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

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

[pib] Emergency Credit Line Guarantee Scheme (ECLGS) 3.0

Note4Students

From UPSC perspective, the following things are important :

Prelims level : ECLGS 3.0

Mains level : Paper 3-ECLGS 3.0

The Government has extended the scope of Emergency Credit Line Guarantee Scheme (ECLGS) through introduction of ECLGS 3.0 to cover business enterprises in Hospitality, Travel & Tourism, Leisure & Sporting sectors.

ECGL Scheme

  • Under the Scheme, 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs. 3 lakh crore to eligible MSMEs and interested MUDRA borrowers.
  • The credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
  • The Scheme would be applicable to all loans sanctioned under GECL Facility during the period from the date of announcement of the Scheme to 31.10.2020.

Aims and objectives

  • The Scheme aims at mitigating the economic distress faced by MSMEs by providing them additional funding in the form of a fully guaranteed emergency credit line.
  • The main objective is to provide an incentive to Member Lending Institutions (MLIs), i.e., Banks, Financial Institutions (FIs) and NBFCs to increase access to, and enable the availability of additional funding facility to MSME borrowers.
  • It aims to provide a 100 per cent guarantee for any losses suffered by them due to non-repayment of the GECL funding by borrowers.

Salient features

  • The entire funding provided under GECL shall be provided with a 100% credit guarantee by NCGTC to MLIs under ECLGS.
  • Tenor of the loan under Scheme shall be four years with a moratorium period of one year on the principal amount.
  • No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.
  • Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.

ECLGS 3.0

  • It would involve extension of credit of upto 40% of total credit outstanding across all lending institutions.
  • The tenor of loans granted under ECLGS 3.0 shall be 6 years including moratorium period of 2 years.
  • Further, the validity of ECLGS i.e. ECLGS 1.0, ECLGS 2.0 & ECLGS 3.0 have been extended upto 30.06.2021 or till guarantees for an amount of Rs. 3 lakh crore are issued.
  • The revised operational guidelines in this regard shall be issued by National Credit Guarantee Trustee Company Ltd (NCGTC).

 

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

Suez Shows Civilization Is More Vulnerable Than We Think

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Vulnerabilities in global trade

The recent closure of the Suez Canal highlights the inherent flaw in the global supply chains. Choking of one of the many such points leads to disruption in the global trade.

Points of vulnerability

  • Suez Canal was blocked this week by a container ship named Ever Given when a gust of wind moved the ship out of the course and grounded it.
  • Egypt has expanded parts of the canal to enable two-way traffic and accommodate larger carriers.
  • The Ever Given ship went off course and got stuck in a part of the waterway that’s still narrow.
  • But it’s also a reminder that even an advanced civilization like ours has points of acute vulnerability. 

Avoiding single points of failures

  • Systems designers strive to avoid these single points of failure, so that transport, energy and communication networks are able to withstand attacks or unexpected calamities.
  • Technological advances and globalization were also supposed to make us less susceptible to this type of problem.
  • The internet, for example, was conceived as a decentralized system that’s pretty difficult to break, as was Bitcoin.
  • But global infrastructure, defined broadly, still has a surprising number of pinch points.
  • These can be difficult to remedy, as creating back-up options is expensive and counteracts economies of scale.
  • In some cases, the problem is even getting worse:
  • Industries are becoming more concentrated due to corporate takeovers.
  • Big chunks of our lives are now mediated by a just handful of technology companies.
  • The governments are now more cognizant of the political and economic power held by those who control choke points.

How canal can disrupt the global trade

  • The Panama Canal, the Suez Canal and the Strait of Hormuz are places where container ships and oil tankers are forced to navigate narrow passages.
  • The alternative is a long detour or more expensive air freight.
  • For decades these waterways have been recognized as areas of huge strategic importance and as being susceptible to military or terror attacks.
  • Various back-up routes have been mooted but most haven’t materialized.

Vulnerabilities in economic sphere

  • In seeking to rid itself of one pinch point — pipelines that traverse Ukraine provides gas to Europ — Germany has created another: the twin Nord Stream gas pipelines that connect Russia and Germany under the Baltic Sea.
  • The U.S. worries these will weaken eastern Europe and increase Germany’s dependence on Russia.
  • In the realm of finance, trillions of dollars of financial instruments are tied to the London interbank offered rate.
  • This rate was easy to manipulate until they were exposed in the years following the 2008 financial crisis.
  • Libor is now being replaced.
  • Similarly, Europe has long relied on the Swift payments system and the U.S. dollar, but that dependence came into question in 2018 as it disagreed with the U.S. over Iran sanctions.
  • In technology, people have warned for years that the U.S. needs a back-up for the Global Positioning System.
  • The system can be spoofed or otherwise disrupted.
  • Semiconductors are where the clearest pinch points are emerging.
  • A global computer chip shortage during Covid has forced auto manufacturers to tear up production plans.
  • Very few companies are able to produce the most advanced chips, due to the technical challenges and vast cost of constructing foundries.
  • The most important of these, Taiwan Semiconductor Manufacturing Co., is based on an island that’s under constant threat of invasion by Beijing.
  • ASML Holding NV of the Netherlands has a monopoly on the machines needed to fabricate the best chips.
  • Now China’s inability to buy the most cutting edge gear from ASML is holding back its own semiconductor ambitions.

Way forward

  • None of these choke-point problems are easy to resolve.
  • Not only are there geopolitical ambitions at work here but there are also usually trade-offs between building greater resilience and efficiency.
  • But because redundancy offers protection and is therefore a public good, there’s an argument that governments should play a role in providing it.
  • Antitrust polies can be used to challenge monopolies and foster more competition.

Consider the question “What are the threat emanating from the various forms of choke points to the global trade? Suggest the ways to deal with it.”

Conclusion

Having a back-up is a good idea. We learn that when the roof falls in, or when a ship called the Ever Given snarls up the Suez Canal.

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

Remission of Duties and Taxes on Export Products (RODTEP) Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RODTEP Scheme

Mains level : Not Much

The notification of benefit rates payable to exporters under the Remission of Duties and Taxes on Export Products (RODTEP) scheme is expected to take more time as it is facing ‘teething issues’.

Try this PYQ:

Q.Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

(a) China

(b) India

(c) Myanmar

(d) Vietnam

RODTEP Scheme

  • RoDTEP is a scheme for Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market.
  • It has replaced the current Merchandise Exports from India Scheme, which is not in compliance with WTO norms and rules.
  • The new RoDTEP Scheme is a fully WTO compliant scheme.
  • It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.

Why need such a scheme?

  • The scheme was announced last year as a replacement for the Merchandise Export from India Scheme (MEIS), which was not found not to be compliant with the rules of the World Trade Organisation.
  • Following a complaint by the US, a dispute settlement panel had ruled against India’s use of MEIS as it had found the duty credit scrips awarded under the scheme to be inconsistent with WTO norms.

Back2Basics: Merchandise Exports from India Scheme (MEIS)

  • MEIS was launched with an objective to enhance the export of notified goods manufactured in a country.
  • This scheme came into effect on 1 April 2015 through the Foreign Trade Policy and will be in existence till 2020.
  • MEIS intended to incentivize exports of goods manufactured in India or produced in India.
  • The incentives were for goods widely exported from India, industries producing or manufacturing such goods with a view to making Indian exports competitive.
  • The MEIS covered almost 5000 goods notified for the purpose of the scheme.

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

[pib] ‘Red Rice’ exports from Assam to the US

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Brown Rice

Mains level : Indian Exports

In a major boost to India’s rice exports potential, the first consignment of ‘red rice’ was flagged off today to the USA.

Try this PYQ from CSP 2019

Q.Among the following, which one is the largest exporter of rice in the world in the last five years?

(a) China

(b) India

(c) Myanmar

(d) Vietnam

Red Rice

  • Iron rich ‘red rice’ is grown in the Brahmaputra valley of Assam, without the use of any chemical fertilizer.
  • The rice variety is referred to as ‘Bao-dhaan’, which is an integral part of Assamese food.
  • Much like brown rice and white rice, red rice also comes with many incredible health benefits.
  • Due to the presence of a component called anthocyanin, this rice is usually consumed either partially hulled or unhulled.
  • Red rice derives this eye-grabbing colour from this component and has much more nutrient value as compared to other varieties of rice.

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

India’s trade with China falls at five-year low

Note4Students

From UPSC perspective, the following things are important :

Prelims level : India's trade deficit

Mains level : Atmanirbhar Bharat

India’s trade with China last year fell to the lowest since 2017, with the trade imbalance declining to a five-year low on the back of a slump in India’s imports from China.

Try this PYQ:

Q.Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

(a) China

(b) India

(c) Myanmar

(d) Vietnam

India-China Trade

  • Two-way trade in 2020 reached $87.6 billion, down by 5.6%, according to new figures from China’s General Administration of Customs (GAC).
  • India’s imports from China accounted for $66.7 billion, declining by 10.8% year-on-year and the lowest figure since 2016.
  • It, however, rose to the highest figure on record, for the first time crossing the $20 billion-mark and growing 16% last year to $20.86 billion.

What constitutes India’s import from China?

  • While there was no immediate break-up of the data in 2020, India’s biggest import in 2019 was electrical machinery and equipment, worth $20.17 billion.
  • Other major imports in 2019 were organic chemicals ($8.39 billion) and fertilizers ($1.67 billion), while India’s top exports were iron ore, organic chemicals, cotton and unfinished diamonds.

India’s exports to China

  • The past 12 months saw a surge in demand for iron ore in China with a slew of new infrastructure projects aimed at reviving growth after the COVID-19 slump.
  • China’s total iron ore imports were up 9.5 per cent in 2020.

A friction-induced low

  • The trade deficit, a source of friction between India and China, declined to a five year-low of $45.8 billion, the lowest since 2015.
  • Whether 2020 is an exception or marks a turn away from the recent pattern of India’s trade with China remains to be seen.
  • While India’s imports from China declined, so did India’s imports overall with a slump in domestic demand last year.
  • There is, as yet, no evidence to suggest India has replaced its import dependence on China by either sourcing those goods elsewhere or manufacturing them at home.

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

What are Digital Services Taxes?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Digital Services Tax, Equalization Levy

Mains level : Digital taxes and related issues

Digital services taxes adopted by India, Italy and Turkey discriminate against U.S. companies and are inconsistent with international tax principles, the U.S. Trade Representative’s office has said.

Do you remember?

GAFA tax—named after Google, Apple, Facebook, Amazon—is a proposed digital tax to be levied on large technology and internet companies.

Fact of the matter: Equalization Levy

  • India has earlier expanded the scope of the Equalization Levy, or digital tax, to the sale of goods and services in the country by overseas e-commerce firms.
  • The Equalization Levy was introduced for the first time in 2016 as 6 per cent tax on revenues earned by non-residents from online advertising and related services.
  • The burden of this tax eventually fell on local firms advertising on these platforms.

Contention for E-Commerce

  • In March 2020, the government expanded the scope of this levy to include the sale of goods and services in the country by overseas e-commerce operators.
  • The transactions were to be taxed at 2 per cent if businesses earned more than Rs 2 crore.
  • Globally, the rate of digital tax varies from 1.5 per cent (in Poland and Kenya) to 15 per cent (Paraguay). In Europe, the tax rate varies from 3 per cent (France, UK, Spain) to 7.5 per cent (Hungary).

Digital Services Taxes

  • The “digital services tax” (DST) is a levy on the overall revenues earned by the supplier of specific digital services.
  • The DST should not be confused with the so-called “Netflix tax,” which one may find in some western countries.
  • The Netflix tax is essentially a “value-added tax” on digital services where the consumer bears the entire tax burden on the value of the final product.

The US Question

  • The need to tax digital companies – the likes of Amazon, Google and Netflix – arises because these companies collect digital revenues from countries where they do not have a significant business presence.
  • These are new-age companies, which can use virtual infrastructure to operate in another country.
  • Countries across the globe have felt the need to tax revenues generated by such companies in a particular jurisdiction.
  • Talks began in 2018 under the aegis of the OECD to formalize a framework on what and how to tax revenues earned by such companies in a country in which they have no physical or significant presence.
  • But an abrupt US decision to pull out of the negotiations, involving 137 countries and threats of retaliatory action against those levying digital taxes have hit the 2020 deadline.

India’s response

  • USTR has concluded the digital taxes imposed by France, India, Italy and Turkey discriminate against big U.S. tech firms, such as Google, Facebook, Apple and Amazon.com
  • For India, it created enormous uncertainty, since the country has always been at the forefront of adopting the concept of taxing foreign digital companies.
  • It is now subject to a probe initiated by the US called the ‘Section 301’ investigations into the digital taxes.

A populist fuss by the US

  • The US is a bit confused and so is the exiting President. They are not able to decide what they want to do.
  • It is being argued that it could lead to tariffs before Donald leaves office or early in the administration of President-elect Biden.
  • This arguably another populist measure that Trump administration wants to leave behind.

Conclusion

  • Given that a global consensus at the OECD or even the UN level may take several more months, countries including India are likely to continue with their unilateral DSTs.
  • At this juncture, when economies are reeling under the ill-effects of the pandemic, no country would want to give up its share of revenue and wait for a global consensus to emerge.

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

[pib] Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MEIS, RODTEP Scheme

Mains level : Export promotion measures

The Union govt. has decided to extend the benefit of the Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) to all export goods with effect from 1st January 2021.

Try this PYQ:

Q.Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

(a) China

(b) India

(c) Myanmar

(d) Vietnam

RoDTEP Scheme

  • RoDTEP is a scheme for the Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market.
  • It has replaced the current Merchandise Exports from India Scheme, which is not in compliance with WTO norms and rules.
  • The new RoDTEP Scheme is a fully WTO compliant scheme.
  • It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.

Why need such a scheme?

  • The scheme was announced last year as a replacement for the Merchandise Export from India Scheme (MEIS), which was not found not to be compliant with the rules of the World Trade Organisation.
  • Following a complaint by the US, a dispute settlement panel had ruled against India’s use of MEIS as it had found the duty credit scrips awarded under the scheme to be inconsistent with WTO norms.

Back2Basics: Merchandise Exports from India Scheme (MEIS)

  • MEIS was launched with an objective to enhance the export of notified goods manufactured in a country.
  • This scheme came into effect on 1 April 2015 through the Foreign Trade Policy and will be in existence till 2020.
  • MEIS intended to incentivize exports of goods manufactured in India or produced in India.
  • The incentives were for goods widely exported from India, industries producing or manufacturing such goods with a view to making Indian exports competitive.
  • The MEIS covered almost 5000 goods notified for the purpose of the scheme.

