Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

Aug, 09, 2018

[pib] Mobile App Niryat Mitra

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the app

Mains level: Initiatives for Export Promotion by the Govt.


News

Niryat Mitra Mobile App

  1. Nodal Agency: Union Minister of Commerce & Industry
  2. The app developed by the Federation of Indian Export Organisations (FIEO) is available both on Android and on IOS platforms.
  3. It provides wide range of information required to undertake international trade right from the policy provisions for export and import, applicable GST rate, available export incentives, tariff, preferential tariff, market access requirements – SPS and TBT measures.
  4. The most interesting part is that all the information is available at tariff line.
  5. The app works internally to map the ITC HS code of other countries with that of India and provides all the required data without the users bothering about the HS code of any country.
  6. Presently the app comes with the data of 87 countries.

Promoting Ease of Doing Business

  1. The exports are showing good sign and registering increase at the rate of 20%.
  2. The app will provide big opportunity to everybody and help promote export interests in the country.
  3. The Human Resource tool of the app enables candidates with interest in the international trade sector to register and apply against the vacancies arising in the sector.
  4. Companies can also search the profiles of the candidates and engage them.
Jul, 16, 2018

Indian shipping companies headed for troubled waters

Note4students

Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

From UPSC perspective, the following things are important:

Prelims level: ROFR Clause

Mains level: The newscard highlights the drawbacks of scrapping the RORR clause. However it will provide more options to Government for less expensive shipping thus reducing the overall logistics cost.


News

Scrapping of Right of First Refusal (ROFR) clause

  1. A proposed move by the Centre to abolish the ROFR clause for transportation of Indian cargo by Indian-flagged vessels, the only benefit available to Indian shipping companies is threatening the existence of the domestic shipping industry.
  2. Indian shipping companies have a combined fleet of 1,372 ships with a total capacity of 12.35 million Gross Tonnage (GT).

What is a Right of First Refusal?

  1. Right of first refusal is a contractual right, but not obligation, to enter into a business transaction with a person or company before anyone else can.
  2. If the entity with the right of first refusal declines to enter into a transaction, the owner of the asset who offered the right is free to open the bidding up to other interested parties.

Benefiting Foreign Shipping?

  1. The government is preparing ground to do away with the ROFR clause which ensures Indian-registered ships carry Indian bulk dry/liquid cargo of Indian public and private sector companies at the lowest rate.
  2. This rate is to be quoted by a foreign shipping line by matching the price.
  3. Thus, while it does not add any extra cost to the importer or exporter, it provides assured business to the national fleet but at a rate quoted by a foreign line.
  4. Hence Indian Shipping firms are de-registering their vessels from India and flag them in tax havens of Panama and Bahama to survive and compete with foreign lines.
  5. Currently, 92% of India’s export import trade is carried by foreign flag ships. And the 8% that is assured to Indian ships is likely to go if the ROFR is scrapped.

Domestic shipping is Costlier

  1. Since foreign flag vessels do not pay any tax in India while Indian companies are costlier since they have to pay multiple taxes.
  2. In 2017 alone, Indian shipping companies have made investments of around ₹4,700 crore in assets in anticipation of business.
  3. To heal this, Shipping Ministry issued orders that permitted foreign flag vessels to transport export import-laden containers, agri products, horticulture, fisheries, animal husbandry commodities and fertilizers between two or more Indian ports without obtaining a licence from the Directorate General of Shipping.
  4. This means that an Indian flag vessel, if available, has lost the opportunity of doing this business.

What concerns Indian firms ?

  1. Indian shipping companies said this move is being contemplated without any consultative process.
  2. Also, the integrity and security of transportation of critical cargo in times of war or economic sanctions seem to have been completely ignored.
  3. The right of first refusal is the only incentive to the Indian flag, which suffers from many disadvantages versus foreign flags.
  4. De-registering of vessels from the Indian flag will be a strategic blow to Indian security as merchant naval fleet always acts as a second line of defence for coastal security.

