Suparna Goswami Bhattacharya

August 3, 2016: Of late, China has been less in the news for its ‘slowdown’. Economic activity in the country has stabilised in recent months, mostly on the back of the property market rally and strong infrastructure investments.

But, there is another challenge before the economy — slowing growth in labour productivity. The country is moving away from manufacturing towards services, a phenomenon which is called deindustrialisation. Though most economies in the world go through this phase, in China’s case it has been ‘premature’.

Deindustrialisation is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially heavy industry or manufacturing industry. It implies that productivity growth through rural-urban labour migration has started to slow, clouding the medium/long-term growth prospects if this trend is entrenched.

Qu Hongbin, chief China economist, HSBC, says both economic theory and empirical evidence suggest that premature deindustrialisation in developing countries can be damaging. “It blocks the main channel of productivity growth, and therefore reduces the economy’s potential growth rate and its prospects of catching up with more advanced economies. Given that China’s GDP per capita is only 14% that of the US, we believe it is way too early to shift towards services-led growth,” says Hongbin.

Around 2008-09, the industrial sector was affected by weakening external demand, which forced China to follow a different path.

Glenn Maguire, chief economist, South Asia, ASEAN and Pacific, ANZ, says, “The model was to shift economic growth away from reliance on exports and investment towards domestic consumption. Aligned with this, the government aimed to accelerate the growth of China’s services industries whilst targeting a reduction in industries suffering from overcapacity or inefficiencies – largely heavy industry associated with infrastructure and industrial production.”

From 2013, the services sector replaced the industrial sector as the biggest contributor to

China’s economic growth. According to data by HSBC, in Q2 2016, the services sector accounted for 51.9% of overall real GDP growth in China, compared with 40.7% for the industrial sector.

The economy obviously saw the benefits of the move. To begin with, the fast expansion in the services sector helped prevent GDP growth from sliding too fast. Between 2012 and 2015, the services sector has maintained robust growth of around 8.1% y-o-y, while output growth in the industrial sector decelerated from 8.2% y-o-y to 6.0%. Therefore, across the same time period, overall GDP growth fell by less than 1ppt (from 7.7% y-o-y to 6.9%), despite the sharp decline in the industrial sector.

According to China economist Chang Liu who works independently, the services sector has been able to maintain employment levels. “Despite slower GDP growth due to the underperforming industrial sector, China maintained healthy growth in jobs at 13m per year, all thanks to the services industry which is more labour intensive than manufacturing,” says Liu.

Though in the short run such a move did prevent a hard landing for China, from a long-term perspective a premature shift to services-sector led growth implies a huge efficiency loss. Jing Li, economist, HSBC, says, “The biggest source of productivity growth comes from the transition of labour from the agricultural sector to non-farm sectors. Therefore, the sector distribution of those migrant workers determines whether the economy is growing in the most efficient manner.” To this extent, this reshuffling towards the service industry means that a less productive sector is replacing the manufacturing sector as the main absorber of rural migrant workers.

An HSBC report states that between 2012 and 2015, the total number of migrant workers in the manufacturing sector declined by nearly seven million, compared with an increase of five million in the three biggest services sectors — wholesale and retail, residential services, transportation and logistics. Based on 2015 statistics, each worker in the manufacturing sector generated RMB45,000 more output than their counterpart in the three biggest services sectors.

Additionally, manufacturing industry is always on tenterhooks since it has to constantly upgrade itself in order to stay competitive and relevant. This improves the overall health of an economy — something very essential for a growing country.

“China still enjoys a high savings rate of nearly 50% of GDP. It is crucial that China does not pursue rebalancing towards consumption and thus lose the window of opportunity to catch up with more advanced economies. To avoid the middle-income trap, China needs to make more efficient investments and continue on the industrialisation path – this will be a challenge,” concludes Hongbin.

The post ‘China’s shift to services not good in long run’ appeared first on International Finance.

IFM Correspondent

February 29, 2016: India, it seems, is all set to promote her ‘startup destination’ image — at least that is what looks from the budget speech of Union Finance Minister Arun Jaitley. Jaitley introduced a slew of measures to promote a healthy and vibrant business and startup environment in the country.

The government allocated Rs 500 crore for women entrepreneurs and the ones belonging to backward community (scheduled caste and scheduled tribes). Under its Stand Up India scheme, the government will also set up a national hub in the ministry of micro, small and medium enterprises (MSME) in partnership with industry associations to provide professional support to these entrepreneurs.

“SC and ST entrepreneurs are beginning to show considerable promise in starting and running businesses. I am happy to inform you that the Union Cabinet has approved the Stand Up India scheme to promote entrepreneurship among ST/SCs and women. Rs 500 crore has been provided for this purpose,” he said.

The scheme, he said, will facilitate at least two such projects per bank branch one in each category of entrepreneurs. The scheme is said to benefit at least  2.5 lakh entrepreneurs in this category.

He added that there has been interactions with Dalit India Chamber of Commerce and Industry on building an entrepreneurship ecosystem. This hub will provide a professional support to SC/ST entrepreneurs to fulfil the obligations under the Central government procurement policy adopted best practices and leverage the Stand Up India initiative.

The government also introduced 100% tax benefit for startups for the first three years. It has also announced steps to help startups register themselves in a day.

