- Mrunal - http://mrunal.org -

[Current] Economy SepW1: Wilful Defaulters, MNREGA reformed, Global Competitiveness Index, BSNL-MTNL Merger, Gold Account scheme

1. E1: Wilful defaulter? 1. Vinod wisdom on wilful defaulters

2. E2: Coinage Act & right to issue Rs.1 note 3. E3: Gold account scheme 4. E4: MNREGA: Sweeping changes

1. Proposed: MNREGA only for backward districts? 2. Proposed: Changing labor to material ratio

5. E5: MPLADS & toilet building 6. E7: PDS Reforms: Lessons from Delhi   7. E8: Commerce Ministry on IPR and FDI 8. E9: Global competiveness index 2014 9. E10: MSME speech: fodder material 10. E11: BSNL, MTNL merger 11. E12: India’s Sovereign rating

E1: Wilful defaulter?

Who is wilful defaulter?

Person/company, who has taken loan from any scheduled commercial bank or financial institution, and

1. Has capacity to repay the loan / installment but not repaying the loan.

2. Has diverted loan money for other purpose.3. Has not utilized the loan money for the actual purpose (for

which they had taken the loan)4. Has sold off the mortgaged assets (in exchange of which, they

had taken the loan.)

In simple terms: Has the moolah + but doesn’t want to pay + used the money in desi liquor + makes the collateral vanish = Wilful defaulter.

Why in news?

Mallya owes ~7,000 crores in loan repayment to total 17 banks.

September week1: United Bank of India became the first bank to Kingfisher Airlines and its promoter Vijay Mallya as wilful defaulters.

Implication after Wilful defaulter branding?

1. Once a lender announces as person/company as “wilful defaulter’- their names are sent to RBI and credit information companies such as CIBIL.

2. This way, all other banks and NBFCs are warned not to lend any more money to such totally awesome person.

3. As per SEBI order: Willful defaulters can’t raise money from capital market i.e. they cannot issue fresh IPO or bonds.

4. In Sep-2014, Rajan issued new directive- from nowon, if person doesn’t repay loan then extract it from ‘guarantors’. And if those guarantors don’t repay the loan then declare them as wilful defaulters as well.

Vinod wisdom on wilful defaulters

Former Comptroller and Auditor General (CAG) Vinod Rai gave following commentary:

1. Public sector banks have large NPA because cronies have used political connections to get loans- even for unviable business projects.

2. These cronies didnot have the financial knowledge or business acumen to deliver the product / service.

3. Kingfisher loan default is just a small trickle- many others like him.

4. Solution: need to make bank board members’ appointment more transparent

E2: Coinage Act & right to issue Rs.1 note

 

Who prints what?RBI Union Government

issue bank notes from Rs. 2 till Rs. 10,000 sole right to mint coins of all denominations.Hum notes mein jeethe hain Hum chillar party hain

Then who prints notes less than Rs 2?

1940: Currency ordinance empowered Government to print one rupee note.

Later, ordinance was repealed. And in 2011: new Coinage act came.

Under this act, union Government can mint coins upto Rs.1000 And as per law ministry’s interpretation – one rupee is included

in it. Besides, as per RBI act 1934- RBI doesn’t have the power to

issue one rupee note. Side note: they have stopped printing one rupee and two rupee

notes. Only the existing notes in circulation.

E3: Gold account schemeWho? MMTC-PAMP- one of the gold refining companies in India.What? Gold Metal account scheme. Yet to obtain all clearances though.

FeaturesYou can deposit gold jewelry, coin, biscuit etc. Company will melt and sell it. You get interest payment (in gold). Thus, on maturity, you get a heavier coin /biscuit.

BenefitJunta deposits gold- company utilizes it for productive purpose. Thus gold supply will increase. Lower gold imports. Lower current account deficit.

E4: MNREGA: Sweeping changes

Rural Development ministry has updated MNREGA guidelines. To mitigate drought and water scarcity in rural India.

As per new guidelines:

50% of all MNREGA works should be for water conservation works like check dam construction, de-silting of traditional water bodies, minor irrigation tanks and canals.

