Goa scraps 12 exclusive SEZs, faces legal tangle

Even as the Goa government decided to scrap all 12 exclusive special economic zones (SEZs) in the state and recommended to the Centre the denotification of three zones, the commerce ministry officials warned that the state government would have to deal with the probable “legal” consequences of the decision.

“We will write to the Centre to scrap the eight proposals pending for approval while we will not notify the four (SEZs) that are already approved. About the rest three, we will take up the matter with the Centre to denotify them,” said Chief Minister Digamber Kamat.

The recommendation means that investments worth more than Rs 4,600 crore in seven formally approved zones will not come in. These zones have land in their possession.

“It is for the state government to decide and face consequences. The Board of Approval (for SEZs) gave its nod only after the state government’s recommendations. Some developers have already started construction and may want their money back,” said a commerce ministry official.

Significantly, Goa is the first Congress-ruled state to go back on SEZs. Other states which have seen trouble over SEZs include West Bengal, Maharashtra and Haryana, mainly because land-owners protested against land acquisition for the zones.

In contrast, the protests in Goa are spearheaded by ordinary citizens who fear for the future of a territory that is an idyllic tourist getaway.

“The citizens of Goa, bothered by the infrastructure crunch, took forward the anti-SEZ movement, while in Maharashtra and Haryana, it’s the land-owners who are leading the protests,” said Manshi Asher, a civil activist and an independent researcher on SEZ-related issues.

According to Asher, the genesis of the movement lay in the Goa Regional Plan of 2011, which was criticised widely and led to the resignation of Town and Country Planning Minister Atanasio Monserrate in January 2007.

“Subsequently, Goan citizen groups, which were vocal against the regional plan, focused on SEZs and their impact on infrastructure and environment, which were already under pressure because of tourism and mining,” added Asher.

Over and above, there were concerns on immigration of people from other states, he said.

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Commerce Dept leaves basmati rice definition to Agri Ministry

New Delhi, Dec 13 The Department of Commerce has come to an “understanding” with the Ministry of Agriculture on the definition issue of basmati rice with the task now falling on the latter so that the new appellation for basmati would be in conformity with international agreements and the Indian Seeds Act.

On geographic indication

Official sources told here that at a recent meeting held under the Chairmanship of Commerce Secretary, Mr Gopal K. Pillai, it was made clear that there should not be any compromise on the geographic indication (GI) protection of basmati rice, while determining the definition so as to obviate the needless controversy.

The meeting was attended by representatives of the Commerce Ministry, the Agriculture Ministry, the Indian Council of Agricultural Research and the Agricultural and Processed Food Products Development Authority (APEDA).

The Agriculture Ministry made it clear that the GI region for basmati, i.e., the Indo Gangetic plain falls in both India and Pakistan. It was also pointed out that the basmati definition is currently not notified under the Seeds Act and it should be done forthwith.

Clarification

The representative of the Commerce Ministry clarified that the definition of basmati rice was framed under the Export of Basmati Rice (Quality Control of Inspection) Rules, 2003 since there was no definition of basmati rice in vogue at that point of time.

When contacted, Mr Pillai clarified that once the definition of basmati rice is in place by the Agriculture Ministry incorporating the essential components of GI, International agreements and Seeds Act, “we will get our definition modified” to reflect the new elements of the definition.

Definition task

Scientists at farm research centres are overly happy that the definition task has now rightly come to the Agriculture Ministry and hope that the emerging definition would definitely factor in all the relevant materials encompassing pedigree of rice, international agreements and Seeds Act.

The sources further contend that since the onus is now on the Agriculture Ministry for ensuring the supply of authentic basmati paddy and protection of GI for basmati, the Farm Ministry might have to draw blueprint and norms for supply of authentic basmati paddy seed to the growers.

To frame licensing norms

The Agriculture Ministry might toy with the proposal to frame licensing procedure on sale of basmati paddy seed to the growers to regulate and promote the authentic seed variety so that genuine basmati rice is produced.

The objective is to prevent sale of spurious seeds by vested interests which have developed stakes in the export of dubious basmati or basmati of questionable parentage. How far this could be implemented before the next sowing season which begins in April-May 2008 depends on how fast the official machinery is geared to the task on hand.

Exact geographical area

Trade policy analysts say that it is important to capture precisely the basmati paddy growing area in line with the GI of TRIPs (trade-related intellectual property rights) Agreement, since leaving the entire Indo-Gangetic plain would make basmati rice generic as there are wide variations in climate in this vast region. Hence, the task of defining the exact geographical area for basmati falls squarely on the Agriculture Ministry, entailing the sensitivities of other basmati rice growing States of Central and Eastern Uttar Pradesh, Bihar, West Bengal, Orissa, Rajasthan, Madhya Pradesh, Maharashtra, Andhra Pradesh, Karnataka and Kerala.

This is important because the reference in various raging legal battles on IRR over basmati clearly is to Punjab, Haryana, Western UP and Uttaranchal as unique to basmati rice in India.

Traceability mechanism

This also raises larger issue of establishing the traceability mechanism in basmati rice supply chain to verify the authenticity of the product as enjoined in the implementation of GI. Every transaction in basmati rice supply chain is required to be documented from the seed to store to ensure the GI and to justify the premium price being charged to the ultimate consumers. Hence, basmati rice exporters would do well to initiate a process in this regard for ascertaining traceability, before the importing countries insist on such information before long, the sources added.

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Pakistan Allows Import of 500,000 Bales of Cotton From India

Dec. 12 (Bloomberg) -- Pakistan, the fourth-largest cotton producer, allowed the import of 500,000 bales of the fiber from India to help boost stocks, after poor weather and pest attacks damaged the crop.

"The import of short-staple cotton has been allowed through land routes via the Wagah border," Ashfaque H. Khan, the government's economic adviser told reporters in Islamabad today.

Pakistan's textile makers, who provide 60 percent of the nation's overseas shipments, need cotton to help meet export targets. The South Asian nation will harvest 9.9 percent less cotton than previously estimated after poor weather and bugs hurt the crop this year, according to the U.S. Department of Agriculture.

The government will ensure that the imported cotton is sprayed so that the local crop isn't contaminated, Khan said.

Cotton production in the year that started Aug. 1 will be 2.04 million metric tons, down from 2.27 million forecast in May, said a Nov. 13 report by the U.S. Department of Agriculture. Consumption is expected to be unchanged at 2.74 million tons.

The production forecast was cut because of "poor germination following heavy rainfall during the sowing season, late planting due to water shortage and high temperatures in August and September resulting in shedding of fruit (bolls)," according to the report. The crop also endured "severe and widespread attack" of the cotton leaf curl virus and mealybugs, it said.

Pakistan will be a net importer of cotton for a seventh straight year, according to a U.S. Foreign Agricultural Service report on Oct. 9. Pakistan imports cotton from the U.S., Brazil, India and Uzbekistan.

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Asia Sugar-Australia, Thailand, braced for Indian onslaught

SYDNEY/BANGKOK, Dec 12 (Reuters) - Australia and Thailand are preparing themselves for a flood of sugar exports -- as much as 4 million tonnes worldwide -- from an India bent on penetrating their traditional Asian markets.

Leading figures in the Australian and Thai sugar industries told Reuters that India was already muscling sugar into East Asian countries, including China, Malaysia and Indonesia.

But an Australian trader said: "We haven't been hearing of anything in bulk. Nothing in any great volume."

That said, more Indian exports could begin to move into East Asia after world sugar prices this week rose to a level where India has said it is keen to export.

Indian exporters were aiming to sell raw sugar on the world market at slightly over 10 cents a pound (lb), S. L. Jain, a committee member of India's sugar export corporation recently said.

After hovering between 9 cents and 10 cents a lb for months, New York sugar prices this week rose to a four-month high of 10.30 cents a lb, right in India's stated selling zone.

Australia and Thailand share the Asian market as the two biggest producers and exporters in the region. Both strongly oppose Indian export subsidies and raised complaints to the World Trade Organisation.

But both know that an Indian sugar export surplus of over 10 million tonnes in 2007/08, for the second year in a row, will lead to Indian penetration the Asian market.

THAIS FEEL THE HEAT

Indian sales in East Asia will have the biggest impact on Thailand, which is the region's leading exporter from big crops, overshadowing Australia's small, weather-affected crop.

The United States Department of Agriculture forecasts that Thailand will export 5.3 million tonnes in 2007/08 from production of 7.2 million tonnes, while Australia will export 3.7 million tonnes from production of 4.7 million tonnes.

India is forecast to export 3.0 million tonnes from production of 31.8 million tonnes and from a huge stockpile of 11.5 million tonnes. Traders believe India's exports could be as much as 4 million tonnes.

Vichai Rojlertchanya, general manager of Thai Cane and Sugar Corp. Ltd., said: "I'm sure that India will share some of Thai markets next year, especially Indonesia due to competitive freight cost".

