Indian Engineering in Colombia

RESIDENT & NON-RESIDENT STATUSES I EMERGING SECTORS I MARKET NEWS

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IndianEngineeringExportsie 2 I Magazine of EEPC INDIA (formerly Engineering Export Promotion Council)

RS150

engineering the future

Colombia's economy glows bright

With exports tripling over a decade, Colombia has become a bright star in the Latin American constellation

VOL. 3, ISSUE NO. 2, AUGUST 2010

INTERNATIONAL EDITION

Please write in with your comments [email protected] toThe Consulting EditorEEPC IndiaVanijya Bhavan (1st Floor)International Trade Facilitation Centre1/1 Wood Street, Kolkata 700 016, India

LETTERSIndianEngineeringExportsie 2 | Magazine of the Engineering Export Promotion Council

www.eepcindia.org

INDIAN ENGINEERING EXPORTS AUGUST 2010 3

EDITOR

R MaitraExecutive Director, EEPC India

Printed and published by R Maitra, Executive Director, for and

on behalf of the owner, EEPC India

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The views expressed in the magazine are not necessarily those of

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VOL. 3, ISSUE NO. 5, AUGUST 2010

PROFESSIONAL APPROACH

It is encouraging to receive the magazine, IndianEngineeringExports, regularly and I must appreciate visible improvements in the look and content of the publication. It is definitely a professional approach that has made this possible.

I shall particularly refer to features like the ‘Member Section,’ ‘Calendar’ and ‘Book Review,’ which are, expectedly, reader-friendly. Also, the content page is not only colourful and inviting but offers, in a nut-shell, the information inside.

Wishing the magazine further glory and shall look forward to meeting you at a mutually convenient date and place. Biswajit Matilal, Asst Vice-President (PR and Advt), Birla

Corporation Limited, Kolkata

LEGALISATION OF DOCUMENTS

This is regarding the legalisation of docu-ments by the Iran consulate. I wish to know, do you have any channel through which we can shortcut the process of legalisation of the export documents? It is taking more than a month to complete the whole proce-dure. Usually we get the health certificate for our product from Mumbai Municipality within 15 days and then with other docu-ments it has to be sent for legalisation to the Iran consulate in Mumbai, as there is no Iran consulate at Kolkata. Meanwhile, the materials reached before completion of documentation and our customer has to be paid the detention charge at their port.

Please if you can send our documents through your organisation to add speed to the whole procedure, our customer would not have to pay the detention charge and we shall be ever grateful to you.

The health certificate is a certificate which confirms that the packaging material is fit for food packaging. We do not have any people in Mumbai to send the docu-ments to the Iran consulate. It is not only the health certificate, but Invoice, Packing

list, COO – all are to be legalised. Therefore, we have to send all documents together.

Earlier the health certificate was issued from the Jadavpur University Food and Technology Department. However, the Iran Customs rejected it, as they need a certifi-cate issued by any government authority like municipality, etc. That time FIEO had helped us to release the material to the cus-tomer at their port. Our Kolkata Corporation does not issue such certifi-cates. So, we contacted Mumbai Municipality.

We request you to take up the matter. We hope Government of India will understand our problem and we can continue a hassle-free business.SUPARNA BANERJEE, Kolkata Closures Pvt Ltd, Kolkata

Ed replies: I understand the delays are creat-ing considerable problems for your company to meet the buyer’s requirements. I shall be thankful if you could provide us a little more details, such as,1. What is the Health Certificate called? Is it just called Health Certificate or are their any technical names?2. If you are getting the Health Certificate issued by Mumbai Municipality, should it not be easier to get it certified again by the Iran Consulate in Mumbai rather than bring it back and then sending it to Hyderabad?3. Is it possible for you to send a scanned copy of the certificate so that we can send it to Government of India and request them to get in touch with the Iranian Government to streamline the process.On receiving your comments, we will take up the matter at the appropriate level.

INTERNATIONAL EDITION

INDIAN ENGINEERING EXPORTS 4 AUGUST 2010

in this issue

6 SPOTLIGHT

Opportunity analysis of emerging sectorsEEPC India commissioned Ernst & Young to conduct a study to chart a growth path for exports from India from 2010-14 and to identify initiatives for the government. Extracts from the analysis of opportunities in manufacturing and exports

24 EXPERTEYE

Resident and non-resident statusesAn overview of resident and non-resident statuses from foreign exchange & taxation perspectives

46 POLICY MATTERS

Report of the task force on Goods & Services Tax – 6

WORLDVIEW 35

30 MARKETS NEWS

Economies steadily picking up

COLOMBIA'S

ECONOMY

GLOWS BRIGHTColombia has gradually resolved its problems to join the ‘emerging juggernauts’ of the global market with exports tripling over a decade to become a bright star in Latin America

5 MONTHLY MUSINGS

64 CALENDAR

62 HOME AFFAIRS

66 EEPC INDIA OFFICES

SPANISH SECTION

I Revisión trimestral de la economía – 2009

V El empleo en la industria organizada: El sector ingeniero

es el que más contribuye

VIII Un año después… Revisamos las raíces de

la crisis financiera global

XII Comercio de agua virtual – verdaderas preocupaciones

XVIII Optimización del peso del hierro fundido

XX Consumo energético en fundiciones de hierro


The month of July brought news of revival of engineering exports. According to media reports, the Union

Commerce Secretary, Dr Rahul Khullar, has informed that engineering exports in June 2010 has grown by 90 percent over June 2009. This implies that the export of engineering goods in June 2010 was to the tune of $5,168 million and is indeed a sign of pickup. This is because this growth is actually on top of not

only the $2,720 million in June 2009 but, more significantly, over $4,135 million in June 2008. Thus, the revival is over and above the pre-crisis phase and not the one that was seen in the previous two months of the current fiscal when the growth was merely on account of a low base last fiscal.

One would like to know where this growth has happened, the engineering sectors, the countries or regions and whether this is just a spike or is the beginning of an upward trend in the months ahead. I also checked the monthly export returns that the Council has so far received for the month of June 2010 from our members. The returns indicate a mixed trend with about 60 percent of the members filing their returns showing huge export growth largely as a result of a low base while the rest of the members are still showing very low negative growth numbers. So the average growth rate of our members’ exports is quite robust and in sync with the growth estimates projected by the Union Commerce Secretary.

Be that as it may, I would still keep my fingers crossed and wait for a couple of months if not the full fiscal year to declare that the global recession is a thing of the past. This is because as we emerge out of nearly two years of global economic downturn, there are fears about the implications of an ‘exit strategy’ that many of the European gov-ernments are thinking of and some like United Kingdom have already begun to implement. Indeed, the lessons of the global economic crisis of the 1930s have to be kept in mind and countries around the world must be aware of the dangers of turning the tap off prema-turely.

The recent IMF forecast of positive growth rates in the major economies of the world and a forecast of 9.4 percent in 2010 for the Indian economy is most heartening. However, as a representative from the engineering industry and also a manufacturer exporter, I would be cautious about the trade buoyancy both in 2010 as well as in 2011. In this context, I must also draw your attention to the FICCI Export Survey of June 2010 and highlight some of the main findings of the survey.

Respondents to the Survey said that after having seen an improve-

ment in performance over the last few months, they have once again come under stress. Four factors are adversely affecting exports and exporters are showing signs of concern. These are: (i) the large-scale variation seen in the exchange rate; (ii) the evolving situation in Euro zone and attendant risk of slowdown in exports to that region; (iii) the rising cost of raw materials including the price of oil; and (iv) the expectation of a hike in interest cost once base rate mechanism is introduced.

The large sideways movement in the value of the Rupee against the Dollar and Euro has led to severe problems. While the sudden appre-ciation in the value of the Rupee affected the margins adversely as it led to lower realisation for exporters, the recent decline in the value of the Rupee caught exporters off guard and they lost on account of forward contracts that were booked to hedge currency risk.

The evolving situation in Euro zone also does not inspire confi-dence. There are indications of buyers in the EU region going slow in placing their orders. There are also cases where Indian companies have been asked to hold back the dispatch of consignments. In a few other cases, Indian exporters have had to take temporary terminals for parking goods in the EU region as buyers have refused to accept immediate delivery. Clearly, therefore, we need the Indian Govern-ment to desist from a rollback of the stimulus measures for the exporting community just yet.

EEPC India will be holding its trademark engineering show INDEE 2010 in Colombia in October 2010. This international edition of the magazine is, therefore, dedicated to Colombia and I hope that the participants at the exhibition will garner much information that have been meticulously put together in the following pages.

Aman Chadha

monthly musings

From the Chairman’s Desk

I would still keep my fingers crossed and

wait for a couple of months if not the full

fiscal year to declare that the global

recession is a thing of the past. . . because

there are fears about the implications of an

‘exit strategy’ that many of the European

governments are thinking of . . .

SPOTLIGHT

EEPC INDIA-ERNST & YOUNG

Opportunity analysis of emerging sectorsEngineering exports from India have grown considerably in the last few years but the share is still lower than other

major India-like countries such as Brazil, China, Russia, Mexico and Thailand. This is a cause for concern as it indicates

that India has not been able to fully exploit its multitude of advantages in terms of engineering skills, a burgeoning

domestic market, an established raw material base and availability of a large pool of skilled labour. EEPC India,

therefore, commissioned Ernst & Young to conduct a study to chart a growth path for engineering exports from India

for the period 2010-14 and to identify initiatives that have to be undertaken by the government, EEPC India and the

engineering exporters themselves to achieve the desired growth.

Nuclear sectorSustained energy demand across the globe, coupled with the price volatility of crude, diminishing fossil fuel reserves, growing environmental concerns – especially related to greenhouse gas emissions – have com-pelled countries to explore alternate energy sources, both renewable and non-renewable, to propel growth. Nuclear energy has become one of the most promising alternatives to address this growing demand for energy. While nuclear energy has traditionally been utilised in the developed markets due to its potential to generate power quickly with low fuel, it has seen renewed interest across the world since 2007. This is on account of better economics and more reliable technology to manage environmental risk.

Nuclear energy: global scenarioThe constituents of the global energy mix have changed considerably over the past 30 years. Nuclear energy, in particular, has seen its share fall to account for only 6 percent of the total

global primary energy consumption as seen in Exhibit 1. The decline in the share of nuclear energy is predominantly due to the gradual fall in the share of nuclear power generation over the last decade, as nuclear power generation accounts for more than 90 percent of total nuclear energy usage. The historically low share of nuclear energy and its gradual decline is as much due to the higher capital costs asso-ciated with nuclear power generation as it was due to the restricted access of various countries to nuclear fuel and technology on account of proliferation concerns.

Existing global nuclear power scenarioThe share of nuclear power in world electric-ity production has declined in the past few years. However, it continues to be an impor-tant source of electricity for many countries, as it accounted for at least 25 percent of ele-ctricity generation for 16 countries in 2007. France leads the world with a 76 percent nuclear share of total generated electricity, followed by numerous other European and

CIS countries.In absolute terms, there are currently 439

operational nuclear power reactors across 30 countries, with a total capacity of 372.1 GW. The US leads with 104 nuclear power reactors, followed by France, Japan and Russia. Most countries with significant nuclear-generating capacities belong to the developed world, including the US, Japan and the EU. The devel-oping countries of CIS, which had access to restricted nuclear fuel and technology also, have significant nuclear generating capacities. Major emerging economies such as China, India, South Africa and Mexico have com-paratively small share of nuclear power in total power generation as seen in the Exhibit 2. However, countries such as India and China, which have high GDP growth and concomi-tant significant power requirements for the future, are looking at nuclear power to meet their electricity needs.

Global future nuclear power scenarioDue to the inadequacy of other energy sources, nuclear power is receiving renewed thrust, which can be witnessed in terms of the large number of nuclear power reactors currently at the construction, planning and proposal stages. These nuclear reactors collectively total 374 GW, which is almost equivalent to the existing capacity.

Exhibit 3 indicates that emerging countries such as China, India and Russia are at the forefront of new capacity addition, as they are driven by the need to secure future energy requirements to sustain rapid economic growth. In addition, developed economies such as the US, Japan and Korea have also


The study sets an achievable target of tripling India’s engineering exports by 2014 to reach a size of $110 billion,

despite the current recessionary scenario. India’s recent growth trend and its current low share of world engineering

exports, signifi cant scope for improvement in the overall manufacturing competitiveness and the emerging

consensus that the worst of the recession is behind us indicates that it is a distinctly achievable aspiration. Here we

bring you extracts. More information on the 264-page publication – Engineering the future: An exports perspective: Strategy paper for the growth of engineering exports: 2010-14 – prepared by Ernst & Young for EEPC India is provided

on page 19)

Exhibit 1Global primary energy supply, 2007 Nuclear power generation (Twin) and share in

power mix (%)Total = 11,099 mmtoe

Source: BP Statistical review of world energy 2008 Source: BP Statistical review of world energy 2008

Hydro 6%

Coal 24%

Natural Gas 29%

Oil 35%

Nuclear 6%

2000 2001 2002 2003 2004 2005 2006 2007

Nuclear power Share of nuclear power(%)

2,58

3

2,65

5

2,70

0

2,64

6

2,76

4

2,77

1

2,80

6

2,74

9

16.8 17.0 16.7 15.8 15.7 15.2 14.8 13.8

SPOTLIGHT


INDIAN ENGINEERING EXPORTS8 AUGUST 2010

firmed up plans of increasing nuclear power generation capacities. It is important to note that these countries are also able to exploit nuclear energy as a source of power, as they have access, or have recently obtained (as in the case of India) access, to nuclear fuel and have requisite technologies in place.

Nuclear power: IndiaIn 2007, India had 17 nuclear power reactors with a total generating capacity of approxi-mately 4.1 GW, up from 2.2 GW in 1998. The country generated 17.8 TWh of electricity from nuclear energy and ranked 18 globally in terms of electricity generated from nuclear power. However, total electricity generated has not been commensurate with India’s total generating capacity levels, as several of the country’s nuclear stations have been forced to operate at an extremely low plant load factor (PLF) due to the chronic shortage of nuclear fuel. The overall PLF of nuclear stations in the country has been consistently slipping in the past few years, from levels close to 90 percent in FY03 to below 50 percent in FY08.

Opportunities in Indian nuclear sectorAs a result of the India-US 123 agreement and the NSG waiver, coupled with the acute need

for reliable power supply in the country, the Planning Commission has renewed thrust on setting up Greenfield nuclear plants to meet the burgeoning demand for power in India. The commission aims to expand the nation’s nuclear power capacity to 63,000 MW by 2032, and as many as 30 new nuclear power

plants to be built by 2020. Plans are already afoot to increase the

generating capacity by around 3.8 GW in 2008-12, which will take the share of nuclear power to above 3 percent by 2012. In addition, the deals will improve the utilisation of India’s existing nuclear plants by supplying them

France

Lithuania

Slovakia

Belgium

Ukraine

S.Korea

USA

Russia

UK

Mexico

Netherlands

Brazil

India

Pakistan

China

76.9

64.4

54.3

54.1

48.1

35.3

19.4

16

15.1

4.6

4.1

2.8

2.5

2.3

1.9

Nuclear share in power generation, 2007 (%) Top 10 nuclear producers, 2007

Exhibit 2

Rank CountryNumber

of units

Total generation

(TWh)

Global share in

generation (%)

1 USA 104 848.9 30.9

2 France 59 440.4 16.0

3 Japan 55 279.9 10.1

4 Russian Federation 31 159.8 5.8

5 South Korea 20 142.9 5.2

6 Germany 17 140.5 5.1

7 Canada 18 93.3 3.4

8 Ukraine 15 92.5 3.4

9 Sweden 10 67.4 2.5

10 China 11 62.9 2.3

18 India 17 17.8 0.6

World total 2,748.9 100

Exhibit 3

Source: World Nuclear Association

Country wise

World

Capacity (MW) Number Capacity (MW) Number Capacity (MW) Number

Capacity (MW) Number

42 47

145 133

133

145

China

India

Japan

USA

Russia

S. Korea

S. Africa

UAE

China

Russia

S. Korea

India

Japan

France

Finland

Canada

China

Ukraine

USA

Russia

Russia

Italy

UAE

Poland

35

23

13

11

8

7

3

3

80

20

20

28

15

10

11

5

14

8

5

6

2

1

1

2

72,000

27,000

26,000

25,880

20,000

17,000

15,500

10,000

37,460

21,500

17,915

13,800

9,360

9,450

3,565

4,500

14,280

5,980

5,350

2,976

2,285

1,630

1,600

1,500

Reactors under construction Reactors planned Reactors proposed

SPOTLIGHT


with fuel, the lack of which has resulted in a PLF of less than 50 percent. The industry is anticipating opportunities worth $100 billion over the next 20 years on account of this major expansion plan.

Opportunity sizing for 2010-14While the long-term growth potential of the nuclear power industry is significant, immedi-ate business opportunities in this sector in the next few years (2010-14) are expected to be on a slightly lower scale, as India is taking a stepped approach to generating power by nuclear energy. As a result, the industry is expected to begin with a capacity addition of 12,000 MW between 2012 and 2017 followed by significantly higher capacity additions in subsequent Five-Year Plan periods. However, it must be noted that the proposed addition of 12,000 MW is almost twice the size of the cur-rent nuclear capacity. As such, it is considered to be a major opportunity for all nuclear power plant suppliers.

Potential $15-billion opportunity in next five yearsTo gauge the degree of opportunity in nuclear power generation, the capacity additions being planned need to be identified. It is known that India is adding 3,380 MW between 2008-12 and plans to add 12,000 MW in 2012-17. As nuclear power plant projects have a longer gestation period, the addition of 12,000 MW is expected to directly lead to various oppor-tunities over 2010-14.

The various opportunities that are likely to arise due to capacity additions in nuclear power generation projects can be categorised under the following key heads:• Boiler-turbine-generator (BTG) • Engineering procurement and construction

(EPC) • Reactor • Balance of plant (BoP)

OutlookOpportunities worth $15 billion are likely to

arise from orders for 12,000-MW planned nuclear projects in the next five years. All of these capacity additions are expected to come through government-owned entities such as the NPCIL. Private-sector participation in nuclear power generation has not been fully allowed, and is likely to come only through joint ventures with NPCIL, where the NPCIL will hold a stake of at least 51 percent. Private players such as Reliance, Larsen & Toubro (L&T) and GMR have already expressed inter-est in setting up nuclear power plants, but the roadmap toward public-private partnership (PPP) or the privatisation of nuclear power generation has not yet been elaborated.

However, nuclear generation investments will lead to huge opportunities for government and other domestic/foreign equipment manu-facturers and service providers, which will cater to the setup of nuclear power generation capacities.

A number of engineering companies, both foreign and domestic, can exploit these oppor-

SPOTLIGHT



tunities. Approximately 40 Indian companies have already announced plans to cater to India’s nuclear power generation require-ments. The beneficiaries of these opportuni-ties can be classified on the basis of two parameters:• Country of origin: domestic and foreign

opportunity • Level of players: tier 1 and tier 2 opportuni-

ties

Domestic and foreign opportunityBoth domestic and foreign companies can be beneficiaries of the $15-billion total nuclear opportunity. It is expected that domestic com-panies will be able to address almost 61 percent of the total opportunity. This is due to the fact that the EPC and BoP shares of all projects accounting for approximately 40 percent can be addressed by domestic companies due to their prior experience. In addition, domestic companies can hope to address 50 percent of BTG orders based on the government have stated intention to indigenise. For the reactor segment, it is expected that foreign companies will address a major share (around 80 percent) of the opportunity, as domestic companies do not have any experience in manufacturing reactors of more than 1,000 MW. The remain-ing 20 percent is expected to be addressed by domestic companies that will act as suppliers of various components such as forgings. As a result foreign companies will get to address approximately 39 percent of the $15-billion opportunity.

Tier 1 and 2 opportunitiesTier 2 opportunities will comprise a fraction of the value of the entire equipment and serv-ices order, as it will only include players who will take sub-contracted orders from tier-1 players under each of the categories. As a result, there will be large number of existing and future engineering players (including SMEs), which will be able to capitalise on the tier-2 opportunity.

Tier 1 opportunities will comprise the entire value of the equipment and services order, as

it includes only those players who will take direct orders for BTG, EPC, Reactors and BoP. As a result, only a handful of specialised play-ers with significant prior experience in these categories can exploit this opportunity.

Export opportunitiesAs a result of prolonged nuclear isolation, India has not been able to optimise its indig-enous research in the field of nuclear energy. This, in turn, led to a limited domestic nuclear power generation capacity.

The limited domestic market has, in turn, not allowed Indian equipment manufacturers to gain the vital experience required to become competitive in terms of cost and quality vis-à-vis other international manufacturers, thereby hampering India’s export potential in the nuclear power space. However, India can uti-lise its indigenous research on smaller reactors as well the anticipated big leap in nuclear power generation to export certain nuclear power equipment.220-MW reactors: India has indigenously developed smaller 220-MW rated reactors and associated BTG equipment. These are opera-tional in 12 units across India. As a result, India is the only country with the technology, design and infrastructure for the manufacture of commercially proven 220-MW reactors. Significantly for India, smaller units have seen a revival due to their capital costs, because smaller reactors (less than 500 MW) are more simply designed and offer the advantages of mass production economies and reduced site costs. Interest in 220-MW reactors comes mainly from countries with comparatively low energy requirements such as Indonesia, South Africa, Thailand, Vietnam and Bangladesh. These countries account for almost 10 percent of the proposed nuclear capacity addition. As such, they can serve as export markets for the indigenously developed 220-MW reactors.Nuclear components: Castings and forgings used in reactors/turbines: India is on a sig-nificant nuclear power expansion drive, with the stated goal of attaining indigenisation levels of up to 80 percent in the next few years.

As a result, a number of Indian companies such as L&T, Bharat Forge and BHEL have estab-lished JVs with foreign suppliers of reactors and BTG sets to locally manufacture some of the components used in higher-rated reactors (above 1,000 MW) and BTG sets that have been chosen for the next phase of nuclear power expansion in the country. As these higher-rated reactors and BTG sets are also preferred in most of the demand-generating countries such as China, Russia, US and Korea, these companies can leverage the increase in domestic manufacturing scales and India’s low-cost advantage to achieve exports of nuclear components across the various large target markets.

Recommendations for Government• The Indian Atomic Energy Act should be amended to allow private participation as it is next to impossible for the government alone to meet the ambitious nuclear power genera-tion targets. In addition private participation has to be facilitated by means of a comprehen-sive public-private nuclear strategy detailing the model for participation (negotiated or competitive bidding route), level of participa-tion in the nuclear cycle, civil nuclear liability and a regulatory framework. An optimum regulatory framework would be one that ensures a smooth juxtaposition of the role of government as a safety oversight body coupled with its new role as a commercial regulator for private sector in the civil nuclear pro-gramme. • Facilitate the entry of domestic private equip-ment suppliers by instituting a Civil Nuclear Liability Limitation Act, which would restrict the liability of various equipment suppliers in case of a nuclear accident. • An Indian Civil Nuclear Code should be created to standardise nuclear equipment and its components. This standardisation needs to be based on the best practices of existing systems across the world in order to create a culture of quality as well as ensure fundability of Indian products to capitalise on possible export opportunities. Some

SPOTLIGHT



examples of the code used for nuclear equip-ment in various part of the world are US and Canada – ASME (NRC-8), Europe – N-PED (RCC-M), Russia – GOST, Japan – JSME and South Africa – NNR. • The Indian Atomic Energy Act should be amended to allow higher levels of private par-ticipation, as the current laws prevent majority ownership in nuclear power projects by private players. • A time-bound comprehensive licensing mechanism has to be initiated to set up nuclear installations. It should also include decisive clauses on the vital but time-consuming pro-cedures relating to environmental compliance to avoid delays.

Defence sectorGlobal defence scenarioIn 2008, the global military expenditure was estimated to be $1464 billion. This represents an increase of 4 percent in real terms com-pared to 2007, and 45 percent since 1999. Military expenditure constituted almost 2.4 percent of global gross domestic product (GDP) in 2008. The US is the principal deter-minant of the current world trend and its military expenditure now accounts for almost half of the world’s total. There is also a trend of increasing concentration of military expenditure, i.e. a small number of countries account for the largest share of global military expenditure. The top 15 defence spending countries account for 83 percent of the total expenditure with the US accounting for approximately 45 percent of the global total, distantly followed by the UK, China, France, and Japan, each with 4-5 percent of the global share. The defence spending of all countries is driven by certain imperatives of foreign policy objectives, real or perceived threats, armed conflict and policies to contribute to multilateral peacekeeping operations, which are in turn determined by the economic situ-ation of the countries.

India: defence scenarioIndia is among the top 10 nations in the world

in terms of military expenditure (Exhibit 4). The cumulative defence budget (capital plus revenue expenditure) has grown at a CAGR of 11.5 percent between FY06 and FY09 to $26.5 billion for FY09. With heightened terrorist activity in recent times, India’s geostrategic location and surrounding environment, the government is now focusing on providing modern combat equipment to the police and armed forces. Increased tension with the neighbouring countries is driving the procure-ment of latest weapons and technologies. In light of these issues, India’s defence sector is expected to remain a significant spender. It has fast emerged as an attractive investment des-tination for foreign and indigenous defence players due a series of measures introduced by the MoD to enhance the level of transparency and accountability in the defence acquisition and procurement process.

Defence planning system in India is control-led by the Ministry of Defence (MoD), as it is the central coordinating body for defence production and R&D. A number of depart-ments and organisations with interests central or supplementary to the entire defence spec-trum in India report to the MoD. Among these, the main departments associated with defence production are the Defence Acquisition Organisation (DAO), the Department of Defence Production (DDP) and the Defence Research and Development Organisation (DRDO). The DAO mainly takes care of the import requirements while DDP takes care of the production within India with DRDO play-ing the role of technology facilitator for DDP.

DDP in turn has DGOF, DPSU’s and DGQA

reporting to it. Most of the domestic defence requirements were met to a large extent by DGOF and DPSUs. There is no competitive bidding for these procurements from DGOF and DPSUs and are based on four yearly pro-duction programmes and a long-term produc-tion forecast.

As a result of the continued increase in defence expenditure, the total value of pro-duction from DDP has risen at a CAGR of 10.3 percent from INR164.2 billion in FY04 to INR220.5 billion in FY07. During FY08 (April-November), the total value of pro-duction reached INR94.3 billion. Within DDP, Exhibit 5 shows that the share of DGOF in total production has declined from 39.7 percent in FY04 to 32.3 percent in FY08, while the share of DPSUs has increased from 60.3 percent to 67.7 percent, during the same period.