51% of the wagepayment must be made to unskilled laborers. Remaining upto 49% – may be done by Skilled laborers. (if skilled laborers are required for check dams, minor irrigation tanks with machinery)

Fund transfer to states via E-payment platform Fund transfer “just in time basis” so that laborers’ wage

payment are not delayed beyond one week in any case.

Proposed: MNREGA only for backward districts?

Rural development minister said that MNREGA should not be required in areas having high growth rate, high percapita income.

MNREGA is required only in areas with large tribal or poor population.

In other words, Modi Government is planning to confine MNREGA only to backward areas.

Although they’ll need to amend the act for this, but they’ve began ground exercise of identifying the blocks using 2011 Census and planning commission’s Backwardness index.

Proposed: Changing labor to material ratio

Labour to material ratioComponents UPA Rural ministry’s New proposalLabor 60 51Material 40 49Total 100 100

 

Proposed changesFavor Against

Will permit greater use of (permanent) material. Perhaps paving way for machinary and contractors- so that ‘permanent’ durable assets can be created.

Most states have not even used the 40% material quota Expenditure. So increasing it to 49% won’t benefit.

Will decline poor people’s wage share in the scheme.

E5: MPLADS & toilet building

Under the MPLADS, each MP can recommend works to the tune of Rs 5 crore annually to the district collector in his or her constituency.

2nd Administrative reform commission: absolish MPLADS because it breaches the separation of powers between executive and legislature. But SC ruled in 2010 it is not a breach.

Topic in news because

Planning and statistics ministry urged all MPs to make toilet construction their top priority this year.

PM has repeatedly emphasized the importance of separate toilet facility for girl child education.

MPLADS funds could also be used to install bio-digesters (DRDO) for sarkaari schools.

NSS survey: Households without toiletsHindu 47%Muslim 31%Christian and Sikhs 16%

Challenges ahead:

1. Since ’86, we’ve provided money to build toilets in rural India.2. But rural men consider it’s more ‘healthier’ to go out. until that

mentality is fixed, merely throwing money won’t help.3. Same even in schools, if toilets are built but not cleaned

properly, the children will still go out.

E7: PDS Reforms: Lessons from DelhiWhat Why

Delhi Government decided to allow ration shop owners to sale non-PDS items from their outlets

Mobile recharge coupens, DTH cards, consumer durables, even ATM and railway tickets.

To solve shopkeepers’ problems:

o Low profit margin on foodgrain and other subsidized items.

o Shop Rent and labour cost too high in Delhi.

o Hence they wanted to sell non-PDS items. Now they’ll keep the shop open throughout business hours. Poors will benefit.

E8: Commerce Ministry on IPR and FDI

Regarding IPR

At present, India has a strong IPR framework, fully compliant with WTO norms.

But we don’t have a separate IPR policy. American pharma, solar companies, Special-301 reports keep

rasiing the issue of intellectual property rights (IPR)

Therefore, Commerce ministry decided two things

Separate IPR policy in next four months. Setup a think tank to handle IPR matters more effectively.

Regarding Multibrand FDI

UPA Government permitted 51% FDI in multibrand retail, with certain caveat.

So far only one proposal cleared: Tesco(UK). The new Commerce minister says we are against multibrand

FDI. But no formal notification yet given to scrap the FDI. Her reason- there are no pending applications for FDI approval.

(hence no need for notification, because everyone knows we

are against it so other MNCs won’t waste time in applying anyways.)

E9: Global competiveness index 2014

World Economic Forum (WEF) releases Global competitiveness index. (HQ: Geneva, Switzerland).

(as expected), India lost 11 places than previous report. Current rank 71st.

Among BRICS nations: China>Russia>South Africa>Brazil>India

Top three: Switerland, Singapore, USA It can be taken as a measure of knowing the sustainability of

the growth. When GCI 2013 was released, govt. was defensive against the

rankings. It said, the indicators keep changing and it targets mostly MSME sector. It is not right to single out a single measure.

But now govt is taking steps to ease doing business- formed the Damodharan committee to give recommendations to improve business climate in the country.

Some of the reasons, why we suck in this report?

1. Complex taxation structure.2. Obtaining business permits and plant construction permits.3. Multiple tax rates and complex paper work in various states.