Way Forward

  1. Some experts feel the objective of the government is to shift cargo movement from railways and roadways to the waterways to reduce logistics costs and ensure faster movement of cargo, which the domestic lines have failed to deliver.
  2. This move should not be looked at in isolation.
  3. The government wants to build volumes and see a large-scale shift of cargo movement to waterways which foreign lines can provide as we do not have a strong domestic shipping industry.
Jul, 03, 2018

[op-ed snap] What India must do to be a free trade champion

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: World Trade Organization, Regional Comprehensive Economic Partnership (RCEP)

Mains level: Various constraints affecting India’s exports and how to reduce them to boost exports


Context

Trade war across the globe

  1. The tariffs and counter-tariffs levied by the US and its allies and rivals alike are mounting
  2. The World Trade Organization has warned that growth in global trade is contingent on escalating trade tensions not acting as a spoiler

India’s position on liberalization

  1. It has spoken repeatedly about the benefits of a liberal trade regime at international forums in the recent past
  2. But rhetoric and reality don’t always match up as can be seen by its Regional Comprehensive Economic Partnership (RCEP) dilemma

What does India want in RCEP?

  1. India has been making efforts to fold services trade liberalization into the pact
  2. Why? As of 2016-17, India’s share of world merchandise exports stood at 1.65% while its share of world service exports was twice that at 3.35%
  3. This essentially means that India is more efficient and in a better position to export services rather than goods
  4. But the political sensitivity of the factors affecting services trade— the cross-border movement of professionals and the behind-the-border nature of regulation among them—makes it difficult to make headway

India’s goods trade and associated issues

  1. Indian goods exports are currently dominated by petroleum products, chemical products, textiles and garments, and engineering goods
  2. But quality matters more than quantity
  3. Exports with higher productivity and sophistication will contribute more to economic growth
  4. India’s basket of export continues to be dominated by goods of relatively low sophistication
  5. It skews substantially more towards low-tech manufacturing than the median of peer emerging economies

What does this lead to?

This hamstrings India on two fronts

  1. It limits the domestic productivity and income-boosting effects of exports
  2. It also makes it harder for India to gain the comparative advantage needed to take full advantage of bilateral and regional free trade pacts

Factors affecting exports

  1. The current poor performance of Indian exports undoubtedly has something to do with the demonetization shock, the goods and services tax (GST) snafu when it comes to refund payments for exporters and the twin balance sheet problem
  2. Indian exports are more sensitive to demand than the price
  3. India’s exports are also driven by domestic supply-side constraints
  4. Power shortages and poor reliability also affect export growth significantly
  5. There are the multiple factors, ranging from onerous labour laws to regulatory costs, that keep companies small
  6. Such companies have neither the capital and scale to move to more sophisticated goods, nor the worker skills to be part of such value chains
  7. Poor innovation capital—due to the lack of quality higher education, low public and private expenditure on research and development and a lacking legislative framework

Findings in Economic Survey 2017-18

  1. Improved logistics have huge implications on increasing exports, as a 10% decrease in indirect logistics cost can contribute to around 5-8% of extra exports
  2. India has logistics costs around double of those in developed economies

Way forward

  1. Free trade, for all the distributional issues that have rightly come into sharp focus over the past few years, is a net good
  2. India needs to sort out its goods versus services dilemma & the gap between theory and practice
  3. This won’t be bridged without a structural transformation in Indian exports
Jun, 29, 2018

[pib] Cabinet approves capital infusion in Export Credit Guarantee Corporation Ltd.

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: ECGC

Mains level: Various initiatives by government to boost trade and exports 


News

The Cabinet Committee on Economic Affairs has approved the capital infusion of Rs.2000 crore for strengthening of  Export Credit Guarantee Corporation (ECGC)

How will it benefit?

