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Looks like yarn mills are caught in a web of weakening demand and high raw material prices. For a country that exports nearly one-third of the yarn it spins, the 34.6% year-on-year drop in exports between April and June does not bode well for mills. The domestic market was not encouraging either. Although there was positive offtake in April and May, prices in June fell 4% year-on-year.
To the dismay of industry and analysts, the robust demand trend seen in the first three months of 2019 did not sustain. According to rating agency Icra Ltd, several factors explain the fall in India’s cotton yarn exports. This includes high price of cotton and yarn from Indian mills, duty-free access provided by China to Pakistan for import of yarn, continued competitive pressures from nations, such as Vietnam, and higher raw cotton fibre imports by China, which is keeping its cotton availability situation comfortable for yarn mills.
At the root of the problem is high cotton prices. International cotton price has plunged 28.3% in the past one year. In contrast, domestic prices have been firm during the period. Cotton futures have been steadily rising in the last seven trading sessions on speculation of lower output and productivity in the cotton season (2018-19).
It is not surprising that spinning mills are weighed down by high raw cotton prices. Adding to this is the impact of tight liquidity faced by small and medium mills, which make up for a major portion of installed capacity.
Data from Capitaline on 39 spinning mills shows that net revenue in the June quarter contracted by about 7.4% from the year-ago period. The average Ebitda (earnings before interest, tax, depreciation and amortization) as a percentage of sales also contracted by about 50 basis points, though many mills have been struggling.
With several global tensions persisting, especially between the two strong contenders in cotton textiles—the US and China—the outlook for India’s yarn exports in FY20 looks bleak. Reports from textile associations in India suggest stock pile-ups and production cuts by spinning mills in recent months.
This may have a cascading effect on the financial health of domestic mills, more so, if the problem persists. Jayanta Roy, senior vice-president and group head (corporate sector ratings) at Icra, said: “Based on the emerging trends, we have revised the credit outlook on the Indian cotton spinning industry to ‘negative,’ as the profitability and debt coverage metrics are expected to moderate from the current levels. The impact is likely to be more pronounced for leveraged companies."
Given the tight liquidity scenario, a sudden change in yarn outlook is unlikely. One can only hope for a drop in domestic cotton prices with the onset of the new season. This could ease the pressure on spinning mills in the near term.
Source: Live Mint
The MSME sector accounts for 30 per cent of the country's gross domestic product, anchoring 45 per cent of total industrial production
The micro, small and medium enterprises (MSMEs) and commerce ministries are discussing a broad range of moves to allow small businesses to foray into manufacturing sectors in which imports remain high.
Both ministries are identifying the industry sub-sectors such as medical devices, pharmaceuticals, plastics, and low-end engineering goods where small businesses can be encouraged — through specific subsidies or policy intervention — to make indigenously, a senior MSME ministry official said. “Our officials have met their counterparts from the commerce department
Source: The Business Standard
With a trade war between the US and China, Indian exporters have been receiving a number of business queries
India needs to move fast when it comes to decision-making. Moreover, issues like refund of embedded taxes and legal complexities on land purchase need to be resolved in order to boost exporters’ confidence.
According to Sharad Kumar Saraf, President, Federation of Indian Export Organisations (FIEO), despite trade headwinds there is scope for a 15 per cent growth in exports this fiscal. But, such a growth is possible only when the Centre can ease regulations and increased capacities can be built for increased exports to US, China and the UK.
With a trade war between the US and China, Indian exporters have been receiving a number of business queries. These are expected to materialise over a period of time. Similarly, Brexit will offer greater opportunities for Indian exporters. The Union Commerce Ministry recently identified over 200 products where India’s exports could be increased to the US, replacing Chinese goods, and 150-odd items where exports to China could rise.
“Be it the trade-war between US and China, or Brexit, there is opportunities that Indian exporters should take. A 15 per cent growth in exports this fiscal is possible. But for that the Centre must step in by easing regulations and other confidence boosting measures,” he told BusinessLine during an interview.
According to Saraf, the Centre has to come up with schemes that will help in allocation of land for setting up units. Regulations and legal issues relating to allocation or purchase of land should be taken care of, he said.
Source: The Hindu Business Line
The additional Rs 58,000 crore surplus transfer from the Reserve Bank of India in FY20 over the budgeted amount will boost the non-tax revenues of the Centre and compensate for a likely near identical shortfall in tax revenues, likely leaving the budget size and headline deficit numbers unaffected for the year, ceteris paribus.
