Markets cheer hike in iron ore export duty

Mumbai: Shares of six steel product makers rose on the Bombay Stock Exchange on Tuesday after the government increased export duty on iron ore lumps to 10% from the earlier 5% and imposed a 5% export tax on iron ore fines.

Shares of Ispat Industries closed 7.75% above the previous close (Thursday last week, since the markets remained closed on Friday, December 25, and Monday), JSL Ltd was up 4.78 %, Bhushan Steel 1.77 %, Tata Steel 1.02%, SAIL 0.46 %, and JSW Steel 0.08 %.

The government’s move is being seen as a small victory for domestic steel makers who were expecting a rise in iron ore prices. India is the world’s biggest producer of iron-ore and is also one of the biggest exporters of the ore, especially to China.

According to JP Morgan, Asia Pacific equity research report, “Indian iron ore export prices are more a function of China’s demand supply dynamics than India's cost structure and hence, the ability of Indian iron ore exporters being able to pass on the export tax should be a function of China's demand.” “The export taxes could modestly lower costs for the DRI-steel producers. However the March quarter tends to be the strongest quarter demand-wise for the long steel producers,” the report added.

Of the country's total iron-ore output which is estimated at over 200 million tonne, India exports around 95-100 million tonne per year, mainly in the form of fines and lumps. Nearly 80% of India's iron ore exports go to China and the balance to South Korea and Japan.

As per the latest data for the current financial year, Indian iron ore exports for the 7-month period (April to October 2009) increased by 21% in volume terms year-on-year to 53 million tonne, mainly on account of China.

Steel players have already started hiking steel prices, considering a rise in raw material prices of iron ore and coking coal. Tata Steel and state run Steel Authority of India Ltd have already hiked the long product prices by Rs 1,500 to Rs 2,000 per tonne. Others, including Ispat industries, JSW Steel, Essar Steel and Bhushan Steel are considering a price hike from January. The raw material negotiations will start in January next year and the new contract price of iron ore is expected to be about 10-25% higher than the last year.

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India’s Exports Climb for First Time in 14 Months

Dec. 15 (Bloomberg) -- India’s exports climbed for the first time in 14 months as an economic recovery in the U.S. and Europe increased demand for the South Asian nation’s products before Christmas.

Overseas shipments rose 18 percent to $13.3 billion in November from a year earlier after sliding an average 21 percent per month since October 2008, according to data provided by the trade ministry.

Asian economies from China to Singapore are recovering from the worst global recession since the 1930s as record-low interest rates and more than $2 trillion in government stimulus helped revive demand. China’s exports fell 1.2 percent in November, the smallest drop in 13 months.

“The revival in India’s biggest markets and building of stocks before Christmas could be the reasons for a sharp surge in exports,” said D. H. Pai Panandiker, president of RPG Foundation, an economic policy group in New Delhi.

Accelerating export growth may boost production at companies and help with a faster revival in Asia’s third-biggest economy, which expanded 7.9 percent in the three months to Sept. 30 from a year earlier, the quickest pace in six quarters.

Overseas sales of gems and jewelry rose to $2.15 billion in November from a year earlier, while those of readymade garments rose to $727 million from $686 million. Shipments of petroleum products rose to $2.46 billion.

Some export segments have started showing growth and the nation’s overseas sales may see a steady positive trend by January, Trade Secretary Rahul Khullar told reporters in New Delhi today.

Low Base

“It’s too early to say we are out of the woods,” RPG’s Panandiker said. “A rise in the rupee is another negative factor, hurting exporters’ earnings.”

The rupee has strengthened 4.4 percent this year as foreign funds purchased $17 billion more Indian stocks than they sold, approaching the record $17.2 billion of net inflows in 2007. The benchmark Bombay Stock Exchange Sensitive Index has risen 75 percent, headed for the best year since 1991.

Exports may have jumped in November because of their low base in the same month last year when shipments slid almost 20 percent to $11.6 billion, Khullar said. “There is no need to go hoopla over these numbers,” he said.

The U.S. returned to growth in the third quarter after a yearlong contraction and France, Germany and Japan have exited their recessions. The U.S. economy, India’s second-biggest export market, expanded 2.8 percent in the July-September quarter.

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Duty Drawback and Entitlement schemes are incentives: SC

The Supreme Court has said profits derived from the Duty Entitlement Passbook Scheme and the Duty Drawback Scheme are incentives and cannot be termed as profits from business to claim income tax deductions.

A bench headed by Justice S H Kapadia dismissed a batch of petitions filed by various firms and held that the duty drawback receipt/DEPB benefits are incentives that flow from government schemes and the Customs Act, and therefore are not profits derived from the eligible business under Section 80-IB of the Income-tax Act, 1961.

"In our view, DEPB/Duty Drawback are incentives which flow from the schemes framed by the Central government or from Section 75 of the Customs Act 1962, hence incentive profits are not profits derived from the eligible business under Section 80-IB. They belong to the category of ancillary profits of such undertakings," the court said.

Stating that DEPB was an "export incentive," the bench said it was given under the Duty Exemption Remission Scheme and to neutralise the customs duty payment on the import content of export product and the neutralisation was provided for by credit to customs duty against export product.

"We are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Schemes framed by the Governmnet of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression 'profits derived from industrial undertaking' in Section 80-IB," Justice Kapadia writing the judgement for the Bench stated.

According to Justice Kapadia, duty drawback, DEPB benefits, rebates, etc cannot be credited against the cost of manufacturing of goods debited in the Profit & Loss account for purposes of Section 80 IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking.

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New FTP sets $ 200 billion export target

NEW DELHI: Exporters, especially those from labour-intensive sectors such as textiles, gems & jewellery, marine, handloom and leather, have

been handed yet another basket of incentives to increase their competitiveness in the shrinking world market.

The foreign trade policy (FTP), announced by commerce and industry minister Anand Sharma on Thursday, seeks to help exporters establish a stronger foothold in existing markets, make inroads into new markets, upgrade technology through cheaper imports of capital goods, and reduce transaction costs and time through e-filing and lowering of application fees.

The policy—which has set a export target of $200 billion for 2010-11 and talks about doubling exports by 2014—also attempted to build a more stable policy environment by extending a number of existing schemes, including the popular import duty reimbursement (DEPB) scheme and enhanced export credit guarantee cover (ECGC), till the end of the fiscal and beyond.

The incentive package, which follows a number of sops already given in the Union Budget announced earlier this year, however, did not manage to please all. While some exporters contacted by ET welcomed the sops, others felt that the incentives were too little and limited to help make much of a difference on the global front.

“Given the limited incentives provided in the package, it will be very difficult to meet the existing export target of $168 billion. The government should have given more support,” said Rakesh Shah from the engineering export promotion council (EEPC).

Delhi Exporters Association president SP Agarwal said the policy does not live up to exporters’ expectations and will not contribute to stemming the fall in exports. “We have been told time and again that exporters will not have to export taxes. However, nothing was announced in this policy to address issues such as reimbursement of input taxes charged by states and also refund of VAT,” Mr Agarwal said.

Fieo, the umbrella body representing a number of export organisations was, however, more appreciative. “The new policy rightly puts emphasis on market diversification as our traditional exports have been hit badly due to concentration in the US and EU regions. The introduction of zero-duty capital goods scheme will add to expansion and modernisation of the production base,“ Fieo president A Sakthivel said.

Falling in step with competing countries like China, Bangladesh and Pakistan that have recently increased export incentives, the FTP provides higher support for market and product diversification by increasing incentives under focus market and focus product schemes—two independent schemes giving direct incentives to export of select products and to select countries.

The focus market scheme has been extended to 26 new markets, which includes 16 in Latin America and 10 in Asia-Oceania. The government also introduced a new market-linked focus product scheme where incentives will be given to export of select items to 13 identified markets like Egypt, Kenya, Nigeria, South Africa, Tanzania, Australia and New Zealand.

The policy also sought to ensure that dollar credit needs of exporters are met in a timely manner by setting up a committee, including finance secretary, commerce secretary and the Indian Banks Association (IBA) to monitor credit flow.

To help the industry upgrade technology, the policy introduced a scheme for importing capital goods at zero duty for identified sectors like engineering, chemicals, electronic products, pharmaceuticals, textiles, handicrafts, plastics and leather and leather products, subject to an obligation to carry out specified amount of exports. The existing export promotion capital goods (EPCG) scheme allows import of machinery at 3% duty against an export obligation.

Status holding exporters—whose exports are over and above specified levels—will be allowed additional duty credit scrips for import of capital goods for personal use at lower import duties. The discount will be equivalent to 1% of the exports made in the previous year.

The government has also announced continuation of the DEPB scheme beyond December 31, 2009, to December 31, 2010, and the enhanced ECGC cover till March 2010. The extension will help exporters in taking pricing decisions over an extended period of time.

A number of specific sops have been extended to labour-intensive industries such as gems & jewellery, marine, leather and the handloom sectors, which have received the most severe battering due to the global economic crisis.

The FTP has also sought to reduce transaction costs (which account for 5%-7% of total value of exports) and time by introducing a time frame for complete electronic networking of various export related agencies and reducing fees for authorisations and licence applications.

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Drugmakers criticise Mashelkar committee's report

NEW DELHI: The commerce ministry’s decision to accept the Mashelkar committee’s revised report that recommends not to restrict patenting to new

drugs has come in for strong criticism from health activists and some generic drugmakers even as patent experts supported the move that’s in line with international norms.

Earlier this month, the ministry accepted the controversial report, first released in 2007 but withdrawn over allegations of plagiarism and technical flaws.

The conclusion of the study however remains the same, recommended that granting patents only to new drugs will be a violation of the TRIPS, or Agreement on Trade Related Aspects of Intellectual Property Rights, that sets minimum standards for intellectual property regulations under the World Trade Organisation (WTO).

