Archives: Event

NCAER hosted their Chinese guests from the China Finance 40 Forum (CF40) in a Dialogue on India and China: Pathways to a Common Asian Future. The dialogue was attended by Dr Yu Yongding, Academic Adviser at CF40 and Senior Fellow at the Chinese Academy of Social Sciences, Dr Huang Yiping, member of CF40’s Academic Committee and Vice Dean at the National School of Development at Peking University, Dr Guan Tao, CF40 Senior Fellow. Dinesh Sharma, Additional Secretary, Department of Economics affairs, Ministry of Finance, GoI, Thomas Richardson, IMF, Sachin Chaturvedi, RIS and Sanjaya Baru, International Institute for Strategic Studies also participated in the dialogue.

CF40 is China’s leading non-profit, non-government research think tank dedicated to policy research on economics and finance. CF40 comprises 40 influential experts from academics, government, and professional bodies in economics and finance.  Since it was established in 2008, CF40 has sought to enhance the academic foundation of China’s finance and macroeconomic systems, provide high-quality research on emerging financial issues, and promote financial reform and development in China.

India and China have been the two major engines of the growth in the world economy during the 2000s. However, the growth of both economies has slowed down since 2012. China’s growth deceleration has been sharper than India’s. Both countries are facing rapid transformation of the mega trading blocs in the Asia-Pacific region. The economic cooperation between the two countries will have a positive impact on their future growth trajectories. It is in this context, NCAER organized this Brainstorming discussion, with a group of experts, covering a range of issues of common interest to India and Session China at a time of increasing uncertainty in the global environment.

The first session witnessed a rich and insightful discussion on the implications of recent macroeconomic events in the US, China and India. Panelist’s Huang Yiping, Thomas Richardson, and Kanhaiya Singh from NCAER presented their views on the evolving US monetary policy and its implications on the world economy, China, and India, China’s financial reforms, capital account liberalization  & RMB internationalization, Indian monetary policy and structural reforms, and, China’s economic rebalancing away from investment toward consumption. The session was moderated by Dr Shekhar Shah, NCAER.

In the second session, chaired by Sanjaya Baru, Guan Tao, gave an explicit presentation of his views on China’s One-Belt, One-Road Strategy: Opportunities and potential costs and benefits for China, India, South Asia, and globally. During the session, Dinesh Sharma and Sachin Chaturvedi spoke on India’s Infrastructure Aspirations: Growth, Trade, Investment and Regional Integration Implications. Other topics discussed were the signing of the Trans Pacific Partnership, and, the ongoing negotiations on the Regional Comprehensive Economic Partnership Strategy, convergence and/or divergence on APEC, and the bilateral FTA.

Potential research ideas for both NCAER and CF40 were proposed and discussed by Shekhar Shah, Yu Yongding, Huang Yiping, Sanjaya Baru, and Rajesh Chadha.

MAKE IN INDIA: HOW CAN INDIA HAVE A STRONG STEEL INDUSTRY?

‘Make in India’ cannot have its full impact without making steel in India. If the high, long-term potential of the steel industry in India is to be realized, the government must introduce a comprehensive program of reforms for the industry, according to a new report by NCAER.

The Indian Steel Industry: Key Reforms for a Brighter Future, NCAER’s new research study, sponsored and facilitated by TATA Steel, was launched at a function in New Delhi by Dr V. K. Saraswat, Member, NITI Aayog.

With steel accounting for about 2 per cent of India’s GDP and 16 per cent of its industrial share, a healthy steel sector is vital for the Indian economy, particularly for manufacturing and construction. The Government of India and Prime Minister Modi launched the well-received Make in India programme in 2014. Under this broad umbrella of reforms designed to make India a global manufacturing and supply-chain hub, efforts are underway to improve the ease of doing business, including reform of labor laws, rationalization of land acquisition, and faster provision of transport and connectivity infrastructure, and thereby to promote both foreign and domestic investment in manufacturing and to create the jobs badly needed for India’s growing, young labour force.

Whatever shape India’s much hoped for manufacturing revolution will take, whether to meet export or domestic demand, it will need steel for infrastructure and for manufacturing.  The findings of the NCAER Study suggest that the steel sector in India has a very high potential. While the steel industry in other major economies is aging, with little prospect of high growth, India’s steel industry is young. While many old steel producers are struggling with the difficult task of retrofitting, India as a late-comer has the advantage of leapfrogging to the latest technology that is efficient and environmentally friendly. If India’s economic growth accelerates, the production of steel should increase by several hundred million tons over the next few decades.