Procedure far burdernsome than international standards.4. Complicated procedures to get environment clearance and

building permissions.

E10: MSME speech: fodder material

Some fodder points from Minister’s speech

Why MSME important Obstacles before MSME

MSME sector vital – 90% of non-farm workforce

45% of manufacturing output and 40% of total exports of country.

PM I-day address stressed to have “Make in India” environment.

Lack of skilled workforce. Skilled youth moving towards service sector

and MNCs. Unorganized nature and poor work conditions Compared to Thailand, Brazil etc. we have

very low number of new start up companies in MSME segment.

Lack of collaboration between MSME vs training institutions.

Reforms taken:

Skill India Mission Make in India campaign. 31 Sector Skill Centres to set standards for job profiles. Government began amendments in Apprenticeship Act and

factories act.

E11: BSNL, MTNL mergerBSNL Serves All India except Delhi and MumbaiMTNL Serves Delhi and Mumbai

Government wants to merge BSNL and MTNL – into a national telecommunication services company.

Deadline: 2015, June-July.

Challenges to this merger

1. MTNL has large debt. Government will have to give it soft loans to clear the debts first, before merging with BSNL.

2. MTNL is a listed company. Its shares will have to be de-listed from the stock-exchange. Need clearance under SEBI and Companies Act 2013.

3. MTNL employees get higher salary than BSNL.4. Both MTNL and BSNL are overstaffed, if you compare their

salary as % of company5. revenue. (Compared to private telecom companies of similar

revenue).6. Therefore, Atleast 1 lakh BSNL employees and 20,000 MTNL

employees need to be given VRS- imagine the legal and trade union hurdles!

E12: India’s Sovereign ratingAgency Rating Meaning

Moody’s BAA3 Stable outlook.S&P BBB- Lowest investment grade. Negative outlook.Fitch BBB- Stable outlook.

Why in news? Fitch representatives met with Finance ministry officials. They’d inspect the database and reforms and may upgrade the rating.

Published on 23/09/2014 @ 6:05 pm under Category: Economy

URL to article: http://mrunal.org/2014/09/economy-wilful-defaulter-gold-account-mnrega-reformed-global-competitiveness-index-bsnl-mtnl-merger.html

- Mrunal - http://mrunal.org -

[Current] IR-Diplomacy SepW1: Defense FDI reforms, procurement; Nalanda University, APF Human rights summit, PTA with Nepal

1. D1: Defense FDI reformed 2. D2: Defense Procurement: 3. D3: India-Nepal agreements during Modi visit 4. D4: Power Trade agreement (PTA) with Nepal 5. D5: Nalanda University 6. D6: APF: Human rights conference 2014 7. D7: Border security Management: Gujarat 8. D8: Letting states have foreign relations

D1: Defense FDI reformedOld policy New policy

FDI 26%

49% govt. approval Above 49% also allowed, if access to ‘

modern and state of art technology’

FII banned

24% automatic approval Allowed FPI, FII, QFI, NRI, foreign venture

capital investment. Only 24% because hot money and sometimes

hard to trace real owners.

JVSingle Indian resident to have 51% share

NO such requirement

DurationThree years lock-in period on foreign investor.

No such requirement.

 

Who approves what?Investment limit Approving agencyUpto 1200 crore FIPB>1200 crore CCEA>49% FDI CCS (cabinet committee on security)

Challenges in Defence FDI

1. 49% FDI means the foeigner still can’t get management control of the Joint ventures with Indian companies.

2. Hence they’ll be hesitant in transferring the proprietary technology to India.

3. This was the same reason why old policy did not attract large investmnt.

4. Secondly, Government has yet to notify what constitutes “modern and state of art technology”, (because there more than 49% FDI permitted, and foreign companies may get attract to invest and transfer secret technology.)

D2: Defense Procurement:

Defense Acquisition Council (DAC) is chaired by Defense Minister.

This DAC cleared following proposals (in August 2014):

1. Stopped the tender process to import helicopters for army. (perhaps don’t want to burn hands again like UPA did with AgustaWestland)

2. Instead, Government will now buy 400 desi helicopters from Hindustan Aeronautics Ltd. for moving men and material in border region.

