News, leads and analysis related to India’s trade and all that’s happening on the policy front during the month of May 2014
Ban on Indian chilli
Saudi Arabia has recently banned Indian chilli peppers, citing the presence of high pesticide residues in them as the main reason. Interestingly, the ban came after EU temporarily banned the import of Alphonso mangoes from India on May 1, citing contamination by pests. Chili pepper exports from India to Saudia Arabia have risen three-fold in the last four years and hence this decision comes as a big shock to a large section of exporters. Indian Agricultural and Processed Food Products Export Development Authority (APEDA) has urged Indian exporters to comply with Saudi Arabia’s import requirements and has asked them to send the produce for testing before they are finally exported. “As a region West Asia is very important to India. We therefore do not want to jeopardise our trade ties with Saudi Arabia or any other nation in the region. Hence, we have advised our members to test export oriented goods carefully before exporting,” an APEDA release said.
Surge in exports
India’s cotton yarn exports for FY2014 is likely to be 1,350 million kilograms, valued at $4.70 billion. According to a research conducted by The Cotton Textiles Export Promotion Council (Texprocil), India’s cotton yarn exports are all set to achieve their targets despite impediments such as seasonal fluctuations and burgeoning raw cotton prices. In fact, India exported 1,082 million kilograms of cotton yarns, valued at $3.75 billion during the first ten months of FY2014. Thanks to the high quality of Indian yarns, the product is much sought-after globally.
However, lately, there is much discomfort in the industry due to the newly announced Chinese Cotton Policy since China is a large importer of cotton and cotton yarns from India. Prices of Indian cotton yarns in China, even after duty and taxes, are still lower than local yarn prices, something that’s not going down well with the Dragon country. Interestingly, China has already reduced its cotton yarn import volumes from India. Tough times ahead for Indian cotton exporters, we would say!
Indian exports raise concern
Whisky manufacturers of Scotland have vowed to pursue legal action against the ‘extremely worrying’ quantities of cheap Indian blends that are being imported to the EU, posing ‘unfair’ competition to ‘genuine’ producers. The Scotch Whisky Association, which has taken legal action against some of the importing firms over the year, urged EU-wide action on the problem in its 2013 annual report released recently. The EU, in 1989, issued strict guidelines to be followed by all whisky manufacturers. The guideline makes it mandatory for the whisky to be distilled from cereals in order to retain the flavour and aroma. The guidelines also make it mandatory for the liquor to be allowed to mature for at least three years in wooden casks. In contrast, there are no compulsory definitions of whisky in India. “Very little Indian ‘whisky’ qualifies as whisky in the EU owing to the use of molasses or neutral alcohol, limited maturation (if any) and the use of flavourings. Such spirits are, of course, considerably cheaper to produce than genuine whisky,” the report claimed. Since 2009, the association has learnt that large quantities of such Indian ‘whisky’ is being exported in in bulk into the 28-member EU. Majority of them are mixed with other whiskies and is then sold by supermarkets at extremely low prices. “These products undercut all genuine whiskeys, including Scotch, Bourbon and Irish Whisky. Their sale is unfair competition against genuine ones,” the report added.
RBI relaxes import restrictions
With increasing criticism of India’s curbs on gold import, it was probably just a matter of time before normalcy was allowed back, particularly now that a new government is in power at the Centre. While still just a small step, the Reserve Bank of India, vide a notification on May 21, 2014, has decided to modify the guidelines for import of gold by nominated banks/agencies/entities. These revised guidelines which came into force with immediate effect allow Star Trading Houses and Premier Trading Houses (STH/PTH), which are registered as nominated agencies by the Director General of Foreign Trade (DGFT), to import gold under the 20:80 scheme, which was introduced last July to control burgeoning current account deficit, subject to the following conditions:
a) The STH/PTH should have imported gold prior to the introduction of 20:80 scheme. STH/PTH should get the required verification done by the Department of Customs at any port where they have imported gold consignment in the past.
b) The first lot of gold under this scheme would be based on the highest monthly import during any of the last 24 months prior to the RBI’s notification dated 14th August, 2013, subject to a maximum of 2,000 kg.
c) As in the case of other nominated agencies, the eligible quantity may be imported by STH/PTHs from any port, subject to their eligibility limit/maximum quantity allowed to them.
d) For proper compliance, before import, they must submit the import plan, port-wise and quantity-wise, to the concerned Customs office, where the verification of the figures of past performance was done. This information will be sent to all the other ports from which imports are permitted. The overall discipline of exporting 20% of each imported consignment before the next consignment is imported will be equally applicable to such STH/PTH importers Further, it has been decided to permit the nominated banks, to give Gold Metal Loans (GML) to domestic jewellers out of the eligible domestic import quota to the extent of GML outstanding in their books as on March 31, 2013. This move is expected to increase India’s monthly average gold import from the current 25-30 MT to about 50-60 MT and also reduce the premium that gold buyers in India end up paying as compared to international prices. While the step is no doubt a welcome one, exclusion of importers who do not fall within the ambit of the definition of STH or PTH (i.e., a minimum of Rs.2,500 crore worth of exports in two out of the last four years by an interested party), definitely raises questions on the RBI decision.
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