Indian leather industry hit by EU economic crisis

The economic crisis in the European Union, a major market for the Indian leather industry, has hit the industry which is looking forward to short term support from the Government, according to Mr M. Rafeeque Ahmed, Chairman, Council for Leather Exports (CLE).

Europe accounts for over 66 per cent of Indian leather products exports, estimated at about $3.85 billion. While exports grew 27 per cent in the first seven months of the current financial year, the second half has been hit.

EXPLORING OTHER POTENTIALS

The industry is exploring other potential markets including Russia, Japan, Australia, Canada, Africa and Latin America. But it has to consolidate and grow in the European market.

Addressing the inaugural session of the India International Leather Fair 2012, he said the CLE, which is a part of the Commerce Ministry, while focusing on marketing policy, is also looking at human resources and infrastructure development for the industry.

PLANS SKILL COUNCIL

Along with the National Skill Development Corporation it hopes to set up a sector skill council for the industry to train two million workers by 2020 and develop a curriculum for 50 shop floor operations.

The CLE will soon submit its proposals for infrastructure development for the 2012-2017 (XII Plan) period.

SUPPORTIVE MEASURES

The industry hopes the Union Budget for 2012-13 will include supportive measures including interest subvention on rupee export credit, service tax exemption on tanning operations and common effluent treatment plants and a Rs 90-crore fund for construction of hostels for women employees and enhancement of duty free import scheme.

The industry will make its representation at the pre-Budget meeting on February 3, he said.

EXPORT EARNER

The Union Minister of State for Finance, Mr S.S. Palanimanickam, said the Centre accords high priority for the development of this sector, which is a major export earner and employment generator.

In the last seven years, except for 2009-10, the industry has sustained a growth of over 10 per cent.

Aggressive marketing, modernisation and attracting investments – domestic and foreign – hold the key to the growth of this sector.

The 27th IILF inaugurated today has over 425 companies including 139 overseas players from 23 countries showcasing their products and services till February 3.

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Hard times in the west tell on Indian exports

India's exports, which started to look up after the 2008 global crisis, are again troubled because of the problems in Europe and the slowdown in the US. The two regions together take in nearly 40 per cent of India’s exports. India, which was cruising along towards $300 billion is exports in 2011-12, is likely to miss the target.

With just two months left in the financial year, it is unlikely exports will go beyond $280 billion, according to exporters and export promoters. The 2013-14 target of $500 billion also seems difficult. Engineering and apparel exports in particular have been badly affected.

“Reaching $500 billion in two years needs a compounded annual growth rate of over 29 per cent, which is a difficult task, considering that the euro zone crisis will take time to resolve. The impact has been seen in the past four months; very little improvement is expected going forward,” Rafeeque Ahmed, the newly-elected president of the Federation of India Export Organisations, told media.

The commerce ministry had earlier said a 25-30 per cent compounded annual growth was required to achieve $500 billion in 2013-14.

This meant exports of $300 billion in 2011-12, between $375 billion and $400 billion in 2012-13, and $500 billion in 2013-14. Now the government says it can at best achieve $360 billion in 2012-13; Fieo feels even this is ambitious and the final tally won’t be more than $325 billion.

“The world economy has become so erratic that one cannot predict. The engineering export target this year is $72 billion but will be $60 billion (when the year closes), the $500 billion target for 2013-14 will be an uphill task,” Aman Chadha, chairman of the Engineering Export Promotion Council, said.

Engineering exports dropped by 0.92 per cent in September, 6.66 per cent in October, 38.4 per cent in November and 31.1 per cent in December.

Even apparel exports have slowed and are unlikely to meet the $14 billion target this year. “The situation in Europe, which buys 55 per cent of our apparel exports, is going from bad to worse,” HKL Magu, vice-chairman of the Apparel Export Promotion Council, added.

Apparel accounts for 6 per cent of India’s merchandise exports; this ratio means $30 billion of the targeted $500 billion in 2013-14. But this will be more than the double the $12.6-13 billion the council hopes for this year. Sumeet Keshavan, financial controller of Gokuldas Exports, declined to comment.

