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By holding Indian industry to a higher standard than its global peers, the DGTR is failing in its mandate
India is one of the largest consumption economies in the world. Add to that its billion plus citizens’ penchant for ‘value for money’ products. This potent combination has made the country a prime dumping ground for a wide variety of goods, especially from China, Taiwan and South Korea. Under the circumstances, it is only pertinent that India has strong anti-dumping defences in place to safeguard its growing economy in an era where protectionism is rearing its head globally.
But in reality, that is not the case. The Directorate General of Trade Remedies (DGTR), a Department within the Ministry of Commerce that looks at unfair trade practices by exporters from other countries, is inadequately staffed. On top of that, its decision-making, delayed in many instances, has been arbitrary.
Hurt by dumping
The outcome: Indian economy continues to be hurt by dumping of products from other countries. Those taking the brunt of the impact are not just the big corporations, who have the wherewithal to survive, but MSMEs who are shutting down unable to compete in the market.
Let us start with something as mundane as staffing. DGTR, according to the latest available information, has just seven costing officers and five investigating officers. They are currently investigating 38 cases of dumping. Even here the allocation of work is uneven with select costing and investigation officers handling over six to 12 cases each. This does not include investigations they do to prima facie determine whether a petition filed for anti-dumping duty (ADD) should be taken up. They cannot be more overworked.
Not surprising that it takes way too longer for Indian enterprises to get relief from dumping. In the US an anti-dumping investigation is initiated within weeks, interim duty imposed in three months and final duty is arrived at in six to nine months. In India it could take as much as 33 months from the time the petitioner realises that he is being hurt by dumping.
The actual investigation is completed mostly within the stipulated 18 months from initiation, but initiation itself takes about a year in many cases. The Finance Ministry then takes another three months to impose ADD.
Delays apart, DGTR’s ad hocism when it comes to applying norms is more worrisome. Its decisions, many a times, have gone way beyond what is stipulated by World Trade Organisation (WTO) rules. In its concern against fostering excessive protection, the DGTR is ending up distorting the playing field for the domestic industry instead of its mandate, which is to level it.
Take the case of interim duty. It is a given that once initial investigation reveals injury on account of dumping, an interim duty is levied for immediate relief which will then be replaced by the final duty after extensive investigation. In 2001, all the 33 cases taken up for investigation had interim duties levied. It was 13 out of 13 cases in 2009. But from then on imposition of interim relief began to decline. It was just three out of 22 cases in 2017 and in 2018 (up to June) none of the 13 cases taken up saw imposition of interim relief. Not imposing any interim relief at a time when final duty is invariably delayed is perplexing.
Sunset review
If at all an ADD is imposed, it is for a select period of, say, five years or so. Even after this period if dumping continues, the industry can at the end of five years apply for a sunset review. Globally, the norm is that if a sunset review is applied for, the ADD is extended for one year pending investigation.
In India, the norm has been modified and the industry has been asked to apply for sunset review nine months before the expiry of ADD so as allow time for the DGTR to investigate the case.
When compared to their peers across the world, the Indian players are deprived of protection for a year. This is critical because the DGTR, of late, has been rejecting almost every sunset review application. In 2013 and 2014, the percentage of duty extension post a sunset review was 100 per cent. In 2017 it was 0 per cent, and in 2018 only one of seven reviews was the duty extended.
This is because the DGTR is increasingly hesitant to extend ADD beyond 10 years on the grounds that this period is good enough for the industry to become competitive. But the industry players argue why the DGTR should hold them to higher standards when Brazil, the US, Canada and the EU have ADDs running for 20 years and more. Their stand is that as long as dumping continues ADDs need to be in place to protect the domestic industry.
The affected industry is also held to higher standard when it comes to the quantum of duty. Norms allow countries to levy ADD based on either the dumping margin or injury margin. India opts for lower of the two. What makes things worse is the way freight, cost of inputs or operating efficiencies is treated, which invariably deflates the injury margin. Then there is ‘public interest’. There have been instances where the DGTR has recommended ADD but the Finance Ministry has demurred on the ground that low-priced imports are good for the country.
It happened in the case of Penicillin G earlier and solar panels (safeguard duty has since been imposed), more recently. This unique Indian policy cannot be more myopic as what is in ‘public interest’ today will end up hurting the country in the long term.