The windfall from RBI will accelerate the government’s spending momentum to reach the trend 53-54% of BE by end-September (H1of FY20). The government expenditure in Q1FY20 was 25.9% of BE compared to near-30% trend in recent years. For the full year, the government would try to stick to the expenditure BE of Rs 27.84 lakh crore, up 20.5% y-o-y. To contain fiscal deficit, it had pruned spending by Rs 1.3 lakh crore or 5.4% of BE in FY19.
“The government will stick to the fiscal glide path this year,” an official told FE. According to the revised road map, fiscal deficit has to be reduced from 3.4% in FY19 to 3.3% in FY20 and further to 3% in FY21.
Last financial year, the Centre received Rs 68,000 crore from RBI and the year before, the amount was Rs 40,659 crore. The RBI on Monday decided to transfer Rs 1.76 lakh crore to the Centre in 2018-19 (July–June) — the entire net disposable income of Rs 1.23 lakh crore and an additional Rs 52,637 crore of ‘excess provisions’ identified as per the formula mooted by Bimal Jalan committee, which reviewed the central bank’s economic capital framework (ECF). It has already transferred Rs 1.48 lakh crore to the Centre (minus Rs 28,000 crore given as advance in February, which was accounted for by the Centre in FY19 Budget).
The Centre had budgeted for Rs 90,000 crore from the RBI this fiscal.
However, the Centre’s net tax receipts (NTR) in Q1 were just 14.7% of the FY20 target (BE), with an annual growth of a mere 6%. This is even as NTR growth required to meet the BE is a daunting 29.5%. It may be noted that despite Q1 NTR last year being 16% of the respective BE (with robust y-o-y growth of 34%), the year ended with an over 11% shortfall (Rs 1.64 lakh crore) under this head, necessitating a savage s pending cut to avoid a big fiscal slippage.
“Unlike last year, shortfall in tax revenues, if any, won’t exceed Rs 50,000 crore in this year. Amnesty scheme in the indirect taxes will help improve collections,” another official said. The Centre announced a dispute resolution scheme that provides relief up to 70% for taxpayers on the demands raised by the department. This is expected to reduce legacy litigation where revenue of over Rs 1.5 lakh crore is locked.
Usually, the Centre saves about Rs 50,000-60,000 crore annually due to the inability of the departments to spend resources allocated to them. The additional funds from RBI and savings would give some headroom to reassign resources for most pressing needs of the economy. “The additional funds should be used to eliminate systemic risk in financial system, which has arisen from telephone banking (extraneous influence) by PSBs, frauds in PSBs, IL&FS & NBFC crisis & for tax reform/reduction,” former chief economic adviser Arvind Virmani said.
If revenue receipts fare poorly, the Centre could roll over some payments such as subsidies to the subsequent years or resort to additional extra budgetary resources through PSUs to keep fiscal deficit at the BE level.
“More money coming to the government (from RBI) either for meeting the budgetary target or for extra expenditure has been seen positively,” Care Ratings said in a note.
Source: The Financial Express
The Bimal Jalan panel of the Reserve Bank has recommended that the revised economic capital framework, under which the RBI decided to transfer Rs 52,637 crore excess provisions to the government, be reviewed every five years. The panel’s report, which was released by the central bank on Tuesday, also recommended that the RBI accounting year (July-June) may be brought in sync with the fiscal year (April to March) from the financial year 2020-21 as it could reduce the need for interim dividend being paid by the RBI.
The Central Board of the RBI on Monday accepted all the recommendations of the committee headed by Jalan, a former central bank governor. The panel was constituted by the central bank in consultation with the government to review the extant ECF of the RBI. The panel submitted its report to Governor Shaktikanta Das on August 14.
The RBI’s central board on Monday approved the transfer of record Rs 1.76 lakh crore dividend and surplus reserves to the government. This comprises Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised ECF.
“The Committee recommended that the framework may be periodically reviewed every five years. Nevertheless, if there is a significant change in the RBI’s risks and operating environment, an intermediate review may be considered,” the report said.