USD billion

Military expenditure*Without USA

Source: Ministry expenditure

Exhibit 4: Military expenditure, 2008

59.7 58.3 53.6 43.6 36.9 35.4 33.8 33.1 24.1 22.6

UK China France Japan Germany Russia S. Arabia Italy India S. Korea

FY 08*

FY 07

FY 06

FY 05

FY 04

32.3

28.1

34.6

35.5

39.7

67.7

71.9

65.4

64.5

60.3

94.3

220.5

199.2

174.4

164.2

Exhibit 5: DDP production

contribution, by organisation (%)

DGOF DPSU

*Up to November 2008

Source: Ministry of Defence

CAG

R

10.3%

SPOTLIGHT



Defence production challenges in IndiaThe defence production sector in India has not fully evolved despite a long history of defence expenditure and significant production expe-rience. This lack of evolution has become apparent due to some of the following issues:• Inefficient production: The present system of defence production is plagued with a number of problems, which include a) spill-over production, b) underutilisation of capacity and c) excessive overheads and inventories. • Limited success of indigenisation initiatives: A detailed examination of the indigenisation figures reveal that only mature or obsolete designs are produced by the DPSU’s under license/technology transfer. As per details given to the Parliamentary Standing Committee on Defence, HAL has achieved 70-75 percent indigenisation and BEL has indigenisation of over 60 percent. Indirectly, that means that practically even for products with a history of manufacturing in India, it is still dependent on global OEMs to the extent of 25-40 percent. The continued dependence on foreign collabo-rators for updated designs even after several years of license agreements indicates ineffec-tiveness of the indigenisation initiatives.• Low level of exports: India performs abys-mally in the area of defence exports and is it constitutes, at an average 1.5-2.5 percent of total production; 3 percent for the DPSUs revenues and 1 percent for the DGOF revenues. As a result, the Indian defence industry’s import-export ratio is inferior to countries with even smaller defence industrial infrastructure as seen in Exhibit 6. The lack of technology and competitive pricing; the existence of a negative list of countries where the exports of defence equipment cannot be explored; the large number of clearances required and stipulation of ‘End Use Certificate’ and lack of thrust on marketing efforts are a few major reasons for the low level of defence exports from India.

Important trends in Indian defence sectorIn order to mitigate some of these problems

Government of India has taken a number of steps aimed at altering the dynamics of the Indian defence industry to make it more effi-cient, competitive and self sufficient.• Private sector participation: In addition to the imperatives mentioned above, the capital intensive nature of the defence industry as well as the need to infuse foreign technology have led the government to facilitate greater levels of private sector participation in the area of defence goods production by allowing private sector participation with up to 100 percent of equity and with permissible FDI of up to 26 percent, both subject to licensing restrictions of 2001. This move has led to

many large domestic industries investing both in R&D and infrastructure to develop capabilities in defence production as well as to assume the role of system integrators. However, the anticipated FDI flow was not realised as foreign companies were averse to investing in any companies where they lack significant control.

While the above ruling did allow complete private sector participation, the DDP had already kick-started the private sector par-ticipation by outsourcing a large percentage of sub-systems and components of main equipment to private players including many in the SME sector (Exhibit 7). The outsourc-

Indian Export Imports, USD million Export-Import ratio, 2001-04

Exhibit 6

Country

Imports

(In USD

million)

Exports

(In USD

million)

Export

Import

ratio

USA 8,526 44 194.1

Israel 1,675 1,290 1.3:1

South Korea 2,755 313 8.8:1

Singapore 1,441 73 19.7:1

Source: SIPRI Database, 2005

2.305 1,175

1,414 1,445 1,847

26 13 14 21 1

2004 2005 2006 2007 2008

Export Import

SPOTLIGHT


Larsen & Toubro’s success in the defence sector The launch of the country’s fi rst indigenous nuclear-powered submarine, INS Arihant, is an excellent example

of productive public private partnership in the defence sector. A number of companies, including the leading

engineering player, Larsen &Toubro, were part of the project along with DRDO. L&T was the single largest

contributor in the project, involved from the plate cutting stage to the fi nal launch. With the launch of INS

Arihant, India has become a part of an elite group consisting of only the US, Russia, the UK, France and China.

L&T got the project to build part of the vessel as it offered a lower bid than the government. The fi rm’s higher

operational effi ciency and productivity levels were major factors in reducing the bid costs.

L&T has been a supplier to India’s defence sector since the late 1960s. The company plans to leverage its

decades of experience to capture a major share of the domestic defence market. L&T’s licence to manufacture

warships, submarines, weapon platforms and high-speed motor crafts is one of the fi rst six issued to private

companies for manufacture of defence equipment after this sector was opened up to private participation in 2002.

The company has formed a JV with EADS Defence and Security, Europe’s largest defence equipment maker,

to acquire technical expertise required to tap the Indian defence market. L&T has also formed alliances with

three major nuclear reactor manufacturers including, Russia-based Atomstroyexport, US-based Toshiba

Westinghouse and Canada-based Atomic Energy. The company is constantly looking for more alliances with

companies such as US-based General Electric Hitachi and France-based Areva.

Unlike other players, L&T’s business strategy is not based on project-specifi c tie-ups of convenience with

foreign defence majors. The company sees itself as having covered the learning curve over decades and now

intends to use its own experience and expertise to the hilt. Over the years, it has also become a one-stop

integrator, which today is the key differentiator for the company.

ing had been possible because of the recent technological advances in the private sector coupled with relative cost savings that it brought. In addition, some of the low technol-ogy and commonly used items are being procured from the SME sector, which is capa-ble of producing adequate quantities of these products. There are more than 5,000 compa-nies supplying around 20-25 percent of com-ponents and sub-assemblies to DPSU.• Offset clause: India had for long sourced almost 70 percent of the defence requirements from imports. These high levels of imports put India in a disadvantageous position on two counts: a) it had massive foreign exchange outgo; and 2) it also had huge opportunity cost in terms of the employment levels and produc-tivity increases in the domestic industry. For example, it has been concluded that a mere 25 percent reduction on foreign dependence on defence imports, will save the foreign exchange outgo by INR85 billion, accelerate manufac-turing GDP growth by 8 percent and create

Year

Value

of

issue

Indigenous

purchase (%

of total issue)

Indigenous purchase breakdown

(% of total issue)

Imports

(% of total

issue)

Total

purchase*

Government sector SSI Private sector

FY04 65.0 25.5 (39.1%) 6.1 (9.3%) 6.2 (9.5%) 13.2 (20.4%) 12.1 (18.6%) 37.6

FY05 61.8 27.4 (44.2%) 5.6 (9.1%) 7.6 (12.3%) 14.1 (22.8%) 4.8 (7.8%) 32.2

FY06 68.9 31.0 (45.0%) 6.5 (9.4%) 8.5 (12.4%) 16.6 (24.1%) 5.1 (7.4%) 36.8

FY07 62.3 27.4 (44.0%) 6.3 (22.8%) 10.4 (38.0%) 10.8 (39.2%) 4.4 (15.9%) 31.8

FY08 70.0 32.1 (45.9%) 7.6 (23.6%) 13.5 (42.1%) 11.0 (34.2%) 7.9 (24.7%) 40.1

FY09 76.7 35.3 (45.9%) 8.1 (23.0%) 14.5 (41.1%) 12.7 (35.9%) 7.5 (21.3%) 42.8

* Total purchase is invariably less than the total value of issue depending on the viability of RFPs

Source: DGOF

Exhibit 7: DGOF procurement FY2004-08 (INR billion)

Exhibit 8: Impact of indigenisation

Reduction on foreign

dependence(%)

Incremental increase per

annum (INR billion)

Acceleration in manufacturing

GDP growthAdditional jobs

25 85 8% 120,000

50 111 11% 150,000

75 142 14% 200,000

Source: RBIdata from Dr Kelkar Committee Report

SPOTLIGHT



120,000 fresh jobs. Exhibit 8 shows the impact for further reduction in foreign dependence.

In order to counter these issues, a defence offset policy was first promulgated in 2005 and has been subsequently revised in 2006 and 2008. The offset policy requires the for-eign exporter to ensure at least a certain percentage of the value of the contracts to come from Indian entities either through sourcing of products or investment in the R&D of the domestic companies. The revised offset policy states that there should be a minimum 30 percent offset requirements in defence imports of Rs300 crore or more and has also added a provision of offset banking, besides enlisting a number of categories of defence products. As a result of these initia-tives, Government of India is looking to enhance domestic industrial capability through foreign participation. For example, OEMs for the aerospace and defence sectors are shifting their focus to design and systems integration and have outsourced the manu-facturing to Indian entities (Exhibit 9).India has already inked a number of offset agree-ments with various vendors and these agree-ments are expected to contribute to reduction in the import bills as well improve the com-petitiveness of the Indian defence sector.

SME sector outlookIndia aims to facilitate greater SME participa-tion in the area of defence goods production. Currently there are more than 5,000 compa-nies supplying around 20-25 percent of com-ponents and sub-assemblies to state-owned companies. However, the share of SME in defence production is set to increase in the next couple of years on the back of rising defence expenditure, which is magnified by the offset policy, especially in communications and IT equipment. The current defence market for private sector firms in India, which includes outsourcing from DPSUs and OFs, is esti-mated to be $700 million and is expected to further increase, driven by determination of the government to increase private sector participation.

• The recent revision of the offset policy has mandated that the offsets (domestic) partner is not required to hold MoD licence anymore. This has increased the scope manifold from 37 to 2,000 sub-industries, which can now con-sider associating with the offset programmes. This increase will help the SME sector as a number of these industries are SME-centric and they can realise the potential for high growth with a foreign partner. • Government of India and the Foreign Investment Promotion Board approved India Rising Fund, a first of its kind venture fund for SMEs making defence equipment in 2008. India Rising Fund plans to raise INR750 million with INR550 million from international investors and the rest from the domestic market. The fund plans to funnel its corpus into promising defence SMEs, providing the capital needed to build up their manufacturing infrastructure and delivery capability. It plans to actively participate in the management of the companies, in which it invests, bringing in professional practices and processes. It plans to invest 90 percent of its capital into defence manufacturing, and about 10 percent into defence R&D units that are working in the fields of data fusion, ther-mal imaging and sensors.

Opportunity sizing for 2010-14As a result of Government’s initiatives, India’s defence sector budget is expected to grow at a rate of 8 percent till 2014, with an antici-pated capital budget share of 45 percent, which includes procurement of aircraft and aerospace equipment such as, heavy and medium armament systems, vehicles, plat-

forms and naval vessels among others. The remaining 55 percent is accounted by reve-nue expenditure, which caters to the operat-ing expenditure of the three Services (Air, Army and Navy) and other departments for spares, stores, fuel, etc. It is estimated that ~17 percent of the revenue expenditure (~9 percent of total defence budget) will go toward spare part manufacturing. Thus the total manufacturing opportunity in defence is ~54 percent arising from capital budget (45 percent) and 9 percent revenue budget trans-lating into a market of approximately $91 billion for the period 2010-14 with individ-ual year spread.

Potential $91 billion opportunity in next 5 yearsOut of this, based on the past trends and the after figuring the impact of offset deals, the opportunity size for domestic companies will be $42 billion for the period 2010-14 account-ing for 46 percent of the total opportunity size. It is expected to be $7.1 billion in 2010 and grow by 6.9 percent over the period. The opportunity for foreign companies will account for the remaining 54 percent.

The share of private domestic companies and specifically SMEs among them has been on an upswing in the recent years. It is esti-mated that private companies as a whole will address 27 percent of the total domestic oppor-tunity and the SMEs should be able to address 40 percent of the private player opportunity. This translates into a significant business opportunity of ~$11 billion for private players and ~ $ 5 billion opportunities for SMEs over the period of 2010-14.

SPOTLIGHT


Exhibit 9: Spread of offset agreements

PSU 38%

By entity By entity

SME 25%

Others18%

Manufacturing 46%

Services 3%

Engineering 11% Design 15%Software 7%

Source: India Regional Offset Conference 2009 Source: India Regional Offset Conference 2009

Large scale private companies 37%


OutlookThe budgetary provisions and market size are strong incentive for the foreign OEMs to pitch in and help the domestic defence industry to realise the $42 billion opportunity. The oppor-tunity is expected to mostly follow the breakup of capital expenditure in defence – Air Defence 30 percent; land and naval system modernisa-tion and upgrades 15 percent each; R&D 10 percent and C4ISR*, the new thrust area, will absorb 5 percent. The remaining 30 percent is earmarked for other supplies, e.g. ammunition and other systems. As a result of the offset agreements, a number of industry segments, where India has negligible presence, are expected to gain traction in the future.

Civil aviationIn addition to the proposed defence procure-ments, offsets against procurement of Indian Airways and Air India are also expected to generate substantial business for the Indian vendors. The State Trading Corporation (STC) is the nodal agency to deal with offset relating to major purchases on behalf of civil aviation. Airbus and Boeing have orders for 43 and 68 aircraft, respectively. The total value of offset at 50 percent is targeted at $360 million. According to the terms of agreement between Airbus and STC, 50 percent of the total offset obligation of the Airbus will be utilised in aerospace areas such as aircraft components design, engineering and data management

services, technical publication services, raw material and semi-finished products. The offset provisions in civil aviation are likely to create an annual business worth $100 million per year for the aerospace SMEs.

Recommendations• FDI in defence has to be increased from the present 26 percent to around 49 percent. This is because the 26 percent rule has not been able to attract significant FDI since 2001. Any hopes of forcing FDI through the mandatory offset arrangement is unlikely to succeed as the foreign firms have nothing substantial to gain from an equity participation of only 26 percent. It has been observed, from the exam-ples of other countries, that by allowing for-eign firms to take a substantial stake, they are more likely to transfer technology and out-source production to the domestic industry. • The Ministry of Defence (MoD) should come out with a short term procurement plan on a regular basis as it will help the domestic private firms in adequately preparing them-selves by means of Finalising domestic/for-eign collaborators; Raising sufficient amount of funds. This will help the domestic private sector realise its anticipated potential. • Currently the offsets policy is applicable to any procurement that is above INR300 crore in values. This threshold value for offsets is comparatively high and as a result, only a handful of domestic players will be able to

utilise it. The threshold for offset should be reduced to INR75 crore in line with what is practiced in other countries to ensure par-ticipation from a larger breadth of the domes-tic industry. • Banked offsets clause, which has been recently introduced, has a maximum tenure of two and a half years, this is too less to make the provision attractive for foreign companies. As a result, Government should look at increasing it to around 5 years.

Engineering servicesEngineering services – defined as services to augment or manage processes related not only with the creation of products/service but also the lifecycle associated with the product or service – include design of the product as well as the infrastructure, equipment and the proc-esses used to manufacture or deliver them. Exhibit 10 describes them in detail. Currently, offshoring of engineering services only consti-tute a small percentage of the total demand for engineering services globally.

Global engineering services marketGlobal engineering services market, estimated at $886 billion in 2008, has been growing at 2.9 percent y-o-y from 2007. The US, Japan, Germany, France and the UK are the leading spenders in the engineering services segment. While developing economies such as Thailand, Malaysia and Singapore are emerging as a

Exhibit 10: Engineering services value chain

Product conceptualization Product design and modeling Engineering analysis

• Conceptualizing product’s functionality • Benchmarking –process, product and cost • Designing the product‘s aesthetics and usability • Prelim-design analysis, market research and simulation

• Complete product design • Design of components using CAD, Pro E, 3D modeling,

automation and conversion between platforms

• Simulations of designs to study a part, sub system or system

• Performance optimization

Product realization Product support

• CMM/CNC programming • Forgings, castings and fabrication engineering • Manufacture of jig, fi xtures and support equipment

• Technical and design support • Conversion of GIS and legacy document • Re-engineering and reverse engineering • Maintenance manuals, part catalogues and service

bulletins

Complexity Level of off shoring High Medium Low

SPOTLIGHT



potential destination for engineering services, only 9 percent (or $80 billion) of the total demand came from the low-cost countries.

With increasing globalisation of engineer-ing and R&D activities, there has been a rise in the trend of companies conducting devel-opment activities outside their base country. The factors driving the engineering services outsourcing include a) cost reduction, b) improved efficiency, c) reduced time to mar-ket, d) access to new markets, e) domain capabilities and f) meeting local require-ments.

The off-shored business to low-cost coun-tries, however, stood at only $30 billion in 2008 (Exhibit 11). India leads the engineer-ing services outsourcing market among the low-cost countries, followed by Mexico, Russia, China, Brazil, Poland and Thailand. The share of engineering services off-shored to total engineering services is expected to increase continuously as companies look for new markets and cost savings. The global offshore engineering spend is expected to grow at a CAGR of around 25 percent over 2008-15 to reach $145 billion by 2015. By 2020, this market is expected to be close to $300 billion, amounting to almost 25 percent of all engineering services activity.

Hi-tech/telecom, automotive and aero-space sectors, dominated the global engineer-ing outsourcing. With rising technological intensity in the products used by these sectors, their spend on technology for R&D and engi-neering is expected to rise further. Other sec-tors including construction and utilities also offer significant global opportunities, which can be exploited through developing a higher technological prowess in the given domain.

Rising globalisation is driving players in the engineering sector to locate their offices and R&D site across the globe. This offers an opportunity to countries such as India to offer engineering services. Growing number of captives in the country are also contributing to the development of a global skill base in the country, which it can leverage in the long run.

Most global players are giving importance

to India in their expansion plans. Apart from serving as a manufacturing/outsourcing des-tination, the nation is also finding acceptance as a favoured R&D destination, benefitting from the availability of low-cost skilled and educated manpower and proven product development capabilities. Frugal engineer-ing, showcased in Nano, is a leading example of India’s increasing R&D capabilities.

Indian engineering services outsourcing marketThe Indian engineering services exports are estimated to be worth $4.9 billion in FY09. The industry grew at a CAGR of 17.6 percent over the period FY07-09. Factors including quality of talent available in the country, reduced time to market, low-cost and the access to local market have driven growth in the segment. The growth has also been driven by increased focus on R&D and product design by domestic companies as well as MNCs setting up their captive centres.

Offshore product development includes software development services sourced by global companies for product development through their captives or third-party provid-ers:• With the total market share of India expected to increase in the future because of certain sustainable advantages, the Indian engineer-ing exports sector has the potential to reach $29 billion in 2015, with a 20 percent share of the world market. • The total engineering services opportunity for the period 2009-14 is expected to be tune of ~ $62 billion. Of the total engineering serv-ices market, automotive sector accounts for 19 percent, aerospace 8 percent, utilities 3 percent and telecom the largest share of 30 percent. • Indian IT service companies serve 55 per-cent of the market, captives serve around 40 percent, and niche players comprise the remaining engineering services market. It is expected that the share of captive centres will increase further in the next few years due to

Exhibit 12Engineering services offshoring

Source: Nasscom

USD billion

Source: Nasscom

Sofware platforms/ systems 10%

Semicoductor/ EDA 18%

Enterprise softeare

products 16%

Telecom / networking 27%

Consumerelectronics 11%Computing

systems 3%

Manufacturing 14%

Consumersoftware

products 1%

Engineering servicesOffshore product development

Sector wise engineering services exports and

offshore product development

3.55 4.27 4.91

0.90 1.10 1.30

FY07 FY08 FY09E

SPOTLIGHT


Exhibit 11

Total = USD886 billion Total = USD30 billion

Worldwide engineering spend, 2008 Total offshorable engineering exports, 2008

Japan 21%

North America 42%

Row 4%

Source: Nasscom Source: Nasscom

Europe 33%China 9%

Other 29%

Mexico 12%

Thailand 5%

Brazil 10%

Poland 7%

Russia 12%

India 16%


SPOTLIGHT


increase in new investments in the country to cater to the various opportunities. • Each type of service provider has a different value proposition based on its strengths. While a captive centre will be able to best manage sensitive information pertaining to the services, an IT /engineering company would have the skill to provide solutions from product design to prototyping across hori-zontals and multiple industries, a pure play engineering services player would have the ability to capture opportunities and deliver an end-to-end mechanical solution in par-ticular domains.

India remains a medium technology providerThough India is considered to be a major destination for engineering services out-sourcing, it is observed that domestic players still lack the expertise in high-end areas such as developing prototype, which require large amount of domain experience in analysis and testing. As risks involved in offshoring com-plex services are high, significant number of players offer low to medium-end engineering services.• Indian players are however, gradually mov-ing up the value chain. With the development of the world’s cheapest car and other low-cost products, India has showcased its potential to provide solutions involving high engineer-ing complexity, especially in the automotive

and aerospace sectors. • A few niche/third-party players have emer-ged, who are offering high-end services and are trying to improve their domain expertise to expand the customer base.

OutlookOn the back of India’s strength in the engineer-ing domain and ability to adapt to new emerg-ing opportunities, it is estimated that engi-neering services will be worth $29 billion by 2015. This is likely to increase India’s share of world offshore engineering spend to 20 per-cent from the current 16 percent. Sectors such as Defence, Aerospace, Telecom, etc. are likely to drive the growth in the future.

Cost advantage is driving the outsourcing of product designs and upgrades, and it is expected that global players will increase the outsourcing of engineering services to India due to its cost advantages. It is also expected that Indian engineering services industry will evolve in future to move beyond its cur-rent product portfolio and become a design services hub of the world (Exhibit 13). Also, with higher level of electronics components in hi-tech/telecom as well as automotive and aerospace, the in-vehicle electronics and avionics areas are expected to account for a large portion of the expenditure. Given India’s poll position amongst low-cost coun-tries in software services, it can by extension utilise its skill sets to play a role of a leader

in this space. The defence sector offers a long-term poten-

tial for the engineering services outsourcing segment. By 2020, Asia’s share in the global defence R&D spend is expected to be double due to increased R&D spend by the developing countries such as India and China.

Recommendations • The industry players, the education institu-tions and Government need to participate actively to develop the necessary skills (domain and sub-domain knowledge, design tools, engineering standards, project management skills and engineering fundamentals) among the graduating engineers.• In order to boost engineering services exports, Government can look to create spe-cialised engineering parks in the country on the lines of software technology parks to accel-erate investments in the sector.• India should increase its visibility by making industry representations, structured market-ing and create awareness about the capabilities of service providers along with successful case studies to enhance the growth of the engineer-ing services outsourcing industry. The indus-try should also initiate the mapping of all the existing industry players, their service offer-ings and domain expertise.• The IPR and data protection laws in the country should be further strengthened to instil greater confidence in foreign investors.

Total= USD131 billion Total= USD220-240 billion Total= USD131 billion Total= USD220-240 billion

Exhibit 13: Emerging trends in engineering services

US

EU

Asia

RoW

69

17

12

2

SD

S & T

MRO

MS

CD

60

15

24

1

42.7%

14.5%

19.8%

7.6%

16.0%

43.2%

14.5%

19.5%

7.3%

15.9%

2004 2020 2004 2020

Region wise Activity wise

Source: Nasscom

SD: System developmentS&T Science and technologyMRO: Maintenance and repairMS: Management supportCD: Component development


Shakespeare ponders in Hamlet, ‘to be or not to be’ as an important question, literally one of ‘life and death.’ It also

implies that ‘to be’ is different from ‘not to be’ and only one situation is possible at a time. If earth and heaven are considered as two dif-ferent spaces, a person resident at one place is a non-resident at another place and vice versa. After all, a person cannot be alive and dead simultaneously! Though the word resi-dent is derived from the word reside, whose

dictionary meaning is one who resides or dwells at that place for some time, the word ‘resident’ has been defined differently under different legislations. Thus, we have situa-tions where a person is resident from literal or dictionary meaning but non-resident as per law. A foreigner who is literally residing in India on a short visit say for tourism can open a non-resident (ordinary) account, though he is dwelling just in front of the branch. We can have a situation where a per-

son is resident from foreign exchange angle but non-resident from taxation perspective and vice versa. In fact, the Income Tax Act gives scope for one more category of person called Resident but Not Ordinarily Resident (RNOR). We try to understand here the con-cepts of resident and non-resident status, its significance in the normal business situations and pros and cons of this status. The focus here will be more from foreign exchange (i.e. as per Foreign Exchange Management Act

Resident and non-resident statusesEXPERTEYE

T R SHASTRI

Prof. Shastri is Dean, ICICI Manipal Academy, Bangalore

An overview of the resident and non-resident statuses from foreign exchange and taxation perspectives


EXPERTEYE

T R SHASTRI

1999) and not taxation angle. The concept of nationality or citizenship or

‘foreign’ or ‘Indian’ is different from the resi-dent and non-resident statuses. Nationality in case of an individual essentially means certain economic benefits including right to reside, get a job & benefits bestowed by the govern-ment and political rights including that to hold a passport or to vote. In case of non-in-dividual like a company, it is considered Indian or foreign from different perspectives. FEMA does not even define the words like foreigner, nationality or citizenship because these have significance from political angle and not financial sense. The concept of nation-ality and resident are independent. In other words, there can be a foreigner but resident, non-resident Indian, etc.

Resident status from foreign exchange angleFEMA first provides an inclusive definition of the term ‘person’ as an entity including an individual, HUF, a company, a firm (like partnership or proprietory), any type of incorporated or unincorporated association of persons or individuals and any other arti-ficial juridical person not so specifically mentioned. It includes any agency, office or branch owned or controlled by such person. Then FEMA proceeds to define how to clas-sify such ‘person’ into resident and non-resi-dent status. It elaborately defines who is a resident in India and then declares all others as non-residents in India.

In case of non-individuals, resident status in India is given if it is a body corporate reg-istered or incorporated in India or if it is an office, branch or agency in India (even if) owned or controlled by a person resident outside India or it is an office, branch or agency outside India owned or controlled by a person resident in India. In other words, a company registered in India is considered an Indian entity even if it is fully owned or man-aged by persons or company outside India. A foreign company’s branch or agency or office in India is a resident entity irrespective of who

manages it. If an Indian registered company has a branch or subsidiary outside India, it will be considered as resident entity, if it is owned or controlled by its parent company in India. Illustratively, Mumbai branch of Citibank is a resident entity so also the Tokyo branch of SBI. The subsidiary of ICICI Bank in Canada (incorporated there) is also Indian resident as per FEMA. Thus, ownership and management (and not place of registration) become relevant for an entity outside India and place of incorporation (and not owner-ship or management) becomes relevant in case of Indian based entities. These finer aspects are important because FEMA is appli-cable to all branches, offices and agencies outside India owned or controlled by a ‘per-son’ resident in India. To that extent, we can say FEMA is applicable all over the world!

To have a control from foreign exchange angle over the branches of Indian companies abroad, they have been defined as resident entities though literally they are residing outside India. However, such classification has some incidental benefit also.

As per section 195(1) of IT Act, withhold-ing tax is applicable on interest paid to non-resident entities. It says any person responsi-ble for paying interest or any other taxable income to a non-resident shall deduct income

tax thereon at the rates in force. Withholding tax rates for payments made to non-residents are determined by the Finance Act passed by Parliament from time to time. At present, it is 20 percent for payment of interest. Thus if a company is availing a buyer’s credit from a bank abroad say Citibank NY, then the inter-est payable is taxable. Thus if the borrowing rate is 3 percent p.a. (including margin over LIBOR), the effective cost is 3.6 percent p.a. because the borrowing company has to pay 0.6 percent p.a. of the interest in equivalent rupee as withholding tax. However, if the buyer’s credit is availed from the foreign branch of an Indian bank say SBI New York, then the borrowing is (as per FEMA) from a ‘resident’ entity and hence no withholding tax is payable, i.e. the borrowing from SBI NY will be cheaper to that extent than borrowing from Citibank NY. That is why, we see brokers bringing offers from Indian bank branches abroad rather than from foreign bank branches abroad due to this cheaper cost. This advantage to SBI NY is due to the defini-tion of its status as resident in FEMA.