  1. The infusion would enhance insurance coverage to MSME exports and strengthen India’s exports to emerging and challenging markets like Africa, CIS and Latin American countries.
  2. With enhanced capital, ECGC’s underwriting capacity and risk to capital ratio will improve considerably.
  3. With a stronger underwriting capacity, ECGC will be in a better position to support Indian exporters to tap new and unexplored markets.
  4. Increased capital infusion will help ECGC to diversify its product portfolio and provide cost effective credit insurance helping exporters to gain a stronger foothold in the difficult markets.
  5. Covers from ECGC will help in improving competitive position of India exporters in International markets.
  6. More than 85% of customers benefitted by ECGC’s covers are MSMEs.

 Back2Basics

Export Credit Guarantee Corporation of India (ECGC)

  1. The ECGC Limited is a company wholly owned by the Government of India based in Mumbai, Maharashtra.
  2. It provides export credit insurance support to Indian exporters to facilitate exports from the country and is controlled by the Ministry of Commerce, GoI.
  3. The ECGC offers credit insurance schemes to exporters to protect them against losses due to non-payment of export dues by overseas buyers due to political and / or commercial risks.
  4. ECGC covers exports to around 200 countries in the world.
  5. The ECGS:
  • Offers insurance protection to exporters against payment risks
  • Provides guidance in export-related activities
  • Makes available information on different countries with its own credit ratings
  • Makes it easy to obtain export finance from banks/financial institutions
  • Assists exporters in recovering bad debt
  • Provides information on credit-worthiness of overseas buyers
Jun, 26, 2018

[pib] First Livestock export from Nagpur airport

Note4students

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: Utilizing Livestock export for benefiting distressed farmers of Vidarbha Region


News

First livestock Export by Air

  1. On June 30, 2018, livestock of sheep and goat will be exported for the first time to Sharjah from Nagpur
  2. Around 1 lakh sheep and goat will be exported over a period of three months from the Nagpur airport.
  3. This project is taking off due to the joint efforts of Multi-modal International Cargo Hub and Airport at Nagpur (MIHAN), Air India, Agriculture Ministry and Commerce Ministry.

Far-reaching benefits for Vidarbha Farmers

  1. The export of livestock will benefit farmers of the Vidarbha region which is witnessing farmer’s suicides.
  2. Shepherd’s and farmers of the region will greatly benefit from this and may consider Sheep and Goat rearing as a side business along with farming.
  3. When there is drought or when the farmer is in need of money he will be able to sell the sheep and goat. Women too can take this up as a business and make it a source of earning.
Jun, 14, 2018

[op-ed snap] China’s growing role in Asian trade and its impact

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: World Trade Organization, Trade in Value-added (TiVA) database, Onshoring, Backward & forward participation

Mains level: China’s increasing participation in global trade and its implications on India as well as Asia


Context

Ongoing trade dispute between the US and China

  1. The ongoing trade dispute between the US and China is of particular concern for emerging Asian economies
  2. These economies have prospered by being active participants in regional and global value chains (GVCs)

Dependence of Asia on triad & China’s role

  1. Trade in Asia over the past 30 years has been shaped by GVCs
  2. Asia’s dependence on the triad (the US, Europe and Japan) as sources of technology, management and organization expertise—which are embodied in multinationals from these countries—as well as final export markets remains critical
  3. China has become a key assembling hub in many Asian supply chains and has played a major role in ensuring that manufactured exports from Asia have remained cost-competitive globally
  4. China has emerged as an export powerhouse and a key player in both intra-regional and extra-regional trade

China’s impact on Asian trade

  1. China has assumed an increasingly prominent role in the intra-regional trade landscape, especially after it joined the World Trade Organization (WTO) in 2001
  2. China’s trade performance has had a major impact on Asia’s intra-regional trade as a whole
  3. The recent trade slowdown in Asia has been driven in part by the stagnation and contraction of rest of Asia (ROA)’s exports to China between 2012 and 2016

