Terming the agreement towards setting up BRICS New Development Bank a significant step, Prime Minister Narendra Modi on July 15 said an open international trading regime is critical for global economic growth. In his statement on the agenda “Sustainable Development and Inclusive Growth” at the sixth BRICS summit in Fortaleza, Brazil, he said the global economic environment remains uncertain and recovery was still fragile despite improved prospects. Modi said that in an environment of political conflict and persisting weakness in major economies, countries have to be watchful for signs of a new bout of financial turmoil. “Developments in Iraq and the wider region could affect this. I am also concerned that tight monetary policies in some countries could undercut investment and growth in ours,” he said, adding an open, rule-based, international trading regime is critical for global economic growth and must address the aspirations of the developing world. “It must also accommodate the special needs of the most vulnerable sections of our societies, especially in areas such as food security. This is our broad expectation from the negotiations in the Doha Round of WTO,” he said. “I am happy, the initiative announced at the BRICS Summit in New Delhi in 2012, has become a reality,” said Modi, who is taking part in his first international conference as prime minister, on the agreement for setting up the BRICS bank. The agreement on the BRICS Contingent Reserve arrangement was another major achievement, he said, noting these initiatives “rooted in our own experience as developing countries” show “our capacity to set up global institutions”. Referring to the summit’s theme, he said it was also the guiding principle of his government “given our vast social, regional and economic diversity”. He said his government will invest heavily in infrastructure, affordable housing, healthcare, education and clean energy, while emphasising sustainability has been a core element of the Indian way of life. Modi said that BRICS was in a position where it wields enough horizontal influence to compel the world to take notice but there was need to deepen the bonds vertically. Calling for decentralisation, Modi said they must go “beyond summit and leader-centric deliberations and champion sub-national level exchanges”. “We must encourage engagement between our states, cities and other local bodies,” he said, calling for BRICS to be driven by “people-to-people” contact and the youth should lead this. “Popularizing our languages through dedicated BRICS language schools in all BRICS countries could be a beginning in this direction,” he said, even suggesting they explore the idea of a BRICS University as well as cooperation in areas like health, education, agriculture, resource management and urban development and a young scientists’ forum. Other initiatives he suggested were an affordable BRICS healthcare platform, mechanism to further cooperation between small and medium enterprises and a common framework for promoting tourism.
India’s forex reserves up $643 mn
India’s foreign exchange reserves rose by $643.2 million to $317.03 billion for the week ended on July 11, Reserve Bank of India (RBI) data showed. The reserves had increased by $614.6 million to $316.39 billion for the week ended on July 4. According to the RBI’s weekly statistical supplement, foreign currency assets, the biggest component of the forex reserves, gained $648.7 million to $290.22 billion. The foreign currency assets had increased by $760.6 million to $286.57 billion for the week ended on July 4. The RBI said that the foreign currency assets, expressed in US dollar terms, include the effect of appreciation or depreciation of non-US currencies held in reserve such as the pound sterling, euro and yen. However, India’s reserve position with the International Monetary Fund (IMF) declined by $1.5 million to $1.71 billion. The value of special drawing rights (SDRs) too fell. SDR were down $4.00 million to $4.46 billion. The value of gold reserves remained unchanged at $20.63 billion. The gold reserves had declined by $155.5 million in value at $20.63 billion in the week ended on July 4.
FIIs pump in Rs 22,000 crore this month
Continuing to bet on the reforms agenda of the government, overseas investors have poured in a little over Rs 22,000 crore in the Indian markets since the beginning of the month. The net investments by foreign investors in equity market stood at Rs 10,755 crore ($1.8 billion) till July 19, while for the debt market it was at Rs 11,268 crore ($1.89 billion), taking the total amount to Rs 22,023 crore ($3.67 billion), according to the latest data. Market analysts believe that foreign investors have been betting on the Indian market mainly on reform agenda of the new government at the Centre. Also, they anticipate that inflows would continue in the coming months as finance minister Arun Jaitley has announced several measures in Budget 2014-15 to enthuse investors. “From a stock market perspective, the investment push in the Budget both directly via government spending as well as tax cuts together with higher FDI limits in insurance and defence and a bunch of steps to ease taxation should augur well...,” US financial services major Morgan Stanley said in a note. Since the beginning of the year, foreign investors have made a net investment of Rs 1.45 lakh crore (about $24 billion) into the country’s securities market. This includes a net investment of Rs 70,550 crore in equities and Rs 74,000 crore into debt market. From the beginning of June, FIIs (Foreign Institutional Investors) along with sub-accounts and qualified foreign investors have been clubbed together by market regulator Sebi to create a new investor category called Foreign Portfolio Investors. The strong inflows in the recent months have taken the cumulative net investments of foreign investors into India to $195 billion. In rupee terms, their investments are at Rs 9.35 lakh crore level.
