Textile mills in north and south India are crying foul over increased adulteration in cotton procured from Gujarat.
Cotton farmers are holding on to raw cotton waiting for better prices. This has resulted in a price disparity between raw cotton made available to ginners and finished cotton produced by ginners. Ginners are mixing lower quality cotton with higher quality cotton to reduce their losses.
Mills and traders buying cotton from Gujarat said the usual rate of adulteration of 10-15 per cent had climbed to 40 per cent this year. Increased adulteration is also being reported in Maharashtra.
“Ginners are losing Rs 500-700 per bale of raw cotton. Many ginners are mixing lower quality cotton to reduce their loss. Yet their returns are not good,” said Arvind Pan, vice-president of the Saurashtra Ginners’ Association (SGA).
A bale of 170 kg raw cotton contains 32 per cent lint, 63 per cent seed and another 5 per cent goes waste. The cost to ginners is Rs 8,500 per bale and Rs 500 for production. Ginners are being offered Rs 8,000-8,200 per bale for ginned cotton. After adulteration, the loss is being reduced to Rs 200-300 per bale.
“Textile mills are forced to import more cotton. Good quality cotton, especially from Gujarat, such as Shankar 6, is being mixed with lower quality cotton,” said members of the Northern India Textile Mills' Association (NITMA).
Confirming that mills in south India had begun booking imports from Africa, K Selvaraju, secretary-general of the Southern India Mills Association (SIMA), said, “There have been rampant quality issues, especially from Gujarat. A large number of ginners are mixing waste cotton with virgin raw cotton. Mills have begun booking import contracts and this could increase if the adulteration does not stop.”
Selvaraju added adulteration had increased from 15 per cent of total arrivals in south India to almost 50 per cent this year.
Raw cotton prices have risen from Rs 800 to Rs 980 per 20 kg during the current season. Generally prices decrease for a few months after the new arrivals. But this year the crop is damaged by pests and raw cotton prices are on the rise.
A Mumbai-based industry expert said, “Raw cotton prices have gained so far for want of good quality cotton. Moreover, the government has declared a bonus, which increased the expectation of farmers, and they are not selling cotton at lower rates.” The Centre has increased the minimum support price (MSP) for raw cotton to Rs 810 per 20 kg.
Last month, the Gujarat government declared a Rs 110 bonus on the MSP, which set the price of cotton at Rs 920 per 20 kg. Farmers are not willing to sell cotton below Rs 950 and have been demanding Rs 1,100 per 20 kg.
Moreover, ginned cotton prices have not increased because of weak export demand and they rule at Rs 34,000 per candy of 355 kg. Bharat Boghara, who owns a ginning unit in Jasdan, said, "Ginners will be able to earn profits only if cotton prices rise over Rs 35,000 per candy."
SOURCE: The Business Standard
The government might break its Budget deficit targets to stimulate demand, potentially undermining the Reserve Bank of India (RBI)’s fight against inflation.
Statistically, India’s economy is outpacing China with above seven per cent annual growth. But, Prime Minister Narendra Modi’s economic advisers are complaining of a sharp slowdown that threatens their Budget calculations.
In February, Finance Minister Arun Jaitley will present the Budget for the financial year starting April 1. A senior official said the minister had been advised to increase its fiscal deficit target to 3.7 or 3.9 per cent of gross domestic product (GDP) from 3.5 per cent.
There is also a proposal to delay, by one year, a goal of lowering the fiscal deficit to three per cent in 2017-18, the official said.
“The economy is still suffering from slack demand,” said the finance ministry official. “It needs a conducive fiscal and monetary policy.”
Shaktikanta Das, the ministry’s economic affairs secretary, said the government has not yet decided on relaxing the deficit targets.
Running a higher deficit could antagonise RBI, which is counting on Jaitley’s pledge of tight fiscal policy to keep inflation to five per cent by March 2017.
“A miss on the fiscal targets will narrow scope for additional rate cuts,” said economists at DBS in Singapore.
Differences on what the government should do – spend to stimulate and risk high inflation, or cut the fiscal deficit to contain it – stem from a sharp divergence between nominal and real, or inflation-adjusted, growth, as well as in the direction of wholesale and retail prices.
GDP data “is underestimating nominal growth and overestimating real growth,” said N R Bhanumurthy, a professor at the National Institute of Public Finance and Policy.
Falling wholesale prices
He and other economists blame an over-representation of the Wholesale Price Index in the GDP “deflator” for the anomaly.
The government uses the deflator to strip out price changes to make quarters comparable. Wholesale prices have a bigger weight in the deflator than retail ones. Recently, wholesale prices have fallen, due to crashing commodity prices, showing a deflationary trend — hence some officials are pitching for stimulus.