Backward & forward participation

  1. Backward participation is measured by the share of foreign value-added content in total gross exports
  2. East and South-East Asian economies averaged almost 30% based on the WTO’s Trade in Value-added (TiVA) database in terms of backward participation
  3. Forward participation captures the domestic value-added content embodied in the exports of other economies

Rising prospects of China

  1. With a rapid growth in per capita domestic incomes, the country is emerging as an important destination for final exports
  2. It is experiencing a transition from investment to consumption and manufacturing to services
  3. Progress in China’s technological sophistication has enabled the economy to utilize an increasing share of domestic capital and intermediate goods in export production (onshoring)

Implications for India

  1. India has not been able to fit prominently into the Asian GVCs
  2. The initial expectation was that the Regional Comprehensive Economic Partnership (RCEP) would be the catalyst for this to happen
  3. But it is believed that such trade agreements have been the cause of and may be part of the reason of the limited success of the much-touted “Make in India” scheme
  4. India’s anemic manufacturing performance and the inability of India to plug effectively into regional global supply chains can be attributed to the sustained supply-side distortions and rigidities as well as relatively high trade costs in India

Way forward

  1. The fourth industrial revolution appears to be disrupting and shortening GVCs
  2. India should focus on leapfrogging and getting prepared for this Industry 4.0
May, 23, 2018

[op-ed snap] International trade tensions: a worry for Asia

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Trade Related Aspects of Intellectual Property Rights (TRIPs) and Trade Related Aspects of Investment Measures (TRIMs), etc.

Mains level: There is a (so called) trade war going on between the US and China. The newscard discusses its possible implications on the Indian Economy.


News

Context

  1. The uncertainty in the global trade environment does not bode well for Asian economies that are heavily dependent on international trade and investment as a means of sustained growth

The growth decade between 2002 and 2017

  1. Between 2002 and 2017, economic growth in Asia averaged about 6% annually which expanded about 4% on an average
  2. Consequently, Asia’s share of GDP rose from 25% in 2002 to about 35% in 2017
  3. Asia’s share of global exports spiked from about 29% in 2002 to 38% in 2017,
  4. while its share of global imports increased from about 22% to 31% during the period

The tit-for-tat tariff threats by the US and China

  1. The Donald Trump administration announced the imposition of tariffs on $60 billion worth of Chinese imports
  2. This was in addition to the more general tariffs imposed on washing machines, solar panels, steel and aluminium imports on China and its other trading partners
  3. China, in turn, has threatened retaliatory tariffs worth $3 billion of goods from the US with 90% in food-related products and the rest in steel tubes and aluminium products

Both parties have a role to play in the US-China and overall global trade tensions

China is not following the WTO rules for its aspirations

  1. China is working on the “Made in China 2025” (inspired by Germany’s “Industry 4.0 plan”) which aims to develop world-class dominance in 10 domestic tech-manufacturing industries
  2. In so doing, critics have argued that China has failed at times to respect the World Trade Organization (WTO) agreements on Trade Related Aspects of Intellectual Property Rights (TRIPs) and Trade Related Aspects of Investment Measures (TRIMs)
  3. Counter view: Others have argued that the WTO itself is ill-equipped to deal with the unique challenges posed by a rising China with its unique economic structure

The US has undertaken aggressive unilateralism

  1. The US  administration has undertaken aggressive unilateralism due to its “diminished giant syndrome”
  2. The trade threats make it look as if “America believes in the law of the jungle rather than the rule of law”

Possible implications for Asia

  1. For now, the global trade environment will be much less buoyant and much more uncertain than it was in the past
  2. This does not bode well for Asian economies, particularly those, which are heavily dependent on international trade and investment as a means of sustained growth
  3. For the rest of Asia, it is critical that they reaffirm the importance of an open, transparent and rules-based multilateral trading system,
  4. while pushing forward with greater intra-regional trade initiatives that are of mutual benefit
May, 10, 2018