Govt for scrapping domestic sourcing clause for FDI
The government may completely unshackle foreign investment in single-brand retail, a sector that has seen growing interest from the world’s biggest brands that have been lobbying for the scrapping of a condition they regard as a deal breaker. Their wish could come true. The department of Industrial policy and promotion (DIPP) is considering a move to scrap the 30% domestic sourcing clause, which could result in higher foreign direct investment (FDI) inflows. This has been viewed by many luxury firms such as LVMH and Gucci as a stumbling block as they argue that it is difficult to source high-end goods locally. “How can luxury brands source 30% from India? It is simply not possible. Single-brand retail policy needs to be eased to allow foreign brands to invest in the country. We are working on that right now,” said a DIPP official. Such a move would also free up companies such as Apple to open wholly owned stores in India. More than Rs 300 crore has come into this segment from overseas in the last two years, generating jobs in a depressed economy. The previous government allowed 100% FDI in single-brand retail in 2011 with mandatory 30% sourcing from small and medium enterprises. However, in September 2012, the government tweaked the 30% mandatory sourcing norm for FDI in single-brand retail to accommodate Swedish furniture maker Ikea, changing it to something that was preferable rather than mandatory. However, there is still a lack of policy clarity for many companies, with their applications having got stuck at DIPP for months. The move to completely free up single-brand retail will ease entry for brands such as Swarovski, which have had applications rejected as they wanted to house both formats — cash and carry and single-brand retail — together. India allows 100% overseas investment in both, while restricting it to 51% in multi-brand retail with conditions attached. DIPP asked the companies to apply separately for both. Otherwise the 30% sourcing rule would apply for the cash and carry operations as well. “Most single brand retail companies that have applied have asked the government to do away with the 30% domestic sourcing requirement, saying this cannot be implemented. Even if they source domestically, there is no supervision. So after five years they could be prosecuted for non-compliance, which will create a difficult situation,” said Diljeet Titus of the law firm Titus and Co. He said luxury brands make a limited number of pieces, maybe 100 or 1,000, and change product lines often, which makes it impossible for them to comply with the domestic sourcing requirement. “In fact, a lot of Indian real estate companies, which would cater to single-brand players, have also requested the government to do away with this hurdle of 30% domestic sourcing to let more FDI flow in,” he added. The government is also considering a plan to allow single-brand retailers to bring in sub-brands or sell under different trademarks. The 30% sourcing condition has also been seen as impacting investments by technology companies such as Apple as any overseas company looking to own more than 51% of a single-brand retailing venture would have to comply with the norm. “This (removing the 30% sourcing norm) would be a positive move as companies have been slowly and steadily increasing single-brand presence in India, especially in apparel and footwear brands,” said Abhishek Malhotra, a partner with consulting firm Booz & Co. “This should make it possible for companies like Apple to open stores. We should see more such companies coming in. This was a hurdle for such companies and luxury retailers.”
Exports continue to grow at double-digit rate in June
Merchandise exports grew 10.22 per cent to $26.4 billion in June from $24.02 billion in the same month last year, driven by strong demand for engineering goods, readymade garments and petroleum products. This was even as the export number for June 2013 was revised upwards from $23.78 billion, thereby increasing the base. This was a second straight month of double-digit growth in exports, with the rate in May higher at 12.40 per cent, official data showed. After contracting for almost 13 months, imports grew 8.33 per cent to $38.24 billion in June from $35.3 billion in the same month last year. The figure for imports in June 2013 was revised from $36.03 billion. The June trade deficit widened to a 13-month high of $11.76 billion from $11.24 billion in May 2014. Exports during the April-June quarter stood at $80.11 billion, up 9.31 per cent from $73.28 billion in the corresponding period last year. However, imports during April-June 2014 contracted 6.92 per cent to $113.19 billion from $121.61
billion during the same period last year. In June, oil imports soared by 10.90 per cent to $13.34 billion, compared with $12.03 billion in the same month a year ago. Oil imports during April-June also grew by four per cent to $40.78 billion from $39.20 billion. Non-oil imports during the month were up seven per cent to $24.9 billion. Non-oil imports during April-June reached $72.41 billion, down 12.1 per cent from $82.40 billion in the same period last year. Gold imports were up 65.13 per cent to $3.12 billion in June from $1.88 billion in the same month last year, due to a partial easing of import restrictions and a lower base. According to credit rating agency CRISIL, since large private gold importers were allowed to resume purchases and nominated banks were permitted to offer gold loans to jewellery manufacturers from May, gold imports doubled in June from $1.7 billion in April 2014. Non-oil, non-gold imports, an indicator for domestic demand and industrial growth, rose 1.42 per cent to $21.78 billion in June. In May, these imports were up for the first time in 10 months, at a lower rate of 0.5 per cent. This shows industrial production is on its way to a slow recovery. According to experts, outbound shipments are slowly seeing a turnaround on account of an improved global economy, coupled with a low base effect. Exports in June 2013 contracted 4.5 per cent. Exports were driven by a 21.57 per cent rise in engineering goods, 38.37 per cent in petroleum products and 14.39 per cent in ready-made garments. “We are getting a good number of orders from the US. Our domestic manufacturing infrastructure is not able to support these,” said Anupam Shah, chairman of the Engineering Export Promotion Council. Aditi Nayar, an economist with rating agency Icra, said the double-digit growth of exports was not expected to continue as the base effect waned and also because of the relative stability in the exchange rate. She added an unfavourable monsoon would also impact farm exports. Improving global economies had kept export growth buoyant, the only silver lining as the trade deficit widened, said a note by Anand Rathi Research. The trade deficit rose just 6.66 per cent in April-June 2014 to $70.3 billion from $65.87 billion in the corresponding period of the previous year.
