Tuesday, April 30, 2013

Urbanization and politics in Bangalore

Here is an interesting article about the urbanization challenge in Bangalore, the IT hub of India, that has a population of 8 million and more than 5 million vehicles ply the city’s roads.

Below is an excerpt from the article:

In the heart of the city, a Congress party candidate, Dinesh Gundu Rao, greeted voters in a middle-class neighborhood this month. His campaign workers burst firecrackers, beat drums and showered him with marigold petals. Women peeped from balconies and windows. “Remember to vote for me, sister,” Gundu Rao called out.
“Remember to get clean water for us,” replied a woman in a green sari. Another told him about the broken sewage pipes, and a third pointed to a foul-smelling garbage pile on the road.

Very much applicable to Nepal's rapidly growing urban centers as well.

Sunday, April 28, 2013

Nepal-India Trade: State of non-tariff barriers

[This blog post is sourced from one of the studies (workshop presentation slides here) yours truly was involved in about a year ago while working at SAWTEE. I think sharing analytical excerpts from the comprehensive report will be helpful to interested readers and researchers. This blog post focuses on non-tariff barriers on Nepali exports to the Indian market. Here are earlier blog posts on the state of tariff barriers and para-tariff barriers; the issues surrounding pegged exchange rate between Nepal and India; the confidence on the Indian rupee in Nepal; and the size of Indian market for Nepal.]

State of non-tariff barriers

[Unless otherwise noted, most of the information in this section is sourced from Trade Policy Review of India by the WTO Secretariat, (WTO 2011)]

The Indian government requires importers to satisfy various procedural measures. According to Doing Business 2012, it takes 9 documents, 20 days and US$1070 per container to import goods into India.

Table 1: Import procedures in India

Import procedures Duration (days) Cost (US$)
Documents preparation 8 400
Customs clearance and technical control 4 120
Ports and terminal handling 5 200
Inland transportation and handling 3 350
Total 20 1,070

Source: World Bank

Meanwhile, the following import documents are required to import goods in India for various purposes, including imports for consumption, warehousing, transshipment, transit, re-importation, and imports for special economic zones (SEZs):
  • Bill of entry/landing
  • Cargo release order
  • Certificate of origin
  • Commercial invoice
  • Customs import declaration
  • Inspection report
  • Packing list
  • Technical standard certificate
  • Terminal handling receipts
Importers need to file a bill of entry either electronically (Electronic Data Interchange system—EDI) or manually. They also need to fill in supporting documents such as packing list, and bill of lading/airway bill if the bill of entry is processed manually. Furthermore, import licence, whenever it is applicable, must be obtained from the Director General of Foreign Trade (DGFT) and sanitary and phytosanitary certificates from the Ministry of Agriculture. Custom declaration should also be submitted.

For goods imported under a preferential trade agreement or under an export incentive scheme and for qualification for duty reduction, additional documentation such as country of origin (COO) is required. It applies to most of the Nepalese goods exported to India. According to the Indian Customs’ rule, the bill of entry may be filed prior to the arrival (within 30 days of arrival) of goods to allow for faster clearance. Furthermore, a landing charge (for loading, unloading, and handling) of 1% of the c.i.f. value is added to the c.i.f. value to compute transaction value.

Goods imported for consumption in the Indian market are cleared after payment of applicable duties and charges. But, for imports cleared for warehousing, a bill of entry, filed with all supporting documents as required for goods for home consumption is required. The applicable duty is determined by Custom and is paid at the time of ex-bond clearance, for which an ex-bond bill of entry[1] has to be filled. The final duty rate is determined when an import declaration is presented for warehoused goods to be imported into the domestic tariff area (DTA). The warehoused goods may be moved from one warehouse to another without payment of taxes (including inter-state taxes). Inter-state tax would be payable only if the movement from one warehouse to another constitutes an inter-state sale on which case the transaction would be subjected to sales tax, entry tax (charged by some states[2]), and octroi if goods are sold to a warehouse located in the State of Maharashtra.

