Tea has been a very important part of the Indian culture. But there is no concrete documentation of the history of tea drinking in the Indian subcontinent for the pre-colonial period. It may have been mentioned in the ancient texts using a different referential name. It is speculated that tea leaves were widely used in the ancient India since the plant is native to some parts of India and many tribes claim to be using it for ages. Tea is credited to be originated in southwest China. Initially it was taken as a medicinal drink, later it got popularised as a recreational drink. India is one of the largest tea producers in the world. As per the Statista consumer market outlook 2018, the average per capita consumption of tea in India stood at 0.7kg making it one of the biggest per capita tea consumer in the world. As per the Tea Board of India statistics, total tea production in India stood at 1321.76 million Kgs in 2017 of which north India contributed 1087.11 million Kgs and 234.65 million Kgs was produced in south India. The bulk of India’s tea production is CTC (crush, tea, curl), at 90%, while orthodox (whole leaf) accounts for 8.4%. The rest comes from green tea. Tea plantations in India are mainly located in hilly areas of North-eastern and Southern States. The major tea-producing states in India are: Assam, West Bengal, Tamil Nadu, Kerala, Tripura, Arunachal Pradesh, Himachal Pradesh, Karnataka, Sikkim, Nagaland, Uttarakhand, Manipur, Mizoram, Meghalaya, Bihar, and Orissa. Tea production facilitation, certification, exportation, database and all the other facets of the tea trade in India is controlled by the Tea Board of India. All types of tea plants are categorised scientifically under one plant named Camellia Sinensis. The differences between teas arise from processing (majorly), growing conditions, and geography. In common parlance, tea is classified in broadly 2 categories – green and black. However based on the processing tea may be classified as – Colour after Processing Wilting Oxidisation White Yes No Yellow No No Green No No Oolong Yes Partial Black Yes Yes Dark/Puer – India’s Tea Trade Overview India is a net tea exporter. India’s total tea export stood at US$ 769 million while import stood at US $ 39.5 million in 2017. The top 5 countries to which India exports are- Top 5 countries from which India imports are- The trade data of tea can be categorised as black and green tea. More than 97% of the tea export from India is for black tea. Category wise tea trade statistics is- India’s green tea export was valued at US$ 18.8 million and black tea export was valued at US$ 750.2 million in 2017. Major importers of green tea from India are Germany, USA, UAE, Australia, United Kingdom and the Netherlands. Major importers of black fermented tea from India are Iran, Russia, USA, UAE, Kazakhstan, United Kingdom and Germany. India also imported US$ 39.5 million of tea in 2017 of which 35.7 was black tea and 3.7 was green tea. Major exporters of green tea to India are China, Indonesia, Vietnam and Germany. Major exporters of black tea to India are Kenya, Nepal, Vietnam, Argentina and Iran. Tea is the most consumed, one of the cheapest beverage among all the beverages available in the Indian market. Tea industry provides direct employment to more than a million workers and over a million are engaged in the tea industry indirectly. Most popular and widely recognised tea varieties produced in India are- Assam tea, Darjeeling tea, Nilgiri tea and Kangra tea. India commands premium in the world tea market for the mentioned tea varieties. India’s low production of orthodox variety of tea which is the preferred type pose a serious challenge to the industry apart from rising production cost. Tea is also losing out to other beverages such as coffee. But renewed focus on growing the market apart from incentives led push to the industry to move up the value chain may ensure its healthy future.
Is India a high tariff economy?
India is widely known as a country with high import tariffs. This view, however, may look fallacious. Changing this view is important for several reasons, both within India and outside. World Trade Organization estimates of India’s applied most favoured nation (MFN) tariffs, i.e. tariffs applicable in general, are 13.4% (simple average) and 7% (trade-weighted average). The World Bank reports that India’s applied average tariffs were 6.3%, significantly higher than those for low tariff economies. The corresponding estimates are 1.8% for both Australia and Chile, and 1.6% for the United States. This apparent difference between these countries and India, however, may look inaccurate. A simple way to evaluate India’s trade-weighted applied tariffs is to incorporate the percentage ratio of customs revenue to imports. The usual estimates using this method for India have ranged between 6.3% and 8.4% for the past three years, close to the applied or trade-weighted average tariffs calculated by the World Bank and the WTO. However, the actual estimate of applied tariff is provided not by total customs revenue, which for India includes a refundable component imposed on imports in lieu of the domestic excise tax. The correct basis is the “total basic customs revenue” which shows revenues from tariffs without any other extraneous revenue item added to it. Estimates using basic customs revenue show that the applied average tariff of India in the last three years ranged between 1.7% and 2.3%, similar to the average tariff estimates for economies considered relatively open in terms of tariffs. Thus, it could be articulated that India too is a low tariff economy. The large difference between India’s actual average tariffs and