India
business & trade Indian enterprise. Global opportunities
AUGUST 2019
` 150
BUDGET 2019-20
DECODING THE
GRAND DESIGN A sharp analysis of the key focus areas of the government under the budget, and their possible implications for India’s economic future
“IF US RESTARTS GSP, IT WILL HELP EXPORTERS” - Pramod Kumar Agrawal, Chairman, GJEPC
“NO APPETITE FOR MODE 4 COMMITMENTS” - Dr Pralok Gupta, Associate Professor Centre for WTO Studies, IIFT
Department of Commerce Ministry of Commerce and Industry
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India
From the Chairman’s desk Dear Readers, India’s export performance over the past few years has been decisively under par. The share of merchandise exports in GDP has dropped from 14.75% in 2014-15 to 11% in 2018-19. The volatile global trade environment continues to take a toll coupled with ongoing tariff war, with deceleration in major economies like US, EU and China and the crisis in Iran. After posting a strong growth in 2018-19, India’s merchandise exports fell by 1.7% YoY in Q1, 2019-20 to US$ 81 billion. The industry was expecting some export-specific measures in the Union Budget 2019-20. However, the Budget largely missed the subject, although measures like infrastructure enhancement, infusion of liquidity, labour reforms, increasing the ambit of 25% tax to companies with turnover up to Rs 400 crore and 2% interest subvention for MSMEs will have an indirect impact on exports. India has been accused by the US of violating norms by providing export subsidies after crossing the US$ 1,000 GNI threshold for the third consecutive year in 2017. According to media reports, a new scheme is being envisaged to replace MEIS and will cover inputs consumed in exports. The scheme will cover various sectors and replace MEIS in phases. The government has been persistent in the support of labour intensive sectors like RMG & textiles, pharma and gems & jewellery, but they have still been losing competitiveness. It’s an opportune time to focus on new sectors where India has competitive strengths and potential like food processing, furniture and electricals. Infrastructure and logistics improvements and simplified procedures will provide a major impetus to business. The government may consider providing tax concessions to Indian companies for R&D, modernization of production processes and participation in global value chains. MSMEs should be encouraged to scale up through policy measures in areas like infrastructure support, land acquisition reforms and provision of skilled labour. Also, the government may focus its support for smaller firms that have potential, but lack the resources to access foreign markets and promote their products. The allocation under schemes like Market Access Initiative needs to be enhanced for this purpose. Policy and industry need to also closely collaborate and proactively work towards leveraging opportunities in a highly volatile global business environment. A perfect example of this is the ongoing US-China trade war, which is compelling a number of companies to relocate to alternate countries to avoid rising tariffs. Another area that requires greater synergy is FTAs, where India needs to play to its strengths and avoid binding agreements that are detrimental to its interests. Therefore, India would do well to review the FTAs it has signed in the past.
business & trade Indian enterprise. Global opportunities
Vol 1 | Issue 2
August 2019
TPCI CHAIRMAN: Mohit Singla DIRECTOR: Sameer Pushp
EDITORIAL EDITOR: Virat Bahri WRITERS: Abhishek Jha, Preeti Kumari, Nikhaar Gogna, Sneha Varma
DESIGN SR. ART DIRECTOR: Prakash Shetty DESIGNER: Ajay Kumar Singh India Business & Trade is a monthly magazine published by Trade Promotion Council of India, 9, Scindia House, Connaught Circus, New Delhi- 110001, India . Material in this publication may not be reproduced in any form without the written permission of TPCI. Editorial opinions expressed in this magazine are not necessarily those of TPCI, and TPCI does not take responsibility for the advertising content, content obtained from third parties and views expressed by any independent author/contributor. For any editorial queries/ feedback, please contact: editorial@tpci.in For advertising queries, please contact: advertise@tpci.in
MOHIT SINGLA Chairman, TPCI
TPCI.IN
26
TABLE OF
CONTENTS 12
4
TPCI News Buzz Latest trade and business news updates from across the world.
CATR DATA MINING 10 Focus: Indo-US trade relations India’s total trade with US reached US$ 142.1 billion in 2018, with India having a trade surplus of US$ 24.2 billion during the year.
DSM MUST BE PUT IN MOTION
Dr Amita Batra, Professor for South Asian Studies, JNU
38
PERSPECTIVES 12 DSM must be put in motion Dr Amita Batra, Professor, JNU talks about the impact of tariff barriers on international trade.
14 Chinese economy: A miracle no more? China’s GDP growth reached 6.2% in Q2, 2019, the slowest since 1992. Is India ready for the fallout?
16 Trade vs safety: Where the twain shall meet The trade off between food standards &
exports is at the forefront of debate on agriculture.
18 Is agri-marketing the missing link? India has not been able to fully leverage the benefits of its agricultural revolution in international trade.
20 Stalling the hostile takeover of free trade The world has witnessed a surge in protectionist measures since the financial crisis in 2008.
EXPORTS LOSING THEIR BLING? Gems & jewellery sector needs to adopt structural changes.
2 | India Business & Trade • August 2019
22 Solar panels: What did India actually win? The government needs to provide assured long-term procurement to boost the solar panel industry.
24 “No appetite for Mode 4 commitments” Dr Pralok Gupta talks about various facets of
services trade, India’s export potential and more.
COVER STORY
44
26 Decoding the grand design India Business & Trade takes an analytical view of the major themes that have been covered in the budget, their implications for India’s economic trajectory over the coming decade, and critical challenges that need to be addressed.
POLICY FOCUS: MSME 34 MSMEs in India: Age is not just a number! The Economic Survey of 2018-19 has proposed to categorise MSMEs into young (infants) and old (dwarfs). But should age indeed be the criteria?
IMPORT FOCUS: LNG 36 So near, yet so far India has committed to increase the share of natural gas in its energy mix, but infrastructure constraints & stress in gas-based plants are playing spoilsport.
TOWARDS NEW BEGINNINGS
India-EAEU FTA can be a boon for trade relations with Russia.
48
EXPORT FOCUS: GEMS & JEWELLERY 38 Exports losing their bling? India’s gems and jewellery exports have declined for the second consecutive year in 2018-19, and the slump has continued this year. 42 “If US restarts GSP, it will help exporters” Pramod Kumar Agrawal, Chairman, GJEPC talks about the challenges & opportunities for India’s gems & jewellery sector.
FOCUS MARKET: RUSSIA 44 Legacy connections, new beginnings Despite a rich history of friendly relations IndiaRussia trade remains well below its true potential.
EXPORTER PROFILE: SAREEN IMPEX
NATURE’S BOON
How Sareen Impex emerged as a leading player in rock salt.
540
48 A blessing from the Himalayas Sareen Impex made a timely entry into pink salt, and successfully made a name in the global market.
FOOD TRENDS 50 Cashew - health nut of the century For a poor farmer, cashew is a source of livelihood and for the consumer, it’s a status symbol. 52 Tea quality remains a concern Sanjay Goel, Founder & CEO, Teayamo, discusses the trends in the global tea industry.
WHAT’S THE LATEST @ TPCI 55 Food & Drink Technology (Africa) TPCI organised an India pavilion with member exporters from finished food product categories.
POWER BANKS
Why India needs to build competitiveness across the value chain?
August 2019 • India Business & Trade | 3
News buzz
International
Dark clouds loom over Australian economy
O
nce dubbed the “Goldilocks economy” owing to its ability to not succumb to the pitfalls of the global financial crisis, Australian economy currently seems to be shadowed by a spell of dark clouds. The economy grew at a sluggish pace of merely 0.4% in the first three months of the current fiscal year, after near-zero expansion in the latter half of the previous year. Although Australia does not have a dismal unemployment rate yet, the troublesome mixture of high personal debt and stagnant wages is beginning to leave its mark on the job market. This has taken a toll on domestic consumption and may interrupt the trajectory of 27 years of unprecedented expansion.
Australians have become thrifty in terms of spending on dining out, shopping, rent and accommodation. However, hope has not been lost. Some economists believe that Australia will not slip into recession
due to the strengthening of exports resulting from the weakening of Australian Dollar. Government expenditure on public health, the promise to cut taxes and red tape are other positive developments.
South Korea-Japan trade row escalates
A
s a consequence of continuing trade tensions with its neighbour, South Korea has decided to look for ways to shun its dependence on imports from Japan. Tensions were augmented on July 1, when Tokyo decided to impose restrictions on exports of three high-tech materials (critical for producing semiconductors) to South Korea. Japan has turned down
South Korea’s proposal to scrap these curbs. Bilateral ties also soured when Tokyo removed Seoul from its “white country” list, which comprises of nations deemed to have trustworthy export control systems. What has complicated matters further is the ruling by South Korea’s Supreme Court last year that ordered Japanese company Mitsubishi to
compensate forced labor victims during Japan’s colonial occupation. The ruling was strongly censured by Japan, which alleged that the matter was settled under a 1965 treaty. Since both Japan & South Korea are its allies, US may choose not to meddle. The conflict is likely to affect the businesses of both nations as well as the global supply chains of chip-makers.
Japan’s Prime Minister, Mr. Shinzo Abe in interaction with South Korea’s President, Mr. Moon Jae-in.
4 | India Business & Trade • August 2019
US factory activity plunges
NUMBER GAME
I
n the month of June’19, manufacturing activity of US slumped to 51.7 from 52.1 in May’19. This is the lowest reading recorded since October 2016 according to the Institute for Supply Management. A reading above 50 is an indicator of expansion in the manufacturing sector. Manufacturing contributes about 12% to the US economy. There was also a decrease in the expenditure on construction on account of investment in private construction projects dropping to their two & a half year low. Amidst the rising trade tensions with China,
52%
Factories
US is looking for ways to bolster its declining manufacturing activity.
US$ 4 billion
A pan-African FTA launched
A
African leaders celebrate the conclusion of pan-African FTA.
landmark free-trade agreement entailing 54 signatories has been recently concluded, after Benin and Nigeria joined the accord on July 7, 2019 at a 2-day summit in Niamey, Niger. Brushing aside the competition from Egypt, Ethiopia, Swaziland, Kenya, Senegal and Madagascar, Ghana has been chosen to host the secretariat - or permanent office - for the trade zone. The pact intends to facilitate free trade by removing tariffs and other commercial barriers. With Nigeria & Benin coming on board, Eritrea is the only African country not to be part of the trading bloc. The involvement of Nigeria in
Share of intraregional trade in Asia’s total trade, according to Mckinsey
the FTA is being seen as a major breakthrough since it is the region’s largest economy and most populous country. Its absence would have seriously crippled the ambitious trade pact. Some of the issues discussed included the removal of non-tariff barriers and regulations controlling trade liberalization, rules of origin and development of a digital payment system. The duty-free movement of 90% of goods has been visualized by the pact. This will boost intra-regional trade, export raw materials easily and build manufacturing capacity to attract foreign investment. The FTA is expected to go on floors next July.
Estimated costs of tariffs that US is threatening to impose on EU products like whisky, cheese and olives
0.1% GDP growth of Singapore in Q2, 2019 the slowest since 2009
August 2019 • India Business & Trade | 5
IN QUOTES
Donald Trump President of the United States
US tariffs are having a major effect on companies wanting to leave China... Thousands of companies are leaving. This is why China wants to make a deal.
Mercosur & EU conclude FTA
A
fter long-standing negotiations spanning across 2 decades since June 28 1999, South America’s Mercosur bloc and the European Union have finally locked a free trade agreement in Brussels, Belgium. European Commission President, Jean-Claude Juncker stated “In the midst of international trade tensions, we are sending a strong signal with our Mercosur partners that we stand for rules-based trade.” The South American trade block comprises of Argentina, Brazil, Paraguay and Uruguay. Argentina’s foreign ministry stated that the agreement “will mean the integration of a market of some 800 million people, nearly a fourth of the world’s GDP and more than US$
100 billion in bilateral trade of goods and services”. Over € 4 billion worth of duties would be saved each year with this treaty. Easing of border checks & reduction in red tape are among the trickle down effects. Agriculture, cars & machinery form the three pillars of this deal.
IMF talks of vulnerabilities
David Lipton Acting MD at IMF
It’s a time for the world to avoid causing a downturn — that means dealing with trade and technology tensions through dialogue so there are no self-inflicted wounds...
I
nternational Monetary Fund (IMF) is of the view that while the US economy is performing well at a time when global trade is weak, it isn’t impervious to external challenges that could dent its success. Some of the trying scenarios include trade and technology tensions and vulnerabilities in the financial markets. One of the most commendable achievements of US has been how growth had lowered the unemployment rate to 3.7% without leading to inflation. IMF noted how tariffs had done little to address the trade balance
6 | India Business & Trade • August 2019
between US & China in 2018, & in fact, increased the trade deficit for the US as imports from China rose. The trade war could significantly knock down business and financial market sentiment, disrupt global supply chains and jeopardize the projected recovery in global growth in 2019. In its World Economic Outlook report in April, the IMF projected global growth to slow from 3.6% in 2018 to 3.3% in 2019. IMF also predicted 6.3% growth for China in 2019 and 2.3% growth for the US. Continuing accommodative approach to monetary policy was seen as an appropriate response.
News buzz
National
Indian firms express concern over RCEP
I
n its earlier free-trade agreements, India has ended up giving way more in goods trade than it has received in return. The commitments in services sector have not materialized either. This has created apprehensions in Indian industry over the repercussions of Regional Comprehensive Economic Partnership (RCEP). The Union Ministry of Commerce & Industry, Shri Piyush Goyal, noted that “market access issues with China for Indian goods have been particularly problematic. Indian industry is not convinced that RCEP will create a win-win situation for all by ensuring balanced outcomes across the key pillars, particularly goods and services”. Further, India’s demand of having easier mobility for its services
Shri Piyush Goyal, Minister of Commerce & Industry, Government of India
professionals across borders under Mode 4 is yet to be conceded by RCEP nations. Indonesia’s trade minister, Enggartiasto Lukita, assured the CIM in his meeting on July 12, 2019 that efforts are on to address India’s
concerns on the RCEP. He led a three-member group comprising Indonesia and the ASEAN Secretary General. Another area of progress in India’s negotiations with RCEP is the conclusion of almost 9 out of the 16 chapters.
Budget stresses on investment-driven growth
R
ecognizing investment as one of the drivers of India’s economic growth, Union Finance Minister, Smt. Nirmala Sitharaman, spoke in her budget’19 speech about the various sectors which could attract FDI. Some of
the sectors that the government is considering for further opening up of foreign direct investment (FDI) include aviation, media, animation and insurance sectors. It has been suggested to permit 100% FDI for insurance
intermediaries. The government promised to ease the local sourcing norms for FDI in single-brand retail. The minister also emphasized on the importance of publicprivate partnerships (P-P-P) for strategic projects, particularly in the infrastructure sector. The proposal of fusing investments made through NRI portfolio route with foreign portfolio investment was also discussed. The purpose behind this merger is to usher in a single regime for foreign investors. It will also enable the regulation of investments and funds brought in by non-resident Indians (NRIs) and Persons of Indian Origin (PIOs). Further, the budget seeks to allow Foreign Institutional and Portfolio Investors to invest in debt securities given by non-banking financial companies (NBFC), enabling them to raise funds.
