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Vol.4

Issue 11

November 2017

100

$2

GLOBAL TRADE 2.0

UNDER THE SHADOW In recent months, the Trump administration has doubled down on its trade protectionist campaign rhetoric. Many consider US’ acts and thoughts ominous signs for free trade. But there is an optimistic bunch which believes the trade vacuum left by US could prove a big business opportunity for some exports-focussed nations. Question is – can Asian nations and India in particular, make hay while the ‘Trump’ sun shines?

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The heady taste of success

Indian grapes are finding acceptance across the globe

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LETTER FROM THE EDITOR – IN – CHIEF

EXPORTERS, MEET RULES. RULES, MEET EXPORTERS. [NOW GET ALONG!]

G

ood governance is not solely defined by the good faith of the affected (populace) in those masterminding the rules of society. The faith must be reciprocated with rules as well-based and nonvolatile. There was something imperfect with the GST rule that was brought into practice starting July. For exporters especially. Somehow, the government’s decision, originally meant to 'reconstruct' rules governing taxation appeared an unnecessary act of 'deconstruction' to improve the tax environment in the nation. And for exporters, the philosophy (of a simplified, improved tax regime) seemed to be flowing back into the “complex”, “troublesome” toxic pond that the GST was originally formulated to drain. So troubles followed.

In three months, troubles ballooned to an extent that the GST Council was forced to recommend strategies to undo the short-term damage done (by GST).

As a recent CBEC note stated, the GST Council had become “Mindful of the difficulties faced by exporters post-GST leading to a decline in export performance and export competitiveness…" and that “…suitable strategies for helping this sector” had to be implemented. Now wait! “Helping”? There’s no point 'glorifying' corrections. Here’s what the CBEC release further states: “The Council was unanimous that it is in the national interest to take all possible measures to support the exporting community...” Again, support?! So what really was the relief and support?

One, to release the “held-up refund of IGST paid on goods exported outside India in July”. [That’s a delayed refund of about three months already!]

Two, to “extend” the Advance Authorization (AA), EPCG and 100% EOU schemes to sourcing inputs from foreign or domestic suppliers, as well as treat domestic supplies to AA/EPCG holders and EOUs as “deemed exports”. There is nothing that is either an “absolute relief or incentive” in this regard. Let me quote an instance here. Prior to the introduction of GST, import of capital goods under EPCG authorisation was exempt of BCD, CVD and SAD, and the EO could be fulfilled either by physical or deemed exports. Now, even after the GST rules have been amended significantly, while IGST and Cess elements are relaxed under EPCG imports. But that's only under a strict condition that EO is not met through deemed exports. Can you sense the strings attached?

For Indian exporters, experience with the GST regime has made them feel like a gazelle encountering a super-built lion; and when faced with a circumstance as such, going limp for life can at times be the best option. At least there’s survival.

A few revisions in GST have been noteworthy though. Merchant exporters being subject to a nominal GST of 0.1% for domestic sourcing for exports, GST on sale-purchase of MEIS/SEIS scrips being reduced to nil, exemption granted to exporters from furnishing Bond and Bank Guarantees during goods clearance in exports, introduction of the e-Wallet, etc., are good initiatives.

For the long term growth of Indian exporters however, it's imperative that those rules be avoided if outcomes of their implementation are predictable and negative. By making rules for the sake of a change and then going back to change them as rapidly means we will be denying India’s exporters that much needed shot at victory. A business group that brings enough pride to the nation, doesn't deserve to go down empty-handed. www.thedollarbusiness/blogs/steven

@SPWarner

For the long-term growth of Indian exporters, it is imperative that those rules be avoided if outcomes of their implementation are predictable and negative.

Steven Philip Warner

President (VMPL) & Editor-in-Chief, The Dollar Business steven@thedollarbusiness.com www.tumblr.com/blog/steven-p-warner NOVEMBER 2017 II THE DOLLAR BUSINESS 3

Volume: 4 Issue: 11 November 2017 www.thedollarbusiness.com facebook.com/tdbIndia twitter.com/TheDollarBiz in.linkedin.com/in/thedollarbusiness/ President (VMPL) & Editor-in-Chief EDITORIAL & RESEARCH Editor Executive Editor Senior Editor Assistant Editors

: Steven Philip Warner

: Manish K. Pandey : Indranil Das : Niladri S. Nath : Ahmad Shariq Khan, Anishaa Kumar, Aamir Hussain Kaki

16 COVER STORY GLOBAL TRADE 2.0

EDITORIAL CONSULTING BOARD Founder & Editor : Anil Goyal Publisher : Avnish Goyal Chief Consulting Editor : Dr. A. K. Sengupta

UNCERTAIN FUTURE?

ADVERTISEMENT SALES & MARKETING Deputy Managers : Payal Kapoor, Rahul Jain Senior Executive : Ayesha Fatima, Ankit Kharbanda International Representatives Seoul (South Korea) London (UK)

: Justin Yoon : S. Puri

ART & PHOTOGRAPHY Art Director Senior Designer Photographer

: Sujesh Kumar G. : Jayaprakash Reddy : Dileep Kumar

US President Donald Trump’s protectionist stance has forced its largest trading partners, including Canada and Mexico, to look for new allies. Will Asian giants like Japan, China and India be able to grab this opportunity and take centrestage or will world trade continue to be dominated by western powers?

THE DOLLAR BUSINESS ONLINE & RESEARCH Project Managers : Sridhar Bodla, Omar Larzi Web Designer : Purushothama Chary SEO Specialist : Y. Lakshman Varma Deputy Manager (EXIM Opp.): Lakshmi Kondaveeti Asst. Managers (EXIM Opp.) : G Bhanu Prasad, Priyanka Bhandekar, Sravanthi Bandhla Senior Executive (EXIM Opp.) : Neetu Hotkar, A.V. Divya Madhuri, Ravali Gali, Gunna Kavya Reddy Executive (EXIM Opp.) : Vijayalakshmi Chittari, Radhika Nalluri, Relangi Yamuna Santosh Kumari, Habeeb Unnisa, N Lavanya, Keerthi Sulakhe Asst. Managers (Data & Metrics) : Sharath Chandra Murthy Macha, Ramesh Babu Lalam

28 H.E. CHUTINTORN GONGSAKDI AMBASSADOR OF THAILAND TO INDIA

Discusses the present and the future of the India-Thailand bilateral relationship.

CIRCULATION, SUBSCRIPTION & DISTRIBUTION Manager : M. Vinay Kumar

30 ADESH SHARMA

ALLIANCES & COMMUNICATIONS Sr. Manager : Rasanpreet Kaur Asst. Managers : Sravya Palakuru, Aishwarya Ramarajan FINANCE & ADMIN Manager Executive

FORMER MANAGING DIRECTOR, DFCCIL

Talks about how dedicated freight corridors can change the contours of the logistics industry.

: V. Srikanth Tumati : Chandrakant Nawande

PRINTER Rudra Graphic Designers 8-3-949/3, Beside Gold Spot Company, Punjagutta, Hyderabad 500073, Telangana, IN PUBLISHED AT 5-2-198/4, Distillery Road, Ranigunj, Secunderabad, Telangana 500003, IN

© Copyright 2017 No part of this magazine may be reproduced in whole or in part without an expressed permission of the publisher. The information on this magazine is for information purpose only. Manish K. Pandey, Editor, The Dollar Business, is responsible for the selection of news and content under PRB Act. Vimbri Media Pvt. Ltd. assumes no liability or responsibility for any inaccurate, delayed or incomplete information, or for any actions taken in reliance thereon. The information contained about each individual, event or organisation has been provided by such individual, event organisers or organisation without verification by us. All disputes are subject to exclusive jurisdiction of competent courts and forums in Hyderabad, Telangana.

Printed and published by Avnish Goyal for Vimbri Media Pvt. Ltd. Published at : 5-2-198/4, Distillery Road, Ranigunj, Secunderabad - 500 003, Telangana.

Printed at: Rudra Graphic Designers, 8-3-949/3, Beside Gold Spot Company, Punjagutta, Hyderabad - 500 073, Telangana.

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4 THE DOLLAR BUSINESS II NOVEMBER 2017

06

INBOX Letters to the Editor Readers’ feedback that hit our mailbox in October 2017.

08

MONOLOGUE PEOPLE SPEAK Theresa May on global trade, Trump on Vietnam and more.

12

TRADE WRAP EU’s ADD rules, Chinese investments in India and more.

32

36

IMPORT’ONOMICS PHENOL Importers reap the benefits of a shortage in local production.

GLOBAL MANAGER KAPIL AGARWAL VP – Marketing, Whirlpool talks about company’s India plans.

38

FACE2FACE MAHABALESHWARA M.S. MD & CEO of Karnataka Bank Ltd. on how the bank is helping the exim fraternity.

40

SECRET INGREDIENT GRAPES Can Indian exporters step-up and fulfil the growing global demand for grapes?

44

POLICY MONITOR PLEXCONCIL Pradip Thakkar, Chairman, on his vision for the plastics sector.

46

TDB FORUM Questions about foreign trade that hit our mail box in Oct. 2017.

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WE VALUE YOUR FEEDBACK, WHETHER CRITICISM OR APPRECIATION. AND HERE ARE A FEW THAT HIT OUR MAILBOXES IN OCTOBER 2017

T

he Dollar Business magazine provides for an overall interesting read. It covers both informative articles as well as interviews with various CEO and managers who provide insight on their sectors. As a member of the foreign trade fraternity, I believe, your magazine covers all aspects that one looks for in a magazine about foreign trade.

VIPUL DUGGAL Founder-Director, Pastiche Energy Solutions +91-172-5054XXX info@pasticheenergysolutions.com

www.thed ollarbusin ess.com

Vol.4

Issue 10

The Doklam stand-off between between the two Asi India and an pow China mu countries ltip to ask one ers. The strain in relationshi lied posibilities har of a trade p has forc Can either d, simple questio war ed indust n abo country affo ry leader rd a trade ut the future of this s in both war with Reactive dye its neighb bilateral affair: our? s The What mak colour of money es India

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its biggest

exporter

he content of the magazine is very good. You feature different stories on various commodities, initiatives like GST, as well as interviews with state and national dignitaries. The content is multi-faceted. As an air cargo service provider and a reader, I hope that in the coming days, you will feature more articles on air cargo. A special section, highlighting companies that provide air cargo services to exporters and importers will be much appreciated.

RAJA GUPTA Manager – Marketing & Sales, Celebi Delhi Cargo Terminal Management India Private Limited +91-11-25601XXX raja.gupta@celebiaviation.com

W

hat I like about your magazine is that it covers a wide variety of commodities. You are doing a good job in highlighting the prospects of various commodities in exports and imports. Going forward, it would be great if you could highlight season-specific commodities. You could keep the EXIM community informed by providing special focus on commodities like cotton, pulses, etc., at the beginning of each season.

G. RATHAKRISHNA Director, Shree MTK Textiles Pvt. Ltd. mail@mtktextil.com +91-422-433XXX

6 THE DOLLAR BUSINESS II NOVEMBER 2017

October 2017

EXC LUS IVE

Electronic

cash registe

Growth in ing in profits. Literally rs organised retail is drivi ! ng imports

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I

came across your website and browsed through the news and articles in your magazine. The Dollar Business has valuable information for the foreign trade fraternity. As a finance professional, I would like to read on all topics related to export financing, trade financing, risk and audit compliance, banking, treasury, foreign exchange and other topics that will be helpful for an exporter. Timely updates on regulatory changes in these areas will also be helpful.

RAJENDRA CHAVARE The Cosmos Cooperative Bank Ltd. +91-9619525XXX rlchavare@gmail.com

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T

he October edition of The Dollar Business was a great read. I especially enjoyed the cover story on the trade relationship between China and India. You have correctly said that the two nations are highly inter-dependent and can ill-afford a trade war. I am an exporter and each month I look forward to reading your magazine. The information on the website is also very useful. I commend you for the innovative EXIMAPS platform that you have developed.

Keep up the good work.

MOHD. TANVEER Director, M. T. Enterprises +91-9811708XXX mt.tanveer@gmail.com

E

ach month, I eagerly await the new edition of The Dollar Business. The articles are well analysed and beautifully articulated. Your website too is an excellent platform, and an one-stop solution for the latest in the world of foreign trade. Since I operate in textile sector, it would be great if you could carry an in-depth coverage of post-GST sectoral insights concerning the textile sector, especially when it comes to exports.

M. MODY Director, R. F. International +91-9811067XXX rfinternational2003@gmail.com

monologue E

urope stands for open and fair trade, but as I have said time and time again, we are not naïve free traders.

JEAN-CLAUDE JUNCKER PRESIDENT, EUROPEAN COMMISSION On the need for changing EU’s Anti-Dumping Laws Source: European Commission

W

e can understand that they (China) would desire self-sufficiency and if the way they get there is through a free and open level playing field, and it’s a fair match, we’re fine with that.

T

he obvious challenge to the country (India) is to grow and grow fast. It has to grow at a much higher rate than we have been growing in recent history.

ARUN JAITLEY INDIAN FINANCE MINISTER On the need for the economy to grow

WILBUR L. ROSS US COMMERCE SECRETARY On China’s trade policy

Source: IANS

Source: The New York Times

T

he rise of India is opening new opportunities for collaboration. Our diaspora has an important role in building bridges between India and the world.

RAM NATH KOVIND INDIAN PRESIDENT On India’s growth trajectory Source: PTI

O

ur relationship on trade is becoming more important and it (Thailand) is a great country to trade with. I think we’re going to try to sell a little bit more to you, if that’s possible.

DONALD TRUMP US PRESIDENT On increasing exports to Thailand Source: Reuters

8 THE DOLLAR BUSINESS II NOVEMBER 2017

I

want the UK to be a global champion of free trade. Those who believe in it need to stand up and explain the benefits and show how free trade is important in raising living standards.

THERESA MAY UK PRIME MINISTER On the US-UK Bombardier rift Source: The Telegraph

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KAZAKHSTAN-CHINA

A billion dollar deal Kazakhstan and China have signed a trade agreement that is expected to generate revenues worth $1 billion for the former. Under the agreement, which has been signed between Kazakhastan’s JSC KazTransGas and China’s PetroChina International, Kazakhstan will export 5 billion cubic meters of natural gas to China. The deliveries, which began on October 15, 2017, will be carried out over the course of one year.

Interestingly, this is not the only deal of its kind in the region. Reports state that Russian oil producer Rosneft is also looking to increase its oil exports to China, through Kazakhstan, from 10 million tonne (MT) per year to 18 MT per year.

Kazhakstan is one of the largest exporters of petroleum gas and other natural gases to China. Currently, China relies on Turkmenistan, Australia and Qatar for natural gas imports. China and Kazakhastan hope that the deal will result in increased trade links and routes within the Eurasian region.

JAPAN

Fresh from the farm In a bid to boost exports of bluefin tuna from the country, Japanese trading house Toyota Tsusho and Kindai University will soon began shipping fully farmed bluefin tuna to Southeast Asian countries. Currently, the two partners produce around 4,000 ‘Kindai’ tuna per year for domestic market. While they hope to increase the production to about 6,000 tuna in the next three years, they are aiming to export 2,000 tuna by 2020.

The Pacific Bluefin tuna, considered to be an endangered species, is popularly used in South Asia region as an important ingredient in Sashimi. The duo also hope to increase production and exports of farm-raised red sea bream, Japanese yellowfin tuna and white trevally.

Interestingly, Japan also happens to be a leading importer of bluefin tuna. Other markets with a taste for this fish are Thailand, Korea, US and EU. 12 THE DOLLAR BUSINESS II NOVEMBER 2017

EU-CHINA

Protectionism at play

W

hile China is viewing the latest anti-dumping ruling by European Union (EU) as a form of protectionism, the EU states have started taking steps towards a newer agreement to prevent further dumping in the coming days. The EU nations have announced a decision to treat all WTO members as the same when it comes to applying anti-dumping duties, except in case of significant market distortions. Under normal circumstances, dumping would be considered when the domestic price is higher than the export prices but when it comes to these specific cases, the EU has agreed to compare export prices with certain international benchmarks.

While EU has not mentioned China specifically, it will be releasing a report on countries that are being accused of such trade distortions in which China is expected to be included. Over the last year, China has been reiterating its demand for a change in status in the WTO where according to an agreement China was to be accorded Market Economy status on completing 15 years as part of the WTO. US and EU have objected to this change. Currently, China is accorded a Special Non-Market Economy status. According to WTO, a country is a market economy when prices and production are determined by competition and market factors and not by the government.

EU has accused China, time and again, of dumping a variety of products, from steel to solar panels and recently even e-bikes.

AUSTRALIA

Racing to the top The isolation of Qatar in middle East has proven to be a boon for many countries. One of them is Australia. Latest analysis hints at Australia, the world’s second-largest exporter of LNG, racing ahead of Qatar, by 2020.