Car exports too have slowed with Hyundai, the biggest exporter, registering just 5 per growth in exports between April and December; Maruti actually saw a drop of 17 per cent in car exports. “Europe is not doing too well but other non-European markets are doing much better. Overall, we expect exports to be flat this year, with our share in Europe coming down,” Shashank Srivastava, Maruti chief general manager of marketing, said. Europe’s share in Maruti’s export has come down from 80 per cent in 2010-11 to 35 per cent now. The company exported 147,575 cars in 2010-11. But the figure decreased by 17 per cent to 88,469 cars till December mainly due to Europe’s problems.

But the silver lining is that gem and jewellery, the third largest export product group, may not see any impact. “Europe is a very insignificant market, constituting less than 10 per cent of India’s exports of gems and jewellery. Any slowdown in Europe is unlikely to impact our exports and we hope to meet our target for this year,” Mehul Choksi, managing director of Gitanjali Gems, said.

Even the slowdown in manufacturing will have an impact, as the share of capital-intensive products had doubled to 54 per cent in 2010 when the share of labour -intensive goods was halved to 15 per cent. “Besides, the exchange advantage available to exporters in the past will no longer be there with the rupee gaining strength against the dollar,” said Ahmed.

Fieo will meet the finance minister on Tuesday to apprise him of challenges, the major ones being the high cost of credit, ranging between 11.5 and 13.5 per cent, when international rates are just 4 to 5 per cent. Some steps may be needed in the budget to arrest the slide.

“Besides, the centre must introduce GST… so that transaction costs come down. This will increase the competitiveness of Indian exports. There is also a need to extend interest subvention to all export items beyond March,” Ahmed added. Interest subvention is now given on handicrafts, handlooms, carpets and manufacturers in small and medium enterprises.

There is no direct correlation between world trade and India’s goods exports. But Indian exports have been in line with global demand in the past. For instance, world trade grew by 15 per cent in 2008 when India’s exports grew by 30 per cent. In 2009, when the world trade contracted by 22 per cent, Indian exports also declined by 15 per cent. In 2010 world trade rebounded by 22 per cent growth and India's exports surged by 31 per cent.

However, the World Bank has already revised its volume-wise growth of world trade downwards for 2012 to around 4.4 per cent, while the International Monetary Fund has projected just 4 per cent growth.

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Indian investment in Bangladesh garment sector to zoom

The investment by Indian companies in Bangladesh garment sector is bound to surge as Indian firms try to take advantage of the lower production cost in the neighbouring country.

It is estimated that Indian textile and garment companies have already invested Rs. 30 billion (US$ 600 million) in Bangladesh during the current fiscal 2011-12, and this investment is likely to rise significantly.

Last year, the Indian Government took a decision to permit import of 48 textile and garment items from Bangladesh at zero-duty. This has also contributed to the increase in investment by Indian firms in Bangladesh. Some Indian companies are even or relocating their production base to Bangladesh.

A major advantage to Indian companies investing in Bangladesh would be with respect to the cost of labour, as minimum wage there is just Rs. 1,700 compared to the minimum wage of Rs. 5,000 in India.

Garment imports from Bangladesh to India increased around three-times to US$ 22 million during the first six months of current fiscal.

Speaking to fibre2fashion, Mr. A Sakthivel, Chairman of Apparel Export Promotion Council (AEPC), said, “A lot of Indian companies have already invested and are going to invest more money in Bangladesh garment sector, because producing goods from Bangladesh will work out 20 percent cheaper for them.”

“The rise in Indian investments in Bangladesh, along with a surge in garment imports from Bangladesh is likely to negatively impact India’s garment exports. Moreover, Bangladesh companies may also enter and compete in India’s domestic market,” he added.

To protect India’s interests, he suggested, “The Government of India can do two things. First, the 10 percent excise duty on branded garments should be removed immediately. Secondly, the Government should insist that Bangladesh should use only Indian origin yarn or fabric to produce the garments which come to India.”

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Black money or legitimate export dollars: The big debate

It all seemed too good to be true. Between May and August last year, India's growth in exports rose at a dizzying pace every month. In July 2011, exports were $29.3 billion, 82% higher than a year earlier. 


Coming at a time when the world economy was widely seen to be slowing, what with unemployment in the US, and the problems in the eurozone, both key export markets for India, the export growth seemed an unexpected bonanza in an otherwise dismal economic climate. 

