was constituted under the Rubber Act, 1947
  3. Tea Board was set up on 1st April, 1954 under the Tea Act, 1953
  4. The Tobacco Board was constituted in January, 1976, while the Spices Board was formed in February, 1987

Commerce Dept. special arm may drive foreign trade policy

  1. Source: A government-commissioned report prepared by the global consultancy firm Frost & Sullivan
  2. Current status: India’s foreign trade strategy and policy is currently being piloted predominantly by the Prime Minister’s Office and External Affairs Ministry
  3. Change needed: India’s future trade (policy) model should have the Commerce Department at the helm, supported by ministries including External Affairs and Finance
  4. Also a ‘transformed’ Directorate General of Foreign Trade (DGFT) should be the apex body for all trade promotion activities for the country
  5. Trade Service: Report makes a strong case for a higher profile for the Indian Trade Service (ITS) in matters of trade policies & systems.
  6. At present, the officials belonging to the Indian Administrative Service, Foreign Service and Revenue Service evidently have a relatively superior role over ITS cadre regarding decisions on crucial trade policy matters
  7. DGFT: A transformed DGFT should be made accountable for all trade promotion activities for India — providing services such as trade representation in foreign countries, research & development, market intelligence, business matchmaking services as well as public relations, advertising and marketing services
  8. Recruit professionals: Noting that the DGFT needs to re-skill its resources to be successful, future recruitment should focus on professionals with experience and qualifications in trade and commerce from reputed institutions
  9. Background: The report comes at a time when India’s goods exports have not yet recovered fully from the impact of a prolonged contraction from December 2014 to May 2016, as well as the government’s demonetisation exercise early November
  10. India is currently ranked 130 out of 190 countries in the ease of doing business; and particularly on the parameter of ‘trading across borders’ currently ranked at a dismal 143
  11. It also comes in the backdrop of the World Trade Organisation (WTO) stating in December 2016 that “… the number of new trade-restrictive measures being introduced (by WTO Member countries) remains worryingly high given continuing global economic uncertainty and the WTO’s downward revision of its trade forecasts”

Note4students:

The news has a lot of reform or way forward points for trade & commerce in/by India.

Back2basics:

1.Directorate General of Foreign Trade (DGFT) organisation is an attached office of the Ministry of Commerce and Industry and is headed by Director General of Foreign Trade.

2.From its inception till 1991, when liberalization in the economic policies of the Government took place, it has been essentially involved in the regulation and promotion of foreign trade through regulation. Keeping in line with liberalization and globalization and the overall objective of increasing of exports, DGFT has since been assigned the role of “facilitator”. The shift was from prohibition and control of imports/exports to promotion and facilitation of exports/imports, keeping in view the interests of the country.

3. It is responsible for formulating and implementing the Foreign Trade Policy with the main objective of promoting India’s exports.

Export infrastructure scheme on the anvil

  1. Source: Commerce Minister Nirmala Sitharaman at the Council for Trade Development and Promotion
  2. What: The Centre will tie up with the States to soon roll-out a new scheme called ‘TIES’ — or Trade Infrastructure for Export Scheme — to boost export infrastructure
  3. She said the States must develop their own export strategy in alignment with the national foreign trade policy
  4. They should also enhance co-operation with Central agencies to set up common facilities for testing, certification, trace-back, packaging and labelling
  5. She said that about 150 Sanitary & Phyto-Sanitary (SPS) measures (or norms on food safety and animal & plant health standards)
  6. And a similar number of Technical Barriers to Trade (TBT) notifications (including mandatory and voluntary standards) were being issued by WTO-member countries each month
  7. Around 50-60% of these measures have the potential to impact India’s trade
  8. Therefore, she said the States should cooperate with the Centre for setting up common facilities like testing labs and training institutes as well as to ensure packaging and storage support to the Indian industry
  9. So far only 17 States (of the 29 States and seven UTs in the country) have prepared their export strategy
  10. On services, she said IT and ITeS had an overwhelming predominance in India’s services exports but were largely restricted to the U.S. and EU markets
  11. This makes them vulnerable to changes imposed by these two trading blocs
  12. There is a need to diversify our services exports
  13. Areas like medical tourism, nursing and healthcare, education, audio-visual media have an excellent potential that can be harnessed
  14. For this, we need to develop the right competencies like language skills for the East and North East Asian markets
  15. Other measures: Meanwhile, the Centre has decided to soon bring out a Logistics Performance Index to rank states on steps taken to facilitate trade and improve logistics
  16. Measures in the pipeline include expediting the proposal for a north east corridor to improve connectivity with south east Asian countries and exports to that region

Back2basics:

Council for Trade Development and Promotion was constituted in order to ensure a continuous dialogue with State Governments and UTs on measures for providing an international trade enabling environment in the States and to create a framework for making the States active partners in boosting India’s exports.

