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The trade deficit in June 2018 is the highest since November 2014 when the gap was USD 16.86 billion. The deficit in June 2017 stood at USD 12.96 billion.
The country’s trade deficit widened to its highest level in more than five years in June, driven largely by a surge in oil prices and a weaker rupee, according to official figures released on Friday. Though merchandise exports rose 17.57 per cent year-on-year in June, the trade deficit widened to $16.6 billion from $14.62 billion in May.
Oil imports rose by a staggering 56.61 per cent to $12.73 billion. India’s oil import bill, the world’s third biggest crude importer, rose sharply with global oil prices amid concerns that US sanctions against Iran would remove a substantial volume of crude oil from the world markets.
Oil imports during April- June 2018-19 were valued at USD 34.64 billion which was 49.44 per cent higher as compared to the same period last year. Overall goods imports rose by 21.31 per cent to USD 44.3 billion during the month, according to the data released by the commerce ministry.
Gold imports in June dipped by about 3 per cent to USD 2.38 billion The trade deficit in June 2018 is the highest since November 2014 when the gap was USD 16.86 billion. The deficit in June 2017 stood at USD 12.96 billion.
During April-June this fiscal, exports rose by 14.21 per cent to USD 82.47 billion. Exports of petroleum products, chemicals, pharmaceuticals, gems and jewellery, and engineering goods registered a positive growth.
However, shipments of textiles, leather, marine products, poultry, cashew, rice and coffee recorded negative growth. Federation of Indian Export Organisations president Ganesh Gupta expressed concern over rising trade deficit.
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Multi-pronged trade wars have begun with the US administration announcing 25 per cent and 20 per cent tariffs on all steel and aluminium imports, respectively, followed by imposition of counter-tariffs by the European Union (EU), China and Canada on some US products. If these trade wars persist, it would necessitate a rework on sourcing and production strategies for textile and apparel companies in these countries, writes Rajesh Kumar Shah
Believe it or not, ‘trade war’ has become a common term this year. Unlike the usual military confrontation, trade wars are fought by taking measures to decrease the extent of trade with rival countries. However, trade wars have not appeared all of a sudden. The pitch for these was ready in 2016 during the electoral campaign by Republican presidential candidate Donald Trump.
The withdrawal of the United States from the 12-nation Trans-Pacific Partnership (TPP) within days of President Trump’s inauguration on January 20, 2017, made it amply clear that the president would do what he has been uttering. President Trump felt that by being a signatory to the TPP, the United States is giving away lot of trade advantages to other 11 countries, while it is not getting benefit to the same extent in return.
Why trade wars
In 2017, the total US trade deficit was $566 billion. President Trump wants to reduce this deficit as it is detrimental to the US economy — the largest in terms of nominal gross domestic product (GDP). The second argument is that prolonged trade deficit reduces competitiveness of the US economy, leading to decline in expertise and competitiveness of the US companies, and thereby loss of jobs and decline in standard of living of its citizens.
The United States, given its political, military and economic clout, would not like to lose its status as the leading global economy to China, which is the world’s largest economy by purchasing power parity, according to the International Monetary Fund (IMF). Interestingly, China accounts for 66 per cent of the total US trade deficit in goods.
Gradual escalation
To reduce the trade deficit, President Trump started taking steps one by one. He announced reworking of the North Atlantic Free Trade Agreement (NAFTA) with Canada and Mexico. Then, he imposed tariffs and quotas on imported solar panels and washing machines. In March this year, he announced that he would impose a 25 per cent tariff on steel imports and 10 per cent tariff on aluminium, which eventually came into effect from May 31.
President Trump’s so-called ‘protectionist’ measures would primarily affect its main trading partners—China, Canada and Mexico. In terms of products, consumer products, including clothing, account for more than $400 billion of the deficit. Automobiles and parts come next with a deficit of over $200 billion. But higher tariffs may not be necessarily imposed on these two product categories.
US textile-apparel trade
The US textile and apparel trade is heavily one-sided with Chinese goods constituting around 36 per cent of all US textile and clothing imports, according to the Office of Textiles and Apparel (OTEXA), under the US department of commerce. But, when it comes to the raw material — cotton — it is the other way.