Australia is also in the ring, competing especially for the Indonesian market, after boosting exports to nearly 500,000 tonnes of raws in 2006 from virtually nil in 2000.

Indonesia should be in the market for more raws after its agriculture minister, Anton Apriyantono, recently said that white sugar imports were unlikely next year because of higher domestic stocks, the Australian trader said.

"The statement means more demand for raws, and that's good for us," he said, adding that Indonesia should be able to produce sufficient whites from its growing number of refineries.

Thailand's Vichai believes Indonesia will import raw and white sugar next year, mostly from Thailand, given low Australian supplies.

India might also be happy to oblige.

So far Indian exports have been mainly displacing Brazilian sugar in the Middle East and West Asia, where it was most competitive, with some sales to the east coast of Africa and to Indonesia, said Australian and Thai traders and millers.

Dubai's Al Khaleej Sugar Co. refinery last month concluded a deal to buy 500,000 tonnes of Indian raw sugar, bringing its total purchases from India to 1 million tonnes, and with the prospect of buying more.

Up to now, Australia has been more concerned about the effect of India's surplus on world prices than about direct competition. But if prices stay above 10 cents, things might start to change.

(Editing by Ben Tan)
By Michael Byrnes and Apornrath Phoonphongphiphat

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Duty cut on palm oil hits vanaspati units in Lanka

The reduction in customs duty of crude palm oil (CPO) by India has severely hit the 12 vanaspati units set up by Indian companies in Sri Lanka to take advantage of the low duty on CPO there and export duty-free to India under the free trade agreement (FTA) quota. However, the move has helped the domestic vanaspati industry.

The import duty on CPO has come down from 88.8 per cent in August 2006 to 46.35 per cent. Moreover, the government’s decision to keep the tariff value (the base price at which import duty is calculated) of CPO frozen at $447 a tonne implies an effective duty of around 23 per cent.

This means that even if the CPO is imported at $910 a tonne, the 46.35 per cent duty is paid on a price of $447. The tariff has been kept frozen to contain inflation.

“These units were set up in Sri Lanka to take advantage of the low CPO import duty ($25 a tonne). Indian agents of these units imported the vanaspati duty-free under the 1998 FTA arrangement. As a result, the imported vanaspati was cheaper by almost 10 per cent than Indian vanaspati and was affecting the domestic producers,” said Sat Narain Agarwal, senior vice-president, Central Organisation for Oil Industry and Trade.

Now, the trend has reversed in favour of local vanaspati units. With the reduction in CPO import duty, the domestic producers would be able to sell vanaspati at a price similar (about Rs 800 per 15 kg jar) or even lower than the imported product.

This has helped the domestic units, which were operating below capacity, while the Lankan units are already on the verge of closure.

The 250,000 tonnes annual quota given to these units in Sri Lanka was increased to 312,500 tonnes for the current year. These units, set up with a total investment of Rs 250-300 crore, have a capacity of 25,000 tonnes each.

However, none of these units have been able to exhaust their full quota in the first two quarters of this financial year and the unused quota has got expired.

“We can revive our units only if the customs duty on CPO goes up in India. Otherwise, we will have to shut down,” said an official from the Lankan vanaspati unit.

SLIPPERY GROUND

# The import duty on crude palm oil (CPO) has come down from 88.8 per cent in August 2006 to 46.35 per cent

# The government’s decision to keep the tariff value of CPO frozen at $447 a tonne implies an effective duty of around 23 per cent

# With the reduction in CPO import duty, domestic producers would be able to sell vanaspati at a price similar to (about Rs 800 per 15 kg jar) or even lower than the imported product

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PM's intervention sought for rupee-hit exporters

New Delhi, Dec 11 In an effort to hasten relief to exporters facing huge losses due to rupee's rise against the US dollar, the commerce and industry ministry is seeking the intervention of Prime Minister Manmohan Singh.

The rupee has surged by about 15 percent this year, which has led to big losses by exporters, who in turn have cut jobs in large numbers.

'This is being examined by the prime minister, who will take a decision on what's to be done or the cabinet will take a view. We must have complete remission and refund of duties,' Commerce and Industry Minister Kamal Nath told reporters Tuesday on the sidelines of the TiE Entrepreneurial Summit currently underway here.

Earlier this year, the finance ministry raised tax refund rates, reduced lending rates for exporters, and cut import duties as measures to help the sector.

Kamal Nath had written a letter to the prime minister for more relief measures.

On the issue of the government's decision to relax the ceiling on the size of multi-product special economic zones (SEZs) from the current permissible limit of 5,000 hectares, the minister said: 'The government is not considering any proposal to relax the 5,000 hectare cap on the land size for SEZs.'

'There cannot be a one-size-fits-all policy for all the states,' he, however, added.

He also reiterated that the review of foreign direct investment was likely to come up before the cabinet next week.

-IANS

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No proposal to change ceiling for SEZs

NEW DELHI: Continuing with the guessing game over the possible relaxation of cap on the land size for Special Economic Zones (SEZs), Union Commerce and Industry Minister, Kamal Nath, on Tuesday said there was no proposal to change the 5,000 hectares ceiling prescribed by the Group of Ministers (GoM).

It was only a fortnight ago that the Commerce Secretary, G. K. Pillai, had talked about possible relaxation of cap on land size for SEZs. The Commerce Secretary had stated on December 2 that the Government might relax the 5,000 hectare ceiling on land for multi-product SEZs once amendments to the Land Acquisition Act along with the Re-settlement and Rehabilitation (RR) policy was passed by Parliament.

“The Union Government is not considering any proposal to relax the 5,000 hectare cap on land size for Special Economic Zones (SEZs),” Mr. Kamal Nath told newsmen on the sidelines of the TiE Entrepreneurial Summit here.

The Indus Entrepreneurs (TiE) is a global not-for-profit organisation focussed on promoting entrepreneurship. However, the Centre would look at specific proposals from the States once the RR policy was implemented, he said. “There cannot be a one-size-fits-all policy for all the States. The Commerce Ministry was examining all these issues,” Mr. Kamal Nath said. He said the much-delayed review of foreign direct investment was likely to come up before the Union Cabinet next week.

As regards demand for further relief for exporters hit by rupee rise, the Union Commerce and Industry Minister said, “The matter is being examined by the Prime Minister.”

He said there had to be complete remission of duty. It had to be ensured that no taxes were imposed and exporters had a level-playing field. The Rural Development Ministry has introduced the twin Bills in Parliament in the just-concluded winter session. The ceiling had forced Reliance Industries and real estate majors DLF and Omaxe to cut the size of their mega SEZs to 5,000 hectares.

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Ministry moots sector-specific incentives for exporters

Stung by the steep decline in the export from sectors that have less import intensity but greater labour intensity, the Department of Commerce is seeking sector-specific relief measures for them. These sectors include plantation, marine products, garments, fruits and vegetables and handicrafts.

Highly-placed sources in the Government told Business Line here that the earlier relief measures announced in June and September 2007 were able to only partly meet the concerns of exporters reeling under the relentless rise of rupee value vis-a- vis the US dollar in which most of the export receipts are received.

Though measures such as modest increase in Duty Entitlement Pass Book Scheme, interest rate subvention of two percentage points per annum to all scheduled banks in respect of export credit to the specified categories of exporters in the small and medium enterprise sector and service tax exemptions for a few select services were announced, they did not counter the persistent appreciation of the rupee and its adverse impact on the margin of exporters, they said.

The sources revealed that in the case of tea and coffee exports, the decline during the first half of the current fiscal was 33.3 and 20.2 per cent as compared to the corresponding months of 2006-07, 19.4 per cent in the export of fruits and vegetables, 15.4 per cent in cashew exports, 10.5 per cent in marine products, 17.4 per cent in cotton exports, 12.1 per cent in garments and a whopping 56 per cent in handicrafts. They said that in 83 exporting units surveyed by the Department of Commerce the job loss till end-June 2007 was 10,500, which would shoot up to two lakh by end-March, 2008 and eight lakh by September 2008, if no requisite relief measure was forthcoming to arrest the decline in exports and consequent retrenchment of workforce.

The sources said that the Commerce & Industry Minister, Mr Kamal Nath’s June package remained largely unimplemented. The demands of exporters for exemption from service taxes remained unmet and the local levies reimbursement has not been addressed up till now, aggravating the exporters’ woes.

That is why the Commerce Ministry is seeking an across the board one per cent increase in DEPB rates and not like the selective way in which it was done in the last package, pre-shipment and post-shipment credit to be cut down to 6 per cent from the range of 9 to 11 per cent and further measures providing sector-specific succour to the worst hit exporters.

