Daily Editorial Analysis for 6th February 2020

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Government has lifted a duty that polyester makers paid on a chemical

Paper: II

For Prelims: Anti-dumping duty.

For Mains: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Context of News:

  • During Budget speech  of 2020, Finance Minister announced of abolishing an anti-dumping duty that was levied on imports of a chemical called PTA. Domestic manufacturers of polyester have called the move a huge relief for the industry, claiming they had been fighting to remove the duty for four-and-a-half years.

Anti-dumping duty:

  • An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. Dumping is a process where a company exports a product at a price lower than the price it normally charges in its own home market
  • Anti-dumping and anti-subsidies & countervailing measures in India are administered by the Directorate General of Anti-dumping and Allied Duties (DGAD) functioning in the Dept. of Commerce in the Ministry of Commerce and Industry and the same is headed by the “Designated Authority”. Such duty is finally imposed/levied by a Notification of the Ministry of Finance. Thus, while the Department of Commerce recommends the Anti-dumping duty, it is the Ministry of Finance, which levies such duty.

About Purified Terephthalic Acid (PTA):

  • Purified Terephthalic Acid (PTA) is a crucial raw material used to make various products, including polyester fabrics. PTA makes up for around 70-80% of a polyester product and is, therefore, important to those involved in the manufacture of man-made fabrics or their components, according to industry executives.
  • This includes products like polyester staple fibre and spun yarn. Our cushions and sofas may have polyester staple fibre fillings. Some sportswear, swimsuits, dresses, trousers, curtains, sofa covers, jackets, car seat covers and bed sheets have a certain proportion of polyester in them.

What led to the government decision?

  • Finance Minister said: “That particular product (PTA) is a raw material for many of the industries. There has been persistent demand that they should be allowed to source that particular product at an affordable rate, even if it means importing it. Easy availability of this “critical input” at competitive prices was desirable to unlock “immense” potential in the textile sector, seen as a “significant” employment generator.
  • The duty had meant importers were paying an extra $27-$160 for every 1,000 kg of PTA that they wanted to import from countries like China, Taiwan, Malaysia, Indonesia, Iran, Korea and Thailand. Removing the duty will allow PTA users to source from international markets and may make it as much as $30 per 1,000 kg cheaper than now, according to industry executives.

Why was it imposed in the first place?

  • The anti-dumping duty on PTA was imposed in 2013. The companies, which submitted that they accounted for over 50% of the domestic PTA industry, had argued that some countries had been exporting the product to India at prices lower than its value in their own domestic markets. This dumping of PTA into the Indian market had a “significant” adverse impact on the domestic industry, they argued.

Why was the move controversial?

  • Companies using PTA to manufacture polyester products claimed that the move went against the government’s vision of making the textiles sector a globally competitive industry. According to them, the move left them with limited domestic suppliers of PTA. The companies had alleged that the product’s cost had become more expensive domestically, which made their own products pricier and less attractive for their domestic and international buyers. This had led to a drop in exports.
  • On top of this, the domestic industry had argued that domestic PTA producers had not only been unable to ramp up capacity to cater to demand for the product, shutdowns of their manufacturing facilities once a year for maintenance purposes had also led to shortages of the raw material. PTA users claim that they had not been manufacturing as much polyester as they were capable of, operating at 70% of their capacity at any given time.

 


India Eying 5 billion dollar defence exports in next 5 years

Paper: III

For Prelims: DefExpo.

For Mains: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context of News:

  • Prime Minister recently projected India as a defence manufacturing hub of the future and said it aims to achieve a defence export target of US$ 5 billion in the next five year.

DefExpo:

  • Defence Exhibition Organisation is an autonomous organisation of the Indian Government established in 1981.The agency is responsible for organising international exhibitions such as DEFEXPO and Indian participation at overseas exhibitions. DefExpo2020 is being held in Lucknow, Uttar Pradesh from February 5th to 8th.
  • DefExpo-2020 is one of the largest events of its kind is being held for the first time in Lucknow, Uttar Pradesh. The main theme of the DefExpo India- 2020 is ‘India: The Emerging Defence Manufacturing Hub’ and the focus will be on ‘Digital Transformation of Defence’.

Our Defense Industrial Policy:

  • India has made rapid strides in defence technology in recent past and reached a stage of self-reliance. The objective was to have thrust in indigenous production and exploring possibilities of exports to other developing nations that may look forward to supplies from India.
  • In spite of the potential the country had in defence production, in the form of resource capability, know-how and technical expertise, but due to lack of clear policy had prevented its full exploitation. One can assume that our defence industrial policy broadly consists of the following-
  1. Maximization of indigenous production.
  2. Licence production of that equipment’s which are available and can be obtained from abroad.
  3. Direct procurement of that equipment’s not covered above, but considered essential for ensuring the security.

Challenges of Increasing Defence Export:

  • A closer examination of our defence policy would reveal that production under license did not help in obtaining the desired technical know-how for subsequent up gradation and further technological innovations. Also, such arrangements may not be the proven mechanism of transfer of technology.
  • Since the defence technology needs long term investment, its obsolescence is high with low economies of scale. Hence the policy of maximizing indigenous production without well supported R&D policy back-up may not bring tangible results. Therefore, the ultimate defence industrial policy should aim at fostering the defence exports without which the economic base of the defence industry would be difficult to sustain in the present competitive environment.
  • Defence exports supports “defence diplomacy” and in some countries may act as a key enabling activity for a bilateral defence relationship. This also contributes to building local operational capabilities and therefore enhances inter-operability with our own forces, especially during UN-sponsored peacekeeping missions.
  • If we go into a country for exports and fail to deliver what is expected, we are unlikely to be considered for many years thereafter. Any new approach will be met with the comment that “We evaluate your product and which did not meet our requirements”. So an unsuccessful bid effectively ‘poisons the well’ for years to come.
  • Given that we have only one shot at each country, we must ensure that our offering has the maximum chance of being accepted. This means finding out as much as possible about what the customer would wish for – either via agents or by our diplomatic missions abroad. We must also be prepared to tailor our products to suit the customer’s requirements.

Suggestive Measures:

  • A stable macro-economic and political environment.
  • Low cost of manufacture.
  • Transparent business environment which encourages fair competition.
  • Government as facilitator for defence exports to friendly countries (with active assistance from Indian Diplomatic Missions abroad and having suitable clauses incorporated in the line of credit given to other countries).
  • Increased FDI limit in the defence sector (a foreign investor is expected to invest resources presently in a venture without any significant control, capacity /product constraints and with no purchase guarantee and where preference may be accorded to the local PSUs- perhaps our policy need a review).
  • There is also a need to draw list of dual use technologies for these not to be exported in the over-all national interest. The national security interest should be the dominant factor in determining the export of critical technologies.
  • The other objective of the defence export policy should be to respond more expeditiously to the military equipment needs of our friendly countries.

Conclusion

  • India’s defence industrial policy seems to be short of its objective to boost defence exports. As, the viable industrial base need to be sustained both for economic and technological requirements, exports are an essential element of the overall defence industrial policy. Our strategic depth in defence production also can be increased by offering internationally competitive products through the well-defined policy objective of defence exports / offsets.

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