It’s composition is as following:

Demonetisation, protectionism worry exporters as they brace to face 2017

  1. Main concerns of India’s exporters, are the problems locally due to the demonetisation-triggered cash crunch
  2. As well as the rising support for protectionism in Europe and the U.S. owing to the backlash against globalisation
  3. Goods exports to the U.S. and the European Union nations account for 16% and 17% respectively of India’s total goods exports of $263 billion in 2015-16
  4. However, the incoming administration in the U.S. is widely expected to announce protectionist policies
  5. In Europe, the Netherlands, France and Germany are going in for elections in 2017, and parties and politicians backing policies that are protectionist and anti-immigration are gaining mileage
  6. Brexit is also introducing uncertainty
  7. More rate hikes by the U.S. Federal Reserve in 2017 will lead to a flight of capital from emerging market economies (other than India) and weaken their currencies, in turn hitting the competitiveness of India’s exports
  8. Plagued by the lingering feeble external demand, India’s goods exports had contracted from December 2014 to May 2016. However there has been improvement recently
  9. Demonetisation has hit export volumes much more than imports, and that the cash crunch induced by demonetisation has hurt cash-intensive export sectors such as gems & jewellery and textiles
  10. Small and medium firms, including those catering to overseas markets, are facing difficulties in raising working capital with the cash crunch hitting their informal sources of finance

Plunging exports may force govt to cut $900-billion target for 2020

  1. What: India’s dismal export performance in the past two years owing to lacklustre global demand
  2. This has forced the govt to consider pruning the goods and services export target of $900 billion fixed for 2020
  3. The mid-term review of the five-year foreign trade policy, to be announced in Sept 2017, is likely to set a much lower target, which will be determined after sectoral consultations
  4. The foreign trade policy was announced in March 2015 with the objective of increasing India’s share of world exports from 2% to 3.5%
  5. The govt’s demonetisation drive, too, is likely to have a dampening effect on export numbers over the next few months
  6. Exporters find it difficult to pay workers’ wages and buy raw material, given the cash withdrawal limit of Rs. 50,000 per week
  7. Exports of goods and services declined in 2015-16 due to shrinking global demand
  8. Exports fell across sectors, including labour-intensive ones, such as textiles and leather
  9. In the current fiscal, exports fell further in at least five of the eight months
  10. Goods exports in April-November 2016-17 were $174.8 billion, about the same level as in the same period last year

[pib] What are the schemes and measures to increase India’s share in global trade?

  1. The Merchandise Exports from India Scheme (MEIS) was introduced in the Foreign Trade Policy (FTP) 2015-20
  2. The Government is implementing the Niryat Bandhu Scheme with an objective to reach out to the new and potential exporters
  3. Interest Equalization Scheme on pre & post shipment credit launched to provide cheaper credit to exporters.
  4. By way of trade facilitation and enhancing the ease of doing business, Government reduced the number of mandatory documents required for exports and imports

[pib] Know more about Cell for IPR Promotion and Management (CIPAM)

  1. Cell for IPR Promotion and Management (CIPAM) has been created as a professional body under the aegis of DIPP
  2. Objective: To take forward the implementation of the National IPR Policy that was approved by the Government in May 2016
  3. CIPAM is working towards creating public awareness about IPRs in the country,
  4. Promoting the filing of IPRs through facilitation,
  5. Providing inventors with a platform to commercialize their IP assets

Improve ports, logistics to boost exports: WB II

  1. While restrictions on agricultural markets have constrained productive private investments in higher value food products
  2. Govt needs to better target subsidies so that only the poor farmers are benefited
  3. Passive and non-targeted subsidies are not encouraging farmers to adopt new technologies and seed varieties
  4. The electronics sector, according to the Bank, faced constraints such as underdeveloped clusters and poor trade logistics
  5. The apparel sector is facing difficulties to import man-made fibre, preventing upgrading and diversification

