After witnessing volatility at the beginning of this week, polyester-cotton (PC) yarn and acrylic yarn prices remained stable in the remaining part of last week. However, traders are expecting demand to improve this week in north India, taking cues from southern markets of Mumbai and Tiruppur which saw better trade activities over the last few days. It is to be noted here that the entire man-made yarn and PC yarn market is sandwiched between costlier crude based raw material and sluggish demand from downstream industry. Though the price of crude oil has declined from its recent highs, it is still hovering at very high level. On Friday, Brent crude futures, the global oil benchmark, rose 1.94 per cent to $111.45 per barrel. Skyrocketed crude oil was disrupting pricing structure of PSF value chain because of costlier intermediatory products like PTA, MEG and MELT. Ashok Singhal, a broker from Ludhiana, told Fibre2Fashion that the prices of PC yarn and acrylic yarn were hovering at previous levels, but trading activities are improving. Ludhiana, India’s most prominent man-made yarn market, recorded stable man-made yarn prices on Saturday. 30 count PC combed yarn (48/52) was sold at ₹270-280 per kg (GST extra). 30 count PC carded yarn (65/35) was priced at ₹235-240 per kg and 20 count PC (recycled-O/E) PSF yarn (40/60) was traded at ₹170-180 per kg, according to Fibre2Fashion's market insight tool TexPro. Acrylic NM (2/48) was priced at ₹315-320 per kg and acrylic NM (2/32) at ₹265-270 per kg. PSF was priced at ₹123 per kg. PSF’s raw materials were sold as PTA ₹93 per kg, MEG ₹65 per kg, and MELT ₹103 per kg.
Source: Fibre 2 Fashion
While the RBI may have been comfortable about local inflation, expecting minimum impact from global factors, the assessment of fast-changing geopolitical dynamics on commodity prices and their stickiness will still hold lessons for the Indian central bank. The Reserve Bank of India's monetary policy committee members would be closely watching the actions of central banks from the US Federal Reserve to the Bank of Japan, which are likely to send strong signals on inflation management with interest rate and liquidity actions. While the RBI may have been comfortable about local inflation, expecting minimum impact from global factors, the assessment of fast-changing geopolitical dynamics on commodity prices and their stickiness will still hold.
Source: Economic Times
The Free Trade Agreement (FTA) signed recently between India and United Arab Emirates (UAE) is seen boosting exports of textile, food processing and agri products from MSMEs of Madhya Pradesh and will expand market reach, said industry players and officials of Sharjah Airport International Free Zone. The trade pact between India and UAE reduces import duty on a majority of products exported from India to the country and is seen benefitting mostly textiles, apparels, agri goods, pharmaceuticals, automobiles, engineering and jewellery among other items. A delegation from Sharjah Airport International Free Zone (SAIF) accompanied by officials from Associated Chambers of Commerce and Industry (ASSOCHAM) held a meeting with industry players of Indore to discuss business opportunities. Saud Salim Al Mazrouei, director, Sharjah Airport International Free Zone (SAIF), government of Sharjah said, “We are looking to facilitate industries from India to increase trade relations between both the countries. We are improving infrastructure to suit requirements of industries and hoping to attract investments from MP, a hub for MSME’s. The SAIF zone is one such place that opens trade avenues for multiple countries at a quick pace and very economical rate.” At present 7,000 companies from across the country have their presence in SAIF of which 2,000 are Indian firms. Bilateral trade between India and UAE is $60 billion which according to SAIF officials is targeted to touch $100 billion by 2030. Akhilesh Rathi, vice president, ASSOCHAM said, “Industries of Madhya Pradesh involved in exports of textile and food processing products have a lot of exposure to the UAE. The free trade pact will further help in reducing competition from rival countries and boost exports from local industries.” Officials said the trade pact will allow many small businesses to expand reach to the other countries and benefit upcoming sectors such as fintech, edtech and others. Irfan Alam, deputy director, ASSOCHAM said, “The trade relations between both the countries are growing and with this FTA business will further aggravate. This trade pact will also boost the government of India’s Make in India and Aatma Nirbhar Bharat initiatives by supporting MSME’s.
