by A V Ramanathan

avramani2002@hotmail.com

Classical, Neoclasical, Contemporary Economics- Indian Context (2010)

Author: A V Ramanathan

avramani2002@hotmail.com

Approach Paper on the eve of the XII Five Year Plan prepared by the Planning Commission.

The XI Five Year Plan has already crossed the threshold of 3 completed Years and is into the Fourth Year. It means, the Planning Commission would have done a mid-term review of the various Plans, allocations for Plans, and outcomes of the new Schemes approved in the XI Plan outlay and existing plans carried over from the X Five Year Plan. Have we done a physical audit and financial audit, and an outcome audit to estimate the utility of the Schemes?

At a recent meeting organized by the Planning Commission on private Participation in the State Highways which was presided over by Dr Montek Singh Aluwaliah, Dy Chairman of Planning Commission, Shri Kamalnath, Indias Road Transport and Highways Minister, Government of India who played a sheet anchor role in the UPAs First innings as Commerce Minister which rose to its pinnacle achieving US $ 185 billion in exports through was responsible for Indias exports touching US $ 185 billion (2008-9) against US $ 53 billion (2003-4) when he took over, lambasted the Planning Commission for the nations tardy progress in spite of spade work done by different ministries. He cited the example of construction of terminal III of the Indira Gandhi International Airport in record time, so much so, the Prime Minister who inaugurated it was really amazed. When told that it was a Private sector project where Planning Commission had no role, the Prime Minister stood shell shocked. The Transport Minister also called the Planning Commission an armchair advisor with no accountability or target. They theorized every development, questioned every practical project, and had no idea of geography which required certain changes in the topology, planning module or methodology. The High way and Transport Ministry had fixed a per capita target of building at least 20 Kms of highway a day, but the Planning Commissions spokes in the wheel deterred any improvement in highway building, bemoaned the Minister. There is an urgent need to restore the usefulness of the Planning Commission in the present context of growing Market Economy. When market forces are free, the Results are often haphazard and therefore, anathema to those who believe in Planning. When the State fails, the Market takes upon itself for a free play and succeeds. This is Economic

logic. This takes place time and again in India. The State fails because its extended Organizations like Planning Commission encroaches on the wrong territories with their faulty assumptions and presumptions The Planning commission was not an implementing agency. That was where the problem lies. Kerala Government is in dire need for Metro Railway. But Planning Commission is standing in its way while preferential treatment is bestowed on Delhi, Kolkata, Bangalore, etc. Plan is a realistic view of expectations. It forecasts the roadmap and vision. There are sectors, sub sectors and mini sectors in the Plan. The officials and advisors in the Planning body do not have intricate knowledge of these intricate sectors which provide employment to so many people, The Market Potential Value) and Market Potential indices vary from place to place. The economy of different districts is based on certain parameters. It can be fishing, it can be vegetables, it can be flowers, tourism, even conversion of wastes into composts, shell dust into charcoal, tailoring, milk, handicrafts, etc. These districts require support, financially, and/or through mechanization, upgradation of their skills, higher productivity so that they can earn more money using the tools. Between the Planning apparatus and policy makers, there is neither link nor coordination. Theoretically, viability is easy to estimate. We can give conclusions based on V curve, Kuznets Curve, U shaped growth, M (double dip) growth , Inverted double dip (W), can be beautifully sketched in glossy papers. Growth is not the same thing as Development. Economics is one aspect in the process of Economic theory. We talk about Unemployment. Have we any time factored voluntary unemployment in it? There is a need for a mix between free market play and the Planning evolution in India so that the two give boost to the Indian economy and do not work in cross purposes? The Customary top-down approach to Planning has been going on for decades; people with expertise and knowledge are seldom consulted. This laid back approach of the Planning Commission must go. Today, Planning Commissions bureaucracy-cum-technocracy decides the contents of each Plan and prepares the Plan documents. The Plan spread presently is confined to only 10% of Indias geographical area; the rest 90% are left unattended as the Yojana Bhavan has no ideas of geographical tracts and their features. The fat portion of the allocation goes towards salaries. .. There are some States more equal than others because of their proximity to the ruled and lobbying clout. The Planning Commission immersed itself in a whole lot of temporizing where economic Policy decisions are concerned resulting in

a few unexpected short-term gains but in the near long-time, it left a snarl. We say Indian economy has been integrated with the world economy. The Planning spread is restricted to only 10%, while the rest 90% is unplanned. One area, which the Plans do not brace itself, revolves around Perspective Planning. That is why, it is very important that there is continuity in Planning between two different Plans. In the Context of a rapidly integrating Global economy, the nations Policy makers seem to be grouping for want of a Vision.
As Global forces of Growth have weakened, the major countries of the World have instituted Keynesian stimulus policies, and let their public expenditure outrun revenue? Such policies run into problems. National debt rises to uncomfortable levels, money supply expands so as to invite inflation, and the BoP worsens. Many nations have run up huge payments surplus, even though they have parked a good portion of the surpluses in US Treasury paper. All stimulus policies cause distortions. Chinas undervaluation expands exports at the expense of domestic consumption and investment, the United States cheap money policy causes asset bubbles. Income distribution is worsening in the US for the last three decades. Technological changes, world over, increased demand for graduates and engineers; demand for unskilled labour declined. Goods were tradable, while knowledge, work and services were not. In the Third millennium, Technology Revolution has seen Services export overlapping merchandise export. The US educational system did not expand enough to keep pace with technological changes. Large sections of American labour force remained unskilled, and their real wages, failed to rise. The rich became richer, while the standard of poor stagnated and worsened. In order to combat such a situation, the rich should have been taxed heavier and poor subsidized. But improving income distribution with progressive taxation and social expenditure, as done in Europe, goes against Americas dominant ideology! To give a feeling to the workers that their lives were getting better and better, the Banks gave them cheap loans to buy residential property. The poor workers were better off without these loans. They did not have the capacity to service these loans. They defaulted continuously to repay. This was the cause and basis of the sub-prime crisis in America. Unskilled workforce got jobs and work. But too many houses built, caused a fall in real estate prices. Demand shrunk. This landed the workers having houses whose market demand was less than its net worth. In any nations economy, only a small portion of national income goes to the workers, whether it be America, China or India. Rich always gets a big chunk of national income. In China, it is not the rich who get all the income. It is the corporations. They save and reinvest their profits. This is a cycle. Productive capacity keeps going. The produced goods cannot be purchased by workers as they do not have the purchasing power. So they export. Rising

surplus of goods is exported. In order to keep the economy going, China had to expand exports while in United States they had to run the sub prime loans to move their economy. This was that caused distortion. India, has seen rapid growth, but with wild distortions in demographic growth. Most of the rural areas continue to remain old and worn out. Villagers do not get ready work like in cities. There is migration of villagers from Bengal, Bihar and Orissa to prosperous towns. Because they are unskilled, they get poorly paid. Even though the spin offs of growth of big cities in India has benefited the villages, their growth has been subdued. Indias growth has not been goods oriented nor manufacture oriented. It is service oriented. Services income as its share of national income has grown in geographical progression. Services have a particular characteristic- non durable and non transportable. They have to be consumed where and when they are produced. They continue to be produced and sold in towns, where growth has consequently been concentrated. Micro, Small and Medium Enterprises: Stimulus for the traditional sectors, village/rural sectors, Spartan cities, metropolitan towns, chaotic cities? How have they been dispensed? When there is a weakling in the bourses, immediately came with economic quick fixes. Why? Village industries- it has been given to the KVIC and the Ministry of Micro, Small and Medium Industries, the unperforming Ministry against the outperforming sectors that are housed in the Udyog Bhavan. Product Code for Registration as a small scale industry. The link? The development Commissioner attached to the MSME ministry has conceived codification Schmee by which ITC (HS) Codes are by Product description while SIDO provides NIC-87 Codification Scheme. It has been evolved in such a manner that there is absolutely no synergy between these two basic parameters in respect to nomenclature. The definition of Micro, Small and Medium Enterprises, 2006? What support the Act has given to those registered units, except impediments. In competency of the officialdom in the department and the hierarchy- bottom to top? Branding exercise, Cluster development, Capital markets, rating, base policy for export of goods which come under MSME sector? NSIC? SIDBI? Loan portfolio to the SMEs? Refinancing? Export Financing? Quality tests? Transaction costs? Primacy in purchase between SME units vis--vis large scale units, SME units vis--vis Public sector units? Venture Capital? MSME definition caters to investment in machinery and Plant? But the concurrent Schemes of MSMEs (either through DC, MSME or MSME Ministry is based on turnover). MSMEs jurisdiction ends with Rs 10 Cr in investment in Plant and machinery. Indias major units are having investments upward of Rs 10 Cr and above, around 1 million units. Where do they go? Which Ministry? Who looks after their welfare. Is there any definition criterion for them?

Larger financial institutions are increasing loans to big companies,

but small business owner companies are still feeling the credit crunch. There was a serious gap developing between large businesses that were building up cash and smaller ones still unable to get credit, and blamed tight credit as a result the small and medium firms are yet to regain momentum. "Making credit accessible to sound small businesses is crucial to our economic recovery," says the Finance Minister in letter but in spirit the banks are reluctant, though in public platforms, they agree that small and medium enterprise need to be sustained, helped, provided funds. In America, according to the National Small Business Association's 2010 Mid-Year Economic Report, 41% of small businesses were still having trouble obtaining credit in July, 2010.Hostility toward the financial sector keeps growing as bank profits rise and lending amounts fall. The American banking sector's profits last quarter returned to levels not seen since before the financial crisis. The total profit last quarter for the more than 7,000 Federal Deposit Insurance Corporation insured banks hit $21.6 billion - a massive improvement from the sector's $4.4 billion loss the same quarter last year. But while profits rose, lending fell by $95.7 billion. In the Indian context, the smaller banks and banks governed by geography and studded growth resulting in their not venturing into lending to the mini,tini, macro, as much as they are holding on funds for safety. Service costs by banks to lending small accounts are very high and highly risky. In spite of coverage under Credit Guarantee Trust Fund Scheme, the Banks are not enthused as it takes a longer time for settlement. There are persistent threats that the NPA in these accounts are alarming, as a result, Banks follow the route of caution. Leading banks exposure to small and medium business is low, as Regional banks and private banks lend to the credit worthy borrowers. But they care to note whether there is any sticky accounts amongst the small and medium portfolio of borrowers. Even though banks are becoming more and more comfortable with lending and the standards are easing but at the end of the day, demand is the whole story, said a banker. But banks are choosy in getting access to customers and not vice versa. This is the problem? The Small and Medium Business in India have a pan Indian presence. 2.61 Crore units cover the space of Industries in the SME segment. This account for 45% of the manufacturing output, 40% of

exports of US $ 175 billion. It provides employment to around 6 Cr people. 9% of the GDP is contributed by the SMEs in India. The Prime Minister constituted a Task Force for the development of MS&ME headed by the Secretary to the Prime Minister. It has submitted a detailed report to the Government and Prime Minister is said to have accepted its recommendations. The Planning Commission also set up Dr B K Chaturvedi Committee to explore the bottlenecks in providing Credit to the SME sector by the government owned banks and leading new generation banks, private sector banks. The total credit to the SME sector by all the Banks was Rs 3, 69,866 Cr which was an increase of around 0.2% over the Banks aggregate loans to the SME sector. It is also possible that the interest would have factored into these figures. It can be concluded that there was no worthwhile improvement in the sphere of lending to the SME sector which was notified as priority sector. The Addln Secretary in the Ministry of MS&ME is reported to have revealed that the 50% of the recommendations of the Task force has been accomplished. The cardinal issue was that of Bank Credit and timely credit to the needy. There are no evidences to prove that the credit facilities to the SMEs have improved much less taken a growth graph The export industries that are in the MSME sector are struggling to get Pre-shipment/Post shipment Credit at affordable rates. Then there is the problem of industries whose investment is above Rs 10 Cr in no man's land. Infrastructure development and its gaps was another core issue. Nothing concrete has been done to remove the bottlenecks in the infrastructure area. Market development and technology up gradation is a gradual process. It takes time. Operational cost and setting up costs are too heavy for the SMEs to contemplate technology up gradation. In the SMEs, the management functions are vested with the entrepreneur himself, hence market development cannot be easily squeezed into his work itinerary. Diversification at the factory level and appointment of qualified experts will go a long way to launch the SMEs into big league. The Ministrys proposal to connect SMEs with professionals rendering specialized and technical services is only on paper. Recently, President of India gave awards for meritorious performance by SMEs. In her speech Her Excellency said that 2.61 Cr units in the SMEs constitute 95% of Industrial units in the Country accounting for 45% of the manufacturing output and40% of exports. This speech must be based on the inputs provided by the MSME Ministry. According to it 5% of the large industrial units accounts for 55% of the manufactured output and 60% of exports, is such a tall order to be true. SMEs cannot account for 95% of the industrial units, or 27.4 lakh units in the upper segment of industries (Indias total industries would be 2.88 Cr which is not correct). SMEs suffer from various problems, which alternate from state to state.

