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Unit-2 Cultural Dynamics in Assessing Global markets

Cultural Dynamics in
Assessing Global markets
Here starts
the lesson!
The China effect: Sounding the death knell of many domestic industries
How the Crude Oil Price Spike Will Upend India's Fiscal Balancing Act
Will the fiscal math hold steady?
Rupee-Ruble payment method
Srilanka-Economic Crisis
The China effect:
Sounding the death
knell of many
domestic industries
• Subsidized and dumped Chinese imports have
decimated many industries and will continue to
do so unless effective action is initiated.
China is well known to dump its products in the export markets.
Dumping is the difference between domestic price versus export
price, which leads to injury to other country's producers.
China has been able to sell at a cheaper price due to multiple
reasons like economies of scale in production, being more
productive, surplus capacities, government subsidies etc.
Since China's induction into WTO in 2001, many multinationals
entered into a joint venture with the Chinese firms, transferring
the technology, and making the latter more productive. China is also
able to procure material inputs (used for manufacturing final
outputs) from Africa and Greater Mekong Sub-region at a cheaper
A large number of companies that are dominant players in exports are
government-controlled enterprises.
Access to finance for government-aided Chinese firms
problem, something that plagues India's MSME sectors.
The Chinese government gives export rebates to the tune of 17% to
their exporters. Effectively, this makes Chinese goods being
imported substantially cheaper than the Indian counterpart.
Further, regional provinces in China extend incentives and rebates
on the tax structure and are competing with each other to attract
industries in their region and also promoting exports big time by
extending sizable incentives (even on software downloads and
logistics compensation for long-distance freight) which makes
Chinese products cost-effective.
Moreover, the Chinese central bank complements all of these by
making the Chinese renminbi undervalued in the international
And, these subsidies and other issues, have created an imbalance in
the Indian and international markets, reduced the competitiveness of
Indian products in the domestic industry, causing material injury
and persistent financial stress for home-grown businesses. India is
losing out for fallacy in its own domestic policies.
Due to these practices, Chinese products get subjected to non-WTO
compliant anti-dumping and anti-subsidy duties worldwide.
Until 2011, India was one of the largest exporters of best-in-class solar modules.
Domestic manufacturers - including Tata Power Solar Systems Ltd, Moser Baer,
Bharat Heavy Electricals Ltd, Indosolar Limited and LancoInfratech Ltd - were
industry pioneers.
Today, the Indian solar industry relies heavily on imports of important components
such as solar cells, modules and solar inverters and in 2019-20, the country imported
solar wafers, cells, modules and inverters worth $2.55 billion.
Chinese Goods in Indian Market
What is true for solar cells, modules, and inverter industry is true
for many others including, toys, steel, telecom and electronics,
textiles, and pharmaceuticals.
Over the last decade, India continues to incur a higher trade
deficit, and much of has with the adverse balance of trade with
Policymakers have tried to restrict Chinese imports by raising
import duties but with little success. For instance, in recent
times, duty on toys, tricycles, scooters, scale models and dolls has
seen a steep increase from 20% to 60%.
The onslaught of Chinese exports to
Small and Medium Enterprises (MSME)
creator in India. And, the pandemic
around 10 million losing their jobs
India has decimated the Micro
industry which was a major job
has only made matters worse with
mainly from the MSME sector.
Textile Industry-Chinese Invasion
India's textile industry too is facing challenges mainly from Chinese
imports of man-made fibers like polyester, viscose and blends, which has
resulted in 35% closure of power looms in Surat and Bhiwandi.
It has been pointed out that the existing GST structure taxes of
synthetic fiber at 18%, yarns at 12% and fibers at 5% (the inverted duty
structure) has caused unintended benefits to China.
This is essential to preserve India’s traditional strengths and ensure
it doesn’t fall into the same trap as other countries, which have lost
their livelihoods and indigenous traditions.
China is predatory. It has always been known for its sericulture, as
India has been for its unusual silk yarns, which were hand twisted
and woven with a great deal of expertise to keep the saris pliable,
soft and easy to pleat.
wardrobes for the Miss Universe and Miss World pageants for many
years. I always would propose they wear the Benaras sari to a
function, but gave up as I could not find a sari which draped softly
and looked the way the Ravi Verma saris looked in his paintings.
How the Crude Oil Price Spike Will Upend
India's Fiscal Balancing Act
Price of Crude Oil
Russia’s muscle in crude oil production is near unparalleled. Globally, it
stands at the second position as far as export of petroleum is concerned.
It produces 4.5 million barrels per day (bpd) of crude oil products and
exports an additional 2.5 million barrels of oil products per day.
Larger questions loom as to whether other oil-producing countries will be
able to fill the vacuum left behind by Russia’s exclusion. The US and the
EU are now increasingly left with no option but to rely on reserve oil
inventory to make up for the deficit.
On March 1, the International Energy Agency announced that it will oversee
the release of 60 million barrels from its strategic reserves.
The ban on Russia’s oil exports. What’s worse is that the spare production
capacity of OPEC does not reach beyond 2 million bpd.
Oil production of countries such as Canada and Brazil, which have been
witnessing a rise in oil production, still can’t boast of a cumulative oil
production exceeding 1 million bpd.
Note: barrels per day (bpd)
India’s Economy
India’s economic situation worsens with every passing day of the Russia-Ukraine war.
Grim predictions that are threateningly close to coming true are the norm as India’s
crude oil import costs skyrocket.
Edelweiss Wealth Research in a note has marked out that India’s trade and current
account deficit are both set to widen as crude oil prices jack up. The widening of the
two deficits will drag the rupee down further.