The adoption of the Mashelkar committee report means that India will continue to allow patent on incremental innovation under Section 3(d) of the Indian Patent Act, if it provides enhanced therapeutic efficacy.

Health activists have been seeking a ban on this provision, saying multinational drugmakers use it to extend patents for drugs by making minor innovations and, thus, blocking competition from low-cost drugmakers. This process is known as evergreening of patents.

“The government’s move may restrict global supply of cheaper medi-cine,” said Leena Menghaney, India project manager of Medicine sans Frontiers, a global social organization lobbying for easier access to es-sential medicine, as multinationals will use evergreening to extend their market exclusivity by decades. “India should progressively move towards stricter patent law to ensure that only a completely new drug is granted patent, which is possible under TRIPS,” she added.

“The commerce ministry has accepted the recommendations of the Mashelkar Committee without any debate or discussion with the domestic industry,” said B K Keayla of National Working Group on Patent Laws.

The Mashelkar committee was set up mainly to examine whether it would violate provisions of TRIPS if India restricted the grant of patents to only new chemical entities (NCEs).

But, Shamnad Basher, professor of intellectual property law at the National University of Juridical Sciences (Kolkata), supported the committee’s view. “Limiting patents only to new drugs would violate Article 27 of TRIPS, which mandates that patents shall be granted without discrimination to all inventions in all fields of technology,” he said.

It’s a major setback for the industry, said Amar Lulla, joint managing director of generic drugmaker Cipla, which is challenging the most number of patents in India.

If patents were to be granted only for new drugs, it would have fur-ther squeezed the scope of getting patents under the country’s laws, which is already one of the strictest in the world.

Another Delhi-based patent lawyer Pratibha Singh says the actual impact will be clearer if the government brings any amendment in the existing laws.

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Asean FTA can be reviewed to protect farm interest: Antony

NEW DELHI: With Congress’ rivals stepping up attack on the government for signing free trade agreement (FTA) with Association of South East Asian

Nations (Asean), defence minister AK Antony on Tuesday promised to take corrective measures to insulate the agricultural sector.

“If there are shortcomings in the agreement, the group of ministers will recommend corrective measures,” reports from Kochi quoting the minister said.

The Cabinet sub-group, set up to study the impact of the FTA on the agricultural sector, is headed by finance minister Pranab Mukherjee and includes overseas Indian affairs minister Vayalar Ravi and Mr Antony. “This committee will hold talks with the state government and all other parties concerned,” Mr Antony said. “By 2020, we would be able to overcome all shortcomings with the proposed government help,” he added.

There was stiff resistance in the Cabinet over signing the treaty and Mr Antony himself had advocated caution. This opposition had prompted the prime minister to constitute a GoM.

Congress’ opponents have been using the issue to question the government’s commitment to farmers. “The Congress-led UPA has let down the people of this country and, more importantly, the farmers, who are the backbone of our economy, by signing the FTA. It will allow zero duty imports of items from January 1 next year into the country. Within the next four years 70% of imports from Asean will be without import duties and they will account for over 50% of India’s annual import bill. The farmers will be the key sufferers since the Asean countries have a comparative advantage in producing farm crops such as rice, palm oil and other plantation products,” Samajwadi Party general secretary Amar Singh said in a letter to the prime minister.

The SP leader also said the FTA would only make matters worse for the Indian farmer. “Indian exports are contracting (growing by minus 50%) at the moment. Global markets are disappearing. At the same time, India’s domestic demand is doing very well and is therefore bound to be a target of cheap imports. A commerce ministry note has warned that the increased market access for India will be 20% while it will be 75% for Asean. Clearly, the deal is loaded against India,” Mr Singh said. The SP leader said the prime minister or the government have not bothered to take Parliament into confidence.

“This is despite the fact that several Congress ministers raised objections in the Cabinet meeting called to approve the deal. The prime minister has failed the nation yet again by showing that the rest of the world is more important than India, and this deal was signed just 8 days before India’s 63rd Independence Day,” Mr Singh wrote in his letter to the prime minister.

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Foreign Trade Policy will be announced on August 27

The five-year Foreign Trade Policy (FTP), to be unveiled on August 27, is expected to give incentives to Indian exporters to widen their global markets beyond the US, EU and Japan in the face of the economic crisis in these key destinations.

Commerce and Industry Minister Anand Sharma, who apprised Finance Minister Pranab Mukherjee today about the difficulties being faced by exporters, said: “We will surely look at market expansion because if the diversion and expansion of market is not there, we will not be able to respond to this challenge.”

Talking to reporters after his meeting with Mukherjee, Sharma said the government could extend support but would not be in a position to generate demand in the western economies, which are contracting.

India’s exports are on a downslide since October 2008 and the average contraction has been around 30 per cent over the past nine months. The country’s exports were about $169 billion in fiscal 2008-09.

Sharma indicated that the policy, which outlines the priority sectors as also the sops, would be focused on employment-generating areas like textiles, leather, gems and jewellery, and handicrafts.

These sectors are having a torrid time over the past nine months, as their demand dried significantly in the US and the EU.

Sharma said the policy would ensure that the exporting sectors not only sustain themselves in these difficult times, but also expand into new geographies. It will also ensure that “labour-intensive (sectors) are given special consideration”, he said.

This will be the UPA government’s first FTP in its second term. Earlier, there was uncertainty whether the policy should be long-term or for a single year. However, it will set a five-year road map for exporters.

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Russia lifts ban on Indian seafood imports

The Russian government has allowed 46 Indian seafood companies to re-start their exports to the country in lieu with the signing of a protocol between India and Russia. Chairperson of Marine Products Export Development Authority (MPEDA) had recently visited Russia and sorted out the various issues pertaining to exports to that country.

Russia had banned import from India during June this year, and later lifted the ban due to the initiatives made by the chairperson of MPEDA.

In order to enhance import from India a delegation from Russia had visited India in December last year. Russia had insisted to sign a protocol for doing business with India, which did not happen and hence the ban was imposed.

Exports to Russia had grown by 110 per cent in 2008-09. Total exports were 4,500 tonnes valued at Rs 35 crore in 2007-08 and this went up to 9,400 tonnes valued at Rs 115 crore in 2008-09. All the 46 companies had been exporting to Russia for the last two years.

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India refuses re-export provision Nepal may not sign treaty

KATHMANDU, Aug 17: Nepal could defer signing of the Treaty to Control Unauthorized Trade, which was scheduled during the Nepal's Prime Minister´s upcoming visit to India, after New Delhi declined Nepal´s request to recognize re-export of third country goods through the authorized agents in Nepal.

A high-level government source said if the two countries fail to iron out the differences over the treaty, it would adversely affect the renewal of the Nepal-India Trade Treaty.

Nepal has already agreed with India to allow the entry of third country goods imported from international agents based in India. "We want the provision in the renewed treaty to be reciprocal. We are still busy in negotiations through diplomatic channels," said the source in Nepal, but added that there was stiff resistance from India in this regard.

Previously, the two sides had agreed that the provision would be reciprocal. However, the problem surfaced after New Delhi pointed out the possibility of trans-shipment of goods to its territory from Nepal even if there were no official agents in Nepal.

Despite the latest problem, India has agreed to Nepal´s request to allow temporary re-export of machinery tools to India for repair and maintenance. This facility was absent in the previous bilateral treaties.

Bilateral trade treaty, which the two governments will update during the prime minister´s upcoming visit, is widely expected to boost Nepal´s export to India as it categorically binds India not to impose state duty and non-tariff barriers on Nepali goods. The proposed revised treaty will remain valid for the next seven years.

Imposition of non-tariff and extra-customs duties, which debilitated Nepal´s competitiveness, has badly been affecting Nepal on the exports front. Sharp rise in consumption, on the other hand, has caused its trade deficit to widen to more than Rs 108 billion.

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India gives away more market access to Asean

NEW DELHI: Indian negotiators who had tried to bargain a good deal with 10-member regional grouping Asean for the last six years finally gave away much more additional market access than their counterparts from the Asian regional trading bloc.

Though India’s and Asean’s offer to each other’s imports is similar at around 96% under the recently signed free trade agreement (FTA), India has actually given much more additional market access than what it got in return.

As about 75% of the Indian goods entering the Asean countries currently attract zero duties, the effective additional market access that India has secured out of the FTA with Asean is mere 21% of its export. In return, India has agreed to provide additional market access of about 75% imports from Asean bloc.

Though, no official in the ministry of commerce and industry, which spearheaded the talks has come on record to admit poor negotiation skills by the Indian team, officials in the ministry agreed in private that it could have been a far better deal.

Whereas both parties agreed to keep 489 items each out of the scope of tariff cuts, Indian negotiators agreed for one consolidated negative list of 489 items for all Asean countries put together, which means India has about 50 items in its negative list for each Asean country. In return, India conceded each individual Asean country to prepare a separate negative list of 489 items each according to each country’s sensitivity to Indian imports, the analysis has found.

According to the agreement, which will be implemented from January 1, 2010, duties will be eliminated on about 3,200 products by December 2013. For the rest 800 products, duty will be zero or near zero by December 2016.

As India has already signed the agreement for goods, without taking into account the services sector, its future power of negotiation on services sector is substantially reduced, an analyst working in a quasi-government organisation said.

“As Indian negotiators have agreed to allow zero duty imports on 80% of items from a large trading bloc like Asean, it will adversely impact India’s long stand on WTO against major duty reduction in agriculture and non-agricultural market access, or Nama sectors,” the analyst said in the condition of anonymity.