3. Will induct 118 new (Desi) Arjun tanks.4. Will produce Self Propelled (SP) guns to mount on  Arjun tank-

this will give us advantage in swift desert battles in Rajasthan and Western Border.

5. Will upgrade six submarines.

D3: India-Nepal agreements during Modi visit

Happened in August 2014. Just a brief outline here:

India Nepal Agreements during Modi visit:

Infra HIT – Highways, Information ways, Transways. Modi promised them $1 billion loan for infrastructure and energy projects

Border Will form Boundary working group – to construct boundary pillars. Joint commission on border issues

Energy

Raxaul-Amlekhgunj petroleum pipeline Hydel projects- Upper Karnali (Nepal and GMR), Arun III, Upper

Marsyangdi and Tamakoshi III

Transport Cross border railways – at 5 border points, 4 integrated check posts Bridges – over Mahakali river at Mahendra nagar

India to allow 3 additional air entries – Janakpur, Bhairahawa, Nepalgunj

3 MoU

Pancheshwar Developmental Authority Tourism in Nepal Doordarshan and Nepal TV

Trade India will remove quantitative restrictions on Nepalese products.

Misc. Grant to provide iodized salt to Nepalis. Donated 2500 kgs of Sandlewood to Pashupatinath temple.

D4: Power Trade agreement (PTA) with Nepal

Happened in September 2014, after Modi came back.

Now any Nepali public or private entity can sell electricity to India.

India wanted to setup a joint venture Company with Nepal- for trading electricity. But Nepali Government did not agree.

India even offered to help developing Nepal’s hydro-electricity power but their political factions disagreed.

Modi has earlier said- Nepal has immense hydropower and just be selling electricity to India, they can become a developed country(!)

Includes Doesn’telectricity power trade, cross-border transmission, inter-connection and grid-connectivity

Indian investment in Nepali power sector.

 

Don’t confusePower trade agreement Power Development pact

Between respective Governments of Nepal and India

Between GMR India with Nepali Government to develop Karnali hydropower.

Signed with consensus of Maoists and other political factions of Nepal.

Nepali maoists don’t like this, not one bit so they’ve began protests.

D5: Nalanda University

Nalanda: Ancient times

During the rule of Kumargupta of Gupta dynasty. Mahayana monks Asnaga and Vasubandhu said to have found

Nalanda in 400-500AD Chinese pilgrim Hiuen Tsang, came during Harsha’s reign,

gave detail account of Nalanda University.

o Nalanda was a huge monastic-educational establishment.o Teaching done in Sanskrit.o Primary teaching focus: Mahayana Buddhism, yet

included other ‘secular’ subjects as well- Like, Grammar, logic, epistemology and sciences.

o Active discussions and debates were taking place.o Harsha is said to have invited a thousand learned monks

of Nalanda to take part in the philosophical assembly at Kanauj.

Another Chinese scholar, Itsing, mentioned that Nalanda housed 2,000 students, was funded by revenues of 200 villages.

Thus university continued to be the centre of intellectual activity till the 12th  century

1193 AD: Turkish ruler Qutbuddin Aibak’s general Bakhtiyar Khilji destroyed Nalanda University.

Nalanda: Modern times

2006: President Kalam proposed setting up this university as an international learning institute, a link between the past, present and future, a channel for knowledge exchange between scholars of the world

Singapore, China, Thailand and Australia have contributed funds.

university came into existence by a special act — The Nalanda University Act

2012: Noble Laureate Amartya Sen was appointed the Chancellor

Total 7 schools- including ecology, environment and historical studies.

2020: will become fully operational, with campus in Rajgir foothills.

Until then, temporary classes at Rajgir convention hall, students will live in a hotel.

Foreign minister Sushma Swaraj inaugurated in 2014, September.

University aims to become a research university, not a teaching university.

D6: APF: Human rights conference 2014

1991: UN’s Paris principles- to establish norms for various human rights bodies across world.

Later, an International coordination Committee of National Human Rights Institutions setup.

This Committee has 4 regional networks, one of them is Asia Pacific forum (APF) with 21 member-nations.

