Cotlook A Index - Cents/lb (Change from previous day)

15-08-2019 70.90 (Unch)

08-08-2018 97.85

08-08-2017 80.85

New York Cotton Futures (Cents/lb) As on 19.08.2019 (Change from

previous day)

Oct 2019 59.95 (+0.29)

Dec 2019 60.12 (+0.50)

Mar 2020 60.58 (+0.34)

19th August

2019

PM Economic Advisory Council: Need to set up GST Council-like body for public

spending

Govt speaking to banks about stimulus package for economy: SBI chairman

Can India learn from Vietnam how to manage export-led growth?

Large industries unable to tap rooftop solar energy

US, China seeking to revive trade talks: Trump advisor

Chinese fabric firm mulls moving to Philippines

Cotton and Yarn Futures

ZCE - Daily Data (Change from previous day)

MCX (Change from previous day)

Aug 2019 20800 (+170)

Cotton 12830 (+10) Oct 2019 19880 (-10)

Yarn 20525 (-20) Nov 2019 19570 (-10)

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2 CITI-NEWS LETTER

-------------------------------------------------------------------------------------- PM Economic Advisory Council: Need to set up GST Council-

like body for public spending

Govt speaking to banks about stimulus package for economy:

SBI chairman

Can India learn from Vietnam how to manage export-

led growth?

Large industries unable to tap rooftop solar energy

A new approach to industrial policy

Commodity importers seek cover as rupee falls

Traders body calls for boycott of Chinese goods, seeks up to

500% import duty

Most Indian cos working in China say trade war has had no

impact: Survey

View: Its the start of a structural problem, not a temporary

cyclical one

Tamil Nadu pressing for zero GST for handlooms: O S Manian

-------------------------------------------------------------------------------

US, China seeking to revive trade talks: Trump advisor

Chinese fabric firm mulls moving to Philippines

Powerloom sector faces crisis due to multiple reasons

Why the waste export ban should include textiles

Saving the environment with circular fashion

---------------------------------------------------------- ----------

NATIONAL

---------------------

GLOBAL

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3 CITI-NEWS LETTER

NATIONAL:

PM Economic Advisory Council: Need to set up GST Council-like body for

public spending

(Source: P Vaidyanathan Iyer, Indian Express, August 19, 2019)

The Prime Minister’s Office and the Finance Minister have been meeting various

stakeholders over the last week to discuss the slowdown which is adversely impacting

various sectors now.

With the economy on a continuous slide, the Prime Minister‘s Economic Advisory

Council Chairman Bibek Debroy said it is high time the government focused on

expenditure and recommended a GST Council-like mechanism for the Centre and states

to strategise on public expenditure for maximum impact.

―The key question today is whether we are on a 7% GDP growth rate trend, or a 6%

trend,‖ Debroy told The Indian Express in an interview last week. The Prime

Minister‘s Office and the Finance Minister have been meeting various stakeholders over

the last week to discuss the slowdown which is adversely impacting various sectors now.

Pointing to the phenomenal success of the GST Council as a decision-making body, he

said, ―This (GST Council) was about indirect taxes. Time has now come for a similar

body on public expenditure to do exactly what the GST Council did for taxes. This body

should decide on what should be public expenditure.‖

―There are questions within the PM EAC on whether the slowdown is ‗cyclical‘ or

‗structural‘ in nature,‖ Debroy said, but advised against widening the fiscal deficit. ―If I

just look at it from an academic point of view, I‘d probably say, yes, to expanding the

fisc. But looking at the past, the moment you open the tap, there is no controlling it.‖

Elaborating on government expenditure, Debroy said there are limits to public

expenditure because there are fiscal consolidation issues. But focused and strategic

expenditure by the Centre and states together could yield efficiency gains, he said.

Some aspects the government can address on the tax side include streamlining and

harmonisation of GST rates, and reduction in direct tax rates, the PM EAC Chairman

said. ―A lot can be done on GST. As an economist, I would argue, there should be a

single GST rate. In practice, it is impossible. No country in the world has a single GST

rate. From a pragmatic point of view, we must have three GST rates. For illustrative

purposes, say 6%, 12% and 18%. Everyone wants the 24% to come down to 18%, but no

one wants the items under 0% to come under 6%,‖ Debroy said.

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4 CITI-NEWS LETTER

On the direct tax side, he said the rates can be reduced significantly. ―But this can be

done only when both corporate and income tax exemptions are removed,‖ Debroy said.

He also advised against sectoral tax sops. ―We should not have any sector-specific

interventions. These will create distortions. Fiscal concessions to specific sectors will

complicate the tax story even further,‖ he said.

Home

Govt speaking to banks about stimulus package for economy: SBI chairman

(Source: Namarata Acharya, Business Standard, August 18, 2019)

Large number of non-performing assets (NPA) in the farm sector a worry, says Rajnish

Kumar.

The government is speaking to banks as it considers a stimulus package to revive India's

economy that has hurt credit demand in its slump, said Rajnish Kumar, chairman

of State Bank of India (SBI), in Kolkata on Sunday.

"Hopefully, with increased government spending, monsoons and festive season we will

see credit demand. Last year we saw nearly 14 per cent credit growth at SBI, and this

year we expect at least 12-14 per cent credit growth,‖ he said.

India‘s economy grew at its slowest pace in more than four years in the January-March

period, falling behind China‘s pace for the first time in nearly two years and raising the

prospect of fiscal stimulus. ―About the size of the stimulus, consultations are going on

and government is speaking all including banks,‖ said Kumar.

Banks had a large number of non-performing assets (NPA) in the farm sector lending

because of fragmented land holdings and lack of modernisation in the sector, he said.

