Chinese President Xi Jinping invited India on Tuesday (15 July) to attend a summit of the APEC trade group in November, sending a message of cooperation during the first meeting between the new leaders of the world's most populous countries.But behind the smiles at Xi's 80-minute meeting with Prime Minister Narendra Modi in Brazil, India's rivalry with its powerful neighbour bubbled up as the two nations argued over who would host the headquarters of a proposed BRICS joint development bank.Xi and Modi met soon after their arrival at a summit of the BRICS group of emerging powers. Xi said the two countries should join hands in setting global rules and suggested he attend the November meeting of the 21-nation APEC in Beijing, as well as take part in Chinese-led regional initiatives.India has never attended an APEC summit, and has long sought to become a member to help boost its economy.The bonhomie was partially overshadowed by news that the BRICS groups - Brazil, Russia, India, China and South Africa - had not yet decided on where to locate the headquarters of the development bank they were expected to launch on Tuesday.The frontrunners to host the bank have been China and India."It will be every country's desire, and so will it be India's, to have it in India, because Delhi or any city in India has its natural advantages, English-speaking, very skilled manpower, and if you look at the geographical position of all the BRICS countries, the five of them, India is very centrally located," Nirmala Sitharaman, India's trade minister, and part of Modi's entourage in Brazil, told TV network Times Now.Leaders of the five countries were expected to a sign a deal on Tuesday to establish a $100 billion bank and a reserves fund of the same size to challenge Western dominance over development lending.Disputed Himalayan BorderXi also called for speedy negotiations to settle disputes over the 4,000-km (2,500-mile) Himalayan border over which India and China went to war in 1962 and which have flared in recent years over allegations of cross-border incursions."Xi suggested the two sides manage, control and handle differences with a positive and forward-looking attitude and find fair, reasonable and mutually acceptable solutions to their border issues at an early date," Xinhua quoted him as saying.China claims more than 90,000 sq km (35,000 sq miles) in the eastern sector of the Himalayas. India says China occupies 38,000 sq km of its territory on the Aksai Chin plateau in the west.Modi called for strengthening "mutual trust" and maintaining peace on the border, the government said in a statement.His Bharatiya Janata Party has campaigned for a strong national security posture, saying previous governments have been weak-kneed in their dealings with both China and Pakistan.But Modi has sought to build on a booming trade relationship with China while trying to balance India's security interests.He sought Chinese investment in Indian infrastructure projects which he suggested to Xi would help address the trade imbalance currently in Beijing's favour.APEC includes Canada, Mexico, Russia and the United States and accounts for about 40 percent of the world's population, 55 percent of global gross domestic product and 44 percent of world trade.New Delhi's bid to become an APEC member has been stymied for two decades because its economy wasn't integrated into the global system and in later years because of a membership freeze.The United States, the group's dominant nation, in recent months has faced calls to promote India's candidature to help balance the group on grounds that the world's 10th largest economy in nominal terms cannot be kept out.Alyssa Ayres, a former U.S. State Department official and now a senior fellow at the Council on Foreign Relations, said in a memorandum that Washington should champion India's request to revitalise India-U.S. economic ties that have soured recently.BRICS Aims To Set Up Infra FundThe Russian Direct Investment Fund together with sovereign wealth funds from its peers among the BRICS developing nations aim to form a joint fund to invest in infrastructure projects, the RDIF said on Tuesday.Leaders of Brazil, Russia, India, China and South Africa are holding an annual summit in Brazil this week where they are expected to sign a deal creating a $100 billion development bank and a currency reserve fund of the same amount.The RDIF, a state-backed private equity fund worth $10 billion, invests alongside foreign partners and has previously attracted money from the Middle East and Asia."Representatives of leading financial institutions, BRICS sovereign wealth funds and RDIF’s international partners have given their complete support to the initiative," RDIF said in a statement.If the negotiations are successful, the joint fund will become operational by the next BRICS summit which is scheduled to take place in Russia's city of Ufa in 2015, the Fund said.No details on the potential capital of the new found have been given."The establishment of such a fund would do much to address the challenge of insufficient financing for infrastructure projects in BRICS countries, which each present a huge opportunity and experience similar issues in the delivery of infrastructure projects," Kirill Dmitriev, chief executive officer of the RDIF, said in a statement.The money is to be invested in projects within the BRICS countries ranging from construction of roads, bridges and airports to municipal infrastructure.(Reuters)
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As the heads of state of the most populous nations meet in Fortaleza, they should reflect on the name of the city where they have gathered. In Portuguese, Fortaleza means fortress. And that’s how the markets look to each of the member countries of BRICS. While the BRICS have been meeting as a formal group for a while now, there isn’t much for the members to crow about. The member countries have been talking to each other rather than with each other. Unlike trade blocs that are built on regional proximity, BRICS are spread across four continents. What they have in common is a young population, rising growth rates and aspirational market. Traditionally trade and investment have been focused around the developed countries. The emerging markets are still too dependent on western markets and have not adequately explored peer countries. While in recent years, countries like China and India have moved to African markets, there aren’t enough trade and investment links between emerging markets. As the leaders meet in Fortaleza, they should avoid quibbling over the headquarters of the BRICS Bank. This is not a matter for muscle flexing. The bank can be headquartered anywhere as long as it has equal representation by all member countries. It should avoid becoming institutions like World Bank and International Monetary Fund that are seen as fiefdoms of the US and EU respectively. For BRICS it is important to offer greater market access to each other. This is partly about reduced tariffs and other barriers. The last few years have seen a general decline in trade and non-trade barriers but the BRICS need to thrash out specific points of conflict. Most importantly, the logistic and travel connections between the countries must be greatly enhanced. Unless people can travel freely and easily across these five countries, improved trade and investment linkages can’t be expected. All of them are well connected with Europe and the US thanks for historic relations. But now the focus must be on improving connections within. That would be the best way to break down the walls around the countries and create a larger, more accessible fortress called BRICS.
