Showing posts from 2012

Service sector incentives - Policy challenges

Services has emerged as an important part of our exports. More about facts and figures on service sector here  ;-) Anyway, this blog is about the challenges when  it comes to grooming (?) services sector through incentives. There is a line of thinking which says that services sector grew as the Govt. was caught napping and didn't know how to deal with it. So all that the Govt has to do now, for services to keep growing, is to just let it be and don't spoil the party by interfering. However, from a trade policy-making point of view, services has emerged as a strong sector with a comparative advantage that is here to stay for some time to come. The policy-makers could not ignore this sector, and in good faith, decided to introduce incentives for this sector too, alongside other sectors. The current foreign trade policy incentivises services exports through schemes such as Served From India Scheme (SFIS). To know more about the scheme refer chapter 3 under this FTP link . 

Service sector of India and the Rybczynski effect on manufacturing

The theory I am going to propose below is not based upon any serious study. So the possibility of holes are not excluded. Thus it goes. If there are two tradeable sectors in an economy, and if one of them is a leading sector and the other one lagging, Rybczynski (pronounced Rib-Chin-Skee) theorem predicts that, over a period of time, there would be more than proportionate expansion in the leading sector, at the cost of the lagging one. This would happen when one reads Rybczynski's theorem in the light of Heckscher-Ohlin model. Alongwith, you might be interested in understanding the mechanics, by reading about what's popularly known as Dutch disease . Cut to India. We have a leading sector in services, and a lagging (albeit important) sector in manufacturing. When I say leading, I am not referring to the sheer size, I am referring to the productivity and comparative advantage the sector enjoys in international trade. In this respect, services sector is a leading sector

Humanoids, Robots, IPSoft and IT Jobs

Okay, this is going to be long. So brace for it.  There were two news items recently, and I am going to draw heavily from them for this blog.  1. Today's mint front page article on IT exporters adding revenue with fewer new employees.   2. A robotic threat to outsourcing model, here .  The first one talks about how our IT exporters added more revenue without adding too many employees this year, basically moving towards more earning from higher end projects. The ratio of people with less than three years experience in the IT giants like Wipro, Infosys etc is decreasing, the article no. 1 points out.  The second one is from the last week, and talks about how....wait a sec...let me quote  "Robots and humanoids that automate and deliver information technology (IT) projects at a cost that is less than one-fourth the billing rates of engineers from Tata Consultancy Services Ltd (TCS ) and  Infosys  Ltd are the latest threat to India’s $100 billion ( Rs. 5.5 t

e-BRC, one small step for trade, one giant leap for the tradekind

Electronic Bank Realization Certificate (e-BRC) is an initiative towards trade facilitation. It was introduced in the current foreign trade policy (FTP) this year. You can read the detailed circular on e-BRC here .  As the blog is for general public, let me clarify a few things. One of the objectives of FTP is to provide incentives for increasing foreign trade of India in desired direction. Trade facilitation is another objective. Most of the incentive schemes need proof of conducting foreign trade (say exports), and that the foreign trade proceeds were 'actually' realized. (Ok, in simple English, to take incentives under FTP, one needs to prove that he exported, and got the money back for it.) The physical part of movement is captured by what we call as shipping bill, and the money movement part is captured by, to keep it simple, a bank realization certificate, which the banker issues after the proceeds are realized. More about these things here . Incentives are give

TPP, Regulatory Coherence, and India

 "On November 12, 2011, the Leaders of the nine Trans-Pacific Partnership countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States – announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs." ... from USTR website .  Now, what's so special about an agreement that US is going to have with few other nations across pacific?  A reading of the same USTR page would tell you this too: "The United States, along with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam are working to craft a high-standard agreement that addresses new and emerging trade issues and 21st-century challenges. The agreement will include: • Core issues tra

