Scientists conjure up largest virtual universe
It simulates formation of galaxies
•Scientists have created the largest-ever virtual universe that simulates the formation galaxies and may hold clues to the nature of the elusive dark matter that is believed to make up majority of the cosmos.
•The gigantic catalogue of about 25 billion virtual galaxies generated from 2 trillion digital particles using a super computer is being used to calibrate the experiments on board the Euclid satellite, that will be launched in 2020. The satellite will investigate the nature of dark matter and dark energy.
•The computer code that took three years to complete was executed on the world-leading machine for only 80 hours, and generated a virtual universe of two trillion macro-particles representing the dark matter fluid, from which a catalogue of 25 billion virtual galaxies was extracted, researchers said.
•About 95 per cent of the universe is dark. The cosmos consists of 23 per cent of dark matter and 72 per cent of dark energy, researchers said.
Floating solar farm reflects China’s clean energy aims
40 MW structure with 1,60,000 panels rests on lake and is part of Beijing’s efforts to wean itself off fossil fuel dependency
•As the United States was withdrawing from the Paris climate pact, China’s clean energy ambitions were being reflected in the launch of the world’s largest floating solar farm.
•The 40-megawatt power plant has 1,60,000 panels resting on a lake that emerged after the collapse of a coal mine in central Anhui province. It is part of Beijing’s effort to wean itself off a fossil fuel dependency that has made it the world’s top carbon emitter, with two-thirds of its electricity still fuelled by coal.
•The solar facility went online around the time of President Donald Trump’s much-criticised June 2 decision to withdraw from the international accord aimed at saving the planet from climate change catastrophe.
•His move shifted the spotlight onto China and whether it will take on the leadership mantle in the fight against global warming.
•Days after his announcement — and by coincidence — Beijing hosted an international conference on clean energy.
•It was an opportunity for China, which already produces two-thirds of the world’s solar panels, to boast of its commitment to accelerating investment and reforms for greater use of renewable energies.
China dominating
•“The U.S.’ withdrawal from the Paris agreement offers China an unprecedented opportunity to take the lead in climate change,” energy expert Frank Yu of Wood Mackenzie consultancy said.
•The Beijing forum also put a spotlight on efforts taken by Chinese authorities and companies to develop renewable energy.
•“Beijing may feel like it’s dominating the game,” especially because “China is already moving rapidly — with or without the U.S. — in terms of investments” and innovation, Alex Perera, director of the WRI Energy Program, said.
•It has been the world’s largest investor in clean energy since 2012, spending $88 billion on wind and solar power last year, according to Bloomberg News.
•China’s solar capacity more than doubled in 2016. The official goal is for 20% of Chinese power consumption to come from low-emission energy, including nuclear, by 2030, compared to 11% currently.
•“We must take these promises seriously,” said Helen Clarkson, President of the Climate Group.
•Beijing hopes to combat endemic air pollution, but is also motivated by financial interests, as the country “is already reaping the economic benefits” of clean energy, Ms. Clarkson said.
Partnerships sought
•With the U.S. administration out of the Paris pact, China has signalled its readiness to deal with U.S. local governments to advance its climate agenda.
•California Governor Jerry Brown used the Beijing conference to seek partnerships with China on climate change, and was given the red-carpet treatment by Chinese President Xi Jinping.
•Mr. Brown, who has criticised Trump’s June 2 decision, signed a memorandum of understanding with Mr. Xi as well as an agreement with Sichuan province.
‘Wake people up’
•“I’m trying to wake people up to deal with climate change,” Mr. Brown said.
•“China is an ally in that and it has tremendous resources and I want to work with those resources in a way that will accelerate our climate action,” he said.
•Xie Zhenhua, China’s top climate negotiator, made it clear at the clean energy forum: “We will not only continue to strengthen cooperation with California, but also strengthen the concrete cooperation with other U.S. states, cities, enterprises and scientific research institutions in fields including clean energy.”
