India’s engineering exports have grown impressively over the years, but the sector needs to move beyond low- and medium-technology products. The capital goods sector has been the clear outperformer in terms of engineering exports, but is still operating way below its potential. The government announced the National Capital Goods Policy in 2016 to increase production capacities, ramp up employment and cut down on imports. To achieve sustainable growth, capital goods players need to invest in building scale and innovation in futuristic technology domains. The engineering sector is the highest contributor to India’s export basket, accounting for around 25% of total exports by value. India has earmarked a target of US$ 200 billion for engineering exports by 2025. A roadmap to achieve this target has been suggested by an EEPC India-Deloitte strategy paper, with inputs from the Department of Commerce as well as members of the industry. The paper was released at the recently concluded International Engineering Sourcing Show (IESS) Chennai, and identifies a conducive ecosystem, product-market optimisation, branding and competitive input prices (especially steel) as critical factors to achieve the target. External factors like global macroeconomic situation, investment made by the industry, performance by competitive nations and trade policies would also have a bearing on India’s progress towards achievement of this target. Transformation in product-market mix Engineering exports posted a growth of 16.81% yoy to reach a record US$ 76 billion in 2017-18. In the current fiscal, exports are expected to reach US$ 80-82 billion. Over the years, India’s engineering exports have diversified significantly vis-à-vis both products and markets. In terms of share of total engineering exports, the capital goods sector has clearly stood out, accounting for 37% share in 2017-18 compared to 12% in 1956-57. The share of primary iron & steel and items thereof has decreased from 33% to 28%, and the proportion of consumer durables has reduced from 34% to 28% during the period. When we compare the share of export destinations, the change is even starker. In 1956-57, Asia was the destination for 74% of engineering exports and Africa had a share of 23%. But by 2017-18, the portfolio has considerably diversified, with EU (21%), North America (18%), ASEAN+2 (13%) and Middle East & West Asia (11%) as the leading export destinations. While engineering export performance has improved significantly, the EEPC-Deloitte report asserts that India still hasn’t achieved leadership in any category, and still continues to export low- and medium-technology products. A case in point is the capital goods industry itself, which forms the largest share of engineering exports, and provides around 1.4 million direct and 7 million indirect jobs. The sector accounts for 12% of total manufacturing in India, and its largest subsector is electrical equipment, followed by plant equipment and earth moving/mining machinery. Although this sector has been the highlight of India’s growing engineering prowess, it still has a long way to go. Enhancing competitiveness of the capital goods sector The Government of India announced the National Capital Goods Policy in 2016, which aims to increase production from Rs 230,000 crore in 2014-15 to Rs 750,000 crore in 2025, and raise direct and indirect employment to 30 million. Furthermore, the policy targets increasing exports from 27% to 40% of production and growing the share of domestic production in India’s demand from 60% to 80%. However, the sector is still operating well below its potential at 0.6% of India’s GDP, compared to 4.1% for China, 3.4% for Germany and 2.8% for South Korea. Despite exports having grown significantly over the years, India isn’t able to meet its domestic demand for capital goods across sectors. During 2010-2015, the demand for capital goods increased at a CAGR of 10%, while the sector itself grew at a CAGR of 2%. A report prepared by McKinsey for the FICCI Capital Goods Committee identifies a number of factors hampering growth of the sector. Indian players invest around 0.5% of their turnover in R&D. In comparison, companies in Germany invest around 6% of their turnover. Capital goods accounted for only around 4.4% of total FDI into India during 2000 to 2015. Other priority areas for the sector include attracting quality talent, building a high quality domestic supplier base and leveraging G2G (government-to-government) engagements with other countries. While India has made great improvements in terms of Ease of Doing Business, there is still considerable work to be done to improve competitiveness. For instance, if India’s logistics costs are brought down from 14% to 9% of GDP, the consequent savings will amount to US$ 50 billion according to an Assocham report. Futuristic growth opportunities Moreover, capital goods players need to invest in emerging growth segments to drive sustainable growth. These include environmental solutions (like emission control equipment, output water treatment and recycle/reuse systems, etc); logistics infrastructure (railway, metro, ports, etc); aerospace & defence; urban infrastructure (water management, waste management, power, smart city solutions, etc); power (engineering, procurement & construction, components, grid upgradation, renewable energy integration, etc) and food infrastructure (fertilisers, farm mechanisation, etc). Trends in the technology landscape and proliferation of digital technologies in manufacturing could be game changers for the sector in the coming years. The emergence of Industrial Revolution 4.0 is visible in the proliferation of Internet of Things, sensors, robotics, etc. With the help of technologies like 3D printing and automated real time processes, the cost of production can come down sharply. India’s manufacturing competitiveness is improving at an impressive pace. A study by Deloitte predicts that India will jump six places to rank 5th in manufacturing competitiveness by 2020. India’s manufacturing labour cost was estimated at US$ 1.72/hour in 2015, half of China and way below US$ 37.96/hour for the US. The Indian capital goods sector needs to leverage this growing competitiveness to build scale and invest in innovation, particularly in emerging technology areas. This will enable the sector to enhance its global presence, while also clamping down on rising imports.
