Current Affairs

FDI in retail: Benefits overweigh threats
Courtesy: Exim Newsletter,Tradeindia.com Nov 30,2011

The government yesterday announced that the retail sector foreign investors who want to set up operations in India would have to source at least 30 percent of their requirements exclusively from Indian micro and small enterprises. Needless to say, this is a piece of good news for the Indian SME sector. In fact, I think that the benefits of approving FDI in retail would outweigh any potential threats to our whole economy.
Allowing FDI in the retail sector, which has long been facing several supply side constraints, will certainly help unclog supply bottlenecks of which we are complaining for a long time as a cause of high inflation. In addition, the retail sector is expected to grow ten times in the next ten years but this level of growth is not possible without expansion of the organised retail sector, which, in turn, is not likely without participation of big global players.
Besides, I think, the opening up will be of benefit for us to generate not only new employment but also better paid and better quality employment instead of killing jobs. In addition, coexistence of small and big retailers is not far from possible. This is happening in many countries with the latter creating niche and finding innovative ways to compete. In fact, Indian retailers already have some competitive edge in form of low overhead costs, cheap labour and less use of technology.
As far farmers are concerned nobody can deny the fact that at present there is a big difference in farm gate prices, wholesale prices and retail prices. Allowing big global players in retail will help to unlock the true potential of the agricultural value chain in the country where the majority of the population is employed in agriculture, not unorganised retail. Removal of the long chain of intermediaries will also benefit customers.
The Indian industry will benefit to a great extent once global retailers will start setting up local operations here and sourcing products from local manufacturers, particularly from sectors like handicrafts, textiles, and food processing. It will also avail opportunities for SMEs to benefit from partnership with big players in product development, deal under signed contract, timely payment, new knowledge about supply chain management, and more connectivity with international channels.
The bottom line: there are more opportunities than threats. However, this is just the first step. The government must go for efficient and effective implementation of policy initiatives; they must ensure that big players do not deviate from the norms stealthily and small players are not completely overrun by them. If not, the benefits may be null, and even negative.

Fall of the rupee worrisome
Courtesy: Exim Newsletter,Tradeindia.com Nov 22,2011
The rupee fell to 52.15 against the US dollar on Monday. On the surface, the news looks good for exporters and bad for importers. But at this moment, the situation is not as simple as that. The abrupt dive the rupee has taken may result in many dire consequences, which will be good for none, for many reasons.
First of all, the rupee's slump has come at a bad time. The economy is reeling under high inflation, which the RBI is trying to tame down by raising interest rates, but with little success. As a result, the Indian industry has to carry the burden of high costs of borrowing and inputs.
India imports around 70 percent of its total oil requirement. With every one rupee fall against the US dollar the Indian oil industry losing Rs. 8000 crore on annual basis if the prices are not raised, the weak rupee may soon result in fuel price hike, which will in turn further increase inflationary pressure in the economy, also making it difficult for the RBI to exit from its tight monetary stance.
In addition, the rupee crash is likely to result in higher fiscal deficit, which is already at a concerning level and likely to exceed 4.6 percent of the GDP target in the current fiscal. Another concern is that if the rupee remains weak for a long period, foreign investors and creditors will lose confidence in our economy.  Already there is a 23 percent fall in investment by Foreign Institutional Investors (FIIs) since May end. Now the rupee fall may further worsen the situation.
The rupee plunge may also affect our companies that have taken foreign loans. Since the beginning of this year, Indian companies have borrowed close to $29 billion in foreign currencies. If the current currency valuations persist, the cost of repaying these foreign loans will be higher by a whopping amount.
As far exporters' benefit is concerned, the rupee fall will get them more rupees for the same price in dollars but those who have hedged their exposure at lower levels will see only limited gains. Also, the high costs of raw materials and borrowing are there to mitigate their profits. Apart from these worries, the dried up global demand will also affect the exporters.
The bottom line: the rupee crash is another blow to the economy. It has hit at a vulnerable moment. If the rupee's weakness persists for a long period, the economy will certainly be closer to a bigger problem. It is responsibility of none but the government to prevent such a possibility.  

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Courtesy: TradeIndia.com, Oct 25, 2011.

Global woes may derail export growth soon
In the last few months, Indian exports have sidestepped the global downs to a significant extent. $23.8 billion in April, $25.9 billion in May, $29.2 billion in June, $29.3 billion in July, $24.3 billion in August, and $24.8 billion in September - these export figures are great news; however, the last two-month trade data signals to a declining trend, which is quite expected considering the ongoing economic turmoil in Europe and the US.

Interestingly, China is witnessing a similar trend in exports. In September, its export growth plummeted to 7-month low of 7.1 percent to $169.6 billion. In the previous months of August and July, exports stood at $173.31 billion (24.5 percent y-o-y growth) and $175.1 billion (20.4 percent y-o-y growth), respectively. It seems that the Chinese export sector is also heading for a gradual slowdown.