But serious doubts began to be raised about the numbers. There was near 80% export growth in sectors like engineering in 2010-11. And India's exports to certain tax havens didn't match the import figures reported by these countries.

Indeed it was the jump in transaction with countries like the Bahamas (a tax haven) which raised the suspicion that exporters were showing a higher value than what they actually received for their goods to camouflage the flow of black money stashed abroad back into the country.

The practice, known as mis-invoicing, has long been a standard practice to camouflage the movement of undisclosed cash across countries. But till recently, exporters were widely accused of under-invoicing. An exporter for instance may show Rs 5 for something that is really Rs 10, thus transferring export earnings to foreign accounts.

What exporters are being accused of now is actually trying to bring that undisclosed money back, by showing a higher value for their exports in their accounts than the true value, and inflating the export earnings. This is in the backdrop of increased government scrutiny of wealth stashed abroad.

There may well be errors in the export data, government officials are rechecking the numbers. Yet, there are compelling arguments to show that the export data 'scam' may not be as much of a 'scam' as earlier believed.

Galloping export growth amidst a weak global economy. It sounds more than a little fishy. Were exporters inflating their bills to bring back money stashed abroad earlier? 

Exports in the first half of 2011-12 grew by 44-82% every month, even as the global economy was weak. But rather than exporters cooking the books, there are more benign explanations. Those extraordinarily high figures were actually revised down later on, due to 'software' problems.

The government found a $9-billion error in export numbers reported in the April- November 2011 period due to miscalculations in the software. The revised export figures released this January show that the growth rates ranged from 23.7% to 60.8% till October. And as reported by The Economic Times earlier this week, the export numbers for 2010-11 may be revised down as well.

But there still seems to be a problem. After all July's export growth may not be 80%, but it's still 60%. Again, amidst a slowly growing global economy, that still seems far too high. Is there a way to cross-check these figures?

It sounds like a truism, but what India exports, another country imports. So here's one way to check the problem, if an indian exporter claims that he exported Rs 20-crore worth of car parts to, say, the US, it's possible to check US customs figures to see what the US customer told customs officials there, was it actually Rs 10 crore of car parts, Rs 30 crore? 

It's actually the latter. Imports from India as reported by India's partner countries (and compiled by the IMF) exceed exports reported by India by $1.46 billion and $4 billion in the first and second quarter of 2011 respectively. Also, imports from India reported by partner countries exceeded exports from India for each month up to August 2011. Thus, if anything, Indian exporters were claiming lower export figures, not higher. But since reported imports include costs of insurance and freight while exports exclude these items, these numbers aren't inconsistent.

Similar trends hold for 2010-11 as well which should dispel shadows of doubts being cast on India's high export growth rates reported in 2010-11. C Veeramani from Indira Gandhi Institute of Development Research (IGIDR) in a recently published Economic and Political Weekly (EPW) paper also shows that India's official export figures in 2010 were actually lower (mainly on account of freight and insurance costs) by $20 billion when compared to what the world as a whole had reported to the IMF as imports from India.

Moreover, the spikes and falls in the two series from 2002-10 match almost perfectly. "If there had been major problems with the official data, it wouldn't have picked up the trend as perfectly as reported by reporting partners," says Veeramani. The fact that the trends match also points to the fact that in general, India's official data collection mechanism may not be too error prone, he says. However, the government is taking a relook at at the numbers for this year and the previous one.

Earlier, Sajjid Chinnoy, India economist at JP Morgan, a financial services firm, had also concluded that "for calendar year 2010 and first quarter of 2011, there is not a single region where India's recorded exports are higher than partner region's recorded imports".

While he conceded that discrepancies in data do exist at the bilateral level, he says that the data mismatch between partner countries on the basis of IMF data has actually come down in 2010 as compared to 2002, when 25% of India's trading partners recorded lower imports than exports. In 2010, this figure was below 10%. This is due to systematic differences in trade reporting methods between countries.

Engineering exports grew 79% in 2010-11. But the largest engineering companies reported only a 11% growth in exports. Are the engineering export numbers for real? 

The problem is that the 22 listed engineering companies on the Bombay Stock Exchange represent only 20% of India's engineering exports according to the Federation of Indian Export Organisation (FIEO), the apex body of India's export promotion organisations.

