National
Economic slowdown: Govt plans urgent steps to boost exports
No geographic limits, web-based labour inspections introduced
Credit-deprived MSMEs need alternative funding mechanism: Indian Bank ED
‘Failure to use tech impeding credit flows to MSMEs’
Govt must insert import ‘circuit-breaker’ in RCEP to safeguard local firms: Hindalco MD
Govt may permit 100% FDI in contract manufacturing: Report
International
Govt urged: Keep tax perks for garments
Textile innovations aim for sustainability
GSP roll-back: Exports of goods under tariff system to US up 32 pc
Prolonged trade war could lead to a recession in the US, warns Goldman Sachs
China is saving stimulus for trade war winter as yuan weakens
Indian imports cheaper but nation first: Pak traders
Though the goods and services tax (GST) regime has subsumed a plethora of levies, some still exist (petroleum and electricity are still outside the GST ambit, while other levies like mandi tax, stamp duty, embedded central GST and compensation cess etc remain unrebated).
“The new scheme will be a dynamic one, so that all sorts of embedded taxes will be reimbursed once exporters bring them to notice. A government panel will examine their demand and take appropriate action. The idea, as we have stated, is that exports must be zero-rated as per the global best practices,” a source said.
Though the goods and services tax (GST) regime has subsumed a plethora of levies, some still exist (petroleum and electricity are still outside the GST ambit, while other levies like mandi tax, stamp duty, embedded central GST and compensation cess etc remain unrebated). Similarly, the Reserve Bank of India (RBI) is willing to ease priority-sector lending guidelines for exporters. Currently, exporters with a turnover of up to Rs 100 crore each are eligible for credit under the priority sector norms. This limit is likely to be scrapped or doubled so that more exporters are benefited. The maximum sanctioned limit of loans is also likely to be raised to Rs 40 crore per borrower from the current Rs 25 crore. Even the cap on export credit at 2% of banks’ total loans could be relaxed soon.
However, the central bank has refused to endorse a proposal to allocate a part of its foreign exchange reserves for export credit — as is being demanded by some exporters — to boost flow of loans on the ground that such a move is fraught with risks, a source said.
Once tweaked, the revised priority sector lending norms and certain enabling guidelines are expected to release additional credit of anywhere between Rs 35,000 crore and Rs 68,000 crore for exporters, according to an RBI assessment. Recently, commerce and industry minister Piyush Goyal told the Rajya Sabha that banks’ outstanding export credit, which rose from Rs 1,85,591 crore in March 2015 to Rs 2,43,890 crore in March 2018, dropped to Rs 2,26,363 crore at the end of March 2019.
Goyal has already held a series of meetings with exporters to address their concerns, and some of the steps being mulled will be finalised soon. The measures are proposed at a time when India’s merchandise export growth collapsed to just 0.6% in April, 3.9% in May and -9.71% in June. Citing persistent risks from a global trade war, the IMF recently trimmed its 2019 trade growth forecast by a sharp 90 basis points from its April projections to 2.5%, against the actual rise of 3.8% in 2018.
As for the plan to reimburse levies, such a scheme has already been implemented in garments and made-up exports. However, its scope and reach will be expanded now. Exporters will be refunded levies through freely transferable scrips. For the remission of state levies for garment and made-up exports, the government had allocated Rs 3,664 crore in FY19. However, the compensation level under this scheme was expanded in March to include central levies as well; even some embedded taxes were factored in. So the potential revenue forgone is now estimated at around Rs 6,300 crore annually. The government’s potential revenue forgone on account of the MEIS is estimated at Rs 30,810 crore a year.
However, government officials have repeatedly stated that the entire allocation or potential revenue forgone on account of various such schemes (including MEIS) doesn’t qualify as export subsidies, as in most cases, they are meant to only soften the blow of imposts that exporters have been forced to bear due to a complicated tax structure. The US has dragged India to the WTO, claiming that New Delhi offered illegal export subsidies and “thousands of Indian companies are receiving benefits totaling over $7 billion annually from these programmes”. Indian officials have rejected such claims.