There could be delay in clearance of goods exported to India for the following reasons, for which a custom officer may raise doubt:
  • A significantly higher value at which identical or similar imports at (or about) the same time, in comparable quantities and comparable commercial transaction, were assessed
  • The sale value involves an abnormal discount/reduction from the ordinary competitive price
  • The sale involves special discounts limited to exclusive agents
  • There are mistakes in the declaration of goods such as description, quality, quantity, country of origin, and year of manufacture or production
  • The import declaration is incomplete, e.g. lack of brand, grade, and any other specification that could have a bearing on assessing the value of the goods
  • Fraudulent manipulation of documents
Rules of origin (ROO)

Preferential rules of origin are applied under regional and bilateral trade agreements. The maximum foreign content requirements range from 30 percent to 70 percent. For Nepal, it is 70 percent and change in 4-digit tariff classification. The other criteria to determine origin is sufficient transformation and change in tariff classification. There are also product specific ROO under the SAFTA (for 180 products).

Table 2: India’s ROO under PTAs, 2011

Preferential trade agreements Maximum foreign content requirements Minimum cumulative local content requirements
South Asian Free Trade Areas (SAFTA)a
60% of the f.o.b. value (LDCs:  70%;  Sri Lanka:  65%) and change in tariff classification
50% of the f.o.b. value, 20% of the f.o.b. valueb and change in tariff classification
South Asia Preferential Trade Arrangement (SAPTA)
60% of the f.o.b. value (LDCs:  70%)
50% of the f.o.b. value (LDCs:  40%)
70% of the f.o.b. value and change in four-digit tariff classification 
Least developed countries (LDCs)
70% of the f.o.b. value and change in tariff classification for not wholly produced or obtained category 
70% of the f.o.b. value and change in tariff classification for not wholly produced or obtained category 
n.a.    Not applicable.
a    Product specific ROO apply.
b    Domestic value content in the exporting country.
Source: WTO. 2011. Trade Policy Review India: Report by the Secretariat. Trade Policy Review, Geneva: World Trade Organization (WTO).

Import restriction depending on import price

The imports of certain goods (24 tariff lines) are subject to import restrictions depending upon their import price (see Table 2). These imports are restricted (i.e. subject to a license) when the c.i.f. price is lower than the minimum price. According to the Indian authorities, the minimum import prices are set taking into account domestic and international prices and quality (WTO 2011).

Table 3: Items whose import is free, subject to minimum import price, 2010/11

HS code Description Minimum import price
0802.90.11 Betel nuts:  whole IRs 35/kg
0802.90.12 Betel nuts:  split
0802.90.13 Betel nuts:  ground
0802.90.19 Betel nuts:  other than above
4012.11.00 Retreaded tyres, of a kind used on motor cars, US$175/unit for buses, lorries, bigger size vehicles, and light commercial vehicles
4012.12.00 Retreaded tyres:  of a kind used buses or lorries
4012.13.00 Retreaded tyres:  of a kind used on aircraft US$25/unit for passenger vehicles
4012.19.10 Other tyres:  for two wheelers
4012.19.90 Other tyres
4012.20.10 Used pneumatic tyres:  for buses, lorries, and earth moving equipment US$175/unit
4012.20.20 Used pneumatic tyres:  for passenger automobile vehicles US$25/unit
6802.10.00 Tiles, cubes, and similar articles US$50/kg
6802.21.10 Marble tiles
6802.21.20 Marble monumental stone
6802.21.90 Other monumental or building stone
6802.91.00 Marble, travertine, and alabaster
6802.92.00 Other calcareous stone
6810.11.10 Cement bricks US$50/kg
6810.11.90 Other building blocks and bricks
6810.19.10 Cement tiles for mosaic
6810.19.90 Other articles of cement
6810.91.00 Articles of cement:  prefabricated structural components for building or civil engineering
6810.99.10 Concrete boulder
6810.99.90 Other articles of cement
Source: WTO. 2011. Trade Policy Review India: Report by the Secretariat. Trade Policy Review, Geneva: World Trade Organization (WTO).

Import quotas

India maintains import quotas for marble and similar stones (HS 2515.11.00, 2515.12.10, 2515.12.20, and 2515.12.90) and for sandalwood (HS 4403.99.22). Quotas are established annually and administered on an MFN basis and it does not maintain bilateral quotas. Imports of the products in 415 sensitive items (up from 300 items in 2007) are monitored by the authorities. The monitored sensitive items include milk and milk products, fruits and vegetables, pulses, poultry, tea and coffee, spices, food grains, edible oils, cotton and silk, marble and granite, automobiles, parts and accessories of motor vehicles, products produced by small scale industries, and other products (bamboos, cocoa, copra, and sugar).