They further said that 100 per cent export-oriented units have not been compensated for rupee appreciation as they also source most of their inputs domestically and together with gem and jewellery segments, which need to be provided some relief, the Commerce Ministry is seeking an extension of income tax exemption under Sec 10-A and 10-B for one more year from 2009 to 2010 for these segments.

The sources clarified that the Finance Minister, Mr P. Chidambaram, would meet only the textile industry representatives on November 15 to sort out the industry’s problems particularly on working capital and technology upgradation fund scheme and not to discuss exporters’ problems in the light of continuing rupee appreciation.

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Allow 1 lakh tonne duty-free import of natural rubber

Kolkata, Nov 12 The All India Rubber Industries Association (AIRIA), concerned over both volatility in the prices of natural rubber and inadequate domestic availability of natural rubber, has sought duty-free import of one lakh tonnes of natural rubber for domestic production of rubber goods, as “49,800 tonnes of natural rubber as imported under DEEC licence are meant for export production and have no relevance to domestic demand”.

According to Mr M.F. Vohra, President of AIRIA, consumption of natural rubber outstripping its production, coupled with loss of production in the last few months, may lead to non-availability of natural rubber to the extent of one lakh tonnes. He felt this may lead to further spurt in prices.

Citing a recent study of the Rubber Research Institute of India, he said owing to Chikungunya affecting tappers and excessive Kerala rains making tapping difficult, some 50,000 tonnes of natural rubber was lost during the first five months of the current fiscal.

The Rubber Board, according to AIRIA, has estimated the growth in natural rubber production during 2007-08 at 3.6 per cent against a consumption growth of 4 per cent. In 2009, Mr Vohra said, consumption was expected to grow by 4.8 per cent, while production growth is expected to remain at 3.6 per cent.

He said in order to overcome this problem, the rubber goods industry needs to depend on imports, which again become prohibitive with the 20 per cent import duty levied on natural rubber and 70 per cent on Rubber Latex. According to Mr Vohra, ever since futures trading in natural rubber commenced (since 2003-04), prices of the commodity have steadily gone up.

“While the rubber industry has no qualms about natural rubber prices being determined by market forces in an open market economy, the industry is averse to manipulation in prices as indulged in by a section of traders owing to natural rubber being included in the commodity list of futures trading.”

He said response to the representation for removal of natural rubber from the commodity list of futures trading was still awaited.

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Textile industry on campaign mode to highlight grievances

Chennai, Nov. 5 A decline in exports, oversupply in domestic market, lack of yarn movement and closing down of garment units have forced various bodies in the textiles industry to come together and air their grievances in public.

“The textiles sector is in a terrible mess and we have gone public to draw everyone’s attention to our problems,” said sources in the spinning sector.

Representative bodies such as the Apparel Export Promotion Council; the Cotton Textiles Export Promotion Council; the Synthetic and Rayon Textiles Export Promotion Council; the Confederation of Indian Textiles Industries; Powerloom Development and Export Promotion Council; Rajasthan Textiles Mills Association; the Mill Owners Association; Tirupur Exporters Association; and the Northern Indian Textiles Mills’ Association on Monday came out with a huge advertisements in various dailies highlighting their plight. The advertisement also pointed, how in contrast, the Chinese textiles sector was enjoying an advantage in the global market.

Sector’s woes

The advertisement showed the Chinese enjoying from a favourable yuan-dollar ratio, low cost and high quality power supply, lower transaction costs and world class infrastructure. In contrast, the Indian sector was seen suffering from high capital costs, non-funded State levies, infrastructure disability costs, cross-subsidisation of power, delay in technology upgradation fund, and the rising rupee.

“Basically, we want the Centre to fulfil four of our demands. At least, three of the demands can be met immediately,” the sources said. “The Centre can take immediate steps to refund six per cent f.o.b value collected as duties by State Governments on exports. This is an obligation under the World Trade Organisation because it is like taxing our buyers abroad for purchasing our goods,” the sources said.

“Again, the Centre will have to stop asking the industries to pay for the power supplied to farmers and domestic consumers by charging us higher rates. We are having to pay for the transmission and distribution losses arising out of theft and inefficient supply,” they pointed out.

Stabilising rupee

“Packaging credit must be lowered to at least six per cent. The basic prime lending credit for packaging is 14 per cent in our country.

The Centre has ordered a 4.5 per cent cut. Some get credit at 9.5 per cent and some still less. But even if the credit is lowered to six per cent, our rate will be the highest,” the sources said.

“The last demand is stabilisation of the rupee-dollar parity. That will take time and the Government can do nothing about it. Therefore, we are willing to wait on that count,” they said.

According to the sources, textile exports in April declined by 18.23 per cent compared with the figures in April 2006. “That will mean a loss of Rs 1,031 crore. A study by the Research and Information System for Developing Countries said 35 jobs are created for every Rs 1 crore-worth goods export. That means, 35,000 jobs would have been lost in April alone,” they said, adding: “If the trend continues, by the end of the fiscal, 4-5 lakh jobs will be lost.”

Lack of urgency

The primary reason for the representative bodies to publish the advertisement was because they felt that they “do not find the sense of urgency required in the Government”.

“The Centre is not alert to the situation. We need to administer medicine to the sick and not the dead,” they added.

The textile sector provides employment to 3.5 crore people, while 4.7 crore farmers also depend on its fortunes.

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AEPC seeks sops to tide over value loss in exports

Coimbatore, Nov 5 The Apparel Export Promotion Council (AEPC) has sought sops from the Centre for a temporary period to offset value losses suffered by the garment sector due to the appreciating rupee.

The Council, which has presented a charter of demands spelling out the relief package to the Government, favoured refund of state-level taxes that total up to six per cent of their cost through the drawback route, reducing the rate of interest for packing credit and a dual currency rate (with a higher rate for exports).
Relax labour laws.

The AEPC is also pressing the Government for refund of service tax paid by the exporters and relaxation in labour laws thereby allowing contract labour by the garment industries. These reliefs could be allowed for a limited period to enable the garment sector get over the current difficulties it faces from the declining dollar value.

The AEPC Chairman, Mr Vijay Agarwal, in a statement maintained that even if the Government conceded to all its demands, it would part with only the uncollected taxes amounting to between Rs 1,800 crore and Rs 2,000 crore and the Government would not actually encounter any cash outflow.

Highlighting the current crisis facing the garment exporters, Mr Agarwal pointed out that on top of the export trade losses seen in the past six months when the dollar slid against the rupee from the Rs 46-Rs 47 band to Rs 39.50, the international buyers were refusing to enter into any other currency contract, including the euro, and this had added to the exporters’ woes.

The negative impact on the trade could be already seen from the garment export data of the Ministry of Textiles.

The export of readymade garments had declined almost 17 per cent from $2.4 billion to $2 billion in April-June 2007. The knitted garments slipped by 12 per cent (from $906 million to $800 million), the export of woven garments fell sharply by 17 per cent (from $1.5 billion to $1.25 billion).

The AEPC Chairman said the silver lining had been the decision of the Central government to extend the technology upgradation fund scheme up to 2012 and this would encourage new investment in the textiles and apparel sector. The garment manufacturers would stand to get 10 per cent capital subsidy in addition to 5 per cent interest subsidy for the investment on machinery under the TUFS.

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Bring passenger cars under DEPB: Industry

Alarmed by the appreciation of the rupee and its impact on export competitiveness, automobile manufacturers have sought Government support to be made eligible for Duty Entitlement Pass Book (DEPB) benefits on passenger car exports and asked for modifications in export promotion schemes.

The auto component manufacturers, which are also bearing the brunt, have asked for tax breaks through reintroduction of 80 HHC code provision. Their association is seeking an enhancement of DEPB rates by 3-4 per cent as well.

In a recent meeting with the Directorate-General of Foreign Trade, the Society of Indian Automobile Manufacturers (SIAM) has asked that automobiles be included in export promotional schemes such as ‘focus product’ and ‘focus market’.

DEPB rate

“There is no DEPB rate on passenger cars as in the case of commercial vehicles and two-wheelers. So, we have asked the Government to make suitable amendment so that passenger vehicles are included in it,” said a senior SIAM official. “Indian automobile manufacturers are incurring huge costs on developing new export markets like Russia and South Africa that are not a part of the focus market scheme, for which also we have made a proposal to the Government,” the official added.

The focus market scheme provides around 2.5 per cent credit to the free-on-board value of exports of products in select countries, as against the focus product scheme that allows credit on export of certain products.

With supply contracts already on a long-term basis in the case of automobiles, it also rules out the possibility of renegotiating for exports, cited the official. When asked to comment, the SIAM Director General, Mr Dilip Chenoy said, “We have made a series of requests to improve the overall automobile exports. This is also in line with the Automotive Mission Plan target to boost export competitiveness.”
Low growth

Among all categories, including two-wheelers and commercial vehicles, the passenger vehicles market has witnessed the lowest pace of export growth with a marginal increase of 1.48 per cent in the first half of the current fiscal.