But, since September, retail inflation has picked up, hitting 5.41 per cent in November. This has rekindled inflation worries, and argues for reducing the fiscal deficit.
In July-September, the deflator fell an annual 1.3 per cent, sparking a debate on whether India’s economy was plunging into deflation. Retail inflation, which the Reserve Bank of India tracks to set interest rates, averaged about four per cent in that period.
Bhanumurthy says ideally India should use producer prices for calculating the deflator. But, as it is yet to build an index for them, he suggests using only retail prices, in the interim, to translate nominal economic growth figures into real ones.
As the government in January 2015 changed how it measures economic activity, policymakers have struggled to square robust headline growth figures with grim ground reality.
Differing rates of growth
Real annual gross domestic product accelerated in July-September to 7.4 per cent from seven per cent. But, growth of nominal GDP, which Jaitley relies on to drive tax revenue, slowed sharply to six per cent, from 8.8 per cent in April-June, suggesting tepid demand.
It was the first time in recent quarters nominal growth lagged the real figure. “We know the economy is recovering,” the finance ministry official said. “But, no one is sure about the recovery’s pace and strength.”
A loose fiscal stance taken during the 2008 global financial crisis led to prolonged double-digit inflation, paving the way for ouster of the previous government.
The RBI is already bracing for the inflationary fallout of a salary hike for millions of government employees next financial year.
“The mess is being created in Delhi, but the RBI will have to absorb the shock,” said Bhanumurthy.
SOURCE: The Business Standard
Narendra Modi and Arun Jaitley, seems to have got support for Goods and Services Tax (GST) from unexpected quarter, the trading association.
About 200 leading trade leaders of prominent trade bodies on Tuesday came out in support of government's push for GST and demanded that the tax regulation be implemented as early as possible. The association-- Confederation of All India Traders (CAIT)—even urged the opposition parties, Congress and AIADMK, to give a "safe passage" to GST in the parliament.
This comes at a time when the pressure on the opposition to pass the centralised tax system increases. Many industry experts have come out in support of GST in last couple of months.
CIAT is also planning to launch a nationwide campaign about GST from January 10 till the budget session in February.
"Under GST about eight types of return forms need to be complied by the traders, and if such a procedure is adopted it will complicate the taxation structure and will demoralize the traders to opt for self-compliance and will certainly affect adversely the concept of widening the tax base through GST," the CIAT said in a statement.
GST is a unified tax wherein the tax would be payable at the time of consumption (through credit system). Currently tax is paid at the time of manufacturing. Industry trackers have repeatedly stated that GST is set to benefit the poorer states like Bihar, Uttar Pradesh, West Bengal and the North Eastern states. However, richer states including Tamil Nadu where a lot of manufacturing happens would lose out on taxes.
Yet, GST in all probability would also increase transparency in the taxation system and reduce the black money.
SOURCE: The Economic Times
The thriving derivatives trading in the Indian Rupee suddenly faces an existential threat - not because of unnerving volatility, but probably due to likely reduction in it, thanks to the Reserve Bank of India's (RBI) decision to intervene in the currency futures. The central bank's entry into the currency futures market is bound to reduce excessive movements in the rupee, which these traders thrive on, besides narrowing the wide difference that the local unit trades at between the onshore and and offshore, or unregulated non-deliverable forwards market, say traders.
"I would assume a greater number of traders are done by prop or day traders since this segment (currency futures) does not attract securities transaction tax,'' said Rajesh Baheti, MD, Crosseas Capital, which runs proprietary trades across exchange traded assets.
"They would obviously be hit by a decline in volatility but what's bad for them is actually a boon for actual users as their underlying currency risk and volatility come under control." Governor Raghuram Rajan last month shocked retail currency traders when he announced that the central bank would also trade in the currency derivatives market to "manage excessive volatility and to maintain orderly conditions......"
While the move may help the regulator to smoothen out the fluctuations in the market it would essentially deprive arbitrageurs the opportunity to profit from differential rates in different markets.
Indeed, in its December bulletin, the banking regulator revealed its purchase and sale of $355 million in the currency futures market in September. Traders speculate that some banks, on behalf of RBI have demanded higher trading limits so that they could move the market. RBI and Sebi did not respond to an ET query on the former's request for higher exposure limits. Currently an exchange member had exposure limit of 15% of marketwide open interest.
Currency derivatives trading since introduced in August 2008 on NSE has grown with annual/daily trading volume averaging Rs 16,915 crore in FY16 (Apr-Jan), from justRs 1,167 crore in FY09. During this period, the interest really surged in 2013 when the Indian rupee was pummelled when the former US Federal Reserve Chairman Ben Bernanke's comment on tapering quantitative easing roiled global markets.
