News, leads and analysis related to India’s trade and all that’s happened on the policy front during the month of November 2014 |

 

Synthetic Fibre

Reeling under taxes

Throttling India’s future of synthetic fibre exports? 

Synthetic Fibre producers have expressed resentment over what they term as ‘bias and anomalies’ in the imposition of excise duty, which was putting the industry at a disadvantage. They have sought the government to bring down excise duty on par with cotton fibre and yarn, which would give impetus to the growth of the Indian textile sector. According to a statement issued by Association of Synthetic Fibre Industry (ASFI), a major anomaly in excise duty structure is affecting growth of the Indian textile industry and preventing it from achieving a larger share of the global market. The ASFI pointed out that the excise duty imposed on man-made fibre and yarn in India is 12%, while cotton yarn and fibre are exempted from excise duty burden, leading to excessive bias against man-made fibres and yarn. India is the world’s second largest producer of Man Made Fibres (MMF) with presence of large plants having state-of-the art technology. MMF textiles constitute almost two-third of the domestic textile market. However, India’s share in global exports of value-added textiles of MMFs is just about 3%. This has resulted in India’s textile exports not growing beyond $40 billion out of which only 27% come from MMFs. In contrast, China has given a big push to synthetic textiles and this has helped it become the world’s largest textile exporter. Almost 80% of China’s textile exports consist of synthetics. It is this bias against MMF and yarn that has left India far behind China in terms of investment, scale of manufacturing and exports. Commenting on the impact of this anomaly, ASFI Director General S. C. Kapoor said that the practice not only impacts growth of the industry, it also means that the poor who buy synthetic garments end up paying more taxes than the rich who purchase expensive cotton items.

 

Indo-Russian Cooperation

Strategic vision

An economic masterplan to boost bilateral trade...and more

Russia is working out a ‘Strategic Vision’ with a view to facilitate a major boost to cooperation in various areas with India.  The vision document is proposed to be unveiled during Russian President Putin’s trip to India in December 2014. Russia’s Deputy Prime Minister Dmitry Rogozin informed that plans are on to establish a working group to examine feasibility of an FTA (covering both goods and services) between India and the Customs Union – Belarus, Kazakhstan and Russia, apart from thinking along lines of increasing trade through the Iran-based International North South Corridor Project (INSTC) that cuts  across Iran (in the fields of agriculture and food processing). After economic sanctions imposed by the West, Russia has been looking eastwards for an ally – it spotted India. The idea behind the economic partnership is to move beyond areas of defence, as well as focus on priority investment areas including hydrocarbons, coking coal, fertilisers, mining, civil aviation, infrastructure and trade in rough diamonds. Expectations are high that energy and oil will become the prime pillar of partnership between the two nations in the near future, with Indian oil firms being offered greater stakes across some Russian oil fields. Energy, defence, agriculture, food processing, services, and many more...this one looks like a new relationship in the making. Can Moscow become India’s old, new friend?

 

Indo-Pak Trade

Peaceful exchanges

Exports to India on a high

With the cessation of hostilities, the Wagah border is witnessing more productive and meaningful exchanges between India and Pakistan. The latter’s exports to India gained momentum during the first two weeks of trading in November and was valued at $409 million during this period. The major items of exports comprised fruits which was valued at Rs.240 million, cement of different types valued at Rs.59 million, glass – Rs.46 million, gypsum – Rs.32 million, and disodium carbonate – Rs.15 million. The other export products comprised hydrogen peroxide valued at Rs.5 million, aluminum ores worth Rs.3 million, rock salt – Rs.2 million, perfumery and pharmacy plants and plants’ seeds – Rs.1 million. Looks like it’s either war or business between the two neighbours.

 

Import Threat Perceptions

Curbs against China

Curbing Chinese steel imports

Be it in the name of ‘quality’, the purpose is ‘quantity’! The Indian government is equipped with a reason to curb the increasing steel products’ imports from China. Responding to concerns raised by the domestic steel industry about the imports impacting their own prospects, the government has come out with a valid basis to subject Chinese steel products coming into India to stringent quality checks. In a November 7, 2014 order issued to the Central Board of Excise and Customs (CBEC), the finance ministry stated that Indian importers buying Chinese steel products like thermo-mechanically treated (TMT) bars, used extensively by the realty sector, will henceforth have to compulsorily secure certification by the Bureau of Indian Standards (BIS) at all entry points to the country. The move is specifically aimed at Chinese steel makers exporting steel by adding boron in their product mix to bypass the defined quality standards of the steel ministry’s Quality Control Order 2012 and the commerce ministry’s import duty. Of the total steel imports from China, Boron-added steel accounted for 80% of the total. Imports of colour-coated steel from China has surged by 117% in the first half of this fiscal, while wire rod imports have shot up by 110% , according to the Indian Steel Association (ISA), the newly created umbrella body of the country’s leading steel companies. The ISA reported that imports of hot rolled coils, sheets and plates are up by 41% in the first half of the current fiscal.

