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.