Qatar has been facing quite a few problems in the recent past. Saudi Arabia, Egypt, UAE and others have cut ties with Doha because of its alleged support of terrorist activities. This has created an opportunity for other players in the LNG market. Australia, not to miss on this opportunity, too plans to increase its LNG exports in FY2018.

In fact, Australia has recently entered into a large number of natural gas projects such as Chevron Group’s Gorgon project, which is being touted as one of the world’s largest natural gas projects. Australia will be exporting 74 million tonne (MT) of LNG by 2019. Qatar exported 77.6 MT last year. All this indicate Aussies might just become top dog in this market in a few years.

GST INDIA-US

A booster dose A consignment of crude oil that arrived earlier in October from the US Gulf Coast to Paradip Port in Odisha was the first Indian import of crude oil from US since 1975, the year when US banned the export of crude oil. The ban was however lifted in 2015 by the then US president Barack Obama. The cargo of 1.6 million barrels of oil was consigned to the state-owned Indian Oil Corporation (IOC) and is a part of the commitments to US oil purchases by IOC and Bharat Petroleum (BPCL) – both companies have placed orders for over 2 million barrels of crude oil from US. According to reports, crude oil trade will increase the annual bilateral trade between the two countries by at least $2 billion.

SAUDIA ARABIA

Eying the prize One of Saudi Arabia’s largest exporters of oil is making headways into India with a plan to set up a major refinery on India’s west coast. Saudi Aramco, according to its CEO Amin Nasser, plans to set up a “fully integrated business consisting of partnerships with local Indian companies.”

The company has already held talks with Indian Oil with regards to setting up of a refinery in Maharashtra with a capacity of 60 million tonne. Saudi Aramco has set up an office in India to market its crude oil as well as to provide technology and infrastructure to its Indian partners.

CHINA

India made, China owned China-based Fosun Pharma announced that it has acquired a 74% stake in Gland Pharma, a Hyderabad based pharma company. The acquisition is valued at $1.08 billion. Initially it wanted to acquire 86% of Gland Pharma for $1.26 billion. The share was decreased after concerns were raised by the Cabinet Committee for Economic Affairs about ownership by a Chinese entity. Shanghai-based Fosun is also reportedly looking to acquire a stake in Indore-based Symbiotic Pharma.

14 THE DOLLAR BUSINESS II NOVEMBER 2017

Change is good

T

hree months post the implementation of GST, the Ministry of Trade and Commerce has announced some much-awaited changes to the rules.

These changes aim to ease compliance-related burdens being faced by Indian SMEs. One of the major changes came in the form of easing tax filing requirements for SMEs. The council announced that a change was being brought about to the composition scheme with the threshold being increased to Rs.1 crore from Rs. 75 lakh. Also, SMEs will now only need to file their taxes on a quarterly basis. Under the composition scheme, traders will pay 1% tax, manufacturers will pay 2% and suppliers of food and drinks will pay 5% in tax.

The other major change was the reduction in tax rates for 27 items including manmade yarn which saw its GST fall from 18% to 12%.

Two pre-GST schemes have found their way back into the current GST rules. Under the new regulation, for imports under Advance Authorisation Scheme, the EPCG scheme and for 100% EOUs the payment of IGST and Cess has been waived. For merchant exports, a taxation of 0.1% will be levied, however exporters can apply for a refund for this. This, the government hopes, will help overcome the issues of capital blockage. A big boost for the manufacturing and textile industry has come in the form of reduction in GST on job works from 12% to 5%. This reduction is also applicable to printing items, imitation jewellery and food items.

INDIA-UK

Creating a warm welcome Looking to attract investments from British small and medium enterprises (SMEs) and help them manoeuvre through the various legal and tax requirements, the Indian High Commission in UK along with the UK India Business Council (UKIBC) announced the launch of Access India Programme (AIP). The programme, which is free, aims to provide initial market access support to smaller British companies on a variety of investment aspects – from legal to accounting. As part of the AIP, the two bodies will also be conducting six mentoring programmes and workshops for businesses and entrepreneurs. They hope to begin the programme with at least 50 British companies.

A February 2017 study by PwC and UKIBC estimated that UK was the largest G20 investor in India. According to the UK-based National Federation of Self Employed and Small Businesses (NSB), small businesses account for at least 99.3% of all private sector businesses in UK out of which 99.9% were SMEs. On the other hand, India is the fourth largest investor in UK. The Indian High Commission in UK is hopeful that the initiative will provide a boost to India-UK relations in the coming days.

COVER STORY

MEGA TRADE DEALS: AN UNCERTAIN FUTURE?

AN UNCERTAIN FUTURE? US President Donald Trump has doubled down on his protectionist campaign rhetoric by withdrawing from Trans-Pacific Partnership (TPP) and threatening to walk out of North American Free Trade Agreement (NAFTA). Many think that the erstwhile champion of free trade reversing gears is an ominous sign for the world of trade. But then, there is an optimistic bunch that believes that the trade vacuum left by US is an opportunity for other nations. Question is – who will gain the most? Can Asian giants like Japan, China and India make the most of the situation and make the dream of an 'Asian Century' come alive? Or, will the West continue to dominate the world of trade in most respects?

BY

BY INDRANIL INDRANILDAS, DAS, EXECUTIVE EXECUTIVE EDITOR, EDITOR, THE THE DOLLAR DOLLAR BUSINESS BUSINESS

16 THE DOLLAR BUSINESS II NOVEMBER 2017

T

he leader of the free world, is the epithet that #POTUS (i.e. the typical US President) used to be known by. It was a little pompous at the best of times, given that the US President is the elected leader of just about 4.4% of the world's population. Nonetheless, the title enshrined the might of US when it came to leading the world, whether it be in war, peacekeeping, environment or global trade.

Not any longer.

The current US President, Donald Trump, has for all practical purposes, through his protectionist rhetoric and inward looking policy, abdicated the mantle of global leadership. In the first year of his presidency, Trump has withdrawn from the 12-nation Trans-Pacific Partnership (TPP), walked out of the Paris Climate Agreement, threatened to withdraw from the North American Free Trade Agreement (NAFTA) and with his acerbic rhetoric jeopardised the South Korea-US (KORUS) free trade agreement (FTA). US, the erstwhile champion of free trade, seems to have engaged the reverse gear, and has left the leadership space in a vacuum.

It is not that there is a lack of contenders and pretenders to the throne. German Chancellor Angela Merkel has been aggressively promoting free trade in various fora as has been Chinese President Xi Jinping. But the US reversals have both shaken and stirred the world of trade and raised many questions. So will the axis of trade shift towards EU? Or will China be setting the agenda for global trade in the near future? Will countries look for more bilateral FTAs rather than setting their sights on the more ambitious and unwieldy mega trade agreements like TPP and the Regional Comprehensive Economic Partnership (RCEP)? And finally, what will be the impact of this wave of change on India's trading community?

As we seek answers to these questions, let us look at the trade deals

COUNTRIES AROUND THE WORLD ARE BRACING FOR A POTENTIAL IMPACT whose fates seem to be hanging fire.

BACKDROP

When the then US President Bill Clinton signed the NAFTA in 1994, he had expressed hope that the deal would strengthen trade between US, Canada and Mexico, ease tariff and non-tariff barriers, and create jobs as well as ease prices allowing consumers across borders to benefit. Since its inception, the deal has had its fair share of criticism, especially on the US side of the border.

The major grouse of critics on the US was that NAFTA had created an unfair playing field, allowing Mexico to generate employment at the cost of US jobs.

US's yawning trade deficit with Mexico has also been a flashpoint. And to be fair, there is some truth in these allegations, as a number of US companies, including auto majors, invested in plants in Mexico to take advantage of lower labour and operating costs, causing job losses in US. Almost 23 years later, US, now under the leadership of Donald Trump, has raised its voice against NAFTA and is threatening a walk out. Could be any day.

A similar situation can be seen in the FTA with South Korea, a strong trade partner and political ally for US in the East. With US already walking out of TPP and many more trade deals under the scanner, the list of potential walkouts is long. The common factor in most of these situations? Trumpland!

Countries around the world, whether in trade agreements with these warring factions or not, whether small or big, will surely be impacted if US actually does pull out of these major deals. The US being the largest economy in the

NOVEMBER 2017 II THE DOLLAR BUSINESS 17

COVER STORY

MEGA TRADE DEALS: AN UNCERTAIN FUTURE?

WINDS OF CHANGE

These events may not come as a surprise to many, keeping in mind the winds of change that were activated once the Entrepreneur-in-Chief President Donald Trump took over charge of the growing US economic polity, earlier this year.

The frequent calls for 'America First' and threats to withdraw from trade deals the US does not find ‘beneficial’ to its interests have found their shares of support and opposition. While the Theresa Mayled UK, itself embroiled in an economic conundrum, has expressed its support for these protectionist policies, voices on the other side of the English Channel, France’s Emmanuel Macron and Germany’s Angela Merkel, have been actively protesting the same.

In North America, the constant threats of closing borders has raised concerns for US trade partners like Canada and Mexico, who until recently considered US both a political and economic ally. They have now found themselves at the receiving end of US's threats that have already

impacted their economies and incentivised them to find new trading partners.

Asia, with China in the lead, which has shown remarkable economic growth in the last couple of decades, too has found itself at the receiving end of Trump’s trade agenda.

While the possibility of a trade war

Merchandise exports of regional trade agreements (RTAs)

EU and NAFTA continue to dominate trade among regional trade agreements 3% 1% 15%

11% EU NAFTA ASEAN SADC MERCOSUR Other

50%

20%

Source: TDB Intelligence Unit & WTO; break-up for CY2016

Photo credit: U.S. Department of State

world, is bound to also affect the balance of power when it comes to trade.

While some countries are looking at the turn of events as an ominous sign for the future of free trade, for others, the strain in relationships between the larger players is an opportunity to cement new ones. India, for one, has been working on strengthening its trade partnerships with not only US, Mexico, Canada and South Korea but also with EU and other countries. China, on its part, has been playing the role of the flagbearer of free and open trade in any and every trade fora that it happens to be a part of. The power-play is on, but is there any real reason to get excited, or is it just another of Trump's famed negotiation tactics to force partners to agree to his terms?

Could it also be that Trump is just pandering to his domestic constituency without having any serious intention of putting the deals in jeopardy? Or will the global trading community sans big brother US be able to open up even better and fairer trade deals for themselves?

Canadian Foreign Minister Chrystia Freeland, US Trade Representative Robert Lighthizer and Mexican Minister of Economy Ildefonso Guajardo (L-R) participate in the 4th round of NAFTA negotiations at General Services Administration Headquarters in Washington, D.C. on Oct. 17, 2017.

18 THE DOLLAR BUSINESS II NOVEMBER 2017

“A TRADE WAR IS IN NO ONE'S INTEREST, BUT OUR PRESIDENT IS UNPREDICTABLE” WILLIAM A. REINSCH, DISTINGUISHED FELLOW, THE STIMSON CENTER, WASHINGTON D.C.

TDB: When it comes to strengthening its international position, can Asia work together to emerge as a powerful new bloc to influence the direction of world trade?

WAR: So far that seems unlikely. India, in particular, seems unable to agree to anything with anybody in the trade area, and relations between India and China on larger geopolitical issues are such that it is hard to see them agreeing on anything right now. There are also many longstanding issues amongst China, Korea and Japan that may make agreements difficult. A trilateral trade agreement amongst them has been under discussion for some time but does not seem to be making much progress.

TDB: Can a US-China fallout impact China’s position in world trade? Further, can this fallout in any way assist India in its growth in the years ahead?

WAR: I’m confident the Chinese are developing alternatives should their trade with the US decline. I don’t have a view on how that might affect India.

TDB: Considering that US is highly dependent on imports, don't you think its withdrawal from trade deals will prove counterintuitive to its economy?

WAR: US did not threaten to withdraw previously. In fact, US has been one of the strongest supporters of the global trading system and of WTO. The new administration is, I hope, a temporary aberration.

TDB: What are US’s expectations from NAFTA and the US-Korea trade deal? How fair are these deals from the US perspective. Is it feasible for the other countries involved in this deal to agree to US's demands?

WAR: It appears from public statements that US wants to renegotiate the agreements in ways that will reduce its bilateral deficits with Mexico and Korea. The demands US has made in

NAFTA so far appear intended to do that. I don’t believe there is anyone in the American business community who believes that Canada or Mexico will agree to the US demands.

TDB: How important will a stronger India-China relationship be for India's foreign trade?

WAR: I think a better relationship would be essential if India wants to become a more significant player on the international economic arena.

TDB: Countries have, over the years, moved from closed economies to an era of free trade. Do the recent anti-globalisation movements point to a reversal in this trend?

WAR: There appears to have been a slowdown in world trade, although that may be ending, but there certainly is a growing anti-globalisation political movement, at least in EU and US, which has led to fears of economies closing themselves off to trade. How soon these governments will come to their senses remains to be seen.

TDB: Do you believe that the absence of trade agreements will result in an increase in trade barriers?

WAR: Not necessarily. At best, it would mean continuation of the status quo. The best approach would be to return to multilateral negotiations under the WTO, but that seems unlikely at present. Instead, it appears that more and more countries are negotiating regional or bilateral deals, all of which will promote some amount of trade liberalisation, although in many cases it may be quite modest.

TDB: Can President Trump walk away from these trade deals. How complicated is the process and can other partner countries object?

WAR: This issue is being debated right now in US. Some believe he has the legal authority to withdraw from trade agreements; others argue that only Congress can do that. At this point it appears there is no agreed-upon answer to that question, which means that if he did actually withdraw from one, there would be litigation, and the outcome of that would be uncertain.

TDB: Can fallouts from these trade deals lead to a trade war between US and other developed and developing nations?

WAR: Deals will not produce trade wars. Failure to reach deals could produce trade wars. At this point, no one appears to want that, and a trade war is in no one's interest, but our President is unpredictable.

NOVEMBER 2017 II THE DOLLAR BUSINESS 19

Interview by Anishaa Kumar

TDB: Ever since the Trump administration has assumed power in US, there has been a paradigm shift in the country's policy with regards to foreign trade. How much of an influence will this new direction have on world trade?

William A. Reinsch (WAR): That’s very hard to say. First, we don’t know how for long this new US policy can be sustained, particularly if it runs into opposition from our trading partners. Second, it’s too early to predict how other countries will respond. The initial response appears to be to ignore the US and go forward with other trade agreements that leave US out.

That is not good for US, but it may not be bad for world trade.

COVER STORY

MEGA TRADE DEALS: AN UNCERTAIN FUTURE?

amongst these warring factions seems to be small, many new partnerships have emerged from the shadows of the failed TPP. Carlo Dade, Director, Centre for Trade and Investment Policy, Canada West Foundation, says, “Actions by the US government are forcing other countries to step up and fill the void in liberalised trade. Liberalised trade is more than just an economic principle. It is a

part of the underlying belief in liberalism and freedom, economic and political, that have defined the American era.

I would argue that US is abandoning both.” Countries like US however justify their actions as steps needed to improve the country’s economy and increase employment opportunities in their country.

The changing scenario raises a pertinent question: What is next for the sig-

natories of these deals and are we headed for a world of trade without US?

COST OF WITHDRAWAL

With US withdrawing from NAFTA appearing to be a distinct possibility, how would a failed deal impact US, Mexico and Canada? While the White House claims that moving away from the deal is beneficial, trade analysts warn of negative

“PROBLEMS WITH NAFTA ARE MORE POLITICAL THAN TECHNICAL” CARLO DADE, DIRECTOR, TRADE & INVESTMENT CENTRE, CANADA WEST FOUNDATION

TDB: How would the results of the NAFTA negotiations impact Canada and Mexico’s relationship with other countries?

CD: That is underway, has been underway and would continue, regardless. But, as a result of the acrimonious nature of these negotiations, Mexico is looking to facilitate imports of key agricultural goods from countries other than US. Both Canada and Mexico are also moving to join other TPP countries that 20 THE DOLLAR BUSINESS II NOVEMBER 2017

plan to move ahead with the agreement, without US. We have done economic modelling that demonstrates that Canada and Mexico would actually do better in the TPP without US. But, neither country will want to rush into bad deals with countries like China or India. Negotiations with India will move forward when that country gets serious about negotiating and puts serious tariff reductions on the table.

TDB: Can a country like US, which is highly dependent on imports, sustain itself on its own?

CD: The case of US, being the largest world economy, is a little different that of other nations. I think California by itself would rank as one of the world’s largest economies. But sectors of the US economy like agriculture are highly dependent on trade. US interests are nervous, bordering on panic, at the projected losses owing to the 'TPP-11' going ahead without US. The country is also a major exporter of services and it has consistently run a trade surplus with Canada on trade in services. I’d imagine the same is with Mexico. US has been attempting to write the rules for trade in intellectual property and digital trade through TPP, basically the future of trade. Then the Trump administration walked away from the deal. Some of the things that the Americans most wanted in that agreement are now being stripped out. It is somewhat unbelievable to see a country so severely and so consistently, almost methodically, shoot itself in the foot, or undermine its self-interests.