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The rupee was at 61.39/40, its highest level since 17 January and above its closed of 61.75/76 on Wednesday (05 March), a day after data showed the country's current account deficit narrowed in the December quarter.Data post-market hours showed India's balance of payments swung back into surplus during the October-December quarter, helped by government curbs on gold imports, after two quarters in deficit.The rupee has seen moving in a 61.25 to 61.65 range.Almost all Asian currencies also gain on easing worries about the standoff in Ukraine.Traders will continue to monitor domestic shares, trading up 0.5 per cent, for clues on foreign fund flows.(Reuters)
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The rupee is trading lower at 60.23/60.24 compared with Monday's close of 60.07/08 as the dollar trades stronger against the Indian unit's Asian peers.Dealers say state-run banks have been mopping up dollars for oil- and defence-related payments, aiding the greenback.The Nifty is up 0.8 per cent. The local share market will provide cues on the direction of foreign fund flows.Overseas investors sold Indian shares worth $93.04 million on Monday (14 July), provisional exchange data shows.The rupee is seen moving in a 59.85 to 60.35 range during the session.Investors await Federal Reserve Chair Janet Yellen's testimony before the congress due later in the day.(Reuters)
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All of the above have raised expectations on the Indian side to a fever pitch. But a reality check is in order. While reduction of its widening trade deficit with China — India’s imports from China were to the tune of $51.05 billion, and exports a meagre $14.83 billion, resulting in a $36.22 billion trade deficit in 2013-14 — is high on New Delhi’s agenda, from China’s perspective, the Sitharaman-Gao agreement is merely reflective of the country’s changing economic growth priorities in the wake of the recent slowdown in its gross domestic product (GDP) growth. In fact, China’s current five-year plan gives more importance to raising household income and boosting consumption than to pure export-oriented growth to sustain and grow its national wealth or GDP. In this connection, it wants to move some of its manufacturing activities out of the country — hence an assurance to invest in Gujarat and Maharashtra to set up industrial parks — even as it boosts domestic consumption and household income through growth in its services sector. While many see China’s outreach as an effort to counter India’s growing cosiness with Japan and the US, the fact is that the engagement is largely driven by the changes taking place within the Chinese economy. Shrinking Trade“There was an opportunity, but unfortunately, we made ourselves inconsequential,” says Basant Poddar, vice-chairman, Federation of Indian Mineral Industries, the largest miners’ representative body in India. Poddar is referring to the Supreme Court decision — to lift the ban on iron ore mining and allow mining companies to export ores —that came after two long years. The China connection to this development is that most of the pre-ban ore exports were to it. India, in fact, was the second largest exporter of iron ore to China. Two years on, it is out of the reckoning. Mining companies from other countries have ramped up production to fill the gap left by India. “The confidence of the Chinese buyer has been shaken. It is extremely difficult to re-establish it,” says a Kolkata-based miner.While the mining industry is keen to regain a slice of the Chinese market, the government is even more so, as was evident from the recurring theme of “trade deficit” in the talks between Prime Minister Narendra Modi and Xi. Deficit apart, the overall volume of trade between India and China has also seen a sharp fall. According to commerce ministry data, the total trade between the two was $65.9 billion in 2013-14, compared to $73.4 billion in 2011-12. Experts see the decline as an early indicator of the policy shift that has begun to take effect in China. China has embarked on a correction in its economic growth pattern — skewed due to mass exports (resulting in a glut of made-in-China products) and massive infrastructure development — to generate a more sustained, albeit slower, growth. Whether India will lose, gain, or only be marginally impacted by the changes in the Chinese economy are questions that remain unanswered at the moment. Even the $20-billion commitment and the promise of industrial parks are inconclusive steps.Time To Slow DownWhy did China need a course correction? Experts believe it was brought on by the need to correct serious anomalies associated with its fast-paced economic growth in recent times. “The slowdown in China is occurring for the same reasons that caused sharp slowdowns, even crises, in every country that has had a growth miracle driven by very sharp investment growth,” says Michael Pettis, a professor of finance at Peking University, Beijing.According to him, in every such case, the early years of rapid growth are transformed into growth driven by investments that are increasingly and systematically misallocated to create manufacturing overcapacity, overly expensive infrastructure, excess commercial and residential real estate, trophy projects, etc. — all driven by credit expansion and excessively low interest rates. “When this happens, debt begins to rise much faster than debt-servicing capacity and, at some point, the country is saddled with far too much debt and must rein in credit growth. China has long passed that stage, and debt levels have become among the worst in the developing world,” notes Pettis. The problem is that China’s economic activity is very dependent on rapid credit growth. “Beijing must continue to rein in credit growth over the next three to four years and, as it does so, economic growth will continue to drop sharply. I don’t expect (China’s) GDP growth to exceed 4 per cent on average during 2012-22,” he says.