Improve ports, logistics to boost exports: WB I

  1. What: World Bank report to improve Indian exports
  2. India must frame policies to reduce farm subsidies and cut import tariffs on cars and take steps to improve ports and logistics
  3. It suggested a set of policy actions in four sectors — agribusiness, apparel, electronics and automotive
  4. With the right set of productivity-enhancing policies, South Asia, led by India, could more than triple its share in global markets of electronics and motor vehicles
  5. In the farm sector, passive and non-targeted subsidies (e.g. water, fertilisers and minimum support price) have encouraged farmers to produce low value crops
  6. Farmers use low productivity and unsustainable techniques

Support small enterprises to boost India’s exports: President II

  1. Reasons for contraction: A weak global demand has adversely impacted India’s exports
  2. Reviving exports in a scenario of sluggish demand worldwide will remain a serious challenge for India
  3. Geopolitical instability, economic downturn, war and terrorism have further hampered the growth of world trade
  4. India also needs to support its SME exporters as they have the potential for accelerated growth
  5. But at the same time, SME’s are considered a high-risk venture by commercial lenders

Support small enterprises to boost India’s exports: President I

  1. Source: President Pranab Mukherjee
  2. The Centre needs to ensure that India’s exporters, particularly those in the SME segment, are adequately supported through appropriate policy interventions to help them tide over the present downturn
  3. India’s exports had contracted in 20 of the 21 months till August this year except in June 2016, when it expanded 1.27%
  4. The Centre will have to consider strengthening India’s institutional credit guarantee framework in the trade sector
  5. This includes the state-owned ECGC that promotes the country’s exports
  6. It improves the competitiveness of the Indian exporters through credit risk insurance covers and related services

Way ahead for Indian cotton exports

  1. Competitiveness of Indian cotton yarn in the international market should improve
  2. Govt should give 2% under the Merchandise Export Incentivisation Scheme and 3% under the interest equalisation scheme for one year
  3. This will help India increase export to other countries too
  4. Cotton Corporation of India should buy 70 lakh to 80 lakh bales of cotton in the peak arrival period and supply it to the mills later to stabilise the prices

India’s yarn exports decline

  1. The decline: India’s cotton yarn exports fell 11.58% in value terms and 4.44% in terms of volume during April – June this year compared to the same period last year
  2. Reasons: Exports to China, the main buyer of Indian cotton yarn, have declined
    Also an overall drop in demand in the domestic and export markets
  3. Problem for mills: Because of this, capacity utilisation in textile mills has also come down
  4. Further, fluctuations in cotton price have hit the textile mills
  5. Bangladesh is the second largest buyer of cotton yarn from India
  6. This year, India’s exports to Bangladesh & Pakistan have improved in terms of value and volume

Centre eyes sops to spur internal trade- I

  1. The Centre may soon consider a three-pronged approach to revitalise India’s retail and wholesale trade
  2. This includes (i) establishing a regulatory body for national internal trade (retail and wholesale), (ii) a comprehensive domestic trade policy and (iii) a Board for Internal Trade
  3. Currently there is no single regulatory body or ministry for domestic trade- comprising mainly non-corporate small businesses providing employment to an estimated 460 million people
  4. There are about six crore such small enterprises in the country with an annual turnover of around Rs.30 lakh crore
  5. It has been estimated that about 70% of the country’s retail trade has not been linked to computers and digitised

Way ahead on Board of Internal Trade

  1. Context: Setting up of Board of Internal Trade
  2. It is important to set up such a Board under a single ministry- the Commerce and Industry Ministry
  3. Why? Currently internal trade comes under the ambit of multiple ministries leading to delays in addressing their issues
  4. To help build a cashless system, the government needs to subsidise transaction costs in card use and incentivise digital payment

Centre plans to set up Board of Internal Trade

  1. Context: Setting up of Board of Internal Trade
  2. The Commerce and Industry Ministry will consider a proposal put forward by traders for setting up a Board of Internal Trade
  3. Aim: In a large and diverse market like India, internal trade has several issues that will need special attention
  4. The govt will benefit from getting alerts about the problems being faced by the domestic industry
  5. Even as exports have been affected by a weak global demand, India’s internal trade has been doing well

New marble import policy to end licence raj- II

  1. Lower MIP: The Minimum Import Price for marble blocks has been reduced to address the distortions associated with an MIP
  2. SIT rec: Incidentally, the Special Investigation Team (SIT) constituted to probe black money had recommended doing away with the MIP on products such as marble
  3. It had indicated that continued imposition of MIPsaying otherwise it could lead to money laundering
  4. The SIT had mooted strong action under the anti-money laundering legislation to prevent foreign trade-linked money laundering