its MFN trade-weighted applied average tariffs arises inter alia due to the several exemptions and concessions that the country provides on its MFN tariffs. Despite these concessions, people in general continue to think of India as a high tariff economy. This suggests a need as well as a possibility for tariff policy reform to simplify and bring transparency in the tariff regime, and enable users to more easily understand the actual tariff paid. These changes would help investors and others at home and abroad, including investment initiatives under programmes such as “Make in India”. An imperative point we still need to address is that since higher tariffs disincentives imports, the trade-weighted average is inherently downward biased. It is argued that if the prevailing high tariffs are reduced, then the increase in imports would raise the average trade-weighted tariff. Let us elaborate this aspect for India. For that, we first need to separately consider agriculture and non-agriculture products. Trade policy for agriculture is always treated differently across most countries. For example, even for the United States, the 10 agriculture categories according to the WTO have maximum tariffs ranging between 18% and 350%. Maximum tariffs for four of these categories are above 130%, and between 44% and 55% for most others. The situation with non-agriculture tariffs is different, and even in trade negotiations, greater focus on market opening is given to non-agriculture products. Many of India’s bound tariff rates on agricultural products are among the highest in the world, ranging from 100 percent to 300 percent. While many Indian applied tariff rates are lower (averaging 32.7 percent on agricultural goods), they still present a significant barrier to trade in agricultural goods and processed foods (e.g., potatoes, apples, grapes, canned peaches, chocolate, cookies, and frozen French fries and other prepared foods used in quick-service restaurants). The large gap between bound and applied tariff rates in the agriculture sector allows India to use tariff policy to make frequent adjustments to the level of protection provided to domestic producers, creating uncertainty for importers and exporters. Thus, the high tariffs on agriculture is a mulling matter, but this area is treated differently in trade policy and negotiations as mentioned. Anyways, the above-mentioned low average tariffs of 1.7% to 2.3% include all products, agriculture and non-agriculture. A perception of India as a low tariff economy would prepare a basis for domestic tariff policy reform and will benefit in changing the perspective of Indian trade negotiators in their interaction with other nations. This could also provide them a healthier basis to develop negotiating strategies for seeking greater market access for Indian exports to markets abroad. Moreover, policy makers will have more flexibility than erstwhile considered feasible to evolve a revised tariff policy. Further, if tariff policy has to be combined with new industrial policy, as is now a tendency in various economies, it is better to do so with transparent tariffs that fit into a consistent policy outlook.
Why USA has ameliorated Indian oil import scenario?
The Trump administration has granted exemptions to eight countries, including Japan, India and South Korea, to continue importing Iranian oil since they have made significant reductions in oil imports from Iran. USA has said that countries like India will be further asked to bring down oil imports from Iran to zero in six months. Countries that get waivers under the revived sanctions must pay for the oil into escrow accounts in their local currency. That means the money won’t directly go to Iran, which can only use it to buy food, medicine or other non-sanctioned goods from its crude customers. The administration sees those accounts as an important way of limiting Iranian revenue and further constraining its economy. Now the question arises is whether bypassing the sanctions from Iranian and Indian side has more weight or gifting soft policies by allowing eight economies to continue trade with Iran has more weight? For USA trade relations with major economies in 2018 so far has not been mollified mainly with China as there had been continuous retaliations in terms of increasing importing tariff rates. Can we say that by allowing eight significant economies including India to continue trade with Iran for a limited time, USA want to gain some favour? Let’s try to explore the scenario. Oil is Iran’s main source of income and is also the third-largest producer among the Organization of the Petroleum Exporting Countries (OPEC). In 2018, so far Iran exported about 2.7 million barrels per day. Through its sustained pressure, the US has managed to reduce Iran’s oil exports from 2.7 million to 1.6 million barrels a month, according to internal US estimates. The sanctions also come at a time when Iran is already in the grip of an economic crisis. The rial now trades at 145,000 to $1, compared with 40,500 to $1 a year ago. The economic chaos prompted mass anti-government protests at the end of last year that resulted in nearly 5,000 reported arrests and at least 25 people being killed. In addition, the Brussels-based Swift network for making international payments is expected to cut off links with targeted Iranian institutions, isolating Iran from the international financial system. The measures will mainly affect Iranian companies in direct business with other foreign firms. Saudi Arabia, the leading player of the OPEC committee, has said that it would fill in for the lost supply. India, which is the second biggest buyer of Iranian oil after China, is