A proper gauging of the problems, inherent and latent, need to be undertaken to understand the magnitude of the problem. MSME Ministry should be more visible and put heart and soul to make SMEs stand on their own legs. It often stands alone in a crowd and is not able to garner any benefits for the industry which is at the bottom of the triangle. The Ministry should try to provide support to its sector rather than creating road blocks. Even in an enlightened country like America, 55% of the small businesses are in trouble and are trying to overcome their problems. In India, unfortunately, more than 80 % of the SMEs have to be towed to the highway so that it can achieve a higher percentage of growth on which Indian economy depend.

Agriculture Industry:
India of 2010 is not the India of 1947.

In India, which has a population of over 1.2 billion today, does it have sufficient grannery to feed the mouths? Has our Below Poverty Line estimate suffices the requirement of food for the downtrodden. The much proclaimed Food Guarantee Bill, will it create a harvest of mouthful for these have-nots? India is looking forward to a thrillion economy; in these, how much these dastard and laggard people, earn to lead a hand-to-mouth livelihood. Has Malthusian theory come true in India? When the First Five Year Plan gave supremacy of Agriculture, and the Green Revolution that followed, todays plan (XI Five Year Plan) has hopes of achieving 4% growth even though the Plan delivered a flat 0.20% during the mid-term analysis of the XI Plan. The Plan, gives scant outlay to agriculture, does not evolve Schemes to better productivity in agri-based products, and in the least pretexts, and look as an instant solution to Imports. It even imported Public Loan 480 from America, the rice not fit enough even for rats! The Rice, and wheat stored in the Food Corporation of India mainly meant for distribution to the BPL families, is fodder for rats. Food Security Bill with Crores of Rupees of

public money can be advantageous only if the food reached the poor, downtrodden. In India, for agriculture subsidy, kerosene oil subsidy (for lighting, cooking), fertiliserz, etc the middle-men knocked off a chunk of money. The Plan architect Montek Singh Aluwaliah, and the agriculture expert Dr Swaminathan are polls apart in perceiving what is best for agriculture. Our Economists theorize but often theory in the alter of reality never meet; we have massive outlay for Agriculture, that is funds spent in the name of agriculture. Hydro electric projects drowned the fertile lands, and doused the agricultural yield. Conversion of agricultural land for development, a mantra of the Globalization concept, has devastated agricultural development and growth. In Kerala, where Coconut was a plantation has become a home stud crop thanks to Kerala Land Reforms. First area of concern is Agricultural Credit. Credit flow has risen sharply, Dr B K Chaturvedi, Dy Governor will explain eloquently. The Credit was channelised through RRBs, commercial Banks in rural areas. Commercial banks gave loans to SIDBI and other institutions that supported agriculture. Agricultural loans were characterized as priority sector loans. In the last decade or so, loans were given to Corporates, tractor manufacturers, fertilizer companies, advances worth many Crores, but they were shown as priority sector advances to agriculture. A disturbing future of the agriculture Credit is astronamal growth of agricultural finance that is urban in nature. The share of agricultural Credit supplied by urban and metropolitan bank branches in India increased from 16.3% to 30.7%. . One third of the agricultural Credit was given by metropolitan and urban banks while the share of the rural, semi-urban, RRB got reduced to less than 50%. One question is pertinent- Corporate/agricultural firms get Credit over Rs 1 cr in aggregate per borrower, but shown in Bank books as agriculture Credit (2007 onwards). Is it not an institutional make-up in the loan portfolio to show that Credit for agricultural is growing. Fertilizer subsidy, one would like to ask the question. How much have fertilizer companies grown their declared profits, and what catalytic role they played in improving agricultural productivity? In the state of Maharashtra alone, rural branches provided 25.7% credit towards agriculture while metropolitan bank branches gave a credit for agricultural sector @ 42.6% of the total agricultural credit in Maharashtra in 2008. The actual farmer in the villages, whose financial needs are sparse, would benefit the least from the present Agricultural Credit Policy which are pocked by Corporate, partnership firms having as allied enterprise, agriculture, etc. Reliable data is available to show that what is termed as agriculture Credit may have little to do with agriculture! Shocking!

The Second area of which government is least concerned is the irrigational source. Honble Minister of Agriculture, Dy Chairman of Planning Commission will blame the rains for failure in Rabi crops or poor show of kharif crops. Poor monsoon, sluggish agriculture growth. No agriculturalist is concerned about average rainfall data but he looks for daily rainfall during the agricultural season for his survival. The Planners presuppose that the fluctuation of monsoon on a year-on-year basis is the problem of agricultural diminishing returns. It is not the total rainfall or levels in reservoirs that matter to majority. It is the rain on time. Dry crops might not require lot of Water or expensive irrigation facilities but timely rain. Drought related measures to temporarily assist may be useful but strategic and long term measures need to be taken. Here, our planners have failed lock, stock, and barrel. Irrigation infrastructure is deteriorating due to poor maintenance of irrigation systems. The overuse of Water is being covered by over pumping aquifers, but as they are falling by foot of ground water yield, this is limited resource. It is unscientific approach of the Planning Commission for the improper use of water, irrigation planning. We suggest some steps: a. Agriculture, adaptation measures in rural sector should receive major institutional/financial support for evolving policies for implementation of specific programmes in the short- to- long term. (b) Measures to manage water resources on an annual cycle basis and it should be stored and distributed; some times long spell of rainfall above the normal, some times successive draught hamper the storage of water policy. The water storage level has to be decentralized to a sub basin level. Storing water on surface and underground in order to build storages for later years need to be planned. (c) Focusing on dry land agriculture and soil moisture. 75 million hectares are under food grain production in the dry land mode (d) Policy interventions: lack of saving the water or improving water productivity is actually leading to wastage. But not one rupee is in the XI Plan is allotted; (ii) incentives to use chemical fertilizers may actually induce soil degradation and put farmers of dry land farming in disadvantage(iii) Poor farmers, rural farmers do not require Rs 1 cr capital loan; the metropolitan banks need not support agriculture. Let it

to be supported by NABARD (by forming micro finance companies run by honest NGOs), RRB, and Rural Banks. Stop writing off loans, stop free power, and re-look at the clients who have agricultural loans. Let Planning Commission answer. Let RBI do some introspection in respect of Credits to agricultural farmers? Let the Agriculture Minister look at the agriculture in its total prespective. Let the Controller and Audit General, look at Crores of Rupees of money not getting into the Agricultural arena? Let the opposition ask pertinent questions and do some honest homework. Let our newspapers and electronic media look at the agricultural issue in germane and file a faithful and accurate report. All these institutions are sleeping. Only when rats enter the FCI godowns and eat wheat, the matter comes to national attention? Otherwise, it is written off!! Government looks to outside world to stabilize Indian economy. No problem with that. Government wants to bring Foreign Direct Investment in the multi-brand Retail sector, which would bring in invaluable Foreign Exchange, investment, expertise, and increase expenditure of hi-fliers by buying items from these fabulously decorated shops, malls, with good ambience, etc. And, of course, the farmer will get remunerative price for their product. With these noble objectives, why should any body murmur? Our Governments policy of import of Crude and edible oil which is in excess of 30% of the total required demand at nil customs duty creates a direct loss of Crores of Rupees. Import/Export of other oils other than Palm oil causes the domestic industry to suffer sustained losses. Imported palm oil is distributed to Public distribution System beneficiaries to the extent of 10 lakhs with a subsidy of Rs 15/- per Kilo. Recently Government hiked the rate of kerosene. 39% of PDS Kerosene is diverted, and 18% of this finds way to adulterate diesel. Mr. B K Chaturvedi Committee found out that the rural use of kerosene has fallen to 40% from 51%. It predicted that only 1% of the PDS Kerosene was used for cooking purposes. The Committee noted a strange phenomenon- 24% rural consumption goes to states where there is 100% electrification Food Security programme is expected to obliterate poverty, as the beneficiaries would get at least one square meal a day. 100 days compulsory with work at minimum wages is expected to provide stable income to the unemployed. Government should differentiate between unemployment and voluntary unemployment. In India, there are more than 20% of people who have the necessary physical strength and ability and below 40, who abstain from work and prefer to be voluntarily unemployed.

With all these developmental and populist Schemes directed at the poor, downtrodden, the weak, the incidence of percentage of poverty should have come down. But in India, opposite always happens. Every year, after substantial spending of money to the poorer sections of the Society, which no body grudges, the BPL population is going up in geographical progression. The Statistics provided by NCAER, Planning Commission, and the States, there is a wide divergence on the no. of BPLs. There is a mismatch in the figures. What about the audit; is it done only for namesake? Government announces a Scheme. Course correction midway, Scheme contours are altered. A well intended Scheme conceived for some purpose, if the boundaries are altered the Scheme finds alterations. Then, the intended benefits will not accrue. I am referring to the removal of IT benefit for new SEZ units, new units not yet invested, units not at started commercial production, and many benefits offered to SEZ developers have been withdrawn. Various SEZ are in various state of completion and the units are also about to commence production. All of them will lose the provisions promised. Lack of clarity on the continuation of Minimum rate of Tax to developers and units in SEZ, has stalled work in the various sanctioned SEZ being developed by private promoters. Now, coming to the retail prices of vegetables which had runaway inflation is still in the danger zone. There is no scarcity in the local production of vegetables in Kerala, even during festive time, yet the prices have moved up significantly. Tomato prices have doubled over a year(selling at Rs 30/- per Kg against Rs 18/- a year ago), bitter gourd (Rs 34/kg against Rs 26/kg last January), cowpea (Rs 16/kg against Rs 26/kg last year), pumpkin (Rs 15/kg), elephant foot yam (Rs 32/kg), ginger(Rs65/kg),cabbage(Rs 20/kg), carrot(40/kg against Rs 16/kg in January 2010), Drumstick (Rs 20/kg against Rs 100/kg in Jan 2010). In the last year, the price of drumstick was Rs 30/kg (July 2009). Greenchilli is selling at Rs 42/kg against Rs 20/kg in January 2010. Industrial output in April 2010 grew by 17.6% over what it was a year ago, aided by the boynant recovery in exports. WPI is 10.2%, while food inflation has slightly come down. The Government received Rs 70,000 Cr (Spectrum auctions), advance tax payments (Rs 35,000 Cr). RBI has hiked the two short-term policy interest rates. The impact of RBIs interest rate signals and the efficacy of monetary transmission needs close monitoring. The banks have adopted a new Base lending rate system. How far it will impact, time alone can tell.