Exporters' body FIEO is of the view that further decline in export growth is likely in third and fourth quarters. Last week, Finance Minister Pranab Mukherjee also admitted that the economic crisis in Europe and the slowdown in the US were concerning. In addition, I feel that the global reach of the economic turmoil is also underlined by a number of recent industry surveys showing drain in confidence, and a 14 percent decline in September engineering exports, the largest contributor to India's export basket in 2010-11.

So, our exporters indeed have every reason to feel pessimistic. A few exceptions are the recently announced benefits for the export sector in the annual supplement to the 2009-14 Foreign Trade Policy. The decision to avail 2 percent interest subsidy on Rupee export credit to SME, handicraft, handloom and carpet sectors also assumes significance in view of compressed global demand.

I think the aforesaid measures will certainly help absorb the negative effects of the global economic turmoil to some extent. But at the same time, I am of the opinion that the government needs to take some immediate steps in terms of tax reforms and export transaction costs in order to enhance the competitiveness of the export sector.

The rising cost of credit has also been of lingering concern over a long period of time. Today, the RBI has hiked key interest rates again - the 13th hike since March 2010. This move will certainly fuel troubles further. I think there is an urgent need for better coordination between monetary and fiscal policies to ensure that the industry gets rid of the two pronged attack of high inflation and costly credit.


  • Govt may remove FDI cap in single-brand retail.
  • New Delhi, Oct 3, Reuters:
India is considering opening fully its single-brand retail sector to foreign direct investors, raising the investment allowed to 100 percent from 51 percent, the industry secretary said on Monday. 
"It is under consideration," R.P. Singh told Reuters by phone, declining to provide any time frame.
India currently allows 51 percent foreign direct investment (FDI) in single-brand retailers and 100 percent in wholesale operations. The government has considered allowing foreign firms to invest in supermarkets, but lack of political consensus and concerns of small-shop owners have so far prevented the move.
  • US is India's most important partner economically'
Washington, September 28, 2011
New Delhi embarks on the path of the next level of economic reforms aimed towards rapid growth and development, a top Obama Administration official said that India has no more important partner than the US in this endeavor.

"The modernisation of India and the lifting up of hundreds of
millions of Indians out of poverty necessarily remains the focus of the Indian government.
"This extraordinary -- and so far extraordinarily successful -- effort requires India to sustain its high rate of economic growth, open markets for its goods and services, and attract the investment needed to realize its vision of inclusive development," deputy secretary of state Bill Burns said.
Burns his remarks on 'Is there a future for the US-India partnership?' said, "There is no more important partner for India in this endeavor than the United States. Over the past decade, our bilateral trade has doubled and then almost doubled again.
"Our total direct investment in India rose 10-fold, from USD 2.4 billion in 2000 to USD 27.1 billion in 2010."
The event was organised by Federation of Indian Chambers of Commerce and Industry (FICCI) and Brookings Institute, a Washington-based eminent American think tank.
The official said India-US bilateral economic relationship is anchored in the realisation that their long-term interests are essentially congruent and mutually reinforcing.
"Each of us has a large stake in the others' success. The tangible economic benefits of our relations -- for businesses big and small, for people in the middle class and those rising towards it, are irrefutable.
"The old narrative of outsourcing and zero-sum competition has given way to the reality of balanced, mutually-beneficial, and rapidly growing commerce between our nations," Burns said.
He said from USAID programmes to eradicate polio and promote maternal and child health to cutting-edge cooperation in clean energy technology, agriculture, science and space, "we are committed to being a partner in helping build a new India.”
Noting that the economic needs of the American people are central to its own diplomacy around the world, as they work to find new markets for American products and exports, Burns said the US therefore has an enormous stake in India's economic rise.
"India has grown on average seven-and-a-half per cent each year for the past decade, and American companies want to compete in India’s growing markets and take advantage of investment opportunities – not least the USD 1 trillion India expects to invest in building infrastructure by 2017.
"India is now the Export-Import Bank’s second largest portfolio, after Mexico," the official said.
"Together, we are drawing the best from both of our societies to make better products that compete and win in the global economy," he said.
Burns said Tata Steel has a plant in Ohio; Boeing uses engineers in Bangalore to design 787s whose parts are manufactured across America.
India’s direct investment in the United States has grown by an average of 33 per cent each year since 2005 and, in the decade between 2000 and 2010, increased from a negligible USD 96 million to over USD 3.3 billion, with Indian companies now employing tens of thousands of Americans, he added.
  •  US report praises Modi's style of governance!
A US Congressional report has hailed Gujarat as the best example of effective governance and impressive development in India.
The report prepared by Congressional Research Service also praised Gujarat CM Narendra Modi saying the state under him has become a key driver of national economic growth.
 "Perhaps India’s best example of effective governance and impressive development is found in Gujarat, where controversial Chief Minister Narendra Modi has streamlined economic processes, removing red tape and curtailing corruption in ways that have made the state a key driver of national economic growth.
 The state has attracted major international investors such as General Motors and Mitsubishi and, with only 5% of the country’s population, Gujarat now accounts for more than one-fifth of India’s exports," the CRS report said.

