ASSOCHAM predicts Balance of Trade to shoot up to $262 bn in FY 2012-13

Due to high crude prices and rising gold and silver imports coupled with week Rupee value, India’s balance of trade (BoT) is projected to shoot up between USD 262-280 billion in the fiscal 2012-13, exerting further pressure on the country’s current account deficit (CAD), according to an ASSOCHAM study.
 
In the fiscal 2011-12, the country’s merchandise imports was at USD 488 billion against exports of USD 303 billion leaving balance of trade (BoT) of USD 185 billion.  Against the backdrop of weak recovery in the US economy and continuing troubles in the European markets, export shipments were up 21 per cent as there was some good performance in the initial months of the 2011-12 fiscal. 

But, imports shot up by 32 per cent thanks to high crude prices and rising gold and silver imports.  Import on these two counts  itself was a whopping USD 217 billion, accounting for  over 44 per cent of the country’s total import bill of USD 489 billion, said Associated Chambers of Commerce and Industry of India (ASSOCHAM).

“Out of the three likely scenario plotted by the ASSOCHAM study, the most likely seems to be the one where imports would grow by about 25 per cent in dollar terms and exports increasing by about 15 per cent. This would leave the country with a BoT gap of USD 262 billion,” said  Rajkumar Dhoot, MP and President, ASSOCHAM while releasing the findings of the study.

“In such a scenario, exports would grow up to USD 348 billion but import shipments would increase to USD 610 billion. Even assuming the moderate GDP expansion of 7 per cent, the crude oil imports would remain the biggest import item, as the economic activity would be required to be fuelled by the conventional sources of energy,” said Dhoot.

Despite the Budget proposal of doubling the customs duty to four per cent on gold, imports under this head would continue to exert pressure on the country’s bill.  The country’s social habit in terms of gold being one of the biggest purchases during the marriages is not going to change over night, even though the middle class families find it hard to manage.

The problem in terms of rising imports in dollar terms is expected to be worsened by the continuing pressure on rupee, which has lost well over 15 per cent in value since September. Rupee would remain weak, if efforts on war-footing are not taken to make India an attractive investment destination both for the foreign direct investment (FDI) as also for the portfolio investment through the foreign institutional investors (FII) route, highlighted the ASSOCHAM study.

Unfortunately, the events beginning to unveil after the Budget seemed to be pulling the country in the reverse direction. The FIIs have pulled out Rs 777 crore in April after staying bullish on India for the first few months of 2012. They were disappointed by several events and policy issues, including the General Anti-Avoidance Rules (GAAR) and the retro-active tax proposals. Thankfully, as suggested by ASSOCHAM, Finance Minister Mr Pranab Mukherjee has deferred the GAAR implementation by a year.

On the other hand, while the foreign direct investment (FDI) figures might look attractive in terms of growth, the base is so low that they do not mean much. In all, India attracted FDI of about USD 28.5 billion during April-February period of 2011-12 fiscal. The year-end figure could be in the range of USD 30 billion.

“Here too, potential areas which can catapult global investor confidence in India have remained on the backburner due to lack of political consensus,” said the ASSOCHAM chief.

That leaves the country look up to the services exports for retrieving the Balance of Payment (BoP) situation. The services exports largely generate business from the US economy, which is not showing definite signs of pick-up. Moreover, there are issues like protectionism and more and more road blocks being created in the export of Indian IT services to the US – be it visa fee hike or difficulties being faced by the Indian firms in getting short-term visas for their staff.
ASSOCHAM president has suggested the government to go for all out domestic policy reforms.  Whether it is Goods and Services Tax (GST), or Direct Tax Code (DTC) or banking sector reforms, not much time can be lost. These measures will boost confidence both in the domestic market as also for exporters as their transactions costs would come down making them competitive.

• Speed up Free Trade Agreement with the European Union. Exports of merchandise will get a boost in terms of getting improved  market access in products like textiles, engineering, gems and jewellery.
• Give concessional credit to exporters
• Improve the drawback rates so that taxes on raw material are not exported
• Improve trade and political relations with the neighbouring countries like Pakistan and Bangladesh. India can get increased market access at a lesser cost in terms of proximity of destinations.
• Support industry initiatives for aggressive marketing and organizing of trade and industrial exhibitions abroad.
   

Timely approvals may bring down housing costs by 25 to 40 per cent: Selja

 

"The government has formed a committee to evolve a workable strategy for reducing the time taken in approval of real estate projects which could ultimately reduce the cost of houses by 25 to 40 per cent," minister of housing and urban poverty alleviation Kumari Selja said.

It seems the prayers of the real estate bodies in India, including CREDAI and NAREDCO, have finally been heard as the government today announced formation of a committee which will formulate measures to bring down time taken in approval of real estate projects thereby envisaging price reversal by upto 40 per cent. 
 
The committee under the chairmanship of Dhanendra Kumar, former chairman of the Competition Commission of India, will submit its report in four months, she said while addressing a conference on affordable housing organised by Associated Chambers of Commerce and Industry of India (ASSOCHAM).

“It is estimated that the cost to ultimate consumer could be 25 to 40 per cent lesser if the time of granting approval is reduced to six to eight weeks, which is quite achievable in the present day and age,” said Selja.

Leading real estate developers say about 70 approvals are required for a typical housing project which take nearly three years. The lack of coordination among multiple government agencies and delays result in higher costs which are passed on to the consumer.

The minister said the government has formulated a draft Real Estate Regulation and Development Bill for orderly growth of the sector. Besides, the recently-established Credit Risk Guarantee Fund Trust is coming up with a scheme to provide loans up to Rs five lakh for low income housing.