But the new NCAER study finds that the enthusiasm about Make in India appears to be bypassing the steel industry. The current condition of the Indian steel industry is dismal, with low profits, low capacity utilization and dim prospects for new private investment, either foreign or domestic. The August 2015 devaluation of the Chinese yuan is further fueling fears about China dumping of steel into the Indian market.  The Study departs from the conventional wisdom that the Indian steel industry is constrained just by usual supply-side factors, such as the availability of land or minerals or environmental clearances, and clearly establishes that the industry is also hampered by inadequate demand and other cyclic, macroeconomic factors.

Dr V K Saraswat, Member, NITI Aayog was the Chief Guest of the event and launched the report in front of the esteemed audience. While releasing the study, Dr Saraswat noted in his opening remarks that, “The Indian steel industry is at crossroads today. There is need for the industry, think tanks and policymakers to start looking at all factors holistically, especially those related to domestic taxation, inverted duty structures, raw material costs and transportation. The Commerce, Steel, Coal, Finance and Railway Ministries need to have a synergistic and integrated outlook to de-stress the sector. Steel is the basic industry to increase the share of manufacturing in the country. We also have to tune our policies with respect to the emerging foreign trade structures. The inclusion of steel in umbrella trade agreements needs to be revisited. We are happy that NCAER and the industry are working towards identifying such issues and we at NITI Aayog support these efforts to provide an impetus to domestic manufacturing.”

The study’s principal author, Dr Ramgopal Agarwala, NCAER, remarked, “There is just no room for complacency about the Indian steel industry.  We are in a harsh international environment and still on the downside of an economic cycle without clear indications of a decided upturn. Many of the investments made during the last upturn are coming on stream just when the demand for steel remains weak because of the yet uncertain investment climate in India and globally.” 

Speaking at the event, Mr Chanakya Chaudhary, Group Director for Corporate Communication & Regulatory Affairs, Tata Steel said, “The Indian Steel Industry is slated to play a key role in the country’s growth story and the “Make in India” programme provides the industry the opportunity to achieve this potential. In this context, NCAER’s new research on, “The Indian Steel Industry: Key Reforms for a Brighter Future” reveals that the steel industry is currently constrained by both supply-side factors such as availability of raw materials, as well as demand-side macroeconomic factors, including imports from steel surplus countries. While the Government has taken cognizance of these challenges, and is making efforts to provide an impetus to the steel industry, there is need for a long term policy perspective for creating a sustainable steel industry in India.”

The Study emphasises that under a business-as-usual scenario, Indian steel is unlikely to meet either the goals of the 12th Five-Year Plan or the goal of some 300 million tonnes of production by 2025 as proposed in the Government’s Draft Steel Policy 2012.

Moving from the current stressed state of the Indian steel industry to the realization of its high potential will not be easy. The Study presents a roadmap for policies and practices that the government and industry need to follow to encourage the growth of a vibrant Indian steel industry for the longer term. The study uncovers eleven roadblocks that it says stand in the way of a brighter future for steel in India. In order to remove those roadblocks, comprehensive reforms, and not just tinkering at the margin with present policies and practices, are needed.

Based on this analysis in the research report, and other work that could be commissioned, NCAER suggests that the Government should consider formulating a new Steel Sector White Paper, with inputs invited from the industry, economists, other market analysts, upstream and downstream industries, and policymakers. Such a White Paper should have the explicit goal of examining what is needed in the short, medium and long term to realize the full potential of the sector, and not just Make in India, but continue to make steel in India in a strategic, commercially viable and environmentally friendly way.
The full report is available here.

A Comprehensive Economic Cooperation Agreement (CECA) between Australian and India is an opportunity for both countries to grow and prosper in the coming decades with aligned economic and trade interests. The CECA negotiations, which are currently underway, aim at liberalising trade in goods and services besides creating a level-playing field to boost investments. Also, other mega regional trade deals; the Regional Comprehensive Economic Partnership of Asia and the Pacific (RCEP), the Trans-Pacific Partnership (TPP), once concluded and implemented, are expected to set the stage for a new generation of global trade and investment rules.

The newer agreements tend to open new markets for goods and services, increase investment opportunities, make trade faster and cheaper and thus in turn leads to deeper coverage.   A comprehensive CECA agreement is expected to address tariff barriers and behind the border restrictions on trade in goods; facilitate growth in services trade and encourage investment by reducing barriers, increasing transparency and enhancing Investment protections.

