Tag: import

The Dutch disease and its role in the current Venezuela crisis, explained

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As Venezuela, once the richest country in South America, plunges further into political and financial chaos, the term ‘Dutch disease’ has come into general notice. Experts, as well as the general public, are looking at how this economic phenomenon sheds light towards the economic disaster that is being witnessed by the country with the largest petroleum reserves in the planet.

What is the Dutch disease?

In economics, the term Dutch disease points towards a situation where an increase in the prominence of a particular sector within an economy leads to a decline in the prominence of other sectors.

When a particular sector grows unprecedentedly, it often leads to rise in foreign revenue in the form of exports originating from this sector. This, in turn, leads to the strengthening of the currency of a particular country. However, it also has serious side effects. The rise in currency value along with the focus on a single sector leads to a fall in exports of other products and a rise in imports from outside. This further leads to a phenomenon where an economy is highly dependent on a selected sector for revenue generation and trade.

The rise of a single sector can be due to many factors that range from the sudden discovery of a valuable natural resource, increase in price and demand of a particular resource or even sudden surge in foreign aid leading to the rise in currency value.

Origin of the term

The economic phenomenon was named after the economic change transformation that took place in the Netherlands in the 70s following the discovery of natural gas. This, in turn, had led to the decline of the nation’s thriving manufacturing sector.

How is it linked to the crisis in Venezuela?

The steep rise in the price of oil during the last decade led to growth in oil revenue of Venezuela, a prime source for oil. This, in turn, led to the rise in revenues of the country that the government led by leftist Hugo Chavez spend lavishly on welfare policies aimed at creating a socialist state. The large scale dependence on oil revenue led to the decline of other sectors including business.

However, with a fall in global oil prices, revenue took a hit, seriously affecting the Latin American nation that depended on the black gold for revenue. This, in turn, led to the virtual end of export revenue and paved the way for inflation, lack of even basic necessities and poverty among others.

How does this influence other countries?

The crisis in Venezuela points towards the ill effects of having total dependence on a particular sector. This is also alarming to many nations across the globe who depend heavily on oil revenue. With alternative energy sources being made popular across the globe, questions have been raised about the future of several countries, particularly the Gulf. Also the crisis points on how unregulated social welfare measures and perks may end up becoming counter-productive even if they may come with mass appeal.

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India reduces trade deficit with China by $10 billion in FY19

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s trade deficit with China fell by $10 billion to $53 billion in FY19 on the back of lower imports, officials told CNBC-TV18. The downtick in the merchandise trade gap was also aided by new market opportunities arising out of the US-China trade war in the neighbouring nation.

According to a provisional figure of the year ended March 31, 2019, India’s exports to China grew 31 percent at $17 billion in FY19 while imports dipped by 8 percent at $70 billion in the year under consideration.

According to sources, bigger shipments of shrimps, organic chemicals, plastic raw material, cotton yarn contributed to India’s export growth to China.

Officials in Udyog Bhawan attribute this to sustained parleys between India and China on market access of Indian goods, as well as greater demand for Indian goods in the neighbouring nation arising out of high duties on US products by China.

In fact, the Commerce Ministry had studied the impact of the US-China trade war on India and came to the conclusion that up to 603 ‘Made In India’ goods could find greater demand in the Chinese market.

To leverage the opportunity arising out of increasing exports to China, Commerce Minister Suresh Prabhu had a meeting with government departments like textiles, steel, MSME, Ministry of IT as well as industry lobby groups like FICCI, CII and export Promotion Organisations on April 4. The minister asked the industry to identify specific goods and devise an export strategy for China in the meeting.

The ultimate objective of the latest initiative will be to eliminate trade deficit with China, official sources added.

China is India’s biggest trading partner but a huge trade gap has been a cause of concern for New Delhi. At least four delegations of Indian trade diplomats have visited China since June 2018 to pitch for greater market access.

But foreign trade is not the only economic engagement that India wants to pursue. Commerce Ministry wants to aggressively pitch for investments by Chinese companies in India, which it believes are tepid at the moment. According to sources, the ministry is willing to propose investment incentives to counter attractive sops offered by South East Asian nations for Chinese companies.