Jamal Mecklai, CEO of risk management consultancy Mecklai Financial Services, said punters were bound to be "disappointed" as currency futures were largely a "trader's market" rather than an actual user's one.
"The exchanges say their currency platforms offer transparent price discovery and that small and medium sized corporates who might not get the best rates that banks offer to premium customers can get the same here, thanks to contracts which enjoy competitive bid-ask spreads,'' said Mecklai.
"But, since dollars cannot be delivered on exchanges, users will ultimately need the banks to exchange dollars for rupees or the other way round. So, a majority of the participants tend to be traders who thrive on volatility."
SOURCE: The Economic Times
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To chalk out a vision for the energy sector, Prime Minister Narendra Modi on Tuesday interacted with global oil & gas experts, including BP global head Bob Dudley and International Energy Agency executive director Fatih Birol.
Royal Dutch Shell director (projects & technology) Harry Brekelmans and Pulitzer award-winning American author Daniel Yergin were also present during the meeting, which lasted for two hours. Besides, Union ministers Arun Jaitley, Piyush Goyal and Dharmendra Pradhan, NITI Aayog vice-chairman Arvind Panagariya, and top officials from the government and the NITI Aayog were present, according to an official statement. The discussions focused on increasing the share of gas in India's energy mix; fresh investment in oil & gas exploration in India; regulatory frameworks; international acquisition of oil & gas assets; emerging areas such as shale gas and coal-bed methane; and the oil & gas sector-related possibilities of Make In India programme.
While the National Democratic Alliance government has cleaned up retail pricing issues in diesel and petrol, it is yet to come up with an investment-friendly approach in the upstream oil and gas-producing sector. The new pricing formula for natural gas, which became applicable from November 1, 2014 and is revised every six months, has rendered investment in deepwater exploration and production business unviable, an issue conveyed by Oil and Natural Gas Corporation to the government earlier.
On October 18, 2014, the Cabinet Committee on Economic Affairs had decided to make changes in the formula notified by the United Progressive Alliance government in January 2014 by dropping both the Japanese and the Indian liquefied natural gas import components, and considering the Alberta Gas Reference price in place of Henry Hub and the actual Russian price in place of the National Balancing Point. By this formula, the prevailing domestic price is lower than $4.2 set for Reliance Industries and BP's KG-D6 production in 2008.
The presence of former oil secretaries Vijay Kelkar and Vivek Rae at Tuesday's meeting pointed to possible industry-friendly changes in the petroleum sector.
Modi is also understood to have stressed the need for green energy. Last week, the PM had formed eight groups of secretaries, one of which was on energy-efficiency and conservation. At Tuesday's meeting, Modi emphasised his vision for a fresh look at the sector, to bring in investment, technological upgradation, and development of human resources.
On the power side, efforts are currently underway for restructuring loans of power distribution companies owned by state governments through the Ujjawal Discom Assurance Yojana, or UDAY, scheme.
SOURCE: The Business Standard
The economy is not doing as good as it was expected and the pace of reforms has slowed down, industry body Confederation of Indian Industry’s (CII) President Sumit Mazumder said on Tuesday.
“It (the economy) should have done a lot better. It can do a lot better. A reform like the Goods and Services Tax (GST) would give the whole industry such a psychological boost that you would see a rapid pack of pick up in the economy,” the Mazumder told PTI in an interview.
Asked whether there was a slowdown in the reforms over the last few months, Mazumder said: “There is a slowdown but the reforms are still going through. So, it is not as if the reforms have totally stopped.”
He said the “pace of reforms will pick up once Parliament knows how to function.”
On GST logjam, he said, “... Everybody recognises the benefits of GST, like, how the GDP will be impacted positively and ease of doing business will go up by quite a few notches... This logjam in Parliament has been a very big disappointment and sometimes you have got to draw a line between politics and what is good for the country.”
The proposed Goods and Services Tax law that will subsume all indirect taxes like excise duty, service tax and sales tax into one uniform rate, is stuck in the Rajya Sabha where the ruling National Democratic Party (NDA) government lacks majority.
The Congress is demanding three major changes in the Bill and stalled the passage of the Constitution Amendment Bill in the last two sessions, derailing government's plan to roll out GST from April 1, 2016.
Sharing the wishlist for the Budget, Mazumder said a major thrust is required by the government to stimulate rural demand and boost infrastructure development.
He also urged that the phased corporate tax reduction to 25 per cent from the prevailing 34 per cent be done in tandem with removal of allowances.