The committee has recommended a surplus distribution policy which targets not only the total economic capital (as per the extant framework) but also the realised equity level of the RBI’s capital. “This will help bring about greater stability of surplus transfer to the Government, with the quantum of the latter depending on balance sheet dynamics as well as the risk equity positioning by the Central Board,” it said. There will be no transfer of unrealised valuation buffers and these will be used as risk buffers against market risks, it added.
The panel recognised that the RBI’s provisioning be maintained within a range of 6.5 per cent to 5.5 per cent of the RBI’s balance sheet, comprising 5.5 to 4.5 per cent for monetary and financial stability risks and 1 per cent for credit and operational risks. The panel also suggested the alignment of the financial year of RBI with the fiscal year of the government for “greater cohesiveness” in various projections and publications brought out by RBI.
Further, in the following years, interim dividend to the government may be paid only under exceptional circumstances, it opined. As per the report, the committee recognised that the RBI’s financial stability risk provisions need to be viewed for what they truly are, i.e, the country’s savings for a rainy day, built up over decades, and maintained with the RBI in view of its role as the Lender of Last Resort. Its balance sheet, therefore, has to be demonstrably credible to discharge this function with the requisite financial strength, the report said.
The committee has recommended adopting the Expected Shortfall (ES) methodology (in place of the extant Stressed-Value at Risk) for measuring market risk on which there was growing consensus among central banks as well as commercial banks over the recent years. While central banks are seen to be adopting ES at 99 per cent confidence level (CL), the Committee recommended adoption of a target of ES 99.5 per cent CL and a range defined between the target and downward risk tolerance of 97.5 per cent (both under stress conditions). The range is considered appropriate to address the cyclical volatility of RBI’s valuation balances based on historical analysis, it said.
Source: The Financial Express
The rupee depreciated marginally by 9 paise to 71.57 against the US dollar in early trade on Wednesday amid unabated foreign fund outflows and cautious opening in domestic equities.
Forex traders said concerns about US-China trade spat kept market participants edgy. Rupee and most Asian currencies like South Korean won, Thai Baht, Malaysian ringgit, Japanese yen and Indonesian rupiah were trading lower, they added.
At the interbank foreign exchange, the rupee opened weak at 71.50 then fell to 71.57 against the US dollar, showing a decline of 9 paise over its previous closing.
The domestic currency however pared the initial losses and was trading at 71.51 against the American currency at 0943 hours.
The Indian rupee on Tuesday had closed at 71.48 against the US dollar.
Traders said cautious opening in domestic equities, strengthening of the American unit vis-a-vis other currencies overseas, rising crude oil prices and foreign fund outflows weighed on the local unit.
Brent crude futures, the global oil benchmark, rose 0.67 per cent to USD 59.91 per barrel.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 923.94 crore on Tuesday, as per provisional data.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading at 98.07, higher by 0.08 per cent.
The 10-year government bond yield was at 6.52 per cent in morning trade.
Source: The Hindu Business Line
Finance Minister Nirmala Sitharaman said the government wants to ensure that entrepreneurs and industries carry out their business without a worry. She said the government was observing the impact of the slew of measures announced to prop up the economy before taking further steps. However, Sitharaman remained non-committal on lowering GST rates.
The Minister was in Pune to hold discussions with trade associations, industry players and tax officials. Speaking to reporters, she said, “We want entrepreneurs to carry out their business without a worry. Similarly, we have expressed out keenness to serve farmers so that everyone carries on with their business which create job and wealth for the country. Therefore, it was important that tax administrators facilitate them. It is important that tax administrators do their job of tax collection and enforcement of tax rules, but necessarily understanding business and facilitating them”.
She said the industry is focusing on GST reforms and simplification of forms in GST. “I am willing to hear any number of people on GST rates . It is not in my hands. It has to go to the GST council and it will be discussed there in the law committee. The decision is made there,” the Minister said.
She said, “I have announced some measures for the automobile sector. I will have to get inputs from the sector to see what kind of impact the announcement I have made has had.”
Criticism of RBI slammed
Commenting on the Opposition’s criticism on the RBI’s decision to transfer ₹1.76 lakh crore of the surplus reserve to the government, Sitharaman said, “The Jalan committee had experts appointed by the RBI and not by the government. They had sittings and have come out with a formula. Any suggestion about the credibility of the Reserve Bank, therefore, for me seems a bit outlandish.”