being pushed by the US to restrict its monthly purchase to 1.25 million tonnes per month or 15 million tonnes a year (300,000 barrels per day), down from 22.6 million tonnes (452,000 barrels per day) bought in 2017-18 financial year. At present India has pushed back on zero oil imports citing the adverse impact on its economy and the inflationary impact it would have. The European Union, France, Germany and Britain said in a joint statement that they regretted the US decision and would seek to protect European companies doing legitimate business with Tehran. On the other hand, China denounced the new US sanctions as long-arm jurisdiction and promised to continue its bilateral trade with the Islamic republic. Beyond Crude Oil Trade The payment system with Iran is being relaxed further for basmati rice exports. This comes after the US allowed India to continue importing crude oil from Iran and develop the Chabahar port. India is now finalizing guidelines for exporting basmati rice to its largest importer Iran, on a rupee payment basis. The move has come as a positive development for exporters who are paying a higher price for procuring basmati. Last year, India exported $4.17 billion worth of basmati rice and Iran was the largest buyer (at $905 million). In the first five months of 2018-19, exports have already crossed $2 billion and Iran continuous to be the largest buyer for India followed by Saudi Arabia. When the US announced sanctions against Iran, farmers had already increased area under basmati but exporters were cautious. However, the recent exemption for Iran followed by easing of the payment crisis has lifted the sentiments of basmati exporters. Iran normally opens its market for basmati import by mid-November after taking into account its domestic production and demand matrices. India is also bullish about the prospects of the Chinese market, although it basically imports non-basmati rice varieties now. Recently, a buyer-seller meet was organized in China, where five-six Indian rice exporters had participated even as the country approved 24 domestic rice millers. However, the Chinese basmati market would still take some years before it ‘matures’ for domestic exporters. China is the world’s largest producer and importer of rice and procures about 5 MT every year. India has estimated a potential sale of one MT of rice to China. The country planned to boost rice and sugar exports to narrow the trade gap with China. Recently, five new rice mills were cleared for exporting non-basmati rice to China, taking the total to 24 rice mills. In May 2018, Chinese officials had inspected rice mills capable of exporting non-basmati rice. Meanwhile, basmati exporters have also been exploring other markets like the US, European Union and Latin America. Yet, the results have not been encouraging. West Asia, China and Iran may be big importers. As a result of high export demand and lower-than-expected crop the market is bullish. It appears that US’s pressure won’t exacerbate India’s import of oil as USA is not in its best position in terms of controlling or influencing trade directions.
Will rice help bridge the widening trade deficit with China?
India has a huge trade deficit with China and this gap is rising with every successive year. In order to bridge this widening trade deficit, New Delhi has been pitching for market access for a variety of its goods to China, including non-basmati rice, sugar, rice and pharmaceuticals. The General Administration of Customs of Chinese government and India’s Department of Agriculture, Cooperation and Farmers Welfare signed a protocol on phyto-sanitary requirements for exporting rice from India to China in June 2018 during Prime Minister Narendra Modi’s visit to China. This amended the 2006 protocol on phyto-sanitary requirements for exporting rice from India to China to include the export of non-basmati varieties of rice from India. Consequent to this, the first consignment of Indian non-Basmati rice was shipped to China towards the end of September 2018 which included 100 tonnes of non-Basmati (white rice 5% broken) sent from Nagpur in India and received by China National Cereals, Oils and Foodstuffs Corporation (COFCO) which is one of China’s state-owned food processing holding companies. Initially, Ministry of Commerce and Industry registered 19 rice mills and processing units for export of non-basmati rice after officials from China had inspected the rice mills that are capable of exporting non-basmati rice to China. Few days back, five more rice mills have been cleared for exporting non-basmati rice to China, taking the total to 24 rice mills. China is the world’s largest producer and importer of rice and buys more than 5MT a year. India is the top exporter of rice in the world with total rice exports in the last fiscal year being 12.7 MT, an increase from 10.8 MT in the previous year. There is potential to export up to 1 MT of rice to China. This, if happens, will help reduce the fiscal deficit in trade between the two countries. In our previous issue of TPCI Newsletter, we had mentioned of China lifting the ban on import of rapeseed meal from India. India was exporting US$161 million worth of rapeseed to China till 2011 when the ban was put in place. India has 500,000 tonnes of rapeseed meal surplus which can be exported to China. This waver on ban came into effect as a consequence of the US-China tariff war, as part of which China had imposed tariffs of 25% on a list of American products including rapeseed meal and soybean meal. India is also looking forward to export agriculture products like rice and sugar and pharmaceutical products to China in order to bridge widening trade deficit.
