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Subject: External Sector

  • Govt. proposes new SEZ Law

    The government has proposed to replace the existing law governing Special Economic Zones (SEZs) with new legislation to enable States to become partners in ‘Development of Enterprise and Service Hubs’.

    Why amend SEZ Act, 2005?

    • Units in SEZs used to enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years, and 50% of the ploughed back export profit for another five years.
    • SEZs now have started losing their sheen after the imposition of minimum alternate tax and the introduction of a sunset clause for the removal of tax incentives.
    • The new act will cover all large existing and new industrial enclaves to optimally utilize the available infrastructure and enhance the competitiveness of exports.
    • The government will also undertake reforms in customs administration of SEZs with a view to promote ease of doing business.

    What are SEZs?

    • A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
    • SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
    • To encourage businesses to set up in the zone, financial policies are introduced.
    • These policies typically encompass investing, taxation, trading, quotas, customs, and labor regulations.
    • Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

    SEZs in India

    • The SEZ policy in India first came into inception on April 1, 2000.
    • The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
    • The idea was to promote exports from the country and realize the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
    • Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.

    Who can set up SEZs? Can foreign companies set up SEZs?

    • Any private/public/joint sector or state government or its agencies can set up an SEZ.
    • Yes, a foreign agency can set up SEZs in India.

    What is the role of state governments in establishing SEZs?

    • A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal.
    • Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

    Are SEZs controlled by the government?

    • In all SEZs, the statutory functions are controlled by the government.
    • The government also controls the operation and maintenance function in the central government-controlled SEZs. The rest of the operations and maintenance are privatized.

    Are SEZs exempt from labor laws?

    • Normal labor laws are applicable to SEZs, which are enforced by the respective state governments.
    • The state governments have been requested to simplify the procedures/returns and for the introduction of a single-window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

    Who monitors the functioning of the units in SEZ?

    • The performance of the SEZ units is monitored by a unit approval committee consisting of a development commissioner, custom, and representative of the state government on an annual basis.

    What are the special features for business units that come to the zone?

    • Business units that set up establishments in an SEZ would be entitled to a package of incentives and a simplified operating environment.
    • Besides, no license is required for imports, including second-hand machinery.

    How do SEZs help a country’s economy?

    • SEZs play a key role in the rapid economic development of a country.
    • In the early 1990s, it helped China and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits – provided, however, that the zones offered attractive enough concessions.
    • Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red-tapism, and strict labor laws.
    • To date, these restrictions have ensured that India has been unable to compete with China’s massively successful light-industrial export machine.

     

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  • What is Anti-Dumping Duty?

    India has initiated an anti-dumping probe against imports of a certain type of tiles, used for covering the floors in residential and commercial buildings, from China, Taiwan and Vietnam following a complaint by domestic players.

    Why in news?

    • Countries start anti-dumping probes to determine whether their domestic industries have been hurt because of a surge in cheap imports.
    • The dumping has caused material injury to the domestic players. If established, the Directorate General of Trade Remedies (DGTR) would recommend an anti-dumping duty on these imports.
    • As a countermeasure, they India would impose these duties under the multilateral regime of the World Trade Organisation (WTO).

    What is Dumping?

    • Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.
    • This is an unfair trade practice which can have a distortive effect on international trade.
    • Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect.

    What is Anti-Dumping Duty?

    • An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
    • In order to protect their respective economy, many countries impose duties on products they believe are being dumped in their national market.
    • In fact, anti-dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry.
    • Such ‘dumped’ products have the potential to undercut local businesses and the local economy.
    • Anti-dumping duties provide relief to the domestic industry against the injury caused by dumping.

    Mechanism in India

    • The Department of Commerce recommends the anti-dumping duty, provisional or final.
    • The Department of Revenue in Finance Ministry acts upon the recommendation within three months and imposes such duties.