The Kotak research report (which had first highlighted the disparity in numbers) had itself conceded that it is possible that the export growth in automobiles and metals for which data was suspect could be occurring at the small and medium companies' end, a fact that most sceptics chose to ignore.

"The rapid increase in engineering exports from MSMEs [micro, small and medium enterprises] is actually an eye opener and most of the large listed companies actually contribute insignificantly to exports as they cater mainly to the domestic market," says Ajay Sahai, director, FIEO.

One example he points to is that of auto components which witnessed a more than 35% export growth in 2010-11, all of which came from the small and medium sector. Even in the electronics sector, a lot of the export growth is taking place at the SME level. For instance, Deki Electronics, a Noida-based electronics components company says that it is only in the past two years that they witnessed a dramatic increase in exports from 10 to 25% of their turnover.

For sectors like petroleum (the fastest growing export sector which constitutes 17% of India's exports) where SMEs don't have a role to play, the exports reported by the companies matches almost perfectly with officially reported exports. In fact, IGIDR research shows that company reported data was actually $3.19 billion higher than official data in 2010-11. This provides further credence to the theory that without probing further into the export performance of SMEs, no conclusion about engineering export data can be made.

While the government reported a $15-billion error in engineering exports in the April-November 2011 period, the commerce ministry has also asked for the 2010-11 engineering export data to be looked at again. The government is also relooking at the inexplicably high growth rates in copper exports. According to a commerce ministry official, "We are relooking at the numbers and there may have been a mistake in the data collection." But there have been no results so far.

Exports to Bahamas surged to $2.2 billion in 2010-1 - a 1,000 fold jump in just two years. How did exports to a tax haven jump so dramatically? 

Based on data reported by all of Bahamas' trading partners to the IMF, Bahamas' total imports were estimated as $13.6 billion in 2010 billion (and not $2.8 billion as reported by Bahamas). This implies that the discrepancies in data are due to differences in definitions used to report trade data.

Petroleum consists of 90% of India's exports to the Bahamas. Veeramani points out that the IMF data manual states that the Bahamas doesn't report all products imported and exported that don't add to the wealth and material resources of the country. Companies like Reliance are using the Bahamas as a storing facility for their oil and this isn't getting reflected in Bahamas' own trade data as the oil is merely being re-exported to other countries.

However, this trade gets recorded in IMF data when all the partner countries report their exports to the Bahamas. In his EPW paper Veeramani says "...partner countries have reported petroleum exports worth $4.4 billion to the Bahamas in 2010, while the latter did not report any such imports". This implies that discrepancies in trade data with Bahamas are not unique to India and exist with other countries as well, mainly on account of oil exports.

In fact discrepancies in bilateral trade reported by partner countries has been a worldwide phenomena which India just seems to have awoken to. A 2010 UNDP report pointed to some of the reasons for widespread mismatches in data between countries as different price systems, different trade systems, and more importantly, the emerging issue of re-exports which is becoming common.

This happens when exports enter the customs of a country only to be shipped to further destinations. So when countries have different definitions on country of origin on the basis of which they report trade data with partner countries, discrepancies in data automatically emerge. For instance, the report gives re-exports via Hong Kong as plausible explanation for the persistent discrepancy in trade data between China and the US.

Exports and imports of container tonnage at ports have grown at a far slower pace than official export numbers. Why the difference? 

JP Morgan's Chinoy points out that these comparisons are wrong as export value data (in nominal terms) can't be compared to tonnage volume data (in real terms). When he compared container trade data (exports and imports) at major ports with real trade growth obtained from expenditure side GDP, the two are almost comparable at roughly 13%.

Moreover, according to Ajit Ranade, chief economist of Aditya Birla group, given the proliferation of private ports and increasing importance of air freight, no conclusions of export over-invoicing can be drawn on the basis of port traffic data anyway.

Given the new evidence, economists agree that the theory of export over-invoicing in the case of recent export figures is not a given. "There is now enough evidence to say that the export-overinvoicing theory is not credible," says KT Chacko, director, Indian Institute of Foreign Trade.

This is not to say of course, that problems don't exist, they certainly do, especially with the way the customs department collects export data. The $9-billion error in the April-November period also shows that the problems needn't be minor. But the 'black money' theory holds little water.

Countering the theory of export overinvoicing 

1) For all of 2010 and each month from March-August 2011, world imports from India as reported by the IMF exceeded India's exports to the world.

