Showing posts from 2013

Gold import control - Does it work?

The Govt. thinks that gold imports cause high Current Account Deficit (CAD), and therefore, gold imports should be curbed.  As outright ban on gold imports would create uproar, Govt tried doing it in a roundabout way, with mixed results.  RBI came out with this circular in August 2013. The circular says that any importer of Gold has to keep 20% of such imported gold reserved for exports. In effect, the gold importer has to supply this gold to an exporter,who would in turn export it out of the country. The 20% is to be kept in bonded warehouses with Customs till an exporter is found. The remaining 80% can be sold in domestic market. However, if the 20% kept with customs is not subsequently exported, the importer cannot import further. The RBI circular presents a worked example on this. Also, if only a part of that 20% is exported, the quota allowed for imports in the next lot shall decrease proportionately.  The circular was supposed to decrease the import of gold. What it did, w

Doha round concludes

The WTO's Bali ministerial finally concluded successfully  with an agreement which would be called 'Bali Package'. The package is a watered down version of what started very ambitiously with Doha round of talks around twelve years ago.  The talks went through extremely bad patches in 2003 and 2008 when it was almost declared dead. People had started talking about moving beyond WTO, and indeed, countries had started working out regional agreements. So, not much was looked forward to in the Bali ministerial, and I thought it would wash out with India's resistance on food security clause ( link ), but it survived. Cuba made some noise, along-with India, on different issue altogether, but all came on-board to agree on this mediocre agreement. Mediocre when compared to what started out at initial Doha rounds.  The main point in this package is something called 'trade facilitation'. It's a relatively harmless topic to agree upon. To cut down on unnecessary co

Bali ministerial - some points

It has been in news for few days now. After a very long time, WTO members seemed to have reached a position to clinch a deal. The deal was a toned down version of original mandate from Doha rounds, but even then, it was a big deal because it was a multilateral deal after a very long time. The world has drifted over to regional arrangements in recent years due to failure of Doha rounds. The multilateral differences are too many and too wide to be bridged, or so it was thought. WTO, as a multilateral trade body, started facing questions about its future. Some started to write it off. However, WTO remains relevant, even in the era of proliferating regional agreements, despite what some pundits say, due to its role in trade facilitation, enforcement and dispute settlements. And now, with the new Director General in place, it appeared as if finally a multilateral deal is about to fructify.  However, it now appears that it won't be. India has thrown the spanner in the wheels by being

e-BRC project wins 2013 eASIA award

I had blogged about the revolutionary trade facilitation measure 'electronic-Bank Realization Certificate' (e-BRC) here .  E-BRC was just launched by Directorate General of Foreign Trade (DGFT) at that time. It has been more than a year now and it has revolutionzed the way the bank realizations are filed in India. Recognizing this, the Asia Pacific Council for Trade Facilitation and Electronic Business (AFACT) , which awards eASIA awards, chose eBRC project of India for the award under the category 'trade facilitation'. The award under this category is given for 1) Improve the balance among governmental legislation, 2) Enhance international trade and eBusiness, 3) Increase information visibility, by evaluating the concrete effects on trade regulatory and facilitating agencies control and security, tax-related efficiency, trade promotion, and business efficiency, 4) Adopt a leading model in terms of simplification in trade procedures, single entry point,

Trade deals and inter-ministerial consultations

There was a disturbing news item in the Economic times yesterday. The heading read " Finance ministry takes exception to commerce ministry OK-ing trade pacts; to take over negotiation of all investment pacts ".  The commerce department under Ministry of Commerce is the nodal department for all international trade negotiations. It usually seeks views and opinion from other departments/ministries while taking stands. However, there seems to be some disconnect lately. A part of the news item reads: Finance Minister P Chidambaram had raised concerns at Thursday's Cabinet meeting over the pact's text, which had been decided without consulting his ministry, after which the proposal was deferred. The finance ministry, which is the administrative department for India's investment policy, was neither consulted by the commerce department during the talks nor were its views sought when the draft text of the pact was finalised. The above difference was no