“Tight lending meant that hitherto sprawling infrastructure investments (in China) saw a slowdown,” says Joe Thomas Karackattu, assistant professor, China Studies Centre, Indian Institute of Technology, Madras. This hit Indian exports to China as it resulted in a slump in the demand for iron ore, minerals and metals. In 2012-13, India’s exports to China saw a 9.4 per cent fall from the previous year, to $17.03 billion. Anne Stevenson-Yang, managing principal at Beijing-based J. Capital Research, says Indian exports to China will remain affected by the slowdown. “India is more of a commodity supplier to China than a competitor for manufacturing contracts so, in this sense, the slowdown is bad for India.” break-page-breakIn the same period, China’s exports to India, mostly machinery, did not slip into the negative territory, though the growth was nominal (1.6 per cent). This, because India is trying hard to push infrastructure growth through investment in roads, energy, manufacturing, etc. While India’s infrastructure push will continue, what remains to be seen is whether China will continue to ramp up exports to India or choose to set up manufacturing hubs here to cater to the demand.Losing Edge Karackattu notes that China’s manufacturing sector has been witnessing rising production costs (land and labour), a reduced preference for the east coast for setting up new units (re-balancing economic prosperity between provinces) and an increased demand to move up the technology ladder in recent times. This has resulted in Chinese products losing their cost competitiveness in some segments. “One of the consequences of the rebalancing is an erosion of China’s export competitiveness as wages, currency and interest rates continue to rise in real terms,” says Pettis. “These factors were at the heart of China’s rapid growth, and are also the main reason for China’s huge economic imbalances and enormous overcapacity. So they must and will be reversed over the rest of this decade. China’s manufacturing exports to India, in other words, will see a rise in prices. This is bad for Indian consumers but good for Indian producers.”For instance, the second-biggest component of India-China trade after ores, namely, intermediates and final bulk drugs, will witness the fallout of rising production costs, impacting consumers here.Nipun Jain, managing director of Pharmchem, says the competitiveness of Indian formulation (final medicine) manufacturers who use Chinese intermediates will be affected. “Prices are already rising. China was the only source for several fermentation-based raw materials. We cannot, overnight, set up drug manufacturing facilities to produce them more effectively,” he explains. The $20-billion Opportunity The impact of the economic rebalancing in China is not limited to trade. It will alter the investment climate in the country and change China’s priorities for outbound investments as well. Seen in this context, the country’s $20-billion investment commitment turns significant. China’s current 12th Five-Year Plan is aimed at raising household income, boosting consumption and facilitating expansion of services. However, it is not an easy task, says Karackattu. “As for consumption, China accounts for only 3 per cent of the world’s imports of consumer goods and, therefore, has to undertake long-drawn internal reforms to achieve a rebalancing. Hence, in the short to medium term, the role of large consumer markets and investment sites such as India cannot be ignored,” he says.So far, Chinese investments in India have been in areas such as telecom and electronics (Huawei, ZTE, TCL, Haier, etc.), power (Mingyang Wind Power Industry Group, Shanghai Electric, China Datang Corp, etc.) and transport (Shanghai Automotive Industry Corporation, China CNR Corp, CSR Corp, etc.). Indian corporates known for their Chinese investments and joint ventures include the Tatas, Mahindra & Mahindra and Bharat Forge. IT majors such as Infosys Technologies, HCL Technologies and Genpact also have a presence in China. Room For AllAnother dimension to the Chinese slowdown is its potential impact on global markets and its possible consequences for India. Jabin T. Jacob, assistant director, Institute of Chinese Studies, New Delhi, says the growth opportunities for India and China are complementary and not competitive. Karackattu agrees: “The benefits from any slowdown in China will be reaped by countries that directly compete with it. (Based on the corelation) India doesn’t really stand to gain from a slowdown in China. The loss also is too early to speculate upon”. The logic behind this argument is that India and China are competing in the global market with different skill