News, leads and analysis related to India’s trade and all that’s happened on the policy front during the month of May 2016

 Trade Deficit

Record Low

Focus on exports. Not trade deficit!

Amid tepid global demand, India’s trade deficit in March 2016 narrowed to a five-year record low of $5.07 billion as merchandise imports dipped at a faster rate than exports – thanks to sharp decline in gold and oil imports. India’s merchandise imports in March contracted sharply by 21.6% y-o-y to $27.79 billion as against exports which dropped (for the 16th straight month) by 5.5% to $22.7 billion. Interestingly, the exports for the year ending March were the lowest since FY2011! While the narrowing trade deficit is being viewed as a likely positive for India, the question is – really? Recall what has happened to China in the past year-and-a-half. Even as its exports fell, imports fell more dangerously; in March 2016, even though the country’s exports rose y-o-y for the first time in 10 months, its imports fell for the 16th straight month! Numbers prove the windswept state of Chinese manufacturing in the present times. Fall in India’s imports indicate a lower than exciting manufacturing activity. It could also be a living proof of lowered domestic consumption that is worrying. Recall how in the first week of April 2016, RBI lowered repo rate by 25 bps to induce domestic consumption. And experts are forecasting another rate cut of 50 bps in FY2017. Recently, RBI Governor Raghuram Rajan, had compared India’s economic situation as ‘one-eyed king in a country of blind’. During a time when exports isn’t in the pink of health, falling domestic consumption may make matters worse!

India-Russia

Dairy Exports

Time to say cheese!

India’s dairy exporters are excited that Indian cheese is back on Russian menu. In the second week of April 2016, Russia agreed to do away with a condition that was hindering supplies of Indian dairy products to the country. After more than a year of negotiations, Indian government authorities have convinced Russia that it is logical to hand out veterinary certification to even dairy derivatives producers who do not own cattle in the captive sense. This means, all small, medium-sized and large Indian firms and cooperatives who produce dairy products like cheese, qualify henceforth to export their produce to Russia. This development has gone down well with popular cooperatives and companies like Amul, Govardhan, Mother Dairy, Dairy Craft, etc. Recall that in 2014, after banning food exports from EU, Australia and US, Russia had turned to India for dairy imports. However, its self-imposed condition to allow imports of dairy products from only those dairies which own a cattle count of 1,000 or more, was depriving it of dairy products from a nation that’s the largest producer of milk in the world, India! 

 India-Chile

Preferential Trade Agreement

Widening the two-way commerce basket

In a move that would help in doubling India’s export to this Latin American nation in the coming days, the government approved expansion of Preferential Trade Agreement with Chile, under which the latter has offered concessions to India on 1,798 tariff lines with India reciprocating on 1,031 tariff lines. Under the proposed expanded PTA, 86% of India’s exports to Chile will get covered with concessions, which is likely to result in doubling of our exports in the near future. The existing India-Chile PTA was signed in 2006 and came into effect in 2007. It is largely responsible for helping push the bilateral trade from $2.3 billion in 2006-07 to $3.65 billion in 2014-15. India mainly imports metals like copper from Chile. The expansion of the pact is being seen as a step that can enhance trade ties. India must however be wary of giving and getting at the same time.

India-China    

Drug Imports

For the sake of the industry’s health

In a bid to curb dependence of the pharma industry on Chinese imports, the government is working on the recommendations of the Katoch Committee (headed by Dr. V. M. Katoch, Secretary, Department of Health Research, Ministry of Health & Family Welfare, GoI) to reduce bulk drugs from the dragon country. The government is currently examining the recommendations, which includes the setting up of mega parks and pharma zones for active pharmaceutical ingredients (APIs). Aimed at easing R&D as well as manufacturing of APIs, these mega parks will boost exports and reduce India’s dependency on China for drugs. They will also help narrow India’s trade deficit with China. Despite being as a major drugmaker globally, India has of late become significantly dependent on the imports of bulk drugs from China.

Steel Imports

Safeguard Duty

Extending the temporary respite

Giving relief to India’s steel industry, the Indian government announced that it would extend the safeguard duty on steel imports till March 2018. On March 15, 2016, as per its final findings into the case of Chinese imports causing serious injury to domestic steelmakers, the Director General (Safeguard) had recommended the imposition of safeguard duty on steel imports (goods falling under ITC HS 7208 or 7225 30 90) for two-and-a-half years from the date of levy of provisional safeguard duty (i.e. until March 14, 2018). On March 29, 2016, the CBEC issued a notification to this effect, announcing the application of Safeguard duty to hot-rolled flat items of non-alloy steel and other alloy steel in coils of width of 600 mm or more. The Safeguard duty rate would begin at 20% ad valorem minus ADD, and which would be reduced in four phases – the last being 10% minus ADD until March 13, 2018. Prices of steel in India and China have both risen in recent months, which has given some relief to Indian manufacturers, but the government feels that this protection is necessary for a few quarters more.

India-Bangladesh

Jute Exports Ban

‘Ban’gladesh says exports ban no more!

Indian jute millers are thrilled at Bangladesh lifting its five-month old ban on exports of raw jute to India. The world’s major jute producer had imposed a ban on its exports on November 3 last year to ensure adequate supply of fibre within the domestic market and help sack makers after its domestic consumption shot up from three million bales (1 bale equals to 180 kg) to five million bales. The ban imposed on exports of raw jute from Bangladesh had led to a steep hike in the price of jute in India as imported jute from Bangladesh comes at lower prices. The move has also affected Bangladeshi exporters who largely depend on their shipments to India, Nepal and other countries in the region. However, following the lifting of the ban, Indian jute mill owners are hoping that its supply will have an impact on availability of raw jute and thus help in stabilising prices, which are currently hovering at Rs. 58,000 per tonne in the domestic market. Following the ban late last year, imports of the said product by India from Bangladesh fell by 67% in Q4, CY2015 to $8.3 million. Inward shipments of raw jute from Bangladesh had reached a three year high of $25.2 million in Q3, CY2015.