Whereas Kerala politicians including heavyweights from the ruling Congress initially opposed to the India-Asean trade pact as it would impact agriculture products from the state, the Left parties have now demanded a white paper on the impact of the pact, saying that it will adversely affect farmers and small industries.

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India, ASEAN sign free trade agreement

India and the Association of South East Asian Nations on Thursday signed a Free Trade Agreement, which took nearly six years to negotiate. The FTA, relating only to goods, was signed by Union Commerce and Industry Minister Anand Sharma and his ASEAN counterparts at a ceremony in Bangkok after the two sides held annual consultations.

The accord, India’s first with a trade bloc, will cover 11 countries with a combined Gross Domestic Product of over $2 trillion. The combined population is of the order of 1.6 billion.

Co-Chairperson of the ASEAN-India Trade Negotiating Committee, Rebecca, later told that nine members of the 10-nation regional trade bloc signed the pact. Vietnam would do so after its formal recognition by India as a “market economy.”

India and Vietnam, according to Dr. Rebecca, had already agreed to sign a memorandum of understanding on this issue.

The implementation of the FTA would, therefore, take off from January 1 next year, as now agreed upon, she emphasised.

The press statement said the mutually agreed tariff liberalisation would “gradually” cover 75 per cent of the two-way trade, beginning from January 2010. India-ASEAN trade was of the order of $40 billion in the 2007-08 accounting year. The regional bloc was now India’s fourth largest trading partner.

Dr. Rebecca said the ASEAN would now seek a “fast-track” approach for talks with India for a “single” follow-up accord on liberalising the two-way flow of services and investments. The “hope” was to finalise the deal in about a year’s time. The ASEAN’s expectation was that the agreed tariff cuts under the FTA, as now signed, would be fully implemented by the end of 2013 and 2016 in respect of two “normal tracks.” A timeline had also been agreed upon for the “sensitive list” of items, she said.

Under the trade pact, India has included 489 items from agriculture, textiles and chemicals in the negative list, meaning these products will be kept out of the duty reduction.

Addressing concerns of domestic planters, black tea, coffee, pepper and rubber have been included in the sensitive list, which could mean duties will be cut by 2019 only. However, duty on these items at no time will be eliminated. Farmers in South India, especially Kerala, fear lower duty on plantation crops like coffee and pepper would lead to a deluge of imports from ASEAN members like Indonesia, Malaysia, which could leave domestic farmers vulnerable to competition.

Mr. Sharma had said on Wednesday that the agreement was well balanced and was in harmony with India’s Look East Policy. “I can say negotiations have been painstaking. The negotiators have ensured that our sensitive areas where we had concerns are fully addressed,” Mr. Sharma had said.

He had also said the whole debate of the CECA adversely impacting domestic planters was based on “uninformed” speculations.

The bulk of trade between the two regions include textiles, steel, processed food, plantation crops, iron and steel, ready-made garments and chemicals.

The Federation of Indian Chambers of Commerce and Industry (FICCI), which has accompanied Sharma, leading a business delegation, said that the agreement would provide access to the large ASEAN market to India.

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Fake drugs from China reach Kenya now

NEW DELHI: The supply of fake drugs from China to the African sub-continent is not limited to Nigeria, it now appears. The Kenyan government has seized two container loads of medicines shipped from Shanghai bearing a 'government of Kenya' label falsely indicating that it was manufactured in Kenya, a communication from the Indian High Commission in Nairobi to the Indian government has indicated.

Although unlike the Nigerian seizures, the present impounded consignments do not bear India's name, India, nonetheless, is on the alert, as there might be other similar fake consignments in the country. The Kenyan government is trying to establish whether there are other consignments of fake drugs that have reached the country or are on the way.

“It is pretty clear by now that sub-standard drugs manufactured in China with false manufacturing labels are being shipped to African countries. Since such consignments have been seized in Kenya and there are chances that other such consignments may have reached the country or are on their way, India has to ensure that the fakes are not passed off as manufactured-in-India products, bringing disrepute to the country,” a commerce department official told a news agency.

The Nigerian government had recently seized a large consignment of fake anti-malarial drugs labelled made in India but produced in China. India lodged a strong protest with China demanding strict action against Chinese manufacturers of such spurious drugs whose names and addresses were clearly printed on the confiscated cartons.

Africa is an important market for Indian drug producers as it accounts for over 15% of India’s total generic (off-patent drugs) exports worth Rs 30,000 crore annually.

“India can’t afford to get a bad name in the African market for drugs. We have to do all possible through the diplomatic channels to stop unscrupulous Chinese producers from bringing disrepute to the Indian industry,” the official added.

Meanwhile, India will take up with Libya a complaint by Ajanta Pharma that its consignment was barred entry on the grounds that it was from a non-US, non-EU region.

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Exports continue to drop, 29% in June

NEW DELHI: India’s exports saw a 29% drop in June 2009, Union minister for commerce & industry Anand Sharma told the Rajya Sabha on Wednesday.

The country’s exports are experiencing a declining trend for the last nine months. The growth in exports had registered a 29.2% drop at $11 billion in May 2009. The decline was 34% in April 2009.

As per a sample study conducted by the commerce department, 648 exporting units across the country posted a loss of Rs 8,982 crore between August 2008 and April 2009.

Exporting units in 17 sectors saw 134,593 people losing jobs during the period, another survey conducted by the department on retrenchment said. “This does not reflect the total job losses, which would be higher,” minister of state of commerce & industry Jyotiraditya M Scindia informed the House.

Mr Sharma said the pace of export fall had begun to recede. He expressed optimism that the measures announced in the budget would help the crisis-ridden export sector.

In the budget, the finance minister decided to continue with the interest rate subvention (discount) scheme and the export credit guarantee scheme for exports beyond September 2009 till March 2010.

The commerce and industry minister also said it is against creating barriers against imports into the country as India itself has been opposing the protectionist policies that block the flow of global trade.

“Our position has been clear that we are against any protectionist barriers coming up that many countries have shown a tendency to go in for and which is impacting the flow of global commerce, including India’s exports to those countries,” Mr Sharma said in the Rajya Sabha.

In 2008-09, India’s exports were just 3.4% higher at $168.7 billion compared with $163 billion in 2007-08. While exports grew 34% in the first six months of 2008-09, the downturn hit exports in the second half of the fiscal, bringing down the growth rate to less than 4%.

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India against import barriers

NEW DELHI: Government on Wednesday said it is against creating barriers against imports into the country as India itself has been opposing the protectionist policies which blocked the flow of global trade.

"Our position has been clear that we are against any protectionist barriers coming up, which many countries have shown tendency to go in for, which is impacting the flow of global commerce, including India's exports to those countries," Commerce and Industry Minister said in the Rajya Sabha.

Answering supplemantaries during the Question Hour, Sharma said as a "matter of policy the government cannot have protectionist barriers".

However, he said the government would respond to the issue of dumping of cheap imports.

Thanks to a steep fall in the value of crude oil imports, the country's imports fell at a sharper pace than exports in May. While exports declined by 29.2 per cent in May, imports contracted by 39 per cent.

The country's trade deficit more than halved to $5.2 billion in May 2009-10 from $11.11 billion in the same month last year.

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Highlights of Economic Survey 2008-2009

New Delhi (PTI): Following are the highlights of the pre-Budget Economic Survey 2008-09.

# Unleash reforms - phase out cesses, surcharges and transaction taxes (such as commodities transaction tax, securities transaction tax and Fringe Benefit Tax)

# Introduce new Income Tax Code that results in neutral corporate tax regime

# 7-7.5% growth possible in 2009-10

# Allow 49% FDI in defence and insurance; permit FDI in multi-format retail starting with food

# Proposes another round of fiscal stimulus including tax cuts and increase in expenditure

# Decontrol petrol and diesel prices; end Govt monopoly in railways, coal and nuclear energy

# Lift all bans on future contracts to restore price discovery; decontrol sugar and fertiliser

# Revitalise disinvestment programme to generate Rs 25,000 crore annually, list all PSUs and auction those beyond revival

# Economic growth decelerated in 2008-09 to 6.7 per cent from nine per cent in 2007-08

# Fiscal deficit in 2008-09 shot up to over 6 per cent from 2.7 per cent in 2007-08

# Survey indicates FRBM-II to get back to path of fiscal consolidation

# Complete the process of selling 5-10 per cent equity in identified profit-making non-'Navratna' PSUs

# List all unlisted PSUs and sell a minimum 10 per cent equity to public.

# Auction all loss-making PSUs that cannot be revived

# In PSUs with zero networth, allow negative bidding in the form of debt write-off

# Auction 3G spectrum

# The auctioned spectrum must be freely tradable, with capital gains on spectrum to be taxed under the Income Tax Act

# Rationalise Dividend Distribution Tax to ensure full single taxation of returns to capital in the hands of the receiver

# Reform petroleum (LPG, Kerosene), fertiliser and food subsidies to reduce leakages and ensure targeting

# Limit LPG subsidy to a maximum of 6-8 cylinders per annum per household

# Phase out kerosene supply-subsidy by ensuring that every rural household has a solar cooker and solar lantern

# Review customs duty exemptions and move to a uniform duty structure to eliminate inverted duties

# Implemnet GST from April 1, 2010

# Rapid operationalisation of UID Authority within 3 months

# Agriculture growth fell sharply to 1.6 per cent in 2008-09 from 4.9 per cent

# Exports grew at 3.4 per cent to 168 billion dollar in 2008-09 from 163 billion dollar in previous fiscal

# Imports grew at 14.3 per cent to $287.75 bn from $251.65 bn

# Trade balance deteriorated to $119.05 bn from $88.52 bn.

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Economic Survey: Cut customs duties, streamline export promotion

New Delhi (PTI): The government should cut customs duties and streamline export promotion schemes and pay special attention to infrastructure to overcome the contracting exports on account of recession in India's major trading partners, the Economic Survey said on Thursday.