Vikram Oswal, founder, Woozoe, said, “When it comes to startups, in my opinion, exemption of tax from these companies for three years will provide a good boost to many startups as when a company begins to grow it needs a huge amount of financial support. With the tax exemption, a startup can look at focusing more on its growth without worrying about taxation”

Reacting to the Union Budget 2016-17, Sashi Chimala, executive vice-president, National Entrepreneurship Network, Wadhwani Foundation, said, “We are delighted to see the government  recognise the importance of job creation through entrepreneurship development in India. The budget places great emphasis on training young students at thousands of colleges across India on learning the fundamentals of entrepreneurship. Every student that becomes a job creator through entrepreneurship instead of a job seeker, will make India a vibrant economy.”

Startups said the one-day registration move will allow a speedy way to setting up a venture and help them focus on building disruptive products and services. “It also good to see aspiring entrepreneurs to get access to quality education and training through various newly built colleges, schools, government ITI’s and vocation training centers through massive open online courses,” said Shashank ND, founder & CEO, Practo.

The Union budget also laid emphasis on ‘ease of doing business’.It has introduced bankruptcy resolution mechanism for financial sector entities. It has also launched single window system for custom procedure in all major ports.

Anindya Mallick, partner, Deloitte Touche Tohmatsu India LLP, lauded these steps by the government and said extending the presumptive income tax provision to SMEs up to a turnover limit of Rs 2 crores per annum is expected to reduce paperwork significantly.

The other key beneficiaries have been the agriculture sector and rural India. The government plans to double farmer’s’ income by 2022. It also aims to electrify all villages in the country by May 1, 2018.

Some other notable announcements:

> HRA deduction up from 24,000 to 60,000 per annum

> Relief of Rs 3,000 per year to taxpayers with income below Rs 5 lakh per year, 1 crore tax payers to benefit

> Deduction for rent payers raised from Rs 20,000 to Rs 60,000 to benefit those living in rented houses

>  Suitable changes to be made in customs and excise duty rates to improve competitiveness and boost Make in India

>  Incentives for new manufacturing companies and smaller enterprise companies

> 100% deduction for profits of undertakings from housing projects in cities during Jun’16 – Mar’19

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February 15, 2016: The insurance industry in Bangladesh is considered to be an untapped sector. It has one of the lowest insurance penetrations in the world (around 1%). While some choose to be pessimistic about it, insurance experts tend to view this as an area full of possibilities and opportunities. Lack of awareness regarding insurance is very much visible, which makes it hard to achieve our desired growth in the industry.

Currently, we are seeing a consistent 13%-15% growth every year in the insurance industry. If this reaches 20%, this will be a remarkable achievement for the industry. Being the market leader and the only AAA rated insurance company in Bangladesh; Green Delta Insurance believes that when the industry grows, they grow as well.

The market penetration of insurance is currently less than 1%. With our flagship project ‘Insurance For Everyone’ and the government’s recent praiseworthy initiatives related to safety net insurance to give coverage to the bottom of the pyramid group, we are hopeful regarding the possibilities of a 5% market penetration within 5-10 years’ timeframe.

Green Delta Insurance holds 13-14% of the market share of the insurance industry being the leader of the non-life insurance sector at the moment. In the decade ahead, if our projections work out properly, we will be more aggressive in the market and aim to capture 22-25% of the market share.

Green Delta Insurance is the first non-life insurance company from Bangladesh to introduce the retail insurance department. The department was created with the motto ‘Insurance for Everyone’. Ms. Farzana Chowdhury, MD & CEO of Green Delta, was the person who gave birth to the concept. After the formation of the retail department, the people in the department are working hard to take it forward. The direct sales team is going door to door to build awareness regarding insurance and convince people about the brighter side of having an insurance policy.

The insurance penetration in Bangladesh is less than 1%, which shows the current scenario of the market. There’s always a negative aura regarding insurance among the general people of our country. We see people try to avoid buying a policy unless it’s mandatory by law. So, naturally the job for the Retail Insurance department is very challenging. But Green Delta is coming up with innovative branding strategies to create a positive buzz in the market. A wind of change can be felt already. The market is growing slowly but consistently. Green Delta is not only promoting its own products but also promoting the overall sector.

The main products that the retail insurance department sells are Motor Insurance, Overseas Mediclaim Insurance, Personal accident insurance, People’s personal accident policy, Health Insurance, All risk insurance and Nibedita – Comprehensive Insurance scheme for women. There are few other projects under Retail and SME. They are Niramoy-micro insurance for rural people, Shudin- micro insurance for garments workers, Weather index based Crop Insurance and Probashi- Comprehensive Insurance Scheme for Migrant workers.

The insurance penetration in Bangladesh is less than 1%, which shows the current scenario of the market. There’s always a negative aura regarding insurance among the general people of our country. We see people try to avoid buying a policy unless it’s mandatory by law. So, naturally the job for the Retail Insurance department is very challenging. But Green Delta is coming up with innovative branding strategies to create a positive buzz in the market. A wind of change can be felt already. The market is growing slowly but consistently. Green Delta is not only promoting its own products but also promoting the overall sector.

As the market leader, Green Delta wants to grow with every other insurance company because that’s the only way to materialise the concept of insurance for everyone. It will be difficult for a single company to change the scenario regarding insurance penetration so the support of the other insurers is expected.

Green Delta is confident about the success of this department. The number of people who started believing in insurance products is increasing every day, which promises a better day for the industry. Green Delta is leaving no stone unturned to educate the general people regarding the necessity of insurance. Positive results can be noticed through public behaviour on social media.

A country’s strong economy is very much interrelated with its insurance market. Bangladesh’s economy will grow rapidly once people start realising the importance of insurance in everyday life. Retail & SME Insurance in Bangladesh is committed to bring about a positive change in the insurance market.

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