Finance Minister wants to rein in fiscal deficit. All the acts done by the Finance Ministry is guided by defeating Savings growth rate by which inflation will come down. But is he aware of the Nils Gilmans Deviant globalization theory? 50% of Indian economy is in the hands of people whose wealth is derived from illegal actions which have grown at twice the rate of legal economy. Perils and Opportunism involved in illicit dealings in the financial, real estate, energy, high corruption, stocks and shares, organs, CD disks, piracy, gold, cricket betting, etc. More diverse pattern of purchasing put transactions into buckets which cannot be measured. These funds would invade controlled economy, sending the carefully rehearsed formulas to oblivion. In India, deviant globalization has been active and sends economic cycles off the wheel. Has FM got any stick to beat this with?
Duplication of Service Providers-Cost (vs) Benefit analysis? Why Commodity Boards needed to promote Exports?

The Commodity Boards have been established by an Act of Parliament to devote, dedicate and oversee domestic growth of Commodities. They are Coffee, Tea, Rubber, Spices, Coir, Coconut, Tabacco, etc. MPEDA and APEDA are export development bodies, and as such cannot be equated with the Commodity Boards of Coffee, Tea, Rubber, etc. Coconut Development Board is a development Board, authorized to be confined to the development of Coconut in the territory of India. Jute Board, (Jute Manufacturers Development Council) is a Commodity Board but strangely, is clubbed in the slot meant for EPCs in Appendix-2. Under Para 2.43 of the FTP, it is stated that the Basic objective of Export promotion Councils is to promote and develop Indian exports. Each Council is responsible for promotion of a particular group of products and services as given in HBP, Vol I. However, in Para 2.61 of the Handbook of Procedures, Vol I, it is stated that a list of product category of EPCs including CB is given in Appendix-2. Commodity Boards function as EPCs for products allotted to them. EPC is the authority issuing RCMC. 1. The Commodity Boards are government bodies administered by the Ministry at Delhi. The Act governs its organizational structure, and the Rules framed by the Government, most often antiquated, is the bible of governance of the Boards. 2. There is a Board constituted by the Government through a notification. One or two big exporters will be nominated to serve in the Board. In the case of Coir Board, there are two representatives, one a mat manufacturer and another

merchant exporter dealing with different merchandise of Coir. There is no representation for Coir Pith manufacturers/exporters, Rubberized Coir manufacturers/exporters, Coir Geotextiles exporters, tufted mat exporters, etc. In the Coconut Development Board, there is no representation for any exporter in its Board. The number of representation is given to the various layers of the Commodity producers or manufacturers. According to a study made by Centre for Development Studies, small growers who represent 93% of production and 90% of area under rubber cultivation, have only meager representation in the Rubber Board and have no say in the administration or for a to make representation. Spices Board has a mandate to deal with 52 crops only seven represent the interest of growers. Disproportionate representation in the decision making process in the Commodity Boards make the vital sectors goes unrepresented. The Commodity Boards, the study feels, do not appear to be adequately inclusive in nature. The Boards have to take administrative approval for any action it undertakes for its multifarious activities. If they have to participate in a particular trade fair, they have to get approval from the administrative Ministry. If it has to undertake a market study abroad, it has to take prior permission, and often the integrated Finance department is likely to object, even though the Board might have been sanctioning funding under the Market Access Initiative Scheme. There are ministries which do not have export orientation which result in delay in taking decisions, or giving approvals. This delay apparently dents the efforts of the Board to take timely action or intervention. Parallel to the Schemes in the MAI Scheme, CB has a duplicate Scheme to undertake participation in international trade fairs or undertake publicity abroad. The benficiaries chosen for such benefits have a ceiling in turnover (Rs 2 Cr), even though MSME is defined on the basis of investment in machinery and plant. The Schemes are limited to some exporters only. The participating fairs are chosen on the basis of presumption of marketability of a Country and/or area, and not on the basis of references by the exporters. No audit is done to understand the returns or benefits on such participation. It is often found that government officials and Board representatives participate in these fairs even though their acumen in export marketing or ability to gauge the market is very limited. The plan budget allocation to Export Promotion activities duplicate those Schemes of the Policy and procedures (through MAI and MDA Schemes) which are more rational, objective and compressed to meet the needs of the trade. The evaluation and utility is

often not measured as a result, year after year, there are participation in various international fairs without any results accruing to the commodity. Presently, the synergy between the exporters and the Commodity Board is rather thin. 3. It is only fair to assume that the EPCs need to be autonomous and should regulate its affairs by itself and not by a body of officials who may or may not be familiar with the subject of international trade, commerce, demand and supply, etc. Each EPC should be a profit head by itself, and should take measured steps to raise income for its working. The Chief Executive or the person running the administration in an EPC should be one who has knowledge on the subject and the one who command the respect of its stakeholders. It must be a facilitatory body rather than a governing body. EPC needs to function democrately so that its Chairman can present the views of the industry critically. In the case of Commodity Board, it is often its Chairman who presents the grievance or problem affecting the exporters generally and specifically. It is doubtful whether he can articulate the problems and prospects of the industry as his experience in the field of the Board of which he is Chairman is limited. 5 .If the EPC is vested with a body of exporters, they would draw up their own marketing schedules, participate in trade fairs according to their understanding of the market, use MAI and MDA in the best manner possible, and for any infrastructure development, design, plan, prepare schemes and come before the Commerce ministry. They would be interested in the outcome of the meetings, because they are the ones who would be rewarded or benefited out of the interaction between the Commerce Ministry-DGFT- EPC. The Council also would be headed by one of them, and they can ventilate their grievance better and straight instead of circumventing. 6 Presently, the DGFT communicates with the Commodity Board directly and has feeble or no contact with the exporters dealing with the specific commodity. Any reply, interim or final, will be bereft of recommendations. Budget recommendations are often not send by the CBs. Further, any amendment to the Policy/Procedure, during the time of quin-quinnial revision or at the time of annual revision is hardly suggested as there are not Foreign Trade experts in the staff of the Board. The EPCs, if controlled by the Exporters themselves, they will readily

bring out any anomaly, any impediment to the knowledge of DGFT/or other officials. If any meeting is convened in the present set up, it is the Chairman of the Board who attends such meetings. If it is the Exporter, he can ventilate and address issues fairly, knowledgably and sequently. 7. Commodity Board tagged EPC will have a Director, Deputy Director, Section Officer, Assistant, Stenographer, and Peon etc. The CB being government organizations are governed by the Pay of the Sixth Pay Commission. EPCs will have structured pay as per the size of exports, work load, standard perks. The Exporters will manage the EPC prudently and with financial discipline, and administrative acumen. 8. Under Para 2.62.1 unnumbered Para 2, Concerned administrative Ministry would interact with Mg Committee of EPC concerned at least twice a year. In the case of Commodity Boards, the administrative Ministry finds it easy to communicate with the officers of the Commodity Board rather than interacting with the spectrum of exporters who would raise various issues/problems which might not be understood by the administrative Ministry officials as they lack expertise in the subject due to lack to intricate knowledge. 9. With the concept of flat world theory, globalization has shifted into a warp drive. It is here, Indian export business houses face challenges. If they lose a buyer, they lose him for ever [as Alcubierre business warp occurs]. In view of this, policy makers need to extend a free hand to exporters to make their own use of forum managed by them for Policy and procedure intervention. It is be in the better interest of the trade and Policy makers, if the representatives of Trade directly communicate with Policy makers. This would remove the mist between the Policy makers and exporters. 10. When Government invokes prudential norms for austerity, it should shell wasteful experience in areas where there are duplication or multiplication of bodies who could be done away with, instead of tinkering with expenses which are necessary for the well being. The Commodity Boards are best fit to develop the inland or domestic market instead of asking them to fish in

international troubled waters where astute knowledge, professionalism, management thinking are necessary to penetrate emerging/competitive markets. Exporters should have the choice their own management team to assist them instead of foisting officials who may not have the expertise to deal with foreign markets or methodology of the foreign markets. 11. The Federation of Indian Export Organizations is doing a yeomen service to the export fraternity. It has a strong leadership, who are equipped with plethora of problems in the international trade arena. There is no better person in the export trade who can emulate Padma Shri A Sakthivel, who single-handedly rewrote the fate of the fallow land of Tirupur from Rs 15 Cr in 1985 to Rs 11,000 Cr last year. This was a single handed performance. He has created infrastructure for the benefit and development of the Knitwear industry. This organization can play a stellar role and can be the one-stop, converging point for all EPCs. Each EPC will be autonomous, managed, controlled, financed and functionalized by the exporters. . The Commodity Board and the Ministry can have a seat in the Managing Committee of the EPC. There can be one representative from the FIEO as well. This arrangement will save lot of valuable money for the Government, the EPCs will be streamlined with their own managements with their autonomous status, and uniformity. FIEO can grant affiliate status to all EPCs. All actions and practices must be uniform. 12. All the EPCs should enjoy the same powers and privileges and not some should become more equal than others. MAI and MDA should be available to all export sector based EPCs. All the EPCs must be made a member of the Grievance Committee headed by DGFT on an all-India basis. There must be a meeting of all the EPCs at least twice a Year to be addressed by DGFT, JDGFT in-charge of various sections of FTP. The Chief Executives of all the EPCs should undergo at least a weeks training on various aspects of the FTP/Procedures at Indian Institute of Foreign Trade, New Delhi. A condensed export manual must be published by the DGFT which should carry important information for the benefit of all these Chief Executives. The time has come when the responsibility of running EPCs should be vested with the export organizations

without interference from Government bodies. Today more than ever, abstruse economic phenomena need to be dissected in the context of flat worlds complexcity (Thomas L Friedmans theory). The time has come when government funding for setting up escort service organizations for the benefit of Industry should be stopped in this era of liberalization, privitatization and globalization. Commodity Boards should function as Commodity Boards, developing the Commodity products in the domestic markets. Even this, should be revisited as we have to run with the time. The utility of an Organization should be weighed with the cost: benefit. When we are looking at development, or Organizations necessary to work the spin-offs of development, Politics should be the lost or least priority. However, what has politics got to do with the Planning Commission? They should not be asked to venture into the rough seas of international marketing. EPCs should make their own action plans and can request for funding on the basis of Schemes which are within the ambit of Policy/Procedure. These export bodies can also get assistance from ITPO, ECGC, Exim Bank of India. They can independently hold reverse buyer-seller meets, set up warehouses common or individual, as the case may be, using the route of MAI. They can also go for branding or other marketing tools for which there are many Schemes. Tagging EPCs with Commodity Boards has not delivered the results one would have hoped. The matter may be taken up with the various ministries who administer the Commodity Boards. Half of them are under the control of Commerce Ministry, and another half of the rest are with Textiles Ministry. Only a few CBs are outside the ambit of Commerce/Textiles ministries. And these are in the dreamland!