On Rahul Gandhi’s barb, the Minister said, “Rahul continues with his chor narrative, even as people have given him a befitting reply. The Congress Party must speak to their former Finance Ministers and then talk about the RBI”.
Rahul Gandhi had earlier said the government was “stealing money” from the RBI. Finance Minister Nirmala Sitharaman
Source: The Business Line
Egyptian cotton production and exports have hit a five-year high following a period of emphasis on improving sustainability.
The season 2018/2019 saw an increase of 45% in exports, according to The Cotton Egypt Association (CEA), the independent body responsible for the global brand.
CEA has been supporting the implementation of “The Egyptian Cotton Project,” activities that include innovative training, education and awareness for stakeholders across the cotton supply chain. The project is part of the CEA’s collaboration with the United Nations Industrial Development Organisation and also includes the Cotton for Life and Better Cotton initiatives, to advance sustainability while reducing contamination.
The cooperation with the Better Cotton Initiative has allowed the deployment of pilot cotton plantations, supported by cotton traders, manufacturers and brands to pave the way for a BCI start up program in Egypt envisaged to start for the 2020/2021 cotton season.
CEA Executive Director Khaled Schuman said “Egyptian Cotton is already the finest in the world. Our goal and ambition is to make Egyptian Cotton not only the most sustainable cotton, but one which has a traceable and transparent supply chain with positive impacts at every step along it – from the farmer to the brand, the retailer and the consumer.”
In addition to sustainability, the Egyptian Cotton Project is working with farmers and workers on the issues of health and welfare, gender equality and entrepreneurial opportunities for youth. Awareness training sessions address topics such as child labour, the importance of education and qualified employment to serve as a positive alternative for youth in rural areas.
The Egyptian Cotton Project delivered technical workshops to 392 farmers on field management, irrigation, IPM and harvesting. It also conducted approximately 50 field days in both Damietta and Kafr El Sheikh governorates, coupling them with technical consultation sessions and on-field support.
Cotton cultivation calendars with timeline guidance and best practices were distributed to cotton farmers and workers, and four observational study tours have been organized at a seed production unit in Sakha Research Station of the Cotton Research Institute, and at a nursery producing cotton seedlings in Kafr El Sheikh governorate.
A reworked curriculum on organic cultivation has been extended nationwide by the Ministry of Education reaching around 150,000 students. The project introduced an
entrepreneurship curriculum; and additional trainings of teachers in Agricultural schools have been rolled-out, focussing on sustainable practices and cotton contamination management.
“Trial areas adopting sustainable practices have seen a 30% increase in cotton yields and a 25-30% decrease in water consumption according to the project’s data,” said Schuman.
Source: Home Textiles Today
Textile exporters have requested Adviser to Prime Minister on Finance and Revenue, Dr Abdul Hafeez Shaikh to intervene for revision of sales tax refund policy for export-oriented sectors and create a dedicated head (escrow account) for refund claims to be monitored by a committee comprising the Federal Board of Revenue (FBR) officials, audit firms and textile associations.
In a communication to Dr Abdul Hafeez Sheikh here on Monday, Shabbir Ahmed, Chairman Pakistan Bedwear Exporters Association, while strongly criticising FBR's SRO 918 (I)/2019, said that a dedicated head for refund claims, ideally an escrow account, should be created. If the collected amount goes into the consolidated fund, refund claims become susceptible to government's ways and means position leading to delays and denials. The escrow account should be monitored by a committee consisting of nominees of FBR and textile exporting associations. If necessary, the government may also include top audit firms at the expense of the associations.
He said that the association is both surprised and dismayed at the issuance of the notification. The FBR seems to have chosen to ignore the request of the association to incorporate its input provided vide its letter No. PBEA/FBR/2019, dated 06/08/2019. The input had also been shared with the DG Exports by the association on the advice of the chairman FBR. The association had also requested the DG to share the draft notification with it and the other concerned associations before its finalisation, as it would have a strong bearing on the country's export efforts.
The association is afraid that the notification that has now been issued would negate the government's export policies that promise zero-rating. It simply fails to take into account the entire supply chain (for instance, it covers a large variety of products/processes like cartons, poly bags, inlay cards, swing threads, dyeing printing, weaving, etc.). It will seriously impact cash-flows and threaten several units with closure.
