Thursday, January 28, 2010

China's economic policies under fire from world deciders

DAVOS, Switzerland: Political leaders, central bankers and financiers at the World Economic Forum have attacked China's monetary and trade policy and questioned its ability to tackle an overheating economy.

Top Chinese officials face an increasingly difficult task insisting that Beijing is acting in the interest of the world economy by keeping its yuan currency weak against the dollar and maintaining a huge trade surplus - US$196.1 billion in 2009.

Even in a keynote speech on the first day of the Davos forum on Wednesday, French President Nicolas Sarkozy made a veiled attack against China, saying festering trade imbalances were harming economic recovery.

"Currency is central to these imbalances," he said.

"Exchange rate instability and the under-valuation of certain currencies militate against fair trade and honest competition," he stressed.

"Persistent external imbalances" was also raised by Ibrahim Dabdoub, who heads Kuwait's central bank.

"Somehow we have to tackle this part of the imbalances. We have to tackle the imbalances between China and the US, and the Gulf oil exporters and the US," he said.

Billionaire financier George Soros added to the calls from Europe and North America for China to allow its currency to appreciate.

"The case for revaluing the renminbi is getting stronger and stronger," he said, insisting that a stronger yuan would be "good for China and the rest of the world".

Soros also expressed scepticism about whether China would beat asset bubbles building up in its economy.

"The jury is out," he said of China's efforts to contain high property prices and credit. The campaign will be "a major test for the Chinese government".

China's economy has been expanding at red-hot pace, but the growth rate of the property and stock markets has heightened inflation fears which have already forced Beijing to cut bank lending to deter a consumer splurge on cars and property.

Ahead of a keynote speech Thursday on the financial crisis and reforms by Vice Premier Li Keqiang, defending China in Davos has been left to the deputy chief of the central bank Zhu Min.

"It is very important to have a stable yuan particularly in this very volatile market," he said. It was "good for China, it is also good for the world."

Zhu said the cheap US dollar was encouraging trading that could bring a repeat of attacks on Asian currencies during the region's financial crisis of the 1990s.

Investors are borrowing dollars and putting the borrowed funds into emerging markets, where interest rates are higher, generating a better return than saving in the dollars, said Zhu.

This phenomenon, called the "carry trade" is a "massive issue today", he added. "It is bigger than the Japanese yen carry trade 12 years ago."

He urged the United States to tighten its lax monetary policy, making borrowing more costly. Funds could then flow quickly out of emerging markets, back into the US market.

This could cause a collapse in emerging market currencies and spark a repeat of the 1997-1998 Asian financial crisis, some experts said.

Then, investors borrowed the cheap Japanese yen to put into Southeast Asian economies, fuelling strong growth before exports slumped amid a global demand slowdown.

Speculators attacked Southeast Asian currencies, believing they were overvalued. Thailand abandoned its fixed exchange rate to the dollar. Other currencies followed and crashed under crippling debt and soaring interest rates.

"It is what we learnt from the Asian financial crisis. Because the yen went back to the Tokyo market," said Zhu.

"Everyone is concerned about the direction which the capital flow will move. It is an absolute real risk for the year," he said.

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SEZ Act needs overhaul: CBEC

The Central Board of Excise and Customs (CBEC) has recommended an overhaul of the Special Economic Zone (SEZ) Act 2005 saying it has detected gross violations of duty and tax concessions causing it to suffer a revenue loss of Rs 1,75,000 crore to date.

Broadly, the CBEC report has sought the removal of numerous exemptions, drawbacks and concessions that have turned SEZs into tax-avoidance conduits for importers and exporters without any genuine business to back them.

Official sources said this report forms part of the board’s recommendation to the ministry of finance for amendments in Budget 2010-11.

The CBEC’s revenue loss estimate Rs 1,75,000 crore has been derived from concessions extended for capital goods and raw material procured by functioning SEZs developers and those that have been approved and are being set up (SEZs in the process of starting operations have to provide import estimates).

The CBEC had estimated an overall revenue loss of Rs 3,50,000 crore involved in the creation of all SEZs since 2006, when the Act was passed.

The board has submitted its recommendation based on investigation of its field formation towards the end of 2009.

A committee set up under CBEC revealed that the SEZ scheme is subsidising builders for developing residential townships near big cities. SEZ rules specify that at least 25 per cent of the area should be used to develop processing areas for imports and exports. This means 75 per cent of the area in an SEZ comes under the “non-processing” category and is freely available for developers. As a result, several multi-product SEZs have come up with proposals to develop complete townships adjoining the major cities with residential and recreational areas with facilities like entertainment complexes, multiplexes, golf courses, educational institutions, hospitals and so on.

Since these townships are being developed within the SEZ, the cost of capital goods, equipment and raw materials is duty-free.

In view of this, CBEC has recommended that the SEZ Act should make it mandatory to earmark at least 75 per cent of the area in an SEZ for import and export processing.

To avail of exemptions, the CBEC has also recommended that the developer and co-developer of the SEZ should execute a bond-cum-legal undertaking that includes a bank guarantee of at least 5 per cent of the value of imports. This is because the CBEC has found it difficult to recover duties foregone if a unit imports goods under the scheme and the project does not take off within the SEZ.

The report has also suggested redefining the term "exports" by deleting the provision that allows exports to include supplying goods from one unit to another in the same or different SEZ. Investigations have found that the provision enables exporters to claim concession by transferring goods to another SEZ without physically exporting anything.

Also, both the finance ministry and the commerce ministry -- the nodal administrative ministry for SEZs -- should reach a consensus before an SEZ is notified, the report says. Further, provisions of the Customs Act and Central Excise Act should be made applicable to SEZs for recovery of interest, fines or penalties if a unit fails to utilise exempted goods for authorised operations or is unable to account for the goods it imports. Currently, these provisions are exempt under SEZ Act.