Source: Times of India
There is a growing need to analyse the Free Trade Agreements to understand their impact on the economy and the geopolitical repercussions that follow. The inking of the India-UAE Comprehensive Economic Partnership Agreement (CEPA) on 18 February 2022 is slated to open up a host of opportunities for both the economies. The trade pact is envisaged to increase the bilateral trade in goods from the present levels of US$60 billion to US $100 billion over the next five years, and also achieve services trade worth US $15 billion. Claims by the Ministry of Commerce suggest creation of 10 lakh jobs in India in labour-intensive sectors such as textiles, pharmaceuticals, gems and jewellery, plastic products, auto and leather, processed agriculture and dairy products, handicrafts, furniture, food and beverages, engineering, etc. The tariffs are supposed to be brought down to zero for 90 percent of Indian exports to the UAE. While this comprises almost 80 percent of the tariff lines, the list will entail around 97 percent of the tariff lines over the next five years. There are gains for the UAE also. There will be an immediate relief on import duties on about 65 percent of tariff lines on imports from the UAE that is slated to increase to 90 percent of tariff lines in 10 years. There will also be a tariff-rate quota of 200 tonnes of gold imports from the UAE, with the proposed import duty being one percentage point less than the tariff with other trading partners. While “gains from trade” are easily perceptible, there remain further possibilities of increased repatriation from the UAE, given that services and human capital movement will be eased out further. The India-UAE trade agreement has another critical connotation from the perspective of bilateral political relations. This is only the second free-trade agreement (FTA) that has been signed under the present Indian dispensation, the first one being with Mauritius in February 2021. Recently, India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP) has met with a host of criticisms. There were voices within and outside India that felt that that India has missed out the bus by not being a member of the mega-trade deal, though there were concerns that India is not adequately prepared to face the sectoral competition to be posed by ASEAN and Australia in various contexts. However, one of the reasons for the Indian exit seems to be geopolitical/ geostrategic, and that is with the presence of China in the bloc. Post India’s withdrawal from the trade bloc, India has been contemplating to sign a series of bilateral trade agreements. Apart from the already signed India–Mauritius CECPA (Comprehensive Economic Cooperation and Partnership Agreement) and India-UAE CEPA, trade agreements with Australia, the UK, and Canada are in advanced stages, and there are serious talks on inking FTAs with the EU and Israel. What explains this sudden spurt of signing FTAs? Is India looking at FTAs only for the economic benefits that follows, without a holistic consideration including the costs? It should be appreciated that India’s FTA-signing is a “two-level” game with its implications at both the international and the domestic levels. At the international level, it has to negotiate with the negotiating nation/s, while at the domestic level, it has to negotiate with various contending constituencies.
Assessing FTAs through impacts on value chain While exploring the domestic component, we see that there is the domestic constituency that is slated to have its winners and losers with the FTAs. This can be found sectorally, or across the value-chain of a commodity. Again, if an FTA leads to import of cheaper factors of production making the domestic industry more competitive, it can lead to an increase in “producer surplus” by boosting the bottom lines of an organisation. However, the same is not true with the imports of final products that pose a direct competition to domestically produced goods. In a large number of cases of India’s trade agreements—especially with those of Southeast Asia—Indian trade deficits increased after the FTAs came to effect. This is because the demand for imported commodities increased with decline or complete elimination of tariffs and non-tariff barriers, thereby, making these products cheaper for the Indian consumer, when compared with similar Indian products. This is true for palm oil, where a low tariff regime by around 2014–15 resulted in a massive spurt in palm oil imports from Malaysia and Indonesia. It has been allegedly stated that with the dominance of the imported palm (from Malaysia) and soya (from South America) oils in the consumption basket, processing margins diminished substantially thereby, posing a threat to the very existence of the domestic oil processing industry. Despite the above, these FTAs have actually helped the consumers. The reason for increasing consumption of imported palm oil in the last decade was precisely because of lower prices helping consumers’ cause. Larger volumes of cheap imports increase the “consumer surplus” as also consumers’ choice basket. With constant advocacy from domestic industry groups, the government raised the import tariffs of both crude and refined edible oils over time from the zero-tairff regime of crude oil during the middle of the last decade. An ORF publication already created the mathematical and econometric frameworks to assess the impacts of FTAs on the commodity value-chain. Such a framework on the basis of a scenario analysis can help both ex ante (pre-implementation) and ex post analysis (post-implementation) analyses. Even in the context of the recently concluded India-UAE CEPA, and other upcoming FTAs, such analyses across chosen commodity (for instance, wine, dairy products, for Australia-India FTA) value chain/s will be useful. This can provide with the impacts of trade agreements on consumers, retailers, intermediaries in the marketing chain, processing units, and primary producers. This renders another dimension to the analysis of FTAs, especially when there has been a tendency amongst many analysts to assess FTAs only through the lens of simple macro-economic parameters of trade surpluses/ deficits, which is largely a reductionist and narrow perspective.
