Stiff target: New Foreign Trade Policy aims for exports of $1 trillion by FY26

Source: Financial Express, 02 August 2021

India will aim to more than double its annual goods and services exports to over $1 trillion by FY26 under the new foreign trade policy (FTP), as it seeks to tailor its policies suitably to cash in on an expected rebound in global economic growth, sources told FE.

This will warrant a substantial, and sustained, scaling up of exports — to a compounded annual growth rate of 15% until FY26 from about 5% in the five years through FY20 (before the pandemic).

The country had targeted annual exports (merchandise and services) of $900 billion under the extant FTP but managed to realise a maximum of $538 billion (in FY19), as goods shipments mostly faltered.

However, government officials feel that given the potential revival in external demand, elevated international commodity prices and acceleration in domestic manufacturing due to production-linked incentive schemes, the ambitious export target could be met this time.

Still, for this to happen, the government will have to address the usual structural issues, including high logistics costs, refund taxes on inputs consumed in exports on time and firm up free trade agreements with key markets early, exporters reckon.

The next FTP, usually valid for five years, will come into force from October 1.

Since the FTP is being designed in the aftermath of the Covid-19 outbreak, it would focus on ensuring India’s greater integration with the global supply chain and reducing its elevated logistics costs. Also, the Atmanirbhar Bharat initiative will find a befitting expression in the policy, said one of the sources.

However, given the re-prioritisation of spending, necessitated by the pandemic, the availability of budgetary resources to boost exports may remain inadequate, which could be a key hurdle to impressive trade growth, sources said. To partly make up for this, the government could do away with a plethora of redundant paperwork and formalities and relax the compliance burden of exporters.

To boost services exports under the new FTP, the government may revamp the Service Exports from India Scheme (SEIS) to cover more businesses, especially MSMEs, or roll out a new programme altogether, sources said. Under the extant SEIS, the government offers exporters duty credit scrips at 5-7% of the net foreign exchange earned.

The proposed Remission of Duties and Taxes on Exported Products (RoDTEP) scheme for mechandise exporters, the refund rates under which are yet to be announced, will also be a part of the FTP.

Sources had earlier told FE that the government could retain certain key export schemes, such as those relating to special economic zones and export-oriented units, in the new FTP as well, even though these have been challenged at the World Trade Organization (WTO). However, any new scheme within the FTP will be designed in sync with WTO stipulations.

The government may also bolster its support for MSME exporters to market their products, one of the sources said. It may continue to offer aid under the Trade Infrastructure for Export Scheme (TIES), which was supposed to continue up to 2020 but is still operational. However, assistance under the TIES, meant for improving export competitiveness by building trade infrastructure, could be slashed from the initial allocation of Rs 200 crore per year.

Key elements from a national logistics policy, which has been in the works for months, will likely feature in the FTP. This policy will aim to reduce logistics costs from 13% of GDP to 8% over five years.

Commenting on export prospects, Ajay Sahai, director general and chief executive at exporters’ body FIEO, said order books for supplies until October remain impressive, and the trend will likely continue. However, supply side remains a challenge. Shipping costs have skyrocketed worldwide and exporters face an acute shortage of containers. Still, with government support, export target of $400 billion for FY22 can be realised.

The International Monetary Fund last week revised up its earlier predictions of global trade volume growth by a sharp 130 basis points for 2021 to 9.7% and 50 bps for 2022 to 7%. India is set to benefit from the brightening global trade prospects once its supply side gains traction.

Factory growth rebounded in July, hiring resumed after 15 months: PMI

Source: Business Standards, 02 August 2021

Factory activity in India bounced back in July as demand surged both at home and abroad, prompting companies to create new jobs for the first time since the onset of the pandemic, a private sector survey showed on Monday.

The Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, jumped to 55.3 last month from 48.1 in June, well above 50-level separating growth from contraction.

“Output rose at a robust pace, with over one-third of companies noting a monthly expansion in production, amid a rebound in new business and the easing of some local COVID-19 restrictions,” said Pollyanna De Lima, economics associate director at IHS Markit.

India grappled with a devastating second wave of coronavirus infections in April and May but falling case numbers have allowed many restrictions to be eased.

The country is still reporting more than 40,000 cases per day, taking the total number of infections to around 31.6 million, but the economic re-opening induced higher demand and sales, leading to a sharp expansion in output.

New export orders grew at the fastest rate since April.

Employment rose for the first time since March 2020, breaking a 15-month chain of job shedding. However, the pace of hiring was mild, indicating a job crisis is still evident.