Gujarat is followed by Bihar and its Chief Minister Nitish Kumar, has also been praised for his effective governance and administrative skills. The report hails Nitish Kumar for the restoration of law and order in the state as well as for improvement in infrastructure and education.

"Another positive example in 2011 has been Bihar, one of India’s poorest states, where Chief Minister Nitish Kumar has won national attention through his considerable success in emphasizing good governance over caste-based politics; he is credited with restoring law and order across much of the state, as well as overseeing infrastructure and educational improvements of direct benefit to common citizens projects," the report noted.
 The full report can be read @http://www.fas.org/sgp/crs/row/RL33529.pdf
India critical to US success!
Washington, Sep 2 (IANS) A Republican presidential hopeful has suggested that the US negotiate a bilateral free trade agreement with India to strengthen its relationship with a friend critical to America's success in the 21st century.
Jon Huntsman, former governor of Utah, who resigned as US ambassador to China last April hoping to challenge President Barack Obama in 2012, Thursday proposed talks with India as part of his jobs plan and fix the US economy.
As 95 percent of the world's customers live outside US borders, and with the US party to only 17 of more than 300 trade agreements worldwide, he said 'opening more markets for American businesses should be a commonsense tool to spark immediate growth.'
Huntsman said he would make three trade agreements with South Korea, Colombia and Panama a top priority.
'Washington must also immediately start discussions with India to end in a bilateral free trade agreement strengthening our relationship with a friend who will prove to be critical to America's success in the 21st century,' he said.
Suggesting that Obama's economic record has been marked by failure, he said: 'As the Obama Administration has dithered, other nations are making the choices necessary to compete in the 21st Century.'
But much like Obama citing competition from emerging economies like India, China and Brazil, Huntsman said: 'In Brasilia and Beijing, New Delhi and Seoul, our competitors are making the hard choices that will help assure their children a better life,'.
'If we fail to do the same, we are robbing our children of an inheritance every previous American generation has had.'
Huntsman said he was running for President 'because I'm prepared to lead the American people to that better and brighter future.'
No major impact of US crisis on Indian economy!
  • White House Honour for NRI Scientists!
 
Three eminent Indian Americans , two inventors and a researcher, outline among a dozen top scientists and innovators named by President Barack Obama as recipients of the nation's highest honours in their fields.
New York University's Srinivasa S.R.Vardhan is amongst seven researches named to accept the National Medal of Science, at the same time as two Indian Institute of Technology alumni, Purdue University's Rakesh Agarwal, and North Carolina State Univeristy's B Jayant Baliga are amid five named for Technology and Innovation medals.
Releasing the honors list, Obama said in a statement on Tuesday, "Each of these extraordinary scientists, engineers, and inventors is guided by a passion for innovation, a fearlessness even as they explore the very frontiers of human knowledge, and a desire to make the world a better place," He added, "Their ingenuity inspires us all to reach higher and try harder, no matter how difficult the challenges we face." The recipients will accept their awards at a White House ceremony later this year.
Indian American origin Scientists and researchers have seldom featured before in the White House honours list, but this is the first time that three have been acknowledged in a single year in a list characteristically subjugated by US-born and educated. Among the rare awardees of Indian-origin are Calyampudi R.Rao, and Arun Netravali who were recognized in 2001 for mathematical and computer sciences and technology respectively.
Text Courtesy: SiliconIndia

India's exports may falter due to global economic turmoil: FICCI

Courtesy:Mumbai, Aug 14 (PTI)
Ruling out any major impact of the ongoing crisis in the West on GDP growth, former RBI governor Yaga Venugopal Reddy has said the impasse is ''very fluid'' and it is too early to assess its effect on the domestic economy. 