Anti-dumping and countervailing measures

India imposes anti-dumping duties and countervailing measures to protect domestic industry from the impact of unfair trade practices. The anti dumping duties may remain in place for five years unless revoked earlier or extended by the relevant authority. According to the WTO, between January 2006 and 31 December 2010, India initiated 209 anti-dumping investigations against 34 trading partners (WTO 2011). The products involved included chemicals and products thereof, plastics and rubber and products thereof, base metals, and textiles and clothing. As of December 2010, 207 anti-dumping measures were in force, compared with 177 on 30 June 2006. According to the WTO, India did not take any countervailing actions during the same period. Measures were applied on 30 trading partners.[3] The majority were applied on China (67 or 32.4 percent of the total), Korea, Rep. of (19 or 9.2 percent), Chinese Taipei (19 or 9.2 percent), Thailand (14 or 6.8 percent), the EU or its members states (12 or 5.8 percent), and Japan, Malaysia, and the United States (9 or 4.3 percent each).


Indian standards are established based on the provisions of the Bureau of Indian Standards (BIS) Act 1986 and BIS Rules 1987. The BIS is responsible for formulating and enforcing standards for 14 sectors. These include production and general engineering; civil engineering (as of 1 January 2011); chemical (15 October 2010); electro-technical (1 July 2009); food and agriculture (9 June 2010); electronics and information technology (1 April 2010); mechanical engineering (1 April 2010); management and systems (1 Oct 2010); metallurgical engineering (6 July 2010); petroleum, coal, and related products (1 July 2010); transport engineering (1 January 2011); textile (1 April 2008); water resources (1 April 2010); and medical equipment and hospital planning (1 January 2011).[4] There were around 18,623 Indian standards as of 31 March 2010 and about 84 percent were harmonized with international standards.

Table 4: Standards imposed by BIS, 2007-10

Aug-07 Sep-08 2009/10a
Total number of standards in force .. .. ..
Total number of Indian standards in force 18,470 18,592 18,592
Per cent equivalent to international standards .. .. 84
..    Not available.
a    31 March 2010.
Source: WTO. 2011. Trade Policy Review India: Report by the Secretariat. Trade Policy Review, Geneva: World Trade Organization (WTO).

Certification and conformity assessment

Around 81 products are subject to the mandatory BIS certification mark.[5] As of May 2011 there were more than 1,000 products under voluntary certification. The requirements for the use of the BIS certification mark are the same for domestic and imported products. Foreign producers who wish to export products subject to mandatory certification must obtain a license from the BIS. Foreign manufacturers must set up a liaison/branch office in India to obtain a license if the BIS has not signed a MOU with the country where the manufactured goods originate. The fees under the Foreign Manufacturers Certification Scheme, in place since 1999, are INRs1000 for the application, US$300 for processing, US$2,000 for marking, and a unit rate fee, which varies according to the product. The BIS license is granted to the factory address at which the manufacturing takes place and the final product is tested to assess compliance with the relevant Indian standards. After receiving a license the user must pay an annual fee of INRs 1,000, as well as a quarterly fee for units of production marked. The latter is fixed according to product.


Packaged commodities must bear a label securely affixed. These labels should include the: name, trade name or description of food contained in the package; ingredients used; name and address of manufacturer or importer; net weight or measure of volume (in accordance with the metric system based on the international system of units) of contents; item/package sale price (MRP INRs __) (inclusive of all taxes); month and year of manufacture or packaging; date of expiry[6]; license number where relevant; and name, address or e-mail if available of person or office to be contacted in case of a complaint.

For products containing natural flavoring substances, the common name of the flavors should be mentioned on the label. The label should also indicate the animal origin of gelatine in products that contain it. The Ministry of Health and Family Welfare has recently notified the quantitative ingredient declaration requirement as an additional labeling requirement for food. More specific labeling requirements exist for specified products, such as infant milk substitutes and infant foods, bottled mineral water, and milk products.
Labels must be in Hindi (Devnagiri script) and in English. In certain instances, they must be written in the language of the locality where the product is ultimately sold. This increases distribution costs, since India has 16 official languages, and food processing companies often do not know which pallet of food products will be transported to a specific State. The requirement that packaging must specify the maximum retail price of the product, including taxes, is a further complication, since sales taxes are levied at the state level.