It is true that India is the 2-nd largest producer of Cotton and 2-nd largest producer of Cotton Yarn. But in terms of overseas textile trade, we could garner only 3 % of the world trade; our textile export turnover was something around US $ 12 billion. However, when we compare ourselves with China, which we often do for anything and everything, Chinas textiles export was around US $ 50

billion which was equivalent to Indias total exports of 2002-03(Indias exports was US $ 52 billion). The reasons are, Indian exports are directed towards the low end of the Market. Most of them quota driven. India unfortunately is in the B2B mould. It has never bothered to graduate from B2B to B2C, which requires a large-scale climb in the value chain. Product innovation is not Indias forte. Indian exporters cater to the design of the buyer with the result that it is not in tune with the Market tastes. With wafer thin margins in view of acute competition, low value and low end of the market in its grasp, Indian industry depend a lot of duty drawback to cushion its costing! If India has to emerge competitive, it has to streamline its production techniques, undertake strategic planning, understand the Market and focus on theme based products, create a niche market through branding and upgrade to the premium segment. For this, it has to adopt aggressive marketing tools both in the niche markets of Europe, mass markets of America and developing markets of Asia/Middle East! It has to stand on its own legs and not depend upon government subsidies to sustain price stability.

The woes of our biggest bilateral trade Partner:

During a period of increasingly worrisome headlines about the U.S. economy, there is one bright spot. The rest of the world is doing much better than America. In the long run, that's good news for the United States. Rapid world growth will eventually rekindle the economic fires in the United States, producing a growth that is more balanced than the bubbles of 1995-2008. Still, getting to that point will be a challenge, since economically speaking - the home fires don't appear to be burning all that brightly. The U.S. recovery appears to have slowed to a crawl - or perhaps even ground to a halt. The "advance" estimate of U.S. second-quarter growth was reported at 2.4%, indicating a long road to recovery - during which unemployment is likely to soar. Almost half of the quarter's gross-domestic-product (GDP) growth projected for the second quarter was inventory buildup. Government

spending and a temporary housing blip - caused by the homebuyer tax rebate, which expired April 30 - accounted for the rest. While inflation does not seem to be an immediate problem, unemployment remains appallingly high. That's especially true of longterm unemployment, which - at 4.6% of the working population - is at a post-World War II record. The federal budget deficit is hovering at roughly 10% of GDP and interest rates remain close to zero, thanks to polices that are looking increasingly eccentric when compared to the routes that other countries have chosen to pursue. It looks as if the U.S. economy will be dealing with the "Great Recession" for a long time to come. But most of the world's other major economies are experiencing fairly rapid recoveries, meaning that they are putting the "Great Recession" firmly in the rearview mirror. The other countries which were in economic throes are slowly recovering. Canada posted first-quarter growth of no less than 6.1%, and its budget is almost in balance. Even sluggish Britain expanded at 4.5% in the second quarter, and its heroic effort to balance its budget will undoubtedly help growth going forward. German industrial production was up 12.4% in the 12 months through May. In fact, the overall Euro zone is safely into a growth mode although its overall budget deficit is still dangerously high. The Economist estimates that shortfall it will reach 7% of GDP this year. Turning to Latin America, Mexico is something of a basket case. But Brazil is expected to grow at 7.8% this year, with Chile not far behind at 5%. Meanwhile, China is projected to grow at 9.9% in 2010, India at 7.9%, and wealthy South Korea at 5.9%. Even sluggish Japan will manage 3.1% growth. The bottom line: The wise investor will allocate most of his money internationally. Modest quantities should go into Europe - particularly Germany and Britain, where valuations are reasonable and growth prospects good. Some should go into Canada, China, Brazil and Chile - each of which has natural-resource-based economies. Canada and Chile also will benefit from having thoroughly reliable governments. A large proportion should go into Asia: A little into Japan, where prospects appear somewhat brighter than they did a few months ago, and a substantial amount into China. Somewhat less should go into India, where valuations are too high and there are signs of inflation.

Finally, a substantial chunk should head for South Korea, which boasts good growth, stability and a capable government. The Indian consumer is slowly growing in importance. The country has a well-educated, young and ambitious work force, rising wages and is heavily focused on domestic consumption, which means it is less susceptible to the ills of Europe and the United States than China. The government is as messed up as anywhere and civic infrastructure is a nightmare, but both of which will improve over time. It's important to remember that prospects for the U.S. economy are not universally gloomy. The bad news is that the Obama administration and the U.S. Federal Reserve are together following the policies that Japan has followed for the most of its last 20 years, prolonging recession and producing dangerous bouts of deflation. There are, however, two bits of good news. The first is that U.S. policies may change. However, the movement towards budget balancing is gathering strength in both political parties, and it seems likely that fiscal discipline will be restored once the new Congress takes office in January - following the midterm elections. If the budget is brought towards balance, as is happening in Britain, resources are freed up for the private sector and economic growth becomes easier. The second, bigger piece of good news - not noticed by those who fear a Japanese "Lost Decade" type of future - is that the U.S. position differs from Japan's in one important respect: Whereas Japan has always had a large balance-of-payments surplus, the United States currently has an enormous balance-of-payments deficit. The United States has a huge advantage when world economic growth is strong, as is currently the case. With export markets growing faster than domestic consumption, exports will tend naturally to increase faster than imports, producing the most pleasant of all economic states export-led growth. Japan couldn't grow its way out of its malaise, because its huge international reserves made the yen too strong, intensifying deflation. Furthermore, foreign countries became disquieted by Japan's surpluses and erected hidden trade barriers against Japanese imports. In the U.S. case, rapid growth in exports would reduce global imbalances, not increase them. The U.S. balance-of-payments deficit would decline, reducing its need for foreign funding. That would make the world economy more stable and increase its intrinsic growth rate. But it wouldn't push up the dollar, because the balance of payments would still be in a deficit.

United States need to take stern action has to be taken to rein in the budget deficit, U.S. economic growth would accelerate and unemployment would decline. If the budget deficit remained huge, there wouldn't be so much money coming in from abroad, meaning domestic savers would be forced to buy U.S. Treasuries. That would force up interest rates and restrict the flow of funds to private-sector borrowers. U.S. investors should be optimistic for 2011 and beyond. Rapid global growth should rectify the U.S. balance-of-payments problem, so that even modest fiscal discipline will produce a quickening of U.S. growth rates, and a full economic recovery. Looking back in 1932, the U.S. unemployment rate was rising towards 25% and the stock market was bottoming out 90% below the record highs set in September 1929. In fact, the Dow Jones Industrial Average had fallen so far that by 1932 the index was actually trading at a level that was below its value when it debuted nearly 40 years before. Consumer prices were declining sharply, too. Indeed, they were to decline by a quarter between 1929 and their nadir in early 1933. Banks were failing all over the United States - a third of the banking system was to disappear during this downturn - and the failure of all these financial institutions was causing a rapid contraction of the money supply. Unfortunately, the Fed had exacerbated the problem by failing to expand the money supply to counteract the losses from bank failures. The present solution is worse than the disease: of expanding the money supply, jamming interest rates down to zero and keeping them there - would have alleviated the miseries of 1932. But this would probably not have brought about a recovery. There were other catalysts behind the unhappy economic picture that was 1932. One such catalyst - the collapse of much of Europe's banking system, coupled with the seizing-up of the international capital markets - has no parallel today. Another, the collapse in world trade following the 1930 passage of the Smoot-Hawley Tariff Act, is also not exactly imminent, although protectionism has risen and there is certainly a danger of such a development if we get a global "double-dip" recession. Both those causes were worldwide in their manifestation, causing a worldwide downturn. However, it's important to note that there were only a few places where the downturn was as severe as it was in the United States. In Britain, for example, 1932 was a year of modest recovery. That

country had gone off the "gold standard" the previous September, and was now beginning to benefit from its newly competitive currency, In the United States, three developments deepened the downturn. And each merits a look. First, was the huge "stimulus" program undertaken by U.S. President Herbert Hoover through the Reconstruction Finance Corp., which benefited politically connected industries while increasing the federal budget deficit? Second was the mass of legislation such as the 1931 Davis-Bacon Act regulating wages on federal contracts that forced employers to keep wages far above market-clearing levels. In a period when prices were declining sharply, this produced massive additional unemployment. Third, and last, were the tax increases - ranging from increases of 25% to 63% in the top income-tax bracket - that President Hoover introduced in early 1932 to counteract the massive federal deficit that his misguided RFC and other policies had created. In the present context, the mistakes of 1932 were not repeated if only because that economic environment has yet to be replicated. But US had repeated most of the other massive mistakes of the early 1930s. Federal spending has shot up, and the US in line for a tax increase and numerous additional regulations which is likely to burden the U.S. business sector - all of which have no doubt added at least marginally to the unemployment numbers.. Fortunately, the chances of a return of 1932 appear slim. Globally, economic recovery is proceeding quite briskly, with only the United States and a few European countries lagging behind. Unlike in the 1930s, commodities prices have been very strong, so the chances of damaging deflation are not strong. Banks have been bailed out, and the rate of bank failure even among regional banks is not excessive, so the financial system appears fairly solid. However, if the repeat of mistakes of 1932 reoccur, Federal Policies exercised go the worng way and may damage the economic system. . By encouraging higher inflation - a stance that was clear in the recent statement of the policymaking Federal Open Market Committee (FOMC) the Policy makers are creating a commodities bubble that is already showing signs of distorting the global market. By keeping

interest rates below inflation for years at a time, does it not discourage U.S. saving and encouraging leverage. That leads to the creation of massive bubbles - such as are currently appearing in the junk bond market, and occurred in dot-com bubble of 1997-2000 and the housing bubble of 2003-06. In the long run, the losses from those bubbles bursting combined with the low savings rates - will destroy the U.S. capital base. Once the United States no longer has more available capital than its competitors, it will have less and less ability to create good-paying jobs and preserve U.S. living standards. Thus, unemployment will increase and real wages will decline. By being so vigilant in protecting us from a reprise of 1932, U.S. economy reverts to almost as poor shape as its Great Depression counterpart, but with completely different problems. But those differences won't matter much to the Americans who are forced to endure the hardships and pain those policies create. Pessimism increased again among investors last week, as a slew of economic data stoked fears of a double-dip recession. The prospects for a full economic recovery are much better outside the United States, and that it's often good to be greedy when others are fearful.