According to industry estimates, the margins on exports are already less and with the current rupee appreciation companies are incurring substantial losses. Hyundai, the largest exporter of passenger cars, is estimating a loss of Rs 169 crore this year.

While the going is already tough for the auto industry on the domestic front on account of high interest rates and a consequent slowdown in automobile sales, in the absence of any Government support, India would lose out on exports as well, says the industry body.

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Pulses market turning potentially explosive

Rising global grain prices, weakening dollar and firmer ocean freight rates have combined to make pulses imports more expensive. The landed cost is today about Rs 4,000 a tonne higher than it was a few months ago. For instance, for green and yellow peas, importers pay over $450 a tonne, that is at least $100 a tonne more than they did say three months ago. The firming rupee means that Indian importers pay slightly less in rupee terms against dollar contracts; but the overall adverse effect of rising grain prices on the Indian pulses market is clearly visible.

Domestic prices of green and yellow peas are currently at over Rs 18,000 a tonne, up from close to Rs 15,000 a tonne three months ago. Price rise is seen in other pulses too. The threat of a further rise in pulses prices is real, as the demand-supply fundamentals of the pulses market are getting tighter by the day.

Risk premium

Worse, overseas suppliers dealing with India build into their price what is called a ‘risk premium’. There are risks associated with supply of pulses to India; and one of the major risks is the risk of rejection at the point of entry on plant health grounds. Stem and bulb nematode is one of them. Currently, Indian phyto-sanitary regulation requires that overseas suppliers fumigate the consignment with methyl bromide. But this fumigant is hardly used in developed countries as it has been phased out.

This condition exposes the overseas supplier to the risk of rejection of cargo on arrival at the Indian port. Exporters say the extant quarantine conditions are too onerous for them to be able to do business with India freely. It is also reported that other importing countries in Asia – China, Pakistan, Bangladesh – do not impose such stringent conditions as India does. One must, however, hasten to add, as an agrarian economy and world’s largest producer (13-14 million tonnes), consumer and importer (2.0-2.5 million tonnes) of pulses, India has much at stake as far as agriculture is concerned.

Entry of exotic pests and diseases through the import route can potentially ruin the already fragile Indian agriculture. At the same time, widening demand-production mismatch in pulses has pushed market prices up. Poor consumers are the worst hit. Pulses are the cheapest vegetable protein for poor consumers; yet, per capita availability of pulses has steadily declined over the years.

Govt dilemma

The Government is caught in a dilemma. Import volumes are expanding and imports are an absolute necessity to contain price rise. But the risk of nematode infestation is real too and needs to be managed scientifically, without jeopardizing domestic farming. At the same time, the market would be unwilling to wait. Overseas suppliers continue to scout for other import-friendly markets.

Some practical solution would be in order. India is currently undertaking a pest risk analysis (PRA) for stem and bulb nematode. The exercise is likely to be completed in the coming months. However, until such time the PRA has been completed and appropriate measures to deal with the identified risks have been developed and implemented, India’s pulses imports remain at risk. An interim measure, according to grain sector experts, is that while India should continue the current practice of fumigating imported pulses on arrival in the country, Indian plant quarantine authorities can insist on certificate of test and clearance at the port of loading itself from the supplier country official agency.

For instance, Canada, the largest supplier of pulses to India, has an official agency known as Canada Food Inspection Agency (CFIA), which can conduct tests on basis of pre-agreed sampling and testing methods to certify the safety of consignments.

In any case, on arrival, the Indian Government can make random checks to ensure that imports conform to domestic regulations. Such a move, market participants assert, will considerably reduce the risk faced by overseas suppliers and would bring down the risk premium Indian importers are currently paying.

Quarantine issue

The quarantine issue deserves the most urgent attention for another reason. There is a strong possibility that pulses planting in the upcoming rabi season (summer harvest) would take a hit. Growers are likely to plant more of oilseeds and grains (other than pulses). Minimum support price for wheat has been hiked to a record level of Rs 1,000 a quintal (about $250 a tonne).Worse, in Punjab, Haryana, Uttar Pradesh and parts of Madhya Pradesh and Rajasthan, the soil moisture conditions are less than satisfactory. Farmers are unlikely to take a chance with pulses, but are more likely to favour wheat and rapeseed/mustard.

Output and yield

Output and yield will depend on the quantum of winter rains. Into 2008, pulses prices have a strong upside risk; and the market is turning potentially explosive for reasons both domestic and international.

Major origins such as the US, Canada, Australia may harvest less. If New Delhi wants pulses prices to stay under control, the only way is to augment supplies through imports, and by adopting clearance procedures that are practical and effective without hampering smooth flow of goods.

It is also necessary to review the role of Government parastatals in pulses import. Brave statements of intention to import large quantities do not help any one but the overseas suppliers to further jack up prices. State agencies enjoy a 15 per cent subsidy on pulses import.

This concession is not only unjustified but also distorts the market. In importing pulses and selling in the open market, State agencies discharge a commercial function like any other private trader. There is no justification to treat them preferentially by granting ad hoc concession.

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H1 spices exports top Rs 2,100 crore

Kochi, Nov. 5 Spices exports during the first half of the current fiscal have shown a sharp rise with the shipments touching 2,19,640 tonnes, valued Rs 2,100.34 crore ($514.10 million).

Compared to the export performance of 1,80,500 tonnes valued Rs 1,627.52 crore ($353.90 million) in the same period last fiscal, the achievement during the year is higher by 22 per cent in quantity, 45 per cent in dollar terms, and 29 per cent in rupee terms and of value.

As against the target of 3,80,000 tonnes valued at Rs 3,600 crore ($875 million) set for the year, 58 per cent of quantity and 59 per cent of value have been realised in the first six months, a Spices Board release said.

Spices like pepper, cardamom (large), chilli, coriander, fennel, fenugreek and other miscellaneous spices performed better than last year. Among the value-added spices, curry powder, spice oils and oleoresins and mint products have done better compared to last year.

Shipments of some of the items like cardamom (small), ginger, cumin, celery, garlic and vanilla fell short of last year’s performance.
Pepper, chilli trend

During April-September 2007, the country exported 17,000 tonnes of pepper valued Rs 245.43 crore, which is higher by 37 per cent in quantity and 126 per cent in value compared to last year’s 12,450 tonnes and Rs 108.66 crore.

The f.o.b unit value increased to Rs 144.37 a kg from Rs 87.28 a kg last year. During the period, Indian pepper became more competitive in the international market compared with other major producing countries such as Vietnam, Indonesia and Malaysia.

During the first half of this financial year, 1-lakh tonnes of chilli valued Rs 549.25 crore were shipped against 58,285 tonnes valued at Rs 285.38 crore last year. The demand from traditional buyers such as Malaysia, Sri Lanka, Indonesia and Bangladesh are on the rise. The export of chilli accounts for 46 per cent in terms of quantity and 26 per cent in terms of value of the total export of spices from India.

Currently, India is the main source of red chilli for the international market. After the lean production last year, the new Chinese crop will reach the market only by October. Pakistan and the other producers may require a large portion of their September crops for internal consumption

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Royal Palms to invest Rs 1,500 cr

MUMBAI: Real estate developer Royal Palms India on Sunday said it would invest Rs 1,500 crore in next three years for developing an eight million sq ft property in suburban Goregaon.

"We would build 5 star, 4 star and 3 star hotels, IT offices, residential properties, villas and a retail mall. We would be roughly investing Rs 1,500-2,000 per sq ft area for construction," Royal Palms India Joint Managing Director Dilawar Nensey said.

The Rs 1,500 crore would include only the construction cost and not the land cost.

Royal Palms has a land bank of 240 acre in Mumbai, 290 acre near Pune and 80 acres in Alibaug.

Of the 8 million sq ft area in Goregaon, the company has got special economic zone (SEZ) status in 6 million sq ft area. So, it would build its IT offices in the SEZ area so that the benefits of SEZ could be passed on to IT players, he said.

Royal Palms has built 600 IT offices till date and would build 400 more.

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SEZ after Goa govt conducts impact assessment: Kamal Nath

Goa government will conduct impact assessment study before allowing more Special Economic Zones (SEZs) in the state, Union Commerce and Industry Minister Kamal Nath said today.

"I have met Goa Chief Minister Digamber Kamat, who has told me that the state government will conduct impact assessment study before allowing more SEZs," Nath told reporters here.

The Minister is here to address the second Ministerial Council of Asia-Pacific Trade Agreement (APTA) in which six nations, including India, are participating.

The other five countries are South Korea, China, Laos, Sri Lanka and Bangladesh.

Goa government has approved seven SEZs, of which five are awaiting Centre's node.

Nath said that the state government was examining all aspects of SEZs before going for them.

"In Goa, there is no issue over sezs... The issue is over land allocations. This aspect needs to be addressed by the state government," Nath said.

