After a year of disruptions in the Indian economy following the cash purge and the Goods and Services Tax, the ‘Voice of Asia’ report of Deloitte predicted on 13 March, Tuesday, a faster than expected growth rate for the Indian economy against a backdrop of several factors that could possibly derail growth.
The expected growth of the economy
According to the report, revival in rural demand and increased infrastructure spending are key economic drivers that are likely to drive the economy’s growth in the current year in spite of obstacles like rising debt and the recent trade protectionism. The report said, “The improvement in domestic conditions is a positive sign that growth is picking up and will continue to maintain strong momentum in 2018, retaining India’s position as the ‘fastest-growing large economy’ in the world.”
Following the cash purge and implementation of GST, the economy’s GDP growth was at its slowest pace in three years in the quarter ended June 2017. However, since June 2017, the economy showed signs of recovery with the growth rate accelerating for two quarters straight. In Oct-Dec 2017, the growth rate was a staggering 7.2 percent because of a rise in the government spending, 6.8 percent growth in non-farm and non-government sectors, and the escalation in private investment by 12 percent. The index of industrial production grew by 7.5 percent in January thus indicating that the recovery is continuing. The economy is expected to grow at a rate of 6.8 to 6.9 percent in the current fiscal year which is expected to be driven by private consumption in both rural and urban areas. The bank recapitalisation plan of ₹2.11 lakh crores is likely to boost private investment and create employment opportunities.
Findings of the report
According to the report, the economy is showing signs of recovery as now there is optimism that the domestic demand of the country will increase due to increased consumption expenditure and revival of small-scale business activities. Moreover, consumer demand and growth which slowed down post the implementation of GST, are now getting better and the market conditions are reversing. Foreign direct inflows have also made a 49 percent cap in insurance, e-commerce, and health insurance. The increasing thrust on infrastructure development by the government: an infrastructure program worth ₹7 trillion was announced in late 2017, is also playing its part in the economic growth of the country. In addition to this, the report mentioned that the government had made huge strides towards financial inclusion and has been pushing the expansion of digital India. The country is moving towards formalisation of the Indian economy. Anis Chakravarty, Deloitte India Partner and lead economist said, “After a year of disruptions and growth slowdown, the Indian economy is consolidating the gains from the recent reforms and is moving in the right direction. With a steady increase in FDI inflows and pick-up in growth in the Q3 of 2017, 2018 will expectedly remain a period of strong growth for India with a growth rate of around 6.8 to 6.9 percent.”
The report added that the global economy recovered in 2017 but India could not benefit much from it because of the demonetisation and GST shocks. The global growth is expected to continue this year too at a rate of 3.8 percent this year. It said, “As the global economy is in its heights after recovering from the shocks of 2008 crisis, India should take the benefit of this opportunity. India’s ability to stave off the economic gales was helped by the fact that it is much less dependent than most countries on global flows of trade and capital. And therefore, the recovery in global economic conditions should help India boost its domestic growth.”
Talking about the challenges, the ‘Voice of Asia’ report stated that there is a mounting debt from the post-2008 financial crisis period of excess global liquidity. Along with that, the spread of global protectionist sentiment is a matter of concern not only for India but for most of the Asian economies. Talking about the Indian economy, the country’s risks are going to be domestic in nature which could include market disruptions if the government is unable to resolve GST-related issues. Secondly, there is a possibility of higher growth leading to inflation in the economy. Other externalities like tax rate competitiveness and a potential trade war could also hinder the country’s growth. In addition to this, rising crude oil prices might end up adversely affecting the demand for goods using oil as inputs.
President Donald Trump’s approach towards trade –– new and higher tariffs, tough conversations on trade balances, Free Trade Agreements – have reignited the debate around free trade globally. Closer home, the debate is on whether India is an open economy or closed one?
The answers are complex. Looking beyond popular “freedom/openness” indices, India is a remarkably open, freelytrading economy. It is somewhat counter-intuitive to the general narrative of “reforms” that is intellectually popular, but outcomes bear out the same.
To start with, look at trade ––the frequently used metric of openness. Using standard measures of trade openness ––Trade/GDP, Tariff levels –– we find that India is a remarkably open economy, in absolute terms and on relative basis against emerging market peers.
Globally, large countries typically tend to have lower Trade (Exports+Imports)/GDP ratios than smaller countries. India ranks up very well in the ‘large country’ peer set. At around 45-50% of GDP, India trades more than the US, Japan, Brazil, Indonesia and somewhat counterintuitively, even China. While smaller countries in Asia (Singapore, Thailand, Malaysia, South Korea etc) would tend to have higher Trade/GDP ratios, India is an exemplar, and not an outlier, in trade openness among large countries.
