Monday, December 11, 2017




Many decrees of governments all over the world, though they may be issued in public interest, defy the innocence of public interest. Has there been any review that how government’s policies prevailing at the time when the loan was under consideration and subsequently after the disbursal have been changed by the governments themselves to the detriment of the repayment of the same loan by the debtor.   Then these very governments castigate blame on corporates and banks for NPAs or stressed loans faulting liberal or wrong appraisals for promotors or gold plated loans for political funding of projects and businesses. This is not to imply that there are no black sheep businessmen and bankers—but these could be “some” and not all.  
To isolate themselves from any blame and blemish, these policymakers devise new policies with moral and ethical norms e.g. promotors of these failed projects cannot bid for their sick units.  Thus governments become the “Do-Gooder” and the rest villains of the first and last resort. But even with the new decrees some proxy promotors will again emerge locally or some foreign associates will bid discreetly. That will lead to a fresh round of investigations after the bidding. The business world is too complex to be appropriated by a few in the bureaucracy.
 Authorities also need to introspect that how much their own policy decisions –modified and changed –from time to time have created irrevocable indebtedness to the industry which gets transmitted to the banks and other financial institutions.
Swaminathan Aiyer in his article in Times of India of 26th November writes—“Railway minister Piyush Goyal said last week that the railways would be completely electrified by 2022, phasing out diesel locomotives. Earlier, transport minister Nitin Gadkari decreed that all car production would have to be electric after 2030, heralding the end of petrol and diesel cars. Yet petroleum minister Dharmendra Pradhan wants to double India’s oil refinery capacity, and later take it to 600 million tonnes from today’s 230 million tonnes. Do these ministers talk to one another?”
Then Swami concludes – “If bankers are not very careful in financing refinery expansion, they will end up with massive bad debts…. “Why invest in this sunset sector”? But who will question the government on the bona fide of the decision of refinery expansion --when the banks are stripped off of their wealth.
How much shock treatment all corporates—small, medium and large-- suffered because of suddenness and unpreparedness of demonetization? Are not complexities of GST bones stuck in the throat of the economy?  Will it not create more stress in the business and banking sector?
On 27th November 2017, Sunil Mittal of Airtel stated "My estimate is about $40-50 billion have been written off by various companies, many of whom are international investors. It (the write-offs) is largely due to Jio...the pricing. Having such a long, free promotional period and in some sense, decided by laws of the land in their favour, is unheard of. In my opinion, in Europe or US, this would have been stopped. It would have been seen as predatory”.

Then there are instances where Government suddenly prefers to induct new technology – certainly a progressive decision—just like in Electric Vehicles. But where will the current investment in petrol/Diesel sectors go?? Should this new EV investments be made at a measured pace or instantly??
And in some cases government opposes the induction of new technology. Take the case of GM seeds—we have refrained from quick adoption. Had GM soy seeds introduced –it may have led to the crash of Soy and Soy oil prices in the country –which may not be palatable to farmers and the mills!!
In 2008, UPA Government banned export of non-basmati rice as knee jerk reaction—that had no justification or rationale. There was no scarcity of rice within the country. Many Sortexed rice units were set up in those years—2004-08-- in AP-Kakinada –with the state of art technology. Funds of more than Rs.1000crores were invested by the banks. The promotors were in tears for three years until the ban was lifted in September 2011. None will point finger at the Government on the adhocism. For the last seven years Rice has been the only viable export from Agri –commodities.
One can go on with such issues e.g. On stocking of 2 million pulses by the government agencies last year and now remaining unsold; creation of National Food Security Act of 2013 and building huge stocks of grains in preceding years –but now NFSA is virtually abandoned. None is accountable for decisions which were more political, than based upon economic rationale, and sunk funds of tax payers.
If a visit is made in any of the Government office—generally the secretaries and their subordinates are either preparing cabinet notes on new policies or preparing replies to the parliament questions. The former creates the problem afresh and the latter are the answers to the problem surfaced from the previous policy profiles.
Though governments are not innocent players in policy making, the inter se-competition within the industry and the rapidness of technological changes are also responsible for the rise and fall of businesses and resulting consequences in the financial sector—called twin balance sheet problems.

Friday, December 1, 2017



Extensive media reporting on surging prices of Bitcoin (BC)—about Rs 2.50 lakh/bitcoin in September 2017 to Rs8. 50 lakh/bitcoin on 30th November 2017— has created a lot of curiosity and people are trying to understand the concept behind it. BC is a complicated 40 letter code that can be interpreted by a computer. Its owners can access it through select platforms/exchanges by logging into such websites.
Agri or metal commodities can be seen as an asset or merchandises.  Bitcoin( BC) is akin to a cyber-commodity that cannot be seen or held in hand like goods or other paper currencies.  There is no clarity who was the creator of this currency but a pseudo Japanese name of Satoshi Nakamoto is deemed to be its originator who developed a program around 2008 for chaining the computers in a block –called block chain—that cannot be interfered by any single desk or computer operator.
 Block chain appears to be a software protocol of highest transactional security. For example, land/ property records of sale and purchase from inception can be recorded in the Blockchains ledger in a transparent manner. All business related payments under a contract can be accessed with date and time and archived records can be kept in the public ledger. The developers of the block chain called miners –get or obtain “by- products” called BC.