Dollar : Rise, Hegemony and Fall
India found a way of coming out of dollar payment and paying Iran in rupees for the oil it bought when sanctions were enforced on Iran prior to the signing of the Joint Comprehensive Plan of Action, known commonly as the Iran nuclear deal or Iran deal, signed between Iran and the P5+1 countries in Vienna on July 14, 2015. As the sanctions hit Iran once again from November 4, 2018, this time only at the behest of the US, India may once again pay Iran in rupees for the oil it buys from its third largest supplier. This time round it is not just India that will be opting out of using dollar as the preferred mode of payment, but many countries have started settling trade transactions in local currencies so as to reduce their dependence on the US dollar. Germany and France are setting up a Euro-based trading system to continue trading with Iran in the wake of the US call to punish countries having any trade relation with Iran while Turkey, Russia and China too have started looking at a future without the dollar and BRICS countries are talking of using their respective currencies for trading between each other. Pursuing the same line and with a view to decrease their dependence on the dollar, India and Japan agreed to raise the value of currency swap from the $50 billion (agreed in 2013) to $75 billion during Prime Minister Narendra Modi’s recent visit to Japan. This means India can now readily borrow up to $75 billion from Japan in exchange for rupees, signaling even lesser dependence on dollar. More and more countries are slowly realizing that they will have to move away from their dependence on dollar. Such a scenario couldn’t have been expected till the beginning of this decade! If we look at the dollar’s rise, hegemony and downslide, we find it has taken only a little over a 100 years to go through all this. Dollar’s birth goes back to 1914 when the first of the currency note was printed upon the creation of the Federal Reserve Bank. Within next five to six decades, particularly due to two back-to-back wars that Europe underwent, the dollar gradually rose to officially become the world’s reserve currency. Another five to six decades later, countries across the world have begun to look for avenues to come out of their dependence on the dollar. When the Federal Reserve Bank was created in 1913, it was Britain that was the centre of world commerce with much of the transactions taking place in British pound. In order to create stability in currency exchanges, most countries then pegged their currencies to gold. But with World War I breaking out in 1914, many European countries were forced to abandon the gold standard to move to paper money. This step greatly devalued their currencies resulting in the US dollar gaining world centre-stage. As a result, the US became the chief lender for many countries that were left with no choice but to buy dollar-denominated US bonds. Slowly but surely, the dollar replaced the pound as the world’s leading reserve after Britain was forced to abandon the gold standard in 1931, leading to a sharp devaluation in sterling. Though this helped the UK recover from the great financial crisis of 1931, this step contributed immensely to the dollar’s ascent to greater heights. The US was again at an advantageous position when World War II started. The Allies had nowhere else to look to but towards the US to meet their requirements of weapons, supplies and other goods. The US collected its payments in gold and by the time the war ended, it owned the vast majority of the world’s gold. Dollar’s ascendancy reached its peak when, in 1944, delegates from 44 Allied countries met in Bretton Wood, New Hampshire, and concluded that the world’s currencies couldn’t be linked to gold as most countries had exhausted their gold reserves to the US’s advantage. They agreed on linking their currencies to the US dollar, which was to remain linked to gold. Known as the Bretton Woods Agreement, the participating countries agreed that the central banks would maintain fixed exchange rates between their currencies and the dollar and, in return, the US would redeem dollars for gold on demand. Thus the US dollar became the world’s reserve currency, signaling the final ascent of dollar to its peak. Instead of gold reserves, other countries started accumulating reserves of US dollars. And to store their dollars at a safe place, they started buying the US Treasury securities. But this trend was short-lived! As the US began to flood the market with paper money, several countries including France got concerned and began to convert dollar reserves into gold.As this trend caught up, President Nixon of the US had to intervene and delink the dollar from gold – an action that led to the new trend of floating exchange rates, as it exists today. During the periods of its hegemony and continuing till today, the US Treasury securities remained the safest store of money because of the trust and confidence that the world had in the ability of the US to pay its debts. This confidence remained despite unbridled printing of paper money by the US, its large deficit spending and huge foreign debt. Dollar’s ascent was complete when the US was able to persuade the oil producing countries in the Middle East to trade oil and gas only in the US dollar. The US Dollars surge was now complete! With time, various commodities became so much dependent on the US dollar that there emerged an inverse relation between the value of the US dollar and the commodity prices. Even in case of oil, a stronger dollar makes oil more expensive to the world and oil prices tend to fall as the dollar rises. The Federal Bank’s actions began affecting the economy of all the countries of the world. If the Bank increased
Hiking MSP for Rabi crops a step in the right direction