Climate change may cause more rainfall in the tropics
NASA study claims most models underestimate rate of increase in precipitation
•The amount of rainfall in the Earth’s tropical regions will significantly increase as our planet continues to warm, a new NASA study warns.
•Most global climate models underestimate decreases in high clouds over the tropics seen in recent NASA observations, according to research led by scientist Hui Su of NASA’s Jet Propulsion Laboratory (JPL) in the U.S.
•Globally, rainfall is not related just to the clouds that are available to make rain but also to the Earth’s “energy budget” — incoming energy from the Sun compared to outgoing heat energy.
•High-altitude tropical clouds trap heat in the atmosphere. If there are fewer of these clouds in the future, the tropical atmosphere will cool. Judging from observed changes in clouds over recent decades, it appears that the atmosphere would create fewer high clouds in response to surface warming. It would increase tropical rainfall, which would warm the air to balance the cooling from high cloud shrinkage.
Sounds counterintuitive
•Rainfall warming the air also sounds counterintuitive — people are used to rain cooling the air around them, not warming it. Several kilometres up in the atmosphere, however, a different process prevails. When water evaporates into water vapour on the Earth’s surface and rises into the atmosphere, it carries with it the heat energy that made it evaporate. In the cold upper atmosphere, when the water vapour condenses into liquid droplets or ice particles, it releases its heat and warms the atmosphere.
•It puts the decrease in high tropical cloud cover in context as one result of a planet-wide shift in large-scale air flows that is occurring as the Earth’s surface temperature warms.
•Observations over the last 30 to 40 years have shown that this zone is narrowing as the climate warms, causing the decrease in high clouds.
•Researchers at JPL and four universities compared climate data from the past few decades with 23 climate model simulations of the same period. Climate modellers use retrospective simulations like these to check how well their numerical models are able to reproduce observations.
•The team used observations of thermal radiation from NASA’s spaceborne Clouds and the Earth’s Radiant Energy System and other satellite devices as well as ground-level observations. They found that most of the climate models underestimated the rate of increase in precipitation for each degree of surface warming that has occurred in recent decades.
‘BRICS should fight against terror’
Shun narrow self-interests and double standards, says BJP leader Ram Madhav
•Without naming Pakistan, the BJP on Sunday asserted that the BRICS grouping, during its summit in September, should deny “narrow self-interests and double standards” the opportunity to hamper the fight against international terrorism.
•“Terrorism today has become an instrument of state policy for some countries, while a number of rogue terror groups wander around the lawless lands of some other regions of the world,” said Ram Madhav, BJP national general secretary.
•Addressing a brainstorming conference of political parties and think tanks of the BRICS, organised by the Communist Party of China (CPC), Mr. Madhav advocated that without making exceptions, the five emerging economies should “take the lead” in finalising a comprehensive convention on international terrorism.
•“The need of the hour is for countries to work towards dismantling terror infrastructure, destroying terror network and drying up the sources of terror financing and weapons supply,” he observed.
Centre of gravity
•Mr. Madhav called upon the BRICS countries to exercise leadership in brainstorming the concept of Indo-Pacific region, which, in his view had emerged as the centre of gravity of the global system. “At the advent of the millennium, global power axis is shifting away from the Pacific-Atlantic region. Today, it is the Indo-Pacific region that has emerged as the new global power house,” he asserted. Separately, in a conversation with The Hindu , Mr. Madhav rejected the perception that the Indo-Pacific concept was meant to dock with the Pivot to Asia doctrine of the United States for the containment of China. “The Indo-Pacific is not part of any exclusivist statement. It is in the Indo-Pacific that we have the economies of scale, and it is here that we have big consuming markets. It here that 70% of container trade of the world takes place. This is the most happening region [of the world]. So naturally we all have big stakes in the region. But this does not mean it is [meant to] exclude anybody.”
•The senior BJP leader stressed that BRICS was the cornerstone of new non-western “counter-narrative” to establish a new global order of the 21st century.
•Mr. Madhav called for greater participation of the BRICS, “especially India, South Africa and Brazil” to ensure the relevance of “20th century institutions” including the U.N. Security Council.