According to Fieo president Sharad Kumar Saraf, for our exporters to become competitive, the government needs to ensure that transaction costs are cut drastically, embedded taxes are fully offset, raw materials are made available at reasonable prices and credit is extended at cheaper rates. “Land acquisition needs to be made easier and companies must not be dragged into unnecessary legal hurdles,” he added.
Source: The Financial Express
Previous labour laws on wages imposed local limits on inspectors, which officials said bred a nexus between them and employers and led to corruption.
The Code also allows the government to conduct web-based inspection and seek information electronically.
NEW DELHI: The government has removed geographic limits that had been imposed on labour inspectors, that had confined them to a fixed territory, and introduced the option of web-based electronic inspection as part of its reforms.
The ministry has widened the jurisdiction of inspectors or facilitators under the Wage Code Act and ensured that an employer has to deal with a single inspector for compliance instead of one under each labour law.
Previous labour laws on wages imposed local limits on inspectors, which officials said bred a nexus between them and employers and led to corruption.
The move means an inspector in a city can be assigned to assess a company for compliance under the Wage Code in any other city, a government official told ET.
The Wage Code law empowers the government to notify a wider territory for an inspector, which could be done via randomised selection process.
The Code also allows the government to conduct web-based inspection and seek information electronically.
Parliament passed the Code on Wages Bill, 2019, last week, which allows the Centre to set a minimum statutory wage, a move expected to benefit 500 million workers.
This is the first in a series of four labour codes proposed in the government’s labour reform initiative. The minimum wage fixed by the Centre will no longer be based on employment but on geography and skills. The code seeks to ensure minimum wages along with timely payments to all employees and workers.
Many unorganised sector labourers including agricultural workers, painters, those working in restaurants and dhabas and chowkidars, who were outside the ambit of minimum wages, now have legislative protection of minimum wages.
Source: The Economic Times
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Co-origination of loans will help solve their credit crisis, says MK Bhattacharya
“It’s high time the setting up of an alternative funding mechanism to support the MSME sector was discussed,” said MK Bhattacharya, Executive Director, Indian Bank.
Delivering the keynote address at BusinessLine’s Surge SME Conclave, which was presented by Aditya Birla Sun Life Mutual Fund, Bhattacharya said that economists, corporates, and news organisations should deliberate more on the idea of creating additional funding channels for the credit-deprived micro, small and medium enterprises (MSMEs) sector.
“Private equity players are interested in investing in MSMEs, but they will come only if they see a clear roadmap for exit,” he added.
Indian Bank’s focus
Noting that lending to MSMEs is a profitable business, Bhattacharya said that Indian Bank was able to survive because of its greater focus on retail lending than to the corporate sector.
“From the beginning, corporate books never gave any comfort in the balance sheet of most banks, both in terms of earnings as well as asset quality,” said Bhattacharya.
Highlighting the lending mix of Indian bank (42 per cent to the corporate sector and 58 per cent retail), he said of the retail exposure, SMEs account for 20 per cent and agriculture 22 per cent, while retail lending is 18-20 per cent.
“As a banker I feel the only solution to the issue of credit availability to MSMEs is to look into their working capital cycle,” said Bhattacharya.
Elaborating, he said working capital cycle and working capital requirements are two parallel lines that never meet, and as long as the cycle elongates, the requirement will also elongate.
Co-origination of loans
He added that co-origination of loans is another new product that will help solve the credit crisis of MSMEs. The new product leverages on the low cost resource of banks and the ability of NBFCs to reach out to more people.
“Co-origination of loans will bring down the credit cost of entrepreneurs and most banks will take this route than purchasing pools or giving term loans,” said Bhattacharya.
In his welcome address, Raghavan Srinivasan, Editor, BusinessLine, said: “Today, we have a number of sophisticated products to help SMEs to more effectively manage their money and flows.
“Banks are leveraging their technology to bring a lot of new products, which were earlier available only to large corporates,” he added.
Source: The Business Line
Lack of proper books of accounts, absence of a cost-effective and innovative credit rating mechanism suited for SMEs, and failure to embrace technology are some of the reasons that deprive formal credit to the Micro, small and medium-sized enterprises (MSMEs), felt the members of a panel discussing ‘Keeping Your Business Well Funded’, at the SME Conclave.
