A slide in the Rupee doesn't make sense
Just why is Indian Rupee Asia's worst-performing currency in 2018 -- where investors are compelled to withdraw money as if spooked by coming events? It is bizarre and not easy to answer. Just look at recent macroeconomic data: Q1 GDP is up at 8.2%, exports are up 19%, imports a little higher at 24% due to high oil prices (which is understandable), inflation is falling or under check (which is counter-intuitive), and RBI has moved aggressively on interest rates. It is not a problem of fiscal deficits (which are on a downward trajectory) nor of external events which have no reason to impact India disproportionately.
Agriculture and manufacturing are performing exceeding well. Tax revenues are going up and tax rates coming down. Banks are infused with new capital and resolving old NPAs. The private sector is finally investing after a considerable hiatus. And as per this article, the financial stability measured by Damocles Index is "rock solid" for India (see diagram & notes).
No harm done
It may come under the realms of currency manipulation, but as things are turning out, it is only a loss to the manipulators. For example, RBI has not burned through the foreign exchange. Regards discontent and disaffection about high fuel prices and what not, Govt has stated it will not budge on fuel duties.
Note: Damocles Index is an early warning system for detecting financial crisis in emerging countries. Zero is most stable (eg Thailand, Mexico and Poland in 2004) and 100 or more indicates a crisis. If it exceeds 150, then the situation has become critical. Latest ratings by Nomura has India at 25 which is rock solid (see diagram).
https://www.pgurus.com/damocles-index-shows-rupee-as-being-strong-and-yet/
Just why is Indian Rupee Asia's worst-performing currency in 2018 -- where investors are compelled to withdraw money as if spooked by coming events? It is bizarre and not easy to answer. Just look at recent macroeconomic data: Q1 GDP is up at 8.2%, exports are up 19%, imports a little higher at 24% due to high oil prices (which is understandable), inflation is falling or under check (which is counter-intuitive), and RBI has moved aggressively on interest rates. It is not a problem of fiscal deficits (which are on a downward trajectory) nor of external events which have no reason to impact India disproportionately.
Agriculture and manufacturing are performing exceeding well. Tax revenues are going up and tax rates coming down. Banks are infused with new capital and resolving old NPAs. The private sector is finally investing after a considerable hiatus. And as per this article, the financial stability measured by Damocles Index is "rock solid" for India (see diagram & notes).
No harm done
It may come under the realms of currency manipulation, but as things are turning out, it is only a loss to the manipulators. For example, RBI has not burned through the foreign exchange. Regards discontent and disaffection about high fuel prices and what not, Govt has stated it will not budge on fuel duties.
Note: Damocles Index is an early warning system for detecting financial crisis in emerging countries. Zero is most stable (eg Thailand, Mexico and Poland in 2004) and 100 or more indicates a crisis. If it exceeds 150, then the situation has become critical. Latest ratings by Nomura has India at 25 which is rock solid (see diagram).
https://www.pgurus.com/damocles-index-shows-rupee-as-being-strong-and-yet/
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- Despite the often fractious political relations, India’s trade with its neighbours has surged in recent years. Whilst India has seen its exports rise, so have the exports from Bangladesh, Bhutan and Nepal into India. The latter will increase hydropower exports in the future.
India, though 2nd to China, will consolidate its strength in Bangladesh's imports across the board. It is breaking through in energy exports (eg oil & electricity) & project exports, which is aided by low-cost finance. Srilanka and Myanmar have done the worst at exporting to India.
Protectionism by Bangladesh & Sri Lanka is hampering their export growth
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According to WB, India's neighbours failed to grow exports to India, because of poor trade facilitation (ie effective trading mechanisms like certification) -- which in turn led to their failure to attract inward FDIs, that would have helped to increase access & reduced prices of inputs, and so increase their competitiveness. Post GST, India has become more open to trade.
FTA (free trade agreement) has not worked as expected, mainly due to misguided protectionism. Non-trade barriers are not an issue, rather the capacity for setting & meeting trading standards (eg proper certification). Also, there is a lack of mutual trust between the South Asian nations.
TARIFFS
-- India is helping Bangladesh (& starting to with SL) to build up these capacities.
-- Bangladesh has not liberalised its economy but also has not benefited from India's duty-free and lowered tariffs (see FDIs)
-- "Para-tariff" is a peculiar South Asian problem, with main culprits being Bangladesh, SL & Pakistan. These tariffs double the average nominal tariffs to 20+%.
-- India also had para-tariffs (at lower levels) in the pre-GST regime.
-- In effect, the tariffs in SA block are 13.5% or double the tariffs with the rest of the world!!
FDIs
WB suggests that without FDIs it is not possible to optimise and benefit from SAFTA. India's outbound FDI to Bangladesh is just $ 1/2 billion, but this is because the lack of trade means investments in value chains do not happen. In other words, as it is problematic to access inputs from India so India firms don't invest in assembly factories in Bangladesh. Had it worked optimally, part of the output could have been exported to India.
Formation of SAFTA in 2012 should have boosted bilateral trade. In fact, India has followed the predictions (ie benefited by 120% growth in exports to Bangladesh) but Bangladesh has failed, as it added just 17% more exports to India.