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

Importance of Resilient supply chains

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Atmanirbhar Bharat

Mains level : Paper 3- Importance of resilient supply chains

What does supply chain resilience mean? 

  • When assembly lines are heavily dependent on supplies from one country, the impact on importing nations could be crippling if that source stops production intentionally (economic sanction) or unintentionally (natural disaster)
  • Example: Japan imported $169 billion worth from China, accounting for 24% of its total imports. Japan’s imports from China fell by half in February 2020 that impacted Japan’s economic activity.
  • In the context of international trade, supply chain resilience is an approach that helps a country to ensure that it has diversified its supply risk across a clutch of supplying nations instead of being dependent on just one or a few

Recent incidents that led to supply chain disruption

  • Disruptions in supply chains can be natural or man-made.
  • When the novel coronavirus pandemic broke out, it had an immediate and telling effect on supply chains emanating from China.
  • In Japan’s case, a nuclear disaster (Fukushima Daiichi) caused a sharp drop in Japanese automobile exports to the United States.
  • Terrorist drone attacks on oil refineries in Saudi Arabia in September 2019 resulted in a drop of 5.7 million barrels of oil per day.
  • That attack triggered a steep plunge in Saudi Arabia’s stock market and a sharp spike in global oil prices.
  • Tensions with China led the United States government to impose restrictions on the export of microchips to China’s biggest semiconductor manufacturer SMIC.

Supply Chain Resilience Initiative (SCRI)

  • Geo-politics and geo-economics can never be truly separated.
  • Also, there is a growing trend of weaponization of trade and technology.
  • China had imposed sanctions on its key exports of grain, beef, wine, coal, etc to Australia for demanding an inquiry into the origins of the coronavirus and advocating a robust Indo-Pacific vision.
  • It is against this backdrop that India, Japan, and Australia initiated the Supply Chain Resilience Initiative (SCRI).
  • It focuses on automobiles and parts, petroleum, steel, textiles, financial services, and IT sectors.
  • The SCRI may be strengthened by the future involvement of France.
  • Kingdom has also shown interest in the SCRI.

“China plus one” strategy

  • For many Japanese companies, global performance and profits are linked to manufacturing facilities and supply chains in China.
  • Yet, they have shown an early capacity for risk mitigation through the “China Plus One” business strategy.
  • The “China plus one” strategy aims at diversification of investments to the Association of Southeast Asian Nations (ASEAN), India, and Bangladesh.
  • Japan announced a 2.2 billion Relocation Package.
  • Of the companies that availed this package, 57 relocated to Japan, 30 to Southeast Asia, and two to India.

India’s vulnerability to supply chain disruptions

  • India can ill-afford the shocks of disruption in supply chains.
  • For instance, the pandemic caused a breakdown in global supply chains in the automotive sector.
  • For India, which imports 27% of its requirement of automotive parts from China, this quandary was a wake-up call.
  • It is t is noteworthy is that despite being the fourth largest market in Asia for medical devices, India has an import dependency of 80%. 
  • Given the renewed thrust in the health-care sector, this is the right time to fill gaps through local manufacturing.

India increasing its presence in global supply chains

1) Electronic industry

  • India’s electronics industry was worth $120 billion in 2018-2019 and is forecast to grow to $400 billion by 2025.
  • India is enhancing its presence in the global supply chains by attracting investments in the semiconductor components and packaging industry.
  • The Indian electronics sector is gradually shifting away from completely knocked down (CKD) assembly to high-value addition.

2) Defence sector

  • Defence is among the key pillars of the ‘Atmanirbhar Bharat’ policy.
  • The government is providing a big boost to defence manufacturing under the ‘Make in India’ program.
  • It has identified a negative import list of 101 items.
  • There is a tremendous opportunity for foreign companies to enter into tie-ups with reputed Indian defence manufacturers to tap into the growing defence market in India.

Consider the question “Pandemic has demonstrated the damage vulnerable supply chains can cause. It also underscored the importance of resilient supply chains. In light of this, examine the importance of diversification of supply chains.”

Conclusion

India has the capacity and the potential to become one of the world’s largest destinations for investments, and one of the world’s largest manufacturing hubs, in the aftermath of the pandemic.

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

Trade-offs for growth revival: Why India’s policymakers need a new roadmap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Current account and capital account

Mains level : Paper 3- Policy options to revive the Indian economy

The article weighs in the policy options with the Indian policymakers to revive the India economy. This leads to the trilemma of managing the exchange rate, controlling the inflation and maintaining the capital account open all at the same time.

A brief overview of 1991 economic reforms

  • The crisis in 1991 was centred on the balance-of-payments.
  • Allowing the Indian rupee to fall from an artificially high level  was a key part of the solution.
  • Since the reforms, the Indian rupee has steadily depreciated, roughly according to a market-determined equilibrium.
  • Extraordinarily high tariff barriers were reduced, allowing for welfare gains from greater international trade.
  • Reforms of the domestic economy that increased market orientation was, in some sense, opportunistically combined with these externally-oriented measures.

What should be India’s foreign economic policy

  • In terms of connections to the rest of the world, however, it is less clear what the right policy mix should be.
  • We can think of three types of international flows: labour, goods and services, and capital.

1) Internation flow of Indian labour

  • India has benefited from being able to send workers with a variety of skills to different types of economies: construction workers and nurses in the Persian Gulf, software engineers in the US, and so on.
  • Direct benefits came from large remittances back to India.
  • The pandemic and US immigration policy, have had some major impacts on this international connectivity, but new vaccines and a change in the US president are likely to reverse these shocks.
  • In any case, there is not much that Indian policymakers can do or need to do on this front.

2) Trade in Goods and Service

  • India has been able to grow its exports, both in a variety of agricultural and manufactured commodities and in services, from software services to tourism.
  • It has been reasonably competitive in a range of goods and services.
  • It was only in the last few years, even before the pandemic, have Indian exports struggled to register growth.
  • Whereas the export powerhouses of East Asia consistently ran surpluses on the current account of the balance of payments, India has mostly run deficits, albeit manageable ones.

3) Capital Flow: Area where policymakers have option

  • Current account deficits have to be covered somehow, though various forms of foreign capital.
  • Whereas economic theory and economic policymakers mostly agree on the benefits of international trade in goods and services there is less of a consensus on the benefits of international capital flows.
  • Capital flows can raise fears of instability if they are reversed, or make exports less competitive if they push up the value of the rupee. 
  • The country is a relatively attractive destination for foreign capital, both FDI and portfolio investment.
  • But, these flows can make Indian exports less competitive if the rupee appreciates too much, requiring domestic demand to do more of the work of absorbing increased output.

Lesson from Japan

  • Right now, India is trying to build its manufacturing capacity by raising tariffs, in an old-style push for import substitution.
  • It is also providing direct incentives, such as the new scheme rewarding increases in production.
  • Arguably, this did work in Japan in the 1960s, but it is not clear if India is well-off enough to sustain that domestic strategy.
  • In addition, the lack of competitive discipline exporting can hinder the achievement of acceptable quality levels.

Way forward

  • Capital controls to some extent can help mitigate the risk in this situation.
  • The Reserve Bank of India do more to keep the rupee at competitive levels, by accumulating foreign exchange reserves.

Consider the question “In terms of links with the rest of the global economy, it is less clear what the right policy mix should be. Do you agree with the view that focus on simultaneously managing the exchange rate and domestic inflation while maintaining an open capital account would help in the revival of India’s economic growth

Conclusion

Lurking under the surface of these issues is the trilemma of being unable to simultaneously manage the exchange rate and domestic inflation while maintaining an open capital account, although foreign exchange reserves provide a way of softening the trade-offs. These are not new challenges, but they will need to be a focus for India’s policymakers as they seek renewed economic growth.


Source:-

https://www.financialexpress.com/opinion/trade-offs-for-growth-revival-why-indias-policymakers-need-a-new-roadmap/2142900/

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

Putting India-U.S. trade ties on new footing

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Trade Policy Forum

Mains level : Paper 3- India-U.S. trade ties

After tumultuous years of Trump administration in trade policies, the article examines the new possibilities under the next U.S. President in trade ties with India.

Approach towards WTO and India

  • The new U.S. administration will have more constructive stance on multilateral issues in the World Trade Organization (WTO).
  • The Trump administration went out of its way in seriously undermining WTO institutions when the organisation was already in need of reform and new direction.
  • The Biden administration is less likely to engage in unilateral tariff increases and more likely to pursue remedies in the WTO.
  • In case of India, the Trump administration it pursued an aggressive approach to resolve market access concerns through threats to eliminate India’s benefits under the Generalized System of Preferences programme.
  • However, the follow-through was weak.
  • The administration was on the brink of concluding a historic bilateral trade deal, yet it lost focus.

5 likely developements

  • 1) It is clear that Mr. Biden plans to focus on domestic concerns first.
  • There may be trade aspects to some of these efforts, but they may have limited early relevance for a future U.S.-India trade policy.
  • 2) Two, as it turns to trade policy, the Biden administration is not likely to place India among its top few priorities.
  • Among top priorities will include formulating its approach with China, such as finding alternatives to the Regional Comprehensive Economic Partnership to set new global standards that address China’s practices.
  • That said, India should be among the priorities at the next level down.
  • 3) The trade deal still pending with the Trump administration remains compelling.
  • There could be an early opportunity to conclude these negotiations and for the Biden administration to get credit.
  • A bilateral deal will not lead to serious consideration of FTA negotiations any time soon.
  • But this first trade agreement could pave the way for later additional small agreements.
  • 4) The existing Trade Policy Forum (TPF) met only once over the last four years.
  • It seems likely that the Biden administration will see the TPF’s value as a venue for more regular discussions on a range of trade issues.
  • 5) A reinvigorated TPF will present new opportunities for the two countries to take up a range of cutting-edge trade issues that will be critical in determining whether the U.S. and India can converge more over time or will drift further apart.
  • These include digital trade issues, intellectual property rights and approaches to nurturing innovation, better health sector alignment, and more regular regulatory work on science-based agricultural policies.

Conclusion

The future looks bright for U.S.-India trade under a Biden administration, but that does not mean it will be any easier. It will be critical for leadership on both sides to commit to strong efforts to put the trade relationship on a new footing, which will have to involve a ‘can-do’ attitude to solving problems.


Back2Basics: Trade Policy Forum

  • It was established in 2005.
  • The Forum is part of the overall United States-India Economic Dialogue, replacing the Trade Policy Working Group pillar.
  • It  convenes on a regular basis.
  • The Forum provides an opportunity to work together to expand trade between the two countries.
  • The agenda could cover the following subjects: tariff and non-tariff trade barriers; foreign direct investment; subsidies; customs procedures; standards, testing, labeling and certification intellectual property rights protection; sanitary and phytosanitary measures; government procurement; and services.

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

Steps needed to achieve Comparative advantage in Manufacturing

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Policy approach for industrial development

The article suggests the policy approach to achieve industrial growth while avoiding the isolationist approach in pursuit of AtmaNirbharBharat.

Issue of policy binary

  • The goals of the Make in India initiative and now the AatmaNirbharBharat Abhiyan are driving a major shift in policy.
  • Import duties are being raised.
  • Production-linked incentives are being offered to firms across a wide canvas of 10 priority sectors.
  • At the same time, there is considerable unease at the rolling back of trade liberalisation.
  • This binary is not very useful.

Steps needed to gain competitive advantage

1) Infrastructure

  • It would still take India many years to develop its physical infrastructure to the levels required for international competitiveness.
  • Until then, large industrial parks for textiles, electronics, toys or shipbuilding need to be developed by state agencies with soft financing.
  • Competitive logistics are essential.
  • This was critical for the success of the information technology (IT) industry where world-class infrastructure was created within the software parks.
  • High-speed broadband real-time connectivity to the US market was provided through public investment.
  • This was done well before general telecom modernisation began.

2) Closing the financing gap

  • Long-term financing for world-class infrastructure is still a gap.
  • The central government can either use one of its existing financial institutions or create a new development financial institution to provide long-term low-interest rate debt.
  • The sovereign needs to provide risk-mitigation through an implicit guarantee. It can afford to do so.

3)  Prevent real exchange rate appreciation

  • Before considering specific increases in import duties, real exchange appreciation should be undone.
  • This would have the effect of raising tariffs across the board.
  • It is high time the government and the Reserve Bank of India (RBI) agreed on this objective.

4) Change the regime for SEZ

  • Allow SEZ to sell into the domestic area with import duties at the lowest applicable rate with any trading partner and the same value-addition norms.
  • Tax exemption on profits could be dispensed with while continuing to provide a duty-free import regime.
  • This would create a level-playing field for production vis-à-vis competitive locations overseas.
  • Large zones would have to be developed by the state.
  • The private sector can be partners in the process, but achievement of scale is only possible by the state.
  • Production for the domestic as well as the global market would become easier.

5) Encourage domestic value addition

  • Domestic value-addition can be incentivised by-
  • 1) Reducing duties to zero for all primary raw materials and inputs.
  • 2) then progressively higher rates for intermediates with the highest rate for the finished product.
  • In short, have just the opposite of the inverted duty structure we have had for computers.
  • This would change investment and production decisions if other costs of production in India have been made competitive.

6) Commitment of procurement of full production

  • In some industries, commitment of procurement of full production for a few years would suffice to get investment.
  • Bids could be invited for solar panels, or for battery storage for the grid, for annual supply for, say, five years with the condition that full value-addition has to be done in India.
  • Such commitment would provide for amortisation of the capital investment and make it a risk-free investment.
  • If the bid size is large enough, the best global firms would come and invest.
  • If the bids are repeated, prices would come down and a competitive industry structure would be created.

7) Encourage public investment

  • Public investment in firms should not be ruled out altogether.
  • In some cases, it may be the best way to create competitive capacity.
  • Maruti Suzuki is a good example in India.
  • Volkswagen was set up by a state government in Germany, which is still a substantial shareholder.
  • This is a policy instrument that can be used to create competitive advantage.

8) Creation of fund

  • There should also be willingness to create a fund that looks at modest returns, but aims at creating national and global champions through start-ups.

Conclusion

The foundation of China’s incredible success was laid by Deng Xiaoping with the maxim on economic policy that one should not bother about the colour of the cat as long as it caught mice. India’s policies have tended to be doctrinaire. We need a heavy dose of pragmatism to achieve our full potential.


Source:-

https://www.financialexpress.com/opinion/industrial-growth-the-right-policy-mix-for-success/2136735/

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

India’s no to RCEP could still be a no

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP countries

Mains level : Paper 3- RCEP and India's concerns about it

The article examines the significance of the RCEP and India’s concerns over its provision. 

