INDIAN ECONOMY

Article-1

Dated-01/11/2009

WTO and Doha round-

Uruguay Round of Multilateral Trade Negotiations comprised 28 Agreements. It had two components-

1. WTO Agreement
2. Ministerial decisions and declarations

World Trade Organization (WTO) was founded to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakesh Agreement, replacing the General Agreements on Tariffs and Trade (GATT). The WTO has 153 members which represent more than 95% of total world trade and 30 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference’s policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO’s headquarters is at the Centre William Rappard, Geneva, Switzerland.

WTO deals with

1. Regulation of trade between participating countries
2. Providing a framework for negotiating and formalizing trade agreements
3. Dispute resolution process aimed at enforcing participants’ adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments.

What is Doha Development Agenda?

WTO is currently endeavoring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world’s population.

However, the negotiation has been dogged by “disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a ’special safeguard measure’ to protect farmers from surges in imports. At this time, the future of the Doha Round is uncertain.”

Ministerial conferences & bulwark of disagreements

First ministerial conference – Singapore 1996

The inaugural ministerial conference was held in Singapore in 1996. Disagreements between largely developed and developing economies emerged during this conference over four issues initiated by this conference, which led to them being collectively referred to as the “Singapore issues”.

The Singapore issues were:

1. Transparency in government procurement
2. Trade facilitation (customs issues),
3. Trade and investment
4. Trade and competition.

The developing countries opposed these issues as they were not in their favors. The European Union, Japan and Korea favored these issues and pushed them in successive conferences. US said that it could accept some or all of them at various times, but preferring to focus on market access.

Fourth ministerial conference Doha 2001

The Doha Development Round was launched at the conference. The talks are stalled even today and impetus is on reaching a final agreement. The major impediment is different interests of developed and developing nations.

Fifth ministerial conference, Cancun Mexico 2003

This ministerial conference was called for to reach an agreement on the Doha round. However, an alliance of 22 southern states, the G20 developing nations (led by India, China and Brazil), demanded agreements on Singapore issues and called for an end to agricultural subsidies within the EU and the US. There was no progress made in this round too.

Sixth ministerial conference: Hong Kong 2005-

The sixth WTO ministerial conference was held in Hong Kong from 13 December – 18 December 2005 with an aim to reach an agreement on Doha Round by 2006. In this meeting, countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006. Further concessions to developing countries included an agreement to introduce duty free, tariff free access for goods from the Least Developed Countries, following the Everything But Arms initiative of the European Union — but with up to 3% of tariff lines exempted. Other major issues were left for further negotiation to be completed by the end of 2010

Seventh ministerial conference- Geneva 2009

This will held in Geneva from 30 November–December 2009.

Global competitiveness report 2009-10

What is Global Competitiveness Report?

The Global Competitiveness Report is a report annually published by the World Economic Forum since 1979. This report “assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity.

Top 10 Countries with GCI [2009-10]-

1. Switzerland 5.60
2. United States 5.59
3. Singapore 5.55
4. Sweden 5.51
5. Denmark 5.46
6. Finland 5.43
7. Germany 5.37
8. Japan 5.37
9. Canada 5.33
10. Netherlands 5.32

India has moved up one position to 49 (GCI 4.30) in the Global Competitiveness Report 2009-2010.

Finance Ministers of the world’s 20 most powerful countries are gathering for a two-day meet starting to discuss reforms to tackle black money and money laundering in London

Doha Round-Issues, Implications & Challenges

Trade ministers from about 35 countries met in Delhi recently to give impetus to the Doha round of trade talks. This article covers in a condensed form the background of the stalled Doha round of Trade negotiations, understanding the issues of the developing countries and challenges ahead.

What was the Objective of Delhi Meeting?

The objective of the Delhi meeting was neither to focus on negotiations on specific topics nor to reach an agreement .The objective was to concentrate on working on a timetable for the talks. India’s foreign trade minister, Anand Sharma had invited the leaders to get some momentum into the negotiations.