India merges anti-dumping, import safeguard bodies

Note4students

Mains Paper 3: Economy | Changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Directorate General of Trade Remedies (DGTR),

Mains level: India’s import safeguard regime and its impact on overall trade


News

Better coordination in import duties

  1. India has finally merged the two separate bodies handling anti-dumping and import safeguards to form the Directorate General of Trade Remedies (DGTR)
  2. This is in line with US International Trade Commission (USITC)

Current Scenario

  1. Currently, Directorate General of Anti-Dumping and Allied Duties (DGAD) deals with anti-dumping and countervailing duty cases, while Directorate General of Safeguards (DGS) deals with safeguard measures and DGFT deals with quantitative restriction (QR) safeguards
  2. The finance ministry had administrative control over the DGS
  3. The commerce ministry has DGAD under its control

Functions of new body

  1. The refurbished DGTR will also bring safeguards (quantitative restrictions) functions of Directorate General of Foreign Trade (DGFT) into its fold
  2. DGTR will also provide trade defense support to India’s domestic industry and exporters in dealing with increasing instances of trade remedy investigations instituted against them by other countries

Back2Basics

Directorate General of Trade Remedies (DGTR)

  1. The Government of India carried out an Amendment to the Government of India (Allocation of Business) Rules, 1961 for the creation of an integrated single umbrella National Authority to be called the Directorate General of Trade Remedies (DGTR) for providing comprehensive and swift trade defense mechanism in India
  2. The amendment of Allocation of Business Rules has also mandated Department of Commerce with work pertaining to the recommendation of Safeguard measures
  3. The DGTR will bring DGAD, DGS and Safeguards (QR) functions of DGFT into its fold by merging them into one single national entity
  4. DGTR will deal with Anti-dumping, CVD and Safeguard measures
  5. The DGTR will function as an attached office of Department of Commerce
  6. The recommendation of DGTR for the imposition of Anti-dumping, countervailing & Safeguard duties would be considered by the Department of Revenue
May, 09, 2018

[op-ed snap] What the future holds for Indian exports

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: The four important factors discussed in the newscard.


News

Context

  1. The Economic Survey of 2017-18 identified exports as the biggest source of upside potential for growth in FY18
  2. But do the recent macroeconomic developments pose a threat or an opportunity for Indian exports?

Possible negative effect of the US policies on developing countries

  1. The US Federal Reserve has recently hiked the benchmark funds rate from 1.5% to 1.75%
  2. An interesting development is the expectation of a more aggressive monetary tightening in the future, with successive hikes over the next couple of years
  3. Such a hawkish stance has tremendous implications for the rest of the world, especially the emerging market economies

The current situation provides a favourable opportunity for an exports rebound in the coming quarters
There are at least four factors that augur well
FIRST:  Effects from dollar appreciation

  1. A Nomura report forecasts the 10-year US treasury yields to rise to 3.25% in Q3 2018 from 2.95% currently
  2. It identifies Q3 2018 as a quarter holding significant potential for dollar appreciation
  3. This has implications not only for Indo-US trade but also for India’s trade with other countries, as over 88% of Indian exports are invoiced in dollars

SECOND: Trade war between the US and China

  1. The inevitable trade war between the US and China offers another opportunity
  2. US President Donald Trump imposed tariffs on $50 billion worth of imports from China, to which China retaliated immediately and equally
  3. US importers from China cannot just shift this entire demand to US manufacturers as the local economy is already operating at close to full employment
  4. With factory wages in China escalating to the highest in emerging Asia, India can enjoy an export boom in sectors otherwise dominated by China like electronics and apparel

THIRD: Revival of demand from the European Union (EU)

  1. Financial crisis and PIIGS (Poland, Italy, Ireland, Greece, Spain) debt crisis broke the back of EU’s economic growth
  2. This led to a decline in demand from EU for Indian exports
  3. The projections for 2018 remain good, according to a European Commission report
  4. With the EU regaining, the resurgence in demand from the West will act as a boon for Indian exporters

