Showing posts from April, 2012

Commodity prices and Trade Policy Challenges - Part II

In the last blog , I talked about how increasing global commodities prices might put pressure on government to lift the export ban in order to take advantage of international prices. We are seeing this pressure for cotton and sugar now a days. There is a meeting scheduled tomorrow , headed by Prime minister to sort out the issue. Let's take up cotton as an example. We are one of the top producers. And second largest exporters of cotton in 2011, behind US. Interestingly, China absorbs all its domestic cotton in textile manufacturing. They even import from us and others. And China  protested when we banned the cotton exports! I would have loved to plot international price movement vs Indian spot prices for cotton. However, I see that though I can get time series for both Memphis and Cotton A index internationally, when it comes to India prices, it is difficult to obtain. The MCX spot prices are in rupees and I am not sure about the conversion to dollars per tonne, given the

Commodity prices and trade policy challenges - Part I

Source: World Bank The above is a plot from the world bank data that I downloaded in excel format from here (click on the small link to historical data under prices section).  It's a data mine for world commodity price movement analysis. I have plotted the commodity price indices from 1960 to March 2012 on a monthly basis. The data is price adjusted by taking a base of 100 for US dollar for the year 2005. Non energy includes agriculture, food, fertilizers and other raw materials.  The recent years has seen a big price movement upwards, except for the global slumps. It is true for all three heads under commodities. The trend is clearly visible from 2000 onward.  Experts have reasoned about the causes and I am summarizing from many research papers below: High and sustained economic growth combined with expansionary macroeconomic policies.  Derived from the point above, increased demand from fast growing developing countries such as BRIC, primarily China. This is es

Cartels, games and the fertilizer subsidies in India

I had blogged about the Fertilizer procurement and import issues (especially for Potash and Phosphate) here .  This time I would blog about the international cartel and the game that forced some policy relaxation in this area. I shall be talking about Phosphate (P which comes from Di Ammonium Phosphate or DAP) and Potash (K which comes from Murate of Potash, shortly called MOP). These two are major nutrients apart from Nitrogen (Urea, obtained from natural gas/Naptha). India imports 90% of its requirements in the phosphates (P) and 100% of potash (K).  P & K are now decontrolled and are covered under open general license and anyone can import them, unlike urea, which is still under control and can only be procured by canalized agencies with government licences. The amount of subsidy given is calculated by the formula; Subsidy = Actual cost - MRP. Earlier, the MRP for P&K was controlled and fixed by the government and hence the subsidy was a function of actual cost. The

Returns to scale in Electronics hardware manufacturing

There is an interesting report on "Measures to stimulate growth in IT/ITES and Electronic hardware industry" . I tried to find out if they have come up with some innovative measures to stimulate the electronic hardware industry development in India. We have been struggling in this area for quite some time. Our semiconductor industry is still in its infancy, despite efforts by the Govt (through semiconductor policy and such), with not much hope of matching China/Taiwan or other East Asian economies in near future. Turn around the laptop or computer you are reading this blog on, and chances are, the hardware has come from China, Taiwan or one of the East Asian countries and not from India. Some random firmware or a bit of software on the computer might be from India, but that's more or less it.  The report makes all the right noises about the problems in page 57, and comes up with recommendations from page 61 onwards. They cover both electronics hardware and semicondu

Import quotas, tariffs and decisions under lack of complete information

There is some confusion regarding quotas, tariffs and their application among general public and even among some people who claim to know things. However, the attempt to explain a concept of  this nature in a blog is fraught with risk of being misunderstood. I cannot use mathematics and graphs in a general blog, and so I would try and connect them through some links to webpages. For preliminary understanding of quotas and  tariffs one can follow the wiki.  It is generally assumed that tariffs are better than quotas. And most of this misconception comes from the WTO rules, that somehow make it sound as if tariffs are better than quotas. Anything that reads 'quota' is abhorred in general and tarrification is considered the starting point of trade liberalization. If one reads elementary economics, one would see that quotas are more trade restrictive than tariffs. And the person reasons, along with WTO, that due to the trade restrictive nature of quotas, they shouldn't

Balance of Trade - Is it alarming?

India's merchandise trade deficit for the period Apr 2011 - Feb 2012 is around 167 Billion USD. The figure for the previous corresponding period was 115 Billion USD. So, we are looking at an annual deficit of around 180 billion USD once the March data comes in. Merchandise trade is only a part of the total Balance of Payment. Services and other invisibles have made up for the merchandise deficit for many years now. Good capital inflows have added to the reserves. So there was no reason to worry about negative balance of trade. Our Balance of Payments position has been good for many years now, despite a negative Balance of Trade.  There is no hard and fast rule that determines what is a good trade surplus or deficit in international trade. There are indicators such as trade deficit to GDP ratios that are used as a rule of thumb, but then, they are just that. There is also a rough check where one can see if the merchandise trade deficit is adversely affecting the current accoun

Exim data till Feb

The below is the export/import details till this February. Once March's data comes in, we will have complete picture for this year. You can have more details here EXPORTS (including re-exports)   India’s Exports during February, 2012 were valued at US$ 24618.08 million (Rs.121039.96 crore) which was 4.28 per cent higher in Dollar terms (12.84 per cent higher in Rupee terms) than the level of US$ 23608.36 million (Rs. 107266.46) during February, 2011. Cumulative value of exports for the period April-February 2011 -12 was US$ 267409.89 million (Rs. 1274839.70 crore) as against US$ 220241.12 million (Rs.1003784.83 crore) registering a  growth of 21.42 per cent in Dollar terms and 27.00 per cent in Rupee terms over the same period last year.  IMPORTS   India’s Imports during February, 2012 were valued at US$ 39781.68 million (Rs.195595.00 crore) representing a growth of 20.65 per cent in Dollar terms (30.56 per cent in Rupee terms)  over the level of imports valued a