India’s current account deficit looks endemic

The Indian economy’s woes with respect to exports appear to be the twin problems of low savings—caused by reckless fiscal policy—and some evidence on falling export competitiveness, says Espirito Santo Securities

India is suffering from a serious current account deficit which appears to be because of the twin problems of low savings, caused by reckless fiscal policy, and evidence of falling export competitiveness. This is according to Espirito Santo Securities in its Fundamental Insights Report of November 2012.


Espirito Santo observes that the top sectors in Indian exports with the highest RCAs (Relative Comparative Advantage) are i.e. largely ‘traditional’ sectors: gems & jewellery, rice, spices, cotton, tea, textile fibres, organic chemicals and petroleum products. The new entrants include base metals (e.g. zinc with its RCA up from 0.1 in 2000 to 3.4 in 2011). Similar sharp increases in RCAs were seen in pig iron, lead, copper and mineral products. Within transportation, India has increased its relative comparative advantage in “ships, boats & floating structures”, ‘tractors’ and “motorcycles & cycles”.


India’s exports seem more diversified than China’s, though the degree of diversification has fallen somewhat in the last few years, says Espirito Santo. But, contrary to conventional wisdom, which associates diversification of Indian exports with rising competitiveness in more non-traditional (manufacturing based) sectors, this doesn’t seem to stack up. Regarding manufactured goods, like China, India has gone beyond the initial industrialisation stage, reflected in reduced specialisation in traditional manufacturing such as textiles. But China is now far more specialised in innovative sectors like electronic data processing, telecommunications equipment and also (to a certain extent) integrated circuits and electronic components. An opposite trend is seen in chemicals, where India seems to have a distinct relative comparative advantage.


While India has been able to maintain its comparative advantage in tea, coffee, spices and marine products, it has lost comparative advantage in export of some agricultural commodities to other Asian competitors during the period after economic reforms. Tea has suffered one of the sharpest falls in RCA since 2000, with Sri Lanka increasingly dominant. Hence the level of interest by the Indian tea firms in acquisition of plantations in Africa and Sri Lanka. The RCA of coffee has also fallen sharply from 3.5 in 2000 to 1.3 in 2012. In coffee exports, Indonesia, Thailand and Vietnam are the major competitors to India. The computed RCA values for India were positive for all the years and indicated its comparative advantage in coffee exports. But, Indonesia and Vietnam have outperformed India.


Rice exports, accounting for 1.5% of India exports in 2011, witnessed varied levels of RCA with a net rise from 2000 to 2005, but a net fall from 2005 to 2011. India’s status remained inferior to its major Asian competitors (Pakistan, Thailand and Vietnam) in almost all the years. Post-2000 seemed to have a detrimental effect on exports of spices, with the RCA falling from 14.3 in 2000 to 9.6 in 2005, with a corresponding sharp increase in competitiveness of China’s spices’ exports.


The labour-intensive sectors of gems & jewellery and agriculture products and the scale-intensive sectors of chemicals are the foremost sectors enjoying a comparative advantage in India, observes Espirito Santo.


The steady deterioration in India’s trade deficit and current account deficit has been one of the key factors exacerbating the external sector risks for India. While export demand is a function of a multitude of factors, the key ones are global demand for exports and competitiveness. While falling global demand has no doubt impacted India’s exports (down 7.5% FYTD), falling comparative advantage in key sectors is one of the reasons impacting the long-term export growth trajectory for the Indian economy, according to Espirito Santo.


NPPA demands Rs130 crore from drug makers for overcharging: Jena

NPPA has issued demand notices in 885 cases so far involving Rs2,577.28 crore for selling medicines at a price higher than the prices fixed under DPCO

New Delhi: The National Pharmaceutical Pricing Authority (NPPA) has raised a fresh demand of nearly Rs130 crore from various drug makers, including Claris Life Sciences, for overcharging during the current year till October 2012, Parliament was informed on Thursday, reports PTI.
In a written reply to the Lok Sabha, Minister of State for Chemicals and Fertilisers Srikant Kumar Jena said "...a number of drug companies have been found to be selling some of their medicines to the consumers at a price higher than the ceiling price notified by NPPA".
"During the year 2012, (upto October 2012), NPPA has raised fresh demand for overcharging amounting to Rs129.71 crore," Jena added.
The companies, which have been issued fresh notices by the NPPA, include Intas Pharmaceuticals, Ind-swift Ltd, Aventis Pharma and IPCA Lab, the minister said.
In reply to another question, Jena said since inception NPPA has issued demand notices in 885 cases involving an amount of Rs2,577.28 crore for selling medicines at a price higher than the prices fixed under  the Drugs (Prices Control) Order (DPCO, 1995).
"Out of which, Rs232.52 crore has been realised till 31 October 2012 leaving a balance of Rs2,344.76 crore to be realised," Jena said.
He added that that primary reason for non-realisation of the major portion of the overcharged amount is that the demands have been contested by various companies in different courts of law, including the Supreme Court.


Government convenes all-party meeting on FDI on Monday

Parliamentary Affairs Minister Kamal Nath has convened a meeting of all party leaders of both Houses of Parliament on Monday to discuss FDI in retail

New Delhi: With major Opposition parties like Bharatiya Janata Party (BJP) and the Left demanding discussion on foreign direct investment (FDI) in retail under rules that entail voting, Parliamentary Affairs Minister Kamal Nath has convened a meeting of all party leaders of both Houses of Parliament on Monday to discuss the issue, reports PTI.
"The Parliamentary Affairs Minister informed us in the Rajya Sabha Business Advisory Committee (BAC) that he will convene an all-party meeting on Monday. He also said he will talk to all party leaders in Lok Sabha and meet them separately on that day. Then a final call will be taken on the issue," CPI(M) leader Sitaram Yechury told reporters here.
CPI leader D Raja also said Nath had assured BAC that he would meet leaders of all parties on Monday.
However, Yechury made it clear that the Left parties would not budge from their position of seeking a debate on government's decision to open up multi-brand retail to foreign investment under rules entailing voting.
Left parties have already moved notices under Rule 184 in Lok Sabha and Rule 168 in Rajya Sabha seeking disapproval of the government's decision on the issue. Under both rules, a debate is followed by voting on an issue.
Yechury accused the government of "violating" its assurance given in Lok Sabha and Rajya Sabha respectively by then Finance Minister Pranab Mukherjee and Commerce Minister Anand Sharma in December last year that "FDI in retail would be implemented after consultations with all stakeholders, including political parties and state governments." 
In this context, he said CPI (M) MPs today submitted a notice of breach of privilege against Sharma for "contravention" of his assurance that the government had suspended allowing 51 per cent FDI in multi-brand retail trade "till a consensus is developed through consultations among various stakeholders".


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