Several key persons connected with agriculture in India have been talking of ways and means to improve crop production of agricultural commodities like pulses and edible oils in which India remains heavily dependent on imports. They have been giving the example of remarkable growth output achieved in the sugarcane production to argue that if such growth in output can be achieved in one crop, it can very well be achieved in other crops as well. In this regard, some overzealous ‘experts’ came with several ideas including inter-cropping of oilseeds with other oilseeds in the agricultural land as a solution to enhance production. They even went ahead with planning out steps to educate the farmers about future benefits that can be derived from inter-cropping. In the last TPCI newsletter (Vol. I, Issue 7 dated November 1, 2018), we had argued whether these steps alone will lead to enhanced production, on the lines of success achieved in sugar output. We concluded that “there is more sugar production because the purchase price of sugarcane is much higher than any other crop. A farmer gets 50-60% more remuneration on sowing sugarcane than most other crops… Therefore, in order to make farmers sow a particular crop, the purchase price of that crop will have to be increased.” There were few other reasons cited but the purchase price, as perceived by TPCI’s research team, was the chief reason why farmers were reluctant to sow certain crops. Out write-up had said: “Sugarcane has an assured buyer which is not the case with other crops. Farmer has to go to mandis to sell his crop where at most times he does not even get the minimum fixed price. With FRP being fixed in case of sugarcane, the farmer is sure he will get the assured price.” As if taking cue, the Narendra Modi government has taken a very commendable step of approving a proposal to hike the minimum support price (MSP) for Rabi crops. The government has announced a 6 percent hike in wheat support price to Rs. 1,840 per quintal and up to 21 percent increase in other Rabi crops, a move that will give farmers Rs. 62,635 crore additional income and help contain the unease that was prevailing among them over high input cost and low returns. Few months back, the government had announced higher MSP for Kharif (summer) crops, to fulfill its promise of giving farmers 50 percent more price than their cost of production. MSP is a price at which the government buys crops from the farmers. The farm advisory body Commission for Agricultural Costs and Prices (CACP), which works under the Ministry of Agriculture, determines MSP for some 25 agriculture commodities ahead of the Kharif and Rabi seasons every year. According to agriculture minister Radha Mohan Singh, the MSPs for all Rabi crops are now higher than the cost of production ranging from 50-112 percent. As per the new CCEA approved MSP, wheat MSP has been raised to Rs. 1840 for Rabi season of 2018-19 crop year, which is a Rs. 105 per quintal hike. Likewise, barley MSP has been raised to Rs. 1440 per quintal, a hike of Rs. 30 per quintal, while that of gram (chana) has been raised by Rs. 220 per quintal to Rs. 4620 per quintal. Masur’s MSP has been raised to Rs. 4475 per quintal, a hike of Rs. 225 per quintal while rapeseed/mustard MSP has been raised to Rs. 4200 per quintal, a hike of Rs. 200 per quintal and safflower MSP has been increased to Rs. 4945 per quintal, a hike of Rs. 845 per quintal. The farmer will now be getting a return of 112.5 percent per quintal on wheat, since his production cost has been calculated to Rs. 866 per quintal. In case of gram, the MSP is higher by 75 percent than the cost of production while mustard MSP is now nearly 90 percent more than the cost of production. For barley, return will be 67.4 per cent on the production cost of Rs. 869 per quintal and in case of safflower the return will be 50 percent higher than the production cost. This significant increase is a welcome step by the government as it will reduce the distress on the farmers sowing these crops. It is now time to put in a mechanism where the farmer actually gets the full amount fixed by the government.
Making India more business friendly
India is on course to becoming more business friendly with each passing year, courtesy a series of reforms that have enabled India to climb up the ladder on the World Bank’s Doing Business Index for the second successive year. As Mr. Suresh Prabhu, Union Minister for Commerce & Industry puts it, “India’s phenomenal rise in the Ease of Doing Business Rankings is the result of the focused teamwork between the Government, our various States and all Ministries under the Government,” adding further that “we shall now strive to do much more under able guidance of Hon’ble PM Mr. Narendra Modi.” When the World Bank had issued the ranking for 2018 around this time last year, India had seen a remarkable jump of 30 positions to become the top 100th country in terms of ease of doing business ranking. The World Bank had then attributed the change in India ranking to the sustained business reforms it had undertaken ever since Modi government took charge in 2014. But what none might have thought of then was that India would jump another 23 places in the Ease of Doing Business Ranking when the same list will be released for 2019. Upon the release of 2018 ranking last year, Junaid Ahmed the Country Director of World Bank had said while the time needed to register a new business in India had got reduced to 30 days from 127 days 15 years ago, the number of procedures were still cumbersome for local entrepreneurs who had to go through 12 procedures to start a business in Mumbai, which was significantly higher than in OECD high-income economies, where it took five procedures on average. Junaid Ahmed had then said: “Tackling these challenging reforms will be key to India sustaining the momentum towards a higher ranking. To secure changes in the remaining areas will require not just new laws and online systems but deepening the ongoing investment in the capacity of states and their institutions to implement change and transform the framework of incentives and regulation facing the private sector. India’s focus on ‘Doing Business’ at the state level may well be the platform that sustains the country’s reform trajectory for the future.” Taking cue from the suggestions, India continued on reform process to register a jump of 23 spots over the 2018 rankings, thus becoming one of the only two countries (out of 190) to figure in the top 10 improving nations for two successive years. This is a remarkable performance considering the fact that India was steadily losing rank in previous years – from 131 in 2012 to 142 in 2014. In 2017, India had moved just one point, from 131st position among 190 countries to 130th position, which had led some experts to question the credibility of World Bank’s ranking process. While in 2014, all the BRICS countries were far ahead, India in 2019 listing stands well ahead of South Africa (82) and Brazil (109), and is fast closing the gap on China (46) and Russia (31). India is now the best ranked country in South Asia and is fast catching up with countries like Indonesia (73) and Vietnam (69). A variety of reforms, including the introduction of the goods and service tax (GST) and the Insolvency and Bankruptcy Code (IBC) apart from reforms in the labour regulation are being seen as key attributes that led to rise in ranking. Consequently, India witnessed improved performance in areas like starting a business, access to credit, getting construction permits, getting electricity, paying taxes, and in trading across borders. This speaks of India’s unhindered commitment to pursue a stronger reform agenda and to improve the business environment. It indicates India’s endeavour to further strengthen its position as a preferred place to do business globally.