The Economic Survey cautioned that the global meltdown, particularly in the US and EU, is expected to impact the country's export growth in 2009-10.

"With import demand falling from our major trading partners, India's exports of goods and services (are) expected to be impacted," the pre-Budget Economic Survey tabled in Parliament on Thursday said.

India's exports, after registering a healthy growth rate of over 30 per cent in the first half of 2008-09, turned negative in October 2008. Overseas shipments declined by 29.2 per cent in May — contracting for the eighth month in a row — over the same month last year.

In the last fiscal, exports grew by a meagre 3.4 per cent to $168.7 billion dollars.

The survey said that besides short-term relief measures and stimulus packages, some fundamental policy changes are needed for the merchandise trade sector.

The measures include continuing to reduce customs and excise duty to make our exports and industry competitive, streamlining existing export promotion schemes, and giving special attention to export infrastructure.

The survey talked of "weeding out unnecessary customs duty exemptions", and rationalising the tax structure including specific duties in a calibrated manner taking into account the specific duty levels in our trading partner countries.

There is also a need to check the proliferation of special economic zones, evolve clear-cut policy for beneficial Comprehensive Economic Cooperation Agreements even with some developed countries "... which should be well integrated with our economic and trade policy reforms and the blueprint for possible changes due to WTO negotiations."

However, the Economic Survey said the steep fall in petroleum prices and cooling of the prices of commodities could have a positive effect on imports.

Imports dipped for the fifth straight month by 39.2 per cent to $16.21 billion in May over the year-ago month.

It also said in 2010 recovery is expected with IMF projections at 1.9 per cent increase for world output and 0.6 per cent for world trade volume of goods and services.

The survey emphasised the need to desist from any protectionist tendencies and proceed on the reform path.

"While efforts to promote exports are needed, there is a need to guard against protectionist measures originating from our trading partners," it said.

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China warns of tit-for-tat over dairy ban

NEW DELHI: China has retaliated against India's ban on its dairy products, putting the two neighbours with a legacy of estrangement on the brink of a trade war.

China is annoyed with India's decision to extend the ban on its milk and milk products, which expired on June 24, by another six months until December 24. It has threatened to ban Indian products in retaliation.

In a letter to the Indian embassy, general administration of quality control bureau of China said, "During the period of financial crisis, we are strongly against trade protectionism of any form. As a member of BRIC and WTO, we hope your party determines the prohibition towards China's dairy products ASAP, in the spirit of safeguarding bilateral trade."

It added, "If India insists on this decision, China will respond to the safety and quality of imported products from India."

According to commerce ministry officials, China has raised doubts about food products imported from India, including seafood products, dairy products and sesame oil to pressurise India to lift the ban. "China has also taken a moral high ground by saying that it has not banned import of these Indian products," an official said.

Arguing for lifting the ban, China pointed out that after the milk scandal, it had taken several measures to deal with the problem and highlighted that these measures prompted countries like Singapore, Malaysia, Thailand and Chile to lift the ban on Chinese dairy products.

China has asked India to provide the scientific basis and risk assessment under the WTO/SPS agreement to enforce the ban on its products.

"The Chinese side shows grave concern because the ban is extended in India while it is removed in other countries. The reaction in India, regardless of the efforts and achievements by Chinese government, differ from good cooperation between both sides, lacking scientific ground and against scientific principle, the transparency principle and the minimum impact on foreign trade principle stipulated in WTO agreements," the letter said.

The ban on dairy products was extended for six months to ward off any threat of contaminated whitener which had caused deaths of several infants and made several thousands ill. A notification to this effect was issued by the Directorate General of Foreign Trade (DGFT).

India, in September 2008, had banned Chinese milk and its byproducts for three months which was later extended in December last year for six months. Melamine, used to make plastics and fertilisers, was found in infant milk and other dairy products of several Chinese firms. The dangerous chemical can cause kidney stones as well as failure of the organ.

More than a dozen countries in Asia and Africa had also banned milk and dairy product imports from China, while several others had recalled products suspected to be contaminated.

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Exporters seek service tax waiver

NEW DELHI: Exporters, hit hard by the global economic slowdown, have sought exemption from payment of service tax in the forthcoming Union Budget.

In a meeting with the revenue department, exporters pointed out that while the government allows refund of taxes on a number of services, very little refund has actually taken place because of the cumbersome process involved.

According to Delhi Exporters' Association (DEA) president SP Agarwal, who led a delegation to meet revenue secretary PV Bhide earlier this week, the problem with refund of service tax is a long-pending issue for exporters.

"We are hardly getting any refunds. If the government wants us not to pay service tax, then we should get an exemption," Mr Agarwal said.

According to DEA, exporters are working on just 4-5% profit margins as demands have shrunk due to the global slowdown and it is very difficult for most to pay a 10.5% service tax.

He added that the revenue secretary has assured exporters that the government would take steps to solve the problem. "We are hopeful that the Budget would sort out the issue," he said.

The delegation also asked the government to exempt exporters from paying value-added tax (VAT) at the state level. DEA pointed out that while as per law the refund of VAT is to be made to exporters in one month, very little is being refunded within the given period. "There is also a provision for 8% interest on delayed refund, but not a single paisa has been paid so far," Mr Agarwal said.

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India to host Doha meeting in September: Commerce Minister Anand Sharma

PARIS: India plans to convene a meeting of key world trade ministers in September to capitalise on new momentum in global commerce talks, Indian Commerce and Industry Minister Anand Sharma said today.

"In early September we're looking at a ministerial meeting," Sharma told AFP on the sidelines of informal world trade talks in Paris taking place this week.

Sharma said the talks in Paris were "important enough to give confidence and hope that we can do business together," adding: "We've reaffirmed our commitment to take the Doha Round to a successful conclusion."

The United States and India have been at odds in the Doha round of trade liberalisation talks, which got under way in the Qatari capital in late 2001 and has been foundering ever since.

Progress has been hampered by disputes between developed and developing nations on measures to ease restrictions on trade in agricultural and industrial products.

Sharma today however pointed to "major changes" in both the United States and India following elections in the two countries in recent months.

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Govt defers decision on safeguard duty on steel items

New Delhi, May 11; In what appears to be a victory for users, the Government has deferred a decision on a proposal to impose provisional safeguard duty on hot rolled coils/sheets/strips. It said the matter needs to be examined further after taking views of the consuming industry.

“We felt that not enough homework had been done and there is a need to consult both the domestic industry and other interested parties concerned. We have asked the Directorate General on Safeguards (DGS) to consult the domestic user industry and come back to the board after 60 days (with recommendations),” Mr G.K. Pillai, Commerce Secretary, told reporters after a meeting of the Standing Board on Safeguards. Mr Pillai heads the board.

The Steel Secretary, Mr P.K. Rastogi, said there was no urgency to consider the safeguard duty. The interim proposals of the DGS were found to be “insufficient”, he noted.

Asked if there could be any injury to the local industry in view of non-imposition of the safeguard duty, Mr Pillai said, “From the evidence we do not see any threat to the industry”. He also highlighted that steel users had brought to the Government’s notice that they had appealed to steelmakers to further reduce steel prices, matching import prices.

“We were expecting a decision. Imports were being allowed at very low prices. The advantage of whatever demand was generated from stimulus package was going to Ukraine and Chinese companies,” a spokesman for Ispat Industries said.

The Director-General (Safeguards) had in April 2009 recommended a provisional safeguard duty of 25 per cent on imports of hot rolled coils/sheets/strips up to the cost, insurance and freight (CIF) value of $600 a tonne, considered a reasonable benchmark.

In India, there are currently five producers who have the capacity to produce hot rolled coils/sheets/strips — Ispat Industries, Essar Steel, JSW Steels, Steel Authority of India and Tata Steel. The petition seeking safeguard duty was filed by Ispat Industries and Essar Steel. JSW Steel and Steel Authority of India had supported the petition.

In its preliminary finding, the Director General (Safeguards) had concluded there has been significant increase in imports at low prices. Also, the volume of imports surged in view of steeply falling import prices.

This has impacted the domestic industry prices, which fell from Rs 40,000 a tonne in April-September 2008 to Rs 26,296 in February 2009, and consequently led to a decrease in profits. In fact, the domestic industry suffered significant financial losses and negative return on capital employed, the DGS had concluded.

From the range of 1,000-8,000 tonnes a month, the volume of lower priced imports had suddenly surged to as high as 97,000 tonnes and 1,30,000 tonnes in January and February 2009 respectively, according to preliminary findings. The domestic industry had argued that in February 2009 itself, about 1 lakh tonnes landed at Mumbai port at an average price of $450 a tonne. The import prices started declining from above $1,000 a tonne in August 2008 and have continued to fall even now.

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Govt extends deadline for exporting non-basmati rice

NEW DELHI: The government on Monday extended a deadline for exporting 55,000 tonnes of non-basmati rice to four African countries by three months, just a few days after the Commerce Ministry gave permission for export of 10 lakh tonnes (one million) of rice to 21 other African countries.

In a statement issued here by the Agriculture ministry said that State Trading Corp of India (STC) would export the rice to Nigeria, Senegal, Ghana and Cameroon by July 30. So far, the agency has only been able to export only a paltry 15,000 tones to Ghana at about $500 per tonne.

According to a Commerce ministry official, the extension was made in response to a request for extension by the STC since there were no fresh import deals of late. The move, however, endorses the reading within the sector that parastatals may prove unequal to the task of striking a deal that is advantageous to India despite the economics for rice export proving positive.