2014, Sep: India’s national human rights commission headed the conference of this body, at New Delhi.

Outcomes of this Human rights conference

1. Until now NHRCs have focused on human rights violations by state actors

2. But, economic scenario has changed, we’ve to focus on human rights violations by companies- pollution, tribal-displacement, sweatshops, labour exploitation and negative-externalities created by MNCs.

3. For Prevention of Torture , we’ll create a working group including the NGOs.

4. Members agreed to use a five-pronged strategy to protect human rights from 2015 to 2020: Gender equality, peace , security, Business, Vulnerable groups-children, women, the disabled, the elderly and displaced persons.

D7: Border security Management: Gujarat

Following reforms taken: (aka fodder for GS3)

1. Men from Puggie community are expert in reading camel footprints. They belong to Kutch and Banaskantha districts of Gujarat.

2. They’ve been recruited to trace the movement of smugglers, terrorists and refugees across western border through desert.

3. Police has enrolled more “friends of police” in border villages- to act as informants.

4. For coastal security –  the security forces are keeping surveillance on fisher-communities including Hindus- because some of them were caught by Pakis, brainwashed and then released back to India- they supply sensitive information to Pakis in lure of money.

5. Stringent identity verification of fishermen and those returning from Dubai and Karanchi via sea route.

6. Intelligence agencies keep a tab on terror website, online groups, people returning from specific countries and dollar transactions. Because dollar transactions give footprints of any terror activity.

D8: Letting states have foreign relations

1. After LPG reforms the CMs of Andhra Pradesh and Karnataka actively sought out FDI from MNCs. As as result, Hyderabad and Banglore have developed as IT hubs.

2. On similar lines, the then Chief Minister Modi began hosting Vibrant Gujarat summits to attract investment in his state.

3. Therefore, all state Government should actively seekout FDI and establish direct-relations with foreign Governments- many American states do the same- they setup standalone offices in foreign nations to boost trade-tourism to their home state.

4. Since 80s- Even the authoritarian Chinese leadership has permitted their provinces to establish sub-regional links with other Asian countries. As a result, Yunan is thriving as a trade hub.

Challenges?

1. Border states- what if Pakistan wanted to invest in Punjab or China in Arunanchal or Bangladesh in W.Bengal? Even if they wanted purely economic relations, the security aspects will overshadow and the Union Government may not allow the deals.

2. While Madhya Pradesh, Gujarat, Maharashtra and other big states can afford to host investors’ summits, the interior and backward states can’t host such lavish events -given the lack of event managers, rail-road-air connectivity, media publicity etc. Union Government needs to help them.

Published on 24/09/2014 @ 8:48 pm under Category: Current Affairs Weekly

URL to article: http://mrunal.org/2014/09/current-diplomacy-sepw1-defense-procurement-fdi-reforms-nalanda-university-nepal-power-pact.html

- Mrunal - http://mrunal.org -

[Diplomacy] India-ASEAN: Relation, FTAs in Goods, services and investment

1. Prologue 2. ASEAN: Origin

1. Musyawarah & Mufakat 2. TAC Treaty

3. Timeline: Growth of ASEAN since 90s 1. ASEAN Community (2015) 2. ASEAN Performance: GOOD 3. ASEAN Performance: NOT so GOOD 4. Chinese Arm twisting

4. India-ASEAN Relations 1. Why ASEAN important for India? 2. India-ASEAN FTAs: A Timeline 3. India ASEAN FTA in Goods 4. India ASEAN FTA in services and investment 5. Benefits of FTA in services and investment?

5. Mock Questions for Mains

Prologue

This is an old article, I’ve only updated the bottom part of it (FTA in services and investment)

As such that FTA topic was part of September week1 current series but for better revision of theory + trade relations, I’ve fitted it into this old article.

ASEAN: Origin

Recall the Article on Colonization of Asia. We had seen how the British, French and Americans had colonized almost entire South Asia.

After Second World War, most of these colonies attained independence. But they also had internal dispute regarding territories and borders.

One such dispute was Indonesia-Malaysia conflict over the Borneo islands.

This conflict + the then ongoing Vietnam War raised fears of increased external involvement in the newly independent states.