Predatorily priced imports will eventually kill the domestic industry and make the country dependent on imports. Once that happens companies exporting the product to India will stop being charitable and jack up the prices.
These policies do give credence to entrepreneurs’ suspicion that the authorities still view them as profiteers and approach the issue with an anti-business, dirigisme mindset. It’s time to correct this.
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The Women workers employed in the city’s unorganised man-made fabric(MMF) sector may get the attention of the Central Government in the coming days. A-30 member parliamentary Committee on Empowerment of Women will be visiting the Diamond City on November 28 to examine the condition of women workers in Surat’s unorganised textile sector.
According to an estimate, out of the 14 lakh workers employed in the city’s textile, embroidery and jari industries, women workers account for about 15% workforce. Majority of the women workers are employed in the jari and hand-embroidery sector.
Most of the women workers are employed in embroidery loike Jardoshi work, butta and lose thread cuttinf jobs, saree stitching lace, pearl tikki and Sitara fixing to add value to the saris and dress materials, stitching in garmenting sector, preparing of soft toys, Pillows and other related products from textile scrap etc.,
The South Gujarat Productivity Council (SGPT), which will make a detailed presentation before the Parliamentary Committee Members, stated that the Women workers have been largely affected due to the ongoing recession in the textile sector. The impact of GST and the decreasing production has directly impacted the women workers in the unorganised textile sector. Apart from recession, the textile sector is facing major challenge in terms of changing trends in fashion and consumption of cotton based fabrics.
Moreover, the textile sector in South Gujarat is facing stiff competition from neighbouring Maharashtra due to highly subsidised electricity tariff rates. At, present, the solar subsidy is provided for eight looms shed, but there are an average of 24 looms in a single shed in the city that are unable to claim the subsidy.
Vice-president of SGPT, Asha Dave told TOI, “There is au urgent need for the Central Government to provide an exclusive women textile market in the city to boost the entrepreneurial skills for the women involved in the textile sector. Also, the government should formulate a special policy for the companies ready to give employment to more than 6o0 per cent Women.
Dave added, “This is first time that the Parliamentary committee of Loksabha is on visit to understand the condition of women working in the textile sector. We have prepared a detailed presentation and hope for proactive measures for the betterment of the women workers”.
While exports are not along the lines hoped for, base effects played a large role in the September numbers. But, the exchange rate, by itself, can do little
The main argument of proponents of non-intervention in foreign exchange markets in the face of a rapid depreciation of the rupee is that the currency acts as an equilibrating mechanism to shrink India’s current account deficit. The merchandise trade data for September 2018 was probably the first empirical test for the hypothesis. As a summary, if only a narrow one, the metric of the exchange rate—the USD-INR rate—fell from an average 67.0 during April-June to 68.7 in July, 69.6 in August to 72.3 in September. Although it is still early days yet—factoring in of lags in trade pricing contracts and transactions invoicing—evidence of trade elasticities responding to the depreciating currency should have begun to show up.
In the first sign of a response of India’s trade to the depreciated rupee (INR), the merchandise trade deficit narrowed sharply to $14 billion in September 2018, down from an average $17 billion over May-August. However, the $3.4 billion cut in the deficit was almost entirely due to lower imports, with exports barely creeping up by $100 million. The $3.3 billion lower imports was mainly to a drop in machinery and transport equipment ($1.3 billion), crude and petro products ($0.9 billion) and coal ($0.5 billion). There is some uncertainty about how much the lower industrial imports might be a sign of slowing demand, but domestic sales suggest that it might be a factor.
While exports in September contracted 2.2%, this might not be an accurate metric of a business response to the currency, being largely because of the base effect of the sharp spike in export growth in September 2017 that was probably the result of a one-time adjustment to pent up demand, post the frictions generated before and just after the transition to GST. This said, export by value remained at the $28 billion monthly level in September, about the same as the average $27.5 billion during the four previous months. In terms of the composition, the approximately $1 billion rise in petro products and gems and jewellery over August 2018 was offset by a drop in exports of engineering goods and textiles.