Favouring SEZs, Nath said: "In India, 158 SEZs are notified, bringing in investment of Rs 52,000 crores."

"SEZs will provide all inclusive national growth. Industrial activities must include all sections of society," he added.

Nath said his ministry had huge plans for the state which will be announced after the South Goa Lok Sabha by-election, scheduled for October 30, gets over. --PANAJI, OCT 26 (PTI)

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India to challenge China's forte as manufacturing hub

NEW DELHI: India, popularly known as the world's back office for IT and BPO services, is all set to threaten China's position as the world's backyard for manufacturing in the next 3-5 years, says a new report.

"India could challenge the position of China as the manufacturing centre of the world in next three to five years. Companies are planning to offshore manufacturing activities primarily to India that will surpass its IT and BPO activities," global consulting, technology and outsourcing services major Capgemini said in its latest report.

At present, manufacturing is the least offshored activity to India, but the survey respondents expected the country to become the number one outsourced manufacturing destination due to its competitive cost advantages over China, Capgemini added.

"Current developments suggest that some of the main manufacturing locations in China are becoming too expensive relative to other countries in the region, which includes India," the report added.

Emerging economies like India and China have the largest market share of offshoring activities. India is diversifying from its stronghold in the IT and BPO segment to the manufacturing segment, which is currently dominated by its neighbour.

The report, however, highlights that India has to make significant investments for improving its infrastructure to cater to the increased demand of manufacturing and supply chain operations.

The Indian government is eager to attract foreign manufacturing activities, but it will need to make significant investments to harvest this potential, Capgemini added.

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SEZ rules amended - Now they can use second-hand plant, machinery

New Delhi, Oct. 18 The Commerce Ministry has relaxed an existing restriction on use of second-hand plant and machinery by special economic zone (SEZ) units.

SEZ units could now use second hand plant and machinery to the extent of 20 per cent of the total value of plant and machinery used in the business and still be eligible for tax breaks available for such units under the income-tax law.

Hitherto, the SEZ rules barred SEZ units from using any plant and machinery previously used in the domestic tariff area (DTA). The income-tax law was however amended in Budget 2007-08 to allow SEZ units to get tax breaks if at least 80 per cent of the investments in plant and machinery are out of fresh investments.

The latest amendments to the SEZ rules would align them with the income-tax provisions on this issue. A department of commerce official said that instructions have been given to the Approval Committee to ensure that the 20 per cent level was not breached by SEZ units.

The SEZ rules had earlier barred the use of second hand plant and machinery in SEZ units as the Government was keen that SEZs should have only new investments and there should be no shift of businesses from the DTA into these zones. With the income-tax law undergoing a change, the Commerce Ministry has amended the SEZ rules to remove the paradox.

Multi-product SEZ

Meanwhile, SEZ rules have also been amended to stipulate that multi-product SEZs should have a contiguous area of 1000 hectares or more but not exceeding 5,000 hectares. The exception to this rule is in respect of SEZ units set up in Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu and Kashmir, Goa or in a Union Territory, where the area would be two hundred hectares or more.

Moreover, at least 50 per cent of the area in a multi-product SEZ would have to be earmarked for developing the processing area.

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Mango exports likely reach 90000 tonnes in coming season

MUMBAI: Mango exports from the country may top 90,000 tonnes in the coming season while Dusseri from UP may be the seventh variety to be exported to Japan.

India exported approximately 75,000 tonnes of mangoes this season as against 65,000 tonnes in 2006, said a high official from the Agriculture and Processed Food Products Export Development Authority (Apeda).

“Country’s mango exports in value terms should cross Rs 300 crore this year at around 75,000 tonnes and may be 90,000 tonnes in the coming season,” Apeda director S Dave said on sidelines of a press meet. He said they are looking at exporting pomegranates, litchis and grapes to the US. “There is great potential in the US for Indian pomegranates,” Mr Dave said.

Apeda chairman K S Money earlier said they want maximum number of mango varieties to be exported to Japan. As of now, they are collecting relevant data for the possible export of Dusseri mangoes next season, he added. “India exported 138 tonnes of mangoes to Japan and negotiations are also on with Australia in this regard,” Mr Money said.

Mr Money said that all the four vapour heat treatment (VHT) plants, that are being established by Apeda, will start functioning from March 2008, the next mango season. The VHT plants are essential for treating Indian mangoes so that they meet Japanese health standards. These four plants are coming up at Vashi, Andhra Pradesh and UP at a cost of around Rs 30 crore.

Earlier, while announcing the international floriculture event to be organised at Pune in the first week of November, Mr Money said that floriculture exports from the country were around 381 crore in 2006-07 and for the current year, there should be a growth of 25-30%. Mr Money said that looking at the natural resources available, the quantum of exports are still less.

Mr Dave later said that in five years, floriculture exports have moved up from Rs 40 crore to around Rs 400 crore and he expects it to touch Rs 4,000 crore in the next five years.

The area under floriculture production has doubled during last decade to more that one lakh hectares and India has diversified its export market. In addition to Europe, India is the second larget supplier for flowers to Japanese market beside being a regular exporter to Russia, Australia and theMiddle East. India also has a big domestic floriculture market of around Rs 600 crore.

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China : China 2008 double checking system for textiles & apparel

EURATEX, the European Apparel and Textile Organisation has welcomed the EU Commission’s announcement of its agreement with China to carry out double checking of Chinese exports to the EU of eight textile and apparel products until the end of 2008.

The categories concerned cover eight of the ten products which are subject to limitation until December 31st 2007 following the EU-China bilateral agreement reached by Trade Commissioner Peter MANDELSON with his Chinese counterpart Bo Xi Lai in June 2005.

Speaking in Milan, EURATEX President (Mr) Michele TRONCONI said: “In the absence of quotas after the end of the year 2007, this agreement offers the most practical means of contributing to the smooth transition to quota free trade during the course of 2008 which is recognised by all parties concerned, and more especially by EU manufacturers, as being essential.

"It is a clear sign too that the concerns I have expressed as President of EURATEX in respect to trade with China after the end of this year have been heard and understood by the Commission itself and by member-states."

"The ability that industry and authorities alike will now have to closely monitor trade flows from China in these core categories also provides the opportunity, should the need arise, to seek early redress, and thus to avoid a re-run of the events of Summer 2005, which would clearly be in no one’s interest."

"We will naturally also discuss with the European Commission how best to monitor trade flows in the two product categories where double checking will not take place”

The eight product categories covered by the double checking agreement with China are: 4 (T-shirts); 5 (Pull-overs); 6 (Trousers); 7 (Shirts); 20 (Bed linen) 26 (Dresses); 31 (Bras) and 115 (Flax yarns).

EURATEX represents the apparel and textile industries of the member-states of the European Union, and also has members in Turkey, Croatia, Egypt, Morocco, Russia, and Serbia.

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EU, China agree to end textile quotas

Beijing, Oct 10 (PTI) The European Union has agreed to end quota restrictions on Chinese textile imports with a joint surveillance system in place to monitor the trade flow in 2008, the state media reported today.

The "double checking system", which will track the issuing of licenses for export in China and the import of goods into the EU, will operate for one year in 2008 following the end of quota restrictions on Chinese textiles and clothing, the EU commission said in a statement in Brussels.

After a "textile war," the EU and China reached an agreement in June 2005 on resuming quotas on China's textile exports to the EU, which expires at the end of 2007.

Although imports of these goods will be closely monitored, the level of import will not be restricted by this arrangement, the EU's executive arm said, according to the official Xinhua news agency.

"I welcome this further step in the cooperation between the EU and China in ensuring a smooth transition to free trade in textiles," said EU Trade Commissioner Peter Mandelson.

According to the EU Commission, the joint surveillance system will cover eight categories of textiles and clothing from China.

The system will be formally adopted by the commission in the coming days. On the EU side, national licensing offices will be in charge of the monitoring, the report said. ----PTI

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Lowering export target inevitable

NEW DELHI: A day after Commerce Secretary GK Pillai said the export target of 160 billion dollars for 2007-08 was difficult to achieve, exporters body FIEO on Tuesday said lowering the goal post was inevitable in the backdrop of unabated strengthening of the rupee.

"Lowering of export target to 140 billion dollars is inevitable in view of strengthening of rupee. It is a foregone conclusion," Federation of Indian Export Organisations (FIEO) President Ganesh Kumar Gupta said here.

He said expansion plans of many export firms have been shelved and the closure of a large number of tiny, cottage and small sectors would lead to unemployment.

"It is estimated that eight million jobs will be lost due to lower exports," Gupta said requesting the government to take effective steps to restore competitiveness of Indian exports.

Over 10 per cent rupee appreciation since March this year has resulted in erosion of margins for exporters. The government has taken several measures like increase in the tax refund rates in the popular Duty Entitlement Pass Book Scheme and exemption from service tax in select areas. It has also announced re-introduction of interest rates on the Exchange Earners Foreign Currency Account.

