Indian Westerlies

As 2025 begins, global trade faces mounting challenges. After decades of rapid expansion, the growth of international commerce has slowed dramatically. Between 2003 and 2008, total global trade in goods and services doubled from $10 trillion to $20 trillion, but reaching $30 trillion has taken more than 13 years, with little significant movement since. The world export-to-GDP ratio, which first hit 30% in 2008, hovered below that level for much of the following years, briefly touching it again in 2022 before slipping once more—signalling a long-term plateau.  Fig: Exports (goods+services) to GDP ratio, %. Data: Worldbank Meanwhile, U.S. President-elect Donald Trump is preparing tariffs against nations he claims misuse subsidies and high tariffs—China is the prime target, with allies like Canada and Mexico also on notice. His branding of India as a "tariff king" raises the spectre of potential actions against Indian trade. Against this backdrop, India must navigate a world wh...

(This post originally appeared at Swarajya magazine here )  During the 1990s, computing faced a unique ‘ memory wall problem ’ due to increasing processor clock speeds but relatively slow memory speeds. While processor speeds increased at 50% year on year (Moore’s law) memory speeds increased only by 10%. Imagine a talented and quick chef bogged down by a slow assistant, who takes longer than usual to fetch ingredients from the pantry. The solution was found by using a ‘cache’, a smaller but faster memory placed nearer to the processor, thus avoiding multiple trips to the larger and slower main memory. This was like the chef getting a shelf that stocked all recently used or frequently used ingredients closer to his table. Today we have multiple caches at multiple levels in any given computer. Similar problem of earth-size arose when digital contents were to be served to multiple users across the globe. Imagine Netflix maintaining data centers only at US and trying to service the us...

Government has tweaked the existing scheme of manufacturing under bond at bonded warehouses (Section 58 to 65 of Customs Act) and has come up with a 'Bonded Manufacturing Scheme' which might revolutionise the way manufacturing units are organised among domestic tariff areas, Free Trade and Warehousing Zones, Export oriented units (EOUs) and Special Economic Zones (SEZs). The relevant customs notification (69/2019) on Manufacture and other operations at Warehouse Regulations 2019 is at this link . Invest India (an arm of government that encourages investments in India through realtime assistance to entities to set up business) maintains a dedicated website for information dissemination on this topic at this link  and the FAQs are hosted  here . Relevant Customs Circular (34/2019) that outlines the regulatory procedural details is at this link . Bonded manufacturing scheme overview - [from Invest India's Bonded manufacturing website] The salient part of this scheme...

A common argument of free trade supporters runs this way: Tariffs create barriers to movement of goods - India has high tariffs on various goods  Global Value Chains(GVCs) operate better with low barriers for movement of goods Therefore high tariffs are responsible for India's lack of integration into various GVCs In principle the argument is correct.  For a graduate student who has completed a course on International Economics, the above argument is obvious. This belief carries over to the practising economists, and journalists who consult the economists. That's why we read a lot of criticism of the government when tariffs are raised - as they lead to breaking away from GVCs, or rather in India's case, not getting integrated into them. A simple case where a duty of 10% is levied every time a component crosses the border in the journey through the value chain, where a value addition of 30% takes place at each step, leads to a situation where the prices build up ...

Do business reforms lead to better export performance? Are there any other measure(s) that correlate with export performance by Indian states? We can measure merchandise export performance of states against Ease of Doing Business and also against the Logistics Ease Across Different States (LEADS) index for some preliminary understanding of the matter in Indian context. India has a Business Reforms score  that measures the individual states in terms of ease of doing business, on similar lines as that of World Bank's (WB) Ease of Doing Business (EoDB). This is to help identify the reforms required to make doing business easier. The score card - let's call it EoDB for the sake of the simplicity - is maintained for all states and union territories of India. LEADS index is relatively new. It has been created on the lines of World Bank's logistics performance index and covers various states and union territories of India. The 2018 report prepared by Deloitte for ministry of ...

