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A Simulation Analysis of India’s Duty-Free Trade Preference Scheme

This paper by NCAER project team led by Dr Rajesh Chadha, Senior Research Counsellor, been produced under the International Centre for Trade and Sustainable Development (ICTSD) Programme on Competitiveness and Development. The objective of this study is to analyse the likely impacts of the trade preference scheme on India and the AFLDCs. The study is premised on the view that an enhanced engagement of India with AFLDCs will allow India to deepen South-South trade cooperation.

From Tapering to Tightening—the Impact of the US Lift-off on East Asian Countries

The “tapering talk” starting on May 22, 2013, when Federal Reserve Chairman Ben Bernanke first spoke of the possibility of the U.S. central bank reducing its security purchases, had a sharp negative impact on emerging markets. India was among those hardest hit. The rupee depreciated by 18 percent at one point, causing concerns that the country was heading toward a financial crisis. This paper contends that India was adversely impacted because it had received large capital flows in prior years and had large and liquid financial markets that were a convenient target for investors seeking to rebalance away from emerging markets. In addition, India’s macroeconomic conditions had weakened in prior years, which rendered the economy vulnerable to capital outflows and limited the policy room for maneuver. The paper finds that the measures adopted to handle the impact of the tapering talk were not effective in stabilizing the financial markets and restoring confidence, implying that there may not be any easy choices when a country is caught in the midst of rebalancing of global portfolios. The authors suggest putting in place a medium-term policy framework that limits vulnerabilities in advance, while maximizing the policy space for responding to shocks. Elements of such a framework include a sound fiscal balance, sustainable current account deficit, and environment conducive to investment. In addition, India should continue to encourage relatively stable longer-term flows and discourage volatile short-term flows, hold a larger stock of reserves, avoid excessive appreciation of the exchange rate through interventions with the use of reserves and macroprudential policy, and prepare the banks and firms to handle greater exchange rate volatility.

Reports on Regional Tourism Satellite Account, 2009-10: Phase I

This is the first in a series of reports that NCAER has prepared on detailed tourism satellite accounts for the states and Union Territories of India. This study was commissioned by the Ministry of Tourism in the Government of India in 2013 to compile Regional Tourism Satellite Account for all states and UTs of India for the base year 2009-10 in order to facilitate a complete understanding of the tourism sector. The first report covers the states of Andhra Pradesh, Bihar, Gujarat, Jammu & Kashmir, Punjab, Rajasthan, Sikkim, Tripura, Tamil Nadu, and West Bengal.

2009|10, Phase I, Reports

Reports on Regional Tourism Satellite Account, 2009-10: Phase II

Reports on Regional Tourism Satellite Account, 2015-16: Phase III

India’s sanitation needs: NCAER’s research findings cited in the New York Times

India may finally be on the verge of making progress on eradicating one of its most intractable problems: open defecation because of a lack of toilets. Prime Minister Narendra Modi deserves credit for focusing on the scourge. But it will take more than words to solve a problem the nation’s leaders have been promising to solve for decades.

 

The World Health Organization estimates that more than 600 million Indians lack access to a toilet. Open defecation is a cause of diarrheal disease that sickens and kills thousands of children in India every year and the lack of toilets often puts women at risk of attack.

 

In 2012 the minister of drinking water and sanitation at the time Jairam Ramesh redoubled the government’s efforts starting the Clean India Campaign. But it barely got off the ground before national election campaigning began in 2013 and Mr. Ramesh’s party was voted out of office in May.

 

That month just after Mr. Modi became prime minister two teenage girls were murdered and their bodies were found hanging from a tree near their village after they had ventured out at night to relieve themselves. Mr. Modi astutely used public anger to focus attention on the problem. He announced an ambitious national cleanliness campaign to begin on Gandhi’s birthday on Oct. 2 pledging that every school will have separate toilets for boys and girls by October 2015 and that by 2019 all Indians will have access to a toilet.

 

This will not be easy. Some Indians are repulsed by the idea of having a toilet which they associate with uncleanliness and the caste now known as Dalits in their home. Others according to research by the National Council of Applied Economic Research are wary of the hygiene and odor of seepage-pit toilets typically installed under government programs.