The Echo of the Issues-

The core issues were echoed in G20 summits in Washington in November and London in April as well as the G8+ summit in L’Aquila in July apart from a meeting of farm exporters in June at Bali and again at the Organisation for Economic Cooperation and Development (OPEC) in Paris and in July at a meeting of the Asia-Pacific APEC grouping.

Is America taking too much Interest?

United States is key to any deal is expected by many other countries to start engaging in the negotiations; however the key focus of Obama Administration seems to be upon economic crisis and health care besides to be able to point to new opportunities for U.S. business.

What is Emphasis of Developed Countries?

Developed countries emphasize the big emerging countries like China, India and Brazil to open their markets and not make excessive use of special arrangements for developing countries in a Doha deal to shield their industries from competition.

What are the Issues & Challenges?

There are gaps and unresolved issues on agriculture and non-agriculture market access (Nama). The center point of talks involves efforts to open up trade in agriculture and industrial goods.

The involves rich countries to open their protected markets for agriculture produce and cutting their heavy subsidies they provide to their farmers & agro exporters , as they are able to wipe out the farmers in poor / developing countries out of the market.

The richer developing countries will also cut industrial tariffs in return so that it opens up their markets for industrial goods to do business with both rich and poor countries.

Outcome-

There seems to be a more of a split between the developing and the developed nations.

Article-2

Dated-01/11/2009

Microcredit in India-

What is Microcredit-?

In common meaning Micro credit is “Loan of very small amount”. It can be defined as provision of parsimony, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. The institutions that provide Micro Credit are called Micro Credit Institutions. Micro Credit is provided to those individuals that lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. This group of individuals includes artisans, tiny and small industries, grocers, vegetable vendors, rickshaw pullers, roadside retailers and the like. Other activities include farming, poultry, cattle rearing, piggery, fishery etc.

The innovative idea of Microcredit originated with the Grameen Bank in Bangladesh. In 1976 Professor Muhammad Yunus launched a research project to examine the possibility of designing a credit delivery system to provide banking services targeted to the rural poor. The Grameen Bank is a microfinance organization and community development bank started in Bangladesh that makes small loans known as microcredit. The organization and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006; the organization’s Low-cost Housing Programme won a World Habitat Award in 1998. The United Nations declared 2005 the International Year of Microcredit.

Before the nationalization of banks in India in 1969, co-operative banks were the main dispensers of small loans in the organized sector. Commercial banks were not easily accessible to small borrowers. Those were the days of security-oriented approach. Nobody could think of a loan, big or small, without a guarantor or mortgage of immovable property. Profit was the only motive of the banking. However Nationalization changed the picture and the nationalized banks opened branches in the remotest corners of the country. They were to implement various government schemes like the Twenty Point Program, Antyodaya Program, subsidized Differentiated Rate of Interest loan etc. which aimed at uplifting the poorest of the poor with the help of micro credit.

Gradually there was establishment of Regional Rural Banks (RRBs), Deposit Insurance and Credit Guarantee Corporation (DICGC), National Bank for Rural and Agricultural Development (NABARD), Small Industrial Development Bank of India (SIDBI), Export Credit Guarantee Corporation (ECGC) and the latest Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE). The CGTMSE covers collateral-free credit up to Rs. 50 lakhs. These institutions play supportive roles to ensure uninterrupted flow of credit to small time borrowers. Under the present directive of the RBI, the priority sectors must get a minimum of 40% share of a commercial banks’ total lending. This includes 16% for the agriculture sector.

Some Issues-

* In spite of all these measures the performance of micro finance in India has neither been quite satisfactory quantitatively nor qualitatively.

* The money disbursed has not been adequate, nor has it yielded the desired results.

* Instead of being recycled, the major portions of loans have been lost as bad debt.