They feared that south east region would become a theatre of western vs. communist ideologies

Hence they decided to form a common platform: To resolve bilateral issues among themselves Present a collective front to the world. 1967, five countries signed “Bangkok declaration” to form the

Association of Southeast Asian Nations (ASEAN), later another 5 joined. Thus today ASEAN has 10 members

List of 10 ASEAN nations

1. Indonesia (ASEAN HQ is here, in Jakarta)2. Malaysia3. Philippines4. Singapore5. Thailand

6. Brunei

7. Cambodia

8. Laos

9. Vietnam

10. Myanmar

Musyawarah & Mufakat

ASEAN follows the principle of “ASEAN way”. Meaning,

1. Musyawarah And Mufakat  [deliberation and consensus]2. don’t use force/confrontation3. don’t interfere in the internal matters of states4. Informal discussion5. minimal institutionalization

To achieve “the ASEAN way”, Treaty of Amity and Cooperation in Southeast Asia (TAC) was signed.

TAC Treaty

It provides the guiding principles of ASEAN

1. they’ll not interfere in the internal affairs of one another,2. they’ll not use threat or use of force to settle differences /

disputes3. they’ll settle of differences or disputes by peaceful means,4. They’ll effectively cooperate among themselves.5. they’ll mutually respect each other’s’ independence,

sovereignty, equality, territorial integrity and national identity6. Every State has right lead its national existence free from

external interference, subversion or coercion,

India had signed TAC treaty with ASEAN in 2003.

Timeline: Growth of ASEAN since 90s1994 ASEAN regional forum (ARF). already discussed in separate article click me

1997 ASEAN+3 is formed to increase regional integration. This includes

1. China2. Japan3. South Korea

2002 Treaty to control haze pollution in South East Asia

2006 ASEAN gets observer status in UNGA (General assembly)

2007 Cebu declaration for energy securities and renewable energy.

2010

Chiang Mai Initiative (CMI)

It is a currency swap agreement among ASEAN +3, It provides emergency liquidity to those economies during crises.

2012 Asean Human Rights Declaration 21st ASEAN Summit in Phnom Penh Combodia with theme:“ASEAN: One Community,

One Destiny”

2013 22nd ASEAN summit in Brunei, theme: Our People, Our Future Together.

2015 ASEAN community will be setup.

ASEAN Community (2015)

Similar to European Union. will be setup in 2015 and will have three pillars

1. ASEAN Political Security Community2. ASEAN Economic Community3. ASEAN Socio-Cultural Community

ASEAN Performance: GOOD

ASEAN has a mixed record of achievements since its formation.

ASEAN performed well here:

PeaceSuccessfully maintaining peace in the region. e.g. during Thailand and Cambodia conflict over Preah Vihear temple (2011)

Economy Has made comprehensive deals like

ASEAN Free Trade Area (AFTA) ASEAN Comprehensive Investment Area(ACIA) Chiang Mai Initiative (CMI)

Aims to setup the ASEAN Economic Community 2015, having a single market and production base.

ASEAN Performance: NOT so GOODASEAN didnot perform well here

Economy ASEAN Failed to prevent the 1997 financial crisis.

Human rights

ASEAN has been too soft on the authoritarian regime of Myanmar. Despite call from international community it didn’t suspend Myanmar or put

economic sanction on it during the military regime’s crackdown on peaceful protestors.

2012: ASEAN released declaration on Human rights. But led to lot of protests from civil society and NGOs. They terms it as just another piece of paper.

Environment

In 2002, ASEAN came up with Treaty to control haze pollution in South East Asia. still there were outbreaks of Haze in 2005 and 06.

ASEAN also has mechanism for wildlife protection. Yet it hasn’t drastically reduced the illegal trade in endangered species (especially for medicine).

Chinese Arm twisting

ASEAN is becoming a victim of Chinese assertiveness/pseudo-bullying. for example in the the meeting of ASEAN (Dec 2012@ Phnom Penh), no joint communique was issued-for the first time in the 45 years of history of ASEAN Summits. WHY? Because…

Cambodia (host of the summit) is an ally of China

China did not want the joint communique text to mention South China Sea as a standing conflict.

but other gang members- Vietnam, Philippines, Malaysia and Brunei wanted the text to contain  their respective grievances regarding territorial issues with China.