However, the constant inflow of funds from foreign institutional investors has kept the pressure on the dollar.

The government had fixed an export target of 160 billion dollars in April this year. Against a growth of 25 per cent last year, the export growth for April-August has declined to 18 per cent.

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Manufacturing units hit by rising rupee, Chinese imports

Chennai, Oct 9 Larsen & Toubro feels that the rupee appreciation combined with the Chinese artificially locking in their currency is affecting some of the manufacturing units in the company. It has apprised the Centre of this and wants it to act before Indian manufacturing is badly affected.

“My appeal to the Government is impose 30 per cent anti-dumping duty on China until such time they float the currency. The day they float the currency, withdraw it (the anti-dumping duty),” Mr A.M. Naik, Chairman and Managing Director, Larsen & Toubro Ltd, told here on Monday.

L&T has a number of manufacturing units that are affected by imports from China. They are small units and hence overall the company is not affected much. However, the units – producing plastic and rubber machinery, valves and medical equipment – in Tamil Nadu and Karnataka have over 2,000 employees and get almost half their turnover from exports.

Artificially locked in

At its weakest, the rupee was Rs 48 to a dollar and at its strongest, at Rs 39.50, an over 20 per cent appreciation of the rupee. This itself was a major impact on exports. While the rupee was free floating, the Chinese currency yuan was “artificially locked in” at a low price, Mr Naik said and added that if China freely floated its currency, it would appreciate within a week and then all of L&T’s units would become competitive.

He said he had taken this up with the Government, including the Finance and Commerce ministers, and highlighted that Indian industry would be wiped out, if not badly affected, by Chinese imports.

He had even told the Government that if these businesses did not do well, the company would be forced to either close them down or sell the units. He even wanted the Government to take the matter to the WTO to straighten out the issue.

No decision now

Mr Naik said these units were struggling but L&T was not going to take a decision on them right now. “We are struggling. We can’t give up something unless we make a full representation to the Government and see if we can resolve this issue,” he said.

On a two-day visit to the city, the L&T CMD said the rupee appreciation and the Chinese currency artificially locked in offered Chinese manufacturers a 35 per cent cost advantage. L&T could make up with productivity, but not to the extent of 35 per cent, he said.

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India, Lanka sign MoU on Tariff Rate Quota

NEW DELHI: India and Sri Lanka on Friday signed an MoU to finalise procedures for operationalising the Tariff Rate Quota (TRQ), under which Colombo will enjoy duty-free export of three million apparel pieces to its neighbour.

As per the India-Sri Lanka Free Trade Agreement that came into force on March 1, 2000, the Island nation can export to India in one calendar year, three million pieces of apparel articles covered under the FTA, on duty free basis and without any restriction on entry points and sourcing of fabrics.

The MoU was signed by Joint Secretary in the Ministry of Textiles Qaiser Shamim and Additional Secretary in the Sri Lankan Ministry of Textiles Industries W D Jayasinghe, an official release said.

Under the MoU, the Textile Quota Board and Department of Commerce, Sri Lanka would be the nodal agency for issuance of quota and certificate of origin for apparel articles export. From India, the Textiles Committee would monitor the TRQ parameters, it said.

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‘Hike in DEPB rates not the solution to rupee problem’

Kolkata, Oct. 6 Urging exporters to adjust to the scenario of a stronger rupee through adoption of a hedging mechanism (forward contracts) or invoicing in currencies other than the dollar like Euro, the Director General of Foreign Trade (DGFT), Mr R.S. Gujral, said here that a hike in DEPB rates was not the solution to the problem.

He, however, admitted that the exporters were indeed in a difficult situation because of the rupee appreciation vis-À-vis the dollar.

Participating in an interactive session on ‘Post Foreign Trade Policy’, organised jointly by the Engineering Export Promotion Council and the Federation of Indian Export Organisation (FIEO), Eastern Region, Mr Gujral said efforts should be made to ensure that the foreign currency risks are addressed by the international buyer.

In the context of perceived uncompetitiveness of Indian exporters because of a stronger rupee, he said that in the long run, they had to improve technology and reduce the cost of production to emerge more competitive globally.

Assuring them help through dialogues with the Finance Ministry on issues such as easy bank credit and below PLR rates, he said discussions were already on to cut down or eliminate export documentation to reduce transaction costs for exporters.

EPCG scheme

Hinting at some relief with regard to eligibility criteria in the Export Promotion Capital Goods (EPCG) scheme, he ruled out any dilution of value additions norms.

Responding to alleged cartelisation moves by pig iron manufacturers, he told the EEPC to take the matter to the Competition Commission.

On notification of two more Land Customs Stations in West Bengal for DEPB credit, the DGFT said the matter would be taken up with the Finance Ministry soon.

VAT problem

For small and medium West Bengal exporters who are grappling with the problem of delayed VAT refunds (now said to have accumulated to Rs 34 crore), Mr Gujral said DGFT would take up the matter with the Department of Revenue. The Engineering Export Promotion Council has urged the Government to move from refund-based initiatives to an exemption-based system.

Export target

Earlier, in his welcome address, Mr S.K. Jain, chairman of FIEO, ER, said the target set by the Government of $160-billion exports during 2007-08, and $200 billion in 2008-09 was rather optimistic, particularly in the backdrop of a rising rupee and slowing global economic growth.

He listed infrastructure development, logistics support and rising transaction costs as three important issues which need to be tackled upfront if exports from eastern region have to pick up in a big way.

Commenting on the rupee issue, he said: “we have reached a stage when we have stopped entering into new contracts.”

Relying on secondary data on various sectors, Mr Jain said export realisations on account of rupee appreciation had fallen by 12 per cent for chemicals, 6 to 6.5 per cent for textiles and likely to dip by 20-25 per cent for processed foods and agro products, electronics & electricals and steel products.

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Kamal Nath says exporters need more relief

New Delhi, Oct 6 The Union Commerce and Industry Minister, Mr Kamal Nath, on Saturday gave a qualified welcome to the mini-package for exporters announced by the Finance Ministry in the wake of the appreciating rupee, stating that he would continue to press for more relief required for exporters.

Mr Nath said at a news conference in his office here that rupee appreciation, though a sign of resilience of Indian economy, has become a matter of particular concern to exporters whose import-intensity in export production is not much. He said that a Committee has been set up to address this serious concern.

He also said that last week the Prime Minister, Dr Manmohan Singh, had asked Dr C. Rangaraman, Chairman, PM’s Economic Advisory Council, to study the problems plaguing the export sector in the aftermath of the appreciating rupee, as also the slowdown in industrial production, and prepare a report within a month.

He welcomed the Finance Ministry’s decision to allow interest on Exchange Earners Foreign Currency (EEFC) account and also extending services-tax exemption to four more areas, making such exemptions available for seven services. He said that his ministry would plead for inclusion of other services-tax exemption too and the modalities for this were being worked out.
Cost of relief

To a specific query about the cost of the relief announced on Saturday, in the light of the Rs 1,400-crore package announced in July 2007, Mr Kamal Nath said that it was not proper to estimate loss of tax revenue for these incentives to exporters as they are only notional. He said export activities generate their own spin-off effects, which produce more revenue to the exchequer.

Stating that export was no longer an exchange-earning activity but more of providing gainful employment through sustained economic activities, the Minister said that despite the appreciating rupee he was not revising the export growth set for the current fiscal, which is likely to be 20 per cent in dollar terms. He said that product coverage under Vishesh Krishi and Gram Udyog Yojana employment-intensive industries would be expanded, and he cited minor forest produce and food processing industries as those with good employment potentials. Meanwhile, the President of the Federation of Indian Export Promotion Organisation, Mr G.K. Gupta, and the Vice- President, Mr A. Sakthivel, while hailing the relief package, regretted that main services such as commission to foreign buyer, overseas travel, courier charges and charges to customs house agents, which continue to impact all exporters substantially, remain outside the remission mechanism.

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Exporters get more sops on service tax, credit

Rupee relief: Enlarged coverage of export schemes

Bowing to exporters’ demands, the Government on Saturday announced a new set of relief measures for exporters in the wake of rapid appreciation of the rupee in recent weeks. On Thursday, the rupee hit 39.36 per dollar, is the strongest since March 1998.

The latest package comes on top of the estimated Rs 1,400- crore financial relief measures, announced in July this year, which included accelerated reimbursement of dues to exporters, reduction in pre-shipment and post-shipment credit and revision in drawback and DEPB rates.

The Finance Ministry had also in mid-September said that refund of service tax would be available in respect of four services, which are not in the nature of “input services” but could be linked to export of goods.