Self-Help Groups [SHGs]-

A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs belonging to homogenous social and economic background voluntarily, who come together to save small amounts regularly, to mutually agree to contribute to a common fund and to meet their emergency needs on mutual help basis. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment thereof. SHG provides strength to an economically poor individual as part of a group. Financing through SHGs reduces transaction costs for both lenders and borrowers.

SHG-bank linkage Programme-

With a view to facilitating smoother and more meaningful banking with the poor, A pilot project for purveying micro credit by linking Self-Help Groups (SHGs) with banks was launched by NABARD in 1991-92. The aim was to make it possible facilitating smoother and more meaningful banking with the poor. RBI had then advised commercial banks to actively participate in this linkage programme. The scheme has since been extended to RRBs and co-operative banks. More than 90 per cent of the groups linked with banks are exclusive women groups. SHG-bank linkage programme has surely emerged as the dominant micro finance dispensation model in India; other models too have evolved as significant micro finance purveying channels.

Article-3

Dated-15/11/2009

Indian Foreign Trade Policy 2009-2014

What is Foreign Trade Policy?

The Union Commerce Ministry, Government of India announces the integrated Foreign Trade Policy FTP in every five year. This is also called EXIM [Export, import] policy. This policy is updated every year with some modifications and new schemes. New schemes come into effect on the first day of financial year i.e. April 1, every year. The Foreign trade Policy which was announced on Thursday August 28, 2009 is an integrated policy for the period 2009-14.

Objectives of Foreign Trade Policy 2009-14

1. To arrest and reverse declining trend of exports due to global recession is the main aim of the policy. This aim will be reviewed after two years.
2. To double India’s exports of goods and services by 2014.
3. To double India’s share in global merchandise trade by 2020 as a long term aim of this policy. India’s share in Global merchandise exports was 1.45% in 2008.
4. Simplification of the application procedure for availing various benefits
5. To set in motion the strategies and policy measures which catalyze the growth of exports
6. To encourage exports through a “mix of measures including fiscal incentives, institutional changes, procedural rationalisation and efforts for enhance market access across the world and diversification of export markets.

Aim in General: The policy aims at developing export potential, improving export performance, boosting foreign trade and earning valuable foreign exchange. FTP assumes great significance this year as India’s exports have been battered by the global recession. A fall in exports has led to the closure of several small- and medium-scale export-oriented units, resulting in large-scale unemployment.

Targets:

1. Export Target : $ 200 Billion for 2010-11
2. Export Growth Target: 15 % for next two year and 25 % thereafter.

EPCG [Export Promotion Capital Goods Scheme] Scheme:

1. Obligation under EPCG scheme relaxed.
2. To aid technological Upgrdation of export sector, EPCG Scheme at Zero Duty has been introduced.
3. Export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced by 50%.

Refixation of Annual Average Export Obligation:

Taking into account the decline in exports, the facility of Re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in exports from the country, has been extended for the 5 year Policy period 2009-14. Support for Green products and products from North East extended.

Announcements for FPS [Focus Product Scheme], FMS [Focus Market Scheme], MLFPS [Market Linked Focus Product Scheme]-

1. 26 new markets added in this scheme.
2. Incentives under FMS raised from 2.5 % to 3 %
3. Incentive available under Focus Product Scheme (FPS) rose from 1.25% to 2%.
4. Extra products included in the scope of benefits under FPS
5. Market Linked Focus Product Scheme (MLFPS) expanded by inclusion of products like pharmaceuticals, textile fabrics, rubber products, glass products, auto components, motor cars, bicycle and its parts.etc. (However, benefits to these products will be provided, if exports are made to 13 identified markets (Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand).
6. Focus Product Scheme benefit extended for export of green products and some products from the North East.
7. A common simplified application form has been introduced to apply for the benefits under FPS, FMS, MLFPS and VKGUY.