    WTO and Anti-Dumping Duties

    • The WTO operates a set of international trade rules, including the international regulation of anti-dumping measures.
    • It does NOT intervene in the activities of companies engaged in dumping.
    • Instead, it focuses on how governments can—or cannot—react to the practice of dumping.
    • In general, the WTO agreement permits governments to act against dumping if it causes or threatens material injury to an established domestic industry.

    Issues with such duties

    • Anti-dumping duties have the potential to distort the market.
    • In a free market, governments cannot normally determine what constitutes a fair market price for any good or service.

    Back2Basics:

    Countervailing duty (CVD)

    • Countervailing duty (CVD) is a specific form of duty that the government imposes in order to protect domestic producers by countering the negative impact of import subsidies.
    • CVD is thus an import tax by the importing country on imported products.
    • To make their products cheaper and boost their demand in other countries, foreign governments sometimes provide subsidies to their producers.
    • To avoid flooding of the market in the importing country with these goods, the government of the importing country imposes a countervailing duty, charging a specific amount on import of such goods.

    How does it work?

    • The duty nullifies and eliminates the price advantage (low price) enjoyed by an imported product when it is given subsidies or exempted from domestic taxes in the country where they are manufactured.
    • It raises the price of the imported product, bringing it closer to its true market price.
    • In this way, the government is able to provide a level playing field for domestic products.

     CVD and India

    • The World Trade Organization (WTO) permits the imposition of countervailing duty by its member countries.
    • In India, the CVD is imposed as an additional duty besides customs on imported products when such products are given tax concession in the country of their origin.

    Who imposes countervailing measures in India?

    • The countervailing measures in India are administered by the Directorate General of Anti-dumping and Allied Duties (DGAD), in the commerce and industry ministry’s department of commerce.

     

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  • How  do  SDRs  help maintain Balance of Payments (BoP)?

    A recent report by the RBI shows that India received support of $17.86 billion in August 2021 by way of Special Drawing Rights (SDRs) has helped cushion the worsening current account deficit.

    What are Special Drawing Rights (SDRs)?

    • SDRs, created by the IMF in 1969, are an international reserve asset and are meant to supplement countries’ reserves.
    • Adding SDRs to the country’s international reserves makes it more financially resilient.
    • Providing liquidity support to developing and low-income countries allows them to tide over the balance of payments (BOP) situations like the one India has been experiencing due to the pandemic and the one it faced earlier in 1991.
    • SDRs being one of the components of foreign exchange reserves (FER) of a country, an increase in its holdings is reflected in the BOP.

    What are the key components of BOP?

    The BOP divides transactions of a country with the rest of the world into two accounts:

    1. Current Account: It consists of net trade of exports and imports of products and services, net earnings on cross-border investments and net transfer payments.
    2. Capital Account: It constitutes a country’s transactions in financial instruments i.e. assets and liabilities constituting of direct investment, portfolio investment, loans, banking capital, and other capital.

    What does the SDR support signify?

    • Pandemic impact: Countries worldwide are going through one of the worst health and economic crises, and India has been no exception.
    • Domestic business underperformance: It is also indicative of the fact that the domestic business environment is failing to attract foreign direct investment.

    Is dependence on SDR a matter of concern?

    A BOP dependent on an SDR-dependent capital account surplus to cushion the country’s widening current account deficit is not a comfortable position to be in.

    • Compulsion for reforms: Importantly, IMF support comes with a baggage of conditions as was the case in 1991—the support came with the condition that India initiates big-ticket economic reforms.
    • Sovereign decisions: Any democratic country would be more comfortable with sovereign rights to design its policy strategy.

    Back2Basics:  Foreign Exchange Reserve

    • Foreign exchange reserves are important assets held by the central bank in foreign currencies as reserves.
    • They are commonly used to support the exchange rate and set monetary policy.
    • In India’s case, foreign reserves include Gold, Dollars, and the IMF’s quota for Special Drawing Rights.
    • Most of the reserves are usually held in US dollars, given the currency’s importance in the international financial and trading system.
    • Some central banks keep reserves in Euros, British pounds, Japanese yen, or Chinese yuan, in addition to their US dollar reserves.