TDB: Can the fallouts from the breakdown in these trade deals lead to a trade war between US and other nations?

CD: I am not very sure. I think Mexico will retaliate. They’ve already done this to some degree with corn. I don’t think Canada will follow suit. We are more dependent on US.

Interview by Anishaa Kumar

TDB: Has NAFTA failed to achieve its goals?

Carlo Dade (CD): NAFTA had economic and political goals, as is the case with almost all trade agreements. The political goals, including assuring the flow of Canadian oil to US irrespective of any changes in Canada’s national energy policy and ensuring that Mexico did not deteriorate to become a version of present-day Venezuela, have succeeded. For Canada and Mexico, gaining privileged and more predictable access to the world’s largest, richest and easiest market has, on the whole, benefited both countries enormously. There have been some loses too in terms of jobs. If you’ve lost your job you have the time and reason to protest. If you’ve gained a job you’re too busy to go march; that is how the world works!

The narrative in the media is that all new jobs created are due to efforts of local politicians or the genius of the CEO, never thanks to a trade agreement. When jobs are lost, those same politicians and CEOs blame trade agreements. Problems with NAFTA are more political than technical issues. NAFTA has been prone to political manipulation from time-to-time due to various misperceptions surrounding the agreement. When I do radio call-in shows in Canada, I am taken by surprise at the number of things callers blame on NAFTA. Also, there is the perception that, if there is one problem in one area of the agreement, then the entire agreement is flawed.

repercussions. Under NAFTA, the three countries pay nothing on most goods that cross the border. If United States exits NAFTA, the tariffs, or taxes, that Canada and Mexico put on US goods would rise. For some goods, tariffs could go as high as 150%. That would cause consumer prices to spike. All three countries being members of WTO, tariffs could revert to WTO levels. Currently, the aver-

age WTO level tariff levied by Mexico is 7.1%, that by Canada is 4.2% and by US is 3.5%. Surely, US exporters have the most to lose. The equation may not however be so straightforward. Mexico will lose tariff-free access to its biggest export market and that could perhaps be a body blow to the Mexican economy.

At this time we must also look at the fact that NAFTA had goals that tran-

scended trade. Dade of Canada West Foundation explains, “NAFTA had economic and political goals, as with almost all trade agreements. The political goals, assuring the flow of Canadian oil to the US in the period after implementation of Canada’s national energy policy and assuring that Mexico did not deteriorate to become a version of present-day Venezuela, have succeeded."

“OUTCOMES OF RCEP & TPP - 11 TALKS WILL DETERMINE ASIA'S ROLE IN WORLD TRADE” TROY STANGARONE, SENIOR DIRECTOR, CONGRESSIONAL AFFAIRS & TRADE, KOREA ECONOMIC INSTITUTE OF AMERICA (KEI), WASHINGTON D.C.

TDB: Asian countries like South Korea, China, Japan and India have become forces to reckon with in the world of trade. Are these countries now in a position to influence the direction of world trade?

TS: Asia’s role in global trade will likely be determined by the outcomes of RCEP and TPP-11 negotiations. While comprising much of the world’s trade, South Korea, India, China and Japan have historically had great differences in how they have individually viewed the international trading system. If they are able to narrow those differences in a meaningful way, Asia could play a larger role in the global trading system.

TDB: How important is it for the growth of the US economy that international trade continues to grow?

TS: While United States is one of the world’s largest trading

nations, compared to most other countries trade accounts for a relatively small amount of the US economy. In 2015, trade was only about 12% of the US GDP, while the global average was 58%. If United States were to trade less, US consumers would see higher prices, less choice, and lower quality goods as competition lessens. In the short run, depending on how drastic the changes, there could be shortages of some consumer goods that are no longer produced in United States. Having said that, it would not be impossible for the United States to adjust.

TDB: What are US's expectations from KORUS FTA? TS: The United States would like to see its trade deficit with South Korea decline, specifically in the area of automobile trade. There are steps that South Korea can take on the regulatory side to open the market further to US automobiles, and Seoul should be able to accommodate requests of this nature.

In the long run, South Korea benefits more from auto sales in the United States than any potential losses from increased US sales in South Korea due to the differences in market size.

However, United States will also need to accommodate South Korean requests in the talks. One-way discussions with no benefits for South Korea will be unsuccessful.

TDB: How important is India as a trade partner for Korea?

TS: India and South Korea can be key trading partners, helping to diversify and augment mutual trade. However, the current CEPA is a low-quality agreement, one that both sides have wanted to update to help increase trade. At the same time, South Korean firms have faced significant hurdles in the Indian market. These are issues that should be addressed as they would be beneficial for job creation and broader economic growth in both countries.

NOVEMBER 2017 II THE DOLLAR BUSINESS 21

Interview by Anishaa Kumar

TDB: Korea-United States (KORUS) free trade agreement (FTA) is in news for initiating amendment negotiations. Has the FTA achieved what it set out to do?

Troy Stangarone (TS): The KORUS FTA has largely worked as expected. Trade deals help facilitate increased trade, which has happened. Contrary to the perspective of the Trump Administration, trade deals are not tools to manage deficits and surpluses between countries. Deficits and surpluses are caused by various other factors. While the US trade deficit with Korea has grown since KORUS FTA has come into effect, this has been due to structural issues in US-Korea trade that mainly emanate from the difference in the size of auto markets in each country.

The biggest challenge with the KORUS FTA has been related to the implementation of the same. Here, United States and South Korea need to work with each other to ensure that the agreement is properly implemented.

COVER STORY

MEGA TRADE DEALS: AN UNCERTAIN FUTURE?

The blame game when it comes to NAFTA also has a lot to do with public misconception and political manipulation, both of which mostly have nothing to do with the actual economy. The job losses in US have been real, and while NAFTA had a role to play, experts suggest that it had more to do with the advancement of technology and the use of sound business logic. Businesses will go

where there is an opportunity to make better profits, NAFTA or no NAFTA. Dr. Amitendu Palit, Senior Research Fellow, Institute of South Asian Studies, National University of Singapore, says, “I think NAFTA has been one of the most successful trade agreements. It has led to the growth of North American production networks and value chains and has benefitted both producers as well as

consumers. That is the benefit from trade that policymakers, academics and businesses look forward to. But there may be industries that may not have got as much from NAFTA as they had expected to."

While there has been opposition to NAFTA from many on the US side, many sectors in US are also concerned of this possible break-up of NAFTA and other mega trade agreements. Dade ex-

“INDIA CAN DEVELOP TRADE RELATIONS EVEN WITHOUT FTAs” DR. AMITENDU PALIT, SENIOR RESEARCH FELLOW, INSTITUTE OF SOUTH ASIAN STUDIES (ISAS), NATIONAL UNIVERSITY OF SINGAPORE (NUS)

TDB: Does a potential US exit from NAFTA allows China to emerge as the leader in global trade?

AP: It is not yet clear that US is going to walk out of the deal just because President Trump has been making these threats quite forcefully. The fact of the matter is that even when it comes to KORUS-FTA, he did not eventually back out. The reason is simple – there is the establishment, the bureaucracy and industries that are trying to convince him that it is not just trade, there is much more to these agreements. Canada and US, for example, are more than just trade partners. NAFTA has implications for regional and global relationships, as does the US 22 THE DOLLAR BUSINESS II NOVEMBER 2017

FTA with Korea. I am not fully confident that President Trump will actually withdraw from the agreement.

When it comes to whether the vacuum would allow Asian countries like China to emerge as leaders, I am not sure that China has an alternative template to offer when it comes to global trade because China does not have what one can describe as a trade vision which offers an alternative to the US and UK trade visions. China wants to capture global trade markets.

This may not translate into an overall positive attitude towards globalisation because China continues to maintain strong barriers to market access in its own economy. I would be more comfortable of a scenario where there would be a shift towards regions and countries like Europe, Japan and even ASEAN as they have been better proponents of free trade.

TDB: How can India expand its influence in the future?

AP: The geo-political angle to India and US relations can lead to more investments in fields such as defence. US has also started to export crude oil to India. Various new sectors have opened up and there are many new areas where India and US can grow their relationship without entering into a free trade agreement. So, NAFTA may not actually have any impact on a potential US-India trade relationship. When it comes to Canada, India and Canada have been negotiating a trade agreement for many years. But there is no end at sight. It shows some kind of a reluctance from the Indian government’s side to complete negotiations. There seems to be some trade pessimism.

India has good relations with many countries, even those with which it does not have trade agreements. India should work towards becoming competitive in the global market, both by improving infrastructure and reducing business costs.

It needs to develop a positive trade policy.

Interview by Anishaa Kumar

TDB: Would you view NAFTA as a success or a failure?

Dr. Amitendu Palit (AP): I think NAFTA has been one of the most successful regional trade agreements, in addition to other trade agreements like the European Union and the ASEAN FTA. The particular success of NAFTA has been that it has been able to integrate the North American markets. It has led to the growth of North American production networks and value chains and benefitted both producers and consumers.

In that respect, NAFTA has been clearly successful, but one has to accept the fact that there may be industries that may not have gotten that much from NAFTA as they had expected. This directly relates to the political interpretation of NAFTA by the US President. He has highlighted how there were industries, such as automobiles, that had relocated from US to Mexico taking advantage of cheaper labour costs there and from there are exporting to US. While the US consumers have benefitted from the cheaper products, the US industries have not. If one looks at the overall aim for the economy, and for the region as a whole, there is no question that the gains from NAFTA have been fairly substantial.

plains, “US agricultural interests groups (with small exceptions like Florida fruit growers, etc.) have been huge advocates, supporters and beneficiaries of US trade agreements like NAFTA. They stand to lose enormously if tariffs on their exports rise compared to their competitors.”

Similarly, when it comes to the KORUS FTA, President Trump has expressed concerns due to an increase in US’s trade

deficit with South Korea. Currently, according to US, the agreement has worked in favour of South Korean exports and not vice versa. A statement not all are in agreement with. Troy Stangarone, Senior Director, Congressional Affairs & Trade, Korea Economic Institute of America, sees the impact of the FTA as a positive one. He says, “The KORUS FTA has largely worked as expected. Trade deals

help facilitate increased trade, which has happened in case of KORUS. Further, contrary to the perspective of the Trump Administration, FTAs are not tools to manage trade deficits and surpluses between countries. The surplus or deficits are caused by various other factors. While the US trade deficit has grown since the KORUS FTA has come into effect, that has been due to structural issues in US-

“ANY DISRUPTION IN GLOBAL TRADE IS BOUND TO IMPACT INDIAN ECONOMY” DR. BISWAJIT DHAR, PROFESSOR, CENTRE FOR ECONOMIC STUDIES AND PLANNING, SCHOOL OF SOCIAL SCIENCES, JAWAHARLAL NEHRU UNIVERSITY

TDB: Do events like Brexit, the US withdrawal from TPP, etc., signal a reversal in the global trade winds?

BD: There will certainly be higher doses of protection if trade agreements become redundant. But this will occur principally through the non-availability of preferential tariffs, which have lowered the levels of tariff protection in all the member states. Trade agreements have increased the use of non-tariff measures, including the increased use of standards as a barrier, among member states.

TDB: Over the years, India’s trade relationship with nations

like US, Canada and the rest of Asia has improved. How can a trade fallout between US and its partners impact India?

BD: In an interconnected world, any major disruption in world trade, and that too caused by the largest economy, US, is bound to have an impact. India would get affected even more since US is India’s largest export destination. Any pull-back by US would naturally affect the Indian economy.

TDB: On the other hand, could a fallout give India an opportunity to develop newer trade deals?

BD: India needs to diversify its trade and look at the possibilities of forging new partnerships. Towards the end of the previous decade, India had made a significant push towards strengthening its relations with Africa. The Africa-India Forum Summit, which was launched with much fanfare in 2008, was seen as a game-changer as far as trade and economic relations between the two partners were concerned. A well-thought-out plan to build economic partnerships with the sub-regional arrangements in Africa, like the Common Market for Eastern and Southern Africa (COMESA) and the Economic Community of West African States (ECOWAS), would be the step forward.

TDB: How will the current US ‘protectionist measures’ impact US and the global economy?

BD: The US protectionism, or should I say, look inwards policy, will make a huge impact on global trade. But, the good news is that the US economy cannot implement all the pronouncements of President Trump. Currently, the US economy does not have the capacity to rebalance the economy, shifting away from import to domestic sources to meet domestic demand.

But, nonetheless, the Trump rhetoric will continue to adversely affect global trade.

NOVEMBER 2017 II THE DOLLAR BUSINESS 23

Interview by Aamir H. Kaki

TDB: According to you, what are the challenges that arise from a major economy like US moving away from major agreements such as NAFTA, TPP, etc.?

Dr. Biswajit Dhar (BD): Global trade governance faces the gravest uncertainty since a rules-based trading system was established. Exactly seven decades ago, the agreement that provides the multilateral framework of trade rules, the General Agreement on Tariffs and Trade (GATT), was signed on October 30, 1947. Until a few years ago, the World Trade Organisation (WTO), the successor to GATT, was the institution to look up to. But the inability of WTO to respond to the needs of its members and also to the changing dynamics of global trade shifted the focus on to the free trade agreements (FTAs).

These bilateral, regional, and now mega-regional trade agreements (MRTAs), were at one point in time considered to be easier to negotiate, but times seem to have changed. FTAs are facing the same problems as the WTO, namely meeting the aspirations of the partner countries in a holistic manner and to remain relevant over a period of time. For some time, therefore, the global community will have to fall back on the WTO rules.

COVER STORY

MEGA TRADE DEALS: AN UNCERTAIN FUTURE?

South Korea trade that are relative to the difference in the size of auto markets in each country.” The biggest challenge to the deal, Stangarone says, has been the actual implementation of the trade deal, an area where United States and South Korea need to work together.

ASIA'S CENTURY...

While economists and policymakers have disagreed with Trump's protectionist policies, the US President has shown no signs of backing off. Is this then an opportunity for one of the major Asian economies to grab the mantle of leader of the free world when it comes to world trade? The opportunity sure is there, and

unlike in the last century, Asian nations are no longer shy to voice their opinion on free and more importantly fair trade.

In the TPP-11, we have seen Japan making a sustained push to conclude the deal notwithstanding the withdrawal of US. Fact is, TPP-11, once a distant dream, does appear to be probable in the not so distant future.

China too has consistently been at the forefront of the ambitious Regional Comprehensive Economic Partnership (RCEP), which has the potential to create an enormously powerful trade bloc.

China’s economic influence also plays through the One Belt One Road (OBOR) initiative and the China Pakistan Economic Corridor (CPEC).

...OR INDIA'S CHANCES?

THE CHANGING INDIA-CHINA DYNAMICS WILL PLAY A ROLE IN INDIA’S GROWTH

India, already a part of RCEP, is also pursuing FTAs with EU, Australia and Canada, amongst others. Both China and India have also been wooing the emerging African economies and have been using diplomatic channels to find new

Merchandise trade between US and South Korea

Since CY2014, trade between the two countries has remained stagnant 140 120 100 80 60 40 20 0

CY07

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

Source: TDB Intelligence Unit & US Census Bureau; figures in $ billion

US merchandise trade with NAFTA countries

US's trade with NAFTA partners has been consistently declining since CY2014 700 600 500 400 300 200 100

Mexico

CY16

CY15

CY14

CY13

CY11

CY12

CY10

CY09

CY08

CY07

CY06

CY05

CY04

CY03

CY02

CY01

CY00

CY99

CY98

CY97

CY96

CY95

CY94

0

Canada Source: TDB Intelligence Unit & US Census Bureau; figures in $ billion

24 THE DOLLAR BUSINESS II NOVEMBER 2017

trade partners in Eurasia and the Middle-East. So, can Asia emerge as the new power centre? Experts believe that might not come so easy. Stangarone (of Korea Economic Institute of America) says that a lot of Asia’s role will be determined by how some of the emerging trade pacts work out. He says, “Asia’s role in global trade will likely be determined by the outcomes of RCEP and TPP-11. While comprising much of the world’s trade, South Korea, India, China, and Japan have historically had great differences in how they individually view the trading system. If they are able to narrow those differences in a meaningful way, Asia could play a larger role in the global trading system.”

Of course, not all are optimistic that Asia will be able to make the most of the situation. William A. Reinsch, Distinguished Fellow, The Stimson Centre, USA, says, “So far, it seems unlikely that Asia can come together. India, in particular, seems unable to agree to anything with anybody in the trade area, and relations between India and China on larger geopolitical issues are such that it is hard to see them agreeing on anything right now. There are also many longstanding issues among China, South Korea, and Japan that may make agreements difficult. A trilateral trade agreement has been under discussion for some time but does not seem to be making progress.”

The differences that experts talks about have been on display in various fora, and emanate essentially from the structural differences in the economies of these Asian behemoths. But, the Association of Southeast Asian Nations (ASEAN), the South Asian Association for Regional Cooperation (SAARC), and now RCEP has shown that these nations have the ability to overcome the differences. The communication channels seem to be more open than ever and with Asian economies growing in might, both consumption and production wise, Asia may just be in the right place, in the right time, to grab this opportunity.