MDA [Market Development Scheme] & MAI [Market Access Initiative]-

Higher allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) has been announced.

Towns of Export Excellence (TEE)

The following cities have been recognized as towns of export excellence (TEE)

1. Handicrafts : Jaipur, Srinagar and Anantnag
2. Leather Products : Kanpur, Dewas and Ambur
3. Horticultural Products: Malihabad

Scheme for Status Holders (Status Holders means star status holders)

1. Additional Duty Credit Scrip’s shall be given to Status Holders @ 1% of the FOB value of past exports accelerate exports and encourage technological Upgrdation.
2. This facility shall be available for sectors of leather (excluding finished leather), textiles and jute, handicrafts, engineering (excluding Iron & steel & non-ferrous metals in primary and intermediate form, automobiles & two wheelers, nuclear reactors & parts, and ships, boats and floating structures), plastics and basic chemicals (excluding Pharma products).
3. This facility shall be available up to 31 March, 2011.
4. Transferability for the Duty Credit scrip’s being issued to status holders under VKGUY [Vishesh Krishi & Gram Upaj Yojana] Scheme permitted only for the procurement of cold chain equipments.

Extension of Income Tax Exemption to EOU [Export Oriented Units] and STPI [Software Technology Parks of India]-

Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act has been already extended for the financial year 2010-11 in the Budget 2009-10.

Extension of ECGC [Export Credit Guarantee Corporation (of India Ltd)]-

The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010.

Announcements for Marine sector-

1. Fisheries exempted from maintenance of average EO under EPCG Scheme (along with 7 sectors) however Fishing Trawlers, boats, ships and other similar items shall not be allowed for this exemption.
2. Additional flexibility under Target plus Scheme (TPS) / Duty Free Certificate of Entitlement (DFCE) Scheme for the marine sector.

Announcements for Gems & Jewellery Sector:

1. Duty Drawback is allowed on Gold Jewellery exports to neutralize duty incidence.
2. Plan to establish “Diamond Bourse (s) with an aim to make India and International Trading Hub announced.
3. Introduction of a new facility to allow import on consignment basis of cut & polished diamonds for the purpose of grading/ certification.
4. 13 value limits of personal carriage have been increased from $ 2 million to US$ 5 million in case of participation in overseas exhibitions.
5. The limit in case of personal carriage, as samples, for export promotion tours, has also been increased from US$ 0.1 million to US$ 1 million.
6. Time limit of 60 days for re-import of exported gems and jewellery items, for participation in exhibitions has been extended to 90 days in case of USA.

Announcements for Agro Exports-

1. Introduction of a single window system to facilitate export of perishable agricultural produce with an aim to reduce transaction and handling cost.
2. This system will involve creation of multi-functional nodal agencies. These agencies will be accredited by APEDA [Agricultural & Processed Food Products Export Development Authority]

Announcements for Leather Exports-

On the payment of 50 % applicable export duty, Leather sector shall be allowed re-export of unsold imported raw hides and skins and semi finished leather from public bonded ware houses.

Announcements for Tea Exports-

1. The existing Minimum value addition under advance authorization scheme for export of tea is 100 %. It has been reduced from the existing 100% to 50%.
2. DTA (Domestic Tariff Area) sale limit of instant tea by EOU units increased from 30% to 50%.
3. Export of tea has been included under VKGUY Scheme benefits.

Announcements for Pharma Exports-

1. Export Obligation Period for advance authorizations issued increased from existing 6 months to 36 months.
2. Pharmacy sector included under MLFPS for countries in Africa and Latin America & some countries in Oceania and Far East.

Announcements for Handloom Exports-

The claims under Focus Product Scheme, the requirement of “Handloom mark” was required earlier which has been removed.