2) Listed engineering companies represent only 20% of India's engineering exports while the bulk is exported by SMEs. For sectors like petroleum where SMEs have no role to play, company reported export data matches almost perfectly with official figures.

3) Most of the Bahamas' oil imports are re-exported elsewhere. The Bahamas doesn't include these imports in its trade data. As a result, Bahamas reported $2.8 billion imports in 2010-11. But the IMF estimates it to be $13.6 billion, including re-exports.

4) Real trade growth from expenditure side GDP consistent with container trade data at major ports.

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Exim Bank to issue $5-bn fresh line of credit to Africa

Export-Import (Exim) Bank of India, the apex financial institution fully owned by the government of India, will be releasing a fresh line of credit to Africa in the next three years, according to bank’s managing director T C A Ranganathan.

Speaking on the sidelines of the inaugural day of the India-Africa Business Partnership Summit here on on Wednesday, Ranganathan said: “At present, our exposure to Africa, in terms of sanctioned credit line, is more than $3.5 billion (which has not yet been fully disbursed), with the outstanding being around $2.75 billion. With the additional line to be issued in three years, we expect the total book size of Exim Bank on Africa to double in the next five years.”

Stating that the Exim Bank of India’s intent was to promote and provide entry to various Indian entrepreneurs to Africa, besides encouraging them to bid for projects in that continent, he said Indian entrepreneurs need to do projects on their own in Africa, as that was how their counterparts in Europe, the US, China and other parts of Asia were doing there.

“There is a vast growth that is taking place there. The continent is growing rapidly and holds huge potential. Therefore, Indian entrepreneurs should explore that continent,” he said, adding bilateral trade between India and Africa had more than doubled from $25 billion in 2006-07 to $53.3 billion in 2010-11 due to the rise in both exports to and imports from the African region.

Indian exports to Africa had risen from $10.3 billion in 2006-07 to $21.1 billion in 2010-11, primarily due to an increase in exports of transport equipment and petroleum products, Ranganathan said.

Besides providing line of credit to the continent, he said, Exim Bank of India was also financing Indian companies investing in Africa or those Indian companies selling in Africa through buyers’ credit or through investment finance.

“For instance, we had assisted Tata South Africa for their vehicles to export to various members countries in Africa by giving a buyers’ credit to the governments there. In April this year, we have launched a new scheme where we will take insurance protection from a national insurance export account and give non-recourse long-term buyers’ credit on behalf of the Indian project exporters if the counter party is a sovereign of good standing,” Ranganathan said.

Stating that the Exim Bank of India had been giving credit lines to various banks in Africa, with the latest being $100 million to the Nigerian Export-Import Bank, he said the bank was trying to promote all forms of business in that continent, based on the request of the host country and the projects that they submitted to the Indian government.

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Exporters get Rs 900 crore relief package

NEW DELHI: The government on Thursday announced a Rs 900-crore package for exporters to help them tide over the slowdown in developed markets and rising input costs. RBI has already announced interest subsidy of 2% on rupee export credit for handicrafts, handlooms, carpets and small and medium exporters. Along with the interest subsidy the total relief package for exporters stands at nearly Rs 1,700 crore.

Sectors which would benefit from the government move on Thursday include engineering goods, pharmaceuticals and chemicals, apparels and others. Commerce minister Anand Sharma unveiled a special focus market scheme, which would help diversify the country's exports to new markets. Under the scheme, an additional 1% duty credit would be provided to exporters, who ship their goods to markets in Latin America, Africa and CIS countries. The total number of countries in the scheme is 43 and includes new entrants Cuba and Mexico.

"These are not easy times for the exporting community. The shroud of economic uncertainty still envelopes the global economy. The troubles which began with a sovereign debt crisis in Europe last summer continue and still linger. Actually things have become even more serious thereby sapping both business and consumer confidence in one of our largest markets - US. We have to ensure that export growth continues," Sharma said. The commerce ministry has undertaken a series of measures to open up new markets to counter the slowdown in the country's traditional markets like US and EU.

"My guess is in a ballpark range, excluding interest subvention, it will be roughly around Rs 800-900 crore. For interest subvention it will be around Rs 800-Rs 1,000 crore... roughly about Rs 1,700 crore," commerce secretary Rahul Khullar said when asked about the total outgo on the schemes.