•He pointed to the “multi-polar world order” which demanded democratisation of international relations based on the principles of rule of law, respectful of the plurality of our world.
India, Israel set to expand defence ties
Both sides close to sealing a deal on Spike Anti-Tank Guided Missiles
•As India and Israel celebrate 25 years of their diplomatic relations, Tel Aviv has quietly emerged as one of the largest and trusted suppliers of defence equipment to the Indian armed forces, which rely heavily on imports.
•After protracted negotiations, the two countries are close to concluding a deal for Spike Anti-Tank Guided Missiles. This will be the latest in a series of big-ticket defence deals approved recently. “The Spike deal is not yet sealed, but it is almost done. We expect to conclude it very soon,” an official source told The Hindu .
•In a related development, Navy Chief and Chairman of the Chiefs of Staff Committee Admiral Sunil Lanba left on a four- day visit to Israel on Sunday to continue the “high-level defence exchanges.” The purchase of Spike missiles was approved by the Defence Acquisition Council (DAC) in October 2014, but negotiations on the contract ran into trouble over cost and technology transfer. The Rs. 3,200-crore deal includes 8,000-plus missiles, 300-plus launchers and technology transfer. The deal is likely to expand as the Army intends to equip its 382 infantry battalions and 44 mechanised regiments with new missiles.
•After New Delhi established full diplomatic ties with Tel Aviv on January 29, 1992, Israel has made inroads into the Indian defence sector, earning praise for reliability and technological sophistication. It is well entrenched in the areas of Unmanned Aerial Vehicles, air defence systems, special forces equipment and electronic warfare equipment.
•According to information presented in Parliament by Minister of State for Defence Subhash Bhamre in March, during 2015-16 and 2016-17 (till February 2017), 37 contracts have been signed with vendors of various countries for capital procurement of defence equipment. Seven of them are with Israel, second only to the U.S. with which nine contracts have been signed.
More deals on the anvil
•Officials of both countries have stressed that Narendra Modi’s upcoming visit to Israel, the first by an Indian Prime Minister, will not be defence-oriented. “The PM’s visit will not be defence-centric. Earlier, the relationship was based on defence, but now we have gone beyond that,” an official said.
•Earlier this year, the Cabinet Committee on Security (CCS) approved a Rs. 17,000-crore deal to jointly develop a Medium Range Surface to Air Missile (MR-SAM) system for the Army.
‘Neighbourhood First’ in Nepal
India needs to help Prime Minister Deuba clear the way for elections under the new Constitution
•Last week, on June 7, just days before he turns 71, Prime Minister Sher Bahadur Deuba was sworn in as the new Prime Minister of Nepal, marking his fourth term as Prime Minister. Yet compared to the rather turbulent politics in Nepal which makes him the 24th Prime Minister since the beginning of multiparty democracy in the country 27 years ago, this transition was singularly straightforward.
•His elevation comes as part of the deal struck between Nepali Congress (NC) and the Maoist party (CPN-Maoist Centre) last July under which Pushpa Kamal Dahal ‘Prachanda’ became Prime Minister in August, with NC support on the understanding that after nine months, during which his government would conduct the local body elections, he would hand over charge and support NC leader Deuba’s claim to the post.
Prachanda delivers
•Mr. Prachanda upheld his end of the bargain, and in contrast with his first term as Prime Minister which ended ignominiously with his resigning after nine months in 2009, following the controversy around arbitrarily dismissing the Army chief Rookmangud Katawal, his second nine-month tenure was productive.
•Domestically, he tried to build bridges with the Madhesis and the Janjatis who had been alienated by his predecessor K.P. Sharma Oli’s highhandedness, by promising them a consultative process and a constitutional amendment that would address their concerns. In keeping with this assurance, his government tabled a constitutional amendment proposal which goes a long way in addressing the Madhesi reservations. That it has not been passed is because of opposition from Mr. Oli’s party, the Communist Party of Nepal (UML), and the difficulty in mustering the two-thirds majority necessary.