The Pradhan Mantri Mudra Yojana (PMMY), the government's flagship credit scheme

for micro and small enterprises, too had become a source of NPAs for banks and is being

revamped, he said.

SBI registered slippages amounting Rs 16,000 crore in the April-June 2019 quarter. In

the retail sector, agricultural advances accounted for nearly 69 per cent of the total

slippages.

The total value of NPAs held by public sector banks under PMMY was close Rs 7,277.31

crore as of March 31, 2018, according to a recent written reply the government gave in

the Rajya Sabha.

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5 CITI-NEWS LETTER

"These issues are being discussed with an open mind. Once these consultations are over

we should be able to come up with a blueprint," he said.

On being asked about transmission of rate cut in terms of further MCLR reduction,

Kumar said, ―as a bank we need to strike a balance between lending rate and interest of

the depositors.‖

Also, the bank was examining the possibility of giving the opportunity to migrate from

MCLR to repo rate linked rate for home loan buyers. SBI was the first to launch a repo-

rate linked home loan scheme, effective July 2019.

Home

Can India learn from Vietnam how to manage export-led growth?

(Source: Sunil Jain, Financial Express, August 19, 2019)

As a result of this sustained growth, Vietnam’s exports, which were a mere 6% of India’s

in 1960 and 13% in 1990, managed to reach 34% in 2000 and a whopping 75% in 2018; at

this rate, within a few years, they could even outstrip India.

India‘s exports-growth appears to have picked up in July, when

they rose 2.3%, but for the last four years, it has averaged just

around 0.2% which, it turns out, was a just a third of global

trade growth in the same period; in the previous four years,

from 2010 to 2014, however, global exports grew 5.5% a year

while India‘s exports rose by 9.2% per year. This slowing of

India‘s exports—and the relatively poor growth before that—is

really bad news, given that countries like India, who have a very

small export base, should be growing many times faster than the

global average

Even China, whose exports are 7.5 times India‘s, managed to

grow at 1.5% per year in 2014-18; Vietnam, which is rapidly

emerging as an export powerhouse, taking up the slack in

markets being vacated by China, managed to grow by a

whopping 13% per year, from $150.2 bn in 2014 to $245.6 bn in

2018. As a result of this sustained growth, Vietnam‘s exports,

which were a mere 6% of India‘s in 1960 and 13% in 1990,

managed to reach 34% in 2000 and a whopping 75% in 2018; at

this rate, within a few years, they could even outstrip India.

At a time when India‘s economy is flagging, as is investment and consumption, and

rapid exports-growth is the only way out of the morass, India would do well to learn

from Vietnam. When China started vacating the market for textiles and moved on to

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6 CITI-NEWS LETTER

higher-value exports, it was countries like Vietnam and Bangladesh that made the most

of this and, today, when big electronics producers—including those producing mobile

phones—want to de-risk and move part of their production out of China, it is once again

Vietnam that is looking to take away the bulk of this.

The way that Vietnam has achieved this has been to aggressively liberalise its economy

by lowering tariffs as well as attracting foreign investments; in 1995, Vietnam joined the

Asean free trade area, it signed an FTA with the US in 2000 and in 2018, it joined the

Trans-Pacific Partnership (although without the US). Today, its tax levels are amongst

the lowest in the world and, as several top electronics companies with

manufacturing/export bases there will testify, it is willing to go more than the extra mile

to ensure investors get what they want in terms of infrastructure etc. Indeed, in 2018,

data from the Vietnam government website says that 71% of exports took place in what

is called the ―FDI sector‖; that is, by global firms setting up shop in Vietnam. As a result

of this, in 2010, textiles and shoe exports comprised 22% of Vietnam‘s exports;

traditional exports like sea food, rice, crude oil, rubber and wood comprised 26% of the

total, while electronics was a mere four percent. In 2018, the share of textiles and shoes

were down a bit to 19%, that of traditional exports was down to 10%, while electronics

including mobile phones was up to a third.

Given the tremendous opportunity posed by the US-China trade fight and the fact that

top producers want to de-risk their operations—60% of the $300 bn market in global

exports of smart-phones take place from China—this is a great opportunity for India.

But, as this newspaper has detailed earlier, Vietnam has stolen a march over India and

already accounts for over 10% of global exports of mobile phones while India‘s exports

are miniscule; though Vietnam‘s production of mobile phones was around a fourth that

of India as late as in 2010, the production levels are almost the same today though the

per unit price of Vietnamese phones is much higher Since the bulk of the smart-phone

exports are made by four or five companies—Apple and Samsung alone account for

around 60% of all smart-phone sales across the world—India‘s best bet is to ensure that

they relocate as much of their operations as possible from China. Right now, since

mobile phones are ‗assembled‘, and not really ‗manufactured‘ in India, even as phone

production rose, imports are rising to alarming levels; in the next 5-6 years, these could

be India‘s second-largest imports. Apart from the fact that Vietnam offers better quality

infrastructure, as our front-page story points out today, while corporate tax rates for

large manufacturing plants in Vietnam range from 10 to 20%—Indian rates for foreign

companies are 43.68%—some big global manufacturers have managed to get even better

deals. Given that 70-75% of global trade today takes place through ‗value chains‘

administered by multinational firms, if India isn‘t a part of this—for most manufactures,

not just mobiles or electronics—its exports can never take off.

Home

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7 CITI-NEWS LETTER

Large industries unable to tap rooftop solar energy

(Source: M Soundariya Preetha, The Hindu, August 19, 2019)

For large-scale industries, which are high tension (HT) electricity consumers, in the

State, rooftop solar energy system is yet to become attractive though Tamil Nadu has a

new solar policy.