The notification in its present form will seriously hurt the export industry, Shabbir Ahmed added. The Annexure H form in the notification should be utilised for post-audit purpose and not for pre-verification of refund claims. The claim routed to FASTER module under section 39F of the notification shall be electronically processed. The data in the refund claim shall be scrutinised and verified by the system and the payable refund amount shall be determined on the basis of input consumed in exports or supplied. The refund payment order (RPO) of the amount found admissible shall be generated and the same shall be electronically communicated direct to the State Bank of Pakistan, within seventy-two hours of submission of claim, for onward advice to the respective banks, which shall be made by the State Bank of Pakistan no later than seventy-two hours of electronic receipt of an RPO, for credit into the notified account of the claimant no later than, Shabbir Ahmed added.
Source: Business Recorder
Even as the US-China trade war intensifies, analysts at Fitch Solutions Macro Research said that the rare earth mining, textiles manufacturing and information and communications technology (ICT) manufacturing sectors of the Vietnamese economy will benefit from the changes brought on by the US-China trade war, namely the supply chain shift out of China.
Rare earth minerals are a group of 17 elements that are used in a number of highly strategic or technologically advanced products such as semiconductors, fibre-optic telecommunications, batteries and high performance magnets .
China currently holds a near-monopoly on the global supply of rare earth metals, with over 72 per cent of global market share.
Additionally, reports have emerged suggesting Beijing could consider imposing restrictions or tariffs as part of the trade war with the US.
Analysts mentioned that even if China decides not to limit the export of rare earth minerals to put pressure on the US, increased attention and concern by US policymakers over China’s dominant position is likely to support a diversification of rare earths supplies .US policymakers have already been seen to propose legislation aimed at encouraging the domestic production of rare earths, while the US Department of Defense has asked for additional federal funds to do the same.
While the analysts do not believe that new facilities will be able to ramp up production in the next one-to-two years, they said that the increased focus on the source of rare earth elements will likely see greater investment for those countries with sizeable reserves deposits such Vietnam.
In the area of textiles, Vietnam stands out as the most immediate beneficiary of multinational firms’ efforts to diversify and maintain access to US markets
In recent years , the country has attracted significant investment into its low-value added manufacturing, with investors finding its combination of low wages , relative political stability, rapidly developing transport and utility infrastructure and improving regulatory environment to be particularly attractive.
Analysts believe that continued US-China tensions will likely spur further investment, not only due to the favourable business environment, but also because they expect
manufacturers will prefer to ramp up production in locations that they already have operations, leveraging current networks and existing knowledge. In the case of Vietnam, it is already the second largest exporter of apparel to the US, only behind China, making it an obvious diversification option.
Analysts have already seen this playing out to a certain extent, with firms like Brooks Sports and Asics having announced plans to move part of their shoe manufacturing into Vietnam in recent months . With the US having announced plans to expand tariffs on Chinese goods to cover textiles and other final consumer products, analysts see room for further investment.
The ICT sector has already been significantly impacted by US/China trade war and analysts expect further shifts in supply chain dynamics in the coming quarters .
Even before the trade war, analysts had already begun to see multinational firms shifting low-to-mid level ICT manufacturing out of China as as saturated labour market pushed up costs , but this trend has been accelerated by trade tensions .
ICT exports and investment are likely to remain a major focus for the US government. In part this is due to the sheer size of US ICT imports from China, though efforts to hamper Beijing’s Made in China 2025 development agenda play a role as well.
Analysts have already seen supply chain dynamics beginning to shift, driven primarily by original equipment manufacturers.
In Q1 2018, China accounted for around 56 per cent of total US electronics imports , but by Q1 this year, this has fallen to around 43 per cent. Part of this likely reflects a re-routing of products from China through Southeast Asia rather than a shift in productive capacity and analysts expect China will remain a major player in this market.
However, over the longer term, given the increasing US government focus and risk of restrictions, analysts believe this will spur a continued diversification and a ramping up of new productive capacity across Southeast Asia.
So far, Vietnam appears to be a major beneficiary in low-to-mid range ICT product manufacturing. The country is already a well-established electronics manufacturer and is currently the second largest smartphone exporter in the world, benefitting from U$17 billion in investment from Samsung alone since 2007.
Similarly, with contract manufacturers such as Foxconn and Pegatron contemplating shifting more production out of China and into emerging Southeast Asia, the analysts believe that Vietnam is positioned to benefit from further investment.
Source: The Business Times