INDIA SHINING?

India, which is on track to recover from the twin blows of demonetisation and the implementation of the GST, is delicately

“INDIA IS LIKELY TO ADOPT A PRO-US FOREIGN POLICY STANCE, SOON” DR. MANOJ PANT, DIRECTOR, INDIAN INSTITUTE OF FOREIGN TRADE (IIFT), NEW DELHI

TDB: Do you really think the Trump Administration can walk out of these deals and associations?

MP: The problem with Trump is that he exhibits a very typical businessman-like approach to government policymaking which is not tenable in today’s globalised world. Simultaneously, he does not know how business benefits from multilateral trade framework accrue. He only knows to deal bilaterally and not multilaterally, and that reflects in most of his policies. Going forward, the troubling reality staring at him in the face is he is not bigger than the trade institutions and the economic interests of US. And that’s the reason he has not been able to follow-through on many of his promises.

When it comes to TPP and NAFTA, what he is basically trying is to gain some bargaining power. He knows he simply cannot withdraw with impunity overnight. Trump is building a case of pulling out of NAFTA is not a done deal yet, and the same is true for TPP – where the door still remains open for an US entry at a later date. The US President knows that such multilateral frameworks take time to materialise, and by the time they would actualise; he would probably be out of the office. At best, what he can do is to try slowing down the TPP. America has over the ages stood for free markets, and no President including Mr. Trump can alter that.

TDB: What repercussions do you see arising out of US, for all practical purposes, abdicating its role as the beacon of free trade. What will be the impact on Asia?

MP: As a result of global economic upheavals like Brexit and the US withdrawal from TPP, a lot of multilateralism is being encouraged by developing countries. That’s why you see the

advent of many alternative trade arrangements in this part of the world. As a result of TPP fallout, one can notice a dramatic rise in trade equations involving South Korea and Japan, South Korea, Japan and Australia as well as South Korea, Japan and South-East Asia, amongst others. Worth noting here is that the two major economies that were not part of the original TPP plan are India and China. With TPP, America’s plan was to counter China’s influence. And China, by tying up with many developing countries and forming an umbrella under RCEP, aims to build a counter trade bloc.

TDB: In such a dynamic environment, what does India need to do to influence the direction of globe trade?

MP: Today, our major USP comes from our large consumer base that we have. If the Chinese economy, which is already showing signs of slowing down runs into further trouble, then the only large enough economy which can bring a resemblance of stability in this part of the world is India. And, this is the fact that makes India an unavoidable partner in global economics.

No country, be it a superpower or not, can afford to leave India out of their global schemes of things now.

Our biggest advantage when it comes to our relationship with US stems from the fact that we both are robust political democracies. India is the only country in the world which has been a one man-one vote democracy, right from its inception.

This is why you see, person-to-person US-India links are so strong today.

The spillover benefit of this is also evident in the increased economic cooperation between the two countries. We are a natural partner to US. Further, it is also a fact that over the years, India has tried to maintain a balance with US and other countries in international politics because of geopolitical developments in this part of the world. We have a neighbouring country i.e. Pakistan cosying up to China but, in my view, China will dump Pakistan the day it finds a better market. India also does not wish to be bracketed as a member of the US Camp – a stand that’s perfectly fine given the multipolar world we now are living in.

With Trump as US President, at the moment, I don’t see any major shift in the status quo, except for issues related to our software exports. But then, that also does not form the largest pie of our US-bound exports. On the commodity trade side, we have a surplus with US. Going forward, I believe, India-US relationship will improve both in terms of trade and geo-politics. You will soon see this in our foreign policy stance.

NOVEMBER 2017 II THE DOLLAR BUSINESS 25

Interview by Ahmad Shariq Khan

TDB: What implications will US’s possible withdrawal from mega accords such as NAFTA have for India?

Dr. Manoj Pant (MP): In my view, there are not any significant losses for India. Yes, historically, it is true that India did lose a good amount of textile trade due to NAFTA because special benefits were given to textile exporters in Mexico who manufactured textiles using American yarn. But leaving aside that example, wholly speaking, since India does not lose much from NAFTA in the first place, it can’t gain much from the US's withdrawal from NAFTA either.

In my view, NAFTA does not affect us in any way when it comes to our relationship with US. There, however, could be some positives that emanate from a breakdown in NAFTA, i.e. in terms of increased trade diversions taking place through Mexico in the textile sector amongst others.

MEGA TRADE DEALS: AN UNCERTAIN FUTURE?

positioned geo-politically as well as economically to influence the world of trade.

While many believe that India can act as a counterbalance to China geo-politically, what is ironic is that the inter-dependence of Indo-China trade dynamics will play an important role for India’s growth as an economy as well as in its trade with other countries. Collaboration, rather than competition, experts believe will help India grow faster – by integrating itself with the global supply chain that other major Asian economies have already been able to do.

Is there a distant chance of India rising as a counterforce to China? A US-China conflict may help. Stangarone says, “The impact of a trade dispute between US and China on world trade would depend on the extent of the dispute. United States and China are the world’s two largest economies and important trading partners. If any dispute were to cause either or both countries to go into recession, I

INDIA HAS BEEN WORKING TO STRENGTHEN ITS TRADE RELATIONS WITH CANADA & US

US citizens protesting against Trans-Pacific Partnership (TPP).

26 THE DOLLAR BUSINESS II NOVEMBER 2017

would expect it to have a negative impact on global trade. Should the dispute lead to increased restrictions between US and China, I would expect to see some of that lost trade shift to other countries in Asia.”

This seems to be a scenario where India wins by not cooperating with China.

Most however believe that the negative impact of a global recession will far outweigh the gains that India might make at the cost of China and US. A US withdrawal from major trade treaties though may work in India's favour. Ajay Sahai, Director General & CEO of Federation of Indian Export Organisations (FIEO), says, "A US withdrawal from TPP or NAFTA will not have any negative impact on India albeit such a move may benefit India as we compete with many countries who are members of TPP or NAFTA. Withdrawal of tariff advantage to such countries will give an edge to Indian exports.”

While the government looks towards expanding our export basket, it also has to become more proactive in pursuing bilateral and multi-lateral trade deals.

A number of trade deals, including the FTA with EU, has remained stalled and the one's that have been signed have failed to reach their potential. A case in point could be the India-South Korea Comprehensive Economic Partnership

Agreement (CEPA) that was signed in 2005. The trade fraternity believes that the current CEPA is a low-quality agreement, and one that both sides have wanted to update to help increase trade.

While initially, the exports from South Korea to India had the upper hand, over the years, Indian exports to South Korea have grown over the imports, leaving the South Korean side dissatisfied with the state of the deal. At the same time, South Korean firms have faced significant hurdles in the Indian market.

Similarly, when it comes to Mexico and Canada, India has a window of opportunity but trade deals with either country will not come easy. Dade says, “We have done economic modelling that demonstrates that Canada and Mexico would actually do better in TPP without US. But neither country will rush into bad deals with countries like China or India. Negotiations with India will move forward when that country gets serious about negotiating and puts serious tariff reductions on the table.”

When it comes to trade between India and Canada, trade has seen a gradual increase. While the proposed FTA between both countries has been ongoing since quite some time now and both countries have at various platforms expressed a desire to expand trade, the FTA is yet to see

Photo credit: Backbone Campaign

COVER STORY

the light of day. Over the last five years, total trade between India and Canada has increased by a modest 26.85%.

Further, India also has also signed a Bilateral Investment Protection and Promotion Agreement (BIPA) with Mexico.

And while both countries have talked about the need for an FTA, nothing concrete has emerged. This then could possibly be the time to engage with Mexico and Canada to quickly conclude the deals. FTAs with Canada and Mexico can yield enormous benefits for India as both countries are trying to grow their trade partnerships beyond US. Mexico for example is the focus of many trade deals, including the existing EU-Mexico FTA which is undergoing a modernisation discussion. And then, there is also a proposed FTA between post-Brexit UK and Mexico.

This is in addition to access to the untapped Latin American region that a deal with Mexico can give. Similarly, Canada is working on trade deals which will provide access to EU through the currently under negotiation CETA (Comprehensive Economic Trade Agreement) and a post-Brexit UK trade deal.

While talking about NAFTA countries, it will be a grave mistake to discount our relationship with US. Recently, Kenneth Juster, Trump Administration’s Ambassador to India has spoken about the need for the US to focus on various economic issues and trade challenges impacting US and India. Palit is of the opinion that for a country like India, developing trade relations with US may not be completely dependent on trade agreements. He says, “The geo-political angle to India and US relations can lead to more investments in fields such as defence. US has also started to export crude oil to India. So, there are many new areas where India and US can grow their relationship without entering into a free trade agreement.”

Point is will India be able play its cards right when dealing with these countries?

WHAT LIES AHEAD

Having talked about scenarios that may arise out of US walking out of the trade deals, let us also keep in mind there is a significant possibility that the deals will not break-down completely. Reinsch

India's biggest trade partners

The Indian trade fraternity has been pushing for FTAs with its major trading partners 80 70 60 50 40 30 20 10 0

China

US

UAE

KSA

Hong Kong Germany Switzerland Indonesia

S.Korea

Source: TDB Intelligence Unit and Ministry of Commerce, GoI; break-up for FY2017; figures in $ billion

says, “It appears from public statements that US wants to renegotiate the agreements in ways that will reduce our bilateral deficits with Mexico and South Korea.” But he adds, “I don’t believe there is anyone in the American business community who believes that Canada or Mexico will agree to US demands.”

Of course, US walking out of NAFTA is not as easy as it appears, as the final call will need the backing of the US Congress. Additionally, because withdrawal would require Congress to pass legislation changing US domestic law, the agreement could take time to get out of.

Palit adds, “It is not yet even clear that the US is going to walk out of the deals.

The fact of the matter is that even when it comes to KORUS FTA, Trump agreed to renegotiations. The reason for this is simple – there is an establishment bureaucracy and there are industries that are trying to convince him that it is not just trade, there is much more to these agreements.”

Dade believes that there is a silver lining to Trump's contrarian stance and says, “Agreements constrain the ability to do politically expedient things that harm large portions of our population to benefit smaller but vocal interests. I see the TPP-11 as sign for hope. The Japans, the New Zealands, the Singapores and the Chiles of the world are picking up the banner of free trade along with the EU. Even China is doing more – less progressive and liberal than the others mentioned, but still doing a lot more than earlier.”

As far as Asia goes, Biswajit Nag, As-

sociate Professor, Indian Institute of Foreign Trade (IIFT), feels that there is a need to work on strengthening regional cooperation. He adds, “We just need to maintain the status quo as much as possible. Seek market access slowly in other countries. Increase intra-regional trade and investment. Make the services sector more liberal. If we do all that, then we can become a mini world and that won’t be affected by any western trade deals.”

India, Palit says, has a lot of potential to develop its relations with many countries with or without FTAs. Talking about the future, Sahai says, “While India won’t decouple from US, but as it connects with other economies India will be less reliant on US if it continues with its stance. A country like India manages a trade deficit of over $50 billion with China yet US is worried about a deficit of $24 billion with India?” Sahai is of the opinion that the US exit from TPP is a positive sign for India, particularly as the product specific Rules of Origin would have given a severe jolt to Indian textiles exports to some of the member countries like Vietnam.

While it is difficult to ascertain whether US will walkout of NAFTA, the rise of protectionism in US has indeed opened up opportunities for other countries.

Will it be Asia's century? Will EU rise to the occasion and take on the mantle of the leader? Will the world trade dance to China's tune? Will India grab the opportunity to sign more FTAs? It will all depend on who makes the smartest moves.

For one thing is certain, Trump will keep throwing curveballs!

NOVEMBER 2017 II THE DOLLAR BUSINESS 27

OVERSEAS TALK

H.E. CHUTINTORN GONGSAKDI, AMBASSADOR OF THAILAND TO INDIA

TDB: What are your views on the current state of Indo-Thai bilateral trade?

H.E. Chutintorn Gongsakdi (CG): Economic and commercial linkages form an important aspect of Thailand’s partnership with India. The past few years have seen a rapid intensification of these linkages. As of now, IT, pharmaceuticals, biotechnology, automotives and tourism are the thrust areas that have been identified for cooperation between the two nations. We also consider India as an ideal, cost-effective, quality sourcing destination with expertise in chemicals, auto parts, electrical machinery, precious and semi-precious stones, iron & steel products and medicinal & pharmaceutical products, amongst others. I am confident that being part of Regional Comprehensive Economic Partnership (RCEP) will help both the nations chieve further growth.

Going forward, we envisage investments by Indian and Thai companies in each other’s countries to grow. Investments from both sides are already pouring in and is on an upward trajectory. Thai business groups in India, today, include leading companies in the fields of agro-processing, construction, automotive, engineering and banking. Major Thai companies active in India include Charoen Pokphand (CP) Group, Italian-Thai Development Public Co. Ltd. (ITD), Delta Electronics, Rockworth Office Systems Furniture, Thai Airways International and SCG Trading. From the Indian side, Indorama Group, Aditya Birla Group, Tata Group, Ranbaxy, Dabur, Lupin, and NIIT are doing great business in Thailand reflecting the diverse sectors of interest, which include chemicals, textiles, pharma, steel, automotive and IT. Groups like Aditya Birla and Indorama have had business presence in Thailand for several decades.

TDB: India’s ‘Look East’ policy has been put into action and the country is looking at improving its trade ties with its eastern counterparts. Have Thai businesses felt the wave of change?

CG: In my view, under the effective leadership of Prime Minister Narendra Modi, the Indian side has been actively following up on its ‘Act East’ agenda, 28 THE DOLLAR BUSINESS II NOVEMBER 2017

“I WANT TO SEE MORE INDIAN ENGAGEMENT IN ASEAN” Indo-Thai ties are characterised by a shared culture and history that dates back thousands of years. In a freewheeling interaction with The Dollar Business, H.E. Chutintorn Gongsakdi, Ambassador of Thailand to India, talks about the strong cultural and economic connect between the two nations and what the future might have in store for the bilateral relationship.

INTERVIEW BY AHMAD SHARIQ KHAN

which is not only quite well-timed but also well intended and is targeted at a region which is certainly going to be the next growth driver for, at least, this part of the world. However, there is a need by both sides to speed up efforts and remove bottlenecks, especially to bridge trust deficits that still exist. I have met a few Thai business owners here, who unfortunately, faced a not-so-favourable business experience in India, mainly due to issues related to ease of doing business. Thai businesses in India believe in trading fairly as per the law of the land. I believe, there is a need for confidence-building measures (CBMs) to ensure that Thai businesses and their interests feel protected. Also, while I do applaud the Indian government’s measures aimed at eradicating corruption, the issue still hampers businesses. I hope and believe that in the coming days, the Indian government would proactively work towards reducing and ultimately eliminating this menace.

TDB: As the ASEAN-India Dialogue Partnership turns 25, how are India and Thailand collaborating to reap the benefits that the partnership offers?

CG: Going forward, since India is going to be a force to reckon with in the world economic arena, I would like to see more Indian engagement in ASEAN. India’s presence, together with that of other regional powers, in my view could help ensure stability in the ASEAN region. Further, we deeply applaud India’s focus on its north-eastern region in engaging with ASEAN. This makes sense as we have a land connection there. However, air and maritime connectivity are also important as we want a relationship with the whole of India.

The India-Myanmar-Thailand Trilateral Highway Project and its extension to Laos and Cambodia are one of the currently proposed projects to help achieve greater ASEAN-India physical connectivity. The project plans to connect the ASEAN Highway Network with the

INVESTMENTS BY INDIAN AND THAI COMPANIES IN EACH OTHER’S COUNTRIES LOOK PROMISING biotechnology, food, industrial robotics, logistics and aviation, biofuels and biochemicals, digital and medical services.

I believe that in many of them, India already has great expertise and worldproven recognition. I call upon all Indian institutions to join us and reap first mover’s advantage.

highway system in eastern India. These are the aspects that need to be leveraged and strengthened further.

I want Thailand to be considered India’s greatest economic partner in the ASEAN region. Some well-known Indian companies are already active, both in Thailand and the ASEAN region.

However, going forward, I would like to see many more new players explore the ASEAN market. Indian companies have much to offer in sectors like space, defence, pharmaceuticals, biotech and IT. TDB: What is the status of Thailand’s Eastern Economic Corridor (EEC)?

CG: We are bullish on the Eastern Economic Corridor and its trade and developmental potential. We believe initiatives such as the EEC offer many win-wins. The project aims to change Thailand from a country reliant on foreign technology to a self-sufficient innovative economy. The EEC Act will also relax some regulations and create a one-

stop-shop for businesses.

