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Strengthening WTO

Excellent points from Aditya Mattoo, World Bank and A Subramanium, IMF, says Dr Bhaskar Dasgupta.

india Updated: Sep 13, 2003 15:10 IST
Dr Bhaskar Dasgupta
Dr Bhaskar Dasgupta

The India Babble
The market recovered smartly after Monday's bombing, which made the index dive, following panic stricken selling. It was a drop of almost 120 points on Monday, but it went up sharply on Tuesday and kept on going on Wednesday gaining another 53 points. The Rupee, which had dived, also made up ground.

The repo rate, cut over the weekend, is making positive waves in the bond market and yields have dropped significantly. Over the week, the Sensex moved smoothly up and closed the week at 4244.

The RBI released a statement on India's agricultural production, which is projected to have a sharp recovery due to the rains. This may definitely have a good effect on the GDP of the country. If one recalls, last years bad rains meant that the economy just grew by 4.2 per cent.

The MD of Karachi Stock Exchange said that he is planning to allow Indian firms to be members from 2004 is a startling and pleasing development. Absolutely wonderful news. It is too soon to know more about this, but if it does take off, more would be done in the long run for the 2 countries than 20 parliamentarian visits may ever will.

The World Bank announced a $181 million loan to the Indian State of Maharashtra to improve access to drinking water supply and sanitation. In a change of tack, it is going to aim at ensuring sustainability of water resources and good management, rather than construction of water supply schemes. Finally, the penny has dropped for our babu's and neta's, use our existing supplies better rather than go in for grandiose schemes. Another small rant, have the other states (primarily northern Indian states) wondered why the WB tends to give more money to the western and southern states?

I was laughing at reading a report on the Times of India talking about BPO, but only that it is Biological Process Outsourcing. Apparently, Indian eggs are in demand because India produces lots of beauty queens and high IQ people, not only for the Indian Diaspora people, but also people of other races. Another example of health tourism and Indian excellence in health?

What about sorting out diarrhoea and tuberculosis? Another interesting outsourcing story - Allen & Overy are going to move their legal documentation unit to India. One more field where we can do excellently, if there is one thing which we have enough of, that is lawyers (sorry, I could not resist that dig!)

Talking about what Indians can do best, I am sure the powers that be in Delhi are worried about the fact that Saudi Arabia has now banned any foreign employment in the Tailoring and Barbering business which, as the newspapers report, are mostly done by Indians. Expect to see a flood of tailors and barbers returning back to India, and from an economic perspective, prices for haircuts and clothes to drop.

The Economic Times reported that the investment pattern of the Indian household is definitely shifting from deposits to investments in the capital markets through mutual funds. Wooo Hooo. Hey, that's very good news indeed.

Finally signs of life and intelligence! Investing in mutual funds will divert this deposit capital into far more productive investments. In addition, it shows that the Indian households are becoming far more risk taking, which is good for the economy, productivity and capital management of the country.

The Babble in the Ivory Towers
Aditya Mattoo and Arvind Subramanium of the World Bank and IMF respectively have just released an excellent working paper for providing a robust WTO infrastructure, which really addresses the issues of developing and developed nations, with respect to the development imperatives for the worldwide trading system. They base their framework around 5 principles, which are:

1. Comprehensive coverage, encompassing goods and services and all factors of production, not just capital but also labour
2. An obligation not to discriminate - de jure and de facto - between domestic and foreign products and suppliers (national treatment) once the latter has entered the domestic market (post-entry)
3. Restrictions on the entry of foreign products and suppliers could be maintained, but these would be negotiated, bound at prevailing levels and there would be a presumption in favour of using the least inefficient instrument, e.g. a tariff instead of a quota
4. Regulatory harmonisation only in a narrow range of situations, where there are negative externalities, economic (terms of trade losses through export cartels), or non economic (pollution), with reliance on compensation rather than sanctions as the means to secure changes
5. Freedom to pursue deeper integration amongst a sub-set of members subject to safeguards that protect the interests of non-members.

They make (in a very pragmatic and even handed way) good points, like "goods" don't just have material inputs, but also labour inputs, restricted labour mobility on the basis of security, immigration and other barriers are restricting the developing countries main resource base. Another point that they make is that the entire issue of subsidies and how it is one of the most trade distorting features of today's trading world. For example, EU turns around to its trading partners and says, we dont mind if you give your farmers some subsidies. This is where people look at them and wonder which planet they are on? If Ghana was really able to subsidise its farmers, do you think they would be hoping against hope, that free trade in agriculture will take place? Or that it would not have used its money to pay for far more essential items?