What stands out in a longer term perspective on contributors to the trade deficit is the sharp rise in the petro group deficit over the past 6-7 months, which had shrunk in September 2018. Indeed, there are now signs that demand for diesel, petrol, kerosene and other products has come off in response to the rise in outlet prices. The gold-related deficit, while lower than in FY18, has remained quite stable over the months in FY19.
As an aside, services trade (with data available till August) also does not seem to have responded much. Exports, imports and the surplus have remained rock steady at $16.5 billion, $10.5 billion and $6 billion per month, respectively, since December 2017.
Taking a more granular view on merchandise trade over the years, imports in FY18 (at $466 billion) had already crossed the FY14, FY15 levels of $450 billion, while exports at $ 303 billion were still short. Exports during April-September FY19 were 12% higher than the corresponding period last year, while imports were up 17%. While the growth rates are likely to converge over H2FY19, our projections for the full FY19 suggest that this gap will only increase, unless there is a sharp expansion of exports.
While it might be early days yet to take a call on the response of trade to the rupee, a look at trends in the accompanying graphic provides a perspective. The trends suggest that, over FY18 and FYtd19, import growth has been flat, but export growth seems to have trended marginally lower.
This, unfortunately, is in a global environment where trade had actually improved in value terms, although mostly due to higher prices, while volumes have crept slightly lower. This narrative is also corroborated by trends in shipping prices (the Baltic indices, where the trend of falling shipping rates over the past decade, even adjusted for excess shipping capacities) had reversed since September 2016. Global trade metrics, though only available till July 2018, indicate that emerging Asia trade volumes had risen 4.8% month on month; India’s trade value was down 3%.
Based on current readings of export dynamics (which might change), our current account deficit (CAD) estimate for FY19 still remains at 2.7% of GDP, with the expected deficit compression offset by a shrinking GDP (in USD terms). This is based on our assumption of average Brent crude in FY19 at $77/bbl (actual price in H1 was $74/bbl).
The Purchasing Managers Index (PMI) survey responses show a steady rise in export orders (and this is corroborated by channel checks), and the cost of financing receivables due to delays in credit of GST taxes are also now reported to have mitigated. However, studies by think tanks and our own research suggests that the exchange rate alone does very little of the heavy lifting of trade adjustment. The government and other authorities have already initiated measures, but more effective structural measures are needed as an ongoing process to increase India’s competitive efficiency.
Pakistani rulers should take cue from the way the leaders of emerging economies operate to push up their manufacturing sector.
They interact on a monthly basis with the leaders of associations and industrialists to listen to and resolve their immediate issues.
The tone was set by the president of South Korea in 1970s, who met the manufacturing sector representatives once a month to listen to their problems. The government and the manufacturers sorted out the issues and instructions were immediately issued to the bureaucracy to implement the decisions.
When the president met the manufacturers the following month, the progress on the previous month’s decisions was reviewed. If there was delay from the government side, the bureaucracy was severely reprimanded.
The monthly meeting was religiously held and presided by the president, who ultimately removed all bureaucratic red tape and improved government services to global level.
In recent years, Narendra Modi of India presides over a monthly meeting with industry leaders to remove minor irritants faced by the manufacturers from public servants. Despite excellent government policies, Indian economy was under pressure when Modi assumed power.
In view of the global recession at that time, he took measures to facilitate exporters that in turn promised higher exports. The businesses delivered, as the monthly meetings discussed both the things that government had to do and the update on the promises of the businessmen.
The monthly meetings are still on and the progress from every exporting sector has diversified Indian exports both in terms of sectors and destination.
In Bangladesh, the head of the textile exporters association sits in the prime minister’s secretariat. The prime minister is available to the textile head whenever needed.
This system remains operative irrespective of the fact who is in power in that country. All irritants to textile exporters are addressed on priority.
Bangladesh is perhaps the only country in the world where the growth in textile exports remained robust even during deep global recession.
In Pakistan, former Prime Minister Nawaz Shariff announced to meet leading businessmen once a month, but except for a meeting or two he remained unavailable to the businesses. Even his finance minister could not find time to listen to the grievances of exporters.
After PTI assumed power, it was expected that Prime Minister Imran Khan would proactively woe the manufacturers and hold regular monthly meetings with them.