With EEC, we aim to develop the country’s economic infrastructure and develop our eastern provinces of Chonburi, Rayong, and Chachoengsao into a leading ASEAN economic zone for technological manufacturing and services with strong connectivity to its neighbours. It also involves the establishment of regional R&D centres and improving Thailand’s logistics infrastructure with increased links and expansion to our neighbouring countries’ sea, land, air and railway transport networks. The project includes three deep sea ports, Laem Chabang Port, Map Ta Phut and Sattahip, that will be surrounded by free trade zones (FTZs), and three airports: Don Mueang, Suvarnabhumi, and U-Tapao. The policy aims to help position Thailand as a “Gateway to Asia”.

Overall, EEC is designed to accommodate ten target industries: Next-generation cars, smart electronics, medical and wellness tourism, agriculture and

TDB: What attracts Indian investors to Thailand?

CG: Thailand offers manufacturing skills at costs which are still low compared to other more developed countries. For instance, all the leading world auto majors are now leveraging the cost-effectiveness of Thailand. Our EEC, which replicates the model of economic development plans of other countries, is going to offer many incentives and tax benefits. Under EEC, industries will benefit from an incentive promotion package which goes beyond the current regulations of the Thai Board of Investment (BOI) Act. According to the BOI, those investing in EEC area will enjoy incentives that are highly competitive.

These include 50% deduction on corporate income tax (CIT) for five years in addition to a CIT exemption presently available along with incentives in line with the Competitive Enhancement Act. TDB: The Indian government has relaxed its FDI norms. How do Thai companies plan to capitalise on this?

CG: We are quite impressed with the reform agenda. There are dozens of Thai companies who have either already already invested or are soon going to do so. Many are already in joint ventures in India. We admire ‘Make in India’, ‘Skill India’ and ‘Digital India’ initiatives. They all are well intended, and I believe, as a result of these initiatives, India is already witnessing economic growth across the length and breadth of the country.

NOVEMBER 2017 II THE DOLLAR BUSINESS 29

EXCLUSIVE INTERVIEW

ADESH SHARMA, FORMER MANAGING DIRECTOR, DFCCIL

“DFCs WILL SURELY BE A GAME CHANGER” The Dedicated Freight Corridor Corporation of India Limited (DFCCIL) is expected to revolutionise India’s logistics and transport sector. With less than a year to go before the Eastern and Western corridors get commissioned, The Dollar Business caught up with Adesh Sharma, former Managing Director of DFCCIL, to know the current status of the project and understand the changes it will bring to India’s foreign trade.

INTERVIEW BY NILADRI S. NATH

TDB: Dedicated Freight Corridor Corporation of India (DFCCIL) came into existence in 2006. What has been the progress so far?

Adesh Sharma (AS): The few initial years were spent setting up the infrastructure, which also includes land acquisition, collaboration with the World Bank, coordinating with state governments, etc.

While it was a slow start, DFCCIL has picked up substantial speed over the last two years. In fact, during FY2015 and FY2016, DFCCIL awarded contracts worth more than Rs.35,750 crore, whereas contracts awarded by DFCCIL in the six financial years prior to FY2015 were worth only about Rs.13,200 crore.

We have now awarded contracts for 92% of the total length of the Dedicated Freight Corridor (DFC) – the remaining contracts will be awarded by December 2017. The pace of work in sections between Khurja and Kanpur in Eastern Dedicated Freight Corridor (EDFC) and between Rewari and Palanpur in Western Dedicated Freight Corridor (WDFC) has witnessed a ten-fold increase in the last two years. Commissioning of both corridors will start in phases from March 2018 onwards, and 50% of EDFC and WDFC will be commissioned by April 2019. Construction of both the corridors is expected to be over by December 2020. The DFC network will be a game changer in the freight logistics sector.

TDB: The current share of rail freight transport is 36%, which DFCCIL hopes to increase to 40-45% by FY2030. How 30 THE DOLLAR BUSINESS II NOVEMBER 2017

will it compete with roadways?

AS: There are certain advantages of DFC. The average freight movement speed on DFC will be 70 kmph, almost a threefold increase from the existing 25 kmph of Indian Railways (IR). This will lead to a reduction in transit times and reduce the unit cost of transportation by 40%. It will also offer enhanced capacity as more than 150 trains can run in each direction

on the double-line tracks.

At least 70% freight traffic of IR will be transferred to DFC as per the Concession Agreement between DFCCIL and the Ministry of Railways. DFC will offer faster and safer delivery compared to road transport at a much lower cost. Also, the DFC network is environment-friendly and is expected to prevent CO2 emission of 457 million metric tonne (MMT) over

a 30-year period.

DFC aims to attract freight traffic of the Golden Quadrilateral that joins the four metros (Delhi, Mumbai, Chennai and Kolkata). The Quadilateral takes up 16% of the route length of IR network and carries 58% of the total freight traffic. We hope EDFC and WDFC will ultimately subsume 22% of the freight traffic parallel to their routes and 38% of the Golden Quadrilateral freight traffic.

TDB: Once the DFCs become operational, what is IR’s expectation in terms of freight growth? What benefit can the Exim community expect?

AS: With the commissioning of the DFCs, there will a quantum jump in transportation capacity. As per a World Bank and Japan International Cooperation Agency (JICA) forecast, EDFC will move 264 MMT freight whereas WDFC will transport 284 MMT freight. The industrial corridors, which are coming up along EDFC and WDFC, will boost industrial development. Having said that, the increase in volume depends on key factors like industrial growth, GDP and enhanced demands for domestic and export-import traffic.

The DFCs will have heavy haul trains, each train capable of carrying 13,000 metric tonne (MT) compared to the present capacity of 5,000 MT. The double stack container train operation on WDFC is expected to increase throughput up to 360 TEUs per train.

The increased capacity and speed will bring a lot of efficiency to the system by facilitating faster deliveries to and from the ports. These factors will automatically reduce the logistics cost of operators and offer maximum benefit to Exim community. The speed of delivery through DFC network will surpass any anticipated or derived benefit from the existing pattern of freight movement. It will also improve our supply chain management.

TDB: Can you share the status and progress of EDFC and WDFC so far?

AS: So far, the progress has been satisfactory. EDFC has a total route length of 1,856 km and boasts a 1,409 km long electrified double-track segment between Dankuni (West Bengal) and Khurja

(Uttar Pradesh). In addition, an electrified single-track segment of 447 km will run between Ludhiana-Khurja-Dadri, covering Punjab, Haryana and Uttar Pradesh. Civil contracts for 83% of the total length in EDFC have already been awarded and work is in progress in Khurja-Kanpur, Kanpur-Mughalsarai, Mughalsarai-Sasaram, Pilkhani-Sahnewal and Khurja-Dadri sections.

Apart from building bridges and embankment, the mechanised track laying work with the New Track Construction (NTC) machine is also underway in Bhadan, Maitha and Daud Khan simultaneously. Electrical, signalling and telecommunication work contracts for Khurja-Kanpur and Kanpur-Mughalsarai sections have also been awarded and the design work is in progress. The remaining contracts worth Rs.3,474 crore in EDFC will be awarded by the year end.

When it comes to WDFC, it runs through five states and covers a distance of 1,504 km of double line electric tracks from Jawaharlal Nehru Port Trust (JNPT) to Dadri – via Vadodara, Ahmedabad, Palanpur, Phulera and Rewari. The alignment has been kept parallel to the existing lines except for a detour at Diva, Surat, Ankleshwar, Bharuch, Vadodara, Anand, Ahmedabad, Palanpur, Phulera and Rewari. All civil contracts for WDFC have already been awarded and work is in progress in various sections such as Rewari-Iqbalgarh, Iqbalgarh-Vadodara, Vadodara-Vaitarna, etc. Work on electrical, signalling and telecommunication have already begun.

Three more freight corridors were proposed in 2016 – East-West Corridor (2,328 km), North-South Corridor (2,327 km) and East Coast Corridor (1,114 km) where work is yet to begin.

TDB: DFC faced roadblocks due to issues like environmental clearances and land acquisition. What is the status?

AS: One of the major hurdles in executing any gigantic infrastructure project is land acquisition. The DFC network covers nine states and more than 61 districts. Hence, it required the acquisition of more than 11,000 hectares of land from over 3 lakh project affected people (PAPs). The reluctance of the landowners

CONSTRUCTION OF BOTH CORRIDORS IS EXPECTED TO BE COMPLETED BY DECEMBER 2020 to give away land was a huge challenge.

2,100 court cases and 10,600 arbitration cases pertaining to land acquisition have been filed against DFCCIL. The provision of employment in the new Land Acquisition Act is also an area of concern.

Despite those challenges, 96% of the land has been acquired and balance 4% is in process of being acquired. We have also obtained a majority of the key environmental clearances.

TDB: What role did funding agencies, play in the project’s success?

AS: Both World Bank and JICA have played a major role in every step of the project. The seven-stage tender finalisation process was scrutinised by them.

Thanks to the cooperation from both, all the contracts for Western Corridor and most contracts for EDFC have been finalised. We also hold regular discussions with the agencies on project execution.

TDB: DFCCIL has also been working towards developing multi-modal logistics parks (MMLPs) and setting up private freight terminals (PFTs). What is the latest development?

AS: We have signed a memorandum of understanding (MoU) with Inland Waterways Authority of India (IWAI) and Delhi Mumbai Industrial Corridor Development Corporation Limited (DMICDC) for developing multi-modal logistics parks (MMLPs). Efforts are now being made to have sector-wise interactions with the stakeholders and potential freight generators. So far, we have received proposals for setting up private freight terminals (PFTs), private sidings and port connectivity to DFCs. We are looking at the PFT proposals based on traffic projections and feasibility aspects.

However, we are open to suggestions for improvements from all prospective customers and trade agencies.

NOVEMBER 2017 II THE DOLLAR BUSINESS 31

IMPORT’ONOMICS

PHENOL (HYDROXYBENZENE) AND ITS SALTS

THE RIGHT CHEMISTRY! Despite India’s growing chemical industry, domestic manufacturing of organic chemical phenol remains almost negligible and is woefully short of the volumes required by consuming industries. Importers have taken notice of the demand-supply gap and are making the most of it. Question is, how good is the idea of importing phenol? The Dollar Business analyses.

BY ANISHAA KUMAR

T

he use of phenol around the world goes way back to the 1800s where it was the earliest form of anaesthetic. In the early 1900s the soap industry too started using phenol due to its slightly aromatic and acidic qualities. Also referred to as Carbolic acid, phenol is a transparent to light pink chemical which is available in the form of a liquid or a powder.

Today, phenol and its derivatives find use in the manufacturing of many household items like disinfectants as well as in the chemical industries as intermediaries. Industries where it has growing demand include pharmaceuticals, plywood, laminates and resins. Curiously, despite the growth in these industries, India manufactures only a fraction of the phenol that it consumes.

Ajay Kapur, Managing Director of Noida-based Shubham Chemicals and Solvents Limited says, “In India, the local manufacturers are not able to compete with imports vis-a-vis prices and their production is also not consistent. On the other hand, the demand is increasing by 8-10% every year, hence import volumes are also on the rise.” Janak Ladhani, Managing Director of Mumbai-based Sonkamal Enterprises, agrees that as user industries keep rapidly growing it is natural that the demand for phenol will increase and in the absence of capacity building in domestic phenol manufacturing imports are the only option.

SOARING HIGH

According to data from ICIS Market News & EY Analysis, the global supply to demand gap is expected to narrow down from 0.7 MT surplus in FY2016 to 0.3 MT in FY2020. The Indian phenol market is also expected to see an upward growth in the coming days. Data from ICIS and the International Conference on Indian Petrochem indicate that the Indian phenol market will see a growth of 64.7% to Rs.28 billion in FY2020 from Rs.17 billion in FY2012.

When it comes to imports, according to the London-based IHS Markit, India and China have shown the most impressive increase in imports of phenol over the last 10 years due to unprecedented growth in user industries.

32 THE DOLLAR BUSINESS II NOVEMBER 2017

World’s largest importers of phenol Germany is by far the largest importer, by value, of phenol in the world

India’s biggest sources of phenol

In terms of value, Thailand was India’s largest sourcing market in the last fiscal 13%

16% 38% Germany Netherlands Belgium India China Other

12% 12%

10%

22%

9%

12%

Source: TDB Intelligence Unit and UN Comtrade; HS Code: 290711; break-up for CY2016

WE LOVE TO IMPORT

Despite a gaping demand-supply gap, manufacturers have not been able to grab the opportunity. Available data suggests that unless India invests in capacity building the dependence on import of phenol will continue to increase in the foreseeable future. For instance, India produced just 82 kilotonne (KT) of phenol in CY2012, while the demand for the same in that year was 248 KT. In CY2015 while the demand had grown to 300 KT, India managed to produce only 82 KT of phenol. ICIS forecasts a demand of 411 KT in CY2020 and in the absence of more manufacturing units, it is but obvious that imports of phenol will shoot up.

In FY2013, India imported phenol worth $257.10 million, which increased to $300.20 million in FY2015. Though imports witnessed a y-o-y decline of 16.7% in FY2016 (mostly due to the global economic slowdown), it was followed by a 16.4% y-o-y increase in FY2017.

A major boost in demand for phenol has been attributed to a growth in user industries, particularly plywood and laminates. Kapur of Shubham Chemicals says, “There has been a tremendous growth in the plywood and laminate industry in the last five years, thanks to the infrastructure boom. This in turn has led to a growth in demand of phenol.”

OF SUPPLIES AND TAXES

When it comes to sourcing countries, India’s main sources of phenol include Thailand, China, South Korea, US, Singapore and Taiwan. In FY2017, while imports from Thailand were the largest

Thailand China South Korea US Singapore Other

17%

20% 19%

Source: TDB Intelligence Unit and Ministry of Commerce, GoI; break-up for FY2017; HS Code: 2907110

in terms of value, South Korea topped the list when it came to import volume.

According to Kapur, Saudi Arabia too is slowly emerging as a viable source for India’s phenol imports.

A major issue being faced by importers of phenol has been the imposition of anti-dumping duty. For Indian importers like Virendra Shah, Director of Ahmedabad-based Veer Chemicals, countries like South Korea and Taiwan are the most reliable sourcing destinations not only because of the quality of phenol manufactured in these countries but mostly because of the low or no anti-dumping duty imposed on imports of phenol from suppliers based in these countries. Currently, there is no anti-dumping duty on the import of phenol from some manufacturers in South Korea. Interestingly, despite India having free trade agreements with various source countries like South Korea, phenol has been placed in the excluded list in the treaty, meaning that there is no reduction in duties.

In the global market, Belgium maintains its lead as the largest exporter of phenol. Germany, Netherlands, Belgium, India and China are the biggest importers of the product. While India is the world’s fourth largest importer of phenol, Germany leads from the front.

DOMESTIC HURDLES

Despite there being a great opportunity for manufacturers of phenol, large-scale domestic producers of the product remain limited – so much so that currently there are only two major manufacturers of phenol in India i.e. Hindustan Organ-

Profit estimates for phenol (bulk) imports

Margins can range from 2% to 4%, and are highly dependant on crude oil prices Cost ($/MT)* 915.00 Freight & Insurance ($/MT)** 140.00 CIF ($/MT) 1,055.00 CIF (Rs./MT)*** 68,575.00 BD (10%) 6,857.50 CIF + BD 75,432.50 Cess (3%) 205.73 CIF + BD + Cess 75,638.23 IGST (18%) 13,614.88 Final Cost 89,253.11 Selling Price in India# 91,600.00 Profit 2,346.89 Profit Margin 2.56% * Phenol in bulk, in liquid form; HS Code: 29071110; ** Freight and insurance cost to Kandla Port in Gujarat from Busan in South Korea; Minimum order quantity (MOQ): 10 MT; ***Assuming USDINR at 65; # Wholesale Price (TDB Intelligence Unit). Anti-dumping duty on phenol not applicable on manufacturers of phenol in South Korea.

Important disclaimer: Profitability has been calculated based on time-bound indicative prices (prevalent during the third week of October 2017). Prices may vary during a different time period, resulting in profit fluctuation. Factors like brand value, supply chain-related costs like warehousing and logistics, administrative costs, sales and advertising costs, etc., have not been included in the cost of procurement. Margins have been calculated considering government policies (announcements, notifications, etc.) as on October 20, 2017. Risk factors and currency fluctuations have to be considered while importing. Calculations have been provided for informational purposes only; The Dollar Business takes no responsibility for any loss resulting from investments in the said commodity/product. Though all efforts have been made to ensure the accuracy of the content stated herewith, the same should not be considered a statement of law or used for any legal purposes. Prior permission is required before calculations stated herein are published or quoted in a third party web or print property.

CONSUMPTION IS ON THE RISE, BUT MANUFACTURING CAPACITY HASN’T RISEN AS DESIRED ic Chemicals Limited (HOCL) and SI Group India. Importers and trade analysts predict that a domestic manufacturing resurgence remains a distant dream.

Ladhani of Sonkamal Enterprises says that “though in 2018 a few new manufacturers are expected to begin production, the extent to which they will reduce imports is questionable.”