The panel, which comprised members from the banking and financial sector, credit rating agency and small industry body, deliberated on the financial challenges faced by the MSME sector and various solutions to address the issue.
Credit gap
Today, the credit demand of the SME sector is estimated at ₹37-lakh crore. The formal sources contribute only ₹16- lakh crore, leaving a credit gap of ₹20-25-lakh crore.
“SMEs are not getting their due share of bank credit because they lack professionalism in maintaining the books of accounts and meeting the underwriting requirements of the bank,” said K Srinivasan, Senior Vice-President and Head of CV/CE Business, Federal Bank.
Noting that the SME sector is a crucial driver of India’s economic growth, the banker said that most of the credit applications of SMEs get rejected during the appraisal stage since banks are unable to assess their financial ability due to inadequate information.
“A credit rating system and little more professional conduct of business will enable SMEs get the type of treatment they deserve from the banking system,” he added.
Credit rating
Noting the credit rating is an expensive process, T Raj Sekar, Director, SME Ratings, CRISIL, said banks generally insist on rating large exposures and not SMEs with less than ₹50 crore turnover because pricing does not work for them. “But we have products as low as ₹5,000, which are scoring models based on bank statements and GST returns, and we have the experience of grading more than one lakh SMEs,” said Rajsekar.
K Saraswathi, Secretary General, Madras Chamber of Commerce and Industry, said that the concept of ‘small is beautiful’ has become a disadvantage for SMEs since one person alone is left to handle a whole gamut of operations.
“SMEs have grown horizontally but not vertically because the SME policy definitions have limited their mind to remain small, and there is a need for policy level change,” she added.
Noting that compulsions such as priority sector lending will not induce investors, K Sivaramakrishnan, Zonal Sales Manager, Aditya Birla Finance Limited, said that as an NBFC lender, his investment is determined by the diversified options for investment and not compulsion.
“Risk perspective and investor perspective are some of the indices under which I diversify my portfolio into different baskets,” he added.
Radhika Merwin, Senior Deputy Editor, BusinessLine, moderated the discussion.
Source: The Business Line
India should insist on inserting a ‘circuit-breaker’ — a sort of quantitative restriction on imports — for each commodity while finalising the Regional Comprehensive Economic Partnership (RCEP) agreement to protect the interest of domestic companies, said Satish Pai, Managing Director, Hindalco Industries.
The circuit-breaker will kick in whenever there is a sudden spike in import of a particular commodity through the RCEP pact and enable the government impose a safeguard duty, said Pai during an interaction with BusinessLine.
The proposed RCEP is a free-trade agreement between the 10 member states of the Association of South-East Asian Nations, including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, and its six FTA partners, India, China, Japan, South Korea, Australia, and New Zealand.
The US government has already inserted this provision in all free trade agreements signed with the neighbouring countries, he added. Insisting on a certificate of origin in Satish Pai, Managing Director, Hindalco Industries
the RCEP will not help as it can be easily manipulated by importing almost finished goods from other countries and dumping them on India after some minor value addition, said Pai.
Aluminium output
Currently, aluminium demand and production capacity in India is at 4 million tonnes, but still 58 per cent of the demand is met through imports, and Indian aluminium producers have to depend on the export market.
If demand grows at 7 per cent per annum, as expected, then India will need 3-4 million tonnes of additional capacity. Then, none of the existing companies will be in a position to invest as unrelenting imports will cause havoc on Indian companies’ financials.
This, he said, will lead to India becoming importdependent and result in a price rise, he said.
Despite an import duty of 7.5 per cent on aluminium products, much of the imports are coming in duty-free from Vietnam, Malaysia and China through the free-trade agreement route, said Pai.
The Indian aluminium industry has been lobbying with the government to levy an anti-dumping duty on imports for the last one year but without success.
Import of scrap
Large-scale import of scrap is another major issue. About 30-40 per cent of the metal made from recycled scrap is used to make utensils and pressurecookers. A large quantity of the scrap generated in the US and processed in China is now being dumped in India due to the ongoing trade war between the two countries, said Pai.
