UNION CABINET

RESHUFFLE

A change of guard

Nirmala Sitharaman was one of the four ministers who have been elevated to cabinet rank.

The corridors of power had been abuzz with talks of an impending reshufflle in the Union Cabinet since early August. The much anticipated reshuffle ultimately took place on September 3, 2017. While nine new ministers were inducted into the Cabinet, the biggest change was Nirmala Sitharaman relinquishing her position in the Commerce Ministry and taking charge as the Defence Minister, a position that was earlier held by Arun Jaitley concurrently with the finance ministry. Suresh Prabhu, the erstwhile Railway Minister, became the new Union Minister for Commerce & Industry.

Prabhu has some big shoes to fill as Sitharaman has been credited with having brought major changes to the Indian foreign trade sector. The Foreign Trade Policy 2015-2020, which aimed at clearing the roadblocks for Indian exporters, too was ushered in during her tenure. While FY2015 and FY2016 were not great for India’s foreign trade fraternity, exports started picking up in FY2017 and has been on a rise since then. India’s total trade in FY2017, according to the Ministry of Commerce, was approximately $659.2 billion with exports contributing about $276.2 billion. Prabhu has made the right noises since taking up the new position and has talked about attracting investments, enhancing exports from the agriculture sector and helping entrepreneurs. What remains to be seen is; can Prabhu walk the talk and keep exports on the right track.

In other noteworthy changes, Minister of Coal and Power Piyush Goel has been given additional charge as Minister of Railways, and Petroleum Minister Dharmendra Pradhan given additional charge as the Minister for Skill Development. Giriraj Singh has stepped in to take the position as Minister for Micro, Small and Medium Enterprises, replacing Kalraj Mishra.

FOOD PROCESSING

FDI

Hungry for more

In what could be a game changer for India’s food processing and retailing sector, the sector is expected to soon receive Rs.3,760 crore in foreign direct investment (FDI). Earlier in August, the government had given a green signal to FDI proposals by three e-commerce majors; Amazon Retail, Grofers and Supermarket Grocery Supplies. The trio together will pour in Rs.3,765 crore – Rs.3,500 crore by Amazon Retailer, Rs.160 crore by Grofers and Rs.105 crore by Supermarket Grocery Supplies. Supermarket Grocery Supplies, which owns and operates etailer Bigbasket, is likely to pour in another Rs.800-1,000 crore in the near future. This indeed is one the most noteworthy developments after India lifted restrictions on FDI in food retail last year as a part of its attempt to liberalise the foreign investment policy in the country.

A large section of India’s population still remains undernourished because up to a third of agricultural produce goes to waste owing to the lack of proper processing and transportation technologies. Through this move, the government hopes to help the local agricultural producers as foreign investors are expected to introduce new technology, supply chain processes and products in India. The move also is expected to give a boost to the Make in India initiative as the government has allowed FDI only for locally manufactured and processed food and beverages. This along with Mega Food Parks that the government has announced can go a long way in addressing the problems of farmers in the country.

ANTI-DUMPING

TYRES

Applying brakes

In a move designed to protect the domestic rubber tyre industry from the onslaught of imports, the Directorate General of Anti-Dumping and Allied Duties (DGAD) has recommended imposition of anti-dumping duties (ADD) to the tune of $245.35 to $452.33 per tonne on the imports of truck and bus radial (TBR) tyres from China. Currently, rubber products including tyres are being imported from China under a reduced duty that is in place due to the provisions of the Asia Pacific Trade Agreement. The DGAD noted that there has been a significant increase in imports and the landed price of imports have been significantly below the level of cost of sales of the domestic industry.

The application for ADD investigation was filed by Automotive Tyre Manufacturers’ Association (ATMA) on behalf of tyre-manufacturers Apollo Tyres Ltd., J. K. Tyre Industries Ltd., and Ceat Ltd. According to ATMA, in FY2017 the imports of TBR tyres was around 1.2 lakh units per month, a 9% growth from FY2016. China is the largest rubber tyre sourcing market for India, accounting for almost 90% of the total imports.

The recommendation for imposition of ADD is likely to help the Indian truck and bus tyre industry. The question remains, will this be just another patchwork measure or will the Indian rubber tyre industry take this opportunity to become globally competitive?

GST

PMI OUTPUT

The first impact

While it is still early days in the GST regime, the industry is struggling with the change – the impact of which is being already reflected on the Nikkei PMI Output Index. In July, the month of GST implementation, the Nikkei India Manufacturing Purchasing Managers’ Index has dropped to 47.9 (from 50.9 in June), the steepest decline in the last eight years.

PMI is an indication of a country’s economic health, particularly that of the manufacturing sector. As per the index, a rating below 50% indicates a decline.

The drop has been attributed to decreased work while transitioning to the new indirect tax regime that hopes to create a unified Indian market. According to Nikkei India Services Purchasing Managers’ Index, the services sector too saw a decline. In fact, in July, the PMI fell to 45.9 (from 53.1 in June 2017), with output and new orders falling for the first time since January 2017.

However, analysts and the industry leaders are optimistic of a reversal in fortunes soon, once clarity and understanding about GST sets it. Till then, the industry is keeping its fingers crossed on this being just a temporary setback!

IMPORTS

FERTILISERS

Value for money?

India may have played a large role in setting the global benchmark price of the crop nutrient, potash, higher when in late July it signed a deal to import 6,50,000 metric tonne (MT) of potash from Russia-based Uralkali at $240 per MT, a sharp rise of 6% from the price agreed to last year. While US remains the largest importer of potassium based fertilisers, India and China too are large importers of this crop nutrient – the potash contracts signed by the two Asian giants are closely watched by other large buyers like Malaysia and Indonesia. China too has signed a large contract to buy potash from Uralkali, albeit at a slightly lower price of $230 per MT.

In the last five years, the price of potash in the the global markets have decreased by over 50%. Consequently, India’s imports of potassium-based fertilisers, under HS Code 3104, by value, have also seen a steep decline. Concurrently, earlier this year, India also announced a reduction on the domestic subsidy on potash by almost 20%. Uralkali is one of the largest manufacturer-exporter of potassium fertiliser in the world and accounts for about 20% of the worlds production of the fertliser with mines and processing facilities in Berezniki and Solikamsk. The company exports potash to over 50 countries around the globe.