•Externally, Mr. Prachanda also set about repairing relations with India which had reached a low during the tenure of Mr. Oli, who blamed India for stoking the Madhesi agitation and imposing an economic blockade. Mr. Prachanda’s early official visit in September 2016 followed by a second one during the BRICS outreach event in October, and reciprocal visits by President Pranab Mukherjee and Nepali President Bidya Devi Bhandari, helped restore the relationship.
•As promised, he held the first phase of the local body elections for municipalities and village development councils on May 14, in three of the seven federal provinces. These elections were last held in 1997. At present, there are 744 local bodies in Nepal and the first phase covered 283 local bodies in three predominantly Pahadi provinces, including metropolitan areas of Kathmandu and Pokhara.
•Under the new Constitution promulgated in 2015, seven provinces have been created and significant decentralisation of powers has taken place. Consequently, the local bodies now enjoy extensive financial powers. It is estimated significant that more than $5 billion will now be spent by the local bodies on infrastructure and delivery of social services. Historically, given the centralised character of the Nepali state, all political leaders have gravitated towards Kathmandu. The enhanced powers of the local bodies will enable the creation of a much needed new political leadership.
Deuba’s challenges
•Mr. Deuba’s fourth term as Prime Minister will be a short one, even shorter than his previous terms. None of these had lasted two years. The second time in 2002, he was sacked by King Gyanendra for ‘incompetence’, and after his 2004-5 term, he was placed under house arrest by the same monarch. This time, he has the opportunity to ensure a happier ending for his fourth term. He has already announced that his primary responsibility is to ensure that provincial and parliamentary elections are held before January 18, which gives him a tenure of under eight months.
•Mr. Deuba’s immediate challenge is to conclude the second phase of the local body elections scheduled for June 28 in the four remaining provinces. These provinces include the two Terai-based provinces (Provinces 2 and 5) and the far east and the far west provinces (Provinces 1 and 7). Madhesis have a significant presence in the two Terai-based provinces. They had demanded that unless the constitutional amendment addressing their concerns was passed, they would not participate in the local body elections.
•Given the UML’s stand, it is clear that the Deuba government cannot muster the two-thirds majority needed. Mr. Deuba has, however, committed that once the local body elections are concluded, he will exert all possible efforts to get the constitutional amendment through.
•Except for a small number, most Madhesi leaders who have strong roots in the Terai see the political logic in participating in the local body elections. They sense the public enthusiasm reflected in the high turnout, and realise that their boycott will not prevent the elections from going ahead but make them appear ‘spoilers’. Second, if they are cut out of local politics for the next five years, it will be difficult for them to maintain their cadre base, necessary to ensure a good showing in the following provincial and parliamentary elections.
•In the 2008 elections for the first Constituent Assembly, the three Madhesi parties emerged as a credible political force for the first time, with 84 seats. Internal squabbling and power politics fractured the three into a dozen, and in the 2013 elections, they were down to 40. Realising the need for unity, some Madhesi parties came together in April to form a new entity, Rastriya Janata Party Nepal (RJPN). The first decision of the Deuba government was to amend the Local Level Election Act, on June 8, which provides recognition of the RJPN and its election symbol, enabling it to join the June 28 elections in its new avatar. Earlier, some were thinking about fighting the elections under their old symbols, but with this change, any reservations should be set aside because now the RJPN can put up a united front. The two other major Madhesi groups led by Upendra Yadav (Federal Socialist Forum Nepal) and Bijay Gachhadar (Nepal Democratic Forum) have already indicated that they will be joining the elections, thus ensuring a good Madhesi presence in the local bodies in the Terai.
Restoring goodwill
•Mr. Oli’s nine-month tenure which ended in July last year marked a low point in India-Nepal relations. It increased ethnic polarisation within Nepal and as always happens at such times, enabled him to don the mantle of Nepali nationalism and blame India for interfering in its internal affairs, of imposing an economic blockade and supporting the Madhesi agitation. Significantly, it eroded the significant goodwill that had been generated by Prime Minister Narendra Modi’s historic visits to Nepal in 2014. With Mr. Prachanda withdrawing support from the Oli coalition and forming his coalition government with NC support, it gave both Nepal and India an opportunity to step back.