Significance of RCEP

  • Last week, 15 East Asian countries signed the Regional Comprehensive Economic Partnership (RCEP), the largest free trade agreement (FTA) ever.
  • In 2019, RCEP members accounted for about 30% of world output.
  • More importantly, about 44% of their total trade was intra-RCEP, which is a major incentive for the members of this agreement.
  • The deal could contribute to the strengthening of the regional value chains.

Comparing RCEP with Trans-Pacific Partnership (TPP)

  • The TPP included several regulatory issues including labour and environmental standards and “anti-corruption”.
  • All of these issues could raise regulatory barriers and severely impede trade flows.
  • In contrast, RCEP includes traditional market access issues, following the template provided by the World Trade Organization (WTO).
  • RCEP also includes issues like electronic commerce, investment facilitation that are currently being discussed by WTO members to “reform the multilateral trading system”.

Would RCEP be able to realise trade and investment liberalisation?

  • In case of trade in goods, RCEP members have taken big strides towards lowering their tariffs.
  • However, commitments made by RCEP members for services trade liberalisation do look shallow in terms of the coverage of the sectors.
  • Movement of natural persons, an area in which India had had considerable interest, is considerably restricted.
  • The areas of investment and electronic commerce, in both of which India had expressed its reservations on the template adopted during RCEP negotiations, the outcomes are varied.
  • The text on investment rules shows that it is a work-in-progress.
  • The rules on dispute settlement procedures are yet to be written in.

Will India’s concerns get addressed in near future?

  • The answer seems to be unambiguously in the negative on two counts.
  • 1) Two of the concerns India had raised, namely,  the deep cuts in tariffs on imports from China, and provisions relating to the investment chapter, have become even more significant over the past several months.
  • 2) India’s Atmanirbhar Bharat Abhiyan is primarily focused on strengthening domestic value chains, while RCEP, like any other FTA is solely focused on promoting regional value chains.

Consider the question “What were India’s concerns about RCEP that resulted in India not signing it? ” 

Conclusion

This suggests that the prospects of India joining the RCEP in the near future appears bleak.

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

Faultlines in India’s economic liberalism

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RCEP

Mains level : Paper 3- Economic liberalisation and its impact on Indian economy

The article counters the argument made by External Affairs Minister S. Jaishankar about the impact of economic liberalisation on India’s economy.

Impact of liberalism on India

  • India’s External Affairs Minister S. Jaishankar recently disapproved of free trade and globalisation.
  • About FTA’s he said that “the effect of past trade agreements has been to de-industrialise some sectors.”
  • These observations were made days after countries of the Asia-Pacific region signed the Regional Comprehensive Economic Partnership (RCEP) agreement.
  • He said that , “in the name of openness, we have allowed subsidi[s]ed products and unfair production advantages from abroad to prevail”

Flaws in the argument

  •  There are several flaws in Mr. Jaishankar’s arguments.

1) India cannot be the part of global value chain

  • India is now truly at the margins of the regional and global economy.
  • With trade multilateralism at the World Trade Organisation (WTO) remaining sluggish, FTAs are the gateways for international trade.
  • By not being part of any major FTA, India cannot be part of the global value chains.
  • India’s competitors such as the East Asian nations, by virtue of they being part of mega-FTAs, are in an advantageous position to be part of global value chains and attract foreign investment.

2) Indian economy has bee relatively closed economy

  • India is surely a much more open economy than it was three decades ago, globally, India continues to remain relatively closed when compared to other major economies.
  • According to the WTO, India’s applied most favoured nation import tariffs are 13.8%, which is the highest for any major economy.
  • Likewise, according to the United Nations Conference on Trade and Development, on the import restrictiveness index, India figures in the ‘very restrictive’ category.
  • From 1995-2019, India has initiated anti-dumping measures 972 times (the highest in the world) trying to protect domestic industry.

3) Economic survey accepts the benefits of FTAs

  • The External Affairs Minister is contradicting government’s economic survey presented earlier this year.
  • The survey concluded that India has benefitted overall from FTAs signed so far.
  • Blaming FTAs for deindustrialisation means ignoring real problem of the Indian industry — which is the lack of competitiveness and absence of structural reforms.

4) India has been a major beneficiary of economic globalisation

  • It cannot be ignored that India has been one of the major beneficiaries of economic globalisation — a fact attested by the International Monetary Fund (IMF).
  • Post-1991, the Indian economy grew at a faster pace, ushering in an era of economic prosperity.
  • According to the economist Arvind Panagariya, poverty in rural and urban India, which stood at close to 40% in 2004-05, almost halved to about 20% by 2011-12.
  • This was due to India clocking an average economic growth rate of almost 8%.

Conclusion

Desire to make India a global destination for foreign investment is a pipe dream because it is naive to expect foreign investors to be gung-ho about investing in India if trade protectionism is the government’s official policy.

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

Export remain key to economic growth

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Importance of export for growth

The article highlights the argument made by Arvind Panagaria about the primacy of export for the progress of the country in his new book India Unlimited: Reclaiming the Lost Glory.

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

Forex Reserves hit a record high

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Components of forex reserves

Mains level : Not Much

India’s foreign exchange reserves touched a lifetime high of $555.12 billion, according to RBI data.

Aspirants must make a note here:

  1. Authority managing FOREX in India
  2. Components of FOREX
  3. IMF’s SDRs
  4. Emergency use of FOREX

What are Forex Reserves?

  • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
  • RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
  • The Forex reserves of India consist of below four categories:
  1. Foreign Currency Assets
  2. Gold
  3. Special Drawing Rights (SDRs)
  4. Reserve Tranche Position
  • The IMF says official Forex reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency.
  • It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.

Where are India’s forex reserves kept?

  • The RBI Act, 1934 provides the overarching legal framework for the deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties.
  • As much as 64 per cent of the foreign currency reserves is held in the securities like Treasury bills of foreign countries, mainly the US.
  • 28 per cent is deposited in foreign central banks and 7.4 per cent is also deposited in commercial banks abroad.
  • In value terms, the share of gold in the total foreign exchange reserves increased from about 6.14 per cent as at end-September 2019 to about 6.40 per cent as at end-March 2020.

Try this PYQ:

Q. Gold tranche(Reserve tranche) refers to (CSP 2020)-

(a) A loan system of World bank

(b) One of the operations of a central bank

(c) A credit system of WTO granted to its members

(d) A credit system granted by IMF to its members

Rising above the 1991 crisis

  • Unlike in 1991, when India had to pledge its gold reserves to stave off a major financial crisis, the country can now depend on its soaring Forex reserves to tackle any crisis on the economic front.
  • The level of Forex reserves has steadily increased by 8,400 per cent from $5.8 billion as of March 1991 to the current level.

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

Nudge towards formalisation of MSMEs

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Criteria for MSMEs

Mains level : Paper 3- Formalisation of MSMEs

The lack of formalisation has several implications for MSMEs. Registering them could help them in various ways. The article deals with the issue of formalisation.

Please read the link shared below for issues related to MSME

The missing large in MSMEs

Steps taken by Government to Formalize MSME

  • UAM: In 2015, the government notified the Udyog Aadhaar Memorandum (UAM), an online filing system for MSMEs.
  • As of January, 86 lakh MSMEs had registered on the UAM portal.
  • In 2016, the government notified rules under which MSMEs had to furnish information relating to their enterprises, online, in an MSME databank.
  • As of January, only 1.6 lakh units registered on it.
  • A new process of classification and registration for small businesses took off on July 1 called as “Udyam”.
  • As of October 1, the MSME ministry has confirmed that only 7 lakh registrations have taken place using the new system.Nudge by the government
  • In an attempt to nudge more enterprises to become lifetime Udyam, the government has integrated the system with the Trade Receivables Electronic Discounting System (TReDS) and the Government e-Marketplace (GeM).
  • In its updated Priority Sector Lending (PSL) guidelines, the RBI has established that for the purposes of PSL, MSMEs will be identified as per the gazette notification laying down the new process of classification and registration.

Addressing the concerns

  • While the Udyam initiative holds more promise, it is important to assess if this will be detrimental to accessing formal finance.
  • To this end, the government and RBI should consider whether the registration requirement can be exempted for units with investment and turnover that falls in the lower end of the criteria.
  • In 2018, the International Finance Corporation estimated that the overall supply of finance from formal sources met only one-third of the credit demand of the MSME sector.
  • Enabling strategies such as PSL could provide a fillip to priority sectors including MSMEs which require increased formal financing.

Conclusion

The costs of formalisation and compliance are high and onerous in many states in India. In such an ecosystem, there are perverse incentives to remaining small and informal. Governments’ efforts towards formalisation should be directed towards addressing these issues.

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

Next Generation Treasury Application (NGTA)

Note4Students

From UPSC perspective, the following things are important :

Prelims level : NGTA, Forex Reserve

Mains level : Not Much

In a bid to improve its functioning, the RBI has decided to move to the Next Generation Treasury Application (NGTA) for managing the country’s foreign exchange and gold reserves.

Aspirants must make a note here:

1.Authority managing FOREX in India

2.Components of FOREX

3.IMF’s SDRs

4.Emergency use of FOREX

What is NGTA?

  • The NGTA, according to the RBI, would be a web-based application providing scalability, manoeuvrability and flexibility to introduce new products and securities, besides supporting multi-currency transactions and settlements.
  • It would be supporting various transactions in asset classes like Fixed Income (FI), Forex (FX), Money Market (MM) and Gold.
  • It would be used for managing the foreign exchange reserves in a more efficient way, mitigate risk, achieve operational efficiencies, dealing in various asset classes and reporting.

Objectives of NGTA

The objectives of the proposed system include:

  • dealing in various asset classes (like Fixed Income Securities, Forex, Money Market, Gold);
  • portfolio management; workflow management; reserve management;
  • integration with various third-party and in-house systems; and dashboards, reports, widgets.

Features of NGTA

  • The NGTA shall automatically fetch all the relevant details of a security/contract from a trading platform.
  • It shall support all internationally accepted conventions pertaining today count, interest computation, holiday logic, shut period-dividend, ex-dividend, cash flows, and odd coupon.
  • With respect to transactions in gold, the NGTA shall support purchase, sale, deposit (including rollover and premature withdrawal).
  • On maturity of a gold deposit, there can be exact, under or over delivery.

Back2Basics: Forex Reserves

  • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
  • RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
  • The Forex reserves of India consist of below four categories:
  1. Foreign Currency Assets
  2. Gold
  3. Special Drawing Rights (SDRs)
  4. Reserve Tranche Position
  • The IMF says official Forex reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency.
  • It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.

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

CAROTAR 2020 Rules

Note4Students

From UPSC perspective, the following things are important :

Prelims level : CAROTAR rules

The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020) shall come into force from September 21.

Try this PYQ:

Q.In the context of the affairs of which of the following is the phrase “Special Safeguard Mechanisms” mentioned in the news frequently?

(a) United Nations Environment Programme

(b) World Trade Organization

(c) ASEAN- India Free Trade Agreement

(d) G-20 Summits

CAROTAR rules

  • Importers will have to do their due diligence to ensure that imported goods meet the prescribed ‘rules of origin’ provisions.
  • This is the essential availing concessional rate of customs duty under free trade agreements (FTAs).
  • A list of minimum information, which the importer is required to possess, has also been provided in the rules along with general guidance.
  • Also, an importer would now have to enter certain origin related information in the Bill of Entry, as available in the Certificate of Origin.

Why need CAROTAR?

  • CAROTAR 2020 supplements the existing operational certification procedures prescribed under different trade agreements.
  • India has inked FTAs with several countries, including Japan, South Korea and ASEAN members.
  • Under such agreements, two trading partners significantly reduce or eliminate import/customs duties on the maximum number of goods traded between them.
  • The new rules will assist customs authorities in the smooth clearance of legitimate imports under FTAs.

Its significance

  • The ASEAN FTA allows imports of most items at nil or concessional basic customs duty from the 10-nation bloc.
  • Major imports to India come from five ASEAN countries — Indonesia, Malaysia, Thailand, Singapore and Vietnam.
  • The benefit of concessional customs duty rate applies only if an ASEAN member country is the country of origin of goods.
  • This means that goods originating from China and routed through these countries will not be eligible for customs duty concessions under the ASEAN FTA.

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

[pib] Export Preparedness Index (EPI) 2020

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Export Preparedness Index (EPI)

Mains level : Export promotion measures

NITI Aayog in partnership with the Institute of Competitiveness has released the Export Preparedness Index (EPI) 2020.

Try this PYQ:

Q.Which one of the following is not a sub-index of the World Bank’s ‘Ease of Doing Business Index? (CSP 2019)

(a) Maintenance of law and order

(b) Paying taxes

(c) Registering property

(d) Dealing with construction permits

EPI 2020

  • EPI intends to identify challenges and opportunities; enhance the effectiveness of government policies; and encourage a facilitative regulatory framework.
  • The structure of the EPI includes 4 pillars –Policy; Business Ecosystem; Export Ecosystem; Export Performance.
  • It has 11 sub-pillars –Export Promotion Policy; Institutional Framework; Business Environment; Infrastructure; Transport Connectivity; Access to Finance; Export Infrastructure; Trade Support; R&D Infrastructure; Export Diversification; and Growth Orientation.

Highlights of the EPI

  • This edition of the EPI has shown that most Indian states performed well on average across the sub-pillars of Exports Diversification, Transport Connectivity, and Infrastructure.
  • Overall, most of the Coastal States are the best performers. Gujarat, Maharashtra and Tamil Nadu occupy the top three ranks.
  • Six of eight coastal states feature in the top ten rankings, indicating the presence of strong enabling and facilitating factors to promote exports.
  • In the landlocked states, Rajasthan has performed the best, followed by Telangana and Haryana.
  • Among the Himalayan states, Uttarakhand is the highest, followed by Tripura and Himachal Pradesh.
  • Across the UTs, Delhi has performed the best, followed by Goa and Chandigarh.

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

Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : MEIS, RODTEP Scheme

Mains level : Export promotion measures

The outlay for the RoDTEP scheme is expected to be “much higher” than the NITI Aayog’s much-curtailed estimate of Rs 10,000 crore a year.

Overt allocation

  • The central government had envisaged an annual allocation of about Rs 50,000 crore under the RoDTEP scheme to make exports zero-rated.