The Indian consumer is slowly growing in importance. The country has a well-educated, young and ambitious work force, rising wages and is heavily focused on domestic consumption, which means it is less susceptible to the ills of Europe and the United States than China. The

government is as messed up as anywhere and civic infrastructure is a nightmare, but both will improve over time; the main issue is that exchange-traded funds (ETFs) likeWisdomTree India Earnings Fund (NYSE: EPI) are still a reasonably good bet on this development. 1)
Growth in real consumer spending appears to have softened from an already sluggish pace, with the risk running form a tepid 1.5% annualized growth rate to as little as 0.5%, which would be considered big trouble. 2) Real residential investment has resumed falling at a double-digit pace. GS sees a 15% annualized decline for the third quarter. Starts are headed for an annualized decline of 15% to 40%, while sales will be down at more than a 50% rate even if they recover half of the setback reported for July. 3) Real business investment was on track for a 10% annualized growth, but is now tracking much lower, with a marked decline in investment in computer equipment and software in July pointing to a weak third quarter. 4) The trade deficit ended the second quarter in a deep hole, and if the June balance holds through the third quarter, it would subtract 2 percentage points from the GDP growth rate. In short, Goldman Sachs, which is pretty good at this stuff in my view, believes its already Street-low estimate for 1.7% growth in final real sales in this quarter may be too low. Interpretation: This is getting serious, folks. SENTIMENT SOURS

That subhead sounds like a new candy at the Wall Street cinema concessions counter. But what I really want to talk about is the extreme levels of pessimism that are emerging. Now don't get me wrong. There are plenty of good reasons for investors to be pessimistic, as the engine of economic growth, which is new jobs, has stalled to a stunning degree as companies hoard their cash instead of expanding. It's kind of like the old saying that "even paranoids have enemies." But over the long history of the market we have been able to quantify extremes of pessimism and determine what tends to happen next. Our friend Tom McClellan points out that the latest Investors Intelligence survey numbers show just 22% bulls and 56% bears. You have to go all the way back to 1994 to fight as big a spread between bulls and bears as we are seeing now. It even exceeds the bearish extreme that occurred in the slo-mo market crash of 2008. GDP growth was revised down for the second quarter to 1.6% annualized from the previous estimate of 2.4%. Consensus was for a downgrade to 1.3%, so this counted as good news. Main issue was a smaller gain in inventories and a larger trade deficit than initially expected. Forward momentum has been stymied, but keep in mind that slow growth is still growth, so fears of a follow-on recession were allayed a bit. -- Existing and new homes sales both plunged. The main issue here is that the special tax incentives rearranged the usual monthly pattern of home sales, and the current snapshot of this rearrangement is ugly. Existing home sales fell 27% month over month in July to a 3.83 million annual run rate, the lowest level in 15 years, and a sharp contrast to the 6.5% million rate in November 2009 and even the 5.8 million in April this year. Obviously, a lot of sales were pulled forward while the tax break was in effect. The sales pace should improve as we move away from this transition period. -- Durable goods manufacturing outside of jet sales fell 3.8% month-over-month in July, following a 0.2% gain in June. A strong part of the recovery of the past year has been business investment in equipment. But that appears to be slowing, as non-defense capital goods orders outside aircraft in July fell 8%, following a 3.6% advance in June. Good news was that auto manufacturing is still relatively healthy and manufacturing is still trending upward -- just not as fast as earlier in the year.

-- Consumer sentiment slipped, as initial jobless claims and a sliding stock market have had a negative effect on consumers' confidence in spending. -- Bottom line: The pace of economic growth is slowing but there is still growth. Housing is bound to improve after the pull-forward effect of the tax credit works its way out of the system. Manufacturing has slowed but is still inching forward. All in all, a poor week for economic data but not a disaster

According to World Economic Forum Global Competitiveness Report 2010-11, Switzerland occupies the top slot for its ability to provide the most competitive environment on several parameters. Though Switzerland has "[state-supported] monopolies in key sectors, it maintains overall economic stability and largely open trade and investment policies," contended the Report. United States slipped to the fourth amongst the competitive nations from the top slot it occupied last year. Sweden and Singapore ranked second and third. India slipped by two places to the 51st position from among the 49th rank it occupied last year. Even though India has a highly rated economist as Prime Minister, the slid was inevitable. According to the Report, India performed well in complex financial sector areas, standing 17th in terms of its financial markets, 44th in business sophistication and 39th in innovation, but failed to improve the basic drivers of competitiveness. Its performance was rated poor in a range of social sector areas such as Education, Health and Infrastructure. India continued to be impacted by budget deficits (5.5% in the current fiscal accounting for Rs 5, 50,000 Cr), high public debt and high inflation. Though it had forex reserves worth US $ 280 billion, it was no where near Chinas reserves which were $2 trillion. India was no where near China in respect of macro economic development. The Report eulogized China which moved two places from 29th last year to 27th. It relieved poverty and improved overall efficacy and access to Education and Health. Life expectancy is 10 years shorter in India as compared to China and Brazil.

"There are two Indias," said the report, while there is widespread poverty, poor health and education facilities and poor infrastructure in rural India, the other India is experiencing rapid growth".

The African nation of Chad figures at the bottom of the list of 139 countries.

The rankings were presented by the WEF in its annual review of the competitiveness of countries. These rankings are viewed as indicators of the business climate in 139 countries and taken into consideration a range of political, social and economic parameters. If India has to retain its lost sheen, it has to do well in the social fields like Education and Health. It needs to emulate Kerala for its performance in these two sectors, but the Indian government ignores the claim of Kerala for more incentives for its high contribution to health and education sectors. These micro socio-economic parameters need to be given weight age when doling out Plan funds.

The world economics went for a rapid fire in the mid-last decade
of the 2nd millennium, and as we transcedented Y2K, the world trade vitality shifted focus, and new Countries began to dominate World Trade. China, with US $ 1.24 trillion exports is numero uno in the world export statistics. Germany stands second with US $ 1.06 trillion while United States of America was pushed to the III spot. India made formidable bouts and stands at 18th place with US $ 175.6 billion. The under-dogs of the Second millennium became the masters of world trade in the third millennium. Globalization was responsible for the syndrome of a paradigm shift in the structure of markets. Wholesale markets were replaced by retail markets where world class goods were available for wholesale prices. This gave way for a new world trade order. World Trade in agricultural products stood at US $ 852 billion (2005-6), having 8.4% share in world merchandise trade. Exports are expected to go a long way in making agriculture a remunerative occupation in times to come, especially for farmers and growers of developing countries like India. Indias agricultural, floriculture, fruits, vegetables, animal products and processed foods clocked a turnover of around $ 9.7 billion turnover (12% growth) against 8.1 billion (13.88% growth in 2008-9) while total exports in 2007-8 was US $ 7.11 billion. The composition of diet is undergoing change in functional terms, characteristics terms and product terms. In functional terms, there is a shift from unprocessed and lightly processed to processed and prepared foods and value added fresh foods. In product terms, the trend is toward diet diversification moving from staples towards fruits and vegetables. Food preferences are changing with increase in income (from staples to high value food items). These high value food items tend to exhibit high income elasticity of demand. 34% of Indias exports (high value food

items) (1970-76) has gone up to 54% during 200-06 indicating that the high value items are having a substantial share in the food exports. (Rs 1,276.14 Cr in 1970-76) to (Rs 78,467.97 Cr in 2000-6), registering a 62% increase. Global production of oils and fats stood at 160 million tonnes. Indonesia has merged as a leader in processor and manufacturer of Crude oil, Crude Palm oil, and Malaysia RBD Palm Oil and Argentina is a major supplier of Soya bean oil. Palm Oil, Palm kernel oil accounted for 48 million tonnes or 30% of the total output; soyabean with 37million tonnes stood at the second place with 23%. About 38% of the oils and fats produced were shipped across oceans; around 60.3million tonnes exported. Palm oil and Palm kernel oil occupies 60% of the shipped oil. Malaysia with 45% of the market share dominates the Palm oil trade.
India is one of the largest producers of oilseeds in the world. India grows oilseeds on an area of over 26 million hectares, with productivity of around 1000 kg a hectare. Currently, India accounts for 7.0% of world oilseeds output; 7.0% of world oil meal production; 6.0% of world oil meal export; 6.0% of world veg. oil production; 14% of world veg. oil import; and 10 % of the world edible oil consumption But self reliance in edible oils is not in sight and the country imports almost half of its edible oil requirements. India has a wide range of oilseeds crops grown in its different agro climatic zones. Groundnut, mustard/rapeseed, sesame, safflower, linseed, Niger seed/castor are the major traditionally cultivated oilseeds. Soyabean and sunflower have also assumed importance in recent years. Coconut is most important amongst the plantation crops.. The Indian edible oil industry is composed of some 15,000 oil mills, 600 solvent extraction units, 250 vanaspati units and about 1000 refining units. employing more than one million people. The total market size is at Rs. 600,000 Mln. and import export trade is worth Rs.130, 000 Mln. There are very few big companies having listings in the national stock exchange involved in the production of various edible oils. KS Oils, Ruchi Soya, National Diary Development Board (Anand), ITC-Agro Tech, Marico, and some Kerala Oil Companies whose promoters own the major shareholding who deal in the organized market. Otherwise, Indian edible oil industry is highly fragmented with a large number of small producers in the unorganized sector. There are mini industries catering to rural markets. The empowering of the middle-class who has investible surplus and their daily chores forced them to change their dietary including the traditional food. Many economists fear and freely confess that, there will be food scarcity in India. Pulses, edible oils and sugar are scarce in a growing country like India. Raw material (read Oil seeds) is an issue. The Land Ceiling Act does not allow corporate farming in India. So, Indian Oil companies have been importing. Now, they want to become self sufficient. For this, they are buying lands in places like Indonesia, Malaysia, and even Ethiopia. They intend to import palm and process it to Palm oil. .

With growing quality consciousness and plummeting price differences between packaged and non-packaged edible oils, the packaged edible oil sector will capture 50% of the market share in coming years. The packaged branded edible oil industry is growing incrementally @ 12% annually. Customs tariff on edible oil continues to be the most important and dynamic area of government intervention. India adopted a modified tariff schedule for agricultural products in March 2000. The tariff bindings, subsequent to revision in 1996 and renegotiations within the WTO in 1999 retain the overall structure notified after the Uruguay Round etc made the downsizing of bound rates. However, import of Coconut (Copra) Oil is canalized, and is subject to Basic duty for import of Coconut Oils is 100% and this is specified in the First Schedule to the said Customs Tariff Act with respect to edible oil read with any oher Notification issued in respect of any other notification issued in respect of such goods under sub Section 1 of Sec 25 of Customs Act + Preference duty (90%) CVD+ Edu Cess (0%) + 4% SAD(edible grade vegetable oils and their edible grade fractions exempt from Spl CVD vide Notification No 20/2006-Cus dated 1-3-2006). The total import duty comes to 111.12%(Rate of duty for all goods crude and edible oil is nil while refined and edible grade, it is 7.5% vide Notification No 21/2002-Cus, dated 1-32002<General Exemption No 122 Part 8>). However, all other edible oils and vanspathi substitutes can be freely imported under Open General Licence (OGL). India reduced its bound rates for edible oil @ 52.5% ad valorem, except for 45% on edible oils. But a sensitive item like Crude oil which was in short supply against consumption was required for industrial applications and uses as the industrial growth was the main driver of economic growth, and shortage in plenty in edible oil, with high inflation in food commodities at Consumer Price index level, has made India liberalize Imports. Government reduced excise duty for edible and non edible oils in the Import duty structure by 4% w.e.f 7th Dec 2008 while the Duty +Contraveiling duty+Cess on CVD+Education Cess+ SAD works for Crude Palm Oil and Crude Olefins at nil , RBD Palmolein @ 7.5%(Duty)+3%(Ed Cess) making it 7.33%. Other Non edible oils like Crude Palm Stearin (19.57%), Crude Palm kernel Oil (17.37%), Palm Kernel Fatty Acid Distilate (32.76%), Split Palm kernel Fatty Acide (32.76%).