Egypt – hub for a 2-billion consumer market opportunity
• India-Egypt trade has increased by over five times in the past 10 years to reach US$ 3.68 billion in 2017-18. • Both countries have made a commitment to increase bilateral trade to US$ 8 billion in the coming years. • Egypt’s strategic location, trade agreements with over 70 nations and strong bilateral relations with India make it a promising hub for investment by Indian companies. • The Suez Canal Economic Zone is an emerging investment zone that Indian companies can consider to expand their business presence in Egypt. India and Egypt share a long and incredible history of bilateral ties that date back to ancient times. The edicts of Emperor Ashoka allude to his empire’s connections with Egypt under the reign of Ptolemy-II. In the more recent past, this association is reflected in the close relations and shared visions of Mahatma Gandhi and Saad Zaghoul; as well as Gamal Abdel Nasser and Jawaharlal Nehru. During a state visit to India by the latter in September 2016, Indian Prime Minister Shri Narendra Modi and Egyptian President Mr. Abdel Fattah el-Sisi issued a joint statement that highlighted political security cooperation, economic engagement & scientific collaboration and cultural & people-people ties as the basis of bilateral partnership. India-Egypt trade – exploring new horizons The India-Egypt Bilateral Trade Agreement, which is based on the Most Favoured Nation (MFN) clause, was formalised in 1978. Bilateral trade increased by over five times during the past 10 years and stood at US$ 3.68 billion in 2017-18. India’s exports touched US$ 2.39 billion, while imports reached US$ 1.29 billion during the year. After sustained engagements between government officials on both sides, India and Egypt have set a target of US$ 8 billion for bilateral trade. Investment in the Egyptian economy provides significant growth opportunities for businesses. The country’s location has made it a strategic hub for trade routes between Europe, Africa and Asia. Moreover, bilateral trade agreements provide convenient access to a consumer market opportunity of 2 billion across Europe, Asia, the Middle East and Africa. Egypt has trade relationships with over 70 countries representing more than 40% of global GDP. There is a strong case for Indian businesses to explore possible avenues of investment in Egypt. Suez Canal Economic Zone – upcoming business opportunity The Suez Canal Economic Zone (SC Zone) is one such promising investment zone spanning an area of 460 million sq m and consisting of 4 industrial areas and 6 sea ports. Two of them are integrated areas on the entrances of Suez Canal. The SC Zone aims to attract industrial investors, logistical investors and operators, sea port operators and infrastructure-related entities. Trade Promotion Council of India (TPCI) organized a roundtable seminar for its members with a visiting Egyptian business delegation comprising the SC Zone and East Port Said Development Company on March 18, 2019 in New Delhi, in association with the Embassy of Egypt. During the business roundtable, Mr Mohit Singla, Chairman, TPCI urged Indian industry to consider investment prospects in the SC Zone in order to take advantage of the strategic location, duty concessions as well as the business opportunities that extend beyond Egypt to other key markets like Africa, Middle East, Europe, US and Latin America. Some of the benefits of investment in the SC Zone, as emphasised by the visiting Egyptian delegation, are as follows: • The zone is located on the main international maritime route, which accounts for: – 20% of international container trade – 1 billion tonnes of goods – Over 18,000 ships – 10% of seaborne trade • Egypt has undertaken a number of logistics improvement projects, which include: – Doubling of Suez Canal to minimise transit time, cost of operations and attract new vehicles. – Establish a new road network of over 8,000 km that will ensure smooth connectivity between Egypt and the rest of Africa. • Low operating costs for labour as well as utilities like water, power and gas. • Streamlined processes and procedures, strong legal framework and single point of decision-making. • Facilitation for speedy setting up of business and smooth operations. • SC Zone has its own customs and taxes system that allows for flexible intervention in the interest of investments. East Port Said Industrial Zone (EP) is an industrial township being developed over an area of 16 million sq m within the SC Zone. Investors in this zone can also avail of various fiscal incentives, tax and customs exemptions. India Inc – the Egyptian connection Indian companies have built a strong presence in the Egyptian market over the years. Some of the prominent names are TCI Sanmar, Tata, GAIL, Alexandria Carbon Black, Hetero Drugs Ltd, Sun Pharma, Dabur India, Godrej, Mahindra and Monginis. Over 450 Indian companies are currently in operation in Egypt, out of which around 50 are in the manufacturing and construction sector with an aggregate investment of over US$ 3 billion. Approximately 50% of these are JVs or wholly owned Indian subsidiaries. The rest have representative offices and are involved in projects for Government organisations. India’s presence spans a wide gamut of sectors including apparel, agriculture, chemicals, energy, automobiles, retail and others. Overall, Indian companies provide employment to around 35,000 Egyptians. Considering the positive trajectory in bilateral economic relations, Egypt’s strategic location as a hub for business investment, and a strong precedent in terms of successful forays by Indian companies, it certainly makes sense for Indian companies to explore investment opportunities like the SC Economic Zone for their long-term growth.
Indo-China trade: Is the balance tilting?
• India’s trade deficit with China declined by 12.1% during April-December, 2018 to reach US$ 41.3 billion. • Primary & intermediate products dominate India’s exports to China, while imports are led by electrical & electronic equipment and pharmaceuticals. • The Department of Commerce is actively exploring possible export opportunities to reduce the trade deficit, particularly in the aftermath of the US-China trade war. These measures are beginning to show their intended impact. • It is critical for India to push for further market access and enhance domestic manufacturing capacities, both to shrink the trade deficit and reduce dependence on China for critical imports. India’s huge trade deficit with China has been a persistent area of concern over the years. In 2017-18, the trade deficit had reached a record high of US$ 63 billion. However, the tables seem to have turned quite significantly this year, with India’s exports to China posting a strong yoy growth of 34% during April-December, 2018-19 to reach US$ 12.7 billion. In comparison, exports to China for the entire fiscal year 2017-18 stood at US$ 13.33 billion On the other hand, imports from China have witnessed a decline by 4.5%. This is quite a favourable equation, considering that India’s overall exports have increased by less than 10% during the period while imports have increased by 14% yoy. As a result, India’s trade deficit with China declined by 12.1% during April-December, 2018-19 to reach US$ 41.3 billion. India is expected to register the sharpest ever decline in its trade deficit with China this year. India-China trade analysis The trade deficit between India and China has widened alarmingly over the years. It stood at just US$ 671 million in 2000-01. Imports from China increased sharply from US$ 1.5 billion in 2000-01 to US$ 76 billion in 2017-18, accounting for 16.4% of India’s exports. India’s exports to China, on the other hand, have not increased at the same pace. Exports were at US$ 3 billion in 2003-04 and reached their peak of US$ 18 billion in 2012-13. However, in 2017-18, they stood at just US$ 13 billion. Two commodity groups form a major share of India’s imports from China – electrical and electronic equipment and pharmaceuticals. China accounted for over 60% of India’s electric and electronic equipment imports and 75% of imports of active pharmaceutical