Will it be ‘W’ ?

A year has gone by since the collapse of US investment bank Lehman Brothers sent major shock waves across financial markets and eventually dragged the global economy into a severe synchronised recession. Signs that the global economic recovery is strengthening continue to emerge over the past few weeks, as increasingly more key indicators, such as business sentiment, trade, manufacturing and industrial production indices, are turning positive and more or less maintaining their uptrend from the trough, helped by enormous spending by governments over the globe. While there are risks associated with a prolonged expansionary monetary and fiscal stance – such as rising government debts, inflation, and the encouragement of new bubbles to develop in the stock and real estate markets – the consensus view is that unwinding the stimulus measures too soon could derail the global recovery process. This is particularly so as, amidst the recent optimism, warning bells are being sounded on the shape of the global economic recovery giving rise to concerns about a W-shaped recovery or a double-dip- recession. (A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession, when (GDP) growth slides back to negative after a quarter or two of positive growth.

India’s Recovery Wobbles?

RBI has warned that the Indian economy is unlikely to revert to its trend growth rate soon, as recession in advanced economies would eat into global growth and world trade. A drought like situation through most of the monsoon season has also led to concerns on the agricultural economy. Consumer spending on the other hand has been very positive, as indicated by the double digit growth of consumer durables in the IIP numbers for July. Easier availability of credit coupled with higher consumer confidence and the festive season did wonders for car sales in August; while market leader Maruti Suzuki posted a 42 per cent growth, Mahindra & Mahindra, showed a 42 per cent rise in sales of its multi-utility vehicle range, while Hyundai Motor India and Tata Motors showed 11 per cent increase over the same month last year.

India, who had to resort to IMF loans on a few occasions till the early nineties, will now take part in a global effort to make resources available to the International Monetary Fund (IMF) for lending to countries in need. India will invest up to $10 billion of its reserves in Notes issued by the IMF; such investments would be treated as international reserves.

For latest indicators on India and Global economy visit our Website.

Indian Foreign Trade Policy (FTP 2009-14)

In the last five years India’s exports witnessed robust growth to reach a level of US$ 168 billion in 2008-09 from US$ 63 billion in 2003-04. India’s share of global merchandise trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates. India’s share of global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008. India’s total share in goods and services trade was 0.92% in 2003; it increased to 1.64% in 2008. On the employment front, studies have suggested that nearly 14 million jobs were created directly or indirectly as a result of augmented exports in the last five years.
As the export sector has been a major casualty in this downturn the Indian Government has set in motion strategies and policy measures which will catalyse the growth of exports. The short term objective of the Foreign Trade Policy (2009-14) is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world.

The Policy Objectives are as follows:

a) Achieving an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011.
b) In the remaining three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the high export growth path of around 25% per annum.
c) By 2014, the policy aims to double India’s exports of goods and services.
d) The long term policy objective for the Government is to double India’s share in global trade by 2020.

HIGHLIGHTS OF FOREIGN TRADE POLICY 2009-2014

Higher Support for Market and Product Diversification

1. Incentive schemes have been expanded by way of addition of new products and markets.
2. 26 new markets have been added under Focus Market Scheme. These include 16 new markets in Latin America and 10 in Asia-Oceania.
3. The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%.
4. The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%. 5. A large number of products from various sectors have been included for benefits under FPS.
6. Market Linked Focus Product Scheme (MLFPS) has been greatly expanded.
7. MLFPS benefits also extended for export to additional new markets for certain products.
8. A common simplified application form has been introduced for taking benefits under FPS, FMS, MLFPS and VKGUY.
9. Higher allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes is being provided.

Technological Upgradation

1. To aid technological upgradation of our export sector, EPCG Scheme at Zero Duty has been introduced.

EPCG Scheme Relaxations

1. To increase the life of existing plant and machinery, export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation.
2. Taking into account the decline in exports, the facility of Re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in exports from the country, has been extended for the 5 year Policy period 2009-14.

Stability/ continuity of the Foreign Trade Policy

1. To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB) Scheme is extended beyond 31-12-2009 till 31.12.2010.
2. Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010 in the Budget 2009-10.
3. Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act, has been extended for the financial year 2010-11 in the Budget 2009-10.
4. The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010.

To read more about the FTP click: Foreign Trade Policy