Between Nov 2009 and August 2010, the total import of Indias edible oil stood at 71, 00,540(against 81.83 lakh tonnes in Nov2008-Oct 2009). Kandla accounted for import of edible oil to the tune of 19.18 lakh tonnes, Nhava Sheva 7.01 lakh mt, Chennai 9.16 lakh mt, Haldia 8.24 lakh tonnes. Though Kolkata Port, the import stood at 10.36 lakh tones during 2008-9(oil year), it was nil during the period Nov 2009-Aug 2010. Mundra (3.72 lakh tonnes), Mangalore (4.81 lakh tonnes), Mumbai (2.55 lakh tonnes), Tuticorin (1.95 lakh tonnes) were the other Ports who handled edible oil (import) cargo during the current oil year. India as a nation took measured steps to project its neck out as an important Country sticking to its guarded principles but with a guided expanded growth to increase its GDP through external trade. However, CAGR in agricultural growth in terms of Production is very low and in decimals

against 4% envisaged during the XI Five Year Plan. In order to meet Consumption, there is need of Imports of edible oils as oil seeds production has been dismally low due to the west and east based monsoons and lower than expected yield in rabi and kharif crop seasons. Different countries exporting commodities are facing stringent certification and labeling provisions notified by the developed Countries. Owing to high retail concentration in the developed Countries most of the standards have come from private players especially the retailers Food safety management in developed countries, apart from food safety and quality is expected to include dimensions such as environmental standards and social standards in the context of food trade. Exporters from developing Countries should make the right calls for sustainability in the future. The increased cost of compliance and non tariff barriers disguised in the form of safety measures in the long run will be reflected as problems of the consumers in their domestic markets in the form of high price and non availability of food products. Edible Oil industry is a vintage industry struggling to peak up to peoples needs. Orthodox bullock driven crushers co-exist with the latest expander/extruder, in a strange mix of traditional: modern technologies. Raw filtered cooking oil also fights for shelf space with modern refined packaged oil. Yet, the demand-supply gap is widening. Supply shortage is hurting the industry. This cascades down to the pricing of the indigenous production of Oil. WTO norms have made Indian oil industry to fundamentally usher in certain fundamental changes in the operating environment. The pressure has had a cascading effect on the Processing industry as a result of these changes. Capacity utilization has fallen to around 35-40%, resulting in idle capacity hovering around 60%. With razor thin break even, the industry is operating in a Catch-22 situation, which calls for course correction at the Policy and structural levels. With stringent quality standards, poor productivity due to failure of monsoons which saw depletion of production of oil seeds and its conversion to oils, and a large idle capacity of mills, this vintage industry needs a powerful driver.
Natural Fibre Policy

Honble Shri Dayanidhi Maran, Minsiter of Textiles, spoke about unveiling a National Fibre Policy. Perhaps, you may be aware that we are participating in the Inter Governmental group of Natural Fibres in which the Indian delegation is always headed by the Textiles Secretary.

The Ministry of Textiles appointed Working groups and sub groups which have submitted a detailed Report (on 9 June, 2010) which is on the Textiles Ministrys web site, and is in the Public domain, and comments have been invited. The entire focus of the Policy is aimed at strengthening fibre economy. It looks at the linkage between productionSupply-Calibrating Exports. All the natural fibres, cotton, jute, man-made synthetic fibre, have been classified for the purpose of critical examination of their problems vis--vis solutions. The sub group of major plant based fibres/others include banana fibre, palm leaf fibre, sisal, industrial hemp, flex, Ramie, Korai grass, water hyacinth, Screwpine, and pineapple fibre. However, what saddens me, is that Coir fibre which has a production figures of 5,00,000 mt and accounting for Rs 810 Cr of exports providing large scale employment espiecally to women who constitute 80% of the work force, does not even find a mention. The Sub group in Para 15(a) has suggested Focus Fibre Focus State approach to develop the different facets of the natural fibre(the group has selected 5 natural fibres for immediate attention- banana fibre, pineapple fibre, flex, sisal, hemp/nettle) . The Group has also suggested national level census to gather exhaustive information on other natural fibres, (Para XXX (14). Under Para 15 (a-i) 5-Year Pilot project is suggested. Capital subsidy of 50% to the industry that comes to set up units to manufacture finished products out of natural fibres is suggested. This is going to be major thrust in the next Five Year Plan with exhaustive plan funding which may be 5 digit Crores. Coir fibre which was an important natural fibre missed evaluation and study in the National Fibre Policy. Strong pressure need to be exerted to bring Coir Fibre within the realm of 5 sectors which have been selected for Focus Fibre Focus State implementation.

David Ricardo (1772-1828) English Economist, who developed the free trade theory of competition advantage, which stipulates that if each nation specializes in the Production of Goods in which it has a comparative cost advantage and then trades with other nations for the goods they specialize, there will be an overall gain in trade and overall income levels should raise in each trading Country.

When inflationary pressures and warnings on food scarcity, are taking centre stage of socio economic discussions globally, and when human demands on natural resources have doubled in less than 50 years are now outstripping the resources of the earth by more than half, [ the Consumer Ology the market Research myth by Philip Greave] , it would require two earths to sustain this level of consumption by 2030. Add to this, the chance of edible oil being chased by both bio-fuel demand and human consumption. When structural changes are happening on the Commoditized food business, we are caught in the evening darkness. A better grip over the critical first mile, controlling Oil seed plantations, could translate into a significant uptick in profitability in times of volatility. Instead of facing the crisis of deficit of edible oil production to meet consumption demand, our dilly dallying would just prolong the crisis by a day. Again the day will come, when crisis will again break out, where alternatives or procrastination will not help. We need to frame an edible oil policy which has an edifice. Ad hoc systematic changes with obsolete economic theories will never solve the problem. Rather, it will escalate it. Now we have to bind a Plan. Whether, we need to look to external markets, Or is it enough, we put more energy into the domestic market, raising our production levels and consumption levels, so that the farmer gets a fair price. The Board, if it plans exports, should give a blue-print to the Ministry, and it should involve evolving Schemes to maximize export opportunity. CDB cannot do it solitarily. This analysis and study was done by me at my own behest, to understand the rudimentary aspect of the present business climate of Coconut and Coconut products. It is

likely to be subjective in places, even though I have sincerely attempted to give an objective view.
Table 3 [Table 8.29 Production of Oil Seeds and net availability of edible Oils of Economic Survey 2010) (in lakh tones)
Net availabilit Oil Production y of edible Year Of Oil oils from (Novseeds* all Oct domestic sources** (1) (2) (3) Import of edible Oils (4) Total availability of edible oils (Domestic & Imported) (5) Total estimated requirement/ demand For edible oil (6)

Net surplus or deficit

(7) (5)-(6)

200 7-8 200 8-9 200 9-10

297.56 281.57 255.09

86.54 85.98 82.00

49.03 # 67.20 # 101.0 0#

135.57 153.18 183.00

127.57 132.80 138.18

8.00 20.38 44.82 (+)73.2 lakh tonnes@

Sources (*) Ministry of Agriculture (**) Directorate of Vanaspati, Veg oils & Fat (#) DGCIS, Kolkata (@) 73.2 lakh tonnes surplus between import and use

Table 3.2 Month wise Import of edible oil between November 2009 to August 2010 Year Total Oil imported Total Oil Imported (Nov-Oct) 2009-10`(Qty in mt) 2008-9 Nov 2009 712,677 519,032 Dec 2009 761,835 719,125 Jan 2010 827,182 856,690 Feb 2010 671,293 730,094 Mar 2010 612,293 609,553 April 2010 504,410 659,477 May 2010 539,169 696,625 June 2010 692,952 742,481 July 2010 777,787 557,423 Aug, 2010 1000,942 612,898 Total 7100,540 6,703,398

2008-9 2007-8

81,83,360 5,608,410

Table 3.3 Month wise Import of Coconut Oil Nov 2009-August 2010 and its comparative period imports (2008-9) Year Coconut Oil Coconut Oil (Nov-Oct) imported Imported 2009-10`(Qty in mt) 2008-9 Nov 2009 1,199 1,999 Dec 2009 2,999 1,999 Jan 2010 Nil 1,000 Feb 2010 Nil Mar 2010 April 2010 5,698 May 2010 June 2010 1,999 July 2010 Aug, 2010 Total 4,198 12,695 2008-9 16,693 2007-8 13,016

Table 3.4 Import of Palm Oil - Port wise Import fractions Ports 2005-6(Nov- 2006-7(NovOct) Oct) Chennai 298404 370849 Kochi 89718 64099 Goa 0 8950 Bedi(Dahej) 0 4430 JNPT 143432 152820 Kakinada 430927 535495 Kandla 467259 844230 Karwar 0 0 Kolkata 522430 478659 Mangalore 225267 293326 Mumbai 162710 164798 Mundra 27892 73565 Nagapattinam27550 20325 Pardip 11142 0 Pondicherry 6800 0 Vizag 0 0 Tuticorin 128445 107493 Total: 25,41,976 31,19,039

of Palm Oil and its 2007-8(NovOct) 557967 14970 6884 0 323318 763791 1449444 0 782951 325232 261477 103072 22870 22027 0 6200 160918 48,01,121 2008-9(NovOct) 726662[4] 0 7000[11] 0 573141[5] 838949[3] 1680608[1] 0 1040110[2] 464313[6] 289057[7] 165419[9] 15000[10] 3500[12] 0 2500[13] 191979[8] 59,98,238

The Import of Coconut Oil is Canalized and imported by State Trading Corporation. Advance authorization, DEPB, and other forms of Import facilities available to the exporter. All edible and crude oil import is under OGL Category except for that of Coconut (Copra) Oil which has been canalized. Coconut (Copra) Oil which is in Chapter 1513 Coconut (Copra) Oil and its fractions is shown as having a Basic duty of (100%), Preference Duty (90%) +CVD+Ed Cess (0%) + Customs Edu Cess (2+1) + Spl CVD (4%) making the total duty @ 111.12000. However, in the Handbook of Procedure, Vol III, in Sec I of the Schedule of ITC (HS) Codes, the Basic Duty for Coconut (Copra) Oil (Rate of duty for all goods crude and edible is nil, while for refined and eligible grade is 7.5% vide Customs Noti 21/2002-Cus dtd 1-3-2002- General Exemption No 122 in part 8). Special CVD was exempt for all edible

grade vegetable oils vide Noti 20/2006-Cus dated 1-3-2006. The total duty was calculated on the basis of Basic Duty. When Basic duty itself is exempt, the entire Customs levy is exempt for Coconut (Copra) Oil edible and crude. [These items and notings are in Page 111 of Vol III A of ITC HS Classification]. However, the Board is not provided with any data regarding the import flow of Coconut Oil. Nor is it able to garner the facts from the different Ports, as the routes through which Coconut Oil lands at a particular Port is not known to the Board. Another fact is that, it may be occasional landing. State Trading Corporation, being the canalizing agency should have provided monthly data to CDB on a routine basis. That has not been done.

Impediments in the Export of Coconut (Copra) Oil

Prohibition of all edible Oils in II SCHEDULE of ITC (HS) Code Sl No. Tariff Item HS Uni Code t 67 A Table 4.1 Item description Export Policy Nature of Restriction Not permitted to be exported

Codes Kg All edible oilsProhibited pertaining to all under Chapt 15 edible oils of Sch I under Chapter 15 of Sch I

Table 4.2 Relaxation in Prohibition on export of edible Oils Notification 3(RE-2008)/2004-9 dated 11 April 2008 Substitution of Para 1.1 of Notification No 85 dtd 17-32008 inserted vide Notification No 92(RE-2007)/2004-9 dated 1-4-2008: 1:1 Restriction imposed vide this Notification shall not apply to the following Export of Castor Oil

Export of Coconut Oil thor Kochi Port Deemed Export of edible oils to 100% EoU with the condition that the final product be non edible. Notification 85 forbids exports of any edible oil while Notification 92 dtd 1 April 2009 removes the restriction of Coconut oil thro Kochi Port. This is reiterated in Not.3dtd 11-4-08 Ban via Notification 85 dtd 17-3-2008 is for all edible oils under Chapter 15 under Sch 2 of ITC(HS) and all Tariff items having HS Codes describing them as edible oils