The said open source program of Nakamoto can give birth to 21 million BC and this number cannot be increased,  the way, FED prints paper or electronic money or RBI runs the printing presses to manage the supply/demand of rupee. Here is a case where supply is limited while demand is open. However there are other crypto currencies like Ethereum and Ripple and many more—but BC is the most traded high value cashless cash.
An analogical paradigm can be given to simplify the understanding. Sugar produced from sugarcane delivers molasses and bagasse—both for different applications. If sugar is the sweet Blockchain then Molasses or alcohol is the Bitcoin. Without the sugar there cannot be molasses/alcohol and the same is the relationship between Blockchains and BCs.  Just as there could be relationship between sugar recovery and molasses residues, it can be imagined that there may be some ratio between the block chain mined and BC produced.
As of now about 14 million BCs (2/3 of total 21 million) have been produced.  The cost of production of BC rises with every additional BC-because solving the “algo riddle” takes more power and computers. As the count of mining rises, so does the time and cost.  China is the major miner while South Korea, Japan, USA, Russia, UK , parts of Euro are also creating both Block chains and BCs.
Though Japan and South Korea are officially supporting trading of BCs, China is dithering—off and on. In US, CME has decided to trade future of BCsthe position of the FED is unclear. It is also being traded in some exchanges in India—fully supported by banking channels—while RBI is keeping its options open.
 The confusion in the official circles internationally may stem from the fact that this novel and secure technology—that has been a virtually mind blowing invention since the internet—cannot be wished away. Since BCs get coded in a protocol  of multiple computers, it can be transferred through QR to any address worldwide like paytm and the receiver will get money in the currency of that country.
It amounts to money laundering--sofar as the legal aspect is concerned. However if the beneficiary pays tax on the profit or premium earned then the position also needs to be checked. Apart from the market risk, there is Govt risk of intervention and that is more pronounced.  The market risk is not from the pricing of BCs but from the trading platforms as to how genuine they are.
Why price of BC is ascending so steeply in short time. One of the imagined ideas is that there is a lot of cash lying in the world that needs to be absorbed or maintained in safe heavens. What could be simplest way if large amount can be codified and accessed at will through internet? Then no one needs Panama or Paradise papers!!
Another reason is the arbitrariness of USA by which it can impose sanctions on countries like Russia, Iran and others in the foreseeable future. Entire Middle-East is having very tumultuous relations with USA and Euro Zone. Falling crude oil prices can create severe economic crisis in all OPEC nations and the rulers will try to move their assets via cryptocurrencies =--where neither the banks or governments are involved.
 Countries like Syria Iraq, Turkey would like to have freedom from Nostros accounts settlements in USA. Citizens of the countries like Brazil, Argentina, Ukraine where currency depreciation can erode the basic value of savings will also prefer BC money. Keeping money with USA controlled territories could therefore be risky. China’s too have strained economic ties with USA.
Many analysts have termed it as a bubble—especially chief of JP Morgan and Warren Buffet, as there is no underlying commodity to support its value----just like many penny stocks. If that happens then all the cash money will disappear in seconds from the face of this globe.
If USA centric financial system can be replaced by Blockchains technologies, then this is it. The way the world transacts business will undergo unimaginable transformation. But will USA and other Governments let that happen because then they will have lesser controls on the money in circulation??
There are ideas of BC replacing Gold as an investment and saving in India. But that is a very far-fetched notion.  Indians like to see physical precious metal/jewllery as their savior and cannot be content with invisible software. Accessing Bitcoin through internet is another limitation for the common man. Some marginal reduction in gold imports may be feasible if BC becomes acceptable mode of investment. For that to happen, Indian Government needs to officially acknowledge BC trading and put a regulatory frame work in place.