―The solar policy has not addressed the HT consumers. Several applications submitted

during the last two years are also pending for approval with the Tamil Nadu Generation

and Distribution Corporation (Tangedco),‖ claimed A.D. Thirumoorthy, member, State

Level Renewable Energy Committee.

According to him, Tamil Nadu has just about 500 MW of solar energy installed by HT

consumers. They are mostly rooftop installations. ―The industries that want to go in for

solar energy on their premises, rooftop or on the ground, have to get a safety certificate

from the electrical inspector and Tangedco permission too. Those who installed solar

energy systems outside the industry premises, in a different location, get the permission.

But, those who want to go in for rooftop or installation on the same premises are unable

to get permission,‖ he said.

Mr. Thirumoorthy said solar energy developers in the State appealed to the government

to allow HT consumers, which are mainly industries, to install solar energy systems on

their premises. This will reduce transmission losses too.

According to Prabhu Dhamodharan, convenor of Indian Texpreneurs Federation, textile

mills are going through a tough phase and those continuing operation are able to do so

mainly because of the price advantage they get from captive wind energy generation.

Power cost constitutes 10% to 12% of the production cost for the mills. Renewable

energy for captive use helps the industry improve its competitiveness.

Punjab, Maharashtra, and Gujarat are supporting the HT industry with concessions in

power cost. However, in Tamil Nadu, the industries are facing several hurdles in getting

permission for rooftop solar projects, he said.

An industrial source added that industries that invested in solar energy and installed

panels are waiting for approval. This adds to the financial burden of the industries.

Tamil Nadu Electricty Consumers Association secretary N. Pradeep said the State

should also have a policy to promote hybrid power generation.

Home

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8 CITI-NEWS LETTER

A new approach to industrial policy

(Source: Arun Maira, The Hindu Businessline, August 18, 2019)

To make India a $5-trillion economy, policymakers must bring all the constituents of the

industrial ecosystem together

India wants to grow its economy to $5 trillion. People want jobs and their incomes to

grow. The country needs its industrial sector to evolve to absorb the millions of people

coming off agriculture, as they will, with productivity in the agricultural sector

improving.

India cannot rely only on its service sector — it needs industry and manufacturing to

grow much faster to create jobs with good incomes and to enable the economy to grow

to $5 trillion. Ergo, the country needs a good policy to grow industry at this juncture in

its economic history.

Wither industrial policy?

India had avoided framing any industrial policy after the liberalisation of its economy in

1991, because ‗industrial policy‘ had become taboo in the ‗leave it to the market‘ ideology

of the Washington Consensus, which said that any deliberate attempt by the

government to grow industry would always be counter-productive.

The only way to grow a vibrant, entrepreneurial industrial sector was for the

government to get out of the way of the unleashed animal spirit of entrepreneurs, it said,

ignoring the history of industrialisation in all countries, including the US, where

governments have nurtured industries and meddled with trade policies to foster

industrial growth.

Now, even the US, confronted with the growth of China‘s industries supported by its

government‘s policies, is feeling the need for an industry-cum-trade strategy to counter

China. India cannot avoid, any longer, the necessity for a good policy to grow its

industries.

The problem is, what sort of policy should India have — how much should it leave to the

market, and what should be the government‘s role? Any policy, and the way it is made,

must fit the system and the situation for which it is required. Therefore, one must step

back to understand the process of industrialisation.

What’s industrialisation?

Industrialisation is a process by which a large system acquires capabilities to do what it

could not do before. Japan became a global power in the automobile industry after the

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9 CITI-NEWS LETTER

Second World War, because Japanese manufacturers learned rapidly to do what they

could not do before.

Their suppliers learned too, while managers and workers within the industry were

rapidly learning and improving their skills. Alongside them, the government facilitated

the process of building capabilities in industries and learned along with them too.

Complex systems acquire capabilities they do not have when the interdependent sub-

systems within them learn to do what they could not do before. Industrialisation is a

process of a complex system and its parts learning in action together.

Beyond raw material resources, the only source of competitive advantage a nation has is

its ability to learn and improve its competitive capabilities faster than all other nations.

With a participative process of shaping industrial policy facilitated by the government,

Japan developed its steel, chemicals, and automobile industries into world-beaters, even

though it did not have any raw material resources.

Systems can be sorted into three archetypes: engineered-controlled, open-chaotic, and

complex self-adaptive. The structures within engineered systems are designed by

experts. Experts can manipulate and control the system if they understand the forces

within completely.

Technologists have designed amazing machines with which human beings have been

able to do what they could not do before — like fly to the Moon. In an engineered

system, the designer sits outside the system while designing it. This approach to

designing an industrial policy will not work, because the policymaker must be a

participant within a dynamic system, learning within it through multiple feedback loops.

The policymaker cannot be an expert sitting in an ivory tower above the system,

providing it a detailed blueprint to function. This was the fundamental problem in

India‘s approach to its industrial policy until the 1980s. Industry, which was learning,

found that the government controlled without understanding what industrialisation was

about.

The sweeping in of the ‗Washington Consensus‘ ideology of ‗government is not the

solution, it is the problem: leave it to the market‘ swung the pendulum towards the

open-chaotic systems archetype. The idea of ‗industrial policy‘ became taboo. When

many countries, including the US, began to realise by 2008 that governments must do

something to grow industries and jobs in their countries, they had to contrive other

names for what was required, such as ‗innovation policy‘ and ‗entrepreneurship policy‘.

The way forward

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10 CITI-NEWS LETTER

Unregulated markets can become chaotic, as the world realised when the financial crisis

happened. Government regulation is necessary. However, India will not want to go back

to the ‗engineered-controlled‘ model of industrial policy, which is inappropriate for a

dynamic, learning process. India should adopt the third archetype, of ‗complex self-

adaptive systems‘, which is the appropriate model for industrial growth.