Unfortunately, some elements in the ruling party assumed some businessmen to be pro PML-N or pro PPP. So they ruled them out for interaction at official level.
Instead, a set of 22 prominent businessmen were named in a panel that was to interact with the prime minister regularly. The handpicked businessmen (on political ground) are no doubt respectable in the business community, but they are not representatives of the industrial associations.
The industrial associations elect their representatives democratically, who then represent them on public forums and plead the case of their sector with the government.
The PTI government should have included heads of different industrial associations among the panel of businessmen that the prime minister intends to interact with periodically. The PM would be able to listen to the problems of each manufacturing sector.
He would also have realised that the problems of one sector were in conflict with the issues of the other sector. He could then have formed a committee of experts to formulate the policy that was in best national interest. The economy would then start moving in a cohesive manner.
It is strange that the manufacturing economy is not moving in the right direction, although the labour and other cost indicators reveal that the manufacturing cost in Pakistan is the lowest in the region after massive devaluation of Pakistani rupee.
The minimum wage for instance is $170/month in India, $240/month in China, $95/month in Bangladesh, $145/month in Vietnam and $120/month in Pakistan. The land cost or leasing cost per square meter in India is $80, it is $40-80 in China, $140 in Vietnam and $20-50 in Pakistan.
Industrial water cost per month is 46 cents in India, 45 cents in China, 30 cents in Bangladesh, 48 cents in Vietnam, and only 18 cents in Pakistan. Diesel rates or transportation rates are 105 cents/litre in India, 102 cents in China, 78 cents in Bangladesh, 80 cents in Vietnam, and 80 cents in Pakistan.
Exporters are facing significant shrinkage in their working capital under the new system which is restricting their ability to take in new orders, said a World Bank Report on Challenges of the Goods and Service Tax (GST) implementation in India.
The report suggested that reducing the cash flow burden on exporters and reducing cases of refunds would require immediate policy interventions.
A Goods and Services Tax in a federal structure by very nature is complex. The GST system in India tries to minimize the complexity by applying a common base and rate across the country. However, the multiple rate structure and an enforcement framework using onerous reporting requirements for businesses places a huge compliance burden on businesses especially SMEs and is having a negative impact on the economy, said the report.
It suggested that the government could reduce the compliance burden on SMEs by providing a longer transition period for them to be part of the full GST requirements.
The World Bank report, released last week, said that the economic impact of the new system will last for at least a few months until businesses can comply with the new system.
The additional cost of compliance and the higher tax compliance is likely to render some marginal businesses unviable which would have real economic impact on investment and jobs.
However, over time, the benefits of the implementation in the form of positive economic benefits such the removal of tax restrictions on free movement of goods across the country and higher tax collection will over time make up the temporary slowdown.
In the interim, the government would need to take additional measures to address these issues of potential slowdown to the economy and minimize any additional compliance burdens on businesses especially SMEs.
Highlighting the issues faced in GST implementation, the report elaborated that these include onerous requirements on businesses on collecting and reporting transaction-wise date onto the electronic portal for all businesses with turnover over 7.5 million rupees a year.
Issues also arise due to identification of the goods and services with a HSN code to arrive at the correct tax rate to apply.
Exporters who earlier had benefited from tax exemptions on their inputs are now required to pay taxes on inputs up front and claim their refunds after filing of tax returns. Exporters are required to also collect tax on exports as it were a domestic sale if they do not have a Letter of Undertaking or Bond.
This is putting pressure on the working capital of small exporters, said the World Bank report.
It said informal businesses are under severe pressure having to now pay taxes (and the additional cost of compliance) and marginal businesses are likely to close thus having a real economic impact which could spread down the value chain. Some of these issues such as classification and uploading of returns are transitory, however structural issues on multiple rates and treatment of exporters and marginal businesses will continue.
On Political Economy of the implementation of the GST, the report said the government had a limited window to implement the GST before the political cycle kicked in. This may have played into the hurried implementation without full preparation.
The government hoped that by the time the next elections campaigning begins at the end of 2018 the issues in the GST would have settled and the benefits of the implementation in the form of positive economic benefits such the removal of tax restrictions on trading and higher tax collection.