Wednesday, November 22, 2017


On 18th November 2017 government notified higher import duties on the whole range of edible and non –edible oils. That increase varies from 50% to 100% while some items have got duty hike of 75 %.( See chart). Such oils are imported from Indonesia, Malaysia, Argentina, Brazil and Ukraine. No doubt the intent behind higher levies is to provide protection to the domestic producers/farmers and processors. Between crude and refined categories difference/spread of 15% in duties is now assured-that would mean more import of crude oils—that will be processed locally.   Elevated duties will lead to higher local prices, whose burden will be borne by consumers and government will not subsidise users—a well thought of move.  But importers/traders having about 2 million tons of duty paid edible oil in the pipeline/stocks will get a one-time benefit.
There has been a consistent demand from the seed crushing units and oil meal exporters, represented by their respective associations to make viable their units with respect to imported oils whose demand has surged from 10 mill tons in 2012 to 15.5 mill tons last year, while Indian farmers are selling oilseeds below 15-20% of MSP (See chart). There is hardly any differential in October 2017 CIF prices of crude ($715/ton ) and refined palm oil($717) which are predominantly sourced from Indonesia and as such that is prompting more imports of refined oil. This adversely affects capacity utilization of Indian processing units.
Indian authorities have prudently reacted to this situation to outsmart the game played by international sellers to push their value added refined oil in our country while depriving share due to Indian oil seed industry. Logically this should also bring export parity with oil meal items from Argentina and Brazil and stimulate export of oil meals. What will be demand compression in import of oils from Indian side may be known by October 2018 but expected to be marginal only due to rising consumption of oils in the country.
On 10th November 2017, import tariff of 50% was imposed on yellow peas from the previous level of zero percent. Their CIF values recently have been $270-$300/ton.  These Peas account for 40-50% of total import requirement of pulses. Yellow peas are largely sourced from Canada, USA, Russia, Ukraine, and France and have seen substantial substitution with consumer in preference to expensive Chana (Australia Chana is at $750cif/ton).  With 50% duty higher yellow pea’s values will increase prices of Indian Chana, which are ruling below MSP, and thus farmers will be induced to sow more of Chana. Good for the Indian farmers. Yellow peas and Chana prices went up by Rs 5000/ton on the day 50% duty was announced on peas.
Higher Chana prices will also have similar effect on other pulses. Government also applied quantitative restrictions to  imports of some the pulses  to 2 lakh tons—in order to push up local prices and also to liquidate stocks of about 1.8 mill tons of pulses held by official agencies. Hope the lesson is learnt that procurement of pulses by public sector agencies is no solution to resolve issue of excess supplies in any particular year. Losses, as usual, for this disposal will have to be borne by the Government.  Action to open export of pulses under OGL will not mitigate the problem of official agencies due to the quality of stored pulses having gone bad due to their shorter shelf life.
On 8th November 2017 import duty on wheat was doubled from 10% to 20% to restrict cheaper imports from Russia and Ukraine. MSP of wheat is also raised by 7%. Thus duty effect will be largely offset by higher MSP and to some extent by stronger rupee. Should there be weaker crop of wheat next year or abnormal price increases of wheat in the Southern part of the India, duty can always be rolled back—while MSP cannot be altered. Thus such an emergent eventuality can be corrected. All price hikes are to the account of consumer.
In July 2017, import duty on sugar was hiked to 50% from 40% --from previous level of 25%--determined in April 2015. At the same time import of half a million ton was authorised under TRQ—duty free.
A consistent pattern has emerged out of the aforesaid actions of Government—that signals a quick review of duties to control the problems to manage local prices for the benefit of Indian farmers and factories by shifting the onus of price rise to the consumers. At the same time if consumers suffer disproportionate load of such duties impositions, then policymakers are/can quick to role back or reduce the tariff as in the case of wheat for last two years where duty is corrected eight times. This portends well for short term aberrations. But in Agro-items, where weather is the dominant factor—these anomalies occur with higher frequency.
Annual whole sale price inflation of food article is 4.8% while it is negative in case of oil seeds (-2.5%), wheat (-2%) pulses (-31%) and (0.65%) for vegetable oils. With this type of data on record—there is hardly any risk of inflationary pressures on food side.
Demerits are that India looks to be an inefficient producer of agro-items. Unless significant duty protection is conferred on Indian farmers, they will not be competitive with the rest of the world. This is neagtive from the agro production policies. There are usual prescriptions of usage of high technology seeds, better farming practices, obtaining higher yields, good storage facilities, incentivizing farmers etc.—but no tangible results are forthcoming except in case of Basmati rice, cotton and sugarcane.  Since we have ignored WTO so far and also being a very large importer, we may muscle through with such exorbitant duties—but in the long run there is no escape from attaining inherent competitiveness.    
Apparently food ministry is doing day to day management while agriculture ministry also needs to be proactive.

Friday, November 17, 2017


The very notion that political power will ensure peace in the nations or in the world or provide peace of mind personally or to the individuals or the public at large is highly presumptuous. Power is often gained through promises of serving the people either through elections or nominations-- but the veiled objective is to serve the “self /ego self” of a select minority. Man’s essential nature is first to love his own self and then follows welfare of others. 
The people in power are struggling because they are desperate to retain power and those who are out of power want to snatch that power, and thus both sides are in turmoil. The haves and have nots of power both lose tranquility of mind. And that manifests itself as a struggle of opponents or war or skirmishes—creating tense situations. One of the prime attributes of power is that it is transitory and must slip through from one hand to another—just like ice melts in to water, and vanishes or refrozen in another container.
Authority vested in an individual(s)/political parties creates a class of rulers/ leaders who regard themselves superior to rest of the public and population. Such disparities of superiority and inferiority breed imbalance in the society that is contrary to the Nature’s prescription of maintaining a balance in its own way. To mankind Nature seems to be running the world arbitrarily—but even if it be true (while it is not true from higher perspective)—men cannot arrogate the power of Nature to themselves to conduct their affairs arbitrarily.
In its pursuit of being more and more powerful, men and nations have been building political and military affiliations and arsenals since ages—starting from guns to Nuclear deterrents and electronic warfare but the peace has remained evasive.  
Today the most powerful and wealthiest nation of the world, USA, is stuck with –nothing to lose, North Korea. Who is more scared now—USA or North Korea??  Surely USA, with its GDP of $19 trillion, it will suffer a fatal blow versus N. Korea’s GDP of $28 billion or about 0.15% of USA’s GDP. Rest of the world including China, EU, India who too have intimate international economic linkages, will get a mortal blow—if USA or North Korea or any other intermediary  chooses to flex its military muscle. The world will be oblivious to the extinction of counterparties like North Korea. But powerful nations have more to lose than those with much lesser capabilities. Being powerful is no panacea for peace but extremely perilous.
The fight for controlling crude oil in Middle-East now appears to be short-sighted as the world would soon see alternative sources of energy. USA and some western nations joined hands to become “powerful parties” to the takeover of Iraqi regime in 2003. They spilled blood and killed thousands of men that the world is still living through the pain of that misadventure. One surely cannot build one’s kingdom of heaven on the hell of others. Islamic anger is now pitted against these very powers and they are so much alarmed that any incident of violence is first linked and checked with Muslim fundamentalism. Where is the peace of the Power??  West is equally worried about the very mutation of its demographic profiles with the immigrants from Middle –East moving to Europe.
President Trump wishes to make America “more powerful”. The Economists wrote on 11th November 2017 editorial –“For all its flaws, America has long been the greatest force for good in the world, upholding the liberal order and offering an example of how democracy works. All that is imperilled by a president, who believes, that strong nations look out only for themselves. By putting “America First”, he makes it weaker, and the world worse off.”
India and Pakistan are daily fighting across the border. None dare use the nuclear option first. The threat of holocaust by nuclear explosion by either side chills the nervous system with thoughts of simultaneous destruction of hard earned national wealth of both sides. Can the tension of an unfriendly neighbour by being powerful helps? Instead mutual fear has diverted billion dollars of resources of both countries for acquiring lethal equipment and maintaining larger armed forces.
Power struggle is seen to be at peak in Gujarat that could be well recognised from media—and from social media, adding its own spices.  It is so believed that trend of power platform of 2019 elections will be decided by this tussle.  The nation, political parties and the voters will be part of this power turmoil till elections of 2019, as of now.
Though Charles Darwin prophesied “survival of the fittest” for the different species of Nature in diverse ecological conditions, men have applied this to creating division within the mankind itself. It is being misunderstood as rule of the strong over the weak. The law of Nature is –if strong rules the weak, then weak will rule the strong. The question—how that is feasible? Inherent feature of Nature is to maintain balance. Should that balance be disturbed or interrupted, Nature will support the weak to wreck the strong. And when Nature delivers its judgement it requires no judge or lawyer or witnesses or affidavits except that the principle of “as shall you sow so shall you reap” prevails. Men will not learn from such Natural interventions. And Nature will continue to its work as when needed.