The geostrategic and geoeconomic gains from FTAs The FTAs also need to be assessed from a geostrategic viewpoint. Many have perceived India’s withdrawal from RCEP as “protectionist” and “conservative”. However, many were apprehensive about RCEP due to the Chinese presence in the bloc. Therefore, India’s getting into the FTAs with the friendly nations can send across message of shedding off the conservative “protectionist” image. This also has critical geoeconomic implications from the perspectives of trade and investment in the Indo-Pacific region. One needs to appreciate that the India-UAE CEPA has geopolitical implications from the perspective of the western QUAD (consisting of Israel, India, the UAE, and the United States), a regional force convened last October. The western QUAD and the India-UAE CEPA can be construed as the UAE’s post pandemic recovery plans through revival of its trade links from the Mediterranean coast to Turkey on one hand, and taking advantage of the burgeoning factor market of India and South Asia. This provides India also the bandwidth to develop closer ties with the western neighbours that augurs well with vision of getting into trade agreements marked by absence of China. Further even, the India-UAE CEPA can also be a step ahead towards having an India-GCC (Gulf Cooperation Council) FTA that will also have its geoeconomic and geopolitical implications. In a similar way, FTAs are emerging as important tools for economic diplomacy in the Indo-Pacific for deeper levels of engagement with friendly nations like Australia and others.
Concluding remarks Therefore, in this entire penchant for signing FTAs, it becomes imperative that there should be a more comprehensive impact analysis conducted. This should entail understanding the impacts on the economy through a value chain analysis, and the geoeconomic and geopolitical repercussions. The value chain analysis, ex ante or ex post, turns out to be beneficial on two grounds. Firstly, it provides the Ministry and policymakers an opportunity to assess the changing natures of bottomlines/ well-being of the various stakeholders of the commodity value chain, as also provide an aggregate value of the surplus/ loss generated in the chain, and take a more informed decision rather than going by sheer assumptions posed by trade theory. Secondly, this also helps the policymakers to design their negotiation strategies across stakeholder groups on one hand and incentive strategies, on the other, to compensate for the losses that might occur to some of the concerned stakeholders in the value-chain. India’s decade-long caution against FTAs have often been attributed to reaching conclusions on successes/failures of FTAs through FTA utilisation rate, market penetration, integration with regional or global production networks, and trade deficits. This essay adds alternate two layers of criteria to assess FTAs.
Source: ORF online
India’s annual rate of inflation, based on monthly wholesale price index (WPI), rose slightly to 13.11 per cent (provisional) in February 2022, over February 2021, after declining to 12.96 per cent in January. The annual rate of inflation was 4.83 per cent in February 2021. The month-on-month change in WPI index for February 2022 stood at 1.40 per cent. “The high rate of inflation in February 2022 is primarily due to rise in prices of mineral oils, basic metals, chemicals and chemical products, crude petroleum & natural gas, food articles and non-food articles, etc as compared to the corresponding month of the previous year,” the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT), under the ministry of commerce and industry, said. The official WPI for all commodities (Base: 2011-12 = 100) for the month of February 2022 increased to 144.9 from previous month’s 142.9. The index for manufactured products (weight 64.23 per cent) for February 2022 increased to 138.4 from 137.1 for the month of January 2021. The index for ‘Manufacture of Textiles’ sub-group increased to 142.40 from previous month’s 140.0, while the index for ‘Manufacture of Wearing Apparel’ also increased slightly to 145.20 from 144.6 in January 2022. The index for primary articles (weight 22.62 per cent) also rose to 166.80 in February 2022 from previous month’s 165.0. On the other hand, the index for fuel and power (weight 13.15 per cent) increased to 139.0 from 133.2 in January 2022.