Among the other key recommendations are provisions for the valuation of goods under the Custom Valuation Rules 1988, surprise checks by custom officials to examine goods and the introduction of documents for SEZs that procure goods domestically (many tend to show these purchases as imports to benefit from duty concessions).

The report has also said, the direct delivery facility without custom assessment at present prevalent only for movement of all goods within SEZs, should be restricted to emergency cargo and units with impeccable track records.

From the security perspective, CBEC has suggested that cargo, vehicles, documents and people passing in and out of SEZs should be made open to custom surveillance, both physically and through close circuit television as an anti-smuggling measure.

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Abuse of duty-free imports may lead to tighter regulation of SEZs

New Delhi: The practice of a few gems and jewellery units in special economic zones (SEZs) importing European designer jewellery duty-free for wealthy Indian consumers is likely to bring tighter regulation for all SEZ units. About five gems and jewellery units in SEZs are now fighting legal cases against the Centre for allegedly abusing their licences to import raw materials duty-free in order to supply imported designer jewellery to local customers.

The finance ministry and the commerce ministry have decided to introduce a detailed record keeping for SEZ units on what they import duty-free, into which product they go as inputs, and where they finally go as exports. Currently there is no such requirement for SEZ units, since as the government had earlier wanted to free these units because they bring in valuable foreign exchange.

But cases registered against gems and jewellery units in the NOIDA SEZ in the national capital region and SEEPZ SEZ in Maharashtra have brought to light rampant abuse of duty-free import of raw material, forcing the government to bring a closer watch over all SEZ units, said a government official privy to the development.

“Gems and jewellery units argue that it makes economic sense for them to import old fashioned jewellery which could be melted and redesigned for further exports,” said another official who was part of the investigations.

Cases are now underway in the Bombay High Court against five gems and jewellery units in these SEZs for diverting such imported jewellery to local customers outside SEZs. In some cases, designer jewellery was imported as raw material for export production, but what they eventually exported were items like ball bearings. Additional solicitor general Darius Kkambatta is representing the Centre in these cases.

The Centre is now preparing tighter record keeping norms, which would be introduced by amending the SEZ rules. The Centre is also concerned over security, with respect to diversion of such high value items out of SEZs—they could be the means for illegal fund transfer across the border. This was the reason why the commerce ministry had, last November, brought more safeguards against the abuse of the operational flexibility given to SEZ units. The ministry had then allowed investigating agencies such as CBI, police and revenue authorities to enter SEZ premises, conduct search and register cases against offenders without the permission from the SEZ’s development commissioner.

The Centre is debating whether the consignments within SEZs should be randomly examined so that the authorities could ascertain whether the value declared is correct or not. The government fears that illegal cross-border fund transfer can happen by manipulating the declared value of export and import consignments. Now, revenue department officials can check a consignment only on the basis of specific adverse intelligence and after getting consent from the development commissioner of the SEZ

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Friday, January 22, 2010

Dissatisfied with China on Indian exports, govt issues strong demarche


For the first time ever, India has issued a demarche to China on an economic issue. The stern diplomatic protest follows the dissatisfaction over the lack of specific commitments offered by the Chinese government to facilitate export of Indian goods and services to the latter, which are increasingly coming under various restrictions.

The unusual move was taken by India at the conclusion of the meeting of the Joint Economic Group of the two countries in Beijing on Tuesday. The Indian commerce ministry handed the demarche to its counterpart in China listing specific items on which India expects China to take urgent action soon.

Unlike official negotiations where documents are exchanged in advance, the contents of a demarche are unknown to the other side, until it is delivered.

The Chinese were, according to sources, taken by surprise by India’s move. At the base of India’s concern is the sharp rise in trade deficit with China from $1.08 billion in 2001-02 to $ 22.05 billion on 2008-09, that both industry and government believe is exacerbated by the barriers the Middle Kingdom has imposed on exports from India. The Indian government’s move shows that it is very serious about correcting the trade imbalance between India and China. The country is India’s top trading partner.

When contacted, commerce secretary Rahul Khullar confirmed that such a demarche had indeed been delivered to the Chinese ministry of commerce. Recently the US has issued a demarche to China on the Google issue, but India has never pursued its trade dispute with any country to this extent.

According to government sources, the following sector specific issues are listed in the demarche. In order of priority, right at the top is the demand to ‘allow immediate market access for all the remaining 14 fruits and vegetables’ whose import from India is still restricted. Next, is a demand to ‘lift the ban on Indian export of de-boned and de-glanded bovine meat’ and to ‘clear the way for Basmati rice exports’ from India.

The demarche also demands “removal of ‘local content requirement’ and recognition of the international IPR registration regime in order to create favourable investment environment in wind/non-conventional energy”. Suzlon in particular has expresses serious concern about barriers in this sector.

India has also requested landing rights and uplinking facilities for Indian TV channels. Zee TV is very keen on access to China. The document also urges greater access for Indian films in the Chinese market.

In pharma, another industry which has repeatedly expressed concern about problems in China, the commerce ministry wants ‘complete removal of procedural bottlenecks which delay introduction of Indian drugs in Chinese market.’ India also wants China to ‘remove tariff and non tariff barriers on import of power plant equipment and allow sufficient export of met-coke every year, without imposing any export duties, to meet requirement of Indian industry.’

In terms of general, non-sectoral action, the government of India wants China to ‘encourage state owned enterprises in that country to source more value added goods from India.’

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Tuesday, January 19, 2010

Budget may scrap DEPB scheme

Budget may scrap DEPB scheme

One of the most favoured duty reimbursement schemes among exporters — the Duty Entitlement Passbook (DEPB) scheme — is likely to be scrapped, as the government gears up to introduce the Goods and Services Tax (GST) from April 1.

The scheme, which was extended till December 31 in the Foreign Trade Policy 2009-2014, is widely viewed as one of the best incentive schemes by exporters.

However, with the rollout of GST, which aims to eradicate the cascading effects of the current taxation system, the scheme may finally be wiped out from the books.