Monday, November 13, 2017


(Trade Analyst)
The period prior to Socrates in Greece–that is of Sophists –about 2600 years back, believed that right and wrong are relative—so are good and evil. Sophists were adept in proving right as wrong and vice versa, by clever play of logic and rhetoric.
But Socrates argued that people are largely ignorant of what they want. Unless people acquire a life of good virtues-- wisdom, courage, justice and temperance-- they are bound to regret. For example—all of us believe in seeking happiness as the prime purpose of life and therefore material wealth, powerful position, good family and social life are of paramount importance. In pursuit of these very objectives, there is more pain than pleasure. The so called Happiness is riddled with fear and worries of all sorts or with concerns of losing what we have, and therefore is illusory.
In modern democratic world too, people elect leaders for more comfortable life with their expectations linked to promises made by prominent politicians. These leaders take advantage of the lesser awareness of the people and flatter their feelings for winning elections. After a few months and/ or a few years, those very people who elect leader(s) with resounding victory, start blaming the polity that “what they wanted” is not delivered. Rulers suffer pain of this politicking by fear of losing power.
Socrates hypothesis maintains that people who are virtuous must choose leader in a democracy. But who will decide as to who are wise and virtuous—and not clever –is the question that begs an answer. Socrates had to drink hemlock of poison for adherence to this philosophy of virtues for a democratic set up. Today—Socrates is alive in thoughts of the world—while his killers remain forgotten.
In most developed parts of the world, where people are even well educated and well informed have also exposed themselves to national pain in the hope of gain.  David Cameroon, the former British Prime Minister, never expected that Britain would vote for termination of its alliance with EU under Brexit referendum.  On 23rd June 2016, 51.9% of the participating UK electorate (turnout was 72.2% of the electorate) voted to leave the EU. 1.9% is a miniscule majority to offset the rest of 48.1% as minority.  Thus 34.5% (72.2x51.9) of British electorate is deciding fate of 100%, but now trapped in concerns of trade matters with EU and cheaper labour from Eastern Europe etc. Cheerleaders of Brexit are in a predicament.  Was Britain earlier decision to join EU by a majority  right or wrong? Education alone does not bestow wisdom when considered in the political context.
USA voted for Mr. Trump as President because of racial considerations, promises of getting rid of Islamic conflicts worldwide-- especially US’s continued involvement in Iraq and Afghanistan- and for ejection of neighboring illegal Mexican, Puerto-Ricans immigrants. That would make USA a safer place, was so believed.  But the honeymoon with Trump ended within a few weeks. Americans realized that-- a democratic country cannot be run like a CEO of a corporate entity by executive orders; illegal immigrants are the cheapest channels of services; while Iraq/Afghanistan and Islamic clashes have been historically messed up. Expectations of the people stand belied especially when the Russian role in US presidential election is under investigation. Numerical majority to be considered as determining majority may not be right. That again validates Socrates.
Prime Minister Modi came in at the very right moment in 2014 when there was a policy paralysis. He sincerely offered a dream world of minimum governance, improved socio-economic conditions, induction of new technologies, doubling farmers’ income, “acche din”, dealing with Pakistan from position of strength, creating an aura of powerful nation in the world and vowed to eliminate corruption.
People believed in his avatar as political messiah.  His decision of demonetization though understood as ethical, has created deeply divided opinion of supporters and detractors. In the short term, GDP has seen a declining curve with loss of jobs in the informal economy as reported in the media. GST—as a work in progress—has too been terribly mishandled in detailing. Prices of farm produce are lower—affecting Agri-income. PSU banks are riddled with rising NPAs while political blame game goes on. Exports are tepid.
Supporters of Mr. Modi are optimistic of long term benefits while others see more pain in coming months. A section of the society, especially traders and small businesses are now brooding over his initiatives.  The common complaint is that he over promised. The pain in undergoing real transformation undertaken by Mr. Modi is quite severe that is incompatible with mindset of diversity of Indian society. These very people are now questioning that under whose mandate the pain is being inflicted while many good things (like Jan Dhan account, Swacch Bharat, Ease of doing business etc) he initiated are taken for granted.
Here the issue is not that Mr. Modi overpromised but lack of awareness in the people about tangible reforms and progress—and not merely tinkering of reforms. New technology and novel policy profiles will bring in creative destruction. 
When arrays of decisions are made for the larger welfare of the nation and society, the prevailing systems and the society should be able to absorb shocks, for which India is not ready. Perhaps Socrates was again right that the ruler, the ruled, the reform and the system should all be in harmony for progress. But such an ideal situation cannot exist in this world of imperfection.