Source: Financial Express
As for imports, among the key commodity segments, purchases of coal jumped 117%, petroleum rose 67% and electronics rose 30%. Merchandise exports hit $34.6 billion in February, having risen by 25.1% from a year earlier and 24.6% from the pre-pandemic level (same month in FY20), the commerce ministry said on Monday. However, a 36.1% jump in imports to $55.5 billion inflated trade deficit to $20.9 billion in February from a five-month low of $17.4 billion in the previous month. Analysts said this will keep current account deficit (CAD) at an elevated level at a time when the global crude oil prices have flared up in the wake of the Russia-Ukraine crisis. According to an ICRA estimate, the CAD may have crossed 3% of GDP in the OctoberDecember period of this fiscal for the first time since the June quarter of 2013. This may, however, recede a tad in the last quarter of this fiscal, it said. Moreover, given the tangled global supply chains in the aftermath of the Russia-Ukraine war and consequent surge in international shipping costs, Indian exporters will find it difficult to ship out products on time and honour supply commitments in the coming months. Keeping with the recent trend, imports were driven by elevated crude oil prices and massive purchases of coal and cooking oil. Given that the export between April and February hit $374.8 billion, up 46.1% from a year before, it is set to cross the ambitious $400-billion target set by the government for FY22 and reach about $410 billion. This is despite potential short-term risks to the global supply-chain from the Russia-Ukraine conflict, some exporters said. A spurt in demand for goods in the wake of an industrial resurgence in advanced economies and global commodity price rise have boosted exports this fiscal, after a Covid-induced slide in FY21. Importantly, merchandise exports had remained below par in the past decade, having fluctuated between $250 billion and $330 billion a year since FY11; the highest export of $330 billion was achieved in FY19. So, a sustained surge in exports for a few years will be crucial to India recapturing its lost market share, analysts have said. Importantly, merchandise exports had remained below par in the past decade, having fluctuated between $250 billion and $330 billion a year since FY11; the highest export of $330 billion was achieved in FY19. So, a sustained surge in exports for a few years will be crucial to India recapturing its lost market share, analysts have said. The official data showed petroleum products were the biggest driver of exports with a year-on-year surge of 88%. Huge rise was also reported in the exports of electronics (35%), engineering goods (32%), cotton yarn, fabrics, made-ups, etc (33%) and garments (19%). As for imports, among the key commodity segments, purchases of coal jumped 117%, petroleum rose 67% and electronics rose 30%. ICRA chief economist Aditi Nayar said: “For FY23, we project the current account deficit at 2.8% of GDP if the crude oil price averages at US$115 per barrel, the likelihood of which will crucially depend on the duration of the geopolitical tensions.” A Sakthivel, president of the exporters’ body FIEO, said the sectors that have performed well in February included several labour-intensive ones, “which itself is a good sign”. “However, the over 36% surge in imports in February “is a point of concern and should be analysed”, he added.