Exporters end up paying a slew of state-level and other forms of taxes such as electricity tax, octroi, un-rebated tax, un-rebated sales taxes, central sales taxes, none of which is rebated at present due to the federal tax structure. “The incentive schemes have been introduced to lessen the incidence of tax, as taxes cannot be exported,” explained an official.

But, with GST designed to stop the cascading effect of taxes, the basis for having the scheme would no more be there. “Therefore, DEPB might not be extended beyond December 2010, if GST comes in as part of the Budget,” a senior commerce and industry ministry official told. Another official, however, added that even if the government decided to postpone the introduction of GST, DEPB would be allowed to lapse.

With the scheme lapsing, and even after introduction of GST, exporters will, however, continue to pay customs duty on their import inputs, since GST would not subsume customs duty. According to a finance ministry official, apart from the countervailing duty, no other customs duty will be included in GST.

According to the figures released by Budget document in July 2009, the government had to forgo an estimated revenue of Rs 7,092 crore in 2008-09 and Rs 5,341 crore in 2007-08 on account of DEPB.

Sources in the commerce ministry indicated, besides the need to shore up some revenue by phasing out such schemes, the government was under pressure from the developed countries at the level of World Trade Organization (WTO) to finally stop giving the incentive.

The incentives given under the scheme are treated as direct subsidies and, hence, it is not compatible with WTO rules. It was supposed to expire in March 2009 but in the absence of an alternative scheme, it was extended twice till December 2009 and then till December 2010.

The country’s export sector, which had been adversely affected due to the global economic slowdown, resulting in huge job losses across all sectors, has been given a number of incentives to revive. It was recently given an additional incentive, worth Rs 500 crore, to explore newer markets to sell a wide range of products.

Recently, Commerce and Industry Minister Anand Sharma said exports for December had risen year on year to $14.6 billion (Rs 66,500 crore) in December. In November, exports registered an annual growth rate of 18.2 per cent to $13.2 billion, first increase after 13 months of annual decline.

Official trade data for December will be released on February 1.

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Tuesday, January 12, 2010

India to spend additional $110 mn on export push

India to spend additional $110 mn on export push
NEW DELHI: India will give financial incentives to exports of around 2,000 products including those in engineering, electronics and chemicals, Commerce Minister Anand Sharma said on Tuesday.

A senior trade official said the boost, to support a nascent recovery in India's exports sector, would cost upto an additional Rs 5 billion ($110 million) in the current fiscal year ending March.


"We considered it necessary to provide further support especially to those products for which exports are still not doing well," Sharma said.

India's exports rose an annual 18.2 per cent in November to $13.2 billion, the first rise after 13 straight months of decline. Though Sharma said he was optimistic about export growth in the coming months, some sectors continue to struggle.

Director General of Foreign Trade RS Gujral said the financial implication of the move "will be anywhere between 450 to 500 crores (Rs 4.5-5 billion)", and will come out of the trade ministry's current budget.

India will focus on the Chinese and the Japanese markets for exports, Sharma added. Last week, Sharma said his ministry would recommend additional fiscal stimulus for some exporters in the federal budget in February.

A trade ministry statement released on Tuesday said the finance ministry has yet to decide whether to offer more support to export sectors such as textiles, handicrafts, and gems and jewellery.

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Monday, January 11, 2010

It's a little early to recall help: Commerce secretary Rahul Khullar


After thirteen months of contraction, exports grew strongly in November last year, but a number of sectors are continuing to struggle in the highly competitive world market. In an exclusive interview commerce secretary Rahul Khullar talks about why it is important not to suddenly withdraw the stimulus package given to the industry merely on the basis of numbers and other issues. Excerpts:

Exports are no longer in the negative zone. Can we finally say now that exports are ready to stand on their own?

It is still too early. I am not going by the November numbers. That is history. I don’t want to extrapolate that into the future. But through December, I have had discussions with various exporters and that gives me good reason to believe that things are looking better than they were earlier. I can’t say whether those signals would translate into actual numbers immediately or in a couple of months because there is atime lag between orders, deliveries and payments.
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Is there still a case for continuation of the stimulus package?

We also have to see aggregate numbers. I have maintained that we will not be able to meet last year’s $188 billion. What is the point of saying, November or December numbers are 20% better, if in the aggregate you are not better off. Just because a patient in the hospital was almost dead yesterday but not today, is no reason to pop the champagne. I think you have to retain the stimulus till you see some recovery. After all, if keeping stimulus in place keeps economic activity alive, revenue comes in.

Some economists are of the view that the India-Asean free trade agreement will not fetch much benefit for the Indian industry and all gains will be on the services side. How true is it?

That is not fair. We have very strong interests even on the goods side. Laos and Cambodia may be small, but think of Indonesia, Thailand and Malaysia which are huge open economies and heavily import dependent. We have deliberately kept looking at the West. They (Asean countries) are our neighbours. We should make an effort and try to do business with them or else watch China take over those markets. Indian companies are already doing business there. Toyota Kirloskar was exporting stuff to Thailand till recently when they had to stop because of some glitch. Whirlpool, too, is exporting refrigerators there. We have to give it a fair chance.

Why are there still concerns surrounding the FTA?

I will tell you where the problem is. In 2004 we did an early harvest programme with Thailand. That got us a very bad name. On 74 lines, we reduced duties straight to zero. We were inundated with imports of these items. I agree that it was a mistake. But merely because you made a mistake once does not mean that you are going to do it again. Now I have protected my defensive concerns adequately and have pushed my interests.

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'Time not ripe for removing stimulus'


With export decline getting arrested, commerce and industry minister Anand Sharma is now setting his sights higher. In an interview with ET NOW, he explained his vision for rapid economic growth, poverty alleviation, food production, FDI policy and the role of SEZs in the country’s export growth. Excerpts:

Has the Indian economy recovered from the impact of global slowdown?

