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

Auto export

GM India’s export to Chile

Latino attraction

General Motors India will begin exporting vehicles next year, with Chile slated to be its first overseas market. The company will initially export left-hand-drive Chevrolet Beat, the production of which will commence at its Talegaon plant in the second half of 2014. The first batch of exports have been scheduled for the first quarter of 2015. 

Commenting on the move, GM India President and Managing Director Arvind Saxena said, “The start of Beat exports underlines GM’s commitment to India and demonstrates the quality of the country’s growing supplier base.” He further said, “The exports will create more employment opportunities within GM India and the supplier community while helping improve capacity utilisation at the Talegaon Plant.”

It’s worth noting that the company has been struggling to maintain its sales momentum in the domestic market due to a slump in demand. In May 2014, the company’s sales declined by 42.76% to just 4,865 units (including 1,716 units of Beat) as against 8,500 units in the same month last year.

Sugar subsidy

Turnaround hopes

Good days are coming?

With the Centre recently extending the export incentive scheme on raw sugar till September 2015, there is optimism in the industry about a turnaround this financial year. According to the scheme, the government offers Rs.3,300 subsidy for every tonne of raw sugar exported. Although the intention of these subsidies is to bail out the domestic sugar industry, it’s already become a conentious issue at WTO, with Brazil and Australia raising serious concerns on Indian subsidies.

The subsidies are expected to help increase the sugar industry’s cash flow by Rs.13,200 crore during the entire 18 month period ending September 2015. Of this, a sum of Rs.1,200 crore is expected to go to farmers directly while the remaining will be allocated for subsidy refund to sugar mills. According to ISMA, India’s sugar industry will turnaround this year provided mills are able to export the entire allocated quantity of 4 million tonnes at a price higher than that prevailing in India.

Precious metals: Gold and silver

Tariff value hike

All for the sake of reducing CAD?

The Indian government has once again hiked import tariff on gold and silver to $411/10 gram and $632/kg respectively in response to rising global prices in the wake of escalating violence in Iraq. During the first fortnight of June, tariff value on imported gold stood at $408/10 gram and silver at $617/kg. The changes have been notified by the Central Board of Excise and Customs. The import tariff value – base price at which customs duty is determined to prevent under-invoicing – is revised on a fortnightly basis, taking into account global prices. In the last two weeks, global gold prices have increased due to rising violence in Iraq that has spurred safe haven demand for precious metal.

India’s gold imports declined by over 74% in April (y-o-y) to $1.75 billion due to restrictions imposed by the government on inbound shipments in an attempt to narrow the current account deficit (CAD). Gold is India’s second largest import item after petroleum. Due to several curbs, India’s total gold and silver imports dropped by 40% to $33.46 billion in FY2014 as compared to $55.79 billion in FY2013.

Oilseeds import

Weak monsoon fears

Tryst with another drought?

Deficient monsoon could adversely impact India’s oilseeds output this year resulting in more dependence on imports. According to a paper released by ASSOCHAM, India’s oilseeds import bill is likely to shoot up to $14 billion in the current financial year from $9.3 billion in FY2014 as production of oilseeds is expected to be hit by as much as 8.3% due to insufficient rainfall. As per initial indications, rainfall in the edible oil growing states of Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Karnataka, Tamil Nadu, West Bengal and Andhra Pradesh would be deficient due to El Nino reducing output, which in turn will result in higher import dependence. ASSOCHAM Secretary General, D. S. Rawat recently pointed out that demand for edible oil will continue to grow by 15% per annum due to increasing income levels and fast changing eating habits in rural India. The demand for edible oil is likely to touch 203.54 lakh MT during FY2015, resulting in an import bill of $14 billion.

The ASSOCHAM paper titled “India’s likely tryst with Edible Oil: Impact of El Nino factor” reveals that the country imported edible oils worth $9.3 billion in FY2014, a substantial fall from $11.2 billion during FY2013. Despite increase in production, close to half of India’s domestic demand is met by imports. The paper also points out that India faces drought prospects every fifth year, the last one being in 2009, indicating a possible drought in 2014.

Ford Motor Company

Export hub India

Ford’s next bet: India?

Alan Mulally, CEO, Ford Motor Company, at the North American International Auto Show 2014 in Detroit, US

Ford Motor Company has decided to make India its export hub. Revealing this information, Ford Motor Company President and CEO Alan Mulally said, “We have decided that India will be an export hub for Ford. We are exporting to over 50 countries from here and are increasing it all the time.” He further added that the decision was taken keeping in view India’s position as one of the fastest growing markets. “It is because our operations are great, our quality is great and our efficiency is great. It’s just that the location of India is great for us,” Mulally added. Ford India has two manufacturing plants in India – one in Gujarat and another at Maraimalai Nagar in Tamil Nadu. 

Responding to a question on whether Ford India has lived up to expectations, Mulally said, “Remember Ford was in trouble in September eight years ago. We had the worst report in 2006. I will remind you that there was $17 billion loss to the company. If you are in business, you are going to have brackets around your numbers. We grew decisively. Not only have we survived but are also prospering now.”Mulally pointed out that as soon as Ford attained profitability, the company turned its’ attention to Asia Pacific. “Our investments have been tremendous in India and China. These are the fastest growing markets in the world,” he added.