Table 4.3 Notification No 4/2009-14 dated 4 Sept 2009 and Circular 19/2009-14dated 18 Sept, 2009 Export of edible Oil in branded Consumer packs of up to 5 Kgs, subject to a limit of 10,000 tonnes during 20-11-2008 to 30-92010 [this expired on 30-9-2010][the quantity of 10,000 tonnes were extended 3 times on the threshold limit reaching the ceiling] ##Around 2,500 tonnes of Coconut oil in up to 5 Kg branded packs were despatched between 20-11-08 to 30-9-2010 $$ CDB vide letter (0101(22)Mktg/2009 dtd 28-10-2009 sought clarification from DGFT whether the quantitative restriction vide 60 dtd 20-11-2008 has any co-relation to the export of Coconut Oil thro Kochi Port (Noti 92 dtd 1-4-2008] @@ DGFT clarified (F No 01/91/171/27/AM/10/Export Cell/3977 dtd 6-11-09) that the export of Coconut Oil permitted through Kochi Port vide PN 92 dtd 1-4-2008 is not subject to the conditions imposed vide PN 60/20-11-2008(export of edible oils in branded consumer packs of up to 5 Kgs). ***The letter is self-explanatory (Read the letter verbatim in Coconut Export Manual)

CDB had moved the Commerce Ministry and highlighted the need to restrict/prohibit the import of Palm Oil through the Kerala Ports as indiscriminate import of Palm Oil without Customs levy was hurting the indigenous Coconut Oil Industry. Based on such a representation from Coconut Development Board, the Ministry of Commerce has banned import of Palm Oil, both in crude and edible form, from landing and unloading through Kerala port, and this has

been indicated in Schedule I of the ITC (HS) Code, HBP, Vol III. However, Palm edible Oil, imported through the neighbouring Ports which find way to Kerala markets (the volume of Palm Oil coming to Kerala needs to be obtained through a rational survey) is given below:
Sl No. RBD Palm Oil Import through some Port Oil Year Nov 2009Aug 2010(in mt) Kandla 19,18,325 Nhava Sheva 7,00,838 Chennai 9,16,287 Haldia Mangalore Mundra Mumbai Tuticorin Other Ports Kolkata 8,24,175 4,81,000 3,72,000 2,55,000 1,95,000 1,60,000 Nil** well known Ports in India Oil Year 2008-9 (in mt) 18,88,000 Part Sold in Kerala Market Part Sold in Kerala market Part Sold in Kerala Market 10,36,000 (**) why Kolkata did not import any quantity needs examination.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Total:

71,00,540

81,83,360

It has been observed, on a minute study of the flow of imported oil on a particular oil year, and the corresponding short-fall in the domestic edible oil, the imported oil is much higher than demand. Now the surplus Oil, what ever the quantity is not accounted for, in any of the arithmetic done regarding the realistic demand: supply (including supply from domestic sources + imported oil). Therefore, there is a closing balance stock which will be the Opening Balance for the next Oil Year. Opening Balance and Closing Balance of

Oil is a matter of concern for the Authority which actually calculates the shortcomings, and the Balance to be compensated through imports. Year after Year, the import of Oils has been increasing? Is it that every year, the oil seed production is coming down so dismally, which warrant huge import? Planning Commission should publish a White Paper on the total scenario for the last 5 years. Edible Oil imports are automatically banned using the regulatory power of DGFT (Para 2.1) every 30th September and extended for a Year. The Customs routinely issue a Circular at regular intervals announcing the reduced Customs duty for Import of all edible oils. What is very pertinent here, is that when the value of rabi as well as kharif oil seed crop is yet to be assessed and its conversion into edible oil is yet to be taken into account, and the entire demand for the Country is arrived at, this mechanical process of import under OGL, giving them the benfit of nil Customs duty, banning of export of all edible oil is taking place most mechanically. It has been stated emphatically that modest per capita consumption increase of 4% a year and a population growth of 1.8% a year, translates in an overall growth in demand @ 6% per annum. Based on the calculations provided by the Government, and enumerated in the Economic Survey, during 2007-8 to 2009-10 Years, there is surplus unaccounted edible oil to the tune of 73.2 lakh tonnes available in stocks. According to Governments contention, the edible oil demand is expected to grow from 16 million tonnes (1015) to 30 million tonnes by 2020. At the Policy level, Government feels that import is inevitable, and oil seeds growth cannot result in higher productivity, so in order to reduce the gap of supply Versus

Demand, imports are inevitable and it would continue to stay. There are many Corporate Companies, who are listed in the Bombay Stock Exchange and National Stock Exchange, etc. who are producing edible oil and Crude oil for industrial purposes. As part of futuristic plans, these mega Companies who are globally well-known, have idle capacity but need to source raw materials from abroad. So they are into the continuous business of importing edible Oil. A stage has come in the Companys history that they are looking to become self reliant. Experts are predicting food scarcity in India. They foresee growth in pulses, edible oils and sugar which are scarce in a growing Country like India. As part of their futuristic plans, they want to grow oil seeds in their own farms so that there will be steady and continuous flow of raw material to run their Companies without getting affected by the changes in the Prices. . Indian mega Companies cannot do Corporate farming nor can they buy excess land by virtue of inhibition in the Land ceiling Act. So they have to contend, importing Palm Oil from third parties and Countries. Since import of edible oil is going to a continuous feature of Indias food scene, they need to source oil seeds to become self reliant. They are buying lands in Indonesia, Malaysia and Ethiopia, and brought in heavy investors based in Singapore, who can fund them. They would grow Palm in these lands, import Palm seeds to India and crush it in their Indian factories and make Palm Oil. What is going to be our Policy vis--vis Edible Oil? What is the view of Planning Commission on this? Will they go for extending the area of cultivation of oil seeds, and will productivity to increase the yield be one of the priority areas, and resort to Imports of edible oil which is an easy option and ban export of edible oil. The Indian export of edible oil costs the BoP and drains Foreign Exchange.

Apparently, the demand of Coconut Copra Oil and the Virgin Coconut Oil against the panorama of edible oil distributed, sold and consumed, would depend upon the taste and preference of the Malayalam population all over the globe to Coconut Oil. However, the static policy of dependence of import for solving the edible oil shortage both in the short - long term basis with no fundamental second options, and imports which are not based on intrinsic demand but many other overriding factors, is making the matter of indigenous edible oil industry growth lean YoY. Even when that support is denied, and will be never heard, and when there is no door for this industry to sqeeze in, the danger is inbuilt into its existence. The industry is traditional, as Orthodox bullock driven crashers are used to crush Copra to make Coconut Oil. Raw filtered cooking oil is vying for shelf space in most of the rural and semi urban areas. Coconut Copra Oil is subject to import through the FTP mechanism and canalized. How much of Coconut Copra Oil (edible oil, crude oil) needs to be imported must be based on some formula? Who determines that formula? What are the grounds on which such a formula is arrived at? Who keeps tally of the imported Oil vis--vis its end use? If CDB is the custodian and holding original jurisdiction of the development and diversification of the Coconut Industry, what is its role vis--vis Coconut imported Oil? Export of edible oil across the Board is restricted by the Authority. However, based on circumstances, some Oils are allowed to be exported under such conditions as the Authority may prescribe. In the case of Coconut Copra Oil, the Authority has mandated that Coconut Oil export shall take place only through Kochi Port. However, until recently, CDB had no role in Coconut Exports, it did not make any serious attempts to document the flow of export through Kochi Port.

Questions: 1. One question that remains to be answered: who requested Government to canalize Coconut Oil imports? What were the added advantages, for contemplating such an action? 2. Is import remunerative if re-exported? What are the different incidentals at work, if Coconut oil crude is imported, refined in India, and re-exported? Will the mechanics work? 3. When Palm Oil was banned for import through any of the Kerala Ports, why was not the import of Coconut Oil which presently can be imported through any Port, not banned? 4. Assuming that the Coconut edible oil like all oils phrased as such are prohibited through Sl No 67 A (inserted) in the 2nd Schedule of the ITC (HS) Code, (Handbook of Procedures, Vol III), what about the non edible part of the same Coconut Oil? Regarding Description of Goods, it is a matter accepted by Law that the description of Goods and its classification would be determined by the General Interpretation Rules framed by World Customs Organization adopted all over the World. India being a signatory has to adhere to this in letter and spirit. Under Notes before the Tariff item, WCO has clarified certain items and supplemented the Paras with Supplementary Notes: It is stated under Supplementary Notes (1) that in this chapter, edible grade, in respect of goods (i.e. edible oil) specified in Appendix B to the Prevention of Food Adulteration Rules 1955 means the standard of quality specified for such goods in that Appendix. Under (2) it has been stated, In this Chapter, fixed vegetable oil means oils which cannot easily be distilled without decomposition, which are not volatile and which cannot be carried off by superheated steam(which decomposes and saponifies them). Product in question is on

the basis of the Product description given and not how buyer uses such goods is immaterial to the seller. Since user criteria is immaterial for the purpose of classification, goods classifiable under Heading 3305 of CE Tariff will go by the classification (2008(232) ELT 849 (Tribunal, Delhi) [In the light of the above reference, the Edible Oil in Chapter 15, cannot be compared to Coconut(Copra) Oil which bears 1513 11 00 and 1513 19 00 where no reference to its edible grade l is narrated, inferred, explicitly or implicitly. Therefore, the DGFT and its officers rejecting the claims of exporters who had exported Coconut (edible oil), and claimed VKGUY, are following a wrong inference which is not collaborated by any notification. ] Is it a fact that only Coconut oil in small sachets are subject to the Central Excise Duty, and not the 1 litre bottles/ or 1 Kg pouches, even if they are used for hair purposes? DGFT needs to give a categorical answer instead of never answering the problem posed by exporters of Coconut Oil. Why this discrimination which is bad in Law? Departmental (Customs) Clarifications based on Case Law: (1) Coconut Oil in natural form with addition of Vitamin E alone is classifiable under Heading 15.03 of CE Tariff(Commissioner Vs Essen Products Ltd) -2006(200)ELT 342 (Tri-Mumbai) (2) Coconut Oil packed and sold in packages of capacity ranging from 50 ml (pouches) to 500 ml (plastic bottles) manufactured by Job workers and marketed as Pure edible oil is classifiable as Coconut Oil under sub heading 1513 11 of CE Tariff and not Hair Oil under Tariff item 3305 19 90 ibid (Aiswarya Industries Vs Commissioner) - 2009(253) E.L.T.544 (Tri-Chennai) (3) Coconut Oil- Parachute Oil packed in different capacity packs is classifiable under Heading 1503 of