The slowdown was universal, but not uniform. India started feeling the impact from October 2008. The export sector was among the first to be affected and the negative growth in exports peaked to around 40% in May 2009. There has been a turnaround due to a number of policy initiatives: the stimulus packages, Budget 2009 and the new foreign trade policy. My major concern is labour-intensive sectors like handicrafts and I feel that recovery is not complete yet.

India’s share of global exports is less than 2% and we should close the gap by the middle of 2011 and the aim thereafter is to achieve 25% growth in exports every year. We should double India’s trade by 2010 in terms of volume and by 2020 in terms of India’s share in global trade. The negative growth in exports tapered off in October 2009 to 6% and then we saw 18% growth in November 2009. We are not getting complacent, we know that low base effect has played a role in getting to the positive territory.

Even in December 2009, I hope the growth in exports will be positive. Seen in the context of the global export contraction of 9%, we have tackled the slowdown bravely. If major governments across the globe had not acted in time, in a coordinated manner, the recession could have turned into a depression.

What will be the right time to wind down the stimulus measures?

Recovery so far has been stimulus-led and stimulus-fed. We will end 2009-10 with a GDP of 7.5%, if not more. Industrial growth is in double digits and the core sector is doing well. Domestic demand has played a role in the recovery and generation of jobs as well as income. Our banks did not need any recapitalisation and India’s stimulus has worked the best. Savings rate has grown and that has provided a solid base. We need high growth over a sustained period to bring millions out of poverty. Therefore, we have to be pragmatic and realistic in our approach.

Even if we have done well, we need high level of growth to sustain the momentum, create infrastructure and generate jobs. We have to sustain high growth for at least two decades. Interest subvention and easier availability of credit should continue. Due to high cost of capital, Indian industry was always at a disadvantage. I know that FM has his concerns. Being a seasoned leader, he is well apprised. We would not have growth without the stimulus measures. A few months of good show in the run-up to the Budget should not lead to steps that will hurt us in the long run.

What steps do you have in mind for improving the investment climate?

We have an investment-friendly regime and a regulatory framework to address grievances. India has been ranked as the second most-sought-after investment destination in a survey done in Japan. Previous studies had put India behind China and the US, but the new study places India ahead of the US. Our investment regime provides stability and predictability, but there are state-specific problems.

We have set up a core committee to bring about a uniform regime across the country and the panel’s report should be in by March. We are also expanding e-governance and promoting the country through Invest India. Investment is safe in India, returns are good and foreign investors get a fair deal. Now we are in the process of bringing out a composite document containing the FDI policy for all sectors, replacing the 177 press notes that govern the FDI norms now.

Should India venture into Africa for production of food?

We should look at partnerships between private sector in India and Africa. The partnership could be extended to the government level as well and should be a mutually-beneficial one. The African countries concerned should be in a position to enhance their production and meet domestic demand, while the surplus can be supplied to India. Barring pulses and edible oils, we are not short of food except times when vagaries of nature affect production. However, it’s time we launched a second green revolution and meet our growing demand domestically. Strictly speaking, it is not my domain, but we should reduce our post-harvest losses.

Should we allow FDI in retail?

FDI is permitted in cash-and-carry trade, up to the wholesale point. And corporates are allowed to invest in retail. That should take care of the backend. Once the retailers buy directly from farmers, both consumers as well as the producers will benefit. I don’t think the time has come for us to review the FDI policy. After infrastructure and energy, I consider food processing to be one of the important segments that need investment promotion and FDI is already allowed in that segment.

Are you looking at a review of the policy for FDI through holding companies?

Policies are dynamic, but there is no review now. We are only putting together all the existing policies in a single, composite document. In the case of FDI through holding companies, the new policy is clear. It has been formulated by an empowered group of ministers and approved by the Cabinet.

What role will SEZs play in your long-term export promotion plans?

SEZs are doing well and exports from this segment were around Rs 1 lakh crore during 2008-09. I expect exports from this segment to virtually double this fiscal year. SEZs should also bring in new technology and infrastructure upgradation. I have said that incentives available to SEZs should continue. We are now planning to set up dedicated investment and manufacturing zones that will focus on the manufacturing sector. The share of manufacturing in our GDP should go up to 25% as compared to 16% now. We will identify partner-states that will host these zones. The policy is under discussion and the concept will be finalised soon.

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Garment export growth may remain flat in FY '10

Being hit badly by recession in western economies like the US and Europe, which form the primary markets for Indian garment exporters, the industry may close the financial year 2009-10 at around $ 10 billion, similar to last year. While the latter part of financial year 2009-10 may have seen an improvement in western economies, garment exporters in India believe the impact of recession was bad enough to maintain a status quo in growth of garment exports.

"The first two quarters of financial year 2009-10 were really bad for garment exports. It was only from the third quarter that things began to improve. The good part is that instead of a major decline in growth, the industry might close this year at last year's level or a little less than that," said DK Nair, secretary general, Confederation of Indian Textile Industry (CITI). According to Nair, garment exports from India may be barely touch $ 10 billion in FY 2009-10 as against $ 10.9 billion of last year.

The industry, which comprises around 8,000-10,000 garment exporters, supplies garment mostly to the US and Europe. However, in order to improve the numbers, garment exporters are looking at newer markets like Australia and Latin America.

"Although the US and Europe markets are showing the signs of revival, the first half of the year was in doldrums. Upto November, garment exports were 7-8 per cent less than last year. It is the current season's orders that seem reasonably good. Hopefully, at the end of this year, we may close just about what we did last year. Since our main markets are badly hit, every exporter is now creating alternatives for himself, like newer export markets or domestic retailers," said Rahul Mehta, president of Clothing Manufacturers' Association of India (CMAI).

The fresh markets for garment exports from India include Australia, Latin America, Middle East and Japan, among others. However, SN Rangaiah, general manager (finance) at Gokaldas Exports Ltd. said the order books from these new markets is still relatively less.

"These markets are not voluminous in nature. Nevertheless, order books have been steadily growing since last two quarters. Some of the garment exporters are also looking at domestic market. But our past experience has been that money circulation is an issue in Indian retail scenario," said Rangaiah.