Sanitary and phytosanitary measures (SPS)

The main institutions involved in the establishment and implementation of SPS measures for food items are the Ministry of Health and Family Welfare, the Department of Animal Husbandry, Dairying, and Fisheries; the Directorate of Plant Protection, Quarantine and Storage; the Bureau of Indian Standards; and other state government agencies.

The imports of animal products into India require sanitary import permits issued by the Department of Animal Husbandry, Dairy and Fisheries and the permits must be obtained prior to shipping from the country of origin. The Department approves or rejects the application after an import risk analysis on a case-by-case basis. Permits are valid for six months and may be used for multiple consignments. A sanitary import permit is not a license, but a certificate verifying that India's sanitary requirements are fulfilled. Some imports of animal products also require an import license issued by Director General of Foreign Trade. The imports of animal products are only allowed through designated ports where animal quarantine and certification services are available (Amritsar, Bangalore, Chennai, Delhi, Hyderabad, Kolkata, and Mumbai). Imports of fish products are allowed through the port of Vishakhapatnam (in the State of Andhra Pradesh) and the land custom station at Petrapole (for imports from Bangladesh only).

Imports of plants and plant materials are regulated under the Destructive Insects and Pests Act 1914, the Plant Quarantine (PQ) (Regulation of Import into India) Order 2003, and international conventions. All plant and plant material consignments must be accompanied by a phytosanitary certificate issued by the national plant protection organization of the exporting country and an import permit issued by the officer in charge of the plant quarantine station. Products listed in Schedule VII of the PQ Order 2003may be imported without import permit but may be required to fulfill other conditions, such as fumigation. As in the case of imports of animal products, imports of plant and plant products may only enter the Indian territory through designated ports.[7]If commodities are found free from pests, they are cleared for import. If not, they must undergo fumigation with the accredited fumigation operators according to the Schedules V, VI, and VII of PQ Order 2003.[8] Fumigation is done at the importer's cost.[9]

[1] It is used for clearance from the warehouse on payment of duty and is printed on green paper. See here. Goods imported for home consumption are cleared under bill of exchange for same and for re-export purpose under ex-bond clearance.
[2] Entry tax on goods is levied in several states, including Jammu and Kashmir, Himachal Pradesh, Rajasthan, Uttar Pradesh, Uttaranchal, Haryana, Punjab, Andhra Pradesh, Karnataka, Tamil Nadu, Kerala, Bihar, Assam, Orissa, Arunachal Pradesh, Chhattisgarh, West Bengal, Maharashtra, Goa, Madhya Pradesh, and Gujarat.
[3] Australia; Belarus; Bulgaria; China; the EU; France; Germany; Hong Kong, China; Indonesia; Iran; Japan; Kingdom of Saudi Arabia; Korea; Malaysia; New Zealand; Oman; Qatar; Russian Federation; Singapore; South Africa; Sri Lanka; Sweden; Switzerland; Chinese Taipei; Thailand; Turkey; the United Arab Emirates; the United Sates; and Viet Nam (WTO document G/ADP/N/209/IND, 19 April 2011).
[4] Bureau of Indian Standards online information, "Composition of Technical Committees". See http://www.bis.org.in/sf/composition.htm.
[5] For items subject to mandatory certification, see Bureau of Indian Standards online information: http://www.bis.org.in/.
[6] For products containing aspartame, it should not be more than three years from the date of packing.
[7] For the list of seaports, airports, and land frontiers in operation through which imports of plants are allowed, see Plant Quarantine (Regulation of Import into India) Order 2003, Schedule I.
[8] There are 357 registered fumigation agencies for methyl bromide fumigation and 157 for aluminum phosphide fumigation.
[9] Fumigation generally takes 24 hours with methyl bromide, and 7 to 10 days with aluminum phosphide.

Wednesday, April 24, 2013

Capital spending and economic growth in Nepal

This blog post is adapted from the issue focus of the ADB’s latest Macroeconomic Update (April 2013).


Need to accelerate capital spending

In addition to the declining capital budget allocation in recent years, the actual capital expenditure itself is consistently lower than the budgeted amount (Figure 1). The struggle and consistent inability to spend on time the allocated capital budget has put the issues surrounding the quality of spending on the backburner. For a developing country with tremendous need to scale up infrastructure investments to tackle head-on the binding constraints to accelerated economic activities, reduced as well as underspent capital budget is a cause of concern. ‘Crowding in’ of private investments has not happened due to the failure to ensure adequate physical prerequisites, including infrastructure. Consequently, it is not only having an impact on productivity, but is also suppressing economic growth and jobs creation below the potential. Scaling up both quantum and quality of capital spending is vital to creating the foundations for the lackluster growth to take off on sustainable path.