With $12 billion of textile and apparel exports, Vietnam is the second largest supplier accounting for more than 11.5 per cent of all textile and clothing imports made by the United States in 2017. India, Bangladesh and Mexico are the next three largest suppliers of textiles and garments with around 7 per cent, 5 per cent and 4.5 per cent share respectively.
While China is by far the leading supplier of textiles and clothing, surprisingly, US tariffs are higher on clothing imports from many other Asian countries compared to China. Garments from countries like Bangladesh, Cambodia, Sri Lanka, Pakistan and Vietnam attract higher duty in the United States compared to those from China, according to a recent study by US fact tank Pew Research Centre that analysed data from the US International Trade Commission (ITC).
Mexico, Canada, Japan, Germany and South Korea enjoy much lower US tariffs than China, the study said. Canada has 1.25 per cent share in US textile and apparel imports, according to OTEXA, whereas Japan, Germany and South Korea have less than 1 per cent share. Initially, the United States did not include textile and apparel products in the list of imports on which it has raised tariffs. But, the latest list of goods on which it wants to impose 10 per cent tariffs under Section 301 on imports from China includes all textile raw materials, yarn and fabric. Hence, tariffs on finished textiles and apparel at a future date cannot be ruled out.
EU retaliation
As a retaliatory measure to the imposition of tariffs by the Trump administration, Europe has gone ahead and implemented a 25 per cent additional duty beginning June 22, 2018, on several American items, including t-shirts, singlets and other vests; shorts, trousers and breeches of cotton denim; synthetic fibres, industrial and occupational; and bedlinen of cotton. EU commissioner for trade Cecilia Malmström termed the US step as “unilateral and unjustified decision”. She said that the rules of international trade which were developed over the years cannot be violated without a reaction from the EU. “Our response is measured, proportionate and fully in line with WTO rules. Needless to say, if the US removes its tariffs, our measures will also be removed.”
Quick response from China
Subsequent to imposition of tariffs on steel and aluminium products, US President Donald Trump on June 15 announced tariffs of 25 per cent on $50 billion worth imports from China that contain industrially significant technologies. This includes goods related to China’s ‘Made in China 2025’ strategic plan to dominate the emerging high-technology industries that in Tump’s words, “boost China’s growth, but hurt the United States”.
The United States began collecting duties on 818 Chinese imports valued at $34 billion on July 6.
Ignoring Trump’s warning of additional tariffs if China engages in retaliatory measures, China’s response was immediate with imposition of ‘equal’ tariffs on US products. “We will immediately launch tax measures of equal scale and equal strength,” the Chinese commerce ministry said in a statement. The statement urged other countries to ‘take collective action’ against what it termed as ‘outdated and backwards behaviour’ of the United States.
Countermeasures by Canada
Canada imposed countermeasures (surtaxes) against C$16.6 billion in imports of steel, aluminium and other products from the United States beginning July 1. As per the full list of retaliatory tariffs released by Canada’s department of finance, targeted consumer products include pillows, cushions and similar furnishings of cotton; quilts, eiderdowns, comforters and similar articles of textile material containing less than 85 per cent by weight of silk or silk waste; other bedding and similar articles.
Canadian countermeasures will remain in place until the United States eliminates trade-restrictive measures against Canadian steel and aluminium products, the department of finance said on its website.
India’s steady reaction
Unlike the EU and China, which were quick to retaliate, India took time to respond to imposition of US tariffs on steel and aluminium. It submitted a (revised) list of 30 items to the World Trade Organisation (WTO) on which it proposes to raise customs duties by up to 50 per cent. The duty hike by India would have an equivalent tariff implication for the United States, and would be effective from August 4, 2018, the finance ministry said in a notification. In fiscal 2016-17, India’s exports to the United States totalled $42.21 billion, whereas it imported goods valued at $22.30 billion, thus creating a trade deficit of $19.91 billion for the latter.
Advantage US?
For the Americans, the outcome of the trade wars would largely depend on two factors—the duration of the trade wars and how entrepreneurs turn the situation to their advantage. As cost of imported goods go up, American products would benefit from comparative price advantage. Cotton, the main raw material for textiles, is locally available in plenty and it is up to the entrepreneurs to make good of it by venturing into production of ‘Made in USA’ garments for the domestic market. The longer the duration, greater would be the scope for US companies to set up textile/apparel manufacturing units, serve the US market and create new employment opportunities in the process.