One of the largest exporters of garments in the country, Gokaldas Exports, which has a capacity of 300 million garments per month, has been witnessing an order book of Rs 250-300 crore per quarter.

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India Exports Rise to 15-Month High of $14.6 Billion

Jan. 11 (Bloomberg) -- India’s exports increased to a 15- month high in December as recovery in the global economy boosted demand for the South Asian nation’s products.

Overseas shipments surged to $14.6 billion after rising 18.2 percent from a year earlier in the previous month, the first increase in 14 months, Trade Minister Anand Sharma told reporters in Mumbai today. Exports are rebounding after an average 17.4 percent decline in the past year.

A revival in exports may boost production at companies in India and bolster growth 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. A separate report yesterday showed China’s exports climbed 17.7 percent in December, the first gain in 14 months, as Asian economies recover from the worst worldwide recession since the 1930s.

“We shall sustain this positive trend” in the current quarter, Sharma said. The government will announce more stimulus measures for some sectors tomorrow, he said.

Stimulus measures worth more than $2 trillion worldwide and record-low interest rates are reviving demand for clothes made by Gokaldas Exports Ltd. and cars produced by Maruti Suzuki India Ltd., which makes half the cars sold in India.

Overseas sales of cars made by Maruti Suzuki, Hyundai Motor India Ltd. and others rose 39.3 percent in December from a year earlier. Total passenger vehicle exports jumped 40.4 percent, compared with a 15.6 percent gain in the previous month, according to the Society of Indian Automobile Manufacturers.

Stimulus Measures

Various stimulus measures announced by India’s government have helped exporters bear the impact of the global demand slump, Sharma said. The government injected fiscal and monetary stimulus worth more than 12 percent of gross domestic product between September 2008 and April last year.

The U.S. returned to growth in the third quarter after a yearlong contraction and France, Germany and Japan have exited recession. The U.S. economy, India’s second-biggest export market, expanded 2.2 percent in the July-September quarter.

India is boosting its efforts to increase overseas sales by developing trade agreements with other countries. The South Asian nation in August signed a free-trade accord with South Korea and the 10-member Association of Southeast Asian Nations as it attempts to reduce its dependence on the U.S. and Europe, which account for about 40 percent of the nation’s exports.

India in August also announced tax refunds for exporters to explore new markets in Africa and Latin America.

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Rice Export Prices Unlikely to Decline, Mohanty Says

Jan. 11 (Bloomberg) -- Rice export prices will probably be sustained at about $600 per metric ton after drought and floods damaged crops in India and the Philippines, an agricultural economist said. Rice futures rallied in Chicago. “It is safe to say that the rice price is not going back to $300 per ton any time soon and is likely to remain around $600 in the near term,” Samarendu Mohanty, a senior economist at the International Rice Research Institute, said in a report to be published today, without citing a definite time frame.

The Asian rice price benchmark jumped to $607 per ton in Thailand last week from 2009’s low of $525 as the Philippines, the world’s biggest importer, advanced purchases and on concern India may become a net importer after a drought parched crops last year. The grain has averaged $616 since Dec. 2, according to Bloomberg data.

Higher costs for the staple for half the world’s population may push more people in least developed nations into hunger and some Asian governments may be forced to subsidize rice, widening their budget deficits, Frederic Neumann, senior Asia economist at HSBC Holdings Plc., said by phone from Hong Kong.
“One thing we saw in 2008 is that a gradual increase may well turn into a sudden spike and this could lead to political challenges further down the road,” he said.
Rice rose to a record in Chicago in April 2008 and the Asian benchmark export prices jumped to their highest level ever a month later, after India and other exporting countries curbed shipments, adding to concerns of shortages that sparked riots from Haiti to Egypt.

Import Tenders

The Philippines may need to buy between 500,000 and 1 million tons overseas, adding to purchases from tenders last quarter, the U.S. Rice Producers’ Association said in a report published Jan. 8. State-run National Food Authority purchased about 2.2 million tons of overseas supplies in the tenders for delivery this year, spokesman Rex Estoperez said last week.

Rice futures in Chicago have jumped 34 percent from last year’s low of $11.195 per 100 pounds. The March-delivery contract rose for the first time in five sessions, gaining as much as 1 percent to $15.10 in after-hours trading in Chicago, reversing a 0.5 percent loss earlier.

Futures may rise to $16 per 100 pounds in the next three months as the Philippines remains in the import market, Peter McGuire, managing director at CWA Global Markets Pty, said by phone from Sydney today.

Global rice stockpiles are forecast to decline 2.7 percent to 121.1 million tons at the end of the 2009-2010 season because of smaller crops in countries including India, the Philippines, Iraq, Nepal, and Pakistan, the UN Food and Agriculture Organization said last month.

Global Stockpiles

Still, the global inventory will be higher than the 110.8 million tons in the 2007-2008 season, the FAO said.

India’s government will have 42 million tons available for sale to the poor in the marketing year ending March 31, against a requirement of 25 million tons, the U.S. Department of Agriculture’s Foreign Agricultural Service said last month.

Stockpiles in India “should provide much-needed relief to the market,” because it will mean the South Asian nation does “not need to turn to imports,” Mohanty said. India, the world’s second-biggest producer, may harvest 71.65 million tons of the monsoon-sown rice, higher than the 69.45 million tons forecast in November, the government said last month. Warehouses held 15.35 million tons on Oct. 1, the start of the new marketing year, the government said Jan. 5.


India Imports

“Regardless of the press from the Indian government, the belief is widespread throughout the rice trade that something between 2 and 3 million tons of imported rice will be bought there sometime in the next three months,” the U.S. Rice Producers said.

A purchase in excess of 2 million tons by India will make the South Asian nation a net importer for the first time in more than two decades. India, which ships higher-value basmati rice, was forecast by the U.S. Department of Agriculture last month to export 2 million tons this year.