Thou shalt pack in jute

Ministry of textiles came up with an order that mandates compulsory usage of Jute as packing material for the year 2013-14, yesterday. The bright idea is to promote jute usage, in this year of jute, to help employment in Jute sector, and keep the struggling jute sector alive. It would also help jute farmers. The legal sanctity for this order comes from Jute packing material act of 1987, under which Govt is within its capacity to come up with such an order. The detailed order can be found here . Basically, it mandates that 90% of foodgrains, and 20% of sugar production must be packaged using jute products, mainly the jute gunny bags.  The intentions are good. The recent rise of usage of High Density Polymer (HDPE) bags, and Polypropylene (PP) bags has threatened jute sector. The head-on comparison of HDPE/PP Vs Jute bags is given in the figure below:  Taken from a study by A R Indiramma, CFTRI, Mysore The economics for th

Risk management system for export of goods from India

IT based risk management system (RMS) for export of Goods from India was launched today .  Speaking on the occasion Finance Minister said that RMS is a trust based IT system that expects the trade to make correct declarations to Customs. It is a trade facilitation measure which, on implementation, would reduce dwell time from few days to few hours. In view of its obvious advantages, RMS is also being endorsed globally at all forums including WTO.  Finance Minister also emphasized that success of any trade facilitation measure depends on compliance of legal requirements by trade. He urged the trade to comply with the legal provisions so that Customs can ensure speedy clearance of the import and export goods.  The launch of RMS in exports today covers 11 Customs stations at Bangalore, Chennai, Delhi, Hyderabad, Mumbai, Pune and Tutocorin. It would be extended to all EDI Customs stations by year end. Benefits are expected to accrue to the trade in terms of faster clearances and

India's Foreign Trade - October 2013

India's foreign trade data for October 2013 was released today .  Trade balance as well as exports performance has been improving for the past couple of months.  Exports during October 2013 stood at US $ 27.2 billion (Rs.168031.71 crore) which is 13.47 per cent higher in Dollar terms (31.86 per cent higher in Rupee terms) than the level of US $ 24 billion (Rs. 127431.81 crore) during October, 2012.  Cumulative value of exports for the period April-October 2013-14 was US $ 179.3  billion (Rs 1069226.68 crore) as against US $ 168.7 billion (Rs 918270.21 crore) registering a growth of 6.32 per cent in Dollar terms and growth of 16.44 per cent in Rupee terms over the same period last year. On the import side, the report reads: Imports during October, 2013 were valued at US $ 37.8 billion (Rs.233073.43 crore) representing a negative growth of 14.50 per cent in Dollar terms and a negative growth of 0.65 per cent in Rupee terms  over the level of imports valued at US

Getting Gold out of households/lockers

The following is taken out from an old issue of economic and political weekly magazine dated Nov 6, 1965. An idea that might be of use today.

India's foreign trade: June 2013

The merchandise trade data  for June 2013 was released today . Exports for the month decreased by around 4.6% when compared to June last year, in dollar terms. It decreased by around 1.5% for Apr-June period of this year. So the start has not been good.  The imports decreased for the month by around 0.37% when compared to June 2012. However, for the Apr-June period, the imports have increased by around 5.99% over last year, in dollar terms. So, the trade deficit has widened this year, till now. It stands at around 50 Billion USD till now, compared to around 42 Billion USD last year.  The summary table is given below, from the Press information bureau report : So, to sum up, the year has not been very good. I will discuss about some of the reasons, and potential solutions in coming posts. 