Why India is wrong in opposing WTO IT Agreement-2

WTO members are actively involved in negotiating the second phase of Information Technology Agreement (ITA - 2) at WTO. The initiative is led by US, and supported by Canada, Japan, Chinese Taipei, Korea, Singapore etc. EU and China too have shown positive signs towards the agreement under consideration. The aim is to bring down the tariff of all technology related goods to zero. The agreement includes computers and peripherals, electronic hardware including semiconductors, computer software, telecommunication equipment, and hardware/Capital Goods to produce the above. You can see here , here and here to know more about this agreement under discussion (or Google!) Now, I had blogged about the issue of our infant electronics hardware/semiconductor industry here . The issue in brief with our electronics industry is: We are lagging in the race of indigenous development of electronic/semiconductor products, and do not enjoy the economies of scale. The reasons and factors were discuss

Merchandise trade data in India: Collection, presentation and issues

I thought of summarizing the merchandise trade data collection process in India at one place, in easily  comprehensible manner (ahem! Aim for parsimony), and the effort resulted into this post. I hope it helps to give a brief overview to anyone interested, about the merchandise trade data collection and presentation process in India.  The merchandise trade data in India, related to 'physical movement' of goods, is collected and disseminated by DGCI&S . The other part, concerning 'money movement', related to merchandise trade, is handled by RBI. The two sets of data do not 'generally' match. The error varies due to various factors, which I will discuss later on.  Let's start with the DGCI&S part.  Physical movement of Goods data: The physical trade part is monitored by Customs department (except SEZs which have their own monitoring systems, assisted by Customs). Transactions are recorded when the goods are 'cleared' by custo

Trade gloom and slight rays of hope

Past four months, I came across this statement frequently being quoted by various experts/officials:  "The exports declined this month, but imports declined more, therefore trade deficit has not been adversely affected ." F or once, September data changes it. Exports contracted by 10.8% (over last year, to 23.7 USD Billion) and imports surged by 5.09%. The trade deficit for Sept 2012 is around 18.1 Billion USD, the widest in 11 months. More on September trade data here , here or here . As I write this blog, I see that the data is surprisingly not uploaded on commerce ministry or DGCI&S website. It's the news sites from where I am getting the information!  I was never comfortable with that italicized statement. Traditionally, we had imports growing at a faster rate than exports, including last year when the imports grew by around 32% compared to exports growth of around 21%. This year, the summary is:  "For the April-Sept period, exports dipped 6.79%

Trade invoicing in INR: Some thoughts

Most of our trade is invoiced in Freely Convertible Currencies (FCC) such as Euro (around 8% of total), Pound (3%), Yen(0.5%) or USD ( 87%). In fact, to become eligible for benefits under our Foreign Trade Policy, one has to realize the export proceeds in FCC 'only', as per para 2.4 a of FTP (ignoring minor arrangements through Vostro/Nostro/ACU and Nepal/Bhutan trade) The questions are: why do we have this practise? Is it good? What if we tweak it and allow people to inovice  and realize the money in INR and let them avail the benefits of FTP. And what determines the invoicing currency in international trade to start with? Will traders rush to invoice in INR if they are allowed to? And so on.  We have this practice of invoicing/realizing in INR because our currency is not an international currency. Till we become fully convertible, it is not easy to be an international currency. Importers cannot (generally) ask the quote in INR as the exporters from abroad cannot hed

The Phantom Menace

Can there be one 'simple' test for policymakers, that if applied to a trade policy measure, could come up with an answer that tells if the step is good or not? I tried to devise one and failed. However, I believe that one can spot a bad policy decision, after the policy gets implemented. I guess, that can be one of the tests. It's a personal view, but I believe the measure to give duty exemption on imported luxury cars in the name of Export Promotion is one such bad measure. The Foreign Trade Policy (FTP), under chapter 5, has a policy that's called Export Promotion Capital Goods (EPCG) scheme. EPCG is an excellent scheme by itself, as it is aimed at capacity building of the industry. You can read more about it  here  and  here . In short, one can import capital goods/machinery, without paying any duty on it, and export the manufactured items (ideally from that machine), over a given period of time in lieu of it. That helps the industry to climb up the technolo