Major shift towards construction and infrastructure development all across the GCC countries
Ever since oil first spurted from a well in Bahrain in 1931 and it was subsequently discovered throughout the Gulf, the focus in all the nations that are now called Gulf Cooperation Council (GCC) remained on ways to extracting oil, refining it and transporting it. With time, new technologies were introduced and the processes became more and more sophisticated. That helped the energy industry in the Middle East to grow to such a size that by 2013, according to the IMF figures, the income generated from it accounted for more than 60% of the GCC country’s fiscal revenues. According to a report, there are currently 456 active projects in the oil and gas sector in the Middle East, with a total value of around $540 billion. Though dependence on oil and gas sector still remains, as this continues to be the major source of wealth generation for the GCC countries, a major shift can be seen in focus towards construction and infra development all across the GCC countries. The growth in the economy, due to sudden oil-begotten wealth, was so stupendous that for many decades the GCC countries thought of no other alternative source for wealth generation other than oil and gas. But things are changing now! There is an increasing concern now among the GCC nations to diversify their economies by developing alternative sources of wealth. These changing priorities are particularly visible since the fall in oil prices since 2014. The countries are fast realizing that they have to come out of their dependence on oil income; and the sooner it happens, the better. Result: construction and infrastructure projects today account for the biggest proportion of project spending in the region. According to figures referenced in Deloitte’s GCC Powers of Construction, GCC nations combined together boast of a pipeline of construction, transport and energy projects worth $2.4 tn out of which active civil building projects requiring the latest PM technologies and techniques alone are worth $1.35 tn. Though there had been some drop in the construction activity when oil prices slumped, leading to severe cash crunch, this drop in prices led to increased realization that alternative avenues have to be found as early as possible. According to a report, the Middle East’s thriving construction sector alone is expected to post an annual growth rate of 3.5 per cent over the next five years to place ahead of Europe and North America and third behind Asia. The pickup in oil prices since the middle of 2017 as a result of the agreement between OPEC and non-OPEC oil-producing countries to place a temporary cap on oil production has been a big catalyst for change. This is boosted further by the announcement of the new mega projects, particularly in Saudi Arabia, as part of its Vision 2030 economic restructuring program, but also in Abu Dhabi and Dubai and the rest of GCC countries. The construction and transport project activity is set to increase significantly across the GCC in the near future, with the return to spending on construction projects in Saudi Arabia in particular, gaining momentum. Saudi Arabia’s wealth fund, the Public Investment Fund (PIF), has been slowly taking over the development of major infrastructure projects. Its portfolio includes the development of Entertainment City, Jeddah Waterfront, the Medina development, NEOM City and various other turnkey projects. According to a report published in India’s premier financial daily, The Financial Express, “the Vision 2030, announced by the young Saudi Crown Prince Mohammad bin Salman, has a potential to expand the Kingdom’s economy through major changes and mega projects like NEOM, new railroads, airports and sea ports and Qiddiya entertainment city.” This is expected to open up new opportunities for Indian companies and professionals in various sectors including railways, hospitality, tourism, airport, housing, IT and entertainment. In recent past, Saudi Arabian General Investment Authority has issued more than 400 licenses to Indian firms and there is greater scope for Indian companies to participate in the high speed 450-km railway line linking Mecca and Medina and a new airport in Jeddah. To tap into the $500 billion mega city projects launched by Saudi Arabia, representatives of top 30 Indian infra companies, housing and allied sectors are set to visit Saudi Arabia later this month, under the umbrella of the Ministry of External Affairs (Economic Diplomacy Division), the Indian Embassy in Saudi Arabia and Trade Promotion Council of India (TPCI), wherein “the industry honchos will interact with the key decision makers of the Saudi Government and business community.” Some of these companies who are heading to Saudi Arabia to explore possible contracts and investment opportunities in the $500 billion futuristic mega city Project “NEOM” and the Red Sea Tourism Project include Hiranandani Group, L&T, Tata Projects, Afcons, Waaree, VA Tech Wabag, NMS Enterprises Ltd., Shalimar Corp Ltd., S3 Infrareality, ICMC Projects, Consistent Consultants and ACME Group. Though Saudi Arabia is the unrivalled leader in shifting its focus towards generating alternative sources of wealth and consequently going for heavy spending in construction activities, other GCC countries are not far behind. In Bahrain, projects worth $8.3bn are either in pipeline or are in design or prequalification phases. Manama is utilizing money from the Gulf Development Fund, sovereign wealth fund Mumtalakat and the country’s pension fund to carry out construction activity. Kuwait too is spending KD2.5bn ($8.3bn) this year on the development of infrastructure, road networks, its new airport and power generation. Oman too has allocated projects worth RO12.5bn ($32.5bn) this year whereas $2.5bn worth of construction contracts are undergoing in the UAE. In Qatar, the spending got impacted due to transport blockade but didn’t stop the Government from enhanced spending due to the Football World Cup. Apart from this, QR42bn ($11.5bn) has been allocated for infrastructure and transportation projects. Scope that exists for Indian companies can be gauged from the fact that at the start of the current financial year, about $715 bn of construction and transport projects were under construction, or at the design or tendering stage