    India’s forex reserves cover:

    1. Foreign Currency Assets (FCAs)
    2. Special Drawing Rights (SDRs)
    3. Gold Reserves
    4. Reserve position with the International Monetary Fund (IMF)

    Significance of these reserves

    • Import support: Holding liquid foreign currency provides a cushion against such effects and provides confidence that there will still be enough foreign exchange to help the country with crucial imports in case of external shocks.
    • USD reserves: All international transactions are settled in US dollars and, therefore, required to support India’s imports.
    • Exchange rate regulation: More importantly, they need to maintain support and confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency.
    • Cushion against inflation: It also helps to limit any vulnerability due to sudden disturbances in foreign capital flows, which may arise during a crisis.

    Initiatives taken by the government to increase forex

    • Self reliance: To increase the foreign exchange reserves, the GoI has taken many initiatives like Atmanirbhar Bharat, in which India has to be made a self-reliant nation so that India does not have to import things that India can produce.
    • Duty remission: The government has started schemes like Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme, etc.
    • FDI and EoDB: Apart from these schemes, India is one of the top countries that attracted the highest amount of Foreign Direct Investment, thereby improving India’s foreign exchange reserves.

     

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  • India-China trade crossed $125 bn in 2021

    India’s trade with China in 2021 crossed $125 billion, with imports from China nearing a record $100 billion, underlining continued demand for a range of Chinese goods, particularly machinery.

    Note: India-China trade has always been an all-time contested issue. This newscard presents crucial stats which is essential to substantiate your answers in Mains as well as in Interviews.

    Highlights of the bilateral trade

    • Bilateral trade reached $125.6 billion in 2021, with India’s imports from China accounting for $97.5 billion.
    • Trade fell from $92.8 billion in 2019 to $87.6 billion in 2020 on account of the pandemic.
    • Trade has boomed in 2021 thanks to a recovery in demand as well as rising imports of new categories of goods such as medical supplies.
    • Also, note that these figures exclude bilateral trade between India and Hong Kong.

    Imports-Exports imbalance

    • Imports were higher by 30% from 2019 while India’s exports to China, amounting to $28.1 billion, were up by as much as 56% from two years earlier.
    • The trade deficit last year reached $69.4 billion, up by 22% from the pre-pandemic figure in 2019.
    • While a break-up of imports and exports wasn’t immediately available, India’s biggest exports to China in recent years were iron ore, cotton, and other raw material-based commodities.
    • India has imported large quantities of electrical and mechanical machinery, active pharmaceutical ingredients (APIs), auto components, and over the past two years, a range of medical supplies from oxygen concentrators to PPEs.

    A global comparison

    • The 43% year-on-year growth in bilateral trade with India was among the highest that China recorded with its major trading partners.
    • Trade figures with China’s top three trading partners showed growth of 28.1% with ASEAN (to $878.2 billion), 27.5% with the EU (to $828.1 billion), and 28.7% with the US, (to $755.6 billion).

    Back2Basics: India-China Bilateral Trade

    • China is India’s largest trading partner.
    • Major commodities exported from India to China were: cotton; gems, precious metals, coins; copper; ores, slag, ash; organic chemicals; salt, sulphur, stone, cement; machines, engines, pumps.
    • Major commodities imported from China into India were: electronic equipment; machines, engines, pumps; organic chemicals; fertilizers; iron and steel; plastics; iron or steel products; gems, precious metals, coins; ships, boats; medical, technical equipment.

     

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  • The stepping stones in the post-pandemic world

    Context

    The COVID-19 pandemic has profoundly impacted lives and livelihoods across the world. Governments, global institutions, industry, academia and non-profit organisations around the world have joined hands to tackle the global challenge and help countries rebuild their economies.