ingredients. India’s exports largely comprise intermediate products and raw materials including cathodes, petroleum oils and iron ore & concentrates. There is a need to enhance manufacturing capacity within India to enhance the exports of value added products as well as to reduce dependence on China for critical product lines. In the present fiscal, petroleum products have contributed the most to growth in India’s exports to China, growing by over 2.5 times yoy during 2017-18. Other products that have led growth include marine products, organic chemicals, plastics, petroleum products and rice. Potential export opportunities Last year, India had proposed to conduct bilateral trade in local currencies (rupee/renminbi) with China to reduce the trade deficit. China had refused to accept this proposal. However, after sustained discussions between the two countries, China has agreed to reduce barriers for India’s exports in some commodities to reduce the trade deficit. It has removed import restrictions for non-basmati rice, sugar and some pharmaceutical products from India. High quality farm products are high on the agenda, as China also plans to remove restrictions for rapeseed, bananas, soya, buffalo meat, oil meal and groundnut. The ongoing US-China trade war also promises enhanced export opportunities for Indian exporters, as the two countries have imposed retaliatory tariffs on each other’s products. A study by the Department of Commerce identified at least 100 products wherein India can benefit from declining US exports to China. The most prominent product groups in this list are cotton, corn, almonds, wheat and sorghum. India has market access for some of these products including fresh grapes, cotton linters, steel boiler tubes and flue cured tobacco. However, there are certain product groups where India does not have market access to China currently, like fresh/dried oranges, corn, durum wheat and grain sorghum. While US exports to China in these products face tariffs of 15-25%, exports from other countries face tariff rates of 5-10%. India can also avail of additional duty concessions of 6-35% on the MFN under the Asia Pacific Trade Agreement. A report by UNCTAD estimates that India could gain as much as US$ 2.65 billion owing to China’s tariffs on US imports. The sector expected to benefit the most is chemicals and plastics, with a potential upside of US$ 1 billion. The Department of Commerce had proactively identified potential growth opportunities in collaboration with Indian exporters and other stakeholders in the aftermath of the US-China trade war. The Department signed three protocols to open access to Indian exporters from China for Indian rice (to include non-basmati rice, June 2018), fishmeal/fishoil (November 2018) and tobacco (January 2019). Protocols for soybean meals, cakes and pomegranates could be finalised soon. India has also asked China to announce its import quotas for sugar and rice in advance, so that Indian exporters can be better prepared. As efforts by the government for enhanced market access to China bear fruit, Indian exporters need to ensure that they leverage the benefits of these opportunities in the coming years.
India’s exports to set new record in 2018-19
• India’s exports are projected to reach an all-time high of US$ 325-330 billion in 2018-19. • During April-January 2018-19, electronic goods, petroleum products and plastic & linoleum have shown the highest growth. • India’s export performance is significant in light of the challenges presented by growing protectionism to global trade. • The Department of Commerce is taking several measures to improve India’s trade balance, including diversifying India’s export basket. During his address to global CEOs and trading partners at the eighth International Engineering Sourcing Show (IESS) Commerce Secretary Mr. Anup Wadhawan expressed confidence that India’s exports will reach a record high in 2018-19. Engineering exports are expected to be a major contributor to this growth. Mr. Wadhawan commented, “This year has been particularly good for us. We are likely to touch an all-time record and go past our earlier peak which was in 2013-14 at $314 billion and we hope to reach about $325-330 billion this year.” He added that India’s engineering exports have managed to post robust growth in the past few years despite global challenges including unilateral protectionist measures by various countries. According to Mr. Ravi Sehgal, chairman, EEPC India, engineering exports in FY 2018-19 are expected to reach US$ 80-82 billion. India’s total exports during April-January 2018-19 were estimated at US$ 439.98 billion, a growth of 9.07% yoy. Imports had reached US$ 530.55 billion, exhibiting a growth of 10.74% yoy, taking the trade deficit to US$ 90.58 billion. Exports in January were led by engineering goods (24.71%), gems & jewellery (12.32%), petroleum products (12.19%) and organic & inorganic chemicals (7.07%). Among the top 10 commodities of exports (80% share), electronic goods (38.66%), petroleum products (34.16%) and plastic & linoleum (30.45%) have exhibited the highest yoy growth during April-January, 2018-19 (source: DGCIS). In January 2019, major commodity groups showing growth included engineering goods (1.07%), gems & jewellery (6.67%), organic & inorganic chemicals (15.56%), drugs and pharmaceuticals (15.2%) and RMG of all textiles (9.33%). Protectionism – threatening to derail global trade A major challenge could be looming for Indian exporters in the form of deteriorating trade relations with the US, which is India’s largest export market (one-sixth of exports by value). The Donald Trump administration has been critical of India’s trade policies, with the President himself accusing India of not assuring ‘equitable and reasonable access’ for US exports to its markets. In fact, Trump has also referred to India as the ‘tariff king’, often taking the example of high import duties on Harley Davidson motorcycles. In line with his larger objectives to rebalance US’ trade relations (starting with China), Trump is now attempting to reduce US trade deficit with India, which stood at US$ 27.3 billion in 2017. Other key concerns of the US vis-à-vis its trade relations with India include India’s ‘protectionist’ policies in agriculture, IP regime and tariff hikes on a number of manufactured products including mobile phones & auto parts. The revised e-commerce policy and data localisation laws are also expected to hurt US companies. On the other hand, India’s concerns largely centre on H1B visa restrictions by the US as well as the announced duty hikes on some steel and aluminium products in 2018. Trump recently announced withdrawal of preferential trade status to India and Turkey under the Generalised System of Preferences (GSP). India’s exports to US under GSP stood at around US$ 5.6 billion with duty benefit at around US$ 190 million annually. Although the impact of this decision is not substantial for India, prospects of an India-US trade war are brewing. India is exploring options to impose higher duties on US imports of walnuts, chickpeas, lentils, boric acid and diagnostic regents. This will add an estimated duty burden of US$ 290 million on these products. The retaliatory tariff measures were proposed in June 2018, after the US announced higher tariffs on steel and aluminium products. But they were deferred six times in anticipation of a bilateral trade dialogue. While restrictive US trade policies dominate the headlines, trade protectionism is a rising threat across the globe, despite historical lessons on the benefits of open trade. The WTO’s World Trade Outlook Indicator’s latest reading on February 19 was 96.3, the weakest since March 2010 and indicating below-trend trade expansion for the first quarter. The WTO forecasts a slowdown in trade growth from 3.9% in 2018 to 3.7% in 2019, largely due to trade tensions and tight credit market conditions. Government focus – Doubling India’s exports by 2025 The Ministry of Commerce & Industry is working on an action plan to with the objective of making India a US$ 5 trillion economy by 2025. The Department of Commerce has targeted doubling of India’s