Foreign Trade Policy of India - Chapter 3 - Part 2

I had covered the Part 1 of chapter 3 of FTP of India, here . The first part covered the promotional measures run by the Department of Commerce. The second part here would cover the promotional measures being run by the Directorate General of Foreign Trade  (DGFT).  A small rejoinder is in order at this point. The promotional measures run by DGFT in this chapter are mostly the incentive schemes that directly benefit exporters. Most of these measures incentivise exports through what is called 'duty credit scrip'. The duty credit scrips can be used to pay customs duty for imports, pay central excise duties or to pay service taxes (from the current year). The duty credit scrip is usually a small percentage of the total value of exports. No direct cash is given as incentives under this chapter. Some of these duty credit scrips are of transferable nature, that is, they can be sold to a third party who can use them for the stated purpose of paying duties/taxes. In this way, the

Simple and dangerous ideas to reduce Trade Deficit

India's current account deficit(CAD) is hovering at uncomfortable levels, despite an improvement shown in data released last week . The merchandise trade deficit is around the range of 200 Billion USD annually, which contributes major portion to the CAD. The gap is managed by capital flows and trade in services.  At such times, it is common to hear ideas to control trade deficit, and in turn, CAD.  I totally endorse those ideas that talk about deeper reforms and focus on issues such as infrastructure (power, ports, roads etc) and capacity building of institutions (financial, executive, judicial, regulatory etc). I also agree with ideas on measures that control inflation and talk about fiscal prudence and tax reforms. Lack of deeper reforms, irresponsible fiscal policies and inflation is at the heart of today's CAD. In this post, I am going to talk about ideas other than these. Most of such 'other' ideas aim at import control, directly or indirectly. Such suggestio

Foreign Trade Policy of India - Chapter 3 - Part 1

I had given the introduction to Foreign Trade Policy (FTP) of India, here . This post will concentrate on third chapter of FTP. The third chapter concentrates on the promotional measures in order to increase India's international trade. It focuses mainly on export promotion.  Promotional measures are divided into two parts. First part pertains to those measures that are directly implemented by the Department of Commerce . The second part pertains to the incentive schemes implemented by Directorate General of Foreign Trade ( DGFT ).  Promotional measures under Department of Commerce One of the important promotional measures include assistance to states for infrastructure development related to exports, known by the name ASIDE . The objective of this measure reads thus: The objective of ASIDE scheme is to establish a mechanism for involving the State Governments to participate in funding of infrastructure critical for growth of exports by providing export performance

Foreign Trade Policy of India - Chapter 2

I had given an introduction on Foreign Trade Policy (FTP) of India here . This post will concentrate on the second chapter of the foreign trade policy. The second chapter of FTP covers the general provisions regarding exports and imports.  FTP says that all exports and imports are 'free' unless otherwise specified. Free to import doesn't imply no import duties. It just means that one can import by paying required duties and after completing the formalities. The exports and imports of merchandise is organized as per the International trade classification (harmonized system) . DGFT on its website, maintains a link to the policy, based on the ITC HS code under the heading 'downloads'. One can easily look up to check if the good in question can be freely imported/exported here. The other categories listed are 'restricted' and 'prohibited'. Restricted implies that one needs a license from concerned authorities to trade, and prohibited implies th

Foreign Trade Policy of India

Foreign Trade Policy of India An Introduction Foreign Trade Policy (FTP) document is the key document that announces the policy intent regarding international trade. It is the apex document that prescribes the broad outlines for imports and exports of goods and services, to and from India. Foreign Trade Policy is generally a five yearly document, and an annual supplement is released every year. Foreign Trade Policy of India is accompanied with  handbook of procedures in two volumes, that supplement and elaborate the details.  In India, Foreign Trade Policy preparation is managed chiefly by Directorate General of Foreign Trade (DGFT) , under Ministry of Commerce. I shall 'briefly' review the content of FTP in this blog. FTP is divided into several chapters as outlined below: Chapter 1: This chapter has three sub-sections and covers the legal framework under which Foreign Trade Policy of India is created. It also mentions some of the special schemes which ha

Optimum foreign currency reserves and India

Rupee crossed 60/USD yeterday. It splashed across newspapers. RBI, the central bank of India, gave up any efforts to intervene during the slide, giving up meekly. India has a forex reserves of around 290 Billion USD currently, which is around 15% of the GDP. RBI could have deployed the war chest but it chose not to, logically so. The size of the INR forex market is around 50 to 70 Billion USD per day and to influence it significantly, the player must enter with a quiver of around 4 to 5 Billion USD and if RBI decides to deploy its forex reserves to this effect, it might run out of reserves in around 2 months. And the speculators will have an exponential run sooner than later, as the reserves dwindle, hastening the process of currency crisis. A breach of psychological benchmark of Rs 60/USD is better than a currency crisis.  A floating exchange regime need not have any forex reserves, theoretically. But a forex reserve is required nevertheless. The reserves can be used to influenc