Tuesday, October 31, 2017


Traders are a smarter lot. They speculate and exploit each and every opportunity. Traders cannot be more thankful when the government gives them a reason to cheer. Sometimes rumors of imposition of higher import tariffs, intended to protect domestic producers and restrict cheaper imports, can also help traders in some ways. At the same time higher MSP meant to help farmers, gives an immediate advantage to the trade because market prices move up right away even through new crop will arrive in next April.
Wheat is a case in a point, where policymakers have been frequently fiddling with custom duty to regulate imports to maintain supply-demand balance. To be precise import duty has been changed seven times since August 2015. Thus, such a rapid frequency of tariff treatments give rise market gossip that is treated with a spark of truth.
A steady flow of wheat import during last three years by the private trade/MNCs caters to private demand of country—mostly in southern states—while the central pool managed by FCI from annual local procurement of about 23-33 million tons (mts) is stored, and then used for Public Distribution System (PDS). FCI stocks declined to about 8 million tons (mts) on 1st April2017 when buffer requirement is 7.5 mts.
Recently media widely reported that authorities are considering yet another hike—eighth alteration- in import duty from existing level of 10% to 20%-25%. The very speculation in anticipated duty structure has lifted the price of imported wheat—sourced mostly from Russia/Ukraine-- from Rs 17500/ton to Rs 18500/ton ex Tuticorin. It made importers smile with money in their pockets, because before this rumor mill, they were unable to dispose of imported stocks for want of parity—that is their landed cost was marginally higher than local values or they were fearing losses. Importers who either diverted or cancelled their wheat cargos on the basis of this hearsay may have regretted. (Reports of about 0.3mt having been cancelled/diverted are circulating in the market)  This surge by Rs 1000/mt will also assist local farmers, carrying old stocks, to sell grain at better values.
What gives further credence to this speculation is that Government needs to encourage more sowing of wheat by the farmers in this Rabi season on the ideas of realizing better market values for their crop next year (marketing tear 2018-19). Secondly wheat inflation is in the negative zone (see chart) for last four months—about minus 1.71 in September 2017-and thus additional duty will be virtually neutral to macro inflation.
New MSP of wheat has been notified at Rs 17350/ton—higher by Rs1100/ton from previous year.  If Government now actually inflates duty by 10% -- scaling it to 20%-- trade will factor in the MSP, raised by about 7.2%, that will elevate local prices also. For importers, tariff increase of 10% would be substantially offset by higher MSP and make imports during December2017-February 2018 viable.
It is quite possible that by December 2017, Government may again reduce duty to nil or revert  to 10%--the ninth time modification-- to once more facilitate import because trade is aware that maximum pressure on reduction in official stocks starts from December onwards because farmers are left with little grains with them.  Though government maintains 2017-18 production at 97 mts, some section in the trade peg output at 92-93 mts. Proponents of the alternative view foresee another import wave of wheat after December 2017 of additional 1mt—making it total of 2.2 mt in 2017-18. However, International Grain Council, London estimates that India might import 4 mt in 2017-18 against 6 mt last year)based upon its projection of annual wheat consumption of 100mt.
The fluctuating pattern of duty determination is amply suitable for MNCs (Multinational Corporations) rather than local importers who are India centric. MNCs can take an advance position at the origins—Russia/Ukraine/Australia etc.—at cheaper cost for forward months. In the event of disparity in local market directly when delivery period is approaching or if there is a non-viability in sale price triggered by tariffs—they can divert the cargo to nearby destinations like Bangladesh, Sri-Lanka, UAE, and Oman etc. MNCs also have expertise in hedging their position in international future stock exchanges like CBOT to minimize losses.
 Indian importers and flour millers lack both financial muscle and proficiency in hedging. In 2016-17 Indian wheat import was about $1.27 billion –Australia $525 mill; Ukraine$603mill, Russia$33mill; others 107mill. Trade expects much higher flows from Russia after December 2017 of 11.5% protein crop than from other countries.
OMSS price of Rs 17950/ton ex -Panjab costs more than Rs 20000/ton in southern states after accounting for freight and incidentals. Should international prices remain within $220 cif/mt or so, higher duties may not have the effect of blocking the exports. (see chart).
Government will do well not to release excessive stocks from the central pool in the market because FCI/agencies have to assure adequacy of reserves and buffer norms. There are reports of moisture stress in Rajasthan and MP in this Rabi season and attaining production of 100 mts in marketing year 2018-19 will be a challenge; and so will be the realizing procurement target of 33 mts next year.