Scrap is currently available at 28 per cent discount to the LME prices due to excess supply from the US. The Metal Scrap Policy, which is being worked out by the government, should prescribe scrap standards for imports to ensure that India does not become a dumping ground. Similarly, the end-use of the metal produced from scrap should also be monitored, he added.
Source: The Business Line
The government is working on a proposal to allow 100% FDI in contract manufacturing with a view to attract overseas investments, sources said.
According to the existing foreign investment policy, 100% foreign direct investment (FDI) is permitted in the manufacturing sector under the automatic route. A manufacturer is also allowed to sell products manufactured in India through wholesale and retail channels, including through e-commerce, without government's approval.
"The current policy does not talk about contract manufacturing and it is not clearly defined in the policy. Big technology companies across the world are going for this, so there is a need for a clarification on the matter which government is considering positively," they said.
The commerce and industry ministry is working on a proposal that would be finalised soon and sent for Union Cabinet's approval.
Commenting on the proposal, Rajat Wahi, Partner, Deloitte India, said the move if approved by the government will give a boost to the manufacturing sector.
"It is a welcome proposal for technology based companies like Apple," he said.
Finance Minister Nirmala Sitharaman in her Budget speech in July had proposed relaxation in the FDI norms for certain sectors such as aviation, AVGC (animation, visual effects, gaming and comics), insurance, and single brand retail with a view to attract more overseas investment.
FDI in India dipped 1% to $44.36 billion in 2018-19.
Last year, the government had relaxed FDI rules for several sectors, including single brand retail, non- banking financial companies and construction.Foreign investments are considered crucial for India, which needs billions of dollars for overhauling its infrastructure sector such as ports, airports and highways to boost growth.
FDI helps in improving the country's balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.
Source: The business Standard
EXPORTERS want the government to allow garment and textile makers to keep their tax incentives, saying such will be crucial in getting multinationals fleeing the trade conflict to relocate to the Philippines.
Foreign Buyers Association of the Philippines President Robert M. Young said the second tax reform package should retain incentives for garment manufacturers to help them in their efforts to revive their industry. As such, the measure should contain provisions securing tax breaks and exemptions for investors in the garments industry.
He said the package should be different from the Tax Reform for Attracting Better and High Quality Opportunities (Trabaho) bill in the 17th Congress, which proposed the reduction of the country‘s corporate income tax (CIT) rate at the expense of incentives granted to economic zone firms.
―[The second tax reform package should be] unlike the Trabaho bill that investors are surprised [and] compromised with new tax amendments and schemes. Similarly, with the export tax credit [and] refund, which suddenly was suspended [under the Trabaho bill],‖ Young said in a statement last Friday.
Young, who is also the trustee for the textile, yarn and fabric sector of the Philippine Exporters Confederation Inc., argued that the country‘s investment package should be www.citiindia.com
comprehensive enough to serve as a magnet for the transfer of import orders, as the trade conflict between the United States and China hurts multinational businesses.
―We have benefitted only in a very small scale, the reason being that the Philippines is not ready. We lack competent manufacturers and locally milled textile plus required accessories,‖ Young explained.
The Philippines catered to only 10 percent of the relocated garment orders from China, as most of the orders went to manufacturing powerhouse Vietnam, according to the export leader.
To revive the industry, Young said the government should provide more—and not reduce—tax perks for garment manufacturers, such as reducing the 12- percent value-added tax, granting a special concession power rate and providing incentives to compensate labor rate differential. The government can also extend the duty-free importation of textile machinery and equipment and regulate technical importation to assist industry players.
Young also asked the Department of Science and Technology (DOST) to sponsor a technology course on garments and textile in line with changes brought about by the Fourth Industrial Revolution.
Shipments of articles of apparel and clothing accessories as of June declined 8.7 percent to $434.57 million, from $476.02 million during the same period last year, according to data from the Philippine Statistics Authority (PSA). Last year, exports of apparel and clothing fell 11.33 percent to $974.44 million, from $1.09 billion in 2017. Exporters, especially those operating in economic zones, are asking the government to give up its plan to rationalize incentives, particularly the 5-percent tax on gross income paid in lieu of all local and national taxes.