India's foreign trade May 2013 - The gloom continues

The foreign trade data (merchandise) was released today . It paints a gloomy picture of trade. The exports declined: Exports during May, 2013 were valued at US $ 24505.66 million (Rs. 134807.62 crore) which was 1.11 per cent lower in Dollar terms (0.13 per cent lower in Rupee terms) than the level of US $ 24779.72 million (Rs. 134983.82 crore) during May, 2012. Cumulative value of exports for the period April-May 2013 -14 was US $ 48670.03    million (Rs. 266203.05 crore) as against US $ 48568.66 million (Rs. 258239.33 crore) registering a growth of 0.21 per cent in Dollar terms and growth of 3.08 per cent in Rupee terms over the same period last year. The imports increased: Imports during May, 2013 were valued at US $ 44649.26 million (Rs.245619.14 crore) representing a growth of 6.99 per cent in Dollar terms and 8.04 per cent in Rupee terms  over the level of imports valued at US $ 41733.45 million ( Rs. 227336.72 crore) in May, 2012. Cumulative value of imports for the

Rupee slide, CAD , current happenings and some unwanted advise

Rupee has depreciated above Rs 57/USD. The current account deficit (CAD) has gone above 5% of GDP during previous quarters. It had reached 6.7% for the Oct-Dec quarter last year. In simple terms, we are importing more and exporting less. The difference is being financed currently by  capital inflows into markets, direct investments into India and borrowings. The investments flows in recent quarters were helpful due to the quantitative easing (QE) at US and Japan. The excess global liquidity found its way into India too, helping our cause of financing the deficit.  In coming months, the QE from the US will taper off, most likely by Dec this year. There has been indications from US Fed regarding this in the news. The expectation of this event itself has caused the USD to strengthen across the world. The effect has started playing on Rupee too.  However, that's not the only factor. Global investors have noticed the gap in our financing. Our major imports, petroleum products,

Bitcoins, SDRs and BitSDR

The idea of Bitcoins  is more than 4 years old. The idea of special drawing rights (SDRs) by IMF is more than 44 years old. Both are attempts at creating alternative currencies for different purposes.  SDR was created to help international trade tide away the exchange difficulties. SDR is not actually a currency, but a claim on currency, or a basked of currencies. Being internationally acceptable and with the ability to act as a medium of exchange, it has the potential to work as international reserve currency for trade. SDRs draw the legitimacy from the backing of IMF. How much backing the IMF has, especially when it comes to bringing SDRs to the center-stage of international trade, is moot.  Probably the idea needs some development, and, the backing of USD supporters.  Bitcoin is virtual currency based on open source cryptographic protocol. It was introduced during Jan 2009. It is a peer to peer electronic cash system, and depends only on mathematical crypto-algorithms f

EU Timber Regulation - Trade barrier that we didn't fight?

Illegal timber logging is a problem. It is identified as a problem in all civilized countries. Most of them have domestic laws to deal with the issue of timber logging. E.g. India has extensive forest laws to stop illegal timber logging. It is argued that corruption and fraud is rampant in timber trade and the extent of illegal logging might vary from 25% to 50% of all timber logged (anecdotal evidence from Wikipedia ). The same illegal timber enters international trade too, and efforts are on to stop such activities. Good intentions.  European Union has come up with a regulation sometime ago called the EU Timber Regulation (EUTR) applicable from 3rd March 2013. The stated obligations run thus: The regulation counters the trade in illegally harvested  timber and timber products through three key  obligations:  1) It prohibits the placing on the EU market of illegally  harvested timber and products derived from such  timber; 2) It requires EU traders who place timber p