Under the existing system of trade and indirect taxation prevailing in textile and garment sector, does it makes more sense for a Bangalore stockist of apparels to import from Dhaka in Bangladesh over buying from Ranchi? Here's the self explanatory calculation. Assumptions: Bangladesh usually sources fabric from China while an Indian supplier sources fabric from an Indian supplier based in Gujarat/other states. I shall assume that the price at the factory gate of fabric manufacturer for both Chinese and Indian fabric is same - usually Chinese fabric is cheaper. The transportation cost from China to Bangladesh is same as that from Gujarat/other states to Ranchi - usually Chinese transport cost would be smaller. I shall also assume, for sake of simplicity that labor cost in Bangladesh is same as that in Ranchi, while a ballpark analysis tells that Bangla labor is cheaper by 40% over Indian labor. (Excel online may take some time to load the table below - I shall be thankf...

On 2nd November 2018, the Prime Minister of India launched schemes for Micro, Small and Medium Enterprises (MSMEs) which he termed as the Diwali gift for the hard working honest entrepreneurs of India. It was termed 'Support and Outreach' initiative for MSMEs. The initiative was launched for 100 districts to be continued for 100 days.  MSMEs are important for the growth story of India. There is no certain way to measure the number of MSMEs. The numbers given out by various agencies varies from 60 million units (CII) of operational MSMEs to 120 million units (NSSO). They are supposed to contribute around 7% to the GDP through manufacturing activities (share of manufacturing in GDP is around 26% in India), and 25% to GDP through services (share of services in GDP is around 58%).  MSMEs contribute around 40 to 45% in total exports from India based on various reports. This number too has unsure origins. Nevertheless, even with the data inaccuracies, there is no doubt that MS...

How do you stop the President from tearing up a trade deal. As per Bob Woodward in his new book Fear:Trump in White House, by simply pulling out the signing paper from the desk. The President simply forgot that he had to unsign the NAFTA deal, or rather sign a NAFTA withdrawal (someone please do that for RCEP in India). While the deal break never happened (or engineered to not happen), the revised onerous negotiations on NAFTA wound their way to give the world a glimpse of what makes the US President happy when it comes to trade deals. Mexico has hammered out a deal that's acceptable to the US President. And going by the look of it, Trump loves trophies. He got his wall sponsored. Well almost. Canadians are still thinking, and bargaining.  One can understand the Canadian negotiators' dilemma. There's noting on the table for Canadians if they sign. But if they don't, they have things to lose in trade and economic growth. US is their biggest trade partner with more ...

(This post was originally published at the Hindu Business line here ) A belief in weak Rupee A common belief while the Rupee depreciates against USD is that it would help our exports. This ‘weak rupee shall help exports’ is shown as a positive over various negatives arising out of falling Rupee. There is great attractiveness in the argument supported by textbook economics. Undervalued or depreciated currency acts as a direct subsidy for exports while acting as a punitive tax on imports. China used the undervaluation of currency as an effective international trade tool for decades. The undervaluation doesn’t fall foul with the regional or multilateral agreements in the way export subsidies do. However, given India’s situation, it is doubtful if we can have a conscious control on the level of Rupee anymore in light of the central bank’s mandate getting anchored to inflation control. Till some time ago there were calls to depreciate the rupee through direct intervention to help...

The headline in the business standard reads : " India must grow at 18% to ensure jobs to growing workforce: World Bank ".   The article is based on the recent world bank report titled " Jobless Growth " under the south  Asia  economic focus series.  One  would  agree that 18%  growth  for a country of our size is not attainable . That being so, the headline implies that World Bank is saying that India cannot secure jobs to its  growing   workforce . Gloomy picture indeed. There is an element of certainty about the nice round number 18 which misleads a lay reader.  It is not so if one reads the actual report. The actual report has pushed in enough caveats to survive any close scrutiny about the number 18. The problem is, the report presents things in a way  that   make  newspapers pick up such headlines. That's a danger that any report writer should be wary about, and should factor in while  presenting ...