All
of India's economic indices and indicators are climbing north,
accompanied by raucous cries of approval from legions of cheerleaders
who want more of the same, year after year after year. The only
flies in the ointment are two small items which are not supposed
to be there on the list, or, at least, will be better off not
being there. India's trade deficit jumped 113.51 per cent to $31.6
billion (Rs 1,42,200 crore) and current account deficit (the excess
of goods and services imports plus invisible outflows over corresponding
exports and inflows) zoomed a whopping 2,571.34 per cent to $6.5
billion (Rs 29,250 crore) in the first half of 2005-06. The more
perspicacious analysts are already tut-tutting about these, though
even they accept the argument that the $140-billion (Rs 6,30,000
crore) foreign exchange kitty provides enough cushion to tide
over any unforeseen emergencies or imbalances.
Put simply, it means our imports (not counting
defence items) are growing at a much faster rate than our exports.
According to the Reserve Bank of India (RBI), payments for oil
imports soared 43.7 per cent and those for non-oil imports jumped
50.3 per cent during April-September 2005, compared to the previous
corresponding period. And had inflows from non-resident Indians
and invisibles not bailed the economy out, the situation could
have become critical (See Report Card).
THE REPORT CARD |
TRADE DEFICIT: $31.6 billion; 113.51%
CURRENT ACCOUNT DEFICIT: $6.5 billion; 2,571.34%
FOREIGN EXCHANGE RESERVES: $140 billion; 18.64%
IMPORTS: $76.39 billion; 48.39%
NRI REMITTANCES: $174 million; -$1.33 billion*
NET INVISIBLE RECEIPTS: $47.83 billion; 52.60%
NET INVISIBLE PAYMENTS: $29.15 billion; 70.86%
$ figures for the first half of 2005-06; percentage figures
denote change over H1, 2004-05; *actual figure for H1, 2004-05 |
So, is there a systemic problem
with the Indian economy? Apparently not! Economists say such export-import
mismatches cannot be avoided in a growing economy like India.
RBI sources point out that these deficits will grow further if
the economy manages to gallop along at 7-8 per cent per annum
as is being projected. In the longer run, though, experts point
out that a worsening deficit could lead to a depreciation of the
rupee, a la the US dollar.
"There is need to improve the quality
of inflows. Our reserves come from short-term inflows and not
longer term investments," says J. Moses Harding, Executive
Vice President, IndusInd Bank. Even if that doesn't happen immediately,
higher inflows from foreign institutional investors can well turn
the deficit into a surplus. The current account volatility, thus,
signals nothing more serious than an adolescent economy coming
of age.
-Anand Adhikari
For A Little More Competition
The Manufacturing Competitiveness Mission
announced by the Prime Minister makes eminent sense but the real
question is whether it can deliver.
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Manmohan Singh: Optimistic |
Prime
minister Manmohan Singh recently announced the launch of a Manufacturing
Competitiveness Mission to take the growth rate of the country's
manufacturing sector up from about 7 per cent at present to 12
per cent over the next few yeares. This, says the National Manufacturing
Competitive Council (NMCC), which is spearheading the mission,
will generate 2.5 million jobs over the next 10 years compared
to one million jobs over the last decade and raise the manufacturing
sector's contribution to gross domestic product from 17 per cent
in 2003-04 to 23 per cent over the next couple of years.
An NMCC report on "National Strategy
for Manufacturing in India" says issues like tariffs and
indirect taxes, cost of capital, innovation and technology, infrastructure
and regulatory environment are holding back the sector. For starters,
the NMCC has identified 12 industries which have massive potential
for rapid growth and employment generation. These include textiles
and garments, leather and leather goods, food processing, gems
and jewellery, handlooms and handicrafts, chemicals, pharmaceuticals,
information technology hardware, electronics, auto components
and the capital goods industry.
However, as Nagesh Kumar, Director General,
Research & Information System for Non-Aligned and Other Developing
Countries, points out, most firms in any industry broadly face
a similar macro-economic environment; yet, their performances
vary widely. "Obviously, enterprise dynamism has a role to
play in producing success stories," he says, adding that
this hasn't been addressed by the report.
But that's a minor glitch in an otherwise
long-overdue exercise. The point is: will the government walk
the talk and iron out the policy and regulatory bottlenecks that
is holding back Indian industry, or will it simply carry on mouthing
platitudes. The jury is out on that one.
-Ashish Gupta
Growing With The Times
The government is hiking the SSI investment
limit to Rs 5 crore for 69 more items
A
more-than-two-year-old proposal by the ministry of small Scale,
Agro and Rural Industries will finally become official policy.
Its long-pending note on raising the investment limit in small-scale
industries from Rs 1 crore to Rs 5 crore in 69 more products-including
all pharmaceutical products falling under the small and medium
enterprise (SME) category-has been accepted by the Union Cabinet.
"A notification to that effect will be issued soon,"
says a senior official in the ministry.
The increased investment limit will help
many industries such as auto components, glassware and food processing,
but it will really bring a sea change in functioning of the pharmaceutical
sector. The reason: for the past two years, the government has
been pressurising small and medium pharmaceutical companies to
adopt "good manufacturing practices (GMP)" under Schedule
M-which deals with issues of good manufacturing practices-of the
Drugs and Cosmetics Act, 1940, without much success.
LONG OVERDUE STEP
Raising the SSI investment limit from
Rs 1 crore to Rs 5 crore will: |
»
Help smaller pharma companies implement
Good Management Practices
»
Allow small firms to upgrade technology
»
Provide a level playing field for small companies
»
Increase competitiveness of SSIs
»
Improve the sector's export potential |
SME pharma companies argued that by implementing
GMP, which would require investments of more than Rs 1 crore,
they would lose their small scale industries (SSI) status. "They
can now modernise and upgrade themselves without fear now that
the limit is being raised," says D.G. Shah, Secretary General,
Indian Pharmaceutical Alliance, a union of 11 domestic pharma
companies.
Incidentally, the smaller pharmaceutical
companies have been having rough ride over the last couple of
years. The government's decision to levy excise duty on the maximum
retail price (MRP) of medicines rather than on their factory-gate
price-the price that wholesalers, hospitals and pharmacies pay
for the drug-has meant that it no longer makes business sense
for the bigger pharmaceutical companies to source their products
from smaller manufacturers.
Pharma apart, the 69 new items include pickles
and chutneys, bread, dyestuff, glass and ceramics and automotive
parts such as horn buttons, radiator grills, seat cushion and
sun shades. Once the notification is issued, the SME sector will
have 140 items with an investment limit of Rs 5 crore.
-Ashish Gupta
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