Tuesday, October 17, 2017


The general perception is that gold and diamond imports are guzzlers of precious foreign exchange. This impression is totally misplaced.  If import and export of these items of last six years is analyzed, then the trend that emerges is that there is significant “value addition” when gold as jewllery is exported and rough diamonds are shipped out as cut and polished diamonds. (Data is collated from Gems & Jewllery Export promotion Council (GJEPC), sponsored by Ministry of Commerce.)
In respect of composite sector  (chart 1)consisting of import of gold bars, silver, rough diamonds, pearls etc. there has been consistent value addition since 2012 rising to 34% in 2016 and around 23% in 2017. Likewise if gold bar imports are considered in isolation, there is a steep value addition since 2015 touching 81% and at 104% in 2016 (chart 2).   $4.15 billion of gold bar imports of 2015 have yielded about $8.55 billion of exports; it equals net exports of $4.37 billion. With surplus forex earning by the precious metal and precious stone sector, notion of depletion or pressure in FX reserves due to their imports is erroneous. Infact gold jewllery/ polished diamond exports etc. are more than FX neutral. It could also mean that Indians household may be using a major portion of recycled gold instead of relying upon fresh imports.
Total value addition by gold jewllery and diamonds, pearls, precious stones etc. is about $26 billion in last six tears or averaging about $4 billion per annum of FX earnings. This is the result of skilled craftsman ship and efficient trading practices of import and exports where price sensitivity is at its peak. Compared to that average annual export of $4 billion of Basmati rice is highly water and labor intensive including the use of fertilizers—that is also imported.
Any policy action to restrict imports of gold/rough diamonds will have parallel effect in pulling down exports. Indian exports of gold/diamonds are about 13% of national exports in 2017 or about $35 billion (see chart 3). Thus there is a case for incentivizing such imports for more exports.  Here is a suggestion worth considering for the policymakers.--
At a time when Indian exports are sluggish, why not gold/diamonds import be linked to overall Indian exports!!  Trade and industry are looking for incentive to export. Conceptually all exports may be rewarded with a freely tradeable scrip (named as “gold/diamond certificate of import”) of 10% of each Indian exports in US dollar denomination. With about $300 billion worth of India’s current export, 10% scrips would be about $30 billion. Since gold/diamond imports are worth$30-$40 billion, such an entitlement will let earn the exporters some market premium of 5-7%, depending upon import intensity of gold bars and rough diamonds.  Custom duty on gold imports will then have to be made nil within one year of notifying this facility.
Such a “gold/diamond certificate of import” could be issued to the exporter by the bank through which export documents have been negotiated and payment for realized. (Those who are not able to able to import gold/diamonds by using such certificate may pay 20% “penal” duty for clearing their consignment.) This duty free import scrip may be submitted to custom authorities at the time of clearing gold/diamond consignments.
This mechanism will be self- regulating—as much as –when Indian exports increase, the value/availability of these scrips will also rise but their premium will come down –facilitating less costly imports of gold and diamonds. The value addition in gold jewllery/polished diamond export is more than sufficient to absorb this 5%-7% premium, though currently re-export is available on zero duty.     
The proposal is not a new idea but that existed in 1997-98, when the DGFT used to auction “special import licenses” for gold import on the basis of maximum premium offered by the bidders.  Currently nominated agencies, including prominent banks and select trading houses are importing gold. These agencies too will have to acquire these import scrips from the market. Dollar denomination of the scrip is suggested to lock the value so that stronger or weaker rupee may not affect the intrinsic value of import.
Recently there have been controversies under India’s FTAs with S. Korea and Indonesia that provided duty free imports-which perhaps led to some of imports of gold being diverted through these countries. If gold/diamond imports are made on the basis this certificate and duty reduced to nil, such issues will automatically cease to exist.
Right now, with 10% import duty and 3% GST, there is an arbitrage between prices abroad and Indian market-- that provokes unofficial and illegal channels of imports. The above suggested scrip will minimize that arbitrage and such activities.  
At a times when jobs and business opportunities are reportedly on the decline—this tradeable scrip will create a new market of traders/brokers/commission agents and importers that would be atleast  worth $1.5 billion in revenue to the benefit of exporters.
Gold/diamonds trade is supportive to the national economy, and internationally too Indian skills& craftsmanship in jewllery and diamonds are well recognized. Based on the evidence of imports and exports of precious metals and precious stones, this trade deserves to be encouraged holistically.   

