Blog of India » External trade and investment

Indo-US Bilateral Trade Gets a Shot in the Arm

Meena Rani K — Thu, 18 Mar 2010 06:43:55 +0000

India and the United States signed an agreement in Washington yesterday, regarding the rules and regulations for trade and investment between the two countries. India was represented by Commerce Minister Anand Sharma, while the US Trade Representative Ron Kirk inked the deal on behalf of the US.

The world’s largest economy and emerging economy will try to lift the remaining barriers in their bilateral trade and investment during the meeting of officials to be scheduled in the near future. The trade between the two countries started improving after the civil nuclear pact of 2008, which permitted US companies to sell nuclear technology and fuel in India.

The present deal named ‘Framework for Cooperation on Trade and Investment’ is aimed at small to medium businesses and clean energy technologies will be given more emphasis. While India would be utilizing this opportunity to propel its growth rate to double digit figures, the US would use this to increase its exports and to generate more jobs in the US. The US President Obama has pledged to double exports in the next five years and the growing economy of India is ideal to achieve this target.

Both sides agreed that the possibilities are immense. Kirk said, “There is almost limitless potential for growth in trade between our two countries.” Sharma agreed that the trade prospects between the two countries ‘have not been tapped fully as yet’.

According to Indian Commerce ministry, the trade between the two countries almost doubled over the last five years. The FDI flow into India from the US increased to $1.8bn this year, while the US investments in India during the last decade had been $7.9bn.

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India Will Remain a Key Player in the Region

Meena Rani K — Wed, 17 Mar 2010 05:10:04 +0000

That India has gained in confidence is evident in its dealing with world nations and its readiness to play a crucial role in the region. On Tuesday, Foreign Secretary Nirupama Rao ruled out scaling down of Indian operations in Afghanistan despite facing opposition in the country.

She said, “We are not scaling down our operations in Afghanistan, we are taking all necessary security measures to safeguard Indian lives there.” Ms. Rao is on a visit to Afghanistan in the wake of the 26 February attack on Indians.

India is on a friendly mission in Afghanistan to build infrastructure on request. Recently new initiatives in agricultural sector and institutional capacity building were announced. Ms. Rao clarified, “Our assistance is provided in a transparent and fully accountable manner, and has underscored our commitment to Afghan democracy and inclusive development.”

Meanwhile, a pentagon report said that India will emerge as a dominant player in South Asia and the Middle East in the next 25 years due to its strategic location and military traditions. The report said that the US is likely to encourage the growth of India as a regional as well as a global power.

Pentagon is estimating that Indian armed forces would receive significant upgrades in the coming decades and its wealth is expected to quadruple in the same period. This, the report said, would help in its elevation as a regional power.

However, the report said the growing divide between the rich and the poor would continue and this would have serious implications on the country’s economic growth and national security.

It would be a wise move for India to learn from China’s mistakes and go in for inclusive growth rather than focus only on economic growth.

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Import-Export Figures Continue In Their Upward Trajectory

Meena Rani K — Wed, 03 Mar 2010 03:58:03 +0000

India’s imports and exports posted considerable growth for the month of January compared to January last. December had set the trend for growth, signaling the end of recessive times for world economies.

India imported $24.7 billion worth of goods compared to $18.22 billion during January 2009. This is a whopping 35.5% increase. However, the country’s exports did not do as well as imports, but still managed to grow by 11.5% during the same period. India exported $14.34 billion worth of merchandise in January, while the figure was $12.86 for January 2009.

The November and December growth figures for export was 18.2% and 9.3%; this coming after negative growth for the previous thirteen months. Import growth rate got out of the red in December after a long gap of 11 months.

The amazing growth in imports and above-average growth in exports has further widened the chasm of trade deficit. According to official data released yesterday, the YoY trade deficit figures have doubled. While the trade deficit stood at $5.3 billion in January 2009, it almost doubled to $10.36 billion in January 2010.

However, experts are not overly worried about the ballooning trade deficit. A. Sakthivel, President of the Federation of India Export Organizations said, “The figures are clearly reflecting that the exports are coming on the track.”

FIEO director general Ajay Sahai also is optimistic. He said, “The trade data shows that import growth is in tandem with the performance of our manufacturing sector which is growing at 15%-16%.”

The sudden jump in imports is mostly due to the import of raw materials and capital goods for power projects. Among exports, vegetables, fruits, marine products and tobacco did exceptionally well.