    Criticality of international cooperation and role for India

    • The novel coronavirus pandemic has once again highlighted the criticality of international cooperation in combating current and future challenges.
    • Areas of cooperation: Key among these include economic growth, building competitiveness of the investment climate, ensuring sustainable development paths and adapting to technology acceleration.
    • Strengthening global partnership: Building resilience to cope with the threats posed by pandemics and other man-made and natural disasters has necessitated strengthening global partnerships now more than ever.
    • Global partnerships help in building mutual trust and understanding by agreeing upon common rules and standards and sharing of best practices.

    Areas to focus on

    [1] Challenge of long term sustainability of growth process

    • While the world economy is rebounding strongly, the long-term sustainability of the growth process needs to be strengthened.
    • Exit from the massive stimulus packages itself may pose risks of economic and financial instability.

    [2] Challenges of supply chain management:

    • The pandemic severely disrupted global supply chains and set the global trade trajectory on a downward path.
    • Even as the world emerges from the pandemic, facilitating medical supplies and essentials will continue to remain a top priority and for this, supply chains will need to be kept flowing.
    • For this year, the United Nations Conference on Trade and Development (UNCTAD) indicates an increase of 22.4% in the value of global merchandise trade compared with 2020.
    • World trade is expected to stand about 15% higher than before the COVID-19.
    • FDI flows in developing economies also increased significantly, totalling $427 billion in the first half of 2021.
    •  Cooperation on trade facilitation for enhancing open and transparent markets, technical assistance and reduction of complex process and arrangements must be promoted.

    [3] Increasing competitiveness

    • Competitiveness will be key in facilitating growth and inclusive development.
    • New opportunities and avenues across potential high growth sectors such as manufacturing and start-ups must be leveraged.
    • An ecosystem of entrepreneurship and innovation with targeted policies and interventions will contribute to enhancing productivity and generating employment.

    [4] Structural changes with the emergence of digital economy

    • Certain structural changes are likely to become permanent in the future and this is especially true of the digital economy
    • Equitable adaptation: The rise of telemedicine, remote work and e-learning, delivery services, etc. necessitates equitable adaptation to advanced technologies and tools, building robust infrastructure, and occupational transitions.
    • Skill development and worker training, investments in education and vocational training, and capacity building would be some key areas of focus for filling technology gaps and nurturing new and existing talent.
    • Investment in innovation: At the same time, investments in innovation will be crucial, especially during a crisis.

    [5] Climate change

    • Matter of urgency: Climate change has now acquired urgency from policymakers around the world, as seen in the recent COP26 at Glasgow.
    • International alliances and cooperation on building sustainable solutions, green technology, resource efficiency, sustainable finance, etc., must be promoted to fast-track meeting the sustainable development goals and for ensuring all-round development.

    Opportunities for India

    • Attaining faster growth path: India’s recent reforms, role in combating the pandemic, and startup vibrancy, among other factors, have attracted global attention and can help it attain a faster growth path, provided its integration with the world economy and trade gains strategic intensity.
    • Reliable and trusted player: With multiple strategic shifts, India’s role as a reliable and trusted player in the comity of nations stands enhanced.

    Way forward

    • In the post-pandemic world, it will be critical for India to improve on its investment climate and systematically target its export capabilities across sectors and regions.
    • Ease of doing business and new free trade agreement with major markets will help it integrate closely with the world through trade and investment partnerships.

    Conclusion

    The time for India is here and it must leverage international partnerships for ensuring a robust and sustained economic growth path.

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  • Charting a trade route after the MC12

    Context

    The World Trade Organization (WTO)’s 12th Ministerial Conference (MC12) is being convened in Geneva, Switzerland at the end of this month.

