Friday, January 02, 2009

Nice

Announcements from RBI and the government about a second stimulus package.

1. ralaxing ECB norms! RBI is in mungerilal mode. dream on but serious crash is near by.
There is very little money in the global market for risk. And india is high beta/risky market given that Bubble has yet to fully POP.
Be scared Shah. Be very scared.
2009-15 india will see 2-5% GDP growth. Massive layoffs & salary cuts will again make indians look inward.

2. The ECB norms relaxation is a step in the right direction albeit a little too late. Maybe money wont flow in immediately because lenders and risk-averse globally but if interest rate differentials will continue to be significant over the medium-term, low cost money will eventually flow in through the ECB route which augurs well for Indian corporates.

2-5% GDP growth is perhaps too pessimistic. We cannot escape the global slowdown but the central government instead of doling out sops which have a temporary effect, should use this opportunity and untangle the bureaucratic machinery which strangles indian exports (such as a corrupt and inefficient DGFT) and indian business in general.
If the government just keeps on doling out sops which dont address the basic problem of lack of demand, it will lead to a ballooning of government debt without solving the problem of growth.
That could eventually result in monetization of deficits as the RBI is rightly keen on ensuring that a lack of liquidity does not further cripple the economy. That would in turn eventually be inflationary and whatever nascent growth might happen would be nipped in the bud.

Lastly all of the above could result in a further depreciation of the rupee in the long-term which is something we can ill-afford. We are much better off with a stronger currency despite the whining of the exporting community.

3. Ravi,

Can you elucidate on what DGFT does, where the corruption is, and how this can be changed?

4. Isn't government of India one of the most in-efficient user of money. It spending another 20K crore helps Indian economy how ?

5. Hi Ajay
The DGFT is the Directorate General of Foreign Trade. They are in a sense responsible for implementing the foreign trade policy.
For example : If you need a licence to import goods without paying customs duty on the condition that you will re-export them, you have to apply to DGFT for a licence.
However the procedure is so slow, inefficient and corrupt that it increases transaction costs significantly and makes indian exports less competitive.
I dont have data to substantiate but i believe that the SriLankan and Bangladesh agencies with similar responsibilities are remarkably more efficient.

6. Hi Ajay
Continuing my response, corruption is deeply embedded at the DFGT.
You just have to visit the Mumbai DGFT located in Churchgate to get a sense of the malaise.
Unless you pay "transaction fees", nothing gets done : whether it is something as simple as getting a Certificate of Origin OR something more complicated like the issue and redemption of a licence.
The staff is not well-trained or perhaps not well intentioned ; in any case they delight in postponing every matter for the most superfluous reasons.

How can this be changed ?
A more professional and moral class of "babus", which is a seriously long-term challenge for our country, cannot be expected in the short to medium term.
Therefore the only way this can be changed is to re-design the processes. Some of the ways are :
a. public interactions be made "face-less"
b. self-certification by users be the norm and only exception checking be done by the staff at DGFT,
c. an appellate process or grievance addressing mechanism which is independent of the executive staff.

Lastly, some of the responsibilities of the DGFT can definitely be transferred to Customs ( for example : the issue and redemption of Advance Authorizations for duty-free import of goods for the purposes of re-export). This will provide a single window for interactions with government agencies and reduce the scope for corruption. Infact this is the system which is followed in the EU.

7. Ravi,

Can you get in touch with me by email?

8. it is good to listen that RBI declare some package for recovery from recession.

9. government corporate with RBI in terms of bailout package.

10. Mr.Ravi,

Pl send your suggestions to Dr.Anup Pujari, DG (dgft@nic.in). He reads mails and responds to them most of the time. Things are improving in DGFT. Let's hope that the pace increases with your suggestions.

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