Fifty products in engineering, pharmaceuticals and chemicals would get special bonus of additional 1% of export value between October and March in the current financial year. "It is a Diwali bonanza. We were not expecting this much," said Ramu Deora, president of the Federation of Indian Export Organisation (FIEO).

Sharma also said the government had set up a panel comprising the finance secretary, commerce secretary, and secretary financial services which would address the issues of availability of dollar credit. "I have discussed the issue with the finance minister and we will ensure continued availability of dollar credit," he said.

The commerce minister was confident of meeting the $300 billion target for exports set for 2011-12. But he said the global economic slowdown posed a tough challenge. Exports are estimated to have risen 52% to $160 billion in the first half of the current financial year on the back of robust performance from engineering goods and petroleum products.

Industry groups cheered the move saying it would help Indian exporters in the current challenging global environment. "Additional benefits in terms of Special Focus Market Scheme, Special Bonus Benefit Scheme and support to apparel sector would be vital in stepping up the competitiveness of our exports," said Rajiv Kumar, secretary general of Ficci.

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Govt notifies new duty drawback rates for 4000 export items‎

Exporters will get lower tax refunds from October 1, as the Union finance ministry on Friday announced a new Duty Drawback Scheme, ending the 14-year-old Duty Entitlement Passbook Scheme (DEPB).

To provide a smooth transition from the popular tax credit scheme to the drawback scheme, the ministry said the drawback rate would have a floor rate of 5.5 per cent of the value of export consignments for most items.

The decision, taken after years of dallying, to neutralise the input tax paid on duties, may primarily affect companies in the engineering sector, including automobiles and the auto component industry, chemicals, textiles, pharmaceuticals and the marine sector, which were major exporters, getting the benefit of the DEPB scheme.

The finance ministry has softened the blow, as the new duty drawback rates will mean a moderate reduction of one to three per cent in the existing DEPB rates. The lower reduction has been provided only for the current financial year and the rates may be rationalised next year.

“Since the DEPB scheme will not continue beyond September 30, it has been decided to provide a smooth transition for these items, while incorporating these in the drawback schedule. As a transitory arrangement, these items will suffer a modest reduction in the existing DEPB rates, to the extent of one per cent to three per cent, which represents the ad hoc rates of DEPB introduced in 2007,” Finance Secretary R S Gujral told a press conference.

There are 2,130 items on the DEPB list, of which 1,030 are also covered in the drawback schedule.

The remaining 1,100 items would now be incorporated in the new drawback schedule, taking its total count to about 4,000 items from the present 2,835.

With the DEPB facility, exporters got credit for customs duty paid on inputs used in making export goods. Under duty drawback, they receive duty-free scrips which can be used to pay import duties. The DEPB scheme was based on the assumption that the exporter used duty-paid imported inputs. Duty drawback neutralises levies paid on inputs. The revenue outgo towards the DEPB scheme has increased over the years and was Rs 8,700 crore last year.

“With withdrawal of the DEPB scheme, the government’s revenue forgone will be less. But our intention was to unify export promotion schemes, not maximise revenues,” said the Central Board of Excise & Customs chairman, S Dutt Majumder. He said the rates would be notified by the end of next week.

The ministry said the duty drawback rates for items under DEPB were recomputed taking into account prevailing customs duty rates. It was observed that for most items, the recomputed rate worked out to be far lower than the existing DEPB rates, even after removal of the ad hoc element of one to three per cent. Despite that, the ministry decided to have the minimum drawback rate at 5.5 per cent for most items, so that exporters were not adversely affected. For another 340 items, such as worsted woollen yarn, blankets and nylon twine, where the recomputed rate worked out to more than 5.5 per cent, the government has decided to provide the higher recomputed rate. The rate could be over 10 per cent for some items.

Ramu S Deora, President, Federation of Indian Export Organisations, said since reduction would be only to the extent of the stimulus component, added to DEPB rates in October 2008, the new rates will be, by and large, acceptable to the industry. He said even if the new drawback rates were a little less, the saving on account of transaction time and cost would offset the disadvantage.

Despite sluggishness in other sectors of the economy, exports turned out to be the silver line. They grew 54.2 per cent in the first four months of this financial year to touch $134.5 billion year-on-year. However, exporters were worried over discontinuation of the DEPB scheme.