•Meanwhile, China has been stepping up its presence in Nepal. Miffed with India, Mr. Oli had signed an Agreement on Transit Trade which is now being developed along with an examination of a possible rail link. For the first time, joint military exercises were held in early 2017, after the first ever visit by the Chinese Defence Minister to Nepal, promising a military grant of $32 million. Work is under way to restore and upgrade the Rasuwagadi-Syabrubesi road link with Tibet. Nepal has also signed on to the Belt and Road Initiative and a special economic zone has been promised. A 1,200 MW hydel project on the Budhi Gandaki river was awarded on EPCF (Engineering, Procurement, Construction, Finance) basis to the Gezhouba group.
•India needs to support Mr. Deuba’s efforts to conclude the local body elections followed by the passage of the constitutional amendment, which will clear the way for the provincial and parliamentary elections under the new Constitution. This will go a long way in bringing political stability to Nepal which, during the last quarter century has gone through a Maoist insurgency and transitioned from a monarchy to a republic. Importantly, India needs to ensure speedy delivery of the generous pledges of over a billion dollars committed during the last two years to make good on Mr. Modi’s ‘neighbourhood first’ policy.
Economic forecasting is not a science
Macroeconomic data cannot prove or disprove any hypothesis
•India lost its tag as the ‘world’s fastest-growing economy’ last month as its fourth quarter GDP growth fell to 6.1%, the slowest in two years. Very few economists expected the slowdown. In fact, most waited for the economy to rebound as it quickly healed from the impact of the demonetisation of high-value rupee notes in November. Critics of demonetisation felt vindicated, particularly after GDP figures for the third quarter suggested that the shocking, overnight move to demonetise had very little negative impact.
•Yet, for all the sermon delivered by the country’s punditry, the fact remains that macroeconomic forecasting is a lousy business — regardless of who makes the predictions. For one, data cannot prove or disprove any hypothesis as they do not establish causation. The mere fact that growth slowed in the first full quarter after demonetisation does not prove decisively that the slowdown was caused by demonetisation. As some have speculated, the current slump in the growth rate may be a continuation of the trend of slowing growth witnessed even before demonetisation.
•Nor does the unexpectedly strong GDP growth in the third quarter prove that demonetisation has had no negative impact on the economy. The economy is a complex organism with several variables working in tandem, which makes prediction an almost impossible task. This is in contrast to the physical sciences where controlled experiments allow scientists to tease out the influence of any variable.
•Two, there are no constant relationships between variables when it comes to the economy that allow for making exact predictions. So, even if economists were to dig into historical data and find the exact impact that demonetisation has had on GDP growth, there is no guarantee that it would hold in the future. For instance, people’s expectations may change which makes them adapt to a cashless economy better, thus blunting the impact of demonetisation on GDP growth.
•Three, macroeconomic forecasting is focussed to a very large extent on measuring things that are fundamentally immeasurable. When it comes to measuring GDP, for instance, the price that is assigned to a good as its value is arbitrarily decided by statisticians. This happens despite the fact that the value of any good lies in the eyes of the consumer. Finally, both innocent and political biases influence the process of official data collection to calculate GDP, a fact that raises questions about its reliability.
•None of this is to say that economists can make no useful predictions. But such predictions are more likely to be qualitative rather than quantitative. Any wise economist could foresee that demonetisation would have a substantial impact on the economy; simply from the premise that money greases the wheels of commerce, so outlawing it would affect demand and create chaos across production lines. But trying to quantify its impact in terms of the exact percentage points of growth that would be shaved off GDP is a futile exercise.
How does the monsoon affect the economy?
•Earlier this year, the India Meteorological Department (IMD) had predicted the country would get normal monsoon rains in 2017. The state-run weather body last week said India’s annual monsoon rainfall is expected to be 98% of the long-period average (LPA), up from 96% projected earlier, raising prospects of higher farm output and economic growth.