Friday, October 6, 2017


Conventionally, Indian exports statistics of agricultural items include all plantation crops, meat, poultry, marine and dairy products etc. An analysis is made on the basis of data available from 2010 to 2016 of Agri-exports by “excluding” Buffalo/Sheep/Goat /Processed meat, Poultry and Marine items that falls in a grey area of terminology of real Agri exports.  Reason-- products of animal flesh cannot be deemed “agricultural items” by any stretch of imagination. (Dairy products are not excluded). Feeding animals for slaughtering is a case of industrial production of buffalos/sheep/goat/chicken rather than any farm related activity.
Offsetting meat/marine products is vital to measure the genuine exports of agro products rather than to be merely content with illusion of higher exports by including these items. Segregated data gives a reality check than a false sense of comfort.
As per the official data, farm exports climbed up as from $ 18 billion in 2010 to$33 billion in 2016—up by 83%, with a peak of $42-$43 billion in 2013 and 2014. (See chart 1)  Exports of meat and marine items have risen from $3.5 billion to $9billion from 2010 to 2015/ 2016—higher by 160% with a high of $10.6 billion in 2015. This is consistent with the emerging global trend wherein dietary preferences are shifting away from cereals and grains to consumption of animal product. The effective or net increase in exports of plantations crops and their products from India appears to be negative or marginal.
Agri -exports has been cited at 12-13 % of “total national exports” in 2015-2016. But they are infact about 9 to 9.3% in last two years when exclusion of meat/marine items is made. (See chart 2)That shows reduction in real Agri exports by 3.3% to 3.5%. Exports of plantation crops in India’s “total export” were 8% in 2010 and 9% in 2016—which shows negligible sustainable growth in exports except for the small blip of 10%-11% in 2012 to 2014.
Trend of rising Agri imports and falling rate of Agri exports (w/o accounting for meat/marine shipments) will soon make India a net importer of Agri products from vantage position of net exporter of Agri in next few years. Imports are at $21.5 billion while exports are 23.8 billion in 2016—a spread of barely $2.3 billion-- from highest spread of $19.6 billion in 2013. With sharply ascending imports of edible oils, pulses and now, wheat and sugar as well, the spread of $2.3 billion is bound to collapse.
Usage of products derived out of animal husbandry also implies that we are promoting inefficient production especially for export too. Buffalo meat requires 25 times feed for “edible meat”; pork 10 times and chicken 5 times input for output as food.  Water consumption for 1 kg beef is 15400 liters versus 1 kg rice at 2500 liters. One kg of sheep meat too requires about 10400 liters of water. Generally Indian rice production and its exports is flagged for copious water consumption but meat production is 6 times more water intensive than rice.   In terms of energy, 3 calories of energy are needed to create 1 calorie of edible plant material, whereas grain-fed beef requires some 35 calories for every calorie of beef produced. 
Global dietary trends continue to move towards high meat content. In China between 1981 and 2004, the annual per capita grain consumption declined from 145kg to 78kg in the cities, while over the same period intake of meat products rose from 20kg to 29kg per year. There is no denying that there is an ample demand of meat etc. in overseas markets but it requires to be debated whether large crops should be consumed for fattening flesh of animals for exports in preference to  population at home.
As per a report of Institute of Mechanical Engineers London, “The challenge is that an increase in animal-based production will require greater land and resource requirement, as livestock farming demands extensive land use. One hectare of land can, for example, produce rice or potatoes for 19–22 people per annum. The same area will produce enough lamb or beef for only one or two people”.
Let this analysis be understood objectively without relating to notion of vegetarian versus non –vegetarianism. Idea is to submit facts so that exports of plantation crops be incentivised;  meat/marine/poultry products may be classified as another category; efficient methods of crop production with better yields be promoted keeping in view the rising potential demand of grains/pulses/ oilseeds by understanding the limitation of land area and availability of water.
When primordial pursuit of man has been to attain higher efficiency economically in all spheres through scientific and ethical means- whether in energy production, automobiles, computers, trains etc.—why matters of consumption patterns of what is fed to human beings  are not being linked to  precious resources conservations!! That appears strange.

Wednesday, September 20, 2017


If there is one notable development that needs to be acknowledged in commodity markets, it is the supremacy of Russia in global wheat trade. Russian wheat production has scaled up from 38 million tons (mt) to about 81mt in last five years—an increase of 113%. Productivity in terms of yield is up from 1.8t/ha to 3 t/ha—about 67% in the same period (See chart).
Russian productivity is even higher than that of Australia; ruble is a weaker currency further weakened  by US sanctions over Crimea; has limited storage silos space;  inadequate holding capacity with farmers; consumes annually about 40mts (about 50% of production)—all these factors contribute to lower prices in US dollar. MNCs like Glencore, Cargill and Olam have built silos and export terminals, take positions on wheat trade on break bulk cargos of 30-50k.Just as India is the largest player in rice internationally and any restrictions/ban/export duty will fire world values of rice, any of such actions by President Putin can ignite wheat markets.
In global wheat trade price discovery is made at CBOT for US SRW wheat and then those values are applied with certain premium and discounts for determining sale/purchase quotes of other origins (e.g Australia, EU, Canada, Black Sea etc). But this process is changing fast and that is --Black Sea wheat prices of Russia/Ukraine have now bearing on CBOT quotes.
Soviet Union was once dependent upon wheat supplies from USA and elsewhere. IN 2017-18 Russia, alone, will again surpass USA in wheat exports. It is expected to ship out 32mt in 2017-18 versus 27mts by USA as per International Grain Council –London. In 2015-16 also Russian exports exceeded USA by 5mt. (see chart)
Egypt –an annual importer of 11-12 mt of wheat- has been buying bulk of its purchases from Russia and against competition from other major origins. Most of the Middle East also seeks Russian cargos.  Indonesia buys most of its wheat from Australia due to logistical reasons but has switched to Russia for lower costs. FCI import of about 8 mt in 2006 to 2008 had a substantive component of Russian cereal.
Russian/Black sea wheat, also referred as red wheat, has four major varieties which include feed wheat (meant for poultry and livestock) and milling grain (for flour). Depending upon protein content and other parameters like Gluten (stretch ability) blending of feed wheat with milling wheat can reduce price of a cargo.
China by its efficient productivity in consumer goods has kept the lid on inflationary pressures worldwide. Russian grain too has traded within a limited range of $160-200 ex warehouse for acceptable quality Type 3 grain in last three years, thereby giving a tough competition to global traders including others in the Black Sea region. Though there may be specific quality issues with Russian wheat, but they do not justify much higher premium of other nations.
Indian flour millers blend imported wheat with local wheat for getting specified specifications of flour. Low priced imported wheat lowers wheat quotes and, wheat flour inflation. From India’s perspective surpluses of Russian wheat and its price around $190/ton landed/CIF, it costs about $234/ton or Rs 15000(10% duty paid plus expenses of Rs 1500/ton) which is lower than Indian local market prices of about Rs 16000-17000/ton or $250-$275/ton in Indian north zone (Deptt. of Consumer Affairs). Price in south zone of Indian wheat will be much higher.  Thus it prompts imports from Black Sea and Australia.  
Downward price pressure on Russian crop will continue in next three months and that is bound to exert corresponding bearish sentiment on Indian wheat. Import intensity can increase with another $10/ton fall in prices, making imported grain cheaper, lowering local values that will not be remunerative to Indian farmers.
Though some cargos earlier imported at $220 CIF/ton prices and old stocks stuck with importers may have slower lifting at a marginal loss, new contracts at $180-190CIF will make up the loss provided import duty is not hiked from the existing level of 10%. IGC expects India to import about 3 mt by March 2018 out of which 0.2 mt has arrived so far. Also higher duty will completely block any imports from Australia where production is down and prices averaging about $260 CIF.
Government also needs to beef up its stocks that bottomed to 8mt in April 2017. Fixation of high OMSS price of Rs 17900/ton is meant to ensure that FCI reserves get depleted to the minimum. Should import duty be fixed at 20-25%, it will discourage imports that would create demand pull from domestic market, including FCI.
With August WPI inflation rearing its head again to 3.2% in August 2017 from low of 1.9% in July 2017, can we afford not to give priority to consumer at the cost of farmer. That is a very challenging call. Russian bearish wheat values notwithstanding, Government has to do tough balancing act on wheat inflation and between farmers and consumers.  