“We see the human and political imperative there to make this unavoidable,” U.S. Rice Producers said, referring to India importing as much as 3 million tons. “It is difficult to see prices falling much, if any, given the world situation.”

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Copper exporters for removal of value norms

VADODARA: Copper exporters in the country have teamed up against the existing value-addition norm and have sought a change in the exim policy.

The industry imports raw copper and exports finished products. As per the norm fixed by the ministry of commerce, unless the exporters achieve 15% value addition, they cannot import material of the same value for their exports. Simply put, exporters cannot import goods worth more than Rs 85 if their exports are worth Rs 100. But, if there is value addition in the finished products, they can import raw material up to Rs 100, a value equal to their exports.

Faced with rising prices of raw copper in the international market, exporters are finding it tough to meet 15% value-addition norm. Dealing in copper winding wires, enamelled wires, busbar wires and other products, they say they are unable to achieve value addition and are hence unable to import in the desired quantities. Subsequently, there is a loss of big chunk of revenues. Earlier on August 27, 2009, the government had issued notification to encourage value addition in manufactured exports and had stipulated a minimum 15% value addition on imported inputs under advance authorisation scheme.

The players say that 98% of the final product is copper. For such high percentage, value addition is difficult to incorporate. Now the Winding Wires Manufacturers’ Association of India (WWMA) has made a representation before the ministry of commerce and DGFT, asking the agency to restore the old norm that existed in the exim policy 2004-09.

WWMA chairman Shreegopal Kabra told “India exports around 3 lakh tonne of copper (which includes raw copper). This could be worth over $210 million. The rise in prices of copper in both the domestic and international arena has led to a disruption in the businesses of WWMA members. In December 2008, the average London Metal Exchange copper rate was $3,072 and it has been continuously rising thereafter. It crossed $6,982 in December 2009, which is nothing less than a 120% rise in the prices of raw material.”

“When the prices were around $3,072, exporters could make a value addition of 24% between December 2008 and January 2009 in enamelled copper winding wires. But now with the prices at $7,500, only 10% of value addition is feasible,” said Mr Kabra, adding that exporters are losing around $60-80 a tonne as they have to purchase the raw material from local sources by paying a hefty duty.

The Federation of Association of Small Industries of India (FASII) president and owner of Vidya Wires S S Rathi said, “It is high time that government supports the exporters as its takes years to develop the export market. Unfavourable policy change will take a heavy toll on the strenuous efforts put by one and all including government agencies to develop this market.”

Mr Kabra feels, “Copper wire sector must be given relaxation in line with that given to the gems and jewellery sector.” Among the 27 organised winding wire producers, Birla Copper and Sterlite Industries are the biggest exporters from India. The size of the domestic virgin copper market could be around 7 lakh tonne, of which 3 lakh tonne is being exported, Mr Kabra added.

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Saturday, January 9, 2010

Efforts to push up synthetic textile exports

MUMBAI: In a strategic initiative aimed at augmenting the scale of the $3.4 billion man-made textile exports sector, the nodal body, Synthetic & Rayon Textiles Export Promotion Council (SRTEPC) is organising ‘Source India 2010’, a B2B event to attract more buyers especially from the Gulf and African continent.

The event is to be held on January 28 and 29 in Mumbai under the aegis of the Ministry of Textiles and will showcase the latest range of world-class textile products from India.

Over 100 players from the industry would display their products.

Product range

The product range would include basic and fancy yarns, apparel fabrics, trimmings and embellishments, fashion accessories, home textiles, high performance clothing, and industrial and specialised clothing.

The global man-made fibre trade accounts for 60 per cent of total trade in textiles. G. K. Gupta, Chairman, SRTEPC, while addressing the media said India’s share in exports was below 3 per cent at Rs. 15,767 crore ($3.42 billion) in 2008-09. “Our vision is to capture 4 per cent of the market by 2011-12 and touch $6.2 billion.”

“The event will target small and medium manufacturers/exporters and will help consolidate India’s market position in the export markets,” he said.

Man-made fibre exports have been growing at a healthy 12 per cent annually over the last five years in spite of global slowdown.

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Sugar exports capped, steel imports allowed

NEW DELHI: The Centre on Friday took a twin step of putting a virtual cap on sugar exports and allowed unrestricted steel imports to arrest their spiraling prices.

Worried over soaring prices, which has hit the common man hard, the centre is also exploring the ways of processing the imported raw sugar lying at the ports following up banning its process in the state.

The government gave 15 more months to sugar millers to meet their export obligations to plug exports under any manner in its bid rein in the prices which has more than doubled since last January and touched Rs 45 per kg in the retail markets.

The government has given the millers time to till March 31, 2011 to meet re-export obligations of around one million tonne sugar against raw sugar imported between September 2004 and April 2008 under the advance licence scheme. The obligation was to be met by December-end. The step is expected to augment the domestic supply.

The food ministry said it is exploring ways to process imported raw sugar that is lying at ports due to the ban imposed by up. "We are looking at what could be done to process the raw sugar lying at various ports," a ministry official said, adding it may relax import norms so that processing can take place in some other states. As a second option, the sugar millers can also discharge their obligation by paying customs duty for the sugar imported between september 2004 and april 2008, DGFT said.

On the steel front, which has also seen a 10-15% jump in prices, the centre allowed unrestricted imports of hot-rolled steel, mainly used by auto and consumer durables industries, which were planning price hike to offset rising raw material costs.

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Friday, January 8, 2010

Sharma to announce sops to select export sectors soon

Contrary to what the finance ministry has said about rolling-back of the stimulus packages to industry, the commerce ministry is considering extending sops to select export sectors in the next few days.

Commerce and industry minister Anand Sharma told reporters in New Delhi on Thursday that the ministry would take a decision on the sectoral stimulus within a few days.

Sharma said his ministry had reviewed various export sectors, which were still facing problems even as shipments turned positive in November.