An analysis by the ministry shows that Xiaomi, Shunwei Capital, Alibaba, Ant Financial, FinUp Finance Tech Group are the top 5 Chinese investors in Indian start-ups and most of the investments have gone into the ecommerce sector, followed by lending, social media and investment.

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Commerce ministry for imposition of countervailing duty on imports of Chinese pneumatic tyres

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The commerce ministry has recommended imposition of countervailing duty on Chinese tyres for buses and lorries, a move aimed at guarding domestic players from imports that are subsidised by the neighbouring country.

The ministry’s investigation arm Directorate General of Trade Remedies (DGTR) in its findings after a probe has stated that imposition of definitive countervailing duty is required to offset subsidisation.

“The authority considers it necessary to recommend imposition of a definitive countervailing duty on the imports of the subject goods (New Pneumatic Tyres for Buses and Lorries) from China,” the DGTR has said in a notification.

It said since the product already attracts anti-dumping duty from China, the amount of countervailing duty to be imposed would be the difference between the quantum of specified countervailing and anti-dumping duty payable.

The finance ministry takes final call for the imposition of the duty.
The directorate carried out the probe following complaints from the Automotive Tyre Manufacturer’s Association. They have filed a petition on behalf of domestic producers for the imposition of the duty on these imports.

The DGTR said the domestic industry has contended that China is providing countervailable subsidies to the producers and exporters of these tyres.

According to the petition of the association, subsidies by China are being provided by them under different programmes such as grants, tax incentives, preferential lending, export financing and export credit, and equity support.

Imports of these tyres from China increased to 81,896 tonne in 2016-17 from 30,665 tonne in 2014-15.

Countervailing duty is a country-specific duty which is imposed to safeguard the domestic industry against unfair trade subsidies provided by the local governments of the exporting nations.

India has already imposed a countervailing duty as well as anti-dumping duties on various kinds of products from China, with which India has a huge trade deficit.

The trade deficit with China increased to $63.12 billion in 2017-18 from $51.11 billion in 2016-17.

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Strong rupee pushes India rice prices to seven-month high, dampening exports

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Rice export prices in India rose to their highest level in more than seven months as the rupee appreciated, denting demand, while trading companies in Vietnam increased domestic buying to fulfil new overseas deals.

India‘s 5 percent broken parboiled variety was quoted around $392-$395 per tonne this week, up from $386-$389 last week.

“Demand has been moderating due to the price rise. African buyers are not ready to pay higher prices,” said an exporter based at Kakinada in Andhra Pradesh.

The Indian rupee was trading near its highest level in seven months, trimming returns from overseas sales for traders in the world’s largest rice exporter.

In Vietnam, rates for 5 percent broken rice were in line with last week’s $360 a tonne.

“Demand for Vietnamese rice is seen rising, with key trading companies increasing their purchases from farmers for deals they have signed with customers from Malaysia, Philippines and Iraq,” a trader based in Ho Chi Minh City said.

Vietnam, the world’s third largest rice exporter, has shipped more than 200,000 tonnes of rice to Malaysia so far this year, while clients from Iraq have placed orders for 120,000 tonnes, the trader said.

A source with the Ministry of Industry and Trade said Egypt was seeking to buy 20,000 tonnes of 10-12 percent broken rice from Vietnam for delivery in June.

Thai benchmark 5 percent broken rice prices were quoted at $390-$393, free on board Bangkok, on Thursday, up from $380-$385 last week.

With demand little changed, traders attributed the price rise to fluctuations in the exchange rate between the baht and the US dollar.

On Tuesday, the Thai cabinet agreed to extend a rice trading agreement with the Philippines which expired in December for another two years. The agreement allows Thailand, the world’s second-largest rice exporter, to take part in tenders issued by the Philippines, stating that the two countries can trade up to 1 million tonnes of rice per year.

Meanwhile, Bangladesh will give its farmers free fertiliser and seeds to boost cultivation of a type of rice that requires less irrigation, the country’s agriculture minister said on Thursday.

The stimulus package, worth nearly 402 million taka ($4.75 million), could help more than 459,000 farmers increase production of the Aus rice variety grown during the May-August season, Abdur Razzak, the minister, said.