August 2019 • India Business & Trade | 7
Defence exports to surge
NUMBER GAME
1 mn Possible job losses in Indian auto component sector (ACMA)
A
YoY rise in no. of Indians who got Canadian residency in 2018
238% Potential export value of digital trade in India by 2030*
*Source: Report by Hinrich Foundation, All India Management Association (AIMA) and AlphaBeta Advisors
51%
ccording to Shri Ajay Kumar, Secretary, Defence Production Department, India’s defence exports are expected to surpass the target of Rs 35,000 crore by 2024-25. The high growth in shipments in recent years has contributed to this drastic rise in defence exports. This can also be seen as an outcome of the government’s efforts to encourage
the private sector & MSMEs to invest in defence production. One such instance is that the Ordinance Factory Board (OFB) had decided to do away with capacity verification for almost 90% of the products, excluding some sensitive items. Further, OFB and defence PSUs are also planning to outsource about 3,000 items to encourage the MSME sector.
Apple India exports to Europe
A
pple has started exports of iPhones manufactured in India to some European markets, giving a shot in the arm to the Indian government’s efforts under Make in India. At the same time, this development is likely to benefit Apple, which is looking for destinations other than China to manufacture its iPhones, given the problems arising out of the USChina trade war. Apple will now have the opportunity of avoiding import duties. With India easing its sourcing norms, it could also invest the resultant cost savings in its retail chain. Apple’s own market share in India is just around 1%. Apple’s contract manufacturer, Wistron
8 | India Business & Trade • August 2019
Corp’s India arm, has become the first among Apple’s contract makers to export the smart phones. In India, this company has its operations in Bengaluru. It is also the company, which started assembling iPhones in the country back in 2016. Apple has reportedly asked its suppliers to move 15-30% of their production capacity away from China in the wake of the US-China trade war.
India wins case against US
I
ndia won a case that it filed at WTO against US’ domestic content requirements and subsidies provided by eight states in the renewable energy sector in 2016. The 8 states embroiled in the dispute include Washington,
California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota. India had firmly argued that the measures are not in agreement with global trade norms since they provide less favourable treatment to imported products. It also was of the opinion that these subsidies are dependent on the use of domestic goods over their imported counterparts. The panel concluded that the 10 measures implemented by the U.S. pertaining to renewable energy sector indeed violate its obligations under General Agreement on Tariffs and Trade (GATT), 1994. The ruling can be challenged in WTO’s appellate body. Interestingly, the US had won a similar case against India in 2016, alleging unfair subsidies to its domestic solar industry. After this case, the two countries are at loggerheads once again as US has approached WTO’s dispute settlement body over India’s decision for retaliatory tariffs on 28 goods of US origin.
TRADE TERMINOLOGY GEOGRAPHICAL INDICATIONS A geographical indication (GI) is defined in the TRIPS Agreement of WTO as an indication which identifies a good as originating in the territory of a Member, or a regional locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin. Typical examples are Cognac from the town by the same name in France & “Darjeeling” tea coming from the Darjeeling region in India.
IN QUOTES
Smt. Nirmala Sitharaman, Union Finance Minister
Mr. Rajeev Bajaj, MD, Bajaj Auto
All of India’s private sector industries – small, medium or large – have played a substantial role in growing our economy. India Inc. are India’s job creators. They are the nation’s wealth creators.
Today, electric vehicles constitute less than 1% of the size of the industry (in India) and for the life of me, I cannot understand how somebody can imagine that 1% can become 100% in six years’ time.
August 2019 • India Business & Trade | 9
CATR Data Mining 1 90
Indo-US bilateral trade
India’s total trade with US reached US$ 142.1 billion in 2018, with India having a trade surplus of US$ 24.2 billion during the year. US was India’s largest merchandise trading partner in 2018-19.
83.2
80 70 61.6
60
58.9 54.4
40 50
33.1 28.8
30
25.8
24.2
20
21.3
10 0
3
India’s exports to US Total
India’s imports from US Merchandise
India’s trade balance with US Services
Source: Office of USTR
2
Impact of GSP on India’s exports
Plastics and articles have been the most affected, with 75% of exports under GSP in 2018. It is followed by articles of leather (50%) and articles of iron or steel (44%).
80% 70% 60% 50% 40% 30% 20% 10% 0%
Organic Plastics Rubber Articles of chemicals and articles and articles leather thereof thereof
Articles of stone, plaster, cement
Articles of iron or steel
Data: USITC Tariff and Trade DataWeb
10 | India Business & Trade • August 2019
Nuclear Electrical reactors, machinery boilers, machinery
Vehicles and parts
Centre for Advanced Trade Research (CATR) is a premier research institution of economists and researchers in TPCI. The institution facilitates its diversified stakeholders including Government and industry with inputs on trade and economic development matters.
3
Major products in bilateral trade
Exports from India to US in 2018 were led by gems & jewellery, pharma products & heavy machinery & imports were led by gems & jewellery, refined mineral fuels & heavy machinery. EXPORTS
IMPORTS
Gems and jewellery 19%
21%
Pharmaceutical products
Heavy machinery
Refined mineral fuels
54% 7%
20%
Vehicles and its parts
6%
5%
Others
5%
Refined mineral fuels
36%
Heavy machinery 9%
Gems and jewellery
Electrical machinery Oraganic chemicals
6%
12%
Others
Source: ITC Trade map
4
Bilateral investment US FDI in India (stock) was US$ 44.5 billion in 2017, a 15.1% increase YoY. India’s FDI in the US (stock) was at US$ 9.8 billion in 2017, an increase by 11.5% YoY. India’s investment in US is led by professional, scientific, and technical services, manufacturing, and depository institutions.
5
Indo-US trade (in US$ bn) US has criticised India for adopting trade restrictive and distorting policies. Interestingly, while India enjoys an advantage, the total trade surplus has been declining since 2014.
90 80 70 60
India’s stock FDI in US
40
9.8
50 30
US stock FDI in India
44.5
20 10
0
10
20
30
40
50
Source: Office of USTR, figures US$ billion for 2017
0
1995 2000 2008 2013 2014 2015 2016 2017 2018 India’s imports from US India’s exports to US Trade balance
August 2019 • India Business & Trade | 11
DR AMITA BATRA IBT: What are the major trade barriers, according to you, that are impacting growth in international trade? Dr Amita Batra: Tariff barriers are mainly and predominantly impacting international trade presently. But the WTO report doesn’t necessarily talk about higher non-tariff barriers as far as the trade scenario is concerned. The big thing is that in terms of the trade barriers having increased – as far as the US is concerned, plus other countries have also simultaneously raised their tariff barriers. So, the larger proportion of the total barriers impacting trade presently is basically in terms of higher tariffs.
Free trade hasn’t gone off completely In this exclusive interaction with IBT, Dr Amita Batra, Professor, Centre for South Asian Studies, JNU talks about the impact of tariff barriers on international trade, free trade, the threat to the WTO and how India can cope with the growing challenge of protectionism.
12 | India Business & Trade • August 2019
IBT: What are the likely repercussions of major events like US-China tensions & Brexit on the world trade? Dr Amita Batra: As far as world trade is concerned, the projections are for much lower rate of growth in 2019. Even the earlier growth projection of 3% has been revised by the WTO recently to about 2.6%. In that, the US-China trade war is going to further impact the slowdown. But there is also the impact that we will see in terms of relocation of certain value chains and the interference with certain value chains on account of higher tariffs by the US as well as the retaliatory tariffs by China. More recently, of course, things have changed, since we have seen the G-20 summit and the joint statement coming out that US has agreed to put a halt to further increase in tariffs for now. The value chains interrupted will further slow down trade as well as growth for many companies. But even now if US & China are able to come to a positive deal, things may not go very far. The positive deal has repercussions, both in terms of trade & technology. Huawei’s buying of technology is also linked with that. So, all of these are interlinked – whether it is the trade war, or the trade war translating into a technology war. For now, therefore, we wait and
watch what happens over the next couple of months in context of USChina trade interactions. IBT: In your opinion, is there a clear shift from liberalism & free trade to protectionism & unilateralism? Dr Amita Batra: There’s a shift from multi-lateralism to unilateralism & bilateralism because the US has started looking at everything in a bilateral context. They are not using the WTO & flouting WTO’s norms. Since multilateralism has weakened, one would say the rules and global framework that govern trade through the WTO body have weakened. Though there are some questions that remain and must be dealt with, such as the impact of the free trade on the losers as trade has both winners & losers. So the question is how do you compensate those who are losing out in the trade process. And, for now there is also a rise in protectionism on account of what the US is doing because of their “America first” objective and in the context of this, their focus on bilateral deficits to be sorted out on a bilateral basis – which is not really what trade theory asks you to do. Trade theory focuses on looking at the overall trade deficit; not bilaterally so. But it has
DSM HAS BEEN A BIG STRENGTH OF THE WTO; BUT THAT IS ALSO UNDER THREAT BECAUSE OF THE US DELAY IN APPOINTMENTS. reached a point that protectionism & protectionist instruments are being used to a large extent. But we can’t say that free trade has gone off completely; because that is not workable in an interdependent world where almost all production is highly connected through value chains. IBT: Has WTO failed in its mandate as a multilateral trading platform to resolve trade disputes & ensure smooth trade? Dr Amita Batra: To a large extent, the WTO has not fulfilled its objective in terms of the Doha Round in terms of
catering to the interests of developing countries – agriculture, subsidies, so on & so forth. But I would not say it has failed because the dispute settlement mechanism has been the strength of the organisation and a lot of developing countries experiencing unfair trade practices could approach the WTO & get their issues resolved. It promoted free trade; tariffs around the world came down. But that is also under threat because of the US delay in appointments to the appellate body. The one big reform should be that the DSM be put in motion. Also, India should start participating in the plurilateral platform being set up to reform the organization. IBT: What can the Government of India do to tackle the threat of protectionism? Dr Amita Batra: One big thing that India should do is to enhance its competitive efficiency, focus on manufacturing, increase involvement in international negotiations wrt e-commerce rules and other areas of interest to itself and developing countries. We should participate in regional trading agreements. We should try to evolve & sustain a multilateral rule-based trading order by bringing together countries that believe in a rule-based trade order & taking them forward in sustaining the WTO.
August 2019 • India Business & Trade | 13
PERSPECTIVES
Chinese economy: A miracle no more? China’s GDP growth reached 6.2% in Q2, 2019, the slowest since 1992. Amidst concerns of the dragon losing steam for good, is India ready for the fallout? BY ABHISHEK JHA
I
t’s a question that weighs heavily on the minds of policymakers, investors, businesses and academicians across the globe – is the much celebrated and even widely feared Chinese economic miracle nearing its end? The debate has got louder given economic data of the quarter ending June 2019, when China’s GDP grew at a rate of 6.2% YoY. This is poor by China’s lofty standards, being its lowest growth rate in nearly three decades. China laid the foundations of its spectacular export-led growth story in the mid-1980s when it started opening up its economy, inspired by the success of its East Asian neighbours. After joining WTO in 2001, China was fully able to integrate into the world economy. After 2001, Chinese exports grew at a rate of 27.3% while the imports grew by 24.8%. Total trade volume and exports as a share of GDP reached 65% and 35% respectively. GDP itself grew at
14 | India Business & Trade • August 2019
an average of 10% per annum from 2000-2013. The extraordinarily high trade volumes could be attributed to the undervalued Yuan and the dual impact of fast-paced industrialization and rural-urban migration. LOSING ITS WAY The continued global slowdown, rising debt (due to the stimulus package launched in 2008), a housing bubble, declining cost competitiveness and of course the trade war with the US seem to be finally taking their toll. The projected growth rate for 2019 is 6.6%, which is a clear reflection of plummeting growth, which is partially due to the repressed household consumption and diversion of household savings to investment. Plausible reasons for a sullen outlook also include domestic structural factors such as the aging of the population, diminishing pool of surplus agricultural labor, declining return to capital, economic distortions such as preferential treatment of state-owned enterprises, factor price distortions, and excess capacity. Cyclical factors mainly include the slower growth of advanced economies in the wake of the global financial crisis of 2007–2009, the European sovereign debt crisis between 2009–2014 and Chinese self-goal of 2015-16, when Yuan was deliberately devalued. China’s total debt burden surged strongly in the last six months as it permitted more loans and local government bond issuances to buttress the sluggish economy. The debt figure shot up to a whopping figure of 304% of its GDP in the first three months of the year, up from 297% a year earlier. The Chinese government has sought to abstain from corporate debt by restricting borrowing through informal channels i.e. shadow banking. While the restrictions have prompted a reduction in corporate debt in non-financial sectors, net borrowing in other sectors has surged, bringing total debt to over US$ 40 trillion, equivalent to around 15% of overall global debt. Total debt has risen by US$ 2.9 trillion
GROWTH RATE OF CHINESE GDP 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
CY 2007
CY 2008
CY 2009
CY 2010
CY 2011
CY 2012
CY 2013
CY 2014
CY 2015
CY 2016
CY 2017
CY 2018
Source: World Bank
since the first quarter of 2018, bringing the overall debt mountain to an all-time high of over US$ 69 trillion in the first quarter of 2019. Also, Chinese workers are beginning to demand higher wages, and commodity prices are also driving costs up, which is increasing prices by an average of 5% a year (estimate by The Economist), making it harder to control inflation. DOUBLE-EDGED SWORD If Chinese demand slows down as anticipated, its raw material requirement will be less, and India’s exports to that country will decrease to the extent that we may not be able to take advantage of the Yuan devaluation to earn more dollars. Thus, it seems daunting for India to continue narrowing down the trade deficit with China going forward. As an increasingly important global and regional economic power, China’s slowdown may cause large
APPLE IS LOOKING TO RELOCATE 1530% OF ITS PRODUCTION TO OTHER LOCATIONS
spill over effects to its neighbouring economies including India. Compared to imports, Indian exports to its northeastern neighbour are less diverse. Raw cotton and cotton yarn, petroleum products, iron ore, granite, raw aluminium, copper and other metal products along with some spices account for over 70% of our exports by value. It is estimated that over US$ 100 billion worth of projects are under execution by Chinese companies in India. Therefore, India’s big push for infrastructure development could get a boost from cheaper Chinese funds and resources. Chinese cooperation in the development of India’s highspeed rail network, renewable energy sector, smart cities and more importantly, the manufacturing sector, could become more feasible in the wake of reduced possibilities and opportunities for Chinese companies in their home country. Moreover, a continuation of the trade war could see more companies looking to shift their base from China to India. Over 50 companies have reportedly pulled out of China to set up base in other countries. Apple has already asked its staff to reconsider the implications of moving 15-30% of its production capacity to other locations. Therefore, it is critical for India to carefully assess and leverage the situation arising out of the US-China trade war and the slowdown in the Chinese economy, while minimising the negative impact.