 

Coal Imports

Likely drop

Light at the end of the tunnel

 

In what comes as good news to a power starved country, India, the third largest importer of coal, may gradually reduce the procurement of power-generating coal from overseas during the next three years. With Coal India, the world largest miner of the fuel, planning to double its output to 1 billion tonnes by 2019 to feed the existing and upcoming power plants, the prospects for reduction in imports looks achievable. Prime Minister Modi has promised round-the-clock power to all Indians by 2022 and recently announced that the nationalised coal industry would be opened up to allow private firms to compete with Coal India (which accounts for 80% of the country’s output). Expressing confidence of meeting this target, Power and Coal Minister Piyush Goyal, said, “I’m very confident of achieving these targets and am very confident that India’s current account deficit will not be burdened with the amount of money we lose for imports of coal. Possibly in the next two or three years we should be able to stop imports of thermal coal.” Coal generates three-fifths of India’s power, and a shortage of the fuel would naturally mean that millions will have to bear the painful reality of nights and days without electricity and power.

 

Indo–US (WTO) Pact

Breakthrough in stalemate

India agrees to WTO terms; WTO agrees to India’s...

The stalemate over India’s stance on the Trade Facilitation Agreement and the decision on Public Stockholding for Food Security Purposes, may possibly see its denouement in the near future. The issue which provoked India to express its objections over matters related to subsidies, had created global apprehensions about the fate of the negotiations. But the process has been revived with India and the United States reaching an agreement over food stockpiles on November 13, 2014, removing a major obstacle to a global trade deal that has been stalled for months. After a four-month stand-off, India decided to stop opposing an agreement that is to ensure a smooth flow of goods between itself and the world. In return, its request to legally continue its extensive food subsidy program and stockpile food (until a permanent solution is reached) was granted by WTO.

In settling the dispute, India returns to the negotiating table on a broader trade package.  Commenting on the pact, Michael B. Froman, the United States trade representative, said, “In recent days, officials of both governments worked intensively and reached an agreement that should give new momentum to multilateral efforts at WTO.”

WTO Director General Roberto Azevêdo welcomed the Indo-US agreement and said, “This breakthrough represents a significant step in efforts to get the Bali package and the multilateral trading system back on track.  It will now be important to consult with all WTO members so that we can collectively resolve the current impasse as quickly as possible. Implementation of all aspects of the Bali package would be a major boost to the WTO, enhancing our ability to deliver beneficial outcome to all our members.” The India-US agreement provides a basis for the Director-General to intensify his consultations with other WTO members on the best way to overcome the present impasse and to promptly implement all Bali ministerial Decisions.

Commerce and Industry Minister Nirmala Sitharaman stated that India is a strong supporter of the multilateral trading system and is committed to strengthening it and ensuring that the WTO remains a key pillar of the global economic edifice.

 

Services Sector

Potential provider

Focus on prospective avenues

India’s entertainment segment is adding significant value to its services sector exports. According to Finance Minister Arun Jaitley, the entertainment sector in India wins attention from about 1/6th of the world, and this very fact quantifies the immense scope for exports from this industry. Addressing the Services Conclave in New Delhi on November 12, 2014, Jaitley highlighted the importance of the service sector exports in compensating the deficit in merchandise exports from India. He also said that the government was making efforts to raise the share of the manufacturing sector from 15% to 25% of GDP.  Pointing out the sectors of the economy that could spearhead the growth in the services exports, he said that while the Indian pharmaceutical sector also has the potential of providing global quality healthcare in a cost-effective manner, the  tourism sector too needs a push by providing quality hotels, faster domestic travel, easier visa/visa-on-arrival/E-visa facilities, etc. Services sector – will that be the new play for Indian exports?