Though Sharma did not name the sectors that would be eligible for government support, sources say these would include labour-intensive segments like gems and jewellery, leather, engineering and carpets may get sops like tradable entitlements for duty-free imports.

Even as exports have turned positive from November after recording over 18 per cent rise, Sharma said there was a need to adopt a cautious approach. India's exports rose an annual 18.2 per cent in November to $13.2 billion, the first time following 13 straight months of decline. He added that recovery was weak...and the pattern was not uniform. He said that the growth had come on a low base last year adding that he had urged caution.

The sops would be extended by the commerce ministry through its budget allocation, he said.

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Thursday, January 7, 2010

Maran pulls up cos for 'generalised' exports

NEW DELHI: Union minister for textiles Dayanidhi Maran on Wednesday criticised the ailing domestic industry for being too generalised in selecting export items and also concentrating only on US and European Union (EU) markets.

“We don’t look beyond USA and the EU, our product mix is very gen-eralized , our product basket is limited to tops, trousers, T-shirts and some hosiery items, our export basket does not contain any of the five of the yop trading textile goods in the world,” said Mr Maran at a function organised by FICCI on emerging global trends and the Indian textile industry .

He added that under the present scenario, the ministry has fixed a growth target of 12% to reach a market size of US$ 115 billion in the next five years and a global trade share of 7%.

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Wednesday, January 6, 2010

India offers $125 mn lines of credit to Zambia

LUSAKA: India on Wednesday offered lines of credit totalling $125 million to Zambia, even as both countries agreed there was need to reinvigorate ties to reflect changed times.

On the second day of his visit to Zambia, the first by an Indian leader in two decades, Vice President Mohammed Hussain Ansari held formal discussions with George Kunda, the Zambian vice president. He also called on President Rupiah Banda.

After the glitter of the state banquet, it was time to get down to business, starting with an agreement signed between Exim Bank of India and the Zambian government to extend $50 million in concessional terms for the construction of the Itezhi-Tezhi Hydropower project.

"This project is designed to generate 120 mega watt of energy which will contribute to the electricity sector (in Zambia)," external affairs ministry secretary (West) Vivek Katju told reporters.

The Itezhi-Tezhi project is being implemented by a joint venture company formed by Zesco and Tata Africa Holdings. "The $50 million will go to Zesco's equity participation in the project," said Katju.

Further, India has also extended another $75 million of line of credit for a period of two years to be used for social sectors. "We now await proposals from the Zambian government," he said. Besides, grant of $5 million was also offered for investment in sectors like health and education.

At the 2008 India Africa Forum Summit, India had extended lines of credit of $5.4 billion for a period of four years. Out of that, $1 billion has already been utilised.

Katju pointed out that as all lines of credit had some characteristics, so were India's - which meant that "85 percent of the material, equipment had to be sourced from India".

According to Katju, the meeting between the two vice presidents was characterised by "extraordinary warmth", where both leaders also mentioned historical ties from the anti-colonial struggle.

"On the occasion, the Zambian vice president spoke about inspiration from Mahatma Gandhi's non-violence struggle. But, there was also recognition that times have changed," he said, adding that both felt need to "reinvigorate and reenergise" relations.

The Indian diplomat said that joint commission meeting will be held soon so that full agenda can be worked out for a fuller engagement. The relations were being focused in three areas of cooperation at the bilateral, Pan-African and multilateral level. "At the bilateral level, the Zambian leadership was interested in tapping India's potential in human resources development," he said.

While Ansari held discussions, his wife, Salma Ansari, made a visit to a charity project run by the Missionaries of Charities in Lusaka.

On Thursday, Ansari is scheduled to meet with Zambia's first president, the legendary Kenneth Kaunda, who was a close friend of Indian prime minister Indira Gandhi, before leaving for the second leg of his tri-nation journey to Malawi and then Botswana.

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Ministry proposes changes in SEZ rules

New Delhi: The commerce ministry has proposed measures to make it easier for developers to exit special economic zones (SEZs) that have been struggling with a contraction in global demand for goods produced at the tax-free enclaves.

Specific provisions for the denotification of SEZs have been been put up for public comments till Thursday, after which they would be formally notified.

The ministry proposes to appoint zonal development commissioners (DCs) whom developers would approach for approval or denotification of SEZs. They would in turn send their recommendations to the Board of Approval, which developers have until now been approaching directly.

Seven out of an existing 20 development commissioners would be given the additional responsibility of zonal DCs.

“This will substantially reduce the burden on the Board of Approval and save valuable productive time though the ultimate decision-making power remains with the Board of Approval,” said Hitendra Mehta, head of law firm Vaish Associates, based in Gurgaon near New Delhi.

The draft notification also proposes to insert provisions for denotification of SEZs, which had until now been at the discretion of the Board of Approval. Now developers who may wish to close down their tax-free zones will have to approach the zonal DC, who will send the proposal to the commerce ministry with recommendations.

SEZs, which are required to be net foreign currency earners to qualify for fiscal incentives, have been hurt by the global downturn and contraction in demand for domestic goods and services. As a result, many developers have approached the Board of Approval to denotify their tax-free enclaves. Till date, the Board of Approval has accepted the denotification requests of 10 SEZ developers.

Present SEZ rules specify that an SEZ has to be operational within three years without defining an operational SEZ. Now the ministry has proposed to make an insertion in the SEZ rules saying that if at least one SEZ unit is operational within the zone, then the SEZ need not apply for an extension of the formal approval.

The draft notification also proposes to include a provision that the minimum built-up area within such a zone has to be constructed within 10 years from the date of notification of the zone, with at least 50% of the area to be constructed in five years. This applies to select product zones such as information technology, pharmaceuticals and biotechnology, which require a minimum area of 10ha of land.

The ministry has also proposed to promote agro-based SEZs by reducing the minimum area requirement from 100ha to 40ha.

“The proposed amendments are intended to clear doubts of SEZ developers,” said L.B. Singhal, director general of export promotion council for export-oriented units and special economic zones.