FOURTH: Diversification of China’s manufacturing sector

  1. The growth in the manufacturing sector in February was at its lowest in the past 18 months due to a crackdown over pollution in major industrial provinces
  2. Understanding the long-term limitations, China has started diversifying its trading pattern by focusing more on technology-driven sophisticated goods
  3. It has already become a major exporter of green tech
  4. This is creating a vacuum in the manufactured goods export segment
  5. India should now capitalize on the opportunity

The way forward

  1. India is struggling for comparative advantage against low-end manufacturers, such as Bangladesh and Vietnam
  2. This weakening competitiveness needs to be addressed to sustain employment-generating export growth
  3. Although India may not be able to cater to the world market like China did for two decades, it should not lose out to rivals like Bangladesh and Vietnam
Apr, 27, 2018

Govt considering national policy for retail trade

Note4students

Mains Paper 3: Economy | Indian Economy Issues relating to planning

From UPSC perspective, the following things are important:

Prelims level: National policy on retail trade, Shops and Establishment Act

Mains level: India’s internal trade observations (from the economic survey)


News

New retail trade policy

  1. The government is considering a national policy on retail trade with a view to ensuring orderly growth of the fast-growing sector
  2. The commerce and industry ministry has written to the department of consumer affairs to set up a task force for framing the policy

Authority to regulate internal trade

  1. The consumer affairs ministry is the nodal agency for regulating internal trade
  2. The commerce ministry should also take on board state governments while framing the policy norms as retail trade is also governed by the Shops and Establishment Act
Apr, 18, 2018

[op-ed snap] India needs to fundamentally alter its export strategy

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Decline in India’s exports and its implication on overall economy


Context 

India’s falling exports

  1. India’s revenue from exports of merchandise over the last four fiscal years was $310 billion, $262 billion, $275 billion and $302 billion, respectively (No need of remembering these figures per se)
  2. Thus over the four years from April 2014 till March 2018, the total growth was zero, or, rather, a tad negative
  3. Even the ratio of exports to gross domestic product (GDP), at 11.6%, is at a 14-year low

In contrast to the global situation

  1. This comes at a time when the world is experiencing synchronized income and consumption growth
  2. Our Asian peers are also clocking decent export numbers

Factors affecting India’s exports

  1. The lingering effects of demonetisation
  • Due to last year’s cash disruption, orders were lost, and these can’t be regained easily from competitor countries
  • There is a kind of hysteresis as lost orders and jobs are not fully reversible

2. The delay in getting goods and services tax (GST) refunds

  • There is a burden of the cost of locked capital
  • The delayed refund does not include the interest cost

3. The overvalued exchange rate

  • It makes India’s exports relatively expensive

4. The continuing unreliability of electricity and other infrastructure facilities

  • Small and medium enterprises need a common plug and play, seamless hard and soft infrastructure—whether it’s effluent treatment or inspection or logistics

Changing export strategy

We need to move from merely focusing to becoming obsessed with rejuvenating our exports. This can be done by:

  1. Focus on labor-intensive exports such as agriculture, textiles, footwear and tourism
  2. Have a zero GST rate for all exports
  3. Shun product- and market-specific incentives and focus on regional or cluster subsidies, which benefit all producers, small or large, domestic or export-oriented
  4. Reduce and further reduce inspector raj
  5. Actively and aggressively promote participation in global value chains
  6. Be committed to open borders, notwithstanding the pressure to raise trade barriers

Way forward

  1. India is capable of investing in modern machinery and automation, as also in skilling its personnel, just like its competitors
  2. It is not by the protection that domestic industry will become world leaders in competitiveness
Mar, 17, 2018

Higher trade deficit pushes up Q3 current account deficit to $13.5 billion

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: CAD

Mains level: Reason behind the increase in CAD figures.