“India’s monthly crude oil imports averaged 143 million bbl or $11.3 billion during
December 2021-January 2022, when the price of the Indian crude oil basket (ICB)
averaged $79/bbl. The ICB at $117/bbl (38% or $32/bbl increase in the last one month)
would shore up the import bill (for stable volumes) by 48% to $16.7 billion (for the
month),” the note states.
Note: BBL -
barrel of crude oil
Impact of increase in crude oil
prices on the current account deficit
Crude oil (USD/bbl)
Additional CAD as % of GDP
Crude oil at $100
Crude oil at $110
Crude oil at $120
Source: Edelweiss Wealth Research
crude oil and related products have a weight of 4.4% in retail (CPI)
inflation and 10.3% in wholesale (WPI) inflation. As such, a change in
crude oil prices tends to get directly reflected in the CPI and WPI reading
as well as indirectly through the pass-through to other components over
A $10 increase in crude oil prices can push retail inflation by 50-60 bps
and wholesale inflation by 125-135 bps. The Indian crude oil basket price
as of the end of February 2022 ($117/bbl) was 56% higher than the average
of $75/bbl in December 2021. This could raise CPI by around 250 bps and WPI
by around 580 bps. This increase would not be reflected in the inflation
print for February 2022, as fuel prices have been left unchanged”
Edible oils have also been on a run for the last two years, and the RussiaUkraine war only serves to fire up the commodity upswing further given that
India imports close to 60% of its requirements through Russia and Ukraine.
Edible oils have a weight of 3.56% in CPI, and a 10% rise in prices will
push up edible oil inflation by nearly 30 bps.
Note: WPI-Wholesale Price Index
CPI-Consumer Price Index
Impact of increased crude oil
prices on inflation
Crude oil
Price growth from
Increase in CPI
Increase in WPI
Crude oil at $85
Crude oil at $100
Crude oil at $120
Source: Edelweiss Wealth Research
Will the fiscal math hold steady?
The rise in crude oil prices will send inflation metrics soaring in
India. The Indian government can be comfortable with inflation for
so long before it is, perforce, boxed into a corner where it will
have to provide fiscal support by cutting back on fuel tariffs and
ratcheting up food and fertilizer subsidies.
It is at this critical juncture that the Indian government is hoping
for a quick de-escalation of the war, failing which muted tariff
income and higher social spending will disrupt the government’s
budget calculations leaving it with little to no option but to rely
further on market borrowings.
Excise Duty
Excise duties currently stand at Rs 27.9 per liter for petrol and Rs
21.8 per liter for diesel. A Rs 1 per liter reduction in excise duty
on petrol and diesel can result in lower revenues of around Rs
12,000 crore for the government.
This, in turn, could have implications for the
the coming fiscal, which was being relied upon
growth and attracting private investments. For
government has budgeted a fiscal deficit of Rs
market borrowings of Rs 14.95 lakh crore.”
Note:CAPEX: Capital Expenditure
CAPEX Programme for
for spurring economic
FY23, the central
16.61 lakh crore and
Reduction in fuel tariff: Revenue loss, increase in fiscal
deficit and government borrowings for FY23
Rupee reduction
in excise duty
Revenue loss
on petrol and
(lakh crore)
Increase in fiscal
deficit from
borrowing (lakh
budget estimate
for FY23
Note: Source: Edelweiss Wealth Research
payment method
Russian banks being removed from the SWIFT messaging system, Lavrov will deliberate on
the rupee-ruble denominated payment method for crude which Russia has offered to
Buying Russian oil at a discounted rate. The government recently informed Parliament
that it is examining offers from that country to buy cheap crude and an interministerial committee is working on an alternate payment plan.
Defence deals
The war between Russia and Ukraine will cost India's military
capabilities dearly with the delivery of many platforms like a
nuclear powered submarine, Grigorovich class frigates, fighter jets,
Triumf S-400, AK 203 assault rifles and others expected to be
delayed. Indian leaders will hold discussions with Lavrov on the
The arms and ammunition deals with Russia also includes procurement
of additional 21 MiG-29 for the Indian Air Force (IAF), up-gradation
of existing 59 MiG-29 aircraft at an estimated cost of Rs 7,418
crore and purchase of 12 Su-30 MKI aircraft for Rs 10,730 crore to
be built at state-owned Hindustan Aeronautics Limited (HAL).
SrilankaEconomic Crisis
Sri Lankan Economy
The Sri Lankan economy has been facing one of its worst ever economic
crisis, resulting from mismanaged government finances and ill-timed tax
cuts, besides the impact of the Covid-19 pandemic.
Huge piles of Foreign debt, series of lockdowns, soaring inflation,
shortage in fuel supply, fall in foreign currency reserves and devaluation
of currency has adversely impacted the country's economic growth.
Sri Lanka's economy grew at a slower-than-expected 1.8 per cent in the
fourth quarter of the 2021 financial year, taking its full year growth to
3.7 per cent, data from the government's statistics department showed.
The Sri Lankan central bank had projected a growth of 5 per cent for the
year. Countries like India, China and Bangladesh have stepped in to help
Sri Lanka weather this crisis. It has also sought financial assistance from
International Monetary Fund (IMF)
What led to this crisis?
Sri Lanka's economy was in trouble even before the Covid pandemic
struck. The lockdowns further added to its woes and impacted the
informal sector hard, which accounts for nearly 60 per cent of the
country's workforce.
The country's foreign exchange reserves have fallen 70 per cent in
the past two years to about $2.31 billion, leaving it struggling to
pay for essential imports, including food and fuel.
The financial crisis also stemmed from a critical shortfall
foreign currency, leaving traders unable to finance imports.
Tourism, one of the key source of foreign exchange for the country,
was badly hit due to the Covid pandemic. Besides, remittances from
Sri Lankans working overseas also declined sharply.
Sri Lanka's economy was in trouble even
before the Covid pan ..
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