Meanwhile, US consumers might end up paying higher price for imported items.
Action-time for China?
For Chinese textile entrepreneurs, it is time for action. First, a prolonged trade war would mean US cotton would become costlier, requiring a change in raw material sourcing strategy. Chinese mills would be forced to increase imports from other cotton exporting countries like India, Brazil, Australia and Uzbekistan.
Second, entrepreneurs would have to accelerate the process of setting up manufacturing units in other countries like Vietnam and Ethiopia. Once this is done, higher tariffs on Chinese products would not affect exports of goods made by Chinese companies to the United States, unless these countries also get embroiled in trade wars with the United States by that time. However, this would lead to loss of jobs in China.
Strategy change by EU and Canada
Both the EU and Canada have already started collecting higher tariff on some US-made clothing items. This may lead to slight switch in sourcing of ready-to-wear apparel from the United States in favour of other countries.
Limited option for India
There is limited option for India as the United States continues to remain the largest market for its textiles and apparel. It would be beneficial for both the government and entrepreneurs to make all efforts to widen India’s export market and reduce dependence on the United States. The earlier it is done, the better. But the task is not a cake-walk and might take years to yield desired results.
Punjab Industries and Commerce Minister Sunder Sham Arora on Friday said that the State would soon have the best industrial policy amongst all States of the country which would act as a magnet for industrialists not only from other states, but also from round the globe.
Arora said that the State Government is committed for the welfare of industrialists and that is why, the industrial policy was being prepared in consultation with all stakeholders.
The Minister, who was the chief guest at the Punjab Apparel and Textiles Conclave organized by the State Government in partnership with the Confederation of Indian Industry (CII) as institutional partner, Northern India Institute of Fashion Technology (NIIFT), Mohali, as academic partner and Wazir Advisors as knowledge partner, said that the new industrial policy will emphasize mainly on small and medium industry and would be ready in next eight to 10 days.
Arora exhorted the entrepreneurs to come forward and invest in textile sector and promised that all facilitation and incentives will be given to them by the State Government as per the new Industrial Policy.
The Department would conduct a number of such conclaves of all important sectors of the industry, identified in the policy, he said adding that the next conclave on the Logistics Sector would be held on August 3 at Ludhiana.
“The objective of this Conclave is to understand the dynamics of textile value chain from fibre to apparel so as to identify the gaps in the value chain which would initiate necessary government interventions to fill these gaps,” he said.
The Minister stated that ever since the Congress came to power in Punjab, different industrialists have invested more than Rs 9,300 crore in the state. “No industrialists are shifting their base to other states now and this could be known from the fact that 55 industrial units, that were shut down in Mandi Gobindgarh a few years back, are now operational. Besides, the state government has also given employment to 1.61 lakh unemployed youth under its Ghar Ghar Rozgar scheme,” he added.
At the same time, The Minister urged the industrialists to follow all set norms and assured that they would not be harassed unnecessarily by officials from any government department if they have fulfilled them. He added that VAT refund would be issued to all parties by December 2018.
Arora announced that a new focal point would be coming up in Ludhiana soon as the Department is already looking for land, besides a private Textile Park is also coming up in Ludhiana. He also announced that once cleared by the Cabinet, the medium units with high load would also get electricity at Rs 5 five per unit.
China, the world’s largest importer of cotton, has been eyeing Myanmar-produced cotton with much greater interest in the wake of its trade war with the US, local cotton growers have told The Myanmar Times.
China has imported cotton from the US for the past 10 years. Last month though, US President Donald Trump imposed $50 billion worth of tariffs on Chinese imports, which includes agriculture. That sparked the ongoing trade war between the two countries, with China retaliating by slapping tariffs on agriculture imports from the US.
Now, China is interested in importing Myanmar cotton, said U Aung Myint, secretary of the Cotton Product Merchant and Manufacturers Association. “Despite being able to also import cotton from India as an alternative to the US, China has offered to buy from Myanmar instead because we do not charge import duties on cotton yet,” he said.
Limited supply
China’s demand for cotton could drive local prices higher than their current levels though. Currently, cotton prices are around K3500-K4000 per viss, which is almost triple the value compared to four years ago due to rising Chinese demand and falling production.