The relief measures announced on Saturday included widening of the coverage as well as extension of the time period of the reduced export credit, refund of service tax on three more services, a provision to pay interest on exchange earners foreign currency (EEFC) accounts and an increase in the revenue ceiling on Vishesh Krishi and Gram Udyog Yojana (VKGUY).

More products are proposed to be covered under VKGUY, which is a scheme to promote export of agricultural and village industry products. For this purpose, the revenue ceiling for 2007-08 has been fixed at Rs 500 crore, up from Rs 200 crore set earlier.

The coverage of the 2 per cent interest subvention, made available in July 2007 to nine specified sectors, has been expanded to include sectors such as solvent extracted de-oiled cake and plastics and linoleum. Also, jute and carpets (under textiles) and processed cashew, coffee and tea (under processed agricultural products) would be eligible for this.

The scheme of reduced interest rates under pre-shipment as well as post-shipment credit would now be applicable up to March 31, 2008 as against the earlier announced December 31, 2007. The three new services for which refund of service tax would be available to exporters are general insurance services, technical testing and analysis agency services and inspection and certification agency services. Official sources said that refund of service tax on general insurance services would lead to revenue loss of Rs 1,000 - 1,200 crore in a financial year to the exchequer.

On EEFC accounts, the Government has now said that such accounts would be interest bearing so long as certain conditions are met. It has allowed banks to determine the interest rate, but stipulated that interest would be permissible on outstanding balances to the extent of $1 million per exporter. The facility of availing interest on EEFC accounts would be valid up to October 31, 2008. Such accounts should be in the form of term deposits with a maturity of up to one year, the RBI has said.

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Pak court orders release of detained Indian sugar

New Delhi, Oct. 4 The month-long saga involving detention of Indian sugar by Pakistani customs authorities on public health grounds is finally over.

6,800 t Released

The Lahore High Court has ordered the release of nearly 6,800 tonnes of imported Indian sugar lying in railway godowns, having been seized for allegedly containing high levels of sulphur dioxide and not confirming to required ICUMSA (International Commission for Uniform Methods of Sugar Analysis) standards.

In his order on Wednesday, Mr Justice Syed Hamid Ali Shah directed the release of the impounded sugar, dismissing the petition of the Pakistan Sugar Mills Association (PSMA) and allowing the two importers, Rana Brothers and Sawera Group, to sell the product in the local market.

Held up since Aug

While Rana Brothers had imported one rake of 2,392 tonnes from the Saraswati Sugar Mills at Yamunanagar (Haryana), Sawera had bought two rakes of 2,272 tonnes and 2,093 tonnes from the Seksaria Biswan Sugar Factory at Sitapur in Uttar Pradesh.

The consignments had entered Pakistan through the Attari-Wagah border around August-end; and had since been held up at the railway godowns.

‘Irrelevant’

The importers challenged the detention, stating that the issue of public health had not been raised when 7.46 lakh tonnes (lt) of Indian sugar were imported by the Trading Corporation of Pakistan and sold across utility stores in the country.

The controversy over ICUMSA, they pointed out, was irrelevant because it pertained merely to the colour of the sugar and not to whether it was fit for human consumption. They also contended that the sugar was being consumed in several countries including
Afghanistan and Bangladesh.

The imported product was of 140 ICUMSA, which was well within the prescribed standard for plantation white sugar even if not for refined sugar.

PCSIR FINDING

As regards sulphur dioxide, it was pointed out that the substance was used as a preservative in several edibles, including fruit juices and colas, in volumes higher than the ones found in the imported Indian sugar.

The first petition against the imports was filed by Mr Luqman Ahmad, a sugarcane grower.

The Pakistan Sugar Mills Association moved the second petition asking the court to stop the marketing and sale of Indian sugar in Pakistan. Its counsel, Mr Chaudhry Fawad Hussain, said the imported sugar was hazardous to health.

He also contended that Indian sugar was being imported despite the fact that Pakistan Council of Scientific and Industrial Research (PCSIR) laboratories had declared presence of 30 mg per kg sulphur in it in the past.

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Onion exports only with special licence: Govt

NEW DELHI: The government on Thursday slapped restrictions on onion exports, saying the edible bulb can be sold overseas only with a special licence aimed at ensuring adequate availability of the commodity in the domestic market.

Commerce and Industry Minister Kamal Nath "has decided today that the exports of onion, which was hitherto canalised through the designated public sector agencies be restricted immediately," an official statement said.

"Accordingly, a notification has been issued by the government providing that the exports of onion shall herein after be restricted and permissible only under an export license through designated canalising agencies," it added.

The government is trying to ease onion prices, which have risen to Rs 25-30 a kg in retail markets across the country from about Rs 15 a kg two months back.

Earlier today NAFED, the government agency that facilitates onion trade, said there was no bar on export of the commodity but it was only going slow on granting no-objection certificates to exporters.

"The export of onions is still on. However, concerned by the rising prices of onion... certain measures have been pressed into to check the ongoing spurt in the prices of onion," National Agricultural Cooperative Marketing Federation (NAFED) Managing Director Alok Ranjan said in a statement.

To deter overseas sale of onion, NAFED had first increased the minimum export price by $50 for all destinations.

"New NOCs will now be issued to exporters when they submit the utilisation report for NOCs issued to them earlier," he said.

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Rising rupee does not spare domestic manufacturers

New Delhi, Oct. 2 Not only has the strengthening of the rupee vis-À-vis the greenback been denting export margins, but it is now beginning to hit those manufacturing for the domestic market.

Among those affected are manufacturers whose products are substitutable by imports, which have turned cheaper as the rupee hardens. The trend is evident in a bevy of sectors such as chemicals, textiles, standardised auto components and tyres, where imports have been on the rise.

Domestic suppliers to export firms are also taking a hit as exports falter. Further compounding the woes of the domestic manufacturing sector is the fact that India is fast turning into a high-cost economy, with spiralling real estate prices, increasing interest rates and high cost of infrastructural overheads such as power and freight costs, all of which translate into whittling down of margins.

Margin squeeze

Mr Ashish Bharat Ram, Managing Director, SRF Ltd, said, “The rupee appreciation is adversely impacting those domestic manufacturers where the product is substitutable by imports.” He explains that even in cases where raw material is imported, margins are being squeezed. “Imports of raw material from China, for instance, are of special concern as the yuan has not been revalued, and this puts pressure on margins even further.”

Jubilant Organosys’ Executive Director (Finance), Mr R. Sankaraiah said, “The impact of the rupee appreciation is also on those industries that are importing commodities as raw material at par with international competition.”

The rising rupee has, on the flip side, rendered imports into India more competitive. Sona Koyo Chairman and Managing Director, Mr Surinder Kapur, said, “An impact would be felt by those who make standardised auto components where import substitution is possible.”

In the case of textile products, during the 12-months to March 2007, imports from Pakistan jumped 66 per cent while cotton yarn and fabric imports from Pakistan were up 74 per cent and from Sri Lanka 65 per cent, according to latest DGCI&S data. The auto components sector is seeing similar trends.

Impact meter

The Marketing Director of JK Tyres, Mr A.S. Mehta, said, “When domestic players share the same platform as overseas players, the impact is serious. While imported goods prices are down, manufacturers who use local raw material have no advantage in production cost. Chinese tyre imports have always been a concern. Partial withdrawal of subsidy by the Chinese to their manufacturers had reduced the price gap, but rupee appreciation has once again made it an issue.”

Firms supplying to exporters are also taking a hit as exports wobble. Mr Mukund Choudhary, Managing Director of Spentex Industries, said, “Most of our domestic yarn sales go into deemed exports. Since exports of readymade garments have been hit, naturally it affects our domestic sales.”

A number of leather manufacturers in smaller centres such as Agra and Kanpur, who supply to exporters, are also witnessing a dent in sales.

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Thailand investors urged to invest more in North-East region

Bangkok, Oct. 2 Even as India and Thailand are well on course for conclusion of the Free Trade Agreement (FTA) talks by March next, two Union Ministers and eight Ministers from North-Eastern States (including five Chief Ministers) today made out a strong case for investments in the N-E region by potential investors from Thailand.

Citing the age-old geographical and historical links with Thailand, which date back to nearly 1,200 years, investments were sought in infrastructure and agro-processing and horticulture industries.

Echoing similar seriousness, Mr Krik-Krai Jirapet, the Thailand Minister of Commerce, who had visited Tripura, Meghalaya and Assam, along with a large delegation in June last, committed himself to a repeat visit to the remaining five States of the North East.

Launching the four-day North East India Trade and Investment Opportunities programme in Bangkok today, Mr Mani Shankar Aiyar, Union Minister for Development of North Eastern Region (DONER), said all facilities, including a single window clearance, have been created to embrace Thai investments into the region. He said some $15 billion was waiting to be spent on roads development in the North-East in the next 10 years.