Industrial policy is not a document; it is a process. It is a process of learning in action

that brings together the constituents of the industrial system.

The Indian industry is not a clean sheet upon which a policymaker can impose a policy.

India has a rich industrial ecosystem with competent industries in many sectors and

millions of large and small enterprises.

Each constituent within the system will see the system from its own perspective and will

lobby for its own interests. It is essential for the policymaker guiding the process, and

for the constituents too, to foresee the consequences of fixing any one part of the system

on the other parts, to avoid fixes that can backfire elsewhere, or later on, and harm the

system.

Inverted duty structures, which harm industry, arise when changes are made to make

life easier for one industrial sub-system but damage others. Lopsided labour reform to

make firing easier can produce shorter-term benefits, harming longer-term processes of

capability building.

India has recognised the need for an industrial policy and groundwork has been done,

with consultations with many stakeholders, both by UPA-II in the 12th Five Year Plan,

and by the previous Modi-led government.

Both times, the need for an ongoing, consultative, learning process was stated. The

government should take a bold step soon to install this process if it wants to grow

industries, create jobs, and take the Indian economy to $5 trillion and beyond.

The writer is Chairman, HelpAge International

Home

Commodity importers seek cover as rupee falls

(Source: Madhavi Sally, Economic Times, August 19, 2019)

On the NSE, the dollar-rupee futures were trading at 71.20 for August delivery and at

70.50 for September on Friday

Importers of cooking oil, pulses and other commodities are increasingly hedging their

rupee exposure as the local currency has weakened over the past week, increasing their

cost. With the market being volatile and the rupee fluctuating on an average 40-50 paise

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11 CITI-NEWS LETTER

a day to the dollar NSE 1.60 % , it is the right time to hedge currency exposure, said

Anuj Gupta, the deputy VP of commodity & currency research at Angel Broking.

―Companies use forward contract derivatives to hedge currency exchange risk, to

mitigate losses incurred due to currency price fluctuations,‖ said Gupta. On the NSE, the

dollar-rupee futures were trading at 71.20 for August delivery and at 70.50 for

September on Friday.

Gupta said that on the exchange, around 25 lakh contacts were being traded daily with

open interest (OI) at around 35 lakh contracts. The OI measures the total level of

activity in the futures market. In the near term, the rupee might trade in a range of

70.00-72.80, he said.

Rushabh Maru, a research analyst for currency and commodity at Anand Rathi Shares &

Stock Brokers, said given the state of the global and domestic economy, the rupee might

gradually move towards 73 to the dollar. ―There is a huge sell-off in domestic equities

amid FIIs outflows. The RBI has been cutting interest rates. But it may not suffice to

tackle the present slowdown in the domestic economy. Because of all these factors,

importers will hedge their currency risk,‖ he said, adding: ―On the other hand, exporters

will not hedge their exposure at current levels and will wait for 72.50-73 levels.‖ India

spends more than Rs 70,000 crore a year to import 15 million tonnes (MT) of its annual

requirement of 25 MT of edible oil. Maru said edible oil importers would continue with

their purchases to meet demand ahead of the festive season, irrespective of the rupee

movement.

Latest stocks data from solvent extractors reveal that around 19.95 lakh tonnes of

imported edible stock is being held at ports and in the pipeline, which is equal to about

32 days‘ requirement, he said. For pulses, overseas purchases may turn even more

costly, further slowing down imports, said Maru.

Atul Ganatra, the president of the Cotton Association of India, said with the rupee

depreciating 3.5% in the past 15 days, import of cotton has become costlier by Rs 1,500

per candy of 356 kg each. ―This will slow down import of cotton to India, but in the

coming season (October-September), it will help exporters. We expect the rupee to

touch 72.50

Home

Traders body calls for boycott of Chinese goods, seeks up to 500% import

duty

(Source: Economic Times, August 18, 2019)

CAIT has "given the call to boycott Chinese products to make China understand the

repercussions of supporting Pakistan".

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12 CITI-NEWS LETTER

Traders body CAIT on Sunday gave a call for the boycott of Chinese products and sought

high customs duties of up to 500 per cent on these goods as China supported Pakistan's

case on abrogation of Article 370 in Jammu and Kashmir at the UNSC. It said that while

presenting and supporting Pakistan's case on abrogation of Article 370 in United Nation

Security Council, China has placed itself on the list of probable enemies for the national

security of the country which has made citizens and trading community in particular

grossly anguished. The Confederation of All India Traders (CAIT) has "given the call to

boycott Chinese products to make China understand the repercussions of supporting

Pakistan". It added that the issue will be discussed in a national conference of traders

from all states convened by CAIT on August 29 here. "China has become habitual in

supporting Pakistan on every matter which is against India and therefore now the time

has come when we should reduce our dependence on Chinese goods it said.

Besides, CAIT has urged the government to levy customs duty from 300 to 500 per cent

on imports of Chinese goods

Home

Most Indian cos working in China say trade war has had no impact: Survey

(Source: Business Standard, August 18, 2019)

Moreover, the number of IT and BPO companies that plan to make additional

investments in China in 2019, has increased over the previous year

Most Indian companies working in China do not see significant impact of the current

trade friction involving China and the US and plan to ramp up their investments this

year, according to a survey.

According to the survey by industry body Confederation of Indian Industry (CII) and

research and analytics company Evalueserve, 98 per cent of the respondents plan to

make some investments in China in 2019, with two-fifths considering ramping up their

investments over 2018.

Moreover, the number of IT and BPO companies that plan to make additional

investments in China in 2019, has increased over the previous year.