August 2019 • India Business & Trade | 15
Trade vs safety: Where the twain shall meet The trade off between food safety standards & exports is at the forefront of policy debate on agriculture. Better coordination and collaboration between countries is a must. BY CATR
T
he Agreement on the Application of Sanitary and Phytosanitary Measures (which is known as SPS Agreement of WTO) sets out the basic framework and standards for food safety, animal and plant health. It gives a platform to countries for framing their own standards. But at the same time, it also clarifies that regulations must be justified through science. They should be implemented only to the extent necessary to protect animal, human or plant life or health. And they should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail. Member countries are encouraged to use international standards, guidelines and recommendations where they exist. However, they may use measures, which result in higher standards if there is a requisite scientific justification. Apart from this, they can also set higher standards based on appropriate assessment of risks so long as the approach is consistent and not arbitrary. Now the question is, which standards are practiced globally on food safety – Codex
16 | India Business & Trade
standards or country-specific standards? This reminds us of the acrimonious saga of 1989-90, when EU banned the imports of beef coming from US due to the quality of hormone! This incident clearly signaled that harmonisation of food safety standards is indispensable for spurring food trade across the globe in a more conducive manner. Thus when WTO was set up, the SPS agreement was
framed to assure harmonisation, provide risk assessment and bring transparency under articles 3, 5 and 7 respectively. CODEX Alimentarius food safety standards are cited under the SPS agreement for practicing and designing trade polices, as these are scientifically justified. The Codex process involves broad international input and sound scientific support from panels of independent experts. It provides governments with guidance on the adoption of national food safety standards and regulations to enhance public health protection within their territories. Codex standards and other texts dealing with all aspects of food quality and safety also promote fair practices in food trade. But the irony is that even today, economies continue to digress. Till date, 188 countries are CODEX members (187 countries and EU as a group), which participate annually to discuss food safety issues and methods to adopt them unanimously. To give a small illustration about this, maximum tolerance level of residuals or maximum residual limits (MRLs) of carbendazim in orange juice are different for each country.
Country Canada EU US
Accepted MRL for carbendazim in orange juice (parts per billion) 500-600 100-700 10
Apparently, the US claims that its high standards are necessary to ensure continued safety of orange juice so that it is fit for human consumption. However, this is a significant divergence from CODEX standards, which increases the impediments for developing and least developed countries. To maintain and satisfy each country’s food safety standards is too complex and expensive due to the high level of ambiguity for exporting economies. Due to strict demands on MRL acceptability for aflatoxins, African economies lost US$ 670 million worth of exports to EU. Furthermore, as per this stringent food safety measure, the risk on human health estimated was 1.4 deaths per billion per year. It is difficult for many countries
to accept Codex standards in practice. Differing legal formats and administrative systems, varying political systems and sometimes the influence of national attitudes and concepts of sovereign rights impede the progress of harmonization. Despite these difficulties, however, the process of harmonization is gaining momentum by virtue of the strong global desire to facilitate trade. An increasing number of countries are aligning their national food standards, or parts of them (especially those relating to safety), with those of the Codex Alimentarius, particularly in
TO MAINTAIN & SATISFY EACH COUNTRY’S STANDARDS IS TOO COMPLEX & EXPENSIVE
the case of additives, contaminants and residues. Policy makers in the realm of food safety need to address and resolve the challenge of implementing holistic approaches and constructing bridges between different disciplines as well as different sectors, including agriculture, environment, public health, tourism and trade. Today, non-transparent international supply networks often make it daunting to track the origin of all commodities and ingredients of food products. Individual governments need to adopt the vision for developing and facilitating the implementation of national Good Agricultural Practices (GAP) standards that are consistent, germane with international requirements and have adapted to local policies and environment. Together, the public and private sector’s support are instrumental to deliver the skills and infrastructure for leveraging the safety and quality of the agri-food chain, while simultaneously minimizing the impact on global agri-trade.
August 2019 • India Business & Trade | 17
Is agri-marketing the real missing link?
India has not been able to fully leverage the benefits of its agricultural revolution to emerge as a prominent player in international trade. Doing so requires a series of measures including integrating agri-marketing on a pan-India basis, corporatisation of farming, adoption of uniform quality and packaging standards and branding of Indian agri-products. Leveraging GIs will go a long way in helping farmers tap domestic and global markets. BY NIKHAAR GOGNA
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or a country where agriculture contributes around 17% to the GDP & provides a source of livelihood for nearly 50% of the total workforce, its role in economic growth cannot be undermined. It is for this reason that the Indian government invested in numerous technological advancements to bolster agricultural production. The green revolution engineered by Professor MS Swaminathan transformed India over the last few decades from a net importer of food grains
to being a leading contributor to the global food basket. While India has made significant strides in establishing itself as the top producer for agricultural commodities like cereals, fruits & vegetables, cotton & jute; it has not been able to establish itself as a leading player in global agri trade. Instead, India’s agricultural imports are growing at a CAGR of 9.8% in the last five years, while export growth has been relatively sublime at 1.1%. Given the current scenario of Indian agriculture, the government
18 | India Business & Trade • August 2019
has decided to set up a highpowered committee to recommend structural reforms to boost farm productivity and marketing. While most discussions have focused on boosting agricultural productivity, we discuss the oft-neglected impetus on agri-marketing reforms. GO-TO-MARKET The existence of a traditional market system in India goes back to its rendezvous with colonialism. Back then, fine Indian cotton was needed to keep the textile mills in
Manchester running. Consequently, the Berar Cotton and Grain Market Act of 1887 were enacted. This empowered the British Resident to declare any place in the assigned district as a market for the sale and purchase of agricultural produce and form a committee to supervise it. The post-Independence period saw many states adopting regulated markets & setting up Agricultural Produce Market Committees (APMCS). Over time, it was realized that regulated markets may not be the best solution. Market fragmentation, disparity in the density of regulated markets in different parts of the country, inadequate marketing infrastructure & high market fees are some of the daunting challenges faced by the farmers. Further, there are issues like cartelisation, existence of middlemen, high post-harvest wastages, restrictions in licensing, market information asymmetry & inadequate credit facilities. NEED FOR REFORMS Time & again, it has been reported that the agri-produce cultivated by Indian farmers with their sweat and toil is rotting at the Food Corporation of India (FCI). But this post-harvest loss can be converted into a huge source of profit by value addition & converting them into products like pickles, sauces, biscuits, juices & jams. Further, technological & infrastructural bottlenecks
(refrigerated transportation vans & cold storages) need to be addressed to enhance shelf life of perishables like fruits & vegetables. NITI Aayog member Ramesh Chand further opines that agrimarketing should be brought into the Concurrent or Union list to benefit farmers. This will help in the successful execution of agricultural marketing on a pan-Indian level by facilitating market integration. Another step in this direction, as suggested by the Committee on Doubling Farmers’ Income, is to roll out the model Agriculture Produce Marketing Committee (APMC) Act 2017. This would create a single-point levy of taxes, promote direct interface between farmers
E-NAMS WILL PROVIDE MULTIPLE GOTO-MARKET CHANNELS TO FARMERS AND GREATER MARKET ACCESS TO TRADERS
INDIA'S AGRICULTURAL EXPORTS IN THE LAST 5 YEARS VALUES IN US$ MILLION 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 0.00 2014-15
2015-16
2016-17
Source: APEDA
2017-18
2018-19
and end-users, and give liberty to farmers to sell their produce to whomsoever and wherever they get better prices. The government should ensure more comprehensive implementation of e-NAMs (electronic-National Agriculture Markets) to dismantle the tyranny of APMCs. e-NAMs will go a long way in offering multiple go-tomarket channels to the farmers by facilitating warehouse sales and reducing transportation costs. They will also allow traders greater market access & the opportunity to indulge in secondary trading. India can take a cue from other countries to revamp its agrimarketing structure. China has been reforming its agri-pricing support system since 2016 and moved from price support to direct income support on a per-acre basis. States such as Telangana and Odisha have introduced WTO compliant income support for farmers. Corporatisation of farming will be a critical step forward, as it will lead to better remuneration for their produce and greater alignment with the needs of the market. Besides remuneration, private companies provide farmers with invaluable knowledge on the right crop varieties, inputs to use, etc. The government can take inspiration from success stories like those of potato farmers in Gujarat,who have engaged in contract farming by signing agreements with the likes of Pepsico and Balaji. Another area where India needs to pull up its socks is ensuring uniform quality and packaging standards for its agricultural products. Cultivating crops that are acceptable according to food safety norms of regions like EU & US, will go a long way in boosting agriexports. The government should invest in establishing agricultural commodities as brands in themselves through extensive global marketing campaigns. GI status and its promotion is another potent strategy to establish trust in Indian agricultural commodities in the eyes of international consumers.
August 2019 • India Business & Trade | 19
Stalling the hostile takeover of free trade The world has witnessed a surge in trade protectionist measures across nations since the financial crisis in 2008. Can this harmful trend be reversed? BY CATR
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acktracking from the trade liberalisation agenda is not a nascent phenomenon. While the US is currently leading in terms of trade protectionism actions through tariff escalations, there is abundant evidence that it is pervasive across many countries. Global Trade Alert (GTA) data reveals a significant reversal in trade liberalisation since the global financial crisis 2008, and especially since 2011. Compared to earlier years, there has been a marked increase in trade protectionism worldwide since the last G20 Summit. Cognizant of the limited bandwidth to follow trade policy developments, perhaps some governments and those that lobby them have concluded that they can tilt the commercial playing field with greater flexibility. According to data, harmful
interventions have been more actively implemented than liberal policies over the past decade. Tariff changes are amongst the easiest to spot. Other government policies in the realm of protectionism can have a much lower profile. Since the last WTO Ministerial Conference in December 2017, trade officials have been struggling to take forward a number of unrelated, incremental initiatives. There is no apparent organising logic or systemic perspective. During December 1, 2017 to April 15, 2018, the Chinese and American governments were responsible for a much larger share of G20 protectionism (42%). But the proliferation of trade distortions implemented by G20 members since their leaders last met is not exclusively a Sino-US affair. Since 2008, countries topping the
list of trade protectionism measures are US (1,200) followed by India (730), Russia (610) and Argentina (480). The number of anti-dumping initiations rose to a high of over 360 in 2018, nearly twice the count in 2011. Conversely, the number of regional trade agreements, which saw a continuous rise post the Asian financial crisis in 1997-89 to reach a peak of 34 in 2008, declined sharply to a modest 8 in 2018. Importantly, the major chunk of protectionist measures does not comprise tariff measures. Approximately 70% of the G20 restrictive measures are in the form of export measures, mostly tax-based, followed by trade finance, import tariffs, subsidies (17%, including export subsidies) etc. BRIDGING THE GAPS It may be useful to recollect that the WTO replaced the General
G20 leaders at the Osaka Summit held during June 28-29, 2019
20 | India Business & Trade • August 2019
Agreement on Tariffs and Trade (GATT) as an international organisation mainly to overcome frictions over trade interests. The economies of the developing and less developed world were unable to gain market access in most developed economies, especially when it came to agricultural commodities. The deadlock on the issue of agricultural trade negotiations, first in the late 1980s and then in 2017, was no surprise. The disagreements between developed countries (the EU and the US) and developing countries (Malaysia, Brazil and India) to reorient the farm regime in their favour continue, thereby threatening the WTO’s comprehensive development agenda. The expectations of developing countries from trade also get belied
7
25
57
1849
23
614
SHARE OF TRADE INTERVENTIONS BY TYPE
466 320 235
1
336
41
47
209 62 52 17 4 3 2
Subsidies (excl. export subsidies) Export-related measures (incl. export subsidies) Tariff measures Contingent trade-protective measures Government procurement restrictions Trade-related investment measures Non-automatic licensing, quotas etc. FDI measures Instrument unclear Migration measures Capital control measures Price-control measures, including additional taxes & charges G: Finance measures Intellectual Property Sanitary and phytosanitary measure Technical barriers to trade Source: GTA Database, 2019
TOTAL NUMBER OF IMPLEMENTED INTERVENTIONS SINCE 2009 2500 2000 1500 1000 500 0
2009
2010
2011 All
2012
2013 Harmfull
2014
2015
2016
2017
2018
Liberalising
Source: Global Trade Alert Dataset, 2019
due to sizeable support by the developed nations to their farmers in a situation of market failure and other uncertainties. The support through subsidies tends to bring distortions in commodity prices. The Organisation for Economic Cooperation and Development estimates the quantum of subsidies by developed nations to vary from US$ 300-325 billion annually, which is much higher than that for developing countries. This has become a bone of contention in trade talks as farm lobbies in the US, Europe and Japan have steadily exercised political clout to influence officials and lawmakers to continue giving subsidies to farmers. Another point of concern is that developed countries impose stringent non-tariff measures (NTMs), which significantly add to the cost of trade. Also, the costs of acquiescence are asymmetrical because compliance depends on production facilities, technical knowhow and infrastructure, which are usually inadequate in developing economies. So these countries are unable to gain from sectors where they have comparative advantage like agriculture, textiles & apparels. Developing countries are willing to break the deadlock and are preparing a common ground to alter the mandate of WTO. India, in particular, seeks amendment of laws on unilateral action by members
THE RISE IN TRADE DISTORTIONS BY G20 MEMBERS IS NOT RESTRICTED TO US & CHINA on trade issues and a resolution of the dispute settlement system. The expectation is also for better policy guidance on issues such as norms to protect traditional knowledge from patenting by corporates, subsidies, e-commerce, food security and continuation of special & differential treatment for poor economies. A meaningful reset for the WTO requires a new work programme that reverses the build-up in discrimination against foreign commercial interests witnessed, since the global financial crisis began. India must do its homework to focus on the unresolved issues and address the newer ones, which are of interest to developed nations, like e-commerce and investment facilitation. The WTO needs to be sustained as countries need an international platform to formulate trade rules and bring convergence on divergent matters.