India also runs the second largest absolute merchandise trade deficit in the world, in nominal USD terms, after the US. India is the second-largest net demand generator of merchandise goods in the world. Most heavy traders in the EM universe, and some in the Development Market universe, run large trade surpluses –– in effect they are net consumers of global demand, while India is a net producer of it. India’s a heavier trader and bigger net contributor to global demand than China.
Are Indian tariffs ‘high’ compared to global and regional levels? While weighted average tariffs on Indian merchandise are somewhat higher than comparable economies, the gap between India and the rest of the world has narrowed considerably in the new millennium. India has had the fastest fall in average tariffs of most major economies, albeit from a higher base. Today, the difference between Indian tariffs and those of (say) China/other Middle Income countries is small.
There is a more legitimate claim around Indian barriers for trade in services. India has especially high barriers to trade in services compared to the rest of the world. The World Bank’s Services Trade Restrictions Index (STRI) places us pretty much the “worst” end of the comparable spectrum on services trade barriers, somewhat better than Ethiopia!
On trade tariffs, India’s at par on goods while being an outlier on services. However, measuring holistically, especially in terms of actual outcomes (Trade/GDP, Trade deficits), India is a heavily trading economy already.
How open is India to foreign capital flows? Contrary to general impression, empirical data via rigourous indices show that India is fairly open to capital flows by global standards. The Chinn-Ito Financial Openness Index (KAOPEN), is today the most credible bellwether to measure openness to capital flows. India’s KAOPEN score is at par with China and Thailand, and only slightly behind Malaysia and Indonesia. Open capital flows are not an unmitigated positive, as has been shown up repeatedly in currency crises around the world. However, within the constraints, India is at par with its Asian peers.
Finally, for all the empirical evidence, there is vast optical corroboration too. How many countries have their largest automakers, largest bank (by market capitalisation), largest consumer companies, largest digital/e-commerce companies ––all owned by foreign capital?
It’s important to not lose our perspective – for all the stick we get on our lack of openness, we are a remarkably open economy.
Kolkata, Feb 25 (PTI) Importers from 12 countries will take part in the 23rd India International Leather Fair to be held here from tomorrow, the organisers said today.
The India Trade Promotion Organisation (ITPO), the organisers of the fair, said 70 Indian companies will also showcase their products.
"While the ITPO was footing the accommodation and conveyance expenses of buyers/importers from Malaysia, Germany, Japan and Spain, importers from eight other countries have also registered at the ITPO website for visiting the fair," ITPO Regional Manager Rumela Roy (Das) told PTI.
The eight other countries include Switzerland, Sweden, the UK, the USA, Canada and Bangladesh, she said.
The fair will be an interface between manufacturers-exporters and importers, the ITPO official said.
"We are getting support from the government of West Bengal and the fair will be a big step to show what Bengal can offer to the rest of world," she said.
ITPO spokesman Sanjay Vasishtha said the fair is in sync with the Centres Look East Policy to open new avenues of trade and commerce.
The second Tex-Styles India 2018, showcasing textile products, will also be held simultaneously at the Biswa Bangla Convention Centre from February 23.
"We are very much focused on textile and leather sectors in eastern India, which have vast potential for skill development and employment generation," Vasishtha said.
The two events are being organised by ITPO with support of the Indian Leather Products Association (ILPA).
West Bengal Finance Minister Amit Mitra will inaugurate the India International Leather Fair and the concurrent Tex-Styles India 2018 tomorrow.
Source:- India Today
The ad prominently featured an image of Indian Prime Minister Narendra Modi and included Trump reading a version of Modi's popular campaign slogan, but tailored for himself, saying (in Hindi), "this time, we're with Trump's government."
There were more images in the ad, including a spin on a popular Trump campaign sign that read "Great for America - Great for US-India Relationship."
It also cut to Trump speaking at a Hindu-American Diwali festival in New Jersey just prior to the ad's release.
"We love the Hindus!" Trump said. "We love India!"
A quick peek at the Trump Organization's India profile shows that, yes, Trump does indeed love India.
But now that Trump is president, his namesake business's interests in India, including a number of projects currently underway, have drawn considerable scrutiny from ethics experts and political observers, who question how the company's involvement in the rising power could affect foreign policy between the nations.