CE Tariff (Amardeo Plastic Inds Vs Commr) - 2007 (210) E.L.T 360 (tribunal-Mumbai) (4) For all Oils appearing under Chapter 15, the rate of CE duty was reduced to 4% by Notification 59/2008-CE dated 7-12-2008 (5i) Coconut Oil packed in small containers up to 200 ml should be considered as hair oil and should be classified under heading 3305 of Excise Tariff-CBE&C Circular No 890/10/2009-CX dated 3-6-2009 (ii) Coconut Oil meant for application on hair is classifiable under Ch 33 of Central Excise Tariff- CBE&C Cir 145/56-CX dated 31-8-1995 (79) E.L.T.(T 54) (6) Cosmetic and toilet preparations- products of care of skin or hair and not for cure of skin/hair having therapeutic or phophylactic properties as merely subsidiary are classifiable as Cosmetic and toilet preparations under Chap 33 of Central Excise Tariff Act, 1985 (Commr Vs Puma Ayurvedic Herbal Pvt Ltd)-2003(155 ELT 561 (Tribunal: Delhi). Supreme Court has concurred with this 2006(196) ELT.3 (SC) (7) Parachute Dandruff Solution Coconut Hair Oil is classifiable under sub-heading 3305.10 of Central Excise Tariff (Amit Ayurvedic & Cosmetics Products (I) Pvt Ltd Vs Commr)2004(168)E.L.T.354(Tribunal: Delhi) Rate of Duty is 10% per Kg vide Notification 6/2010 CE dtd 27-2-2010. 46(+) 2% Educational Cess (+) 1% Secondary Higher Education Cess Oil-Vegetable Oil: [When oil is derived from oil cakes by the process of solvent extraction plant, no cess can be levied upon the same under Sec 3 of the Vegetable Oil Cess Act 1983 because such oil is

not covered by the definition of expression, vegetable oil given in 3 (h) of the National Oil Seeds and vegetable Oils Development Board Act 1983(Bhasir Oil Mills Vs Union of India- 1990(47) ELT 305 (Mumbai HC). This order was affirmed by the Supreme Court of India in (1998) (103) ELT 481(SC) There are edible preparations containing weight more than 15% and under Chapter 21 there are edible preparations. 2106 90 91 is a Misc edible preparation having the description Diabetics Foods. However, Supreme Court has ruled that de-oiled seed extractions do not come under the purview of Chapter 21. But the fact is, Coconut (Copra) Oil per se, is not Coconut Edible Oil, and it cannot be interpreted as such. There are edible grade Oils mentioned in Chapter 15, even though Coconut(Copra)Oil is never categorized as edible oil, or of edible grade, and when such a description is not made and Harmonized Code of Nomenclature does not categorically specify the item as edible or non-edible and furthermore, when Oils described in Chapter 15 can be edible or non edible, the right exercised by the Joint Director General of Foreign Trade in concurrence with the DGFT is patently wrong and without jurisdiction. The matter was mechanically adjudicated without reference to Law. Now suppose, an Oil is made into edible grade. It cannot be hypothetically concluded or inferred that oil in edible grade quality should be consumed only. When so many oils are used for pharmaceutical purposes, especially for cholesterol or diabetics, the quality of oil must be of edible grade, to meet the standards of pharmaceutical standard requirements. Therefore, to assume, edible grade means cooking oil is a far fetched hypothesis which goes beyond the realm of conjuncture. Moreover, edible grade is defined as that goods specified in Appendix B to the Prevention of Food Adulteration Rules, 1955 means the standard of quality specified for such goods in that Appendix.

Further, since user criteria are immaterial for the purpose of classification, goods so classified will go under such classification, according to a ruling of Delhi Tribunal of CBC&E. If the classification is Coconut (Copra) Oil and 1513 11 00 is Crude and 1513 19 00 is others, no other meaning need to be read into the classification. Confusion is confronted, when the ruling has been Coconut Oil in natural form with addition of Vitamin E alone is classififiable as Coconut Oil. Now, assuming the inference that in Chapter 15, if Coconut Oil is only edible oil, how come, Parachute Dandruff Solution Coconut Oil, and Coconut Oil meant for Cosmetics/toilet preparation is recognized as products arising out of non edible purposes of Coconut Oil. When the assumption is incorrect, presumption drawn is errorous, and then the conclusion will be injusticable. The US Nutrition Labeling and Education Act of 1990 did not disparage coconut Oil. Compounds from CO fatty acids have important uses in Medicine and nutrition. Food and Drug Administration (FDA) also gave a clean chit to COO.
We hear government telling us that the high presence inflation in food has dwarfed economic growth. We also hear government telling us that in view of the perilous production of oil seeds and their conversion into edible oil, we needed to import a high quality to break-even between supply and demand. Our Planning experts are telling us that food grains growth would stabilize once the monsoon hits India. Monsoon did hit India, and very severely that the flood devastated many areas with its fury. Even the national capital was not spared. The Supreme Court had faulted the government for having amassed food grains more than the stock required and due to clumsy storing, the entire stores got devastated by the rats that ate what was supposed to be given for distribution amongst the poor through Public Distribution System and through Antodya Anna Yojana. The Court ordered their free distribution with a time tag. But our iron clad bureaucracy is sitting tight and is in the process of devising a plan to distribute the food grains. When and how will be the reason that there will be delay?

The Planning Commission is of the view that the total BPL families in India are around 6.25 Cr. However, the States do not agree. They estimate the BPL families at 10.7 Cr. Why a head count was not taken is any bodys guess. As against Antdodya Anna Yojana, the beneficiaries entitled to benefits have been reackoned as 2.5 Cr. However, the State government has been able to enlist 1.82 Cr households, and they have been given Ration cards. While 0.68 Cr needs to be accounted, the subsidy for 2.5 Cr households have been calculated, and the amount budgeted and will be released pro rata. What will happen to the budget expenditure against benefits to 0.68 Cr households? Government, according to Economic Survey (Page 205, Table 8.29) says that in 2008-9, the production of oil seeds was 281.57 lakh tones of which edible oil was produced to the extent of 85.98 lakh tones, while 67.20 lakh tones was imported of which 83% was accounted by Palm Oil. So the available oil was 153.18 lakh tones when the actual requirement was only 132.80 lakh tones. The imported oil in surplus was 20.38 lakh tones which accounted for 15.34% excess. During 2009-10, 255.09 lakh tones was the production of oil seeds and converted into edible oil was 82 lakh tones. The import figures went staggering to 101 lakh tones. The total available oil was 183 lakh tones against the requirement of 138.18 lakh tonne. The difference was 44.82 lakh tones which accounted for 32.44% in excess of demand. Another factor was these oil were imported at nil duty for Crude and 7.5% for Refined against the normal 45% and 52.5% and the loss on this account was in the region of Rs 25,000 Cr. Added to this, government thought it wise to release Rs 15 per Kg on imported oil for release through PDS. The recurring expenditure stand at Rs 1,500 Cr! Will any Country distribute imported oil which is exempt from customs duty with a subsidy? Typically, American Economics? The question that comes to the fore is why are we importing in excess of what is required. There will inevitably be a closing stock which will become next years opening stock. What happened to that? The excess of import during the next year, what will happen to that? To whom do these reserves sold or given? During 2008-09 an amount of Rs 43,668.08 Cr was released as agricultural subsidies which grew by a staggering 39.69 % over 2007-8 and upto Dec 29, 2009, Rs 46,906.68 Cr was spent which was in excess of 7.42 % over the full years spending of 2008-9. This was the time, the Government announced time and again, food inflation going to double figures and crossing 16%. During the same period, our Planning Commission stood ground with the theory that Indias agricultural growth will be 4% and to reduce it in the last quarter to negative 0.20%.

Just to upset them, the agricultural growth turned positive and recorded 0.20% growth. Our Government talks of austerity. Government is committed to fiscal consolidation. Bringing down the fiscal deficit from 5.5%. Our Planning Commission talks of apparatus to enhance growth through paradigm change growth models. While all these are professed, there is waste, excess expenditure, unexplainable imports, poor support to Indias domestic sector which is diminishing due to excess of domination of import over countrys resources. Is this Globalization of the Indian variety? Is it classical, neo classical or modern Economics?
-o-o-o-o-o-o-oDEVELOPING COUNTRIES- Where is your

intellectual, cultural capital and institutional structures to nourish them?

Today, at the start of the second decade of the 21st Century, we

are approaching momentous changes in the global economic and hence political power structure. The resurgence of post-colonial Asia may be dated to the mid-1960s with industrialization and export-led growth in South Korea, Taiwan, Hong Kong and Singapore. The 1980s saw the rise of the miracle economies' of South-East Asia Thailand, Malaysia and Indonesia which combined export-led growth with liberalization of domestic economies. The nineties were actually a setback for emerging economies in general, and Asia in particular. The Asian Currency Crisis severely hurt the miracle economies' of S-E Asia as well as East Asia. Growth slowed in China, as well as in India, albeit for different reasons. The large burden of non-performing bank loans and fiscal deficits in many Asian economies, including ours, seemingly suggested that a pause button of indeterminate length had been pressed in the resurgence of Asia. The successful liberalization of the US economy in the 1980s coupled with enormous technological innovation in the nineties the PC, enhanced computer capability, internet and telecommunications, and biotechnology and the long economic boom, made the US the brightest star in the firmament. Europe too did well. There was enthusiasm going into the new common currency. With Eastern Europe set to enter the common market, expectations were of many years of expansion. The only Asian developed country, Japan was in crisis. Latin America ran into difficulties by the end of the decade, after having done well in the beginning. Russia defaulted in 1998, Brazil followed in 1999 and Argentina in 2001. To sum up, at the turn of the century, the West

seemed to have recovered much of the lost ground while Asia appeared to have ceded a lot of its gains. However, if some had feared that Asia was done in, that inference was misplaced. For one, there was no growth dividend'. The US after going into a recession, in what seemed to be the tail end of a normal business cycle in 2001, did not come back as strongly as expected, despite extraordinarily easy monetary and also fiscal policy. The boom in the middle of the decade in the US, as we can now see, was a product of excessive and ill-judged leverage that finally led to the global crisis. Europe too, while it did benefit from the splurge in global liquidity especially that going to East and Central Europe, however, made slow progress otherwise. On the other hand, Asian economies accelerated. While every country barring Zimbabwe and North Korea benefited from the global boom of 200207, Asia did particularly well, especially its two largest economies India and China. The global crisis of 2008-09 marks a watershed. It has left the advanced economies of the US and EU with deep wounds, the healing of which will take time. The US is running the largest budget deficits since World War II and its monetary policy is bravely trying to cope. The euro zone though affected less by the crisis, is labouring under many problems: The debt splurge by many of its smaller members, doubts about the future of the euro, the large fiscal burden in all member nations despite high rates of taxation. Finally, there is the struggle to reestablish national competitiveness while living in a monetary straitjacket. On the other hand, Asian economies, particularly, India, China, Indonesia, Malaysia, as also South Korea and others have shown signs of rapid recovery from the global crisis. In 2009 India and China had growth of 7.2% and 8.7% respectively and likely to higher in 2010. South Korea narrowly escaped contraction in 2009 and may grow by 4.7% in 2010. Japan too has done better than expected, likely to grow by 2.4% in 2010, partly due to her trade and investment relationships with the rest of Asia. In other words post-crisis, as the decade of the 2010s opens, Asian economies have rebounded and to some extent, so too some emerging economies in Latin America and Africa while western economies recuperate from the crisis and their other structural problems. A little recapitulation is useful. In 1990, the US and Euro zone had a GDP of $5.8 and $5.5 trillion respectively, while China and India were at about $0.3 trillion. This was a huge gap. It narrowed a bit by 2000 but was still very large. In 2010, the US and euro zone will have GDP of $15 trillion each. China will have one of $5.5 trillion, while India of $1.5

trillion. The gap has clearly narrowed. But what may happen in the next 10 years is truly remarkable. By 2020, China with a $15S18 trillion GDP may be as large as the Euro zone and not too far behind the US. India too should have been able to expand its economic product to about $6 trillion one third that of the euro zone. A transformation of this order has never happened so fast. Nor has it happened without war. However the potential shift in the economic centre of gravity in the decade of 2010s is likely to happen in the absence of war. The great military strategist Clausewitz famously observed that war is a continuation of politics by other means. In the absence of war, and in the face of a fundamental shift in economic power, political contention has to transcend into other forms of vigorous competition, the resolution of which is though dialogue and negotiation. This process will reflect in the interaction between the four principal players (US, EU, China & India), as they seek to defend their own interests, as also as to advance them further, which as often as not, may not be in the interest of one or more of the other parties concerned. This will be the defining challenge for the rising economic powers of Asia in this decade and in the next. However, we must remember that Western societies have over the past centuries built an enormous reservoir of intellectual and cultural capital, as well as sophisticated institutional arrangements. Call it the super-structure, if you will. Therefore, to sustain and consolidate our economic gains in this context we must make that big extra effort to build our own intellectual capital, especially so in the field of science and technology, as well as appropriate institutions.
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