Similarly, under Foreign Contribution Regulation Act 1976, receiving contribu-tions from foreigners requires either prior permission from or prior registration with Home Ministry of Government of India in

Bank deposit

accounts possible,

nationality-wise

Indian or foreigner

permanently in India

Indians abroad with

NRI status and PIOs

Non-PIO

foreigner

temporarily in

India

Non-PIO

foreigner

permanently

outside India

RupeeUsual savings, current, fi xed

deposit accounts, etc.NRO & NRE NRO None in India

Foreign currency

• In India: RFC, RFC(D), EEFC,

Escrow …

• Abroad; in select cases

FCNR None in India None in India

Chart 1

Bank deposit accounts possible,

status-wiseResident Non-resident

RupeeUsual savings, current and fi xed

deposit accounts NRO & NRE

Foreign currency

• In India: RFC, RFC(D), EEFC, Escrow

…

• Abroad; in select cases

• FCNR(B)

• Accounts abroad freely


defined cases. However non-resident Indians abroad are not treated as foreigners and hence receiving contributions from them, by any amount, does not attract the provisions of FCRA and hence is being used as a con-venient window by many (otherwise ineligi-ble) beneficiaries in India.

The global income of an Indian is not liable to tax in India so long as he is non-resident or resident but not ordinarily resident, i.e. only the income earned in India is subject to Indian tax. On the other hand, for a resident, both the income in India and that outside India are taxable in India. The deposits in NRE and FCNR accounts opened by banks for NRIs and PIOs (persons of Indian origin) are tax-free, i.e. the interest is free from income-tax and the principal is excluded from wealth tax. To take advantage of these and to escape the perceived rigors of FEMA, many wish to classify themselves as non-residents, if there is provision. Reserve Bank has clarified that it does not determine the residential status. Under FEMA, residential status is determined by operation of law. The onus is on an individual to prove his/her residential status, if questioned by any author-ity. Thus if a person has a business establish-ment in India solely run by him and also has a business say in Dubai, again solely owned by him, he could be considered as resident or non-resident depending on how he presents himself to the bank where he wishes to open an account, though strictly from FEMA angle, he is a resident. The reference to ‘to be or not to be’ is relevant here because none can claim a resident and non-resident status simultaneously.

In case of individuals, a person resident in India means a person residing in India for more than 182 days during the preceding financial year but does not include a person who has gone out of India for employment, or business or vocation outside India, or for any other purpose indicating an intention to stay outside India for an uncertain period. One who is employed in India or one has a business or vocation in India or is in India for

any other purpose indicating an intention to stay in India for an uncertain period is also a resident, irrespective of number of days stayed abroad during the previous financial year. When FERA existed prior to FEMA, this clause of ‘more than 182 days in the previous FY’ as an eligibility was not existing but to harmonise the definition of a resident both from foreign exchange and income-tax pro-visions, this has been introduced in FEMA. However, the attempt is clumsy because the requirement under IT Act is ‘182 days or more’ whereas FEMA refers to ‘more than 182 days.’ A ‘person resident outside India’ of course has been defined as a person who is not resident in India. An NRI is a non-resi-dent Indian. Special types of bank accounts – NRE, NRO & FCNR accounts – can be opened by both NRIs and PIOs. Chart 1 lists the types of special banks.

Resident status from income-tax angleThe definition of resident from income-tax angle is different. FEMA defines resident sta-tus as of now because foreign exchange trans-action may take place now. Whereas income tax is finalised for the last financial year now and hence IT Act defines resident status having regard to the circumstances in the ‘previous year,’ which means the financial year immedi-ately preceding the present assessment year. In other words, a company’s status under IT Act can be defined only after the end of the finan-cial year. As per the IT Act, a company is said to be resident in India in any previous year, if it is an Indian company (i.e. one registered under the Companies Act 1956) or during that year, the control and management of its affairs is situated wholly in India. Every other person, i.e. like firms, unincorporated bodies, etc. is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India. Thus if a foreign company has a branch in India, which is man-aged and controlled by its Head Office outside India, then it will not be a resident as per the

IT act whereas it will be a resident as per FEMA. There are very lengthy definitions for resi-dents, non-residents and not ordinarily resi-dents as applicable to individuals in the IT Act. To facilitate returning Indians, the past history of their place of residence up to ‘ten previous years preceding that year’ need to be taken into account. Quite a herculean task to save tax!

IT Act also defines other categories of companies, for example, Indian company means a company formed and registered under the Companies Act 1956 and includes corporations under equivalent acts, etc. However, the registered or principal office of such company, corporation, institution, association or body should be in India. Domestic company means an Indian com-pany. Any other company, which has taxable income in India and has made the prescribed arrangements for the declaration and pay-ment, within India, of the dividends payable out of such income, is also treated as domes-tic company. Foreign company means a company, which is not a domestic company. These terms Indian company, domestic com-pany and foreign company are not defined under FEMA. However, for limited pur-poses, in the notifications issued under FEMA, from time to time, some such terms have been defined, for example, in the con-text of establishing a branch or office in India, a ‘foreign company’ has been defined as a body corporate incorporated outside India, and includes a firm or other association of individuals. In the context of investments in India (like FDI and FII), ‘Indian company’ means a company incorporated in India. These definitions are, therefore, very similar from both the contexts.

It is always essential to know the residential and nationality status of our counter party, with whom we propose to deal. For bankers, it helps in deciding the eligibility for opening different types of bank account. For a corpo-rate, it could be to measure the applicable tax either income tax or withholding tax. After all, the tax implications decide the major part of costing!

EXPERTEYE

T R SHASTRI


INDONESIAThe Indonesian Central Bureau of Statistics recorded that the country’s exports increased

4.06 percent in May 2010 from $12.52 billion in April 2010. May 2010`s year-on-year exports went up 36 percent, compare to May 2009. The 10 prime export products are cof-fee, shrimp, textiles and textile products, footwear, automotive and electronic prod-ucts, cacao, palm oil, forestry products, rub-ber and rubber products.

India-ASEAN Trade in Goods Agreement:

The Republic of Indonesia has ratified the India-ASEAN Trade in Goods Agreement. According to official sources, the AIFTA would potentially create benefits for local products such as CPO, textiles and clothing although domestic products might have dif-ficulties in competing with cheaper pharma-ceutical and automotive products imported from India. Without a free trade agreement with India, Indonesia would miss out on potential revenues of about $3 billion from CPO exports a year and could lead to a poten-tial loss of $8 billion if combined with other products. Courtesy: Embassy of India in Jakarta

KAZAKHSTAN Kazakhstan’s overall trade with India has decreased from $119.26 million ( Ja n u a r y - Ap r i l

2009) to $114.80 million (January-April 2010), resulting in a decrease of 3.73 percent in total trade. In comparison with January-April 2009 imports from Kazakhstan have decreased by 26.05 percent (from $71.81 million to $53.10 million) whereas India’s exports to Kazakhstan have increased by 30.03 percent (from $47.45 million to $61.70 million). Courtesy: Embassy of India in Almaty

MARKETS

EEPC INDIA

MARKET NEWS

CANADA

GERMANY

SERBIA


CANADACanada announced at the meeting of the Committee on Market Access on 29 April 2010 that it

had become a tariff-free zone for manufac-

turing inputs and machinery. It was commit-ted to maintaining open markets to help the global economy recover, adding that this unilateral action would help raise the com-petitiveness of Canadian companies. The key beneficiaries to this initiative would be small and medium-sized companies that must

Total foreign trade of KazakhstanJanuary-April 2010 ($ million)

Items Jan-Apr

2009 Jan-Apr

2010 % growth

rate

Import 8,436.23 7,661.20 (-)9.18

Export 10,805.17 18,287.60 (+)69.24

Total trade 19,241.40 25,948.80 (+)34.85

Trade balance

(+)2,368.94 (+)10,626.60

4 principal export items from Kazakhstan to India January-April 2010

Items $ ’000s

1 Chemicals 32,861.40

2 Iron and plain steel slabs 20,567.80

3 Asbestos 6,339.50

4 Titan and its products 1,386.50

5 principal import items from India to Kazakhstan January-April 2010 ($ ’000)

Items $ ’000s

1 Pharmaceutical and medical products 21,550.90

2 Tea 16,537.40

3 Industrial machinery, equipment, milling machinery and spares 7,035.00

4 Electrical equipment and spare parts 5,100.00

5 Textiles, garments 2,836.00

KAZAKHSTAN

INDONESIA


source goods for production from global sup-ply chains. Beyond lower cost through the elimination of tariffs, these companies would also see a reduction in the costs of customs paperwork through eliminating the need to comply with certain preferential rules of origin requirements.

Canada said that on 28 January 2009, it had reduced to zero 214 tariff lines, with a simple average tariff rate of 5.2 percent and account-ing for over C$2 billion in annual dutiable imports. The government announced a sec-ond set of tariff liberalisation measures that eliminates the most-favoured-nation applied rates of customs duty on an additional 1,541 tariff items. The majority of these items became duty-free effective as of 5 March 2010, with the remainder scheduled to be gradually eliminated by no later than 1 January 2015.

As a result of this latest action, Canada will have eliminated its remaining MFN applied rates of customs duty on manufacturing inputs and machinery and equipment and liberalised an additional C$ 5 billion in annual dutiable imports.Source: WTO News

SERBIA The Serbian econ-omy continued to show signs of a gradual recovery. Serbian GDP grew a

modest 1 percent in the first quarter. For the first five months of 2010, Serbia has seen an increase in industrial production. May 2010 figures compared to May 2009 expressed growth of 7 percent. Manufacturing regis-tered growth of 7.9 percent along with a growth in the mining industry of around 10.9 percent. The energy sector registered a growth in production of some 1.8 percent.

Foreign trade: The overall external trade in the Republic of Serbia for the period of January-May 2010 amounted to $10.01 bil-lion, which was a 9.3 percent increase com-pared to the same period 2009. The value of

exports amounted to $3.59 billion, which was a 20.4 percent increase when compared to the same period in 2009, while the value of imports amounted to $6.42 billion, which was a 4 percent increase relative to the same period in 2009. The trade deficit amounted to $2.82 billion, which was a decrease of 11.4 percent in relation to the same period in 2009.

Top 10 export products: Hot rolled prod-ucts of steel ($45 million), electricity ($24 million) , crude oil of bituminous minerals ($17 million) rolled products plated with tin ($16 million), copper plates and sheets($15 million), ferrous waste ($14 million), maize ($14 million), raspberries ($13 million), new car tyres ($11 million), aluminium plates and sheets ($11 million).

Top 10 import products: Crude oil ($82 million), natural gas ($66 million), crude oils of bituminous minerals ($32 million), buses and minibuses ($29 million), copper refined ($18 million), semi-finished products of iron & steel ($16 million), retail medicaments ($14 million), coke and coal ($14 million), trans-mitters and equipment ($11 million), alu-minium, not alloyed ($10 million).

India-Serbia bilateral trade from January to the month of May 2010 amounted to $43.62 million of which $39.99 million were exports from India and $3.63 million imports into India. Embassy of India in Belgrade

GERMANYThe German econ-omy seems to have gained some mom-entum. Eco nom-ists expect the cou-

ntry´s GDP to increase by 3 to 4 percent this quarter, backed by a weak euro which is propelling the export driven economy of the country, a continuing recovery of industrial output as well as repeated increases of industrial orders which surged by 2.8 per-cent in April. The improvement in the emp-loyment market also continued. The unem-ployment rate for May was lower than expected and sank to 7.5 percent as com-pared to 8.1 percent the month before, according to Federal Labour Agency (Bund-esagentur für Arbeit). Further, this June, the German government announced the largest package of austerity measures in the country´s history, including amongst oth-ers, the introduction of new levies on nuclear fuel rods, airline ticket purchases and financial transactions. Thus, the gov-ernment hopes to save € 80 billion by 2014. However, several economists warn that strict austerity measures may have unfore-seeable impact on economic growth and may backfire. Courtesy: Consulate General of India, Frankfurt

MARKETS

EEPC INDIA

India’s top 5 exports to Serbia India’s top 5 imports from Serbia

Product groups $ ’000 Product groups $ ’000

Total 39,997 Total 3,626

1. Pharmaceutical & chemical products 7,553 1. Products of Iron & Steel 2,245

2. Textile, yarn, garments & footwear 6,749 2. Machine parts 1,121

3. Coff ee, tea ,spices & food products 2,750 3. Industrial pumps 86

4. Motor vehicles, tractors and equipment 1,578 4. Footwear & garments 83

5. Magnetic media for recording 768 5. Off set 19

Source: Statistical Offi ce of the Republic of Serbia

INDIAN ENGINEERING EXPORTS AUGUST 2010 I

El trasfondoEl PBI de India creció un 6.1 por ciento en el primer trimestre del año financiero 2009-10 con un impulso del sector de servicios, que

alcanzó una tasa de crecimiento global de más del cinco por ciento. El crecimiento industrial aumentó su ritmo en los primeros dos meses del segundo trimestre, con un Índice de Producción Industrial (IPI) que alcanzó los dos dígitos en agosto, en el mismo período que el año pasado. Luego de un largo período de crecimiento industrial casi estancado desde octubre de 2008 hasta mayo de 2009, este es un signo significativo de la recuper-

ación de la industria desde el impacto de la crisis financiera y económica global. La pro-ducción industrial de bienes de consumo duraderos mostró un incremento marcado y consistente desde el comienzo del año finan-ciero. La mejora en los bienes básicos y de capital ha sido un tanto errática si bien hubo un alza estable en el crecimiento de los sec-tores intermedios.

La recuperación en el crecimiento indus-

Revisión trimestral de la economía – 2009TEMA PRINCIPAL

CONSEJO NACIONAL DE INVESTIGACIÓN

ECONÓMICA APLICADA (NCAER)

INDIAN ENGINEERING EXPORTSII AUGUST 2010

TEMA PRINCIPAL



trial ha sido acompañada de una mejora en el desempeño corporativo y en los mercados de capital. La revisión por parte del RBI de la economía del segundo trimestre de 2009-10 demuestra que si bien las ventas en el sector corporativo (compañías no gubernamentales y entidades no financieras) no se han incre-mentado en la primera mitad del año, han aumentado las ganancias. El índice de precios de acciones Índice de la Bolsa de Valores de Bombay (BSE Sensex, por sus siglas en inglés) mostró una mejora sostenida, y registró un alza del 37 por ciento entre abril y agosto de 2009. La tasa de baja en las exportaciones, en una base interanual, ha disminuido. De hecho, desde mayo hasta agosto de 2009, las export-aciones aumentaron en forma consistente respecto del mes anterior.

A nivel global, se percibe que las economías se están estabilizando y están volviendo con esfuerzo a un sendero de crecimiento lento y moderado. También hubo una mejora en el sentimiento económico. El mes de julio fue testigo de un incremento marcado en el Índice de Confianza Empresarial.

Sin embargo, también hubo indicadores hacia los riesgos de la recuperación en el crecimiento. El monzón de este año ha sido pobre, y podría verse una baja en la produc-ción de la agricultura. La divergencia en los índices de precio al por mayor y menor ha continuado, sin que logren moderarse los aumentos de precio de los artículos prima-rios. Si bien siguen siendo innecesarias una política monetaria acomodaticia y una política fiscal expansiva para mantener el crecimiento, la perspectiva en las presiones inflacionarias sigue siendo causal de preo-cupación. La revisión por parte del RBI de los desarrollos monetarios y macroeconómicos del segundo trimestre de 2009-10 observó que "Si bien la inversión prematura de la posición de la política monetaria conlleva el riesgo de cortar la recuperación, la persisten-cia de una posición acomodaticia podría impactar de forma adversa las expectativas de inflación”.

Las preocupaciones que emana el largo

período de recesión en las economías desarrolladas continúa siendo el centro de las políticas monetarias y fiscales. Si bien las evaluaciones recientes de las perspectivas de la economía global indican que la baja en la producción se ha moderado y las economías se están estabilizando, se espera que la recu-peración en el crecimiento sea lenta y mod-erada. Existe una necesidad creciente de que los países en vías de desarrollo rebalanceen sus estrategias al menos a corto plazo, prestando más atención a fortalecer la demanda doméstica. En el contexto de la India, el gobierno ha señalado sus intenciones de mantener el apoyo fiscal para la recuper-ación del crecimiento económico y la reduc-ción del riesgo de presiones inflacionarias.

Parte de la recuperación del crecimiento económico que se observó en el año financiero actual puede atribuirse a las medidas de política monetaria y fiscal, que dieron estabilidad a las condiciones de la demanda y estabilidad al sistema financiero. En este sentido, resulta necesario continuar con las políticas de apoyo hasta establecer un impulso de crecimiento de base amplia. Se necesitarían esfuerzos globales para asegurar que dicho ambiente prevalezca hasta ver indicios de crecimiento económico continuo. También se necesitan esfuerzos globales para reducir los efectos de enferme-dades contagiosas como la gripe H1N1 y otras amenazas a la paz y la seguridad. En esta revisión de la economía para el segundo tri-mestre del año 2009-10 ofrecemos una dis-cusión sobre las tendencias en tres sectores principales: agricultura, industria y servicios, los desarrollos en las condiciones monetarias y crediticias, el comercio exterior, los precios y las finanzas públicas. Asimismo, ofrecemos una re-evaluación de los parámetros macr-oeconómicos para 2009-10.

Agricultura, industria y servicios.La mayor preocupación respecto de los pronósticos para la agricultura en el corriente año ha sido la naturaleza errática del monzón. El alcance de la deficiencia de lluvias durante junio-septiembre de 2009 fue tan severo que

todo el país terminó por recibir niveles sub-normales de lluvia durante este monzón. A un nivel regional amplio, las precipitaciones acumuladas del monzón fueron un 18 por ciento por debajo del período largo promedio en el Este, 26 por ciento más escasas en el Oeste y 38 por ciento más escasas en el Norte. Para la totalidad del país, el uso de áreas no irrigadas para cultivar cereales agregó infor-mación de la lluvia a nivel de subdivisión, y demostró que las deficiencias en la lluvia fueron de 23.5 por ciento por debajo del promedio a largo plazo.

Puede estimarse la naturaleza errática de las lluvias de este año por el hecho de que 12 estados declararon condiciones de sequía en 299 distritos. Entre ellos, estados como Karnataka y Andhra Pradesh sufrieron sev-eras inundaciones por la intensificación de las lluvias cuando se replegó el monzón del suroeste.

Los estimados que se presentan en esta revisión sugieren que la producción de cere-ales kharif podría ser de un 12-17 por ciento menor que el año pasado y la producción de semillas oleaginosas kharif podría ser un 6 por ciento menor. Se espera que la produc-ción de algodón y caña de azúcar muestre un crecimiento positivo. También se espera que la cosecha de rabi contrarreste algunas de las pérdidas en kharif gracias a que los niveles de agua en los reservorios que alimentan los sistemas de riego han alcanzado un nivel satisfactorio.

El impacto de la disminución en la produc-ción del kharif ha sido visible. El precio de las legumbres y vegetales fue alrededor de un 20 por ciento más alto en abril-septiembre de 2009 comparado con el mismo período del año pasado. La administración eficiente del comercio, la distribución y las políticas de precios para la agricultura serán una priori-dad de las políticas de este año.

En el caso de la industria, el aumento en el crecimiento de los primeros dos meses del T2: 2009-10 ha sido un signo positivo para los pronósticos de la economía en general. El aumento continuo en el sector de bienes de

INDIAN ENGINEERING EXPORTS AUGUST 2010 III

TEMA PRINCIPAL



consumo duraderos en los primeros cinco meses del año financiero actual podría refle-jar algunos de los estímulos de las políticas fiscales sobre la demanda. Sin embargo, la recuperación del crecimiento ha sido de base un tanto amplia, dado que los sectores inter-medios también mostraron una mejora con-tinua en su crecimiento. Si bien las condi-ciones pobres para la agricultura podrían implicar un revés en la demanda de las áreas rurales, los altos precios de los productos agrícolas, si alcanzan a la producción gran-jera, podrían contrarrestar algunos de los efectos adversos de las pérdidas de la produc-ción en la demanda. De forma más impor-tante, la estabilidad en las condiciones de la demanda y en los mercados financieros podría restablecer la confianza del consumi-dor de la misma forma en que ha revivido la confianza en los negocios.

En el caso de los servicios, las señales han sido mezcladas. Si bien algunos sectores importantes como el comercio, los hoteles y el transporte y comunicación registraron una tasa más baja de crecimiento en el T1: 2009-10 si lo comparamos con el crecimiento interan-ual el en T1: 2008-09, en el caso de las finanzas, los seguros, los bienes inmuebles y los servicios de negocios el crecimiento fue más alto este año comparado con el T1: 2008-09. Los datos trimestrales ajustados estacionalmente muestran una continuación en las tendencias de la producción en el año financiero actual para el sector de servicios, e inclusive para la construcción. De la variedad de indicadores de la actividad por sector de servicios, existen signos de un aumento en el ritmo de la produc-ción en el primer trimestre de 2009-10 com-parado a las condiciones en el T4: 2008-09. Mantener esta tendencia dependerá de man-tener el impulso del crecimiento industrial, dado que la producción y los servicios relacio-nados al comercio requerirían las mismas condiciones de la demanda que se crearon para el crecimiento industrial.

Dinero y preciosLa segunda revisión trimestral del Banco de

Reservas emitida el 27 de septiembre, además de demostrar signos de estabilidad en la pos-ición política, también indicó un perfil de éxito del estímulo provisto en respuesta a la crisis financiera internacional. El reporte de la tasas de REPO (operaciones con pacto de recompra) y REPO en reversa siguen en 4.75 por ciento y 3.25 por ciento, mientras que el coeficiente de caja (CRR, por sus siglas en inglés) se mantuvo al 5 por ciento de demanda neta y de obligaciones a largo plazo (NDTL, por sus siglas en inglés). Sin embargo, se han anunciado algunas medidas que forman parte del éxito de la política monetaria aco-modaticia. El ratio de liquidez estatutario (SRL, por sus siglas en inglés), que se había reducido desde un 25 por ciento de la demanda y las obligaciones a largo plazo a un 24 por ciento, se ha reestablecido en un 25 por ciento. El límite para los créditos de refinan-ciación de exportaciones, que había aumen-tado a 50 por ciento de créditos de export-ación elegibles pendientes, ha vuelto al nivel pre-crisis de 15 por ciento. Las dos facilidades para el refinanciamiento no convencionales: (i) las facilidades de refinanciamiento espe-cial para bancos comerciales programados; y (ii) facilidades repo con plazos especiales para bancos comerciales programados [para financiamiento de fondos mutuos (FMs, por sus siglas en inglés)], y para compañías de financiamiento de viviendas (HFCs, por sus siglas en inglés) están siendo descontinuadas con efectos inmediatos. También ha habido propuestas web para rever y modificar en forma apropiada los sistemas regulatorios en vista de las lecciones que nos ha dejado la crisis financiera que sufrió el mundo en los últimos 12 meses.

La revisión que se presenta aquí apunta hacia la amplia divergencia en las tasas de interés globales y domésticas. La baja en la tasa de inflación ha aumentado las tasas de interés real aún más. Dichas condiciones resaltan el dilema de cuándo salir de la política económica acomodaticia. Teniendo en cuenta la falta de una recuperación signi-ficativa en las exportaciones a pesar de la

marcada devaluación de la rupia, esta revisión marca la necesidad de una recuperación en las condiciones globales de demanda para obtener una mejora continua en el desem-peño de las exportaciones.

El crecimiento débil en el crédito bancario para los sectores comerciales marca las etapas nacientes de recuperación económica. Dado que las tasas de interés siguen siendo relati-vamente altas, las compañías podrían no inclinarse a los préstamos y enfocarse en el control de gastos y la conservación de ganan-cias. El entusiasmo de los mercados de capital podría durar sólo si hay una mejora continua en las condiciones de producción de las economías avanzadas.

Las tasas bajas de inflación que se experi-mentaron en el último año financiero fueron el resultado de la recesión en la actividad económica mundial. Mejorar las condiciones económicas podría implicar el aumento de precios de los productos básicos y luego de los manufacturados. Los precios del petróleo crudo, si bien son más bajos que los $100 por barril de marzo-septiembre de 2008, han comenzado a subir. Los precios al por menor, en especial para los artículos y productos comestibles, reflejan una tasa de inflación con un nivel de dos cifras.

La preocupación sobre el potencial riesgo de un aumento de la tasa de inflación en los meses restantes del año parece estar justifi-cada en vistas a la necesidad de moderar la inflación para recuperar la demanda de con-sumo e inversión.

Sector externoSe espera que, en 2009, el volumen de com-ercio mundial descienda por primera vez desde 1982. La caída podría llegar a un 11.9 por ciento. Las exportaciones de los países en desarrollo podrían disminuir un 7.2 por ciento. Los países avanzados recibirían el golpe mayor, dado que sus exportaciones podrían decaer un 13.6 por ciento.

Muchos países del mundo están adoptando medidas proteccionistas a través de las medi-das restrictivas de la OMC del comercio legal

INDIAN ENGINEERING EXPORTSIV AUGUST 2010

e ilegal. Desde el comienzo de la crisis finan-ciera, el Banco Mundial reportó 78 medidas nuevas sobre el comercio anunciadas por diferentes países. Estas incluyen 66 medidas restrictivas del comercio de las que se han implementado 47. Alrededor de la mitad de dichas medidas tratan el aumento de arance-les. Otras medidas carecen de transparencia dado que se refieren a barreras no arance-larias y subsidios.

La reanimación en los aumentos de precios de los productos básicos en los mercados internacionales ha sido impulsada por las mejoras en los sentimientos del mercado y la devaluación del dólar. Los precios del petróleo han aumentado gracias al aumento en la demanda y las restricciones en el suministro. Sin embargo, se espera que el 2009 traiga un declive en los precios de los productos bási-cos: 36.6 por ciento para el petróleo y 20.3 para productos no combustibles.

Debido al aumento en el costo total de las importaciones a causa de los altos precios del petróleo crudo y la caída en las exportaciones por la reducción en la demanda, el déficit comercial de la India en 2008-09 excedió los $100 billones. La entrada de inversión extran-jera directa (IEA) tocó los $9.5 billones en T1: 2009-10 comparada con $11.9 billones en T1: 2008-09.

Finanzas públicasEl aumento en el crecimiento industrial aún no se refleja en las finanzas públicas. La infor-mación de abril-agosto demuestra que las recaudaciones impositivas y no impositivas se encuentran rezagadas con respecto a los nive-les del año pasado. Los ingresos totales alcan-zaron 25.6 por ciento de los estimados del Presupuesto para los primeros cinco meses de 2009-10 comparados con 26.89 para el mismo período de 2008-09. El programa de présta-mos aún no alcanzó el ritmo del año pasado.

En T1: 2009-10, el impuesto de sociedades registró un crecimiento pobre del 1.9 por ciento, comparado con el astronómico 43.4 por ciento del trimestre correspondiente de 2008-09. Los ingresos del impuesto de socie-

dades registraron un crecimiento positivo de 7.2 por ciento en T1: 2009-10 comparado con 50 por ciento en T1: 2008-09.

Los aranceles aduaneros registraron un crecimiento negativo de 37.4 por ciento en T1: 2009-10 contra un crecimiento positivo del 20 por ciento en T1: 2008-09. La Junta Central de Impuestos registró un crecimiento negativo del 23.8 por ciento en 5T1: 2009-10 comparado con un crecimiento negativo menor del 0.9 por ciento en el período cor-respondiente de 2009-10.

La reducción de impuestos por un lado y la baja tasa de inflación por el otro podrían haber contribuido a la baja en la recaudación de rentas del año actual. Se necesita más acel-eración en la actividad económica para ayudar a mejorar la recaudación del gobierno.