exports by that year. Among the major policy measures to boost exports, the Ministry has earmarked 12 champion sectors, to be given special attention to enhance their competitiveness, create more jobs and increase exports. These include: IT/ITeS, Tourism and Hospitality Services, Medical Value Travel, Transport and Logistics Services, Accounting and Finance Services, Audio Visual Services, Legal Services, Communication Services, Construction and Related Engineering Services, Environmental Services, Financial Services and Education Services. India’s services sector’s share in global services exports stood at 3.3% in 2015, and the target is to increase it to 4.2% by 2022. The Ministry has also announced India’s first ever Agri-Export policy, which aims to enhance India’s exports to US$ 60 billion by 2022. Policy measures aim to integrate India’s agricultural products with global value chains and double its share in world agriculture, thereby boosting farmer incomes. Other major policy measures by the government to boost exports include easing credit flow to the exports sector, enhancing ease of doing business, greater digitization and assistance for setting up and up-gradation of infrastructure projects with overwhelming export linkages through Trade Infrastructure for Export Scheme (TIES). Notably, the Department of Commerce is also making efforts to diversify India’s export basket by products and countries. India has signed free trade agreements (FTAs) with a number of countries. Mr Wadhawan has urged
Egypt SEZs looking at Indian investment
An official delegation from Egypt, comprising of Government and privately owned SEZs in Egypt, is coming to India to seek investments from light and medium industries such as, but not limited to, automotive (auto parts, tyres and rubbers, automobile manufacturers), machinery (construction machinery & heavy trucks, agriculture & farm machinery, and industrial machinery), chemicals (industrial chemicals and household chemicals), packaging (paper packaging, metal and glass containers), food products (agriculture products, packaged foods and meats), building material (construction material) and electrical equipment (electronics & home appliances, and household products). Trade Promotion Council of India (TPCI) in association with the Embassy of Egypt in New Delhi, is organizing a roundtable seminar on 18th March with the visiting Egyptian delegation, composed of senior officials from the Government owned Suez Canal Economic Zone (SC Zone) and two private SEZs including East Port Said Development Zone and Industrial Development Group. This meeting is being organized on the side-lines of 14th CII Exim Bank Conclave on India-Africa Project Partnership being held from 17-19 March, 2019. The SC Zone is the Governmental authority responsible for the development projects along the Suez Canal corridor. Spanning an area of 460 million square meters, the development project is considered a promising investment zone consisting of 4 industrial areas, 6 sea ports, two from are integrated areas on the entrances of Suez Canal (East Port Said in North and Al-Sokhna in South). The SC Zone delegation, headed by Mohamed Abdelaziz Brai (Vice Chairman) is looking forward to attract industrial investors, logistical investors and operators, sea port operators and infrastructure related entities. The East Port Said Industrial Zone (EP) is a private venture being built to become one of the most competitive townships in the world for global manufacturers. Built on an area of 16 million square meters and strategically situated at the crossroad of Africa, Europe and Asia, the SEZ offers various fiscal incentives, tax and customs exemptions to investors from a large gamut of trades. The delegation is being headed by Mr. Sameh Attia, the Managing Director. The Industrial Development Group too is a private owned company responsible for developing Engineering Square Industrial Park, Al Alameen Industrial Zone, and couple of other specialized industrial parks. The parks, open to all industrial sectors, offer investors the opportunity to rent, lease, buy industrial space or purchase land plots and build their own assembly and/or manufacturing lines abiding by the same architectural standards of the park. Informs Mohit Singla, Chairman TPCI: “Over 450 Indian companies are operating in Egypt of which around 50 are in manufacturing and construction with a combined investment exceeding US$ 3 billion. Approximately half are joint ventures or wholly owned Indian subsidiaries while the rest operate through their representative offices and execute projects for Government organizations. Major Indian investments in Egypt include TCI Sanmar (with a value of US$ 1.5 billion), Alexandria Carbon Black, Kirloskar, Dabur India, Egypt-India Polyester Company (EIPET), SCIB Paints, Godrej, Mahindra and Monginis. Indian companies also execute projects in railway signalling, pollution control, water treatment, irrigation, anti-collision devices etc. Indian Pharmaceutical major Hetero Drugs Ltd launched a JV in May 2015 to produce a Hepatitis-C drug and Sun Pharma has recently commenced operations. Indian companies are present in almost every sector including apparel, agriculture, chemicals, energy, automobiles, retail and others. Overall, these companies provide direct and indirect employment to approximately 35,000 Egyptians. The Egyptian delegation to India, through TPCI, is looking to attract more investments in Egypt, which has traditionally been one of India’s most important trading partners in the African continent.” Informs Dr. Khaled Melad Rezek, Commercial Counsellor of the Embassy of the Arab Republic of Egypt: “India is Egypt’s 10th largest export destination and also the 10th largest import source for Egypt. The bilateral trade between India and Egypt has increased more than five times in last ten years, courtesy India-Egypt Bilateral Trade Agreement, which has been in operation since March 1978. It has shown positive growth in 2017-18 to reach the level of US$ 3.68 billion. Egypt is seeking further investments from India so as to take India-Egypt relations to new heights.” The imports from Egypt were worth of US$ 1.29 billion during FY 2017-18. India’s exports to Egypt during FY 2017-18 recorded US$ 2.39 billion. The top five Indian exports during this period were meat, light vessels & floating cranes, petroleum oil, cotton yarn and motor cars while the top five Indian imports were petroleum oil, petroleum gases and other gaseous hydrocarbon, natural calcium phosphates, raw cotton and coke & semi-coke. Being the world’s second largest producer of synthetic fibre and yarn, cotton, cellulosic fibre and silk, India exported around US$ 342 million worth of textile and clothing products to Egypt in 2017-18. The cotton yarn was the dominant product in the export basket, valued at US$ 163 million followed by man-made yarn fabrics valued at US$ 121 million and cotton fabrics at US$ 25 million. Egypt is a significant and important market in North Africa for Indian exports of yarn and fabrics. Great possibilities exist between the two countries to enhance bilateral cooperation in key areas like automotive industry, textiles, processed Agri products and leather products. Outlook of Egyptian Economy Looking ahead, the economic outlook appears bright. Although inflation has picked up recently on the back of energy subsidy cuts and higher food prices, it is expected to moderate going forward, easing the financial strain on consumers. In addition, higher salaries and pensions in the public sector are likely continue to support private consumption. Meanwhile, investment should reap further benefits from recent reforms to improve the business environment and higher government investment spending this fiscal year. Expert expects GDP to expand 5.2% in FY 2019, which is unchanged from last month’s forecast, and 5.2% again in FY 2020. Import tariff rates faced applied by Egypt for Indian products on meat products, automobiles, articles of iron and steel, stone, cement, mica and construction items are significantly higher. If these import tariffs are worked out, then India’s export can further escalate.