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India may hike refined palm oil import duties

NEW DELHI/KUALA LUMPUR: India is considering an industry request to raise import duties on processed palm oil, government and industry sources said, after Indonesia lowered its export taxes on the product -- a move seen as dealing "a death blow" to Indian refineries.

India, the No 1 buyer of vegetable oils, has already begun importing more of refined, bleached and deodorised (RBD) palm olein from Indonesia ahead of Diwali, potentially leaving refining capacity idle.

With Indonesia, the biggest producer, now more than halving export taxes of refined palm oils in mid-September, Indian industry officials are pushing New Delhi to raise the base price, or tariff value, for refined palm oils.

"The domestic refining industry has been demanding $1,100-$1,200 per tonne tariff value on RBD palmolein," said a government source on Thursday who did not want to be named due to sensitivity of the issue.

The finance ministry did not comment on the issue as it usually refrains from making public statements to avoid speculation.

Importers are currently taxed 7.7 per cent duties based on the tariff value set at $484 a tonne, irrespective of purchase price -- a low price to pay and bring in processed edible oil cargoes at time when food inflation is still high.

Indonesia made minor cuts to export taxes of crude palm oil that forms the bulk of India's imports. But even with crude palm oil's import tax-free status in India, traders are shifting to refined products.

From last week, Indian traders have snapped up 50,000 tonnes of RBD palm olein for delivery in October to coincide with higher food demand during the Diwali festival.

Benchmark palm oil on the Bursa Malaysia Derivatives dropped 1.8 per cent on Thursday on concerns over the bleak global economic outlook although traders said festival demand could limit losses.

Indian domestic prices were also down. At 0727 GMT the most-active soyoil for October delivery on India's National Commodity and Derivatives Exchange was 0.6 per cent lower at 649 rupees ($13.429).

"The contract may fall to 620 rupees if cheaper imports will remain there for next few more weeks," said Vimla Reddy, an analyst with Karvy Comtrade.

India buys about 6 million tonnes of crude palm oil every year from Indonesia for its refiners to process into cooking oil and other food products.

Refining capacity in the country stands at 15 million tonnes and could turn idle if more refined palm oil is shipped in, traders estimate.

Food Minister KV Thomas this week expressed concern about Indonesia's move, which the head of Indian's leading vegetable oils industry association has said could be "a death blow" to the refining industry.

India's food ministry has since passed on the industry's request for higher tariff values to the finance ministry, the sources said.

Finance minister, Pranab Mukherjee, will take a final decision bearing in mind high food-driven inflation has forced the central bank to hike rates 12 times in the last 18 months.

"If the food ministry recommends any action on the demands of the domestic industry, we will inevitably examine it," a finance ministry official said.

The edible oils weight in India's wholesale price is 3.04 per cent, and the wholesale edible prices have moved up by 3.65 per cent since March 2011 until August.

The wholesale prices of edible oils were up 3.5 per cent in August from a year ago period. The WPI rose 9.78 per cent in August and is a major concern for policy makers.

"There is still plenty of room to move," said a palm oil analyst in Singapore.

"Raising the tariff value for refined palm oils will make it expensive but the inflation aspect can be mostly avoided as India will shift back to crude palm oil and still save its refiners," she added.

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Fraudulent Chinese firms swindle Indians in six innovative ways

Alarmed by the growing instances of fraud being committed by Chinese companies, to which Indian small and medium firms are falling victim, New Delhi has swung into action and has — for the first time — done an analysis on the types of trade disputes.


The government has also cautioned Indian companies against trusting business-to-business (B2B) sites before zeroing in on a Chinese partner. It has also asked the Indian missions in that country to help in establishing the authenticity of Chinese firms. There have been 66 disputes this year alone between January and July, the value of which exceeds $1.8 million. A majority of the disputes have taken place with companies based in Hebei province (29 cases) and Tianjin municipality (26 cases). The government is also circulating a list of 48 companies that committed fraud this year.

According to sources, the ministries of external affairs and commerce have analysed the cases, and have issued an advisory that identifies six ways in which fraud is being committed.