The Detroit giant is now focussing on delivering better quality and fuel efficient vehicles and is operating as one global company.

Liquefied Natural Gas

Duty exemption

Get this gas off-duty. Now.

A high-level government panel, headed by former Planning Commission Member Saumitra Chaudhuri, has proposed that the government should exempt liquefied natural gas (LNG) from the existing 5% import duty. The panel has been instituted to develop India’s Auto Fuel Vision.

According to a report released by the panel, for many years now, import duty on crude petroleum has been nil, while previously it was 5% and before that 10%. However, the import duty on LNG – except when directly imported for power generation – continues to be 5%. “There is no logic for the separate treatment to petroleum and LNG. They go towards similar uses and LNG is in many ways a preferable substitute for liquid fuels,” the report added.

The panel also has proposed sharing the burden of stricter green fuel norms with consumers by imposing a special fuel up-gradation cess of 75 paise/liter of diesel and petrol. India plans to introduce the stricter Bharat Stage V emission norms by 2020 to curb growing air pollution. In addition, the committee has recommended closing the 75 paisa price gap between Stage III and IV fuel by imposing a high sulphur cess. Going forward, the plan is to implement Bharat Stage VI standards by 2024, which will require automobile manufacturers to put in place technological improvements.

Textile exports

Zero duty

Dressing up the world

Tirupur Exporters Association (TEA) has urged the Centre to remove duty on man-made fibres and special machinery used for the manufacturing of synthetic garments. In a memorandum submitted to Commerce and Industry Minister Nirmala Sitharaman and Textiles Minister Santhosh Kumar Gangwar, TEA President A. Shaktivel said zero duty on man-made fibres will not only increase its usage and production of garments but also help exports of man-made fibre garments. He said the import of special machinery on zero duty will attract more investment in the manufacturing of synthetic garments, a trend that is picking up globally. He also urged the Centre to introduce Goods and Services Tax in the upcoming Union Budget, which would enhance India’s competitiveness in the global market.

The memorandum also urged for an early signing of the proposed Free Trade Agreement with the European Union (EU) – the main destination for Indian knitwear. This would enable importing of value added fabrics under zero duty basis and re-exporting to EU as garments.

The association also requested the textile minister to reduce customs duty on import of synthetic/blended and specialty fabric of cotton. In order to protect the industry from high interest rates, a separate chapter is required in the monetary policy, Shaktivel added.

Iron ore

Duty withdrawal

For greater efficiency

Leading industry body, Federation of Indian Mineral Industries (FIMI) has urged the Union Government to completely withdraw export duty on iron ore as it feels unless this is done, achieving zero-waste mining is not possible.

FIMI members recently had a lengthy meeting with Union Steel and Mines Minister Narendra Singh Tomar, during which they told the minister that if India wants to fully utilise its resources, without impacting the domestic steel industry, it should make Indian exports competitive by withdrawing the export duty completely. Currently, there is a 30% export duty on iron ore in India.

A conveyor belt carrying iron ore from the warehouse to the production facility

Mysore, India

Export push

More than just a helping hand

With an eye to facilitate exports from Mysore, Mandya and Chamarajanagar districts, the Mysore Industries Association (MIA) is going to set up the Mysore Export Centre in Hebbal Industrial Area. According to P. Vishwanath, President of MIA, the upcoming Centre, when it becomes operational, will help more than 40,000 industries in the area tap global markets. With 45% of the businesses in the area belonging to small and medium enterprises (SMEs), the Centre is expected to become a game changer. It will have all necessary facilities to organise seminars, workshops and will also have provisions to showcase products on a permanent basis. Suresh Kumar Jain, Secretary General of MIA, added that currently annual exports from the Mysore region is around Rs.7,000 crore and MIA is determined to achieve Rs.17,000 crore in the next five years.

The Nandi bull on Chamundi Hill is a notable statue that dates from 1659 and is one of the main identities of Mysore city in Karnataka

Onion

Minimum Export Price

Prevention is better than cure

In an endeavour to contain rising prices of onion, the Centre has set a minimum export price (MEP) of $300/MT. The introduction of MEP is expected to improve local supplies in the coming months. According to officials, India has enough stock to cope with domestic demand till September 2014, when kharif crop enters the market. But the reason why the government is introducing MEP is that it wants to ensure that only high value exports take place and local supplies are not disrupted. Earlier in March, the government had removed MEP on onion as prices had crashed to Rs.6-7 per kg. In December last year, the Ministry of Commerce had brought down MEP from $350/MT to $150/MT in order to scale up exports and eventually arrest drastic dip in domestic prices. The government had set MEP last year after retail prices shot up to Rs.80-100 per kg in major cities and towns. It’s worth noting that India had exported around 1.3 million MT of onion in FY2014, out of a total production of 19.2 million MT.

Imposition of MEP on onion export will help in stabilising its prices in the domestic market