Product Profile – Yogurt
Photo by Life Of Pix from Pexels Worldwide sales for yogurt exports by country totalled US$2.4 billion in 2018. The overall value of yogurt exports increased by an average 3.8% for all exporting countries since 2013 when yogurt shipments were valued at $2.28 billion. From 2017 to 2018, the value of globally exported yogurt improved by 2.6%. Among continents, European countries generated the strongest international sales for exported yogurt during 2017 with shipments valued at $1.9 billion or more than three-quarters (79.3%) of the global total. In second place were Asian exporters at 12.7% while 3.7% of worldwide yogurt shipments originated from North America. Smaller percentages came from Africa (2.3%), Oceania mostly Australia and New Zealand (1%) and Latin America excluding Mexico but including the Caribbean (also 1%). The 6-digit Harmonized Tariff System code prefix is 040310 for yogurt including plain and sweetened versions. Below are the 15 countries that exported the highest dollar value worth of yogurt during 2018. 1. Germany: US$573.6 million (23.6% of total exported yogurt) 2. France: $308 million (12.7%) 3. Saudi Arabia: $208.1 million (8.6%) 4. Greece: $155.4 million (6.4%) 5. Austria: $133.7 million (5.5%) 6. Spain: $110.8 million (4.6%) 7. United Kingdom: $70.1 million (2.9%) 8. Poland: $68 million (2.8%) 9. Czech Republic: $55.3 million (2.3%) 10. Thailand: $54.7 million (2.3%) 11. Netherlands: $49.4 million (2%) 12. Belgium: $47.9 million (2%) 13. United States: $47.1 million (1.9%) 14. South Africa: $44.7 million (1.8%) 15. Luxembourg: $36.8 million (1.5%) By value, the listed 15 countries shipped 80.8% of global yogurt exports in 2018. Among the top exporters, the fastest-growing yogurt exporters since 2013 were: Netherlands (up 203.9%), Luxembourg (up 122.6%), Greece (up 42.1%) and Thailand (up 39.7%). Those countries that posted declines in their exported yogurt sales were led by: France (down -31.5%), Austria (down -30.8%), Czech Republic (down -20.7%), Belgium (down -20.2%) and Spain (down -19.5%). Opportunities The following countries posted the highest negative net exports for yogurt during 2018. Investopedia defines net exports as the value of a country’s total exports minus the value of its total imports. Thus, the statistics below present the deficit between the value of each country’s imported yogurt purchases and its exports for that same commodity. 1. Italy: -US$246.9 million (net export deficit up 0.8% since 2013) 2. United Kingdom: -$171.1 million (up 5.3%) 3. Portugal: -$109.5 million (down -29.8%) 4. Sweden: -$107.5 million (down -17.8%) 5. Belgium: -$94.6 million (up 3.4%) 6. Netherlands: -$79.8 million (down -3.9%) 7. Spain: -$79.2 million (down -56.7%) 8. United Arab Emirates: -$61 million (down -14.6%) 9. Oman: -$55.6 million (up 36.5%) 10. China: -$53.1 million (up 330.3%) 11. Kuwait: -$44.4 million (up 983.8%) 12. Hungary: -$37.5 million (up 131.4%) 13. Singapore: -$34.5 million (up 40.4%) 14. Hong Kong: -$26 million (up 56.5%) 15. Angola: -$25.6 million (down -41.2%) Italy incurred the highest deficit in the international trade of yogurt. In turn, this negative cashflow highlights Italy’s competitive disadvantage for this specific product category but also signals opportunities for yogurt-supplying countries that help satisfy the powerful demand.