Wednesday, September 6, 2017


 On 29th August 2017, Government impliedly confirmed tightness in sugar stocks by limiting inventories of mills by end of September and October2017 with specified percentage as 21% and 8% of total sweetener available with them in sugar season 2016-17. Maharashtra mills were requested to commence early production, immediately after Diwali—but they have expressed their inability due to absence of required labour strength and low recovery issues. Now UP millers are promising to start mills promptly after Diwali. Industry has further suggested that transport subsidy be given to mills in UP and Maharashtra for despatches to Karnataka and Tamilnadu to obviate imports.  All this activity is meant to ensure that sugar prices in the local markets do not flare up beyond existing wholesale price of Rs40/kg vs same prices of Rs 26/kg in 2015. (See chart). Retail values are Rs43-45/kg vs Rs28-29/kg in 2015
 Government has been considering additional imports of sugar especially for the mills in South to contain demand pressures after import of first tranche of 0.5 million tons (mt) of raw sugar of Apr-June 2017.  The Indian Express article of Mr. Harish Damodaran (24th August 2017) stated that “Cane-starved southern mills want duty-free raw sugar imports, which the industry particularly in UP is bound to resist”. He called this a north-south divide. Duty hike in July2017 from 40% to 50% was done to completely rule out possibility cheaper imports (that would cost Rs 27-28 pkg without duty ex- mill). Thus local prices have ruled firmer.
Irrespective of North-South divide, let this issue be considered upon data available on record. Issues are—First, whether additional imports are justified and secondly, what has been the price behaviour of sugar in last two years.
Are the carryover stocks of 4 mt sufficient when next year anticipated output is 25mt and consumption is also about 24-25mt? Thumb rule is that country should have minimum three months stocks of annual consumption. If India’s annual usage is 24-25mt —we need atleast 6 mt carry in or import of (6-4) =2 mt next year for ensuring three months stocks.
Other empirical formula is “stock to use” ratio to be higher than 20%, say atleast 25%, if prices are required to be moderated. Currently carry in stock/use ratio is 4/25x100=16% that will make values more bullish.  If sugar prices are required to be tapered down somewhat, 24% stock/use ratio can be attained by 6mt carry in (or 6/25x100). In both cases logical answer is same-- import of 2 mts next year. Stock to use ratio have been 32% to 42% in previous years (see chart). Psychologically lower inventories give ideas of stockpiling and speculation for better returns.
For example FCI is using the similar matrix while determining wheat stocks. As of 1st April, the beginning of marketing year, minimum inventory level is fixed at 7.5 mt and usage in PDS is 30 mt-that gives stock to use ratio of 25%.
Policy profiles of last two years have aided higher prices of sugar that have helped both farmers and mills which indeed is welcome. If imports are completely blocked by high duty, sugar values would ascend further to the detriment of consumer.
 If the matter is assessed on the basis of sugar inflation of 39% in 2016-17 and 8.44% as of July in financial year 2017-18(Economic Advisor report date 14th Aug2017) then there is a case of relaxing terms of import for 2 million tons of sugar to moderate prices.
Basis of the current retail prices around Rs 43-45/kg is the FRP of sugarcane of Rs 230/qtl of 2016-17. When FRP is Rs 255/qtl in SS2017-18, which is 11% higher and given the fact other matrixes remain unaltered, sugar retail values may also elevate pro-rata.
The plea of the stakeholders that Indian sugar has to be much higher than international prices because of FRP/SAP etc. is logical up to a point  but not under current domestic scenario. Continued choking of imports is bound to inject inefficiency in the industry because profits are secured under closed market mechanism.
It is well admitted that cost of production of sugarcane in India is higher by about 30% compared to other competing origins--and this % can be rechecked. If true, than duty protection beyond this point may be reviewed. This will ensure that principle of comparative advantage is not abandoned or deserted which is fundamental to national and international trade.
Right now international prices are supportive and thus imports with viable duty can soften domestic values. Government needs to take a call on moderation of sugar prices, act in the interest of all stake holders and avoid sugar inflation to double digit level, when wholesale national inflation is just 1.8%. Facilitating minimum imports of 2mt is the sole prerogative of the authorities.