They are the following:

TYPE 1: A Chinese company gets in touch with an Indian company and invites the latter to visit China and meet company executives and local government officials as a confidence-building exercise. Before the Indians leave for China, the Chinese ask for cash towards gifts for local officials citing cultural values, to which the Indians agree. The Chinese pull out all stops and once the Indians return, all communications go unreplied. The Indian company loses on costs of transportation, accommodation and the gifts.

TYPE 2: The Indian firm finds a Chinese exporter from B2B portals and other online sources. The exporter insists that the Indian company should send a percentage of the total amount as advance. After payment, the Chinese firm reneges on the commitment.

TYPE 3: The Indian company finalises the deal and asks the Chinese for a sample of the products, which meet the desired standards. Orders are placed and the advance paid. The consignment reaches Indian shores and the payment is released after inspecting the bill of loading. The actual product, seen after release by Customs, is found to be substandard or at variance from the agreement. The Chinese brush aside all complaints and blame extraneous conditions.

TYPE 4: The Indians and the Chinese agree that the buyer (Indian) has to make an advance payment for the consignment. Once the advance is received, the Chinese partner goes slow and after repeated requests, asks for the remaining payment and cites delays, increased costs, supply problems, and even threat of no dispatch to exact the sum. The Indians pay up and the Chinese renege.

TYPE 5: The Chinese company, before or after finalisation of the deal, insists on `Notarisation of the Agreement’, cost of which has to be shared equally by both parties. The Indian company duly pays up its share. On return, the Indians are asked to pay extra towards ‘increased’ notarisation fees. The Indian firm risks losing its share of notarisation fees if it does not pay and the total amount if it pays up the extra fee.

TYPE 6: Before finalising the negotiations, the Indians receive an instruction to transfer the advance/full amount in a bank account different from that of the Chinese company. They comply and there is no answer after the amount is received. Later when the whereabouts of the consignment is enquired into, the Chinese respond that the said account is not the company’s account, or that the employee left the firm.

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DEPB Scheme to go on 30th September

NEW DELHI: Tax incentives for exporters will be lowered from Oct 1 as the government said Friday it will do away with the popular tax refund scheme, Duty Entitlement Pass Book (DEPB), and bring them under an existing duty drawback scheme from the beginning of next month.

At the same time, the number of items eligible for the drawback scheme have been increased by 1,100 to take the number of eligible items to 4,000.

After unveiling a transitory scheme for the 14-year old DEPB scheme, Finance Secretary R.S. Gujral said tax refunds on exports of 2,130 items will be reduced by 1 to 3 percent.

"An endeavour has been made to soften the reduction and transition from the DEPB to duty drawback scheme," Gujral told reporters.

Exporters of engineering, chemical, pharmaceuticals, marine and textile products are the major beneficiaries of DEPB scheme. Tax refunds under DEPB scheme resulted in the revenue loss of Rs.8,700 crore to the government exchequer last fiscal.

The revenue loss would be reduced significantly due to the replacement of the DEPB scheme, said Chairman of Central Board of Excise and Customs S.D. Majumdar.

The reduction in tax incentives might affect the growth of exports.

India's exports jumped 54.2 percent at $134.5 billion in April-August period, led by a sharp increase in exports of engineering goods.

Officials said the government will shortly notify "all industry rates" of duty drawback for the current fiscal.

The government had constituted a committee in January under Planning Commission member Saumitra Chaudhuri for formulating the "all industry rates" duty drawback.

The committee recently submitted its report.

"Recommendations of the committee form the basis for the rates being notified," the finance ministry said in a statement.

"The DEPB Scheme has been in existence since 1997. Presently, there are 2,130 line items covered under this scheme. Incorporating these items within the drawback schedule and assigning appropriate duty drawback rates for these items was a challenge both from a product classification perspective as well as from a drawback rate perspective," an official statement said.

"Consequently, the new drawback schedule will incorporate an additional 1,100 line items(approx.) which are being taken from the DEPB list. With this, the total number of items in the drawback schedule will number approximately 4000 line items, as against the present 2835 line items," the statement added.

Most items which are already covered under the duty drawback scheme will suffer a minor reduction in the existing rates.

"The reduction is mainly on account of the reduction in basic customs duty on crude petroleum from 5 percent to nil as well as a reduction in central excise duty on diesel from Rs.4.40 per litre to Rs.2.40 per litre," a finance ministry statement said.

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