Showing posts from 2014

Peak Trade and Make in India

For the past few decades, upto the financial crisis, international trade grew at a rate of around 7% a year, which was almost double the rate of growth of world GDP. Post financial crisis, the trade growth was sluggish, and for the last couple of years it has grown at around 3 percent, lesser than the pace of world GDP growth. In terms of trade to GDP share too, the world trade rose from around 40% of world GDP in the early 90s to peak at around 61% in 2011. It has now fallen to around 60%. This had lead to the theory that the world trade has peaked. Paul Krugman doesn't agree. He says that trade outgrowing GDP is not a natural law and we should neither be amazed nor disturbed if it stops happening. Some other economists chime in saying that it might just be a cyclical phenomenon and not a structural shift. However, there is good amount of evidence that the international trade growth, as we know it, has indeed peaked. And the reasons are structural and not just cyclical. That&#

Professional Integrity in public positions

Jonathan Burrows was a managing director at Blackrock, a giant asset management firm. Though he earned a million pounds salary, he avoided paying around 14 pounds of rail fare for daily commute in London, and instead chose to dodge ticket barriers. His total fare avoidance added to around 43000 pounds over five years. He was caught one day. He not only lost his employment, but was also banned from the financial industry altogether by the regulator in UK, viz. the Financial Conduct Authority. You can read details on the specific event  here .  There was no direct link between how Jonathan behaved in the office (his record in office was impeccably clean), to his fare avoidance behaviour outside it. However, Jonathan committed the dodge knowing well that it was unlawful to do so. And that is what the FCA was not happy about. In a terse statement FCA said, "Jonathan's actions fell short of standards we expect in the financial industry." Jonathan handled public investmen

TFA deal at WTO - A victory for India?

I had blogged earlier about the matter regarding objection of India to sign Trade Facilitation Agreement(TFA) at WTO, as agreed at Bali ministerial. India has now agreed to sign the agreement as I had predicted in that post as one of the likely outcomes. However, when I see what is being signed, I wonder if it was worth to take the fight to this level. There is hardly much change, as far as I understand, from what could have been signed then, and what is being signed now, despite what our media projects as a great victory without any compromise.  India's objection to TFA was linked to following issues: that Agri negotiations (on public stockholding for food security purposes) are not going at the expected pace and direction. As Agri is part of the package, there is no meaning in signing only one part of the package, i.e. TFA, while the other part, i.e. Agri negotiation, is still in its infancy at the table.  Specific inside the Agri negotiations, India had various issues

Gold import control goes

I had blogged about the matter of controlling gold imports into India initially here , and then here  when RBI relaxed the controls to include star export houses. Now the RBI has cleared out all such controls through this notification , and gold is free to be imported, after payment of required customs duty which is around 10 percent.  Recap: 1. Alarmed by rising current account deficit and rising gold imports during early and mid 2013, RBI, in consultation with the Govt., used provisions of FEMA to bring out a circular to curb gold imports during August 2013. Some supplementary circulars were later on issued to clarify the matter, effectively making it clear that no one, including banks, could import gold for domestic sale. The language of the circular effectively led to a ban on import of gold.  2. This resulted in significant decrease in import of gold into the country. However, the gold imported for export purposes was out of purview and such gold was still being import

Ease of doing business - Ease of filling forms

I got a mail from the NSDL about the national insurance repository, using which, I can hold all my insurances in the demat form, rather than having it in paper form. The initiative sounded attractive enough for me to explore. When I visited the page, the sheer volume of work that the required forms generated, including proofs etc, put me off and I postponed it for some other day. I had the option of continuing with the existing way of managing insurances, but it is not so when it comes to thousands of other forms that businesses and citizens cope with.  The doing business report for 2014 , released few months ago, has generated a lot of heartburn and movement at the Govt. India was placed at 134th position out of 189 economies, down 3 ranks from last year. The split up of ranks under various heads is as below:  World bank Doing business report - 2014 - India Some govt. departments went into denial mode. Mainly the commerce ministry which contented the rank under the head

The quixotic quinquennial Foreign Trade Policy making

The new Foreign Trade Policy (FTP) of India will be released anytime soon. India's FTP is quinquennial in nature. It undergoes major revision every fifth year. The last one was the FTP 2009-14. The new one will be for the period 2014-19. Every year, a small supplement to the FTP is released after the union budget, by the commerce ministry, in order to accommodate incremental need for adjustments.  I hear that this time the FTP will contain two parts. The first part will contain more of a policy intent and direction and would detail India's approach towards various international trade related issues including FTAs, SEZs, service sector, branding and so on. The second part would contain the policy instruments, such as incentive schemes. All these years, the second part alone was called foreign trade policy. There was no first part detailing the direction and approach. That's what I hear. And if so, it's welcome news.  However, what's also interesting is that