Currently, domestic manufacturers cater as much as they can to the domestic market and only a small percentage is exported. Though the latest data shows an increase in export, the figure stands at less than 5% of the total annual imports.

According to a report by McKinsey & NOVEMBER 2017 II THE DOLLAR BUSINESS 33

IMPORT’ONOMICS

PHENOL (HYDROXYBENZENE) AND ITS SALTS

Company, one of the main reasons for the negligible domestic production, despite the increased domestic demand, has been the constraints in the petrochemical industry in India such as absence of high-level investments, challenges in the supply value chain, disproportionate use of petroleum intermediaries and absence of better and advanced technology.

Further, according to Shah, “the higher cost of production of phenol in India acts as a catalyst to greater imports.”

other chemicals, the toxicity and volatility of phenol is a major hurdle. Since phenol in its pure form is toxic and re-

VOLATILITY AT PLAY

100

Having read so far you may think that importers of phenol have a smooth ride. Disappointingly, this business too has its own set of challenges. Like most

India’s import of phenol

After witnessing a decline in FY2016, imports of phenol are on the rise again 350 300 250 200 150 50 0

FY13

FY14

FY15

FY16

FY17

Source: TDB Intelligence Unit and Ministry of Commerce, GoI; figures in $ million; HS Code: 290711

active, importers are required to follow a strict protocol. But Shah says that this is less of a challenge now than earlier as the foreign exporters usually follow all the protocols while exporting in barrels and when imported in bulk phenol goes to the Kandla Port where it is stored in appropriate tanks. The safety protocol, however important, has an impact on the cost of phenol as storage and transportation is expensive. This in turn impacts the overall profits margins.

Another issue is the constant fluctuation in prices due to an imbalance in supply and demand ratio. As phenol is mostly produced from petroleum and coal tar, fluctuations in crude oil prices also impact the overall price of the prod-

“LOW STORAGE CAPACITIES AT PORTS IMPACT IMPORTS” TDB: What is the status of domestic production of phenol?

Ajay Kapur (AK): There are just two major domestic producers of phenol in the market and they find it difficult to compete with importers in terms of pricing. The capacity in India is a fraction of the total demand. Hence, there is a huge scope for domestic manufacturers. A high capacity plant is coming up in Gujarat. But will it be able to compete with foreign players remains a big question.

TDB: Which countries are the biggest suppliers of phenol to India? Have Indian importers also been exploring any new sourcing destinations of late?

AK: I have been in this business for the last 28 years and have been importing phenol for the last 25 years. The main countries from which we import phenol are US, Brazil, Taiwan, Korea and China. Recently, there has been an increase in capacity in China and a new plant has come up in Saudi Arabia.

TDB: What are the varied uses of phenol? Which industry is the biggest consumer of this product?

AK: Phenol finds its usage across industries such as plywood and laminate, wire, 34 THE DOLLAR BUSINESS II NOVEMBER 2017

enamel paints, pharmaceutical, amongst others. However, the largest consumer of phenol has been the plywood and laminates industry. There has been a tremendous growth in the plywood and laminate industry in the last five years, thanks to the infrastructure boom. This in turn has resulted in growth in imports.

TDB: How has implementation of GST impacted import business?

AK: There were a lot of unorganised units in plywood and laminate industry that were giving a tough competition to the organised players. With the introduction of GST, the composition of the industry has changed and we can clearly see the number of organised units going up suddenly. This will help stabilise prices which, I believe, in turn will provide the much-needed boost to industry.

TDB: What assistance do importers of phenol receive from the government?

What are the biggest challenges in importing? What measures can be introduced to overcome these challenges?

AK: There is no assistance that importers receive from the government. The biggest challenge in importing phenol is inadequate storage space at ports. The

Ajay Kapur

MANAGING DIRECTOR, SHUBHAM CHEMICALS & SOLVENTS LTD.

storage capacities needs to be increased in western ports and new facilities must be installed in eastern ports to handle growth in bulk imports.

TDB: Do crude prices impact import?

AK: Prices of phenol are linked to crude and benzene prices in the international market. Any fluctuation in prices of these commodities in international markets affects the price of phenol.

TDB: How do you see the imports business changing over the next few years?

AK: If there is an increase in capacity and new plants enter the fray next year, the demand for imported phenol is likely to become subdued.

uct. Having said that, on an average, import of phenol can fetch a 2-4% margin.

This, importers like Shah say, could see a decline given that the laminate industry, which is one of the main consumers, has not seen any fresh investments of late. Further, as per Kapur, phenol is a high turnover and highly price-sensitive product which requires huge investments in inventories. This makes this a risky investment. Hence, importers, be it new or experienced, need to be well-informed of the consumer preferences.

No doubt, like any industry, the risks are many. But opportunities definitely outweigh risks in this business. With demand on the rise, investing in importing phenol may just be worth the risk.

Phenol is a versatile industrial organic chemical which is used to produce a wide variety of chemical intermediates, including bisphenol-A, phenolic resins, etc.

“IMPORTING PHENOL HAS BECOME EASIER NOW” TDB: You have been majorly importing from Taiwan and South Korea.

What makes these countries an attractive source of supply?

Virendra Shah (VS): We have been importing only from Taiwan and South Korea. We don’t even bother to look at any other country as there are anti-dumping duties on phenol import from other lowcost production hubs. The anti-dumping duty varies from country to country and supplier to supplier. Luckily, there is no anti-dumping duty levied on imports from the South Korean suppliers we source phenol from. Further, there is more customer acceptance for phenol from these two countries. Overall, there are minor differences, both in terms of quality and packaging, between products. Though phenol is imported in both crystallised-powder and liquid form, we import only the crystallised form.

TDB: What are the reasons for continuous increase in imports of phenol?

VS: The primary and most important reason is that domestic manufacturers, such as Hindustan Organic Chemicals Ltd. (HOCL), have not been able to supply enough phenol to meet the domestic demand for the product. Further, the

higher cost of production of phenol in India acts as a catalyst to greater imports.

TDB: What challenges do importers face in this business?

VS: On the contrary, importing phenol has become easier for a number of reasons. We can now order in bulk and this makes import cheaper and easier. The basic customs duty is also considerably low at 10%, though IGST is charged at 18%. As far as safety is concerned, foreign manufacturers are taking sufficient precautions while packaging and shipping the product. So, that’s not a worry anymore. Once a consignment reaches an Indian port, it can be stored at a bonded warehouse without payment of duty. Things have definitely changed for the better over the last few years.

TDB: What margins can one expect?

VS: Currently, we are receiving price quotations of around $1,100 per metric tonne (MT) if brought in barrels (1 barrel is equivalent to 200 kg) and around $1,025 per MT if imported in bulk. The selling price in India at present is around Rs.80-85 per kg. Although importing phenol may not look like a very profitable proposition, as of now, but the prices

Virendra Shah

DIRECTOR, VEER CHEMICALS

in the domestic market keep fluctuating based on the domestic production situation and a profit of 2-4% is obtainable.

TDB: Your advice to new importers?

VS: It is important that they have a proper understanding of the product and the market. The market is open to all kinds of players, but a proper understanding of consumer behaviour, point of consumption, etc., always comes in handy.

TDB: How do you foresee the future?

VS: There has been no new investment in sectors such as laminates and plywood which are major users of phenol. This could prevent the import market from growing further.

NOVEMBER 2017 II THE DOLLAR BUSINESS 35

GLOBAL MANAGER

KAPIL AGARWAL, VICE-PRESIDENT - MARKETING, WHIRLPOOL OF INDIA LTD. TDB: Whirlpool has been in India for more than two decades now. How do you reflect upon the journey so far?

Kapil Agarwal (KA): When we entered India, at the core of our bond with our consumers, stood our brand vision – ‘Creating Happier Homes’. We have remained committed to the same, offering innovation-led home solutions. Whirlpool in India has gone from strength to strength. The brand has emerged as one of the leading manufacturers and marketers of major home appliances in the country. We are now rated amongst the top three brands that command almost 80-90% of the market share.

“WE HAVE STOOD BY OUR BRAND VISION” When it comes to home appliances, it’s a name to reckon with both in India and across the globe.

The Dollar Business caught up with Kapil Agarwal, Vice President - Marketing, Whirlpool of India Ltd., to understand what is at the core of company’s global expansion strategy and how it is dealing with challenges unique to a market like India.

INTERVIEW BY AHMAD SHARIQ KHAN 36 THE DOLLAR BUSINESS II NOVEMBER 2017

TDB: Tell us about Whirlpool’s global scale of operations.

KA: Backed by Whirlpool’s 100-yearold brand legacy, we have our footprint in more than 170 countries. With nearly 15 brands across the world, our major markets comprise the Americas – North and South America. Europe is also another major market where we recently acquired the popular European brand Indesit. With this, we are now the biggest player in the European market.

Other regions include Asia and the larger Oceania region. Markets in the Middle East and the emerging markets of Africa also provide for a sizable business.

In India, we cater to customers across the country.

We also have three stateof-the-art manufacturing facilities at Faridabad, Pondicherry and Pune.

Each of the manufacturing set-ups feature an infrastructure that is a testimonial of Whirlpool’s long-held commitment to provide its consumers with forward-looking home solutions.

TDB: Your thoughts on ‘Make in India’?

KA: More than 95% of what we sell in India is made in India. This shows our commitment

to making in India. We are constantly looking at various avenues to further our Indian operations. Going forward, we see growth as a direct result of initiatives the government brings in, especially in the rural sector. With GST in place, we envision a lot of growth in the Indian market, across segments, and as a result, our market penetration is likely to go up. Having said that, in my view, ‘Make in India’ is an initiative that could help us increase productivity. But it is imperative here that we invest in both capacity building and innovation. This will be our mantra for the next three-four years.

TDB: What kind of competition are you facing in the international market?

KA: Globally, Korean manufacturers are our biggest competitors. As of now, Chinese manufacturers, even though they have manufacturing capabilities, are not so much a threat to us as they lag in innovation and consumer understanding, and are yet to become global brands in the space we operate in. On the global stage, we are the leading player in many world markets – including the Americas, both in the north and the south. Worth noting is that we enjoy a market share of more than 40% in both these markets.

And in Europe, with our Indesit acquisition, we have now attained the ‘numero uno’ status. On the global level, our two major competitors are LG and Samsung.

So, in a sense, the world’s home appliances market is consolidating and is dominated by the three big players – Whirlpool, LG and Samsung.

TDB: How do you plan to maintain your competitive advantage in India?

KA: Our competitive advantage comes from the very fact that all our home appliances are designed with advanced technologies that are intelligent, intuitive and innovative. We offer technology that benefits consumers in their daily lives.

So, for example, in India we offer innovations that is suited to the Indian context and consumer sensibilities while still delivering superior performance. I would say that such a strong technology-focussed thrust has so far been synonymous with our identity and has helped us stand tall amongst the competition,

both in domestic and global markets.

TDB: What has been at the core of your global expansion strategy? Where do mergers and acquisitions stand in the grand scheme of things?

KA: Over the last two years, we have carried out two acquisitions – both strategic in nature. One is Sanyo appliances in China. This has helped us enter China’s manufacturing hub and further strengthened our China-based manufacturing capabilities. This is going to further consolidate our position in China’s market, which we believe has a great potential. Our second notable acquisition was in Europe of the brand Indesit. This made us the biggest player in our segment in the European market.

Besides, as we go about expanding our global reach, our tie-ups play a major role. Currently, there are two kinds of tie-ups that we do – one being technology-centric development in the specific domain of The Internet of Things (IoT) and connected homes. Globally, we are working with firms on cutting-edge technologies to make Whirlpool IoT ready and offer its benefits to consumers at the earliest. In the second instance we join hands with local manufacturing hubs which can do part manufacturing for us. This helps us in leveraging additional capacity requirements. Going forward, we believe, both these strategically natured differentiators would, over a period of time, consolidate Whirlpool’s capacity in many specific regions, including countries like India, China and some parts of Europe, amongst others.

So, strategies like these help us increase our manufacturing and sales footprint.

TDB: What are your thoughts on the impact of Indian FTAs on your sector?

KA: FTAs have helped our sector greatly.

For example, there is an FTA with Korea and one with Thailand. I believe a manufacturing base in Thailand can be leveraged to bring in products that have little scale here – like the large refrigerators or side-by-side multi-door refrigerators.

Such refrigerators have a small market in India, though it is growing at a rate of almost 100%. But, nobody would like to make such items in India and would

WE HAVE ALREADY ACHIEVED MARKET LEADERSHIP IN MANY COUNTRIES ACROSS THE GLOBE rather prefer importing it from manufacturing hubs with which we have an FTA. TDB: With GST, some have raised concerns regarding working capital woes and IT readiness. Your comments.

KA: While many positives are bound to emanate out of the GST in the long run, in the short term its compliance cost has emerged as a matter of concern.

I am of the view that as processes are streamlined, things will change for the better. When it comes to E-way bill and IT readiness of stakeholders, I feel, these are not much of an issue. Almost every manufacturer today is digital-ready. We ourselves don’t have any physical invoicing. Everything is done through SAP and advanced systems. All our global offices and operations are linked and our invoicing system is a globally standardised one. GST is not a problem for us because all our transactions are digitised. I think going digital is the future.

TDB: Going forward, what sectoral challenges do you foresee?

KA: Today, catering to a vast market that India is, we deal with many third-party logistics partners and players that work quite traditionally in many respects, amounting to logistics-related woes.

Since most home appliance products are big and bulky, it would help if the existing supply chain operators could be more uniformed and streamlined.

On the regulatory front, I don’t see much concern. The government has been going about it in the right way.

Energy rate notifications are important to our planning process as they have an impact on our costs, and the government has done a good job in ensuring that we get the notifications well in advance so that we are able to plan our investment and production cycle in sync with energy regulations and notifications.

NOVEMBER 2017 II THE DOLLAR BUSINESS 37

FACE2FACE

MAHABALESHWARA M.S., MD & CEO, KARNATAKA BANK LTD.

“FOR US, EXPORT CREDIT IS A NATIONAL PRIORITY” While the government is striving to increase the country’s exports, some recent events have put our exporters under stress – making access to easy finance more important than before. In an exclusive interaction with The Dollar Business, Mahabaleshwara M.S., MD & CEO of Karnataka Bank Ltd., talks about how his bank is assisting India’s exim community to weather the current, tough times.

INTERVIEW BY ANISHAA KUMAR

TDB: The last financial year wasn’t very good for the banking sector. How did Karnataka Bank perform? Do you see the things changing this year?

Mahabaleshwara M.S. (MMS): The Q4 of FY2017 was challenging not only for Karnataka Bank but for the entire Indian banking sector. Some of the major issues that impacted the banking sector were deteriorating asset quality, subdued demand for credit and slow recovery of bad loans. However, Q1 FY2018 results have been quite satisfactory. Karnataka Bank reported a net profit of Rs.133.85 crore in Q1 FY2018 compared to Rs.121.54 crore during Q1 FY2017 – a year-on-year

I AM HOPEFUL THAT EXPORTS WILL BOUNCE BACK DURING THE CURRENT FISCAL 38 THE DOLLAR BUSINESS II NOVEMBER 2017

(y-o-y) growth of 10.13%. Also, the operating profit of the bank has increased to Rs.309.70 crore in Q1 FY2018 from Rs.261.92 crore in Q1 FY2017. The Net Interest Income (NII) in the first quarter of this fiscal also increased 16.38% y-o-y.

Even the business turnover touched Rs.94,711 crore as of June 30, 2017, registering a y-o-y growth of 9.56%. Increase in cash-deposit (CD) ratio is another positive story for the bank and, hence, it could be inferred that the fundamentals are getting stronger with time.

TDB: Karnataka Bank currently has 26 forex branches, across the country. Has the forex customer-base been growing?

MMS: Karnataka Bank always treats export credit as a national priority and puts all-round efforts to extend need-based export credit facilities to exporters at a competitive interest rate. The export numbers for FY2017 are really encouraging. I am hopeful that the export sector will bounce back and demonstrate an all-

round performance during the current fiscal. In fact, for the current financial year, we are aiming for an export credit portfolio of Rs.2,500 crore.

Our forex customer-base has been growing at a fast pace over the last few years. In fact, in FY2017, we experienced a y-o-y increase of 6% in the number of customers who have routed forex transactions through our bank.

TDB: What specialised financial services does Karnataka Bank offer to India’s EXIM community? How are they different from others in the business?

MMS: Karnataka Bank offers a wide array of specialised services to the country’s foreign trade fraternity. Some of the most used services include pre-shipment credit (in both rupee and foreign currency), post-shipment credit (in both rupee and foreign currency), letter of credit, bank guarantee, buyers’ credit, forward contracts, overdraft facility, amongst others.

The trade community can claim many added-benefits from the services we offer. But, I must mention that competitive interest rates, competitive exchange rates, speedy handling of export and import transactions, and most importantly the service quality, makes us stand out above the rest. Also, time and again, we have been launching new initiatives for the community. For instance, in May 2017, we launched a new export credit product ‘KBL-Export Mitra’ at an attractive interest rate to serve our exporter clients better.