Re-evaluación de las condiciones macroeconómicas para 2009-10El Consejo Económico Consultivo del Primer Ministro ha proyectado el crecimiento del PBI para 2009-10 en un 6.5 por ciento con una desviación del 6.25 al 6.75 por ciento. El

RBI también proyectó un crecimiento del 6.5 por ciento para 2009-10.

En esta revisión, luego de analizar varios indicadores relevantes, se han proyectado los indicadores macroeconómicos claves para 2009-10.

La evaluación revisada para el año en gen-eral ubica el crecimiento total del PBI en un 6.9 por ciento de PBI, más bajo que la predic-ción de julio de un 7.2 por ciento. La baja en el crecimiento es resultado de la baja en la producción agrícola estimada. Si bien se proyecta que el PBI agrícola descenderá un 1.5 por ciento, se proyecta que el PBI indus-trial (inclusive para la construcción) aumente un 6.9 por ciento. Se proyecta que el PBI del sector de servicios aumente un 9.5 por ciento. Se espera que el déficit fiscal del Centro sea del 6.3 por ciento del PBI, más bajo que el estimado por el Presupuesto, de 6.8 por ciento. La tasa total de inflación anual, cor-respondiente al índice de precios al por menor (WPI, por sus siglas en inglés) se proyecta a un 3.8 por ciento. La tabla 1 resume las proyecciones.

Tabla 1: Evaluación revisada de los parámetros macroeconómicos para 2009-10

Variables Predicción para 2009-10 de

abril 09 julio 09 octubre 09

PBI Real

- Agricultura 2.5 1.0 -1.5

- Industria 6.3 6.7 6.9

- Servicios 8.5 9.4 9.5

Total 6.9 7.2 6.9

Exportación de mercadería 9.1 12.0 10.5

Mercadería 10 5.5 4.9

Infl ación (WPI) 5.2 3.7 3.8

Como porcentaje del PBI en los precios de mercado

Défi cit fi scal 4.5 6.2 6.3

Défi cit en cuenta corriente 3.5 2.4 2.5

TEMA PRINCIPAL



INDIAN ENGINEERING EXPORTS AUGUST 2010 V

El EEPC India (Consejo para la promo-ción de la exportación de ingeniería, según sus siglas en inglés) considera

que la crisis económica global ha afectado el sector ingeniero del país de forma considera-ble lo que, a su vez, ha afectado la situación del empleo en el país. Sin embargo, es importante establecer la contribución exacta del sector ingeniero al empleo en la India respecto de otros sectores de la industria para que sea posible obtener una perspectiva adecuada del empleo en diferentes sectores de la industria india. Este escrito hace un intento modesto en esa dirección.

Fuerza laboral en IndiaDe acuerdo al Ministerio de Trabajo, vide su comunicado de prensa con fecha 21 de marzo de 2007, la Organización Nacional de Muestras de Encuesta (NSSO, por sus siglas en inglés) obtiene estimaciones confiables de la fuerza laboral del país por medio de encuestas quin-quenales sobre fuerza laboral, empleo y desem-pleo. La última de dichas encuestas quinque-nales, de la que contamos con los resultados, se condujo durante 2004-05. La fuerza laboral completa de la India, según la Clasificación Nacional de Industria adoptada por la Organización Central de Estadística (CSO, por sus siglas en inglés), se clasifica en indus-trias como la agricultura y afines, minería y explotación de canteras, manufactura, electri-cidad, suministro de gas y agua, construcción, comercio, hoteles y restaurantes, transporte,

almacenamiento y comunicación y otros serv-icios. Por otro lado, los sectores se clasifican en sentido amplio en agricultura, industria y servicios. Según estas encuestas, el porcentaje de población que formaba parte de la fuerza laboral en 2004-05 era de alrededor del 43 por ciento, en comparación con el 40.6 por ciento en 1999-2000, con base en el estado usual.

La Tabla 1 muestra las figuras del empleo en diferentes sectores de la economía entre 1999-2000 y 2004-05.

De esta forma, el empleo total mostró un aumento desde 397 millones en 1999-2000 a 459.56 millones durante 2004-05, y se registró un crecimiento promedio en el empleo de 12.42 millones por año. La proporción de aumento en el empleo de 1990-2000 a 2004-05 en la agricultura, industria y servicios fue de aproximadamente 30.57 millones, 14.35 mil-

El empleo en la industria organizada: El sector ingeniero es el que más contribuye

REVISIÓN

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INDIAN ENGINEERING EXPORTSVI AUGUST 2010

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lones y 17.14 millones, y, por lo tanto, creció en un porcentaje de 2.6 por ciento, 4.1 por ciento y 3.8 por ciento respectivamente.

El empleo en la industria organizadaVeamos ahora el empleo en la industria organizada. Para estos fines, la mejor fuente de información es la Encuesta Anual de Industrias (ASI, por sus siglas en inglés) que lleva a cabo la CSO. La información más reciente de la ASI es de 2005-06 y es la infor-mación más fehaciente y actualizada.

Primero, demos un vistazo a qué constituye "industria organizada" y el alcance de este sector de la economía india. La Tabla 2 nos provee dicha información.

Veamos ahora la clasificación de las indus-trias más importantes y las características del empleo en dichas industrias. Esta informa-ción, conforme a la encuesta ASI más reciente, se encuentra en la Tabla 3.

La tabla muestra que, de acuerdo la ASI de 2005-06, existen 140,160 fábricas en India dentro de 26 clasificaciones del NIC (Clasificación Industrial Nacional, por sus siglas en inglés), que emplean a 7.13 millones de trabajadores para un total de empleo de 9.1 millones. Esta información se clasifica en sectores amplios de industria para obtener el empleo exacto en cada uno de ellos. Por con-siguiente, las 26 categorías de industria se subdividen en siete amplias industrias prin-cipales de la India en la Tabla 4.

En la Tabla 5, nos encontramos frente a los porcentajes de cada sector de la industria en términos de total de fábricas y empleo.

La Tabla 5 demuestra claramente que, según la información más reciente, la indus-tria de la ingeniería tiene el número más alto

de fábricas, que representan más del 27 por ciento del número total de fábricas en el país; emplea al 27 por ciento del total de traba-jadores e involucra a casi el 29 por ciento del total de personas. La industria textil tiene un

porcentaje menor de fábricas comparada con la agricultura y las industrias misceláneas, pero alcanza un porcentaje similar en el total de trabajadores y el total de personas involu-cradas.

Tabla 1: Empleo en todos los sectores (en millones)

Sectores 1999-2000 2004-05

Agricultura 238 268,57

Industria 69,2 83,55

Servicios 90,3 107,44

Total 397,5 459,56

Fuente: Ministerio de Trabajo & Gobierno de India (GOI, por sus siglas en inglés)

Tabla 2: Características principales según cada tipo de organización en la ASI de 2005-06 (Rs lakh)

Tipo de organizaciónFábricas

(Números)Capital fi jo

Capital

productivo

Capital

invertido

1. Propiedad individual 38895 699668 1347479 1434427

2. Familia Conjunta (HUF, por sus siglas en inglés) 2857 102853 175542 196439

3. Sociedades 46278 2316980 4674359 5122431

4. Sociedades anónimas 12627 38175074 46240396 52890178

5. Empresas públicas 35940 14037998 20450174 21943121

6. Empresas de ministerio 187 645015 815422 788072

7. Corporaciones públicas 413 3256656 4057302 4829623

8. Sector corporativo 49167 56114743 71563294 80450994

9. Industrias Khadi y locales 242 8244 15252 19085

10. Industrias del telar 54 2355 6469 7585

11. Sociedades cooperativas 2046 1349382 1248979 2800603

12. Otras (que incluyen RN) 622 99803 108914 126298

TOTAL 140160 60694028 79140288 90157861

Fuente: Encuesta Anual de Industrias, Ministerio de Estadísticas e Implementación de Programas, GOI

Tabla 3: Características principales según los grupos de industrias más importantes en la ASI de 2005-06

NIC-

2004Descripción Fábricas Trabajadores

Total de personas

involucradas

24 Químicos y productos químicos 10995 560863 825435

23 Carbón, productos de petróleo y combustible nuclear 1037 65471 85283

27 Metales básicos 7228 488151 643594

34 Automotores, remolques y semirremolques 3069 276013 359936

15 Productos alimenticios y bebidas 25725 1092482 1391616

17 Productos textiles 13810 1141372 1337007

29 Maquinaria y equipo, ncp 9531 316171 466239

26 Productos minerales no metálicos 13999 471842 579170

31 Maquinaria y aparatos eléctricos, ncp 4069 199796 274467

35 Otros equipos de transporte 1886 154555 199230

28 Productos metálicos fabricados 8534 290063 372726

25 Productos de goma y plástico 7353 243160 317414

Otras industrias 5490 114716 177310

16 Tabaco y productos afi nes 3344 447034 473608

18 Indumentaria y vestimenta, Preparación y teñido de piel 3649 468132 541848

32 Radio, televisión y equipos de comunicación 1036 77984 115890

22 Publicación, imprenta y actividades afi nes 3319 85890 134888

21 Papel y productos de papel 3749 138684 177696

36 Muebles y otras manufacturas, ncp 2562 146760 189725

33 Instrumentos médicos, ópticos y de precisión 987 48699 71015

30 Ofi cinas, maquinaria contable y de cómputo 180 14368 21776

19 Cuero y productos afi nes 2443 146704 173892

20 Madera y productos de madera 3033 42767 56387

01 Agricultura y actividades relacionadas 2864 90274 109279

14 Otras minerías y explotaciones 179 12473 14215

37 Reciclado 88 1674 2036

Todas las Industrias 140160 7136097 9111680

Fuente: Encuesta Anual de Industrias, Ministerio de Estadísticas e Implementación de Programas, GOI

INDIAN ENGINEERING EXPORTS AUGUST 2010 VII

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Por lo tanto, el análisis anterior indica que la industria de la ingeniería es la mayor fuente de empleo del país y una reducción en su actividad tendrá un impacto considerable en el empleo del país.

Para concluir…Un escrutinio de cerca a la información de la ASI que provee el Ministerio de Estadísticas e Implementación de Programas demuestra que el empleo en la industria de la ingeniería es mayor, en términos tanto absolutos como relativos, que en las demás industrias princi-pales. Por lo tanto, resulta claro que el impacto de la recesión global sobre el sector ingeniero tendrá importantes efectos sobre el sector organizado del país.

Tabla 4: Sectores principales de industria: Fábricas y empleo

NIC-2004 Sector industrial Fábricas Trabajadores Total de personas involucradas

Industria Química

24 Químicos y productos químicos 10995 560863 82543523 Carbón, productos de petróleo y combustible nuclear 1037 65471 85283

Total 12032 626334 910718Agricultura y procesamiento de alimentos

15 Productos comestibles y bebidas 25725 1092482 139161616 Tabaco y productos afi nes 3344 447034 47360801 Agricultura y actividades afi nes 2864 90274 109279

Total 31933 1629790 1974503Textiles y productos textiles

17 Productos textiles 13810 1141372 133700718 Indumentaria y vestimenta, preparación y teñido de piel 3649 468132 541848

Total 17459 1609504 1878855Industria de la ingeniería

27 Metales básicos 7228 488151 64359434 Automotores, remolques y semirremolques 3069 276013 35993629 Maquinaria y equipos, ncp 9531 316171 46623931 Maquinaria y aparatos eléctricos, ncp 4069 199796 27446735 Otros equipos de transporte 1886 154555 19923028 Productos metálicos fabricados 8534 290063 37272636 Muebles y otras manufacturas, ncp 2562 146760 18972533 Instrumentos médicos, ópticos y de precisión 987 48699 7101530 Ofi cina; maquinaria contable y de cómputo 180 14368 21776

Total 38046 1934576 2598708Cuero y productos afi nes

19 Cuero y productos afi nes 2443 146704 173892Madera, papel y productos de papel

20 Madera y productos de madera 3033 42767 5638721 Papel y productos de papel 3749 138684 177696

Total 6782 181451 234083Sectores misceláneos de la industria

25 Productos de goma y plástico 7353 243160 317414Otras industrias 5490 114716 177310

32 Radio, televisión y equipos de comunicación 1036 77984 11589022 Publicación, imprenta y actividades afi nes 3319 85890 13488814 Otras minerías y explotaciones 179 12473 1421537 Reciclaje 88 1674 203626 Productos minerales no metálicos 13999 471842 579170

Total 31464 1007739 1340923Fuente: Información de la ASI, reclasifi cada

Tabla 5: Porcentaje de los sectores principales de la industria en el total de fábricas y empleo

Sectores principales

de la industria Fábricas Trabajadores

Total de

personas

involucradas

Porcentaje en

total fábricas

Porcentaje

en total

trabajadores

Porcentaje

en total de

personas

involucradas

Industria química 12032 626334 910718 8,58 8,77 9,99

Industria de la Agricultura y procesamiento de alimentos

31933 1629790 1974503 22,78 22,83 21,67

Industria y textil y sus productos

17459 1609504 1878855 12,45 22,55 20,62

Industria de la ingeniería

38046 1934576 2598708 27,14 27,10 28,52

Industria del cuero y sus productos

2443 146704 173892 1,74 2,05 1,90

Industria del papel y productos de papel

6782 181451 234083 4,83 2,54 2,56

Industrias Misceláneas 31464 1007739 1340923 22,44 14,12 14,71

Total 140159 7136098 9111682 100 100 100

Fuente: Información de la ASI, cálculos por el EEPC India

INDIAN ENGINEERING EXPORTSVIII AUGUST 2010

Visité suelo africano por primera vez a principios de 1998, para ocupar un cargo en un banco comercial en

África del Este. El banco era de carácter pri-vado. Su presidente, quien también era su accionista principal, era un empresario industrial, el segundo fabricante más impor-tante de productos plásticos en Asia del Este. Era un ciudadano de Kenia de origen indio, un Gujarati cuyos padres habían emigrado a Kenia antes de su nacimiento. Alrededor de 100,000 personas del subcontinente indio, llamados asiáticos, se habían establecido en Kenia y contribuían en forma significativa a la economía de la región. Como es costumbre entre los bancos de propiedad asiática, su mayor exposición en la comunidad asiática local estaba dada por su gama de negocios de carácter general, en especial, su cartera de préstamos. Este pequeño banco era muy respetado en Kenia.

El presidente era un empresario de corazón. Había construido su negocio desde cero. Estaba determinado a construir su empresa bancaria de forma similar. Se involucraba de cerca en sus dos emprendimientos, y dividía su rutina diaria para formar parte de la toma de decisiones tanto en su fábrica como en su banco. Como parte de su rutina, celebraba dos reuniones semanales en el banco. En dichas reuniones estaban presentes dos de los directores locales (socios en su compañía de plástico) y la alta gerencia del banco (mi director general y yo). El presidente revisaba todo el papeleo y las decisiones que tomába-mos. También pasaba la primera mitad de cada día laboral en el banco, supervisando operaciones y atendiendo a los clientes. El Banco Central de Kenia no aprobaba su estilo de funcionamiento, pero nadie podía sepa-rarlo de su banco.

En una de esas reuniones, se discutió el

tema de las tasas de interés punitivo que el banco había impuesto recientemente a sus prestatarios atrasados. El presidente dijo que varios de sus clientes (léase, sus amigos y colegas en la comunidad asiática) se habían quejado sobre la alta tasa de intereses (puni-tivos), y sugirió que el banco debía hacer algo para evitar perjudicarlos. De parte del banco le expliqué que el fin de estas tasas era ser punitivas (y mucho más altas que las tasas normales). El fin de dichas tasas era disuadir o desincentivar a potenciales morosos, man-tener sus números lo más bajos posible y de

esa forma mejorar la calidad global de la cartera de préstamos del banco. El objetivo principal no era aumentar los ingresos del banco, sino imponer medidas disciplinarias financieras a los prestatarios.

El presidente tenía una cuestión más para discutir. Explicó que, frecuentemente, algu-nos clientes debían recurrir a sobregiros y se veían incomodados al tener que concurrir al banco cada vez que necesitaban extraer din-ero más allá de los límites sancionados. Sugirió que el banco debía sancionar del 25 al 30 por ciento más allá de la cuantía esti-

OJOEXPERTO

RUPNARAYAN BOSE

RN Bose es el ex-director ejecutivo de TransAfrica Bank Ltd, Kampala, Uganda

INDIAN ENGINEERING EXPORTS AUGUST 2010 IX

mada luego de la valuación para evitar los comunicados frecuentes al Banco Central de Kenia y los inconvenientes causados a los clientes (no necesariamente en ese orden). También aclaró que no le gustaba que el banco (nosotros) requiriera que los prestatarios visitaran el banco para ejecutar documentos de préstamos. ¿Por qué no podemos, por medio de servicio al cliente, visitar sus ofici-nas, cuando les resulte conveniente, para ejecutar documentos de seguridad? ¿Podríamos ser sumamente educados al redactar cartas a los titulares de cuentas de

préstamos atrasados que no nos rinden ben-eficio, o inclusive al convocar a prestatarios incobrables para que no se sientan ofendidos por el banco?

La cuestión que más lo aquejaba era que sus colegas estaban descontentos con él y con su banco. En reuniones sociales, le habían hecho llegar sus quejas sobre las severas san-ciones que el banco les imponía por ocasion-ales atrasos, frecuentes retiros irregulares, o por no pagar a tiempo. El presidente estaba convencido de que dichas irregularidades eran normales a todo negocio. Un banco (en

especial, si era propiedad de otro asiático) debía ser “comprensivo” en lugar de explotar estas situaciones e incomodar o penalizar a los prestatarios para aumentar sus ganancias. Como dueño del banco, se encontraba en la posición de ayudar y ofrecer asistencia finan-ciera a los miembros de su comunidad, cosa que siempre había hecho. Sin embargo, al tratar a sus semejantes de esa forma, el banco efectivamente debilitaba su posición. Sentía que el banco, en su afán por ser estricto, lo decepcionaba seriamente.

No resultaba difícil entender su posición.

Un año después… Revisamos las raíces de la crisis financiera global

INDIAN ENGINEERING EXPORTSX AUGUST 2010

OJOEXPERTO

RUPNARAYAN BOSE

Su compañía fabricante de plástico gozaba de grandes facilidades financieras de otros ban-cos en Nairobi. Como cliente, y más que nada, como prestatario, sabía exactamente qué se sentía. Desafortunadamente, aún como pres-idente del banco, seguía ocupando el lugar de cliente/prestatario de un banco. Para él, no existía una muralla china que separase su profesión como empresario industrial de su puesto como dueño de un banco. Le resultaba casi imposible ponerse en el lugar de un ban-quero o pensar como uno. Por lo tanto, no se daba cuenta de dónde debía estar su lealtad como presidente de un banco.

Si resulta difícil para un empresario indus-trial pensar como un banquero sólo porque, por casualidad, era dueño de un banco, podría resultar aún más difícil para el “regu-lado” ocupar el lugar del “regulador”, o para un cazador ocupar el lugar de presa. Para ellos, la “muralla china” no existiría nunca. Afortunadamente, en India, dichas instan-cias de transición fácil y rápida por sobre la línea roja son escasas y poco frecuentes. En el RBI contamos con un regulador con la audacia suficiente como para cerrar el lugar justo cuando empieza la fiesta.

En los Estados Unidos, el lobby empre-sarial tiene una gran influencia en el gobi-erno y sus miembros. Los grandes con-tribuyentes de fondos de campaña de políti-cos (esto es perfectamente legal) tienen una gran influencia sobre los legisladores de ese país. Formar parte de un lobby o grupo de presión es una profesión reconocida. Los que dejan el gobierno suelen recibir comi-siones con compensaciones muy atractivas. Bajo esas circunstancias, la capacidad para cambiar completamente de lealtades y hacer un giro de 360 grados para pasar a ser regu-lador habiendo sido parte de los "regulados” resulta muy debatible.

No resulta útil mencionar los nombres de los peces gordos de los mercados financieros que pasaron a ocupar posiciones de mucha influencia en el gobierno de los EE.UU. Vamos a enfocarnos sólo en uno de ellos, quien es reconocido por su gran contribución

a la reciente crisis financiera global. Su nom-bre es Phil Gramm, un republicano originario de Tejas con un doctorado en economía. Antes de ingresar al mundo político en 1970, enseñaba en la Universidad A&M de Tejas. “Algunos miran a los préstamos de alto riesgo y ven algo malo. Yo miro los préstamos de alto riesgo y veo al sueño americano entrar en acción" dijo.

Fue presidente del Comité Bancario del Senado desde 1995 hasta 2000. Su banca en dicho Comité le ganó el apoyo de las institu-

ciones financieras más importantes de la nación. La administración de Clinton apoyó muchos de sus esfuerzos en pos de la desreg-ulación. Otros miembros del Congreso (quienes, en la última década, recibieron colectivamente cientos de millones de dólares en contribuciones a los fondos de campaña de parte de donantes de la indus-tria financiera) también jugaron sus respec-tivos roles. Desde 1989 hasta 2002, los reg-istros federales de los EE.UU. demuestran que fue el mayor receptor de contribuciones

INDIAN ENGINEERING EXPORTS AUGUST 2010 XI

OJOEXPERTO

RUPNARAYAN BOSE

para fondos de campaña de parte de bancos comerciales y ocupaba un lugar en la lista de las cinco personas que más donaciones recibían de Wall Street. Con frecuencia, tanto él como su personal hacían apari-ciones en conferencias patrocinadas por la industria en todo el país.

Pero ¿con quién estaba su lealtad realmente? Si al terminar de leer este artículo empiezas a preguntarte si los dementes deberían dirigir el psiquiátrico, te entiendo perfectamente. Los detalles de su ávido desempeño hoy forman parte del dominio público. Lo siguiente es un pantallazo, se tú el juez.

Desde 1999 hasta 2001, mientras el Congreso de EE.UU. consideraba los pasos a seguir para frenar los préstamos depreda-dores, Phil Gramm hacía todo a su alcance para bloquear dichas medidas. En el año 2000, se negó a que su comité bancario con-siderara las propuestas, una intervención aclamada por la Asociación Nacional de Agentes Hipotecarios como un “gran, gran paso para nosotros”. Un año más tarde, volvió a objetar cuando los demócratas intentaron frenar que los prestamistas pudiesen presen-tar demandas ante el tribunal de quiebras contra prestatarios que se habían atrasado en pagar préstamos depredadores.

En 1999, jugó el rol principal al escribir y hacer aprobar por el Congreso la anulación del Acta Glass-Steagall. Dicha medida, cono-cida como el Acta Gramm-Leach-Bliley, fue la legislación sobre servicios financieros más significativa desde la Gran Depresión. Quitó las barreras entre bancos comerciales y de inversión que había sido instituida para reducir el riesgo de una catástrofe económica. El Acta dividía la supervisión regulatoria de conglomerados de empresas entre agencias gubernamentales. La Comisión de Seguridad y de Cambio, por ejemplo, supervisaría la parte bursátil de una compañía, los regu-ladores bancarios inspeccionarían las opera-ciones bancarias, y los comisionados del seguro estatales examinarían los negocios de seguros. Pero ningún organismo tendría autoridad sobre la totalidad de la compañía.

Tampoco se prestó atención a cómo interac-tuarían estos reguladores el uno con el otro. La única gran falla del sistema era que nadie contempló las lagunas en la estructura regu-latoria. De esa forma, Gramm creó lo que los analistas de Wall Street llaman “sistema ban-cario fantasma”, una industria que operaba sin supervisión del gobierno.

Un año más tarde, el senado estadouni-dense se apuró en hacer aprobar un proyecto de ley de 11,000 páginas sobre reautorización gubernamental. Gramm logró deslizar una enmienda de 262 páginas. En lo que un manual de leyes llamaría más tarde “un desconcertante alejamiento de la práctica legislativa normal”, el Senado, urgido por el Senador por Tejas Phil Gramm, añadió una compleja enmienda de 262 páginas llamada “Acta de Modernización de Futuros en Materias Primas del 2000” (CMFA, por sus siglas en inglés). En dicha Acta, Phil Gramm insertó una disposición clave que les prohibía a las agencias federales regular los derivados financieros, y eximía de la regulación de la Comisión del Comercio en Futuros sobre Mercancías (CFTC, por sus siglas en inglés) a derivados fuera de la bolsa de comercio como los cambios de incumplimiento cred-iticio. Gramm proclamó como objetivo “pro-teger a las instituciones financieras de un exceso de regulación”, y “posicionar nuestros servicios financieros en una posición mun-dial líder en el nuevo siglo”.

La legislación creó lo que luego pasó a llamarse “la laguna jurídica de Enron”. Contenía una disposición (presionada por Enron) que eximía de supervisión regulatoria al comercio energético. Le permitió a Enron (un generoso contribuyente de los fondos electorales de Gramm) funcionar sin control y destrozar el mercado eléctrico de California, lo que en última instancia, antes de su colapso, les costó millones a los consumidores y accion-istas. Pero para Phil Gramm, Enron era un negocio familiar. Ocho años antes, su esposa, Wendy Gramm, como presidenta de la CFTC, había hecho aprobar una regla que excluía a los contratos futuros de Enron de cualquier

supervisión por parte del gobierno. Más tarde, Wendy se unió a la junta de Enron y en los años siguientes su salario y ganancias de acciones llevaron $915,000 y $1.8 millones de dólares al hogar Gramm. Dicho sea de paso, el Director Ejecutivo de Enron, Ken Lay, presidió la cam-paña de reelección de Gramm en 1992.

En el año 2002, Gramm dejó el Congreso para unirse al UBS (Union Bank of Switzerland) como su principal banquero de inversión, a la cabeza de las operaciones de lobby. El USB había adquirido la casa de cor-retaje PaineWebber gracias a su acta de desregulación bancaria. Desde el UBS, ayudaba a persuadir a los legisladores de bloquear los esfuerzos de los demócratas en el Congreso para combatir los préstamos depredadores. USB terminó por ser uno de los perdedores más grandes de la crisis de los préstamos de alto riesgo.

“Están diciendo que hubo quince años de desregulación masiva y que eso causó el problema” dijo Gramm sobre sus críticos. “No veo ninguna evidencia de ello”. Phil Gramm dijo en una entrevista: “En términos generales, los cambios de incumplimiento crediticio distribuyeron los riesgos. No los crearon. La gente se ha enfocado en ellos únicamente porque algunos políticos no saben distinguir un cambio de incumplim-iento crediticio de un nabo”.

Los comentarios de Phil Gramm luego del Acta de Modernización de Futuros en mate-rias primas fueron aprobados por el Congreso de los EE.UU. (al igual que otra legislación sin precedente de su autoría) y merecen atención: “El trabajo de este Congreso será visto como un momento crítico en el que logramos alejarnos de un tratamiento hacia los servicios financieros anticuado y propio de una era de Depresión para adoptar un esquema que posicionará a la industria de servicios financieros en una posición mun-dial líder al comienzo del nuevo siglo” dijo Gramm. Si, claro…

Puedes contactar al autor en [email protected].

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El Dr. Dey es Vicedecano (Investigación) de IBS, Calcuta

Comercio de agua virtual – verdaderas preocupaciones

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Las técnicas agrícolas que usan agua y energía de forma intensiva, aplicadas a nivel mundial desde los años 50, han

causado daños ecológicos graves mediante el uso indiscriminado de fertilizantes químicos a base de combustibles fósiles y agua subter-ránea. De esa forma, se han contaminado tanto el aire como el agua. Eventualmente, estas dos “propiedades comunes” que estaban disponibles en forma “gratuita” en los comien-zos de la civilización humana, se han conver-tido en “bienes económicos".