•The forecast has a margin error of 4%. The monsoon is considered normal if rains in the June-September season are between 96% and 104% of a 50-year average of 89 cm.
Why are monsoon rains important for India?
•The monsoon is the lifeblood for India’s farm-dependent $2 trillion economy, as at least half the farmlands are rain-fed. The country gets about 70% of annual rainfall in the June-September monsoon season, making it crucial for an estimated 263 million farmers.
•About 800 million people live in villages and depend on agriculture, which accounts for about 15% of India’s gross domestic product (GDP) and a failed monsoon can have a rippling effect on the country’s growth and economy.
•Whereas, a normal to above-normal and well-distributed monsoon boosts farm output and farmers’ income, thereby increasing the demand for consumer and automotive products in rural markets.
What were recent trends?
•India witnessed a normal monsoon in 2016 but only after two back-to-back poor monsoons in 2014 and 2015 that affected the overall growth in the country.
•However, with a good chance of a normal monsoon in 2017, analysts expect the growth momentum to continue.
•“The second consecutive year of normal monsoon will help revive consumption demand, which was severely affected by the de-legalisation of Rs. 500 and Rs. 1,000 notes,” India Ratings and Research said.
What happens in case of a poor monsoon?
•The monsoon has a direct impact on the country’s agricultural GDP. The planting of key kharif, or summer, crops like rice, sugar cane, pulses and oilseeds begins with the arrival of monsoon rains in June.
•Summer crops account for almost half of India’s food output and a delayed or poor monsoon means supply issues and acceleration in food inflation, a key metric which influences Reserve Bank of India’s decision on interest rates.
•A deficit monsoon could also lead to a drought-like situation, thereby affecting the rural household incomes, consumption and economic growth. A poor monsoon not only leads to weak demand for fast-moving consumer goods, two-wheelers, tractors and rural housing sectors but also increases the imports of essential food staples and forces the government to take measures like farm loan waivers, thereby putting pressure on finances. Whereas a normal monsoon results in a good harvest, which in turn lifts rural incomes and boosts spending on consumer goods. It also has a positive impact on hydro power projects.
What is the current forecast for rain distribution?
•The monsoon rains arrive on the southern tip of Kerala by around June 1 and gradually covers a major part of the country by mid-July before retreating by the end of September. The IMD has predicted seasonal rainfall this year to be 96% of LPA over north-west India, and 100% of LPA over central India.
•Rains in the southern regions are likely to be 99% of LPA while precipitation in north-east India will be 96% of LPA in the four-month period. All projections have a margin error of 8%.
•Rainfall in July and August, crucial months for crop sowing, over the country is expected to be 96% and 99% of LPA, respectively, both with a margin error of 9%. India Ratings said the spread of monsoon over space and time is also forecast to be normal and that bodes well for agricultural output.
•“Even the water storage available in 91 major reservoirs of the country for the week ending on 1 June 2017 was higher than last year by 128% and 105% of the last 10 years, which augurs well for kharif sowing,” it noted.
Can India decode Trump’s book of deals?
If it wants to boost exports, the country may have to follow the example of China and engage better with each U.S. State
•The U.S. is the nation that Narendra Modi has visited the most as the Prime Minister – four times so far. Mr. Modi will soon top this up with another tour — likely later this month, which will be his first after Donald Trump became the U.S. President. This signifies the importance attached to the New Delhi-Washington ties in the NDA Government’s foreign policy priorities.
•However, it is still to be seen whether Mr. Modi’s fifth U.S. visit as the Indian premier will be restricted to striking up an acquaintance with Mr. Trump, or if it will witness substantive discussions on various contentious issues — especially relating to trade and investment that are now playing a defining role in bilateral ties.
•According to the joint statement during Mr. Modi’s first visit to the U.S. in September 2014, two-way trade had risen five-fold since 2001 to about $100 billion. It had also said necessary action will be taken to increase this to $500 billion. However, since Mr. Modi’s fourth visit to the U.S. in June 2016 during the presidency of Barack Obama, much has changed in terms of Washington’s policy and outlook, generally, on trade.