New marble import policy to end licence raj- I

  1. The commerce ministry has notified the new import policy for marble and that it would come into effect from October 1
  2. Aim: To balance the interests of domestic consumers, producers and processors
  3. Also to end the cumbersome licensing system for import of marble and travertine blocks
  4. The Quantitative Restriction on the import of Marble & Travertine Blocks has also come to end
  5. To address the interests of domestic producers, the Basic Customs Duty on import of Marble will go up from the present 10 to 40%

Exports return to growth after 18 months

  1. News: India’s merchandise exports rose 1.27% year-on-year in June 2016 to US$ 22.6 billion
  2. Reversed a declining trend that started in December 2014 due to weak global demand and a fall in commodity prices
  3. Merchandise exports: Exports of goods, not services; Also called tangible exports
  4. Imports during June 2016 slid 7.3% to US$ 30.7 billion

Desperate need to check poor quality imports

  1. Context: Commerce Minister at ‘National Standards Conclave 2016’ organised by the Commerce Ministry along with CII
  2. Undesirable imports: Increasing tariffs or imposing quantitative restrictions alone cannot completely prevent poor quality and undesirable imports
  3. Solution: To ensure high quality standards for goods
  4. BIS: Bureau of Indian Standards needs to speed up its work with the ministries concerned to ensure matching high standards for locally-made and imported items
  5. Background: Allegations of a surge in imports of sub-standard goods from countries like China

Standard regimes from an international perspective

  1. It is essential to develop a coordinated national response to meet the challenges of the World Trade Organisation regime in standards and conformity assessment
  2. Trade agreements: Mega-regional free trade agreements, including TPP and TTIP are promoting high standards for global trade
  3. It is therefore important to anticipate the future scenario on standards and technical regulations in the context of TPP and TTIP
  4. Quality consciousness: The strategy of having different standards for domestic market and export market has not worked anywhere

Why a National Standards Strategy?

  1. A strong standards and regulatory framework would help domestic industry in becoming competitive in the world as well as domestic market
  2. This would help in increasing the exports by measuring up to standards and conformity assessment procedures both in quantitative terms and also getting higher value exports
  3. Also, such a regime shall fulfil the vision of ‘zero defect, zero effect (meaning, environment-friendly)’ and ‘Make In India’ campaigns
  4. It would also help prevent flooding of domestic market with unsafe/sub-standard imports which adversely affect consumers and domestic industry

Centre to evolve norms to enhance product quality

  1. Context: The Commerce Ministry will soon bring out a five-year National Standards Strategy Paper
  2. Aim: To weed out substandard products from the domestic market and boost India’s exports of high quality goods
  3. Also, improving regulations to ensure that India moves gradually towards adoption of more mandatory standards (also called technical regulations) that are harmonised with international standards
  4. An inter-ministerial panel is already working on identifying goods that do not conform to safety, security, environment and health standards

About the Capital Goods Sector Policy

  1. This is first ever policy for Capital Goods sector with a clear objective of increasing production of capital goods from Rs.2,30,000 crore in 2014-15 to Rs.7,50,000 crore in 2025
  2. And also raising direct and indirect employment from the current 8.4 million to 30 million
  3. Benefits: Help realise the vision of ‘Building India as the World class hub for Capital Goods’
  4. Pivotal role in overall manufacturing as the pillar of strength to the vision of Make in India
  5. The objectives of the policy will be met by the Department of Heavy Industry in a time-bound manner

Government approves capital goods sector policy

  1. Context: The Cabinet approved the first-ever policy for the capital goods sector in the country
  2. Aim: To triple the value of production of these goods to Rs.7.5 lakh crore by 2025 and create more than 21 million jobs
  3. Export: The policy also envisages increasing exports to 40% of production from the present 27%
  4. Domestic production: The share of domestic production in India’s demand will also be increased from 60% to 80%, making India a net exporter of capital goods

Oil prices & falling exports of India

  1. Dependence: India’s trade has been largely dependent on what happens with oil and the devaluation of currencies
  2. Effect: This has affected India’s export earnings- imports have gone down and similarly exports have also gone down
  3. Petroleum prices: There have been a lot of currency fluctuations in many of our markets
  4. The currencies have been devalued which has affected the competitiveness of Indian products
  5. Thus exporters have chosen to sell at low margins & hence while volumes have remained the same, realization has gone down

Decline in exports ‘at the end of the worst’