Try this PYQ:

Q. Among the following, which one is the largest exporter of rice in the world in the last five years? (CSP 2019)

(a) China

(b) India

(c) Myanmar

(d) Vietnam

RoDTEP Scheme

  • RoDTEP is a scheme for the Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market.
  • It has replaced the current Merchandise Exports from India Scheme, which is not in compliance with WTO norms and rules.
  • The new RoDTEP Scheme is fully WTO compliant scheme.
  • It will reimburse all the taxes/duties/levies being charged at the Central/State/Local level which are not currently refunded under any of the existing schemes but are incurred at the manufacturing and distribution process.

Back2Basics: Merchandise Exports from India Scheme (MEIS)

  • MEIS was launched with an objective to enhance the export of notified goods manufactured in a country.
  • This scheme came into effect on 1 April 2015 through the Foreign Trade Policy and will be in existence till 2020.
  • MEIS intends to incentivise exports of goods manufactured in India or produced in India.
  • The incentives are for goods widely exported from India, industries producing or manufacturing such goods with a view to making Indian exports competitive.
  • The MEIS covers almost 5000 goods notified for the purpose of the scheme.

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

What is Balance of Payments?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : BoP, BoT, Current Account

Mains level : BoP Crisis

India’s balance of payments this year is going to be “very very strong” on the back of significant improvement in exports and a fall in imports said the Commerce and Industry Ministry.

Try this PYQ:

Q.In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? (CSP 2019)

  1. The foreign currency earnings of India’s IT sector
  2. Increasing the government expenditure
  3. Remittances from Indians abroad

Select the correct answer using the code given below.

(a) 1 only

(b) 1 and 3 only

(c) 2 only

(d) 1, 2 and 3

Balance of Payment

  • BOP is the oldest and the most important statistical statement for any country.
  • In a nutshell BOP of a country is “a systematic record of all economic transactions between the residents of one country with the residents of the other country in a financial year”.
  • Economic Transactions include all the foreign receipts and payments made by a country during a given financial year.
  • Foreign receipts include all the earnings and borrowings by a country from the other countries.

Read the complete thread, here, at:

India’s Balance of Payments: Current Account, Capital Account, Goods and Services Account

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

A demand problem contributing to lower imports

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Trade surplus

Mains level : Paper 3- India's import and exports

India registered a trade surplus after almost two decades. But this is not the result of a sudden rise in India’s export. It is due to subdued import indicating the low demand.

What latest data indicate

  • Data released by the commerce ministry indicate a contraction in exports observed over the past few months easing slowly.
  • But the continuing contraction in import which indicates low demand is worrying.
  • This is trend is leading to the growing gap between import and export.

India registered a trade surplus: what it indicates

  • This growing gap led to India registering a trade surplus of nearly $800 million in June.
  • This is the first time in almost two decades that the country has registered a trade surplus.
  • But does this mean that India’s exports have grown drastically?
  • No. It is a sign of collapse in domestic demand.

Merchandise exports growing trends

  • India’s merchandise exports continue to witness an upward swing.
  • The pace of contraction fell to 12.4 per cent in June, from 36.2 per cent in May and 60 per cent in April.
  • Exports of items such as iron ore, drugs and pharmaceuticals, chemicals and various agricultural commodities saw an expansion in June.

What growing exports and falling import indicate

  • An upswing in exports could be indicative of a faster recovery of India’s export partners.
  • Restrictions on economic activities in some of these countries had eased earlier.
  • Other reason could be the rush by Indian exporters to ship out orders to meet their seasonal deadlines.
  • Imports continue to remain deep in negative territory.
  • The contraction in non-oil exports has actually worsened with decline observed in both consumer and investment/industrial goods imports.
  • Some movement is visible in imports of electronic goods.
  •  But the import of machinery and transport equipment has not moved significantly.
  • Of the 30 main import items, only four registered mildly positive growth in June — this indicates the pace of the domestic slowdown.

Conclusion

Economic activities across the world will take time to return to normalcy, India’s exports will take time to reach pre-COVID levels. It seems that the chasm between exports and imports could persist, given the plateauing of the post-lockdown spurt in demand/production.

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

Why trade openness and national security go together

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Comparative advantage

Mains level : Paper 3- Globalisation and issues with it

Protectionism involves the use of one or more restrictions on free trade between countries. What are the main reasons why this should be avoided?

The main arguments against protectionism are outlined below:

Market Distortion and loss of Economic Efficiency

Protectionism can be an ineffective and costly means of sustaining jobs and supporting domestic economic growth:

Higher Prices for Consumers

Import tariffs in particular push up prices for consumers and insulate inefficient domestic sectors from genuine competition. They penalise foreign producers and encourage an inefficient allocation of resources both domestically and globally.

Reduction in Market Access for Producers

Export subsidies depress world prices and damage output, profits, investment and jobs in many lower and middle-income developing countries that rely heavily on exporting primary and manufactured goods for their growth.

Extra Costs for Exporters

For goods that are produced globally, high tariffs and other barriers on imports act as a tax on exports, damaging economies, and jobs, rather than protecting them. For example, a tariff on imported steel can lead to higher costs and lower profits for car manufacturers and the construction industry.

Adverse Effects on Poverty

Higher prices from tariffs tend to hit those on lower incomes hardest, because the tariffs (e.g. on foodstuffs, tobacco, and clothing) fall on products that lower income families spend a higher share of their income. Tariffs can therefore lead to a rise in relative poverty.

Retaliation & Trade Wars

There is the danger that one country imposing import controls will lead to retaliatory action by another.

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

India’s rising Forex Reserves

Note4Students

From UPSC perspective, the following things are important :

Prelims level : India's Forex reserves, SDR, Reserve tranche

Mains level : Forex Reserves and its significance

India’s foreign exchange reserves are rising and are slated to hit the $500 billion mark soon. In the last month, it jumped by $12.4 billion to an all-time high of $493.48 billion.

Aspirants must make a note here:

1.Authority managing FOREX in India

2.Components of FOREX

3.IMF’s SDRs

4.Emergency use of FOREX

Rising above the 1991 crisis

  • Unlike in 1991, when India had to pledge its gold reserves to stave off a major financial crisis, the country can now depend on its soaring Forex reserves to tackle any crisis on the economic front.
  • The level of Forex reserves has steadily increased by 8,400 per cent from $5.8 billion as of March 1991 to the current level.

What are Forex Reserves?

  • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
  • RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
  • The Forex reserves of India consist of below four categories:
  1. Foreign Currency Assets
  2. Gold
  3. Special Drawing Rights (SDRs)
  4. Reserve Tranche Position
  • The IMF says official Forex reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency.
  • It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.

Why is Forex rising despite the slowdown in the economy?

1.Rise in  FPIand  FII

  • The major reason for the rise in forex reserves is the rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs).
  • Foreign investors had acquired stakes in several Indian companies in the last two months.
  • Forex inflows are set to rise further and cross the $500 billion as Reliance Industries subsidiary, Jio Platforms, has witnessed a series of foreign investments totalling Rs 97,000 crore.

2.Crash in oil prices

  • On the other hand, the fall in crude oil prices has brought down the oil import bill, saving the precious foreign exchange.

3.Fall in overseas remittances and foreign travel

  • Similarly, overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion.

What’s the significance of rising forex reserves?

  • The rising forex reserves give a lot of comfort to the government and the RBI in managing India’s external and internal financial issues at a time when the economic growth is set to contract by 1.5 per cent in 2020-21.
  • Provides Cushion: It’s a big cushion in the event of any crisis on the economic front and enough to cover the import bill of the country for a year.
  • Appreciation of Rupees: The rising reserves have also helped the rupee to strengthen against the dollar.
  • The forex reserves to GDP ratio is around 15 per cent.
  • Provides confidence to Market: Reserves will provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its US dollar needs and external debt obligations and maintain a reserve for national disasters or emergencies.

What does the RBI do with the forex reserves?

  • The RBI functions as the custodian and manager of forex reserves and operates within the overall policy framework agreed upon with the government.
  • The RBI allocates the dollars for specific purposes. For example, under the Liberalized Remittances Scheme, individuals are allowed to remit up to $250,000 every year.
  • The RBI uses its forex kitty for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens.

Where are India’s forex reserves kept?

  • The RBI Act, 1934 provides the overarching legal framework for the deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties.
  • As much as 64 per cent of the foreign currency reserves is held in the securities like Treasury bills of foreign countries, mainly the US.
  • 28 per cent is deposited in foreign central banks and 7.4 per cent is also deposited in commercial banks abroad.
  • In value terms, the share of gold in the total foreign exchange reserves increased from about 6.14 per cent as at end-September 2019 to about 6.40 per cent as at end-March 2020.

Is there a cost involved in maintaining forex reserves?

  • The return on India’s forex reserves kept in foreign central banks and commercial banks is negligible.
  • While the RBI has not divulged the return on forex investment, analysts say it could be around one per cent, or even less than that, considering the fall in interest rates in the US and Eurozone.
  • There was a demand from some quarters that forex reserves should be used for infrastructure development in the country. However, the RBI had opposed the plan.
  • Several analysts argue for giving greater weightage to return on forex assets than on liquidity thus reducing net costs if any, of holding reserves.
  • Another issue is the high ratio of volatile flows (portfolio flows and short-term debt) to reserves which are around 80 per cent. This money can exit at a fast pace.

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

World trade fall mustn’t stoke export pessimism

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Relation between value of rupee with export competitiveness.

Mains level : Paper 3- Why we need foreign exchange and ways to improve exports.

Context

The WTO expects a sharp drop-off in global trade in the wake of Covid-19. But India must not withdraw inwards.

Prospects of the exports

  • Impact on global trade: The World Trade Organization (WTO) predicts that global trade could fall by 13-32% this year on account of disruptions and all the turmoil.
  • At this point, we cannot even count on a quick recovery after this health emergency is past its peak.
  • A trade revival may have to wait till 2022 or later.
  • Indian exports have been in a slump for a large part of the past decade, and recent reports point to a rash of cancelled orders from abroad (except, notably, for drugs).
  • This, however, should not mean that we slip into export pessimism.
  • Opportunity in the crisis: Instead, a crisis such as this could serve as an opportunity to sharpen our competitive edge that has got blunt over the years.
  • Rupee and reform: This is best done through reforms, though a rupee on the decline vis-à-vis the US dollar should help too.

Reasons for export orientations

  • The relation between growth and exports: No country is an island unto itself, and nations will continue to exchange goods and services so long as it makes economic sense.
  • Trade partners are usually better off producing what they’re best at, for all users, and buying from the rest what others turn out better—at a lower cost and higher quality.
  • Economies that participate in this game, as the historical record has shown, tend to grow faster.
  • There is another good reason for export orientation.
  • Foreign earnings: India needs foreign earnings, not just for oil imports and suchlike, but also for overall economic stability, given our reliance on foreign capital for growth.
  • In tough times such as these, when we may need to borrow money from abroad to bridge a hugely enlarged fiscal deficit, ensuring a stream of future dollar earnings becomes even more crucial.
  • To enable the issuance of dollar bonds and raise our chances of staging a less painful return to form, we need to get our export act together.

Way forward to increase exports

  • Structural and policy changes: Export success goes by competitiveness, and for domestic businesses to achieve this, India would need to undertake several structural and policy changes.
  • We could begin with reversing the tariff barriers that have been raised in recent years.
  • Exposure to foreign competitors would force them to turn efficient and perform better.
  • Duties on inputs, especially, need to come down. So do other taxes that hold companies back. Other steps to raise productivity will help, too.
  • Good logistical backup is another big requirement.
  • The low value of rupee: The rupee’s slump is a plus for exporters, since their output is cheaper in dollar terms, but we may need to pursue a policy that does not let our currency’s value get over-inflated by inflows of foreign “hot money” (when they return).
  • Cost of capital: The cost of capital in India needs to be low, too, and this would depend on how well the government manages its finances.
  • India’s annual exports currently form less than 2% of the world’s. We should aim for 5%.

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

Foreign Trade Policy 2015-2020 extended for one year

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Foreign Trade Policy 2015-20

The Union Commerce and Industry Ministry has announced changes in India’s Foreign Trade Policy (FTP). The Govt. has decided to continue relief under various export promotion schemes by granting an extension of the existing Policy.

Foreign Trade Policy 2015-20

  • It provided a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the “Make in India” vision of Prime Minister.
  • The focus of the new policy is to support both the manufacturing and services sectors, with a special emphasis on improving the ‘ease of doing business’.
  • It described the market and product strategy and measures required for trade promotion, infrastructure development and overall enhancement of the trade ecosystem.

Features of the FTP 

  • Goods – Earlier there were 5 different schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY) for rewarding merchandise exports with different kinds of duty scrips with varying conditions attached to their use.
  • Duty-free scrips are paper authorisations that allow the holder to import inputs which are used to manufacture products that are exported, or to manufacture machinery used for producing such goods, without paying duty equivalent to the printed value of the scrip.
  • For instance, a duty-free scrip valued at Rupees 1 lakh allows the holder to import goods without paying duty of up to Rupees 1 lakh on the goods.
  • Under the new Foreign Trade Policy, all these schemes have been merged into a single scheme, namely the Merchandise Export from India Scheme (“MEIS“) and there is no conditionality attached to scrips issued under the MEIS.
  • Services – The Served From India Scheme has been replaced with the Service Exports from India Scheme (“SEIS“).
  • SEIS is stated to apply to ‘Service Providers located in India’ instead of ‘Indian Service Providers’.
  • Therefore, SEIS rewards to all service providers of notified services, who are providing services from India, regardless of the constitution or profile of the service provider.
  • Special Economic Zones – The policy outlines extended incentives for Special Economic Zones in India
  • Export Houses – The nomenclature of Export House, Star Export House, Trading House, Star Trading House, Premier Trading House certificate has been simplified and changed to One, Two, Three, Four and Five Star Export House.
  • Status Holders – Business leaders who have excelled in international trade and have successfully contributed to India’s foreign trade are proposed to be recognized as Status Holders and given special privileges to facilitate their trade transactions, in order to reduce their transaction costs and time.
  • Resolving Complaints – In an effort to resolve quality complaints and trade disputes between exporters and importers, a new chapter on Quality Complaints and Trade Disputes has been incorporated into the Foreign Trade Policy.
  • There would be no conditionality attached to any scrips issued under these schemes.
  • For grant of rewards under MEIS, the countries have been categorized into 3 Groups, whereas the rates of rewards under MEIS range from 2% to 5%.
  • Under SEIS the selected Services would be rewarded at the rates of 3% and 5%.

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

How countries play the tariff game

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- How could higher import tariffs affect the Indian economy?