"There is a deeper relationship between India and the Trump family businesses, and that's going to make people question any decisions made policy-wise by the US toward India," Jordan Libowitz, spokesperson for the watchdog group Citizens for Responsibility and Ethics in Washington, told Business Insider.
Questions over the Trump family's role in promoting the business overseas
It just so happens that India, after a series of Trump projects are completed within the next couple of years, will have the largest Trump Organization footprint outside of the US.
During a recent trip to India to promote Trump-branded properties, which are licensed to investors and managed by the Trump Organization, Trump's eldest son, Donald Trump Jr., was expected to deliver a policy address on "Indo-Pacific" cooperation to local business leaders and officials, only to back out after the planned speech came under question. Ads in an Indian newspaper promised a dinner with Trump Jr. in exchange for an early sign-up to one of the Trump apartments under construction.
A Trump partner said they booked $15 million in sales within one day during Trump Jr.'s India visit.
"I'm here as a businessman," Trump Jr. said at the conference. "I'm not representing anyone."
Trump Jr. said the family business would actually be taking a hit in the country as a result of his father's presidency. The Trump Organization, he said, will lose out on new deals because of his father's assurances of no new overseas agreements while in office.
"Few years ago, I said it would become our largest (market) because I really believed in the market ... I think it will continue to be the same when I am able to get back in the market and focus on the business side, on new deals again in the future, once my father is out of office," Trump Jr. told a local TV station.
The president's eldest son called India an "important market" for the family, adding that the Trump Organization "could do so many more [deals] but we are not doing those."
Amid calls from leading ethicists and politicians to divest fully from his business interests prior to beginning his term as president, Trump instead opted to pass control of his business assets onto his two adult sons, Eric and Trump Jr., and a senior Trump Organization executive. Ethics experts had called the arrangement less than ideal, and said that the only way to fully eliminate possible conflicts of interest with his business empire was to sever ties and place the assets into a blind trust.
And India provides some of the deepest ties between a foreign country and Trump's business.
As The New Republic reported last week in an extensive story on the Trump Organization's presence in India, Trump and his eldest son visited the country 10 months prior to the president announcing his bid for office to launch their luxury tower in Mumbai and promote a similar property in a nearby city.
Trump praised Modi for doing a "spectacular job," adding that the country's development laws were too strict. Soon after he was elected president, some of Trump's first visitors during the transition period were three of his Indian business partners.
The president and his namesake company have also had partners in the country who have come under serious scrutiny for alleged shady practices. One partner on a commercial building project in Gurgaon, India was accused of running an elaborate real estate scam, cheating investors out of roughly $150 million, according to complaints filed with Indian authorities. Court documents did not name the Trump Organization in the complaint.
In terms of the president's public relations with India and its government, Trump and Modi have embraced each other - quite literally, once.
The two have praised each other, with Trump saying during a visit by Modi to the White House last year that by the end of the day, they'd "agree on everything."
Earlier this year, a conversation between Modi and Trump reportedly led to the president changing his view of the war in Afghanistan. The same Washington Post report said that Trump often imitates Modi's accent.
'If you want more favorable policy from this administration, you're better off with a Trump hotel than without'
Libowitz said that the "real worry" and "concern" regarding the president's business ties to India was whether his foreign policy decisions involving the country could be "influenced" as a result.
"While we don't know for sure whether or not there is a direct tie and whether or not some regulation has been violated, it's pretty clear that there are significant questions and worries as to whether our relationship with India is based on more than just politics," he said. "Whether projects are going forward there that directly benefit Trump's bottom line in an effort to win favor with him."
Larry Noble, senior director and general counsel of the Campaign Legal Center, said Trump's India ties were the "perfect example of a conflict of interest." He added that it's hard to believe someone would not consider the president's financial interest in approving a future deals or buying one of the apartments.Noble mentioned that the Modi, of the Indian far-right, and his government would traditionally be controversial in the US. He said "difficult issues involving governance in India" will "all raise the stakes here" for Trump.
"He has a direct financial interest in India treating his businesses well," he said. "That's a problem for us."
Richard Painter, a University of Minnesota law professor and former top ethics adviser to President George W. Bush, said Trump is "dependent on certain powerful individuals in India" as it relates to his business, which is "a less than ideal situation to be in."
Painter, who is considering a bid for the Senate in Minnesota, said the situation could prove problematic if tensions between India and neighboring Pakistan were to flare up. Even if Trump moved to help India, which "might be the right thing" dependent on the scenario, Painter said whatever moves Trump makes will have a cloud hanging over them as a result of his business interests in the country.
