According to Nomura, the government’s broad strategy throws up no surprises and is mildly disappointing, given the build-up of expectations, also the measures broadly fall in the category of quick fix solutions and there is no detail on sustainably lowering the CAD
Finance Minister P Chidambaram on Monday unveiled much-anticipated proposals to narrow the FY14 current account deficit (CAD) at $70 billion or an estimated 3.7% of gross domestic product (GDP).
Speaking in the Lok Sabha, the finance minister outlined the government’s broad strategy to address balance of payments concerns. This includes steps to compress oil and gold import demand, curb on imports of non-essential items, liberalizing external commercial borrowing (ECB) norms for companies, allowing oil companies to raise additional funds via the ECB, allowing sale of quasi-sovereign bonds by state companies, and to liberalise non-resident Indian deposit schemes.
However, Nomura Financial Advisory and Securities (India) Pvt Ltd, said the government’s broad strategy throws up no surprises and is mildly disappointing, given the build-up of expectations. The measures broadly fall in the category of quick fix solutions and there is no detail on sustainably lowering the current account deficit, it added.
"While the government’s estimate of a smaller current account deficit is in line with our view, the real issue is financing the deficit. Weak domestic growth prospects suggest that portfolio equity inflows and overseas borrowings will be much lower this year. Hence, we expect net capital inflows to slow, which will make financing the current account deficit difficult. Hence, we expect balance of payment pressures to continue,' Nomura said in a note.
Amid din and uproar in the House over various issues including Telangana, the Minister said, "notifications in respect of tariff rates will be laid before Parliament in the usual course."
He said that with the fresh measures, "CAD will be contained at $70 billion, while the inflows will increase to a level that will be sufficient to finance the CAD.
"If the CAD is contained at $70 billion, it will amount to 3.7% of the GDP as against 4.8% FY13," he said in a statement.
Stressing that like the global economy, Indian economy too is facing challenges, the Minister said, "We believe that we have to do more to contain CAD, to reduce volatility in the currency market and to stabilise the rupee."
According to Nomura, the sharp pickup in exports suggests that global demand is recovering. Even though external demand has improved, weak domestic demand has kept a lid on India's imports
After two months of fall, India’s trade deficit remained flat at $12.3 billion in July from $12.2 billion in June due to better-than-expected export growth. During July, goods exports shot up 11.64% to $25.83 billion buoyed by a growth in shipments of pharmaceuticals, textiles, chemicals and heavy machinery.
In a note, Nomura Financial Advisory and Securities (India) Pvt Ltd, said, "The sharp pickup in exports suggests that global demand is recovering. Even though external demand has improved, weak domestic demand has kept a lid on imports. Imports contracted 6.2% in July compared with a decline of 0.4% in June."
A sharp decline in gold and silver imports to $2.97 billion in July 2013 compared to $4.47 billion of imports in the comparable month last year, resulted in an overall 6.2% fall in overall exports to $38.10 billion.
Trade deficit narrowed to $12.26 billion during the month compared to the previous months bringing some relief to policy makers grappling to keep the current account deficit in check.
According to commerce secretary, SR Rao, a depreciating rupee had helped exporters as their realisation had increased but a stable foreign exchange helped in long-term contracts.
Oil imports during July 2013 was 8% lower at $13.816 billion, while non-oil imports at $25.39 billion were 5.26% lower than the same month last year.
In the April-July period, exports rose 1.72% to $98.29 billion. Imports during the period posted a growth of 2.82% to $160.73 billion. Trade deficit during April July 2012-13 was $62.44 billion compared to $59.69 billion last year.
Rao said the incentives announced recently to boost exports would show results in the coming months.
Exports in 2012-13 fell 1.6% to $300.6 billion as slowdown in the global economy shrunk demand while imports increased by a marginal 0.44% to $491.48 billion from $489.31 billion creating a trade deficit of $190.91 billion.
"With domestic demand weak and global demand improving, the trade deficit should improve this fiscal year. We expect the current account deficit to moderate to 4.0% of GDP in FY14 from 4.8% in FY13 due to lower gold imports and lower non-oil and non-gold imports due to subdued domestic demand. However, we expect net capital inflows to also slow due to worsening domestic growth prospects, which will result in a balance of payments deficit," said Nomura.