Growth in Asia’s third-largest economy could lose momentum, with new coronavirus variants posing the biggest risk to already weakened forecasts, while inflation was expected to rise, a recent Reuters poll showed.

A lack of raw material availability and higher freight fees drove input costs higher, though the pace was at a seven-month low.

Despite higher input costs, output charges rose only slightly, suggesting companies absorbed the extra cost burden to boost sales and stay competitive.

“With firms’ cost burdens continuing to rise, however, and signs of spare capacity still evident, it’s too early to say that such a trend will be sustained in coming months,” added De Lima.

The Reserve Bank of India is not expected to raise interest rates until next fiscal year on predictions inflation remains within its target band of 2%-6% this year.

Govt issues draft norms to regulate direct selling cos

Source: Economic Times, 02 August 2021

Direct selling companies such as Amway, Oriflame, Tupperware and similar entities in India will now have to comply with regulatory norms. The consumer affairs ministry has issued draft rules for their mandatory registration and has also proposed mechanisms to protect the direct sellers or agents and make the companies accountable to their consumers.

This is for the first time such draft rules have been framed, which specify that these entities will be barred from charging any entry or registration fee from agents. They can’t charge for the cost of equipment and materials for sales demonstrations from their agents as well.

Earlier in 2016, the ministry had come out with a set of guidelines for the sector, which were advisory in nature. But now the proposed rules under the Consumer Protection Act will have legal backing and violation will attract penalties.

According to the draft rules, every direct selling entity carrying out business in India will have to be registered with the industries department (DPIIT) and must have at least one office in India. The registration number has to be displayed prominently on its website and all invoices. They will need to have dedicated executives to address grievances and to comply with the government directives. Such entities will also need to have a 24×7 customer care number to resolve all issues.

The proposed rules specify that no direct selling entity will be allowed to promote ‘Pyramid Scheme’ and participate in ‘Money Circulation Scheme’ in the garb of a direct selling business. Pyramid scheme is a business model that recruits members via promise of payments or services for enrolling others into the scheme, instead of sale of products or services.

The draft rules said all firms operating across the country will have to comply with the norms within 90 days.

According to the proposed rules, a direct selling entity would have to take back spurious goods or deficient services and will have to refund the consideration paid for goods and services provided by it. It also proposes that the agent or seller will have a “cooling off period” during which he/she can change mind about an agreement made. This won’t result in a breach of contract and or levy of penalty. The draft rules also have a provision for a buyback or repurchase policy for “currently marketable” goods, which are not unpacked.

Prevail Electric to debut with 3 e-Scooters this month, co to set up second factory in Haryana, plans electric four wheelers

Source: Economic Times, 02 August 2021

Prevail Electric Mobility, an electric vehicle subsidiary of French lubricants company FRVelion, will foray into India’s electric two-wheeler market with three e-scooters later this month.

The company, which has a manufacturing unit in Neemrana (Rajasthan), will launch Wolfury, Finesse and Elite models, priced between Rs 90,000 and Rs 1.3 lakh.

Prevail Electric is working to set up a second manufacturing factory in Bairampore, Haryana, officials said.

It plans to leverage India as a manufacturing base and export products to neighbouring markets like Nepal and Sri Lanka. Plans are on cards to eventually tap other markets in Bangladesh, Vietnam and in Southeast Asia.

The company is also working on an electric four-wheeler and is in talks with the Haryana government to invest Rs 300 crore to set up a production facility for the same by the middle of next year.

“We are in talks with the Haryana government,” said Hemant Bhatt, chief executive officer of Prevail Electric Mobility. “We are planning to launch our demo model in 2023. We expect to finalise the agreement (for setting up the four-wheeler manufacturing unit) by June/July 2022.”
Prevail Electric will launch its first flagship store in Delhi by the middle of this month. The company plans to have in place at least 30 such stores across the country by the end of the ongoing financial year.

To address customer concerns about availability of adequate charging infrastructure, Prevail will set up 100-200 charging stations around its flagship stores within 30-60 days of launch of the outlet, officials said.

“With the central and state governments announcing incentives, electric vehicles will now become accessible to a wider set of customers,” Bhatt said. “Fuel prices are on the rise…the shift (to electric vehicles) is imminent.”

Running cost of a petrol-powered scooter currently is four times that of an electric version, he said. This is expected to trigger a shift towards EVs if the product quality and features are good.

The government had in June increased subsidy available on electric two-wheelers by 50% to Rs 15,000 per kilowatt hour (kWh) to encourage widespread adoption.