The survey titled 'Business Climate for Indian Companies in China' that drew responses

from 57 Indian companies in China, noted that 74 per cent of the companies said trade

friction involving China and the US has had no impact on their business.

"The survey of Indian companies working in China shows cautious optimism and

confidence as compared to the previous survey last year. Most companies do not see

significant impact of the current trade situation between the US and China on their

business," said CII Director General Chandrajit Banerjee.

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13 CITI-NEWS LETTER

The survey pointed out that two thirds of the companies said that their business was

"very profitable or profitable" in 2018, with higher earnings before interest and taxes

(EBIT) than in 2017.

Of the surveyed companies, 30 per cent generated revenues higher than CNY 100

million (approx Rs 101 crore) from China in 2018, and four of five respondents stated

that their revenues in 2018 were higher than in the previous year, it added.

According to the survey, the largest proportion, 72 per cent, of Indian companies are

invested in Shanghai, the most popular destination. Besides, 72 per cent of the

respondents have up to 50 employees and hire more than half the workforce locally.

As per the survey, while half the companies felt China's innovation is more favourable

than the worldwide average, rising labour cost, finding and retaining talent and stricter

regulations were the top cited issues.

Quality of products and services continues to be a key success factor in China, it added.

Home

View: Its the start of a structural problem, not a temporary cyclical one

(Source: Omkar Goswami, Economic Times, August 19, 2019)

Our manufacturing is jammed at a long-term low of 15% of GDP. Domestic

demand has also slowed down.

After going through three successive quarters of slowdown in India, and with the

prospects of that continuing for some more, every thinking economist is asking one

question: is this cyclical or structural? In other words, is it just a series of bad quarters

that will right itself soon enough with adequate monetary and credit stimulus? Or is it

something more serious one that is beyond the ken of repo rate-led monetary

interventions? Whatever I have learnt over four decades of economics, and all that I see

in boardrooms of companies spanning different industries, suggest that we may have

got into a structural impasse. Getting out of it will need interventions that go well

beyond the realms of reducing the repo rate.

Make More in India

Let‘s start with manufacturing. At 15%, India‘s share of manufacturing to GDP has

remained persistently flat over a long period. Compare that with Malaysia at 22%, South

Korea and Thailand at 27%, China at 29% over a much higher GDP, and even

Bangladesh at 17%. It seems that ‗Made in India‘ is about commissioning dreadful

statues of gearcogged lions at key cross-roads of our major cities. It has done nothing to

increase manufacturing in our GDP. There‘s worse. Not only has there been no rise in

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14 CITI-NEWS LETTER

the share of manufacturing, but it has also shrunk across key sectors. Over the last six

months up to May 2019, textiles de-grew by 1% amonth, electrical equipment didn‘t

grow at all, rubber and plastic products slumped by over 3%, the output of fabricated

metals as well as paper crashed by over 10% a month, and that of motor vehicles

plummeted by over 5% a month. Matters have worsened in June 2019. The index of

industrial production hit a four-month low with 15 of the 23 industry groups showing

negative growth.

Next question: how much are we investing to create future income? Today, our gross

fixed capital formation is between 31% and 28% of GDP, depending on whether it is

measured in constant or current prices. There being no significant productivity

increases, these rates are wholly insufficient to sustain consistent GDP growth in the

region of 7.5%, let aside 8%. Compared to our capital formation of around 31% of GDP,

it was over 34% in Indonesia, 44% in China, and over 31% and rising in Bangladesh. In

the last two years, I have seen no additional investment proposals in any boardroom.

Now for some longer-term issues. In the last 50 years, no economically significant

nation has grown rapidly without investing in the quality of its workforce — something

that becomes supremely important in an era of rapid computerisation, networking and

artificial intelligence. Where do we stand here? Awfully. In 2011, the literacy rate for

Indians of 18-24 years was 86%. Compare that with 97% for China in its period of

highest growth, 99% for Indonesia, and 98% for Malaysia and Thailand. It is worse for

women of same age group: 82% for India, 95% for China, 99% for Indonesia, and 98%

for Malaysia as well as Thailand. No Southeast Asianand East Asian country has

discriminated against girls in education. We have, and continue to do so. Given this

educational disparity, it isn‘t surprising that India has a very low share of women in the

workforce —which itself is fast declining over time. In 2005, women accounted for over

26% of the workforce. This has steadily reduced to 22% in 2018. In comparison, the

share in Bangladesh in 2018 was over 30%, China 44%; Indonesia 39%, Malaysia 38%,

and Thailand above 45%

As You Sew, So Shall You Rip

On to exports. Between April 2011and June 2019, our exports have been pretty much

flat — oscillating around $25 billion a month. China, with five times our GDP, exports

almost eight times as much. South Korea, at 60% of our GDP, exports twice as much.

Malaysia and Thailand, with less than a fifth of our GDP, export over three-quarters as

much as we do. Simply put, notwithstanding IT, we have failed as an exporting nation. A

persistently overvalued real exchange rate has also played its role. The scenario is

depressing. Our manufacturing is jammed at a longterm low of 15% of GDP and going

through a grim phase. Domestic demand has seriously slowed down. There is no vent

through greater exports. Having ignored education for decades, we have millions of

young people without the skills for tomorrow‘s employment. We are persistently poor in

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15 CITI-NEWS LETTER

employing women. To me, it looks like the beginning of a serious structural problem,

not a temporary cyclical one. It requires serious kick-starting with a severely

constrained exchequer. So, it must go back to banking, and creating sufficient liquidity

with affordable credit flows to key sectors. I can think of four: low-cost housing, roads

and highways, rural infrastructure, and textiles. The first three have high employment

potential while creating demand for core industries, and the fourth creates an essential

product for the people. Each of these can get a fillip through specific credit flows

catalysed by accommodative policies of the Reserve Bank of India. These will not solve

the longer-term structural problem, but may mitigate some of it, while helping a cyclical

uptick. Having said that, I fear that the days of 7% growth are over. We may have to now

live with 6% — heaven forbids, perhaps even lower. As you sow…

The writer is chairman, Corporate and Economic Research Group (CERG) Advisory

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Tamil Nadu pressing for zero GST for handlooms: O S Manian

(Source: Deccan Chronicle, August 19, 2019)

We are making every effort to completely exempt handlooms from the purview of GST:

Manian.