A Case for Agri Exports - Part I

In this blog, my effort is to make a case for Agricultural exports from India. I will put across my views on why we need to focus more on this area, when compared to 'any' other area of exports. And why we must move beyond making noise about Cotton/Sugar and get serious with other agri commodities. As I will take my time to build up the case, the blog is split into two parts.  To start, the top 6 exports from India last year (April2011-March2012, you can see more details here ), with approximate values are:             EXPORT ITEMS                           VALUE              GROWTH                   GROWTH                                                                                           (last year)                 avg. over last 5 years Engineering Goods --------------    58    USD Billion    -02.8%                          23.9% Petroleum Products --------------   56    USD Billion     34.3%                          39.6%                          G

The official customs Import duty calculator for India

And the customs pulls off a coup with this link . It is the import duty calculator. I must say, for once, CBEC is a rare body that I have come to respect.  With this, now you have all that you need to calculate your import duties upto 8 digit of HS code for any product that is being imported.  One has to enter the product code under CTH (Customs tariff head), and one can get all details of import duties that are levied on the product.  If you are unsure of your HS code upto 8 digits, you can key in just 2 digits (chapter heading) and it throws up a list from which you can select. I love the way they have incorporated the effect of notifications on the duty.  Neat stuff. Good work CBEC! It was sorely missed by trading community. In comparison to this, the new automated  ITC HS based policy of DGFT website looks like a joke! Tiru

Rethinking comparative advantage in electronics industry

There was an  article in firstpost today , which caught my attention. It talks about how Google chose to manufacture it's new streaming gadget, Nexus Q, in silicon valley of US and not in China or other East Asian countries. It was opposite to the thinking of other organizations, such as Apple, who primarily source from Asian countries.  The belief for many years, regarding the manufacturing of electronic goods, has been that East Asian countries have a comparative advantage in terms of labor cost. Initially, the trickle that started with Japan, Korea and Taiwan making some electronic devices, developed itself into an Electronics International Production Network deluge that enveloped China, Thailand and other East Asian countries. The Asian electronic network virtually rules the production chain of electronic components, save a very niche category, which for some security and technology reasons, is still with western nations. The network of production chains lead to specializ

Banning second hand capital goods, the policy perspective

There was an article in the Economic Times today, regarding India mulling about banning imports of second hand plant and machinery, basically capital goods. You can read the full article here.  It says: A panel headed by cabinet secretary AK Seth has decided to ban import of machinery more than five years old. "The big worry is that such imports would impact overall productivity and erode competitiveness of the manufacturing sector," said a government official privy to the development. The domestic capital goods industry says imports are partly responsible for the drop in output; a contention supported by government data that showed production of capital goods contracted 4.1% in 2011-12. and about the current situation of usage of such goods, it says: The usage of second-hand machinery is high in certain sectors. For instance, industry estimates show that use of second-hand shuttleless looms constitute about 80% of equipment purchases in the textiles sector. Wh

Foreign Trade Policy Reloaded - The blogger's review

The FTP annual supplement is out. It's 3 days since and your blogger was going through the details. It took time as the entire policy document and procedure handbook was revised and updated, and the annual supplement was incorporated into it. The two manuals ran into more than 300 pages. It was a good move, as there were hundreds of notifications and couple of annual supplements that had come since the last time the policy and procedure manuals were released. So, the manuals were to be read along-with these notifications and supplements. The new manuals are now up to date, and include the current annual supplement.  Now, the review about the latest annual supplement and views. You can read the official highlights here . The good points: You can read some good points from news sites here , here  and here .  Overall, the policy supplement was better than expected and is being welcomed by exporters and consultants. Additional incentives were announced in focus market