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External Trade & Investment: Foreign Trade Policy in India

The Syntax Systems — Mon, 30 Nov 2009 01:20:28 +0000

Through its Foreign Trade Policy (FTP), India has attempted to adopt a middle approach between total conservatism and completely free economy. The prime focus has been to support domestic trade, integration with the global economy, adapt with the changing scenarios, and provide growth impetus to the Indian economy as a whole.

The process of liberalisation began in the 1990s, which relieved the economy of many of its woes, like prevalent tariffs that exceeded 200%, trade restrictions, rigid licensing policies, and import restrictions, to mention some. Currently, India has various bilateral and preferential trade agreements, some of which are operational, while the others are in the different stages of finalisation. These agreements are spread across Southeast Asian nations, Afghanistan, Chile, Brazil, Argentina, and so on.

India’s continuing FTP provides various duty (e.g. import duty on key inputs) exemptions to the export oriented units (EOUs), pre-shipping credits, tax holidays for EOUs, etc. On August 27, 2009, India announced its Foreign Trade Policy 2009-14. Agriculture, handicraft, gems & jewellery, handlooms, and leather sectors will receive special incentives as focus areas to help India double its percentage in global trade in the next five years. It will also aid in creating more employment opportunities. Export target for 2010-11 is slated at USD 200 billion. The new FTP also includes 26 new regions under the Focus Market Scheme. However, experts argue that the FTP should become more FDI-savvy (Foreign Direct Investments) as an effective measure to boost Indian export capabilities. The country should learn from China, where FDI led units have been its major exports drivers.

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There May Soon Be Policy Changes To Increase Foreign Exchange Inflow

neha — Wed, 25 Nov 2009 08:04:56 +0000

Abut $16.5 billion have been pumped into the Indian economy by foreign investors. The foreign inflows are extremely important so that India can build up its forex reserves and the value of the rupee increases.

The government too takes this as a healthy sign. In fact, the finance minister has recently called in for a high powered meeting that will decide on changing some of the policies in order to change some of the existing rules and policies.

The foreign exchange that has so far flown in, has been on FDIs. However, it has been seen that a huge chunk may also enter the country through the stock market and other avenues. Foreign investors are interested in India’s growth story and India presents to them a charming market and an excellent investment option.

While governments all over the world are scampering over each other in order to cut down on the foreign exchange flowing in, Indian government has decided to open its doors wide. This may be a strategic move that allows more foreign investment in Indian companies and a keener interest in the India’s growth.

government is hot on capital inflow as it looks to smoothen the path for foreign investors.

The finance ministry, on suggestions from the Prime Minister’s Office, has set up a high-powered committee with nine members to recommend changes to the existing rules and policies that govern foreign inflows into India, except the FDI route. The finance ministry’s move is in contrast to federal policy changes in Brazil and Taiwan where the governments last week put curbs over foreign money coming into those economies.

The main purpose to form the committee, which is being headed by U K Sinha, chairman, UTI MF, is to suggest changes to the rules and policies that could facilitate more foreign fund inflows into the country, sources said.

The committee has a very wide mandate, including to review policies relating to taxation, obstacles that hinder foreign flows like foreign portfolio investments (popularly FII investments) into the country, the treatment of participatory notes, inflows through the venture capital route, external commercial borrowings, investments in India by NRIs and several other issues. The group will also look at specifying challenges in meeting the financing needs of the economy through foreign investment, and will also examine the rationale behind securities transaction tax and stamp duty. The policies related to FDIs have been kept out of the purview of this committee.

The move comes in the backdrop of apprehensions among a section of the market over surging foreign inflows and talks about controlling these flows, mainly because it is leading to steeper appreciation of the Indian currency and hitting exports.

Contrastingly in this case the government has gone ahead and set up a committee to look into ways of smoothening out inflow of foreign funds into the country. So far in the current financial year, net FIIs inflows are $16.5 billion while the rupee has appreciated 8.6% to the dollar to its current level of 46.39. Recently, in the face of demands for capital controls, C Rangarajan, chairman, PM’s Economic Advisory Council, said given the size and growth prospects of the Indian economy, it can absorb up to $100 billion per annum of foreign capital before any restrictions could be imposed.

Among the issues to be addressed by the committee, P-Notes are a contentious issue in India with RBI opposing its use by FIIs while the finance ministry is unwilling to ban it, fearing huge outflows by foreign investors. P-Notes are a type of offshore derivative instrument that allow foreign investors to enjoy all the benefits of holding Indian stocks without actually owning them and also nearly full anonymity. Likewise there is also a growing demand among market players to abolish STT.

The committee formed by the finance ministry is mandated to submit its report within four months.

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