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MARKET WATCH 16 JULY, 2020

 

NATIONAL

INTERNATIONAL

 

Piyush Goyal Holds Review Initiatives Undertaken By Textile Ministry To Boost Sector

Union Minister Piyush Goyal did an in-depth review of the initiatives taken under the Ministry of Textiles for giving a boost to the textile sector. Union Minister of Textiles, Commerce & Industry, Consumer Affairs & Food and Public Distribution, Shri Piyush Goyal held a meeting on Thursday. The Union Minister did an in-depth review of the initiatives taken under the Ministry of Textiles for giving a boost to the textile sector.

Textile Minister

Piyush Goyal holds review meeting The meeting was chaired by the Union Minister of Textile Shri Piyush Goyal. Also, Minister of State for Textiles, Smt. Darshna Jardosh, Shri U.P. Singh, Secretary Textiles, Shri. V.K. Singh, Additional Secretary, Joint Secretaries, DC Handicrafts, and other senior officials were present at the meeting. Additional Secretary Shri V.K. Singh gave a detailed presentation to the Union Minister. He was also briefed about the broad contours of the Indian Textile Sector. Addressing the meeting, Union Minister Goyal said that enhancing the productivity of local artisans and domestic industry will help to realise the vision of an Atmanirbhar Bharat under the leadership of Prime Minister Narendra Modi. He also asserted that the Textiles sector has great potential and it should be realised using innovation, latest technology, and facilitation.

Indian Textile Industry

According to an official press release by the Press Information Bureau (PIB), it was said that Textiles which is one of the oldest industries in India, dating back several centuries contributes 2.3% to Indian GDP, 7% of the Industrial Output, 12% to the export earnings of India and employs more than 45 million people which is 21% of total employment. Also, India is the sixth-largest producer of Technical Textiles with a 6% Global Share, the largest producer of cotton and jute in the world. Cotton production supports 5.8 million farmers and 40 to 50 million people in allied sectors. India is also the second-largest producer of silk in the world and 95% of the world’s handwoven fabric comes from India. Piyush Goyal visits the Office of Textile Commissioner Earlier last week, Shri Piyush Goyal after taking the charge of the Textile Ministry paid a visit to the office of the Textile Commissioner for reviewing the textile sector schemes and their progress. Similarly, all relevant officials in the Textile Ministry were present at the meeting via video conferencing.

Source: Republic

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Textile Ministry submits re-drafted PLI scheme with wider scope for Cabinet approval

 Industry demand to add inputs to eligible products list, lower eligibility threshold considered The Textile Ministry has re-drafted the much-awaited ₹10,683 crore Production Linked Incentive (PLI) scheme for the textile sector, to include a wider range of items with focus on value-addition, and has submitted the fresh Cabinet note for approval after getting a nod from the Expenditure Finance Committee (EFC). “After consultations with the industry and experts, the Ministry re-drafted the list of items eligible for the PLI scheme to encourage more value addition. Demands to lower the turnover threshold to include smaller players was also considered,” an official tracking the matter told BusinessLine. Following inter-ministerial consultations, a Cabinet note was drafted on the recommendation of the EFC and has now been submitted to the Cabinet Secretariat, PMO and Department of Expenditure for approval of the Cabinet.

Focus Product Incentive Scheme

 The PLI scheme for the Textile industry is to be implemented through the Focus Product Incentive Scheme which is focussed on creating global champions in man-made fibre (MMF) and technical textiles sectors. The scheme will provide incentive from 3 per cent to 15 per cent on stipulated incremental turnover for a period of five years after one year gestation period for brownfield investment (companies already in operation) and two years gestation period for greenfield investment (new set-ups). The initial plan of the Textile Ministry was to offer the ₹10,683 crore allocated under the scheme for incremental production in 40 identified MMF apparel items and 10 technical textiles lines over five years. But the industry and experts pointed out that it was important not to restrict the benefits to end-products such as sweaters, garments, diapers and sanitary napkins but to also extend it to much needed inputs for the industry such as fibre and filaments to encourage value addition in the country.

To be implemented soon

“The re-working of the list of items and considering demands including lowering eligibility threshold took some time. But the scheme is now ready and will be implemented as soon as the Cabinet gives its nod,” the official said. As per the initial plans, for brownfield companies the incentive rates were reportedly proposed to be fixed at 9 per cent of turnover in the first year for companies with a turnover of ₹100-500 crore (for 50 per cent incremental turnover) and 7 per cent for those above that. In the subsequent four years it would keep decreasing. For greenfield projects (new set-ups), a minimum investment of ₹500 crore was reportedly proposed with incentives at 11 per cent to start with. The industry had complained that the threshold levels were too high and needed to be brought down to include small scale units. Textiles is one of the 13 sectors for which the Centre has announced the PLI scheme to enhance India’s manufacturing capabilities and exports.