Figure 1: Receding capital expenditure

Source: ADB estimates based on data from Ministry of Finance

The budget allocation for capital expenditure was Rs 129.5 billion (38.3% of total budget) in FY2011, which dropped to Rs 92.6 billion (18.9% of total budget) in FY2012 and Rs 66.1 billion (16.3% of total budget) in FY2013.[1] While the budget utilization in the first six months of FY2012 was Rs 9.6 billion, it was Rs 7.7 billion in the corresponding period in FY2013, a decrease of 19.9%. The budget utilization in the same period in FY2011 was Rs 41.8 billion.

According to the line-wise budget headings for FY2013, capital expenditure consists of expenditure for the acquisition of fixed assets, including land acquisition, purchase and construction of building, furniture and fixtures, vehicles, machinery, public construction, capital improvement, and research and consultancy related to capital. Compared to the level of expenditure in the first six months of FY2012, expenditure in all of these headings except for capital formation, and research and consultancy declined in the corresponding period in FY2013 (Figure 3).[2] In the first six months of FY2013, capital expenditure was the highest in public construction (Rs 5.9 billion), followed by building construction, research and consultancy, capital improvements and land acquisition, among others. Capital spending usually starts to pick up beginning mid-year and then accelerates in the last trimester. Unfortunately, on top of low capital budget this fiscal year, expenditure has failed to pick up thus far. Even more worrisome is the indication that expenditure under public construction (roads, bridges, airports and other productive assets), which registered a negative growth of 16.6% in the first half of FY2013, is not going to pick up as expected.

Figure 2: Mid-year capital expenditure

Source: Mid-term FY2013 Budget Review, Ministry of Finance.

The lack of a timely full budget has been the main factor behind the low and ineffective capital expenditure. In FY2012, the delay in unveiling a full budget led to a dismal capital expenditure (about 3.3% of GDP, down from about 6.5% in FY2011). Worse, the delayed full budget for FY2013 has created shortage of funds in many development projects, including those funded by development partners. The projects supported by ADB alone are facing budget constraints of about Rs 17 billion.[3] As a result, disbursements of all donor-funded projects have been low. This will delay the completion of several development projects and programs. The procedural delays in requesting authorization for release of funds and the cumbersome procurement processes have further delayed capital spending. It is very likely that actual capital expenditure in FY2013 might be below 3.0% of GDP, which is lower than the level reached in FY2012.

The inability to ramp up capital spending is affecting the financial sector as well. On a cash basis, the government was running a surplus of about Rs 44 billion in the first six months of FY2013. The inability of the government to spend money, which usually flows via the banks and financial institutions, on time is also contributing to liquidity constraints. Consequently, the interbank lending rate is gradually increasing and reached 2.3% in the seventh month of FY2013, from 0.5% in the first month (Figure 17). Additionally, public capital expenditure dependent sectors (Figure 24) such as construction are not expected to pick up this year as well from a negative growth last year.[4] It not only affects employment creation, but also revenue mobilization, overall economic growth rate, and poverty reduction.

Figure 3: Construction sector and construction related capital spending, FY1975-FY2011

Source: ADB estimates based on data from MoF and CBS.

During the rest of FY2013, the government needs to accelerate capital spending through expedited approval of funding requests for projects, and allocating and releasing adequate funds for projects facing funding constraints, while cutting down delays in procurement process. However, it is also critical that the government is mindful of the quality of capital spending by ensuring sound allocation and quality utilization of the funds through sufficient internal and external control. Towards accelerating capital spending and augment its impact on economic growth, revenue mobilization, and job creation, the government should prepare and unveil a timely and full budget in FY2014 with sufficient capital budget allocation. At the same time, actions to enhance accountability and transparency of public management need to be accelerated, including the reforms for public financial management, public procurement, and other public governance functions.


[1] The partial budget initially allocated Rs 51.3 billion (14.6% of partial budget) for FY2013.

[2] Further disaggregated data is not available yet.

[3] Based on ADB’s Second Quarterly Country Portfolio Review (QCPR) assessment.

