1. Why govt has lifted a duty that polyester makers paid on a chemical

Relevant for GS Prelims & Mains Paper III; Economics

During her Budget speech on Saturday, Finance Minister Nirmala Sitharaman said the government was abolishing in “public interest” an anti-dumping duty that was levied on imports of a chemical called PTA. Domestic manufacturers of polyester have called the move a huge relief for the industry, claiming they had been fighting to remove the duty for four-and-a-half years.

What is PTA?

Purified Terephthalic Acid (PTA) is a crucial raw material used to make various products, including polyester fabrics. PTA makes up for around 70-80% of a polyester product and is, therefore, important to those involved in the manufacture of man-made fabrics or their components, according to industry executives.

This includes products like polyester staple fibre and spun yarn. Our cushions and sofas may have polyester staple fibre fillings. Some sportswear, swimsuits, dresses, trousers, curtains, sofa covers, jackets, car seat covers and bed sheets have a certain proportion of polyester in them.

What led to the government decision?

As Sitharaman explained on Sunday: “That particular product (PTA) is a raw material for many of the industries. There has been persistent demand that they should be allowed to source that particular product at an affordable rate, even if it means importing it.” She had said easy availability of this “critical input” at competitive prices was desirable to unlock “immense” potential in the textile sector, seen as a “significant” employment generator.

The duty had meant importers were paying an extra $27-$160 for every 1,000 kg of PTA that they wanted to import from countries like China, Taiwan, Malaysia, Indonesia, Iran, Korea and Thailand. Removing the duty will allow PTA users to source from international markets and may make it as much as $30 per 1,000 kg cheaper than now, according to industry executives.

Why was it imposed in the first place?

The anti-dumping duty on PTA was imposed after two domestic manufacturers, MCC PTA India Corp Pvt Ltd and Reliance Industries Ltd, approached the Directorate General of Trade Remedies (DGTR) in October 2013. The companies, which submitted that they accounted for over 50% of the domestic PTA industry, had argued that some countries had been exporting the product to India at prices lower than its value in their own domestic markets. This dumping of PTA into the Indian market had a “significant” adverse impact on the domestic industry, they argued.

Following an investigation, DGTR agreed with MCCPI and RIL’s claims, and imposed anti-dumping duties on PTA imported from South Korea and Thailand in 2014 and 2015, and from China, Indonesia, Taiwan, Iran and Malaysia in 2015 and 2016.

Why was the move controversial?

Companies using PTA to manufacture polyester products claimed that the move went against the government’s vision of making the textiles sector a globally competitive industry. According to them, the move left them with limited domestic suppliers of PTA. The companies had alleged that the product’s cost had become more expensive domestically, which made their own products pricier and less attractive for their domestic and international buyers. This had led to a drop in exports of some of these products during 2014-16, and an increase in imports of the products they had been producing, as there was no safeguard against imports of cheaper versions of these downstream polyester-based products.

On top of this, the domestic industry had argued that domestic PTA producers had not only been unable to ramp up capacity to cater to demand for the product, shutdowns of their manufacturing facilities once a year for maintenance purposes had also led to shortages of the raw material. PTA users claim that they had not been manufacturing as much polyester as they were capable of, operating at 70% of their capacity at any given time.

Are there other raw materials in line for a similar move?

Mono Ethylene Glycol (MEG), another raw material used in the manufacturing of polyester, is currently the subject of another anti-dumping duty investigation initiated by DGTR recently.

This investigation was initiated after RIL, supported by another company (India Glycols Ltd) had argued that top MEG exporters like Kuwait, Saudi Arabia, Singapore and the United Arab Emirates had been dumping the product and that the domestic industry was suffering “material” injury as a result.

An association representing textile companies like Indo Rama Synthetics India Ltd, Filatex India Ltd and Bombay Dyeing has approached DGTR against the move, arguing that anti-dumping duties on MEG would adversely impact the textile industry the way the duty on PTA allegedly did.

Source: The Indian Express

2. India becomes second largest steel producer of Crude Steel

Relevant for GS Prelims

As per World Steel Association data, India became the second largest steel producer of crude steel after China in 2018 and 2019, by replacing Japan. The details of five leading crude steel producers in the world during 2018 and 2019 are listed below:

Top 5 Crude steel producers in the world: 2018, 2019*
2018 2019*
Rank Country Qty (mt) Rank Country Qty (mt)
1 China 920.0 1 China 996.3
2 India 109.3 2 India 111.2
3 Japan 104.3 3 Japan 99.3
4 USA 86.6 4 USA 87.9
5 South Korea 72.5 5 Russia 71.6
Source: worldsteel, (* Provisional)

 

India’s crude steel production in 2018 was at 109.3 MT, an increase of 7.7 per cent from 101.5 MT in 2017.

Steel being a deregulated sector, the Government does not set any annual targets for steel production. Decision on quantity of steel production is taken by individual companies based on commercial considerations and market requirements.

Source: PIB

3. The rising defence pension bill

Relevant for GS Prelims & Mains Paper III; Ecnomics

The Union Budget for 2020-21 has allocated Rs 1,33,825 crore to defence pensions. This is up by 10½ times in a decade and a half, from Rs 12,715 crore in 2005-06.

Why this allocation is so huge?

The allocation of Rs 1,33,825 crore is 4.4% of the total expenditure of the central government or 0.6% of GDP. And of the overall allocation made to the Defence Ministry, 28.4% goes towards pensions.

So sharply has the bill for defence pensions gone up that it is now Rs 15,291 crore more than the Defence Ministry’s total capital expenditure, a bulk of which goes towards modernisation of the armed forces. It now nearly equals the salaries bill for Defence Ministry. The more the government spends on salaries and pensions, the less it can spend on modernising the armed forces.

To compare it with other sectors, the government’s rural employment scheme MGNREGA has an allocation of only Rs 61,500 crore — 46% of the bill for defence pensions. The Prime Minister’s flagship Swachh Bharat gets Rs 12,300 crore. To put it in perspective, the government’s spending on education is Rs 99,300 crore and on health is Rs 69,000 crore.

Why the bill is high

  1. As per the Defence Ministry, there are about 26 lakh armed forces pensioners and family pensioners and approximately 55,000 pensioners are added every year. In 2015, government announced the OROP (One Rank, One Pension) scheme which cost it Rs 8,600 crore. The implementation of the Seventh Pay Commission recommendations in 2017 again increased the defence pensions bill.
  2. Defence pensions are unique in many ways. Defence personnel retire at a young age and thus continue to get pensions for a longer period of time than their civilian counterparts. The current ratio of military pensioners to serving military personnel is 1.7 to 1, while the ratio of civil pensioners to civil working personnel is 0.56 to 1. This ratio in defence is projected to further change as life expectancy in India goes up and retired personnel live far longer than earlier.
  3. All civilian employees in the government who joined service on or after 1 January 2004 do not get an assured pension but come under the ambit of the contributory National Pension Scheme (NPS). That is meant to reduce the pensions bill of the government on the civilian side, but military personnel have been excluded from the ambit of the NPS because of their short service span.

Is there an easy answer to this?

The short-term answer to keep the bill frozen at the same level is to increase the retirement age of serving military personnel and stop the rise in number of pensioners. But at a time when the country is facing unemployment at an all-time high, stopping recruitment for a few years will worsen the situation.

The other solution is to send the retired military personnel to paramilitary forces but those forces, too, need to stay young and have not accepted the proposal. That would also pose the problem of recruitment in a time of high unemployment, as in the case of increase in retirement age of military personnel.

Graph describes the rising share on defence pensions bill

Conclusion

The sharply rising defence pensions bill, however, has become a challenge that cannot be ignored any longer. Unless India’s economy grows at a double-digit rate, it will not be possible to furnish this bill and still modernise the armed forces. There are no easy answers to the challenge, and the answer will have to come from the top political leadership: as former US Defense Secretary Bob Gates memorably said that if there was an easy answer, someone lower down the hierarchy would have found it.

Source: The Indian Express

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