A paradoxical 2017 awaits us!
On one hand, we lament over India’s reduced exports, and on the other, we see no 'social justice' in giving our exporters enough to even cover their input costs in the form of remission and incentive schemes.
Steven Philip Warner | January 2017 Issue | The Dollar Business
When 2016 began, the world trade community had just braved a cold and icy year. TDB's January 2016 issue titled, ‘2016: Are we regressing?’ summed the low-key expectations from 2016 quite well. Based on a comprehensive consideration of various past situations and expected scenarios (simulative analyses), TDB Intelligence Unit had then made a few forecasts about what the year ahead would mean for foreign trade and policy. They were predictions however, and most of which could have been off targets.
Strangely, economics held its ground. So did our forecasts.
Forecast 1: “The world will see another 1,000,000 barrels per day being added to its oil supply tank, worsening the glut. In what range will oil prices oscillate? Between the floor support of $40 pb and ceiling of $60 pb. And $100 pb? Leave that for 2018.”
What has resulted? As on Dec 21, 2016, Crude oil futures (for January to December 2017 settlement) range between $51.90 and $55.72 per barrel (bbl), while Brent crude futures range between $55.21 and $57.31/bbl.
Our take for 2017? We expect oil prices to appreciate, with many OPEC nations recently promising a disciplined approach to production (proving the cartel is still alive!). Crude could easily break through the $60/bbl benchmark in 2017 and could oscillate in the $60 to $80/bbl range.
Forecast 2: “Easy to imagine that the USDINR rate crossing over to the higher side of 70 in 2016 will hurt Indian importers. 2016 could mean the USDINR exchange rate swaying in the range of 60 to 70. Anything beyond is difficult to imagine.”
What has resulted? The USDINR exchange rate stands at 67.893 (on Dec 21, 2016).
Our take for 2017? It’s likely that Fed rate alterations, dynamics of foreign politics, flight of FIIs from India’s bond markets, demonetisation, and other such factors will force the rupee to stay below the Rs.65-68 to a dollar mark in 2017.
Forecast 3: “India will end 2015 with merchandise exports in the range of $260-270 billion, marking a change of negative 17-20% y-o-y in total exports. A y-o-y growth in India’s exports in 2016 will prove as heartening as it appears impossible.”
What has resulted? India’s exports fell y-o-y by 17.8% in CY2015 to $264 billion.
Our take for CY2016 and CY2017? India should close CY2016 with total exports of about $260 billion, marking a fall of 1.35% y-o-y. Analyses by TDB Intelligence Unit shows how 2017 could see India’s export shrink, given various macroeconomic factors, including uncertainties and troubles back home. But a depreciated rupee should help ease the tension amongst exporters to a degree. That will however not be enough to avoid a slip in total annual exports from India by up to 1-1.5% y-o-y in 2017.
Forecast 4: “RCEP and India-EU FTA – bet your best horses – you will see little happen on the agreement in the next eleven months.”
What has resulted? Nothing conclusive has really happened on these fronts.
Our take for CY2017? Round tables will continue. But little is expected to be decided on either RCEP or the India-EU deals. There could be some changes to India’s traditional FTAs, like ASEAN. In fact, there is a greater likelihood of ASEAN being expanded to cover services as well, with Philippines concluding on a narrower set of common services to be included in the trade pact. This could make India’s services exporters smile!
Forecast 5: “Putin will become America’s darling in 2016.”
What has resulted? Who would have imagined that in our lifetimes, we would hear Putin declaring to the world that "US is probably the world’s sole superpower"?
Our take for CY2017? Actually, there will be more than expected activity in the America-Russia neighbourhood in 2017. There are concerns being expressed over the likelihood of Putin having too much influence on the Trump administration. There is so much strong love between the two nations suddenly that this affair could choke America’s foreign policy, raising questions about its supreme leader's support to a nation whose military actions in Ukraine have invited both US and EU sanctions in recent months, and one whose “unpredictable” Head of State is accused of an unprecedented cybercampaign to influence elections in countries. Obviously, policy relations matter in foreign trade, and with various economic and military benefits that the Kremlin will get under Trump’s administration, Putin has probably ensured a breeze of a new year for his nation - global policy-and-trade-wise.
If you consider events that have unfolded in recent months, seems, 2017 will be a "paradoxical year". We are headed into this year with occurrences that are simultaneous, yet completely opposed. Most importantly though, they all matter somehow to India’s and global trade fraternity. Allow me to list out some here.
Paradox #1 – A scared, globalised world in 2017?