 Context

It is important to have a stable tariff policy which would help to link effectively to global value chains.

Why countries levy tariff?

  • The tariff is a tax levied on an imported good at the border.
  • Countries use tariffs to-
    • Provide easy market access or restrict them to protect domestic industry.
    • It also serves the purpose of revenue collection and-
    • To achieve some strategic objectives by giving/denying tariff concessions to countries.

Harmonised System in international trade

  • What is it? Goods are classified at 2, 4, 6, 8 digits and some countries have even up to 10 digits, depending upon the level of trade potential of a country.
  • WCO’s system of codes: The classification of these codes is streamlined under an international coding system called ‘Harmonized System’ (HS) under World Customs Organization (WCO) to which 138 countries are contracting parties and about 200 customs authorities are signatories.
  • India’s national tariff lines are about 11,000 at HS 8-digit.

Historic background of the tariffs

  • Colonial-era: During the colonial era tariffs were heavily used to protect the domestic industry, enjoy unbridled access to the colonized markets and raise tariffs against competitors.
  • Adam Smith’s advocacy of free trade: Adam Smith in 18th Century challenged this idea of regimented trade with his advocacy of free trade that was convincingly brought out in his seminal work ‘Wealth of Nations’.
  • Theory of comparative advantage: Further, in the 19th Century, David Ricardo, building on this concept, propagated the ‘theory of comparative advantage’.
    • The theory proposes that nations should remain focused on their specific areas of competence and allowed to trade freely with other countries.
    • This theory is against import substitution and considers raising tariffs as a drag on economic growth.
  • What proponents of high tariff said? Proponents of high tariffs assert that-
    • Developed countries dominated global markets for decades with high tariffs, developing countries should continue to enjoy differential tariff treatment until they catch up with the rest.

How countries calibrate tariffs?

  • Each country calibrates its tariffs taking into account its-
    • Domestic production.
    • Demand and
    • Sensitivities.
  • Typically, tariff structures of a manufacturing country reveal a pattern:
    • Low tariffs on raw materials and intermediate goods in the range of 0-5%.
    • Slightly higher tariffs for finished goods in the range of 7-10%.
    • Higher tariffs for agriculture products at above 15%, sometimes up to bound rates as allowed under WTO.
    • As agriculture lines are politically sensitive, most countries zealously guard them with high tariffs.

Export-import linkage and effects of high tariffs

  • How tariffs could harm export competitiveness: Availability of cheaper raw materials and intermediate products support making of competitively priced finished goods for export markets.
    • The challenge for an entrepreneur is to find these cheaper inputs.
    • If these inputs are not available domestically at competitive rates, they look to source them from outside.
    • But as high tariffs act as barriers to sourcing cheaper inputs, they undermine export competitiveness of a product.
  • Implications for MSMEs
    • For MSMEs (micro, small and medium enterprises), this dependency linkage is even more critical, without which they might close down their operations under threat of persistent losses or low returns.
    • Impact on jobs and economy: This would have consequential impact on jobs, income and consumer choices in an economy.
  • Inefficiency and corruption at entry points: High tariffs could breed inefficiency and corruption at the entry points as it leaves much scope for discretion at the hands of officials, circumvention through under/over-invoicing and violation of rules of origin.
  • Impairing demand: Overtime, high tariffs run the risks of impairing demand and paralyzing domestic manufacturing.
  • Maintaining judicious balance: Leveraging tariffs for benchmarking domestic prices is not an uncommon practice in any country.
    • But maintaining a judicious balance between the interests of primary producers and user industries is imperative, given that there exists an intimate link between imports and exports.

India and Global Value Chain (GVC)

  • 80% trade through More than 80% of the global trade runs through Global Value Chains (GVCs) which have evolved extensively in various regions of the world.
    • Low tariffs help GVCs to thrive, essentially for the purpose of sourcing and accessing foreign markets.
  • Why stable tariff policy is important for India?
    • For India to emerge as a global hub for “networked products” and make every district an ‘export hub’ for a specific item, as envisaged in this year’s Budget, it is important to have a stable and predictable tariff policy which would help to link effectively to GVCs.
    • For investors: From an investor’s point of view a stable tariff policy is a huge motivation.

Free-trade agreements and hope of getting market access

  • Market access: The assumption that tariff concessions under bilateral free trade agreements (FTAs) would help get market access is misplaced.
    • Why the assumption is misplaced? In reality, this may not happen as same concessions can be offered by a country to other trading partners in a trade arrangement or throw open to all countries on an MFN (most favoured nation) basis.
    • Inverted duties situation: Gradual tariff liberalization is a natural progression and failing to do so could result in a situation of inverted duties where finished products end up being cheaper than raw materials and intermediate goods
    • Thus, calling for tariff correction in course of time.

Revenue Generation through tariffs

  • Why it is not a good idea? The domestic consumers ultimately end up absorbing import duties as they get passed onto products they consume.
  • Taxing own people: This is akin to taxing one’s own people in an indirect way by making them pay more for a product than in other markets.
  • Revenue generation from enhanced activities: For these reasons, the idea of revenue collection from import duties is losing steam, and instead, revenue generation from enhanced economic activity is gaining wider acceptance as a dynamic process.

Conclusion

Increasing tariffs on the import can end up hurting the economy than benefitting it in the long run, so the government must reconsider the policy of tariff increase.

 

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

India’s rerun of its protectionist folly mars the liberalization era

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- India's changing stance towards liberalisation.

Context

The latest budget’s import tariff hikes signal that a three-decade commitment to trade openness has been all but abandoned.

Detrimental effects of protectionism

  • In brief, both economic theory and a vast weight of evidence point to the detrimental effects of protectionism. These are-
    • Fostering inefficiency: Far from jump-starting the domestic industry, tariffs, quotas and other trade restrictions foster inefficiency among domestic firms that survive only because of
    • And do not become more productive under it, as the government’s threat to withdraw the protection is never credible.
    • The consumer is the ultimate loser: Meanwhile, upstream industries suffer higher than necessary input costs.
    • Consumers of final goods end up footing the bill.
    • Governments earn some tariff revenue, but never enough to warrant the distortion costs to the economy.
  • Tariff inversion: The tariff “spikes” cause greater distortion than a revenue-equivalent uniform tariff, and may lead to the problem of tariff “inversion”.
    • What is tariff inversion? A situation in which intermediate goods are taxed more heavily than final goods, thus paradoxically further disadvantaging, rather than aiding, domestic producers of final goods.
  • Rent-seeking by domestic industries: Tariffs worsens rent-seeking by domestic industries-
    • Protectionism increases lobbying: A force which would be muted in a world where tariffs are locked at a uniform level by statute, and, as a result, industries individually have less of an incentive to lobby for tariffs that are to be applied economy-wide rather than only for their own benefit.
    • Economists Arvind Panagariya and Dani Rodrik had formalized this intuition many years ago, and it matches both common sense and observation.
    • The apparently random list of sectors that would benefit from tariff increases in the recent budget-strongly suggests the possibility of rent-seeking behaviour.

Conclusion

Ample experience of import substitution in economies across the emerging world and over many decades, including in India until 1991, attest to the fact that protectionism, especially abetted by rent-seeking behaviour, is like a rabbit-hole: once inside, one keeps going deeper and deeper, and egress is difficult at best.

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

The high cost of raising trade walls

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Various Free Trade Agreements.

Mains level : Paper 3- Should India prefer bilateral trade agreements over multilateral agreements and what are the issues involved in this approach.

Context

India’s international trade posture appeared to turn protectionist in the past week, with two indicators the government sent out.

What were the two indicators?

  • The first-Signal sent out in the Budget: The first indicator, which played out live on television was contained in the Union Budget.
    • Laying out the Budget for the year, the finance minister made several references to the problems with free trade and preferential trade agreements (FTAs and PTAs).
    • Raise in tariffs, changes in the act: The Budget raised tariffs on the import of more than 50 items and changed the Customs Act provisions substantially to penalise imports suspected to originate from third countries.
  • The second- India declined negotiations: The other indicator was that India declined to attend a meeting of trade negotiators in Bali that was discussing the next step in the Association of Southeast Asian Nations (ASEAN)-led Regional Comprehensive Economic Partnership (RCEP) trade agreement.

Issues with the Free Trade Agreement

  • What the FM told Parliament: It has been observed that imports under Free Trade Agreements (FTAs) are on the rise.
    • Undue claims of FTA benefits have posed a threat to the domestic industry.
    • Such imports require stringent checks, adding that the government will ensure that all FTAs are aligned to the conscious direction of our policy.
  • What could be the consequences of the Govt. policy?
    • Discouragement to imports: While the Govt. motive may be to protect Indian markets from dumping-primarily by Chinese goods-
    • The consequence of the changes will be to put Indian importers on notice and discourage imports in general.
    • Even as the government reserves the right to modify or cancel preferential tariffs and ban the import or export of any goods that it deems fit.

The rise in the trade deficit and decision to walk out of FTA

  • The trade deficit with FTA partners: The government’s problem with FTAs was a key theme in its decision to walk out of the RCEP negotiations (of 16 countries) the rise in trade deficits with FTA partners.
  • Review of all agreements: The government says it will now review all those agreements and wants to “correct asymmetry” in negotiations with new partners. The agreement that would be reviewed includes-
    • TAs signed with the 10-nation ASEAN grouping (FTA).
    • Japan (Comprehensive Economic Partnership Agreement, or CEPA).
    • And South Korea (CEPA).

Why it would not be easy to negotiate bilateral treaties

  • The bilateral agreement would not be a priority for other countries: If India makes a complete break with RCEP, negotiating the bilateral trade agreements (TAs) will not be a priority for the other countries until RCEP is done.
    • The process of legal scrubbing is likely to take most of the year, and any talks with India will probably only follow that.
    • Difficulty in getting better deal: It is also hard to see any of them being able to offer India a better deal bilaterally once they are bound into the multilateral RCEP agreement.

India’s pending talks on bilateral treaties

  • Negotiations of CECA with Australia: The case of the Comprehensive Economic Cooperation Agreement (CECA) being negotiated with Australia, will be a difficult task, not the least due to its history.
    • India and Australia began CECA talks in 2011.
    • However, talks hit a dead-end in September 2015. With the focus on RCEP, no progress has been made since then.
  • Negotiations of FTA with the UK: A similar scenario awaits the announcement of the India-United Kingdom FTA talks.
    • It is unlikely that the U.K. will actually be able to talk until next year after terms for the K.’s full withdrawal from the European Union (EU) are completed.
  • Negotiation of BTIA with the EU: Bilateral Trade and Investment Agreement (BTIA) negotiation are also unlikely to make headway until the UK’s complete withdrawal from the EU.
    • Both sides will have to decide how to revive from where they left off in 2013.
    • Why the negotiations are pending? Making the negotiations harder is the government’s decision to scrap all bilateral investment treaties with 57 countries including EU nations, and bringing in a new Bilateral Investment treaty (BIT) model in 2015.
    • Only Kyrgyzstan, Belarus and most recently Brazil have agreed to sign a new investment treaty based on that model.
  • The US-India trade issue: Finally, there is the much-anticipated resolution of U.S.-India trade issues ahead of the visit of U.S. President.
    • The talks in that visit could also include talks on an FTA.
    • At present, there have only been some non-paper talks on the issue.
    • And given that the U.S. has expressed deep misgivings about India’s BIT model, these talks will also take several years to come to fruition.

Why India should rethink its stand on FTA

  • First-Prospect of no dispute settlement mechanism: The decline of multilateralism, accelerated by the retrenchment of the U.S. and China’s intransigence have all meant the World Trade Organization (WTO) has lost steam as a world arbiter.
    • This leaves states that are not part of arrangements without a safety net on dispute settlement mechanisms.
  • The second-trade deficit of other countries with India: The government has invoked the massive $57-billion trade deficit with China to explain protectionist measures, but it forgets its own trade surpluses with smaller economies.
    • Particularly in the neighbourhood, where Indian exports form more than 80% of total trade with Nepal, Bangladesh, Bhutan and Sri Lanka, respectively.
  • Third- The rise of regional agreements: It is clear that most of the world is now divided into regional FTAs, for example-
    • The North American Free Trade Agreement (NAFTA) for North America.
    • The Southern Common Market (MERCOSUR for its Spanish initials) for South America.
    • The EU, the Eurasian Economic Union (Russia and neighbours).
    • The African Continental Free Trade Agreement (AfCFTA).
    • The Gulf Cooperation Council (GCC) FTA in West Asia.
    • And now the biggest of them all, RCEP, which minus India, represents a third of the world’s population and just under a third of its GDP.
  • Fourth- Finally, the trend across the world does not favour trade in services the way it does in goods.
    • India’s strength in the services sector and its demand for more mobility for Indian employees, is thus becoming another sticky point in FTA negotiations.

Conclusion

India’s demographic might is certainly attractive for international investors, but only if that vast market has purchasing power and is not riven by social unrest and instability. India’s demographic might is certainly attractive for international investors, but only if that vast market has purchasing power and is not riven by social unrest and instability.

 

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

[op-ed snap] A road map for robust trade ties

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Bilateral trade opportunity with Australia and area of cooperation in Technology and innovation

Context

The challenge for India and Australia is to transform people-to-people ties into a trade relationship.

People-to-people the two countries

  • Soft power: Soft power rather than hard economics has traditionally been the driving force behind India-Australia relations.
    • Cricket is a dominant theme that connects the two countries.
    • The Indian diaspora in Australia is a vibrant community that plays a robust role in connecting their country of adoption with their country of origin.

Trade relationship scenario

  • $31 bn bilateral trade: The trade between the two countries has been at a modest $31 billion, largely composed of resources like coal and other minerals.
  • No progress on FTA: Negotiations on a Free Trade Agreement, which began in 2011, have not moved forward significantly.
  • No progress on coal mining projects in Australia: The problems faced by the Adani Group to begin work on a coal mining project in Queensland did not go down too well with investors from India.
  • India Economic Strategy 2035 by Australia: One of the most widely commended initiatives has been the Australian government’s release of an India Economic Strategy 2035 Report.
    • It observes that no single market over the next 20 years will offer more growth opportunities for Australia than India.
    • It lays down a comprehensive road map for strengthening Australia’s trade engagement with India.

Development in digital technology and the role of youth

  • Development of new architecture: Meanwhile India-Australia trade has been steadily evolving into a new architecture underpinned by developments in digital technology.
    • There is a rise of a younger generation of entrepreneurs and a noticeable shift in the trade basket from resources to services.
    • Technology and young entrepreneurship make a formidable combination and should set the agenda for the future of bilateral trade relations.
    • About 80% of the Australian small and medium-sized enterprises are managed by young professionals.
    • The young can see issues like immigration and outsourcing with far more equanimity than the older generation.
    • An important role of young Australians: Young Australians are thus emerging as great champions of India-Australia trade relations.