La economía del aguaLa escasez de agua se ha convertido en uno de los problemas macroeconómicos y ambi-entales más importantes del siglo. En el año 2008, el Instituto Internacional de Agua de Estocolmo calculó que 1.4 billones de per-sonas viven en “cuencas cerradas”, donde el agua existente no alcanza a cubrir las necesi-dades agrícolas, industriales, municipales y ambientales de todos los habitantes. El Banco Mundial y el gobierno de China esti-maron que, por ejemplo, 54 por ciento del agua en los siete ríos principales de China se han vuelto inusables debido a la polución. Varios ríos importantes, incluyendo el Indus, Río Grande, Colorado, Murray-Darling y Amarillo ya no desembocan en el mar todo el año debido a la creciente porción de sus aguas que se destina a usos varios. Los niveles acuíferos están decayendo debido a

que se ha bombeado en exceso el agua sub-terránea en Asia del Sur, el norte de China, Asia Occidental y el suroeste de los Estados Unidos, y la producción de alimentos suele volverse insostenible. El Banco Mundial estima que 15 por ciento de los alimentos que se producen en India usan agua de acuíferos no renovables.1

Un equipo de hidrólogos del Centro de Vuelo Espacial Goddard de la NASA en Greenbelt descubrieron que el suministro de agua subterránea del norte de India se bombea y consume para satisfacer activi-dades humanas como la irrigación de tierra de cultivo, vaciando los acuíferos sin que los procesos naturales alcancen a reabastecer-los. De acuerdo a ellos, entre 2002 y 2008, más de 108 km3 de agua subterránea ha desaparecido de los acuíferos de Haryana, Punyab, Rajastán y Delhi2. La rápida urban-ización, en especial luego de la primera revolución verde de los años 50, también aumentó la demanda de agua para uso doméstico e industrial. En el sureste de Asia, que se consideraba una historia de éxito de la Revolución Verde, la población urbana creció de un 20 por ciento en 1975 a un 35 por ciento en el año 2000. Los pequeños granjeros, al no poder competir con opera-ciones más grandes que contaban con el efectivo para comprar el “paquete” de la Revolución Verde (con semillas híbridas, fertilizantes, pesticidas y acceso a proyectos

lujosos de irrigación), comenzaron a migrar en masa a las grandes ciudades en los años 60 y 70. El Banco Mundial reconoce que para el año 2030, más de la mitad de los pob-ladores del sureste de Asia serán habitantes de la urbe.3

Se entiende que la agricultura sufrirá efec-tos adversos en el futuro cercano debido al aumento de la temperatura global. Para tratar este desafío, los grupos expertos globales y las asociaciones corporativas trasnacionales asociadas a la agricultura han recomendado una nueva “revolución verde” con bases en la agrotecnología. Se discute si las plantas cuyos genes tienen cierta tolerancia a la sequía serán importantes para los países en vías de desarrollo, dado que se proyecta a la sequía como el impedimento predominante para el crecimiento de la productividad del cultivo. Se proyecta que las aplicaciones en masa de biotecnología y bioinformática serán los pro-pulsores apropiados para esta segunda rev-olución verde.4

El avecinamiento de la escasez de agua, consecuencia directa de la primera revolu-ción verde, no sólo ha preparado el terreno para la introducción de semillas genética-mente modificadas (GM) y para una segunda revolución verde, también ha creado un vasto mercado. En el año 2008, el mercado global de agua se estimó en $316 billones y las transacciones en el mercado asiático, el mer-cado de agua con el crecimiento más rápido

La escasez de agua se ha convertido en uno de los problemas macroeconómicos y ambientales más

importantes de este siglo. Además del mercado “real" del agua, un poco aletargado hoy en día, existe

otro gran mercado de "agua virtual": la cantidad de agua que se usa en la producción de comestibles,

energía y otros productos. Es el contenido interno de agua de un producto. Se afirma que una solución

a la escasez de agua es la responsabilidad por el “agua virtual” al idear políticas comerciales. La

dilatación del dualismo doméstico en la producción y el consumo de comida y agua en países como

India, es el resultado de una singular estrategia que los países del Norte han aplicado en las últimas

décadas para que sus economías sean “verdes”. La táctica inicial era desplazar las industrias

contaminantes a los países en vías de desarrollo. Ahora es el turno de la agricultura.

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en el mundo, se estimaron en alrededor de $120 billones en un año.5

Con vistas a grandes ingresos por parte de este mercado en rápido crecimiento, grandes corporaciones de todo el mundo están invirtiendo en forma privada en dif-erentes proyectos de agua. Entre 1987 y 2002, se invirtieron $35 billones en compro-misos de inversión de agua y sistemas de saneamiento en países en vías de desarrollo, de los cuales 10 por ciento eran IEA. Tres TNC de agua: Thames-RWE (Alemania), y Suez Lyonnaise y Veolia Environment SA (Francia), fueron los inversores principales en servicios de agua.6

La industria recibió un gran impulso luego del Acuerdo General sobre el Comercio de Servicios (AGCS) de 1995, que intenta inten-sificar el poder de las corporaciones transna-cionales sobre los gobiernos (nacionales, provinciales y locales) y reducir el alcance de los gobiernos para proveer servicios básicos como la salud, la educación y el agua.7 En 1999, la privatización del SEMAPA, el servi-cio municipal de agua potable en Cochabamba, la tercera ciudad más grande de Bolivia, fue un claro ejemplo de la dominancia corpora-tiva sobre los gobiernos en el suministro de necesidades básicas como el agua.8

Hasta ahora, el mercado de agua se ha limitado a los sectores de consumo personal e industrial. Como sucede con otras indus-trias, el suministro de agua también está dominado por unas pocas corporaciones transnacionales, mayormente europeas. En el año 2005, el 95 por ciento de los servicios de agua potable era controlado por com-pañías europeas.9

La lista selecta de las principales TNC involucradas en los servicios de agua potable, como indica el Recuadro 1, revela, entre otras cosas, a) la fuerte presencia de compañías europeas en la industria y b) la participación simultánea de dichas compañías en los serv-icios energéticos. Compañías como GE, Siemens, RWE y Bechtel, reconocidas mun-dialmente como servicios públicos involu-crados en el sector energético, se han diver-

sificado con éxito en el mercado de servicios de agua.

El comercio de agua virtual Además del mercado “real” de agua, un tanto aletargado hoy en día, existe un gran mercado de "agua virtual". El agua virtual/escondida es la cantidad de agua que se usa en la produc-ción de alimentos, energía y otros productos. Es el contenido interno de agua de un pro-ducto. Es similar al concepto de "carbón escondido", que se refiere al dióxido de car-bono que emiten las distintas etapas de la fabricación de un producto, desde la extrac-ción de materia prima, pasando por el proceso de distribución, hasta el producto final que se provee al consumidor. Dependiendo de los cálculos, el término también puede usarse para incluir otros gases de efecto invernadero (GHG, por sus siglas en inglés).10 Si un país decide importar alimentos, puede ahorrar múltiples cantidades de su propio agua que de otro modo sería usada para el cultivo. Por ejemplo, para producir una tonelada de trigo se necesitan unos 1160 m3 de agua. Eso sig-nifica que existen 1160 m3 de agua virtual en una tonelada de trigo. De esa forma, si India exporta una tonelada de trigo a Japón, eso significa un flujo virtual de 1160 m3 de agua desde India hacia Japón. Grandes segmentos de América del Norte y del Sur, Australia, Asia y África central son exportadores netos de agua virtual. La mayor parte de Europa, Japón, el norte y sur de África, el oeste de Asia, Méjico e Indonesia, por el contrario, son importadores netos de agua virtual. Se afirma que una solución a la escasez de agua es la responsabilidad por el “agua virtual” al idear políticas comerciales.

El concepto de “agua virtual” está ganando reconocimiento. Se han hecho sugerencias para organizar un “consejo de comercio de agua virtual” bajo la Organización Mundial de Comercio (OMS) para ayudar a “lidiar con los recursos de agua real y virtual de la cre-ciente población mundial.”11

Ya en 2002, la Unión Europea abrió por primera vez la discusión sobre la partici-

pación extranjera en la distribución de agua de los países en desarrollo. Luego, en 2005, durante las negociaciones sobre el AGCS bajo la Ronda de Goha de la OMS, se propuso que, a cambio de acceso a los mercados de agua, los países en desarrollo y los subdesarrollados (LDC, por sus siglas en inglés) recibirían el acceso a los mercados occidentales que tanto deseaban.12 Esto significa, en términos bási-cos, que los países en desarrollo tendrían acceso al mercado estadounidense para sus productos agrícolas siempre y cuando abri-eran su sector de agua a las TNC.

Al ser una región con población poco densa y una demanda de cereales moderada-mente baja, los Estados Unidos han dado más importancia a la promoción del mercado para productos alimenticios de calidad culti-vados, en su mayor parte, mediante cultivo orgánico.13 La Unión Europea emergerá como uno de los importadores principales de cereal dado que EE.UU. ofreció eliminar todos los subsidios para exportaciones en 2013. Los EE.UU son el mercado más grande de cereales para los productos alimenticios del tercer mundo.14

La Unión Europea tomó una decisión consciente de ahorrar sus escasos recursos de agua pasándoles la carga del cultivo a los países en desarrollo. La data de la “depend-encia de la importación de agua” (WID, por sus siglas en inglés) de algunas de las economías de Europa corroborará esta obser-vación. El WID (que se expresa con un por-centaje) es el ratio entre la “huella hídrica” (el volumen de agua que usa un país para pro-ducir bienes y servicios, que incluye las importaciones que consumen sus habitantes) de las importaciones de un país y la huella hídrica total. Cuanto más alto el ratio, es mayor la dependencia de un país de fuentes de agua exteriores. Durante 1997-2001, la “dependencia de importaciones de agua” de Holanda, el Reino Unido, Alemania, Italia, Francia y España era de 82 por ciento, 70 por ciento, 53 por ciento, 51 por ciento, 37 por ciento y 36 por ciento respectivamente. Las figuras correspondientes para India,

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Bangladesh, China y Brasil eran 2 por ciento, 3 por ciento, 7 por ciento y 8 por ciento. Y el WID de Japón y EE.UU. durante ese período era de 64 por ciento y 19 por ciento. De esa forma, durante 1997-2001, Holanda pudo reducir mediante importaciones su huella hídrica total ¡en un 82 por ciento!

Previo a aplicar esta estrategia para el

ahorro de agua, algunos países desarrollados habían aplicado la misma estrategia para reducir las emisiones de gases invernadero de sus economías. Un estudio sobre el "balance de emisiones contenidas en el comercio" (BEET, por sus siglas en inglés) de un número de países concluyó que el BEET de China (emisiones contenidas en el comercio menos

las emisiones contenidas en las importa-ciones) fue de 585.5 mtCO2, comparado con el BEET del Reino Unido que fue de -102.7 mtCO2. Las figuras correspondientes para Alemania, Japón, los EE.UU. e India son -139.9, -197.0, -438.9 y +70.9 mtCO2 respec-tivamente. Esto indica que al importar bienes manufacturados (netos) de otros países, el

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Reino Unido pudo transferir unos 102.7 mtCO2 de emisiones de carbono a los países exportadores.

PreocupacionesLos requerimientos de agua para producir unos pocos elementos comestibles como carne de vaca, carne de cerdo, carne de ave, huevos, arroz y trigo son muy altos. La pro-ducción de una tonelada de cada uno de esos elementos requiere 13,500, 4,600, 4,100, 2,700, 1,400 y 1,160 m3 de agua respectivamente. Si India exporta cualquiera de estos elementos de consumo intensivo de agua, entonces, por defecto, transferiría grandes cantidades de agua a los países importadores.

En el futuro, en aras de proteger los recur-sos de agua, las naciones importadoras podrían pedir “etiquetas de agua" para garantizar que se usó sólo agua pura (pref-erentemente de recursos renovables) para la producción de los alimentos exportados. Al prohibir/desalentar el uso de arsénico y agua subterránea contaminada con plomo en la agricultura y la ganadería, las “etiquetas de agua” asegurarán la seguridad de la comida importada. En ese contexto, que resulta muy probable, los granjeros orgánicos, al apuntar a los mercados de países desarrollados, usarán fuentes renovables de agua para el cultivo cada vez más. Se desviarán fondos para desarrollar masas de agua que sirvan dicho propósito. Y las plantas procesadoras de agua colaborarán con los principales servicios de agua de los países importadores desarrollados para garantizar que se man-tenga el nivel de pureza del agua que espe-cifica la etiqueta.

Mientras los ciudadanos de los países importadores del norte consumirían “pro-ductos verdes”, un gran número de indios perderían sus derechos básicos sobre el agua. Las condiciones de las fuentes de agua que ya están contaminadas, que abastecerían las necesidades de los sectores menos privilegia-dos de la población local, se deteriorarán aún más. Los servicios transnacionales de agua se harían cargo de los servicios de distribución

municipal de agua15 y los gigantes de las bebidas gaseosas llegarían a cada rincón del país con sus marcas de agua embotellada ¡y cada litro podría costar aún más que un litro de leche!

La dilatación del dualismo doméstico en los países del sur como India, en la produc-ción y el consumo de agua y alimentos, es el resultado de una singular estrategia que los países del norte aplicaron durante las últi-mas décadas para que sus economías sean “verdes”16. La táctica inicial era desplazar las industrias contaminantes a los países en vías de desarrollo. Ahora es el turno de la agricultura.

En el futuro, las “etiquetas de agua" como las etiquetas ecológicas o de carbono, podrían volverse obligatorias también para las exportaciones agrícolas. El Consejo de Comercio de Agua ya ha iniciado varias maniobras con estos fines y en su quinto Foro Mundial del Agua, que se llevó a cabo en Estambul en marzo de 2009, pidió, entre otras cosas, "estrategias unificadoras para el agua, los alimentos y la energía"17. Luego, en la Semana Mundial del Agua de agosto de 2009, organizada por el Instituto Internacional del Agua de Estocolmo (SIWI, por sus siglas en inglés) se reunieron exper-tos y profesionales del agua con autoridades y líderes mundiales para una discusión anual sobre problemas del agua con el fin de intercambiar ideas, identificar problemas y encontrar soluciones. Uno de los ensayos temáticos del cronograma era sobre "Huellas Hídricas: un nuevo punto de entrada para políticas sobre agua y estrategias corporati-vas sobre agua”, presentado por el Consejo Empresarial para el Desarrollo Sustentable (WBCSD, por sus siglas en inglés), una aso-ciación global única, encabezada por Directores Generales de unas 200 com-pañías que se dedican exclusivamente al negocio y el desarrollo sustentable. El WBCSD se formó en 1995 mediante una fusión entre el Consejo Mundial de la Industria por el Medio ambiente (el brazo ambiental de la Cámara de Comercio

Internacional, dominado en su mayoría por líderes económicos de los EE.UU.) y el Consejo Empresarial Mundial para el Desarrollo Sustentable (dominado por líderes europeos del comercio).

Dado que se utiliza una vasta cantidad de agua para los procesos de fabricación, pro-ducción y generación de formas tradicionales de energía eléctrica, las “huellas hídricas” de todas las exportaciones ingenieras podrían usarse como barreras no arancelarias para denegar el acceso al mercado. Los exportado-res deberían tomar nota de estos desarrollos con antelación.

Notas al pie. 1. Gardner G, 2009: Water Scarcity Looms, World Watch Institute, http://www.worldwatch.org/node/6213? emc=el&m=279787&l=4&v=a274235068; 6 de agosto2. http://timesofindia.indiatimes.com/news/india/North-India-losing-groundwater-at-rate-of-foot-per-yr-Nasa/articleshow/4892232.cms, visitado el 14 de agosto de 20093. http://www.grist.org, Why the ‘green revolution’ in Africa may be misguided, 26 Sept 2006 4. Dey, Dipankar, 2009: The Second Green Revolution in India: The Emerging Contradictions, Consequences and the Need for an Alternative Initiative, http://ssrn.com/abstract=1447795; 12 de agosto 5. International Herald Tribune, ‘Asia holds promise of big profits for water indus-try,’ 1 Julio 2008, Error! Hyperlink refer-ence not valid.bin/printfriendly.php?id=141250666. Reporte Mundial de Inversiones (WIR, por sus siglas en inglés) 20047. Public Citizen, Water and Trade, http://www.citizen.org/cmep/Water/trade/; visit-ado el 11 de agosto de 20098. Luego, debido a la presión pública, el gobierno boliviano se vio obligado a revertir su decisión y cancelar el contrato que había celebrado con la TNC de agua.

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Ver Franz Chávez, Cochabamba’s ‘Water War,’ Six Years On, http://ipsnews.net/print.asp?idnews=35418; visitado el 11 de agosto de 2009. Ver también Timeline: Cochabamba Water Revolt http://www.pbs.org/frontlineworld/stories/bolivia/timeline.html9. Euobserver.com, 16 de marzo de 2005: EU pressures developing countries for access to water services, http://euobserver.com/?aid=18673; visitado el 11 de agosto de 200910. Kejun J, A Cosbey & D Murphy, 2008: Embedded Carbon in traded goods, IISD, Canada11. Virtual water trading could benefit developing countries, 13 de febrero de 2007; http:// www.unisa.edu.au/news/ 2007/13020712. Euobserver.com, 16 de marzo de 2005: EU pressures developing countries for access

to water services, http://euobserver.com/?aid=18673; visitado el 11 de Agosto de 200913. La campaña “Buena para la naturaleza, buena para ti" http://ec.europa.eu/agricul-ture/quality/14. http://www.eurunion.org/eu/index2.php?option=com_content&do_pdf=1&id=40; 6 de mayo de 200915. Luego de la privatización de la com-pañía municipal de agua y saneamiento, SEMAPA, en Cochabamba (Bolivia) en 1999, Aguas del Tunari (propiedad de la trasnacional estadounidense Bechtel junto con las corporaciones Edison de Italia y Abengoa de España) quien tenía la conc-esión del suministro de agua en la ciudad por 40 años, aumentó las tarifas de agua en un 200 por ciento. Las tarifas de agua sig-nificaban un 20 o 30 por ciento de los ingresos de los hogares pobres. Inclusive los

pozos que habían excavado las comuni-dades y cooperativas locales como solución a la falta de tuberías de agua quedó bajo el control de Aguas del Tunari, que luego adquirió el derecho a cobrar por el agua de los pozos comunitarios que no había exca-vado la empresa. Ver Franz Chevez, op cit16. Para una discusión detallada de este téma, diríjase a Dey, D (2007), ‘SMEs: Rising Opportunities in the Emerging Blue Economy,’ publicado en octubre de 2007 en el International Edition of the ie2 – Revista del Consejo para la Promoción de la Exportación de Ingeniería (EEPC, por sus siglas en inglés), India . También se encuen-tra disponible en http://papers.ssrn.com/sol3/papers. cfm?abstract_id= 102123617. http://www.worldwatercouncil.org/fileadmin/wwc/World_Water_Forum/WWF5/5th_Forum_Highlights. pdf, visit-ado el 12 de agosto de 2010

Recuadro 1: TNC en el negocio del agua

• Thames-RWE (Alemania): En Noviembre del 2000, Thames Water se convirtió en una división de RWE.

• Suez Lyonnais (Francia): En el transcurso de los años, Suez Lyonnaise des Eaux se ha transformado en una central eléctrica de múltiples servicios líder en el mundo, que ofrece agua, gas y electricidad privados y servicios de gestión de residuos en más de 120 países. Se formó como resultado de la fusión entre Compagnie de Suez (la compañía que construyó el canal de Suez), Lyonnaise des Eaux-Dumez y se unió con la Société Générale de Belgique (SGB). A través de Tractebel, su subsidiaria con sede en Bélgica, Suez es también la quinta productora de energía independiente más grande del mundo, con una capacidad de 42.000 megavatios por año. En el año 2000, la compañía reagrupó su gestión de residuos en sus subsidiarias Tractebel y SITA mientras que la generación de energía siguió siendo la fuente de ingresos principal de Suez Lyonnaise des Eaux.

• Veolia Environnement (Francia): Veolia Environnement es la corporación más grande del mundo, y un líder mundial en servicios ambientales. Con operaciones en todos los continentes y más de 336,013 empleados, provee soluciones a medida para satisfacer las necesidades de consumidores municipales e industriales en cuatro segmentos complementarios: agua, servicios ambientales, servicios de energía y transporte de pasajeros. Veolia Environnement registró ganancias de 36.2 billones de euros en 2007.

• Black and Veatch (EE.UU): Fundada en 1915, Black & Veatch se especializa en el desarrollo de infraestructura en la energía, el agua, las telecomunicaciones y asesoría gerencial y mercados ambientales.

• Siemens Water Technologies (una unidad de Siemens AG Germany, la compañía de equipamiento eléctrico)

• GE Water & Process Technologies (EE.UU, una unidad de General Electric)

• International Water Holdings BV (Holanda): Una empresa conjunta con igualdad de aportes entre Bechtel Enterprise Holdings Inc, USA y Edison SpA, una afi liada del grupo Montedison, la compañía privada de servicios de energía más grande de Italia, International Water Holdings BV (IWH) se estableció como matriz según la ley holandesa el 8 de diciembre de 1999 y se registró ante la Cámara de Comercio de Amsterdam el 22 de diciembre del mismo año. IWH se dedica a proyectos de tratamiento de agua privada y de aguas residuales en todo el mundo. International Water Ltd, UK es la entidad activa que coordina todos los proyectos de agua en la que participan los socios de Bechtel/Edison. United Utilities con sede en el Reino Unido es un socio estratégico, que se encarga del trabajo del suelo.

• Pepsi y CocaCola también se han aventurado en el comercio de agua embotellada y reciben ganancias sustanciales de este sector en rápido crecimiento.

La Metodología FASE I a) Recolección de datos para la fundición Peso de las fundiciones aprobadas: Las piezas fundidas, propiamente desbarbadas y ter-minadas, deben pesarse para obtener un mínimo de 20 NOS, preferentemente de diferentes lotes obtenidos del mismo equi-pos de estampas con el mismo proceso de fabricación. Para piezas pequeñas de hasta 5 kg, el peso deberá tener 5 grs. de apreci-ación y para piezas de más de 5 kg, la apre-ciación será de 50gr. El peso promedio debe tomarse como el peso inicial de la pieza de fundición. Proceso de elaboración de la fundición: Se debe prestar especial atención al tipo de proceso de producción de proceso de fabri-cación de machos como la fundición con caja caliente, arena aglomerada con aceite o machos de arena revestida; procesos de moldeo como el moldeo a mano, moldeo por sacudidas, moldeo a presión y moldeo a alta presión - el montaje de los machos en moldeo también merece mención, como el manual, el automático o el pre-montaje; el vertido de metales manual o por presión y el tiempo de desmoldeo de las piezas. Se debe asegurar el mismo proceso de fabri-cación de las piezas todo el tiempo. Piezas defectuosas: Se deben recolectar datos reales sobre las piezas defectuosas con un año de antigüedad poniendo especial detalle en todos los parámetros como las sopladuras, inclusiones de arena, áreas sucias de las máquinas, porosidad, discrep-ancias en la medida de las piezas, piezas deformadas, etc. Estos datos sobre defectos deben recolectarse en la fase de fundición y nuevamente luego del mecanizado. Esquema de las piezas: Deben prepararse esquemas para todas las dimensiones de 5

Optimización del peso del hierro fundidoHoy en día, se necesita reducir el costo de los

componentes mediante una reducción del peso inicial/

final de los mismos. Consideraremos el peso del hierro

fundido gris, del hierro fundido nodular y de los

componentes del hierro fundido.

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Por Purshottam K Godhia

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NOS, y promediar dichas dimensiones. Deben promediarse y verificarse las dimen-siones relacionadas al maquinado, que deben ser de 10 NOS. Dichas dimensiones serán consideradas dimensiones iniciales. Proceso de maquinado: También es impor-tante registrar la secuencia del proceso de maquinado desde la primera hasta la última operación y los tipos de máquinas usadas, sean convencionales o CNC. También debe registrarse la profundidad del corte mecan-izado, la cantidad de pasadas y el tiempo de cada ciclo mecanizado de las piezas de fun-dición. Uso real de la pieza de fundición: Debe estu-diarse el uso de la pieza a nivel de montaje, como también las áreas importantes y las dimensiones críticas de la pieza. Costo de cada pieza individual: Deben rec-olectarse y priorizarse los datos sobre gastos de comercialización de las piezas. Volumen de cada pieza individual: También deben recolectarse datos sobre el volumen en números de piezas vendidas. b) La “disciplina de fundición” en el proceso de elaboración de las piezas fundidas Machos: Debe asegurarse que los machos estén llenados, curados y preparados en forma apropiada. Moldeo: Se debe asegurar que las cajas de moldeo están en buenas condiciones y con-trolar la exactitud de los bujes y las clavijas de cierre en las cajas de moldeo. También deben asegurarse la concordancias de mod-elos con placas portamodelos y sus separa-ciones. Otros puntos que deben asegurarse son: Que los modelos estén fijados adecu-adamente a las placas portamodelos con la menor discrepancia posible, que no existan muescas, que las laminaciones sean apropi-adas, que no haya esquinas filosas ni engarces sueltos, y que las mazarotas y los pasadores de gas estén perpendiculares. Asegurar la compacidad de la arena de moldeo en moldes sin arena suelta, rajadu-ras o erosiones. Se debe cuidar que todas las propiedades de la arena estén en su lugar y que las cáscaras estén ubicadas en el molde

de forma correcta. Fusión: Debe asegurarse que la mezcla de relleno se cargue con una secuencia pre-decidida, se debe controlar la temperatura y las propiedades de fusión antes del ver-tido, y que los rellenos de la moldura con-cuerden con el plan estipulado. Desmoldeo de la pieza, chorreo con granalla y desbarbado: Debe evitarse todo tipo de daño a la pieza durante el desmolde. Tanto el chorreo como el desbarbado deben hac-erse con cuidado. c)Análisis de dato y priorización Luego del análisis de los datos recolectados, debe darse prioridad a los componentes de alto valor, alto volumen y alto peso. Es reco-mendable empezar con pocos componen-tes. d)Preparación del modelo CAD en 3DMuchos de los diseños para componer pie-zas están disponibles en 2D. Dichos diseños deben convertirse en modelos 3D con la ayuda de CAD procurando que los stocks de mecanizado sean de un mínimo de 2-2.5mm. Al decidir los stocks de mecani-zado, se debe recordar mantenerlo a 2.5mm en la parte superior de las piezas y a 2mm en la parte inferior de las piezas como se elaboraron en la fundición. En el proceso de elaboración de fundiciones, se requieren las dimensiones críticas del mecanizado para delinear los procesos. Este modelo en 3D tiene la virtud de mostrar el peso real de la pieza una vez que se registra la densidad del material en el CAD. Esto nos provee de la diferencia de peso entre las piezas, que nos será útil para futuros cálculos. e) Comienzo de la actividad Una vez que se preseleccionan los compo-nentes que requieren mejoras, deben anali-zarse los datos recolectados previamente para los promedios de stocks de mecani-zado y el espesor de las paredes, y luego deben compararse con el modelo de diseño en 3D. Los cinco componentes siguientes deberían ser maquinados y pesados para conseguir las dimensiones esperadas. Estas piezas deben considerarse “piezas espera-

das” y deben ser maquinadas por completo. Se debe chequear que dichas piezas no con-tengan impurezas en los parches o deficien-cias de fundición. Esto nos provee un nivel de confianza para reducir los arrabios. De forma similar, se pueden preseleccionar las áreas de mejora de las piezas. f)Medidas Se deben tomar acciones sobre cualquier modelo/ troquel previo que no esté en uso para cambiarlo si es necesario. Los cinco componentes de estas herramientas deberían verificarse para operaciones de mecanizado. Si se aprueban, se hará lo mismo con lotes más grandes de 100 y 500 NOS. Deben verificarse los resultados del mecanizado y las piezas rechazadas debido a cambios y, si no se encuentran anormali-dades, podemos dedicarnos al montaje permanente. g)Auditoria La auditoría de las dimensiones cambiadas y de las piezas rechazadas es el siguiente paso, seguido de la actualización de las piezas/diseños herramentales y documen-tos relacionados.