“The initial corpus of this fund will be Rs 1,000 crore and we hope it will catalyse about Rs 20,000 crore of affordable housing credit,” said Selja. The Union Budget for 2012-13 has allowed external commercial borrowings which will lower interest cost for developers and ensure better capital availability for low-cost housing, she said.

Arun Kumar Misra, secretary at the ministry of housing and urban poverty alleviation, said private sector can a crucial role to play in expanding the concept of affordable housing. There are, however, demand-side and supply-side constraints at present due to lack of bank credit.

Naveen Raheja, chairman of ASSOCHAM real estate committee, said the shortage of dwellings in urban India is estimated to be 25.5 million units. The poor form 90 per cent of this shortage.
“For affordable housing, partnerships may be forged among the central government, state governments, urban local bodies, people’s cooperatives and the private sector,” he said adding the definition of affordable housing should be clearly defined.

Affordable housing is generally defined as a dwelling unit of 300 square feet for economically weaker sections with annual income level of Rs 1.5 lakh and 300 to 600 square feet for lower income group with annual income of Rs 1.5 lakh to Rs 3 lakh.

ASSOCHAM secretary general D.S. Rawat said housing for all remains a key priority in India’s development agenda. “Low-cost housing offers a world of opportunities to the real estate development business that can bring in much-needed resilience to the sector.”

Others present were Susheel Kumar, joint secretary at the ministry of housing and urban poverty alleviation, R.V. Verma, chairman and managing director of National Housing Bank, Ashok Khurana, engineer member at the Delhi Development Authority, and Mr Sunil Dahiya, co-chairman of the ASSOCHAM real estate committee.

They said urban infrastructure is coming under tremendous pressure with rapid economic and industrial development across the country. While some of these are gradually being mitigated, concerted efforts are required by multiple institutions to facilitate mass development in the sector.

According to 2011 census, the country had a population of 1.21 billion of which 377 million or 31.16 per cent lived in urban areas.

Punjab can emerge as land of opportunities with private Investments : ASSOCHAM

New Delhi: Leading industry body ASSOCHAM has proposed 30-point growth strategy  to the new Government of Punjab with a view to give thrust to the small scale enterprises (SMEs) and food processing sector and achieve double digit growth in the decade.

The ASSOCHAM delegation comprising Ravi Wig, Chairman, ASSOCHAM Punjab Development Council, Ashok Khanna, Chairman, ASSOCHAM National Council on Environment & Safety and TQM and D.S. Rawat, Secretary General, ASSOCHAM met Prakash Singh Badal on Tuesday and suggested setting up of industiral clusters in Punjab  for small and medium enterprises (SMEs) involved in food processing, handicrafts, renewable energy and information technology to generate three lakh direct and indirect jobs over the next three years and help inclusive growth.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) recently signed a memorandum of understanding with the United Nations Industrial Development Organisation (UNIDO) to assist in establishing clusters of small and medium enterprises in two districts of potential states across the country.

The strategy paper on all-round Punjab development is a ready-reckoner for investors, the Centre and state governments to make it as one of the most attractive investment destinations in India with double digit SGDP growth, said Wig.  The chamber has also set up a dedicated Foundation for Development of Micro Industries and Clusterisation to promote micro, small and medium enterprises.

They said Punjab should rejuvenate agriculture, create manufacturing hubs and accelerate growth in services sector to emerge as land of opportunities. The agenda of new state government should be to prioritise building social and physical infrastructure and define role of all stakeholders and cover short-term and long-term goals to ensure speedy development.

The state may not have enough finances to develop infrastructure on its own which builds a good case for public private partnership (PPP) type of initiatives involving multilateral institutions like the World Bank and the Asian Development Bank. “The challenge before state government is to address the issue from a holistic perspective keeping in balance between agriculture and industry,” said Rawat.

To encourage effective distribution of agro-commodities, initiatives should be taken to create hub-and-spoke model under which districts and towns identified act as a hub and villages surrounding them act as spokes. This will ensure efficient distribution, reduce transportation costs, increase competition and real price discovery, benefiting the farmers.

Farmers need technology upgradation, logistic support, market intelligence and should be able to compete in international markets. The industry looks forward to stable, transparent and responsive state government so that more investments can pour in, he said.

“We would also like the state government to promote irrigation, rural connectivity, health, education and non-farm rural activities. With rich natural resources and traditional industries, however, the state holds enormous unrealised growth potential,” said Khanna.
At the same time, industries clusters can be created for micro, small and medium enterprises to ensure common facilities, thus reducing operating costs and increasing competitiveness and skill development around that sector.

The state government must facilitate contract farming by attracting investments from the private sector. Irrigation systems can be improved by employing modern technologies which are a must to boost productivity.

Special economic zones (SEZs) can be created with organic farms for herbal and medicinal plantation. A definite roadmap needs to be drafted to improve storage facilities, transport infrastructure and marketing network so that food processing industries can develop value-added products for domestic and foreign markets.

Industry-specific SEZs for information technology, biotechnology, pharmaceuticals, textiles, gems and jewellery besides manufacturing of sports goods also hold potential for growth and employment generation, said ASSOCHAM.

State-level development finance institutes like erstwhile industrial development corporations should be revived to support long-term financial needs of small and medium enterprises. Developing strategic business services like IT, IT-enabled services, finance and insurance can be catalysts of growth and enhance the share of services in gross state domestic product (GSDP).

The private sector can contribute by promoting such projects to provide industry-relevant skills to rural youth. ASSOCHAM also called for creating an enabling policy framework to rejuvenate economic activity in the state.

The state government should spell out a clear land acquisition policy with sufficient room for buyers and sellers to negotiate directly with minimal government role for attracting fresh investments from the private sector.