The late comment on India's veto on Trade Facilitation Agreement

India declined to sign the Trade facilitation agreement (TFA) on the ground that there has been no progress on the issue of public stockholding for food security purposes. TFA would facilitate trade by adopting better and common customs procedures for trade facilitation. This would ease the hassles in cross border movement of goods. India needs easing of customs procedures given that we rank 132nd in ease of trading across borders as per world bank's doing business report.  The official explanation given to the parliament by the Commerce minister on the stand taken by India, is here . It's an interesting read as it appears that we stood on behalf of developing countries, which includes the least developed countries, the so called LDCs, and all the poor of the world. That would mean that we must have been supported by them at the WTO. I checked up. It was not so.  We had three supporters on this matter. Cuba, Venezuela and Bolivia. And if a country is known by the comp

Revenue forgone or Industry forgone?

In the book 'an uncertain glory', Jean Dreze and Amartya Sen (p. 90) write this: 'The pernicious role of regressive subsidies applies not only to those that are visibly and explicitly given, such as subsidies on diesel or fertiliser, but also to implicit subsidies, notably those arising from what the Finance Ministry calls 'revenue forgone' - tax revenue that could have been collected, but was forgone on account of various exemptions and incentives. Some of these are justified, but many others are nothing more than disguised handouts to powerful lobbies, especially corporate lobbies' So far so good. Then they go on to say, ' ...the subsidies include more than Rs 57000 crores of custom duties forgone on 'diamonds and gold' alone...' and question such subsidies that can't be justified in an economy struggling with basic needs in terms of food security, health, sanitation and education. In a later chapter, (pp. 271-272), Dreze

International trade dispute settlement between small private parties without arbitration clause

In my day job, I come across complaints from various small time exporters and importers of goods regarding cheating/dispute by their overseas counterparts and vice versa. The overseas complaints usually get routed through the commercial or diplomatic consulates or Indian missions abroad. Indian complaints pour in through various export promotion bodies, export inspection agency, DGFT and so on. Usually, the complaints might be related to quality or payment. The payment related disputes are usually rooted again in quality or quantity related disagreements.  A recurrent feature I have observed in these complaints is that there is no good commercial contract agreement, in writing, between the parties. At times, parties do have a contract, but they lack an arbitration clause in case of dispute. Trade is usually based on trust in such cases. Emails or telecons are usual methods of sealing the deals. Many a times, I have seen disputes arising after the parties have been dealing with ea

Gold import control relaxed?

RBI (and the Govt.) has managed yet again to continue to tie itself in knots over the policy issue when it comes to Gold import controls relaxation. I had written about futility of Gold control measures earlier  when the controls were introduced. Now they are being relaxed . RBI has come up with this circular that relaxes the 20:80 rule to include star and premium trading houses (big gold exporters basically). The rule operates as follows: Revised working example of the operations of 20/80  scheme for import of gold:   1. A Nominated Bank / Agency / any other entity, ABC, imports say 100 kg of gold, which shall be routed through custom bonded warehouses only. If considered necessary, the lot can be procured through two invoices – one for exporters (i.e. 20%) and the other one for domestic users (80%). 2. Out of the above import of 100 kg, 20 kg gold held in the bonded warehouse can be got released, in part or full, to be made available to the exporters of gold against an

Sugar export subsidy, WTO objection and elections in India

Raw sugar is brownish in colour due to presence of molasses, considered an impurity in this case, and tastes almost like white sugar, except for a weird, but not unpleasant, aftertaste. It's crunchier too, which makes it a great topping on some bakery products. Also, its considered healthier than the white sugar as the refining process uses more than 50 different chemicals to make the sugar white. That's a myth. Raw brown sugar is as unhealthy (or as healthy) as white sugar as there's enough chemical processing on cane juice to obtain the raw brownish sugar. Anyway, the option of using brown sugar is not easily available in India as we usually get only white sugar in the market. The baking variety brown sugar is quite costly. I have seen it at reasonable prices in US supermarkets though, probably indicating the health revolution that lead to the switch of customers' tastes from white to brown. Raw sugar is produced in most of the sugar mills across India and they are

Export promotion subsidies and incentives - Justified?

The question regarding benefit accruing out of providing export incentives/subsidies to firms involved in exports has been debated since Bhagwati's time and earlier. The idea of providing such subsidies and incentives have come under strong criticism from economists such as Arvind Panagaria in the past. You can read a working paper by him in the world bank series on the topic, here . (year Y2K) Arvind goes about demolishing all the arguments related to export subsidies and incentives in the paper. Talking about the argument of export products and market diversification related subsidies (the mainstay of our incentive schemes under India's foreign trade policy), Arvind has this to say: I have not come across any quantitative study which does a proper analysis to show that export subsidies, in general, and export-credit subsidies and export-credit insurance, in particular, are a part of the least-cost package for achieving a certain level of export expansion or diversifi