    Ministerial Conferences

    • The topmost decision-making body of the WTO is the Ministerial Conference, which usually meets every two years. It brings together all members of the WTO, all of which are countries or customs unions.
    • The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements

    The task ahead for MC12

    • Recent WTO estimates show that global trade volumes could expand by almost 11% in 2021, and by nearly 5% in 2022, and could stabilise at a level higher than the pre-COVID-19 trend.
    • The MC12 needs to consider how in these good times for trade, the economically weaker countries “can secure a share in the growth in international trade commensurate with the needs of their economic development’, an objective that is mandated by the Marrakesh Agreement Establishing the World Trade Organization.
    • Some of the areas are currently witnessing intense negotiations, these include adoption of WTO rules on electronic commerce, investment facilitation, and fisheries subsidies.

    Following issues will form the basis of MC12 discussions

    1) IPR waiver for Covid-19 related technologies

    • Pharmaceutical companies have used monopoly rights granted by their IPRs to deny developing countries access to technologies and know-how, thus undermining the possibility of production of vaccines in these countries.
    • To remedy this situation, India and South Africa had tabled a proposal in the WTO in October 2020, for waiving enforcement of several forms of IPRs on “health products and technologies including diagnostics, therapeutics, vaccines, medical devices.
    •  This proposal, supported by nearly two-thirds of the organisation’s membership, was opposed by the developed countries batting for their corporates.
    • The unfortunate reality of the current discussions is that an outcome supporting affordable access to COVID-19 vaccines and medicines looks distant.

    2) Fisheries subsidies

    • Discussions on fisheries subsidies have been hanging fire for a long time, there is considerable push for an early conclusion of an agreement to rein in these subsidies.
    • The current drafts on this issue do not provide the wherewithal to rein in large-scale commercial fishing.
    • Large scale commercial fishing is depleting fish stocks the world over, and at the same time, are threatening the livelihoods of small fishermen in countries such as India.

    3) E-commerce

    • Discussions on e-commerce are being held in the WTO since 1998, wherein WTO members agreed to “continue their practice of not imposing customs duties on electronic transmissions”.
    • The more substantive outcome was the decision to “establish a comprehensive work programme” taking into “account the economic, financial, and development needs of developing countries”.
    • However, in 2021, a key focus of the 1998 e-commerce work programme, namely “development needs of developing countries”, is entirely missing from the text document that is the basis for the current negotiations.
    • On the negotiating table are issues relating to the liberalisation of the goods and services trade, and of course guarantee for free flow of data across international boundaries, all aimed at facilitating expansion of businesses of e-commerce firms.
    • In fact, the decision on a moratorium on the imposition of import duties agreed to in 1998 has become the basis for a push towards comprehensive trade liberalisation — a perfectly logical way forward, given that the sole objective of the negotiations on e-commerce is to facilitate expansion of e-commerce firms.

    4) Investment facilitation

    • Inclusion of substantive provisions on investment in the WTO has been one of the more divisive issues.
    • In 2001, the Doha Ministerial Declaration had included a work programme on investment, but developing countries were opposed to its continuation because the discussions were geared to expanding the rights of foreign investors through a multilateral agreement on investment.
    • An investment facilitation has reintroduced the old agenda of concluding such an investment agreement.

    Issues with the negotiations

    • The negotiations on e-commerce and investment facilitation are being conducted not by a mandate given by the entire membership of the WTO in a transparent manner.
    • Instead, these negotiations owe their origins to the so-called “Joint Statement Initiatives” (JSI) in which a section of the membership has developed the agenda with a view to producing agreements in the WTO.
    •  This entire process is “detrimental to the very existence of a rule-based multilateral trading system under the WTO”, as India and South Africa have forcefully argued in a submission against the JSIs early this year.

    Conclusion

    Current favourable tidings provide an ideal setting for the Trade Ministers from the WTO member-states to revisit trade rules and to agree on a work programme for the organisation, which can help maintain the momentum in trade growth.

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  • Customs Duty Waiver on Edible Oil Imports

    The Union Commerce Minister has announced that the government has decided to waive customs duty on import of crude sunflower, palm and soyabean oil, a move aimed at controlling their prices.