Prevail Electric’s existing facility in Neemrana has a capacity to manufacture 20,000 two-wheelers a year. The company can roll out a maximum of 40,000 units per annum from the facility, if required. The Bairampore unit will have a similar capacity, officials said.

The company’s three e-scooters, with top speed ranging from 50 kilometres per hour to 80 kmph, have a localisation content of around 90%, officials said.

About 143,800 electric two-wheelers were sold in India in the last financial year, which is less than 1% of the 15.1 million petrol-powered two-wheelers sold in the country in the same period.

France’s FRVelion, which manufactures automotive and industrial lubricants and electronic batteries, has been present in India since 2019.

Preventing corporate frauds: Focus on accountability of entire value chain, not the auditor alone

Source: Economic Times, 29 July 2021

Every time a corporate collapse or a high-profile fraud occurs, a question that is always raised is how it could happen — particularly in the face of layers of checks and balances under the law and regulatory regime. The next question that is raised is who is responsible. First in the line of fire come the auditors, leading to investigation against them and yet another dose of audit reforms as a knee-jerk response. The history of high-profile corporate frauds and audit reforms is a regular witness to this phenomenon.

Expectations of stakeholders from the auditor, who is considered a gatekeeper for ensuring integrity, fairness and transparency in financial reporting, are high and rightly so. However, the role of the auditor in the entire value chain in accounting and financial reporting is not properly understood. The value chain commences with those engaged in financial transactions, the preparers of accounts and financial statements. Thereafter the chain moves through the management, internal auditors, audit committees and board of auditors.

Ironically, when a fraud occurs, the responsibility is passed on to the auditor who really is at the fag end of the chain, and not to those who had the responsibility to prevent the fraud, and those who had the responsibility to detect it.

The history of high-profile corporate frauds in India and other countries — including in the cases of Satyam, ILFS, PMC, DHFL and others — points towards failure, callousness, negligence or complicity of the management, including the CEO and CFO, in preparation of accounts, financial reporting, and designing and operation of internal control systems. The internal auditor, as a first line of defence, has to vouch for the adequacy and effectiveness of the internal control and risk management system. This is something these auditors have failed at.

The Audit Committee has failed to exercise oversight on external audit, internal control, internal audit and financial reporting. Boards of Directors have failed to discharge the responsibility explicitly cast upon them under the Companies Act 2013 & others for proper maintenance of accounts, adequacy and effectiveness of internal controls, quality of financial reporting and detection and prevention of frauds.

In contrast, the role of the external auditor is to perform audit procedures to express his opinion — a reasonable assurance that the financial statements are free of material mis-statement, whether caused by error or fraud. Because of the nature of audit, the evidence available and the characteristics of frauds, he cannot give absolute assurance. At best, the auditor has the responsibility for detection of frauds in certain circumstances.

There are others who have the responsibility for prevention as well detection of frauds — the management with oversight by internal auditor, Audit Committee and the Board of Directors. The opportunity or incentive to perpetrate a fraud is created by lax oversight, weak controls, connivance or a culture of cutting corners, self-imposed pressures, or yielding to short-term market expectations. This has been amply demonstrated in high-profile corporate fraud cases in India and other countries.

Corporate frauds suggest failure on the part of the board, the directors (individually and collectively), independent and nominee directors, auditors (both internal and statutory), promoters and the management alike.

The principle of shared responsibility would help the regulators and other authorities to ascertain the root cause of a fraud and the parties responsible thereto, determine proportionate accountability and take well thought-out preventive and corrective measures needed to avoid a recurrence.

The Companies Act 2013 and regulations made from time to time have not explicitly deal with all the links in the financial reporting value chain, or in prevention and detection of frauds, their accountability for failure, etc. Auditors, however, have always found themselves at the centrestage whenever it comes to fixing accountability and liability for occurrence of frauds. It is, therefore, no surprise that new regulations have not prevented frauds because of the absence of a holistic view.

The external auditors, being the gatekeepers, no doubt have to assume a greater responsibility and commensurate accountability. However, disproportionate focus on the auditor has unjustifiably resulted in loss of public trust and confidence in audit and the auditing profession. Knee-jerk reactions and audit reforms in bits and pieces have only caused more harm than good.

Cabinet approves amendments to LLP Act; 12 offences to be decriminalised

Source: Business Standards, 29 July 2021

The Cabinet on Wednesday approved amendments to the Limited Liability Partnership (LLP) Act for decriminalising offences under the law as the government looks to improve ease of doing business and encourage start-ups.