Indian rice, with its price pressured down on account of oversupply and the reluctance of the government to pick up anymore levy supplies, reportedly costs not more than Rs 17,000 or $340 a tonne at the port currently. Better-quality parboiled rice with just 16 per cent brokens can reportedly be sourced from Chhattisgarh for as low as Rs 11,500 a tonne, way below the Rs 14,500 rate payable to mills for levy rice.

And at a low rate of around Rs 11,500, the export cost at Kakinada is pegged by trade at slightly lower than $300. Compared with Thai or even Viet Namese rice (they are the world’s leading rice exporters, producing 70% of global volume) Indian rice is relatively economical. By the first week of May, the benchmark Thai rice price for export fell to $530 a tonne from s $540 due to thin demand, with the planned government stock sale adding to the downward pressure. Apprehensive that prices could plummet further, the Thai government announced last week that it could “revise” a plan to sell 3.76 million tonnes of rice from its stocks.

Last Wednesday, the government had allowed parastastals STC, MMTC and PEC to export one million tonne of non-Basmati (premium, aromatic, long grained rice variety) rice exports to 21 African nations. Curiously, while the exports are apparently on government-to-government account and to be routed through the parastatals, the actual sourcing and shipping are reportedly expected to be sub-contracted to private firms including the Delhi-based Shri Lal Mahal Ltd, Emmsons International and Amira Foods.

That has already set off apprehensions among commodity experts that the private sector may once again end up, cocking a snook at parastatals, raking in the big profits on the first significant steps to open up rice exports totally by doing away with the conditional ban imposed early last year.

A meeting of a committee of secretaries recently decided to open up wheat exports to the tune of two million tonnes to the private sector, a move meant to sponge up as much of the wheat glut in the plunging domestic market for sale outside the country.

In the case of rice, however, the government appears to be deliberately proceeding far more cautiously in completely lifting the blocks to export despite an estimated production of 98.89 million tonnes in the crop year to June.

According to the agriculture ministry, that would be higher by about 2.3 percent compared to last year. But rice stocks with the government have mounted to phenomenal highs, necessitating exports urgently although global rice prices have eased up since early this year based on improved global output prospects. On May 1, India's rice stock rose 66 percent on year to 21.4 million tonnes.

That notwithstanding, the government has been reluctant to make any bold decisions on rice exports in the throes of the general election and persistently high food prices, choosing instead to allow exports on a governmetn-to-governmetn basis to mainly African countries, ostensibly on “humanitarian” considerations. Unlike Western importers such as the EU and USA as well as W Asia, African nations have been big buyers of non Basmati rice varieties.

The imposition of MEP (minimum export price), aimed at preventing more popular non Basmati varieties of domestic consumption from flying out of the country in big quantities and consequently boosting rice prices in the country, hurt the African nations the most. Last year, the FAO urged the Indian government to take the lead in lifting the export bars and easing global rice prices.

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EU may ban Indian groundnut imports due to aflatoxin

Groundnut exporters may find it difficult to make it to European Union (EU) markets. Indian Oilseeds and Produce Export Promotional Council (IOPEPC), earlier known as Indian Oilseeds & Produce Exporters Association (IOPEA), has sounded a red alert to groundnut exporters that EU may ban groundnut imports from India on account of presence of aflatoxin (a kind of fungi).

During an awareness programme on quality upgradation of exportable groundnut at Rajkot, the apex body of oilseed exporters called for a need to generate quality products in India.

“Our future may turn bleak if we fail to fix aflatoxin problem and if we do not maintain the quality of international standard. We must generate quality product not only for India but also for international market.

Indian processors have not taken up technical upgradation and changes in machineries to produce export quality groundnut for a long time,” said Sanjay Shah, chairman, IOPEPC.

“European delegation is scheduled to visit India this September for examining the processes used by export units. If they do not find any changes in the units, they will not hesitate to ban groundnut import from India. Processors know everything about cleanliness and quality norms but they do not follow it,” said D Thara, MD, Gujarat Agro Industries Corporation.

“Changes should be made at APMC level and all the process units and farmers, who supply raw materials, should be registered,” she suggested. “India exports 250,000-275,000 tonnes of groundnuts, mostly from Gujarat. EU constitutes less than 15 per cent of the total groundnut exports from India. If we fail to match EU standard then we should be ready to face ban. Not only that, taking cue from EU, other importing countries might also do the same thing,” said Sanjay Shah.

The European commission will visit India in September to inspect quality standard and compliance of the groundnut processing for human consumption and bird food. Agriculture and Processed Food Products Export Development Authority (Apeda) intends to introduce a new procedure to insure compliance to European quality standards.

The industry needs to be optimistic to introduce and adapt to new system and implement changes as required under Good Manufacturing Practices (GMP). This is the last opportunity for the industry to gear up.

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EEPC India urges supportive measures to engineering industry

Mumbai (PTI): EEPC India, the apex body of engineering exporters from India, has urged the government to provide supportive measures for Micro, Small and Medium Enterprises (MSMEs) sector, a top industry official said here.

"In the present uncertain market scenario, engineering exporters require support measures, specially the MSME state in order to survive in these hostile times," EEPC India Chairman Aman Chadha said on the occasion of EEPC India's Western region Award Presentation Function for 2006-07 here.

He elaborated that the hostility in the global trading environment is now affecting engineering sector too which is now facing considerable demand problem in global markets and are under acute distress.

Mr. Chadha noted that certain segments of Indian engineering industry such as nand tools, bicycle and parts, castings, auto components, and similar other low value added engineering units are in no way different from the textile and leather sector, in terms of their shrinkage in demand leading to loss of output and employment.

However, the government has consciously refrained from supporting the engineering sector as there is a belief that engineering exports will pull through, Mr. Chadha said.

Mr. Chadha said that demand for engineering products has decreased drastically, thus considerably affecting Indian engineering exporting community. The extension of Focus Market Scheme will help exporters in maintaining their traditional markets to some extent, he noted.

With the $10.6 billion engineering exports, the western region of the country had a share of almost 40 per cent of India's total engineering exports of $26.49 billion in the fiscal 2007.

Its a matter of joy that this share has gone up to 41 per cent in FY'08 with exports of $13.6 billion in FY'08 out of total engineering exports of $33.15 billion in the year.

Mr. Chadha also pointed out that circumstances in 2006-07 were more conducive for exports. The exchange rate was far more benign than in the year FY'08 and in early part of FY'09. Further, the raw material prices and freight rates were less volatile as compared to subsequent fiscal years.

Thus, the remarkable growth in engineering exports witnessed during the fiscal year FY'07 is an indicator that an "enabling environment" can do immense good to boost the export capabilities especially of those belonging to micro, small and medium scale sector.

On the occasion, 85 companies from the region were awarded for their excellent export performance.

The list included some of the leading names like Bharat Forge, Uttam Galva, KEC International, Bajaj Auto, Hilton Metal Forging, Jyoti Steel Industries, Aeroflex Industries and Finolex Cables.

On the occasion, Governor of Maharashtra S C Jamir highlighted the efforts made by the government to simplify the process of exports and improve the infrastructure for the same purpose.

He hoped and expressed confidence that "we will soon tide over the present crisis." He also requested the industry captains to continue to play their national role of creating employment in the country by enhancing productivity and efficiency and venturing out to new markets.

In his welcome speech, Nayan Shah, Regional Chairman, EEPC INDIA (Western Region) highlighted the key role played by EEPC India in promoting export and the cause of the exporting community by hosting overseas exhibitions, fielding trade delegations and organising buyer seller meets.

He said that world-wide recession and decrease in demand has badly affected Indian exporting community. Shah noted that Governments stimulus package is taking time to impact the economy and more such packages are required on consistent basis. The Council has also urged the Government for granting of Focus Market Scheme benefit to EU and North America, which so far attracted 40 per cent of India's engineering exports but are facing severe crisis at present.

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Slowdown-hit India Inc has wish list ready for next government

NEW DELHI: Hit by a demand slowdown and meltdown in the global economy, India Inc has its wish list ready for the next government, with
Industry sector-specific policy reforms and tax sops on top of the agenda to tide over the crisis.

The ailing export sector, which in October witnessed a decline for the first time in a decade due to the contraction in global trade, has sought an exemption from paying income tax for some five years to deal with the turmoil.

"Since the export sector is an employment-oriented industry, we should be exempted from paying income tax for five years," said A. Sakthivel, president of the Federation of Indian Export Organisations (FIEO).

"We want a separate policy for the export sector that can be drafted after the government analyses what the global market situation is. The policy should take into consideration what other competing countries are doing," Sakthivel told reporters.

According to the federation, promoted by the commerce ministry, the export sector lost about 500,000 jobs during the third quarter of this fiscal and it was imperative to formulate a separate policy to help arrest this ominous trend.

Another sector that has been a significant contributor both for fresh jobs and exports in the past, the information technology industry, wants the service tax schemes to be simplified and an extension of sops available on exports to spur growth.

Section 10A of the Income Tax Act exempts payment of tax on incomes from any newly established firm in a free trade zone, while section 10B extends a similar sop on income from any newly established 100 percent export-oriented undertaking.

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Department Commerce backs tax exemption for SEZ services

NEW DELHI: The finance ministry should exempt companies in special economic zones (SEZ) from paying tax on the services they consume instead of making them seek refunds, according to the commerce department. Earlier this month, the finance ministry had notified that instead of being exempt, companies within SEZs would have to claim refunds for the tax they pay on services.

“We have written to the revenue department asking it to allow SEZs exemption on service tax within the zone as was being done earlier. For services outside the zone, developers and units could be given reimbursements on the taxes paid,” said a commerce department official.

The industry prefers exemptions over reimbursements as the latter takes time, besides locking up funds with the government for a considerable period. A 10% tax is imposed by the government on 100 services.