Scope for engagement in innovation and trade relations

  • Tech. expertise of  Australia: There is also recognition that Australia is a laboratory of ideas, innovation, technology-led growth and university-industry partnerships.
  • Scope for India in innovation and trade: India is a large and demographically young market with a love for innovation and an appetite for new products and services.
    • These synergies should add momentum to a growing engagement in trade relations.

India’s weakness and Way forward

  • Weakest link and way forward: The weakest link in India’s exports to Australia is in merchandise. India needs to look at three broad areas.
  • First-Focus on Market Research:  Despite globalisation, markets are country-specific and culturally sensitive.
    • Indian companies will need to invest a little more in market research on Australian consumer expectations and lifestyles.
  • Second-Brand creation: Australia is a brand-conscious market while India has not created a single consumer brand of international acceptance.
    • Only when products are visible across the world’s shopping malls and supermarkets displaying their own brands that India will be recognised as a major player in the global markets.
  • Third-Innovation: Innovation is emerging as the single-most-important factor for sustained success in every sphere. Global trade cannot be different.

 

 

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

 India’s imports of palm oil — dynamics of the trade with Malaysia

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Types of palm oil, its uses

Mains level : Impact of import restrictions of palm oil

 

India has cut import duty on crude palm oil (CPO) and refined, bleached and deodorized (RBD) palm oil, and also moved RBD oil from the “free” to the “restricted” list of imports.

A move against outspoken Malaysia

  • Curbing palm oil imports has been construed as retaliation against Malaysia’s PM Mahathir Mohamad, who has criticised India’s internal policy decisions such as the revocation of the special status for J&K and CAA.
  • Malaysia has also been sheltering since 2017 the Islamic preacher Zakir Naik who is wanted by India on charges of money laundering, hate speech, and links to terror.

Has India banned import of Malaysian palm oil because of political reasons?

  • Not really. The import of RBD palm oil has been restricted, not banned — and this is from all countries, not just Malaysia. Also, CPO can still be imported freely.
  • Under the trade classification system that India follows, except for goods that can be imported only by state trading enterprises all goods whose import is not restricted or prohibited are traded freely.
  • Normally, a special licence is required to import a restricted good. The government has neither specified what the restrictions entail nor issued any licences.
  • However, it has been reported that vessels carrying RBD palm oil are stuck at several ports because buyers have been asked to shun the product.

How much palm oil does India import?

  • India imported 64.15 lakh metric tonnes (MT) of CPO and 23.9 lakh MT of RBD in 2018-19, the bulk of which was from Indonesia.
  • India imported $10 billion worth of vegetable oil in 2019-20, making it the country’s fifth most valuable import after mineral oil ($141 bn), gold ($32 bn), coal ($26 bn), and telecom instruments such as cell phones ($17 bn).

Why does India need so much palm oil?

  • It is the cheapest edible oil available naturally.
  • Its inert taste makes it suitable for use in foods ranging from baked goods to fried snacks.
  • It stays relatively stable at high temperatures, and is therefore suitable for reuse and deep frying. It is the main ingredient in vanaspati (hydrogenated vegetable oil).
  • However, palm oil is not used in Indian homes.
  • That, and the fact that CPO continues to be imported, makes it unlikely that the decision to restrict refined palm oil imports will impact food inflation immediately.

Who will be impacted by the decision?

  • Indonesia and Malaysia together produce 85% of the world’s palm oil, and India is among the biggest buyers.
  • Both Indonesia and Malaysia produce refined palm oil; however, Malaysia’s refining capacity equals its production capacity — this is why Malaysia is keen on exporting refined oil.
  • Indonesia, on the other hand, can supply CPO, which would allow India to utilise its full refining capacity.

Why import Crude Palm Oil?

  • The CPO that India imports contains fatty acids, gums and wax-like substances. Refining neutralises the acids and filters out the other substances.
  • The filtrate is bleached so that the oil does not change colour after repeated use. Substances that may cause the oil to smell are removed physically or chemically.
  • This entire process increases the value of a barrel of crude oil by about 4%.
  • Additionally, there are costs to transporting the crude, which makes it more cost-effective to import the refined oil.
  • But the refining industry has been demanding that the import duty on refined oil be increased, which would make importing crude oil cheaper than importing refined oil.
  • The decision to restrict imports of refined oil will benefit refiners, which include big-ticket names like the Adani Wilmar group.

Will restricting imports of RBD palm oil help farmers?

  • Restricting refined oil imports will not help farmers directly, as they are not involved in the process of refining.
  • However, the restrictions have caused refined palm oil prices to increase. If prices continue to hold, farmers will get a better realization for their crop.
  • But the timeframe over which the changes in import policy will have an effect on domestic crop realization is fairly long, given that palm trees take over four years to provide a yield.
  • Also, if the demand is met entirely by importing and refining CPO, farmers will be left out of the picture.

How will Malaysia be affected?

  • Malaysia has said that it cannot retaliate against India because it is “too small”.
  • With imports to its largest market restricted (India bought over 23% of all CPO produced by Malaysia in 2019), Malaysian palm oil futures fell by almost 10% in January, although it has recovered since then.
  • India and Malaysia signed a free trade agreement — Malaysia-India Comprehensive Economic Cooperation Agreement — in February 2011.
  • In 2018, Malaysia exported 25.8% of its palm oil to India.
  • If India does not issue licenses for importing refined oil, Malaysia will have to find new buyers for its product.

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

Forex Reserves of India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : India's Forex reserves, SDR, Reserve tranche

Mains level : Forex Reserves and its significance

India’s foreign exchange reserves rose by $943 million to touch a lifetime high of $462.16 billion according to the latest data from the RBI.

Forex reserves of India

  • They are holdings of cash, bank deposits, bonds, and other financial assets denominated in currencies other than Indian rupee.
  • The reserves are managed by the Reserve Bank of India for the Indian government and the main component is foreign currency assets.
  • They act as the first line of defense for India in case of economic slowdown, but acquisition of reserves has its own costs.
  • They facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
  • They act as a cushion against rupee volatility once global interest rates start rising.

Composition of Forex

  • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
  • RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
  • The Forex reserves of India consist of below four categories:
  1. Foreign Currency Assets
  2. Gold
  3. Special Drawing Rights (SDRs)
  4. Reserve Tranche Position

What is Reserve tranche?

  • Reserve tranche is a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes.

What are Special Drawing Rights?

  • The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves
  • The SDR is neither a currency nor a claim on the IMF.
  • Initially SDR was defined as equivalent to 0.888671 grams of fine gold, which at the time, was also equivalent to one U.S. dollar.
  • After the collapse of the Bretton Woods system, the SDR was redefined as a basket of currencies.
  • This basket Includes five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

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

HSN Code

Note4Students

From UPSC perspective, the following things are important :

Prelims level : HSN Code

Mains level : India's Import regulation

 

No imports will be allowed without HSN code into the country clarified the Union Minister of Commerce & Industry.

What is HSN Code?

  • HSN code stands for “Harmonized System of Nomenclature”.
  • This system has been introduced for the systematic classification of goods all over the world.
  • HSN code is a 6-digit uniform code that classifies 5000+ products and is accepted worldwide.
  • It was developed by the World Customs Organization (WCO) and it came into effect from 1988.
  • The main purpose of HSN is to classify goods from all over the World in a systematic and logical manner. This brings in a uniform classification of goods and facilitates international trade.

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

[pib] Duty-Free Import Authorisation (DFIA) scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Duty-Free Import Authorisation (DFIA)

Mains level : Not Much

The Union Minister of Commerce and Industry has informed about the scheme.

Duty-Free Import Authorisation (DFIA)

  • DFIA is issued to allow duty free import of inputs, fuel, oil, energy sources, a catalyst which are required for production of export product.
  • The Directorate General of Foreign Trade, an agency under the Ministry of Commerce and Industry, by means of Public Notice, may exclude any product(s) from purview of DFIA.
  • Under the scheme, authorization is issued to allow duty free import of inputs.

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

[oped of the day] The myths around free trade agreements

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Trade openness ratio

Mains level : RCEP and FTAs - effectiveness

Context

India decided not to join the Regional Comprehensive Economic Partnership (RCEP). This decision can be seen in the lens of experiences countries have had with free trade agreements (FTAs).

Impact on exports

    • Some have argued that by not signing the RCEP, Indian exporters would miss on exporting to RCEP countries. 
    • FTAs – India has FTAs with the ASEAN, Japan, South Korea. Three-fourths of the bilateral trade already happens zero duty.
    • PTA – India also has a small preferential trade agreement with China.
    • FTA not enough – The mere signing of an FTA does not guarantee an increase in exports. If import duty in the partner country is high, there is a likelihood of an increase in exports by 10% when this duty becomes zero. But the chances of exports increasing are low if the import duty of the partner country is low at 1-3%. 
    • Zero duties – FTAs are of no use for exporting to Singapore, Hong Kong as regular import duties are zero.
    • Few products benefit – FTAs with Malaysia, Japan, Australia, New Zealand, Brunei, etc. benefit few product groups only as more than 60% of imports into these countries happen at zero duty for all countries.
    • Even zero duty no guarantee – even the high import duties coming down to zero through the FTAs do not guarantee exports. Japan reduced duty from 10% to zero for Indian apparels through an FTA in 2011. But India’s apparel exports to Japan have nosedived from $255 million in 2010 to $152 million in 2018.
    • Non Tariff Barriers –non-tariff barriers to trade (NTBs) such as special sourcing requirements are generally not negotiated in FTAs. Countries have to resolve these bilaterally.

Investment flow

    • Many argue that a lower import duty regime help in getting significant investments.
    • A case – Australia, in 1987, produced 89% of the cars it used. It protected the car industry through a high 45% import duty. But the share of locally produced vehicles came down as the duties were reduced.
    • Today, Australia imports nearly all cars as tariffs came further down to a 5% level. Most manufacturers such as Nissan, Ford, General Motors, Toyota, Mitsubishi, etc. which produced cars in Australia shut shop.
    • Higher duties – investment – India could attract significant investments in the car sector on account of high import duties. This resulted in the development of an indigenous car and auto component industry. 
    • India can think of lowering import duties to promote competition.
    • Other reasons for investments – Most investments are a result of the package, such as tax cuts, cheap land, power, etc. offered by the host country.
    • Need for an import wall – If a country is not the most efficient economy, some level of an import wall helps in getting external investments. Without an import wall, many firms may shift production to the more efficient FTA partner countries for exporting back to the home market.
    • Need for efficiency – the quality of investments increases as a country moves towards becoming a more efficient economy. Such countries are in an ideal position to become a manufacturing and services hub.

Entry into Global Value Chains(GVCs)

    • Reforms – A country cannot become a significant part of such value chains unless it has efficient ports, customs, shipping, roads, and regulatory compliance infrastructure.
    • Standards – GVC production also requires harmonization of product and quality standards.
    • GVCs will be disrupted if a shipment is delayed or is of non-standard quality. 
    • ASEAN, Japan, and Korea constitute the core of the Asian regional value chain. Despite FTAs with these countries, India has a weak presence in the electronics, machinery or apparel value chains.

Indian industry protectionism

    • Cheaper imports may replace products from domestic industries.
    • If the duty on a product is low, say, at 3%, the local industry may not care much about the duty elimination through any FTA.
    • Countries that have reached this stage are comfortable doing FTAs with fewer worries.
    • Trade openness – India ranks higher than the U.S., Japan, and China in the trade openness ratio. The ratio is the sum of all imports and exports as % of GDP — India (43) is more open than the United States (27), Japan (35), and China (38).

Steps to have an effect

    • The FTAs can ensure market access to only the right quality products at competitive prices. 
    • Competitiveness – Improvement in firm-level competitiveness is a must. 
    • Duties – The government can lower duties on raw materials and intermediates than on the concerned finished products.
    • Standards –  It can set up an elaborate quality and standards infrastructure for essential products.

Back2Basics

Trade openness ratio

The ratio is the sum of all imports and exports as % of GDP

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

[op-ed snap] India’s export woes

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Falling Indian exports

Context

India’s October trade figures deepen concerns about the health of our export sector. 

Figures

    • Merchandise exports fell 1.1% from a year earlier to $26.4 billion last month. 
    • Though it is smaller than September’s 6.6% decline, it’s still bad news. 
    • Exports have been stuck in negative territory for three months in a row. 
    • The good news is the sharp decline in the trade deficit to $11 billion in October from $18 billion a year earlier. 
    • This was due to a 16.3% decline in imports, to $37.4 billion.

Reasons for poor export growth

    • GST – Exporters had to suffer inordinate delays in the refunds due to them under the goods and services tax regime. 
    • RCEP – India’s decision to walk out of the RCEP, which will make access to a vast, rapidly-growing market difficult for them. 
    • Bilateral trade – bilateral trade deals are far not encouraging. India’s trade differences with the US are making matters worse. 

To revive exports

    • Policy – India has to reshape its policy mix in various ways. 
    • Manufacturing – Local manufacturers need to be competitive globally. 
    • Tax – recent reduction in corporate tax is a good move on the financial front. 
    • Tariff reduction – exposure to foreign competition requires lowering import tariffs, not raising them. 
    • Export-oriented reforms – needs to be undertaken.

Conclusion

But for these steps, India risks missing the opportunity to grab the global value chains disrupted by the US-China trade war.

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

Explained: Balance of Trade and its significance

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Trade Deficit

Mains level : Balance of Trade issue in India

  • A key reason that India forwarded for declining to sign on was the existence of trade deficits with many of the constituents of the RCEP.

What concerned India?

  • India was concerned that joining the RCEP trade pact could lead to Chinese goods flooding the Indian markets, and India’s trade deficit ballooning against most of the RCEP members.
  • This, India argued, would have led to several sectoral producers such as those in the dairy and steel sector being dominated by foreign competition.

India’s trade deficit

  • For instance, against the 10 member ASEAN, India’s trade deficit was nearly $22 billion in 2018.
  • Against South Korea it was $12 billion, against Australia $9.6 billion, against Japan almost $8 billion.
  • Worst of all is the trade deficit with China – $53.6 billion.

What is Trade Deficit?

