Vivek's Commentary

Traditional theory, H-O trade theory suggests that the country should export the labor-intensive commodity id labor is the abundant factor and if capital is abundant then should export the capital-intensive commodity. But this is now less relevant as the countries are exporting the same product which is imported by the same country. Let’s examine the China India trade pattern. The following table shows the Chinese export to India (top 15 in million dollars) Data source – Export Import Data Bank, Department of Commerce Top 15 Chinese export mainly consists of Electrical machinery and equipment, Nuclear reactor and parts, organic chemical, plastics, light weighted vehicles and parts, optical, mineral fuels, fertilizers, inorganic chemical etc. The most of these products are labor intensive (except nuclear reactor and parts). The following table shows the Indian export to China (top 15 in million dollars) Data source – Export Import Data Bank, Department

Reserve Bank of India has decided to increase the repo rate by 25 basis point to 6.5 % and reverse repo rate is settled at 6.25% and marginal standing facility rate at 6.75%.  What does MPC say?  The USA economy is growing mainly due to export while in the European Area, the political uncertainty is weakening the economy. Japan is gaining due to the consumer confidence and market sentiments. The emerging economies are not in good shape due to oil price and trade war. The Fed rate increase in June and anticipated of further increase is directing the capital flow to the advanced economy from emerging economy. The stronger dollar is reducing the price of the gold. Retail inflation is increased to 5% in June while headline inflation is increased to 4.6%. The increase in MPC will further affect the inflation. MPC expects the increase in MSP for Kharif crops and good monsoon will increase the demand in the rural area. The volatility in oil price, geopolitical tensions, fiscal