News, leads and analysis related to India’s trade and all that’s happened on the policy front during the month of January 2016
India’s Foreign Policy - Change In Stance - Bringing Home More Friends And Some Big Bucks!
In 2015, PM Narendra Modi-led NDA government did its best to ensure removal of bottlenecks and easing of regulatory policies. To further position India as an improved, new-age destination for foreign investments, the Centre also announced a relaxation in FDI rules across 15 sectors like defence, real estate, banking, civil aviation, retail, broadcasting, etc. While in some cases the government increased the cap on FDI through the automatic route, in others, it permitted Indian companies (manufacturing in India) to sell their products through the e-commerce channel without the Centre’s approval. In a sign that Modi’s reforms are working, India also jumped four positions in the World Bank’s 2016 report on ‘Ease of Doing Business’. India was ranked 130th among 189 countries in terms of doing business, as compared to its 134th rank in the 2015 edition of the report. The improved ranking was on account of two major factors – ‘ease of starting a business’ and ‘getting electricity’. India also moved nine steps up from 164th last year to 155th this year in terms of ease of starting a business which was essentially attributed to the removal of a paid-in minimum capital requirement. Not only this, PM Modi’s numerous trips abroad turned out to be fruitful and brought in some big bucks for India. In fact, Modi’s trips are putting India in the limelight with USA, France and China backing India’s bid to get a permanent seat at the UN Security Council. It is to be noted that PM Modi wants to see India amongst the elite top-50 club of the ‘Doing Business’ ranking. While it is arguable if India will be able to leapfrog into the desired spot by 2019, it is for sure that government’s small steps in encouraging FDI and governance may fetch an improved position for the country in the 2017 report.
TRADE TIES
The two “bright spots” in world economy
India hosted the third India-Africa Forum Summit (IAFS) in New Delhi in late October last year. The event saw Indian government announcing a fresh concessional credit of $10 billion to Africa over the next five years. Earlier, during the first India-Africa Summit in 2008, India had committed $7.4 billion in concessional credit and $1.2 billion in grant for creating 100 capacity building institutions and developing infrastructure, public transport, clean energy, irrigation, agriculture and manufacturing capacity across Africa. During the 2015 event, PM Modi also offered an additional grant assistance of $600 million to Africa. Acknowledging the trade potential between India and Africa, Modi said that India is a major source of business investments in Africa and 34 African countries already enjoy duty-free access to the Indian market, adding that “African energy helps run the engine of the Indian economy; its resources are powering our industries; and, African prosperity offers growing markets for Indian products.” Now that’s what’s called a win-win situation!
TOURIST VISA ON ARRIVAL
Cultural exchanges for a change
India finally found one kind of inflow from China that it actually wanted. After Finance Minister Arun Jaitley’s announcement in the Union Budget 2015 that the government will add more countries to the list whose citizens are eligible for Tourist Visa on Arrival (TVoA), the Ministry of Tourism contemplated adding China to the list. Union Minister of Tourism, Dr. Mahesh Sharma said the government was exploring this possibility in order to boost its relations with China. A six-member Chinese delegation, led by Wang Zuoan, Minister of Religious Affairs of China went to Delhi in May to discuss the same. During the visit, the Chinese minister said the main focus of the delegation’s visit to India was to reinforce the cooperation between India and China, mainly in areas of Buddhist studies and cultural exchanges. In the meeting, both sides also agreed to jointly hold an exhibition on Xuang Zang (Hsuan Tsang) in India .
Impact on EXPORTS
Boon or bane?
Some may consider it ironic that the Foreign Trade Policy was released last year on April Fools’ Day. The Merchandise Exports from India Scheme (MEIS) replaced the Chapter 3 incentive schemes, and the Service Exports from India Scheme (SEIS) was added. Federation of Indian Export Organisations (FIEO) expressed concerns over the export incentives announced in the new Foreign Trade Policy (FTP) 2015-2020 and urged the government to review the benefits. FIEO President S. C. Ralhan said the incentives being given to the exports sector were less than 1% of India’s total exports, which is a ‘miniscule amount’. All said and done, the biggest kicker was that exports plummeted in the months that followed – exports in May fell by 20.19%, 21% in August, and 24% in September. Exports in October saw a 17.5% drop from around $26 billion in October 2014 to approximately $21 billion last year, following which additional incentives worth Rs.3,000 crore were given to exporters in order to boost subsidies, and addition of new countries to the list.
MONEY LAUNDERING
Skeletons tumbling out of closets!
The alleged Rs.6,172 crore funds fraud in Bank of Baroda (BoB) brought up the violations and irregularities of the anti-money laundering rules in the country. The BoB scam is about the alleged illegal remittance of about Rs.6,172 crore from one of the bank’s branches in New Delhi to Hong Kong using provisions such as pre-payment for imports of dry fruits, rice and pulses. The bank noticed a Rs.350 crore bill discounting irregularity, initiated an investigation into it, and alerted the government agencies. The case was referred to as trade-based money laundering, where accused traders evaded custom duties and taxes to generate slush funds, and the bank admitted that what the branch didn’t adhere to FEMA (Foreign Exchange Management act) norms. During the investigations the Enforcement Directorate (ED) unearthed another scam, where Rs.550 crore were transferred overseas through Oriental Bank of Commerce (OBC), Axis Bank, ICICI, IndusInd, Kotak Mahindra, DCB, Dhanalaxmi Bank and YES Bank. In early 2015, the ED had busted a scam of fraudulent foreign remittances worth Rs.15,000 crore, involving a number of sketchy importers who deposited fake bills of imports, the remittances of which were made to people outside India. The forex scam once again raised concerns on how Indian banks are not paying enough attention to check violation of anti-money laundering rules.
CLEAN ENERGY ALLIANCE
For a greener future
PM Narendra Modi and French President François Hollande joined hands last November to create an international solar alliance, aimed at bringing inexpensive and clean energy to everyone. The launch of the alliance was at the same time as the talks just outside of Paris on climate change, where world leaders came together to strike a deal in order to move towards use of renewable energy sources and deviate from increased dependence on fossil fuels. The United Nations expressed its interest in joining the alliance as a founding member. As part of PM Modi’s drive for use of clean energy, India will be looking at collaborating with other nations to provide solar energy to people across India. As per Ministry of New & Renewable Energy, India aims to achieve its target of 1400 MW of solar energy in FY2016, out of which 872.22 MW had been achieved by October 2015. Cumulative achievement till date stands at 4,579.24 MW. A tentative renewable power target of 99,533 MW of solar energy has been set to be achieved by 2022. Additionally, Ratan Tata, Mukesh Ambani and Bill Gates came together to announce the Energy Breakthrough Coalition. The coalition involves 28 investors coming together to create affordable and reliable clean energy power sources to help replace fossil fuels. The coalition was announced just before the climate summit in Paris, along with the International Solar Alliance and Mission Innovation.
DEPRECIATION
Hitting rock bottom
2015 was not a very good year for the currencies of emerging economies. After the devaluation of yuan, the rupee hit a two-year low against the dollar. In early December, the rupee was at 66.84 against a dollar; a result of the continuous demand from banks and importers for the dollar. Expectations that the Federal Reserve was going to increase interest rates for the first time in almost a decade fuelled this drop, in addition to domestic equities being highly unstable. Seeing the alarming rate, the Reserve Bank of India (RBI) said it would consider intervening in exchange-traded currency derivatives (ETCD) markets, if the need arises. RBI has intervened whenever there has been volatility. RBI has ensured that the rupee does not cross the 67 rupee mark for now, but it has been speculated that the rupee will weaken to perhaps between the 68-70 rupee mark this year.
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