India emphasises connectivity & with its competitiveness. Because of this, it has reaped huge benefits. Bangladesh is not competitive as it has locked itself out of accessing inputs at a lower cost due to not implementing FTA.
https://www.thehindubusinessline.com/news/world/bangladesh-sri-lanka-must-shun-protectionism-to-attract-fdi-shore-up-exports-to-india-world-bank/article25041596.ece
REPLY 14w - Implementation of an export strategy
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“Our exports have grown every month, over the last 25 months, except for one month,” says the Commerce Secretary.
Exports that increased by 10% in 2017-18 (to 303.5b), are expected to top $351b this year. They have in fact risen 16% from April to August 2018, despite the difficult global environment.
A comprehensive export strategy is in place, and this is being added to through weekly consultations with exporters from various sectors. But an important change is that it is now being implemented in a more forthright manner. This translates to an effective policy of incentives, promotions and facilitations.
REPLY 14w - A comprehensive e-commerce policy is in the offing. In the meantime, e-commerce policy is being added to, based on suggestions from a panel of secretaries. Action is also being taken. Alternative payments mechanism with Iran & Russia, should limit the fallout from US sanctions.
REPLY 25w - Helping Exports by not levying refundable GST
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E-wallet scheme is meant to defer GST that is refundable in the hands of exporters. Thus, exporters will avoid having to park funds with tax office. But as implementation is taking time, govt has extended transitional help (ie. not liable to pay GST at all) that it had offered earlier.
To boost dedicated exporters including IT units, govt has extended the exemption for not paying IGST & compensation cess to March 2019.
With the introduction of GST, imports to EoUs & STPIs (ie export orientated units) attracted an immediate tax but the relief does not happen until exports are realised. To mitigate this problem govt had exempted GST for a short period. Govt had mooted an e-wallet scheme (a form of tax deferment) but due to delay, the transitional relief had to be extended.
REPLY 25w - Exporters plead for lower logistic costs
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High cost of logistics is a major problem for Indian exporters. Exporters certainly have a point, as decades of muddled thinking by Centre & State govts has put India far behind its competitors.
Centre is remedying the problems in every which way, though it may disappoint in its implementation. However, States play a crucial role and need to actively support the logistics effort - be it in investments, providing land, reducing the cost of logistics, or creating the right environment for delivering first-class services.
India’s logistics and transportation costs are pegged at 14.4% of the GDP as against 8% of GDP in China. For example, the cost of export in India stood at $1,332 per container. This compares very unfavourably to Indonesia ($572) & Malaysia ($525).
A study by Federation of Indian Export Organisations (FIEO) and Confederation of Indian Industry (CII), cited 3 issues:
1. Inefficient freight movement (eg delays, transfers, labour problems, etc)
2. Long time taken by trucks
3. Not too many good alternatives for road transportation. Rail freight is over-priced.
It was not just direct transport costs, but indirect costs caused by undependable transportation and delays, which contributed to 38-47% of total logistics costs. Unreliable lead times hurt the customers or distributors abroad, who will be reluctant to take on Indian sourcing partners and demerit the product versus the competitors.
THOUGHTS
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Exporters want multimodal hubs and fast roads, eg city bypasses/ ring roads, expressways, more direct roads. In particular, they want multimodal hubs near their facility (esp textile factories). This can be done through Bharatmala plus Industrial corridor development. Speedy completion of dedicated freight corridors, Sagarmala (eg port connectivity) and airports will help. Lastly, these can help:
1) Higher axle weight permitted for trucks, as per global norms
2) FASTag electronic toll collection & more equitable charges. Minimal contact with law enforcement agencies which end in harassment and demand for bribes.
3) Lower rail freight rates, special freight wagons, timetabling & direct port-rail connectivity.
4) Global standards of port performances.
Logistics division in the Ministry of Commerce is attempting to improve the logistics bottlenecks at the State level, see below:
Ranking States to improve outcomes--------------------------------------------------
Logistics ranking of States (under "Logistics Ease across Different States") will help states to focus on logistics weaknesses to get better industrial growth. This is because all chosen parameters impact on trade competitiveness.
Role played by Centre
NITI Aayog will work with states to optimise their investments. Commerce ministry will support the export drive of states. Centre has already improved its Global ranking in World Bank's Logistics Performance Index (54 to 35th in 2016). It has many logistics projects under planning and construction:
¶ Transport infra (eg. rail, road, waterways, airports, ports)
¶ Integration of logistics (eg industrial parks, multi-modal logistics hubs, dry ports, warehousing, cold chains, port connectivity);
¶ Infra status to reduce the cost of finance.
LEADS has 8 categories (modelled on LPI) :
1) infrastructure 6) safety of cargo
2) services 7) operating environment
3) timeliness 8) regulatory process
4) track and trace
5) competitiveness of pricing
Inadequacies (states were under-par, inefficient by report)
♦ Not enough done for scaling up infra, automation, technologies, human capabilities
♦ Bottlenecks like inadequate terminal capacity or poor last mile connectivity
♦ Labour unions are a problem for WB, Kerala, Maha and HP.
Areas of Improvement (many improvements identified)
♦ Capacity on a bigger scale
♦ New transport infra & multi-modal logistics
♦ Modernisation of transport fleet and logistics infra
♦ Standardisation across the board
♦ Regulatory infrastructure
https://plus.google.com/100789863972538583352/posts/Qma7wnhaYVH
REPLY 25w
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