India’s e-tailing business to zoom as retail giants eye online stores
With Internet penetration growing by leaps and bounds, and tech-savvy consumers preferring to go online to shop for all things ranging from apparel, electronic items, books and beauty products to even homes, top Indian companies are looking to set up shop in cyberspace, bypassing shops, middlemen and the marketplace. A bevy of companies such as Reliance, Tata, ITC, Panasonic, Madura Group, Dabur, Godrej, Future Group and Bata, among others, are readying their own e-commerce Websites, as a dedicated e-tail portal offers the consumer the convenience of browsing and ordering products without
stepping outside her home — or even on the go. The strategy is likely to work, as Indian consumers have embraced the online shopping experience, and no longer finds a “touch and feel” experience necessary for shopping. Ankur Bisen, senior vice-president of Technopak Advisors, said e-tailing is fast emerging as a viable alternative for companies. “Almost all Indian businesses are looking at e-tailing with an intellectual curiosity for determining the role e-tailing can play in their growth.” “About 70-80% of home search happens online,” said A Harikesh, senior VP (marketing and sales) Tata Housing. “So we have tied up with banks like IDBI to facilitate sales of home online. A buyer can narrow down the apartment he wants to buy and pay an online booking amount of Rs. 25,000 to Rs. 50,000 using credit or debit card.” Atul Chand, chief executive of Lifestyle Retailing Division at ITC, said shoppers are increasingly cross-navigating between ‘click’ and ‘brick’ stores. “The Wills Lifestyle e-store was launched six months ago, and the objective is to double the revenue through this channel every year,” Chand said. Reliance Retail is expected to announce its e-tailing venture by October. “e-commerce combined with physical stores will offer tremendous choice and convenience to the consumer,” the company’s annual report said. “Panasonic will launch ‘Panasonic’s E-Store’. We will appoint a re-seller who would maintain the portal and distribution,” said Manish Sharma MD Panasonic India. India’s Internet user base is expected to touch 550 million by 2020, against about 243 million users at present.
Asian Development Bank projects 6.3% growth for India in 2015-16
Manila-based Asian Development Bank (ADB) has upgraded India’s economic growth forecast to 6.3 per cent in 2015-16 on hopes of speedy reform process. The multilateral funding agency, however, has retained forecast 5.5 per cent growth in India this year. “With Parliamentary elections over, India is expected to pursue long-delayed reform. India’s growth forecast is maintained at 5.5 per cent in fiscal year 2014-15 but upgraded to 6.3 per cent in FY 2015-16 as expected reform bears fruit,” it said in a release. Earlier, ADB had projected 6 per cent growth for India in the financial year. Pinning hopes on improved outlook for the largest economy (India) in South Asia, it said expansion in the sub-region is expected to reach 5.4 per cent in 2014 and pick up to 6.1 per cent in 2015. ADB said developing Asia remains on track toward steady growth in 2014 despite slower-than-expected growth in the United States in the first quarter. “Developing Asia as a region continues to perform well. The pace of the growth moderation in the People’s Republic of China is in line with our expectations while the stage is set for India to pursue reform that could unlock its growth potential,” said ADB Deputy Chief Economist Juzhong Zhuang. It said growth in China is moderating in line with earlier expectations and should achieve the forecast of 7.5 per cent in 2014 and 7.4 per cent in 2015. “East Asia as a whole is similarly paced to meet growth projections of 6.7 per cent in both 2014 and 2015.” On price situation, ADB said declining food prices and relatively stable oil prices are keeping developing Asia’s inflation in check at 3.5 per cent in 2014 and 3.7 per cent in 2015.
DISCLAIMER
This newsletter is compilation of news articles from various business-e-newspapers and in no way is an endorsement or reflection of Embassy of India, Berne views.