India to focus on developing Hydro Power Sector
Photo by Sharath G. from Pexels India, a country blessed with natural resources and endowed with large hydro power potential of 1,45,320 MW of which only about 45,400 MW has been utilized so far, is poised to develop this huge potential further. The decision was taken recently at the Union Cabinet meeting that was chaired by Prime Minister Narendra Modi. The Cabinet approved measures to promote Hydro Power Sector further, including Declaring Large Hydropower Projects (HPO) as part of non-solar Renewable Purchase Obligation (RPO). Interestingly, this decision has been taken at a time when only about 10,000 MW of hydropower has been added in the last 10 years and the share of hydropower in the total capacity has declined from 50.36% in the 960s to around 13% in 2018-19. Besides being environment friendly, hydropower has several other unique features like ability for quick ramping, black start, reactive absorption etc. which make it ideal for peaking power, spinning reserve and grid balancing/ stability. Further, hydropower also provides water security, irrigation and flood moderation benefits, apart from socio-economic development of the entire region by providing employment opportunities and boosting tourism etc. The importance of hydropower is increasing even more as the country has targeted to add 160 GW of intermittent Solar and Wind power by 2022 and 40% of the total capacity from non-fossil fuel sources by 2030 to honour its Nationally Determined Contribution for Climate Change. However, DISOMS are reluctant sign Power Purchase Agreements (PPAs) Hydro Power due to higher tariff, particularly, in the initial years. One of the reasons for high tariff of hydropower is the loading of cost of flood moderation and enabling infrastructure in the project cost. In this backdrop, the decision has been taken to adopt measures to promote hydropower sector including providing budgetary support for flood moderation cost and enabling infrastructure cost and tariff rationalization measures to reduce tariff and thus the burden on the consumer. As most of the hydro power potential is located in the higher reaches of Himalayas and North- East Region, it will result in overall socio-economic development of the region by providing direct employment in the power sector. It will also provide indirect employment/ entrepreneurial opportunities in the field of transportation, tourism and other small scale businesses. Another benefit would be of having a stable grid considering 160 GW capacity addition by 2022 from infirm sources of power like solar and wind. The hydropower energy stands above its counterparts as it is highly capital-intensive mode of electricity generation but being renewable source of energy with no consumables involved; there is very little recurring cost and hence no high long term expenditure. It is cheaper as compared to electricity generated from coal and gas fired plants. It also reduces the financial losses due to frequency fluctuations and it is more reliable as it is inflation free due to not usage of fossil fuel. In India, the public sector accounts for 92.5% of nation’s hydroelectric power production. Internationally, 2700 TWH is generated every year through hydroelectric power production. At least 50% of electricity production in 66 countries and at least 90% in 24 countries is through this medium. Three gauges project in China on Yang-Yang River is the largest power station in the world having installed capacity of around 18,200 MW while the world’s Largest Hydro Electric Power Station is ITAIPU with installed capacity of 12600 MW and a reliable output of 75,000 MU in a year. It is located at the Border of Brazil and Paraguay. In India, the oldest Hydropower power plant is in Darjeeling District in West Bengal. Its installed capacity is 130KW and was commissioned in the year 1897. The National Hydroelectric Power Corporation (NHPC), Northeast Electric Power Company (NEEPCO), Satluj Jal Vidyut Nigam (SJVNL), THDC, and NTPC-Hydro are some of the public sector companies producing hydroelectric power in India. Some of the major hydro-electric power stations in India are as follows: Tehri Dam (Uttarakhand), Koyna Hydroelectric Project (Maharashtra), Srisailam (Andhra Pradesh), Nathpa Jhakri (Himachal Pradesh), Sardar Sarovar Dam (Gujarat), Bhakra Nangal Dam (Himachal Pradesh), Chamera I (Himachal Pradesh), Sharavathi Project (Karnataka), Indira Sagar Dam (Madhya Pradesh), Karcham Wangtoo Hydroelectric Plant (Himachal Pradesh), Dehar (Pandoh) Power Project (Himachal Pradesh), Nagarjuna Sagar Dam (Andhra Pradesh), Purulia Pass (West Bengal), Idukki (Kerala), Salal I & II (Jammu & Kashmir), Upper Indravati (Odisha), Ranjit Sagar Dam (Punjab), Omkareshwar (Madhya Pradesh), Belimela Dam (Odisha) and Teesta Dam (Sikkim).
Countering Trump’s stand on India’s protectionist outlook
While justifying the withdrawal of GSP rates, the US President Trump pronounced recently that India is an economy which applies high and complex protectionist measures. In this article, we are analysing technically the real picture of Indian tariff and non-tariff structure of some significant products and comparing it with major developed and developing economies. Tariff reduction in industry was one of the most important outcomes of the Uruguay round of multilateral trade negotiations. Although successive rounds of multilateral negotiations had succeeded in significantly reducing tariffs on non-agricultural products, the Uruguay Round alone achieved an overall reduction of 40% in average trade weighted tariffs for developed economies and 30% for economies in transition. Therefore, tariff rates agreed upon and implemented as a result of this round are significantly lower relative to tariff rates prevailing in the previous GATT Rounds. Despite the success of the Uruguay Round, substantial tariff barriers remain. While tariff rates have been significantly reduced in average terms, tariff reductions do not spread out evenly across all economies and sectors. High tariffs are commonly found in certain sectors and remain a barrier to free trade. Besides, there are ‘tariff peaks’ which are relatively high tariffs amidst generally low tariff levels. A 50 percent import tariff on cotton fabric while the average tariff on textiles is 5 percent would be an example of a tariff peak. Finally, there is an issue of tariff escalation in which higher duties are applied on semi-processed products than on raw materials and higher still on finished products. No import tariff on raw cacao beans, a 20 percent tariff on roasted ones, and a 60 percent tariff on chocolate bars is an instance of tariff escalation. Tariff escalation protects domestic processing industries but discourages the development of processing activity in the countries where raw materials originate. For trade promotion, efforts to enhance export performance will require not only technical assistance aimed at strengthening the institutional infrastructure for trade and trade policy, but also initiatives aimed at enhancing the outward orientation of the private sector. Enterprise-oriented technical cooperation programmes can underpin efforts to improve international marketing and business development, especially in the developing and LDC (least developed countries) economies, by focusing on product and market development, trade finance, export quality management, export packaging, and training in international purchasing and supply management. Under the right conditions, the pay-off to such efforts can be even higher when special attention is given to the needs of small and medium size enterprises. After the significant reduction – and, in many