August 2019 • India Business & Trade | 21
Solar panel case: What did India actually win? India has won a case against US for the latter’s subsidies for its domestic solar manufacturing sector. However, there is little India can gain from this verdict. BY CATR
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n 2008, when India and US signed the landmark nuclear deal, their collaboration was lauded as the most strategic and definitive partnership of the 21st century. In July 2019, if you were to ask someone about the trajectory of this relationship, a definitive response would prove quite elusive. On one hand, the US has called on India for its greater and strategic role in Indo Pacific, facilitated the listing of Masood Azhar as a global terrorist and given special waiver to India on Iran sanctions in 2018. But on the other hand we
22 | India Business & Trade • August 2019
have instances of GSP benefit withdrawal, constant attack on India’s trade and tariff policies at major forums. The current series of events indicates that America under Mr. Trump is delinking trade from foreign diplomacy. In pursuance of such a de-linked policy, the US has knocked on the doors of the WTO on a number of occasions against several of its allies, and naturally, India has also faced the wrath. The solar panel dispute between the two countries is one of them, where India recently won a case against the US at the WTO. The dispute has more to the picture than trade protection, which the US has been advocating vehemently in recent years. With declining global
reliance on coal and oil as a chief energy source, the world as a whole is exploring a cheap, stable, accessible and fairly distributed alternative. With advancement in technology, solar energy may be termed as the potential alternative of the future. Hence, several nations are aggressively pursuing leadership in this industry and the leverage it potentially brings. In 2011, India launched the National Solar Mission with the goal of becoming a world leader in renewable energy advocacy and accelerating indigenisation of the renewable energy sector. However in 2013, the US moved the WTO Dispute Settlement Body against India, accusing it of discriminatory treatment of non-domestic solar panel and module manufacturers through its mandatory domestic content requirement clause. Also, it accused India of providing subsidies inconsistent with WTO norms. India lost the case in 2016 and claimed to have withdrawn all the measures inconsistent with WTO. Later in 2018, India moved the WTO against the states of Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota of USA, accusing them of similar discrimination and subsidy support. Recently India won this case. VICTORY WITH NO ‘SPOILS’ The most obvious implication is that India can apply retaliatory trade sanctions on US. However, if we look at the larger picture, India gets little more than a few brownie points. The verdict will boost the confidence of Indian side, in respect to the other cases that the US is pursuing against it, particularly on export schemes (primarily MEIS) at WTO. But considering that India’s solar device manufacturing industry has not been able to even meet the domestic demand, it looks like a pipedream for India to gain from this verdict in real terms in the near future. As of 2019, India’s total solar capacity is approximately half the installed capacity of US (56 GW vs 25 GW according to ArsTechnica).
TRADE OVERVIEW OF PHOTOSENSITIVE SEMICONDUCTOR DEVICES, DIODES & TRANSISTORS 35000 30000 25000 20000 15000 10000 5000 0 -5000 -10000 India
China
HongKong
Japan
Export
Malaysia
Import
USA
Singapore
Germany
TaipeI
Trade Balance
Source: ITC Trade Map
INDIA’S TOTAL SOLAR CAPACITY IN 2019 IS AROUND HALF THE CAPACITY OF THE US INDIA - PHOTOSENSITIVE SEMICONDUCTOR DEVICES, DIODES AND TRANSISTORS IMPORT SHARE 23%
2%
1%
2% 2% 3%
1% 0% 1% 1%
64%
China
Singapore
Japan
Malaysia
Hong Kong Germany Korea
United States of America Source: ITC Trade Map
Taipei
Viet Nam Thailand
India’s goal of 100 GW solar capacity by 2022 and its initiatives such as ISA stand as testament to its commitment towards solar energy in principle. However, the solar panel manufacturing industry has not been able to keep pace and hence our dependence on imports from China is increasing. A glance at the trade data of photosensitive semiconductor devices, diodes and transistors (solar panels, batteries etc.) reveals the lack of preparedness of the Indian solar device manufacturing industry. Over 73% of solar panel demand is met through imports from China. Imports from China have been increasing over the years, only witnessing a drop in 2018. Most of India’s solar manufacturing is concentrated on module assembly and wafer manufacturing. Till date, there are no companies involved in silicon production, which is a highly capital intensive activity, but a critical step towards indigenisation. Moreover, India had an annual solar cell manufacturing capability for just 3 GW in 2018, while the average annual demand is 20 GW. The government needs to boost the industry by bringing in public procurement that mandates 100% local manufacturing of solar panels. This will give entrepreneurs the confidence to develop much needed capabilities for manufacturing across the value chain.
August 2019 • India Business & Trade | 23
DR PRALOK GUPTA
There is no appetite in the world for Mode 4 commitments
In his interaction with IBT, Dr Pralok Gupta, Associate Professor (Services & Investment), Centre for WTO Studies, IIFT, talks about various facets of services trade, different approaches to GATS commitments, India’s services export potential and more. 24 | India Business & Trade • August 2019
IBT: What commitments & obligations does India have to comply with in terms of GATS? Are there any challenges that India is facing in fulfilling these requirements? Dr. Pralok Gupta: As far as GATS is concerned, India’s commitments are very modest as compared to developed countries, which are at a relatively higher level. India’s commitments are only in selected services, and that too, mainly in Mode 3. Mode 1 (cross-border trade or online trade) is generally unbound, which implies that there’s no commitment by India as far as this category is concerned. Even in terms of challenges to fulfilment, there are no major obstacles. In fact, we have more autonomous liberalization than that committed in the GATS. For example, we have more liberalisation in retail services, insurance services, and so forth. We have a number of services where we have not made any commitments under the GATS, but these sectors are now open. IBT: How & when will India be in a position to realize benefits under Mode 4 of services exports, given major restrictions applied by other nations like labour mobility tests or economic need test? Dr. Pralok Gupta: It is very difficult to say how & when India will be able to realize Mode 4 gains fully, because globally very few countries like Turkey are interested in these discussions, apart from India. Since there is no appetite for Mode 4 commitments, it is very difficult to get commitments in this category. There is also a tendency to negate those commitments through other provisions. More & more countries are resorting to protectionist measures such as stricter visa conditions & higher visa fees. For instance, Australia has an occupational list for issuing short term working visas. The occupation list is being shortened over the years as many services are deleted from this list. IBT: India enjoys the advantage of
a positive demographic dividend and has made a name in the global IT industry. What can India do to gain advantage of this favourable situation and give a boost to its services sector? Dr. Pralok Gupta: Focus can be given to selected sectors in order to boost the services exports. One such sector is the IT & ITES sector. Significant scope also exists in business services & professional services like accountancy & legal services. Potential can also be tapped in the health, education & tourism sectors. For example, we have nature tourism, eco-tourism, cruise tourism in our country. We have more World Heritage tourism sites than Turkey, Thailand and many other countries. But we receive lesser foreign tourists than say Singapore & Thailand. This can be attributed to macro- & microeconomic reasons like the rating of the country, its media perception as a travel destination, and the kind of marketing & facilities available for the tourists. IBT: What repercussions do issues like totalisation & stringent visa norms of US have for the services sector in India? Dr. Pralok Gupta: On H1B, US has made a commitment of 65,000 visas in the WTO. So, it’ll comply by its commitment. The only issue is that US is trying to impose other conditions, which will make H1B visa a little less attractive for the prospective applicants. For example, earlier, they could convert this visa into a green card. Now, there are media reports that this facility could be withdrawn. If this happens, many Indians will have to come back & that will create a lot of issues for the Indian economy. A few years ago, the application fees for the H1B and L1 visas were made so hefty that it may become difficult for many companies to bear that amount. Thus, the conditions associated with the H1B visa have become more stringent. The way these visa restrictions were drafted, they seem to be origin & company neutral. But the actual impact is going to
be more on Indian companies. On paper, these provisions don’t seem to violate the commitments & obligations of US under GATS. But in effect, US may not be fulfilling its commitments. India has filed a case in the WTO in this context. IBT: Why is the government focussed on bolstering the manufacturing sector over the services sector to become a leading economy in the world? Dr. Pralok Gupta: The focus on manufacturing is more from an employment perspective, since most of the economists describe India’s growth as ‘jobless growth’. If we go back to economic fundamentals,
INDIA HAS MORE WORLD HERITAGE TOURISM SITES THAN TURKEY, THAILAND AND MANY OTHER COUNTRIES.
there are three stages of economic growth (agriculture to manufacturing to services). In India’s case, however, there has been a transition directly from agriculture to the services sector, skipping the second phase. Presently, while the share of agriculture has come down in the economy, the share of the services sector is increasing while the industrial sector is more or less stagnant. However, the number of people employed in agriculture is still more or less the same as before or reduced non-proportionately as compared to its share in the GDP. If we compare globally, for all those economies where the services sector contributes significantly to the GDP, it also contributes significantly to employment. Therefore, the government is focusing on programmes like Make in India. IBT: What is your take on the low focus on exports in the Union government’s maiden budget? Dr. Pralok Gupta: A very important factor in the budget, which doesn’t directly come across as being export oriented, is the Study in India Programme. It is a services export oriented policy to increase exports in education services through Mode 2. There are also scattered efforts being taken to promote tourism. This sector also has a huge export & employment potential.
August 2019 • India Business & Trade | 25
COVERSTORY
26 | India Business & Trade • August 2019
Budget 2019-20
Decoding the grand design A sharp analysis of the key focus areas of the government under the budget for transformative growth in the Indian economy
T
he Modi government has set an ambitious target to make India a US$ 5 trillion economy by 2024, which will require a real GDP growth rate of over 8%, compared to the forecasted 7% for 2018-19. Amidst an uncertain external environment, a slowing economy and weak investment cycle, the focus is high on boosting the supply side of the economy. The government has announced incentives for a huge investment figure of Rs 100 lakh crore over five years in physical infrastructure, disinvestment of PSUs and strategic sectors under Make in India like solar energy and electric vehicles. In the services space, the FM talked about making India a hub for higher education and announced incentives for single brand retail, aviation and insurance investment. Raising the threshold for MSMEs under the 25% tax net to cover 99.3% of all enterprises
and ending harassment related to angel tax for startups were was also aimed at boosting the business sentiment. Housing is another area that got special attention through tax incentives for affordable housing and the government’s ‘Housing for All’ programme. To address the liquidity stress in the economy, the government has committed to infuse Rs 70,000 crore of capital in public sector banks along with a revival package of Rs 1 lakh crore for NBFCs. The highlight for the agri-sector has been the income support scheme with a budget of Rs 70,000 crore, besides which, the government announced measures to promote agri-entrepreneurship. India Business & Trade takes an analytical view of the major themes that have been covered in the budget, their implications for India’s economic trajectory over the coming decade, and critical challenges that need to be addressed.
August 2019 • India Business & Trade | 27
Is the future truly electric? India has barely scraped the surface on e-mobility. A regular consultative process is necessary to build a strong and sustainable EV ecosystem in India.
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lectric vehicles (EVs) clearly stood out in the budget. The FM announced incentives for manufacturing along with IT deduction of Rs 1.5 lakh on interest paid on loans for EVs. The GST Council has reduced tax on EVs from 12% to 5%. India sold 759,600 EVs during 2018-19, but a majority of these were 3-wheelers (630,000) and 2-wheelers (126,000 units), with passenger vehicles at just 3,600. The government has earmarked an outlay of Rs 10,000 crore for three years till 2022 under FAME 2 to promote EVs, with a heavy focus on charging infrastructure and public mobility. However, industry has criticised conditional incentivisation of electric/hybrid cars on parameters like price, battery power, top speed, etc. Society of Manufacturers of
Electric Vehicles has also asked the government to remove the condition of 50% localisation for incentives. Lastly, there is an obvious clash of interests with the conventional auto industry feeling neglected at a time when sales in Q2, FY 2019-20 declined by 18% YoY, their steepest drop since Q3, FY, 2000-01. A NITI Aayog paper projects
that EVs have the potential to slash India’s energy demand by 64% and carbon emissions by 37% by 2030. But considering the present numbers, there is still a long way to go. The government must adopt a collaborative approach so that both industry and consumers can smoothly make this grand shift towards e-mobility.
New Age Skills for a New India The government needs to manage institutional challenges and ensure accountability to prepare Indian youth for the jobs of the future.
I
mparting new age skills like AI, IoT, virtual realityand Big Data is of utmost importance to leverage India’s demographic
dividend, a fact emphasised by the FM in the budget. The need for digitally-skilled workforce will rise at a CAGR of
28 | India Business & Trade • August 2019
Source: NITI Aayog; figures show net job additions (in millions) in 2030 compared to 2016.
Other
Accommodation & food
Health care
Finance
Education
Government
Transportation
Construction
Retail & whole sale trade
Manufacturing
80 70 60 50 40 30 20 10 0 -10 -20 -30
Agriculture
NET ADDITION IN JOBS DUE TO AUTOMATION BY SECTORS
35% between FY 2019-2023 to 2.3-2.7 million (Nasscom). A report by Coursera finds India ranked 44, 50 and 51 out of 60 countries in key future skills pertaining to technology, business & data science respectively. Only around 25 million youth were trained under government programmes in its previous term, as opposed to a target of skilling 400 million youth by 2022. Establishing institutional infrastructure, creating an enabling environment and matching skills to jobs will be critical. Implementation challenges also have to be addressed at the state level and accountability has to be ensured vis-a-vis skill training institutions.
Maharaja is back on the block ETFs have provided a major fillip to disinvestment receipts, but PSU stake sales have just not taken off.
T
he Finance Minister Smt. Nirmala Sitharaman announced raising of the target for disinvestment receipts from the Rs 90,000 crore in the Interim Budget to the highest ever Rs 105,000 crore. The government has also been very inventive with the modes of disinvestment ranging from strategic sale, sale to other PSUs, IPOs, share buybacks and exchange-traded funds. The government is willing to take its stake below 51% where ownership has to be retained. In 2018-19, the government actually overachieved its disinvestment target of Rs 80,000 crore with receipts crossing Rs 85,000 crore. But a
whopping Rs 45,000 crore came from ETFs, while PSU sales have not taken off. The government even resorted to buybacks of its shares by PSUs to achieve the target. Disinvestment is a bitter pill to swallow, but is needed to unlock capital, tackle the fiscal deficit and boost growth. The government is now saying that it is the right time to restart the disinvestment process of Air India. Last time, investors were particularly concerned about the government retaining interest with 24% stake and all attendant shareholding rights available to it. Moreover, the government mandated that Air India and Air India Express will retain their debt of Rs 24,756 crore post the sale. Employees are staunchly opposed to privatisation of the airline, and will have to be placated. Air India is arguably the torchbearer of the government’s disinvestment drive and the myriad challenges it faces. If they manages to pull this one off, the journey ahead could get much smoother.
The slow squeeze With conventional channels facing constraints, promoting alternative sources will help resolve the MSME fund crunch.
M
SME is undoubtedly the key focus of the government. It is the perceived panacea to every problem the economy is currently facing - low employment, rising fiscal deficit, trade deficit etc. However, the sector’s contribution to GDP has remained stagnant at 30% in recent years and its growth has also declined from 15.3% to 7.6% between 2012 and 2016. Funding remains a critical problem, with a credit deficit of around US$ 20-25 trillion according to RBI. Around 75% of MSMEs in India collect funds from informal sources. The government has been adopting a number of innovative methods like the 59-minute loan portal, mandatory 25% procurement from MSMEs by CPSEs, TReDS and MSME SAMADHAN monitoring system for delayed payments etc. . Understanding the inadequacies of the formal banking system that is already reeling under huge NPAs, the government is talking to foreign lenders like World Bank, and Germany’s KfW Group to provide US$ 14.5 billion in credit to MSMEs. Alternative lending channels and digital startups are key to fulfil the demand supply gap, and need to be encouraged. Therefore, the government’s measures to ease pressures on MSMEs are a welcome step. The Economic Survey 2018-19 highlights a peculiar problem of MSMEs in India - they tend to remain small over their lifetime compared to their global counterparts. It has proposed a change in policy direction to focus on MSMEs that are young (infants) rather than those who are old and do not grow (>100 workers and over 10 years old). It may not be prudent to follow this as a blanket rule since gestation periods vary across sectors. Moreover, the industry feels that founders should be able to decide their growth trajectory, without being influenced by such policy considerations. EXPORT REVENUES BY INDIAN MSMES
150
147.4
145 140 135 130
138.9 113.3
137.1 130.8
125 120
2013-14 2014-15 2015-16 2016-17 2017-18 Source: Ministry of MSME; figures in US$ billion
August 2019 • India Business & Trade | 29
Is direct cash transfer the solution?