Source: The Hindu Business Line

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Centre releases Rs 75,000 crore to states, UTs as GST compensation

The government on Thursday said it has released Rs 75,000 crore to the states and Union Territories to compensate them for the shortfall in GST revenue. The government on Thursday said it has released Rs 75,000 crore to the states and Union Territories to compensate them for the shortfall in GST revenue. The GST Council in its meeting on May 28 had decided that the central government would borrow Rs 1.59 lakh crore and release it to the states and UTs with the legislature on a back-to-back basis to meet the resource gap due to the short release of compensation on account of inadequate amount in the compensation fund. "Ministry of Finance has released today Rs 75,000 crore to the States and UTs with Legislature under the back-to-back loan facility in lieu of GST Compensation. This release is in addition to normal GST compensation being released every 2 months out of actual cess collection," the ministry said in a statement. It further said that all eligible states and UTs (with the legislature) have agreed to the arrangements for the funding of the compensation shortfall under the back-to-back loan facility. "For effective response and management of COVID-19 pandemic and a step-up in capital expenditure, all States and UTs have a very important role to play. For assisting the States/UTs in their endeavour, Ministry of Finance has front-loaded the release of assistance under the back-to-back loan facility during FY 2021-22 Rs 75,000 crore (almost 50 per cent of the total shortfall for the entire year) released today in a single instalment," the ministry added. The balance amount will be released in the second half of 2021-22 in steady instalments.

Source: PTI

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Compendium on MMF garments released

Textiles Secretary Upendra Prasad Singh released a compendium on man-made fibre garments on Wednesday at the executive committee meeting of the Apparel Export Promotion Council (AEPC). The compendium, compiled by the Council, has details of all 90 MMF garment HS lines, including the top 10 high potential MMF garments for the United States market. It has the details of fabrics used to produce the 90 HS lines and their supplier details. Mr. Singh said the apparel sector is important for the economy as it provides livelihood to a large segment of population and has a major contribution towards exports and GDP. The Rebate of State and Central Taxes and Levies (RoSCTL) scheme, along with the proposed Production Linked Incentive (PLI) scheme and Mega Investment Textile Parks (MITRA) will help growth of apparel exports, he said. AEPC chairman A. Sakthivel said the compendium has details of HS codes, pictures, fabric suppliers and prices. MMF garments contribute to around $165 billion in total ready made garment exports of $470 billion globally. India’s There is huge opportunity for Indian apparel manufacturers to diversify to MMF garments.

Source: The Hindu

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Textile sector hails continuation of taxes, levies rebate scheme

 The textile and clothing industry is confident of growth in exports of apparels and made ups as the Union government announced on Wednesday continuation of the Rebate of State and Central taxes and Levies (RoSCTL) scheme till the end of March, 2024. Cotton Textiles Export Promotion Council chairman Manoj Patodia said the extension of the RoSCTL scheme is a positive development that will improve the competitiveness of made ups articles in the export markets. In the textile sector, overseas buyers place orders and exporters have to chalk out their activities well in advance and, therefore, it is important that the policy regime regarding export of textile products should be stable. The exporters can now take a long term perspective while negotiating export orders. A. Sakthivel, chairman of Apparel Export Promotion Council, said the Scheme will refund all embedded taxes and make Indian apparel and made up products globally competitive. “The scheme will go a long way in bringing back positive sentiments and helping the Indian textile value chain attain $100 billion annual exports in next three years,” he said. The scheme will help check the declining trend witnessed in apparel exports. India’s apparel exports fell 20.8 % in one year, from $15,509 million in 2019-20 to $12,289 million in 2020-21. T. Rajkumar, chairman of Confederation of Indian Textile Industry, said the textile products that are exported includes the embedded taxes/ levies to the tune of 5 % to 6 % and these are currently not rebated under any other mechanism. The RoSCTL will help exporters get some of the cost reimbursed and reduce their financial burden. Chairman of Southern India Mills’ Association Ashwin Chandran said the the textile and clothing industry had been seeking extension of the RoSCTL scheme to mitigate the crisis created by the pandemic. The industry struggled to commit orders to buyers in the absence of RoSCTL benefit and has been facing stress during the last couple of months. The announcement on Wednesday has given confidence to exporters and created a levelplaying field to increase the exports and create new jobs. According to Raja. M. Shanmugham, president of Tiruppur Exporters’ Association, the scheme will benefit exporters in the long term too to work out the costing as the exporters usually take up orders four to six months in advance. The “timely intervention” will give thrust to apparel and made up exports as international brands, especially those in the US, are looking at India as a credible alternative sourcing destination to India, said Prabhu Dhamodharan, convenor of Indian Texpreners’ Federation.

