News, leads and analysis related to India’s trade and all that’s happened on the policy front during the month of August 2015  

 

Rupee

Two-year low

Nothing to complain and worry about!

With the PBoC devaluing the yuan by a record 1.9% on August 11, 2015, and then following it up with similar steps in the next couple of days, the calm in the Indian rupee – it had traded for 80 straight sessions between 63 and 65 to a US dollar – was broken as it fell to close to a two-year low of 65.27 on August 13, 2015. While the main reason for the fall can be attributed to the RBI buying dollars to deliberately weaken the Indian currency to ensure that the country’s exports don’t become too uncompetitive, contagion risk from a rout in the Malaysian ringgit, the Vietnamese dong and the Indonesian rupiah might have also played a role in it. It’s worth noting that despite WPI inflation in India staying in the negative zone for almost a year, the RBI has refrained from cutting benchmark interest rates, which has made the rupee one of the best performing emerging market currencies in the last one year, although this resilience in the rupee might have played a major part in India’s exports falling y-o-y for every single month since the start of 2015.

 

Xiaomi-Foxconn

Joint venture

Brothers in arms!

Giving a huge leg up to the government’s ‘Make in India’ programme, smartphone maker Xiaomi has tied up with Taiwan’s Foxconn to start assembling smartphones in India – the world’s third-largest smartphone market. The China-headquartered company now follows its South Korean rivals LG and Samsung in manufacturing in India. Till now, all Xiaomi products including phones, which were sold in India, were imported from China. Through this move, Xiaomi, which already has a strong presence in the Indian market in the low-cost smartphone segment, is expected to gain foothold in the country. It’s worth noting that after Brazil, India is the second country outside China where Xiaomi phones are now manufactured locally. In fact, Foxconn has already started producing Xiaomi Redmi 2 Prime at the Sricity factory in Andhra Pradesh. According to the industry experts, “the new arrangement, which also marks a return to Indian manufacturing scene for Foxconn, after its client Nokia had stopped making phones at its Indian plant last year, will help Xiaomi better manage inventory and reduce lead times from 4-5 weeks to under two weeks.” Now that’s what we call a win-win situation!  

 

 

India-US

GSP Renewal

A silver lining

After a long wait of about two years, US has finally extended the generalised system of preferences (GSP) for Indian exporters. GSP (a preferential trade programme that allows Indian exporters to get concessional duty treatment in US), has been extended retrospectively from July 29, 2013 (the date on which GSP had expired), enabling duty-free entry of 3,500 product lines into US. The programme has now been extended till December 31, 2017. Sectors which will benefit from the announcement include textiles, chemicals, engineering goods and pharmaceuticals. The development holds a lot of significance as it is likely to help boost India’s shipments to US. Going by industry experts, a 10% jump in exports is expected in FY2016 following the US decision. This, comes as a great news at a time when India’s exports to the world are in a negative zone. It’s worth noting that in FY2015, the Indo-US trade stood at $64.26 billion, of which India’s exports to US were $42.44 billion.

India-EU

Drug ban

In the pink? Not at all!

‘Disappointed and concerned’ over the European Union (EU) banning around 700 India-made generic drugs, clinically tested by Hyderabad-based GVK Biosciences, India is mulling the option of dragging EU to the World Trade Organisation (WTO). As an immediate fallout of the ban, India deferred the talks with EU on the proposed free trade agreement (FTA). The trade talks, which were launched in 2007, to boost two-way commerce have missed several deadlines. In FY2015, the trade between the two sides stood at $99 billion. The development comes as the latest obstruction to the India-EU trade negotiations scheduled on August 28. EU, in last week of July, had banned the sale of 700 generic drugs for alleged manipulations in the clinical trials by GVK Biosciences. The largest suspension on sale and distribution of Indian drugs by EU, which would come into effect from August 21, is certainly a major setback for the Indian pharmaceutical industry which is already under pressure over US import ban on several pharma products in recent years over quality concerns. According to Pharmexcil, in FY2015, country’s pharma exports to the world stood at $15.4 billion with EU accounting for about 20% of it.

Steel Imports

Duty hike

Hurdles are rising... only for them!

In a move aimed to help domestic steel producers grappling with tough market conditions due to cheaper imports from China, the government has increased basic customs duty on base metals such as steel, iron, copper, aluminium, zinc, lead, nickel and tin among others by 2.5%. India’s steel producers have long been demanding a duty hike to curtail imports from countries like China, Japan and Korea. While the basic customs duty on flat-rolled steel products imports has been increased to 12.5% from 10%, the import duty on iron and non-alloy steel ingots, bars, rods, wires of stainless steel and semi-finished products of iron was raised to 10% from 7.5%. This is the second hike in duty in two months. In June, the government had raised basic customs duty on some long and flat steel products by 2.5%. Import duty on flat steel products was increased to 10% from 7.5%, while for long steel products it was raised to 7.5% from 5%. In June, India had also slapped an anti-dumping duty of up to $316 per tonne on imports of certain steel products from three countries, including China.  

 

LED Imports

Proposed duty hike

Making it shine

To encourage domestic manufacturing and boost ‘make in India’ initiative, the government must increase import duty on LED bulbs and other products, a parliamentary panel has suggested. A report on energy conservation presented by the Parliamentary Standing Committee on power said that the government should take immediate steps to disincentivise the import of finished LED products. “Customs duty and countervailing duty on LED lamps and its components should be levied in such a manner that it encourages local production,” the panel said in its report tabled in the Parliament recently. At present, the duty on finished LED products is less than that on the import of raw components. And this affects the competitiveness of Indian manufacturers in the domestic as well as global markets. “Import of these items can be one of the options but this cannot be permitted at the cost of local enterprise,” the report said. The panel also recommended that the government should ensure the setting up of adequate and reliable testing facilities for LED lights across the country. According to estimates, the turnover of Indian LED industry is expected to be around Rs.20,000 crore.