Source: Financial Express
State industries minister Shahnawaz Hussain said in the state assembly on Monday that the industrial scenario in Bihar has been looking up hugely, as the Centre has allotted mega textile park to the state, which is slated to come up on 1,719 acres of land in West Champaran district, besides ethanol production units which are ready for inauguration by CM Nitish Kumar. As to the mega textile park, he said the Centre has planned seven of them at an investment of Rs 4,555 crore under PM Mitra Priyojana. “Of them, one has been allotted to Bihar,” Hussain said. Hussain said this as part of his government’s reply to the House debate on the budgetary allotment for the industries department pertaining to the 2022-23 fiscal year, which was passed by voice vote. The opposition members from the RJD, Congress and Left parties walked out of the House. Hussain said the state had to submit its preliminary project proposal by March 15, but the CM identified the required 1,719 acres of land in two days, following which the project proposal was submitted to the Centre before the schedule. He added it was the growing confidence of the investors in the reviving industrial scenario of Bihar that the project proposals worth Rs 30,000 crore have been received by the state. “In fact, Bihar has set a record of sorts by receiving the maximum amount of project proposals during the Covid period among all the states,” he added. Hussain said under PM Gatishakti Yojana, an industrial cluster is being created at Dobhi in Gaya with Rs 400 crore grant from the Centre under the Amritsar-Kolkata Industrial Corridor project. The industrial cluster – or integrated manufacturing cluster – at Dobhi will be spread over 1,670 acres of land. Further, a mega food park is also coming up at Motipur in Muzaffarpur, the minister said. “Several companies have submitted their proposals to establish their units in it,” Husain said, adding the mechanism for the single-window system clearance is being toned up, while efforts are being made to improve the state’s outlook on ease of doing business.
Source: Times of India
WPI inflation rises to 13.11% India’s retail inflation rate inched up to an eight-month high in February, remaining above the upper limit of the central bank’s comfort level of 6 per cent for the second consecutive month, while the wholesale price inflation rate remained in double digits for the eleventh consecutive month. This may make inflationary management challenging amid rising risks to growth in Asia’s third-largest economy. The data released by the statistics department showed that the consumer price index (CPI)-based inflation rate rose to 6.07 per cent in February from 6.01 per cent in the previous month, driven by food and beverages, clothing and footwear, and fuel and light groups. Food and beverages rose to a 15-month high of 5.85 per cent as vegetables and edible oils witnessed high inflation. Madan Sabnavis, chief economist at Bank of Baroda, said that as summer approaches, the benefit of the winter season for vegetables will get diluted. “We believe that CPI inflation for FY23 will be 5.5-6 per cent, and the RBI may consider a change in its forecast too,” he added. Separately, the data released by the industry department showed that the wholesale price index (WPI)-based inflation rate rose to 13.11 per cent in February after declining for two consecutive months. During February, while inflation for manufactured items accelerated to 9.84 per cent as producers passed on rising input costs to consumers, food and fuel inflation rates eased to 8.19 per cent and 31.5 per cent, respectively. Edible oil inflation jumped to 14.9 per cent in February after showing a declining trajectory since May 2021. When oil-market companies increase fuel prices, which have remained unchanged since November, it may increase inflationary pressure on the economy, mounting pressure on the Reserve Bank of India to increase interest rates. “Prices of petroleum products have not been increased in view of the elections in five states. Now that the elections are over, the government is likely to increase the prices of diesel and motor spirit soon. The adverse consequence of the Russia-Ukraine war is likely to keep the prices of crude oil and gas at elevated levels. This may further increase inflationary pressures,” M Govinda Rao, chief economic adviser at Brickwork Ratings, said. Aditi Nayar, chief economist at ICRA Ratings, said that with the continuing uncertainty stemming from the impact of the Russia-Ukraine conflict, another status quo policy by the RBI is likely in April, despite the February CPI inflation print exceeding 6 per cent. “However, the anchoring of inflationary expectations may warrant a less dovish tone of the policy document,” she added. The Monetary Policy Committee of the Reserve Bank of India last month kept key policy rates unchanged, contrary to expectations of a hike in the reverse repo rate, flagging the need to revive and sustain growth on a durable basis.