Bridging the gap with FDI
Government needs to address larger issues in agriculture like climate change, wastage & inefficient market linkages.
F
und allocation for agriculture reached a historic high of Rs 130,485 crore in Budget 2019-20, growing by 140% over the estimate of Rs 57,600 crore in 2018-19. Around Rs 75,000 crore is allocated to the Pradhan Mantri Kisan Samman Nidhi scheme with a cash assistance of Rs 6,000 per annum to each farmer. The concept of zero-budget farming to improve farmer incomes was discusssed. Scaling it up has to be juxtaposed with the adverse impact on productivity and higher market prices. The government’s initiatives towards agri-entrepreneurship and INDIA’S AGRI-EXPORTS TREND
19 18.5 18 17.5 17 16.5 16 15.5 15 14.5
23.5 23 22.5 22 21.5 21 20.5 20 2016-17
2017-18 Value
2018-19
Quantity
Source: APEDA; value in US$ billion, volume in million MT, figures are for agri-products under the preview of APEDA
renewable energy to boost incomes are laudable. On the other hand, direct cash transfer may put money in the hands of farmers, but agriculture suffers from larger issues of productivity and market access. The government needs to invest heavily in flood-resistant crop varieties and irrigation support as around 50% of net sown area is still rain fed. Adequate means of cold storage and processing are a must to ensure that the efforts of their labour do not go waste in the case of surplus production. Breaking monopolies of APMCs and expanding coverage of e-NAMs is a must to give farmers more avenues to market their produce. Exports of farm produce have been range bound between US$ 3540 billion, whereas they have a potential of around US$ 100 billion. Policies like curbing exports to check inflation must be re-assessed, as they deprive farmers of much-needed access to global markets.
30 | India Business & Trade • August 2019
India should be more articulate about issues like e-commerce to assuage investor concerns.
T
he first term of the Modi government witnessed a number of key reforms and liberalised FDI across sectors. Under the Budget for 2018-19, the government has allowed 100% FDI in insurance intermediaries and promised to simplify local sourcing norms for FDI in single brand retail. It will also look at proposals to further liberalise FDI in aviation, media (animation, AVGC) and insurance. But investor perception about India’s policy uncertainty is a concern, as reflected in AT Kearney’s Foreign Direct Investment Confidence Index. In 2018, India’s rank on the Index fell to 11, and further to 16 in 2019. This is surprising, since India was consistently ranked among the top five nations for FDI between 2006-2013. Factually, India undoubtedly remains one of the most lucrative destinations for FDI. But the last year highlighted certain concerns regarding India’s long-term economic policy, especially when
Navigating tricky waters A number of Indian realty players face existential issues.
A
ffordable housing got a strong mention in the budget. The government has provided an additional deduction of upto Rs 150,000/- on interest paid on loans borrowed upto March 31, 2020, for houses priced upto Rs 45 lakh for first-time house owners. The FM also
Higher education intent vs reality
FDI CONFIDENCE SCORE
India
1.54
China Japan
1.78
France
1.79
UK
1.85
Canada
1.87
Germany
1.9
US
The government needs to raise allocation in higher education to improve learning outcomes and enrolments for Indians.
1.72
W 2.1
0
0.5
1
1.5
2
2.5
Source: AT Kearney FDI Confidence Index 2019, scores calculated on a scale from 0-3 with 3 being the highest measure of confidence as a future destination for FDI
the government introduced new norms for FDI in e-commerce impacting Amazon & Wal-Mart. US has strongly criticized India’s draft e-commerce policy and data localization norms, calling them “most discriminatory and trade distortive”. E-commerce is a critical area in global trade negotiations, but India has chosen not to join informal discussions with over 75 coountries. Instead, it may be a better idea for India to be more articulate and assertive about its position.
stressed on the government’s commitment towards Housing for All by 2022. On the positive side, the announcement to shift regulation of housing finance companies to RBI will bring them at par with NBFCs and enable RBI to infuse liquidity. Realty players feels that the government has not adequately addressed the sector’s existential crisis. India’s real estate sector is in deep trouble following the default by IL&FS last year, due to which borrowing rates for companies are at their highest levels of upto 20% in over a decade. Even for those willing to pay, available funds are limited. A number of players face questions of survival, as they are already troubled by slowing sales, high inventories and rising prices. Goldman Sachs has predicted that this situation could put around 70% of them out of business over the next two years. The sector has been asking for industry status, apart from GST & land reforms. The GST Council reduced rates on under-construction houses to 5% and affordable houses to 1% from April 1, 2019. But players have demanded a reduction in GST on construction inputs/raw materials to 12% from 18%. They also want input tax credit on under-construction properties and single-window clearance to reduce the compliance burden.
hile there is an understanding about the need to educate the young pool of talent, the government has sought to take this vision forward by transforming India into a global educational hub. The government has allocated Rs 400 crores for setting up world-class education institutes and is helping them boost their standards to international levels. Keeping up with the spirit of research & inquiry, the government has also decided to establish a National Research Foundation. The budget seeks to recreate the magic of India’s ancient education system with its ambitious ‘Study in India’ programme to attract foreign students to the country. Another step in this direction is the decision to set up Higher Education Commission of India (HECI) to promote greater autonomy among higher
regulatory institutions in India. These initiatives are laudable, but the government needs to do much more to boost higher education enrolment and learning outcomes among Indian students. India currently has over 800 universities and 40,000 colleges, and 40% manage only one programme, according to the Draft NEP, 2019. Only 4% of them have enrolment over 3,000 and thousands of smaller colleges lack teaching faculties. The gross enrolment ratio (GER) is at around 25% at present, especially due to lack of access. But on the other hand in major cities, institutional capacity is severely constrained, compelling many students to opt for private institutions with much higher fees. India will require around 9-11 million teachers in higher eduction by 2030. The education sector is expected to be India’s highest employer by that year. The government has earmarked just around 3.4% of the GDP for education, which should increase to at least 6% consistently over the long term to achieve its aim of ‘Higher Education for All’.
August 2019 • India Business & Trade | 31
More power to the power sector One-nation, one grid, solar push positive, but discom losses and stranded power plants continue to constrain electricity supply.
I
ndia has fast moved into the centre of the global energy landscape. World Bank estimates that India’s power demand is expected to triple between 2018 and 2040, accounting for 30% of the growth in energy consumption during the period. India’s electricity generation capacity has also increased steadily from 154.7 GW in 2007 to 345.5 GW in 2018. The share of renewable energy has also gone up steadily. But India still ranks 80 on reliability of electricity in the World Bank’s 2018 Global Competitiveness Report. The sector is plagued by issues like fuel shortage, clearances & poor health of state distribution companies that monopolise power purchases. The government plans to work towards improving on the
SHARE OF GENERATION CAPACITY BY SOURCE
22% 1.9% 12.7%
63.4%
Thermal Hydro Nuclear Renewable energy sources Source: Ministry of Power, May 2019
performance of Ujwal Discom Assurance Yojana. Debt of distribution companies remains extremely high at Rs 3.52 lakh crore, apart from old debt at Rs 2.02 lakh crore and fresh borrowings at
Rs 1.5 lakh crore. The Budget has incentivised global companies to set up mega manufacturing plants for solar photovoltaic cells and solar electric charging infrastructure. This is important for India’s own requirements of renewable energy & future export potential. Another major area is gas-based plants, where investment of over Rs 60,000 crore is under stress due to lack of domestic supply & expensive imports. The Ministry of Power has proposed a reverse e-auction for gas plants with a provision for subsidised imported fuel. A path-breaking vision expressed by the FM is the concept of ‘One Nation, One Grid’. It will help utilize resources optimally to push reliable power, and also give a push to the spot electricity market.
Building the backbone The government will have to take proactive and innovative policy decisions to attract private investment, which is critical for infrastructure goals.
T
he government has set itself a massive target of investing around Rs 100 trillion in infrastructure projects in the next five years. It has also proposed to set up a Credit Guarantee Enhancement Corporation to deepen the bond market with a special focus on infrastructure. The Economic Survey has surmised that India needs around Rs 13.6 trillion every year in infrastructure investment, but was able to invest only around Rs 6.8-7.5 trillion. Without P-P-P, completion will take decades. However, investments in new projects were at a 15-year low of Rs 43,400 crore in Q2, 201819 (CMIE). Implementations of
projects worth Rs 13 trillion are stalled, the highest since 1995. The government could now look at a more equitable share of risk through models like toll-operate-transfer to boost investment. Another major constraint for private sector investment is the poor record of dispute settlement
32 | India Business & Trade • August 2019
and contract enforcement. India is ranked 163 on this parameter under World Bank’s Ease of Doing Business Index. Addressing this will be key to reviving P-P-P investments, as will be the focus on building a vibrant bond market, which the government needs to pursue actively.
July 2019
India
business & trade
Indian enterprise. Global opportunities
India
business & trade Indian enterprise. Global opportunities
MEXICO: JEWEL IN THE CROWN
RMG: IS INDIA STUCK IN THE MIDDLE?
RCEP before the
last leap The RCEP deal is expected to precipitate a sharp increase in the trade deficit. Should India take the plunge?
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POLICY FOCUS
MSMEs in India: Age is not just a number! The Economic Survey of 2018-19 has proposed to categorise MSMEs into young (infants) and old (dwarfs), and direct policy resources towards the former. But should age be the true determinant of policy formulation? BY PREETI KUMARI
M
SMEs have been hailed as the growth engines of India’s economy and lauded for theri contribution towards exports. However, there are twists in this tale. The contribution of the MSME sector to India’s GDP has remained stagnant at around 30% for last 4-5 years. A similar trend of deceleration is visible in the GVA growth rate of MSMEs for the same period. In short, the industry is currently marred by low value addition and low growth and hence stagnant contribution to the economy. The government, wary of the downward trend and led by a historically positive bias towards MSMEs has been relentlessly weaving new policies customised for MSMEs. This Budget is also replete with such schemes such as allocation of Rs 350 crore to the interest subvention scheme for MSMEs, TReDS expansion, etc. On one hand, one may argue the need for specific policies, exemptions in compliance from labour laws, IBC and other such special measures to support the hailed growth engine of India’s economy. The argument is that MSMEs, owing to small capacity and less experience, grapple with a multitude of issues such as lack of credit availability, tough competition, infrastructure bottlenecks etc. However, one may want to know till when, in terms of size, age and structure, should a company get this kind of handholding and support that the government is providing through its customised policies for fuelling MSMEs.
34 | India Business & Trade • August 2019
In India, MSMEs recently got classified on the basis of turnover from input investment, which is a step towards dispelling the bias against services and realigning the focus to growth from input. The Economic Survey of 2018-19 has further evinced that defining MSMEs only on the basis of the number of employee for policy formulation purposes may be detrimental to their growth. It proposes to classify MSMEs as dwarfs & infants. Dwarf MSMEs are those, which have remained small in size by employing less than 100 employees despite being aged over 10 years. On the other hand, the survey talks about infants, which are young and have the potential to grow fast. It concludes in its analysis that dwarf MSMEs make very little contribution towards employment as well as net value addition in manufacturing. Mr Rajan Sharma, Founder & CEO, excess2sell, opines on the survey’s intended objective, “The thought must have been that rather than incentivizing dwarf MSMEs, giving the new age MSMEs that are infants today the required push may contribute to the growth at a much faster pace. The idea is to offer stagnant MSMEs the much needed support and incentive with the ultimate aim of boosting growth.” By analysing firm-level data from the Annual Survey of Industries (ASI) for the year 2016-17, the Economic Survey shows that while dwarf MSMEs account for half of all the firms in organised manufacturing
by number, their share in employment is only 14.1% and contribution to NVA is at 7.6%, despite dominating half the economic landscape. Hseih and Klenow, 2014 compared manufacturing firms and their growth trajectories across three countries - USA, India and Mexico. Their analysis shows that once firms survive for forty years, the average 40-year old firm in the US generates five times as much more employment and the average 40-year old firm in Mexico generates 1.43 times as much more employment than the average 40year old Indian firm. India does not do any better on the productivity front. The average productivity level for 40-year old enterprises in the US was more than 4 times that of the productivity of an enterprise that is newly set up. For Mexico, the firms were 1.7 times more productive vis-a-vis an infant firm and for India, the rate was even
lesser than 1.7 times. Is it a unique problem of India that firms just don’t grow or choose to not grow? Are firms in India incentivised to stay small? For instance, firms with less than 100 employees are exempt from the need to get permission from the Government before retrenching employees. The survey argues that it involves significant transaction cost, if one chooses to go big. This stickiness towards ‘small’ may be dealt with through age- based polices rather than size or other parameter-based polices. The survey suggests putting a sunset clause to all the incentives laid for MSMEs, prioritizing ‘start ups’ and ‘infants’ in high employment elastic sectors such as rubber and plastic industry, electrical equipment industry, tourism industry etc. In the MSMEs, priority sector lending targets may be pursued to allocate resources more judiciously.
40-YEAR OLD US FIRMS GENERATE AROUND 5 TIMES AS MUCH MORE EMPLOYMENT AS THEIR INDIAN COUNTERPARTS
Source: Economic Survey, 2018-19; Figures are for 2016-17
SHARE OF DWARF FIRMS VS OTHERS IN NET VALUE ADDED
60 50 40 30 20 10 0
0-49
50-99 Young Firms
Above 99 Old Firms
SHARE OF MSMES BY NATURE OF ACTIVITY
33%
31%
36%
Manufacturing
Trade
Services
Source: Ministry of MSMEs
Easing of labour laws has been an emphasis of this government and it may certainly act as a catalyst to the growth of small to big. Another possible change is allocating a significant portion of priority sector lending to infant MSMEs, because the banking sector’s bias towards big firms may also be observed for older MSMEs and against the younger MSMEs. It may be argued that it is not possible to fix a universal number to the age of the firm for policy purposes since the gestation period for textile manufacturing company may not be the same as a steel manufacturing company. Moreover, Rajan feels that promoters should be the best judges of how to manage their companies and its growth. He adds, “Rather than keeping entrepreneurs busy in understanding policy frameworks, the Government must keep the rules and regulations simple, ensure parity in terms of opportunities and capital raising windows and most importantly, trust the MSMEs.” The focus then, is not to find a fit age but to shift the emphasis of policy formulation towards raising the size and scale of these companies. MSMEs that grow are a win-win - they generate greater profits for promoters, compete better, contribute more to job creation and productivity in the economy. Hence the policy emphasis should be on unshackling MSMEs to grow big. But current size alone may not be the correct determinant of the direction of government policy.