Scheme for Export Oriented Units-

1. EOUs have been allowed to sell products manufactured by them in DTA (Domestic Tariff Area) up to a limit of 90% instead of existing 75%, without changing the criteria of ‘similar goods’, within the overall entitlement of 50% for DTA sale. (This means that instead of 75% these units can sell up to 90 % of their products in the domestic markets)
2. EOU allowed procuring finished goods for consolidation along with their manufactured goods, subject to certain safeguards.
3. Extension of block period by one year for calculation of Net Foreign Exchange earnings of EOUs kept under consideration.
4. EOU allowed CENVAT Credit Facility.

Announcements for Value Added Manufacturing (VAM)

To encourage Value Added Manufactured export, a minimum 15% value addition on imported inputs under Advance Authorization Scheme.

Announcements for Project Exports-

Project Exports and a large number of manufactured goods covered under FPS and MLFPS.

Fuel included in DEPB Scheme-

Custom duty component on fuel where fuel is allowed as a consumable in Standard Input-Output Norm included in factoring.

Easy Import of samples-

Number of sample pieces has been increased from the existing 15 to 50. This will facilitate the duty free import of samples by exporters.

Convertibility of Shipping Bills-

Greater flexibility has been permitted to allow conversion of Shipping Bills from one Export Promotion scheme to other scheme. Customs shall now permit this conversion within three months, instead of the present limited period of only one month.

Reduction in Transaction Costs-

1. Dispatch of imported goods directly from the Port to the site has been allowed under Advance Authorization scheme for deemed supplies. (Presently the duty free imported goods could be taken only to the manufacturing unit of the authorization holder or its supporting manufacturer.
2. Maximum applicable fee for 18 Authorizations/ license applications (except those mentioned in Chapter 3 of FTP) has been reduced to Rs. 100,000 from the existing Rs 1,50,000 (for manual applications) and Rs. 50,000 from the existing Rs.75,000 (for EDI applications).
3. No fee shall now be charged for grant of incentives under the Schemes in Chapter 3 of FTP.

Disposal of Manufacturing Wastes-

Disposal of manufacturing wastes / scrap will now be allowed after payment of applicable excise duty also before fulfillment of export obligation under Advance Authorization and EPCG Scheme. Earlier it was allowed after fulfillment of export obligation.

Announcements for Sports Weapon-

Licenses for the import of sports weapon will be issued now by Regional Authorities provided a NOC (No Objection Certificate) is issued by Ministry of Sports & Youth Affairs. (Earlier DGFT [Directorate General of Foreign Trade] Headquarters had to be approached for this)

Announcements for Medical Devices-

To solve the problem of medical device industry, the procedure for issue of Free Sale Certificate has been simplified and the validity of the Certificate has been increased from 1 year to 2 years.

Announcements for Automobile Industry-

Those Automobile industries which have their R&D establishment will be allowed free import of reference fuels (petrol and diesel), up to a maximum of 5 KL per annum, which are not manufactured in India.

Announcements for EDI Initiatives-

1. Export Promotion Councils & Commodity Boards have been advised to issue RCMC through a web based online system.
2. It is expected that issuance of RCMC would become EDI enabled before the end of 2009.

Inter Ministerial Committee

Mr. Anand Sharma announced that an Inter Ministerial Committee will be formed to redress/ resolve problems/issues of exporters.

Set up of Directorate of Trade Remedy Measures Announced

A Directorate of Trade Remedy Measures shall be set up, which will enable support to Indian industry and exporters, especially the Micro Small & medium Enterprises MSMEs in availing their rights through trade remedy instruments,

Duty Credit Scrip’s

Earlier the payment of customs duty for Export Obligation (EO) shortfall under Advance Authorization, DFIA or EPCG Authorization was allowed in cash only. Now this payment can be done in the way of debit of Duty Credit scrip’s.

Import of Restricted Items

Restricted Items can be imported now (as replenishment) against transferred DFIAs (Duty Free Import Authorizations) as the present DFRC (Duty Free Replenishment Card) scheme.

Dollar Credits

There is a provision for state-run banks to provide dollar credits