Source: The Hindu

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Potential of textiles sector should be realised by using innovations, latest tech: Piyush Goyal

 The textile sector has great growth potential and it should be realised by using innovations, the latest technology and facilitation, Union Minister Piyush Goyal said on Thursday. While reviewing initiatives undertaken by the textile ministry, Goyal said by enhancing the productivity of local artisans and domestic industry, the vision of an Aatmanirbhar Bharat can be realised. The textile minister also asked the concerned official as to put efforts to bring consistency in the quality of handloom and eliminate child labour from the sector. The sector contributes 2.3 per cent to India's GDP, 7 per cent of the total industrial output,12 per cent to the export earnings and employs more than 45 million people directly. India is also the sixth largest producer of , with a 6 per cent global share and it is the largest producer of cotton and jute in the world. The country is the second-largest producer of silk in the world and 95 per cent of the world's hand-woven fabric comes from India.

Source: Economic times

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Address shortage of containers for shipping, says exporters

 The Tirupur Exporters' Association (TEA) on Thursday requested the Union Minister for Ports and Shipping Sarbananda Sonowal to address the shortage of containers for shipping. In a letter to the Minister, a copy of which was released to reporters, president of TEA Raja M Shanmugham said exporting units are now facing shortage of containers, increased waiting time to get them at ports and rise in freight charges "We understand that the hike in freight fees is attributed to COVID-19 that has left global shippinglines with backlogs and delays due to labour shortage, reduced capacity of logistics systems, congestion at ports as well as quarantined cargo," he said. The knitwear export from Tirupur is Rs 25,000 crore and is expected to pick up after permission is given to engage 100 per cent of employees as against the low number working owing to the COVID situation, he said.

Source: Economic Times

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Exports see nearly 50% jump to $33 bn in June; trade deficit at $9.37 bn

 India was a net importer, with trade deficit of $9.4 bn vs $710-mn surplus last yr Recording growth for the seventh month in a row, India's exports rose by 48.34 per cent to $32.5 billion in June on account of healthy growth in shipments of petroleum products, gems and jewellery, and chemicals, even as trade deficit stood at $9.37 billion, according to the official data. Exports in June last year stood at $22 billion and $25 billion in June 2019. In May 2021, outward shipments were worth $32.27 billion and $31 billion in April this year, the data released by the Commerce Ministry on Thursday showed. Imports in June too rose by 98.31 per cent to $41.87 billion, leaving a trade deficit of $9.37 billion as against a trade surplus of $0.79 billion in the same month last year. During April-June 2021, the exports increased by 85.88 per cent to $95.39 billion. Imports expanded to $126.15 billion during the first three months of the fiscal as against $60.44 billion in the same period last year, the data showed. Trade deficit during the quarter was aggregated at $30.75 billion as against $9.12 billion during April-June 2020. The deficit during June has increased as Oil imports in June were $10.68 billion, which were 116.51 per cent higher compared to $4.93 billion in June 2020. During April-June 2021, the imports stood at $31 billion as against $13.08 billion during the same quarter previous fiscal. India’s overall exports (goods and services combined) in April-June 2021, according to the data, are estimated to be $147.64 billion, exhibiting a positive growth of 50.24 per cent over the same period last year. Gold imports in June grew by about 60 per cent to about $970 million. Commenting on the data, Federation of Indian Export Organisations (FIEO) President A Sakthivel said that the need of the hour is to soon notify the RoDTEP rates to remove uncertainty from the minds of the trade and industry. ICRA Chief Economist Aditi Nayar said that with surging exports and relatively subdued gold imports in MayJune 2021 dampening the aggregate trade deficit to a three-quarter low $31 billion in Q1 FY'2022, “we expect the current account to revert to a small surplus in that quarter”. “In line with the sequential recovery displayed by most high frequency indicators, non oil non gold imports rose in June 2021, reflecting a pickup in demand with the gradual unlocking as well as the high commodity prices,” she said. “As overall global demand remained buoyant, the partial lockdowns in different parts of the country had kept factories running at half strength. However, with decline in daily cases of infection and resumption of economic activity, India is now set to achieve an alltime high export figure for the financial year,” said A Sakthivel, president, Federation of Indian Export Organisations. “With such a growth pattern showcased by the export sector, the country’s economic recovery will likely be led by exports, especially from micro, small and medium enterprises,” he added.