Tamil Nadu is making efforts to convince the Central government to fully exempt

handloom textiles from the purview of GST, just as the Khadi sector has been exempted

in the weavers‘ interests, the State minister for Handlooms and Textiles, Mr. O.S.

Manian said on Sunday.

Speaking to reporters after participating in a private function here, he said though the

GST rate for handloom sector has been reduced from 12 per cent to five per cent in a bid

to make handloom weaving sustainable for the vast majority of poor weavers under the

cooperative sector, ―we are making every effort to completely exempt handlooms from

the purview of GST.‖ Mr. Manian said it was lower GST rate which was helping the

garment and hosiery sector in Tirupur to achieve an annual sales turnover of Rs 40,000

crore. Tamil Nadu has 1,081 weavers‘ cooperative societies in all, the minister said,

adding, with a view to encourage the handloom sector several concessions were like

interest subsidy continued to be extended

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16 CITI-NEWS LETTER

GLOBAL

US, China seeking to revive trade talks: Trump advisor

(Source: News Nation, August 19, 2019)

US-China negotiations began in earnest in January and seemed at first to make

substantial progress, raising hopes that a trade deal could be rapidly reached

Aiming to end trade war, Washington and Beijing are working actively to revive

negotiations, Donald Trump‘s chief economic advisor said on Sunday. World financial

markets have been on edge amid a series of signs pointing to a slowing of the global

economy. The US-China negotiations began in earnest in January and seemed at first to

make substantial progress, raising hopes that a trade deal could be rapidly reached.

If teleconferences between both sides‘ deputies pan out in the next 10 days ―and we can

have a substantive renewal of negotiations,‖ Larry Kudlow said on ―Fox News Sunday,‖

―then we are planning to have China come to the USA and meet with our principals to

continue the negotiations.‖

That left it uncertain, however, whether a Chinese delegation would be coming to

Washington next month, as a White House spokesperson predicted after US Trade

Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin left a round

of trade talks in Shanghai in July.

Earlier, US President Donald Trump on Saturday had said, China wants to settle trade

issues with America as it is experiencing the ―worst year‖ in decades, but reiterated that

he was not ready for a deal. The US has imposed 25 per cent additional import tariffs on

more than USD 250 billion worth of Chinese products. An additional 10 per cent import

duties on remaining nearly USD 300 billion worth of Chinese products is all set to come

into effect on September 1. ―China wants to settle this deal. They‘ve had the worst year

that they‘ve had in many, many decades. It‘s getting only worse. Thousands of

companies are leaving China. They would like to make a deal. I‘m not ready to make a

deal,‖ Trump told reporters at the White House.

Trade talks between the US and China started last November. But after more than a

dozen rounds of talks in both Beijing and Washington DC, the talks have not yielded any

desired result.

As per the initial decision taken by Trump and his Chinese counterpart Xi Jinping last

November, the two countries were scheduled to arrive at a deal in 100 days.

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17 CITI-NEWS LETTER

Chinese fabric firm mulls moving to Philippines

(Source: Louella Desiderio, The Philippine Star, August 19,2019)

A Chinese firm engaged in the manufacture of yarns and fabric is looking to set up shop

in the Philippines, the Department of Trade and Industry (DTI) said.

Trade Secretary Ramon Lopez met with representatives from Texhong Textile Group

Ltd. in China last week and the company discussed its interest to invest in the

Philippines.

Lopez said the company is currently in the study phase and has yet to finalize details

including the amount of investment to be made.

―Nothing final yet as to timing. But they‘re serious,‖ he said.

Texhong Textile is among the biggest suppliers of cotton textile in the world.

It is engaged mainly in the production and distribution of quality yarn, grey fabrics and

garments fabrics of high-value added core-spun yarn and fashion cotton textile.

At present, it serves over 3,000 customers in China and overseas.

The firm has operations in China and Vietnam, and also has a sales network across

China, South Korea, Hong Kong and Bangladesh.

The Philippines expects to benefit from the investment, when it pushes through, as the

country wants to revive the garments and textile industry.

Considered as among the top performing sectors in the 1990s, the Philippines‘ garments

and textile sector has been challenged, leading to closure of some factories and

reduction of jobs, after the World Trade Organization put an end to the quota system

which allowed the country to export garments and textiles at preferential tariffs in 2005.

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Powerloom sector faces crisis due to multiple reasons

(Source: Nadeem Shah, The News, August 18, 2019)

The powerloom industry is an important part of textile industry in Multan, but entire

sector is facing crisis due to continuous inflation, increased rates of energy and gas and

rupee depreciation, which has left the powerloom workers jobless, The News has learnt.

Sixty per cent powerlooms have been closed in Multan. The export of loom products has

been reduced to 50pc depriving the country from heavy foreign exchange after failing to

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18 CITI-NEWS LETTER

meet the cost of production, powerloom workers said. The local powerloom industry

entertains export orders from United States, Germany, Middle East and Russian States.

The hot shawls, kitchen clothe items, Lungi and Romal are the products, which are

popular in US, Germany and Middle East, but almost export has been suspended due to

heavy taxes.