Highlighting the potential ways to address the issues faced by businesses on the implementation of the GST, the World Bank’s report suggested allowing longer period for filing of tax returns such as quarterly filing; supporting taxpayer assistance like the Tax Return Preparer Scheme for Income Tax; Introducing a GST suspension regime for small exporters; Allowing automatic refunds for certain categories of exporters using a risk based approach; Moving to fewer tax rates to address the issue of classification and refunds; Postponing the introduction of the e-way bill until the system stabilizes; and Clarifying to taxpayers the administration of the GST by the dual Central and State Tax Administrations.
The report pointed that prior to the GST, exporters did not pay VAT on their inputs that were imported. Under the new GST, exporters are required to pay GST taxes on all inputs including imported inputs and these taxes can be credited and as exports are zero rated the entire tax is refunded to the exporter.
However, and a refund will be available only if all the input taxes are deposited by the suppliers of these inputs. Further, under the new GST, exporters are required to also collect tax on exports as it were a domestic sale if they do not have a Letter of Undertaking or Bond.
On issues in uploading of tax returns, the report said tax returns are required to be filed every month requiring the need for additional accounting support. The additional cost on accountants especially for SMEs are non-trivial. There are reports that due to the paucity of qualified accountants available, the additional cost of accountant is on average Rs.10,000-15,000 (US$ 150-230) per month per SME.
On issue in refunds for exporters and others, the World Bank report said odeally refunds should arise mainly in the case of exporters and in the case of long gestation projects where items are delivered long after inputs were purchased.
However, refunds may also arise due to the design of the GST with multiple rates. If businesses are making sales at a lower rate but pay tax on inputs at a higher rate then refunds may result in the natural course of business.
Exporters have been badly hit by the requirement to pay tax on imports up front resulting in cash flow issues unlike in the past they have been benefiting from tax exemptions on their inputs. This has put a lot of pressure on their working capital requirements. Further, refunds are not yet being issued expeditiously as the system is designed to be risk averse to any fraud that may arise on refunds. Other transition issues include delays in providing formats for Letter of Undertaking and Bond for exporters to export without paying taxes on export sales.
According to Federation of Indian Export Organisation (FIEO), exporters have stopped taking orders with least or no working capital at their disposal due to blockage of funds under GST and uncertainties looming large on refunds for the months of July to October, 2017.
Suggesting ways to address the issue of Refunds to exporters, the report suggested that reducing the delays on issuing refunds could be done by providing them on a risk basis whereby refunds are provided automatically at the end of the return filing process in cases where the business has a good track record of compliance reserving additional scrutiny only for high risk cases where refunds are demanded.
In the medium to long term two additional steps could be contemplated to address this issue:
Allow suspension of VAT for exporters who source their inputs from exports. This reduces the burden on exporters as otherwise tax is paid to the treasury on imports only to reclaim it on exports. Such a system addresses their cash flow problems that the current system has created.
Move to a single rate of VAT which addresses multiple issues including refunds as well as difficulties in classification of sales under the various rates mentioned above.
Trade talks with the UK are scheduled next month that will give impetus to a free trade pact even as the Theresa May-government grapples with the complexities of Brexit that is being keenly watched by India Inc, which has a sizeable interest in the island nation.
“India and Britain are expected to hold unofficial talks on free trade agreement and discuss the issues that need to be incorporated and areas of sensitivity in the post Brexit trade relations next month,” a senior commerce ministry official said.
Commerce minister Suresh Prabhu is expected to hold discussions with UK Secretary of State for International Trade Liam Fox, who is due to visit the country in December.
Officials said the two leaders were expected to lay the broad contours of the trade talks during their discussions so that negotiators can take them forward.
About 800 Indian companies use Britain as a gateway for entry into the European Union and would be keen to continue their relations as Brexit unfolds.
Indian firms employ more than 1.1 lakh people in the UK and account for more than $68 billion in revenues. Roughly half of India’s investments to the European Union go to the UK and about three-fourths of that from London.
“India and the UK have always shared a close economic relation. It has been the second largest trade partner for India in the EU after Germany. It is in the interest of both countries to work towards intensifying the relations,” the official said.
UK’s official exit from the EU will take place in March 2019, but the old rules and regulations will continue till December 2020.