Source: Business Standard

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RoSCTL scheme extension for textile exporters to help create millions of jobs, boost exports: Textile body

Ease of Doing Business for MSMEs: India’s textiles and apparel sector is the second-largest employer with direct employment creation of 45 million and another 60 million in allied industries. The country is also the second-largest manufacturer of PPE kits globally. Ease of Doing Business for MSMEs: The government’s decision to extend the Rebate of State and Central Taxes and Levies (RoSCTL) scheme on apparels and made-ups till 31 March 2024 and other existing schemes for the sector will likely add another 4-6 million jobs ahead, according to the apex textile body The Textile Association (India). The Union Cabinet on Wednesday had announced RoSCTL continuation with the same rates as notified by the Ministry of Textiles in March 2019 on the export of apparels and madeups (non-apparels such as bed linen, carpets, etc). According to the government, the move is “expected to make these products globally competitive by rebating all embedded taxes/levies which are currently not being rebated under any other mechanism. It will ensure a stable and predictable policy regime and provide a level playing field to Indian textiles exporters. Further, it will promote startups and entrepreneurs to export and ensure the creation of lakhs of jobs.” “From the last three-four years, textile exports were stagnant at around $38-40 billion. The government is now targetting to touch $80 billion by 2024-25. In the upcoming textile policy, the government is also aiming to make Indian textiles more competitive in the world. The biggest beneficiary here would be MSMEs and enhance India’s competitiveness against Bangladesh, Vietnam, Myanmar, etc. With all these schemes implemented properly, then another 4-6 million jobs will be created,” RK Vij, Vice President, The Textile Association (India) told Financial Express Online. India’s textiles and apparel sector is the second-largest employer with direct employment creation of 45 million and another 60 million in allied industries. The country is also the second-largest manufacturer of PPE kits globally. PPEs global market is currently expected to be more than $92.5 billion by 2025, up from $52.7 bn in 2019, according to the government’s Invest India initiative. While FDI in the textiles and apparels sector had hit $3.75 billion in March 2021, the country’s exports of textiles and apparel are likely to grow to $65 billion by 2025-26, growing at a CAGR of 11 per cent. Textiles ministry in a statement on Wednesday had noted that that there are various taxes/duties that are levied by central, state, and local government but are not refunded to the exporters. Such taxes and levies get embedded in the price of the final exported product that increases the price of the apparel and made-ups and makes it difficult for them to compete in the international market. These embedded taxes include duties and cesses on fuel used for transportation of goods, generation of power and for the farm sector, mandi tax, duty on electricity charges at all levels of the production chain, stamp duty, GST paid on input such as pesticides, fertilizers, purchases from unregistered dealers, etc., and cess on coal or any other products. On Wednesday, Apparel Export Promotion Council (AEPC) Chairman A Sakthivel welcoming the move said that the move will help “the Indian textile value chain attain $100 billion annual exports in next three years.” Post lockdown last year, textile activity witnessed contraction before it started to recover back in September with an increase in yarn prices. The recovery had hit around 80 per cent of the production capacity by December last year. “Up to March last year, all textile units were running up to 80-90 per cent of their capacity before they contracted in production capacity to 30-40 per cent. The activity picked up in September and by December it scaled to 80-90 per cent production capacity. Cotton and synthetic yarn made great profits with the increase in prices,” TK Sengupta, immediate past president, The Textile Association (India) had told Financial Express Online.

Source: Financial Express

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Along with PLI scheme, govt should focus more on FTAs, successful implementation of MITRA: CRISIL’s Director

 Hetal Gandhi spoke on the competitive landscape, government’s schemes, growth opportunities for India Textiles are important to India’s $313 billion merchandise exports. The sector is also a significant employment generator. Though India is facing stiff competition from Vietnam and Bangladesh, who are doing better than us in cotton yarn and ready made garments (RMGs), our country is in a favourable position with China facing political backlash globally. However, capitalising on this opportunity would need continuous and concerted effort. CRISIL’s Director Hetal Gandhi spoke to BusinessLine on the competitive landscape, government’s schemes and growth opportunities for India. Excerpts.