FASE II Reducción del grosor de las piezas y remoción de los montajes indeseados en las piezas. Uso final de los componentes mecanizados de las piezas: Debe estudiarse el uso final de un componente a nivel funcional y de armado para preparar el listado de superficies y áreas mecanizadas. Se debe averiguar si realmente se requiere mecanizado en áreas no funcionales. ¿Puede evitarse el mecani-zado y que un área permanezca como una pieza debido a las mejoras en la tecnología? ¿Puede hoy en día reducirse el grosor al fortalecer el componente con un grado mayor de material? ¿Pueden proveerse ner-vaduras o buscar diseños alternativos? Las respuestas resultarán en una reducción del peso del componente de la pieza. Análisis CAE: Debe realizarse un análisis CAE de los componentes mecanizados de

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una pieza para determinar si el componente está sobrediseñado. En caso de que lo esté, debe optimizarse el diseño, lo que resultará en una reducción del peso de la pieza. Estudio Benchmark: Se deben recolectar datos comparativos de los mismos compo-nentes usados por la competencia para el mismo tipo de piezas, y debe analizarse su uso final para la mejora de ciertas áreas. Lengüetas indeseadas/orejetas de montaje: A veces, las piezas muestran lengüetas o orejetas de montajes no requeridas debido a cambios en el diseño del sistema. Dichas orejetas de montajes pueden removerse y así reducir el peso de la pieza. Acción: Deben realizarse y validarse muestras de configuraciones de cambio. Si se aprueban, se pueden modificar los mon-taje de herramientas existentes o realizar nuevos montajes de herramientas.Auditoria: La auditoriwa de las dimen-siones cambiadas y de las piezas rechazadas es el siguiente paso, seguido de la actualiza-ción de las piezas/diseños de montaje y documentos relacionados.

Conclusión El autor llevó a cabo este ejercicio en varias piezas durante dos años, lo que resultó en ahorros considerables (tanto en materiales como en costos) en términos de peso de las piezas. Algunos ejemplos son:

Algunos ejemplos son:

ComponenteReducción de

peso (en kg.)

Volumen

anual NOS

Tambores de freno

Rueda VolanteCaja del

embrague

Tapa de cilindro

Tapa del motor Eje

Bloque de Cilindros

1.5 Cubierta

El autor pertenece al Sector Automotriz de Mahindra and Mahindra Ltd, Mumbai. Este ensayo fue preparado para el Congreso Indio de Fundición número 57.

Consumo energético en fundiciones de hierroPor M Arasu & L Rogers Jeffrey

Dado que la fundición es una indus-tria basada en la energía, resulta necesario llevar a cabo un registro

para determinar dónde y cuándo se consume energía y cuán eficiente es el sistema de administración de la misma. Un método para contabilizar la energía debe definir las áreas de consumo alto y las de derroche así como señalar las áreas donde es posible ahor-rar energía. El fin principal de la auditoría de energía es obtener el patrón de consumo energético. Dicho patrón sirve para entender la forma en que se usa la energía en una fundición y, al identificar las áreas de der-roche y las áreas que pueden mejorarse, ayuda a controlar el costo energético. La

administración de energía resulta muy importante: se encarga del ajuste y la opti-mización de energía por medio de sistemas y métodos para reducir los requerimientos energéticos. Este ensayo presenta un estudio de caso de la energía requerida para producir una tonelada de metal líquido en cuatro fundiciones. Esto nos da una idea del con-sumo de energía actual de las fundiciones, el cual se puede comparar con estándares nor-mativos y usarse para implementar métodos de control de desviación. Este ensayo tam-bién explora las diferentes vías para ahorrar energía y controlar los costos.

Dado que la fundición es una industria que se basa en la energía, se realizan registros para

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determinar dónde y cuándo se consume energía y cuán eficiente es el sistema de administración de la misma. Define las áreas de consumo alto, advierte sobre el derroche y señala áreas susceptibles de ahorro de energía. La metodología de los estudios sobre consumo energético ejecutados en fundi-ciones se muestra en la Fig. 1 En las siguientes secciones, se lleva a cabo una discusión detal-lada sobre dichos métodos.

Patrón de consumo energético El fin principal de la auditoría de energía es obtener el patrón de consumo energético. El patrón energético que muestra la Tabla 1 es útil para entender el modo en que se usa energía en una fundición y, al identificar las áreas de derroche y las áreas que pueden mejorarse, ayuda a controlar el costo energético. Se observa que la fundición con-sume una gran parte del total de energía.

Consumo específico de energíaEl consumo específico de energía es la energía que se consume en la producción de una tonelada de metal líquido. La Tabla 2 muestra el consumo específico de energía por hornos de inducción, hornos rotativos y cúpula por

tonelada de metal líquido para distintas cali-dades de hierro fundido.

Administración de energía La administración de energía es la estrategia para ajustar y optimizar la energía, que se vale de sistemas y métodos para reducir los req-uerimientos energéticos por unidad de pro-ducción manteniendo o reduciendo los costos totales de producción. El término adminis-tración de energía consiste de tres pasos básicos: planeamiento, ejecución y control. Estudio experimental En este ensayo, se lleva a cabo un estudio sobre la energía necesaria para producir una tonelada de metal líquido en las cuatro fun-diciones seleccionadas. Esto nos da una idea del consumo de energía actual de las fundi-ciones, el cual se puede comparar con estándares normativos y usarse para imple-mentar métodos de control de desviación. También se exploran las diferentes vías para ahorrar y controlar la energía y se recolectan datos relacionados al consumo de energía, rechazo y utilización de capacidades.

Recolección de datos Los datos sobre consumo energético y detalles del procedimiento fueron recolectados medi-ante un cuestionario llevado a cabo en cuatro fundiciones durante un período de dos años. Este estudio se limita al uso de combustible en el departamento de fusión y el consumo de energía eléctrica en distintos departamen-tos. Al comparar los datos, obtenemos una

COMPARACIÓN DE DESEMPEÑO – UTILIZACIÓN DE CAPACIDAD, CONSUMO ESPECÍFICO DE ENERGÍA

ESTUDIOS SOBRE CONSUMO ENERGÉTICO EN METALÚRGICAS DE FUNDICIÓN DE HIERRO CONSUMO ESPECÍFICO DE ENERGÍA

FUNDICIÓN DE HIERRO PATRÓN DE CONSUMO

ENERGÉTICO ADMINISTRACIÓN DE ENERGÍA

ESTUDIO EXPERIMENTAL

RECOLECCIÓN DE DATOS

OBSERVACIÓN EXPERIMENTAL ANÁLISIS ESTADÍSTICO

Fig.1 Metodología para estudios de consumo energético

Tabla 2: Consumo energético específi co de hornos de fundición

Descripción Consumo energético

Norma de consumo energético específi co en Hornos de Inducción por tonelada de metal líquido

620 kWh/tonelada

Consumo específi co de petróleo en hornos rotativos por tonelada de metal líquido

135 l/tonelada

Consumo específi co de coque en cúpula por tonelada de metal líquido

135 kg/tonelada

Tabla 1: Distribución del consumo energético

Secciones Consumo energético

Fusión 70%

Molduras y machería 10%

Planta de arena 6%

Iluminación 5%

Compresor 5%

Otro 4%

Tabla 3: Consumo energético en fundiciones de hierro

Descripción Fundición

A B C D

Capacidad instalada (toneladas/año) 10,800 7,200 5,150 8,400 Producción actual (toneladas/año) 9,072 5,400 3,605 6,048 Utilización de capacidad 84 75 70 72 Fundiciones vendibles (toneladas/año) 5,900 3,350 2,160 3,630 Rechazo (%) 8 9 8 10 Comsumo de energía eléctrica (kWh/ mes) 5,28,320 1,01,000 55,000 1,29,000 Utilidades (Kw) 1016 183 319 122 Horno de inducción (kWh/tonelada) 700 720 750 740 Petróleo para horno (l/tonelada) 200 220 200 210 Fundición/día (toneladas) 30 18 12 20 Rendimiento (%) 65 62 60 60

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tendencia de consumo energético. El con-sumo de energía en diferentes formas debería expresarse en una unidad común para facili-tar la comparación.

La recolección de datos se llevó a cabo mediante instrumentos de medición del consumo de energía en diferentes sectores/equipos. En todas las fundiciones, la pro-ducción era de hierro fundido Gris de y hierro fundido nodular, además, todas las fundiciones utilizaban hornos rotativos y de inducción. Aquí estudiamos en detalle el hierro fundido nodular. El consumo de energía total de las cuatro fundiciones se muestra en la Tabla 3.

Se midieron los siguientes parámetros para las cuatro fundiciones: capacidad instalada, producción actual y consumo de energía eléctrica. Los resultados demuestran que la fundición A tiene una buena capacidad de utilización, de un 84 por ciento. Un estudio adicional nos provee una visión del consumo eléctrico mensual y su trascendencia en la capacidad del horno de inducción. El con-sumo eléctrico mensual es más alto en la fundición A, con la capacidad más baja del horno de inducción (700 kWh/tonelada) de las cuatro fundiciones estudiadas.

Observación experimental El patrón de consumo eléctrico de las cuatro fundiciones estudiadas se muestra en las Tablas 4 y 5.

Se observa que la fuente principal de con-sumo eléctrico ocurre en el sector de fusión de las fundiciones.Utilización de la capacidad – comparación de las fundiciones Un buen desempeño en la fabricación no alcanza para garantizar la competividad de los costos. Es igual de importante utilizar la capacidad disponible en forma adecuada. La optimización de la utilización de capacidad depende de factores como el potencial de planeamiento de la producción y el aumento de opciones de equipo disponibles para la producción. De acuerdo al análisis, se observa que si bien la fundición A tiene una capacidad de fusión de 32 toneladas de hierro fundido por día, sólo produce de 24 a 30 toneladas diarias. El estudio revela que la capacidad de fusión se encuentra limitada por la capacidad de moldeo. Se observó que la relación estadís-tica para este análisis estaba en la línea loga-rítmica. Asimismo, se observa que existe un efecto significativo del aumento del tiempo de enfriamiento sobre la sección de vertido.

Tabla 4: Consumo de energía eléctrica

Secciones Promedio de consumo eléctrico/mes (kWh)

Giesserei A Giesserei B Giesserei C Giesserei D

Planta de arena 26,245 1,000 720 5,250

Molduras y machería 15,855 9,000 540 8,400

Fusión 4,28,085 7,700 15,300 78,750

Compresor 15855 1,000 360 2,100

Iluminación 21,140 9,000 720 5,250

Tabla 5: Comparación de la distribución de la energía eléctrica

Secciones

Distribución

Estándar CII*Fundición

A B C D

Planta de arena 6 5 1 4 5

Molduras y machería

10 3 9 3 8

Fusión 70 81 77 85 75

Compresor 5 3 1 2 2

Iluminación 5 4 9 4 5

* Confederación de la Industria de la India

Tabla 6: Relación entre utilización de capacidad y

consumo específi co de energía

Utilización de

capacidad (%)

Comsumo específi co

de energía (kWh/

tonelada)

72 625 72 625 70 628 71 629 75 617 78 614 75 614

Tabla 7: Comparación de la utilización de capacidad

Fundición % de la utilización de capacidad

A 84 B 75 C 70 D 72

Tabla 8 Comparación de consumo de energía específi co

Sl-

Nr.Fundición

Consumo

específi co de

petróleo (l/

tonelada)

Consumo

específi co de

energía (kWh/

tonelada)

1 A 200 700 2 B 220 720 3 C 200 750 4 D 210 740

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Los hornos u ollas deben esperar para que se vierta el metal y como consecuencia, baja el calor, lo que resulta en una producción menor. Los elementos fijos de los requerim-ientos energéticos de las operaciones forman la base de un consumo alto de energía por tonelada con una capacidad de utilización baja. Por lo tanto, en este estudio se han hecho pruebas sobre hornos de fusión para deter-minar la relación matemática entre el con-sumo de energía y la utilización de la capaci-dad. El consumo específico de energía y el porcentaje de la utilización de la capacidad se recolectaron de hornos de fusión eléctricos en las fundiciones seleccionadas. El resumen de dichos datos se encuentra en la Tabla 6.

La utilización de capacidad se encuentra dada por la producción actual de la capacidad instalada en un promedio anual. Los resulta-dos se encuentran en la Tabla 7.

La Fundición A opera con un 84 por ciento de utilización de capacidad. Puede observarse que el consumo eléctrico específico y el con-sumo de petróleo se minimizan cuando las fundiciones operan con más utilización de la capacidad. Comparación de consumo de energía específico Los siguientes valores de consumo energético se basan en la investigación y se obtuvieron de diferentes equipos de fusión de las fundi-ciones. Los resultados se encuentran en la Tabla 8.

En la Fundición A, el consumo eléctrico específico del horno de inducción es 12.9 mayor y el consumo específico de petróleo del horno rotativo es 48.15 mayor que lo indicado por los estándares normativos CII. En la Fundición B, el consumo eléctrico

específico del horno de inducción es 16.13 mayor y el consumo específico de petróleo del horno rotativo es 62.96 mayor que lo indicado por los estándares normativos CII. En la Fundición C, el consumo eléctrico específico del horno de inducción es 20.97 mayor y el consumo específico de petróleo del horno rotativo es 48.15 mayor que lo indicado por los estándares normativos CII. En la Fundición D, el consumo eléctrico específico del horno de inducción es 19.35 mayor y el consumo específico de petróleo del horno rotativo es 55.56 mayor que lo indicado por los estándares normativos CII.

Según estudios sobre los patrones de con-sumo en hornos de inducción, el consumo específico de energía en las fundiciones es alrededor de un 18% mayor que lo indicado por los estándares normativos CII. También se observa que el consumo específico de petróleo en los hornos rotativos es alrededor de un 54 por ciento mayor que lo indicado por los estándares normativos.

Análisis estadístico Para llegar a un patrón de consumo energético se recomienda usar un modelo matemático. En este contexto, se desarrolla un modelo de análisis de regresión. El análisis de regresión es una herramienta estadística que compara la relación entre dos o más variables. Es la identificación de la relación entre variables dependientes y una o más variables indepen-

dientes. El análisis de regresión busca explicar los cambios en las variables dependientes en función de las variables independientes a través de la cuantificación de una sola ecuación. Se logró la cuantificación de una regresión linear simple en base a los valores de la Tabla 9.Y = 0.183X + 4046 [ec.1] (X= producción anual en toneladas y Y= consumo energético (MJ)

En la ec. 1, la variable dependiente es el consumo energético MJ, y la variable inde-pendiente es la producción anual en tonela-das. La Fig. 2, con base en la ec.1, muestra la relación entre la producción y el consumo energético.

El análisis de regresión obtiene una curva normal y desarrolla una relación. Se observa que el modelo de arriba nos da la correlación positiva entre la producción anual y el con-sumo energético (coeficiente de regresión = +0.68) Esta relación resulta útil para predecir el consumo energético respecto del porcen-taje de producción. Conforme al análisis anterior, se observa que el consumo energético específico se optimiza al aumentar la utiliza-ción de capacidad. Conclusión Se observa que la fuente principal de con-sumo eléctrico es el sector de fusión de las fundiciones. De ese modo, se concluye que existe la posibilidad de reducir el consumo energético y aumentar la productividad. Los

Tabla 9: Producción anual vs. consumo energético

Sl-

Nr.Fundición

Consumo

energético (MJ )

Producción anual

(toneladas)

1 A 4710 5900

2 B 4800 3350

3 C 3768 2160

4 D 5672 3630

Figura 2: Modelo de regresión linear para el consumo energético

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procedimientos de vertido y fusión se han identificado como factores claves en el con-sumo de energía. También se observa que las variables de los procesos estudiados tienen gran influencia sobre la calidad del fundido.

Los estudios sobre patrones de consumo energético en hornos de inducción revelan que el consumo energético específico es 18 por ciento mayor que lo especificado por los estándares normativos CII. También se observa que el consumo específico de petróleo

en los hornos rotativos es alrededor de un 54 por ciento mayor que lo indicado por los estándares normativos. Este estudio también reveló que las fundaciones operaban con una utilización de capacidad baja, lo que resultaba en una baja productividad. Dichos resultados en los costos energéticos altos aplican a la producción de fundiciones por tonelada.

De acuerdo al análisis estadístico, se desarrolló un modelo generalizado con bases en la regresión linear para obtener la correl-

ación entre la producción de fundiciones y el consumo energético. Conforme al análisis de regresión, se observa que el consumo energético específico se reduce al aumentar la utilización de capacidad.

El M Arasu es el Presidente del Departamento de Tecnología Metalúrgica de la Universidad Politécnica PSG, Coimbatore, L Rogers Jeffrey es parte B. Tech Final en la Universidad. Este ensayo fue preparado para el Congreso Indio de Fundición número 57.

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The economy of Colombia, South America’s gateway to the world, is booming. Quietly, almost unnoticed

in the shadows of the Latin American giants like Argentina, Brazil, Chile, etc. Colombia’s exports have tripled over the past decade,

there is a near-glut in the flow of foreign direct investments into the country and, according to the World Bank’s 2010 Doing Business report, Colombia today is the top country in Latin America to start or expand a business.

Colombia, indeed, has come of age against all odds to ride with the ‘emerging juggernauts’ of the market economy, and, as Newsweek

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COLOMBIA

Colombia’s economy glows bright


Colombia has gradually resolved its problems to join the ‘emerging juggernauts’ of the global market with exports tripling over a decade to become a bright star in the Latin American constellation

Bogotá, the capital of Colombia at night


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COLOMBIA

reports, in the past eight years the nation of 45 million has gone from a crime- and drug-addled candidate for failed state to a prosper-ing dynamo. The society that once was plagued by car bombs, brain drain, and capital flight is now debating how to avoid ‘Dutch disease,’ the syndrome of too much foreign cash rolling in. Stable, booming, and democratic, Colombia has increasingly become ‘a bright star in the Latin American constellation.’

Colombia’s $248 billion economy is the fifth-largest in Latin America, though a trifle next to Brazil, the $2 trillion regional power-house. Oil and gas production are surging, and Colombia’s MSCI index jumped 15 per-cent between January and June, more than any other stock market this year. Since 2002, foreign direct investment has jumped fivefold (from $2 billion to $10 billion), while GDP per capita has doubled, to $5,700.

A major milestone in the dramatic changes

the country has undergone in the past decade has been the election of new Colombian President Juan Manuel as successor of widely-popular President Santos Alvaro Uribe. Viewing security as a top priority, President Uribe’s administration took strategic steps to stabilise Latin America’s oldest democracy and motivate positive change in Colombia. At the same time, in an effort to improve the country’s economy, a strong focus was directed towards the attraction of foreign direct investment, and has led to increased wealth in the country.

With security and economic fundamentals vastly improved, innovation and exploration of untapped resources are now propelling Colombia forward as an emerging invest-ment location. Increasingly recognised as a country with vast potential, Colombia’s big-gest challenge is to close the ‘image gap’ between the public’s perception of Colombia

and Colombia’s new reality.Over the past decade Colombia’s economy

has made drastic steps forward due to a strict government focus on security and invest-ment promotion. Various industries, from energy and IT to tourism and healthcare, have seen the fruits of these efforts. Progress is reflected by Colombia’s emergence as a major world economic player, jumping six spots this year in the most recent World Competitiveness Report giving it the largest improvement in ranking of all the countries in the region.

As experts predict emerging markets will grow up to three times faster than developed countries this year and will drive global eco-nomic recovery, Colombia is well positioned for growth. With a dramatically improved business environment, partnered with inno-vation and competitive resources, the ‘new’ Colombia is a country to watch in 2010.

Colombia’s economic expansion has been higher than the World´s and other Latin American countries. During the past 10 years, the Colombian economy grew by 4 percent per year and has not experienced negative economic growth. In 2009, Colombia’s GDP grew 0.4 percent, a positive growth during the global recession, exceed-ing all expectations, to be located above the variation shown by the World -2.2 percent and Latin America -2.7 percent. In only eight years, FDI grew 200 percent, exports 174 percent, and international tourism 132 percent.

Exports have increased since 2002, grow-ing from $12 billion to $33 billion. In 2002, Colombia received FDI flows of $2.1 billion while in 2009 the FDI flows increased to $7.2 billion. During the last year, FDI flows showed a 32 percent reduction; remarkable figure compared with -42 percent variation of the Region.

The number of tourists that visited Colombia has doubled since 2002, from 661,000 travellers to 1.7 million in 2009. Between 2008 and 2009 the number of tour-ists grew by 17 percent, eight times more than the overall world growth of 2 percent.

Downtown Bogotá


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COLOMBIA

The tree of life knows that, whatever happens, the warm music spinning around it will never stop. However much death may come, however much blood may flow, the music will dance men and women as long as the air breaths them and the land plows and loves them.– Century of the Wind (Memory

of Fire Trilogy, Part 3) Eduardo Galeano

Uruguayan writer and chronicler of Latin American history par excellence, Eduardo Galeano’s concluding lines in his magnum opus on the rapacious greed of five centu-ries of colonial exploitation that all but destroyed a continent, expresses the joie de vivre of Latin America. In recent times, this quintessential resilient spirit, the ability to bounce back from any adversity, is reflected in the resurgent economies of Latin America following decades of political tur-moil and economic instability.

While Brazil and Argentina, the two largest countries of South America, are in the fore-front of these economies, Colombia, has stolen a march over its neighbours with its economy growing rapidly through export-propelled growth.

Unlike its neighbours, Colombia had

* Forecast: Economic Intelligence Unit (EIU)Source: Invest in Colombia, April-May 2010

GDP growth: Colombia vs World, 2000-10 (%age change)

3.12.2 2.5

4.6 4.75.7

6.37.5

2.5 2.5

0.4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

876543210

-1-2-3 Colombia World


Colombia exports, 2000-10 ($ million)

11975

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

45000

30000

15000

0

37626

32852

35282


Colombia FDI, 2000-10 ($ million)

2134

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

12000

8000

4000

0

10600

7201

850010252

Note: Including cruiseSource: Invest in Colombia, April-May 2010

Colombia tourism, 2000-09 (million)

661.1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2000

1000

0

1451

1700.5

Export-propelled, stable growth


enjoyed stable economic growth. During the early 90s the economy was growing quickly in comparison with that of other Latin American countries, and inflation and unem-ployment were under control. However, gov-ernment spending and foreign debt soared in the late 90s, the country suffered its worst recession in a century, and labour unrest and internal problems related to the drug trade continued to threaten the country’s economic stability. In addition, reverberations of the global turbulence caused by the Asian finan-cial crisis hit Colombia, too.

But here again the turnaround was short and by 2000 the country was on the road to recov-ery with the export sector leading the way. By 2003, the country’s GDP growth was the high-est in Latin America, and the economy contin-ues to improve in part because of government austerity, focused efforts to reduce public debt levels, an export-oriented growth strategy, an improved security situation in the country, and high commodity prices.

Colombia is a constitutional republic in northwestern South America, bordered to the east by Venezuela and Brazil, to the south

by Ecuador and Peru, to the north by the Caribbean Sea, to the northwest by panama, and to the west by the Pacific Ocean. Colombia also shares maritime borders with Venezuela, Jamaica, Haiti, the Dominican Republic, Honduras, Nicaragua and Costa Rica. With a population of over 45 million people, Colombia has the 29th largest population in the world and the second largest in South America, after Brazil. Colombia has the third-largest Spanish-speaking population in the world after Mexico and Spain.

Colombia has a long tradition of constitu-tional government. The liberal and con-servative parties, founded in 1848 and 1849 respectively, are two of the oldest surviving political parties in the Americas. However, tensions between the two have frequently erupted into violence. Colombia is very eth-nically diverse, and the interaction between descendants of the original native inhabit-ants, Spanish colonists, Africans brought as slaves and 20th-century immigrants from Europe and West Asia, has produced a rich cultural heritage.

This has also been influenced by Colombia's

varied geography. The majority of the urban centres are located in the highlands of the andes mountains, but Colombian territory also encompasses amazon rainforest, tropical grassland and both Caribbean and Pacific coastlines. Ecologically, Colombia is one of the world's 17 megadiverse countries (the most biodiverse per unit area).

Agriculture has traditionally been the chief economic activity in Colombia. An extremely wide variety of crops are grown, depending on altitude, but coffee is by far the major crop and its price on the world market has affected Colombia’s economic health. Among the commercial crops, coffee is grown between elevations of 3,000 and 6,000 ft; bananas, cotton, sugarcane, oil palm, and tobacco are grown at lower elevations. Between 6,000 and 10,000 ft potatoes, beans, grains, and temperate-zone fruit and vegeta-bles are grown.

Colombia is rich in minerals, including petroleum, natural gas, coal, iron ore, nickel, gold, copper, emeralds, and platinum. The saltworks at Zipaquirá, near Bogotá, are world famous. Hydroelectric potential was

Cartagena, city on the northern coast of Colombia and capital of Bolívar Department


developed during the 70s and 80s. The man-ufacturing sector of the economy has expanded greatly in recent decades, although it is heavily dependent on imported materi-als. Beverages and processed foods, textiles, clothing and footwear, and chemicals are the chief products. Tourism is also a sizable source of income.

Oil replaced coffee as the nation’s leading legal export in 1991. Other important offi-cial exports include petroleum-related products, coal, nickel, emeralds, apparel, bananas, and cut flowers. Cocaine was the major illicit export, accounting for about 25 percent of foreign exchange earnings. Once most of the raw materials were grown in Peru and Bolivia, but cultivation has increased in Colombia as a result of those nations’ coca-eradication programmes. The drug trade (Colombia also produces heroin and grows cannabis) had brought riches to some, but has seriously disrupted the fabric of Colom-bian society with its violence. Industrial and transportation equipment, consumer goods, chemicals, paper products, fuels, and elec-tricity lead Colombia’s imports.

The long-standing ties between India and Colombia touched a new high with bilateral trade crossing the $1

billion mark in 2009. India’s formal ties with Colombia go back half a century to 19 January 1959 when diplomatic relations between the two countries was first established. Since then their relationship has been gradually strengthening with more frequent diplo-matic visits, and commercial cultural and academic exchanges. Colombia is currently the commercial point of entry into Latin America for Indian companies. In 2006, Oil India invested $425 million in oil production in Colombia. The company plans to partici-pate in contract adjudications with the inten-tion of exploring the Colombian land for gas. In August 2007, the Colombian government

reported that trade between Colombia and India had rapidly increased. India gained $346 million from the exports to Colombia while Colombian exports to India were val-ued at $62 million.