“This year’s pre-monsoon cotton yield is much lower than last year because there are fewer growers. In Myanmar, cotton is grown only in Myitthar and Yamethin townships in Mandalay,|” said U Aung Myint.
On the flipside, rising cotton prices could encourage more growers to return to the industry. “With higher prices for cotton, we would expect more farmers to start growing cotton later this year. Currently, as the price of mung beans, which is a rival crop for cotton, is also good, farmers are planting mung beans instead,” he said.
It may not be smooth sailing for cotton growers who do return to the industry though. The Myanmar cotton industry is already facing constraints due a surge in demand over the past years. Cotton plant cultivators also say they are constantly facing difficulties in obtaining seeds and face challenges due to scarcity of labour.
Cotton is planted twice a year in February and July, with both seasons lasting four months each. The harvest from both seasons is distributed equally between the local and Chinese markets.
Myanmar exported around 4,300 tonnes of cotton to China worth $9.5 million in 2016-17 compared to just 1.6 tonnes worth $3.5 million in 2013-14, according to the government.
Cotton is included in the National Export Strategy and the textile fibre and fabrics industry is included the priority sector for exports.
The exports of ready made garments increased by 13 percent during the first eleven months of the fiscal year 2017-18 against the imports of the corresponding period of previous year.
ISLAMABAD, (Pakistan Point News – 13th Jul, 2018 ) :The exports of ready made garments increased by 13 percent during the first eleven months of the fiscal year 2017-18 against the imports of the corresponding period of previous year.
The country exported readymade garments worth $2345.877 million during July-May (2017-18) against the exports of $2075.989 million in July-May (2016-17), showing growth of 13 percent, according to the data of pakistan Bureau of Statistics (PBS).
The overall textile exports from the country during the period under review increased by 9.82 percent by going up from $11232.954 million previous year to $12336.138 billion during July-May (2017-18), Radio Pakistan reported.
Meanwhile, on year-on-year basis, the exports of readymade garments from the country increased by 24 percent during May 2018 against the exports of the same month of last year.
The exports of ready-made garments during May2018 were recorded at $223.375 millionagainst the exports of $180.156 million in May 2017.On month-on-month basis, the exportsof ready-made garments however decreased by 9.33 percent in May 2018 when compared to the exports of $203.584 million in April 2017, the PBS data revealed.
States have budgeted a gross fiscal deficit (GFD) of 2.6% of gross domestic product (GDP) during FY19, with 11 states budgeting above 3%, RBI said
Pay revisions, interest payments and farm loan waivers are stressing state government finances yet again, the Reserve Bank of India (RBI) said in a report.
States have budgeted a gross fiscal deficit (GFD) of 2.6% of gross domestic product (GDP) during FY19, with 11 states budgeting above 3%, RBI said in its annual report titled State Finances: A Study of Budgets. The revised estimate for GFD-GDP for FY18 stood at 3.1%.
For FY19, states have projected a revenue surplus of 0.2% of GDP against a deficit of 0.4% as per the revised estimates of FY18. Total debt waivers were budgeted at 0.2% of GDP during FY19 compared with 0.32% of GDP in FY18 as per revised estimates.
“With states continuing announcements and roll-out of farm loan waivers, the budgeted GFD could be at risk, and the additional borrowing requirement could produce a concomitant impact on the already elevated borrowing yields,” said the report.
The central bank also said fiscal risks are likely in 10 states going for elections during this year.
A possible fiscal slippage could result in higher market borrowing.
According to the report, the share of market borrowing by states in financing gross fiscal deficit is projected to increase to 91% during FY19 from 74.9% in FY18.
“Given debt sustainability concerns associated with rising market borrowings, improved efficiency of expenditures and fiscal marksmanship may be necessary to sustain growth while maintaining fiscal prudence.”
Of the total gross fiscal deficit slippage of 35 basis points (bps) in FY18, an impact of 27 bps was felt on account of the revenue shortfall due to the implementation of the goods and services tax (GST).
“The decline in states’ tax revenues is essentially associated with the pending accounting issues related to GST implementation,” the report said.