August 2019 • India Business & Trade | 35
FOCUS IMPORT
Natural gas: So near, and yet so far India has committed to increase the share of natural gas in its energy mix to 15% by 2030. But infrastructure constraints & stress in gas-based power plants are playing spoilsport. BY VIRAT BAHRI
N
atural gas has a key role to play in India’s energy mix in the coming years. It is a cleaner, cheaper and more abundantly available source of energy as compared to other fossil fuels. Gas-based power plants in India would help balance the share of renewables in India’s energy mix, and environmental concerns are also expected to bolster demand of piped natural gas for cooking. The agriculture sector is a major
consumer of natural gas due to its role in the fertilizer industry. India has commited to increase the share of natural gas in its energy mix to 15% by 2030. Besides envoironmental considerations, India has to look beyond its dependence on coal, which is expected to account for 42-50% share in its energy mix even till 2047. Imports of coal have seen a steady rise to reach 200 MT in 2015-16 from 39 MT in 2005-06. NITI Aayog projects
36 | India Business & Trade • August 2019
that India will reach peak production in coal by 2037, after which capacity is expected to decline. India was the fourth largest importer of LNG in 2017 after Japan, South Korea and China. Imports of LNG reached 29 BCM in 2018-19, as compared to 27 BCM in 201718. The country plans to increase the share. In 2018, India had four terminals for LNG imports, and it plans to add 11 more terminals in the next seven years.
However, these LNG terminals are expected to remain underutilized, considering that India’s LNG demand will remain at 25-26 million tonnes in 2019. The capacity of terminals is expected to reach 41.5 million tonnes by the end of 2019, which means a capacity utilization of 60%. Primarily, this is because of slow progress in building the gas pipeline network in India. India currently has around 16,000 km of operational gas trunk pipelines, with 13,000 km in various stages of construction. But China, in comparison, has a gas pipeline length of 42,000 km just in the Southwestern province of Sichuan and Chongqing municipality. Experts are skeptical of the government being able to complete the entire pipeline grid for India by 2022 as targeted, which will enable it to run all LNG terminals at full capacity. Timely completion of projects will depend on several factors like financial and technical capabilities of
promoters as well as infrastructure and land issues. There are also significant aspersions on India’s ability to achieve the targeted 15% share for natural gas by 2030. The World Energy Outlook 2018 report of the International Energy Agency predicts that India’s share will reach 8% by 2040 under the New Policy Scenario, 7% under existing policy scenario
INDIA HAS 16,000 KM OF GAS PIPELINES, COMPARED TO 42,000 KM IN CHINA’S SOUTHWESTERN PROVINCE
INDIA’S NATURAL GAS PRODUCTION 34,000.00 33,500.00
33,656.27
33,000.00
32,649.31
32,500.00
32,249.21
32,000.00
32,873.37
31,896.71
31,500.00 31,000.00
2014-15
2015-16
2016-17
2017-18
2018-19
Source: Ministry of Petroleum & Natural Gas, figures in million metric standard cubic metres (MMSCM)
INDIA’S LNG IMPORT TREND 12.00 10.00 8.00 6.00 4.00 2.00 0.00
2013-14
2014-15
2015-16
2016-17
2017-18
Source: Department of Commerce, figures in US$ billion
2018-19
and 16% under the Sustainable Development Scenario. Achieving the target will also require significant reforms on gas-based power plants. India had a gas-based power generation capacity of 24,867 MW during September 2018, with nearly 57% of it classified as ‘stranded’. At least 31 gas-based power plants have stopped functioning due to a combined total debt of Rs 18,431 crore, with around 70-80% of the capital cost financed by banks. This spurt of investments came in with the unrealised hope of sustainable gas supply from the KG D6 field, which was expected to reach 80 MMSCMD by 2009 and these investments are now in a limbo. Output from gas-based power plants has witnessed a CAGR of -3.45% between 2008 and 2016. Credit rating agency CRISIL has recently asserted that India needs to give a strong policy impetus to increase the share of natural gas consumption from 6% at present to the target of 15%. It predicted that demand for natural gas will rise by 55 million metric standard cubic metres per day (mmscmd) til 2024 due to city gas distribution, fertilisers and the industrial segment. However, production of natural gas is only expected to rise by 30 mmscmd over this period. A major benefit for India is that prices of LNG, which accounted for around 46% share in total gas consumption, are expected to stay attractive. A major supply boost from US and Australia is expected to exert downward pressure on prices in the coming years. CRISIL recommends implementing of a gas trading hub in India to make prices transparent as well as affordable. Also, including LNG in GST ambit will bring down the cascading effect. Given the infrastructure constraints, the agency also proposes a robust build-up of the pipeline grid, apart from streamlining of pipeline capacity reporting and giving a push to end user sectors. Growth in consumption is expected to be the most robust in cities, especially with the rising usage by commercial consumers.
August 2019 • India Business & Trade | 37
EXPORT FOCUS
Gems & jewellery
exports losing their bling?
India’s gems and jewellery exports have declined for the second consecutive year in 2018-19, and the slump has continued this year. Besides short term factors, the sector also needs to address structural challenges to ensure that its competitive advantages are not eroded over the long term. BY NIKHAAR GOGNA
38 | India Business & Trade • August 2019
T
BREAK UP OF INDIA’S GEMS & JEWELLERY EXPORTS
1%
0%
1%
4%
2% 2%
he world’s fascination with gems and jewellery goes back to the nascent stages of history. Back in the days of the Indus Valley Civilization, India enjoyed the enviable position of being the largest manufacturer and exporter of beads to the world. Endowed with a finelydeveloped aesthetic sense, and an intricate set of engineering skills, the civilization is even credited with having invented the diamond drill. Over the centuries, India attracted merchants from across the globe as its Golconda diamonds, sapphires from Kashmir and pearls from the Gulf of Mannar garnered reputation for their fine quality. India’s gems and jewellery market is one of the largest in the world, contributing 29% to global jewellery consumption. It contributes about 7% to India’s GDP, 15% of merchandise exports and is a source of livelihood for over 4.64 million employees. However, gems & jewellery players are witnessing declining fortunes in the international market of late. Exports dropped by 5.32% YoY to reach US$ 30.9 billion in 2018-19. The slump has worsened this year so far, with exports dropping by 10.32% YoY to reach US$ 9.18 billion in the quarter ending June 2019. This is traced to various factors including weak global demand, delays in GST refunds and liquidity crunch in the market. Besides the general slowdown, removal of GSP benefits by US has impacted gems and jewellery exports, since around 15% of exporters used to take the benefit of GSP last year. In fact, the industry lost the GSP benefit in stages. In 2007, the US removed benefits on gold jewellery articles due to the competitive need limitation clause. Exports of gold jewellery articles, gold chains, necklaces, neck chains, gold mixed links, etc stood at US$ 2.5 billion in 2007-09, and came down to US$ 1.78 billion by 2018. China gained during the period as its exports increased from US$ 2.78 billion in 2007 to a peak of US$ 3.66
30% 60%
Cut & Pol Diamonds*
Gold Jewellery
Gold Medallions & Coins
Coloured Gemstones
Silver Jewellery
Others (Pearls & Synthetic Stones)
Exports of Rough Diamonds
Others
Source: GJEPC, figures are provisional for 2018-19
EXPORTS DROPPED BY 10.32% YOY TO REACH US$ 9.2 BILLION IN THE QUARTER ENDING JUNE 2019
billion in 2013, before dropping to US$ 3.1 billion in 2018. But apart from these short-term causes, there are a series of other structural challenges, preventing Indian gems & jewellery exporters from exploiting their true potential in the international market. SKILL-MARKET GAP One of the major impediments to the growth of Indian gems and jewellery segment is the lack of skilled labour. Most of the workers are not adequately trained to adapt to the shift in production techniques from wax to metal moulds. Working with metal moulds tends to be tougher than working with wax techniques. Technologies like computer-aided design (CAD), 3D printing, electroforming and augmented reality have also become indispensible to the modern jewellery industry. Moreover, this kind of an occupation tends to be a generational one, with people continuing the craft of their forefathers. This supply of craftsmen across generations needs to be complemented by addition of a fresh pool of talent that is well-versed with the skills required in the present era. The on-the-job training model being leveraged by companies does help the new joinees, but it significantly increases the time required for training. The cumulative impact of all these factors is that India’s labour
August 2019 • India Business & Trade | 39
force tends to be less efficient than those of its counterparts like China, US & Sri Lanka. As Mr. Dharmendra of Gandhi Dhaam Jewellers Association says in his interaction with TPCI, “About 80-90% of the production of jewellery in India is done by craftsmen and manual labour. Not only does this drive the production cost up in India, there are also differences in terms of designs and quality.” MARKET-WISE SHARE OF INDIA’S JEWELLERY EXPORTS 1% 2% 3%
6%
8%
15%
65%
UAE
USA
Hong Kong
Singapore
UK
Australia
Others
Source: Department of Commerce; Data for 2018-19 for HS Code 7113 Artcls of jewellery and prts thereof; of prcs mtl/of mtl cld wth precious metal
Another major challenge faced by Indian gems & jewellery industry is the enormous mismatch between demand & supply arising from the inability to keep up with changing jewellery trends in the international market. For instance, while in India there is a great demand for temple jewellery and ornaments made out of coloured gemstones, across the world there is a growth in consumer preference for branded jewellery having demure designs. The lack of brand value seriously erodes the value of Indian jewellery makers in international markets. Further, there is a paucity of design development centres, due to which exporters face challenges in meeting the demands of their international clientele. The next major obstacle is the heavy dependency on other countries for raw materials. For instance, India imports rough diamonds & raw pearls from Belgium, UK, Israel and UAE. Gold jewellery is also imported from Switzerland, South Africa, the UAE and Australia. Measures like the recent hike in import duties in the latest budget from 10% to 12.5% will have an adverse impact on consumer demand as the raw material will be costlier.
40 | India Business & Trade • August 2019
“ABOUT 8090% OF THE PRODUCTION OF JEWELLERY IN INDIA IS DONE BY CRAFTSMEN AND MANUAL LABOUR.” REFORMING THE SECTOR Technological interventions like establishing jewellery parks in manufacturing zones (eg Mumbai & Kolkata), having mega common facility centers & support by local government/institutions will go a long way in bolstering trade. Technologies such as 3D printing & electroforming will also play a catalytic role in making India a hub for jewellery producers. We also need to focus on skill development of our labour and create sufficient capacity of manpower that is trained in the latest manufacturing techniques and processes. Standardisation of technology
will also help in establishing the international credibility of gems & ornaments of India. Franchising of major Indian jewellery outlets and spending more on their marketing will be helpful. Another strategy could be to establish a connection with international consumers by diversifying their design capabilities. Further, injecting liquidity in the banking system would give a much needed boost by addressing the problem of cash crunch and enabling it to indulge in capacity expansion. Another good idea is to allow duty-free sales of gems and jewellery from SEZs/EOUs to DTAs, as suggested by Baba Kalyani Committee. Currently, such sales attract a duty of 15%. Overdependence on few markets like UAE and US can be reduced by actively exploring new markets and adapting the product offering
E-COMMERCE GIANT ALIBABA HAS ALREADY EXPERIENCED SUCCESS IN MARKETING OF INDIAN GEMS & JEWELLERY
to meet their specific demands. Pramod Kumar Agarwal, Chairman, Gems & Jewellery Export Promotion Council of India, comments, “When it comes to marketing plain gold jewellery, India needs to expand its presence from South Asia to the white skinned community (Europe). It should go beyond the US which imports about US$ 1.5 billion from India & establish itself in other markets also. India doesn’t even feature among the top 5 producers of imitation jewellery; and faces stiff competition from China.” A major non-tariff barrier is that the Indian system of hallmark is not accepted in countries like the UK & Bahrain and the products have to be re-stamped according to the criteria that are prevalent there. Other regions like Dubai & Hong Kong are currently acting as intermediary markets for gems & jewellery. Free trade agreements (FTAs) can play a great role in enhancing exports if India plays to its strengths. For instance, FTAs for gold have not been too fruitful, since melting of imported gold changes its character, acccording to Pramod Kumar Agarwal. However, he further adds, “On the other hand, the FTAs signed with countries like Malaysia & Thailand have been advantageous for diamonds as they are markets for the same. Similar trade pacts need to be signed in the future for diamonds and coloured gemstones.” The sector can also benefit from a stronger go-to-market approach,
EXPORTS OF GEMS & JEWELLERY 37.00 36.00 25.00
36.30
35.51
34.99
34.00 32.76
32.63
33.00 32.00
30.96
31.00 30.00 29.00 28.00
2013-14
2014-15
2015-16
2016-17
Source: GJEPC, Figures in US$ billion
2017-18
2018-19
INDIA’S GEMS & JEWELLERY SECTOR AT A GLANCE here are more than 300,000 T players in India’s gems and jewellery market. A majority of these are small players. old jewellery constitutes G around 80% of the Indian jewellery market. I ndia’s gems and jewellery sector contributes about 7% to India’s GDP, 15% of merchandise exports and is a source of livelihood for over 4.64 million employees. I n 2018, the largest importers of Indian jewellery were UAE, US, Belgium, Russia, Singapore, Israel, UK Hong Kong, Latin America & China.
especially via the e-commerce route. In fact, e-commerce giant Alibaba has already experienced tremendous success in marketing of Indian gems and jewellery through its platform, and has identified it as the “most in demand segment”, especially in Hong Kong, UAE and US. Alibaba provides a huge platform with 10 million active buyers from 190 countries. Cross border e-commerce is still miniscule in India, with exports of US$ 1.2 billion in FY 2018-19 out of a global opportunity of US$ 450 billion. The government is exploring a holistic mechanism for crossborder e-commerce trade. This can be a vital means of support to over 300,000 gems and jewellery players in India, helping them exploit greater demand in overseas destinations.
August 2019 • India Business & Trade | 41
PRAMOD KUMAR AGRAWAL
If US restarts GSP, it will help exporters Pramod Kumar Agrawal, Chairman, Gems & Jewellery Export Promotion Council speaks about the challenges faced by India’s gems & jewellery industry and opportunities for export diversification and value addition in this exclusive interaction with IBT.
IBT: How is India placed vis-avis competition in the gems & jewellery exports and what are the major market opportunities/ competitive threats going forward? Pramod Kumar Agarwal: India enjoys a great position in the global gems & jewellery segment, when it comes to the cutting & polishing of diamonds. However, it has not yet made great strides in the luxury or branded jewellery sector. When it comes to marketing plain gold jewellery, it needs to expand its presence from South Asia to the white skinned community (Europe). It should go beyond the US, which imports about US$ 1.5 billion from India & establish itself in other markets also. At the same time, it needs to tap the international market for silver & imitation jewellery. India doesn’t even feature among the top 5 producers of imitation jewellery in the world; and faces stiff competition from China. Given the recent US-China trade tensions, US has emerged as a potential market for India since India can fill the void created by the China and has the potential to export jewellery worth up to US$ 3 billion to US alone. India’s market penetration into Middle East can also be a major source to enhance the exports of gems & jewellery. Some of India’s large gems & jewellery retailers have, in fact, established their presence in regions like the Middle East, Singapore, US & Far East. IBT: What are the major market access/structural challenges faced by Indian exporters in international markets? Pramod Kumar Agarwal: One major challenge faced by Indian exporters is the low buying capacity in a major part of Africa owing to the poor standard of living, sparse population & the dismal state of their economy. Another thing is that India’s GSP status has been terminated in the US. If India can somehow convince the US to restart the scheme, it will be of immense help to the gems & jewellery exporters.