 

Changing entrenched attitudes and building the 12.5 million toilets that the Ministry of Drinking Water and Sanitation hopes to have in place by 2019 will be a colossal challenge. Mr. Modi’s continued leadership is needed as is the participation of the private sector and nonprofit groups.

 

The findings of NCAER’s India Human Development Survey has been quoted in the above editorial

Slowdown hit small firms harder in FY14

Mumbai: The slowdown in economic growth last fiscal and the resultant weakness in demand has hit small enterprises harder than their larger counterparts latest data from the Reserve Bank of India (RBI) shows.

 

Companies with revenue of less than Rs.25 crore saw sales contract by 63% in the year ended 31 March while companies with revenue between Rs.25 crore and Rs.50 crore saw a 16.5% drop in sales from a year earlier according to RBI data released on Tuesday. Overall sales growth for all companies analyzed was at 4.7% the data show.
The analysis is based on the abridged financial results of 2854 publicly traded non-government and non-financial companies. For firms with a revenue of anywhere between Rs.50 crore and Rs.100 crore sales dropped 7.7% from a year ago while for companies with sales between Rs.100 crore and Rs.500 crore revenue declined 0.5%.
The performance of small companies has been declining since 2011-12 when sales for these companies saw a 28.5% fall followed by a 29.3% contraction in 2012-13 according to data from the central bank.
“While the sales growth of large companies (sales of more than Rs.1000 crore) moderated sales growth of companies with annual sales between Rs.500 crore and Rs.1000 crore remained near stagnant and sales of smaller companies continued to contract” RBI said in its accompanying press release.
As GDP growth remained below 5% for the second consecutive year in 2013-14 sales growth across most domestic demand-oriented firms took a hit. Small-sized firms which typically work with large corporates as suppliers or manufacturers are the first to take a hit as bigger corporates delay payments and cut down orders analysts said.
“Based on my interactions with smaller companies the biggest concern for these firms is the non-diversified nature of business. Many are only dependent on one or two customers or markets so in a slowdown if one of them goes away the company gets drastically affected” said Kalpana Jain senior director at Deloitte Touche Tohmatsu India. “Some industries like automobiles have also seen consolidation with big companies reducing their auto component vendors.
” Meanwhile the same data also shows that the interest-to-sales ratio of such companies rose to 27.4 times compared with 10.5 times in the 2013 fiscal. This implies that interest costs for these companies have increased more than the revenue and the companies are not generating enough sales to cover interest payments.
Further the credit health specifically their debt servicing ability is also deteriorating. The interest coverage ratio which gauges the ability of a company to pay interest from its operating profit for these small companies declined to -0.5 times from -0.3 times a year ago.
An interest coverage ratio of less than one indicates that the firm would struggle to repay the interest.
Experts say that the deterioration is largely because of a drop in profitability rather than an increase in debt taken on by these companies.
“Credit growth to this group has been quiet slow in the past few quarters sequentially specifically when these companies require very high working capital compared to others” said Deep Mukherjee senior director corporate ratings at India Ratings and Research Pvt. Ltd.
“If they are not getting the required funds then it affects the business and many times the profits go to a very low base forcing many to change the nature of their operations like manufacturers become traders” he said.
The stress being faced by small and medium enterprises has also shown up in the number of companies which have applied to the Board for Industrial and Financial Reconstruction (BIFR). The year 2013 saw the highest number of applications in at least seven years with 92 companies applying for sick status. The number of firms applying in 2014 till now has already reached 34.
BIFR an agency under the finance ministry determines whether a company has turned sick and assists in helping rescue viable parts of its business while shutting down or disposing of those that are found to be beyond revival. In order to be determined “sick” a company’s accumulated losses should be equal to or more than its net worth according to the criteria cited on BIFR’s website.
To be sure smaller companies are now seeing a turnaround in business activity. According to the Business Confidence Index (BCI) a survey of 629 companies by the National Council of Applied Economic Research (NCAER) firms with an annual sales of between Rs.100 crore-Rs.500 crore showed the highest percentage increase in confidence over the last round of survey in the June quarter. NCAER is an independent economic think-tank.
 “Right now the outlook for smaller companies is far more positive and many are gung-ho about the reviving sentiment in the economy” Deloitte’s Jain said.

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