“We would like to see him (FM) take some initiatives where demand gets a stimulation because that is a major concern right now. We would like to see continuation of investments that are being made by the government right now and by the PSUs.”
He said that however, the fiscal deficit have to be maintained, and should not be sacrificed and one of the ways to do it would be through disinvestment. “We want to see a lot more impetus on infrastructure and construction," Mazumder said.
The industry is looking forward to lower interest rates, he said, but added that he does not expect any more reduction in interest rates in the current fiscal because the rupee is not performing well. "We won't see any big bang reduction in interest rates but it will be in small increments like last year," he said.
The CII President also pointed out that steps taken towards "ease of doing business have been translated onto the ground".
SOURCE: The Business Standard
India is set to propose a non-legal and non-adversarial mechanism to resolve trade-impeding non-tariff measures (NTMs) among the 16 Regional Comprehensive Economic Partnership (RCEP) countries.
“Every RCEP country shall designate a focal point for implementation of the informal mechanism on NTMs. All the information exchanged under this mechanism would be through this focal point,” said a source.
“The requesting country would submit a written request in English to the focal point of the requested country. The requesting country shall send a copy of either the written request or a non-confidential summary of the written request to the other country. The request shall briefly indicate the NTM and the concerns of the requesting country as to how it affects their exports to the requested country,” he said, adding that the responding country should submit its reply within 30 days.
However, the informal mechanism would not alter or diminish the rights and obligations of countries under the RCEP chapter on dispute settlement, and is without prejudice to countries’ rights and obligations under the WTO agreements. RCEP is a proposed free trade agreement between 16 countries namely ASEAN (Brunei, Cambodia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) and its 6 FTA partners Australia, China, Japan, Korea, New Zealand and India.
Based on the written request of any other country, within 20 days of the submission of the response, both the parties shall decide, by mutual consent to designate such other country as a third party country, and include the participation of such a third-party country in the informal mechanism.
The parties, may also decided by mutual consent, on the need for the chairperson of the Committee on Trade in Goods (CTG) to moderate or facilitate the informal mechanism.
“The parties would be encouraged to use electronic modes of communication, including video conferencing keeping in view the resource constraints of participating countries. They may, if needed and by mutual consent, seek the advice of the experts. Whatever, the mechanism should seek to explore practical trade solutions between the parties,” another official said.
SOURCE: The Financial Express
Brent oil may decline to near $30 abarrel before a reduction in US output helps rebalance global markets in the second half of the year, says UBS Group.
Commodity prices may drop another 10% because of oversupplied markets, said Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at UBS's wealth-management unit in Hong Kong.
Oil's advance on Monday after Saudi Arabia cut ties with Iran could last a week or two, he said.
"What we are going to see in the first half of 2016 is that US production, year-on-year, will start to decline," Schnider said. "Once you see that happening, the market will become more comfortable, the prices actually can stabilise."
Brent lost 35% in 2015, declining for a third year. Prices on Monday rose 2.4% at $38.17 a barrel in Tokyo as Saudi Arabia cut ties with Iran a day after its embassy in Tehran was attacked to protest the Saudis' execution of a prominent Shiite cleric.
The global oversupply worsened last year as US stockpiles rose more than 100 million barrels, the largest annual growth in Energy Information Administration data going back to 1920, and the Opec had abandoned output limits to defend market share.
Contra view: Oil to hover at $50 this year
Global oil markets will begin rebalancing this year and there should be at least an 18-month bull market starting in the second half, according to analysts at Sanford C Bernstein & Co.
Oil will average $50 this year and $70 in 2017, which will be a year of "undersupply," analysts wrote in a note.
Demand will grow while output declines accelerate from producers outside the Opec including the United States pushing oil up to $80 a barrel by 2018, the analysts have mentioned in the note. — Bloomberg
SOURCE: The Economic Times
Manufacturing in the US contracted in December at the fastest pace in more than six years as factories, hobbled by sluggish global growth, cut staff at the end of 2015.
The Institute for Supply Management's index declined to 48.2, the weakest since June 2009, from 48.6 a month earlier, the Tempe, Arizona-based group's report showed Monday. Readings lower than 50 indicate contraction. The median forecast in a Bloomberg survey of 72 economists was 49. Struggling overseas demand and declines in commodity prices that are hurting investment in energy and agriculture continue to limit orders for American manufacturers.
At the same time, robust domestic growth buoyed by labour-market momentum and burgeoning wage gains are supporting consumers' spending power and preventing US factory activity from slowing even more.