•Soon after taking charge as the President, Mr. Trump — in line with the promise he made during the election campaign — signed a memorandum in January 2017 directing the U.S. Trade Representative (USTR) to “withdraw the U.S. as a signatory to the Trans-Pacific Partnership (TPP), to permanently withdraw the U.S. from TPP negotiations.”
•The TPP is a mega-regional trade agreement that was inked by 12 nations, including the U.S., during the previous administration.
•The memorandum signed by Mr. Trump also directed the USTR to “begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.”
‘Method in action’
•Amiya Chandra, joint director general of foreign trade and the author of the recently released book titled ‘Indian Foreign Trade: Trumped Up or Down’ — on ‘demystifying Mr. Trump’s dealmaking approach and ways to strengthen India-U.S. trade ties’ — says: “You may call him (Mr. Trump) a bull in a china shop or whatever, but there seems to be a method in his so-called madness. If you can understand his dealmaking style, you will be able to deal with him better.”
•The Office of the USTR, on March 1, clearly outlined Mr. Trump’s radical shift in approach on trade and its reasons in ‘the (U.S.) President’s Trade Policy Agenda 2017’. The seven-page document states that in 2016, (U.S.) voters called for a fundamental change in direction of U.S. trade policy and that therefore, President Trump had called for a new approach. The document said every action taken by the Trump administration on trade will be designed, among others, to promote job creation in the U.S., strengthen America’s manufacturing base and expand its agricultural and services industry exports.
•It further said “these (new) goals can be best accomplished by focusing on bilateral negotiations rather than multilateral negotiations” — a move that could impact (in terms of direction, substance and pace) World Trade Organisation-level trade negotiations and indirectly even other proposed mega-regionals such as the Regional Comprehensive Economic Partnership (a trade pact proposed between 16 Asia-Pacific nations including India) that the U.S. is not part of.
•As regards the Trump administration’s focus on bilateral trade deals, when asked in April whether he favoured an India-U.S. Free Trade Agreement (FTA), U.S. Commerce Secretary Wilbur Ross said, “... there’s no inherent negative attitude on our part relating to that.”
•Mr. Ross, however, said he did not “believe that there have been any serious discussions with India of late on the topic of an FTA.” Instead of an FTA, India and the U.S. had begun talks in August 2009 on a Bilateral Investment Treaty to promote and protect two-way investment, but those negotiations are not close to conclusion.
•Though bilateralism might get more traction than multilateralism under the Trump administration, another significant aspect of Mr. Trump’s Trade Policy Agenda 2017 was that it “rejected the notion that the U.S. should, for putative geopolitical advantage, turn a blind eye to unfair trade practices that disadvantage American workers, farmers, ranchers, and businesses in global markets.”
Deficit, a worry
•What is causing worry to the Trump administration is the U.S. trade deficit, particularly on the goods front. “In 2000, the U.S. (overall) trade deficit in manufactured goods was $317 billion. Last year, it was $648 billion — an increase of 100%,” said the policy agenda. While agreeing that a rising trade deficit may be consistent with a stronger economy, the Trump administration said the real median household income in the U.S. remains lower today than it was 16 years ago and that there had been a loss of almost five million jobs since January 2000.
•Mr. Trump followed up the reshaping of the U.S. trade policy agenda with an Executive Order on March 31 seeking an ‘Omnibus Report’ from the U.S. Commerce Secretary and the USTR (in consultation with other U.S. government departments or agencies) within 90 days on ‘Significant Trade Deficits’.
•As per the U.S. government, the trading partners with which the U.S. had a ‘significant’ trade deficit in goods in 2016 included India. In 2016, the U.S. had a goods trade deficit of $24.3 billion and a services trade deficit of $6.5 billion with India — taking the total trade deficit to $30.8 billion.