Free-gifts are often ‘recycled’ and in the case of a landless peasant, nothing prevents this legacy being misused. Giving land on a free of cost basis is a grave mistake that any government can make, as this simply will kill the initiative to create wealth
The National Land Reform Policy that has been prepared by the Rural Development Ministry, in its draft form, is in circulation, which is based on the consultations with other ministries.
As and when it is passed, it is likely to be a crowning achievement for Jayaram Ramesh, the minister and will give a tremendous boost to the Congress party when the elections are held in 2014. The opposition are now between the devil and the deep sea-they cannot oppose the Bill as it will cost them a heavy turn against by it beneficiaries, and so, they need to find a way to support it to garner public support!
What does this National Land Reform Policy propose to achieve? It proposes to redistribute excess government land to the landless poor, cover every single village in the country and provide equal opportunity and right for women to own their land. In India, traditionally land has always been "owned" by the "karta" or head of the family, though, in some parts (mostly South) land has been bequeathed to daughters by their parents. Joint ownership has been possible. Land has been given as a part of "dowry" where the benefits accrue to the women, but she cannot sell it!
The available statistical land data shows that 47% of land is used for agriculture; 22.6% is forested and 13/6% is fallow. From time to time, poor monsoon rains or floods have played havoc with our agriculture.
While the full details of the Policy have not been made public, presumably because of the expected comments and suggestions from various state governments, who have to play a vital role in its execution, this proposal will be gigantic in operation. The actual process of identifying excess government land, separating agriculture and non-agriculture categories and ensuring that these are not illegally occupied and used is not easy task to comply. It is a tall order, implementation of which, will take at least a decade or two, considering the country's size, population and various customs and practices in different states.
We must bear in mind that, in the recent past, land acquisitions have caused enormous problems in setting up huge industries in many parts of the country, POSCO, ArcelorMittal, Zuari and Tata Motors being recent examples. Therefore, for the time being, we shall restrict our thoughts to the National Land Reform Policy and how it can be implemented.
Looking at agriculture, a large percentage of workers is bonded labour of one kind or another. Land-owning farmers who actually till their own land are a minority. Because agriculture is a seasonal in nature, there has been migration of farm labour to the towns and cities, specially the "landless" people. The intention of this Reform policy is laudable, but these farmers have now settled outside villages, in towns and cities, and will therefore have to be enticed to return back to their roots and take up agriculture again. Not an easy task, by any means!!
The landless labour who are now working for a pittance for the land owning zamindars and feudal lords, though we do not "accept" their presence anyway, will now want to "lodge" in their claim for getting free-land from government under the Reform Policy, thereby creating a labour vacuum in the present setup! That these labourers may be deep in debt owing their lifetime in servitude to the landowners or the moneylenders in these villages are more horrendous issues to write about.
Surely, all these factors may have crossed in the minds of authors of this Proposal. It, however, remains to be seen how they propose to handle these explosive issues, when the details are made public. This we shall await with interest.
It must be admitted that the Reform Policy is practically a time bomb that will explode if all these factors are not suitably covered and amendments are made as we go along. Or, it may be worthwhile, for the government, to implement this policy, on a trial and error basis, starting with one state, and slowly moving on to the others.
If at all such a distribution of excess land is mandated, it must be ensured that the government fixes a price/value for the land allotted, but ensuring that the ownership can be only acquired after a certain period of actual use, and that too on paying the price determined at the outset. And to ensure that this is not misused, the law must provide that such land cannot be sold at all, and that it can be transferred to the members of the family, who must continue to be involved in agriculture. And to ensure all these happen, if the farmers are returnees from cities and towns, proper rehabilitation must be provided.
We must remember that free-gift has no value in society today. In simpler sense, it is ‘recycled’ and in the case of a landless peasant, nothing prevents this legacy being misused. Giving land on a free of cost basis is a grave mistake that any government can make, as this will simply kill the initiative to create wealth.
We must remember to teach a person to catch a fish; not give it free!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)