Now India and Colombia have set an ‘immediate’ target to increase bilateral trade to $2 billion. India’s trade with Latin America reached $11.2 billion in 2007, an increase from $9 billion in 2006 and nearly double the 2005 level of $6 billion. Indian exports grew from $4 billion in 2006 to $5 billion, while Indian imports from Latin America increased from $5 billion in 2006 to $6.2 billion in 2007.

Trade with India and China represents trade opportunities rather than trade compe-tition for the bulk of Latin American coun-tries. Most of China’s increased exports raise

India-Colombia trade crosses $1 bn


stronger competitive challenges to its Asian neighbours than to the Latin American coun-tries, although some of the latter, such as Mexico, do face substantial Asian export competition. Chinese and Indian growth also opens Latin American export opportunities to new markets. For a few countries, notably Mexico and Brazil, this includes intra-indus-try trade, though for a majority of Latin American countries, the foremost trade opportunities are to be found in commodity exports. Already, the Asian drivers’ height-ened demand for oil and minerals has increased both revenues – through the rising prices of commodities – and direct trade with Latin America.

Colombia believes that crossing the $1 bil-lion mark is ‘only the beginning’ and that ‘India will become a great trade and export partner of Colombia.’ Bilateral trade could amount to between $2 billion and $3 billion annually ‘in just a few years’ and bilateral investment could rise to a similar total, with oil and coal, pharmaceuticals, telecommuni-cations technology and financial services outsourcing as preferential sectors.

Colombia imported about $14049.86 mil-

lion worth of engineering goods in 2009. India’s exports of engineering goods to Colombia were to the tune of $120.53 mil-lion in 2009, down from $151.51 million in 2008. In 2009, India’s share in global engi-neering imports by Colombia was about 0.86 percent.

To date, India and Colombia have signed a score of bilateral agreements, including MoUs in areas such as science, transportation and energy and agreements between regional institutions and chambers of commerce. Bilateral economic ties are clearly on the rise, with the number of Indian companies invest-ing in Colombia’s oil, coal, information tech-nology and biopharmaceutical sectors, among others, increasing from five in 2007 to

26 in 2009. EEPC India show: Colombia’s capital,

Bogotá, will be site of EEPC India’s annual feature, INDEE – Colombia, during 4-8 October 2010. The show will be a part of Feria Internacional de Bogotá, the special-ised highlight of the most representative Industrial Macro sector in the Andean Region, Central America and the Caribbean. The event brings together the most varied and complete exhibit of industrial machin-ery, equipment, new technologies, techno-logical advances, supplies, intermediate goods, raw materials and services related to the metallurgy, energy, packaging, plastics, air-conditioning, safety and related services industries.

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COLOMBIA

REPUBLIC OF COLOMBIA

Capital (and largest city) Bogotá

Offi cial language(s) Spanish

Demonym Colombian

Area – total 1,141,748 km2

(26th)Water (%) 8.8

Population – March 2010 est 45,393,050 (29th)

– Density 40/km2 (168th)

GDP (PPP) 2009 est $401.966 billion

– Per capita $9,200

Gini (2006) 52 (high)

HDI (2007) 0.807 (high) (77th)

Currency Peso (COP)

The view from the top terrace at Ciudad Perdida, the lost city in Colombia


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COLOMBIA

1. Colombia boasts the best business environment in Latin America: According to the World Bank’s 2010 Doing Business report, Colombia is the top country in Latin America to start or expand a business. This is due to recent reforms that have made the country’s regulatory environment transparent and efficient, from strong property rights and investor protection to efficient court proce-dures and major tax incentives.2. FDI is growing at record levels: Between 2002 and 2008, Colombia saw an increase of 400 percent in foreign direct invest-ment. The country expects to see a record $10 billion in total FDI in 2010, as companies increasingly look to tap into Colombia’s tra-ditional sectors, such as exports, mining and infrastructure. Emerging sectors, such as biofuels; IT/BPO; audio/visual produc-tion and medical tourism are also new areas attracting investment to the country.3. The pending free trade agreement between Colombia and the US would create big benefits for the US: As a country that tripled its exports over the past 10 years and is predicted to experience GDP growth of 3-3.5 percent this year, according to the Wall Street Journal, Colombia has made international trade a priority and is very keen to move forward with the pending free trade agreement with the US. The United States has lost corn, wheat and soybean meal sales to Brazil and Argentina in 2009 because those countries had free trade agreements with Colombia and the US did not. With the recent passage of the EU free trade agreement, the importance of passing the US agreement is paramount.4. Improved security strengthens investor confidence: According to Colombia’s Ministry of Defence, increased military spending and coordination helped to decrease kidnappings by 90 percent and hom-icides by 45 percent in Colombia between 2002 and 2009. This same period recorded a total of 81 investment projects from 64 US compa-nies including industry giants such as Microsoft, Nike and DirecTV.5. Innovative infrastructure fuels Colombia’s growing IT market: Colombia developed some of the world’s strongest IT infrastructure in order to keep information and communications secure during previous times of political unrest. Today, the country has double the telecommunications investment as a percentage of GDP – more than any other country in Latin America – and hosts a backed-up and secure Internet infrastructure, with five underwater cables and 212.5 Gbps capacity. Business Monitor International recently pre-dicted Colombia, whose IT industry grew 40 percent between 2005 and 2007, will continue to be one of Latin America’s fastest growing IT markets.6. Colombia grows green energy from reclaimed plantations: With 6.5

million hectares of available land, the most productive sugarcane in the world and the most productive palm oil in Latin America, Colombia is dedicated to expanding its biofuels sector. The amount of biofuels required to be mixed with all gasoline and diesel sold in Colombia is set to double to 20 percent by 2020, creating a guaran-teed market. This has allowed many rural inhabitants to engage their land in productive use to grow biofuels instead of engaging in illegal activity.7. Colombia has a health system comparable to Sweden and Belgium: The World Health Organisation recently ranked Colombia’s health system as the best in Latin America and placed it on par with the renowned health systems of countries like Sweden and Belgium. With nearly six million Americans expected to undergo medical procedures abroad in 2010, Colombia is well-poised to capture many of the US’ ‘medical tourists’ looking to capitalise on the coun-try’s lower procedures costs, which are typically 10-30 percent of costs in the US.8. Colombia is a leader in entrepreneurship: According to a 2009 ranking by the IMD World Competitiveness Centre, Colombia is a regional leader in entrepreneurship, second only to Brazil. With a population of more than 45 million, one of Colombia’s greatest resources is its human capital. The country has the highest labour force growth rate and the second largest availability of skilled labour in Latin America.9. Colombia’s creative class is spurring new growth in industry and tourism: Colombia’s long history of creativity in literature, art and music (Gabriel Garcia Marquez, Fernando Botero, Shakira) is growing into new opportunities for business and tourism. From the new ‘train to Macondo’ commemorating Garcia Marquez’s famous town in 100 Years of Solitude, to the Carnival of Barranquilla, pro-claimed by UNESCO as a Masterpiece of the Oral and Intangible Heritage of Humanity. Creativity is also leading growth in new industries: Colombia’s audiovisual production cluster is emerging as one of the country’s next big opportunities, with animation stu-dios and production houses capitalising on the creative talent of the local people in Colombia’s low-cost environment.10. Tourism has doubled since 2002: According to the New York Times, Colombia is positioned in the tourist market as one of the most sought-after destinations for 2010. In fact, between 2002 and 2009 the number of foreign visitors arriving in Colombia jumped from 1.1 million to 2.5 million. Every day, Bogota’s international air-port welcomes more than 300 international flights and, in order to accommodate rising demand, over the next two years Colombia will add 7,042 hotel rooms to its list of prestigious accommodations.

10 FACTS ABOUT COLOMBIA


VIII ‘Flawless’ Goods and Services Tax and the autonomy of states 8.1 The design of the GST based on a com-mon base and a uniform rate across states without the power to make any unilateral changes, is viewed by some states as under-mining the fiscal autonomy of the States. Therefore, it is argued that the states should agree to a floor rate of tax and should have the flexibility to increase their rates to meet any revenue crisis. 8.2 Full autonomy in the exercise of taxation powers would mean that the Centre or the states, as the case may be, a. Retain the power to enact the tax; b. Enjoy the risks and rewards of ‘ownership’

of the tax (i.e. not be insulated from fluc-tuations in revenue collections),

c. Be accountable to their constituents; and d. Be able to use the tax as an instrument of

social or economic policy.1 8.3 Tax autonomy to any level of government is necessary to enable it to design the base and set the tax rates according to its revenue needs. However, it is equally important to ensure that the exercise of these powers do not result in inter-jurisdictional differences in policies and procedures so as to generate additional economic distortions, create neg-ative externalities, or impose higher compli-ance and enforcement burden. 8.4 In general, the states would like to have some degree of control to design the base and set the rates as an instrument to promote various social and economic policy objec-tives. However, cross-country experience

shows that there is complete disillusionment with the use of the tax system as a tool to promote various social and economic objec-tives by allowing exemptions and incentives. Therefore, tax reforms undertaken across countries since the mid-1980 have focussed on redesigning the tax system so as to restrict its role to revenue collection. There is almost unanimity amongst fiscal experts on assign-ing a limited role of revenue collection to the tax system and using the direct transfer mechanism for achieving the various social and economic objectives. Given this new strand of economic thinking, the ability to use the tax system as a tool for achieving various social and economic objectives should cease to be a measure of tax autonomy. 8.5 In the past under the sales tax regime in the states, the flexibility to use the tax system as a tool for achieving various social and eco-nomic objectives has generated economic distortions and also triggered a race to the bottom. Further, if the states are allowed the autonomy to increase the rates by setting the SGST rates as the floor rates, they would have a tendency to opt for this lazy option rather

than improve their enforcement mechanism. Such increase in rates would mean a greater incentive to evade which, in turn, would make industries in competing states uncompetitive. It would also trigger tax-induced migration. Consequently, the decision to increase the rate would generate negative externalities, which must necessarily be curbed. 8.6 Hence, it is only appropriate that in a federal structure with overlapping powers to tax goods and services, Governments across levels cease to enjoy the autonomy to design the base, set the rates and the flexibility to use the tax system as a tool for achieving various social and economic objectives. In the context of the federal structure of India, what is rele-vant is overall fiscal autonomy rather than tax autonomy per se. Since states would continue to have the full freedom to promote various social and economic objectives through direct transfers, effectively, there would be no loss of fiscal autonomy of the states. 8.7 The design of the ‘flawless’ GST, as rec-ommended by us in the preceding chapters, is essentially an attempt at absolute harmo-nisation of the tax base, tax rates and tax

Report of the task force on Goods & Services Tax – 6

The Report of the 13th Finance Commission’s Task Force on Goods

& Services Tax (GST) provides a complete overview of the

proposed tax system that among other things is expected to

enhance productivity and accelerate growth. The Task Force has

recommended delaying the introduction of the GST system by six

months to October 2010 because of inadequate preparedness for

its scheduled introduction on 1 April 2010. Here we bring you the

sixth and final instalment of the report. The earlier instalments

can be found in previous issues of IndianEngineeringExports

POLICY MATTERS

13TH FINANCE COMMISSION, GOI

infrastructure (i.e. the administration and compliance system) across Centre and all states. As discussed above, harmonisation of the tax base and the tax rates will eliminate the distortionary impact on economic effi-ciency and equity arising from inter-juris-dictional differences. Further, such harmo-nisation will enable consequent harmonisa-tion of the tax laws and the administration and compliance systems. 8.8 Harmonisation of tax laws is critical. Variation in the wording and structure of tax provisions can be an unnecessary source of confusion and complexity, which can be avoided if the Centre and all the states adopt a common GST law as in the case of the Central Sales Tax or agree to separately legis-late an identical GST law. In either situation, there would be harmonisation in respect of critical elements like common time and place of supply rules, common rules for recovery of input tax, valuation of supplies, invoicing requirements, tax interpretations and rulings regarding classification of goods and serv-ices, determination of what constitutes tax-able consideration and definition of export and import. 8.9 Administration and compliance is an area where the need for harmonisation is the greatest, and where Centre-state or interstate variations are unlikely to serve any social or economic policy objective. This includes items such as the taxpayer registration sys-tem, taxpayer identification numbers, tax forms, tax reporting periods and procedures, invoice requirements, cross-border trade information systems and IT systems. Harmonisation of these elements would result in significant savings in costs of imple-menting the GST (by avoiding duplication of effort in each government), as well as recur-ring savings in compliance costs. Harmonisation would also permit exchange of information between different levels of government so as to enable effective monitor-ing of cross-border transactions. A common tax identifier number across states and the Central Government is a key element in the

efficient exchange of information. 8.10 Harmonisation of the GST tax base, tax rate and administrative and compliance sys-tems should be viewed as an imperative for optimising the efficiency and productivity of GST across jurisdictions in a federal struc-ture. All jurisdictions will be worse off with-out harmonisation. Therefore, it should not be perceived as eroding the fiscal autonomy of the Centre or the states. 8.11 If harmonisation across Centre and all states is envisaged, what should be the insti-tutional mechanism to usher and maintain such harmonisation? At present, the respon-sibility for designing the initial structure of the GST has essentially been left to the Empowered Committee of State Finance Ministers and official-level representatives of the Central Government. This body is now internationally recognised as an important institutional arrangement which has ren-dered yeoman service in substantially fur-thering the cause of indirect tax reform in the country. However, there is also a need to maintain stability and integrity in the struc-ture of the GST to ensure that no distortions creep into the indirect tax system. Therefore, the existing mechanism for arriving at a col-lective decision on the structure of the GST should be permanently institutionalised so that changes in the initial design of the GST are collectively agreed and implemented by both the Centre and the states. 8.12 In view of the above, we recommend that the Empowered Committee of State Finance Ministers may, upon the introduc-tion of the GST, be transformed into a per-manent constitutional body known as the Council of Finance Ministers. This Council shall comprise of the Union Finance Minister and all State Finance Ministers. The Union Finance Minister would be the Chairman of this Council. 8.13 The Council should be responsible for any modification in the initial design of the dual GST and regulating the indirect tax system in the country. The initial design of the dual GST should be approved by the

Chairman and three-fourth of the State Finance Ministers. Thereafter, any change in the structure of the GST (both base and the rates) should be allowed to be carried out only if the Chairman and two-thirds of the State Finance Ministers agree to do so. Consequently, neither the Centre nor any state will have the authority to unilaterally make any change in the agreed design of the GST. However, in the event of a crisis, the member state or the Centre may take imme-diate steps to impose a surcharge subject to ex-post facto approval by the Council within one month. Further, such surcharge should not be allowed to remain in force beyond a period of one year. 8.14 This Council should, in due course, have a permanent secretariat of its own in New Delhi. 8.15 The proposed mechanism will also ensure that all changes are thoroughly ana-lysed and debated before being implemented. More importantly, since both the Centre and the states would surrender their individual autonomy to change the structure of the GST to the proposed constitutional body, the existing balance of federal fiscal powers will continue to be maintained. 8.16 Further, with a view to compensating for the perceived erosion in the tax autonomy of the states, we also recommend that there should be an increase in the formula-based devolution to the states.

IX Incentivising states to adopt GST 9.1 The movement from sales tax to VAT at the state-level entailed the adoption of uni-form RNR rate by all states. The RNR rate is the weighted average of rates across states. Since there was no significant expansion in the base, it implied that states with average weighted rate higher than the RNR would lose revenue while those below it would gain revenue. Hence, the states demanded com-pensation for adopting VAT. The states have now also demanded compensation for any loss that might be incurred as a result of the shift from the existing indirect tax system at


POLICY MATTERS


the state-level to the GST-level. 9.2 States have expressed concern that the RNR for state GST may be revenue neutral at the aggregate-level but not necessarily for all individual states. It has, therefore, been suggested that if the states were to be denied the flexibility of upward adjustment to the tax rates, they should be compensated for the revenue loss estimated on a transparent basis. 9.3 The RNR calculated by us in the preceding paragraph is estimated to be 6 percent if all the taxes listed in paragraph are subsumed. Our calculations of revenue estimates, based on estimated C-efficiencies of the existing state-level indirect tax structure and of the proposed state GST, for each state indicates that there would be no revenue loss for any state on account of the switch over to GST at the estimated RNR rate of 6 percent and exist-ing level of compliance. This is primarily due to the fact that the change entails significant increase in the tax base for the states. In fact,

we estimate that there would be significant revenue gain at 7 percent RNR as recom-mended by us.2 9.4 The Group recognises that the adoption of the GST would create significant positive externalities to impact GDP and various other macroeconomic variables. This would result in reduced cost of economic manage-ment to the Central Government. Hence, it is logical that the Central Government shares with the states such positive externalities. 9.5 Some states have expressed their lack of confidence in the existing compensation arrangement for revenue loss to the states. It has been suggested that the compensation mechanism, to be credible, must be adminis-tered by a body independent of the Finance Ministry in which the state Governments have a say in governance. The suggestion merits consideration. 9.6 Therefore, we recommend the following: i) A GST Compensation Fund should be cre-ated under the administrative control of the

Council of Finance Ministers. ii) The Central Government shall transfer to the GST Compensation Fund a minimum sum of Rs6,000 crore per annum over the next five years (i.e. a total amount of Rs30,000 crore) if, and only if, the states: a. introduce the ‘flawless’ GST as recom-mended by us; and b. follow the road map, as suggested by us, for its introduction. iii) The amounts in the Fund should be used only for the following purposes: a. to compensate the states for any revenue loss on account of the adoption of the ‘flaw-less’ GST; b. the balance, if any in the Fund, to be carried forward to the subsequent year; c. the balance, if any remaining at the end of the fifth year, to be distributed amongst the states on the basis of the same formula used for distributing resources in the divisible pool. iv) The amount will be transferred in quar-terly instalments.

POLICY MATTERS



v) The amounts shall be disbursed by the Council on the basis of the recommendations by a three-member Compensation Com-mittee comprising the Secretary, Department of Revenue, Government of India, Secretary to the Council and any fiscal expert appointed by the Central Government for this purpose. vi) No contribution to the Fund shall be made by the Central Government in any year in which the states fail to adhere to the roadmap for implementation of the GST. vii) The methodology to be used for estimat-ing the revenue loss and the compensation shall be decided by the Council. 9.7 These recommendations will serve as an incentive for the states to adopt the flawless GST and also ensure that the payment for compensation, if any, is legitimate and trans-parent. 9.8 One of the lessons drawn from the imple-mentation of VAT at the state-level is the frequent tendency by the states to deviate from the collectively agreed position relating to the base and the rates. This creates sig-nificant tax induced distortions in economic behaviour across states. Further, as stated earlier, it also creates negative externalities. Therefore, it is imperative to establish a mechanism whereby the defaulting state is made liable to pay for the negative exter-nalities. Accordingly, we recommend the following: i. Any state which deviates from the GST base or rates, collectively agreed upon, without the authority of the Council, should be liable to such penalty for the year, as may be recom-mended by the Thirteenth Finance Com-mission. ii. If the deviation is for a period less than a year, the state will be liable for a proportion-ate amount of penalty attributable to the period of deviation. Similarly, if the devia-tion is for a period more than a year, the state will be liable for the completed years and the proportionate amount relating to the remainder period. iii. The amounts collected in penalty shall be deposited in the GST Compensation Fund for

formula based devolution to the states. 9.9 This mechanism will provide symmetric treatment of positive and negative externali-ties whereby creation of positive externalities will be rewarded and negative externalities will be penalised.

X Goods and Services Tax – the way forward 10.1 The introduction of the Value Added Tax at the state-level was discussed over a pro-longed period of more than a decade before implementation. Given the fact that the reform of the indirect tax system is critical to any effort to increase efficiency and economic growth, such prolonged period of discussion on issues in respect of which there is adequate

well-documented international experience is costly and should, therefore, be avoided. In spite of such prolonged period of discussion, the state VAT regime in the last four years has witnessed many states deviating from the classification and the rates agreed upon in the White Paper of the Empowered Committee, released in January 2005. 10.2 Similarly, the discussions on the intro-duction of a comprehensive dual GST, both at the Centre and state-level, have been in progress since early 2006. It is unfortunate that no agreement on the GST has yet been reached even though the target date for its introduction i.e. 1 April 2010, is less than six months. 10.3 The Central Government has entered into a number of free trade agreements. As these agreements are operationalised, it is necessary to optimise the efficiency and competitiveness of Indian industry. There is no headroom for pursuing distortionary policies. To the extent, the distortions are induced by the indirect tax system, there is an urgent need to reform the same by adopt-ing a flawless Goods and Services Tax along the lines recommended in this Report. The adoption of a flawless Goods and Services Tax is critical to the survival of the Indian industry in the face of increasing interna-tional competition consequent to a number of free trade agreements entered into by India. 10.4 Hitherto, the approach of the Central Government has been to act as a catalyst in the process of the design of the GST. This responsibility has essentially been left to the Empowered Committee of State Finance Ministers and official-level representatives of the Central Government. Since the design of the GST will also impact the indirect tax system of the Central Government, it is nec-essary for the Central Government to play a more proactive role in this effort. Towards this, the leadership of the Union Finance Minister would be vital. This will provide the necessary impetus to the process of ‘grand bargaining’ for the GST.

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One of the lessons drawn

from the implementation

of VAT at the state-level is

the frequent tendency by

the states to deviate from

the collectively agreed

position relating to the

base and the rates. This

creates significant tax

induced distortions in

economic behaviour across

states. Further, as stated

earlier, it also creates

negative externalities.

Therefore, it is imperative

to establish a mechanism

whereby the defaulting

state is made liable to pay

for the negative

externalities


10.5 While the Council is engaged in the process of designing the GST, the Council should approve the draft of the amendment to the Constitution to the effect that the Centre and the states shall exercise concur-rent jurisdiction to subject all goods and services (other than SIN-goods) to a con-sumption type value-added tax based on destination principle where exports will be zero-rated and all imports will be subject to the levy like any other goods and services domestically produced and consumed. Further, it should also provide that the base for the levy should be common for both the Centre and the states and there would be a legislated agreement amongst the states and the Centre to: (a) adopt uniform classifica-tion, (b) adopt uniform rates, (c) not modify the classification or the rates except with the agreement of all the states and the Centre, and (d) provide for other essential common fea-tures like zero-rating of (or credit by import-ing state for) inter-state sale of goods. This could be on the lines of the GST legislation in Australia, under which all the states and the Commonwealth (the Centre) have to agree before any change in the rate or the base of GST can be implemented. 10.6 The implementation of the GST is sched-uled for 1 April 2010. However, given the fact that the discussion paper on GST has not yet been released for public debate, it is unlikely that the Centre and the states would be able to complete all legislative and administrative processes before 1 April 2010. Therefore, it would be appropriate for the Council to post-pone the implementation by six months to 1 October 2010. However, the Council should release a timeline of various activities for introduction of GST simultaneously with the announcement for postponement. This will enable all stakeholders to monitor the progress and ensure that the new implemen-tation date is not missed out. The new time-line starting 1 January 2010 is contained in Annexures. 10.7 The SGST is being designed by the Empowered Committee to subsume the

‘EC-taxes’3 only. One of the main elements of the ‘flawless’ GST recommended by us is that all taxes on goods and services, levied by the Centre or the states, should be subsumed in the GST. Therefore, we have recommended that the following other taxes levied by the states on goods and services should also be subsumed: a. Stamp duty; b. Taxes on vehicles; c. Taxes on goods and passengers; and d. Taxes and duties on electricity. 10.8 There is also a view amongst states that while they agree that these taxes should even-tually be subsumed, they would like to grad-ually move in that direction rather than adopt a ‘big bang’ approach. 10.9 The introduction of the GST should be viewed as the last mile in the reform of the indirect tax system of this country initiated in 1986 with the introduction of the MODVAT. The present system of taxes on goods and services is an outcome of a gradual approach to tax reform over the last 23 years. Consequent to this approach, the country has undoubtedly lost out on potentially higher economic growth, higher real wage rates, fiscal consolidation and consumer welfare. All stakeholders other than the oli-garchs, both within and outside the system, stand to gain from a swift comprehensive changeover to the GST. The multitude of the poor will gain from this reform measure more than any other stakeholder. To the extent the switchover is staggered, the poten-tial gains from the comprehensive GST would remain unrealised thereby adversely impacting the poor. We therefore, recom-mend that all taxes on goods and services, whether levied by the Centre or the states, should be subsumed in the GST in the very first year of its introduction. 10.10 However, if for some political economy reasons it is considered expedient to intro-duce the GST in a phased way, we recommend the phasing in the following manner: a) In the year 2010-11, all elements of the Flawless GST recommended by us whereby

i. the single CGST rate should be 5 percent and the corresponding SGST rate should be 7 percent; and ii. transactions in immoveable property (i.e. real estate and housing services) should be brought within the fold of GST; and iii. stamp duty may not be subsumed but the rate of stamp duty in all states should be cali-brated so as not to exceed 4 percent. As a result, transactions in real estate will be sub-ject to a dual levy like in the case of SIN-goods; b) In the year 2011-12, same as (a) above, with the modification that the rate of stamp duty should be reduced to 2 percent; and c) In the year 2012-13, same as (a) above, with the modification that: i. stamp duty should be eliminated and rep-laced by a Registration Fee at a specific rate; ii. the revenues attributable to 2 percentage point out of the 7 percentage point of SGST should be set apart for devolution to the third-tier of government and the revenues from the balance 5 percentage points will remain with the state government so that the third-tier of government have a interest in the efficient functioning of the GST and do not have to impose any cascading taxes like cess, entry tax or Octroi.4 10.11 Further, we also recommend that the phased programme for introduction of the GST as outlined above should be incorpo-rated in the GST legislation so that there is no uncertainty on the evolution of the GST which will enable trade and industry to appropriately structure their business. 10.12 We do not envisage any loss of revenue at the rates of CGST and SGST recommended by us. However, the rates being sufficiently low, we expect more than normal growth in revenues through better compliance and ease of administration. These low rates will also provide sufficient fiscal space to the Government to meet any contingency which may arise in the future by raising the rates as was done in Japan, Singapore and New Zealand.5 10.13 The Central Government and state

POLICY MATTERS



governments must come together in national interest to build a consensus on the GST and adhere to the new deadline of 1 October 2010 for rolling out GST. Given the strategic importance of this game-changing reforms, the country can little afford any delay.