  1. India’s exports slid for the 17th month in a row in April to $20.5 billion
  2. Commerce Secretary: India’s shrinking exports is not a cause for alarm and the decline may be at the end of the worst
  3. The rate of decline in exports has started slowing & perhaps the worst is over and slowly the world is coming out of slowdown
  4. The decline in exports is in line with what was happening in the rest of the world
  5. If the slowdown in India is different from what is happening in the rest of the world then we would have been alarmed

Tap forex pool to help exporters: Ministry

  1. News: The Commerce Ministry wants the RBI to use a part of its forex reserves to give long-term loans at low interest rate to the Exim Bank of India
  2. Why? It will help Exim Bank of India to pass it on to exporters at lower rates than bank credit
  3. Criticism: Rate of export credit in India is 11-12 % as against 2-3 % in the Euro area and 5.5% in China
  4. Aim: To help reduce the costs and enhance the competitiveness of exporters at a time of global trade slowdown and weak demand overseas
  5. Fact: Recently, forex reserve had reached to a record high of around $360 billion

Centre mulls priority lending, SEZ revival among moves to boost exports

  1. Why: contracting export month after month for more than 12 months
  2. What: plan to offer incentives to small exporters, SEZs, labour intensive sectors, organic food processors
  3. Other steps: categorization of the entire export credit given by all lenders separately under priority sector lending without riders
  4. Better coordination with Indian missions overseas, relaxing norms for the Export Import Bank of India (Exim Bank) and Export Credit Guarantee Corporation of India (ECGC)
  5. Data: exports have declined from $314 billion in FY’14 to $310 billion in FY’15 and are expected to shrink further to nearly $260 billion this year
  6. Importance: Double digit growth impossible without exports doing well

Balance of Payments data

  1. Context: The balance of payments data released for the first nine months of 2015-16
  2. Investment: It has been falling sharply, coming down from 39% in 2011-12 to 32.9% of GDP
  3. The expectation was that higher real interest rates would pull up savings, but that doesn’t seem to be happening
  4. CAD: 1.4% of GDP at current prices for the April-December 2015 period
  5. The low CAD is the result of the investment drought in the economy, combined with a lower level of savings

Inter-ministerial meet to discuss measures to increase exports

  1. Inter-ministerial talks will begin soon to consider measures to boost exports and improve the ease of doing business.
  2. Background: Merchandise exports dropping for 13th month in row.
  3. The govt will also look into the likely impact of the proposed GST on exports .
  4. It will review free trade agreements, including the one with Asean member-countries.
  5. The commerce ministry will approach the ministries of external affairs and finance on customs-related issues.

Commerce Ministry prepares strategy to boost exports to Africa

Worried over declining exports, the commerce ministry has prepared a strategy to boost shipments to Africa.

  1. The ministry has identified several sectors as part of the strategy- engineering, agriculture and farm equipment have emerged as a major ones.
  2. The Department of Commerce will hold consultations with Ambassadors and High Commissioners of major African nations and industry stakeholders to implement the strategy.
  3. Indian farm and agri equipment are competitive as compared to western products.
  4. There are huge tracts of land in Africa and agriculture is the growing sector there.
  5. The two-way commerce between India and Africa is about USD 75 billion.

Commerce ministry backs measures to boost SEZs

  1. The Commerce Ministry is in the process of identifying reasons for the slowdown in the Special Economic Zones (SEZ).
  2. It has asked Finance Ministry to consider steps to boost exports from SEZs.
  3. The commerce ministry has raised issues regarding the removal or reduction of Minimum Alternate Tax and Dividend Distribution Tax on SEZs.
  4. Finance ministry has been asked to extend the Sunset Clause (provision relating to the expiry of the benefits to SEZs) on SEZs up to 2023.

States to formulate export promotion policies

  1. The aim is to give a concerted push to India’s declining exports.
  2. Centre has asked every state to come out with an export policy identifying product and services of interest that have significant potential in the global arena.
  3. The role of states is crucial with infrastructure, VAT, land and environmental clearances, and labour, under the domain of states.
  4. A few states, such as Jharkhand and Karnataka, already have export policies while Gujarat, Kerala, Andhra Pradesh and Punjab are in the process of formulating it. 

Fall in exports projected to be worst since 1952-53

  1. Merchandise exports this fiscal are projected to fall around 16% over the previous financial year.
  2. This will be the second worst export performance since independence, according to official data.
  3. Only in 1952-53, exports had fared worse when it shrank by 18.7%.
  4. Shipments during April-November this fiscal, had shrunk 18.46% as compared to the same period in 2014-15.