They warned that removal of the tax perks will compel some of them to pack up and relocate to another regional competitor, which, in effect, will result in capital flight and job losses. The government‘s second tax reform package seeks to reduce CIT to 20 percent by 2029, from 30 percent at present, and overhaul the menu of incentives offered to locators.
Source: Business Mirror
Whether it's how they're made or what they're made of, textiles are evolving to meet consumer demand for sustainability. www.citiindia.com
"There's a real push for sustainability now, and the home textiles industry is waking up to that consumer call," says Shannon Maher, chair of home products development at the Fashion Institute of Technology in New York.
It's about reducing waste during textile production, she said, and reusing or recycling waste to produce other products.
"Zero waste has definitely become a watchword," she said.
Consumers today have a heightened awareness of the harm plastic does to the environment, and "are willing to pay 5 or 10% more for a sustainable product as a way of contributing to the circular economy, and helping the environment," she says.
Rugs and outdoor fabrics, for instance, are increasingly being made with recycled materials instead of new plastics.
A lot is happening on the fashion-design front, too, to explore new, sustainably sourced and even compostable types of textiles.
"Companies like Adidas and Nike are at the cutting edge of some of these innovations, and their work -- and innovations in textiles used for apparel -- does trickle down to textiles in other realms," Maher says.
An exhibit of textile innovations at the Cooper Hewitt Design Museum in New York City, on view through Jan. 20, includes a dress made by a Japanese design team that features naturally glowing silk, made from silkworms injected with a green fluorescent protein derived from jellyfish. There's a prototype for Adidas sneakers made entirely of ocean plastic; another prototype of sneakers that would be entirely compostable; and a textile made from algae.
"There's a level of optimism when you look around and see designers really taking on the challenge of all this," says Andrea Lipps, a curator at the Cooper Hewitt who helped organize the exhibit. "There's a groundswell of creativity that's continuing to reverberate."
At the Fashion Institute of Technology, students have experimented with using milkweed and flax to create luxurious "fur" from 100% plant material. That won them the Stella McCartney Prize for Sustainable Fashion at the Biodesign Challenge Summit earlier this summer. Another student design team there came up with the idea for a spandex-type elastic fabric using a protein found in oysters.
To help companies get the word out about steps they're taking, and help consumers identify environmentally responsible companies, the Sustainable Furnishing Council provides an online list. www.citiindia.com
"We have about 400 member companies, and they each have made their own public and verifiable commitment to sustainability," says Susan Inglis, executive director of the council.Look up, say, garden furniture, and see what best practices various manufacturers have put in place.Another effort to help consumers reliably identify more eco-friendly companies is a new level of Oeko-TEX certification, called "Made in Green," certifying that no harmful chemicals have been used in the manufacture of a certain product.
"People are talking more these days about 'the value chain,' showing that not only are you certified as being environmentally responsible, but all of the factories in your production process are certified. It's a level of transparency that includes aspects like using clean energy sources," explains Maher.
"Sustainability is complex," she says. From a factory standpoint, it's also a matter of asking whether they're solar-powered, and how much water they use.
Source: NWA Online
The US rolled back export benefits to over 1,900 Indian goods from June 5.
The Indian exports to the US of those goods which were getting GSP benefits stood at USD 657.42 million in June as compared to USD 495.67 million in the same period last year.
NEW DELHI: Exports of Indian goods, which were enjoying benefits under the preferential tariff system GSP, to the US registered a growth of 32 per cent in June, according to Trade Promotion Council of India (TPCI).
The US rolled back export benefits to over 1,900 Indian goods from June 5. These incentives were provided by America under its Generalised System of Preference (GSP) programme.
Citing the data from the United States International Trade Commission (USITC), it said the Indian exports to the US of those goods which were getting GSP benefits stood at USD 657.42 million in June as compared to USD 495.67 million in the same period last year.
"India's exports to the US on GSP withdrawn products has registered 32 per cent growth in June 2019 as compared to the same month last year," TPCI Chairman Mohit Singla said in a statement.
This is a very interesting trend as out of USD 190 million value of GSP benefit claimed earlier, the growth has already covered USD 161.74 million, month on month for June 2019 compared to last year, leaving a thin margin of US USD 28.26 million only, he said.