"You're never going to avoid the fact that people will say that whatever we do to help India is going to be dictated by Trump's financial interests," he said.
Painter also pointed to Trump targeting his trade actions toward China, but not India, as something that could come under the microscope.
"It complicates everything from trade, to international diplomacy, to how to handle a national security council crisis," he said, adding that "China is going to point to that, and say he's got all this money invested in India, and that's why he's picking on us instead of India. "
The takeaway for foreign countries "is pretty clear," Painter continued. "If you want more favorable policy from this administration, you're better off with a Trump hotel than without."
New policy in the works
In August 2017, the Department of Industrial Policy and Promotion (DIPP) released a discussion paper on the proposed industrial policy. The paper reviewed the developments in the last twenty-five years and noted the challenges faced. Public comments were invited on the paper to facilitate the formulation of the new policy. Subsequently, a draft has been prepared and is currently being presented for seeking “consultations from industry”. Since the beginning of this month, the Commerce and Industry Minister Suresh Prabhu, has participated in deliberations on the proposed policy with stakeholders at an event in Guwahati and subsequently with the Confederation of Indian Industry members. Though the latest draft has yet to be made available to the public, it is expected that the new industrial policy will be finalised in the coming month. Consequently, even after completing inputs, the report will be tabled for approval before the cabinet by April.
Changes brought by the new proposal
The new policy is ambitious and aspires to be futuristic. It aims to link industrial growth with the growth of India’s economy, creating a globally competitive industry that leverages skill, scale and technology. Similar to the 1991 policy, the focus on foreign direct investment (FDI) and liberalising regulations remain because they have proven to be beneficial in the past. The policy now seeks to enable the creation of global brands linking Small and Medium Enterprises (SMEs), both Indian and global, along with encouraging FDIs that create local value addition. Aspirations to change, even at the district level, can strengthen the ease of doing business and reduce compliance costs. The policy also seeks to ensure employment to new entrants along with re-employment to those who might lose jobs as a result of increased automation. It will subsume the old National Manufacturing Policy of 2011 which sought to create 100 million jobs by 2022.
Special Focus on AI
To become globally competitive, India has to keep up with the technological advancement taking place internationally. The ‘Industrial Revolution 4.0’ uses the new policy to promote modern, smart technology. It has been theorised that the fourth edition of the industrial revolution will include artificial intelligence, robotics, deep learning, all of which could bring a sea of changes to everyday life.
The promotion of technology is imperative to the ease of doing business, an essential component for promoting India as an international destination for advanced manufacturing. While releasing a discussion paper on the industrial policy last year, the government also constituted an eighteen-member task force to explore the possibilities of using artificial intelligence (AI) for India’s economic transformation. The task force is chaired by Dr Kamakoti Veezhinathan, a professor at the Indian Institute of Technology, Madras. The objectives of the task force include creating a policy and legal framework to accelerate the deployment of AI technologies with a five-year horizon. This is projected to give recommendations for specific government, industry, and research programs.
Using AI in the Indian context
The new policy aims at projecting India as an advanced manufacturing hub, which is impossible to achieve without embracing and promoting smart technologies such as AI. Further, in order to emerge as a forerunner in technological advancement, there is a need to invest in research and development. The policy aims to support this by incentivising the implementation of emerging technologies for creating ease of innovation.
Speaking at the sidelines of a session at the World Economic Forum-IES last year, minister Suresh Prabhu had said that the new industrial policy will help Indian companies integrate into the global value chain, as well as ensure that they take a “quantum jump” in terms of technological advancement. Therefore, the promotion of AI will result in India gaining a global importance. AI is predicted to replace 45 percent of employee time and lessen human intervention in performing tasks. In a country like India, which boasts of its demographic dividend, lesser jobs will only result in detrimental unemployment. As such, it is crucial that the government reforms have a sound backup plan, or else AI may prove too harmful.
Threading a path forward
In October 2016, Sundar Pillai, the CEO of Google had said, “The last 10 years have been about building a world that is mobile-first. In the next 10 years, we will shift to a world that is AI-first.” As India aspires to become globally competitive, adoption of smart technology across sectors will undoubtedly contribute to economic development. The new industrial policy supports and focuses not only on what is currently important but aims to be futuristic as well.
The complexity is that India needs to provide a supportive educational framework that will enable the country to easily adapt to the technological advancements. The new industrial policy promotes sustainable and responsible development, along with drawing attention on issues of creating employment. However, the impact will only be felt when implementation will be felt.