    Edible Oil Imports and India

    • Given the heavy dependency on imports, the Indian edible oil market is influenced by the international markets.
    • Of the 20-21 million tonnes of edible oil that India consumes annually, around 4-15 mt is imported.
    • India is second only to China (34-35 mt) in terms of consumption of edible oil.
    • Crude and food-grade refined oil is imported in large vessels, mainly from Malaysia, Brazil, Argentina, Indonesia etc.
    • Home-grown oilseeds such as soyabean, groundnut, mustard, cottonseed etc find their way to domestic solvent and expellers plants, where both the oil and the protein-rich component is extracted.

    Do you know?

    Palm oil (45%) is the largest consumed oil, mainly used by the food industry for frying namkeen, mithai, etc, followed by soyabean oil (20%) and mustard oil (10%), with the rest accounted for by sunflower oil, cottonseed oil, groundnut oil etc.

    Prices and politics

    • Prices of edible oil have been rising across the country since few months.
    • Most edible oils are trading between Rs 130-Rs 190/litre.
    • Also, the festive season will see increased buying of edible oils.

    Impact of the move

    • Consumers might not see a drastic reduction immediately in prices of edible oil.
    • The reduction in duty is expected to affect the earnings of oilseed growers across the country.

    Long-term implications

    • Over the last few years, the government has taken a series of steps to remove India’s import dependency on pulses, and tried to do the same for oilseeds through national missions.
    • However, frequent market interventions that ultimately bring down prices would backfire on the government and veer farmers away from growing oilseeds.
    • We need continuity in prices to help farmers stick to oilseeds or pulses.

    Back2Basic: Customs Duty

    • Customs duty refers to the tax imposed on goods when they are transported across international borders.
    • In simple terms, it is the tax that is levied on import and export of goods.
    • Custom duty in India is defined under the Customs Act, 1962, and all matters related to it fall under the Central Board of Excise & Customs (CBEC).
    • The government uses this duty to raise its revenues, safeguard domestic industries, and regulate movement of goods.
    • The rate of Customs duty varies depending on where the goods were made and what they were made of.

    Types of custom duty

    1. Basic Customs Duty (BCD): It is the duty imposed on the value of the goods at a specific rate at a specified rate of ad-valorem basis.
    2. Countervailing Duty (CVD): It is imposed by the Central Government when a country is paying the subsidy to the exporters who are exporting goods to India.
    3. Additional Customs Duty or Special CVD: It is imposed to bring imports on an equal track with the goods produced or manufactured in India.
    4. Protective Duty: To protect interests of Indian industry
    5. Safeguard Duty: It is imposed to safeguard the interest of our local domestic industries. It is calculated on the basis of loss suffered by our local industries.
    6. Anti-dumping Duty: Manufacturers from abroad may export goods at very low prices compared to prices in the domestic market. In order to avoid such dumping, ADD is levied.

     

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  • WTO raises 2021 goods trade outlook

    The World Trade Organization (WTO) has upgraded its world merchandise trade growth outlook to nearly 11 percent for this year, higher than 8% estimated in March.

    About WTO

    • The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade between nations.
    • Governments use the organization to establish, revise, and enforce the rules that govern international trade.
    • It officially commenced operations on 1 January 1995, pursuant to the 1994 Marrakesh Agreement, thus replacing the General Agreement on Tariffs and Trade (GATT) that had been established in 1948.
    • The WTO is the world’s largest international economic organization, with 164 member states representing over 96% of global trade and global GDP.
    • The WTO facilitates trade in goods, services and intellectual property among participating countries.
    • It prohibits discrimination between trading partners, but provides exceptions for environmental protection, national security, and other important goals.