In this context, NCAER in conjunction with the East Asian Bureau of Economic Research (EABER), Australian National University took the opportunity to examine India’s and Australia’s trade strategies and how CECA will impact them over the next few years. The dialogue provided a platform for expert interactions over a broad range of issues including the prospects for India’s services sector and the domestic & trade and investment reforms needed. Panellists also discussed on how openness in agricultural markets can improve economic outcomes while protecting the welfare of rural households and consumer. The participants included senior government officials, economic researchers and academicians. The concluding roundtable on international, economic reforms & policy review discussed on the domestic reform agenda facing the Modi government and the ways in which India can leverage its international economic engagement to drive the reform process. It also considered the Australian experience of trade liberalisation and domestic reform, with particular reference to independent policy review mechanisms such as the Productivity Commission.

NCAER’s annual model predicts that GDP growth rate (GDP market prices at 2011–12 prices) will grow at 7.5 per cent for 2015–16.

NCAER Team presented the Quarterly Review of the Economy at a seminar held on August 18, 2015. The review covers the performance of the Economy in the first quarter of 2015-16 and forecast for the year head.
The seminar commenced with the opening remarks from Rajesh Chadha, followed by presentation on the State of the Economy by Bornali Bhandari & Mythili Bhasnurmath. Invited as discussants for the seminar, Sabyasachi Kar, Associate Professor, IEG and Devendra Kumar Pant, Chief Economist & Senior Director (Head – Public Finance) India Ratings & Research, presented some very interesting annotation and took on the discussions. This was followed by a presentation by Sonalde Desai on “MGNREGA: A Catalyst for Rural Transformation”, a recently released report by NCAER and University of Maryland

Key Highlights:

In the agricultural sector, performance of monsoon rainfall has been extremely satisfactory in the month of June, however, during the month of July there was a slowdown in rainfall activity. Notwithstanding this the deviation from actual rainfall from the normal during the first half of the monsoon season is barely 3.1% (deviation based on rainfall indices computed on the basis of un-irrigated area under foodgrains as weights). As a result, the sown area under all Kharif crops is up by 5% as compared to the corresponding period of last year, led by an increase in area under cereals, pulses, and oilseeds. The outlook for the second phase of monsoon season, however, remains mixed due to differences in forecasts made by the official and private forecasting agencies and much will depend on how monsoon rainfall progresses going forward.

Index of Industrial Production (IIP) registered 3.2% year-on-year growth in the first quarter of 2015–16, maintaining its growth momentum from the fourth quarter of the last fiscal at 3.3%. It was lower than the 4.5% growth in 2014-15:Q1. However, looking at deseasonalised quarterly data, IIP registered 2.1% quarter-on-quarter growth in 2014-15:Q1. It grew negatively in the next two quarters before reviving growth in the fourth quarter at 2.0%. It continued to grow at 2.0% in the first quarter of the current fiscal. These indicate that India is growing but not at higher rates than last year.

The lead indicators of the services sector also indicate trends similar to the last quarter of the previous fiscal year whether it is tourist arrivals, revenue earning goods traffic by railways, cargo handled at major ports, new telephone connections and growth in aggregate deposits. Though, domestic air passenger traffic shows double digit year-on-year growth (19.5%) in 2015–16:Q1.

Inflation rates show a distinctive downward trend driven by fall in global commodity prices and weak demand. Satisfactory rainfall in the first half of the monsoon season has also kept food prices low except for pulses. However, as reported, the RBI Inflationary expectations have edged towards double digits in June 2015. Further, there is an upward movement in the change in the rate of inflation in the first quarter, which if not addressed can potentially affect inflation through higher expectations.

Thus, key policy rates were left unchanged amidst higher household inflationary expectations, slower pace of domestic economic recovery, and uncertainties in the global markets.

On the fiscal sector, revenue receipts have increased in the first quarter of the current fiscal, buoyed by increases in indirect taxation. Capital account plan expenditure has risen in the first quarter of the current fiscal signalling that the government is on track in tackling the infrastructure deficit in the country. Fiscal deficit as a percent of GDP has already reached approximately 50 per cent of its budget estimates, similar to last fiscal.

In sum, satisfactory rainfall in the first half of the south-west monsoon season if sustained may help revive rural demand. Lower inflation due to lower commodity prices and lower food inflation may spur demand. The indicators from the first quarter suggest that agriculture, industry and services are continuing to grow at same or almost similar rates as was the case in the fourth quarter of the previous fiscal. The turbulences in the world economy though add elements uncertainty to the growth path of the Indian economy. Overall, India is predicted to achieve a marginally higher rate of growth of 7.5% than last year (7.3%).