“Czech government interested to boost bilateral trade & investment”
India’s Ambassador to The Czech Republic Mrs. Narinder Chauhan with Mr. Andrej Babis, Prime Minister of the Czech Republic H.E. Mrs. Narinder Chauhan is a seasoned and dynamic diplomat with more than three decades of active service in various key assignments, both in India and abroad. She is presently posted as Ambassador Extraordinary and Plenipotentiary of the Republic of India to The Czech Republic, in which capacity she recently played host to the visit of Hon’ble President of India Shri Ram Nath Kovind to The Czech Republic. The Hon’ble President’s visit to The Czech Republic was also accompanied by a delegation of businessmen wherein some TPCI members accompanied the Hon’ble President to The Czech Republic. Publicity Division of TPCI interviewed this experienced and talented Indian face in The Czech Republic and sought her views on bilateral historical relations between India and The Czech Republic and ways and means to increase the bilateral trade relations between the two countries. Present here are H.E. Mrs. Narinder Chauhan’s views on the highlighted subject: 1. Bilateral Historical Relations : India-Czech Republic India’s trade and cultural relations with Czech Republic have a long history. In the medieval ages the Kingdom of Bohemia (now a part of Czech Republic) traded with India. There are records stating that precious goods including Indian spices were brought to Czechoslovakia from east through marine and land routes as early as 9th and 10th centuries. During the Austro-Hungarian Empire, the Charles University in Prague, the second oldest university in Central Europe, had many Sanskrit scholars. India’s relations with the former Czechoslovakia, and with the Czech Republic, have always been warm and friendly. Gurudev Rabindranath Tagore visited Czechoslovakia in 1921 and 1926. A bust of Tagore is installed in an exclusive residential area in Prague named after Tagore. The Indian leader, who visited Czechoslovakia the most times between 1933 and1938 was Netaji Subhash Chandra Bose. He founded the Indo-Czech Association in Prague in 1934 and met Edvard Benes several times as Foreign Minister and President. Pandit Jawaharlal Nehru accompanied by his daughter Indira Gandhi visited Prague in 1938, and subsequently influenced the strong condemnation of the 1938 Munich Pact by the Indian nationalist movement. Diplomatic relations with Czechoslovakia were established on November 18, 1947. Since then high level visits have been exchanged with Prague, the most recent being the State visit of Rashtrapatiji Shri Ram Nath Kovind in September, 2018 and that of Shri C R Chaudhary, MoS(C&I) in October 2018. 2. Bilateral Trade relations India’s trade links with Czech Republic, formerly Czechoslovakia, predate our independence. Czechoslovakia established its Consulate in Bombay (October 1920) and in Kolkata (December 1929). The famous Czech shoe company Bata Works had 120 Czechoslovak nationals employed in Batanagar in the 1930s. For almost four decades after India’s independence, Czechoslovakia was one of the leading trading partners of India among the East-European countries. Czech companies established a number of major industrial projects in India in the fields of Energy, metallurgy, machine tools and transportation and had about 60 major projects in India before 1990. With the formation of the Czech Republic from January 1, 1993, our trade with the country was switched to freely convertible currencies. The change over and the transformation in economic policies and practices both in India and the Czech Republic resulted in initial slowing down of trade and economic activities between the two countries. New mechanisms and diversified interaction thereafter have resulted in revival of bilateral trade to around USD 1.5 Billion in 2017 from just USD 86 million in 1993. Since 2008, bilateral trade amounted to more than one billion U.S. dollars. In 2013, for the first time in our long history of economic relations, the balance of bilateral trade tilted in India’s favour when Indian exports reached USD 642 million against Czech exports of USD 563 million. Year India’s Exports to CR India’s Imports from CR Bilateral Trade 2014 USD 692 mi USD 589 mi USD 1281 mi 2015 USD 667 mi USD 541 mi USD 1208 mi 2016 USD 734 mi USD 624 mi USD 1358 mi 2017 USD 797 mi USD 670 mi USD 1467 mi (Source: Czech Statistical Office) 3. Factors that could lead to further expansion of trade ties? We consider CR as a leading economic partner. India’s growth story and Czech technological expertise and manufacturing prowess make the two natural partners. Significant Complementarities in economies: India has expertise in fields of IT, Infrastructure, Pharmaceuticals, automobiles and services. Czech companies have expertise in heavy engineering, defence, advanced manufacturing, automotive and energy fields. Technology building: The Czech Republic has niche technological competencies in industrial machinery and plants, machine tools and engineering, and has extensive research and development in areas like nanotechnology, robotics, cybernetics, and lasers. We must also take advantage of these opportunities, through technology tie ups in applied science and engineering fields with the institutions of Czech Academy of Sciences and leading universities. Our Government’s bold reforms that