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Monday, January 4, 2010

No end in sight to Tirupur dyeing units' stir

COIMBATORE: Even as the New Year has cheered the export prospects for thousands of knitwear units at Tirupur, what has dampened their spirit is

the continuing strike by the dyeing units in support of their demand for sharing the cost of effluent treatment by the Centre and Tamil Nadu Government.

On Monday, the indefinite strike spearheaded by Dyers association of Tirupur entered 11th day and the exporters are worried about meeting the delivery schedules on time. "If the strike continues further, it will be detrimental to the industry," said a leading exporter.

He said, garment making is a chain process and even if there is stoppage in one area of work, the entire chain will come to a standstill at some point of time.

Already the knitwear industry is incurring a production loss of around Rs 30 crore per day due to the strike. Only few big export houses have in-house processing facilities and it accounts for only 20% of total dyeing units in Tirupur.

Warsaw International’s managing partner Raja M Shanmugam told that the situation is getting worse for exporters, who are dependent on outsiders for dyeing and bleaching.

"January is a crucial month for us as the cluster is famous for cotton knitwear," he said, adding, the industry starts executing summer orders to Europe and US from this month onwards.

"If there are delays in shipments, then our buyers might move to our competitors in other countries like Bangladesh," he added.

He said, the shops in the ‘West’ display new collections month on month and if the shipments for any particular month is delayed then it will result in cancellation of orders.

"We are yet to gauge the reaction of the buyers, as they were on a holiday for the last two weeks due to Christmas and New Year. We have narrated to them the problems faced by the industry and are anxiously waiting for their response," he added.

The exporters usually incur penalty charges of around 20% of total cost of product for late shipments and another 15% will be lost for airlifting the consignments. "Since we are working on a wafer thin margin of 5% to 6%, the industry will incur 30% loss due to this strike," Mr Shanmugam added.

If exporters are the ultimate sufferers, the strike had started affecting other segments of value chain also. Tirupur-based Indian Dyes and Chemicals MD L Narayanaswamy said the business is almost down by 80% as only individual dyeing units are executing orders now. According to sources in Pure group, which is a major supplier of chemicals to units in Tirupur, " Normally, the dyeing units used to observe a token strike to highlight their stand on their pollution front. For the first time, the strike is continuing for long".

Further, they said, " those on strike are mainly the units forming part of the cluster group and which have set up common effluent treatment plants. Whereas, 16 to 17 major dyeing units, which have set up their own individual ETPS, have not joined the stir. They are also under pressure to support the agitation. Nearly 60% of our supplies go to these individual units and the rest to cluster units. To that extent, the stir has affected our business".

Tirupur Dyes and Chemicals Association president K Nagesh told ET that the dyes and chemicals companies in Tirupur are losing nearly Rs 3 crore sales every day due to the strike.

For tackling pollution, he said, low salt range dyes are available in the market but they are 25% to 35% costlier than the normal dyes. "However, using such products will reduce environmental pollution," he added.

In October, the Supreme Court imposed a penalty on dyeing units in Tirupur for cleaning river Noyyal and other water bodies polluted by the discharge of toxic effluents from their factories all these years. DAT general secretary K Krishnan told ET that the dyeing units are in the process of paying the penalties individually before January 5 this year as per Apex Court order.

"It has nothing to do with this strike. We are observing this indefinite strike mainly to get financial support from the state and central governments for complying with the strict pollution control norms," he said, adding, the association wanted the two governments to share about 75% of their ‘burden’ (Rs 800 crore) incurred in establishing and upgrading common effluent treatment plants to achieve zero discharge. He said, the 600-odd dyeing units participating in the strike are facing a production loss of Rs 9 crore daily. Also, the industry is afraid of losing 50,000 to 60,000 employees, who are in the process of returning to their native places in Southern Tamil Nadu following closure of dyeing units for the past ten days.

"In today’s scenario, it is very difficult to retain work force and we are trying to keep them in Tirupur by paying wages despite strike," Mr Krishnan said. Industry sources added, the workforce have mostly left the city and are not expected to return till Pongal festival is over by mid-January.

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Friday, January 1, 2010

India to press US on non-tariff trade barriers

NEW DELHI: India will hold a fresh round of discussions with the US in the New Year on protectionist measures being taken by Washington in the backdrop of the global economic slowdown.

Measures such as the proposed withdrawal of tax breaks for companies that outsource to countries like India and various non-tariff barriers imposed on imports in the form of stringent quality standards will be in focus. The issues will be taken up by commerce minister Anand Sharma during his visit to the US in early 2010, a commerce department official has said.

“Although the US is one of our largest trading partners, our ties could deepen if the country eases some of the non-tariff protection it accords to its industry,” a commerce department official, who requested not to be named, told.

While some of the issues were touched upon during US trade representative Ron Kirk’s visit to New Delhi in October, India is expected to hold detailed discussions and look for solutions during Mr Sharma’s visit.

India’s merchandise exports to the US fell 19.48% from $21.9 billion during the period January-October 2008 to $17.67 billion in the corresponding period of 2009. The slowdown also had an impact on India’s imports from the country, although the fall in imports was much lower at 9.56 %, from $ 15.45 billion during January-October 2008 to $13.98 billion in the corresponding period of 2009.

Although US President Barack Obama’s proposal to curb tax breaks for companies outsourcing from the US will not directly impact trade in goods, India does not want the Bill to be passed as it would discourage US firms, that provide jobs in India, to continue their operations or set up new ones.

India has taken up the issue of tax breaks for outsourcing firms officially with the US. The minister’s visit would be used as an occasion to reiterate the point, the official said.

The minister will also discuss various non-tariff barriers, such as product characteristic requirements, marking requirements and labelling requirements, imposed on imports which make the process of selling goods to the US extremely tough.

Many sectors such as agriculture, textiles, chemicals, pharmaceuticals, seafood and automobiles have been complaining about the barriers being faced by them in the US.

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