What have been the major reasons for the drop in share of textiles in overall merchandise exports from India? Share of textile in overall Indian merchandise trade declined to 11 per cent in 2020-21 from 14 per cent in 2014-15 with Indian textile exporters losing to rival economies on price competitiveness. India started losing textile export share specifically in segments like RMGs and cotton yarn to countries with cost advantage such as Vietnam, China and Bangladesh. Further, these countries continued to offer better incentives to exporters and investors. It led to an increase in share of these countries whereas India was able to only maintain its share in RMG from at 3 per cent and lost share in cotton yarn from 30 per cent in 2013 to 26 per cent in 2020. Free trade agreements like Bangladesh with the EU and Vietnam with the US also aided countries to maintain significant pricing differences with Indian textile players.

How have Vietnam and Bangladesh upped the game in textile exports in the recent decade? Both Vietnam and Bangladesh signed trade agreements with key RMG export destinations. Along with trade agreements, both these countries provide support to RMG exporters in terms of better infrastructure, facilities, cost advantage and export incentives. Bangladesh enjoyed a cost advantage in the EU which led to an increase in its share from 4 per cent in 2005 to 6 per cent in 2020, whereas Vietnam enjoyed the status of most favoured nation in the US and gained share from 4 to 19 per cent during the same period.

How will the recently introduced PLI scheme for MMF (man made fibre) change the scenario on the export front? A large portion of RMG export from India is based on cotton – 65 per cent. However, in global trade the demand for MMF-based garments and apparels is higher – 70 per cent. So, it restricts Indian exporters in the highly competitive global trade. Now under the PLI scheme, the focus is on MMF and technical textile sectors. The scheme will incentivise the players which have the capability to increase the MMF-based product volumes rapidly. It will help them to achieve economies of scale and hence cost advantage as well. Our analysis indicates that at 9 per cent incentive rates the scheme will bring in the additional revenue opportunity of ₹1,50,000 crore which translates into 2.5-3 million tonne capacity addition and 30 per cent increase in export potential. If the entire benefit is passed-on, it will provide cost competitiveness to Indian exporters and manufacturers. However, this may not be sufficient, hence continuous drive for free trade agreements (FTAs) and successful implementation of the MITRA scheme is inevitable to drive competitiveness in textiles.

How can the government make MITRA programme successful? MITRA (Mega Investment Textile Park) scheme focuses on developing world class parks for textile manufacturers with plug and play infrastructure. What remains a monitorable is the size of the parks. Parks developed under the previous textile park scheme, SITP or Scheme for Integrated Textile Parks, were of less than average 100 acre compared to larger parks in Vietnam, China and Bangladesh. Some of the parks announced by countries like Vietnam remain substantially larger in size. For example, Rang Dong Textile Industrial Park in Vietnam is planned over 5,200 acre, Chengdu Huamao International Garment Industrial Park in China is spread over about 2,500 acre and Chattogram Export processing zones spread over 450 acre. In India, Brandix India Apparel City Pvt Ltd is the only operational park with an area of about 1,000 acre. MITRA looks at focusing on larger than this size but focus on deeper differentiators with significant incentives will provide unique positioning for Indian exporters.

How will the extension of RoSCTL scheme benefit the sector in the current context? The government announced to extend the RoSCTL (Rebate of State and Central Taxes and Levies) or rebate on Central and State taxes scheme to provide further support to garment exporters. Under the scheme, garment exporters, who are not entitled to get benefit under RoDTEP (Remission of Duties or Taxes on Export Products) scheme, will be incentivised as per the previously announced rates for different garment categories till March 2024. The move will increase the cost competitiveness of Indian exporters in the global trade against rival countries. Revised guidelines on scheme continuation will be announced later and incentives could vary from 2-6 per cent.

Source: The Hindu Business Line

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Andhra Pradesh targets Rs 5,000 crore from its retail parks policy

The state government declared retail parks policy 2021-26, anticipating targeted investment of RS 5,000 crore in the next five years. The government has proposed to encourage retail trade parks with a minimum investment of Rs 100 crore with 5,000 direct employments. The state government issued orders on Thursday to attract investments in retail trade in the state. The government proposes to encourage development of retail parks in every district each park with focus on one particular trade, like pharmaceuticals, textiles, plastics, electricals, etc. A nodal officer will be designated in every District Industries Centre (DIC) to facilitate the retail investment and promote retail parks to come up in the districts. The nodal officers would provide handholding for those who are interested in establishing the retail park. The nodal officer would help the investors get all clearances from the government. The policy also provides infrastructure assistance from the state government for any park with an investment of Rs 100 crore or providing 5,000 direct employment. The government would provide the roads, water, sewerage, electricity and other facilities

