Internationalization of Indian Rupee-RBI’s major move to settle worldwide transactions in Indian Rupee

To promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, Reserve bank of India (RBI) puts in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR. This means that now the exports and imports will be denominated in rupees. It is expected that this move will reduce the demand for dollars and lead to a reduction in foreign currency risks and exchange rate risks due to forex fluctuations.

It can lower transaction costs of cross-border trade and investment operations by mitigating exchange rate risk but makes the simultaneous pursuit of exchange rate stability and a domestically oriented monetary policy more challenging, unless supported by large and deep domestic financial markets that could effectively absorb external shocks.

The broad framework for cross border trade transactions in INR under Foreign Exchange Management Act, 1999 (FEMA) is as delineated below:

  • Invoicing: All exports and imports under this arrangement may be denominated and invoiced in Rupee (INR).
  • Exchange Rate: Exchange rate between the currencies of the two trading partner countries may be market determined.
  • Settlement: The settlement of trade transactions under this arrangement shall take place in INR in accordance with the procedure laid down in Para 3 of this circular.

Further, in terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD[1] banks in India have been permitted to open Rupee Vostro Accounts. Accordingly, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country. To allow settlement of international trade transactions through this arrangement, it has been decided that:

  • Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier.
  • Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.

At times of inflationary pressures, higher than the world average inflation rate undermines the use of the currency as an international medium of exchange and a store of value and can restrict the role of such an economy in global value chains. Thus, the primary focus of flexible inflation targeting framework on price stability augurs well for further liberalisation of the capital account and internationalisation of the rupee.

With countries facing foreign exchange shortages, use of rupees as a medium of forex would largely reduce the risk and burden associated with dollar in recent times. Along with benefits to exports it would also lower the transaction costs involved in international trade. For instance, with Russia sanctions in place, trade has almost come to a halt due to payment problems. As a result of the trade-facilitation mechanism introduced by the RBI, we see payment issues with Russia easing.

In the process of phased adoption of the same, the RBI would have to be careful in managing the stability of money supply and interest rate especially with soaring inflation in Indian economy despite the RBI’s inflation targeting policies. RBI monitors the exchange rates as a key information variable for monetary policy formulation as inflation can still alter by 10-13 per cent of the change in exchange rate. A stable and efficient domestic financial market will also help absorb the external shocks with exchange rate now being determined by market completely and capital account progressively being fully convertible.

#Intueri’s Views

Antara Mukherjee

[1] Authorised Dealer Banks

The prospects of the emerging trade ties between India and Australia

Fuelled by the complementarities of the two nations, the recent decade has seen remarkable growth in trading relations between India and Australia. The countries have witnessed an ascending growth in their two-way trade volumes, with a trade value growth from $13.6 billion in 2007 to $24.3 billion in 2020. In 2020, India was recognized as Australia’s 6th Largest Export market, after being the recipient of almost $17 billion worth of exports. Furthermore, the Indo-Australian trade pact has provided a larger impetus to boost trade, generate employment and collaborate in other socio-economic aspects.

The history of the bilateral relation

The historical ties between the two countries date back to 1788 followed by the European settlement in Australia.[1]   All trade movements from the penal colony of New South Wales were controlled by the British East India Company through Kolkata. In due time, the relationship underwent an evolution developing along with an existing economic and positive engagement, into a long-term strategic partnership. In explaining the roots of this bilateral tie, the policy document published by the Ministry of Economic Affairs, GoI, states – “The two nations have much in common, underpinned by shared values of a pluralistic, Westminster-style democracy, Commonwealth traditions, expanding economic engagement and increasing high-level interaction. The long-standing people-to-people ties, ever-increasing Indian students coming to Australia for higher education, growing tourism and sporting links have played a significant role in further strengthening bilateral relations between the two countries.” The White paper released by the Australian government on its foreign trade policy in 2017, has already identified India to be in the front rank of Australia’s international partnership. The countries share congruent security interests in terms of maintaining stability and strategic openness of the Indian Ocean.

Such similar economic, security and political interests have recently pushed the leaders of the two countries to pave way for free trade and strengthen the gains from duty-free access to goods. India and Australia have recently signed a trade pact – ‘The Economic Cooperation and Trade Agreement (IndAus ECTA)’,  which has promised to provide duty-free market access to 96% of India’s exports to Australia.

Product Profiling

The following visualizations exhibit the trade basket composition of the two countries –

Most of the exports entering India (for instance HSN Code – 210690, 220410, 220421, 220422, 220710, etc.) were subjected to a tariff rate of 150% which are to be eliminated in a phased manner. Similarly, exports from India (for instance HSN Code – 040610, 040630, 071290, 081310, 081330, 110510, etc.) were under the tariff bracket of 26%-5%. Therefore, the trade agreement would boost trade in these commodities, which will experience higher price competitiveness in domestic markets. The gain from the agreement is likely to be greater for Australia than India because of its higher rate of initial tariff barrier.

What does the Economic Cooperation and Trade Agreement (IndAus ECTA) have to offer to India?

The long-awaited pact is likely to boost bilateral trade in goods and services to $45-50 billion in the next 5-years from the current level of $27 billion.[2] As per the estimates of the Indian government, the favourable impact on employment figures would be prominent as well. It is likely to generate more than 1 million jobs, both through direct and indirect channels. Some of the Australian export goods that stand to gain from the duty-free access are coal, sheep meat, wool, wines, almonds, lentils, and certain fruits. Overall, 85% of Australian export would enter the Indian market duty-free.

Analyzing in the purview of Indian producers and consumers, while the trade pact would save the surplus for the consumers and give them access to a broader set of choices at an affordable rate- domestic producers may face steep competition from the increased price-competitiveness of the Australian exports. Though the current coverage of duty-free exports of India stands at 96%, the agreement pledges to expand the scope of the agreement to 100% in the next 5 years. Hence, domestic producers may also gain through tariff-free market penetration in the Australian market. The ultimate impact on the domestic production may be ambiguous – the direction and magnitude of which depends on how it can exploit the provisions of the agreement to remain competitive in the domestic market while maximizing its trade footprint in the newly opened foreign market.

Without the trade deal in place, Indian exports were subject to a 4-5% higher tariff rate in many labour-intensive sectors relative to its competitors like China, Thailand, and Vietnam, which already has a Free Trade Agreement (FTA) with Australia. Therefore, this trade deal would provide India with a level playing field in addition to a significant boost to its merchandise exports. India has reserved some key products under the ‘sensitive product’ category which would allow her to protect her nascent domestic sector against cheaper and better-quality Australian products. These products include dairy, wheat, rice, chickpeas, beef, iron ore, sugar, toys, apples, and others. Apart from the tariff barriers, the scope of the agreement has been expanded to include strict provisions on rules of origin. Strict rules of origin prevent any routing of products from other countries and provide for a safeguard mechanism to address any sudden surges in imports of a product. Unlike most of the other trade agreements, this has expanded the scope beyond trade barriers and included equally important provisions of non-tariff barriers and rules of origin.

The following chart shows the composition of the trade basket between India and Australia for the period 2017-2021 –

Source: DFAT, ABS[3]

Looking at the above chart, we can deduce that agricultural products, minerals, and fuels which are occupying a larger share of India’s export basket are envisaged to gain significantly through this tariff-free access.

Possible threats/areas of improvement of the pact

While there is no denying the fact that the scope of the trade deal is sufficiently broad, it is to be noted that this is just an interim agreement. However, some possible areas of pitfalls that need attention are highlighted below –

  • Since a large chunk of Australia’s agricultural exports were left out of the purview of the preferential treatment, the benefit to be accrued to the middle class of the country is not well-defined. A possible tariff cut and a consequent price reduction of these agrarian goods could have been a desirable choice made for the middle class. A strategic reduction of tariffs on these goods by a few percentage points would be a viable solution, if not zero-tariff.
  • Moreover, the Medium and Small Enterprises of India (MSEs) may witness a shrinkage in their domestic market shares with the rapid emergence of tariff-free Australian goods. Small and fragmented producers of wool, cotton, vegetables, metals, etc., may have to cut profit margins to survive in the market and compete with foreign export.
  • As the agreement has aptly internalized non-tariff barriers along with the tariff barriers, excessive preferential treatment in case of non-tariff barriers may go against the national interest. For instance, non-tariff measures like labeling requirements, certification proof, chemical content level, or hygiene requirements should only be lowered keeping in mind a scientific range and national health mandates in mind.
  • Lastly, with India’s reputation of disparate trade agreements with receiving minimum returns while giving maximum possible market advantage to its counterpart, the persistent trade imbalance may broaden even more.[4]

Recommendations and Way Forward

This interim trade pact is seen as just the beginning of the strategic partnership between the two nations. To further facilitate bilateral trade, Australia is all set to sign an even larger trade agreement with India – Comprehensive Economic Cooperation Agreement (CEPA) by the end of this year. The CEPA would add value to the  ‘IndAus ECTA’ pact by including provisions on digital trade. The ongoing global pandemic has popularized the digitalization of trade with increasing momentum. Thus, excluding digital trade from the purview of any trade agreement would ideally deem it incomplete. Apart from the CEPA, the two countries have set a long-term vision for promoting a few priority sectors. Originally released in 2018 by the Australian government, the ‘India Economic Strategy 2035’ aims to forge long-run partnerships in sectors like energy, tourism, education, health, and security.

India and Australia also share a trilateral Supply Chain Resilience Initiative (SCRI) with Japan that can be further strengthened through this trade agreement. The countries can align their efforts in capacity building, and promotion of domestic manufacturing and explore other partners to join hands in this initiative. Moreover, both the countries being active members of the QUAD (Quadrilateral Security Dialogue), can leverage the collation to generate further impetus for increasing trade relations between all the members of the QUAD. Therefore, holistic economic cooperation that not only covers international trade-related interests but also helps the countries to move towards the vision of strategic partnership encompassing various allied areas of shared interest should also be internalized as a part of long-term economic cooperation.

Implications for the corporates

Once ratified by the Australian Parliament, it is going to have a beneficial impact on Indian IT firms. The tax levied by the Australian Tax Authority (ATO) on the income of certain offshore technical services provided by IT companies shall be exempted from tax. This move is likely to enhance the profitability of Indian IT corporates and boost the volume of offshore services. [5]

Moreover, corporates taking part in exploring bilateral trade opportunities and finding ways to enhance trade footprint between countries may use the opportunity to help the exporters identify newer trade channels and take benefit of the agreement’s provision. The plethora of opportunities opened by this trade agreement can be tapped with the expertise of international trade economists and experts. Consultation on improving trade finance, trade revenue, avoiding trade barriers, and identifying investment opportunities may be availed by organizations trying to leverage the bilateral trade relation between India and Australia.

[1] Source: Ministry of Economic Affairs, Government of India

[2] Source: India, Australia sign FTA, trade likely to ‘double in 5 yrs, generate 1 mn jobs’, The Indian Express

[3] Source: Australia—Trade agreement with India boosts export opportunities, official website of Government of Australia’s export finance dept.


[5] Source: India-Australia trade pact will benefit IT firms, published on Business Line by Ashutosh Dikshit

India-UAE Comprehensive Economic Partnership Agreement (CEPA) – the impact of bilateral ties and international trade

Overview of bilateral relation

India and the United Arab Emirates (UAE) enjoy a strong bond of diplomatic, economic, and cultural ties. UAE is the third-largest trading partner of India whereas India is the second-largest trading partner of UAE. Trade volume between India and UAE stood at $53 billion during 2021-22 of which $20 billion was export value from India and imports were worth $33 billion.

The following illustration explores India’s export basket to UAE by highlighting the highest exported products and their percentage share in total trade –

Source: Observatory of Economic Complexity (OEC)

Indian nationals make up one of the largest population groups in the UAE, a major source of foreign remittance and Net Factor Income from Abroad (NFIA). UAE is home to more than 35 lakh Indian-origin people. The flow of Foreign Direct Investment (FDI) between the two countries is also immense. As per the UAE Embassy in India, the total bilateral FDI flow recorded was $67 billion from 2003 to 2021. The FDI flow from India to UAE was concentrated in sectors like coal, oil and gas, and real estate while a significant amount of UAE’s FDI flowed into India’s real estate, ceramics, and glass industries. Despite these significant bilateral ties, India and UAE were not part of any trade agreement, customs union, or regional economic cooperation. The countries imposed the Most Favored Nation (MFN) tariffs on each other.

Following are the products which were subjected to the highest tariff rates by both the countries –

                     Highest tariff products by UAE                         Highest tariff products by India     


Source: Observatory of economic complexity

The weighted averages of MFN tariffs applied by UAE and India were 3.94% and 6.59% respectively in 2021. Such high tariff rates reduced the competitiveness of the products in foreign markets and the full market potential could not be utilized. Apart from tariffs, non-tariff barriers played a pivotal role in restricting the domestic producers of each country to expand their footprints in foreign markets.

Indian products in the UAE market were subjected to the following categories of Non-tariff Measures and Barriers till 2021-

Source: World Integrated Trade Solutions (WITS)

How CEPA would benefit India?

The landmark CEPA signed between the two countries is a major boost to the bilateral relation and economic cooperation between the two countries. Negotiations for the trade deal were closed within the shortest possible duration of 88 days which shows the desire of both nations to actively participate in the mutually beneficial economic deal. Very aptly pointed out by Indian Commerce and Industry Minister, Shri Piyush Goyal, through this agreement, India may enter the “golden era of economic and trade cooperation.” As per the estimates, the free trade agreement is anticipated to increase the bilateral non-oil trade between the countries to $100 billion from the current $60 million, over the next five years.[1] Moreover, it is expected to create more than 10 lakh jobs in India by boosting the export of labor-intensive goods.[2]

Given the strong trade relationship between the two countries, signing a free trade agreement would benefit the consumers as well as producers of both countries. Under the CEPA, both countries would be able to reap the benefits of free trade as exports would be tariff-free. The consumer surplus would go up while producers would benefit through increased profit margin induced by the enhanced competitiveness of their products.

Some of the most significant benefits of this free trade agreement are listed below –

  • Enhanced market access opportunity in the Middle East and North American (MENA) region

This agreement would act as a gateway to expand India’s trade in the Gulf region. Negotiation of similar trade deals with other Gulf Cooperation Council (GCC) countries like Kuwait, Saudi Arabia, Oman, and Bahrain would be easier. Moreover, the transport and logistic infrastructure, if exploited optimally through this FTA, would provide better market access to the wider MENA region. As a result, the spillover effect or positive externality of this agreement is anticipated to be enormous.

  • Boosting India’s export and foreign reserve

Tariff often makes exports expensive in the foreign market and reduces their demand. Since the primary objective of any tariff measure is to provide a price cushion to domestic producers, it makes exports less competitive in the tariff imposing country. Through this free trade agreement, both the countries would enjoy tariff-free access to each other’s market. 90% of India’s export and 80% of the total lines of the trade from India to UAE would be subjected to free tariffs. The range of products and tariff lines would be expanded more in the upcoming five years. The foreign exchange reserve of India is envisaged to grow as export revenue starts skyrocketing.

  • Attracting investment in India

Both foreign direct investment (FDI) and foreign portfolio investment (FPI) are expected to grow. The trade deal would create a conducive environment for investors and attract more funds to the Indian market. Deep-pocketed investors of the UAE would decipher this as a sign of an optimistic business opportunity.

  • Beneficial for MSME and Startup

The partnership will help small enterprises, startups, heath-tech, edu-tech, and fintech firms of India by opening up a new market. All segments of the business including traders and farmers would gain as a new door of opportunity and investment would induce business confidence. The ease of doing business in many segments like generic medicines, gold, diamond, gems, and jewelry would improve. New avenues of digital trade have taken center stage in the agreement as governments have identified e-commerce and e-payment solutions to be of special focus.

  • Reduction in remittance fees and increase in savings

The deal is definitive to uplift the UAE-India remittance corridor. Already the remittance fees on the transaction in the UAE-India corridor are among the lowest globally (the rate stands at 5.31% while the global average stands at 6.3%). An additional five percentage point reduction, as suggested in the deal, would convert into a total of $16 billion savings, combining the two countries.[3] The increased level of transaction, following these favorable provisions, would incentivize the fintech sector.

  • Partnership in climate change

With increasing attention towards global warming and climate change-related issues, the deal has appropriately internalized some of the issues. Both countries have pledged to support each other in achieving a clean energy mission. A remarkable development of this deal is the decision to establish a joint hydrogen task force and scale-up technology through a focus on green and renewable energy generation.

  • Collaboration on defence and security-related measures

The two nations have promised to cooperate in maintaining peace and stability in the middle eastern region. They will extend all possible support to each other in defence exchange, sharing technology, training, and capacity building that may be necessary for achieving the aforementioned objective.

Thus, the vast coverage of the deal in terms of encompassing several important economic, social, trade, and political matters is commendable.

  • Possible threats from the agreement

India has a reputation for signing unequal trade deals and failing to make capital out of seemingly beneficial agreements. Some of the possible areas of threat of this agreement are as follows:

  • Despite a plethora of opportunities, there is a possibility of the Indian market being flooded by high-tech and low-priced imported goods from MENA and UAE which may ultimately hurt domestic capital-intensive industries.
  • As the FTA is evident to create a significant volume of international trade between India and UAE, other trade partners of India may be hurt due to the trade diversion. For instance, trade from China in electronic devices, equipment, and fittings (HS 85472000, HS 85479090, and HS 85471090)[4] may be diversified to UAE and reduce the trade volume between the two nations. Trade relation has a direct impact on economic and bilateral ties which may also be affected as a result of this diversification.

The deal has the potential of “opening up a myriad of opportunities for professional, entrepreneurial and overall human development”.[5] However, India needs to put enough effort into exploiting the benefits to its maximum possible extent and not let this golden opportunity turn out to be just another trade deal that benefits the partner more at the cost of reduced welfare of the country. Collaboration and cooperation between government, corporates, businesses, and consumers are necessary to ensure optimal use and implementation of all the preferential measures and clauses of the agreement.

Way Forward

With an increasing focus on economic integration and globalization, regional, bilateral, and multilateral economic cooperation is assuming immense importance. Thus, India should continue playing a proactive role in the negotiation and implementation of free and preferential trade agreements.

Following are some of the subsequent action points that India should pursue through this pact to maximize its gain and welfare –

  • Since UAE acts as a major redistribution center and most of the African exports are routed through UAE, CEPA should be seen as an opportunity to capture the African market and drive warehousing and distribution centers in the UAE for Indian exporters.
  • UAE is India’s key energy provider and has shown interest in meeting India’s energy demand through increased supply and reduced price.
  • Some areas of cooperation and partnership where the deal may be extended, and the scope of collaboration may be utilized include food security, healthcare, education, technology, and culture.
  • The huge opportunity of increasing market access in MENA and the Gulf region should not go in vain. Immediate talks and negotiations between the leaders of the country may be initiated to keep this deal moving forward.

Concluding Remarks

The blog is intended to serve a wide spectrum of audiences, with or without any prior understanding of international trade relations or international economics. Policymakers, academicians, researchers, and corporate houses interested in understanding and developing expertise in this area may find the blog a good read. For instance, an exporting and trading company may find ways to penetrate in UAE market and increase its business footprint in the Gulf region by identifying some opportunities for its product through this blog. Anyone interested in international development and trade would get to know the newly developing cordial relationship between the two countries. A policymaker or a researcher may get ideas to expand the research and discover ways to establish such agreements with other trading partners of India.

[NOTE: The purpose of this blog is to shed light on the various aspects of the India-UAE CEPA agreement. Through providing a critical review of the agreement, the blog has tried to identify some future possibilities that may be exploited by India through duty-free access into UAE, MENA, and Gulf regions. The blog identifies some areas of threat and possible ways forward for India to make the most out of the agreement.]


[1] Source: Comprehensive Economic Partnership Agreement — A game-changer? – News | Khaleej Times

[2] Source: India, UAE CEPA agreement to provide 10 lakh job opportunities; increase bilateral trade by USD 100 billion: Piyush Goyal – ThePrint

[3] Source: UAE and India CEPA deal can influence the cost of remittances too | Markets – Gulf News

[4] Source: Top Export Products from United-arab-emirates to India – Volza

[5] Source:

RBI Monetary Policy and its Impact on the Indian Economy

Background and Introduction

As the global economy continues to recover amidst the resurgence of COVID-19, the rapid spread of the Delta variant and the threats of new variants have increased uncertainties of overcoming the pandemic. This is also making policy choices difficult with multidimensional challenges of subdued employment growth, rising inflation, food insecurity and setback to human capital accumulation leaving very little room to manoeuvre. The global economy is expected to grow 5.9% in 2021 and 4.9% in 2022 (WEO[1] October 2021). The slight downward revision in global growth (from the July WEO update) is largely due to downgrade for advanced economies- a part led by supply chain disruptions and worsening pandemic dynamics for low-income developing countries.

It is broadly realized at this juncture of the pandemic reoccurrence that the principal drivers of the gaps are vaccine access and policy support. India, as one of the largest producers of vaccines in the world is expected to contribute to the global progress towards a pandemic solution. After initial hiccups, vaccinations picked up reasonably. At the current pace, India is likely to vaccinate about 40% of its population by end-2021.

India during the first and second waves of the COVID-19 have reacted with different policy measures starting from full nation-wide lockdown to localized lockdown measures with phased reopening of economic activities however, despite dynamic policy support, the aftermath of the pandemic has led to a deep and broad-based economic downturn, followed by a gradual recovery. India prior to the COVID-19 shock was already slowing with growth at 4% in FY 2019-20, reflecting a decline in private domestic demand. At the start of the pandemic Indian policymakers and authorities have undertaken several emergency measures both on fiscal as well as the monetary front. Monetary easing, liquidity, and regulatory measures for the financial sector, as well as credit and debt relief programs for borrowers were announced along with structural reforms. The first wave led to a GDP contraction of 7.3% in FY 2020-21 with contact-sensitive services, construction, mining and manufacturing being most impacted. Supply chain disruptions saw investment and employment fall sharply with private consumption down 9% and gross fixed capital formation, 10.8%. Inflationary pressures persisted from food supply shocks and supply chain disruptions. Inflation peaked at 7.6% in October 2020 but although inflation eased recently, elevated core inflation at 5.8% reflects broad-based price measures.

It thus calls for strong policy intervention by the Central Bank of India-Reserve Bank of India (RBI) in tandem with the Government’s fiscal support. The RBI has provided significant, broad-based monetary easing through interest rate cuts and accommodative forward guidance. On the back of the pandemic risks, the monetary policies adopted by the RBI until recently and its impact on the Indian economy are discussed in this paper.

Reserve Bank of India and its Monetary Policy Stance

Accommodative monetary policy by the RBI has helped ease liquidity measures giving households access to money. [2]Since the pandemic, repo and reverse repo rates were cut by 115 and 155 basis points (bps) to 4 and 3.35%, respectively, building on the pre-pandemic easing of 135 bps; the cash reserve requirement was reduced by 100 bps. The accommodative policy stance was aided by both time- and state-contingent forward guidance on policy rates and, more recently, on asset purchases, to better anchor market expectations amid unprecedented uncertainties.

Various liquidity measures resulted in a cumulative injection of over 6 percent of GDP during February 2020 – 2021 and helped avoid a broad-based liquidity crunch for both financial and nonfinancial corporates. The recent formalization and market guidance on asset purchases has helped anchor market expectations amid unprecedented uncertainties. The impact of the announcement of asset purchases on longer-term yields has been in line with that in other emerging markets. Continued asset purchases should allow market forces to be reflected in prices and to preserve central bank credibility.

As the second wave retarded momentum, the negative impact of it on growth requires continued monetary policy support while accounting for any fiscal support that ensures liquidity support reaches viable firms in vulnerable sectors. Together with this, inflationary pressures need to be monitored with implications for growth-inflation trade off.

In the most recent RBI monetary policy released in October 2021, the policy rates were left unchanged. Repo rate continued at 4% while reverse repo and MSF remained at 3.35% and 4.25% respectively. While global economic recovery momentum ebbs under the rapid spread of Delta variant in many countries, the Indian economy till now is recovering as reflected by recent data. The rebound in economic activity gained traction in August-September led by retreating of infections, easing of restrictions and a sharp pick-up in the pace of vaccination. Industrial production posted a high year-on-year growth for the fifth consecutive month in July. The manufacturing PMI at 53.7 in September remained in positive territory. Services activity gained ground with support from the pent-up demand for contact-intensive activities. The services PMI continued in the expansion zone in September at 55.2, although some sub-components moderated. High-frequency indicators for August-September – railway freight traffic; cement production; electricity demand; port cargo; e-way bills; GST and toll collections – suggest progress in the normalisation of economic activity relative to pre-pandemic levels. Headline CPI inflation at 5.3 per cent in August softened for the second consecutive month driven by easing food inflation. Core inflation, however, remained elevated and sticky.

Going forward, the inflation trajectory is set to edge down in the next quarter of the year, drawing comfort from the recent catch-up in kharif sowing and likely record production. In addition to adequate buffer stock of food grains, these factors should help in keeping cereal prices range bound. Vegetable prices, which are a major source of inflation volatility, have remained contained so far this year and are expected to remain soft, assuming no disruption from unseasonal rains. Supply side interventions by the Government in the case of pulses and edible oils are helping bridge the demand supply gap; the situation is anticipated to improve with kharif harvest arrivals. The resurgence of edible oils prices in the recent period, however, is a cause for worry. On the other side, pressures persist from crude oil prices which remain volatile over uncertainties on the global supply and demand conditions. The CPI headline momentum is moderating with the ease in food prices which, combined with favourable base effects, could bring about a substantial softening in inflation in the near-term.[3]

As domestic activity is gaining momentum, going forward rural demand is expected to maintain its buoyancy due to the above normal kharif sowing and bright rabi prospects. The significant acceleration in the pace of vaccination, the sustained lowering of new infections and the coming festival season is anticipated to support a rebound in the pent-up demand for contact intensive services, strengthening the demand for non-contact intensive services, while reinforcing urban demand. Monetary and financial conditions will continue to be  easy and supportive of growth. Capacity utilisation is improving, complementing the revival in business outlook and consumer confidence. The broad-based reforms by the government focusing on infrastructure development, asset monetisation, taxation, telecom sector and banking sector is likely to boost investor confidence, enhance capacity expansion and facilitate crowding in of private investment. The outlook for aggregate demand is progressively improving but the slack is large: output is still below pre-COVID level, and the recovery is uneven and critically dependent upon policy support.

The RBI monetary policy tone is encouraging to instil confidence for business improvement and growth while anchoring inflation within the target rate and remaining watchful of the risks- both domestic and international.

Monetary Policy Stance-Advanced Economies

According to the RBI, the total monetary support extended globally by central banks is estimated to be about US$18.0trillion as of August 2021. This support has been predominantly in the form of asset purchases, around US$11.6 trillion, followed by lending operations of US$4.4 trillion. The policy stance has remained divergent across countries with a few major AEs and EMEs maintaining an accommodative stance while the others beginning or continuing withdrawal of monetary stimulus.

Fed in its latest FOMC meeting held in September kept interest rates unchanged but remained committed to the tapering of bond purchases if the progress is as expected. Despite risks of the new Delta variant and slow jobs growth data, the Fed is hopeful that progress in vaccinations and strong policy support will improve economic activity and employment. The Fed noted Inflation being elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The ECB in review of the financial conditions and economic outlook kept the key ECB rates unaltered with moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP). The Euro-Area is witnessing an increasingly advanced rebound phase in the pandemic recovery. Output is expected to exceed pre-pandemic levels as more than 70% of the adults are fully vaccinated, the economy has reopened largely, consumer spending is rising, and production is also increasing. Inflation has edged up in the last reading mainly led by strong increase in oil prices, however, over medium-term inflation is expected to be well within the 2% target. The risks from the global spread of the Delta variant of COVID-19, however, could deter full reopening of the economy. Overall, the risks are broadly balanced as financial conditions of firms, households and the public sector  look favourable (Bank lending rates for firms and households being at historically low levels, solid bank balance sheets, etc.). The economic rebound and recovery are thus much dependent on the course of the virus and progress of vaccinations. ECB’s forward guidance is focused on sustained recovery with inflation targeting.

Thus, the multi-speed economic recovery across countries is becoming increasingly susceptible to renewed bouts of rapid spread of infections. Globally, economies have seen a perceptible slowdown of economic activity in the recent months, particularly in Asia. Inflation remains high across the world, with supply disruptions becoming more widespread. The pervading threat of the delta variant has led monetary authorities – that had earlier signalled unwinding – to be on hold, while incremental inflationary pressures have made others signal a sooner unwinding.


As the country recovers from the ‘technical recession’ caused by the pandemic, few of the other risks that may have downside effects on the Indian economy include:

  • Regional tensions between the South Asian neighbours-China, India and Pakistan. Tensions along the borders will continue to remain top priorities of the countries.
  • Intensifying of farmer protests led by the Parliament passing key farm bills have warned supply chain disruptions and logistics deterring economic recovery from the pandemic.

In the aftermath of COVID-19, risks from geopolitical shifts are likely to remain the major challenge for India. Border tensions and implications of it will also have adverse effects on the revival of the economy.

The Indian economy is picking up steam amidst the stressful global risks’ situation. Recovery although is uneven and trudging through soft patches, the step-up in vaccinations, fall in new cases/mortality rates and normalising mobility has rebuilt confidence. Domestic demand strengthening while recouping aggregate supply conditions as manufacturing and services revives is indicating economic improvement going forward. Inflation expectations are also in close alignment with the target.

The RBI in its policy meeting also announced additional measures on developmental and regulatory policies as further liquidity measures and easing financial conditions and inclusion. These included:

  • To tap the potential of MSMEs and help them overcome the aftereffects of the pandemic a three-year special long-term repo operations facility (SLTRO) which was introduced in May 2021 has been extended till December 2021.
  • To promote ways for digital economy, initiatives were undertaken to introduce

offline mode of retail digital payments especially in remote areas.

  • Deepening digital payments penetration across countries was identified to be a priority area for financial inclusion. To accelerate the pace of setting up a Payments Infrastructure Development Fund (PIDF), Geo-tagging of Payment System Touch Points is to be established. This step is envisaged to ensure a balanced spread of infrastructural acceptance across length and breadth of the country.
  • Further impetus was provided on priority sector lending by bank registered NBFCs. This, in turn, is expected to have a trickledown effect on growth of employment and economy.
  • The Committee observed that NBFCs have played an increasingly important role in encouraging financial inclusion. Thus, to further strengthen the NBFCs, emphasis was given on developing the Internal grievance redress mechanism of NBFCs.

Thus, the outlook remains overcast by the future path of the pandemic. Nonetheless, the accelerated progress in the pace of vaccination, release of pent-up demand in the upcoming festival season, boost to investment activity from the government’s focus on infrastructure and asset monetisation, and accommodative monetary and liquidity conditions provide an upside to the baseline growth path. A faster resolution of supply chain disruptions, good food grains production and effective supply management is likely to cause inflation to undershoot the baseline, contingent on the evolution of the pandemic and the efficacy of vaccines[4].

[1] World Economic Outlook, IMF, October 2021

[2] International Monetary Fund-Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for India, October 2021.

[3] RBI Monetary Policy Statement, October 2021

[4] RBI Monetary Policy Report, October 2021

Author: Antara Mukherjee

International Trade Policy of India

International trade plays an important role in enriching the economic growth of any nation. Through specialization and division of labor, trade promotes efficient utilization of scarce resources. Since trade is part of a country’s Gross National Product (GNP), it plays a pivotal role in providing employment, raising standard of living, and enabling consumers to choose from a wider set of goods and services. 



 The South China Sea presents a unique challenge for several countries due to contested claims to access to various economic zones in the region. The South China Sea’s geographical location makes it a prime region for strategic trade initiatives and economic value, which has consequently spurred tensions among China, its Southeast Asian neighbors, and the US. According to statistics from the US Energy Information Agency, approximately 11 billion barrels of oil and 190 trillion cubic feet of natural gas deposits lie underwater. In addition, there are several viable fisheries that combined, could account for up to 10% of the world’s total supply of fish. Finally, a 2015 report released from the US Department of Defense found that roughly $5.3 trillion USD worth of goods are shuttled through the South China Sea annually ($1.2 trillion of this involves the US).

As of late, China has increased its military presence in the area by stationing military bases on artificial islands it has created and by deploying warships in waters that were previously considered to be unclaimed or already under jurisdiction. Thus, neighboring countries as well as the United States have viewed this growing activity as a potential security threat and remain wary of Beijing’s compliance with international regulations regarding maritime activity.The South China Sea is a vital conduit for global trade and attempts to restrict access to it could prove to have significant negative consequences on the global economy. American officials fervently maintain that they are not trying to limit the rise of China, but rather, are taking steps to ensure Beijing’s cooperation with established legal frameworks.

As a result of these sentiments, the US has upped its naval activity as well. Early this year, President Trump authorized a ninth freedom of navigation naval operation in the area. However, according to a recent ASEAN poll, two-thirds of ASEAN members believe that US engagement with the area has decreased, and a third do not believe that the US has the capacity to serve as a viable strategic partner and security enforcer.Thus, despite the Trump administration’s commitment to preserving open waters and compelling China to abide by international laws, ASEAN members have expressed their suspicions regarding American presence in the region.


The United States, Philippines, and China

 Further complicating tensions was a recent announcement by the US Secretary of State Mike Pompeo that reaffirmed the country’s commitment to protecting the Philippines from Chinese “armed attack,” which was construed by many as a rebuttal of Chinese activity. This statement is particularly relevant in light of a 2016 legal battle between China and the Philippines over Chinese claims to most of the region’s waters.However, even though the Hague deemed Chinese activity as in violation of international rules, Beijing ignored the ruling and pressed forward with its aggressive initiatives. Pompeo’s statement marked the first time that a US official had explicitly expressed a commitment to Filipino sovereignty in the area and is indicative of an increasingly complicated power dynamic.

A key focal point in the United States, Philippines, China relationship triangle is how Filipino president Rodrigo Duterte positions the country from a foreign policy perspective. As of late, the president has been fickle in his approach towards China. Upon becoming president, Duterte immediately sought to improve economic relations with the country despite the arbitration ruling; for example, he improved access to Chinese investments and migrant workers. Furthermore, both countries mutually agreed to pursue joint ventures for energy extraction in the South China Sea. Nevertheless, despite this easing of tensions, Filipino citizens have criticized Duterte’s softer stance and have expressed concerns regarding growing Chinese activity (such as how over 200 Chinese ships have been spotted in proximity to Thitu Island, which is home to Filipino military bases and citizens). A recent poll found that 87% of Filipino citizens would favor more assertive claims to disputed areas, and the Filipino Department of Foreign Affairs declared the presence of Chinese vessels near Thitu Island to be illegal. Duterte issued a statement in response telling China to withdraw its ships and even threatened the use of military forces as necessary. This proposal stands in stark contrast to his otherwise conciliatory approach towards China and comes at a significant juncture between Duterte’s traditionally soft relations with China and an increase in American commitment towards protecting the Philippines.

However, the US’ presence may not be well-received. Defense Minister of the Philippines Delfin Lorenzana expressed concerns regarding the sixty-sevenyearold Philippines-US Mutual Defense Treaty (MDT), which promises mutual defense should either one of the countries be attacked by a foreign body. However, much of the treaty’s language is vague and according to Lorenzana, may further jeopardize the Philippines given the US’ growing military presence in the South China Sea. Thus, this piece of legislation could further exacerbate already high tensions in the area.

Current Situation and Looking Ahead

Presently, the military presence of various countries continues to escalate. On April 23rd, China commemorated the 70th anniversary of its navy by sailing a fleet of ships near its port at Qingdao, in order to reaffirm its commitment to “peaceful development.” In response, the US Coast Guard and Navy also deployed ships in contested waters. Thus, currently, the South China Sea has evolved into an arena for power projection and geopolitical rivalry between the United States and China. Analysts and leaders fear that both sides are slowly inching towards war with one another, which will embroil other neighboring countries with diverse agendas; however, it is essential to note that armed conflict is not desirable for any party. There is a fine line between power projection and open conflict, and it appears that both the US and China are tip-toeing the boundary but not crossing it.

It was also recently confirmed that a French warship was spotted sailing through the Taiwan Strait earlier this month. As an important ally of the United States, this move was supported by Washington as an exercise of freedom of navigation and demonstrates that the US has allies to support its stance. France’s precedent may inspire other American allies like Japan and Australia to up their presence in the already tense South China Sea. Overall, the South China Sea remains a hotly contested region, and it will be essential to closely monitor how these tensions play out in the near future.

Aside from the US-China rivalry, other nations in the region also play an important role in shaping the power play. In January 2019, Vietnam made a push to curtail Chinese activity by advocating for a pact that will ban activities such as constructing artificial islands, blockading strategic points, and deploying weapons such as missiles.Thus, Vietnam could set a precedent for other smaller ASEAN countries in the region to follow, especially considering that as of late, China has been the predominant power. While the 2016 Philippines arbitration case put a cap on Chinese expansionism, the ruling ultimately did not change the status quo. However,Vietnam is now expressing its opposition to Chinese hegemony in the South China Sea, which could lend a voice to smaller countries looking to assert themselves geopolitically in this critical region. In addition, American foreign policy will favor these pushbacks against Beijing’s influence.It remains to be seen, though, how this dynamic play out in the near future. There is a careful balance between assertion of power and tactful diplomacy that has beenobserved among actors on all sides, as armed conflict is not desirable for any party involved. However, this polarity has become increasingly difficult to navigate given the growing tensions in the region. It is important to also keep in mind that the South China Sea is not simply a proxy battleground for the US-China rivalry; rather, smaller countries in the region also have a stake in the region, and it is essential to also account for their agendas as well. This smattering of different perspectives and priorities will increasingly contribute to an uncertain situation that needs to be traversed with caution.


The South China Sea is a critical hub for trade, and growing animosities in the region have the potential to seriously impact global economic activity. It will be essential to observe the interplay between Chinese aggression and American containment responses over the near future, as well as consider how neighboring countries assert their own unique agendas and respond to these tensions. The South China Sea is a vital geopolitical and economic region, and closely observing how complicated power dynamics play out in it will be critical for governing bodies, businesses, and political figures worldwide.


Firms should be working out their strategy in today’s world keeping in mind the geopolitical changes which keeps on affecting the world  economy and social behaviour which  influences the consumption behaviour of the world or a region comprising of group of countries  or a country.  That, therefore, to a great extent affects a firm’s operations within a country or outside as it goes cross border or if their global value chain goes beyond one single country’s border. The management of the firm now need to focus on macro variables around politics, economics, and international relations to define their corporate strategy and do their corporate planning. They cannot stay oblivious to the happenings induced by any bilateral political relationships between countries or multilateral relationships or between communities or any such geo strategic factors that has a potential to affect the equilibrium of a business environment. Intueri, therefore, considers that management consulting to create a business plan or a strategy plan should factor in appropriate hedges or mitigation strategy to combat  the risk or uncertainties induced by such political turbulence and maintain a sustainable growth strategy against all changes. The blog is one in a series that Intueri will keep on publishing on world affairs, country relationships, and more—those  they feel management consultants need to be aware of and to give appropriate consideration while working with clients

Increasing geopolitical fluidity and intensifying strong-state policies increase the risks associated with economic interactions between states. States have always used tools of economic policy and diplomacy to pursue their geopolitical goals. While globalization was ascendant, many believed that economic connectedness—Western companies and consumers benefiting from low-cost manufacturing, which simultaneously pushed forward emerging-economy development—would contribute to a gradual convergence of states’ outlooks and goals, reducing the likelihood of geopolitical tensions. However, confidence in the mutuality of benefits has weakened. This is particularly true among Western countries, where the strongest geo-economic trend of recent years has been the erosion of support for globalization and growing support for protectionist policies. It is notable that two of the states that have traditionally been among the firmest advocates of global economic integration, the United Kingdom and the United States, have seen the most dramatic uncertainties emerge around their trade-related policies.

In today’s increasingly interconnected world, geostrategic risks find themselves at the heart ofshaping corporate decisions. Geostrategic risks can be broadly classified as spanning geopolitical, political, and macroeconomic uncertainties, and these can certainly affect profits for companies. In a May 2016 survey conducted by McKinsey, 84% of executives believed that geopolitical instability will significantly impact global business over the next five years by reducing profitability. Nonetheless, these concerns vary by industry: while financial services reported the highest levels of fears, healthcare and pharma companies voiced the least concerns.

However, despite these growing uncertainties, less than a third of executives believed that their organizations have effectively factored in these risks into their strategies and around 13% have taken concrete actions towards addressing these concerns. These numbers pale in comparison to results regarding cybersecurity and big data; thus, while technology hasmoved to the forefront for companies, geopolitical risks have been largely neglected. A large reason for this is that organizations have not developed effective frameworks for assessing such risks; most steps taken are ad hoc. Furthermore, the majority ofexecutives believe that the methods used are limited in scope (as they remain largely qualitative as opposed to quantitative in nature). From a company’s perspective, it will be increasingly imperative to utilize research to identify global trends, formulate decision-making protocols, and pursue initiatives that avert risk and capitalize on opportunities. As globalization brings the world closer together, organizations need to adapt to a rapidly changing global climate or face the consequences of not responding to current trends.

These geostrategic risks are also relevant to national economies. A Clingendael study from 2015 evaluated the interconnectedness of the Dutch economy and conclusively found that its integration left it particularly vulnerable to shocks from geopolitical developments. The report specifically identified sanctions, national economic policies (such as China’s One Belt, One Road initiative), and political instabilities in East Asia, the Middle East, North Africa, and Eastern Europe as especially pressing for the Dutch. However, the conclusions from this project are applicable to other nations as well. Decision-making processes must incorporate elements of geostrategic analysis in order to be well-informed and comprehensive; while predicting the future may be out of reach, countries can nonetheless (and ought to) identify trends and prepare contingency plans that adequately account for different possibilities. From this perspective, countries are like companies (albeit much larger), in that they both must consider geostrategic risks as increasingly imperative parts of navigating the global economy.

On looking ahead, here are the four biggest developments that could disrupt strategies in the years to come: 

1. The Rise of Nationalist Movements:

As the political scene becomes increasingly jumbled, governments and citizens alike have found it comforting to re-assert the state as a beacon of power and certainty. The resurgence of nationalist movements ranging from Modi’s Hindutva to Trump’s “Make America Great Again” campaign has become a global movement. While the means of re-establishing identity differ from place to place, nonetheless, these movements share an emphasis on establishing group mentalities. However, as a result, non-state actors have suffered as in- and out-groups have been created; prominent examples include the Rohingya in Myanmar. In addition, another concern that arises is the risk of states intervening in the affairs of others in order to advance their agendas or support groups that they believe to be marginalized or mistreated as a result of this consolidation of identity.

2. Superpower Rivalries:

As state-centered politics move to the forefront,previous norms of diplomacy and mutual respect have eroded. The United Nations has found it increasingly difficult to manage relations; thus, nations feel emboldened to transgress previously established rules without fear of reprehension. Especially given the growth of cyberspace as a new sphere of communication and power projection, there are more opportunities for dysregulation. The China-U.S. and Russia-U.S. rivalries have gained prominence as of late, and aggressive pushes for territorial domination have become increasingly common (such as China’s One Belt, One Road movement). In addition, nations like India and Japan have forged strategic partnerships to bolster economic and political agendas. Thus, superpower rivalries have become a reality, and these relationships must be closely monitored in the years to come.

3. Smaller States Gaining Importance:

These rivalries between major powers have in turn generated instabilities that impact smaller states, which also factor into geostrategic risks. Typically, smaller states have turned to the precedent set by rule-based order; however, as previous alliances become more tenuous, they now risk falling under the hegemony of more established powers. Thus, these states now face a difficult decision: to behave like the small states they are “supposed” toproject their own autonomy in the face of adversity. In addition, smaller states oftentimes face the consequences of regional conflicts in neighboring countries. For example, it is estimated that Jordan’s population grew about 25% from 2011 to 2015 due to fleeing from Syrian refugees.

However, smaller states are not just subject to the conditions imposed upon them by larger states. They also occupy influential positions. For example, instability in Libya has spread to neighboring countries in the form of refugees and weapon transactions.

4. The Sphere of Politics and Economics seem to be Merging:

Finally, the geopolitical climate has also shaped the nature of economic interaction, and this in of itself is a source of risk. Economic policy has consistently remained a tool for states to pursue their agendas. However, the means of accomplishing these goals differ for each country. For example, the United States under Trump has looked to protectionism, while China through its previously described One Belt, One Road program has sought to deepen its ties with neighbors. This Chinese push for infrastructure, some critics argue, will exacerbate regional tensions by increasing domestic reliance on a foreign source and perpetuating indebtedness. Furthermore, the spheres of politics and economics are not separate, and it remains highly plausible that domestic tensions could ultimately influence economic policy. In addition, countries ultimately are self-interested actors, and this can lead to conflicts of interest.


Impacts on Global Economy


US-China Rivalry

Growing trade tensions are feared to have a drag effect on other global economies. The US-China rivalry is particularly pressing for 2019. Economists fear that US tariffs on over $250 billion USD of various Chinese goods could damage other industries, because of the global nature of their supply chains. In addition, they will suppress investment amid trade uncertainty. Asides from these economic concerns, US-China relations have also grown tenser on the political front, with the United States expressing support for Taiwan, as well as condemning China’s record over cybersecurity and human rights (such as with the suppression of the Uighurs). In addition, the US hopes to limit Chinese access to dual-use technologies, such as artificial intelligence and high-performance chips, by encouraging countries such as Japan and South Korea to reduce ties with large Chinese tech companies like Huawei. The advent of 5G technologies, where data can be transmitted as much as twenty times faster than in the current 4G system), has also created a new battleground for the United States and China.

Syrian Civil War

In addition, the conflict in Syria has had and will continue to have significant geostrategic implications for the foreseeable future. Turkey, Russia, Iran, the US, and Israel all have significant stakes in the civil war. Russia has firmly backed the regime of Bashar al Assad as a means of extending its influence in the Middle East; however, the Kremlin seeks to avoid direct conflict with Turkey, the US, and Israel. On the other hand, Iran has been more vocal of its support for the President, and will use the Syrian conflict to bolster Hezbollah, its ally in Lebanon, as well as counteract Israel.

On the other hand, while the US and Turkey are both NATO members, they have differing agendas to pursue. The United States is looking to close out its fight against the Islamic State and more broadly, limit Iranian influence in the region (however, this has sparked tensions with Russia). Meanwhile, Turkey will continue to discourage Kurdish action in Syria. Ankara views the Kurdish People’s Protection Units (YPG) as a terrorist organization, while Washington has relied on the YPG for anti-ISIS backing and leverage against Iran. Overall, the situation in Syria is complex, and the messy linkages between various parties could lead to conflict escalating in 2019.


In a situation like Brexit where firms were facing challenging social-political situations in their home markets, adopting corporate strategy to extreme political uncertainty first requires evaluation of the nature and the scope of uncertainty.When firms perceive a limited level of uncertainty, or uncertainty around economic conditions, they can adopt a hedging strategy. The portfolio of activities will be rebalanced toward those that can survive the political turmoil – whether those are productive activities or transversal functions of a multinational firm, such as human resources or internal control. The firm can reduce the cost of those functions and put up with a drop-in sale. For example, in response to Brexit, Sony decided to maintain a strong presence in the UK but moved its EU headquarters to the neighboring Netherlands.

If business continuity is at risk in fast-growing markets, firms have to consider a shifting strategy: quickly moving a significant part of their activities abroad, starting with those functions that can be shifted at minimal costs. This strategy also implies a reallocation of resources to more secure and stable markets.

Paradoxically, the businesses that will survive and ultimately stand out are those that create certainty for themselves, forging a path depending on how the situation unfolds. In the case of Brexit, a no-deal scenario will almost surely threaten business continuity, and we could expect numerous firms to engage in salvaging or shifting strategies.

Global Outlook

According to the IMF’s Davos report released in January 2019, global growth is predicted to slow for 2018-2019 fiscal year from 3.8% to 3.5%.


This trend can be attributed to various factors.


    • For example, due to rising interest rates, a stronger USD, and greater volatility in financial markets, additional pressure has been placed on emerging-market countries and has contributed to capital outflows. These rising interest rates have stung emerging-market organizations that borrowed from the United States during the financial crisis of 2007-2009 at low rates and led to refinancing of previous debts. These complications have only been furthered due to a stronger USD.


    • In the United States, real GDP growth for the year 2019 has been predicted to drop to 2.5% as a result of its trade war with China, geopolitical tension, and rising oil prices. Similarly, growth predictions for the EU have fallen to 1.9% in 2019 from 2.9% in 2018, mainly due to Britain’s difficulties with Brexit as well as a slowing Italian economy. In China, growth predictions have fallen from 6.8% in 2018 to 6.2% in 2019. (forecasted Chinese growth is at its lowest in 30 years). However, due to rising oil prices, economic activity in the Middle East is expected to rise slightly to 2% from 1.8%. Nonetheless, because of regional conflicts as well as the volatility of the oil market, investors are cautious about their optimism.


    • Key sources of risk to the global outlook are the outcome of trade negotiations and the direction financial conditions will take in months ahead. If countries resolve their differences without raising distortive trade barriers further and market sentiment recovers, then improved confidence and easier financial conditions could reinforce each other to lift growth above the baseline forecast. However, the balance of risks remains skewed to the downside.


    • With momentum past its peak, risks to global growth skewed to the downside, and policy space limited in many countries, multilateral and domestic policies urgently need to focus on preventing additional deceleration and strengthening resilience. A shared priority is to raise medium-term growth prospects while enhancing economic inclusion.


  • In other parts of the world, plans to extend and deepen networks of economic corridors are spurring huge investments in infrastructure. By far the most ambitious is China’s Belt and Road Initiative (BRI): launched in 2013, it spans more than 60 countries and involves investment plans totalling a reported US$900 billion. However, there are numerous other such corridors, most of which connect Asia and Europe. They include the China Pakistan Economic Corridor (CPEC); the Bangladesh-China-India-Myanmar Economic Corridor (BCIM-EC); the International North-South Transport Corridor (INSTC), which links India, Iran and Russia; and the Asia-Africa Growth Corridor (AAGC), a joint initiative by India and Japan.

Proponents of these infrastructure plans argue that they will foster peaceful relations by creating new links and patterns of cooperation. However, the ambitiousness of some of these plans has raised concerns that they might exacerbate rather than prevent tension. The geostrategic interdependence they create—both through the physical presence of assets and people on the ground and through patterns of increased indebtedness, which is a potential source of vulnerability for lower-income countries in particular—are more durable and difficult to unwind than mere trade agreements. This raises questions about potential implications if relationships between corridor partners were to sour in the future. 

The geostrategic climate of the modern world has become increasingly difficult to navigate through. However, it is imperative that companies and countries alike factor in modern trends into their decision-making processes. Politics, economics, and society are all intimately intertwined, and these connections will only further manifest themselves in unexpected ways in the years to come.


2018 proved to be a tumultuous year for the region. Some ASEAN countries faced major challenges. For example, Indonesia was struck by disasters multiple times from earthquakes to a tragic plane crash to a devastating tsunami. Elsewhere, countries were navigating their respective democratic paths. Cambodia and Thailand saw its institutions challenged with Hun Sen winning an allegedly rigged election in Cambodia while Thailand’s junta continued to delay elections it promised to hold. While in Malaysia, democracy flourished as its 60-year-old ruling party was surprisingly defeated in the country’s 14th general elections.

As a region, ASEAN has undeniably grown in importance. Southeast Asia is quickly establishing itself as an Industry 4.0 hub. Geopolitically, it has become a valuable site of contention with major powers such as the United States (US) and China looking to establish their influence over the region.

In 2018, trade dominated the political discourse. Largely responsible for this was US President Donald Trump who led the chorus against multilateralism and free trade and called for more insular policies. Earlier in 2018, he implemented tariffs against China and the European Union (EU).

The US remains an important trading partner of the region, with the country being the third largest trading partner with a two-way trade worth US$235.2 billion in 2017. In a statement released after the summit, it was noted that ASEAN was looking forward to improving trade between the two in the coming years.

Meanwhile, ASEAN is leading the charge against such challenges by proposing a trade agreement of its own, the Regional Comprehensive Economic Partnership (RCEP). If the RCEP does go through, it will be one of the biggest trade deals in history as it will encompass 25 percent of global gross domestic product (GDP), 45 percent of the total population, 30 percent of global income and 30 percent global trade. Other countries involved in this trade agreement are India, China, Japan, South Korea, Australia and New Zealand.

However, passing the agreement is a challenge on its own too. Last year, ASEAN and the countries involved missed its fourth deadline to sign the deal despite having negotiations for more than a year.

Thus, as the ASEAN-5 emerge from a difficult 2018, we see a divided growth outlook in 2019. Indonesia and the Philippines, in our view, will be bucking the global trend with accelerated GDP growth, while Malaysia, Singapore, and Thailand, will all be slowing due to weaker exports and structural constraints.

A key wedge driving the divergence of these two camps is slower external demand and the downcycle in the tech sector which we expect to deepen in H1 2019, hurting the second group of countries more. Structural issues such as deteriorating demographics and high household debt will also leave Singapore and Thailand even more susceptible to a slowdown. In Malaysia, we expect the spillover effects from a weak export sector to be relatively high at a time without policy buffers and commodity prices are falling, posing a potential negative terms-of-trade shock.

In contrast, we expect domestic demand in Indonesia and the Philippines to strengthen, receiving a near-term boost from election-related spending along with an expansionary fiscal stance. For both countries, we also see a continued uptrend in investment spending that is bolstering productivity growth.

Here, we take a look at ASEAN unfolding in 2019 with its international ties with major economies of the world and its outlook for the year ahead.


ASEAN (The Association of Southeast Asian Nations) consists of ten members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. ASEAN-5 includes Indonesia, Philippines, Malaysia, Thailand and Singapore. Founded to facilitate economic and political exchange in the region, ASEANfeatures the ASEAN Free Trade Area (AFTA) between members. In addition, the bloc has established FTAs with other major economic players in Asia and Oceania including Australia and New Zealand (AANZFTA), China (ACFTA), Korea (AKFTA), Japan (AJCEP), and India (AIFTA). Through these FTAs, enterprises can trade regionally with ease, export to new markets, and engage in more simplified import and export protocols. Below, bilateral relations (and general political happenings) between the bloc and specific countries of interest will be detailed more fully:

ASEAN and New Zealand – AANZFTA:

The AANZFTA deal was established in 2010 and offers comprehensive coverage on a variety of topics ranging from trade to intellectual property rights. By the year 2020, up to 99% of Australia-New Zealand trade with Indonesia, Malaysia, the Philippines, and Vietnam will be exempt from duties, and ideally by 2025, nearly all trade will be tariff-exempt, which will promote large savings from businesses and encourage activity. In addition, customs protocols shall be simplified,and foreign investments further protected potentially through investor-state dispute settlement proceedings. Combined, ASEAN nations, Australia, and New Zealand account for a total of $4 trillion USD in GDP and represent over 600 million people.

ASEAN and China – ACFTA:

This free trade agreement was established in 2002 and ever since, China has benefited greatly from the deal. Under the Agreement on Trade and Goods, all ten bloc members of ASEAN removed 90% of tariffs on products by 2015.China has remained ASEAN’s biggest trading partner since the establishment of ACFTA, accounting for $346.5 billion USD in merchandise trade (15.2% of total trade volume) in 2015. By 2020, both parties aspire to account for a combined $1 trillion USD in trade and $150 billion USD in foreign direct investment (FDI).

ASEAN will play an increasingly critical role in Chinese geopolitical affairs in the region. In 2017, the U.S. announced the establishment of a so-called “Free and Open Indo-Pacific” (FOIP), which promotes freedom for enterprises and navigation, respect for sovereign rights, and protection of the rule of law. The U.S. is joined by three other major democratic players in the area to comprise a “quad”: Australia, India, and Japan. While this initiative was not explicitly announced with the intention of curbing Chinese presence in the region, it seems plausible that it was partially motivated by such. China has increased its military activity in the Indian Ocean recently as well as placed missiles on contested islands in the South China Sea, which has concerned regional bodies.

ASEAN finds itself in a unique situation, as its members must leverage both sociopolitical and economic interests. Given that ASEAN does not explicitly enforce relations between member and non-member states, it is more likely that individual bloc members will pursue their own agendas when dealing with China and its FOIP rivals. Nonetheless, both sides will continue to vie for ASEAN member support. For example, in May 2018, Prime Minister Modi of India and President Widodo of Indonesia openly discussed the need for transparency and peace in the Indo-Pacific region amidst growing Chinese military activity. Ironically, three months later in August, China and all ten members of ASEAN held a joint maritime military exercise (the first of its kind). Thus, as China and its rivals vie for power in the region, ASEAN will become increasingly important in channeling both sides’ interests. The bloc is notable for its commitment to consensus. However, the China issue could prove to be a point of contention for its members in the upcoming near future.

ASEAN and India (AIFTA):

India retains great geopolitical and economic interest in South Asia and in the Indian Ocean. Nonetheless, considering that India’s strengths lie in domestic manufacturing coupled with ASEAN’s emphasis on reducing ease of exports, the two bodies appear to have misaligned agendas. This has led to both parties experiencing a sort of disenchantment from previous expectations; India hoped to utilize ASEAN as a means of boosting regional influence to counterbalance China, while ASEAN nations looked to benefit from India’s access to new markets. New Delhi remains particularly interested in Thailand and Myanmar as it looks to promote its presence in southeastern Asia; as part of its Act East policy, the three are currently engaged in constructing a Trilateral Highway, a 1360 km long initiative to boost trade and exchange. Plans are underway to have the highway extend further to Cambodia, Laos, and Vietnam; however, it remains to be seen whether this will fully materialize. Nonetheless, India has focused more on cultivating individual relationships with bloc members as opposed to engaging fully with ASEAN as a collective. Given India’s large resource base and capacities, there is great potential for it to more fully integrate itself into this network for economic and geopolitical benefit. However, given the accelerating pace of China’s influence in the region, effective and methodical decisions must be made soon.

ASEAN and Japan (AJCEP):

Japan remains strongly integrated into the ASEAN community. At the 21st annual ASEAN-Japan Summit in November 2018, Singaporean Prime Minister Lee Hsien Loong noted his support for the Japanese Free and Open Indo-Pacific Strategy, which emphasizes unity across the region, protection of international law, and promotion of free enterprise. At the conference, Japanese Prime Minister Shinzo Abe reiterated his commitment to helping develop ASEAN infrastructure by discussing how Japan has exceeded its goal of providing 2 trillion yen in development over the last five years. Interestingly, the Free and Open Indo-Pacific Strategy, despite increasingly strained relations between the Japanese and Chinese, explicitly extended membership to China. This was seen as an attempt to further foster unity in the region and cautiously regulate Japanese attempts to limit Chinese influence (this development provides an interesting juxtaposition to Japanese membership in the FOIP quad as discussed earlier). Japan thus appears to be more patient in its outlook on Chinese influence and its friendly relations with the ASEAN can serve as a conduit through which to channel its presence in the region.

ASEAN and South Korea (AKFTA):

In 2017, trade volume between South Korea and the ASEAN bloc was valued around $150 billion; in fact, ASEAN is Korea’s second largest trading partner after China. In November of 2018, President Moon-Jae-in reaffirmed his commitment to the so-called “New Southern Policy,” an initiative to reduce Korean economic dependence on the U.S., Japan, and China, and Russia by strengthening relations with southeast Asian nations as well as India. Both ASEAN and Korea aspire to have total trade volume reach $200 billion USD by the year 2020. The reinforcement of these ties is intended to promote economic growth as well as regional stability (particularly with regards to relations across the Korean peninsula). Peace is prioritized on both sides as a means of enabling prosperity.


Both blocs have great potential to set up strong bilateral relations; however, their current relationship can be muddied at times. Several ASEAN members feel belittled by their EU counterparts, which has created tension. For example, Indonesia and Malaysia disapprove of the EU’s standards for agricultural products. Nonetheless, there have been attempts to strengthen ties between the two. On October 19, 2018, the EU-ASEAN Leaders’ Meeting was held in Brussels, which was intended to promote investment, trade, and discuss policy and security issues in the ASEAN fora. In addition, in January 2019, the EU-ASEAN Ministerial Meeting was held with the goal of reinforcing their “strategic partnership.”Nevertheless, no formalized large-scale free trade agreements exist between the two. Recently, there have been increased talks of establishing a Comprehensive Air Transport Agreement (CATA); however, this has yet to be fully implemented. Most of the discussion in ASEAN and EU circles has yet to be proven as substantive.

In addition, the EU and Cambodia remain in dispute over the EBA (“Everything but Arms”) agreement. Under this arrangement, imports from developing countries are exempt from duties and quotas when entering into the EU market; however, given Cambodia’s record with human rights under the leadership of Prime Minister of Hun Sen, this privilege may be revoked. This would be a significant blow to the Cambodian economy, as the EU is the country’s largest market (40% of exports, mainly in the garment industry). Experts predict that this stripping of EBA access would lead to a 12% increase in tariffs in the garment sector and an 8-17% increase for footwear, which would levy an additional $676 million USD in taxes on exports. This would prove to be particularly damaging to the livelihood of rural women, who already face much duress in their home country. The EU’s decision on whether or not to suspend EBA privileges could come by August 2020 and monitoring this situation will be critical in the upcoming months.

ASEAN and the U.S.:

The U.S. partnership with ASEAN emphasizes economic integration, maritime cooperation, strong ASEAN leadership, opportunities for ASEAN women, and transnational challenges. ASEAN is the U.S.’s fourth largest export market; as of 2016, the volume of two-way trade was worth $234 billion USD, and the U.S. had exported $27.1 billion worth of agricultural products to the bloc (mostly soybeans, cotton, and dairy). The U.S. has operated under the framework of the Trade and Investment Framework Agreement (TIFA); however, overall, ties with the region have fallen (particularly under the current Trump administration). In 2016, while U.S.-ASEAN trade volume was $234 billion, China-ASEAN trade volume was valued at over $500 billion USD.

As discussed earlier in the document, China-U.S. increasing rivalriesmay substantially impact bilateral relations with the bloc. ASEAN may potentially serve as a buffer to help mitigate the tension; this hypothesis remains to be tested (Pongsudhirak). However, the bloc has remained receptive to growing Chinese expansion (particularly with regards to the Lancang-Mekong Cooperation agreement, which has led to damming of critical stretches of the Mekong River in the name of infrastructural and economic revitalization). Thus, China has seen its stake in the region grow while the U.S.’s has fallen. To quote the Trump administration, “we need ASEAN to do more for us.” In addition, given its “American First” policy, the U.S. has increasingly sought to negotiate individual bilateral terms with each individual economy in the bloc.

Furthermore, despite the decrease in economic activity, the U.S. has increased its military presence in the region. Military expenditures in Asia and Oceania were valued at almost $500 billion USD. This militarization may further weaken the U.S.’s position and create more tensions.

Commodities/GDP Composition:

Top 10 commodities for the year 2016

Top ten commodities for the year 2017

Percentage of GDP by sector in 2017 per ASEAN member

ASEAN has open access to a large amount of arable land (roughly around 60 million hectacres) in addition to large swaths of rivers and forests. Given this abundant supply of natural resources, major commodities from the bloc include rice, sweet potatoes, corn, sugarcane, rubber. Other plantation crops such as tobacco and oilseeds are also popular. Indonesia, Thailand, and Malaysia combined account for roughly 70% of the world’s rubber production (approximately 3.3 million tons annually). Indonesia and Malaysia also produce around 90% of the world’s supply of palm oil.Finally, aquaculture remains an integral part of the export economy. Thus, overall, given ASEAN’s access to abundant natural reserves, agriculture and food production remain integral to the bloc’s prosperity, particularly for less developed countries such as Cambodia. However, overuse of these resources and concerns with sustainability have become increasingly relevant as of recent, and their effects remain to be seen.

In addition, exports such as electronics, oil, gas, and metals are also significant. More developed countries like Brunei, Indonesia, Singapore, and Malaysia have paved the way for these exports. There is a disparity between the exports of richer and poorer members, but increased connectivity both within the bloc and via bilateral relations may help close the gap.

ASEAN 2019 Outlook:

According to market predictions, growth appears poised to slow for the year 2019 in the Asia-Pacific region, given the United States’ aggressive push for economic isolationism, tighter monetary policies for most countries across the board, and growing government deficits.However, within ASEAN itself for 2019, members appear to be hitting a fork in the road. Experts predict that both Indonesia and the Philippines will experience growth, while Malaysia, Singapore, and Thailand will see slowing due to decreased demand for tech products, increased debt per household, as well as shifting demographics. On the other hand, Indonesia and Philippines are predicted to grow because of higher government spending and expansionary monetary policy.In addition, elections are on the table in Indonesia, Thailand, and the Philippines, which will shape the approaches that these nations take over the course of the year.

Regarding general issues, trade was a strong theme in 2018, particularly given Donald Trump’s crusade against multilateralism and free trade between countries. As a response, ASEAN proposed the Regional Comprehensive Economic Partnership (RCEP), which would encompass over 25% of global GDP and involve various strong trading partners including India, China, and Japan. However, the passage of this legislation has been difficult to pass (missed its fourth deadline last year); nonetheless, a major bill is in the works that could transform the global scene.

Also essential to 2019 will be the topic of the South China Sea. This region remains contested by many, as it is a conduit for global trade and is rich in natural reserves (approximately 11 billion barrels of oil and 190 trillion cubic feet of gas lie beneath its seabed). China has looked to expand its presence in this body of water; however, the United States has disapproved of this and attempted to curb its influence. In response, China has extended cheap lines of credit and glamorous infrastructural projects to win over ASEAN member states, which has directly challenged the bloc’s centrality. Some suspect that China has proposed these options in the hope that the debtor’s default, in which case China would assume command of their resources. At the last ASEAN summit, China and the bloc made progress on a Code of Conduct in the South China Sea; however, the details of this deal remain unclear and more importantly, it remains to be seen if China will abide by its stipulations.

ASEAN remains a strongly integrated bloc that maintains a complex array of bilateral relations with a host of countries across the globe. Given the accelerated pace of global trade along with growing rivalries and conflicting geopolitical interests, it is difficult to make comprehensive predictions about what the future holds. Nevertheless, it seems likely that ASEAN will come to play an increasingly important role in maintaining balance of power in the region and leveraging various parties’ agendas.


IMF chief Christine Lagarde recently irked the consultancy firms worldwide as she suggested that the low-income and emerging-market economies should desist from hiring global consultancy firms to build their strategic plans. She recommended the adoption of seven development goals set by the UN, instead.

“I see many, many low-income countries and emerging-market economies spend millions of dollars commissioning consultants to build their strategy plan. I would recommend some saving be made by taking the 17 principles, the actionable items, and start with that. From there, the consultants can actually do their job of putting it into reality. But don’t reinvent it — it’s right there. So much is wasted. That’s part of the inefficient spending that can actually be saved,” the former French government minister commented at the World Economic Forum (WEF) in Davos, Switzerland, generally putting the consultancy fraternity at unease.

Can economically struggling nations save big time by cutting their use of global consultancy firms?  Team Intueri tries to find an answer.

Management Consulting Industry and Technology Disruption

From its inception years, management consultants as professionals have sought to differentiate themselves by transcending their assigned scope and embedding themselves deep into their clients’ operations. The usual “Where to play? How to win? What to do next?” pitch, coupled with an ability to think in a structured manner, did succeed in yielding the movers and shakers of consulting sustained profits for more than a century.

It would be prudent to note that most corporate strategy arms extensively poach consultants from the major consulting firms. Further, the concentration of business-oriented MBA hires has impaired their ability to keep up with the curve of the rapidly changing business environment. Thus, these same companies are facing the risk of disruption owing to Big Data becoming an omnipresent reality.

Building a Strategy Consulting Model Tuned to the Emerging Economies

What should our next bet be, and how should we scale up our operations? How can we reskill our employees to keep abreast with the changing realities? What can be the next breakthrough product that we ought to focus our attention upon?

These are some of the pressing, complex questions that keep today’s CEOs awake at night. These warrant the adoption of rich data as  equally (if not more) important business insight as raw intuition and/or allied experience. In this regard, it is imperative that consultants re-think their value propositions and tune themselves to undertaking data-driven decisions. Further, the limited success met by major developing economies in effecting serious reforms and/or structural adjustments does indicate that consultants need to re-evaluate the very precepts of globalization which underpin their very existence. More specifically, today’s global milieu represents an inflexion point wherein advisors can succeed only if they change their modus operandi from trying to force-fit the best operating practices of benchmark institutions to a “glocalized” model, rooted in operating-level realities.

While it is true that global consultancy firms are expensive; it is also true that in many ways, they can make it easy for poorer nations to find a route to prosperity. Above all, to be effective, strategies should be followed by a flawless execution plan. Therefore, eliminating the multinational consultancy firms entirely from the equation will never be a sensible option for struggling economies. Instead, they should focus on the apposite, bias-free execution of the blueprint laid out by these esteemed consultancies.


The annual World Economic Forum (WEF) concluded this past Friday in Davos. From discussing the ways to deal with climate changes to pondering over the future of Venezuela, the world’s High and Mighty have made headlines with their rhetoric amid an atmosphere of unprecedented uncertainty, fragility and controversy. The Team Intueri loved to keep sharing updates on everything that were going on over the past few days at the picturesque ski resort of Davos. As the mega event draws to a close, we make a summary of key themes that we think, would play a role in shaping the global, regional and industry agendas in the coming months.

Structural issues like U.S.-China trade tensions and climate change could trigger a catastrophe which could, in turn, affect the growth of emerging countries like India and China. There is a reason for profound pessimism which we have to adjust to a distinct possibility of a catastrophic outcome due to these structural issues. India is a “bright spot” despite challenges to growth in the U.S. and Europe. India continues to have a growth in excess of 7 percent. She seems to remain immune from this (pressure) and benefited from the low oil prices.

world eco forum 2

1. A Weakening World Economy

Global economic weakness remains a concern although the offing of recession is not much in the radar. Growth looks better than in the previous years. Advanced economies are doing better than anticipated especially Euro Area and Japan. The UK has ended 2016 as the fastest growing of the developed economies but the forecast for 2017 will be lower. International Monetary Fund’s, which expect global economic growth to decelerate to 3.5 percent this year.

2. Brexit Bedlam

Concerns over Brexit are growing, the key challenge remaining the time frame. After Theresa May stated that Brexit would mean the the exit from a single market, the agreement between UK and EU in a mutually beneficial manner to remove uncertainty which may hurt business and economy on both sides. A 2-year time frame looks hard to complete the Brexit process. ‘As to whether Brexit can happen within two years, Hammond is cautiously optimistic’.

3. Crying over Climate Change

The World Economic Forum’s Global Risk Report 2019 shows only too clearly, environmental crises – notably a failure to tackle climate change – are among the likeliest and highest-impact risks that the world faces over the next decade. Indeed, 2018 saw record levels of costs due to extreme weather events.  Warnings of a climate change catastrophe have been put forward by scientists unless urgent action is taken to “bend the curve” on rising greenhouse gas emissions.

4. The Geopolitical Recession and a New Global Order

Geopolitical Recession poses a bigger risk than the slowdown in the U.S and China. The playout of domestic factors of any country in terms of growth, jobs and prosperity are of higher concern amidst the geopolitical characteristics of the world is important to note.

5. Getting Into the Era of Globalization 4.0

It is the onset of globalization 4.0, however, the world is vastly unprepared for it. Clinging to an outdated mindset and tinkering with the existing processes and institutions will not do. Rather, redesigning them from the ground up is the need, so that we can capitalize on the new opportunities avoiding the kind of disruptions that are witnessing today. The challenges associated with the Fourth Industrial Revolution (4IR) are coinciding with the rapid emergence of ecological constraints, the advent of an increasingly multipolar international order, and rising inequality. These integrated developments are ushering in a new era of globalization.

6. Two Schools of Thoughts Taking the Center Stage

The WEF theme ‘shaping a global architecture in the age of the fourth industrial revolution enabled many loosely related strands of discussion, to come to one location. Two schools of thought were displayed this year. The ‘incrementalists’ pointed to the fact that AI is not a new phenomenon and has, in fact, been around since the 1950s. This technology is increasingly advanced, but it is useful to think of current breakthroughs, in areas such as deep learning. Then there were the ‘radicals’, who told the gathered crowd that the world is experiencing the fastest adoption of new technology ever – with exciting and scary consequences just around the corner. The radicals also highlighted the fact that a small group of mostly American and Chinese companies completely dominate the field of AI research.

We noted these as the main key areas of discussion in the WEF 2019. Global leaders have been deliberating these issues taking cues from developments in the global economy. India has been a focus, drawing much attention from the trade tensions occurring in the West. Alongside, The WEF also brought leaders together to discuss “key global faultlines” including the western Balkans and Syria. Summing up, the WEF lacked buzz without Donald Trump as unease over Brexit and global recession dominated the summit.