News

Rise in the current account deficit(CAD): Reserve Bank of India (RBI)

  1. The current account deficit (CAD) rose to 2% of the GDP or $13.5 billion in the December quarter, up from $8 billion or 1.4% in the year-ago period, on the back of higher trade deficit
  2. What is the CAD:  It shows the difference between foreign exchange earned and spent

Possible reason behind the increase of the CAD

  1. According to the RBI, the widening of the CAD on a year-on-year basis is primarily due to a higher trade deficit
  2. which rose to $44.1 billion in the reporting quarter due to a larger increase in merchandise imports relative to exports

Back2basics

Current Account Deficit

Feb, 16, 2018

Trade deficit widens to $16.3 bn in Jan.

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Trade deficit

Mains level: Observe the data given in the newscard.


News

Level of trade deficit

  1. India’s goods trade deficit widened to $16.30 billion in January 2018 from $9.9 billion in the same month a year earlier owing to imports outpacing exports
  2. The data is released by commerce ministry recently
  3. The January trade deficit is a more than three-year high
  4. It was $16.86 billion in November 2014
  5. During the April-January 2017-18 period, trade deficit was $131.15 billion
  6. Exports during April-January 2017-18 increased by 11.75% to $247.89 billion,
  7. Imports: while imports during the 10-month period of the current fiscal registered a 22.21% growth to $379.05 billion

On export front

  1. Though exports in January 2018 witnessed positive growth for third time in a row, the rate of growth is declining on a month-on-month basis
  2. Besides, export growth of about 9%, more than 6% has been contributed by petroleum products alone

Other sectors

  1. Labour-intensive sectors like garments, carpets, handicrafts, man-made textiles are exhibiting negative growth primarily due to liquidity crunch emanating from blocking of funds in GST
Dec, 08, 2017

[op-ed snap] Labour-intensive exports need a policy push

Note4students

Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Ease of doing business, Economic survey,

Mains level: Opportunity for India to take China’s place in labour intensive manufacturing sector


Context

Mid term review of Foreign Trade Policy

  1. The government of India has taken several measures to boost exports in its midterm review of foreign trade policy 2015-20
  2. Apart from incentives for specific sectors such as ready-made garments and footwear, it also allowed duty-free procurement of the inputs needed for exports on a self-assessment basis
  3. A new logistics division has been established in the department of commerce to coordinate development in the logistics space
  4. Read the full news here

India losing exports to smaller economies

  1. It is often argued that India stands to gain as labour-intensive manufacturing is moving out of China due to rising wages and an ageing population
  2. But this is not happening in a big way, and India is losing out to other Asian countries such as Bangladesh and Vietnam
  3. India’s “revealed comparative advantage”, an indicator of competitiveness, in some of the labour-intensive sectors has actually declined over the past decade
  4. The latest Economic Survey (2016-17) also highlighted how India is losing out in labour-intensive sectors like apparel and footwear, and why it is important to focus on these sectors

What India can do to increase competitiveness?

India will have to work on multiple levels to increase its competitiveness

  1. It will need to improve logistics to increase efficiency, both in terms of the time and costs involved
  • The trade policy review shows that the government is addressing this issue

2. The government will need to move forward with reforms in the factor market

  • India has a large number of small enterprises, which are not in a position to attain economies of scale and compete in international markets
  • Economic Survey highlighted, Indian firms in the apparel and leather sectors are smaller than those in China, Vietnam and Bangladesh
  • The reason for this is regressive labour laws
  • Similarly, more flexibility in land acquisition will also help the manufacturing sector

3. India needs to be prepared to protect its interests without compromising on its open trade policy

  • There is a threat of rising protectionism
  • India has always supported rule-based multilateral trade negotiations under the WTO
  • Seeing low progress on these, India should also look for opportunities to reduce trade barriers at the regional and bilateral levels