  • Simply put, the trade “balance” of a country shows the difference between what it earns from its exports and what it pays for its imports.
  • If this number is in negative – that is, the total value of goods imported by a country is more than the total value of goods exported by that country – then it is referred to as a “trade deficit”.
  • If India has a trade deficit with China then China would necessarily have a “trade surplus” with India.

What does it mean?

  • A trade deficit broadly can mean two things. One, that the demand in the domestic economy is not being met by the domestic producers.
  • For instance, India may be producing a lot of milk but still not enough for the total milk demand in the country. As such, India may choose to import milk.
  • Two, many a time a deficit signifies the lack of competitiveness of the domestic industry.
  • For instance, Indian car manufacturers could import steel from China instead of procuring it from the domestic producers if the Chinese steel was decidedly cheaper, for the same quality.
  • More often than not, the trade deficit of a country is due to a combination of both these main factors.

Is a trade deficit a bad thing?

  • No trade is ever balanced. That’s because all countries have different strengths and weaknesses.
  • India may have a trade deficit with China but a surplus with Sri Lanka and Bangladesh. It all depends on whether a country is playing to its strength or not.
  • Trade typically enhances wellbeing all across the world by forcing countries to do what they can do most efficiently and procure (import) from the rest of the world what they cannot produce efficiently.

Do higher tariffs help in bringing down trade deficits?

  • Of course, they do. For instance, if cheaper milk and steel from New Zealand and China, respectively, was held off by India levying higher.
  • Then the people most hurt would be Indian consumers of milk and steel – a number far in excess of the number of Indian producers of milk and steel.
  • The consumers would have to either pay a higher cost for imported steel or use equally costly or poorer quality domestic steel or indeed, go without milk (at least the poorer consumers).

Conclusion

  • That is not to say that trade doesn’t have elements that compromise a country’s strategic interests and that is why there are some commodities in which every country wants to maintain self-sufficiency.
  • But merely levying higher tariffs or not choosing to trade do not bring about self-sufficiency.
  • For attaining self-reliance, a country’s domestic industry has to improve and the best of this happening is when one learns from the competition.

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

[op-ed snap] Unchecked decline

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Trade sector update - fall in exports

Context

India’s merchandise exports continued their subdued performance, contracting by 6.57% in September this year. Over the first half of this financial year, exports have contracted by 2.39%.

Cause for worry

    • This indicates that GDP growth is unlikely to have received a fillip from the external sector in the second quarter as well. 
    • Non-oil non-gold imports, an indicator of domestic demand, contracted for the 11th straight month. This indicates continued weakness in domestic demand. 
    • Exports of major labor-intensive segments such as gems and jewelry, garment and leather products, continue to decline
    • All these are coupled with sluggish investment activity. These numbers point towards a subdued economic outlook in the near term. 
    • The IMF has lowered its forecast for economic growth to 6.1% this year, down from its earlier estimate of 7%.

Reasons behind the decline

    • The decline in exports can be traced to a fall in petroleum exports. 
    • It can also be attributed to a synchronised global slowdown. The exports of other nations have also been weak during this period. 
    • The IMF has also lowered its forecast for global GDP growth to 3%. 
    • There are also issues of competitiveness that afflict exports. An overvalued exchange rate and a complicated GST process exacerbate matters. 
    • The collapse in imports is equally worrying. Imports have contracted by 13.85% in September, and by 7% over the first half of this year. This signals weak consumer and industrial demand. 
    • It is exacerbated by inventory destocking, along with risk aversion by banks, could explain the collapse in credit flow to the commercial sector during this period.

Way ahead

    • The government has announced several steps to boost exports. But these are not enough. 
    • The government must push through reforms that address the deeper structural issues plaguing the economy. 
    • In the current economic environment of subdued domestic demand and investment, exports could provide the much-needed boost to growth.

A fact to note:

    • India accounts for around 2% of global trade.

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

Nirvik Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : About the scheme

Mains level : Export promotion

  • To enhance the loan availability of exporters, and the MSME sector the Export Guarantee Corporation of India (ECGC) has launched a new scheme called ‘Nirvik’.
  • To revive the export sector, Commerce Ministry also launched the common digital platform for the issuance of certificates of origin

Nirvik Scheme

  • If there is any loss, then ECGC provided credit guarantee of up to 60% loss approximately.
  • Now under new scheme Nirvik consumers and exporters will covered up to 90% and if there is any loss then in that case ECGC will refund 90% to the banks including principal and interest.
  • Both pre and post shipment credit will also be covered under the new scheme.
  • Banks will get up to 50 % within 30 days of complain lodge.
  • Enhanced cover will ensure that Foreign and Rupee export credit interest rates will be below 4% and 8% respectively for exporters.
  • The scheme envisages simplified procedure for settlement of claim and for provisional payment up to 50% within 30 days on production of proof of end-use of the advances in default by the Insured Bank.

Electronic Certificates of Origin (CoO)

  • This platform will be a single access point for all exporters, for all Free Trade Agreements (FTAs)/ Preferential Trade Agreements (PTAs) and for all agencies concerned.
  • As we know, for exports to countries with which India has free trade agreements (FTA), exporters have to show a certificate that the consignment originated in India.
  • With the launch of this platform, these certificates can be obtained online and all the issuing authorities will be on the same portal.
  • Certificate of Origin will be issued electronically which can be in paperless format if agreed to by the partner countries.
  • Authorities of partner countries will be able to verify the authenticity of certificates from the website.

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

[op-ed snap] The true toll of the trade war between the US and China

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Global Trade

CONTEXT

The growing trade war between China and the USA does not hold good news for the world.

Background of the multilateral trading system

  • For much of the last century, the US managed and protected the rules-based trading system it created at the end of World War II. 
  • That system required a fundamental break from the pre-war environment of mutual suspicion between competing powers. 
  • The US urged everyone to see that growth and development for one country could benefit all countries through increased trade and investment. 
  • The US served as a benevolent hegemon.
  • The system’s multilateral institutions, especially the IMF, helped countries in dire need of funds.
  • America’s power stemmed from its control over votes in multilateral institutions, both directly and through its influence over countries in the G7. 
  • Most countries trusted the US would not misuse its power to further its national interests, at least not excessively. 
  • The expansion of rules-based trade and investment opened up lucrative new markets for US firms. America granted some countries access to its markets without demanding the same level of access to theirs.
  • If emerging-markets expressed concerns about the potential effects of more open trade on some of their workers, economists were quick to reassure them that any local pain would be outweighed by the long-term gains. 

Impact of trade

  • Trade affected domestic workers unequally, but now moderately educated workers in developed countries bore the brunt of the pain, while higher-skilled workers in urban service-sector industries flourished.
  • Policymakers in advanced economies reacted to the backlash against trade in two ways. 
    • They tried to impose their labor and environmental standards on other countries through trade and financing agreements. 
    • They pushed for far stricter enforcement of intellectual property (IP), much of which is owned by Western corporations.

The case of China

  • This resulted in the rise of China. 
  • Like Japan and the East Asian tigers, China grew on the back of manufacturing exports. But, unlike those countries, it is now threatening to compete directly with the West in both services and frontier technologies.
  • China has adopted labour and environmental standards and expropriated IP according to its own needs. 
  • It is now close enough to the technological frontier in areas like robotics and Artificial Intelligence.
  • China’s burgeoning tech sector is enhancing its military prowess. 
  • Unlike the Soviet Union, China is fully integrated into the world trading system.

Breakdown of world trade order

  • Advanced economies find that higher regulatory structures and standards they adopted during their own development now put them at a competitive disadvantage vis-à a-vis differently regulated emerging-market countries. A
  • These countries resent external attempts to impose standards such as a high minimum wage or ending the use of coal.
  • Emerging economies have delayed opening their domestic markets to the industrial world. Developed country firms are especially eager for unfettered access to the attractive Chinese market.

What does the future hold

  • China can be slowed but cannot be stopped. A powerful China must see value in new rules, even becoming a guardian of these rules. For that, it must have a role in setting them. 
  • One can hope that China and the US will, avoid opening up any new fronts in the trade and technology war.
  • There is a dire need for negotiations.
  • Countries need to negotiate a new world order which accommodates multiple powers or blocs rather than a single hegemon.

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

[pib] India to conduct 1st National Time Release Study (TRS)

Note4Students

From UPSC perspective, the following things are important :

Prelims level : TRS

Mains level : Not Much


  • The Department of Revenue, Ministry of Finance is conducting India’s first national Time Release Study (TRS) this week.

Time Release Study (TRS)

  • The TRS is an internationally recognized tool advocated by World Customs Organization to measure the efficiency and effectiveness of international trade flows.
  • This initiative for accountable governance will measure rule based and procedural bottlenecks (including physical touchpoints) in the clearance of goods, from the time of arrival until the physical release of cargo.
  • The national TRS has taken this a multi-dimensional methodology which measures the regulatory and logistics aspects of the cargo clearance process and establishes the average release time for goods.
  • The initiative is on ground lead by the Central Board of Indirect Tax and Customs.
  • The aim is to identify and address bottlenecks in the trade flow process and take the corresponding policy and operational measures required to improve the effectiveness and efficiency of border procedures.

Benefits of TRS

  • This initiative will help India maintain the upward trajectory on Ease of Doing Business, particularly on the Trading Across Borders indicator which measures the efficiency of the cross border trade ecosystem.
  • Last year India’s ranking on the indicator improved from 146 to 80.
  • Expected beneficiaries of this initiative will be export oriented industries and MSMEs, who will enjoy greater standardization of Indian processes with comparable international standards.
  • Based on the results of the TRS, government agencies associated with cross border trade will be able to diagnose existing and potential bottlenecks which act as barriers to the free flow of trade, and take remedial actions for reducing the cargo release time.

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

India-assisted IT-biotech park inaugurated in Cote d’Ivoire

Note4Students

From UPSC perspective, the following things are important :

Prelims level : About the FTZ, Location details of Cote de Ivory

Mains level : India's trade relation with Africa


  • The Mahatma Gandhi IT and Biotechnology Park in Cote d’Ivoire, a dedicated free trade zone built with India’s assistance to build development capacities, has been inaugurated.

Mahatma Gandhi IT and Biotechnology Park (MGIT-BP)

  • MGIT-BP is a dedicated Free Trade Zone (FTZ) for IT and Biotechnology.
  • The inauguration of the project is an important milestone in 150th anniversary celebration of birth anniversary of Mahatma Gandhi.
  • The MGIT-BP is being built with India’s assistance through EXIM Bank Lines of Credit of USD 20 million.
  • The MGIT-BP project consists of two parts firstly, architectural concept and design for the buildings of FTZ and construction of main building to host IT enterprises.
  • It has Computer Assembly Plant, VSAT with Satellite Earth Station, Networking Lab, Human DNA Lab, Data Storage Area Network, an Audio-Visual Lab and a power generator.

What are FTZ?

  • A free-trade zone (FTZ) is a class of special economic zone.
  • It is a geographic area where goods may be landed, stored, handled, manufactured or reconfigured and re-exported under specific customs regulation and generally not subject to customs duty.
  • Free trade zones are generally organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade.
  • The World Bank defines free trade zones as “in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, transshipment, and re-export operations.”

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

[pib] Surjit Bhalla Committee on Trade and Policy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Elephant Bonds

Mains level : Financial services sector of India

  • High Level Advisory Group (HLAG) headed by Dr. Surjit S. Bhalla has been constituted by the Department of Commerce.

Surjit Bhalla Committee Recommendations

  • The HLAG has made several recommendations for boosting India’s share and importance in global merchandise and services trade.
  • Among other things, the Report identifies tax reforms also to boost export and investment channels for exports.
  • The Committee has recommended “Elephant Bonds” as a specialised security product providing funds towards Long Term Infrastructure.
  • HLAG has also made recommendations for reforms in Financial Services Framework for making India a Preferred Destination for financial services.

About Elephant Bonds

  • Elephant Bonds are the 25-year sovereign bonds in which people declaring undisclosed income will be bound to invest 50 per cent.
  • The fund, made from these bonds, will be utilized only for infrastructure projects.
  • It is like an Amnesty scheme to help State treasury raising tax revenues, adding beneficiaries in tax base who have not declared their assets previously.

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

[pib] Kimberley Process Certification Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Kimberley Process, Conflict Diamond

Mains level : KPCS


  • The Intersessional meet of Kimberley Process (KP) will be hosted by India

Kimberley Process Certification Scheme

  • The Kimberley Process is a joint initiative involving Government, international diamond industry and civil society to stem the flow of Conflict Diamonds.
  • Conflict Diamonds means rough diamonds used by rebel movements or their allies to finance conflict aimed at undermining legitimate governments.
  • It is also described in United Nations Security Council (UNSC) Resolutions.

Why need KPCS?

  • In 1998, certain rebel movements in Africa (Sierra Leone, Angola, Democratic Republic of Congo, Liberia) were selling, among other things, illegally obtained diamonds.
  • These were known as Conflict Diamonds – to fund their wars against legitimate governments.
  • With a view to find ways to stop trade in Conflict Diamonds, world’s diamond industry, UN, Governments and leading NGOs came together and in November 2002 at Interlaken, Switzerland.
  • There the final draft of the Kimberley Process measures was ratified by more than fifty countries.
  • The KPCS came into effect from 1st January, 2003 and evolved into an effective mechanism for stopping the trade in Conflict Diamonds.
  • At present, KPCS has 55 members representing 82 countries including EU with 28 members.

India and the KPCS

  • India is one of the founder members of Kimberley Process Certification Scheme.
  • It is the Chair of Kimberley Process for the year 2019 with Russian Federation as Vice Chair.
  • India had earlier chaired KPCS in the year 2008.

Rough diamond trading under the KPCS

  • As per the Scheme, each shipment of rough diamonds being exported and imported by crossing an international border be transported in a tamper proof container and accompanied by a validated Kimberley Process Certificate.
  • The shipment can only be exported to a co-participant country in the KPCS.
  • No uncertified shipments of rough diamonds are permitted to enter a participant country.

Assist this newscard with:

[pib] Kimberley Process

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

Draft Export Policy unveiled

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Draft export policy 2019

  • The Commerce Ministry has come out with a comprehensive draft of the export policy which includes product- specific rules with a view to provide a ready reckoner for exporters.

Draft Export Policy, 2019

  • The draft policy aims at consolidating the export norms for each product as applicable at different government agencies.
  • It is proposed to bring out a comprehensive exports policy for all ITC (HS) tariff codes (including items which are ‘free’ for export and do not currently exist in the policy), covering conditions/restrictions imposed by partner government agencies on exports.
  • ITC-HS Codes are Indian Trade Clarification based on Harmonised System of Coding. It was adopted by India for import-export operations.
  • Every product has been accorded eight digit HS codes.
  • The compendium will help an exporter know all the applicable norms pertaining to a particular product, helping him/her understand policy conditions for that item.