cases, elimination – of import tariffs during the past two decades, further reductions in trade costs will have to be achieved by tackling the non-tariff sources of trade costs, which now account for more than 90% of overall international trade costs. Increasing importance of food safety standards and agriculture health standards around the world are affecting international trade significantly. Most of the policies and regulations are designed to sustain minimum level of standards to ensure human, animal and plant health. However these standards are double edge swords that may be used with protectionist motive for providing shield to domestic producers. Interestingly, these regulations and standards are not only used to hinder the trade but also to facilitate trade. An analysis of Sanitary and Phytosanitary (SPS) measures notified to the SPS committee point out that there is an increasing trend towards WTO members implementing measures that depart from international standards. The increasing SPS requirements especially from developed countries and the inability of developing countries to comply to those measures often leads to lot of SPS-related disputes . More to the point, the foremost complexity in dealing with these standards is to distinguish those measures which are justified by legitimate goods from those which are imposed for protectionists’ purpose. Sanitary (human and animal health) and Phytosanitary (plant health) measures can take many forms, such as inspection of products, specific treatment, setting of allowable maximum level of pesticide residues, etc. Some SPS regulations are in place to protect animal and plant health from imported pest and disease, while a particular type of SPS known as MRL are designed to safeguard human health. MRLs describe the maximum legal level of concentration of pesticides or food additives that a country is willing to accept in or on the surface of food products. India has comparative advantage in both production and export of various food products. However it is interesting to note that the Indian food products’ exports face the largest amount of NTMs, which ultimately contribute a major loss to India’s export basket, both in terms of value and volume. The impact of trade standards may be reflected by the number of rejection of consignments on crossing the border, thus negatively affecting India’s exports. In the fresh Fruit and Vegetable segment, developing economies are having relatively higher tariff rates (MFN applied converted) than developed economies, With Turkey, India, Israel, China, Mexico and Vietnam having more than 20% tariff rate on imported values, economies like Australia, Brazil, USA, Canada and Chile are imposing NTMs in such a manner that it is currently creating hurdles for exporters to export the respective products to these economies more than exporting it to countries like India. In the segment of Meat Products, apart from Australia, USA and Chile, other economies are imposing moderate to high import tariff rates. Turkey being an outlier is imposing average of 143% of tariff followed by Canada. Here India is placed in moderate category of import tariffs along with Russia, Vietnam, Mexico and South Korea. But when it comes to NTBs India and Turkey are imposing minimum NTBs, China imposing maximum NTBs followed by Australia, Canada and Chile. It is clear that those economies, having comparative advantage on concerned products, actually implement protectionist measures through NTMs. Thus, hindrances are actually practiced by implementing Non-Tariff Barriers. For example, Australia, only levies 2% import tariff on meat products but 193 NTMs out of which 91 are related to export related barriers. In the case of beverage
India in Penultimate stage of Finalizing E-commerce Policy
Photo by Oleg Magni from Pexels The Department for Promotion of Industry and Internal Trade (DPIIT) circulated the draft e-commerce policy couple of weeks back in which it proposed regulating cross-border data flows, locating computing facilities within the country to ensure job creation and setting up a dedicated data authority for issues related to sharing of community data. It asserted that the data generated in the country is a national asset and citizens and the government have a sovereign right over it. But due to the incongruity between the government and the companies with respect to exporting AI (artificial intelligence) product, the stakeholder companies asked the government to come up with ways to boost exports by small manufacturers in India and expressed its interest in sourcing products from India for the world. Companies further added that by restricting the flow of data to third parties, India’s innovative AI start-ups could be hurt. Global ecommerce player Amazon explained that since offline and online retail are merged today, the government shouldn’t only focus on restricting the sale of counterfeit products online because these would get pushed offline, achieving no real result for brands and customers. According to the private players, the e-commerce policy can be split into an e-commerce policy and a business data policy and the business data should cover all businesses including telecom, banks and retail trade. They also seconded that there must be restriction on when the government can ask for data from companies, permitting it only in law and order investigation situation, but not otherwise. It seems private players don’t want government to intervene much as data is something which is extremely sensitive for them. Let’s try to see the reason behind this aloof approach. With the growth of cross-border trade in e-commerce, this sector is now discussed in multilateral forums such as the World Trade Organization (WTO), G-20, and the Organisation for Economic Co-operation and Development (OECD). The WTO is the exclusive forum for negotiating and enforcing global rules governing cross-border trade in goods and services. The past decade has seen double-digit growth in e-commerce trade, which is fuelled by development of different business models; liberalisation of services such as telecommunications; technological developments; penetration of broadband, Internet and smartphones; and government support for digitisation. According to the United Nations Conference on Trade and Development (UNCTAD), global e-commerce market was worth approximately US$22.1 trillion in 2015-16. Global Business-to-Business (B2B) sales were valued at US$22.4 trillion and Business-to-Consumer (B2C) sales at US$2.9 trillion. While developed countries such as the US and UK are large markets for e-commerce, over 40% of the total global e-commerce spending comes from China, Brazil, India, and the Republic of Korea. The US and China are among the largest exporters of e-commerce, while India is among the fastest growing markets. A study by Technavio (2016) estimated that the global e-commerce market will grow at a compound annual growth rate (CAGR) of over 19% till 2020. In recent years, a number of Indian start-ups have emerged in areas such as e-retailing (Flipkart, Snapdeal), credit lending (Faircent), food delivery services (Swiggy.com, Fresh to Home, ID Fresh Food), and logistics management services (FarEye, Unbxd). India’s e-commerce market is expected to grow at a burgeoning rate of 29% from 2020 to 2025, which is way higher than global growth rate. Rising number of high-speed internet users is encouraging businesses to innovate and offer a diversified array of products & services online. Over the last few years, with significant improvements in the payment structure in e-commerce market, consumers in India are gradually shifting towards online space and are shedding their