Source: Financial Express
The import of textiles and apparel by the United States continues to grow at high rate and rose by 28.05 per cent to $10.189 billion in the first month of 2022, compared to $7.957 billion in January 2021. With 27.82 per cent share, China continues to be the largest supplier of textiles and clothing to the US, followed by Vietnam with 13.47 per cent share. Apparel constituted the bulk of textiles and garments imports made by the US in January 2022, and were valued at $7.540 billion, while non-apparel imports accounted for $2.648 billion, according to the latest Major Shippers Report, released by the US department of commerce. Segment-wise, among the top ten apparel suppliers to the US, imports from Indonesia, India, China, Pakistan, and Bangladesh shot up by 57.80 per cent, 53.40 per cent, 47.11 per cent, 44.41 per cent and 45.53 per cent year-on-year respectively. On the other hand, imports from Honduras registered a growth of only 13.26 per cent compared to the same period of the previous year. In the non-apparel category, among the top ten suppliers, imports from Cambodia, Italy and South Korea soared by 53.29 per cent, 38.24 per cent and 37.89 per cent respectively. Of the total US textile and apparel imports of $10.189 billion during the month under review, cotton products were worth $4.534 billion, while man-made fibre products accounted for $5.179 billion, followed by $246.865 million of wool products, and $229.188 million of products from silk and vegetable fibres. In 2020, the US textile and apparel imports had decreased sharply, mainly on account of the COVID-19 pandemic induced disruption, to $89.596 billion compared to imports of $111.033 billion in 2019. But imports rebounded again in 2021 to surpass pre-pandemic level and end at $113.938 billion.
Source: Fibre 2 Fashion
Sri Lanka's Central Bank tightened trade restrictions late last week, asking exporters to repatriate foreign exchange (forex) earnings within 180 days of transactions to improve depleting forex reserves as the country faces its worst financial crisis in over a decade, struggling to pay for imports, including fuel, food and medicines, and with just $2.31 billion of reserves. The bank's moves include mandatory currency conversion for exporters of goods and services to change their foreign exchange earnings into Sri Lankan rupees, according to media reports from the country. "All licensed banks are required to strictly monitor receipts of goods to Sri Lanka," the central bank stated in a notification, adding that it "has the right to initiate action against non-compliance by any exporter or licensed banks". Meanwhile, central bank governor Ajith Nivard Cabraal expressed optimism about the country being able to pull through, but stressed the importance of measures that ‘may be not very palatable’. ″We have the confidence to say that Sri Lanka would go through these times for a short period … We should be able to get out of this situation sooner than later,” he was quoted as telling a TV channel. The International Monetary Fund (IMF) has said the country’s is facing ‘mounting challenges’, such as ‘unsustainable’ public debt levels, low international reserves and persistently large financing needs, and has called for urgent economic reforms. Power generation has also been hit by the forex crisis as due to fuel shortage. Power regulators have warned of five to six hours of daily load-shedding over the next few days. Instead of the IMF, the Sri Lankan government sought economic packages from India, which materialised in mid-January, affording a temporary reprieve. A further billiondollar facility from India is being awaited to meet the urgent import needs of essentials. In January, India announced a $900 million loan to Sri Lanka to build up its depleted foreign reserves and for food imports, amid a shortage of almost all essential commodities in the country. Last month, India sealed an agreement to grant Sri Lanka a credit line of $500 million for fuel purchases.
Source: Fibre 2 Fashion
SPECIAL Adviser to the Prime Minister on Commerce, Textile, Industry and Investment Abdul Razak Dawood was recently reported as stating that trade with India was the need of the hour and beneficial to both countries. Legitimate political and human rights concerns aside, there is no doubt that the benefits of an open economy in general and free trade with our neighbours in particular are potentially significant. Every opportunity must be taken to explore these in a thoughtful manner and within the parameters of our obligations under the WTO, Safta, etc. However, as we develop expanded and mutually beneficial trading ties with India, it would be important to keep a few particular issues in mind. To state the obvious, today’s India is not that of even 10 years ago. Today’s India, at least from an economic perspective, may be described as a corporatised state with policies benefiting a handful of large companies who seem to have an unusually strong affiliation with the ruling party. Domestic policies, such as in privatisation, tax rules, environmental legislation, farm laws, etc. appear to have been systematically aligned with their interests, as have decisions such as entry into regional trade arrangements like the Regional Comprehensive Economic Partnership. This has resulted in an unusual concentration of market share and ownership of key economic assets in particular and wealth in general over the last