In all, 12 offences are proposed to be decriminalised and one provision (Section 73) entailing criminal liability is to be omitted. The 12 decriminalised offences will then get shifted to an internal adjudication mechanism to help unclog criminal courts from routine cases.

The government has also approved creation of a class of small LLPs to encourage entrepreneurs. These LLPs will be subject to fewer compliances, reduced fee or additional fee, and smaller penalties in the event of default.

“LLPs are becoming popular among start-ups. An amendment is being proposed to the LLP Act for the first time,” said Finance minister Nirmala Sitharaman.

According to experts, lower compliance will incentivise unincorporated micro and small partnerships to convert into the organised structure of an LLP and derive its benefits.

Once the amendment for decriminalisation is approved, the total number of penal provisions in the Act will be reduced to 22, the number of compoundable offences will be only seven, the number of non-compoundable offences will be only three, and the number of defaults will be only 12, Sitharaman said.

She said this will help level the playing field for LLPs which otherwise compete against corporations that come under the Companies Act. “… we are bridging this gap. And making LLPs far more attractive and easy to handle… so that many of the start-ups today, which prefer the LLP model, can also feel equally given the ease of business opportunities,” Sitharaman said.

Union Minister Anurag Thakur said: “This boosts Atmanirbhar Bharat.”

The government will also introduce a new definition of small LLPs based on their turnover size and contributions by partners or proprietors. At present, there are relaxations for thresholds up to turnover size and partner’s contribution of Rs 40 lakh and Rs 25 lakh, respectively.

“Now, Rs 25 lakh will go to Rs 5 crore and Rs 40 lakh turnover size will now be treated as Rs 50 crore. So, even Rs 5 crore contribution and Rs 40 crore or Rs 50 crore turnover will be treated as a small LLP, which means we are expanding the scope of what can be a small LLP.

The corporate affairs ministry is also working towards setting up an e-adjudication platform as part of the new version of the MCA21 portal.

Ashok Leyland draws up EV road map, plans to launch first e-LCV in Dec

Source: Business Standards, 29 July 2021

Commercial vehicles (CV) major Ashok Leyland lined up its electric vehicle (EV) road map on Wednesday, setting a target of becoming one of the world’s top 10 CV brands.

The company’s EV push will be done through UK-based Switch Mobility — a combined entity of Ashok Leyland’s electric CV operations and the erstwhile Optare of the UK.

Switch Mobility will be launching its first electric light commercial vehicle (e-LCV) in India by the end of December; it has secured 2,000 orders. These vehicles will be manufactured in India and sold under the Switch brand. The group has plans to invest $150-200 million in the EV space in the next few years.

Ashok Leyland said on Wednesday it has invested around $136 million in Switch Mobility and expects the new entity to raise its own capital in the future.

“Investors and strategic partners keen to tie up. We do not see any immediate fund requirement from Ashok Leyland,” said Dheeraj Hinduja, chairman, Ashok Leyland and Switch Mobility.

It was in 2013 that the Hinduja flagship company Ashok Leyland first evinced an interest in the EV space by acquiring British busmaker Optare Plc, while it lined up EV plans in India three years ago. The company already has expertise – it has more than 280 EVs in service covering over 26 million miles on a test basis.

Earlier on Wednesday, the management engaged key investors from India and London to showcase the growth opportunity and the crucial role Switch Mobility will play in shaping the commercial e-mobility space, globally.

Switch Mobility, the next-generation electric bus and LCV company, had recently announced strategic steps to further solidify its progress towards developing net-zero carbon mobility. As a step towards this, the company had appointed Andrew Palmer as executive vice-chairman and chief executive officer (CEO) of Switch Mobility recently.

In April, Switch Mobility announced technological collaborations with various partners, including Siemens, to deliver e-mobility solutions that offer the lowest total cost of ownership to CV customers.

As part of its ramp-up, Switch Mobility has already signed customer agreements and letter of intent with leading logistics and e-commerce operators.
Hinduja made it clear that the company will focus on its stronghold – buses and light vehicles in the EV space – and not venture into e-cars.

Based on estimates, the global electric bus market is likely to touch around $70 billion by 2030. The new entity will be targeting India and the UK. The company’s strategy is to use India as a manufacturing hub to make use of its existing facilities in the country, in addition to its facility in Leeds.