Source: Times of India

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Tax rebate extension to help industry conduct extensive evaluation of investment proposals: Welspun

The extension of the Rebate of State and Central Taxes and Levies (RoSCTL) scheme for exports of apparel/garments and made-ups approved by the government on Wednesday will also position India as a reliable and competitive textile manufacturing hub in the international arena, Welspun India Joint Managing Director and CEO Dipali Goenka said in a statement. The extension of rebate on the central and state taxes for exports of garments till March 2024 will allow the industry to conduct more extensive evaluations of investment proposals with longer gestation periods, NSE 2.36 % said on Thursday. The extension of the Rebate of State and Central Taxes and Levies (RoSCTL) scheme for exports of apparel/garments and made-ups approved by the government on Wednesday will also position India as a reliable and competitive textile manufacturing hub in the international arena, Welspun India Joint Managing Director and CEO Dipali Goenka said in a statement. "It is a transformational decision to extend the RoSCTL up to 2024. The move, along with production-linked incentive (PLI) schemes announced in April, will be a game-changer for the entire value chain and will drive benefits for all stakeholders," she added. Goenka further said, "The extension will also allow industry leaders to conduct more extensive evaluations of CAPEX proposals with longer gestation periods". Such undertakings will generate more valuable direct and indirect employment opportunities, particularly for women – something that will have a multigenerational socio-economic impact over a broader base of the country's populace and will lead to greater involvement of female professionals in the workforce, she added. Stating that the textile and apparel industry is one of the biggest growth drivers of India's economy, accounting for around 5 per cent of its GDP and 12 per cent of its export earnings, Goenka said the sector "will continue to play an integral role in the country's economic revival, helping it recuperate from the devastating impact of the second COVID19 wave". The steps taken by the government will provide a level playing field for Indian textile manufacturers and exporters while enabling them to capitalise on the recent shift in the global retail sourcing strategies, she said. "This policy change will position India as a reliable and competitive textile manufacturing hub in the international arena, as well as it will strengthen foreign trade and provide the necessary stimulus to revive domestic activity," Goenka added. The move will also help in the recovery of textile export, which fell to USD 29 billion in FY21 from USD 34 billion in FY20, reversing the trend to generate employment, drive growth Capex, and earn foreign exchange for the country, she noted. Goenka also pointed out that in the textile industry, the major input -- cotton, has embedded taxes and "therefore, this announcement ensures that taxes are not exported"

Source: Economic Times

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China's economic recovery loses some steam, investors eye more policy easing

China's economy grew slightly more slowly than expected in the second quarter, weighed down by higher raw material costs and new COVID-19 outbreaks, as expectations build that policymakers may have to do more to support the recovery. Gross domestic product (GDP) expanded 7.9% in the April-June quarter from a year earlier, official data showed on Thursday, missing expectations for a rise of 8.1% in a Reuters poll of economists. Growth slowed significantly from a record 18.3% expansion in the January-March period, when the year-on-year growth rate was heavily skewed by the COVID-induced slump in the first quarter of 2020. Retail sales and industrial output grew more slowly in June, the latter dragged by a sharp fall in motor vehicle production, while NBS data also showed a cooling in China's housing market, a key engine of growth. But June activity data still beat expectations, providing some relief to investors concerned about a slowdown after the central bank announced policy easing last week. "The numbers were marginally below our expectation and the market's expectation (but) I think the momentum is fairly strong," said UOB economist Woei Chen Ho in Singapore. "Our greater concern is the uneven recovery that we've seen so far and for China the recovery in domestic consumption is very important...retail sales this month was fairly strong and that may allay some concerns." While the world's second-largest economy has rebounded strongly from the COVID-19 crisis, buoyed by solid export demand and policy support, data releases in recent months have suggested some loss in momentum. Growth slowed significantly from a record 18.3% expansion in the January-March period, when the year-on-year growth rate was heavily skewed by the COVID-induced slump in the first quarter of 2020. Retail sales and industrial output grew more slowly in June, the latter dragged by a sharp fall in motor vehicle production, while NBS data also showed a cooling in China's housing market, a key engine of growth. But June activity data still beat expectations, providing some relief to investors concerned about a slowdown after the central bank announced policy easing last week. read more "The numbers were marginally below our expectation and the market's expectation (but) I think the momentum is fairly strong," said UOB economist Woei Chen Ho in Singapore. "Our greater concern is the uneven recovery that we've seen so far and for China the recovery in domestic consumption is very important...retail sales this month was fairly strong and that may allay some concerns." While the world's second-largest economy has rebounded strongly from the COVID-19 crisis, buoyed by solid export demand and policy support, data releases in recent months have suggested some loss in momentum. Higher raw material costs, supply shortages and pollution controls are weighing on industrial activity, while small COVID-19 outbreaks have kept a lid on consumer spending. read more Investors are watching to see if the central bank is shifting to an easier policy stance after the People's Bank of China (PBOC) announced last week it would cut the amount of cash that banks must hold as reserves, just as some other central banks begin or start thinking about exiting pandemic-era stimulus. read more Average second quarter growth in 2020 and 2021 was 5.5%, up slightly from a 5% average for the first quarter, according to the National Bureau of Statistics. On a quarterly basis, GDP expanded 1.3% in the April-June period, the NBS said, just beating expectations for a 1.2% rise in the Reuters poll. The NBS revised down growth in the first quarter from the fourth quarter last year to 0.4%.