The increased taxes on import of yarn, regulatory duty and customs duty running as

high as 17pc in February last are one of the reasons behind crises. The government

imposed an overwhelming 36pc duty on polyester imports some months ago, making

matters worse for the industrial sector.

At least 100,000 powerlooms are functioning in 40 localities in Multan while 500,000

workers are associated with the industry. The workers deliver work in three shifts in 24

hours a few months back, Now one shift has been closed due to increased power and gas

tariffs, rendering the workers jobless.

Talking to The News, All Pakistan Powerloom Association president Khaliq Qandil

Ansari said that heavy taxes and depreciation of rupee had reduced export.

The country had been involved in powerloom products‘ exports worth $36 billion, he

told.

The export had reduced to $22 billion in the PML-N rule, he added. It further went

down to $15 billion in this regime, he lamented. Currently, the country was exporting

loom products only worth $15 billion, he maintained.

He said that under the weight of such heavy taxes, it had become difficult to continue

the powerloom operations. He said that ex-PM Nawaz Sharif had allocated 3.40pc funds

for the relief of the industry, but the present government had abolished it,

overburdening the entire sector, he infomed.

The government had increased power tariff from Rs 10 per electricity unit to Rs 24.5 per

unit, which was beyond the cost of production and matchless to expenditures, he

continued. The powerloom industry depends upon dying process for refining piece of

cloth and the dying process was run on gas but the government had increased gas tariff

to 186pc, he maintained.

He said that production cost, wages and rising taxes caught factory owners off guard as

they now had to pay motor tax, professional tax, property tax, civil defense and social

security fees, which heavily cut into profitability. By November 2018, factories began

shutting down, a trend that was still ongoing, he told.

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19 CITI-NEWS LETTER

The powerloom workers complained on complex tax system, which had spread

confusion among the illiterate workers, he added. The powerloom owners were ready to

pay taxes but complex process was a key hurdle, he added.

Akram Ansari, who works in a powerloom unit at Sharifpura, said that the workers

associated with the powerloom sector had started losing their jobs. A majority of

powerloom workers did not know any other craft, he lamented. They have little

knowledge where to go next, he added.

He said that even the workers who still had jobs were finding it impossible to make ends

meet. They were penniless, deprived from bread and butter, and unable to get groceries

on credit, he continued.

They pay shopkeepers when they get money and many have had to sell their belongings

to stay afloat, he maintained. Khaliq Qandil Ansari appealed to the government to

announce a relief package for the dying powerloom industry.

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Why the waste export ban should include textiles

(Source: Adrian Jones, Inside Retail Australia, August 19, 2019)

The Prime Minister‘s recent announcement of a $20 million fund to grow Australia‘s

recycling industry and ban the export of plastic, paper, glass and tyres has generally

been seen as a positive initiative to combat our poor track record in recycling.

What struck me as missing from the discussion was any mention of textile waste.

Neither the exporting of textile waste nor textile recycling in Australia was included in

any of the fanfare.

Despite the growing concern in this space, unlike glass and plastic, we do not measure

these figures accurately across the country.

For me, this explains why the government does not talk about it; the old management

rule of ‗what gets measured, gets managed‘ clearly applies to textile waste. If it‘s not

measured, it can‘t be managed.

I believe this is driven by the personal relationship we have with our clothes. Would you

take your ‗beautiful‘ drink bottle collection, which contains memories of friends and

great times, and leave them with a charity store to sell, so someone else can appreciate

them?

No, of course not. They would be disposed of properly in a yellow top bin because they

are plastic, and plastic is bad, and plastic hurts the planet!

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20 CITI-NEWS LETTER

Yet, more than 65 per cent of the world‘s clothing is made out of PET, or polyester,

which is exactly the same material as a drink bottle. And when our clothes go into the

bin, or landfill, they have exactly the same environmental impact as burying a drink

bottle.

Last year, the retail sector produced 50 million tonnes of polyester for garments. That‘s

50 million tonnes of the same material that is used for drink bottles, and only 13 per

cent of that was recycled, and only 1 per cent of that was chemically recycled back into

reusable polyester. The rest was burnt or buried.

This is a clear sign that we still, even in 2019, have little knowledge of what goes into our

garments, and our belief that they do less damage than plastic bottles is misguided.

But if we did know this, would we allow our textiles to end up on landfill or would we

take different decisions about recycling our textiles? Would we take a stronger view of

not allowing textile exports for somebody else‘s landfill? I think we probably would.

But let‘s return to the Prime Minister‘s announcement. The government can no longer

be a quiet observer regarding the issue of textile waste, as it is growing relentlessly and

causing massive harm to the land, air and ocean.

France recently passed laws banning supermarkets from disposing of unsold food, and it

is reviewing extending this to excess clothing and electronics.

While this action may feel ‗heavy handed‘, there is increasing frustration at the lack of

product stewardship in relationship to textile waste. No one appears to own the

problem; we just pass it from retailer to consumer to charity to exporter to landfill. Who

pays for this? Who takes accountability for the problem?

I would encourage the Australian government to continue to drive the right behaviour in

the whole recycling space, but with particular reference to textiles. To do this, they need

to:

Measure: Treat textile waste with the same seriousness as plastic, as it is the same

thing, and start to gather accurate data on what is disposed of, where to and from

whom?

Legislate: Extend and enforce mandatory government procurement of recycled

polyester. The government need to lead by example by insisting that its own

departments procure locally produced recycled polyester from domestic textile waste.

Introduce textile kerbside collection so textiles can be sorted and reprocessed before

they enter landfill.