“We are encouraging farmers to grow more Aus rice as it matures during the monsoon. So it needs only a little irrigation to cultivate,” Razzak told reporters.

Bangladesh, usually the world’s fourth biggest producer of rice, was forced to massively increase imports to shore up domestic reserves in 2017 after floods wrought havoc on local crops.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rollback of AA licences under GST provides fragmented relief to exporters

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As promised, the GST council has come bearing gifts in the new year for the assessees. Right from rationalising the thresholds for registrations and widening the eligibility criteria for the composition scheme, the intent to bring ease to the trade and industry is evident. The interesting move, though, was the rollback of the imposition of pre-import condition on duty-free imports made under Advance Authorisation (AA) licenses.

To give a background, at the time of transition into the GST regime, the AA Scheme was amended to trim the upfront exemptions available on duties. As a result, goods imported under the scheme were subjected to Integrated tax (IGST) post July 1, 2017.

Working capital issues cropped up for exporters working on wafer-thin margins thereby defeating the purpose of the scheme. Consequently, several exporters, to save their businesses, were compelled to challenge these amendments before the courts. Delhi High Court even granted interim relief thus permitting exporters to import without payment of any customs duty as allowed under the unamended scheme.

Following suit, in the next GST Council meeting in October 2017, it was proposed that IGST exemption would be extended to all imports. However, the fine print of the notification came with a rider which partially negated the relief sought by the exporters.

A ‘pre-import’ condition was introduced which simply meant that the imported goods would have to be physically incorporated in the exported goods. In case of non-compliance of the pre-import conditions, the assessees would be subject to IGST with interest and penalty.

On identifying that several exporters were turning a blind eye to this condition, the revenue intelligence teams pursued investigations against numerous exporters. This snowballed into a massive issue since many of the industries, as a matter of practice, secured AA licenses basis the past exports.

It would have been impossible for such license holders to fulfill pre-import conditions as they, in usual practice, would have attributed the past exports towards the fulfillment of the export obligations cast under the licenses. In industries where inputs would often be imported and sourced locally, it would be commercially unviable to isolate the import batches and local batches in order to maintain the identity of finished products made from purely imported material.

Given the investigations started against them, some exporters went ahead and paid duty with interest while some decided to seek relief from courts. Post numerous writs filed, the government once again swung into action and granted some respite by rolling back the pre-import conditions effective January 2019.

This continues the legacy of knee-jerk reactions that the government is attuned to as the withdrawal of the conditions continues to remain prospective i.e.only future imports made under the AA licenses would remain free from pre-import conditions on availment of the IGST exemption. Given the language of the customs notification, there is no express indication that exporters have been released from their obligations to comply with the pre-import obligations for the past exports where they have claimed the IGST exemption. As such, the cases pending in the courts may continue.

It is certain that this issue has been laid to rest for future imports, but it may come to haunt exporters for their past imports. This strengthens the argument that tax exemptions should not be changed abruptly but instead phased out in a planned manner.

Nevertheless, it must be appreciated that with a change in every taxation regime, roadblocks are evident and it is rare not to expect any collateral damage. However, the quantum of damage one is expected to suffer, remains the relevant question!

Rashmi Deshpande is partner and Anjali Krishnan is associate at Khaitan & Co. 

The views of the authors are personal and should not eb considered as those of Khaitan & Co. For any further queries / follow up, please contact us at ergo@khaitanco.com.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Apple loses key sales executives in India, says report

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Apple has lost three key sales executives in India in recent weeks, severely affecting its strategy to boost iPhone sales in the country, reported Bloomberg.

The departed executives include national sales and distribution chief, the head of its commercial channels and mid-market business, and the head of telecom carrier sales, said the report citing people familiar with the matter.

The company’s representatives in India didn’t respond to Bloomberg’s emailed questions.

The development highlights the persistent problem faced by the firm when it comes to its expansion plans in India, the report said.

The company has been struggling to root itself in the country due to various factors. Apple’s strategy of producing only limited models in India and import most high end models to the country has led to high import levies. This automatically leads steeper prices making customers prefer cheaper models, said the report.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow