• Rising imports of aluminium have been a source of major concern for the domestic industry over the past few years. • Imports from China have been a major contributor to this rising trade deficit, exacerbated due to the high import duties imposed by it on scrap imports from the US. • India’s trade deficit in aluminium is likely to worsen with China adding aluminium scrap to its ‘Restrictive Imports List’. • A focused and strategic approach is necessary to both tackle the threat of dumping and improve India’s self-dependence in the aluminium sector. Aluminium, a non-renewable resource is of immense strategic importance to India, one of the fastest growing economies in the world. A number of sectors including power, automobiles, construction, packaging, industrial and consumer durables are dependent on this metal. However, a significant proportion of this precious metal is imported into India to meet the huge domestic consumption. And this is the scenario when aluminium consumption in India at 2.5 kg per capita is way below the global average of 11 kg per capita. Over 55% of the aluminium demand is met through imports at present, with China as the largest contributor. Imports from China in particular have risen sharply over the past few years from US$ 642.7 million in 2014 to US$ 1.1 billion in 2018 (ITC Trade Map). Correspondingly, India’s exports of aluminium to China have been insignificant and in fact declined from US$ 13.29 million in 2014 to US$ 11.1 million in 2018. India’s northeastern neighbor provides several incentives to its aluminium industry like interest free and low cost loans, subsidised land on new smelter projects, income tax rebates and transport subsidies. Slowly and steadily, China has succeeded in not just reigning supreme as the largest consumer, but also as the largest producer of aluminium in the world. Indian exporters have not been successful in tapping the huge potential that the Chinese market offers. The China factor is also harming India’s interests indirectly on another front with its decision to add aluminium scrap to its ‘Restrictive Imports List’ from July 2019. Due to the trade war, China has also increased tariffs on aluminium scrap imports from US to 25%. As China builds barriers to scrap imports, India is emerging as a natural destination for dumping of the product. Furthermore, low import duties on aluminium scrap (2.5%) have eroded market shares of the domestic aluminium industry. Players like Vedanta Ltd, Hindalco Industries & National Aluminium Company (Nalco) have borne the brunt of this development, as their market shares dropped progressively from 60% in FY’11 to 40% in FY’19. A NITI Aayog paper identifies aluminium as a strategic sector for India going forward. It would greatly help enhance the fuel and cost efficiency of railways, India’s commitment to CO2 emission norms, adoption of electric vehicles improve the share of renewable energy to 40% and beyond and promote indigenization in defence equipment, aerospace and aviation sectors. But the sector faces a number of constraints at present. High cost of production is a major issue, led by high power costs that account for 30-40% of production. Mining of bauxite and coal also faces challenges with delayed clearances, bad connectivity, land acquisition issues, etc. Given the low competitiveness of the industry, it is not surprising that countries like China has been able to make deep inroads. As Professor Anwarul Hoda, Chairperson, ICRIER affirms in his conversation with TPCI, “With plentiful bauxite reserves, India is highly competitive in aluminium, but its competitiveness is affected by the mining policy and poor transport infrastructure in the country. As a result China has been able to price aluminium more competitively in world markets and export large quantities into India despite import tariffs”. Given the current scenario of possible dumping of aluminium scrap, immediate increase of import duties on the product is a must. India has sufficient aluminium scrap, and imports need to be restricted to boost domestic recycling. The industry has also alleged that China is breaching Rules of Origin and routing aluminium exports to India through ASEAN nations, for which the government should immediately consider appropriate safeguards. But that is only a short term fix. India needs to cut down its import dependency for aluminium, given that its strategic relevance is only expected to surge with rising economic growth. To ensure that, India must draft and implement a National Policy on Aluminium with specific short, medium and long-term targets for both demand augmentation and capacity addition, along with the necessary policy impetus to achieve them.
Indian pharma: Time to treat the ‘dragon’ deficit
• The Indian pharma industry has made strong inroads into the US over the years, and is the leading supplier of generic drugs globally. • However, the industry still hasn’t managed to penetrate the second largest economy significantly, as it accounts for just around 0.1% of China’s pharma imports. • Pharma players are reluctant to spend their time and energy on China, due to the tough and long regulatory procedures in the market. • However, with the US-China trade war and China’s mega procurement plan for drugs providing new opportunities, it is a good time for the Indian pharma industry to capitalize. The Indian pharmaceutical industry is the largest supplier of cost effective generic medicines to the developed world with 35.2% share of exports destined to US followed by 3.8% to UK & South Africa. But while Indian pharma players have successfully grabbed opportunities with off-patent drugs in US, they have been unable to crack the code for the second largest economy – China. This would classify as a major opportunity missed, since China is one of the largest importers of pharmaceuticals with a share of 4.5% in world imports. But it sources its drugs mainly from US and EU, while India’s share in this pie is a meagre 0.1%. Source: Data of import value in US$ billion from ITC Trade Map India’s exports of pharmaceutical products in 2018 were recorded at US$ 14.27 billion. On the other hand, China imported US$ 27.90 billion worth of pharmaceutical products during the period. India’s exports to China, however, stood at just US$ 38.99 million. It has been further observed that products exported by India are similar to the products imported by China, thereby indicating huge potential to raise that figure. China also exports US$ 8.86 billion worth of pharmaceutical products and has emerged as the leading supplier of APIs by volume. Although China’s active pharmaceutical ingredients (API) manufacturers are major exporters, exports of finished pharmaceutical products (FPPs) are less significant so far. Currently, around 97% of drugs sold by local Chinese manufacturers are generic. About 80% of the drugs sold in the Chinese domestic market are generics, with foreign-owned companies supplying almost all of the innovator (i.e. patent protected) products. Pharma is a highly lucrative avenue for India, helping it address concerns of high trade deficit with China, which for the past three years has been over the US$ 50 billion mark. In addition to this in May 2019, China announced that it has exempted imported tariffs for 28 drugs; hence pharmaceuticals exports could be a savior for India in bringing the trade deficit at lower levels. Source: Data of Import and Export Value in US$ billion from ITC Trade Map The only major obstruction in entering the pharmaceutical market in China is its regulatory system. China strengthened its GMP regulations and has separate regulations for exipients, packaging and labelling. In addition there is a regulatory regime covering pharmaceutical distribution and conduct of clinical trials. Indian firms are subject to lengthy inspection process, requiring multiple official clearances for both oral and injectable drugs. .But recently, China has agreed to accelerate the inspection and approval procedures of drugs, opening huge scope for the Indian pharmacy industry. In this respect, talks between the two governments are taking place to ease and enhance exports from India to China. In addition to this, another factor that plays an important role is that US is one of the main exporters to China and in present scenario of US-China tariff hikes, India has great opportunities to tap. Indian pharma firms have been wary of investing too much of their energies in China due to lengthy approval processes. The Yunnan province, for instance, invited expressions of interest from Indian pharma firms earlier this year. However, there was no response from Indian companies by the time the deadline ended. China’s National Medical Products Administration (NMPA) takes 3-5 years on an average to register a product, a process that involves a cost of around US$ 58,000 per drug. Sun Pharma Chairman Dilip Shanghvi, however, claims that China holds vast potential and the time is right to tap it. China has launched an extensive drug procurement programme across cities, which is leading to drops in prices and providing opportunities to the Indian pharma industry. Approval times are coming down fast, as China aims to bring new drugs to its patients as quickly as possible. Dr Reddys and Cipla are also expanding in the region. Given this window of opportunity, it is an opportune time for the Indian pharma industry to capture the Chinese market to both diversify its market exposure and bring down its trade deficit. By Dr Ishmeeta Singh, Senior Research Associate, Trade Promotion Council of India
Cross border e-commerce: Don’t place the cart before the horse
• The Ministry of Commerce & Industry is looking to frame a policy to boost India’s exports via the e-commerce route. • E-commerce is growing at strong double-digit rates globally with sales of US$ 29 trillion in 2017, and the share of cross border B2C business is also rising. • While framing the policy, the government needs to appreciate that cross border e-commerce involves a totally different business model and needs a unique ecosystem to successfully operate. • Completeness of transaction and the hassles with product returns are two critical areas that need to be considered while framing the policy for E-commerce is truly changing the nature of business around the world. Global e-commerce sales grew by 13% in 2017 to reach US$ 29 trillion according to UNCTAD, with the number of shoppers at 1.3 billion. Notably, the share of internet buyers purchasing goods and services from overseas vendors increased from 15% in 2015 to 21% in 2017, taking cross border B2C sales to US$ 412 billion. Regular discussions have taken place on the potential of e-commerce for promotion of exports from India as well, especially with an export potential of US$ 302 billion from MSME products across 93 product categories and 159 countries. Recent media reports suggest that the Ministry of Commerce & Industry is looking to frame a policy for the same. Before the government frames a policy for e-commerce, the ecosystem we are looking for when we are planning to boost exports through this medium is very important, as it involves lot of stakeholders. Policy makers need to remember that it is a separate business model, and requires an ecosystem of its own. For instance, you find it more convenient to use the services of Ola and Uber because the ecosystem is well set. There is complete connectivity wherever you are and you are able to access these apps, which are also designed in such a manner that they don’t take much space in your mobile. So many things have happened at the backend to create an ecosystem. At the front end, demand and supply is seamlessly getting synergised. Similarly when we are talking about cross border trade through e-commerce, it is different from internal trade in e-commerce, where you are ordering from sites like Amazon and Flipkart. Even that ecosystem has been created and is well in place. But when you consider cross border e-commerce, the way in which e-commerce is perceived in the international markets is going to be important. Secondly, the players who are going to be involved in India need to participate actively, and also have familiarity with this ecosystem. For instance, you are comfortable and fast on Whatsapp today, but compare this to the time when you first used the service. There are two issues when we talk about e-commerce policy for exports. The policy itself is not enough; the strategy and timeline for implementing the policy is also critical. It involves lot of players like postal department, payment systems, trade documentation, etc. What are the issues the exporter will face? The first one is linking to the destination consumer and completing the transaction. It is not just about sending the goods, but also getting the payment. So is the completion of the transaction going to be smooth or not? What are the hurdles in completing that transaction? It is not a physical marketplace – I am seeing something on the website, ordering and getting it delivered. But let’s say it is not the right thing I want, so I return it. So what is the provision for returns in cross-border transactions? The highest cost in cross border e-commerce is logistics; in fact at times it is more than the cost of the goods. So the return will also imply costs. There should be some discount in returning the product, or else the exporter may not be interested in taking it back. He may insist that you dump it there itself. It is important how the government will facilitate a smooth return policy, for instance bringing the product back with a discount of 25%, without the need for packaging. It should also be free of documentation, duty burden, etc. Forex is also involved and till the time I don’t realise the process, I will be booking the forex. If it is coming back, that is not happening. I am losing forex when the product gets returned. Once these contours are defined, then we should get into the operational aspects like what should be the technology, levy or no levy, concession, etc. Therefore we should take into account whether the ecosystem is good enough, else it’s like buying a car when there are no proper roads. You can gauge the potential from the results of companies like Samsung, wherein 25% of their sales are happening via the mobile route. Around 2 years earlier, online sales were just 1-2%. During Diwali, more than 20% of sale is through online (garments). If we don’t prepare ourselves fast, we will be losing those opportunities. it is the right time for India to develop the correct environment for cross border e-commerce trade. For export, we are currently dependent on platforms like Amazon, which consolidates supply from small scale industries here and there. Unless we create more players, as in the cab business, and make exporters familiar with these platforms, India won’t be able to realise its potential in cross-border e-commerce. Dr. K. Rangarajan is Professor at IIFT. Currently he is heading the Center for MSME Studies and also the Kolkata Campus of IIFT. He holds Masters in Commerce with Management Specialization and remained first class throughout his academic career. He holds University Rank for the top performance in his Masters Degree. He has completed doctoral degree and has many research papers and articles to his credit. The views expressed here are personal.
Country Profile: Thailand
Thailand has been one of the most spectacular economic success stories as it moved from lower income to upper income status in less than a generation. The 1980s in particular brought immense economic growth and reduction in poverty levels for the country. Since the late 1990s, however, the Thai economy has also proved to be vulnerable due to global economic shocks & volatility, socio-political tensions, natural disasters, and relatively low investment. Other challenges include aging population, persistent inequality and environmental degradation. In July 2014, Thailand approved a long-term Infrastructure Development Plan to boost the country’s competitiveness, by improving and expanding its logistics and transport networks. Categorized as upper-middle-income status at present, Thailand seeks to reach higher-income status within the next decade. With its strategic geopolitical position and significance as the second-largest economy in the Association of Southeast Asian Nations (ASEAN), the country plays a major role in promoting regional cooperation and integration. The Thai economy is heavily export-dependent, with exports accounting for more than two-thirds of its gross domestic product (GDP). In 2018, according to the IMF, Thailand had a GDP of US$ 455 billion, the 8th largest economy of Asia, posting a growth rate of 4.1%. Macroeconomic Snapshot of Thailand GDP of Thailand at Nominal Price US$ 455 billion GDP of Thailand at PPP US$ 1.2 trillion Expected GDP growth rate 3.9% to 4.2% FDI Inflow US$ 7.6 billion GDP per capita at PPP US$ 18,985 GDP per capita at nominal price US$ 6,977 Population below poverty line 7% Contribution of sectors as a % of GDP Agriculture (8.1%), Industry (39.2%), Services (52.6%) Trade values in US$ billion (X+M) US$ 501.1 (US$ 249.77 + US$ 250.89) Population 69.8 million Source: ITC Trade Map Thailand’s major trading partners as of 2018 Export destinations Sources of import Economies >Values in US$ billion Economies Values in US$ billion China >29.68 China 50.20 USA >27.86 Japan 35.43 Japan >24.76 USA 15.29 Viet Nam >12.83 Malaysia 13.47 Hong Kong >12.44 UAE 10.93 Malaysia >11.52 South Korea 8.91 Australia >10.67 Taipei China 8.66 Indonesia >9.90 Indonesia 8.15 Singapore >9.29 Singapore 7.73 Philippines >7.82 Saudi Arabia 7.40 Thailand’s trade basket Major exported products Major imported products Product Values in US$ billion Product Values in US$ billion Data Processing Machines 12.73 Crude oil 28.89 Automobiles 11.09 Electronic integrated circuits 11.86 Parts and accessories for tractors 8.50 Gold 11.41 Electronic integrated circuits 8.26 Telephone sets 7.81 Petroleum oils 8.18 Petroleum oils 6.93 Goods transport vehicles 7.84 Petroleum gas and hydrocarbons 5.41 Rice 5.57 Automated data-processing machines 5.08 Air Conditioning machines 5.32 Articles of iron or steel 4.40 Pneumatic tyres 4.90 Discs and tapes for sound recordings 3.46 Natural rubber 4.54 Helicopters and airplanes 2.75 Thailand’s economic freedom score is 68.3, making its economy the 43rd most liberal in the 2019 Index. Its score overall has surged by 1.2 points, as a result of improved scores for property rights, business freedom, and government integrity. Thailand is ranked at 10th position among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages for most of the economic indicators. According to the WTO, Thailand had 245 non-tariff measures in force in 2018. The government has implemented measures to facilitate investment, but foreign ownership in some sectors like heavy industries remains capped. The financial system has undergone structural transformation, and the stock exchange is active and open to foreign investors. Since a small proportion of employed persons in Thailand are classified as employees, the labor share in value addition for GDP is quite low in the official national accounts. Thailand’s GDP, in US$ billion Source: ITC Trade Map India-Thailand Trade Bilateral trade in 2018 between India and Thailand remained at US$ 12.46 billion, with Indian imports from Thailand at US$ 7.60 billion and India’s exports to Thailand at US$ 4.86 billion. In the ASEAN region, Thailand ranks as India’s 5th largest trading partner after Singapore, Vietnam, Indonesia and Malaysia. The burgeoning ties between the two countries have reflected in the success of India-Thailand’s early harvest scheme and is further expected to bring greater integration among member countries; be it in the form of physical connectivity, economic links, cultural and educational ties. Source: ITC Trade Map Major Indian exports: Electronic integrated circuits; other metal ores, metal waste scrap and products; computers, parts and accessories; electrical house-hold appliances; vegetables and vegetable products; aeroplanes, gliders, instruments and parts; finished oils, plastic products, etc. Major Indian imports: Air conditioning machine and parts thereof, Spark-ignition reciprocating internal combustion piston; plastic products; motor cars, parts & accessories; automatic data processing machines and parts thereof; precious stones and jewellery; rubber products; polymers of ethylene, propylene, etc in primary forms; electronic integrated circuits, machinery and parts thereof; chemical products; refine fuels; rubber and iron and steel and their products. Thailand based companies see an immense potential in Indian energy, metals as well as infrastructural facilities. Over the decades, around 30 Thai companies are active in the field of infrastructure, food processing, chemicals real estate & hotel and hospitality sectors in India. The rapidly growing Indian market remains lucrative for Thai investors given the opportunities in green and brown field projects (due to liberal FDI policies of India) including energy, infrastructure and metals. By Abhishek Jha
Are Indian agricultural prices co-integrated with global prices?
• Indian agricultural prices are not co-integrated with global agricultural prices in short run. • Existing literature shows that our markets are not efficient, and thus they cannot respond to sudden shocks. • Degree of openness data suggests that Indian agriculture sector has started opening up, but this is not visible in market integration for agricultural commodities. • One major reason for asymmetric price transmission is NTBs across countries. Non-product specific support has posed greater problems for India from the market efficiency point of view. The agricultural sector in India is progressively opening up to external trade, leading to interdependency between commodity prices across diverse markets. The correlation between global and domestic prices of agricultural commodities and changes therein depend upon many factors in accordance with the demand and supply conditions. The main factors that affect commodity demand and hence prices at the global level are changes in exchange rate, nation’s purchasing power and interventionist policies such as taxation or subsidies followed by the trading countries. It also depends on regional trade agreements, because they create blocks of different trading countries, hence leading to trade diversion and trade creation. On the other hand, changes in farm prices at the national level are also influenced by demand and supply conditions in global and domestic markets, domestic support, tariffs and non-tariff barriers, infrastructure and other government policies. Trade and exchange rate liberalisation is expected to affect domestic prices, partly due to globalization of the economy and partly due to removal of administered pricing and trade restrictions. A greater interdependency between products prices across spatial markets is an indicator of market efficiency. A perfect price transmission, among many factors, provides signals to producers for good allocation of resources, to expand production base and become globally competitive. In spatial terms, the classical prototype of the Law of one Price, as well as the predictions on market integration provided by the standard spatial price determination models postulate that price transmission is complete with equilibrium prices of a commodity sold on competitive foreign and domestic markets; differing only by transfer costs, when converted to a common currency. These models predict that changes in supply and demand conditions in one market will affect trade and therefore prices in other markets as equilibrium is restored through spatial arbitrage. The absence of market integration or of complete pass-through of price changes from one market to another has important implications for economic welfare. Incomplete price transmission arising either due to trade and other policies, or due to transaction costs such as poor transport and communication infrastructure result in a reduction in price information available to economic agents and consequently may lead to decisions that contribute to inefficient outcomes. For the most part, literature points out that in developing countries, implementation of liberal macroeconomic policies may not be sufficient to ensure a higher responsiveness of their domestic prices to world prices. WTO negotiations on AOA (agreement on agriculture) are still continuing with respect to tariff rates. In theory, spatial price determination models suggest that if two markets are linked by trade in a free market regime, excess demand or supply shocks in one market will have an equal impact on price in both markets, which is missing in the Indian scenario. The Johansen test (Statistic) for co-integration for rice, wheat, maize, soybean and cotton shows no short run co-integration (five-year period from 2014-2018). For each commodity, values of co-integration are coming to less than the 5% of critical value (means 95% of confidence). According to these results, it is clear that from 2014 till March 2018, domestic prices are not cointegrated in the short run as suggested by Johansen cointegration test. The entire statistic is coming out to be insignificant in the ECM (error correction mechanism) model. Hence it can be said that if Johansen cointegration test suggests that there is no co-integration in the short run, ECM will give insignificant test statistic. According to the existing literature it can be said that our markets are not efficient and thus cannot respond to sudden shocks. CATR analysis indicates the same direction that current literature on Indian market integration suggests. Many notable economists have empirically tested integration of Indian market and concluded that there is no co-integration of the domestic and world markets. Correlogram of original and first difference prices for five commodities. Source: CATR Estimation using IMF dataset Correlogram for World wheat price which shows non-stationarity. Source: CATR Estimation using IMF dataset Correlogram of first difference of log of World wheat price which shows stationarity. Why Indian Agriculture Market Is Not Cointegrated? According to Sudha Narayanan, the subsidies under the green box are continuously rising for rice and wheat. Also, our wheat prices are higher than global wheat prices because of higher MSP (minimum support price). Agreement on Agriculture (AoA) says that for developing nations, the combined output and input support needs to be maintained within 10% of the value of production. Support price of wheat with moving external reference price is rising for India since 2004. One of the reasons for asymmetric price transmission is non-tariff barriers (NTBs). Non-product specific support, ie, input subsidies on fertilizer and electricity to agriculture has posed a greater problem for India from the market efficiency point of view. All domestic support measures considered to distort production and trade fall into the amber box. These include measures to support prices, or subsidies directly related to production quantities. Any support that would normally be in the amber box is placed in the blue box if the support also requires farmers to limit production. Due to differentiation in standards and quality of products, many indigenous commodities may not be substituted for the same products of other nation. Degree of openness suggests that Indian agriculture sector has started opening up in a calculated manner by using price differential and import penetration method but this opening is not reflected in market integration for agricultural commodities. Other nations also keep their agricultural sector well protected because it is a
India needs to enter global supply chains in apparel
• Despite natural advantages, India’s garment sector has not been able to capitalise on opportunities in global trade. • Differential duty and tax structure, technological and labour skill upgradation are some of the issues hampering the sector. • At the same time India’s production is not in synch with global shift towards manmade yarn and synthetic fabrics. • India needs to look at ways to enter the space getting vacated by China in the garments & apparel global supply chains. India is blessed with a favourable demographic dividend and has a pool of resources at its disposal that can bolster India’s garment exports. However, India has not been able to fully take advantage of these factors and has consequently lost advantage in the global apparel market owing to a host of reasons. One major reason for the same is the fact that the differential duty and tax structure along the supply chain have hampered the growth of Indian garment exports. Another major issue is the fact that technological and labour skill upgradation have not been adequate in the sector. At the same time, India’s production is not in sync with the global requirement. Thus, while India is known for its niche products like fine cotton and cotton-based products, the global demand is shifting towards manmade yarn and synthetic fabrics. This mismatch in demand and supply has not worked in the favour of India’s exporters. India has so far not been able to reap the benefits of PTAs. In addition, it has been shy of signing PTAs with large economies like EU. On the other hand, competing countries like Bangladesh, having had the advantage of duty-free, quota-free access to the Indian market, have been able to export readymade garments manufactured using cheaper fabric imports from China. The dwindling exports can also be attributed to the fact that the world has still not recovered from the repercussions of the global financial crisis. The economies of India’s traditional markets like US have grown modestly and the demand has not picked up. India has not succeeded in capturing other potential markets like China, which is transitioning from being a producer to a consumer of garments. On the other hand, India’s apparel imports are on the rise, which threaten the domestic industry. A major factor contributing to this development is that while the other competing apparel producers have kept up with the transformations across the global clothing market in terms of the supply, market and products; their Indian counterparts have failed to do so. This is why the retailers in India are choosing the products manufactured in the other markets over those produced in India. India needs to enter the space that is getting vacated by China in the garments and apparel global supply chains. There is a need to tap the potential of our labour and incorporate modern technology to expedite production capacity, bring down the cost of production (power and logistics etc) and bridge the skill gap. Dr. Amita Batra, is currently Professor, Centre for South Asian Studies, JNU. She has worked as Senior Fellow at ICRIER, New Delhi for five years and before that as Reader, Economics, Hindu College, University of Delhi. Dr. Batra has also worked as Consultant for the World Bank, New Delhi and as Visiting Professor at Indian Institute of Management, Ahmedabad.
Targeted PTA with Iran can give India a major edge
• Iranian markets have great potential for Indian exports in categories like machinery, vehicles, cereals, pharmaceutical products, iron and steel & organic chemicals. • The proposed PTA targeted for lower tariffs will help make Indian goods competitive, especially agro-products and textiles. • India could gain approximately up to US$ 4.5-5 billion with the PTA if the above products are included. • Focus should also be on enhancement of investment opportunities in Iran, which would help us increase bilateral trade. Iran is located in Western Asia, bordering the Caspian Sea, the Gulf of Oman and Persian Gulf. The country is in a transition phase towards a market-driven economy. Iran had an estimated Gross Domestic Product (GDP) in 2017 of US$ 447.7 billion, and a population of 80.6 million people (World Bank). Iran ranks second in the world in natural gas reserves and fourth in proven crude oil reserves. It is also characterised by strong agriculture and services sectors, and a noticeable state presence in manufacturing and financial services. Recently, the country’s economy registered a decline, as oil exports fell significantly following international sanctions imposed in the context of nuclear development. Source: ITC Trade Map Iran’s major imports are machinery, cereals, iron & steel, and chemicals. Apart from India, its main import partners are China, South Korea, Turkey and Germany (Refer to Fig.1). Iran is a founding member of the Economic Cooperation Organisation (ECO) and Organisation of the Petroleum Exporting Countries (OPEC). Iran has extensive tariffs on imports and exports across a range of goods in the country. The Iranian embassy has imposed a variety of tax/tariff rates on different goods, ranging from 10-25%, with cotton at 46% and automotive vehicles & textiles at 100%. This could be one reason why Indian goods haven’t been able to penetrate the Iranian market. However, a trade agreement between the two countries could go a long way to provide greater market access for Indian exports to Iran. Therefore, India and Iran are working together to boost bilateral trade by finalising a Preferential Trade Agreement (PTA). The Centre for Advanced Trade Research (CATR) has analysed the possible product categories that could be included in the PTA for enhancement of India’s exports (selected products in table below at the 2-digit level). Iran’s import from India and World of selected products (2018) Source: ITC Trade Map The products in the table are selected mainly on the basis of India’s comparative advantage and share in Iran’s imports. In cereals, India is the topmost exporter to Iran in rice, but we can expand our millets exports as well. Similarly, in terms of coffee, tea and spices; India is the largest supplier, but it can expand in ginger. Similarly, India can grow exports in sectors like vehicles, electrical machinery and equipment, pharmaceutical products, organic chemicals, miscellaneous chemical products, cotton especially textiles, fruits (coconut) and leather. Our analysis further reveals interesting results on high tariffs faced by the textile and leather sectors (nearly 100%), cotton and edible fruit (~48%) and vehicles (~65%). Since all countries are facing similar kind of tariffs, a PTA with Iran could make us competitive in these sectors and some others like tobacco and vegetable fats and oils, where tariffs are comparatively lower. In this respect, if it we assume that the PTA between two countries reduces the tariff by 40% initially, India may benefit by around US$ 4.5-5 billion in an optimistic situation despite the presence of well-entrenched competition from China and EU, especially Germany. Besides the PTA, India could look for investment opportunities into Iran to further boost our exports. Iran has already invited Indian investments of about US$ 8 billion in infrastructure projects. At the government level, India is planning to allow investments into Iran through the Rupee. Hence, India should capture the opportunities after lifting of sanctions as a number of countries have an eye on this market. Korean, German, Japanese and Swiss banks who are the main competitors of India in Iranian market, among others, have established connections and their companies are also doing business in the country. By Dr Ishmeeta Singh, Senior Research Associate, Trade Promotion Council of India
Modi 2.0: Rebuilding the case for ‘Made-in-India’
• Export growth has witnessed a seesaw trend in the past four-five years due to a variety of extrinsic and intrinsic factors. • The global trade environment is getting increasingly hostile due to unilateral trade restrictive measures and with the challenges to India’s subsidy framework, the coming years would no longer see a business-as-usual scenario. • India needs to boost both its competitiveness in new age sectors which will drive trade and investment in the coming decades. • At the same time it is also important to address the deficiencies in traditional sectors like agriculture, where India is a strong producer, but still maintains a weak share of global trade. During the past four-five years, India’s export performance has witnessed more of a seesaw trend. Merchandise exports were in continuous decline between 2013-14 and 2016-17, dropping from US$ 314.4 billion to US$ 275.85 billion during that period. During the past two financial years, they witnessed a revival to reach US$ 331 billion in 2018-19. But the net growth as compared to 2013-14 is just around 5.2%. The Foreign Trade Policy 2015-20 had targeted to take merchandise and services exports to US$ 900 billion by 2019-20. However by 2018-19, total exports were recorded at just US$ 535.45 billion. Exporters cite a number of reasons for this lackluster performance. While volatility in the global economy, teething troubles with the GST regime and declining commodity prices have played their part, India’s competitiveness in traditional sectors like textiles, leather & leather products and gems & jewellery has also declined. Even exports of major agri-product groups (under APEDA) have dropped from US$ 21.5 billion in 2014-15 to US$ 16.4 billion in 2018-19 (April-February). Moreover, the WTO consensus seems to be falling apart, especially with the unilateral trade restrictive measures launched by a number of countries, particularly the US. Disagreements among the leading powers on the way forward threaten to paralyse the organization. India is defending its position under stiff opposition on a number of key issues including Special & Differential Treatment to Developing Countries, e-commerce rules, fisheries subsidies and import duties on IT products. US has also attacked India for its export subsidies like duty drawback, advance authorization and SEZs under the WTO Agreement on Subsidies and Countervailing Measures (ASCM). India had crossed a GNP of US$ 1,000 thrice by 2017, and sectors like textiles have crossed the threshold of 3.25% global market share, which makes it hard for it to hold on to such subsidies for long. A major drawback for India has been its failure to sign even a single free trade agreement in the past five years, even though it has been negotiating a number of them. Moreover, existing FTAs like the one with ASEAN nations have not yielded their desired benefits either. Instead, they have led to a widening of India’s trade deficit with these regions. This conversely also implies that entering into wide-ranging trade agreements may not necessarily be a wise move for India, considering that a number of its industries lack the competitiveness to counter a possible influx of imports. An instance of this is the planned Regional Comprehensive Economic Partnership (RCEP) agreement; India has a trade deficit with 11 of the 16 RCEP nations at present. An analysis by CATR projects a potential increase in imports of around US$ 29 billion for India post-RCEP and a loss of 1.3% of GDP. Product-specific MoUs may be a better option in a number of cases, where India can leverage market opportunities on a demand basis, like the seven sector-specific MoUs signed with Kenya. It is critically important for India to strengthen its export competitiveness and stay ahead of the curve not only in the traditional industries where it stands to lose its subsidy advantages, but also in the sunrise sectors of the future. A key area of focus for the new government should be setting up of requisite infrastructure like SEZs, mega trade parks and clusters for HS Codes 84, 87, 88, 90 and 85. Products belonging to top 70% of export baskets are from these chapters. Currently, India only has 32 SEZs in these chapters out of a total of 188. High share in these chapters is a major factor driving the leadership of countries like China and Germany in global trade. Among the traditional sectors, agriculture merits special focus due to India’s intrinsic advantages as a food producer. But despite being the world’s second largest producer of agri-products, India’s share in world trade is just around 2%. The culprit is the low share of value added and processed food exports, for which India needs to aggressively promote investments in processing infrastructure, brand Indian agri products abroad and also amalgamate Indian food products with local cuisines of target markets. The Agri Export Policy 2018 has proposed a number of positive steps, like allowing unrestricted exports of most organic and processed agricultural products. India is also well behind the curve in the digital infrastructure space, which will drive the future of GDP growth and employment. An UNCTAD report finds that India continues to lag on a number of parameters in terms of digital infrastructure and value added digital services. For instance, India contributed only 2% of global software products in 2017, even though its software developer population is expected to have crossed the US and reached 5.2 million in 2018. It also ranks 134 out of 176 countries in the ICT Development Index. It is critical to spur sectors like cloud infrastructure, IoT, AI, and big data analytics, since these will also play a crucial role in the future of manufacturing. India has been an exceptional case study in the growth saga of Asian economies, as it continues to manage high rates of GDP growth despite manufacturing and exports not having picked up in accordance with the vision set by respective governments. But with the fast-paced developments in global trade as well as the impending threat to its subsidy framework, India cannot sustain on this path for long. A strong
Can India’s apparel sector restore the balance?
• A recent research report by Clothing Manufacturers Association of India (CMAI) suggests that there has been an increase in garment imports by 47% and a 5% decrease in exports during April 2018-February 2019. • Countries like Bangladesh are taking advantage of the free trade agreement with India to push their cheaper products into the country. • However, even in the larger scheme of things, India’s textile and apparel industry is struggling with numerous structural disadvantages that prevent it from being competitive in global trade. • Urgent interventions are necessary to both address structural gaps for the industry and provide it with improved market access opportunities. Indian textile exporters are quite bullish on the prospect of rising exports in the backdrop of the US-China trade war. For instance, the Synthetic & Rayon Export Promotion Council has projected a potential gain of 25% in 2019-20 for textile exports to the US. Chapters 50-60 are part of the list of Chinese export products on which the US has hiked tariffs to 25%. India’s exports of these products to the US currently stands at around US$ 1.71 billion, according to CITI. But past precedents cast severe doubts on India’s ability to capitalise on emerging opportunities in the global textile & apparel market. Apparel exporters have faced a string of reversals in trade over the past few years in particular. The industry has failed to exploit the advantage offered by the exit of China from the low price segment, and struggled to cope with the rising competition from the likes of Bangladesh and Vietnam. It has suffered another major setback with the reduced import from UAE, which has been a key market but is now building a number of manufacturing units in its free market zones. Moreover, a recent report by the Clothing Manufacturers Association of India reveals that apparel imports rose by almost 47% YoY to reach US$ 1 billion in 2018-19 (April-February), while exports declined by 5%. The report also indicates an increase in imports from countries like Bangladesh (96%), Sri Lanka (120%) and Hong Kong (171%). On one hand, direct Chinese apparel exports are decreasing, but it is also making huge investments in countries like Bangladesh and Vietnam due to availability of low cost manpower. Strong production, struggling exports It is very startling that although India features as the top producer in the world of crops like cotton and raw jute, it is dependent on other economies for meeting the requirements of garments. Moreover, this growing influx of cheap imports threatens India’s homegrown garment manufacturers. Ms. Chandrima Chatterjee, Advisor at Apparel Export Promotion Council, explicates the reasons, which are driving Indian retailers to choose foreign brands over their Indian counterparts in her interview with TPCI, “Of late, there has been an increase in India’s garment imports, especially from markets like Bangladesh. India has a Free Trade Agreement with Bangladesh, which allows it to enjoy zero duty on imported garments. With a 20% lower cost of production, such imported products have a distinct price advantage, prompting retailers in India to choose cheaper imported garments over those manufactured within the country. The cost advantage is on account of lower wage cost, cost of other inputs and better access to imported fabric from China.” However, there are other factors contributing to the relatively low competitiveness of the Indian apparel industry. Compared to its competitors, India is handicapped in terms of the time & costs involved in getting goods transported from the factory to the market. Regulations on minimum overtime pay, de facto taxes for low-paid workers & the lack of flexibility in part-time work also bring down India’s competitive edge of cheap labour. The high tariffs imposed on locally created yarn & fiber also increase the cost of production for the indigenous manufacturers. CARE Ratings Ltd. has pointed towards the mismatch between the global demand for man-made fiber (MMF) and the domestic production predominantly of cotton. Consequently, tariff policies favour cotton production vis-à-vis MMF. Discrimination in export markets has also impeded India’s apparel exports according to the findings of Economic Survey, 2016-17. Owing to their status of being a Less Developed Country (LDC), clothing exports from competitors like Bangladesh enter EU & USA (two of our major export markets) by paying zero per cent or relatively lower taxes. The conclusion of the Free Trade Agreement with EU, for instance, could give Vietnam a further leg up as compared to India. India needs to cut down its dependence on cheaper imported raw materials & fabrics as well as increase its share of garment exports. Efforts need to be made diversify production and sync it with the global demand, rationalizing taxes, which promote the production of MMF and looking for newer markets where our products can be exported. Conclusion of FTAs with key import markets is also a critical agenda for the Indian government. The Economic Survey 2016-17 projected that successful conclusion of FTAs with EU and UK would lead to increase in apparel exports by US$ 1.48 billion and US$ 603.3 million respectively. The industry also continues to be dominated by the small-scale sector. Around 78% of apparel and leather firms in India employ less than 50 workers and only 10% employ more than 500. It is important for the players to scale up and incorporate technology inputs into their operations, while also integrating operations from farm-to-fabric to build competitiveness.
Product Profile: Grapes
• The grapes market was valued at US$ 167.90 billion in 2018 and is estimated to reach a value of US$ 254.29 billion by 2024, growing at a CAGR of 7.19% • The major grape producing countries include Italy, France, the US, Spain, and China. Italy was the largest grapes producing country, with an annual production of 8.2 million metric tonnes. • Europe is the largest grapes producing region in the world, accounting for more than 45% of the world grapes production. The major grape importing countries are the US, UK, Germany, and China. • The Netherlands, UK and Germany accounted for 90% of India’s grape exports to Europe. In 2017-18, India exported grapes worth Rs 1,900 crore to Europe, though the year-on-year rate of growth had declined in that year. Table grapes are grapes intended for consumption while fresh, as opposed to grapes grown for wine production, juice production, or for drying into raisins HS CODES: 080610 and 080620 International trade of grapes has expanded rapidly over the last few decades, with out-of-season fresh produce now being traded and consumed globally. Trade concentration has been driven by emerging traders who have changed the economic geography of grape production. Improving competitiveness in global markets is a major driver for entrepreneurs and policymakers. Among continents, European countries exported the highest dollar worth of grapes during 2018 with shipments valued at US$ 3.1 billion or 29.4% of the global total. Following it in second place were exporters from Latin America excluding Mexico, but including the Caribbean at 23.8%; while 20.3% of worldwide shipments of grapes originated from Asia. North America came in next at 12.8% followed by African suppliers at 10.2%; far ahead of Oceania at 3.5%, which was led by Australia. Top grapes exporters of the world Exporters Value exported in 2018 (US$ million) Unit value (US$/unit) Share in world exports (%) World 10,488.621 100 Chile 1,388.576 1,759 13.2 United States of America 1,210.388 2,391 11.5 Netherlands 1,019.338 2,694 9.7 Italy 797.972 1,726 7.6 Peru 763.718 2,368 7.3 China 735.336 2,444 7 South Africa 720.374 1,870 6.9 Turkey 611.306 1,331 5.8 Spain 402.228 2,335 3.8 Hong Kong, China 370.508 1,840 3.5 India 332.262 1,707 3.2 Australia 326.051 2,721 3.1 Egypt 221.934 2,305 2.1 Afghanistan 220.11 999 2.1 Mexico 200.275 1,346 1.9 Source: ITC TRADE MAP The main exporters of grapes in the international market include Chile, the United States, and Italy. In 2018, the top three grape importing countries of Europe, the United Kingdom, Germany, and the Netherlands, together imported around 25% of the grapes traded globally. Most of the countries of the European region import table grapes, while countries like Italy have huge acreage under vineyards, for the purpose of the production of wine. Many of the world’s finest quality wines are produced in the European countries. A fruit for all seasons Given their rapid rate of urbanisation and disposable income growth, middle-income countries have become relevant markets for grapes. Dynamism in consumer preferences is also evident in the year-round consumer demand for fresh fruits, which matches year-round availability, with consumers willing to pay more for imported out-of-season fresh products. Advances in technology have also made international transactions easier, leading to an escalation in profitability for shippers exporting grapes and making produce ubiquitous to consumers globally, at affordable prices. Innovations in new varieties have allowed cultivators in the northern block to expand their production season and innovations in post-harvest and transportation techniques have buttressed reduce delivery time, thus helping maintain product quality and to cut shipping costs. Communication and information technology has enabled shippers to track their cargos around the world to monitor quality, reduce risks of liability claims and cut delivery time. Technology has overcome the seasonal differences, thereby expanding exports. In addition to the counter-seasonal imports (i.e. importing during the months in which production is zero), in the northern block, the southernmost countries can produce grapes earlier in spring or later in autumn than countries further north. Multiple, regional and bilateral trade agreements and reduction of tariff barriers as a result of WTO negotiations, have further boosted the trade and access to markets, thus providing consumers with an expanding array of fruits. India’s top grapes export destination in 2018, US$ million Destination US$ million World 332.26 Netherlands 97.80 Russia 50.85 UK 31.63 Germany 27.30 UAE 20.42 Saudi Arabia 18.21 Thailand 9.88 Commercially Grown Types of Grapes Name of the variety Description Berry diameter Thompson Seedless Berries are oval to oblong in shape with T.S.S.18-22o Brix, acidity 0.5 to 0.7% 16 mm to 18 mm Sonaka Berries are elongated, cylindrical and amber colored, T.S.S. around 22 o Brix, acidity 0.4- 0.7% 16 mm to 19 mm Sharad Seedless Berries are oblong to elliptical in shape and bluish black in color with T.S.S. 18-21 o Brix and acidity 0.5-0.7% 18mm to 22 mm Tas-e-Ganesh Berries are ovoid shaped and green to amber in color with T.S.S. 20-22 o Brix and acidity 0.5- 0.65% 15 mm 20mm Source: APEDA, T.S.S.18-22o Brix is the configuration of size. TSS is Tungsten Super Shot. Growing exports from India but persistent phytosanitary issues India was ranked 11th in terms of global grape exporters in 2018. The country’s top exporting destinations for grapes are Netherlands, Russia, UK and Germany. In quantity terms, India’s grape exports surged from 92,286 tonnes in 2017-18 to 121,469 tonnes in 2018-19. The city of Nashik reported grape exports at an all time high for the season ending April 30, 2019. According to data by APEDA, India’s grape exports to Europe rose by 31% yoy in 2018-19 to reach Rs 1,900 crore, with exports to Russia, China and other destinations increasing by 25-30%. Netherlands, UK and Germany took 90% share of India’s exports to the region. Currently, Thompson Seedless is the ruling grape variety occupying 55% of the area under production with its clones. About 65% of the European demand is for colored grapes, while more than 90% of India’s grape export constitutes white grapes. Getting good colored varieties can help India get a bigger