4. Keep the currency competitive

  • India doesn’t need an undervalued currency, but the Reserve Bank of India (RBI) should not allow the rupee to appreciate sharply
  • The 36-currency exports-based real effective exchange rate is still showing significant overvaluation
  • Now that India has adequate forex reserves, policymakers should reassess the kind of funds it needs
  • This will not only assist in keeping the rupee competitive and stable but will also help in conducting the monetary policy

Way forward

  1. Challenges on the export front may increase owing to the growing threat of protectionism and rising automation
  2. The government is working on increasing the ease of doing business, which should also help India’s exports

Back2Basics

A good time to go back to Economic survey and revise important chapters. Read it here

Dec, 06, 2017

Boost for exports as Government announces more incentives

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Foreign Trade Policy 2015-2020, Merchandise Exports from India Scheme (MEIS), Services Exports from India Scheme (SEIS), EPCG

Mains level: Various initiatives by government to boost trade and exports


News

Additional incentives to help boost exports

  1. In its mid-term review of the Foreign Trade Policy 2015-2020, government announced additional incentives to help boost exports
  2. This included simplified processes to help exporters and a commitment to roll out an e-wallet scheme to ease working capital issues for exporters in the post-GST regime
  3. Government also raised the incentive rate by 2 percent under the most popular Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS)

Benefits for whom?

  1. The additional incentives have been provided for exports by small and medium enterprises, labour-intensive and agriculture-based exports among others

Aim of Mid-term review

  1. It aims to promote exports by simplification of processes
  2. Enhance support to high employment sectors
  3. Leverage benefits of GST
  4. Promote services exports and monitoring exports performance through state-of-the-art analytics

About MEIS scheme

  1. Under the MEIS scheme available to exporters, identified sectors are given duty exemption scrips, which are fixed at a certain percentage of the total value of their exports
  2. These scrips can be used to pay duties on inputs and can be traded

Other steps to make processes relating to trade simpler

  1. Self certification scheme for duty free imports
  2. Single point electronic contact to traders with the Directorate General of Foreign Trade for trade and consignment related queries
  3. Creating a logistics division in the department of commerce
  4. Doing away with the testing of samples for drawback purpose and the introduction of e sealing facility for exporters
  5. Relaxations in the EPCG (Export Promotion Capital Goods) scheme
Nov, 29, 2016

[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
Nov, 29, 2016

[pib] What is Min of Commerce doing for Plantation crops?

  1. Department of Commerce has recently approved the Revenue Insurance Scheme for Plantation Crops  (RISPC)
  2. Aim: Protecting growers of tea, coffee, rubber, cardamom and tobacco from the twin risks of weather and price arising from yield loss due to adverse weather parameters, pest attacks etc.
  3. Scheme is to be implemented on pilot basis in eight districts in the States of West Bengal, Kerala, Karnataka, Andhra Pradesh, Assam, Sikkim and Tamil Nadu
  4. It will be implemented by the Commodity Boards through selected insurance companies.
Nov, 10, 2016

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
Nov, 10, 2016

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
Nov, 09, 2016

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
Nov, 09, 2016

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
Oct, 12, 2016

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
Oct, 12, 2016

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
Oct, 12, 2016

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
Oct, 07, 2016

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
Sep, 19, 2016

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
Sep, 19, 2016

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%
Jul, 16, 2016

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
Jun, 24, 2016

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
Jun, 09, 2016

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
May, 26, 2016

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
May, 26, 2016

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
May, 16, 2016

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
Apr, 13, 2016

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
Apr, 07, 2016

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
Mar, 23, 2016

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
Feb, 03, 2016

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.
Feb, 01, 2016

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.
Jan, 21, 2016

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.
Jan, 19, 2016

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. 
Jan, 02, 2016

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.
Oct, 03, 2015

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.

Sep, 21, 2015

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.
Sep, 09, 2015

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.
Jul, 18, 2015

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

Jul, 16, 2015

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.
Jul, 15, 2015

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.
Jun, 29, 2015

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.

 

Jun, 29, 2015

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!
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