TDB: When it comes to inward and outward remittance services, what makes you stand out amongst your peers?

MMS: The inward and outward remittance facility includes the remittances towards exports and imports. It also includes remittances towards the transactions which are other than exports and imports. And as mentioned earlier, our services come with a lot of advantages such as low interest rate, best exchange rate, competitive service charges, speedy handling of export and import documents, arrangement of buyers’ credit, and centralised transactions processing to ensure that all Foreign Exchange Man-

ment, everything is stabilised and there are no issues either for the bank or the customers. We have been simultaneously educating the customers to use digital platforms for their transactions, which of course will help banks reduce transaction costs – and it has been so far successful.

I have a good feeling that demonetisation will in the long run increase transparency in the banking sector.

TDB: NRI remittances to India dipped for the second consecutive year in FY2017. Were your operations also affected by the trend?

MMS: Well, Karnataka Bank has exhibited a stable performance with regards to NRI remittances and NRI business.

In fact, in FY2017, the bank witnessed a 15% y-o-y growth in NRI deposits.

agement Act (FEMA)/Reserved Bank of India (RBI) guidelines are complied with.

However, I must point out again that it is our service quality that sets up apart.

TDB: Non-performing assets (NPAs) remain a major concern for Indian banking sector. In the last quarter of FY2017, Karnataka Bank also saw its gross NPAs rising to 4.21% from 3.44% during Q4 FY2016. What were the reasons behind this increase?

MMS: Yes, non-performing assets (NPAs) have definitely become a challenge for the banking sector. Some of the glaring reasons for deterioration in asset quality have been adverse market condi-

tions, delay in getting clearances (mainly for infrastructure projects), management failure at major corporate borrowers, etc.

Having said that, the bankers have various options to deal with such stressed assets – Joint Lenders Forum (JLF), Flexible Structuring, Scheme for Sustainable Structuring of Stressed Assets (S4A), Strategic Debt Restructuring (SDR) and recent guidelines on insolvency and bankruptcy code are a few to mention.

TDB: During second half of FY2017 banks faced increased scrutiny due to demonetisation. Is the worst over?

MMS: I agree that we had gone through some teething problems. But, at the mo-

TDB: Can you throw some light on KBL Vision 2020, your five-year business plan that was unveiled in 2015?

MMS: Under KBL Vision 2020, the bank’s total business turnover is projected to increase in a progressive manner to touch Rs.1,80,000 crore with deposits of Rs.1,00,000 crore and advances of Rs.80,000 crore by March 2020 – from Rs.77,689 crore (deposits of Rs.46,009 crore and advances of Rs.31,680 crore) as of March 2015.

Deposits and advances are projected to grow at a CAGR of 16.80% and 20.35%, respectively, during the five-year period. Under deposits, the bank will focus on increasing CASA deposits which are expected to constitute 27.40% of the total deposits by March 2020. And under advances, the focus will be on expansion of retail and mid corporate credit, which would constitute about 70% of the total advances by March 2020.

TDB: You have recently taken over as the MD & CEO of Karnataka Bank.

What’s your vision for the future?

MMS: I want to continue the good work done by my predecessor. My priorities as the new MD & CEO of Karnataka Bank include credit expansion without losing sight of asset quality, efficiency enhancement in all spheres of banking and driving digital banking and value creation for all stakeholders.

NOVEMBER 2017 II THE DOLLAR BUSINESS 39

THE SECRET INGREDIENT

GRAPES

YOU WON’T HEAR THIS ON THE GRAPEVINE Grape has cemented its place in cuisines and wines over time, across the world. The grown-in-India varieties haven’t missed out on getting popular either.

Exports are a proof. Grape exporters, smile.

BY ANISHAA KUMAR

O

nce known as the food of gods and kings, grapes today have evolved to be a fruit that has found favour, be it in the form of the main ingredient in your favourite bottle of wine or the fruit that makes your rather bland but healthy bowl of salad palatable, across the globe.

Grapes are also available in a myriad of colours – red, blue, amber, green and black to add a touch of colour to our food. To add to that, grapes are rich in antioxidants, making them a popular snacking alternative. Naturally, the demand for grapes across the world has

40 THE DOLLAR BUSINESS II NOVEMBER 2017

been increasing. While India still lags behind countries like China, Italy and US in production of the fruit, the growth in demand for Indian grapes shows that there are opportunities aplenty for both farmers and exporters.

In India, the major grape producing state is Maharashtra with the regions of Nasik and Sangli being the main cultivation areas. Apart from Maharashtra, other states that produce grapes are Andhra Pradesh, Karnataka, Tamil Nadu and Mizoram. When it comes to varieties produced in India, according to the Agricultural and Processed Food Products

Export Development Authority (APEDA), Thompson Seedless white and its variants, is the most cultivated variety of grapes. Others varieties that are cultivated are Bangalore Blue, Anab-e-Shahi, Dilkhush, Sharad Seedless and Perlette.

A LONG WAY TO GO

While production and exports have been growing over the last couple of years, India remains the 11th largest exporter of grapes in the world. Our export volume in CY2016 was as low as 1/6th of the largest exporter Chile. But just because we are so far behind, is no cause for despair. Between FY2012 and FY2017 India’s exports of fresh grapes have seen a growth of 46.08% — although in FY2015 the exports had dropped 34% y-o-y, due to the global economic slowdown, before increasing 28% y-o-y in FY2016.

Some of India’s largest export markets include Russia, Netherlands, UK and Germany with Netherlands accounting for more than a third of India’s exports – in FY2017, Netherlands imported $91.84 million worth of grapes from India. India also happens to be the country’s fourth largest source of imported grapes. Other important export markets for India include US and various Asian countries like Bangladesh, China, Thailand and Malaysia. Amit Kalya, Business Development Manager at Nasik-based

Profit estimates for exports of fresh grapes

During a good season exporters can expect a margin of upto 10% Cost of Production (INR/Kg) FOB Value (INR/Kg) Operating Profit Operating Margin (%)

Kalya Exports explains, “UK has always been a stable market for us. Volumes are also growing in the Russian market. In Asia, China has opened up.” Exporters say, Australia and New Zealand are also emerging as potential export markets.

DOMESTIC SUPPORT

While EU accounts for a major share of our exports of fresh grapes, finding acceptance in EU has not come easy.

As has been the case with most of our agricultural produce, grape exporters have also faced challenges in adhering to EU’s stringent regulations, especially with those related to Maximum Residue Limit (MRL). Grape farmers have had to learn about the acceptable safe farming practices as per EU guidelines to be able to produce grapes that would qualify for the required EU certifications. In order to assist exporters, APEDA launched GrapeNet in 2007, an online platform for exporters to share information and track their entire supply chain.

Exporters, Kalya adds, are also these days more aware of the regulations after having had some of their consignments that did not pass the stringent tests returned. The Indian government, Kalya says, has also become a lot stricter when it comes to exports as a single consignment failing a test attracts intense scrutiny and hurts the entire exporting fraternity. Exporters have also taken it on themselves to train and educate farmers.

While there still are cases of consignments being stopped due to quality concerns, they are few and far between.

Rajaram Sangle, Director of Nasikbased Sangle Agro Processing Pvt. Ltd. concurs, “We had problems, initially in 2003, when the new quality regulations

112 120 8 6.7%

White seedless grapes packed in pouches of 4.50 kg net weight and 5 kg gross weight; HS code: 08061000; FOB ICD Nasik; Minimum order (MOQ): 1 metric tonne (MT); The cost of production excludes government subsidies (like duty drawback of 0.15%) and incentives (like 5% reward under MEIS).

SINCE FY2012, INDIA’S EXPORT OF FRESH GRAPES HAS GROWN 46.08% came into being. But then, we worked on the entire set up, got two agronomists on board, etc. We, the grape exporting community, have set a standard operating procedure (SOP) for ourselves. We also coordinated with APEDA to find the most efficient processes. We educate and train our farmers on how to produce the different varieties that are in demand and how to reduce residue. We also formed an organisation – Maharashtra Rajya Draksha Bagaitdar Sangha (MRDBS) – through which we conduct seminars for grape farmers.”

VALUE IN VARIETY

Indian exporters have overcome the regulatory issues through education and efforts, and now have to cross the hurdle of producing the varieties of grapes that are in high demand in international markets. So, if not variety, what has been fuelling the demand? Sangle says that price has a big role to play. He explains, “If we compare our produce to that of the produce of other major producing nations, we do not have many of the varieties that are are in demand. What usually drives demand for our produce is that Indian grapes are cheaper than that produced in South Africa, Peru, Brazil, etc. India mostly exports white grapes.”

Sangle adds that nowadays India is also exporting black grapes which are in demand in the market, having acquired the

Important disclaimer: Profitability has been calculated based on time-bound indicative prices (prevalent during the third week of October 2017). Prices may vary during a different time period, resulting in profit fluctuation. Factors like brand value, supply chain-related costs like warehousing and logistics, administrative costs, sales and advertising costs, etc., have not been included in the cost of procurement. Margins have been calculated considering government policies (announcements, notifications, etc.) as on October 20, 2017. Risk factors and currency fluctuations have to be considered while exporting. Duty drawbacks have not been factored in while calculating indicative profitability. Calculations are provided for informational purposes only; The Dollar Business takes no responsibility for any loss resulting from investments in the said commodity/product. Though all efforts have been made to ensure the accuracy of the content stated herewith, the same should not be considered a statement of law or used for any legal purposes. Prior permission is required before calculations stated herein are published or quoted in a third party web or print property.

India’s export destinations

Netherlands is by far India’s largest market

31% Netherlands Russia UK Germany Bangladesh Other

34%

6% 7%

9%

13%

Source: TDB Intelligence Unit and Ministry of Commerce, GoI; HS Code: 08061000; break-up for FY2017

expertise to farm them. Internationally, he says that there is more of a demand for coloured grapes but India does not have these varieties. This he says, is the biggest hurdle exporters face.

Cultivating the new varieties that are in demand however is not easy as the seeds are usually patent protected. While the current production of white seedless and its clones finds demand in the domestic market, exporters say the scope in exports is limited. Sangle adds, “These patented varieties also cost a lot and work on the basis of royalty. So, the person who creates the variety, the breeder, has to be given a royalty, every year. Also, because of the lax intellectual property (IP) regulations in India, breeders located outside India are concerned about NOVEMBER 2017 II THE DOLLAR BUSINESS 41

THE SECRET INGREDIENT

violation of IP rights. Some exporters, including us, are now trying to import these new varieties. These varieties of grapes have special features such as low production cost, better yield, bright colour and of course good taste. They also have a longer shelf life and can change the fortune of an exporter.”

India’s export of fresh grapes

After a sharp decline in FY2015, exports of grapes have been on the rise 300 250 200 150 100 50 0

FY13

FY14

FY15

FY16

FY17

Source: TDB Intelligence Unit & Ministry of Commerce, GoI; figures in $ million; HS Code: 08061000

“PRODUCERS ARE WORKING ON NEW VARIETIES” TDB: What needs to be done to increase exports of grapes from India?

Amit Kalya (AK): Producers are already working on newer varieties to be cultivated in India that can help give us a better market share and as well as fetch better prices in the global market. In addition, exploring new markets can help grow exports of Indian grapes.

TDB: How difficult has it been to penetrate the European market. Are Indian producers equipped to adhere to EU compliance requirements?

AK: Today, Indian exporters of grapes have a better understanding of the compliance requirements. Exporters have been working with and educating farmers on how to produce goods that follow the rules and requirements of the importing country. We try to keep our farmers updated. The government also provides updates on new regulations and 42 THE DOLLAR BUSINESS II NOVEMBER 2017

GRAPES

The government has also been taking interest in helping exporters acquire the technology and processes to cultivate the new varieties that are in demand. Dr. S. D. Sawant, Director, ICAR-National Research Centre for Grapes, however believes that we will take time to start producing these varieties. He says, “Even if we import, there will be challenges as the grapes will have to pass multiple stages of testing. It will take at least 3-4 years for the process to get completed and cultivation to start.” Sawant adds that the project is expected to receive funding soon and once that is in place, negotiations with international producers such as GRAPA will be initiated.

Sawant further adds that the negotiation will also be challenging. “We will need to see which of these varieties the producers are willing to share with us.

Many of them are being exported from

our competing countries. For example, Early Sweet is a variety that was introduced by GRAPA in South Africa and these grapes are being exported from South Africa to Europe during January-February. Now, if that variety is given to India, we will also grow the same and export them to the same market in the same period, giving tough competition to South African exporters. South African producers may therefore not want to sell the product to India,” he explains.

A GAMBLE OF PROFITS

Despite myriad challenges, exporting grapes remains a fairly profitable business. Exporters say that in a good season profit margins in 5-10% range is attainable. Many exporters have also tied up with supermarkets outside the country which they say is usually a safer way to export as they offer a fixed price, irre-

has set up accredited testing labs for the same. Of course, there are costs involved.

If you need a specific report, the labs may charge a small sum for it, but then there is also a subsidy on this. So, overall there are not too many challenges. There may be problems for consignments in some places but these are usually not the case when you are exporting to supermarkets as their conditions are well laid out.

Overall, the understanding of the procedures and regulations has improved.

TDB: Is the grape export sector open to new entrants. What challenges do new exporters face?

AK: Like in most sectors, in the grape sector too, every year, there are some new players who enter the market without proper understanding of the market.

The exports of fresh fruits is a very different ball game than exports of other products. It is not like an engineering product which can be recalled and replaced. In the case of grapes, regulations have to be followed from the word get-go. It is perishable and this should be understood by any and all exporters. They need to properly understand the fruit quality, how it should be packed, etc. If anything goes wrong, it impacts not only them but the

Amit Kalya

BUSINESS DEVELOPMENT MANAGER, KALYA EXPORTS

entire Indian market.

TDB: Do you see exports of grapes growing in the coming days?

AK: I am expecting a steady volume growth like that in FY2017 in this financial year. While I can’t predict how long this export growth will continue, production will rise due to the addition in plantations for both the domestic fruit as well as the fruit that is cultivated for the export market. I believe exports will not decline over the next few years.

spective of the market condition.

A major factor that lowers the profit margin is the costs incurred towards meeting the regulatory requirements for export, which includes pack house processes, cold storage rentals etc. They add at least a 20-30% to the final cost of the product. Sangle adds, “The business has had its ups and downs. This year too there may be a decline in profits as grapes from competing countries came into the market at the same time as ours, resulting in a decline in prices. For example, a box of grapes that was earlier being sold for Rs.100 is now being sold for Rs.40.”

TIME TO SAY CHEERS?

The vagaries of the trade not withstanding, with the demand for grapes rising around the globe, exporting grapes remains a profitable venture.

Exporters say that exhibitions that the

“THIS IS A HIGHLY DYNAMIC BUSINESS” TDB: What has been the reason behind the growth in demand of Indian grapes?

Rajaram Sangle (RS): It is not that Indian grapes have a special quality. If we compare our produce to the international produce, we don’t even have as many varieties. What usually drives demand for Indian grapes is that it is cheaper than that of our competitors like South Africa, Peru, Brazil, US, etc. As our variety is cheaper, more people are buying it. India mostly exports white grapes. Internationally, there is more of a demand for coloured grapes but India does not produce this variety.

TDB: What kind of assistance do exporters need from the government?

RS: We need assistance in producing newer varieties of grape that are in great demand. Our biggest competitors like Chile and South Africa have the latest varieties which have better colour and

government bodies facilitate are of great help when it comes to interacting and finding stable, long-term buyers. Sangle explains, “We participate in many of the big fruit exhibitions across the world. At these exhibitions, we interact with new buyers. We invite these prospective buyers to see our facilities. That is how new business develops.”

New markets are also opening up for Indian grape exporters, and new buyers are keen to try our produce. Grape ex-

porters, producers and the government have begun a concerted effort towards cultivating the newer varieties of grape that are now in demand the world over.

The regulatory hurdles have been mostly overcome. The sector has tremendous potential with the demand for fresh grapes as well as wine on the rise. With sustained efforts towards acceptable and safe cultivation practices and aggressive marketing push, it may soon be time for grape exporters to raise a toast!

taste. If we are able to cultivate these varieties, then India’s exports will flourish.

The government is aware of this and is taking steps to help us produce the same.

We have had discussions with the government and research centres on this aspect, and the government is now keen to import these varieties and conduct research on them so that we can start producing these varieties in India.

TDB: What profit margin can an exporter expect in this business?

RS: This is a highly perishable fruit and profit margin ranges between 5% to 10%.

There is also a risk of losses as the prices in the international market are prone to fluctuations. For any decrease in international prices, the onus is on the exporters to match the price and absorb the loss in his margin. In India, it is the small farmers who grow grapes and exporters buy grapes from them at a fixed price, irrespective of the ongoing international price. So, the entire risk is borne by the exporter. People have a misconception that this is an easy business. You have to treat the farmers as a part of your family and work towards equipping them with education and technology to produce viable and healthy fruit.