In wake of such unprecedented influencing of China into the ASEAN matters, the ASEAN is looking towards India like never before.

India is being seen as the counter balance to China at the ASEAN platform.

Now, let’s focus on:

India-ASEAN RelationsCombined Population ~1.8 billion = ~1/4th of total world population

Combined GDP ~4 trillion USD

Two way investment 40+ billion dollars in past decade

India is actively contributing to ASEAN+1, the ASEAN Regional Forum (ARF), the East Asia Summit (EAS) and the ASEAN Defense Ministers’ Meeting (ADMM) Plus etc.

We have institutionalized annual summits, ministerial consultations; and nearly 25 mechanisms for dialogue and cooperation.

Timeline of India-ASEAN relations

1990 India starts engaging with ASEAN, part of Look East Policy.

1992 India becomes a sectoral dialogue partner of ASEAN

1996 India becomes full dialogue partner of ASEAN

2002 India starts having annual summits with ASEAN

2003India accedes to the Treaty of Amity and Cooperation in Southeast Asia (TAC)India signs counter-terrorism declaration with ASEAN.

2009 FTA* in goods signed This established Free Trade Area established between India-ASEAN.

2010 FTA in goods becomes effective

2012

20th Anniversary of ASEAN-India Dialogue. ASEAN – India Commemorative Summit is held. Now India becomes a strategic partner of ASEAN FTA* in services and investment- talks concluded

2014 FTA in services and investment signed- by all ASEAN nations with India. Except Philippines.

Why ASEAN important for India?

Strategically

1. ASEAN nations are at the intersections of major land and sea routes.

2. The Future architecture of Asia is going to be shaped by the US, China and India.

3. Maritime boundary disputes between China and a number of ASEAN countries; claims over South China Sea – hence those

ASEAN countries look towards India as a counterbalance against China.

4. For India, a stronger posturing at ASEAN provides its stature as a global power. After all, without becoming a strong regional player first, we cannot dream of becoming global power!

Energy

1. ASEAN countries, particularly Myanmar, Vietnam and Malaysia can potentially contribute to India’s energy security.

2. Oil and natural gas deposits in the South China Sea region.3. India and several ASEAN countries are net importers of

hydrocarbon. They need to develop alternative energy sources. But R&D in renewable =need truckload of ca$H hence regional cooperation essential for financing those projects.

Economy

1. In terms of income, India-ASEAN community is roughly the size of the EU

2. In terms of Trade, India-ASEAN community NAFTA.3. The ASEAN is India’s fourth-largest trading partner after the

EU, the US and China.4. India – ASEAN is slated to grow faster than the rest of the world

due to a favorable demographic profile and growing market for goods and services.

5. India’s trade relations are shifting from West economies towards the East, comprising of Japan, China, Korea and ASEAN.

6. India-ASEAN linkage provides for large-scale movement of people, capital, ideas and creativity.

For Indian States

1. The coastal states: West Bengal, Orissa, Andhra Pradesh and Tamil Nadu are looking to rebuild maritime links with ASEAN nations to boost their own trade and economy.

2. Union government is also building infrastructure while in the Northeastern states so they can engage in commerce with South East Asian nations.

Diseases

Pandemics and disease are no longer limited to national boundaries and have assumed a trans-national dimension. SARS and H1N1 virus

have in recent times afflicted the region. Hence cooperation is essential between India-ASEAN.

Now let’s take a look @India-ASEAN trade relations

India-ASEAN FTAs: A TimelineTimeline of India ASEAN FTAs

2009 India ASEAN FTA in goods signed.

2010 India-ASEAN FTA in goods became effective.

2012 India ASEAN FTA in services and investment-talks concluded.

2013, December

Indian Cabinet approved FTA in services. (Those ASEAN nations need to get such FTAs approved from their respective parliaments.)

2014, Sep

Nine out of ten ASEAN countries have signed FTA in services and investment, with India.

Only Philippines remains. Philippines opposed saying it’ll harm their domestic service sector given the India’s expertise (and cheapness) in the services sector.

