Indian Westerlies

Most of our trade is invoiced in Freely Convertible Currencies (FCC) such as Euro (around 8% of total), Pound (3%), Yen(0.5%) or USD ( 87%). In fact, to become eligible for benefits under our Foreign Trade Policy, one has to realize the export proceeds in FCC 'only', as per para 2.4 a of FTP (ignoring minor arrangements through Vostro/Nostro/ACU and Nepal/Bhutan trade) The questions are: why do we have this practise? Is it good? What if we tweak it and allow people to inovice  and realize the money in INR and let them avail the benefits of FTP. And what determines the invoicing currency in international trade to start with? Will traders rush to invoice in INR if they are allowed to? And so on.  We have this practice of invoicing/realizing in INR because our currency is not an international currency. Till we become fully convertible, it is not easy to be an international currency. Importers cannot (generally) ask the quote in INR as the exporters from abroad...

Can there be one 'simple' test for policymakers, that if applied to a trade policy measure, could come up with an answer that tells if the step is good or not? I tried to devise one and failed. However, I believe that one can spot a bad policy decision, after the policy gets implemented. I guess, that can be one of the tests. It's a personal view, but I believe the measure to give duty exemption on imported luxury cars in the name of Export Promotion is one such bad measure. The Foreign Trade Policy (FTP), under chapter 5, has a policy that's called Export Promotion Capital Goods (EPCG) scheme. EPCG is an excellent scheme by itself, as it is aimed at capacity building of the industry. You can read more about it  here  and  here . In short, one can import capital goods/machinery, without paying any duty on it, and export the manufactured items (ideally from that machine), over a given period of time in lieu of it. That helps the industry to climb up the technolo...

In this blog, my effort is to make a case for Agricultural exports from India. I will put across my views on why we need to focus more on this area, when compared to 'any' other area of exports. And why we must move beyond making noise about Cotton/Sugar and get serious with other agri commodities. As I will take my time to build up the case, the blog is split into two parts.  To start, the top 6 exports from India last year (April2011-March2012, you can see more details here ), with approximate values are:             EXPORT ITEMS                           VALUE              GROWTH                   GROWTH                                                      ...

And the customs pulls off a coup with this link . It is the import duty calculator.  http://www.icegate.gov.in/Webappl/ I must say, for once, CBEC is a rare body that I have come to respect.  With this, now you have all that you need to calculate your import duties upto 8 digit of HS code for any product that is being imported.  One has to enter the product code under CTH (Customs tariff head), and one can get all details of import duties that are levied on the product.  If you are unsure of your HS code upto 8 digits, you can key in just 2 digits (chapter heading) and it throws up a list from which you can select. I love the way they have incorporated the effect of notifications on the duty.  Neat stuff. Good work CBEC! It was sorely missed by trading community. In comparison to this, the new automated  ITC HS based policy of DGFT website looks like a joke! Tiru

There was an  article in firstpost today , which caught my attention. It talks about how Google chose to manufacture it's new streaming gadget, Nexus Q, in silicon valley of US and not in China or other East Asian countries. It was opposite to the thinking of other organizations, such as Apple, who primarily source from Asian countries.  The belief for many years, regarding the manufacturing of electronic goods, has been that East Asian countries have a comparative advantage in terms of labor cost. Initially, the trickle that started with Japan, Korea and Taiwan making some electronic devices, developed itself into an Electronics International Production Network deluge that enveloped China, Thailand and other East Asian countries. The Asian electronic network virtually rules the production chain of electronic components, save a very niche category, which for some security and technology reasons, is still with western nations. The network of production chains lead to spec...

There was an article in the Economic Times today, regarding India mulling about banning imports of second hand plant and machinery, basically capital goods. You can read the full article here.  It says: A panel headed by cabinet secretary AK Seth has decided to ban import of machinery more than five years old. "The big worry is that such imports would impact overall productivity and erode competitiveness of the manufacturing sector," said a government official privy to the development. The domestic capital goods industry says imports are partly responsible for the drop in output; a contention supported by government data that showed production of capital goods contracted 4.1% in 2011-12. and about the current situation of usage of such goods, it says: The usage of second-hand machinery is high in certain sectors. For instance, industry estimates show that use of second-hand shuttleless looms constitute about 80% of equipment purchases in the textiles sector. Wh...

The FTP annual supplement is out. It's 3 days since and your blogger was going through the details. It took time as the entire policy document and procedure handbook was revised and updated, and the annual supplement was incorporated into it. The two manuals ran into more than 300 pages. It was a good move, as there were hundreds of notifications and couple of annual supplements that had come since the last time the policy and procedure manuals were released. So, the manuals were to be read along-with these notifications and supplements. The new manuals are now up to date, and include the current annual supplement.  Now, the review about the latest annual supplement and views. You can read the official highlights here . The good points: You can read some good points from news sites here , here  and here .  Overall, the policy supplement was better than expected and is being welcomed by exporters and consultants. Additional incentives were annou...

Tomorrow, on June 5th, the honorable Minister of Commerce will unveil the annual supplement to the Foreign Trade Policy. I keep my fingers crossed and I pray for some creative measures to boost exports. I wonder what measures would I take if I was the chief consultant or something like that to the minister. To put things in perspective, the key points in current scenario while making the policy are: A merchandise trade deficit of more than 180 billion USD. An increasing gap between exports and imports year on year, with imports showing highly inelastic behavior.  A decreasing global demand for our exports, with no signs of turnaround anytime soon. The real/perceived policy paralysis and lack of confidence in the markets.  The threat of loss in employment if growth (including trade) suffers. The exchange rate that is deteriorating, which on surface, seems to be helping exporters, but makes the imports costlier putting further pressure on Current Account Deficit, which...

This blog has emphasized many times about the importance of establishing the linkages between exports performance to incentives provided by the Government. The urgency of this hit me when I went to a customs commissionerate on an attachment. The perspective on export incentives, when seen from the revenue angle, is different to, when seen from export promotion angle. The revenue collectors look at such schemes as a loss in revenue. During one such talk and presentation given by a senior customs official, the officer said that removal of DEPB scheme had no impact on exports. Upon prodding, he came up with numbers and showed that the exports had remained same, or increased in some areas, after the DEPB scheme was withdrawn. So, he concluded, DEPB had no impact on exports performance.  DEPB was an export incentive scheme launched with an intention of offsetting the duties incurred on the inputs that go into export products. Drawback is another such scheme, with similar intent o...

There was a problem with the reporting of merchandise exports data a few months ago. It was blamed  on computer crash. Commerce secretary retorted with a 'mistakes do happen' stuff. I personally never bought that line, knowing very well, that no 'crash' can do what had happened. A very well written piece, with scathing attack on the commerce secretary can be seen here . It is a must read for perspective on the issue. The magnitude of error is logically reasoned out below (from the article) and that's the key to lot of answers. It reads: "... Fourth , the real goof-up is not merely $9.4 billion, but much bigger. For example, the figures given out on Friday spoke of a $15 billion over-reporting of engineering exports, and a $12 billion underestimation in the case of petroleum and gems and jewellery. The net figure may be $9.4 billion, but what has really happened is a $27 billion error – since one error in engineering and another in petroleum and gems can...