Rajaram Sangle

DIRECTOR, SANGLE AGRO PROCESSING PVT. LTD.

TDB: What challenges does an exporter of grapes face?

RS: The business has had its share of ups and downs. There was a decline in exports in 2010 due to infestation. This year too there is a risk of losses as our grapes and those from competing countries reached the market at the same time, resulting in a decline in prices. It is also important to bring in different varieties as consumer preferences keep changing. The vagaries of consumer dynamics as well as that of the climate change are some of our biggest challenges.

NOVEMBER 2017 II THE DOLLAR BUSINESS 43

POLICY MONITOR

PRADIP THAKKAR, CHAIRMAN, PLEXCONCIL

“CHINA’S SLOWDOWN WILL BENEFIT INDIA” While the government anticipates exports from chemicals, plastics, construction materials and allied products to reach $42 billion by 2020, the Plastics Export Promotion Council (PLEXCONCIL) believes that plastic products can contribute more significantly in the months ahead to help the nation’s foreign trade revenues exceed expectations. Pradip Thakkar, Chairman, PLEXCONCIL, explains how.

INTERVIEW BY NILADRI S. NATH

TDB: The government expects annual exports from chemicals, plastics, construction materials and allied products sector to touch the $42-billion-mark by 2020. What is the Council doing to help achieve this target?

Pradip Thakkar (PT): The Council has undertaken several measures to boost exports from the sector. We are looking beyond our traditional markets of EU, US and UAE, and are exploring opportunities in relatively nascent markets in Latin America and Caribbean (LAC), Africa and ASEAN regions.

The Council is also facilitating the participation of plastics and plastic products exporters in international plastics exhibitions in countries in the LAC region like Mexico, Brazil, Panama – alongside holding buyer-seller meets in Ecuador, Colombia, Nicaragua, El Salvador, etc. In Africa, we are participating in exhibitions held in countries like Kenya, Ethiopia, Ghana and Sudan and in buyer-seller meets in countries like Algeria, Tunisia, Uganda, Mozambique, etc. Similarly, in the ASEAN region, the Council has also been participating in exhibitions in countries such as Myanmar and Vietnam, and in buyer-seller meets in Indonesia, Cambodia and Philippines.

Such trade facilitations are happening on a regular basis to ensure renewal of the old trade contacts, development of new business contacts and exposure for a wider section of the Indian exporters.

The Council also invites foreign companies to participate in buyer-seller meets in India. In exchange, the overseas 44 THE DOLLAR BUSINESS II NOVEMBER 2017

participants also invite us to visit their production units to get a first-hand experience of their requirements.

Simultaneously, the Council is seeking greater access to various overseas markets by asking for a reduction in tariffs in those markets that currently have FTAs with India such as South Korea, Mercosur, ASEAN countries, etc.

TDB: How have India’s plastic exports fared over the last couple of years?

PT: Over the last two financial years, because of the sharp decline in crude oil production, the global exports of plastics have been flat. The situation is the same in India. In FY2016, India’s export of plastics and plastics products was $7.63 billion. However, in FY2017, despite a 10% increase in volume, the value dropped by 0.5%. We want to export $10 billion worth of plastics by FY2020.

TDB: How diverse is India’s export basket when it comes to your sector?

PT: The export basket is quite rich. It has various categories such as moulded and extruded goods, medical disposables, plastic films, plastic sheets, plastic plates, packaging materials, stationery and much more. However, the growth drivers in exports will be categories that can service volume-based export orders and are internationally competitive in terms of quality and price – for instance, plastic films, woven sacks and writing instruments. Custom-made moulded and extruded goods for automotive and white good sectors also have good growth

potential. So does packaging, which has been the major growth driver of India’s plastic products exports.

TDB: Do you think moving towards more value-added products will help boost exports from the sector?

PT: Of course, it will. In fact, in the last four financial years, the share of the value-added plastic products has grown to 68% from 62%. Credit should go to the exporters for diversifying applications of plastics and their continuous efforts to tap new markets. By FY2022, we want to increase the share to 75%.

The export of plastic raw material (predominantly polypropylene and polyethylene terephthalate) is based on the surplus volume after meeting the domestic demand. Also, only some companies control the lion’s share in manufacturing these products. So, we have been trying to reduce our dependency on raw material and increase our focus on value-added plastic products.

Alongside, the industry is doing its bit to create an enabling environment to promote value-added product exports.

For instance, PlastIndia Foundation in partnership with The University of Massachusetts, Lowell, has set up PlastIndia International University in Vapi, Gujarat to facilitate skill development. But that said, the value-added sector isn’t a volume game. Hence, raw materials also remain an area of focus.

TDB: Has the slowdown in China opened up new opportunities for

Indian exporters?

PT: Going forward, China will not remain as competitive and aggressive. It is restructuring its labour laws, manufacturing guidelines, etc., and, there lies the opportunity for India to grab a larger market share in global trade. However, since China is India’s largest sourcing country, the slowdown may affect exports of plastic raw material from India too. The outlook is undoubtedly positive for India because India is looked at as a reliable supplier with cost-effective pricing in the international market. China’s slowdown is India’s opportunity.

TDB: PLEXCONCIL has been demanding a level-playing field for Indian manufacturers. What is the progress on that front?

PT: So far, we have had a mixed result.

On one hand, the government has been imposing anti-dumping duties on certain plastic imports. On the other hand, FTAs have resulted in an inverted duty structure, which has made import duties on finished products lower than that on raw materials. This is the reason why India-made products often become uncompetitive and unviable, globally.

The Council has been demanding an effective mechanism to curb dumping. The Council is now also working towards developing quality standards in association with the Department of Chemicals and Petrochemicals. So, if the manufacturers can adhere to those quality standards, the confidence of foreign buyers on our products will go up.

It will be mandatory for manufacturers in countries like China and Vietnam to meet these standards to be able to export their products to India.

TDB: The Council has demanded the government incentivise exports of plastic components to OEMs. What’s the latest development on this front?

PT: We have been urging the Commerce Ministry to offer incentives to encourage exports of plastic components, but so far we haven’t received a positive response. However, the Council is working towards getting more plastic component exporters on board to attract the attention of the original equipment manufac-

turers (OEMs) from foreign shores.

Also, we have been requesting the government to build manufacturing capacity in this sector through technology upgradation by setting up a Technology Upgradation Fund (TUF), similar to that in the textiles sector. However, nothing has happened on this front too.

TDB: What’s the sector’s take on the ‘Make in India’ programme?

PT: Our export schemes are such that manufacturers receive the maximum benefit only when they import raw materials for manufacturing inputs. This puts domestic raw material manufacturers in a disadvantageous position. The export schemes should incentivise indigenous procurement of manufacturing inputs and that way, the core essence of ‘Make in India’ will resonate better.

TDB: What’s the Council’s vision for the future?

PT: The Council aims to expand its

THE COUNCIL HAS BEEN DEMANDING AN EFFECTIVE MECHANISM TO CURB DUMPING membership base by encouraging a majority of the 30,000 Indian plastic processors to get into exports. Currently, the membership is around 2,400 which is only 8% of the total industry. We have been organising a number of seminars to create awareness of our huge export potential in various Indian cities.

Also, the Council will work towards increasing participation at various international trade shows by collaborating with other trade promotion bodies, in order to have a bigger impact. The council will also continue pushing the government for a favourable policy to improve manufacturing capacity.

NOVEMBER 2017 II THE DOLLAR BUSINESS 45

TDB FORUM

Ask a Question We plan to export raw cotton across the globe. We have confirmed suppliers for the material. The transaction value of the shipment is approximately $50,000 per container and we expect to sell 20 to 30 containers per month. Our customers are have agreed to payment terms of LC at sight or LC at sight after 30 days. However, our suppliers need to be paid before we can ship the product. As traders, we are not interested in investing more money. What could be the best way to arrange for financing? (Lijish, Managing Director, Sealand International Merchants Pvt. Ltd., +91-9961996XXX, md@sealandin.com)

Dear Lijish: We are glad to know that you want to export raw cotton across the world and have already been able to secure both buyers and suppliers for the same. Since your customers have agreed to open Letter of Credits (LCs) favouring your company, you will be eligible for availing pre-shipment credit or packing credit from your bank or from any other bank that offers this facility. Pre-shipment or packing credit is a loan or advance granted by a bank to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment. Should you have any further queries regarding exports of cotton, we will be more than glad to be of assistance.

Response by: Dr. Siddhartha Rajagopal, Executive Director, TEXPROCIL

46 THE DOLLAR BUSINESS II NOVEMBER 2017

In the world of export-import, each shipment counts.

And you cannot afford to make any “uninformed investment”. So, if you have any doubt or a question, ask us. Our team of experts at The Dollar Business Intelligence Unit will be happy to answer your queries. Your question(s), if approved, will also be published on www. thedollarbusiness.com, and/ or in the forthcoming issue of The Dollar Business I want to import dry lead battery scrap from South Sudan (Africa) into Mundra Port in India. Can I import them from this origin?

Or import of the product from Sudan is banned? Please advise.

(Alok, Director, Xcel Traders Ltd., +919997113XXX, carpetindia@gmail.com)

Dear Alok: We assume you want to import waste and scrap of batteries falling under ITC HS Code: 8548.

Since the import of products under the said HS Code is restricted you need to apply for grant of an ‘Authorisation’ for import or export of the said items to RA, with a copy to DGFT headquarters in ANF 2M (as prescribed in Handbook of Procedures) along with documents prescribed therein. Original application

along with Treasury Receipt (TR) / Demand Draft needs to be submitted to RA concerned and self-attested copy of same needs to be submitted to DGFT in duplicate along with proof of submission of application to concerned RA. [In case our assumption about the intended export product isn’t exact, please write to us.]

Response by: Steven Philip Warner President (VMPL) & Editor-in-Chief, The Dollar Business

I have been into pharmaceuticals business for the past several years, catering to the domestic market.

Going forward, I want to export certain chemicals from India. How do I proceed? (Dilip Venkatrao Jarikote, Coherent Pharmaceuticals, +919511661XXX, dvjarikote@gmail.com)

Dear Dilip: If you want to start an export-import business, the first thing you need to obtain is an Importer-Exporter Code (IEC) from the DGFT. An IEC is a 10-digit number allotted to a person that is mandatory for undertaking any export/ import activities. DGFT only accepts online applications for IEC issuance or modification and requires only three documents: (i) PAN; (ii) Cancelled cheque bearing entity’s pre-printed name or Bank Certificate; and (iii) Digital Photograph (3X3 cm). All you need to ensure is that details filled in the application should match with details in the upContinued on page 49

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TDB FORUM I want to export artificial jewellery from India. How do I find overseas buyers for my products?

(Ravi Dave, Proprietor, Madhav Exports, +91-7405967XXX, madhavimitation@ gmail.com)

Dear Ravi: We are happy to hear of your decision to head into the world of foreign trade. You can approach your concerned association – Export Promotion Council for Handicrafts (EPCH) – for assistance. Additionally, you can also explore The Dollar Business CONQUER Programme (You can read more on TDB CONQUER Programme on https://www.

loaded documents. Having said that, an online application for IEC however, can only be made using Digital Signature Certificate (DSC; Class II type).

We would request greater details of the chemicals you want to export for us to advice you better. You can also approach your concerned EPCs – Pharmaceutical Export Promotion Council of India (Pharmexcil), Chemical and Allied Export Promotion Council of India (CAPEXIL) and Basic Chemicals, Cosmetics & Dyes Export Promotion Council (CHEMEXCIL) – to understand if there are any specific requirements with respect to the products or chemicals you want to deal in.

Additionally, since you desire to venture into the world of foreign trade, we would also suggest you to take The Dollar Business Export Potential Test to evaluate how ready you are to take the plunge into a world of business that’s wide and exciting! You can find the test on https://www.thedollarbusiness.com.

Of course, the test is completely free!

In case you have further queries, do write back to us.

Response by: Manish K. Pandey Editor, The Dollar Business

Is it safe to get an order for coconut with 100% irrevocable LC at sight from Mauritius? What are the things that I should take into consideration for secure/safe payment and transaction? (Jay, Marketing Manager, Shree Exports, +91-9500077XXX, shreeexportz@gmail.com)

Dear Jay: It’s usually safe as an irrevocable Letter of Credit, which once accepted by the seller, cannot be altered or cancelled without the consent of the seller. However, it should be noted that an irrevocable letter of

thedollarbusiness.com) that gives an in-the-making super successful exporter like you the access to TDB EXIMAPS (https://www.thedollarbusiness.com/exim-maps), the most powerful buyer discovery and competition analysis tool for Indian exporters, which ensures you touch newer highs in global trade. In case you have further queries, do write back to us.

Response by: Indranil Das Executive Editor, The Dollar Business

credit is in effect only for a stipulated time period and expires at a pre-determined date. Further, you need to ensure that the documentation of each consignment needs to be as per the conditions of LC at sight otherwise the buyer’s bank has the right to reject payment on any violation of such documentation.

Response by: Dr. A. K. Sengupta Chief Consulting Editor, The Dollar Business

You can log on to www.thedollarbusiness.com/tdb-forum and submit your foreign trade-related queries, or write across to our experts at editorial@thedollarbusiness.com. Every question matters – to your business, to The Dollar Business.

NOVEMBER 2017 II THE DOLLAR BUSINESS 49

BORDERLINE

EDITOR’S COLUMN

IT’S NOT AS EASY AS IT SEEMS

T

he 2018 edition of the World Bank Doing Business Report is out. And, to the surprise of many, India has moved up a phenomenal 30 places to the 100th position in its annual Ease of Doing Business rankings. And, that’s not where the good news ends. India also features in World Bank list of top ten improvers for doing business among all countries across the world. “Among top improvers, Brunei Darussalam, India and Thailand implemented the highest number of business regulation reforms in 2016-17, with eight reforms each,” states the report.

Interestingly, in 2017 edition of the report India had moved up only one place from 2016, ranking at 130 out of 190 countries. The report, which ranks a country on 10 broad parameters (such as starting a business, getting electricity, registering property, getting credit, paying taxes, etc.), didn’t seem to recognise the efforts put in by the Modi-led Indian government to create a business-friendly environment in the country (at least, it was not reflected in last year’s rankings). In fact, India’s rankings have always been in the range of 130-140. The country has never achieved such a significant shift in the Ease of Doing Business Index that started in 2003. So, what changed in a year’s time?

Well, nothing changed in a year. It’s policy reforms of the last three and a half years that have now started showing results. Since the Modi-led government took over in May 2014, we have been seeing a push on two initiatives: ‘Make in India’ and ‘Ease of Doing Business’. While the former started gathering pace within a year the programme was launched, the latter, ironically, was yet to show results. For, many reforms were initiated only recently and required time to seep in through the system. A case in point could be the new bankruptcy law that was signed in May 2016 and came entirely into effect only in 2017. And then there was Goods and Services Tax (GST), the simplified new tax regime, that saw the light of the day on July 1, 2017. The reform has not only eased India’s cumbersome tax system, but has curbed tax evasion, improved compliance, and of course enhanced ease of doing business in India. www.thedollarbusiness/blogs/manish 50 THE DOLLAR BUSINESS II NOVEMBER 2017

Manish K. Pandey Editor, The Dollar Business

So far, so good! While the government should be happy that its efforts have paid off in general, it should not forget that a lot of ground still needs to be covered when it comes to parameters like trading across borders and enforcing contracts. Ironically, India has been ranked 146th amongst 190 economies when one considers the time and cost associated with the logistical process of shipping goods to and from overseas markets. [Ease of Doing Business report measures the time and cost (excluding tariffs) associated with three sets of procedures — documentary compliance, border compliance and domestic transport — within the overall export-import process.] What’s more? Even countries like Benin and Bhutan have been placed much above India, at 136th rank and 26th rank respectively, on this performance indicator. This clearly indicates the world’s perception of India’s foreign trade procedures. And perceptions do make a difference, at least in business if not anywhere else.

Indian policymakers also need to work towards strengthening, as well as streamlining, its law enforcement system.

Well, that’s what the Doing Business report says! India stands at 164th position (amongst 190 countries, just in case you’ve forgotten!) when it comes to the indicator that measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. And it goes without saying that having a weak enforcement system is as good as having no system.

If India really wants to create a conducive environment for businesses of global scale and foster ease of doing business in true sense, it needs to demonstrate the will to do so through its actions. No doubt, over the last few years, the government has introduced several measures for facilitating trade and improving ease of doing business in the country.

But then it’s time the government also streamlines infrastructure and institutions facilitating trade – the very basis of a business-friendly environment. Well, you can’t build a great building on a weak foundation. Can you?! @MK_Pandey

RNI: APENG/2014/54643; POSTAL REG. NO.: H/SD/486/17-19. Date of posting: 05th - 06th of this month. Date of Publication: 30/08/2017.