Initially, the government exempted companies from tax on services consumed within SEZs. SEZs then demanded that exemption should be extended to authorised services consumed outside the zones such as port-handling, in-land transportation, courier and banking.

Following months of discussions between the commerce and revenue departments, a notification was issued allowing refunds on services availed both outside and inside the zones. But the exemption was short-lived. It was laid down that SEZ developers and units will have to claim reimbursements.

“We have pointed out to the revenue department that this change is unfair especially at a time when the industry is already starved of funds,” the official said. The revenue department has, however, not yet responded to the commerce department’s request.

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India extends zero customs duty, ban on pulses export for a year

NEW DELHI -- India Wednesday extended the import of pulses at zero customs duty and the ban on exports on the products for another fiscal year due to decline of the mass consumption food product in the country.

"The decision today is to extend zero duty on import of pulses for one more year beyond March 31, 2009. Pulses can now be imported at zero duty for one more year till March 31, 2010," Indian Home Minister P. Chidambaram told the media.

The fiscal year starts April 1 and ends March 31 each year in India.

He said the government took the decision to increase the domestic supply of pulses, a popular food product in India.

"The government also decided to extend the distribution of imported pulses through the public distribution system for six more months till Sept. 30 this year," he said.

India banned exports of pulses and exempted them from customs duty since June, 2006.

An earlier report by the Indian government said Tuesday the import of mass consumption goods increased by 33 percent from April to December 2008 over the same period of previous year.

The import of edible oil, automobiles, fruits, vegetables, cotton, silk, rubber, spices, alcoholic beverages, marble, granite, tea, coffee and milk products have increased during the reference period, said the Indian Ministry of Industry and Commerce.

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Outsourcing: China vs. India

Affected by the global economic crisis, China's exports dropped rapidly in the fourth quarter of 2008. In December, China's export growth was -2.8%, bringing the growth rate for 2008 to 17.2%, which is 2.1% lower than the growth in the first 11 months.

However, China's software industry still experienced fast growth in 2008. This year, China's software exports reached US$14.2 billion, up 39% year on year. Service outsourcing grew at an even faster speed of 54.3% to US$1.6 billion by the end of 2008. The growth in the whole year was 6.2% higher than the growth in the first 11 months.

The development of outsourcing has relied on support from both central and local authorities of China. China has been implementing industrial upgrades for a long time. Many Chinese cities and industrial parks consider outsourcing an effective way to achieve industrial upgrading.

During the current global recession, due to the downtown in the manufacturing and export sector, China has selected outsourcing as a new arena for economic growth. In February, 20 major cities, including Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, and Chengdu, were chosen to become demonstration cities for service outsourcing. In these cities, the government will establish preferential policies such as tax cuts to encourage the development of outsourcing.

China is now eager to promote outsourcing, but the question is, can China's outsourcing be competitive with that of India?

Despite the boom in China's service outsourcing, it will be difficult for China to catch up with India, the giant in the international outsourcing industry. India has enjoyed both large market volume and fast growth, achieving an average annual growth of 37% over the past four years. In 2008, India captured nearly 37% of the global outsourcing market, while China took less than 10%.

India's outsourcing industry seemed invincible until one event in 2008 changed the situation. The Mumbai attacks, which reportedly caused 172 deaths, highlighted the potential risks of travel to India. It raised questions regarding the safety and stability of the Indian business environment, which is one of the major factors in the selection of an outsourcing partner.

However, the largest threat to India's outsourcing is not terrorism, but cost. The ratio of wages in India and the U.S. used to be 1:6, but recently it has been closer to 1:3, and can even reach 1:1.5. Indian labor is becoming a less efficient solution for the outsourcing businesses. When the global finnacial crisis came, more clients began to review their spending and cut costs, halting revenue streams and causing upheavals in India's outsourcing industry.

While India’s outsourcing entered difficult times, China saw opportunities, because India's limitations are China’s strengths. China has abundant IT human resources available at low cost. The ratio of wages in China and the U.S. is about 1:7 now, a ratio much more advantageous than that for India. China also provides a safe and stable environment to overseas investors: no terror attacks have ever taken place in Chinese cities.

But China also has its limitations. First, although China has a lot of IT talent, few IT workers are good at foreign languages, and thus few can communicate easily with overseas customers. This is the largest competitive difference between China and India. China also has few inter-disciplinary talents who are not only skilled in technical issues, but also in business process, management and interpersonal communication.

Second, China has poor intellectual property protection. Although the Chinese have been warned against intellectual property violations several times, piracy still flourishes throughout the country. Moreover, many Chinese companies are not even aware of whether their actions constitute piracy or are bringing high risk of intellectual property leakage to their clients. Since intellectual property protection is considered a crucial factor in selecting an outsourcing partner, poor protection is the second largest limitation of China's outsourcing industry.

Third, the development of China's outsourcing industry lags ten years behind that of India. Chinese outsourcing companies are usually small. India has many outsourcing companies with annual revenue of over US$1 billion, but in China there are few outsourcing companies with annual revenue exceeding US$0.1 billion. Also, Chinese companies are engaged mainly in coding, whereas Indian rivals can provide comprehensive solutions to clients.

Therefore, performance figures such as outsourcing exports and growth are not the only differences between the outsourcing industries of China and India. Like manufacturers, China's outsourcing companies always emphasize low cost to attract clients. Although the global financial crisis highlights such advantages, cost is still not the most important factor for potential clients. Clients pay more attention to service capabilities, including intellectual property protection, language skill, and ability to provide comprehensive solutions. The global economic crisis and the Mumbai attack have temporarily caused some shifting of outsourcing business from India to China, but this trend will not last. Should China return its slice of the outsourcing pie to India when the end comes?

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Indian economy still lags China

The impression that India could do anything China could do, may not be entirely true. (Aijaz Rahi / AP)

John Chambers, the head of Cisco, was a salesman before he was a technologist. So when he found himself in front of a thousand of India’s top software executives giving the keynote speech at the Nasscom annual summit earlier this month, he knew exactly what to tell them to guarantee a good reception.

“I believe that there’s a high probability that you will have the best GDP growth of any major economy next year,” he said boldly.

He could not have better judged the mood of Indian executives. Only days before, Satish Jha, the former chief economist of the Asian Development Bank and a prominent member of prime minister Manmohan Singh’s Economic Advisory Council, began pushing the line that India could take the lead.

“If our public policy continues in the way it is, we are going to head off China,” he said. “I believe it and my prime minister believes it.”

Dr Jha’s optimism is based on the domestic drivers behind India’s economy. China’s 20-year economic miracle has, on the other hand, been built on becoming the workshop of the world. Thirty-five per cent of its GDP relies on the troubled bank balances of consumers in places such as the US and Europe.

But for Robert Prior-Wandesford, the India economist at HSBC, this is just the latest version of the economic triumphalism that reigned during India’s 2007 stock market bubble.

“You got the impression a year ago that anything China can do, India can do,” he says. “That was very much the mentality in India. I was practically thrown out of meetings for daring to mention that there could be some structural constraints.”
Mr Prior-Wandesford was something of an India bear back in 2007. He now ranks as one of the most optimistic forecasters for India. He expects the country to register about 5.9 per cent growth this calendar year.

But even he expects China to grow almost 2 percentage points faster, with 7.8 per cent growth. Perhaps this is why Mr Chambers made sure to qualify his bold prediction. “I may be in the minority on that,” he added, with a smile.

The consensus of economists surveyed by London’s Consensus Economics is for China to grow 7 per cent, and for India to grow just 5.4 per cent. More bearish forecasts see India’s growth slowing to as low as 4.3 per cent.

“They’re still quite a long way behind,” says Mr Prior-Wandesford. “That’s largely a function of the higher rate of structural growth in China and the amount of money the Chinese government can throw at the problem.”

China’s 4 trillion yuan (Dh2.14tn) stimulus package, announced in November, beats that of any other Asian country in its breathtaking scale and boldness. It is equivalent to spending about 15 per cent of its GDP over two years.

That makes India’s packages look quite small in comparison. India’s total stimulus, according to Merrill Lynch, is only equivalent to about 1 per cent of GDP.

The finance minister, Pranab Mukherjee, said at the interim budget announcement last month that the fiscal deficit for the year to March 2009 would be about 6 per cent, one of the world’s largest and the worst since India’s 1991 balance of payments crisis. India risks a downgrade in its sovereign debt ratings.

China’s stimulus package, on the other hand, has only moved the nation US$16.21 billion (Dh59.53bn) into deficit last year, less than 0.5 per cent of GDP.

But it is India that really needs to do the kind of infrastructure spending that China has planned. Already, China dazzles with the speed of its transformation, while India shocks with what its groaning cities have to make do with. HSBC argues that even in perfect economic conditions, India’s crumbling infrastructure limits the growth rate to about 7.5 per cent.

“In India, that infrastructure isn’t coming through at anything near the pace it needs to do,” says Mr Prior-Wandesford. “That’s something they have to do, but it’s not easy to do given the fiscal situation.”

India has no leeway to outspend China, but the problem for India is that its consumers cannot begin to match China’s either.

“Chinese consumers have a lot more discretionary spending capability than their counterparts in India,” says Anil Gupta, a professor of business strategy at the University of Maryland and the co-author of Getting India and China Right. “This is because China’s per-capita income is about 2.5 times that of India while, for most everyday items, the cost structure is about the same.”

That difference is already visible. China’s retail spending still sees double-digit growth. During the week-long Lunar New Year holiday, China’s traditional time for high consumer spending, retail sales rose 13.8 per cent year on year, after a 19 per cent year-on-year growth in December.