Innovate: Extend and simplify R&D legislation and innovation grants that allow

Australian retailers and startups in the textile recycling sector to develop innovative and

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21 CITI-NEWS LETTER

environmentally sustainable solutions to scale and quickly. The government needs to

become more entrepreneur-friendly and innovation-focussed and needs to encourage

the retail sector to take some more risks and be more aware of its long-term footprint.

One idea is to use the landfill levy to directly support waste reduction grants. The days of

not recognising textile waste and not treating it as seriously as plastic, paper, glass and

tyre waste are long past us.

It‘s time to ban textile waste exports and build a more vibrant textile recycling industry

in Australia – and this needs to be led by the retail sector.

Adrian Jones is the co-founder of BlockTexx.

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Saving the environment with circular fashion

(Source: Liyana Hasnan, The ASEAN Post, August 18, 2019)

The fashion industry‘s desire to be on-trend drives its business operations by reducing

collection periods and accelerating inventory turns. But high levels of consumption also

mean a high level of waste. The younger generation is now demanding that companies

work towards ethical practices, sustainable products and a transparent value chain.

According to a 2018 report by Re:newcell titled

‗We make fashion sustainable,‘ 88 percent of

trendsetters and consumers think that it is

important that fashion brands tackle

environmental issues.

Barely worn, rarely recycled

After the oil industry, fashion is the second

most polluting industry globally. According to a

2017 report by the Ellen MacArthur

Foundation, titled ‗A new textiles economy:

Redesigning fashion‘s future,‘ every second, the

equivalent of one garbage truck of textiles is

landfilled or burned. The report estimates a

value of US$500 billion is lost every year due to

clothing being barely worn and rarely recycled.

Currently, the industry accounts for 10 percent of carbon emissions, more than the

shipping and aviation industries combined. As textile waste decomposes it releases

harmful greenhouse gases (GHG) that contribute to global warming, while dyes and

chemicals in the fabric will leach into the soil contaminating rivers and waterways.

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22 CITI-NEWS LETTER

Without changes to how textiles and clothing are produced, used and recycled, the

industry will use up a quarter of the world‘s carbon budget, by 2050.

Polyester, the second most common material used for clothing is derived from

petroleum and textile production uses around 93 billion cubic metres of water annually.

This huge amount of water is especially dangerous for drought-prone countries like

Vietnam, which is among the world‘s largest exporters of textiles and garments. The

World Trade Organization‘s (WTO) Statistic Review in 2017, reports that clothing

exports from Vietnam to be worth US$27 billion, followed by Indonesia at US$8 billion

and Cambodia at US$7 billion.

To reduce the environmental impact of fashion, some companies have responded by

using recycled waste to make their fabrics, clothing take-back programmes and textile

recycling innovations. And some are also working towards the goal of a circular

economy or ‗circular fashion.‘

Cirircular fashion is a term coined by Dr Anna Brismar, head of Swedish consultancy

firm, Green Strategy. According to Dr Brismar, circular fashion refers to ―clothes, shoes

or accessories that are designed, sourced, produced and provided with the intention to

be used and circulated responsibly and effectively in society for as long as possible in

their most valuable form, and hereafter returned safely to the biosphere when no longer

of human use.‖

The Ellen MacArthur Foundation bases circular fashion on three principles: design out

waste and pollution, keep products and materials in use and regenerate natural

systems.

In essence, a circular economy for fashion implies that all materials and products are

used for as long as possible, in an environmentally safe manner. Fashion products

should be designed with high longevity, resource efficiency, non-toxicity,

biodegradability, recyclability and good ethics in mind. Nearshoring – the practice of

transferring operations to a nearby country – and automation could be important

enablers in achieving a circular value chain.

In circular fashion, waste is another form of resource. If unfit for recycling, the

biological material should be composted to become nutrients for plants and other living

organisms in the ecosystem. Big Japanese and Swedish fast fashion brands, Uniqlo and

H&M, are leading the recycling movement where shoppers can drop off textiles and

clothing that they no longer use to be recycled. H&M has also pledged to use 100 percent

recycled or sustainably sourced materials by 2030.

Raising awareness

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23 CITI-NEWS LETTER

There are a growing number of companies in Southeast Asia exploring the potential of

circular fashion. Singapore-based Style Theory is a fashion rental service that allows

consumers to rent a dress, wear it to an event and return it later, hassle-free.

MoreLoop Thailand, a company created by entrepreneurs, Amm and Amorpol, aims to

promote the use of deadstock fabric through connecting factories with buyers for their

waste fabric.

Kloth Cares in Malaysia initiated its fabric recycling movement in 2016, with the theme

‗Keeping Fabrics Out of Landfills‘. They estimated that Malaysians produce almost

2,000 tonnes of textile waste a day. By 2017, they collected over 18,000 kilograms (kg)

of various types of fabric. They are now aiming to collect 188,888 kg of fabric by the end

of 2019.

Another initiative is the Fashion Revolution which is a global movement aimed at

raising awareness of the fashion industry‘s most pressing issues. The movement now

has coordinators in nine Southeast Asian countries, providing a rallying point for those

who are passionate in growing the effort.

Malaysian coordinator for Fashion Revolution, Sasibai Kimis, said that ―based on

popular media coverage, it does seem like there is greater consumer awareness on the

issues of social justice in the garment sector.‖ But she feels that public awareness of

ethical fashion issues is still in its infancy in Malaysia. ―Most producers, designers, and

consumers have not even been exposed to the idea of questioning who made their

clothes and under what conditions.‖

Fashion doesn‘t have to be resource-intensive, wasteful and waste-generating.

Collaboration among influential players such as big brands, fast fashion retailers,

designers and manufacturers are key in the push towards circular fashion.

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