sets and products. “India’s key advantages are in services and the manufacture of precision engineering goods (unlike China’s, whose advantage lies in low-cost, low-tech manufacturing),” says Karackattu.According to him, China should focus on horizontal investments and disaggregated production with an India focus. “China should prepare the ground for its companies to shift from export of equipment to India to an ‘integrated service model’ with a strong investment component that serves the additional purpose of job creation in India,” he says.Karackattu also proposes that India and China be part of a South Asian value chain. “China’s trade with South Asia is less than 5 per cent of its trade with the Asia-Pacific; thus, South Asia remains on the periphery of China’s active economic engagement.”China could be India’s biggest trading partner, but the converse is not true. In 2012, India ranked 15th among China’s trading partners, with a 1.72 per cent share of its overall trade, recording a decline of almost 10 per cent year on year. In terms of exports to China, India stood 19th, with a share of 1.1 per cent. The negligible share of trade is one reason why India doesn’t figure in China’s economic strategies the same way as China figures in India’s. “One problem in China, and I see this even among my Peking University students, is that they do not seem to take India seriously enough,” says Pettis. “I have told my students that this is a serious mistake, and that they must remember that China has far more in common with India and the developing world than with the developed world, but not too many are eager to hear this. Anyway, it is a widely and deeply held system of belief,” he adds.The success of the Modi-Xi engagement will largely hinge on the extent to which the two countries can find a commonality of interest amid differing priorities and national interests. It matters little that Xi finally did not commit to the much-talked-about $100-billion investment. The $20-billion that he’s promised could be the start of a beautiful romance. joe@businessword twitter: @joecmathew(This story was published in BW | Businessworld Issue Dated 20-10-2014)
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India's balance of payments turned to a $19.1 billion surplus in the October-December quarter of last year after two quarters of deficit as the slowdown in gold imports sharply narrowed the country's current account deficit. The current account deficit for October-December 2013 narrowed to $4.2 billion, or 0.9 per cent of gross domestic product, from $31.9 billion year ago, when it was at 6.5 percent, the Reserve Bank of India said on Wednesday. The current account deficit had reached $5.2 billion, or 1.2 per cent of GDP in the July-September quarter of last year. India's current account deficit has narrowed from a record high of 4.8 per cent of GDP in the 2012-13 fiscal year as the government has imposed stringent curbs on gold imports. The trade deficit in the October-December period stood at $33.2 billion compared with $58.4 billion a year ago, while the capital and financial account surplus fell sharply to $4.8 billion versus $30.8 billion a year ago. (Reuters)
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Deepak Agarwal, Sr. Manager, Deloitte - Indirect Tax explains to BW|Businessworld's Neeraj Thakur about the gainers and losers in case of indirect tax in Finance Minister Arun Jaitley's maiden Budget Also Watch Sujit Parakh, Director, Deloitte talks to BW|Businessworld's Neeraj Thakur on Direct Tax
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The rupee rose to its highest in six weeks on Wednesday (5 March), as the BSE share index approached a record closing high on strong foreign flows, while sentiment was helped as emerging market currencies benefited from tentative hopes of easing tensions in Ukraine. The Sensex closed just around 0.5 percent away from a record closing high hit on January 13 as foreign investors have bought a net $800 million over the previous 13 sessions to Tuesday. Investors will be eyeing whether those flows can sustain ahead of general elections, which are due to start on April 7 and conclude by May 12, with results due out on May 16. Traders hope elections will see the opposition Bharatiya Janata Party, which is perceived to be more business-friendly, winning a majority to usher in reforms and pull the economy out of the current slow growth, while they most fear a split outcome. "The conviction in the rupee strengthening in widening. With news of election and exit polls showing a strong performance for the opposition, the chances of a stable government coming in are rising. I expect more flows to come in," said Subramanian Sharma, director at Greenback Forex. The partially convertible rupee closed at 61.75/76 versus Tuesday's close of 61.845/855 per dollar. It rose to 61.6650 intra-day, its highest since January 21. The rupee benefited from gains in emerging market currencies such as the South Korean won and even the Chinese yuan, which had been under pressure recently. But caution over military tensions in Ukraine remain, with Russian shares slipping and the rouble headed towards record lows. In the offshore non-deliverable forwards, the one-month contract was at 62.16 while the three-month was at 62.91. (Reuters)
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