Daily Financial News Analysis – 25th June’20 – Free PDF Download

Trade sanctions on China

• China has turned progressively hostile.
• With GDP at $14 trillion, it now feels economically secure and militarily powerful enough to pursue its long-standing geopolitical ambitions that include the acquisition of territories with strategic value.
• Incursions on India-China border
• Trade sanctions by India can inflict far greater injury on China.
• Post Galwan valley brawl, it has asked industry associations to identify non-essential imports from China for purposes of trade sanctions.

• Border hostilities potentially give India room to invoke the national security clause in the WTO rules.
• This would allow it to impose tariffs on imports from China while exempting other trading partners.
• But do these sanctions serve India’s interest?
• But with India’s GDP still less than $3 trillion, China is more than four times its size.
• Would China have chosen its current path of hostility had India been a $10 trillion economy?
• Rather than buy animosity of a neighbour that is its near equal in economic size as well as military might, it would have done everything to keep India on its good side and concentrated on realising its other geopolitical ambitions.
• This difference also means that India is militarily a lot weaker, placing it at a disadvantage in a prolonged conflict.
• The sooner India bridges this gap, the better for its national security vis-à-vis China and other hostile neighbours.
• In 2018, China’s exports to India were only 3.1% of its total exports.
• In contrast, India’s exports to China were 5.8% of its total exports.
• Chinese exports to India may be 4 times its imports from India in absolute terms but once we take the difference in economic size into account, India’s ability to inflict greater damage on China begins to look suspect.
• The argument against sanctions is reinforced by the fact that they would hurt not just China but India as well.
• Imports from China are 15% of India’s total imports.
• China’s exports include significant volume of components and raw materials for a large number of critical industries.
• Any interruption of supplies of these raw materials and components will hurt output and employment in those industries.
• India’s present circumstances further weaken the case for sanctions.
• India entered Covid-19 crisis with its financial sector under great stress, a fact reflected in the plummeting of GDP growth to just 4.2% in 2019-20.
• Covid-19 has added to this fragility by disrupting both demand and supply.
• India’s urgent economic problem is to rebuild the economy and return it to the 7.5% growth trajectory.
• The final point is to ask what our end game is in imposing trade sanctions.
• In its trade war with even the largest economy in the world, the United States, China has responded by retaliating forcefully.
• For the longer-term defence, we must focus attention on building the $10 trillion economy in the shortest possible time.

FB-Jio Platforms Deal

• Competition Commission of India (CCI) approved Facebook’s purchase of a stake in Jio Platforms for ₹43,574 crore.
  • Acquisition of 9.99% stake
  • A deal that will strengthen the social media company’s presence in its largest market
  • Help Reliance Industries Ltd (RIL) pare debt.
• Jio Platforms houses RIL’s telecom business under Reliance Jio Infocomm, the largest in the country with nearly 400 million subscribers, besides other digital properties and investments.

All Chinese Cargo Being Checked

• All shipments coming from China are being physically checked at ports and airports following a nationwide alert regarding enhanced risk weightage ascribed to consignments from that country.
• Some Indian exporters said retaliatory action is being taken against shipments to Hong Kong.
• All ports, including Nhava Sheva, Mumbai and Kolkata, as well as airports have initiated physical checks.
• Even imports from China by authorised economic operators (AEOs) will be subject to physical scrutiny.

Beijing Seeks Clarity from India

• Beijing has sought clarity from Delhi on imports from China getting stuck as they were being subjected to 100% examination.
• Domestic industry lobby groups have complained that the resultant supply chain disruption comes at a bad time as companies are reopening after the lockdown.
• The Chinese government has communicated to the Indian side that Chinese companies are facing supply chain issues owing to the recent move.
• Alarmed at the development, various industry associations such as Ficci, handset lobby ICEA, and MAIT, which represents IT hardware manufacturers, are reaching out to the government, including the finance and commerce ministries.
• Their contention is that the move to subject shipments from China to 100% manual examination will disrupt supply chains.

IMF

• The International Monetary Fund (IMF) has projected a deeper 4.5% contraction for India in FY21 than earlier estimated, citing a longer lockdown period and slower than anticipated recovery.
• The IMF had forecast a 1.9% growth for India in the April edition of the WEO and 3% contraction for the world.
• In the June update – A Crisis Like No Other, An Uncertain Recovery – of its flagship World Economic Outlook (WEO), the IMF has forecast a    –4.9% global growth in 2020, 1.9 percentage points below the April 2020 estimate.
• The latest assessment has also toned down the bounce back in FY22 to 6% against a stronger 7.4% growth forecast in April.
• In 2021, global growth is projected at 5.4%, marginally lower than 5.8% it expected in April.

‘COUNTRY OF ORIGIN’ TAG

• India’s top internet commerce companies, including Flipkart and Amazon, have sought time from the Centre to ensure that all products sold on their platforms display the ‘country of origin’ label.
• At a virtual meeting with the DPIIT online retailers asked for a window of 4-5 months to comply with the requirement aimed at curbing Chinese imports amid heightened tension between the two Asian giants.
• In an offline setting, a consumer can pick up a product, see where it was made and take an informed decision. Similar details should be displayed on ecommerce websites.
• The government is basing its move on the Legal Metrology (Packaged Commodities) Rules, 2011.
• The clause will likely be included in the ecommerce policy that the commerce and industry ministry is drafting, sources said.
• “No company is being arm-twisted and the scheme is part of the country’s Atmanirbhar policy,” they added.

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