Details of this paper and past columns are available on

The World Babble
The week started badly with the markets dipping lower on Monday and Tuesday, although there was a bit of a recovery on Tuesday afternoon. The Mumbai blasts did have an effect on the markets, especially with rumours floating around, that if the 9th most likely nation to be afflicted by terrorist bombing can get hit, the other nations will get hit even more. The UN bombing in Iraq and the collapse of the ceasefire in Israel also weighed in.

Thursday's news that the Q2 GDP was up at 3.1% helped NASDAQ to end above 1800 in more than 16 months, as the tech and biotech sectors were loved. The labour numbers (jobless claims) edged up slightly by 3000, but still remain below the psychologically important 400,000 level for the fourth consecutive week. While not good, it's not bad either. US Home Sales jumped to an all time high in July, as the historically low interest rates are kicking into gear, but the recent rises of the rates are expected to dampen the ardour of home buyers. The week closed with the DOW at 9415, S&P500 at 1008 and NASDAQ at 1810. The long weekend coming up meant that the trading was pretty thin on the ground.

Europe was suffering again this week; the FT Eurotop 300 went all over the place before ending at 895. Banking, insurance and energy stocks were weak across the board, but consumer goods and car manufacturers, such as Phillips and Volkswagen, saw an upturn. Comparatively, Europe is not giving the kind of economic signals that are seen in the USA; hence the European markets are
generally under downward pressure. The bright sparks are coming from firms having an American exposure. Rather sad, I must admit. London closed at 4161, a rather downward trend, driven by more domestic factors. My gut feel is that with the summer, the markets are feeling thin and most of the Footsie 100 companies are not really giving out good news, RSA, Sainsbury's, AstraZeneca, GlaxoSmithKline all suffering from rather severe downturns.

Japan's Nikkei closed at 10343, after showing confused behaviour. Many times, the market treaded water, being totally flat for hours. That is rather strange, but interesting behaviour pointing towards a slight correction mood, conflicting with a bullish mood. Still, the economic news is reasonably good, industrial production rose 0.5 per cent in July over June. This, backed by the American good news, helped to push up the market. Oil and Gas prices are still high although rising US inventories helped to ease the price of Natural Gas in the USA. Gold moved up rather rapidly, following on from risk fears arising from the Mumbai and Iraqi bombing.

The United Nations Conference on Trade and Development gave highlights of its 2003 world investment report, due to be released next week. The Worldwide Stock of FDI has grown to $7100 billion from 1980 to 2002. USA was first with $1351 Billion; UK was second with $639 billion. Interestingly enough, China was at $448 billion, up from just $25 billion in 1990. If you add in the figure for Hong Kong which is $433 billion, China will jump into a strong second place! makes one think, no? We shall talk more about this once the full report is released. The United Nations brokered a deal, so that landlocked countries such as Afghanistan and several African countries, can have improved market access, reduced red tape and less transit costs.

Another good attempt to reduce the issues facing these poor countries, which spend a correspondingly large sum of money on transport compared to countries which have access to the sea.

The WTO drug deal has been finally signed after some small setbacks. Just a small reminder, this will not help much in the public health stakes, hardly 5 per cent of public health medicines will be affected by this measure, as Professor Vivek Debroy of the Rajiv Gandhi Foundation, New Delhi, India pointed out. The EU is again proceeding down the path of making it look ludicrous with agreeing a draft on geographical names being brands. So if I wanted to make ham which will look, taste and smell exactly like Parma Ham in Port Stanley, Falklands or in Fiji, I cannot do that. If it looks like a duck, quacks like a duck, lays an egg like a duck, the chances are high that it is a duck, until and unless the blessed EU has decreed otherwise, in which case, it is a subsidy fattened non GM cow. (A big snort here).

The softwood dispute between Canada and USA was adjudicated by a WTO panel, which came down on both Canada as well as USA. I do not think that this is the end of it, but my recommendation would be, that they get into bilateral negotiations now rather than muck about with the WTO.

(Dr Bhaskar Dasgupta writes a weekly Monday round-up on markets and indicators. He holds a Doctorate in Finance and Artificial Intelligence from Manchester Business School and works in London in diverse capacities in the banking sector.)

First Published: Sep 01, 2003 20:39 IST