It’s not surprising that in an era of globalisation, recently, dictionary.com named “Xenophobia” (meaning, dislike of or prejudice against people from other countries) the word of the year for 2016. This word was the most searched word in 2016 after Brexit and US Presidential elections. A borderless world and xenophobia are what we're now talking about in the same breath!
Paradox #2 – A walled, borderless world in 2017?
Talking of creating a borderless world, while on one hand, WTO is excited about the prospects of no boundaries in policy and trade, America chooses a president who wants to first build walls and then fences, ban Mexicans and Chinese and every export from “job stealers”, foul-mouths his neighbours branding them “drug traffickers” and “murderers” while hailing Pakistan “a fantastic country and place of fantastic people” with a prime minister who is “a terrific guy with a very good reputation” who is “doing amazing work”. Perhaps what Trump means when he refers to Sharif being “terrific”, with a “good reputation” and doing “amazing work”, is that he possibly liked the fact that he recently appointed Qamar Javed Bajwa as Pakistan’s Army Chief for one reason – that he’s an Indo-Pak LoC specialist!
Paradox #3 – Fallacy of composition comes alive!
Apparently, a world without boundaries remains a concept well ahead of its time. On one hand, we’ve had the African Union attempting a closer integration with the launch of a common passport, and on the other, we saw good proof that nations are still fighting hard to retain and regain their individual political, fiscal and economic identities. While the willingness of only 13 nations in Africa to allow advance visa-free movements proves that AU largely remains a concept on paper, the Grexit fever and the real-life experience with Brexit has got us all imagining how fast will national boundaries surface within EU. The way things are going, every EU country may need its own “-exit” term at some point in the near future, perhaps as early as 2017. [Remember, France, Germany and Hungary go into general elections in 2017!]
Paradox #4 – Joke of 2017: China, a free trade market!
If you were to name the top five apps that you use on a daily basis, Facebook and WhatsApp would be right up there. Now imagine a nation that disallows two loudest symbols of free speech in the modern-yet-common mobility space being granted a 'Market Economy Status (MES)'. If you’re wondering what an MES means, it’s basically the opposite of a centrally planned economy. It is market run by its individual citizens and businesses, and not by government intervention. China has launched “legal challenge against the EU and US” over their reluctance to grant it a MES under WTO rules. Fear is, in 2017 we have an economy still run like a kingdom being granted a false identity of being an open, democratic market. If China is granted MES, it will be a paradox come alive, which will also curtail the freedom of importing nations to impose anti-dumping duties (ADDs) on Chinese products. Imagine world trade thereafter!
Paradox #5 – Whose side are we on?
It's the problem within. And I am not even talking about something as obvious as pulling our GDP back by 1-2% with demonetisation during a time when world trade is fighting to grow. Imagine, on one hand, we talk about transparency and digitisation (think EDI ports, procedures like single window clearance, etc.) and on the other, we not only fail to conclude on taking action to integrate divisions to make life easier for India’s exim community (like bringing FSSAI, Plant quarantine agency, Animal quarantine agency, wildlife crime and control bureau, etc. under one single window), but also abolish a 12-year-old practice created to infuse some transparency into CBEC's functioning by making public on a daily basis, imports and exports from various EDI ports across India. On one hand, we lament over India’s reduced exports (as on Dec 23, 2016, the government is considering a reduction in exports target for 2020 from the earlier $900 billion to somewhere under $750 billion!) and on the other, we see no social justice in giving our exporters enough to even cover their input costs in the form of remission and incentive schemes. On one hand, we talk about replacing the Nehruvian five-year plan model of country's development to a longer term 15-year-long blueprint, and on the other, we’re witnesses to constant changes in even 5-year-long FTPs created by a department well-versed in the art of doing so!
Notwithstanding these paradoxes, there are signs of 2017 shaping into a more prosperous year than 2016. Possibly the worst is over for crude and commodities for atleast three-four years, and stock markets around the world present a prettier picture today (with 76.1% of the 113 major stock indices showing an increase in 2016), representing a positive mood amongst retail and institutional investors in the new year. As for India, hopes of increased FDI inflows (monthly average inflow at $3.32 billion in 2016, has been the highest ever), implementation of a unified tax system, expectations of a lower than usual acts of terror, acceptance of digitisation in foreign trade, an encouraging Manufacturing Services PMIs, etc., make one hope for a better than expected 2017.
Despite its paradoxes, we may witness Indian exporters in all their glory in the new year. Mere pyare bhaiyo aur behno, surprises never end, do they?