“In China, the emphasis is shifting right now towards consumption,” says Mr Prior-Wandesford. “Retail spending has been remarkably resilient in China. It hasn’t slipped at all. In fact, it’s picked up. They’re very keen to get the consumption motor going.”
India’s urban consumers, on the other hand, are rapidly curbing their spending, to drastic ends for the country’s retail sector. Subiksha, one of India’s largest supermarket groups, defaulted on its debt this month.

Reliance Retail is seeking a foreign investor and RPG group says it will exit the supermarket industry if its Spencer’s chain is not profitable by the end of this year.
The rosier picture in China has not come without a concerted government effort. It has been handing out “consumer coupons” to lower income groups to encourage greater spending, and begun a primitive sort of social security for the very poorest. It has also unveiled a host of tax incentives for consumers.

The tax breaks on new car purchases have helped push sales up by 4 per cent between December and January, which is partly why China overtook the US to become the world’s largest car market. This is the other side of China’s export reliance. It has left the country with huge savings. China’s savings absorbed 49.9 per cent of what its companies and citizens earned in 2007.

India’s savings rate was 30.7 per cent. But only 11 per cent of that was saved in banks and other financial institutions – the rest is locked up in physical assets, like gold, meaning India’s 11.4 per cent deficit mops up all funds needed for investment.

Indian economic optimists such as Mr Jha also like to cite India’s massive untapped rural spending power. More than 60 per cent of India’s income comes from the countryside and small towns, according to the Rural Marketing Association of India (RMAI).

And 66 per cent of this rural income comes from agriculture, which has been insulated from the economic downturn and has benefited in the past year from a generally good harvest, high food prices and a huge write-off of farmers’ loans.

While sales fall in the cities, RMAI says, rural sales of mobile telephones are still growing 8 per cent to 10 per cent a month. Sales of fast-moving consumer goods grew 22 per cent in India’s cities last year compared to 57 per cent in rural areas.
But here, too, China is moving faster and more decisively, piling subsidies and soft loans on to its 737 million rural citizens – offering them, for example, 13 per cent back on any purchases of electrical goods – boosting their incomes by increasing the floor price for wheat and rice, launching new machinery loan schemes and stockpiling agricultural goods to prop up demand.

Even India’s vaunted lower dependence on exports may not be as simple as it seems. More than half of China’s exports consist of products assembled in China for international companies, using components shipped in from elsewhere, Prof Gupta says. So only about a third of the value of the product is made in China.

“In terms of value-added, exports contribute only about 12 per cent to China’s GDP,” he says. “In contrast, India’s exports consist of almost entirely 100 per cent domestic value added. Thus, even though India’s exports are only 14 per cent of GDP, India and China are about equally dependent on exports.”

Not all economists agree that value-added is the best measure. China’s exports are more weighted towards consumer products, and so more vulnerable in a downturn anyway. And India’s successful IT services sector, while it will not be unaffected by the spending cuts of American and European companies, benefited enormously in the recovery from the dotcom crash earlier this decade, and may do so again this time around.

Mr Chambers told India’s software executives to wait until next year’s Nasscom summit for proof of his hunch, or otherwise. There is a good chance that India’s IT industry will be a much less sombre place by then.
But India outgrowing China? That might be harder to accomplish.

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Indian exporters expect 10m job cuts

Indian exporters expect to cut about 10 million jobs by March as the global recession prompts overseas buyers to cancel orders.

"The year 2009 is going to be the worst year in history," A Sakthivel, president of the Federation of Indian Export Organisations, told reporters in New Delhi. "Exporters don't have orders beyond January and if the present trend continues, there will be approximately 10 million job losses." Indian exporters presently employ about 150 million people.

India's exports fell for a second month in November and industrial output contracted for the first time in 15 years in the previous month. That is weakening an economy expected by policy makers to grow at the slowest pace in six years in the 12 months to March.

India will miss its target of $200 billion in exports in the 2009 fiscal year amid weaker demand, Sakthivel said yesterday. "Exporters are now facing new challenges due to the financial crisis," he said. "Fresh orders are drying up due to lower demand and buyers are canceling earlier orders or rescheduling the shipments."

Overseas shipments dropped 9.9 percent to $11.5 billion in November from a year earlier after contracting 12.1 percent in October, the first decline in seven years. Output at factories and utilities also shrank in December, according to a survey done by ABN Amro Bank NV.

"The slowdown phase will continue for some months," said N R Bhanumurthy, an economist at the Institute for Economic Growth in New Delhi. "Recent monetary and fiscal policies might ensure that industry does not enter a recessionary phase."

Demand for made-in-Asia goods has slumped amid the deepening global economic slowdown. To spur slowing growth, India's government on Jan 2 unveiled a second stimulus package in a month to inject capital into banks and allow overseas investors to double purchases of debt. On the same day, the central bank cut interest rates for the fourth time in less than three months.

The measures are intended to steer Asia's third-largest economy through the "worst quarter" of the global slump, Montek Singh Ahluwalia, deputy head of India's planning commission, told Bloomberg News in an interview on Jan 2.

Growth in the $1.2 trillion economy has slowed for two straight quarters, with the 7.6 percent pace of expansion in the three months to Sept. 30 the weakest in four years.

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Fears of protectionism as India's exports dip: World Bank

Washington (IANS): With exports from India declining in October for the first time in a decade due to negative growth in world trade in the last quarter of 2008, fears have surfaced over protectionist backlash, says a new World Bank report.

Fall in global trade has been underway for some time, said the bank in a paper for the meeting of the Group of 20 finance ministers and central bank governors scheduled for Saturday.

"In the last quarter of 2008, trade growth turned negative, raising fears in many corners of a protectionist backlash," said the report - a line that was articulated last week by External Affairs Minister Pranab Mukherjee.

The report said 51 economies reported double-digit declines in nominal exports in the fourth quarter of last year, with many European nations, including the UK and Spain, as well as developing countries, registering a drop of 20 percent or more.

In October, India registered its first decline in merchandise exports in 10 years, with the value shipments down 15 percent, following growth of 35 percent in the previous five months.

Reacting to the developments, Mr. Mukherjee had said on Saturday that in such difficult times, it would be short-sighted for rich nations to go into protectionist mode and this was the message at the summit of G20 leaders in Washington.

"That the biggest economy in the world, the United States, where this global financial Tsunami originated, should be resorting to trade-restrictive practices is particularly disturbing," Mr. Mukherjee had said on Saturday.

The World Bank also said that the economic crisis was seen increasing poverty by around 46 million people in 2009. "While labour markets in the developing world will take a while to experience the full effects of the on-going global contraction, there is already clear evidence of the fall-out."

So far, the most affected sectors appear to be those that had been the most dynamic, typically urban-based exporters, construction, mining and manufacturing.

In India, over 500,000 jobs have been lost in the last 3 months of 2008 in export-oriented sectors like gems and jewellery, autos, and textiles. And the latest estimates from the labour ministry in China show 20 million people out of work.

The International Labour Organisation (ILO) forecasts suggest that global job losses could hit 51 million, and up to 30 million workers could become unemployed.

In response to rapidly deteriorating growth, the bank noted that New Delhi has allowed the India Infrastructure Finance Company Ltd to raise Rs.400 billion, or 0.7 percent of the gross domestic product (GDP).

This will help in funding projects, largely for road and ports, implemented as public-private partnerships. The additional resources will refinance the loans originally provided by commercial banks.

"This will ensure that these projects, which will help address some of the infrastructure bottlenecks that have been a huge constraint on India's long-term growth, are able to proceed, and help support aggregate demand and protect jobs during the economic downturn," the bank said.

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Rice exporters to seek abolition of MEP, want DEPB benefits

New Delhi (PTI): India's rice exporters at an emergency meeting here on Monday decided to approach the government and demand an immediate reduction of the minimum export price to enable them compete with rival Pakistan.

It was decided that the All India Rice Exporters Association (AIREA) would approach the Commerce Ministry to either abolish the Minimum Export Price (MEP) of Basmati rice or cut it to at least $ 800 a tonne level, an exporter said.

The meeting was called to discuss strategy as the ministerial panel on food last week deferred a decision on reducing the MEP from the current level of $ 1,100 a tonne.

Pakistan is currently selling Basmati at USD 1,000 a tonne to lure international buyers, exporters said. Rice exporters also demanded benefits under Duty Enititlement Passbook (DEPB) scheme as they have made losses of Rs 5,000 crore this season.

"If the government did not reduce the MEP, the losses would go up to Rs 7,000 crore," the exporter said, adding this is mainly due to lower export this year.

Under DEPB, exporters get the benefit of duty-free import equivalent to one per cent of their export value. They can sell the benefit to actual users as well since DEPB is transferable.

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In India's gloomy economy, diamond jobs are not forever

SURAT (Reuters) - For Jaysukhbhai Patel, a job cutting diamonds in Surat was the ticket to a better life for him and his family of four.

Last November, Patel's ticket expired when the small factory he worked in was shut like hundreds of others in India's diamond hub, as demand for the gems dipped in the United States and Western Europe, leaving more than 100,000 workers without jobs.

"I have worked in this industry for nearly 30 years, and I have seen many ups and downs," said Patel, father of three children who now works in a local library for less than half his previous wage of about 4,000 rupees ($78) a month.

"But I have never seen factories being shut like this."

The woes of Surat reflect a wider downturn for India's export sector, which accounts for a fifth of Asia's third largest economy. Exports have fallen four months in a row and the latest data available shows a slide of 16 percent in January.

The job losses in one of India's biggest earners come weeks before a general election that is also a potential hot potato for the Congress-led government.

During the boom years, an estimated 800,000 workers, mostly from the Saurashtra region of western Gujarat state, spent 10-12 hours a day in thousands of factories and workshops, cutting and polishing tiny rough diamonds for export.