Trade between India and the UK stands at $24 billion a year, and analysts believe this can be easily ratcheted up to $30 billion by 2020, even without a trade pact. However, a formal deal can increase trade manifold.
India is keen on deals to ease the export of software as well as the movement of IT and healthcare professionals. New Delhi also wants a greater access for generic drugs and pharma firms.
India’s textile and garment sectors are also extremely keen on a trade pact. They are the country’s biggest forex earners after software and gems and jewellery.
India has been getting a raw deal in garments over its main competitors — Bangladesh, Cambodia, Vietnam and Pakistan — which have the advantage of either preferential agreements or quotas. Indian export of garments to Europe on the other hand attracts a 9.6 per cent duty, making such products uncompetitive.
The state industries department and the Maharashtra Industrial Development Corporation (MIDC) will soon jointly launch an outreach project to hold interaction with the with the consul generals of 10 countries, overseas and Indian trade bodies, government agencies and companies. The outreach is aimed at reaching out to those who have already carried out investments in the state to understand their experience and seek suggestions to improve ease of doing business. MIDC in the first phase has shortlisted US, Japan, China, UK, Russia, Germany, France, South Korea, Sweden and Singapore. The state undertaking hopes to start interactive sessions from the first week of December which will go on til February next year.
MIDC CEO P Anbalagan told DNA,” Maharashtra is the favoured investment destination. In order to further increase the FDI inflow, the state industries department and MIDC will reach out to the overseas firms to understand their issues, bottlenecks faced by them in carrying out investments and trouble shoot them. MIDC will clear those plans through single window system in a fixed time frame.”
He further informed that Maharashtra already accounts for 48% of the FDI as on date. This is largely due to several initiatives taken by the government for Ease of Doing Business (EoDB), investor friendly policies, quality infrastructure and skilled manpower. He said that MIDC has already started contacting consulates of 10 countries and investors to line up meetings. ”Confederation of Indian Industry and Federation of Indian Chambers of Commerce and Industry will be roped in to facilitate joint venture by overseas companies with Indian partners,” he added.
Another MIDC officer said that the state’s industrial base comprises pharmaceuticals, petrochemicals, heavy chemicals, electronics, automobiles, engineering, food processing and plastics. Based on national and international trends in demand and also based on state’s own resources, the state has identified auto, engineering, electronics, textile and defence as main focus sectors.
India will furnish a rebuttal at the World Trade Organization (WTO) against allegations that it underreported the subsidy amount paid to cotton growers as part of the Minimum Support Price (MSP) programme. Last week, Washington DC told the WTO that India has given subsidies ranging between 53 per cent and 81 per cent of the value of production from 2010-11 to 2016-17, much higher than the 10 per cent limit allowed by the multilateral body. However, rather than calculating product subsidies provided by India in US dollar, the US government has furnished figures for India in rupee.
EU hints at negotiating balanced, ambitious and mutually beneficial agreements on trade, investment
The European Union (EU) may be looking at reworking the proposed free trade pact with India —called the Broad Based Bilateral Trade and Investment Agreement (BTIA)—in a post-Brexit scenario, negotiations for which have dragged on for 11 years with little progress.
In a strategy paper for India released on Tuesday, the EU did not mention BTIA, but sought to negotiate a “balanced, ambitious and mutually beneficial” free trade agreement (FTA) with sufficient level of ambition to respond to each side’s key interests in trade and investment.
“In particular, the EU will continue to engage with India to ensure that such an agreement will be economically meaningful, delivering real new market openings in all sectors to both sides, and contain a solid rules-based component,” it said in the paper released on Tuesday by the EU’s ambassador to India Tomasz Kozlowski.
The EU, however, is adamant on having a comprehensive trade and sustainable development chapter, notably in order to deal with social and environmental impacts.
Negotiations on the India-EU FTA started back in 2007 and 16 rounds have been held since then —the last in 2013, before negotiations were suspended. Both sides have explored restarting negotiations after the Bharatiya Janata Party-led government assumed power in May 2014, but uncertainties over Brexit and inflexibility on both sides have prevented a formal resumption.