The major products which have shown increase in exports include plastics rubber, base metals (aluminum), machines and equipments, transport equipment, hides and leather, Pearls and precious stones.
This is a clear indication that Indian products have the full potential to compete globally and not solely dependent on support, contrary to the perception, Singla said.
TPCI is a strong advocate of the phasing of subsidies and reducing government support.
He said the need is to incentivise new sunrise sectors like furniture and electrical, by creating a cluster-based mega ecosystem, which can churn export growth completely.
The era of continuing fixation of labour incentive sectors should be over, as their growths have already flattened, despite sustained support, he said.
Source: The Economic Times
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Trade war: Here’s a list of tariffs by Trump and US trading partners
Investors want politicians and central bankers act fast to change course.
Goldman Sachs Group Inc is raising concerns of a US recession as the trade war with China intensifies, boosting the impact on economic growth.
The US-based investment bank said that it no longer expects a trade deal before the 2020 presidential election, as threatened new tariffs take effect. It also lowered its fourth-quarter growth forecast by 0.2 percentage points to 1.8 per cent, and predicted that companies may lower spending and investments amid the uncertainty.
“Fears that the trade war will trigger a recession are growing,” Goldman Sachs said in a research note on Sunday from its US economists, adding, “we have increased our estimate of the growth impact of the trade war.”
After President Donald Trump issued a surprise threat to apply new tariffs on $300 billion of Chinese goods two weeks ago, Beijing responded on August 5 by halting purchases of US crops and allowing the yuan to fall to the weakest level since 2008. Trump’s administration fired back within hours, formally labelling China as a currency manipulator.
‘Foolish conflict’
Lawrence Summers, a former US Treasury secretary and a White House economic adviser during the last downturn, said last week that the escalating trade tensions are nudging the world economy toward its first recession in a decade, with investors demanding politicians and central bankers act fast to change course.
“In the US alone, the recession risk is much higher than it needs to be, and much higher than it was two months ago,” he told Bloomberg Television. “You can often play with fire and not have anything untoward happen, but if you do it too much you eventually get burned.”
On Sunday, Summers called the China fight a sadomasochistic and foolish trade conflict during an interview on CNN’s Fareed Zakaria GPS. Summers said that despite the risks, a crisis of the magnitude seen during the previous recession would be a great surprise.
Source: The Business Line
Chinese policy makers are holding back from rolling out the big guns of monetary stimulus, keeping options in reserve as the trade stand-off with the US risks morphing into a global currency war.
The People’s Bank of China, on late Friday, called for a rational view on current headwinds, signalling that the targeted approach to shoring up output would continue. Investment, retail sales and credit data due this week are expected to confirm the ongoing slowdown in the worlds second-largest economy.
Officials are sticking to a cautious monetary strategy even after tensions with the US worsened, with President Donald Trump’s accusations of Beijing’s currency manipulation, adding sensitivity to any stimulus measures that would depress the yuan. At the same time, the weakening of the currency past 7 per dollar removes one barrier for a cut to interest rates, should the trade war deteriorate to the point where stronger action is needed.
“Policy makers are fine with the current state of the economy,” said Larry Hu, head of China economics at Macquarie Securities Ltd in Hong Kong. “But if growth continues to slow, at certain point, the priority will shift to growth stabilisation.”
Deepening confrontation
Former central bankers gathered for a policy symposium in the far North East warned on Saturday that the confrontation with the US is deepening.
“The US’ labelling of China as a currency manipulator signifies the trade war is evolving into a financial war and a currency war, and policy makers must prepare for long-term conflicts,” Chen Yuan, former deputy governor of the People’s Bank of China, said at a China Finance 40 meeting in Yichun, Heilongjiang.
Former PBOC Governor Zhou Xiaochuan called for efforts to improve the yuan’s global role to deal with the challenges of a dollar-denominated financial system.
The challenges are not just from the dollar. In its annual report (released on Friday) on the Chinese economy, the International Monetary Fund said that if the US escalates its current threat to add 10 per cent extra tariffs on the remainder of its imports from China to 25 per cent, growth would be trimmed by 0.8 percentage point, leading to significant negative spillovers globally.