few years. The playbook for these corporations is clear. They have successfully established dominant positions in key domestic sectors, are leveraging this to attract international expertise and capital keen to access the large Indian market via these ‘gatekeepers’ and will deploy these resources to fuel further expansion. They are used to successfully engaging leading multinationals, sovereign wealth funds, international lenders etc. in complex commercial discussions, often with overt and active state support. This formidable combine of state and corporate will be the counter-party as Pakistan engages with India in trade. It is likely that our venerable commerce ministry may struggle to deal with them on even terms. It’s interesting to note that China has somewhat similar dynamics in certain cases between the state and corporate sector. However, in that instance, the politics favours the economics of trade from Pakistan’s perspective. This is unlikely to be the case as we construct enhanced trading ties with today’s India. Even assuming that a level playing field is negotiated, Pakistani branded products and services selling to India are likely to face significant non-tariff barriers. The unfortunate animosity in India at this time will be a formidable obstacle to any exports, although product standards, complex administrative requirements etc. may also be additional impediments. If the popularity of Indian movies is any indicator, Indian products are unlikely to face those obstacles in Pakistan, leading to a potentially significant adverse trade balance against us. That does not mean we should not engage in trade talks. On the contrary, any measure that helps build mutual prosperity for the people of India and Pakistan is to be encouraged. However, we should do so in a professional manner with a clear understanding of our counter-party’s strategy and capabilities. We should conduct negotiations keeping the political realities of our region in mind and focus on areas that can deliver rapid, tangible results rather than interminable rounds of discussions. A positive example is agriculture, where Pakistan can build on the Kartarpur model by providing trade corridors to selected local markets for Indian farmers. The relatively small distances between product and market, similar trade practices, dense and integrated road networks, common local language etc. will facilitate cross-border trade. We would also be acting from a position of relative parity. While India is overall a much larger economy than Pakistan, Pakistan is a large, attractive market for farmers in neighbouring Indian Punjab and Haryana. It may actually be a Lahore-Amritsar affair, with the provincial governments taking the lead in organising this. Such trade could reduce our food inflation quickly, provide additional markets to Indian farmers, facilitate people-to-people contacts, be relatively simple to administer, require little/no investment and build confidence for further engagement in other sectors. Pakistan, in turn, can reciprocate through export of surplus cement, molasses etc. There are other examples of what can be done. We should all wish Mr Dawood and his team the best of luck in developing these and constructing mutually beneficial trade agreements with our neighbours. The writer is managing partner at a UK regulated firm investing in global private markets including Pakistan. He has served in executive positions with leading multinationals.
Source: Issam Hamid, The Dawn
Widespread lockdowns in China akin to the measures just taken in the southern technology hub of Shenzhen could affect half of the country's gross domestic product. Widespread lockdowns in China akin to the measures just taken in the southern technology hub of Shenzhen could affect half of the country’s gross domestic product. Authorities on Sunday placed Shenzhen’s 17.5 million residents into lockdown for at least a week amid a surge of Covid-19 infections in the city. Shanghai suspended in-person classes and shut intercity bus services, while the northeast industrial center of Changchun, in Jilin -- a city of about 9 million people and accounting for about 11% of China’s total annual car output in 2020 -- was locked down last week. As cases jump elsewhere, half of China’s GDP and population will be impacted by the latest outbreak, according to economists at Australia & New Zealand. Banking Group Ltd. Bloomberg Economics said in a recent note that as of March 9, 14 provinces had high or medium-risk regions, accounting for 54.4% of national GDP. “More cities may follow the practice of Shenzhen,” said Raymond Yeung, chief economist for Greater China at ANZ, in a note Monday, noting the city’s decision to shut down public transportation and prevent people from leaving or entering. “If the lockdown is extended, China’s economic growth will be significantly affected.” While Yeung said ANZ is not yet revising its forecast for 2022, they are “wary” of further restrictions. ANZ forecasts GDP growth of 5% for the year, less than the government’s target of about 5.5%. Should key provinces along the coast and in the northeast follow Shenzhen’s lead and lock down for a week, the economic cost could amount to 0.8 of a percentage point, Yeung said. Nomura Holdings Inc. said the economic costs of China’s Covid Zero approach are high and market participants may be too optimistic about this year’s growth outlook. The bank expects GDP expansion of 4.3%, well