POLICY EASING?

The PBOC move, which released about 1 trillion yuan ($154.64 billion) in long-term liquidity to bolster the recovery, comes even as policymakers have sought to normalise policy after the economy's strong rebound from the coronavirus crisis to contain financial risks. It highlights the challenges policymakers will face in rolling back pandemic-era stimulus as the coronavirus continues to flare-up around the world. read more "The domestic economic recovery is uneven," said Liu Aihua, an official at the NBS at a briefing on Thursday. "We must also see that the global epidemic continues to evolve, and there are many external instabilities and uncertain factors," she said. Premier Li Keqiang reiterated on Monday that China would not resort to flood-like stimulus. Still, economists in the Reuters poll expected more support this year, forecasting a further cut in the bank reserve requirement ratio (RRR) in the fourth quarter. Some market watchers say a cut in the country's benchmark loan prime rate may be next, possibly as early as next week. read more "Based on the current situation, if policymakers do not act, the GDP figure in Q4 could fall out of the reasonable range as data from last Q4 was shining," said Xing Zhaopeng, senior China strategist at ANZ in Shanghai. "I expect the government to roll out targeted easing measures."

HEADWINDS

China's strong exports have been a key support to the country's post-COVID recovery, but a customs official said this week overall trade growth may slow in the second half of 2021, partly reflecting COVID-19 pandemic uncertainties. read more "Headwinds to growth are likely to intensify during the second half of the year," said Julian Evans-Pritchard, senior China economist at Capital Economics in a note. "China's COVID-19 export boom appears to have peaked and will unwind over the coming quarters as vaccine rollouts and reopening help to normalise global consumption patterns." New home prices rose in June at the slowest clip since April and property investment at its weakest pace this year as government measures to cool a hot housing market further tapped the brakes on growth. read more The NBS data showed China's industrial output grew 8.3% in June from a year ago, slowing from a 8.8% rise in May. Economists in the poll had expected a 7.8% year-onyear rise. Retail sales grew 12.1% from a year earlier in June. Analysts in the poll had expected a 11.0% increase after May's 12.4% rise. Economists in the Reuters poll expected a 8.6% GDP expansion in 2021, which would be the highest annual growth in a decade and well above the country's official target for growth higher than 6%. China was the only major economy to have avoided a contraction last year, expanding 2.3%. read more Fixed asset investment grew 12.6% in the first six months of 2021 from the same period a year earlier, versus a forecast 12.1% uptick and down from a 15.4% jump in January-May.

Source: Reuters

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U.S. Senate passes bill to ban all products from China's Xinjiang

The U.S. Senate passed legislation on Wednesday to ban the import of products from China's Xinjiang region, the latest effort in Washington to punish Beijing for what U.S. officials say is an ongoing genocide against Uyghurs and other Muslim groups. The Uyghur Forced Labor Prevention Act would create a "rebuttable presumption" assuming goods manufactured in Xinjiang are made with forced labor and therefore banned under the 1930 Tariff Act, unless otherwise certified by U.S. authorities. Passed by unanimous consent, the bipartisan measure would shift the burden of proof to importers. The current rule bans goods if there is reasonable evidence of forced labor. The bill must also pass the House of Representatives before it can be sent to the White House for President Joe Biden to sign into law. It was not immediately clear when that might take place. Republican Senator Marco Rubio, who introduced the legislation with Democrat Jeff Merkley, called on the House to act quickly. "We will not turn a blind eye to the CCP's ongoing crimes against humanity, and we will not allow corporations a free pass to profit from those horrific abuses," Rubio said in a statement. "No American corporation should profit from these abuses. No American consumers should be inadvertently purchasing products from slave labor," Merkley said. Democratic and Republican aides said they expected the measure would get strong support in the House, noting the House approved a similar measure nearly unanimously last year. The bill would go beyond steps already taken to secure U.S. supply chains in the face of allegations of rights abuses in China, including existing bans on Xinjiang tomatoes, cotton and some solar products. The Biden administration has increased sanctions, and on Tuesday issued an advisory warning businesses they could be in violation of U.S. law if operations are linked even indirectly to surveillance networks in Xinjiang. Rights groups, researchers, former residents and some Western lawmakers and officials say Xinjiang authorities have facilitated forced labor by detaining around a million Uyghurs and other primarily Muslim minorities since 2016.