[4] Figure 3 depicts the close relationship between construction sector (which is one of the components of GDP) and construction related capital spending by the government. It also shows the contribution of construction sector to GDP growth (computed as the share of construction in GDP multiplied by construction sector’s growth rate). Construction related capital spending consists of actual government expending in land development; industry & mining; transportation (roads, bridges, aviation & others); and electricity. On an average, these spending cumulatively account for over 50% of total capital spending.

Tuesday, April 23, 2013

Renewable energy diffusion in Asia: Can it happen without government support?

Below is an abstract of one of my research papers (co-authored) recently published in Energy Policy journal:

Renewable energy diffusion in Asia: Can it happen without government support?

The dramatically increasing population of Asia necessitates equally as dramatic increase in energy supply to meet demand. Rapidly increasing energy demand is a major concern for Asian countries because the increase in demand is being met through the increased use of fossil fuel supply, largely domestic coal and imported fuel. Renewable energy supply presents a lower emission pathway that could be a viable option for steering off the higher emissions path. However, several market, economic, institutional, technical, and socio-cultural barriers hinder countries in moving from high to low emission pathway. Following a discussion on the rising demand for energy in Asia and the prospects of partly satisfying it with renewable energy, we outline the reasons for government support to tackle the barriers for widespread diffusion of grid-based renewable energy. Additionally, we also discuss workable models for strategic government intervention to support diffusion of grid-based renewable energy in Asia.

Friday, April 19, 2013

Can revenue catch up with rising recurrent expenditure?

Expenditures are already high and rising fast in Nepal. For FY2013, recurrent expenditure allocation is 68.9% of total budget of Rs 404.8 billion. While capital expenditure allocation as well as actual expenditure is declining, recurrent expenditures are rising (thanks to sharp upward revision of public sector wages, cost escalation due to high inflation among others, ad hoc spending programs in the post-conflict situation, increasing subsidies that are not well targeted to reach the real beneficiaries, etc) very fast. It could very well be unsustainable, leading to widening of budget deficit and destabilizing the macroeconomic balance maintained thus far.

At the core of it, the tax revenue (Rs 212.2 billion in FY2012) Nepal is generating might not be even sufficient to cover recurrent expenditures (Rs 243.5 billion in FY2012). The financing of capital expenditure (Rs 51.4 billion)— which is the one that contributes to building productive capacities to stimulate economic activities and generate more job opportunities— is declining, and largely financed by donors. Growth is mostly driven by agriculture (dependent largely on monsoon) and services (driven largely by remittances-backed consumption) sectors. The rising recurrent expenditure has little impact on growth. The one that could is capital expenditure (think of construction sector, financial intermediation, etc.), which, unfortunately, is declining. Below, I present some interesting charts. Readers make their own judgment.

Recurrent expenditure as a share of total actual expenditure was 76.3% in FY2012, up from 61% in FY2002. However, capital expenditure as a share of total actual expenditure declined to 16.1% in FY2012 from 30.9% in FY2002. Similarly, as a share of total budget allocation, recurrent expenditure allocation jumped from 49.4% in FY2002 to 69.3% in FY2012 and capital expenditure allocation dropped from 50.6% in FY2002 to 24.1% in FY2012 (its 16.3% in FY2013).

Looking at the growth rates, recurrent expenditure grew on an average between FY2008-FY2012) by 26.3% and capital expenditure by 14.6%. Over the same period, revenue (tax and non-tax) grew by 23.4% (overall revenue including grants grew by 22.9%). It would be hard to manage finances if expenditure growth continues to outpace revenue growth, which is largely backed by increase in tax revenue mobilization on consumption of imported goods (VAT, customs, excise, etc).

As a share of GDP, total expenditure was 20.8% of GDP (recurrent and capital expenditures were 15.9% and 3.3%, respectively) and revenue was also around 15.9% of GDP. Total trade deficit (including grants) in FY2012 was about 2.2% of GDP.

Tuesday, April 16, 2013

Nepal-India Trade: State of para-tariff barriers

[This blog post is sourced from one of the studies (workshop presentation slides here) yours truly was involved in about a year ago while working at SAWTEE. I think sharing analytical excerpts from the comprehensive report will be helpful to interested readers and researchers. This blog post focuses on para-tariff barriers on Nepali exports to the Indian market. Here are earlier blog posts on the state of tariff barriers; the issues surrounding pegged exchange rate between Nepal and India; the confidence on the Indian rupee in Nepal; and the size of Indian market for Nepal.]