The EU in its strategy paper said it wants the investment deal to be negotiated along with the trade agreement including a contentious dispute settlement mechanism which India is reluctant to sign it as it allows private foreign investors to sue the local government for unanticipated policy changes. “Ensuring a high level of investment protection in order to remain an attractive destination for new investments is also a key dimension of the EU-India partnership,”it said.
After India unilaterally terminated its current bilateral investment treaties last year with 57 countries, including with EU member countries, to negotiate fresh deals based on a new model, the EU had raised strong objection.
India brought out a new model BIT in December 2015, intending to replace its existing BITs and future investment treaties, after being dragged into international arbitration by foreign investors who sued for discrimination, citing commitments made by India to other countries in bilateral treaties.
The EU also expressed discomfort with India’s reluctance to “open up to imports” and its strong reliance on exports and inward investment. “The EU will continue to encourage India to open up its economy to strengthen its international competitiveness, benefit from a better integration into global value chains, and increase its share in global trade, to bring it more in line with its growing share of global GDP,” it added.
The EU also sought India’s constructive engagement in addressing global trade challenges in the World Trade Organization (WTO) to fight protectionism. “While the multilateral trading system has been instrumental in integrating the global economy and helping to prevent protectionism, it is confronted with a serious crisis. The EU wants to work with India to develop a common understanding on the issues to be addressed in the WTO and its modernization and to advance rulemaking on fundamental global trade issues,” the strategy paper added. The EU also proposed to establish a regular ministerial high-level dialogue to strengthen engagement with India at a strategic level and to identify shared interests on economic, trade and investment issues.
India had expressed reluctance to agree to a similar proposal by EU made earlier, holding that the existing mechanism is sufficient to address contentious issues on both sides. The EU is India’s largest trading partner accounting for 14% of its total trade in goods in 2017, while India is the EU’s 9th largest trading partner.
The survey of 1,500 MSME owners with annual business revenue between Rs 3 lakh and Rs 75 crore pointed out key challenges for the sector, which has numbers about 60 million.
With more and more micro, small and medium enterprises (MSMEs) in India adopting new technologies to grow their businesses, there is a golden opportunity for the sector as it may get as much as Rs 6-7 lakh crore annually from digital lenders alone by 2023, according to a new report.
The report titled “Credit Disrupted: Digital MSME Lending in India”, by impact investment firm Omidyar Network and the Boston Consulting Group, surveyed 1,500 MSME owners with annual business revenue between Rs 3 lakh and Rs 75 crore also pointed out key challenges for the sector. There are about 6 crore small business units (MSMEs) in India, and lack of formal credit is one of the major hurdles for them.
MSMEs are considered as the backbone of the Indian economy, given their contribution of about 30% of the gross domestic product and 49% of the country’s exports. MSMEs also make an enormous contribution to employment in the country as they the second largest employers, after agriculture.
Still, MSMEs contribution to the GDP of India is as much as 10% lower than in the US and 23% than in China. Unavailability of access to formal credit sources is one of the primary reasons for this gap. Therefore, about 40% of the Indian MSMEs borrow from informal sources and end up paying an interest rate that averages 2.5 times higher than the ranges charged in the formal sector.
The report, however, showed that more than 40% MSMEs in the country are now more receptive to digital lending, primarily after the introduction of goods and service tax (GST) as about 9.2 million MSMEs are now GST registered, an increase of 50% from the previous tax regime. Also, factors such as the launch of the unified payments interface (UPI) and the decline in mobile data and mobile phones cost as there is a 100% increase in MSME mobile phone adoption have led to a significant number of MSMEs to digitise their businesses.
“Easier and cheaper credit through digital lending has the potential to trigger a virtuous cycle for formalization: up to 85 per cent of MSMEs could be formal by 2023,” said Saurabh Tripathi, senior partner and director and Asia-Pacific leader, Financial Institutions Practice at BCG.
According to the survey, approximately 50% of MSMEs in the country are expected to use WhatsApp payments once it is fully rolled out. It may be noted that WhatsApp Pay was rolled out in the beta stage earlier this year.
Established in 2004 by Pierre Omidyar, the founder of eBay and his wife Pam, Omidyar Network has committed over $1.3 billion to for-profit and non-profit organizations that are engaged in initiatives like financial inclusion, education, digital identity and emerging tech.