Source: Reuters

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A long road to a “new normal” economy

As the COVID-19 pandemic enters its second year, some parts of the world have seen economies reopen, consumer demand pick up, and economic conditions improve. However, vaccine availability and distribution remain uneven across the globe and the first months of 2021 have seen significant virus waves in various parts across the world. These mixed signs are weighing on the outlook for foreign direct investment and economic recovery, according to the World Bank’s most recent quarterly Global Pulse Survey of multinational enterprises (MNEs) in developing countries. Global FDI flows fell by 35 percent in 2020, but survey results have shown a steady improvement in indicators such as demand and revenue since the onset of the crisis, with average impacts on affiliates in developing countries greatly reduced by Q1 2021. Nonetheless, most MNEs are still operating below pre-pandemic capacity, indicating a prolonged and uncertain recovery as the world moves out of the pandemic and toward a “new normal”. This uncertainty has led MNEs to pause major investments and instead rely on available capacity to expand output as economic activity picks up. A drawn-out recovery In Q1 2021, fewer firms reported negative effects on worker productivity, output, demand, and net income compared with Q4 2020, and the average magnitude of these negative effects has also fallen to pandemic-period lows. Despite these signs of recovery, 93 percent of MNEs in developing countries still report facing at least one adverse effect from the pandemic in Q1 of 2021 and more than two thirds of MNEs (68 percent) are still operating below 75 percent of their pre-pandemic output levels (Figure 1). Only 2 percent of MNEs expect operations to return to pre-pandemic levels in the first half of 2021 and 52 percent expect operations will not return to full capacity until some point in 2022. Nonetheless, the outlook for investment has stabilized from earlier periods of the pandemic. The share of firms expecting to reduce investments has fallen from 39 percent in Q3 2020 to almost none in Q1 2021 (Figure 2). On the other hand, only eight percent of the MNEs expect investment to increase compared to 17 percent in Q4 2020. Among respondents that expect no change in investment levels, 74 percent cited uncertainty about future demand. Almost half (48 percent) cited policy and regulatory restrictions as a contributing factor discouraging investment expansion. This creates an opportunity for governments to incentivize investment through strategic adjustments to investment policies, reduced operational restrictions, and increased support for MNEs. Increasing focus on sustainability and green initiative Despite the negative shocks brought on by the pandemic, there has been an amplified push for MNEs to take greater responsibility in their environmental performance. As companies start to gear up for the post-pandemic recovery, our survey results suggest an increased focus on sustainability and green initiatives. Nearly half of the surveyed MNE affiliates (48 percent) in developing countries indicate that they increased efforts to decarbonize their operations and improve sustainability since the onset of the pandemic. The trend toward sustainability has been driven by pressure from local governments as well as direction from parent companies. Eighty-three percent of MNEs that adopted sustainability measures ranked pressure from local government in the top three drivers of the change and 74 percent ranked pressure from parent companies in the top three. These drivers indicate the effectiveness of robust environmental government policies to drive change in private sector behavior, as well as a potential positive spillover of FDI in developing countries through the linkages between MNE parents and their affiliates. It also appears that companies are internalizing the risks of climate change, with 71 percent ranking direct threats to production in their top three reasons for adopting sustainability measures. he largest risk to the global economy remains COVID-19 infections and the most important policy action is to vaccinate the population as quickly as possible. Countries should also use this time as an opportunity to implement policies that lower restrictions and boost competitiveness to better retain and attract FDI. This blog is the fifth in a series focused on the results of global MNE pulse surveys during the COVID-19 pandemic. Read about the results of the surveys for the first quarter, second quarter, third quarter, fourth quarter of 2020 and the first quarter of 2021.

Source: World Bank blog

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