Exports of top 5 sectors dip 25% in August

  1. Exports of top 5 sectors viz. engineering, petroleum, gems and jewellery, textiles and pharmaceuticals fell by about 25%, due to global demand slowdown.
  2. These five sectors accounted for about 65% of the country’s total merchandise exports in 2014-15.
  3. These are labour intensive sectors and govt. should announce steps to contain the dip in outbound shipments.
  4. The continuous decline in exports is expected to impact jobs and put pressure on the current account deficit.

India has aimed at taking exports of goods and services to $900 billion by 2020 and raising the country’s share in world exports to 3.5% from 2%.

Total exports in the past 4 financial years have been hovering at around $300 billion.

Merchandise exports to decline by over 13 % in FY16

  1. India’s merchandise exports in 2015-16 are forecast to decline to $265-268 billion, significantly lower than $310.5 billion in the previous fiscal.
  2. This is mainly due to sharp erosion in commodity prices globally.
  3. The global merchandise economy has moved to a bearish and low cost situation where demand relates mainly to the actual consumption.
  4. There is no sentiment build-up around commodities and thus the demand is actually restricted to the real consumption.
  5. Indian exports had achieved a landmark of $300 billion in 2011-12 for the first time, making the country a sizeable player in global exports.

India’s global hub fears more job losses

  1. Nearly half a dozen large diamond companies in the city have closed down: a significant hit for an industry that employs nearly a million people in India, two-thirds of them in Surat.
  2. Chinese consumers pull back from luxury purchases, leaving jewellers with stocks of unsold jewellery and gems.
  3. Jobs are a critical issue for India’s government, struggling to revive economic growth to a rate that will create employment for millions joining the workforce every year.
  4. China represents fifth of the world polished diamond market and accounts for the same proportion of India’s $23 billion of annual exports.

Interest subvention scheme for exporters likely. Why?

  1. Amidst declining global demand and depreciating currencies, India’s exports fell by 15.82% in June – 7th consecutive declining month.
  2. Now planning to launch loans with subsidized interest rates to bolster the exports.

    Under the scheme, a portion of the rates is reimbursed by govt to lenders; loans at subsidised rates would help exporters boost shipments

Exports dip further

  1. India’s exports dipped further by 15.8 % in June to $22.28 billion, marking the seventh straight month of contraction.
  2. The sectors worst hit were petroleum products, engineering, leather and leather good, and chemicals.

Centre to set up trade facilitation council to promote exports

  1. Govt will set up a trade facilitation council comprising members of the Centre and states.
  2. The idea is to promote India’s overseas shipments with an objective of facilitating trade from states in a bid to boost the country’s exports.
  3. States will also be encouraged to set up a State Trade Policy in order to streamline procedures and increase exports.

In conversation with the Commerce Secy – Rajeev Kher

 


Sir, your views on the export data. Last six months, it has been very bad on our export economy.

This whole dimension of exports going down is definitely alarming. Asia which is one of the largest destinations for Indian exports has also been generally slowing down whether it is China or Japan or any other market, ASEAN, so that is of course one major reason.

What is the typical constitution of the basket of India’s exports?

About more than 30% of exports are coming out of petroleum products and gems and jewellery and because the petroleum prices have gone down so therefore consequent reduction of petroleum product prices is also happening.

What about our export competitiveness?

Two main issues there – Structural issues for example infrastructure is one big issue & then the ‘Ease of doing business’, which to be fair is a work in progress.

What according to you are the measure that are needed as far as exports are concerned?

Measures would be required on both sides –

One is the front end side and that is where these small incentives that we do by way of export incentives do help particularly the small sector.

There is a huge demand for interest subvention schemes which were there in ’13-’14 but not operational in ’14-’15. It will be a great boon to sectors which are traditionally niche for example the textile sector.

 

Drop in India’s exports continues. Why?

Continuing decline in exports would result in layoffs and also put pressure on Current Account Deficit (CAD).

  1. India’s exports fell over 20% in May to $22.3 billion, for the sixth straight month in a row. But why? 

Two probable reasons – 

  1. Sluggish demand in key global markets such as the U.S. and Europe have hurt Indian exports.
  2. While the sharp fall in crude oil prices since last June has helped India reduce its import bill, India’s export of petroleum products (which make a sizable share of the export bill) has also taken a hit!


:( We are working on most probable questions. Do check back this section.







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