State of para-tariff barriers

Besides the tariffs, India imposes other duties and charges as well on imports. These are
  • Additional duty of customs (ADC)
  • Special additional duty (SAD)
  • Education cess and the secondary and higher education cess
  • Some product-specific charges and cesses

The additional duty of custom (ADC) is aimed at removing or reducing a pro-import bias as a result of the application of central excise duties to domestically manufactured goods, in accordance with India's trade legislation. The ADC rate is equivalent to the central excise duty, which is also referred to as Central Value Added Tax (CENVAT), on domestically produced goods of the same tariff classification.[1] The general ADC rate was 10% in 2010.

The 4 percent special additional customs duty (SAD) continues to be imposed on imports, with few exceptions (14.8 percent of all tariff lines),[2] to partially compensate for sales tax, state value-added tax, local tax or other charges leviable on similar article on its sale, purchase or transportation in India. However, since the SAD is an across-the-board tax applied at a flat rate on most goods, it may not always be equivalent to local sales taxes on similar domestically produced goods, which may be higher or lower. The SAD paid on imports subsequently sold within India and for which the importer has paid state-level value-added taxes, may be refunded. In 2007, India was dragged to the WTO dispute settlement body for the application of ADC and SAD.

Since 2004, an education cess of about 2 percent of all aggregate customs duties (excluding safeguard, countervailing or anti-dumping duties if applicable) has been charged on imports. For instance, if the import duty for a certain product is 10 percent, the education cess on that product would be 2 percent of 10 percent, i.e. 0.02 percent.The secondary and higher education cess of 1 percent is also levied on all imports since 2007. This cess is calculated on the aggregate value of all excise duties (including the additional and the special duties or any other duty or excise), but excluding the education cess and safeguard, countervailing or an anti-dumping duty if applicable.

The calculation of all charges applied on imports including landing charges, the effective customs duty, the additional customs duty, the special additional customs duty, and the education cess shows an average protection of 25.6 percent compared to just 12 percent on what is said as an effective applied MFN rates (see Table 1).

Besides these duties and charges levied by the central government, additional taxes/charges are imposed by the state governments. For example, the State of Maharashtra levies an entry tax (octroi) on entry of domestic and imported goods (particularly petroleum products, tiles, and air conditioners) with rates ranging from 10 percent to 34 percent based on the product. Additionally, entry taxes are applied in several states, including Jammu and Kashmir, Himachal Pradesh, Rajasthan, Uttar Pradesh, Uttaranchal, Haryana, Punjab, Andhra Pradesh, Karnataka, Tamil Nadu, Kerala, Bihar, Assam, Orissa, Arunachal Pradesh, Chhattisgarh, West Bengal, Maharashtra, Goa, Madhya Pradesh, and Gujarat.

Table 1: Summary of India’s import charges, 2010/11 

a    Calculation for averages with extra charges include landing charges, effective custom duty, additional duty, special additional duty, and education cess.
b    ISIC Rev.2 classification.  Electricity, gas, and water is excluded (1 tariff line).
Note:      Calculations exclude specific rates and include the ad valorem part of alternate rates.

Source: WTO. 2011. Trade Policy Review India: Report by the Secretariat. Trade Policy Review, Geneva: World Trade Organization (WTO).

[1] The excise and tariff nomenclatures are harmonized at HS 8-digit level.
[2] Some 12 lines in HS71 (articles of jewellery) have SAD duty of 1%.

Friday, April 12, 2013

Nepal’s FY2013 budget brief

The government finally released a full budget (in 9th month!) for FY2013. On 9 April 2013, the President endorsed Appropriation Ordinance 2013, Financial Ordinance 2013 and Ordinance to Mobilize Internal Debt 2013. Earlier, the government released one-third budget on 15 July 2012 and two-third budget on 20 November 2012, keeping the expenditure limit at Rs 351 billion. Below is a breakdown of expenditure allocation and projected revenue for FY2013.

FY 2013
GDP growth rate (%)- revised 3.6
FULL budget allocation for FY 2013 
Rs billion %
Projected total expenditure 404.8
    Recurrent  279.1 68.9
    Capital 66.1 16.3
    Financial provision 59.7 14.7
Projected total revenue 341.0
    Revenue 289.6
    Foreign grants 47.0
    Principal repayment 4.4
Deficit financing 63.8
   Foreign loans 25.8
   Domestic borrowing 38.0