below economists’ consensus forecast of 5.2%. China is facing rapidly spreading clusters spawned by the highly infectious omicron variant. Daily new cases jumped to more than 3,300 on Saturday from just over 300 a week ago. The surge poses an unprecedented challenge to the country’s Covid Zero strategy, which has so far protected its vast industrial sector but dampened consumption. Foxconn Shutdown While Shenzhen’s GDP is only 2.7% of national output, the city is home to the headquarters of tech giants like Tencent Holdings Ltd. and Huawei Technologies Co. Apple Inc. supplier Foxconn, the Taiwanese company also known as Hon Hai Precision Industry, which has its China headquarters in the area. The company has halted operations in Shenzhen, including at a site that produces iPhones, in response to the lockdown. Major financial companies, including Ping An Insurance Group Co. and China Merchants Bank Co. are also headquartered in the city. And several foreign banks like UBS Group AG and HSBC Holding have opened branches in the area. Brokerages and big state banks in the city have suspended in-person services after the lockdown, according to notices and local media reports. Shenzhen is the second-most important port in China after Shanghai, and processes about 10% of the containers shipped from China in any month. A part of the port was shut for weeks in mid-2021 to contain a local outbreak of Covid, but even then the port was able to ship out almost 2 million containers in June 2021. Yantian port said in a Monday statement that it is operating normally after Shenzhen tightened virus controls. While Covid Zero has not led to major economic disruption so far, the restrictions are making the economy “particularly vulnerable to the more contagious omicron variant,” said Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings. “Globally, the economic impact of Covid is declining as governments ease restrictions and many move towards a ‘living with Covid’ approach,” Kuijs added. “However, for China, omicron is a key risk for domestic demand, output and, possibly, supply chains.”
Source: Business Standard
In recent years we have repeatedly heard Indonesian government officials (as well as analysts) emphasize on the importance of tapping the potential of non-traditional export markets in an effort to improve Indonesia’s export performance (and trade balance). The problem is that, currently, around 70 percent of Indonesia’s total non-oil and gas exports are shipped to ten overseas markets, with China and the United States – together – accounting for almost 35 percent of the total. It means that in terms of trade Indonesia is quite dependent on a few countries only. Indeed, having a more diverse (and even) array of export markets should make the export performance of Indonesia (and therefore Indonesia’s overall economy) more stable. For example, it is estimated that for each one percent decline in China’s gross domestic product (GDP) growth, Indonesia's economic growth drops by 0.3 percent. This is partly due to China’s dominant position as Indonesia’s largest trading partner (moreover, Indonesian exports to China are dominated by primary products such as coal, wood pulp, and ores, slag and ash that are characterized by price volatility on global markets). So, if the economy of China comes under pressure, then Indonesia is bound to feel a significant impact. And while it is certainly true that giant export markets such as China, the United States and Japan cannot be replaced, adding new markets would make Indonesia’s overall export performance more stable. One of the potential growth centers for Indonesian exports could be Bangladesh, a South Asian country (hence not too far away) that is home to around 165 million people. Moreover, on the website of the World Bank, which puts Bangladesh in the category of developing economies (or emerging lower-middle income economies), we can read that Bangladesh has an impressive track record of growth and poverty reduction, being among the fastest-growing economies in the world throughout the 2010s, supported by its demographic dividend, strong ready-made garment exports, and stable macroeconomic conditions. In many respects Indonesia’s socio-economic conditions seem to resemble those of Bangladesh (although Indonesia is certainly further in its development process) and that might explain why both countries face the same challenges: poverty eradication, employment creation, laying down a competitive business environment, fostering increased human capital and skilled labor force, deepening of the financial sector, building efficient infrastructure, laying down a policy environment that attracts the inflow of private investment, and the strengthening of public institutions. Meanwhile, the World Bank also advises Bangladesh to diversify its exports beyond the ready-made garment (RMG) sector as the country’s export performance remains too dependent on RMGs (RMGs are mass-produced finished textile products in the clothing industry). Bangladesh is among the world’s largest garment exporters, with the RMG sector accounting for around 84 percent of the country’s total exports. US management consulting firm McKinsey and Company mentions that expansion of Bangladesh’s garment sector comes on the back of modernization over the past decade and improvements made in conditions for the country’s approximately four million garment workers.
Source: Indonesia-investments