XI Conclusion 11.1 The taxation of goods and services in India has, hitherto, been characterised as a cascading and distortionary tax on produc-tion resulting in misallocation of resources and lower productivity and economic growth. It also inhibits voluntary compli-ance. It is well-recognised that this problem can be effectively addressed by shifting the tax burden from production and trade to final consumption. A well-designed destina-tion-based value-added tax on all goods and services is the most elegant method of elim-inating distortions and taxing consumption. Under this structure, all different stages of production and distribution can be inter-preted as a mere tax pass-through, and the tax essentially ‘sticks’ on final consumption within the taxing jurisdiction. 11.2 The efficiency of the VAT enhances with increase in the purity of the GST model. The most important ten elements of a pure GST are the following: a. The base should extend to all goods and services including immovable property; b. There should be a single low rate; c. The tax should be destination-based; d. The tax should be designed on invoice-credit method; e. Full and immediate input tax credit in respect of capital goods; f. The GST must replace all transaction-based taxes on goods and services and factors of production. g. There should be seamless flow of the tax through all stages of production and distribu-tion so as to stick on ‘final’ consumption; h. The exports should be zero-rated and imports should be fully taxed; i. There should be a threshold exemption for small dealers;

j. Full computerisation of the compliance and administrative systems. 11.3 In the light of the above, we have recom-mended a ‘flawless’ GST in the context of the federal structure which would optimise effi-ciency, equity and effectiveness. The ‘flaw-less’ GST is designed as a consumption type destination VAT based on invoice-credit method. It provides for a comprehensive base including financial services and immov-able property. To the extent that there are exemptions, albeit limited to items covered for distribution through the public distribu-tion system, and health and education serv-ices, the purity of the GST is diluted. A threshold exemption of Rs10 lakh has also been provided for small businesses. Imports into the country are proposed to be taxed in the same manner as domestically produced goods. Like intermediate inputs, full and immediate credit for tax paid on capital goods will also be provided. Further, it also provides for a single rate of tax of 12 percent for all general goods and services across all states, comprising of 5 percent by the Centre and 7 percent by the states.6 However, prod-ucts of high value like gold and platinum will be subject to tax at the rate of 1 percent each by the Centre and the states and exports will be zero-rated. 11.4 There is empirical evidence to suggest that the switchover from the present distor-tionary taxation of goods and services to a ‘flawless’ GST will, amongst others, increase productivity of all factors of production and hence enhance GDP. The switchover has also been analysed to be pro-poor and, therefore, further the cause of poverty reduction. Further, in the Indian context, a dual VAT-type tax concurrently levied by both the Centre and the states would enable the crea-tion of a common market. 11.5 Given the benefits of the changeover to the flawless GST, it would be economically rational for all levels of government to intro-duce and successfully implement the flawless GST and for the Central Government to invest in incentivising the state government

to adopt the flawless GST. We have, therefore, recommended that the Central Government should provide a sum of Rs30,000 crore over the next five years which will be used to com-pensate the states for revenue loss, if any, and the balance for distribution between the states on the basis of the same formula appli-cable for tax devolution to the states. 11.6 The implications for fiscal management are far-reaching. It will significantly improve fiscal management through higher tax buoy-ancy. While the RNR for state-level ‘TF-taxes’ (including stamp duty) is only 6 percent, we have allowed them a higher rate of 7 percent along with the flexibility to phase out the stamp duty over a period of next three years. This has the potential to increase the com-bined tax revenues of states by an estimated amount of Rs70,000 crore. In addition, we have also recommended that the states should be provided with an additional Rs30,000 crore as incentive to adopt a ‘flaw-less’ GST. Therefore, the switch over to the flawless GST will augment the combined resource base of the states by an aggregate sum of Rs100,000 crore.7 11.7 We recognise that the levy will be imposed and enforced by a large number of governments. Therefore, there would be constant pressure on states to deviate from the pure VAT model and trigger harmful tax competition. This would jeopardise the sustainability of the benefits from the implementation of the ‘flawless’ GST. Therefore, it is also necessary to establish an institutional mechanism, which would be responsible for making any change in the design and structure of the VAT. Our rec-ommendation to establish a Council of Finance Ministers is intended to subsume the independent powers of the both the Centre and state governments to levy tax on goods and services in favour of collective exercise of the powers. Therefore, there is no exacerbation in the vertical imbalance in the fiscal powers. 11.8 The First Discussion Paper released by the Empowered Committee of Finance

POLICY MATTERS



POLICY MATTERS


Ministers on 10 November 2009 envisages an extremely diluted form of GST under which, inter alia: (i) a number of cascading taxes including purchase tax will continue to be levied by the states; and (ii) the base is consid-erably eroded on account of the proposed continuation of the exemptions. We are also given to understand that the Empowered Committee is considering a two-rate struc-ture for general goods and services (other than high-value goods).The design of the GST as envisaged by the Empowered Committee is, therefore, a significant dilution of the ‘flawless’ GST. Consequently, the potential economic benefits from a switchover to the flawless GST, which we have discussed in the foregoing chapter, would not be realised. 11.9 We have recommended that the imple-mentation of the GST should be postponed to 1 October 2010. We believe that it should be possible to adhere to this timeline. The benefits from the switch over to the GST are contingent upon the purity of the GST design. In the context of VAT, international experi-ence shows that any design-related ‘VAT mistakes are very hard to rectify.’ Therefore, it must be ensured that there are no design-related mistakes at birth. However, if there is a tradeoff between the timeline and the design of the GST, the dilemma must be resolved in favour of design. 11.10 Further, in order to implement the ‘flawless’ GST it would be necessary to under-take constitutional amendments to enable both the Centre and the states to exercise concurrent jurisdiction over the taxation of all goods and services, creation of the pro-posed Council of Finance Ministers and assignment of part of the GST proceeds to the third-tier of government. These amendments must, inter alia, provide that the taxation of goods and services by both the Centre and the states should be a consumption-type, destination-based GST. 11.11 The introduction of the ‘flawless’ GST is one of the most important reform agenda which can provide a new impetus to Indian industry and inclusive growth. It is an eco-

nomic game changer. All stakeholders must unite and develop the necessary will to coop-erate in introducing the flawless GST. It would be worthwhile to make greater politi-cal investment in this endeavour.

ANNEXURES Treatment of immovable properties under Goods and Services Tax The case for including the real estate sector in the tax base for the GST rests on a number of competing reasons. Firstly, the construc-tion and exploitation of real estate comprises one of the larger sources of gross domestic product. Therefore, any exclusion of the real estate sector would lead to significant reduc-tion in the tax base. This would lead to an increase in the GST rate for other sectors thereby distorting economic efficiency and incentive for compliance.

Secondly, expenditure on housing also constitutes a significantly large proportion of total personal consumption expenditure. Therefore, the exemption of the housing sector from the GST base would distort the consumption pattern. Further, it would also undermine vertical equity in as much as consumption of housing services is rela-tively high in the case of the rich.

Thirdly, real estate is subject to multiple taxation at both levels of government. At the Central Government-level, there has been an attempt to introduce service tax on housing services and allow credit for inputs used for the supply of such services. However, at the state-level input tax credit is not available for all taxes, thereby leading to significant cas-cading effect. Further, there is no incentive to the purchaser to obtain an invoice. Consequently, the audit trail of such transac-tions is lost and producers of inputs are also encouraged to suppress such transactions. The cumulative effect is to incentivise trans-actions in black money.

At the state-level, the taxes on the real estate sector include ‘sales tax’ on works contract, state-level VAT on various inputs used in the construction of real estate, stamp duty and

registration fee. Registration and stamp duties exhibit the same distortionary cumulative and cascading effects as excises. The problem is further compounded by the fact that in most states, the statutory rates of stamp duty on immovable property transaction are high. Therefore, the effective rate on value addition is exorbitant, thereby encouraging under-reporting of transactional value and evasion of stamp duty. Since stamp duties are directly or indirectly related to other taxes, any stamp duty evasion triggers a similar adverse response to compliance with other taxes. As with other transaction taxes, it generates a bias in favour of not selling, and inhibits the devel-opment of a liquid secondary market. In the context of a distortionary tax regime govern-ing the real estate industry in India, there is a strong tendency for this industry to remain outside the organised sector and consequently the regulatory framework. Therefore, it serves as a breeding ground for tax evasion and criminal activities.

Fourthly, rationalisation of the tax regime governing the real estate industry could yield numerous benefits: improve tax compliance in the property tax, which is critical for the revenue base of local government, a reduced role for black money, and a reduced role for the criminal element in the real estate sector and significantly lowering of costs by mass housing.

At a conceptual level, under a VAT, sales, rentals, and rental values of immovable prop-erty would be taxable and credit would be available for the VAT embedded in purchases. Immovable property that generates housing services should be treated in the same man-ner. The theoretically most attractive solution would be to register all legal persons, who own or buy residential real estate, for VAT purposes. By purchasing a dwelling, these persons would become producers of housing services. In their role as producers, they would subsequently sell the housing services to consumers. These consumers could be lessees who buy the services for considera-tion, i.e. a rental charge. It is also possible that

producers would put the dwelling at their own disposal. In other words, as owner-producer they would ‘sell’ the housing serv-ices to themselves in their role as occupier-consumers. Therefore, the purchaser of an immovable property could use the housing services produced from ownership either for self-consumption or for ‘sale’ by renting out the property.

The VAT consequences of these events are as follows. On purchase of a bundle of hous-ing services in the form of dwelling, the reg-istered taxpayer pays tax on the purchase price, but at the same time, he is entitled to a tax credit (and refund, if due) for the same amount. If he sells the housing services to lessee, he would have to charge VAT on the amount of the rental. The lessee, being an unregistered consumer, would not be able to pass the tax on; he would be stuck with it just like consumers of other services. Similarly, in his role as owner-occupier, the producer of

housing services would ‘charge’ VAT on these services, whose value equals the rental value of the dwelling rendered to himself as con-sumer. And, like the lessor, he would have to remit that tax (net of any tax on inputs, such as repair and maintenance services) to the government.

In practice, the registration of all owner-occupiers and the computation of all imputed rental values present formidable administrative problems and are, therefore, not feasible. If imputed rental values cannot be taxed, the taxation of rental charges would appear to favour owner-occupiers over lessees. Further, the practical difficul-ties of taxing small landlords might be severe. Therefore, as a second-best approach, it would be appropriate to provide a thresh-old exemption for GST, which would ensure that the large majority of small landlords are outside the scope of GST. Since the imputed rental values in the case of self-owners

would predominantly be below the thresh-old exemption limit, it would be desirable from an administrative aspect to exclude imputed rental values in the case of self-owners from the scope of GST.

The treatment of housing under a VAT like GST regime can be designed following either the comprehensive taxation method or one of the two variants of the exemption method. The treatment of transactions in immovable property and real estate/housing services under the three methods is summarised in Table 1 (next page).

Under the comprehensive taxation method, all new properties (both residential and commercial) constructed after the introduction of the VAT are liable to tax on construction/first sale of the building on the reasoning that the cost of construction or the price of first sale represent the present discounted value of the flow of imputed rental services over the life of the property.

POLICY MATTERS



Thereafter, the rental charges for leasing of such properties is also liable to VAT with the landlord being entitled to input credit on the tax paid on construction/purchase of the building. However, if the property is owner-occupied, no VAT is applicable on imputed

rental value of the house. Correspondingly, the owner is also not entitled to input tax credit. Upon resale of the property, VAT is realised on the full resale value and input credit to the extent not utilised against rental income is allowed as a deduction. If the input

credit is greater than the VAT on resale value, the excess is ignored and no refund for such excess is allowed. As a result, VAT is payable on the margin earned on sale of the property, i.e. the difference between the sale price and the cost of procurement and improvements

POLICY MATTERS


Table 1

Nature of transaction Comprehensive taxation Exemption method

A (variant-A) (variant-B)

A. Existing residential property stock

i. Sale T T E

ii. Rental charges T E E

iii. Imputed rental values E E E

iv. Alteration and maintenance T T T

B. New residential property

i. Construction/ First Sale T T T

ii. Resale T T E

iii. Rental charges T E E

iv. Imputed rental values E E E

v. Alteration and maintenance T T E

C. Existing commercial property stock

i. Sale T T T

ii. Rental charges T E T

iii. Imputed rental values E E E

iv. Alteration and maintenance T T T

D. New commercial property

i. Construction/First Sale T T T

ii Resale T T T

iii. Rental charges T E T

iv. Imputed rental values E E E

v. Alteration and maintenance T T T

E. Inputs (both goods and services) used for construction T T T

thereto. It applies only to enhancement in the value of the property. The treatment in respect of resale of properties built prior to the introduction of VAT would be the same with the modification that no input tax credit is allowed in respect of VAT, which is paid at the time of its purchase. Further, VAT is also levied on the value of the supply of all goods and services for construction, altera-tion and maintenance of an immovable property.

The comprehensive method, as its name suggests, is extremely wide in its scope. Firstly, it extends to the consumption of existing stock of properties, as well as to any unanticipated future increases in the rental value of the new properties. Secondly, this method also effectively entails full taxation of imputed rental value of owner-occupied properties. New properties attract tax on their full capital value (i.e. the purchase price) at the time of purchase, for which no

deduction is allowed to the owner during the period of self-occupation of the property. Thirdly, the existing properties also attract tax on their full capital value at the time of resale. Further, this method simplifies legis-lation in as much as no distinction is required to be made between residential or commer-cial properties.

The case against the comprehensive method is essentially built on the following considerations. Firstly, under the method landlords would tend to register themselves to avail of credit in respect of input tax paid on construction/purchase of the property thereby increasing the administrative bur-den of dealing with a large number of small registrants. However, this problem is highly exaggerated in the context of a reasonably moderate threshold exemption for small businesses whereby most small landlords would remain exempt. Secondly, applica-tion of tax on resale of dwellings would

require the owners to keep track of input taxes paid on the acquisition of the dwell-ings, on improvements undertaken over the period of their ownership and input credit availed against VAT payable on rental value. Further, in many cases, there are frequent changes in the use of the dwelling as owner-occupied residence or rental dwelling. Since input tax credits are allowed only for houses used for rental purposes, these changes in the usage of the dwelling would require special rules for appointment of the input tax credits resulting in increased adminis-tration burden for the tax office. However, these problems are surmountable by not allowing any credit for input tax paid on construction/purchase of the property or improvement thereto against VAT payable on rental value. The credit for such input tax can be allowed only at the time of resale, after adjusting the same for inflation. Thirdly, in the case of existing stock of properties, the

POLICY MATTERS



POLICY MATTERS


tax applies on the full resale value. This may be appropriate only where the existing prop-erties did not previously bear the taxes that were being replaced by the VAT. If indeed substitute taxes (though of the cascading variety) are applied to some or all compo-nents of the existing properties, subjecting them to full taxation again under VAT would amount to double taxation. This can be resolved by allowing credit for the taxes already paid or levying the VAT only to enhancement in the value of the property.

Under the Variant-A of the exemption method, like in the comprehensive taxation method, all new properties (both residential and commercial) constructed after the introduction of the VAT are liable to tax on construction/first sale of the building. However, both the rental charges for leasing of such properties and the imputed rental value are exempt with no benefit for input tax credit whatsoever. Upon resale of the property, VAT is realised on the full resale value and input credit for tax paid on con-struction/purchase of the property is allowed as a set off. If the input credit is greater than the VAT on resale value, the excess is ignored and no refund for such excess is allowed. As a result, like in the comprehensive taxation method, the VAT on resale is payable only on the margin earned on sale of the property. The treat-ment in respect of resale of properties built prior to introduction of VAT is the same with the modification that no input tax credit is allowed in respect of VAT, which is paid at the time of its purchase. Further, VAT is also levied on the value of the supply of all goods and services for construction, alteration and maintenance of an immovable property.

The Variant-A is economical neutral between rented properties and owner occu-pied properties in as much as both the actual rent and imputed rent is exempt. Similarly, this method is also neutral across properties constructed before and properties con-structed after the introduction of VAT since resale of the property is liable to VAT. The

administrative and compliance difficulties are similar to those faced under the compre-hensive taxation method with the modifica-tion that the number of landlords seeking registration would be relatively small since actual rent is exempt. However, administra-tive complexity would increase in case of mixed use of properties, i.e. where the build-ing is partly used for residential and partly for commercial rentals or where the use of the unit changes between commercial and resi-dential use since this would required special rules of apportionment of the input tax cred-its. Further, in many cases, along with the renting of the unit, various related services such as utilities, furnishings, meals and maid services are also provided. Special rules would need to be framed to segregate residential rentals from the related supplies.

Under Variant-B of the exemption method, a distinction is made between resi-dential and commercial properties. The commercial properties are treated in the same manner as under the comprehensive taxation method. In the case of residential properties, VAT is levied at the time of con-struction/first sale of such properties which are constructed after the introduction of VAT. All resale of properties, whether con-structed before or after the introduction of the VAT is exempt. As a result, the scope of VAT does not extend to existing properties. Further, VAT is also levied on the value of the supply of all goods and services or con-struction, alteration and maintenance of an immovable property.

Variant-B is extremely narrow in its scope since sale and resale of both existing and new residential properties, rental value and imputed rent are exempt. This can be highly distortionary since the benefit from such exemption would depend on the mix of taxable and non-taxable inputs used in construction. Further, a distinction would also need to be made between residential and non-residential properties to allow for the exemption and input tax credit. This would add to the complexity in the tax

administration. The real estate sector should be integrated

into the GST framework keeping in view the implications of the different methods.

Terms of Reference of the Task Force The Task Force shall examine the impact of the proposed implementation of the Goods and Services Tax (GST) with effect from 01.04.2010. For this purpose, it shall examine, inter alia, (a) the GST model best suited for the coun-try; (b) the modalities of the implementation of GST including threshold limits, composition limits, treatment of inter-state transactions, place of supply rules; (c) the potential tax base of the GST as exhaustively as possible and determine an appropriate revenue neutral rate for the Centre and the states; (d) suggest ways to incentivise states to adopt a model GST; and (e) recommend a framework for administer-ing the GST including payment of compensa-tion, monitoring of compliance and institu-tional mechanism for making any change in the initial design of the GST.

Notes1. See Poddar, Satya and Ehtisham Ahmad (2009). 2. Our detail calculations can be made avail-able on request. 3. See para 2.11. 4. We are aware that this aspect will also require to be included in the proposed amendment to the Constitution for introduc-tion of GST. 5. Japan increased the VAT rate from 3 per-cent to 5 percent, Singapore from 3 percent to 7 percent and New Zealand from 10 per-cent to 12.5 percent. 6. However, products of high value like gold and platinum will be subject to tax at the rate of 1 percent each by the Centre and the states and exports will be zero-rated. 7. This is equivalent to 2 percent of GDP.

1

2

43

EEPC at home …

It was business as usual in the EEPC offices. (1) EEPC India Vice Chairman Anupam Shah addresses a seminar on SME Credit Rating & Financing Options in Kolkata; and (2) a section of the participants. (3) EEPC India Southern Region organised a seminar on Trade Agreements between India and various Trade Blocs in Chennai, and (4) EEPC Vice Chairman Mahesh K Desai addressing a session on INDEE Colombia in Hyderabad. (5) In Delhi, EEPC India Senior Deputy Director N Jumde speaking at a seminar organised by FICCI. (6) EEPC India held its adjourned AGM in Kolkata. In the picture are former EEPC India Chairman P K Shah, Vice Chairman Anupam Shah, Executive Director R Maitra and AED & Secretary Bhaskar Sarkar.… and abroad

(7) Members of the Mount Prospect Economic Development Council visited EEPC India’s office in Chicago. (8) EEPC India Senior Assistant Director Shakti Nath Mukherjee at the EEPC India booth in ITMA Asia, Shanghai, and (9 & 10) views of the fair.

homeaffairs


5 6

8


homeaffairs

7

910


ATA Carnet is an international customs document that permits duty-free temporary import of goods during its validity period. ‘ATA’ is an acronym of the French and English words ‘Admission Temporaire/Temporary Admission.’ ATA carnets cover: commer-cial samples; professional equipment; goods for presentation or use at trade fairs, shows, exhibitions and the like.

Government of India has acceded to the ‘Customs Convention on ATA Carnet for Temporary Importation of Goods.’ The conven-tion provides for temporary admission of goods free of import duty and free of import prohibitions or restrictions.

What is a Triptyque De Passage? For what purposes is it used?

Triptyque/Carnet De Passage is a travel document issued by approved automobile associations abroad for the purpose of tem-porary importation of private motor vehicles into India by the tourist free of duty. Such vehicles may be imported duty-free into India subject to following conditions:• The importer must be a member of an automobile club or asso-

ciation belonging to the Federation of Alliance Internationale De Tourisme.

• While importing the vehicle he must produce the triptyque or carnets de passages issued by the Alliance Internationale De Tourisme in the form approved and issued to him by a club or association guaranteed by the Federation of Indian Automobile Association.

• The period of retention of the vehicle in India does not exceed six months. The period may extend the period of six months by a further period of six months.

Notification No.296/76 Customs, as amended from time to time, has been specifically issued for this purpose.

FAQs

Interested participants may contact any Regional Office or B Sarkar

Addl Executive Director & SecretaryEEPC IndiaVanijya Bhavan (1st Floor), International Trade Facilitation Centre1/1 Wood Street, Kolkata -700016, IndiaTel: +91 33 22890651-53, Fax: +91 33 22890654, email: [email protected]

The rates are proposed for single

insertion. Discounts may be given

for more than one insertion.

The proposed tariff is:

For 3 months 3%

For 6 months 6%

For 12 months 10%

Members of EEPC India will get a

further discount of 10% of the

total cost.

Advertisement Tariff

Colour B&W

Back Cover Rs20,000 (US$ 625)

Inside Back Cover Rs16,000 (US$ 525)

Inside Front Cover Rs18,000 (US$ 575)

Centrefold Rs30,000 (US$ 900)

Full Page Rs13,000 (US$ 400) Rs10,000

Half Page Rs8,000 Rs6,000

Strip Rs5,000 Rs4,000

Logo on the Flyleaf Rs10,000 (Bi-colour)

IndianEngineeringExports advertising rates Print Area

Back Cover 26.6 cm x 20.7 cm

Inside Back Cover 26.6 cm x 20.7 cm

Inside Front Cover 26.6 cm x 20.7 cm

Centrefold 26.9 cm x 41.4 cm

Full Page 26.6 cm x 20.7 cm

Half Page 12.9 cm x 18.4 cm

Strip 6.4 cm x 18.4 cm

What is ATA Carnet?EEPC INDIA CALENDAR OF EVENTS

Date Event Venue

14-19 September 2010

India Pavilion at Automechanika Frankfurt 2010

Frankfurt, Germany

21-24 September 2010

India Pavilion at InnoTrans 2010 Berlin, Germany

4-8 October 2010

INDEE-2010 Exclusive Engineering Exposition (coinciding with Feria International De Bogota 2010)

Bogota, Colombia

18-30 October 2010

Multi-Product Trade Delegation to Russia, Ukraine and Belarus

Moscow, St. Petersburg, Nizhniy Novgorod, Kiev and Minsk

17-20 November 2010

India Pavilion at MEDICA 2010 Dusseldorf, Germany

25-28 November 2010

India Pavilion at MACTECH 2010 Cairo, Egypt

1-4 December 2010

India Pavilion at EUROMOLD 2010 Frankfurt, Germany

8-11 January 2011

India Pavilion at ARAB PLAST 2011 Dubai, UAE

20-24 February 2011

India Pavilion at SIMA 2011 Paris, France

24-26 February 2011

India Pavilion at Asia Pharma Expo 2011

Dhaka, Bangladesh

23-26 March 2011

India Pavilion at Ferroforma-Bricoforma 2011

Bilbao, Spain

25-30 March 2011

India Pavilion at EMAQH 2011 Buenos Aires, Argentina


Office bearers of EEPC India

CHAIRMAN

Aman ChadhaPhone: Off 91-22-40325600/40325678 (D) Res: 91-22-23516865Fax: 91-22-23854428/40325646 e-mail: [email protected] [email protected]

VICE CHAIRMEN

Mahesh K. DesaiPhone: Off 91-40-27615131/27617098 Res: 91-40-27765793 Fax: 91-40-27614376e-mail: [email protected]

Anupam ShahPhone: Off 91-33-22872511/22874447 Fax: Off 91-33-22875104/22870780e-mail: [email protected] [email protected]

REGIONAL CHAIRMEN

Eastern Region

B. N. AgarwalPhone: Off 91-33-24858750/51/52/53 Res: 91-33-24615916/5596Fax: 91-33-24858749e-mail: [email protected] [email protected]

Northern Region

S. C. RalhanPhone: Off 91-161-2673805/806/2670219 Res: 91-161-2670129/2672542 Fax: 91-161-2671049/2676817 e-mail: [email protected]

Southern Region Ramesh Kumar MuthaPhone: Off 91-44-25323885/5057/43444620 (D) Res: 91-44-42140999/4456 Fax: 91-44-26430087/89e-mail: [email protected]

Western Region

Nayan N. ShahPhone: Off 91-22-65702939/26763555 Res: 91-22-26207506 Fax: 91-22-28730291e-mail: [email protected]

Offices in India

R. MaitraExecutive DirectorEEPC INDIAVandhna (4th Floor), 11 Tolstoy MargNew Delhi 110 001Tel: 91-11-23353353, 23711124/25Fax: 91-11-23310920e-mail: [email protected]

HEAD OFFICE

Bhaskar SarkarAddl. Executive Director & SecretaryEEPC INDIAVanijya Bhavan (1st Floor)International Trade Facilitation Centre1/1 Wood Street, Kolkata 700 016Tel: 91-33-22890651/52/53Fax: 91-33-22890654e-mail: [email protected]

TERRITORIAL DIVISION

EEPC INDIAVandhna (4th Floor)11 Tolstoy Marg, New Delhi 110 001Tel: 91-11-23353353, 23711124/25Fax: 91-11-23310920e-mail: [email protected]

REGIONAL OFFICES

Chennai

EEPC INDIAGreams Dugar (3rd Floor)149 Greams Road, Chennai 600 006Tel: 91-44-28295501, 28295502Fax: 91-44-28290495e-mail: [email protected]

Kolkata

EEPC INDIAVanijya Bhavan (2nd Floor)International Trade Facilitation Centre1/1 Wood Street, Kolkata 700 016Tel: 91-33-22890673/74Fax: 91-33-22890687e-mail: [email protected]

Mumbai

EEPC INDIACentre 1, 12th Floor, World Trade CentreCuffe Parade, Mumbai 400 005Tel: 91-22-42125555Fax: 91-22-42125556/22180119e-mail: [email protected] [email protected]

New Delhi

EEPC INDIA4A Vandhna Building (4th Floor)11 Tolstoy MargNew Delhi 110 001Tel: 91-11-23314171/74Fax: 91-11-23317795e-mail: [email protected]/[email protected]

Sub-regional offices

Bangalore

EEPC INDIAVinayaka Complex (2nd Floor)44/45, Residency Road CrossBangalore 560 025Tel: 91-80-25581396/25588669Fax: 91-80-25586914e-mail: [email protected]

Hyderabad

EEPC INDIA'Soham Mansion' (1st Floor)No. 5-4-187/3 & 4/4, M. G. RoadSecunderabad 500 003Tel: 91-40-27536704Telefax: 91-40-27536705e-mail: [email protected]

Jalandhar

EEPC INDIAPlot Comm. 1, Focal PointJalandhar 144004Tel: 91-181-2602264Fax: 91-181-2601124e-mail: [email protected]

FOREIGN OFFICES

Singapore

EEPC INDIANo. 3, Shenton Way, #07-02 Shenton HouseSingapore 068805Tel: 65-62279282/83Fax: 65-62279284e-mail: [email protected]

USA

EEPC INDIA411 Business Center Drive, Suite 103Mount Prospect, Illinois 60070, USATel: 1-847-297-8500 (2 lines)Fax: 1-847-297-8502e-mail: [email protected]

[email protected]

EEPC India

EEPC IndiaHelping Indian engineering fi rms do

business around the world.

Helping the world access the best ofIndian engineering.

With over 13,000 members, EEPC India is the largest export and

trade promotion body in India. EEPC India operates 9 offi ces in

India and 2 overseas, in Chicago and Singapore.

www.eepcindia.org

Date of publication: 1 September 2010, R.N.I. No: WBENG/2008/24569 Postal Registration No. : KOL RMS/ 397 / 2009-2011Licensed to Post without PrepaymentLicence No. MM&PO/SSRM-KOL RMS/RNP-397/LPWP-039/2009-2011

Indian Engineering in Colombia

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