However, RBI executive director Michael Patra, in his foreword, said that as GST stabilizes, it should boost states’ revenue capacity and support fiscal consolidation.
Farm loan waivers contributed to one-third of the overall slippage worries, with a 0.05% slippage of the overall 0.13% on revenue expenditure, the report added.
Fiscal 2018 is the third consecutive year, wherein states have failed to meet their gross fiscal deficit (GFD) target, the central bank said, adding that this comes despite expectations of an improvement on higher devolution from the centre.
MUMBAI Higher expenditure on salaries and farm loan waivers, coupled with a revenue shortfall on GST implementation, led to a slippage of 0.35 per cent in states’ fiscal targets to 3.1 per cent in 2017-18, the RBI said today.
This is the third consecutive year where the states have failed to meet their gross fiscal deficit (GFD) target, the central bank said, adding this comes despite expectations of an improvement on higher devolution from the Centre.
For FY19, states are hoping for a 0.2 per cent revenue surplus as against a revenue deficit of 0.4 per cent as per the revised estimates, which will lead to an overall GFD of 2.6 per cent, against 3.1 per cent in FY18, it said.
At a country-wide level, farm loan waivers alone contributed to a third of the overall slippage worries, with a 0.05 per cent slippage of the overall 0.13 per cent on revenue expenditure, the RBI said in its study on state finances based on state budgets.
The apex bank reiterated its concerns on the “moral hazard” farm loan waivers, saying their track record for improving productivity is “unproven”.
Moreover, studies suggest that the debt waivers have also led to a shift to informal sources of finance, it said, adding that they also possess a risk to inflation.
Starting with Andhra Pradesh and Telangana in 2014, a slew of states including Tamil Nadu, Maharashtra, Uttar Pradesh, Punjab and now Karnataka have announced the sops.
In FY18, farm loan waivers touched 0.32 per cent of the GDP as against budget estimates of 0.27 per cent, it said, adding that more such moves are pending for the fiscals ahead.
States which have announced the waivers have also reported a decline in capital expenditure, it said, adding development has also been a casualty because of it.
“They (waivers) impact credit discipline, vitiate credit culture and dis-incentivise borrowers to repay loans, thus engendering moral hazard,” the study said.
Hikes in salaries, mainly as a higher proportion of states implement proposals in line with the seventh pay panel, resulted in 0.09 per cent slippage on the revenue expenditure.
There was a 0.27 per cent impact in the GFD on account of the revenue shortfall, and the study attributed the same to implementation of the goods and services tax (GST).
The decline in states’ tax revenues is essentially associated with the pending accounting issues related to GST implementation,” it said.
However, in his foreword, RBI’s executive director Michael Patra said that as the GST stabilises, it should boost states’ revenue capacity and support fiscal consolidation.
He, however, asked states to be more cognizant on the expenditure management in the future as “visible fiscal pressures” are emerging for several states on pay revisions, interest payments and farm loan waivers
“Given debt sustainability concerns associated with rising market borrowings, improved efficiency of expenditures and fiscal marksmanship may be necessary to sustain growth while maintaining fiscal prudence,” he said.
Ruling out a single rate Goods and Services Tax (GST), Chief Economic Advisor Arvind Subramanian on Wednesday pitched for a three-rate structure going forward as revenues stabilise.
He said GST is a “work in progress” and there is a need for further simplification of rates with fewer exemptions and simpler policies.
“In India, we can never have one rate. I had recommended a standard rate and one for demerit good, one for a low rate. I think, in India, the debate should be about ‘why can’t we have three’, rather than ‘why not one’,” Subramanian said at an NCAER event here.
Under the GST regime, there are four rates — 5 percent, 12 percent, 18 percent and 28 percent. Luxury and demerit goods are subject to cess on top of the highest slab.
The single rate GST structure was advocated by Congress President Rahul Gandhi.
Subramanian said since GST is a regressive tax, it won’t be “fair” to have a single rate structure unless there are instruments to protect the poor who get hurt by rising costs.
“…I think over time we will see simplification. For example, once the revenue stabilises, 28 percent can (be rationalised)…. but the broader point I want to make is that why can’t we have three (tax slabs). That’s what we should ask for,” said Subramanian.
Union Minister Arun Jaitley too had dismissed the idea of a single rate GST as “flawed” saying that it can only work in a country where the entire population has ‘similar and high’ capacity to spend.