42 | India Business & Trade • August 2019
There’s also the problem of high local taxes like GST & VAT in countries like Italy which needs to be addressed when doing FTA negotiations. Another major nontariff barrier is that the Indian system of hallmark is not accepted in countries like the UK & Bahrain and the products have to be restamped according to the criteria prevalent there. Other regions like Dubai & Hong Kong are acting as intermediary markets for gems & jewellery. Also, India does not gain much in the FTAs signed for gold and they should be discouraged. Imported gold is often melted here, which changes its character. On the other hand, the FTAs signed with countries like Malaysia & Thailand have been advantageous for diamonds as they are the markets for the same. Similar trade pacts need to be signed in the future for diamonds and coloured gemstones. IBT: What major reforms is the gems & jewellery industry seeking within India to boost its business prospects? Pramod Kumar Agarwal: One of the hurdles in doing gems & jewellery trade in India is the difficulty in ease of doing business, owing to the kind of regulatory
FTAS WITH COUNTRIES LIKE MALAYSIA & THAILAND HAVE BEEN ADVANTAGEOUS FOR DIAMONDS AS THEY ARE MARKETS FOR THE SAME. system present here. Another problem is that the jewellery is being made using imported raw materials, which drives up the compliance burden and thus the production costs and impacts our exports. At the same time, owing to problems like frauds, the banks in India have become reluctant to offer credit to the industry. Infrastructural bottlenecks, too, act as roadblocks to trade.
Technological interventions like establishing jewellery parks in manufacturing zones (eg Mumbai & Kolkata), having mega common facility centers & support by local government/institutions will bolster the trade. IBT: What measures need to be taken to boost India’s trade in gems & jewellery in value terms across markets? Pramod Kumar Agarwal: Jewellery promotion needs to be strengthened at an international level. We need to add brand value to our gems & jewellery. Some steps are already being taken in this regard. For example, we’re reaching out to industry stalwarts like the World Gold Council in order to reach out to less tapped regions like China, US, Japan, Europe & Middle East. There should be a ‘design connect programme’ to keep up with international trends & to add value to our gems & jewellery. along with exhibitions & store-based promotions of our gems & jewellery. At the same time, we need to invest in the skill development of our craftsmen. We’ve collaborated with the National Skill Development Council. Besides this, we have also set up a Gem and Jewellery Skill Council of India.
August 2019 • India Business & Trade | 43
FOCUS MARKET RUSSIA
44 | India Business & Trade • August 2019
Legacy connections, new beginnings Despite a rich history of friendly relations and mutual cooperation in global forums, IndiaRussia trade remains well below its true potential. Agreement on a free trade zone between the Eurasian Economic Union (EAEU) and India, is expected to help increase the bilateral trade with Russia to US$ 30 billion by 2025. BY ABHISHEKH JHA
R
ussia’s economy continues to surge at a decent pace, supported by global growth and an improved macro policy framework. Real GDP growth rate at 2.3% in 2018 surpassed expectations. This was mostly due to higher oil prices, better implementation of construction projects and Russia’s hosting of the FIFA 2018 World Cup. However, the medium-term outlook remains modest at between 1.4% and 1.8% for the period 2019–21, reflecting lower oil prices and a predicted slowdown in global trade. Government initiatives are aimed at education, health and infrastructure, which have the potential to lift growth. Concentrating on competition in the domestic market remains key for achieving higher productivity. Although the current expectations of average annual GDP growth at around 1.7%, by itself will not help Russia effectively tackle its poverty situation by 2024, this goal could be better achieved by an additional reallocation of about 0.4% of GDP annually through social assistance and transfers. Inflation is forecast to accelerate in 2019 on the back of the increase in value added tax rate and rouble depreciation pass-through but will return to the central bank’s target of 4% in 2020-21. The forecast of a narrower external surplus reflects lower oil prices and a pickup in import spending. Stable economic growth, rise in wages in the private sector, and the
TOP TRADING PARTNERS OF RUSSIA IN 2018
Russia’s importing partners World
Import values in US$ billion
238.16 World
China
Export value in US$ billion
449.34
52.21 China
Germany
56.04
25.51 Netherlands
USA
43.47
12.68 Germany
Belarus
34.09
12.20 Belarus
Italy
21.82
10.59 Turkey
France
21.34
9.68 South Korea
Japan
17.83
8.82 Poland
South Korea
16.56
7.01 Italy
Ukraine
Product label
Export destinations of Russia
5.46 Kazakhstan
16.40 12.92
Source: ITC Trade Map
TOP IMPORTS OF RUSSIA, IN US$ BILLION
All products
Imported value in 2018 238.151
Commodities not elsewhere specified
7.054
Telephones for cellular networks
Medicaments consisting of mixed or unmixed products Commercial Vehicles/SUVs
6.292 5.954 2.709
Data-processing machines
2.208
Automobiles/Small Cars
1.847
Aluminium oxide (excluding artificial corundum)
2.146
Parts and accessories of bodies for tractors, motor vehicles
1.820
Bodies for motor cars and other motor vehicles principally designed for the transport of persons
1.790
Appliances for pipes, boiler shells, tanks
1.493
Machines for the reception, conversion and transmission or regeneration of voice and image recognition
1.597
Processing units for automatic data-processing machines
1.449
Source: ITC Trade Map
August 2019 • India Business & Trade | 45
indexation of pensions to inflation should support disposable incomes and contribute to a gradual decline in the poverty rate in 2019-21. However, many Russians still lack formal employment, and a number of households remain close to the poverty line. INDIA-RUSSIA RELATIONS Both governments have long viewed their bilateral trade as well below its optimal potential, with the only longterm way of rectifying this through having a FTA. They have set up a joint study group (JSG) to negotiate the specifications of an agreement. A final agreement would be signed between India and the Eurasian Economic Union, of which Russia is a part (also including Kazakhstan, Armenia, Kyrgyzstan & Belarus). Agreement on a free trade zone between the EAEU and India, is expected to help increase the bilateral trade with Russia to US$ 30 billion by 2025. This agreement would help enhance market access by promoting JVs & technical collaboration, reducing import duty/import tax benefits, unified customs certification, mutual recognition of quality standards and also a gateway to Europe. Investments will also get promoted through joint international projects, improvement in transportation and logistics, a better visa regime and execution of joint international R&D projects.
INDO-RUSSIA BILATERAL TRADE SNAPSHOT
Trade Indicators
Total trade
India’s exports to Russia
India’s imports from Russia
2016
2018
2.1
2.3
6.6
10.01
4.8
7.9
1.81
9.2 6.9
Source: ITC Trade Map, figures in US$ billion
India and Russia are currently engaged in negotiating services trade through regional trade agreement. From India’s perspective, transportation services, financial and other business services (which includes R&D, professional and management consulting and technical, traderelated, and other business services), travel services, personal, cultural & recreational services. Currently, India does not have trade surplus in most of these services. Also, India’s entertainment sector has historically enjoyed a special
INDIA-EAEU FTA CAN RAISE TRADE WITH RUSSIA TO US$ 30 BILLION BY 2025
46 | India Business & Trade • August 2019
2017
appeal in CIS countries especially Russia, since Indian cinema has had the advantage of accessibility over a long period of time, when penetration of Western cinema to the Russian market was limited. INDO-RUSSIA BILATERAL TRADE Russia was India’s 30th largest trading partner in 2018-19. India’s exports to Russia stood at US$ 2.4 billion, while imports reached US$ 5.8 billion, leading to a trade deficit of US$ 3.4 billion. Major products exported by India to Russia include medicaments, mobile telephones, tea, frozen shrimps & prawns, commercial vehicles, bovine meat and fresh grapes. Similarly, major products India imported from Russia include unworked diamond, crude petroleum oils, silver, coal, medium oil & preparations, fertilisers and newsprint in sheets. Military-technical cooperation remains robust, as Russia is a source of over 60% of India’s
POTENTIAL PRODUCTS FOR INDIA TO EXPORT IN RUSSIA Product categories where India can explore potential for export enhancement to Russia #300490 Medicaments (Mixed or unmixed products for therapeutic or prophylactic purposes)
#020230 Frozen (Boneless meat of bovine animals)
#870322 Motor cars and motor vehicles (For transport of persons)
#870899 Parts and accessories, for tractors, motor vehicles Transport of ten or more persons
#401120 New pneumatic tires, of rubber (Used for buses and lorries)
#300420 Medicaments containing antibiotics (Transdermal administration, Retail Use)
#240120 Tobacco, partly or wholly stemmed or stripped, otherwise unmanufactured
#721049 Flat-rolled products of iron or non-alloy steel (Width of >= 600 mm)
#640391 Footwear with outer soles of rubber, plastics or composition leather
#281820 Aluminium oxide (excl. artificial corundum)
#271012 Light oils and preparations of petroleum or bituminous minerals
#610910 T-shirts, singlets and other vests of cotton, knitted or crocheted
#620342 Men’s or boys’ trousers, bib and brace overalls, breeches and shorts (Cotton)
#260111 Non-agglomerated iron ores and concentrates (excl. roasted iron pyrites)
#230400 Oilcake and other solid residues (From extraction of soya-bean Oilcake and other solid residues)
#711319 Articles of jewelry and parts thereof (Precious metal other than silver)
#390210 Polypropylene (in primary forms)
#= HS Code
defence purchases. But trade has stagnated at around US$ 9-10 billion for the past few years, which remains a matter for concern. External Affairs Minister Shri S. Jaishankar held discussions with Russian Deputy PM Yury Borisov on Jully 22, with the focus being on collaboration in trade, energy and space. Reiterating their commitment to increasing bilateral trade to US$ 30 billion by 2025, the two leaders agreed to take up relevant measures including expediting negotiations on India-EAEU FTA, examining nontariff barriers on either side, and finalising a joint study. The Russian Ministry of Economic Development has introduced ‘Single window Service’ to facilitate easy flow of investments by Indian companies, which will help in achieving the mutual trade and investment target. Some of the significant sectors identified include heavy engineering, pharmaceuticals, hydrocarbons, mining, gems & jewellery, chemicals, fertilisers and food processing. The 7,200 km International North- South Transport Corridor (INSTC) is a multi-mode transport network linking the Indian Ocean and Persian Gulf to the Caspian Sea via Iran, and onward to northern Europe via St. Petersburg, Russia. This route is far better compared to the much longer and costlier Suez Canal that India used earlier to transport goods to Russia. This will help connect India with Russia within 16-21 days at competitive freight rates leading to development of trade on the INSTC. Estimated capacity of the corridor is 20-30 million tonnes of goods per year. A new area of focus identified under strategic approach to boost trade and investment is Arctic region oil and gas. Russia has offered India access to the area that it owns in the resource rich Arctic region, access to the Northern Sea Route as well as more supplies of natural gas and joint development of gas fields to help meet India’s growing energy needs. India is also actively looking to attract Russian investments in planned future city gas networks across the country.
August 2019 • India Business & Trade | 47
EXPORTER PROFILE
A blessing from the Himalayas Sareen Impex made a timely entry into pink salt, and successfully pitched its benefits when there were few takers. Today, the product is in great demand across markets. BY NIKHAAR GOGNA
S
ituated in the quaint city of Amritsar, the city that’s home to the enchanting Golden Temple, Sareen Impex has come a long way from being a rice mill set up in 1976 by Jagiri Lal Sareen to being the largest importer and supplier of premium grade pink Himalayan salt in India. With a legacy in agri-business across the last 3 generations of his family, Mr. Rohit Sareen was propelled by an interesting observation. He noticed that while there were healthy alternatives for almost everything in the food segment, salt (the main condiment of almost every food product�), continued to be neglected by the industry. This inspired him to embark on the journey to being an eminent producer of rock salt. Pink salt is believed to be a form of salt - uncontaminated by any environmental pollutants and chemical components. It is associated with a plethora of health benefits such as improving digestion, stabilising blood pressure, promoting weight reduction, boosting immunity, reducing stress, etc. Even Ayurveda, the ancient Indian science of medicine, notes its benefits. This negligence towards the health benefits of pure Himalayan salt is now being replaced by a rising awareness about its medicinal value & prompting greater numbers of youth to incorporate it in their diet. This generational shift in dietary habits towards healthier food
48 | India Business & Trade • August 2019
choices coupled with an increase in spending capacity has been a major factor in keeping the business running successfully. But the success story of Sareen Impex has not been bereft of its initial hiccups & challenges. The first major challenge in this venture was finding a source for this product, which is found in abundance in Pakistan. But the strained relations between India & Pakistan led to a bumpy ride for procuring salt. After sustained efforts, Sareen managed to find the right business partners in Pakistan who he could trust. Armed with this “blessing from the Himalayas”, he was assured of a stable source for pink salt. The next challenge was that most manufacturers of this product were producing it in a very unhygienic and unhealthy atmosphere. The founders decided to have an indigenous manufacturing plant, which would produce rock salt through a hygienic and healthy process. It motivated Mr. Sareen & his partner to set up a new production facility, keeping in view international health parameters & standards. This led to the setting up of a retail packaging unit in Amritsar, just 180 miles from Pakistan’s Khewra Salt Mines.
“OUR EXPANSION FOCUS IS TOWARDS BIG SUPER CHAINS , HYPERMARKETS AND CASH & CARRIES.”
ROHIT SARIN Director, Sareen Impex Pvt Ltd
The company first targeted India itself, where it sought out potential bulk buyers in the health food industry. Over time, they successfully established a significant overseas presence in countries like Canada, US, South America, Nigeria, Netherlands, Ukraine, Israel, Russia, UAE, Malaysia, Thailand and New Zealand. Sareen and his team made a strong pitch on the health advantages of the product to distributors of health food and organic products. Besides this, they also got in touch with traditional food distributors of Indian origin, who helped them connect with stakeholders across the globe. Trade exhibitions also played a key role in helping them engage with international communities. Competition is particularly stiff from countries like Pakistan. However, Rohit Sareen says that they have been able to carve a niche as their brand is associated with quality, timely commitments and service & has earned the trust of its consumers. Moreover, salt does not attract significant tariffs, either in the domestic market & internationally, as it is regarded as the common man’s product. Of course when it comes to India, credit for this goes to the days of the Dandi March, when Mahatma Gandhi ardently campaigned against the British government to remove all taxes on this product. The trend has continued ever since. Currently, Sareen Impex is focussing on bulk supplies to prominent companies across the globe and retail packaging for well-known brands. It is also agressively looking to expand into large super chains and hypermarkets.Rohit feels that the government should also play a major role in propagating the advantages of pink salt, which would go a long way in giving a boost to the rock salt industry.