•As per Mr. Trump’s Executive Order, “unfair and discriminatory practices by our trading partners can deny Americans the benefits that would otherwise accrue from free and fair trade…” In 2016, the U.S.’ overall trade deficit in goods was $750.1 billion, while the overall goods and services trade deficit was $502.3 billion (the largest since 2012).
•The Hindu had reported that India’s premier business association, the Confederation of Indian Industry (CII) in its recent submission to the U.S. government had, however, stated that: “… during 2011-2015, India’s contribution to the overall trade deficit of the U.S. was only 2.5% (average).
•Thus, India’s share in overall U.S. trade deficit is too insignificant to cause any adverse impact on the U.S. economy.” In its arguments against the allegation that American manufacturers are challenged by India’s “excessively high tariffs on imports of a range of manufactured products”, the CII said, “the major products that the U.S. exports to India have tariffs between 0-10%. This is lower than the tariffs other countries place on the same products in which the U.S. trades.”
Boosting trade
•To boost trade and investment ties with the U.S., India’s traditional approach has been to focus mainly at the national level and take up the industry’s concerns mostly with the U.S. Federal Government in Washington D.C — be it on the U.S. visa curbs largely affecting the Indian IT sector or the U.S. ‘non-tariff barriers’ including those imposed under laws relating to national security, bio-terrorism, ‘Buy America’ norms preferring U.S.-made items and American suppliers in U.S. government purchases, child-labour, registration fee increases (in sectors such as pharma), food safety as well as animal and plant health regulations, all affecting Indian exports.
•However, a more effective strategy would be to go in for greater engagement separately with the 50 States of that country. Public policy think-tank American Enterprise Institute (AEI), using U.S. Census Bureau data, showed that in 2016, China was the ‘top import country’ for 23 U.S. States, followed by Canada (14 U.S. States) and Mexico (4).
•Also, Canada was the ‘top export country’ for 33 U.S. States, followed by Mexico (6) and China (4).
•While Canada and Mexico have the advantage of having a free trade pact (NAFTA) and close geographic proximity with the U.S., China gained its place among the ‘top five import countries’ in all U.S. States through a State-wise strategy that involved massive publicity for its products, celebrity endorsements and greater support for its exports to the U.S., said Mr. Chandra.
•In 2016, India was neither a ‘top import country’ nor a ‘top export country’ for any of the U.S. States despite the U.S. being India’s top export destination and second-largest source of imports. “We also need to evolve a similar state-wise strategy if we want to be in the top five list and further boost our exports,” added Mr. Chandra.
“Centre’s GST audit steps may add to compliance burden”
No firm prepares State-wise audited financial statements, tax experts say
•The mandatory audit provisions released by the Government will only add to the cost of and time taken for compliance, according to tax experts.
•Under the rules, every registered taxpayer with an annual turnover of more than Rs. 2 crore has to get his or her accounts audited by a chartered accountant or a cost accountant and provide explanations for any discrepancy between the returns filed under GST and the audited financial statements.
Format released
•“Before today’s (Sunday) 16th meeting of the GST Council, the Government has released the format of the mandatory GST audit report,” Harpreet Singh, Partner, Indirect Tax, KPMG in India said.
•“The GST law mandates that audit is to be undertaken each year by an independent chartered accountant or a company secretary. The main purpose of the Audit appears to be detailed reconciliation of the GST returns with the audited financial statements.”
•“While I have not had the time to go over the entire format, at first glance, it looks fairly long and extensive. This just adds to the pain of companies already struggling to get GST ready,” a tax expert told The Hindu on the condition of anonymity.
•“Every registered person whose aggregate turnover during a financial year exceeds Rs. 2 crore shall get his accounts audited as specified… and he shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified… electronically through the Common Portal either directly or through a Facilitation Centre notified by the Commissioner,” the GST legislation says.
12 annexures
•“The format is fairly long with 12 different annexures reconciling each and every transaction as reported in the GST return with the financials,” Mr. Singh added.
•“One question that is unanswered is whether the Government is expecting reconciliation with the state-wise audited financial statements? As a matter of practice, no company prepares state-wise audited financial statements, and hence this could be a new compliance challenge.”
