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Indo-Pak trade embargo has hit Punjab’s economy – The Tribune India

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Ranjit Singh Ghuman

Professor of Economics, CRRID, Chandigarh

Though trade is an engine of economic growth, Indo-Pak trade also needs to be understood in its strategic politico-economic importance for both neighbouring countries. The relevance of the land route trade through the ICP-Attari, too, needs to be appreciated in this vein. Eventually, it has the potentialities to provide trade access to the Central Asia and Middle East, besides paving the way for developing friendly relations with neighbours, so important for India’s aspirations of becoming a superpower. Both countries should act and behave in a responsible manner and keeping in view the larger interests of their citizens, they should resume trade at the earliest possible, notwithstanding their political animosity.

The strengthening of trade has huge potential for growth and employment not only for Punjab (border and landlocked state) but also for the north-west India. It is equally true for Pakistan’s Punjab.

Immediately after Independence, India and Pakistan had a huge stake in each other’s trade. However, over time, their bilateral trade witnessed a drastic decline, mainly because of the fear psychosis. Their trade relations have always been subject to a faceoff between economic rationality and politico-security rationality and the latter has always been the deciding factor.

The nine-year trade embargo, driven by the three-week war in 1965, supports such a perception. In the process, they lost an opportunity to reap the benefits of their huge trade potentials. The current trade embargo — virtual embargo in February 2019 when India imposed a 200 per cent customs duty and Pakistan imposed a trade embargo in August 2019 — is also a manifestation of their hostile political relations.

According to a World Bank report (2018), the bilateral annual trade potential between India and Pakistan is to the tune of $37 billion. In my PhD thesis (1985) on Indo-Pak trade, I estimated that in 1995, their bilateral trade should have been around $7 billion. However, their actual trade was just around $2.56 billion in 2018-19. Around 25 per cent of it is taking place through the ICP-Attari. Just imagine how much gains would have been there even if half of the World Bank estimated trade-potential could have been realised.

Paradoxically, informal trade between the two nations has always been there despite the trade embargoes — often via other countries, such as the UAE. The border and landlocked states, such as Punjab, have always been the worst sufferers in such a scenario as trade originating from Punjab and its neighbouring states becomes economically unviable as compared to the states having proximity to sea ports.

Exports originating from Punjab can reach Pakistan — through ICP-Attari — in much less time and at a much lower transport and trans-shipment costs as compared to the sea ports and via a third country. The same is applicable to imports from Pakistan.

A study by the Centre for Research in Rural and Industrial Development (CRRID), completed in August 2020, revealed that the current trade embargo has had a significant adverse impact on Punjab’s economy. To disseminate the findings, we organised a webinar on September 14, in which 13 panellists comprising eminent scholars, diplomats, industrialists, exporters/importers from India and Pakistan expressed their views. Besides, about 75 other participants from the academia, civil society, traders and students attended the webinar. All panellists and participants advocated that the adverse political relations should not come in the way of normal trade relations as the latter can, rather, help normalise political ties.

We were expecting active participation of MLAs and MPs of Punjab as 41 MLAs and all 20 MPs were invited to the webinar, but no one, except one MLA, responded. Their presence at the webinar would have sent a positive message to the stakeholders, besides empowering them to formulate a collective and affirmative strategy to prevail upon the Union Government.

Our field study revealed that Punjab (border and landlocked state) and its stakeholders (exporters, importers, manufacturers, truck operators, porters, roadside eateries, filling stations, weighing bridges, retailers and wholesalers, private schools, health clinics, repair shops, auto-dealers and liquor shops, tea and beverages etc) have suffered huge losses in income and employment due to the closure of ICP-Attari for trade.

Entrepreneurs, truck owners and traders are unable to repay the installments of loans. A large number of truck owners had to sell their trucks at a much lower price to repay the loans and many trucks are lying idle and getting depreciated. The parents had to withdraw children from private schools, the seriously ill people are suffering for want of treatment, and many are facing mild to serious depression.

Our estimates have revealed that the above-mentioned service providers just in Amritsar district have suffered an income loss of about Rs 152 crore during the last 18 months of trade curbs and embargo. Exporters and importers have suffered an income loss of Rs 1,178 crore during the same period. Government agencies — Customs, plant protection, quarantine storage department and Central Warehousing Corporation — also lost revenues of about Rs 774 crore during the same period.

Based on these moderate estimates, the total income loss comes out to be Rs 2,104 crore during the last 18 months of trade curbs and embargo. This, however, does not include the financial loss to the manufacturers-cum-exporters and truck owners whose investment has been rendered idle, besides maintenance cost. Leaving aside the government revenue, most of the income loss is to the stakeholders in Punjab. The consequent operation of inverse-multiplier is aggravating the losses.