Subramanian said that GST implementation “has not been too bad” in the first year of difficult implementation.
“My own view is the more you rely on a carrot, and less you rely on sticks, you facilitate formalisation of the economy. That’s what I like about GST. It is not heavy-handed. Its a kind of self-policing,” he said.
GST, which subsumed over a dozen local taxes, was rolled out on 1 July 2017.
The CEA headed panel had in its report way back in 2015 had recommended a range for revenue-neutral rate (RNR) of 15-15.5 percent for the proposed GST, with a preference for the lower one.
It also suggested a range of standard’ tax rate of 17-18 percent for the bulk of goods and services, while recommending 12 percent for low rate goods’ and 40 percent for demerit goods like the luxury car, aerated beverages, pan masala, and tobacco. For precious metal, it recommended a range of 2-6 percent.
Besides, Subramanian also said that India needs an independent fiscal council which brings out independent views on how government does accounting for public finances.
“One of the things we all were unanimously in favour of was a fiscal council. I think we need to get more independent people doing this (government accounting) with better access to data…People should have trust that everything is properly accounted for, he said.
India needs to stand firmly against Donald Trump’s US trade policy by making wise and sensible alliances
India needs to tread carefully without losing sight of its core trade-related priorities. Given the dark protectionist clouds arising from the trade war, India faces several challenges in agriculture, industrial goods, and services. Its main adversary in global farm trade remains the US which has repeatedly undermined New Delhi’s developmental initiatives for reforming rules governing global farm trade.
Washington has repeatedly blocked multilateral instruments such as the special safeguard mechanism and the permanent solution for public stockholding programmes for food security. Recently, the US, at the behest of its powerful farm trade lobbies, alleged that India’s farm support programmes for rice and wheat breached its World Trade Organization commitments.
Consequently, India needs to build a strong alliance with China and other developing countries facing similar threats to their agriculture from the fat-cat farmers in the US.
Besides, Indian farm exporters can export soybean and dairy products among others out of opportunities arising from the trade war.
As for industrial goods, India faces a rough trading environment for exports of textiles and clothing goods, steel and aluminium, and generic drugs among others. The US is insisting that India must provide reciprocal market access in return for realizing the generalized system of preferences (GSP) which under the multilateral rules is a non-reciprocal programme.
The US wants substantial market access for dairy products and medical devices.
Such egregious demands from the US will impinge adversely on the millions of small dairy producers and result in exorbitant prices for medical devices which India’s disease-burdened population can hardly afford. In services, where India has a clear comparative advantage, Trump’s America First trade policies have led to numerous barriers for short-term services providers, particularly India’s vast IT professionals.
Therefore, India needs to stand firmly against Trumpian trade policies by making wise and sensible alliances with countries based on its core trade interests. For a country like India, there are no real friends, nor enemies, in global trade.
The biggest folly that the Modi government must avoid at all costs is to enter into a free trade agreement with its principal trade adversary given the historical record of extortionist demands and unmet promises.
Iran is the third-biggest oil supplier to India and has offered refiners incentives including almost-free shipping and an enhanced credit period on oil sales
Iran will do its best to ensure security of oil supply to India by offering “flexible measures” to boost bilateral trade, a statement from Tehran’s embassy in New Delhi said.
Iran is the third-biggest oil supplier to India and has offered refiners incentives including almost-free shipping and an enhanced credit period on oil sales.
Imports from Iran could take a hit as the United States reintroduces sanctions on Tehran after withdrawing from a nuclear deal with world powers.
India, Iran’s top oil client after China, asked refiners last month to prepare for drastic reductions or even zero Iranian oil imports.
“Iran understands the difficulties of India in dealing with (an) unstable energy market and it has done and will do its best to ensure security of oil supply to India,” the statement said.
India’s oil imports from Iran fell about 16 percent in June compared to May, tanker arrival data showed.
“Iran has always been a reliable energy partner for India and others, seeking a balanced oil market and regional prices of oil which ensure the interest of both countries as consumer and supplier,” the statement said.
India was one of the few countries that continued to deal with Iran during previous sanctions although it had to cut imports from Tehran as banking, insurance and shipping channels were choked.