    Report on Global trade

    • According to a WTO, global goods trade is expected to grow by 10.8 per cent compared to the forecast of 8 per cent in March, but with varied recovery, depending on the region.
    • The report said export volume growth in 2021 will be 8.7 per cent in North America, 7.2 per cent in South America, 9.7 per cent in Europe, 7 per cent in Africa, 5 per cent in West Asia and the highest for Asia at 14.4 per cent.
    • On the other hand, imports are expected to grow at a faster pace as compared to exports. Inbound shipments into North America are set to grow by 12.6 per cent.
    • It will be 19.9 per cent in South America, 9.1 per cent in Europe, 13.1 per cent in CIS, 11.3 per cent in Africa, 9.3 per cent in West Asia and 10.7 per cent in Asia.

    Key highlights for India

    • Exports from India have been rising consistently over the last few quarters, after plummeting for a few months as the outbreak of Covid-19 disrupted global trade.
    • India’s exports to its top trading partners such as the US, European Union, nations in West Asia, among others, are expected to rise.
    • Exports data during the first six months of the current fiscal year is emblematic of the fact that external demand has been robust.
    • Besides, supply-side disruptions can also be exacerbated by the rapid and unexpectedly strong recovery of demand in advanced and many emerging economies.

    Competing with China

    • Experts said with rising global demand, India should be able to compete in various segments vis-a-vis China.
    • Currently, China is facing supply-side as well as demand-side issues owing to several internal challenges (energy, debt crisis).
    • Therefore, India is in a good position to increase its exports, and can become a substitute for China across various product categories or sectors.
    • India can take advantage of the increasing global demand, which can ultimately translate into demand for Indian exports.

     

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  • India’s Current Account Balance sees a spike

    India’s current account balance saw a far lower surplus of $6.5 billion (0.9% of GDP) in the first quarter compared with a surplus of $19.1 billion (3.7% of GDP) a year earlier.

    What is External Sector?

    • The external sector is the portion of a country’s economy that interacts with the economies of other countries.
    • In the goods market, the external sector involves exports and imports.
    • In the financial market it involves capital flows.

    Various terminologies related:

    [A] Balance of Payment (BoP)

    • BoP is the difference between all money flowing into the country in a particular period of time (e.g., a quarter or a year) and the outflow of money to the rest of the world.
    • These financial transactions are made by individuals, firms and government bodies to compare receipts and payments arising out of trade of goods and services.
    • It consists of two components: the current account and the capital account.
    • The current account reflects a country’s net income, while the capital account reflects the net change in ownership of national assets.

    (1) Current Account

    • Current account of BoP consists of all transactions relating to goods, services and income, it is functionally classified into merchandise and
    • Current account deficit is the situation where payments on the country are more than the payments into the country.
    • In current account surplus, there is a net inward payment into the country on the current.

    (2) Capital Account

    • The capital account records the net flow of investment transaction into an economy.
    • Investments (FDI and FII) and borrowings (ECB) are part of the capital account.

    [B] Balance of Trade

    • 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.

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  • [pib] National Export Insurance Account (NEIA) Scheme

    The Centre has approved the contribution of Grant-in-aid (Corpus) of ₹1,650 Crore to the National Export Insurance Account (NEIA).

    National Export Insurance Account Scheme

    • NEIA Trust was established in 2006 to promote project exports from India that are of strategic and national importance.
    • The NEIA Trust promotes Medium and Long Term (MLT) /project exports.
    • It extends (partial/full) support to covers issued by ECGC (ECGC Ltd, formerly known as Export Credit Guarantee Corporation of India Ltd.) to MLT/project export and to Exim Bank for Buyer’s Credit (BC-NEIA) tied to project exports from India.

    Benefits offered

    • The capital infusion in NEIA Trust will help the Indian Project Exporters (IPE) to tap the huge potential of project exports in focus market.
    • Support to project exports with Indian content sourced from across the country will enhance the manufacturing in India.
    • In addition, assuming an average 75% Indian content in the projects, it is estimated that around 12000 workers will move into formal sector.

    Performance highlights

    • Since inception, NEIA has extended 213 covers, with a consolidated project value of Rs. 53,000 crores, to 52 countries as of 31st August 2021.
    • Its impact in enabling project exports has been most significant in Africa and South Asia.

     

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