Consolidating norms

  • This exercise is for consolidating the norms and not for making any changes in the existing export policy of the country.
  • It also includes non-tariff regulations imposed by different government agencies.

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

[op-ed snap] External woes

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Trade deficit

Mains level : Falling exports should be a cause of worry for policy makers.

CONTEXT

The estimates for foreign trade showing a sharp slowdown in merchandise export growth in April, to 0.64% from a year earlier, ought to add to concerns about the economy.

Condition of exports

Contraction in exports –

  • If one were to strip away the 31% surge in shipments of petroleum products to overseas markets, India’s export of goods actually contracted by over 3% in dollar terms last month.
  • In contrast, overall merchandise exports had expanded 11% year-on-year in March, with the growth in shipments excluding petroleum products exceeding that pace by about 50 basis points.

Widespread contraction –

The slump in exports was fairly widespread, with 16 of the 30 major product groups listed by the Commerce Ministry reflecting contractions, compared with the 10 categories that had shrunk in March.

Decline in strong sectors  –

Worryingly, shipments of engineering goods declined by over 7% after having expanded by 16.3% in March, while the traditionally strong export sectors — gem and jewellery, leather and leather products, textiles and garments and drugs and pharmaceuticals — all weakened.

Impact of contraction in exports –

  • These are all key providers of jobs and any protracted pain across these industries will impact jobs, wages and consumption demand in the domestic market.
  • While the contraction in gem and jewellery exports widened to 13.4% in April, from 0.4% in March, the slump in the leather segment broadened to 15.3% from 6.4%.
  • And the pace of growth of garment exports decelerated to 4.4% from 15.1% in March.

Coupled with an increase in imports

  • Imports grew by 4.5% to $41.4 billion in April, accelerating from March’s 1.4% pace as purchases of crude oil and gold continued to increase.
  • While the 9.3% jump in the oil import bill, from March’s 5.6%, can partly be explained by the rise in international crude prices (Brent crude futures, for instance, advanced 6.4% in April), India’s insatiable appetite for gold, as reflected in the 54% surge in imports last month, must give policymakers cause for reflection.
  • Excluding oil and gold, however, imports shrank by more than 2% last month, signalling that import demand in the real productive sectors is largely becalmed.
  • As a result of merchandise imports outpacing exports, the trade deficit widened to a five-month high of $15.3 billion.
  • The widening trade shortfall will add pressure on India’s burgeoning current account deficit, which at a provisional $51.9 billion in the first nine months of fiscal 2018-19 had already surpassed the preceding financial year’s 12-month shortfall of $48.7 billion.

Conclusion

  • With stronger headwinds ahead in the form of an escalating trade war between the U.S. and China, and its knock-on impact on global growth, the outlook for export demand is far from reassuring.
  • Add the rising military tensions in West Asia and its potential to further push up oil prices, and the scope to contain the trade and current account deficits seems significantly challenging.
  • Clearly, this would be one more pressing concern for the new government to address.

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

[op-ed snap] A fraught moment: U.S.-China trade war

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Trade War

Mains level : US-China Trade war will impact global Economy harshly.

CONTEXT

The U.S.-China trade war has flared up again after a deceptive lull over the last few months, when both sides were trying to negotiate a deal.

Present Situation

  • Out of nowhere, President Donald Trump tweeted that he would raise the 10% tariff imposed on $200-billion worth of Chinese goods to 25%, starting Friday. That the Trump administration pressed ahead with the increase even as China’s Vice Premier Liu He was still in Washington for a second day of talks with U.S. trade officials only underscores the businessman-turned-President’s ‘take no prisoners’ approach to negotiations.
  • China promptly promised retaliatory action, but was yet to spell out the measures.
  • With Mr. Trump tweeting that “the process has begun to place additional tariffs at 25% on the remaining” Chinese goods worth $325 billion, the U.S. administration unambiguously signalled it was not going to be the first to blink.

Implications for the global economy

  • The increase in tariffs imposed on goods crossing international borders essentially represents a new tax on a global economy already facing a slowdown.
  • Last month, the International Monetary Fund trimmed its projection for global growth in 2019 to 3.3%, from a 3.5% forecast made in January, citing slowing momentum in “70% of the world economy”.
  • IMF Chief Economist Gita Gopinath had at the time projected a pick-up in global growth momentum in the second half, predicated substantially on the “improved” outlook for U.S.-China trade tensions.
  • IMF chief Christine Lagarde and Ms. Gopinath, however, presciently warned that the world economy was poised at “a delicate moment”.
  • Were tensions in trade policy to flare up again, it could result in large disruptions to global supply chains and pose downside risks to global growth, the IMF warned.
  • Barely a month later, the world economy faces the very real risk of an escalation in this trade war where other countries, including India, can largely only wait and watch as the U.S. and China raise the pitch.

implications for American Economy

  • While the U.S. may have genuine concerns about Chinese protectionism, the overall economic logic behind Mr. Trump’s trade policy still remains weak.
  • The cost of these tariffs will, after all, eventually be borne by American consumers and could result in U.S. job losses too as the import of Chinese parts become uneconomical for smaller businesses.

Implications for India

Indian policymakers would do well to closely monitor how the latest escalation in trade tensions pans out for global demand and international energy prices, given that the RBI has flagged oil price volatility as a factor that would have a bearing on India’s inflation outlook.

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

IMO’s new rule on electronic information exchange between ships and ports comes into force

Note4Students

From UPSC perspective, the following things are important :

Prelims level : IMO, FAL Convention

Mains level : Easing maritime logistics and its impact

  • A new global rule mandated by the International Maritime Organisation (IMO) for national governments to introduce electronic information exchange between ships and ports has come to effect.

New rules to FAL Convention

  • The FAL Convention contains standards and recommended practices and rules for simplifying formalities, documentary requirements and procedures on ships’ arrival, stay and departure.
  • The requirement, mandatory under IMO’s Convention on Facilitation of International Maritime Traffic (FAL Convention) is part of a package of amendments adopted in 2016.
  • The new FAL Convention requirement for all public authorities to establish systems for the electronic exchange of information related to maritime transport.
  • It marks a significant move in the maritime industry and ports towards a digital maritime world, reducing the administrative burden and increasing the efficiency of maritime trade and transport.

What are new rules in actual practice?

  • The Convention encourages use of a “single window” for data, to enable all the information required by public authorities in connection with the arrival, stay and departure of ships, persons and cargo, to be submitted via a single portal, without duplication.
  • The rules seeks to make cross-border trade simpler and the logistics chain more efficient, for the more than 10 billion tonnes of goods which are traded by sea annually across the globe.

India: On IMO’s footsteps-

PCS 1x

  • India launched a Port Community System — ‘PCS1x’— at ports in December 2018. ‘PCS 1x’ is a cloud-based technology developed by Mumbai-based logistics conglomerate JM Baxi Group.
  • PCS1x offers value-added services such as notification engine, workflow, mobile application, track and trace, better user interface, better security features, improved inclusion by offering dashboard for those with no IT capability.
  • A unique feature of ‘PCS1x’ is that it can latch on to third party software which provides services to the maritime industry thereby enabling the stakeholders to access wide network of services.
  • PCS1x offers a database that acts as a single data point to all transactions.
  • It captures and stores data on its first occurrence thereby reducing manual intervention, the need to enter transaction data at various points and thereby reducing errors in the process.

Back2Basics

International Maritime Organisation (IMO)

  • IMO is the UN specialized agency with responsibility for the safety and security of shipping and the prevention of marine pollution by ships.
  • Its primary purpose is to develop and maintain a comprehensive regulatory framework for shipping and its remit today includes safety, environmental concerns, legal matters, technical co-operation, maritime security and the efficiency of shipping.
  • IMO is governed by an assembly of members and is financially administered by a council of members elected from the assembly.

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

[pib] Indian Advance Pricing Agreement

Note4Students

From UPSC perspective, the following things are important :

Prelims level :  IAPA, BAPA

Mains level : The problem with multilateral agreements and what India needs to do to gain most from them

News

  • The Central Board of Direct Taxes has entered into 18 APAs in the month of March 2019, which includes 03 Bilateral APAs (BAPAs).

What is an APA?

  • The Advance Pricing Agreement (APA) program allows the taxpayer and the tax authority to avoid future transfer pricing disputes by entering into a prospective agreement.
  • An APA is a contract, usually for multiple years, between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related-company transactions.
  • These programmes are designed to help taxpayers voluntarily resolve actual or potential transfer pricing disputes in a proactive, cooperative manner, as an alternative to the traditional examination process.
  • APAs gives certainty to tax-payers, reduces disputes, enhance tax revenues and make the country an attractive destination for foreign investments.
  • These agreements would be binding both on the taxpayer as well as the government. Similarly, they lowers complaints and litigation costs.

The International Transactions covered in all these Agreements, inter alia, include the following, – 

  • contract manufacturing
  • provision of software development services
  • back office engineering support service
  • provision of back office (ITeS) support services
  • provision of marketing support services
  • payment of royalty for use of technology and brand
  • trading
  • payment of interest

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

Red Sanders is now free of export restrictions

Note4students

Mains Paper 3: Environment | Conservation, environmental pollution and degradation, environmental impact assessment

From UPSC perspective, the following things are important:

Prelims level: Red Sanders and its uses

Mains level: Issue over trade of endangered species


News

  • All red sanders farmers, who were not allowed to export their produce as the foreign trade policy prohibited it, now can.
  • The Directorate General of Foreign Trade (DGFT), an agency of the Ministry of Commerce and Industry has revised its export policy to permit its export if it is obtained from cultivated land.

Why this move?

  • Ironically, the Indian government had itself asked for quotas to export red sanders from CITES as the tree is categorised as a species that needs protection.
  • Estimates suggest that there are more than 3,000 farmers across India who were unable to sell their produce due to the earlier export policy.
  • Earlier, only seized logs from smugglers were being exported depending on state government rules.
  • However, red sanders remains listed in the Appendix II of CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora).

Red Sanders and its uses

  • Red sanders (Pterocarpus santalinus), known for its rich hue and therapeutic properties, is high in demand across Asia, particularly in China and Japan.
  • It is used in cosmetics and medicinal products as well as for making furniture, woodcraft and musical instruments.
  • Its popularity can be gauged from the fact that a tonne of red sanders costs anything between Rs 50 lakh to Rs 1 crore in the international market.

Why restrictions?

  • The tree is endemic to several districts in Andhra Pradesh and some parts of Tamil Nadu and Karnataka.
  • But over-exploitation prompted the Union government in the 1980s to recommend inclusion of red sanders in Appendix II of CITES.
  • The Appendix II says that trade must be controlled in order to avoid utilization incompatible with their survival.
  • The species was listed in Appendix II of CITES in 1995, and subsequently export of red sanders was prohibited in 2004.

Lifting restrictions

  • In 2010, when the CITES was planning to suspend trade of red sanders obtained from India, the government submitted a Non-Detriment Finding (NDF) report saying it must be allowed to export from cultivated sources.
  • So in 2012, India got an export quota on red sanders from CITES, under which the country could export 310 tonnes of red sanders obtained from “artificially propagated” sources and 11,806 tonnes of wood from seized sources.

Boosting Farmers

  • Though a farmer can grow the tree, he/she requires permits to fell and transport the wood, which was difficult to obtain.
  • Moreover, the price of this wood in the domestic market is less than half of what it is in the international market as the demand is low.
  • At the same time, the farmer could not even export it earlier as the foreign trade policy prohibited it.

What else can be done?

  • The GoI should also create a separate Timber Development Board under the Ministry of Agriculture and Farmers’ Welfare as a single-window system for all farming activities to facilitate export process.

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

World Gold Council

Note4students

Mains Paper 2: IR | Important International institutions, agencies & fora, their structure, mandate

From UPSC perspective, the following things are important:

Prelims level: WGC

Mains level: Effect of global trends on India’s gold trade


News

  • Increased market uncertainty and expansion of protectionist economic policies will make gold increasingly attractive as a hedge in 2019, says the latest report by the World Gold Council (WGC).
  • Since gold is considered a safe haven, during choppy markets, the demand for gold improves, normally.
  • Emerging markets, led by India and China–the biggest consuming markets–make up 70% of consumer demand for the metal.

About World Gold Council

  1. The World Gold Council is an association whose members comprise the world’s leading gold mining companies.
  2. Headquartered in London United Kingdom, it has offices in India, China, Singapore, Japan and the United States.
  3. It helps to support its members to mine in a responsible way and developed the Conflict Free Gold Standard.
  4. It is the market development organisation for the gold industry.
  5. It works across all parts of the industry, from gold mining to investment, and their aim is to stimulate and sustain demand for gold.
  6. WGC frequently publish research that demonstrates gold’s strength as a preserver of wealth – both for investors and countries.
  7. WGC also provide analysis of the industry, offering insights into the drivers of gold demand. They have also launched various products such as SPDR GLD and gold accumulation plans in India and China.

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

[pib] No Agri Export Zones (AEZs) after 2004

Note4students

Mains Paper 3: Economy | Food processing and related industries in India- scope and significance, location, upstream and downstream requirements, supply chain management.

From UPSC perspective, the following things are important:

Prelims level: AEZs

Mains level: Measures towards doubling farmer’s income and issues associated


News

AEZs under stress

  1. In all 60 Agri Export Zones (AEZ) were notified by the Government till 2004 – 05.
  2. In December 2004, an internal peer review conducted by Department of Commerce concluded that the notified AEZs had not been able to achieve the intended objectives.
  3. It was decided that there will be no creation of new AEZs, unless there were strong and compelling reasons.
  4. No new AEZs have been set up after 2004.
  5. All the notified AEZs have completed their intended span of 5 years and have been discontinued.

Agri Export Zone (AEZ)

  1. Nodal Agency: Ministry of Commerce
  2. The concept of Agri Export Zone (AEZ) was introduced in 2001, through EXIM Policy 1997-2001.
  3. It aims to take a comprehensive look at a particular produce/product located in a contiguous area for the purpose of developing and sourcing the raw materials, their processing/packaging, leading to final exports.
  4. The concept hinged primarily on convergence of existing Central and State Government schemes to take care of financial interventions required at various stages of value chain; partnership among various stakeholders’ viz. Governments, farmer, processor, exporter etc.; and focus on targeted products and areas to identify required policy interventions.
  5. All these activities did take place in certain respects in the notified Agri Export Zones.
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