"As the impact of the strong dollar and weak global demand continues to play out, it's no surprise that we're seeing these kinds of sub-par prints in manufacturing," said Millan Mulraine, deputy head of US research and strategy at TD Securities LLC in New York, whose projection tied for the closest in the survey. "As low energy prices continue to have an impact on the energy sector, then we're likely to see a weak showing in manufacturing for a long time."
Estimates for the manufacturing index from economists in the Bloomberg survey ranged from 46.6 to 51.
Factories globally ended the year on a weak note, contributing to a selloff in stocks worldwide on Monday.
Manufacturing in China contracted in December for a fifth consecutive month as the world's second-largest economy is poised to grow in 2016 at the slowest pace since 1990. In the UK, manufacturing unexpectedly cooled in December, suggesting it made little contribution to the economy in the final quarter of 2015.
The euro area provided one bit of good news as the region's factories expanded in December at the fastest pace in 20 months. Manufacturing grew in all nations covered, including Greece, for the first time since April 2014.
Ten of the 18 US industries surveyed by ISM contracted last month, led by clothing, plastics and machinery, according to the report.
While the US ISM's gauge of new orders improved to 49.2 last month from 48.9 in November, it still showed bookings were falling. Order backlogs thinned to the smallest in three years.
Exports and imports
The measure of export orders showed foreign demand surprisingly climbed in December for the first time in eight months, signalling the worst may be over. The index rose to 51 from 47.5 in November. Conversely, imports dropped at the fastest pace in more than nine years.
The slump in imports indicated factories were trying to cope with soft demand and attempting to limit inventories, Bradley Holcomb, chairman of the ISM's factory survey said in a conference call. Companies were cutting back on stockpiles of raw materials, he said.
Weakness in the ISM's factory employment index was behind the drop in the overall measure. The hiring gauge fell to 48.1 in December from 51.3 the prior month, Monday's report showed.
The production gauge improved to 49.8 from 49.2 in November. A jobs report due Friday from the Labour Department is projected to show employment made further strides in December, with hiring building on gains in 2014 that made it the best year since 1999. Economists are predicting payrolls climbed by about 200,000 last month after a 211,000 increase in November.
Inventory Cutbacks
The ISM report also showed gauges of factory inventories contracted at a slower pace in December, rising to 43.5 from 43 in November. Manufacturers also said their customers still held too much in stockpiles.
An index of prices paid dropped to 33.5, the lowest since April 2009, from 35.5. The prices measure has been in contraction since October 2014.
The drop in joblessness over the past year is projected to lead to bigger wage gains, which will probably spur a pickup in consumer spending and inflation. Unemployment held at a more than seven-year low of 5 per cent in November.
The Federal Reserve last month increased the benchmark interest rate for the first time since 2006, indicating confidence that the economy is strong enough to withstand higher borrowing costs and that price growth is set to accelerate.
SOURCE: The Business Standard
The country has produced 9.279m bales so far this season, a shortfall of 33.5 per cent compared to 13.958m bales during the same period last year, according to official figures released by the Pakistan Cotton Ginners’ Association on Monday.
As phutti (seed cotton) arrivals during the outgoing fortnight (Dec 15 to Jan 1) dismally remained low, cotton analyst Naseem Usman believes that the country is not going to produce more than 9.7m bales this season, significantly lower than last season’s production of 14.9m bales.
The heavy rains and floods coupled with inferior quality seed and pesticides had their toll over the standing cotton crop in Punjab where production is currently lagging behind by 44.75pc (or 4.515m less bales) as compared to last season.
The spinning industry’s annual consumption of cotton stands at around 14.5m bales. The industry has so far booked around 2.5 million cotton bales for imports, out of which two million bales have been imported from India. All Pakistan Textile Mills Association (Aptma) Chairman Tariq Saud, the imports could touch 3.5 to four million bales.
However, cotton production losses in Sindh comparatively remained low this season. As of Jan 1, the province produced 3.704m bales, a shortfall of 4.23pc (163,422 bales) over the same period last season.
The crop failure in Punjab is not only going to hit GDP but would also increase unemployment and poverty level.
The ginners’ report further disclosed that flow of phutti during the outgoing fortnight (Dec 15 to Jan 1) remained extremely slow at 244,987 bales compared to 724,461 bales produced in the same period last season.
Due to short crop, the spinning industry during the period under review could only purchase 7.271m bales compared to 11.457m bales in the same period last season. The ginners are also holding lesser stocks of unsold cotton at 1.652m bales as against 2.016m bales held in the same period last season.
Since very little cotton is left back in the fields for picking, only 280 ginning units are currently operating in Punjab compared to 799 functioned last year in the same period. Similarly, in Sindh 136 ginning factories are presently operating as against 156 last season.
Source: Dawn.