belief of online shopping medium being unsafe. Consumer electronics, online travel and apparel & accessories are the market segments exhibiting promising growth. With the option of same day delivery, online groceries stores are also entering into the country’s online space Concerns While regulation is developing, there are some breaches in regulations and policies. For example, India is one of the few countries that does not allow FDI (foreign direct investment) in inventory-based model for e-commerce, which has bound global e-commerce companies such as Amazon.com. Further, there are issues related to protection of intellectual property rights, consumer privacy, and regulation of global e-commerce and technology giants. The country is yet to have robust national security and data protection regulations, and there is no clear policy on how to tax e-commerce transactions. There needs to be a critical analysis on the regulations implemented by other developed and developing countries on issues such as data protection, intellectual property rights, data storage (server localisation), and consumer privacy, and design its own regulations based on global best practices and the country’s requirements. It can also collaborate with like-minded countries to develop strategies to protect domestic policy space. RCEP Angle The completion of the e-commerce provisions of the Regional Comprehensive Economic Partnership (RCEP) is expected to be completed within the first half of the year. Members are looking to conclude, among others, the core chapter which concerns market access for goods, investments and services. The pact involves the 10 ASEAN member states, plus Australia, China, India, Japan, South Korea and New Zealand. Once concluded, RCEP will be one of the biggest free trade agreements with the 16 participating countries accounting for almost half of the world population; 31.6% of global output; 28.5% of global trade; and a fifth of the global foreign direct investment inflows
Country Profile – Egypt
Photo by Spencer Davis from Pexels Egypt is the 62nd largest export economy in the world and the 72nd most complex economy according to the Economic Complexity Index (ECI). In 2017, Egypt exported $30.1B and imported $64.1B, resulting in a negative trade balance of $34B. In 2017 the GDP of Egypt was $235B and its GDP per capita was $11.6k. Occupying the northeast corner of the African continent, Egypt is bisected by the highly fertile Nile valley where most economic activity takes place. Egypt’s economy was highly centralized during the rule of former President Gamal Abdel NASSER but opened up considerably under former Presidents Anwar EL-SADAT and Mohamed Hosni MUBARAK. Agriculture, hydrocarbons, manufacturing, tourism, and other service sectors drove the country’s relatively diverse economic activity. Despite Egypt’s mixed record for attracting foreign investment over the past two decades, poor living conditions and limited job opportunities have contributed to public discontent. These socioeconomic pressures were a major factor leading to the January 2011 revolution that ousted MUBARAK. The uncertain political, security, and policy environment since 2011 has restricted economic growth and failed to alleviate persistent unemployment, especially among the young. In late 2016, persistent dollar shortages and waning aid from its Gulf allies led Cairo to turn to the IMF for a 3-year, $12 billion loan program. To secure the deal, Cairo floated its currency, introduced new taxes, and cut energy subsidies – all of which pushed inflation above 30% for most of 2017, a high that had not been seen in a generation. Since the currency float, foreign investment in Egypt’s high interest treasury bills has risen exponentially, boosting both dollar availability and central bank reserves. Cairo will need to make a sustained effort to implement a range of business reforms, however, to induce foreign and local investment in manufacturing and other labor-intensive sectors. Egypt’s top exported and imported Agri Products Top exported products (Million US$) Value HS CODE Top imported products (Million US$) Value HS0805 Citrus fruit, fresh or dried 634 HS1001 Wheat and meslin 2 624 HS0406 Cheese and curd 273 HS1005 Maize (corn) 1 723 HS0701 Potatoes, fresh or chilled 273 HS0202 Meat of bovine animals, frozen 1 029 HS1701 Cane or beet sugar 235 HS1201 Soya beans, whether or not broken 864 HS0703 Onions, shallots, garlic, leeks 234 HS1701 Cane or beet sugar 800 Egypt’s top exported and imported Non-Agricultural Products Top exported products (Million US$) Value HS CODE Top imported products (Million US$) Value HS2710 Petroleum oils, other than crude 2 440 HS2710 Petroleum oils, other than crude 5 577 HS7108 Gold 2 107 HS2711 Petroleum gases 3 513 HS2709 Petroleum oils, crude 2 106 HS3004 Medicaments in measured doses 1 961 HS3102 Nitrogenous fertilisers 974 HS2709 Petroleum oils, crude 1 751 HS8544 Insulated electric conductors 766 HS8703 Motor cars for transport of persons 1 683 India-Egypt Trade and Commercial Relations: India’s top 10 exports to Egypt HS CODE Product Labels India’s exported value to Egypt in USD Million in 2017 Equivalent ad valorem tariff faced by India in % TOTAL All products 2349.534 020230 Frozen, boneless bovine meat 265.895 0 271019 Medium oils and preparations 194.869 5 390760 Polyethylene terephthalate”, in primary forms 91.213 0 870321 Motor cars 73.761 27 281820 Aluminium oxide (excluding artificial corundum) 62.546 2 520523 Single cotton yarn 60.926 5 520524 Single cotton yarn with different densities 37.408 5 100630 Semi-milled or wholly milled rice 35.784 0 540233 Textured filament yarn of polyester (excluding that put up for retail sale) 25.541 5 294200 Separate chemically defined organic compounds 25.471 2 India’s top 10 imports from Egypt HS CODE Product Labels India’s imported value from Egypt in USD Million in 2017 Equivalent ad valorem tariff faced by India in % TOTAL All products 1216.074 2709 Petroleum oils, crude 701586 0 2510 Natural calcium 121.002 5 2711 Petroleum gas and other gaseous hydrocarbons 115.837 4 5201 Cotton, neither carded nor combed 45.640 0 2704 Coke and semi-coke of coal 34.010 5 7005 Float glass and surface ground or polished glass 21.530 10 805 Citrus fruit, fresh or dried 17.430 30 1209 Seeds, fruits and spores 16.685 9 7019 Glass fibres, incl. glass wool 12.172 10 2707 Oils and other products of the distillation of high temperature coal tar 8.391 3 Commercial Presence Out of the 50 Indian companies operating in Egypt with a combined investment of roughly US $ 2.5 billion, approximately 25 companies are joint ventures and wholly owned Indian subsidiaries. The rest of the Indian companies operate in Egypt through their representative offices and execute various projects for Governmental organizations. Major Indian investments in Egypt include TCI Sanmar, Alexandria Carbon Black, the Alexandria Fibre Co., Dabur India’s production facility for its cosmetics line, Egypt-India Polyester Company (EIPET) for manufacture of PET Resin, SCIB Paints, etc. The Oberoi Group manages a hotel and runs Nile cruises; Kirloskar Brothers sells diesel engines and irrigation pump sets in Egypt; Ashok Leyland, Tata Motors, Maruti Suzuki and Mahindra & Mahindra market their vehicles in Egypt, and Bajaj Auto dominates the three-wheelers market. Indian Public Sector Undertakings like Gas Authority of India Ltd, ONGC Videsh Ltd (OVL)., Gujarat State Petroleum Corporation (GSPC) also have a presence in Egypt, as does the State Bank of India. Indian companies also execute projects in railway signaling, pollution control including air pollution equipment, water treatment, irrigation, anti-collision devices etc.