Now mostly silent and shuttered, the factories are victims of a global financial crisis that has hit demand for the gem that defined this city for decades.

India processes about seven in every 10 of the world's diamonds, mostly cheaper stones less than a carat. Surat is the heart of the industry, built on the skills of its craftsmen, its cheap migrant labour and its legendary entrepreneurial spirit.

"People have worked hard to build this business for the last 30-40 years, but this downturn has made people risk-averse and afraid to trust their own people," said Anoop Mehta, president of Bharat Diamond Bourse, the exchange in Mumbai.

Tighter liquidity and a weaker rupee, which lost 19 percent against the dollar last year and has slipped more than 5 percent this year already, are also weighing on the industry, he said.

"What they'd earned over several years has been lost in a flash. This business runs on trust, so when payments are delayed, when orders are cancelled, it shakes your confidence."

TOO LITTLE

At about $11 billion, India's exports of cut and polished diamonds is down about 3 percent so far this fiscal year from April, the Gem & Jewellery Export Promotion Council (GJEPC) said.

Several diamond units have abandoned their business entirely, installing textile machinery or taking on other work.

"Gujaratis are very entrepreneurial and street-smart; they will quickly adapt to any situation," said Vasant Mehra, chairman of GJEPC, the main industry body.

"But this is an extreme situation, and every industry has been affected. So I do not know how they will fare."

Gujarat's Hindu-nationalist Chief Minister Narendra Modi has criticised the government for not doing enough to help workers.

Leading Congress politician Rahul Gandhi, touted as a potential prime minister, has visited Surat in a sign of the growing political weight of job losses in the export sector ahead of the April-May general election.

It is hard to come by accurate data on the number of factories or workers employed in Surat, as most units are small and do not maintain employee records, paying workers per diamond.

Estimates range from 500,000 to 800,000 workers in 6,000 to 10,000 factories and workshops.

The industry estimates that about 30-40 percent of factories have shut. More than 70 workers have committed suicide since the downturn, welfare organisations said.

Small traders, who do deals sitting on their parked motorbikes in the heart of the city's business district, now have time on their hands to discuss cricket scores.

The industry has appealed to the state and the central bank for assistance, and has also put together an emergency package of about 5 million rupees for workers.

But that has not been of much comfort to Patel.

"For so many years we've worked 12-14 hours every day for our factory owners. Now they are not helping us," he said. "The assistance they are offering is too little. And how can I learn a new trade at this age?"

FAMILY TORN

Surat and its diamond workers are not alone. A Labour Ministry survey has estimated that India's small-business sector, which accounts for more than 60 percent of economic activity, lost about half a million jobs in the October-December quarter.

Lobby group Federation of Indian Export Organisations has said exporters may cut 10 million jobs in the year to March 2009.

Surat, notorious for its opaque dealings, has long been criticised for its sweatshop-like conditions.

Babu Jirawala, leader of the Surat Diamond Workers' Association, hopes the crisis will bring about change.

"These workers have no job security, no insurance, no pension, not even an ID at their workplace," he said in his tiny office, where workers drop by from time to time for updates.

"So far it was like a family, now it's been torn apart, and owners have abandoned the workers. Now, if the central bank helps, then they must lay down conditions on these factories."

Among larger manufacturers, who are stepping up promotional efforts in new markets such as India, China and the Middle East, there is hope the crisis will strengthen the industry.

India's share of the diamond processing industry is forecast to drop to around 49 percent from 57 percent by 2015, according to consultancy KPMG, with growing competition from China and mining countries such as Angola, Namibia and Botswana.

"We will see greater discipline, and some consolidation. There were overcapacities even during the boom," said Agam Sanghavi, a director at Sanghavi Exports, one of the largest manufacturers in Surat, with several overseas offices.

"Business is down now, but the fundamentals of this industry are strong and desire for diamonds is still strong. We will come out of this stronger," he said.

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MPEDA to promote Indian marine products in US, Europe

Kochi (PTI): With global downturn causing a slump in seafood exports from the country, Marine Products Export Development Authority (MPEDA) will be embarking on a campaign to promote Indian marine products in markets abroad, especially in US, Europe, South Africa and South America.

MPEDA Chairman, G Mohan Kumar, has left for promoting Indian seafood products in South African and South American markets and will also attend the International Boston Sea Food Show, MPEDA sources told PTI.

He was likely to hold discussions with Sysco, a US- based company, which had agreed to promote Indian Black Tiger, the sources said.

In order to overcome the challenges posed to marine exports by recession, there were also plans to launch a Brand India campaign, which had been approved by the government.

The Mumbai-based Messers Lintas India had been given the work order in this regard, the sources said.

There is a 'silent transition' in the consumption pattern of seafood in the developed market, especially the US.

Americans earlier spent about 48 per cent of their food budget for eating outside whereas, due to current recession, there had been significant reduction in those visiting restaurants, Mohan Kumar said.

Woman were visiting retail outlets to buy stuff for cooking at home and this would result in the demand pattern for seafood. Indian marine products should reach the retail chains in the developed market, he said.

However, most of the exporters had not made much headway due to lack of marketing skills and efforts on various other fronts.

Due to the present situation, there were fears that exports of shrimp, which accounted for 52 per cent of India's total marine exports, could be affected.

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Nepal asks India for trade treaty with longer shelf life

Kathmandu (IANS): India and Nepal are seeking to update their nearly 60-year-old trade treaty with the new draft expected to be ready before India goes to staggered polls from April 16.

The draft will be signed into a fresh agreement by the new federal government that comes into being in India in June, officials said.

At the end of the two-day bilateral talks in Kathmandu to review the 1950 treaty that has to be renewed in 2012, Nepal is seeking to increase its time span.

"Currently, the Treaty of Trade has to be renewed every five years," Surya Prasad Silwal, joint secretary at Nepal's commerce ministry who headed the Nepali delegations during the talks, told IANS.

"It was last renewed in 2007 and will continue for five years.

"However, Nepali investors feel five years is too short to gauge the investment climate and set up a venture, which takes nearly four years.

"Nepal is asking for the treaty to be extended to 10 years from now on."

The proposal will now be discussed by the commerce secretaries of both countries.

The talks that ended Friday have come up with other major agreements that are expected to boost Nepal's bilateral trade with India, reduce its ballooning deficit and curb the rampant smuggling due to the open border that causes both sides to lose billions of rupees in revenue every year.

The Agreement of Cooperation between India and Nepal signed in 1972 to control unauthorised trade is now poised for a sea change.

Till now, the pact prevented each from re-exporting third country goods imported from each other. But now, except for forbidden items, the curb will be lifted.

India and Nepal have also agreed to open new trade routes. Now India will throw open four air routes via airports at New Delhi, Mumbai, Chennai and Kolkata. In addition, two more land routes via Brahmadandi and Tanakpur in the west are also in the pipeline.

Nepal has won a significant victory with India agreeing to simplify the cumbersome duty refund procedure.

Now Nepal, which trades with India using mostly the Indian and Nepali rupee, will get the same benefits that India gets from its dollar trade with other countries, including zero excise duty and tax rebate.

India has also agreed to review its quota for three Nepali export items. In the past, these included vegetable ghee, acrylic yarn, copper and zinc oxide.

The changes started with vegetable ghee. Earlier, India's State Trading Corporation was fixed as the canalising agency that determined which Indian states would receive how much of the over 100,000 metric tonne of vegetable ghee that Nepal is allowed to export annually.

Now however, the canalising agent's place has been taken by a Nepal government body and exporters are free to choose the Indian states they want. A similar review of the other three products is also to begin.

The next meeting between the commerce secretaries of both countries will be held in Kathmandu, which will finalise the new draft of the revised treaty and forward it for the final assent to the commerce ministers.

India is land-locked Nepal's dominant trading partner, accounting for over 65 percent of Nepal's outside trade. But while the Himalayan republic exports goods worth about NRS 43-44 billion to India, the imports exceed NRS 100 billion.

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China gears up for heavy unemployment as it more than halves export target

BEIJING: China has revealed it is facing a stark employment situation with export oriented factories finding it difficult to survive the
financial crisis. The government has dramatically scaled down its target on foreign trade to eight per cent in 2009 against the 17.6 per cent achieved last year.

India has set an export target of 25 per cent for 2008-2009 and most economists say New Delhi will miss the target by five to 10 per cent. Though India's export base is much lower compared to China, it seems that the leadership is Beijing is much less confident about foreign trade than earlier years.

Export oriented companies employ between 70 million and 80 million people, the National Development and Reform Commission has said. There are indications of large unemployment loss this year on top of the 20 million job losses that has taken place by February.

A favourite theme of Chinese premier Wen Jiabao is to encourage domestic spending in order to support companies losing export orders and consequently shedding jobs.

He has now offered 103.3 billion yuan ($15 billion) to subsidize purchases of home appliances, vehicles, stocks of grain, petroleum, nonferrous metals and specialty steel products by the rural population.

Many Chinese exporters are nervous about taking fresh orders because foreign buyers have stopped paying in time. Uncollected bills from US buyers have gone up two to three times since January as compared to the same period last year.

The government has promised to create nine million new jobs and offered wide ranging sop to counter the political fallout of the economic slowdown. There will be a 20.2 per cent increase in allocation for assisting agriculture and farmers and a 29.9 per cent rise in the allocation on education, medical and health care, the social safety net, employment, low-income housing and culture.

An interesting aspect of the Chinese strategy against the crisis is to help companies equip themselves with the latest technology at a time when equipment and new technology is available in world markets at cheap rates. The government has raised the allocation on science and technology by 25.6 per cent. It is also offering 20 billion Yuan ($3 billion) in interest rate subsidy for companies buying new equipment.

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