Reddy, credited for firmly anchoring the domestic financial system and economy during the pre-crisis boom that helped the country tide over the 2008 disaster earlier than expected, said, "Though there will be some spill-over effect on our economy, it won't be that grave as our growth is primarily driven by domestic consumption."
Ruling out a recession in the short term, he said a slowdown in global economic growth was for sure in the mid-to medium-term.
"While the 2008 crisis was a revelation for everyone, the present crisis arising from the US downgrade by S&P and the lingering debt crisis in the Eurozone economies, is a realisation of the fact that the fundamental problems are still not rectified," Reddy told PTI over phone from Hyderabad.
However, he cautioned that it was too early to assess the development as the situation is too fluid now. Projecting an economic expansion of around 8 percent for the domestic economy, with a downward bias, he said to achieve that growth rate, our policy focus has to be fine-tuned at the earliest.
Whether there will be a flight of capital if the US economy slips into another recession in the wake of the last week's downgrade-from triple A to double A+-- Reddy said, "If there is excess liquidity in the US system, then we have a fair chance of getting more capital inflows. But if a serious slowdown kicks in, there could be volatility in the fund inflows" 
New Delhi, August 07, 2011
India's exports may get affected in the wake of a slowdown in major economies across the world led by the US, which saw its economy being downgraded by credit rating agencies, a leading industry forum said on Sunday. A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) in the aftermath of the US economic downgrade revealed that there would be a slip in the consumption demand overseas.
"A majority of the respondents feel that the current trend of high export growth will not be sustained in the months ahead. There is significant apprehension about the global economic recovery, which in turn is expected to impinge on consumption demand," said a statement from FICCI.
"The sovereign debt crisis in Euro zone, weakness in the US and moderation of economic activity in China may significantly affect the level of external demand. This could be detrimental to the recently gained momentum in India's exports performance as these economies are India's major trading partners," it added.
India has been reporting robust export growth in the current financial year. June figures showed a 46% rise in exports at $29 billion. For the quarter ended June 20, exports have risen 45.7% to $79 billion.
Therefore, the recent slowdown in key economies which are important export destinations for India, is not good news. Add to that the rising cost of credit because of incessant rate hikes by the Reserve Bank of India.
"The outlook for exports is also tempered on account of factors such as rising interest rates in India, rising raw material prices and rising cost of oil. The closure of the DEPB scheme by end September 2011 has also been cited as one of the factors that would undermine export growth going ahead," said FICCI.
DEPB is an incentive scheme for exporters.
The FICCI survey also projected that the US economy would grow by about 2.5% in 2011, which is lower than the IMF prediction of 2.8% as demand would remain weak from both consumers and businesses and because of a moderation in government spending.
The survey respondents also felt that the Euro area could grow by about 1.9% in 2011, but there would be disparities in the growth rates of individual economies in the Euro zone.
Western Europe is estimated to grow at a modest 1.5% in 2011, but with significant variability.
Germany, the Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) along with Benelux countries (Belgium, the Netherlands, and Luxembourg) are expected to perform at the higher end - above 2% - while the UK and France are likely to see growth in the range of 1.5-2% due to budget cuts and less exports.
Most of Southern Europe and Ireland are expected to see growth of less than one% or may even contract.
The lingering impact of tsunami, earthquake and the nuclear crisis is expected to lead to a contraction in the Japanese economy. Its growth rate is projected to fall to a negative 0.5 per cent in 2011.
With regard to China, the survey respondents opined that growth in 2011 would moderate only slightly to about 9.5% as the Chinese economy settles onto a gradually slowing growth trend.
  • INDIA-CANADA TRADE TIES
    Text Courtesy: SiliconIndia
TORONTO: India's route to boost its trade with the US lies through Canada, says a report here.
With a free US-India trade accord nowhere in sight, New Delhi should ink a Comprehensive Economic Partnership Agreement (CEPA) with Ottawa to get more access to the US market, says the report by the Toronto-based C.D. Howe Institute.

"For India, the strategic priority could be to gain greater access to the US market through Canada, given that a comprehensive US-India bilateral free trade agreement does not seem to be in the cards,'' says the report titled 'Does Canada Have an India Strategy? Why it Should and What Both Sides Can Gain from Comprehensive Talks.'

"A negotiation with Canada could be a second best route to this objective as a strategic signal of India's potential importance to the North American economies.''

With their bilateral trade picking up after a slew of accords signed in the past two years, India and Canada are negotiating CEPA to take their trade to $15 billion in the next four years.

Canada should "aim high in a deal with India,'' says study author Wendy Dobson, who is a professor at University of Toronto's Rotman School of Management.

"In the past seven years, in particular, India's economy has displayed increasing dynamism - indeed, measured at current exchange rates, Canada's and India's economies are about the same size (11th and 12th largest in the world, respectively), while on a purchasing power parity basis, India jumps to 4th and Canada drops to 14th,'' according to the report.

With this treaty inked, Canada can "take advantage of the efficiencies available from Indian information technology services providers, and to gain greater access to both the Indian and wider Asian markets using India as a platform for regional operations.''

While India is Canada's 15th largest trading partner, Canada ranks 33rd on India's list.

Currently, Canadian goods face 16 percent tariff in India while Indian goods face nine percent tariff in Canada.

But once the deal is signed and tariffs are eliminated, "each side could realize gains of between $6 billion and $15 billion,'' according to the report.