The rupee’s relative depreciation gave India’s exports a greater edge.
However, it is not proving sufficient enough due to structural challenges.
What is the issue?
A competitive currency is a good thing, but what matters much more is labor and capital productivity.
How Rupee reached its current status?
Of late the currency markets saw dollar gaining strength against most of the world currencies and Indian Rupee too tumbled down to 69 per dollar.
Experts hold that Rupee will depreciate further due to the prevalent macro-economic conditions in India.
Notably, there has been a slow in both FDI and FII inflows and India’s software earnings and remittances from abroad have also faltered.
Significantly, software earnings, which grew by around 24% per year in FY02-12 and has crashed to a mere 2.9% presently.
Remittance growth slowed from over 16% to a mere 0.1% during the same time frame – majorly due to the unrest in the Middle-East.
What seems to be the possible outcomes?
Weakening rupee will push up crude import bills and consequently inflation and the recent MSP increases will also accentuate this.
The traditional view is that depreciating currency will boost export competitiveness and set in a demand for Indian produce.
But significantly, most other competing currencies (like Vietnam’s) are also weakening currently, thereby muting the currency advantage.
In fact, data shows that India’s exports are actually doing quite poorly overall despite a slight pickup in FY18 (after the massive slump in FY16).
Notably, from $315 billion in FY14, exports fell to $262 billion in FY16 and then recovered to $303 billion in FY18.
Why are exports not increasing?
Increased exports are not only about the value of the currency, but are also heavily determined by factors like quality and productivity.
Trends in the textile sector indicate this, with India’s share of exports to U.S. growing just 1% between FY 12-18 from 6.5% to 7.5%.
While Vietnam’s share in the U.S. imports grew by over 5%, from 7% to 12% during the same period.
Significantly, during the aforementioned years, Vietnam’s Dong depreciated just about 10% while Indian Rupee fell around 30%.
What is the way forward?
Currently, as exports are slacking despite the currency advantage, net trade deficit is actually worsening due to depreciation.
More importantly, recent MSP hikes will also hinder agricultural exports.
If the government is keen to give a push to India’s exports, it will have to do a lot more to increase productivity levels.
This requires changes in labor laws or the removal of infrastructural and other bottlenecks like comparatively high electricity tariffs in India
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India in a fix because of Iran & US tussle
GS Paper-2,International Relations
What is the news?
Trump administration is trying to isolate Iran in the international arena.
This situation has put India in a tricky situation, as India has been pursuing deep business and strategic ties with both Iran and the U.S.
What are the ongoing ties of India with Iran and U.S.?
India’s investment in Iran has been increasing and recently, India committed to enhance its investments in the Chabahar Port by $500 million.
Iran has been a major crude supplier to India, and India is the 2ndlargest buyer from Iran after China.
India is also in the process of securing Iran’s Farzad –B gas field and has promised to increase its oil off-take from Iran by 25% this year.
It has also committed to build a rail road to Afghanistan, a project that will help India circumvent Pakistan and enhance cooperation with Afghanistan.
S. is India’s largest trading and technological partner and India enjoys a big trade surplus with it.
Indo-U.S. defence ties have been growing in recent years and strategic engagements between them are strong.
However recently, the ties have come under severe strain due to imposition of tariffs on Indian goods and India’s engagements with China and Russia.
What is the situation challenging for India?
Trump administration recently asked India to cut trade ties with Iran, which is straining India to take a stand.
Considering the situation, more than the energy security perspective, it is the geopolitical aspects of the directive that worries India.
If India overlooks U.S. pressures and continues engagements with Iran, it risks antagonising an all powerful trade and strategic partner.
On the contrary, if U.S. directives are adhered to, Iran might turn hostile to Indian projects on its soil like Chabahar Port and the allied transit corridors.
Notably, Iran is already hedging the fallouts of a confrontation with U.S. by seeking to engage with EU and other powers like China.
How did India dealt with such situation previously?
In 2012, the Obama administration maximized pressure on Iran in order to secure a deal for curtailing Iran’s nuclear program.
Obama had sent tough messages to New Delhi through discreet channels unlike Trump’s open threats, to reduce ties with Iran.
India had then agreed to cut oil imports by 15% subsequently, but asserted its autonomy, by attending a meet with Iranian leaders in Tehran.
India even operationalized a ‘Rupee-Rial’ mechanism, under which Iran could use some of its oil bills with India to procure Indian goods.
While the current government would seek to emulate its predecessor’s line on the issue, the stakes are higher this time.
What lies ahead?
Complex negotiations between New Delhi and Tehran, and New Delhi and Washington are likely in the near future.
Considering the increasingly globalised business context, it would be risky for India to face U.S. sanctions as it might affect business considerably.
Obliging to the U.S. fully will reduce India’s independent stature, and countries like China and Turkey have already refused to comply with U.S.
As India can’t afford to antagonize both Iran and the U.S., it needs to play its card correctly to tide over this diplomatic tussle.
DNA Technology Regulation Bill, 2018-What, Why and How
GS Paper-2, Government Policies
Why in news?
The Cabinet recently approved the DNA Technology Regulation Bill, 2018.
What is the Bill about?
The Bill is about the mandatory accreditation and regulation of DNA laboratories.
It seeks to ensure that the DNA test results are reliable.
It also ensures that the data remain protected from misuse or abuse in terms of the privacy rights of citizens.
The Bill’s provisions will enable the cross-matching between:-
Persons who have been reported missing
Unidentified dead bodies
Victims in mass disasters
What will the DNA banks do?
The government will set up DNA data banks across India to store profiles.
It imposes jail term of up to 3 years and a fine of up to Rs 1 lakh on those who leak the information stored in such facilities.
These banks will maintain a national database for identification of victims, accused, suspects, undertrials, missing persons and unidentified human remains.
What is DNA Profiling Board?
The Bill creates a DNA Profiling Board that would be the final authority to –
Authorize the creation of State-level DNA databanks
Approve the methods of collection
What is the objective?
Forensic DNA profiling helps in offences categorized as affecting the human body and those against property.
It includes murder, rape, human trafficking, or grievous hurt and theft, burglary, dacoity.
National Crime Records Bureau (NCRB) put the number of such crimes in excess of 3 lakhs per year.
Of these, only a very small proportion is being subjected to DNA testing at present.
The primary purpose of the Bill is thus to expand the application of DNA-based forensic technologies.
The expanded use of DNA technology in these cases would result in speedier justice delivery.
It could also help in increased conviction rates, which at present is only around 30%.