Vipin Sondhi, managing director and CEO of Ashok Leyland, said, “These new initiatives give us the ability to drive the sustainability agenda which Ashok Leyland is passionate about. Switch Mobility, with its strength in net-zero carbon technologies, combined with Ashok Leyland’s expertise in the mobility space, will lead this change and enable us to fulfil our aspirations of net-zero carbon mobility.”The company said it has received orders for e-buses and will be participating in tenders across the UK and India for their supply.

“We have a head start in the e-mobility space, with our vehicles clocking millions of miles in service. We want to increase our reach further and work with different stakeholders to encourage the faster adoption of net-zero carbon mobility. Technology and innovation will continue to be pivotal in realising our aspirations in the e-bus and e-truck space,” said Palmer.

India grew double digits in June quarter: Apple CEO Tim Cook

Source: Economic Times, 28 July 2021

iPhone-maker Apple said the Indian market grew double digits in the June quarter along with other emerging markets like Latin America and Vietnam.

“Today, Apple is reporting a very strong quarter with double digit revenue growth across our product and services categories and in every geographic segment. We set a new June quarter revenue record of $81.4 billion, up 36% from last year, and the vast majority of markets we tracked grew double digits, with especially strong growth in emerging markets, including India, Latin America and Vietnam,” Tim Cook, Apple’s CEO said on Wednesday.

Cook said that results in these countries are for the entire line of products that the company has, suggesting that Apple has iPhones across price ranges, including the entry-level buyer.

“And keep in mind, we still do have SE in the line. We launched it a year ago, but it’s still in the line today and is sort of our entry price point. And so I’m pleased with how all of them are doing and I think we need sort of that range of price points to accommodate the types of people that we want to accommodate,” he added.

The Cupertino-based posted June quarter record revenue of $81.4 billion, which is 36 percent higher year on year.

All the product and services lines for Apple, including the Apple iPhone, iPad, Mac as well as wearables including Apple Watch and HomePod saw increased revenue year on year.

The company reported $21.7 billion in net income, which is 93 percent higher than the same quarter in 2020. Sales also grew across the iPhone, Mac, iPad, wearables, home and accessories as well as the services including Apple Music and iCloud.

India, Russia to hold 13-day mega military exercise in Volgograd

Source: Financial Express, 27 July 2021

India and Russia will carry out a 13-day mega military exercise with a focus on counter-terror operations in the Russian city of Volgograd from August 1, the Indian Army said on Tuesday. It said the 12th edition of the “Indra” exercise will be yet another “milestone” in strengthening the bilateral security cooperation and will serve to reinforce the longstanding bond of friendship between India and Russia.

The Army said 250 personnel from each side will participate in the 12th edition of the joint military exercise. “The 12th edition of Indo-Russia joint military exercise Indra-21 will be held at Volgograd, Russia from August 1 to 13,” the Army said. It said the exercise will entail the conduct of counter-terror operations mandated under the UN’s framework of joint forces against international terror groups. “Exercise Indra-21 will further strengthen mutual confidence and interoperability between the Indian and Russian armies and enable sharing of best practices between the contingents of both the countries,” the Army said in a statement.

“The exercise will be yet another milestone in strengthening security cooperation and will serve to reinforce the longstanding bond of friendship between India and Russia,” it added. It said the Indian Army contingent participating in the exercise will comprise a mechanised infantry battalion. Volgograd is a major Russian city situated on the western bank of the Volga river.

Make-in-India must ‘make for the world’

Source: Financial Express, 28 July 2021

Govt must lower tariff protections for domestic manufacturers to spur them to become globally competitive.

As this newspaper recently reported, India’s average applied import tariff fell to 15% in 2020 from 17.6% in the previous year. That may not seem like much in absolute terms, but it is the biggest annual fall in a decade. That said, the rate itself is higher than the 13.5% that prevailed in 2014. The country’s trade-weighted average tariff—total customs revenue as percentage of overall import value— eased for a second straight year, to 7% in 2019 from 10.3% in 2018, the lowest level since 2014, as per the latest World Trade Organisation (WTO) data.

While successive governments, over the years, have attempted to bring down duties, in reality, they have been loth to do so; local producers have lobbied hard to keep tariffs elevated in order to protect their businesses. That’s despite a clutch of economists, including former CEA, Arvind Subramanian and former NITI Aayog vice-chairperson Arvind Panagariya, arguing in favour of an open economy that would help boost the country’s export, creating jobs in large numbers. India needs to break out of the import substitution trap before it can become an export powerhouse. After all, one of the objectives of having a strong export base is to be able to import those goods that the country cannot produce efficiently enough, without creating a big trade deficit.