 

Trade volume

Year Trade /expectation (USD)

2012 75 billion

By 2015 100 billion

By 2022 200 billion

India ASEAN FTA in Goods

1. Signed in 2009, effective from 2012.2. Before this agreement, the India-ASEAN annual trade was ~30

billion but quickly jumped to ~75 billion$ in 2012.3. Main products: – metal parts and components, electronic

components, processed fruits, ceramics, gloves and knittings, fertilizers, chemicals like fatty alcohol, coconut and vegetable oil, refined glycerine.

4. But did India benefit from this? Answer is no.

5. Cheaper palm oil from ASEAN = hurting local producers in Kerala.

6. Our groundnut and pepper farmers also suffering due to cheaper ASEAN imports.

7. Hence over all, the goods import from ASEAN nations increased but our exports did not increase. Consequently, trade deficit between India-ASEAN widened.

8. Thus India did not benefit much from FTA in goods.9. However, FTA in services may help in reducing trade deficit

with ASEAN, because we’ve comparative advantage over them in education, healthcare, IT-software, Accountancy and consultancy services.

India ASEAN FTA in services and investment

This Trade agreement in services and investment =follows “8+1+1” pattern.

Meaning, agreement provides 3 separate arrangements for:

1. For 8 countries

= all ASEAN countries except Indonesia and Philippines

2. For Indonesia

10. Special terms because services sector is vital for their economies, and they’re worried their local service sector will be hurt while competing with India’s strong services sector.

11. Philippines most worried because ~50% of their workforce in IT sector*3. For Philippines

*recall we are facing similar issue in FTA in Goods, because of cheaper plantation products from ASEAN

Although India is not putting all eggs in one FTA basket. We’re also doing bilateral trade agreements with individual countries in the region. for example

FTA already done1. Singapore (CECA in ‘05)2. Malaysia (CECA in ‘11)

In process1. Indonesia2. Thailand

Benefits of FTA in services and investment?

1. Will facilitate the moment of manpower and investment between India and ASEAN.

2. Will help reducing our trade deficit with ASEAN. (Because in the goods sector, we are importing more and exporting less. Service sector will be reverse.)

3. Will boost the trade between India and ASEAN to $100 billion by 2015.

4. Provides joint review, dispute settlement and other mechanisms to iron out problems.

5. Contains an annex on Movement of Natural persons- Business Visitors, Managers, Executives Specialists and Contractual Service Suppliers. This annex will help provide facilitate movement of Indian service professional in ASEAN countries.

6. This will be a stepping stone in moving towards the regional comprehensive economic partnership (RCEP) pact.

7. RCEP is to be signed between ASEAN and its six — Australia, China, India, Japan, South Korea and New Zealand.

8. The agreement will also facilitate investments in both regions

Indian investors want to enter ASEAN for

ASEAN investors want to enter India for

1. IT2. automobiles3. engineering4. Pharmaceuticals

1. construction services2. Transportation services.3. engineering services4. shipping

Mock Questions for Mains

Write a note on following, 200 words each:

1. The ASEAN way of musyawarah and mufakat resonates with India’s foreign policy and world view. Elaborate

2. Explain the importance of ASEAN for India’s look east policy3. Enumerate the strategic and economic interests of India in

South East Asia. How can ASEAN help achieving them?4. A healthy relation with ASEAN nations can help transform the

Indian economy in general and Northeast India in particular. Explain

5. There is tremendous scope for India to leverage its soft power in South East Asia. Elaborate.

6. Chinese assertiveness in ASEAN is both an opportunity and a challenge for India. Comment.

7. While India had signed a FTA in goods with ASEAN in 2009, the two sides have recently concluded a FTA in services. Examine the impact of 2009 FTA in goods and analyze the future potential of FTA in services and investment.

8. Provide an account of India’s increasing involvement in the South – East Asian region.

9. Write a note on Indian Diaspora in South East Asia.10. India ASEAN vision 2020

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Published on 24/09/2014 @ 8:44 pm under Category: Diplomacy

URL to article: http://mrunal.org/2014/09/diplomacy-india-asean-relations-fta-free-trade-agreement-in-goods-services-investment.html