Some small-scale manufacturers of agricultural implements in the Malwa region of Punjab had to forego the export of straw reapers to Pakistan — worth Rs 60 crore per annum, with a huge potential in future as the product is in high demand — because of the trade embargo. Exporters of cotton (Nahar Spinning Mills and Vardhman Group) are also suffering from an unused capacity of specially designed spindles of particular counts, suiting the requirements of Pakistan importers.

Direct employment of nearly 12,000 workers (including 2,500 porters, 1,000 drivers and cleaners), in addition to a huge indirect employment, have gone because of the trade curbs. Thousands of families have lost their livelihood. Needless to say, the Covid-19-driven lockdown must have pushed them into a more vulnerable situation.

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Japan raises view on demand, but says economy in severe situation – SaltWire Network

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By Daniel Leussink

TOKYO (Reuters) – Japan’s government upgraded its view on consumption in a monthly report in October on stronger demand for electronics and higher travel spending, but cautioned broader economic conditions remained severe due to the coronavirus pandemic.

Authorities maintained their assessment that the world’s third-largest economy was showing signs of picking up from the fallout of COVID-19, which included a hit to Japan’s exports from a slump in global demand.

“The Japanese economy remains in a severe situation due to the novel coronavirus, but it is showing signs of picking up,” the government said in its October economic report.

The economy suffered its worst postwar contraction in the second quarter and analysts expect any rebound to be modest.

The government already has announced $2.2 trillion in economic stimulus in response to the virus crisis, and analysts polled by Reuters said it should compile a third extra budget for the current fiscal year.

The government said the impact from policy measures at home and improvement in economic activity overseas supported hopes for a continued rebound in the economy.

But it also flagged the risk that coronavirus infections could further weigh on domestic and overseas economies.

While many countries eased coronavirus restrictions earlier this year, some have had to resume curbs as they face a second wave of infections.

Japan’s government upgraded its view on private consumption for the first time in seven months due to more robust domestic demand for household electronics and higher nationwide hotel occupancy rates, especially in Hokkaido in northern Japan.

“It’s very encouraging that consumption is picking up,” Economy Minister Yasutoshi Nishimura said at a news conference after the cabinet approved the report.

“While capital spending, exports, production and employment are improving, it of course can’t be said (economic conditions) have completely recovered so the overall assessment was left unchanged,” he said.

The government stuck to its assessment that exports are picking up, according to the report.

But it downgraded its view on imports for the first time in seven months due to relatively weak shipments from the United States and the Asian region, a Cabinet Office official said.

The government’s assessment of the remaining components in the report remained unchanged.

(Reporting by Daniel Leussink; Editing by Ana Nicolaci da Costa and Kim Coghill)

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Japan raises view on demand, but says economy in severe situation – The Journal Pioneer

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By Daniel Leussink

TOKYO (Reuters) – Japan’s government upgraded its view on consumption in a monthly report in October on stronger demand for electronics and higher travel spending, but cautioned broader economic conditions remained severe due to the coronavirus pandemic.

Authorities maintained their assessment that the world’s third-largest economy was showing signs of picking up from the fallout of COVID-19, which included a hit to Japan’s exports from a slump in global demand.

“The Japanese economy remains in a severe situation due to the novel coronavirus, but it is showing signs of picking up,” the government said in its October economic report.

The economy suffered its worst postwar contraction in the second quarter and analysts expect any rebound to be modest.

The government already has announced $2.2 trillion in economic stimulus in response to the virus crisis, and analysts polled by Reuters said it should compile a third extra budget for the current fiscal year.

The government said the impact from policy measures at home and improvement in economic activity overseas supported hopes for a continued rebound in the economy.

But it also flagged the risk that coronavirus infections could further weigh on domestic and overseas economies.

While many countries eased coronavirus restrictions earlier this year, some have had to resume curbs as they face a second wave of infections.

Japan’s government upgraded its view on private consumption for the first time in seven months due to more robust domestic demand for household electronics and higher nationwide hotel occupancy rates, especially in Hokkaido in northern Japan.

“It’s very encouraging that consumption is picking up,” Economy Minister Yasutoshi Nishimura said at a news conference after the cabinet approved the report.

“While capital spending, exports, production and employment are improving, it of course can’t be said (economic conditions) have completely recovered so the overall assessment was left unchanged,” he said.

The government stuck to its assessment that exports are picking up, according to the report.

But it downgraded its view on imports for the first time in seven months due to relatively weak shipments from the United States and the Asian region, a Cabinet Office official said.

The government’s assessment of the remaining components in the report remained unchanged.