ROCK SALT FACTS
The oldest known rock salt mine is situated in Xiechi Lake, China and dates back to 6,000 BC.
Rock salt is commonly known as halite. It forms isometric crystals due to its chemical composition.
While typically rock salt is colourless or white; it may also be light blue, dark blue, purple, pink, red, orange, yellow or gray. This depends on the presence of impurities and structural anomalies in the crystals.
FARM TO FORK
Regarded as the ‘King of Nuts’, the cashew is a poor man’s crop but a rich man’s food. For a poor farmer, cashew is a source of income and livelihood and for the consumer, it’s a status symbol. India is a global leader in terms of net production of cashew. Research and development work carried out in India has enabled the country to maintain high standards in terms of raw cashew production & processing. BY SAMEER PUSHP
Cashew- health nut of the century India being a leader in the world cashew economy in raw nut production and kernel processing is also among the largest suppliers of cashew kernels to major world markets. The production of raw cashew nuts in India during 201718 increased to all time high at 8.17 lakh metric tonnes and registered growth of 4% compared to previous production of 7.79 lakh metric tonnes and 21% increase compared to the 201516 production of 6.70 lakh metric tonnes. Innovative methods adopted
for the concurrent development of technology, quality planting material & transfer of technology, through a highly effective customized training programme for farmers has yielded visible results. Cashew is the ‘health nut of the world’ grown in poor soil, which is marginal & sub-marginal tracts of land, where no other plant grows. Traditionally, cashew was never grown or cultivated, no fertilizer use was to be applied and no irrigation was done. However, research has shown that normal agricultural
practices such as manuring, irrigation and weeding almost double the yield of cashew. RAW CASHEW SCENARIO In the raw nut trade, India buys nearly 95% of available raw nuts. India has also become the largest consumer of processed kernels in the last decade, considering the availability of the raw nut (carryover stocks) for processing and local consumption. Due to shortage of sufficient quantity of raw cashew nuts and higher prices for raw cashew nuts in the international market, the industry is facing a demand - supply gap, as total requirement of raw cashew nut is estimated at 17 lakh metric tonne. NUTRITIOUS NUT Advances made by India in the field of research and development in cashew production are also of the highest calibre, unmatched by other producing countries. Nutritionally, cashew occupies the top of the food pyramid. Its high selenium content, the richness of polyunsaturated fats and other useful phytochemicals make cashew one of the most sought after tree nuts. Its exotic taste enhances its demand further. Vietnam’s entry into the world cashew market is noteworthy. It has become the third largest producer, processor and exporter of cashews, next only to India and Brazil. Vietnam also has adopted India’s tactics to purchase raw nuts from Africa to supplement their domestic production. In order to remain a leader in this dynamic market, India’s focus is on increasing domestic production and productivity especially in the organic sector. Enhancing private sector involvement in agriculture extension would enhance both the quantity and quality of services offered. Cashew producing states like Kerala are facing competition as older trees are getting less and less productive. PROCESSING PRODUCTS India can develop suitable technologies for conversion of fruits into wine and other
INDIA PLANS TO RAISE CASHEW PRODUCTION, ESPECIALLY IN THE ORGANIC SECTOR similar products and probably its utilisation as cattle feed, to provide additional income to the farmers. Development of cluster activity would lead to commercial leveraging of this crop. Cashew fruit (apple) is one of the richest sources of vitamin C and proteins. It also finds importance in certain localized areas as an astringent in the Ayurvedic system of medicine. GOVERNMENT SUPPORT With regard to steps for increasing production of raw cashew nut, Ministry
of Agriculture and Farmer’s Welfare under Mission for Integrated Development of Horticulture and Rashtriya Krishi Vikash Yojana have drawn up strategies to increase domestic production by massive area expansion of cashew and replacing of senile plantations with high yielding varieties. The cashew industry in India can grow manifolds with Governmentindustry participation. The role of the middleman should be diminished and Government procurement system should be strengthened to motivate farmers to grow this crop on a sustainable basis. The need of the hour is that the farmers, government and the processing industry work hand-inhand in the areas of production, processing and marketing, ensuring a better farm gate across the world market and enhanced prices to farmers.
SANJAY GOEL
Tea quality remains a sustained concern In this interaction with Sneha Varma, Sanjay Goel, Founder & CEO, Teayamo, details the journey of Teayamo and trends in the global tea industry.
IBT: What was your inspiration behind launching Teayamo? Sanjay Goel: The global consumption of tea is forecasted to reach to around 300 billion liters by 2021. On the other hand, global black tea production this year has also risen. India is almost topping the global black tea production as it stands as the second largest producer of tea in the world. Certainly the consumption is rising and so is the production.
Thus, tea companies are proliferating across the globe. However, the quality remains a question. There still lies a dire need of accentuating the production and brewing of real good quality tea. Owing to this fact, we came up with Teayamo, a healthy tea brand that caters to a diverse consumer base in India and overseas. We wanted to bring the best of authentic Indian tea directly from the gardens of Assam, Darjeeling and Nilgiri. As
52 | India Business & Trade • August 2019
explained earlier, the competition is tough. So we decided to leverage the USP of India i.e., Ayurveda, to make our tea unique, sapid and all together healthy. Thus, Teayamo is synonymous with a healthy blend of fresh Indian whole leaf tea and ayurvedic herbs. IBT: What are your main products and target markets? Also, what are the USPs of your product offering? Sanjay Goel: Tea is forever, we just upgraded it! With the finest tea leaves carefully handpicked from the gardens of Assam and Darjeeling, Teayamo endows the customers with its prominent product, the Masala Black Tea. The heady aroma of indigenous spices like sweet cinnamon, spicy black pepper & clove, mingling well with the refreshing fragrance of cardamom and therapeutic ginger gives Teayamo tea the real taste and essence of Indian Herbal Tea. Besides, with a number of delectable flavours, Teayamo also presents a wide range of natural & pure herbal green teas that serve various purposes viz., relaxation, weight loss and immunity building. Collected right from the kosher gardens, they are brewed with well-
proportioned herbs as chamomile, rose petals, garcinia cambogia, lemon grass, coleus and mint. This miraculously healthy green tea, brewed on the principles of Ayurveda, detoxifies, relaxes your mind, induces better sleep, and keeps a person hale. All the tea that we produce are 100% natural and mostly whole leaf, with no added flavours (not even nature identical flavours) and pure herbal ingredients. They have no preservatives, chemicals, or dusts. Our packaging is reusable and hence environment friendly. Currently, apart from catering to domestic needs, we export some of our tea to UK, Middle East and Africa. We look forward to tap the Chinese market as it is the world’s largest consumer of tea. In fact, “tea making” finds its roots in China. IBT: What are the challenges you face in penetrating the market? Sanjay Goel: There is a perpetual myth about tea that its intake is unhealthy, or it makes you dark and so on…So, amidst the issue of circulating degraded quality of tea in the market, educating the masses remains a big challenge for us. It is not the tea that is harmful for intake, but the household tea making process that we Indians follow which is hazardous, as it makes the tea acidic. Thus, we have to educate people about the right way of preparing daily household tea, first, and then about the inherent detoxifying properties which it carries. Tea, when taken right, relaxes and rejuvenates you and keeps you healthy and cool, all together. Also, a recent trend of using tea bags has hit us hard. Yes, it is comfortable and easy to use, but unfortunately, it is not that easy for the environment to decompose it well. In fact, the packaging used for carrying tea is completely nondecomposable, that too for centuries. I would suggest that loose tea leaves are a much better and responsible choice.
IT IS NOT THAT EASY FOR THE ENVIRONMENT TO DECOMPOSE TEA BAGS. LOOSE TEA LEAVES ARE A MUCH BETTER CHOICE.
IBT: Have you participated in IndusFood earlier? Please share your experience. Sanjay Goel: Yes. Big shots in the market get the intended mileage more or less easily. But it is addressing the needs of nascent players where promoting trade comes into the picture! Trade shows such as IndusFood are facilitating the small players also to jump into the run. It not only provides you a concrete platform to find valuable buyers for your products, but also gives good mileage to your brand. Being a part of IndusFood in earlier editions was a blissful and appeasing experience. Start-ups are given special attention and discounts, besides catering to topnotch long-time players. This is how it is different and unique. IBT: How do you see the growth in the tea industry from the global perspective? Sanjay Goel: World production of black tea is projected to rise annually by 2.2% over the next decade to reach 4.4 million ton in 2027, reflecting major output increases in China, Kenya and Sri Lanka - with this China would reach the output levels of Kenya, the largest black tea exporter in the world. Global output of green tea is foreseen to increase at a faster CAGR of 7.5% to reach 3.6 million ton in 2027, largely driven by China, where production of green tea is expected to more than double from 1.5 million tonnes in 2015-2017 to 3.3 million tonnes by 2027. According to Tea Board, India is the second largest producer of tea in the world and also accounts for the highest tea consumption globally. But, around 80% of the total tea produced in India is consumed by the domestic population. This very fact gives a room to novice players in the Indian tea production market to explore more.
August 2019 • India Business & Trade | 53
PRODUCT FOCUS
Power banks Why India needs to enhance its competitiveness across the entire value chain? BY CATR
A
huge demand for compact electronic gadgets such as laptops, smartphones and tablets along with high-speed 4G and 5G networks has driven the growth of the global power bank market. They have garnered immense popularity across a digital-hungry world due to their distinct characteristics – fast charging, durability, portability, multiple sockets, low cost, etc. Apart from that, the introduction of power banks with hydrogen and solar cells is expected to broaden growth prospects. The Indian power bank market is projected to reach US$ 250 million by 2023, exhibiting a CAGR of over 16% during the forecast period, on the back of growing government initiatives aimed at aiding the manufacturing sector and technological advancements leading to reduction in lithium-ion battery cost. Moreover, demand is anticipated to rise from consumers who travel for long hours and need to charge their devices on the go. China, Viet Nam, Germany, UAE and US are major export destinations for India. Exports of batteries from India, of which power banks are a subset, surged at a whopping growth rate of 45% in the last five years.
PRODUCT DETAILS HS CODE (BATTERY CHARGERS): 85044030 MARKET (GLOBAL): US$ 26.4 billion by 2023 MARKET (INDIA): US$ 250 million INDIA’S EXPORTS (2018-19): US$ 236.5 million
54 | India Business & Trade • August 2019
MAJOR EXPORT DESTINATIONS FOR INDIA: China, Viet Nam, Germany, US and UAE
However, India needs to address some critical challenges to strengthen its competitiveness. The first pertains to the raw material. Approximately 90% of lithium reserves are with Chile, Bolivia and Argentina. China is the largest exporter of lithium batteries as they have the requisite technologies and sourcing arrangements. India has not made a similar push in this area. Moreover, the enormous surge in India’s exports of batteries is partially due to rising wages in China. Thus, the labour-intensive work is being done in India, which is then designed in China. Hence for India, it becomes crucial to expand its engagement across the value chain, if we want to a greater part of the US$ 26.4 billion market in the coming five years.
What’s the latest
@ TPCI
July 2019
Food and Drink Technology (FDT) Africa
T
PCI, with the backing of Ministry of Commerce and Industry, orchestrated an India Pavilion at the “FDT Food and Drink Technology Africa” during July 9-11, 2019. The pavilion included 45 member exporters from
finished food product categories like confectionary, biscuits, chocolates, toffees, spices and rice. This interactive platform offered the participating companies the desired channels of access to the African market, which has
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1: Official inauguration of India Pavilion at FDT South Africa, 2019 with Dr. K J Srinivasa, CGI, Johannesburg, Shri Balbir Saini, CGI (Cultural), Johannesburg, Ms. Dain, Country Head – Messe Munchen South Africa and Mr Sandip Das, Director, TPCI 2 & 3: Pictures from the India Pavilion organised by TPCI at FDT Africa
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a tremendous untapped trade potential in the food & beverages segment. This was a great opportunity for the diverse players in F&B industry to showcase the latest innovations and technologies for safe, hygienic and efficient production and packaging of food & beverages. This occasion also enabled industry stalwarts to explore tailor-made solutions for the African market. South Africa imported US$ 5.7 billion of Food & Beverages in the year 2017, wherein India exported around US$ 229.6 million & captured around 4% of South Africa’s F&B market. Indian exporters have a great potential to sell rice, wheat, palm oil and more in the markets of South Africa. During the event, member exporters held a lot of fruitful meetings with potential buyers. The meetings generated over 70 inquiries with potential for long term business partnerships.
Event: Food & Drink Technology, Africa Sector: Food & beverages Date: July 9-11, 2019 Venue: Gallagher Convention Center, Johannesburg, South Africa
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August 2019 • India Business & Trade | 55
IndusFood 2020 Ahead of TPCI’s flagship trade fair IndusFood in January 2020, TPCI’s team engaged in a series of interactions with potential participants in the food & beverage industry. 01
July 24, 2019 Deepak Vohra, Sr. Deputy Director, TPCI, met with Edwin Naidoo, MD, Jenrad Corporation (Pty) Ltd, Kgosi Motsoane, International Trade Manager, Wesgro & Denan Kuni, Head, International Trade and Development, Wesgro Cape Town to invite them to IndusFood 2020.
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July 22, 2019 Sachin Kumar, Deputy Director, TPCI invited various associations present during his meeting with Shri Sujit Ghosh, Consulate General of India, Guangzhou, to IndusFood 2020.
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July 19, 2019 Looking forward to be a part of IndusFood 2020, Mitesh Doolabh, Director, Ambe Enterprises CC, S. Africa, exchanged notes with Deepak Vohra, Sr. Deputy Director, TPCI.
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July 29, 2019 Ms Nupur Kumaria, Assistant Director, TPCI, engaged in a rendezvous with Mr. Jarnail Singh, CEO, Global Choice Foods, Canada, ahead of IndusFood 2020.
56 | India Business & Trade • August 2019
Department of Commerce Ministry of Commerce and Industry
FOOD CHEM
India’s Largest B2B Sourcing Trade Fair for Food & Health Ingredients 08 | 09 | 10 January, 2020 India Exposition Mart, Greater Noida
Key FeaTureS
Buyer SegmenT
500+
Global Hosted Buyers From 40 Countries
1000+
Top Food Processers & Distributors from India
Co-located Trade Shows
• • • • • • • • •
Dairy Bakery and Confectionary Sweets and Snacks Ready to Cook & Ready to Eat Spices Pulses, Grain, Rice, Sugar & Oil Tea & Coffee Beverages FMCG
Contact anKIT goeL mobile: +91-8287900311 email: exhibitor.ifc@tpci.in
VISHaL TaLIa mobile: +91-9205883435 email: info.ifc@tpci.in
www.indusfoodchem.co.in Trade PromoTIon CounCIL oF IndIa 9 Scindia House, 2nd Floor, Connaught Circus, New Delhi - 110001, India Phone: +91 (11) 40727272 | Email: tradefair@tpci.in
See you at IndusFood-2020
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& 09 January, 2020
#IndusFood