include ‘Make in India’, ‘Skill Development’, ‘One Nation, One Tax’, Simplification of procedures and Removal of obsolete laws, GST should be leveraged that have led to ease of doing business in India India’s huge consumer based market is a factor that would drive the expansion of trade. The recent visit by Rashtrapatiji to the Czech Republic has further provided a platform for expansion of trade ties since both countries have committed to strengthen the economic partnership between India and EU, both countries have committed to oppose trade protectionism, expressed readiness to work together in favour of a fair, transparent and rule-based multilateral trading system and agreed to enhance awareness of existing business opportunities and build B2B contacts through undertaking business missions, participating in trade fairs and exhibitions (like in Brno Engineering Fair). These measures should form the bed rock for further trade engagement. Opening of direct flights, negotiations on which are under way is expected to be a major factor in expansion of trade ties and tourism. Czech government’s decision to create a special window w.e.f 1st October, 2018
Preparing to meet global trade challenges
It was in early June this year that former Secretary of the Department of Commerce of the Indian Ministry of Commerce and Industry, Rita Teaotia, outlined the challenges facing global trade, including protectionism and threats to the World Trade Organization (WTO) system, when Asian countries of the Commonwealth gathered in New Delhi to deliberate on how to respond to major shifts in the global trade landscape. She also highlighted the opportunities for Commonwealth countries to collaborate and sustain an open and inclusive trading system, adding that “services exports and the development of the services sector should be a major focus of future Commonwealth collaboration.” The meeting discussed need to address systemic issues that impact on the participation in the multilateral trading system and WTO negotiations proactively so as to enable the Commonwealth developing countries adapt to emerging trade issues such as climate change, e-commerce, implementation of the SDGs, and the role of Micro, Small and Medium-sized enterprises and GVCs. Asian countries account for 41 per cent of intra-Commonwealth trade, while India is the leading country for attracting new foreign direct investment, not only from the Commonwealth but from across the world. India, Malaysia and Singapore are emerging as major players in driving trade and investment flows among the Commonwealth nations. Keeping the recommendations of the conference in mind and with a view to look into the challenges emanating from the current global trade scenario and suggest ways to boost the country’s goods and services exports, the Ministry of Commerce and Industry has constituted a High Level Advisory Group (HLAG) comprising of S. Jaishankar (former Foreign Secretary and now a key official with Tata Sons), Rajeev Kher (former Commerce Secretary and Member, Competition Appellate Tribunal), Sanjeev Sanyal (Principal Economic Advisor, Government of India), Adil Zainulbhai (Chairman, Quality Council of India), Dr. Harsha Vardhana Singh (former DDG, WTO and now Executive Director of Brookings Institution India Center), Dr. Shekhar Shah (DG, NCAER), Dr. Vijay Chauthaiwale (Foreign Policy Advisor and the man responsible for success of BJP’s Overseas Friends initiative), Dr. Pulok Ghosh (IIM, Bangalore), Jayant Dasgupta (former Ambassador of India to the WTO and now associated with International Center for Trade and Sustainable Development, Switzerland), Rajiv K. Luthra of Luthra & Luthra and Chandrajit Banerjee (DG, CII). The Panel will be headed by SS Bhalla of Oxus Investments. According to a communiqué from the office of Mr. Suresh Prabhu, the Union Minister for Commerce and Industry, this HLAG has been created to work out ways for boosting India’s share and importance in global merchandise and services trade, managing pressing bilateral relations and mainstreaming new age policy making. It will meet regularly to formulate specific recommendations to facilitate the formulation of future trade policies through examining the prevailing international trade dynamics, the rising protectionist tendencies, non-engagement by some countries on outstanding trade negotiation issues and their insistence on pursuing negotiating mandates. The Panel will also suggest a pragmatic framework for India’s future engagement in international trade, and the manner in which it can play a proactive and constructive role in exploring and building consensus on resolving trade related issues. Experts opine it to be a commendable step towards building consensus around common issues and sharing experience on trade issues so as to formulate specific recommendations. Several barriers have lately emerged in international trade due to weakening of the WTO system and the consequent mechanisms to settle disputes because of ambitious posturing by few powerful countries. Emerging trade issues such as e-commerce and digital economy, including how to better harness new technologies to promote greater trade, investment and innovation, especially micro, small and medium enterprises too need policy framework. India need to cash on the tremendous opportunities that exist to promote service exports, including through improved market intelligence and better services data. While there are major differences in the region regarding specialization in goods and services, we can consider proactive policy measures to boost trade, investment and innovation by leveraging new technologies, especially digitization, promoting services exports, including through improved market intelligence and better services data and strengthening our domestic trade governance to further reduce costs and to foster new trade and investment.