(Reporting by Daniel Leussink; Editing by Ana Nicolaci da Costa and Kim Coghill)

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Four ways to rescue the economy from the pandemic – The Conversation US

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In many western countries, COVID-19 infection rates are rising again. For some like the UK, France and Spain, it appears that the second wave of the pandemic is already here. The science also tells us that we may see a further upsurge in 2021. We do not know how effective early vaccines will be, and the rollout of vaccination programmes will be gradual.

A major issue for governments is the extent to which they have the fiscal firepower to protect jobs and economic activity. In the UK, the government’s spring and summer measures to protect businesses and jobs were expected to add £192 billion to the budget deficit, increasing the debt-to-GDP ratio from 85.4% in 2019 to 106.4% by March 2021.

These are the highest levels of debt since the early 1960s, and record budget deficit levels for peacetime. And yet the second wave of COVID-19 is going to strain the fiscal response much further. Chancellor Rishi Sunak’s newly revamped job support scheme and other measures to help businesses suffering under the latest restrictions will cost further billions.

To get a possible sense of where this might be heading, the Institute for Fiscal Studies in June modelled for a scenario in which there was a second wave of COVID-19 in the fourth quarter of 2020 and targeted regional lockdowns in the first half of 2021. It predicted that this would produce a budget deficit of over 20% of GDP this year – equivalent to second world war levels – and a debt-to-GDP ratio of nearly 120% by 2024-25.

If this is the kind of situation that many countries are now facing, what options are open to governments, and what key indicators should they focus on?

1. Growth first, sound money second

Governments must prioritise resuming economic growth from 2021 onwards. Put simply, this will require them to go easy on raising taxes or cutting spending quickly to stabilise the debt-to-GDP level. The fiscal correction which would be required to stabilise public finances will be less if a faster recovery can be engineered.

Governments must focus on public investments, particularly those aimed at boosting research and development spending and productivity growth. Many observers have recommended that governments put money into greening the economy. Not only will this stimulate growth in sectors for the future, it will also help address the climate crisis.

2. Build confidence

There needs to be a clear strategy to restore economic confidence, which is inextricably linked to people’s confidence in how the pandemic and its economic fallout is being managed. Even before the second wave took hold, it was clear that the economic recovery was slowing during the summer in many advanced economies.

The OECD reported in September that Google data on people’s shopping and recreational activity (as a proxy for what they are consuming from social businesses) had not returned to pre-pandemic levels. Order books in most advanced economies (except China) did not fully recover either.

Retail is still a hard sell (unless you’re Amazon).
EPA

It’s clear that consumer and business confidence cannot fully bounce back until uncertainty on the duration of the pandemic begins to subside. This is one reason why a number of economists have urged countries like the UK, where the economic hit has been worse, to focus on protecting employment. The furlough scheme in the UK should probably have been extended into this second wave, and the chancellor’s latest expansion of the job support scheme looks like a partial U-turn.

3. Test and trace still vital

Linked to this need to reduce uncertainty, there is no trade-off between health and the economy. Countries which have done better at keeping infection rates low have also done well at reducing the economic slump.

Some of that success with infections may have been good fortune, or early action in closing travel down quickly in early 2020. But countries such as Finland and Germany also had a strong capacity for testing and tracing and very quickly built it up further. Even at this stage, countries like the UK need to look at whether test and trace can be quickly improved, even at the cost of increased investment.

4. More targeted support

As the recovery begins to strengthen during 2021, a key conundrum for policymakers will be whether to prioritise stimulating aggregate demand in the economy, such as using tax cuts, or more targeted support measures for particular sectors or parts of the workforce.

It has recently been said that the recovery after a second wave might be more W-shaped as a whole, but K-shaped for individual sectors. In other words, while sectors like online retail and technology/software are booming, others like conventional retail, travel and hospitality will take a long time to recover.

Business support may need to switch to a more sectoral approach. The UK has done a little here with the “eat out to help out” scheme and now small monthly grants for firms in sectors like hospitality and leisure.

Hotel concierge talking to a taxi driver
Sectors like hospitality need more help than others.
EPA

Similarly, governments will have to focus their support on those in the labour market for whom the “scarring effects” of unemployment will be most serious. For instance, the crisis will particularly affect the job prospects of young people whose transition from education to work is being disrupted. At the recovery stage, support will therefore need to be switched to job creation – for example, by lowering employer national insurance contributions for employers creating new jobs.

We are entering a pivotal period in our fight against COVID-19. While there is no denying the challenges ahead, we are also better prepared and more knowledgeable than in March. Policymakers must use this to their advantage and craft an economic response which is comprehensive and nimble in equal measure.

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