“It is in that kind of scenario that China may be forced to turn to more aggressive monetary support, even in the face of rising domestic debt risks and asset price bubbles. Efforts to prop up growth have already propelled the stock of corporate, household and government debt to more than 300 per cent of Gross Domestic Product,” according to an Institute of International Finance report last month.
Nevertheless, having allowed the yuan to weaken past 7 per dollar, the PBOC has freed itself from an artificial constraint that it has been bound by for years, allowing borrowing costs to be reduced further without, in theory, the need to prop up the currency.
What Bloomberg’s economists say
In our view, the PBOC will cut benchmark interest rates in the coming months. The near-term risk is obvious, including increased market volatility and pressure for capital flight. Our view, though, is that the PBOC has the capacity to prevent currency depreciation from getting out of hand.
-- Qian Wan and David Qu, Bloomberg Economics
So far, policy makers have not given any hint of changes to the 1-year lending rate which would affect the price of borrowing across the whole economy, or reducing the price of loans to banks in the wake of the US Federal Reserve’s latest cut. Instead, officials from PBOC Governor Yi Gang downward have signalled that an impending reform of the interest rate system could do the work of a rate cut, by transmitting policy more effectively.
In the meantime, China’s leadership appears to want to manage the economy’s long-term slowdown rather than arrest it, and smooth shorter-term weakness in consumption and output with about 2 trillion yuan ($283 billion) in tax cuts, as well as localized investment incentives.
Auto sales, about one quarter of reported offline retail consumption, resumed contraction in July, data released last week show. Infrastructure investment will likely pick up marginally, and credit growth is under pressure as property financing tightens and local governments finish bond sales.
An objective and rational view should be taken on those headwinds, the PBOC said in the report released Friday evening. The central bank should stay confident, be focused, mind our own business, and use a combination of tools to form new growth drivers, it said.
Targeted reductions in the amount of money banks park at the central bank and use of medium-term loans to ease funding constraints are likely to continue. Above all, with domestic monetary policy unchanged, the yuan’s dip to 7.1 to the dollar could, if sustained, essentially absorb the impact of Trump’s latest tariff increase, according to China Merchants Bank Co.
“Stability is still the focus with quality growth, and the employment market more important than GDP,” said Jeff Ng, chief Asia economist at Continuum Economies in Singapore. “China will allow a slowdown and is prepared to do so.”
Source: The Business Line
Indian imports are cheaper and timely but alternatives to them can be found, representatives of Pakistan‘s industry and trade community said, backing the government‘s decision to stop bilateral trade with India as part of the measures taken to protest the removal of special status for Jammu and Kashmir, reports said.
Dyes and chemicals for the textile mills, and tea for blending are the key imports but could be sourced from China and elsewhere, industry representatives said, Dawn.com reported.
Site Association of Industry (SAI) Chairman Saleem Parekh told Dawn that mills could face problems as they had booked Indian dyes and chemicals consignments two to three months back while many shipments were on their way.
Parekh, a former chairman of All Pakistan Textile Processing Mills Association, also said that Indian goods are 30-35 per cent cheaper than Chinese and Korean brands while the arrival time is also much shorter and freight charges are also low.
He said that textile mills would now need to shift towards Chinese and Korean brands. ―This would take some time (but) for the sake of country, we are ready to face any kind of challenge,‖ he said.
Pakistan Hosiery Manufacturers and Exporters Association Chairman Jawed Bilwani said the textile sector, which is dependent on Indian dyes and chemicals, may not feel any immediate set back as they have stock materials for at least three months.
FB Area Association of Trade and Industry (FBATI) Chairman Khursheed Ahmed said the textile sector would seek to import dyes and chemicals from China and Far East.
Pakistan Chemical Dyes and Merchants Association‘ former President Haroon Agar, meanwhile, noted that the shift to Chinese dyes would not prove costly as prices of Chinese dyes and chemicals have dropped by 30-40 per cent in the wake of the US trade measures.
As far as tea is concerned, the stake-holders are not worried.
The share of India in total tea imports is 5 per cent which we can manage by shifting towards tea from Vietnam and some African brands,‖ Pakistan Tea Association Chairman Shoaib Paracha said.
Source: NewsD