Mr Jirapet, on his part, said Thai investors were keen to invest in areas such as energy, infrastructure development, food-processing, textiles and so on. Stressing on the need to fill in the missing links to facilitate large investment flow, he said “this is why I need to cover all States of the N-E region”.

Air connectivity

Highlighting the need for establishing air connectivity between N-E cities and rest of India and also Bangkok directly, Mr Aiyar said the proposed dedicated North East Airlines would become operational by July 1, 2008. “In the meanwhile, we have extended our current arrangement with Alliance Air till 2008,” he pointed out.

Allaying fears over the insurgency and terrorist movements in the N-E region, he guaranteed Thai investors that utmost importance was being given to the security situation. He clarified that most of the States were peaceful, and problems crop up only in pockets. “I don’t think this issue should stand in the way of Thai investors,” he said.

Giving the highlights of the already notified NEIIPP (North East Industrial and Investment Policy Promotion) 2007 package, which assures tax incentives and other subsidies for all investors, Mr Ashwani Kumar, Union Minister of State for Industry, said this was the best ever package by the Government for development of N-E region, and urged Thai investors to take full advantage of this package.

“We stand committed to pump in billion of dollars into the North-Eastern region, to make the people of this part of India our partners in progress, and some $250 billion is going to be invested in infrastructure development alone in the next five years in the country, bulk of which may go for such works in the N-E region.”

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Challenge for manufacturers

Domestic manufacturers, hit by a strong currency and cheap imports, need to sharpen competitive edges by cutting costs and upgrading technology.

For many producers in the Indian economy the rising rupee must seem like a viral fever that spares no one. Till a few months back the exporting community was hit by the rupee’s strengthening against the dollar and the Commerce Ministry, like a good doctor, was promising relief for those merchandise exporters complaining the loudest. Now it is the turn of domestic manufacturers to feel the effects of a rupee that persists at high levels with some analysts predicting t he dollar will stay below Rs 40 for a sustained period. Since imports have become cheaper, it is not only domestic manufacturers of semi-finished or finished goods such as auto components and tyres that have to fear competition from imports, but also those who produce raw materials. Soon, producers across the spectrum will begin to get restive.

They should not because extreme nervousness tempts one to reach for the help-line to the Commerce Ministry that can at best offer temporary and partial concessions. Instead, they should learn from a section of the exporting community that has turned an apparent handicap into a challenge to effect structural adjustments in the product mix, pricing strategies and markets, apart from cutting costs wherever possible. Textile exporters, for instance, have begun to shift to euro-currency markets, increase production capacities and trim the flab that a weak rupee’s price advantage allowed them to accumulate. The high-tech sector, likewise, has moved up the value chain but it has done more by shifting incremental services offshore, closer to clients and to areas whose currencies are still weak against the dollar. Domestic manufacturers do not have that comfort; instead, they are additionally burdened by rising costs on two counts, apart from the effects of a strong currency. One, the historic cost of poor infrastructure and power shortages and, two, those associated with rising wages on the heels of strong economic growth. Cheap imports following a strong rupee add an extra bitterness to the manufacturers’ cup of woes.

But here lies the challenge of sharpening competitive edges by cutting costs wherever possible. One productive way of doing so is to pressure policymakers into doing their bit for power generation, labour law reforms and land acquisitions —in effect, setting in motion the next and most crucial reforms for growth into the next decade and beyond. The second is to upgrade technology wherever possible to mitigate rising wage inflation and achieve better logistics. The third has been used most effectively by the US, Japan and the East Asian tigers, namely exporting production to low-cost centres. India has its own equivalent of a low-cost but onshore locale — the unorganised hinterland whose growth could offset some of the cost disadvantages of domestic producers.

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Rupee appreciation upsets export arithmetic

Imagine a Tirupur garments exporter competing with a Chinese company for American market share. This is a classic example of an Indian exporter running economic exposure on his business. The exporter has a basic transaction exposure against the US dollar. But he also runs an equally or even more significant economic exposure against the Chinese yuan. If the yuan does not appreciate or rises less than the rupee’s gains against the dollar, the Indian exporter faces a serious threat to his share in the US market as there is an effective Chinese price cut in such a scenario. Any attempt to match the effective lower Chinese prices actually compounds the problem for the Indian exporter as his final rupee realisations are under greater pressure then.

The Chinese example has been cited here to just highlight the issue of economic exposure which Indian exporters face in today’s extremely competitive global trading environment. Indian exporters are obviously facing competition from a number of other countries also in all their main export markets. It is not surprising, therefore, to see that while exports grow double-digit in dollar terms, the growth in rupee terms is severely constrained by the complex and inter-connected risks in global merchandise trade. For the first five months in FY-08, for instance, while growth in dollar terms is 18 per cent, that in rupee terms is just 5 per cent.

At one level, these developments possibly just show the limits of export-led growth and activity in a country such as India. Indeed, with exports constituting only around 12-13 per cent of GDP, one may wonder how critical is the export-led model for India. The domestic market is huge and the level of consumption/investment demand is high enough for the country to run, even if only modest now, trade deficits.

It is quite different in the case of China where exports are a national industry (as a matter of deliberate policy) and account for more than a third of total national income and domestic consumption (though now opening up) is still largely suppressed. This structural difference between India and China is also reflected in the fact that while Chinese FX reserves are basically export surpluses, Indian FX reserves are basically capital account surpluses. At another (micro) level, the export statistics also show that in a complex and competitive global trade environment, Indian exporters are possibly not yet tuned into the need for proactive (and sometimes pre-emptive) financial risk management.

Hedging economic exposure may possibly call for more advanced financial instruments (such as currency options on the currencies of competing countries for instance) and their active use. But it is one of the quirks of the global trade/markets system that while a country such as China seeks to enjoy all the benefits of open, free consuming markets of the world (specifically the US), it picks and chooses which part of the global trade/market rules it will comply with. For instance, it heavily manages its yuan currency and also, as a corollary, does not allow internationalisation of the currency. (Most other Asian currencies except Japan also fall in this bracket. Japan has traditionally intervened heavily in its currency but the yen is one of the key international currencies also. Also to be noted is that Japan has not intervened in the yen since March 2004.)

Therefore, hedging economic exposures actively is still some way off. Indian exporters, though, can well and truly hedge transaction exposures with the available instruments in the local markets. The underlying math relating to the export sector — on export costing and pricing for instance — only seems to make that imperative.
The underlying math on exports

An analysis of the math (see Table) is necessary to throw light on the underlying economics of the export trade at the individual exporter level. If not anything else, it may at least point to how important active hedging is for Indian exporters in the current and emerging environment.

Consider an Indian company which exports only to the US market. (This is quite a realistic scenario in Tirupur, for instance, where there are a number of mid-size exporters who sell almost entirely in dollars/ to the US market).
The Economics

Equation 5 also brings out clearly how rising costs and an appreciating local currency can apply pressure on both the cost and revenue sides and render the export trade quite uneconomic.

For example, assuming per unit cost of production is Rs 100, an exchange rate of Rs 45 to the dollar and a price elasticity of 2, one can see that the unit dollar price for the exporter will be 100/45 (1-0.5) = 4.5.

Now, if production costs rise and the local currency also appreciates (as has happened in the case of Indian exports), without any change in the price elasticity (elasticities are quite sticky in the short/medium term and also unlikely to change in the case of low value added items), the exporter will be literally priced out by his competitors who have not experienced such cost side pressures/local currency appreciation. Assuming that unit costs rise to Rs 120 and the rupee appreciates to 40 against the dollar, one can see that the equilibrium dollar price for the exporter should rise to at least $6 per unit. How many mid-size Indian exporters have the pricing power to increase negotiated and agreed upon prices?

Compare the above workings with that for a Chinese exporter who has not experienced such cost side pressures and also, importantly, benefits from a relatively much more stable currency. The Chinese yuan, for instance, has been allowed to rise around 9 per cent against the dollar in the two years since July 2005 — from 8.28 to 7.51 now — but the Indian currency is up 10 per cent in just the last 7 months.

It is obvious that the Chinese exporter will have a significant price advantage which can be extremely useful in increasing market share — particularly in low value-added items.

Equation 5 tells in a very concise manner how critical it is for the exporter to protect the (initial) exchange rate based on which his export pricing has been worked out. Such protection is achieved only through active and systematic hedging.

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Knitwear exporters feel the heat of rising rupee

Tirupur (TN), Knitwear exporters have already started feeling the pinch of rupee appreciation, as they registered a 10 per cent fall in growth so far this fiscal, against the usual 15-18 per cent rise in annual growth. "There is a shortfall of 10 per cent and if the trend continues, it will be very difficult to reach Rs 10,000 crore exports, against over Rs 11,000 crore last fiscal," Tirupur Exporters Association President A Shaktivel told reporters here last night.

Rupee appreciation has had an adverse effect not only on exports, but also on employment. Nearly 7,000 people have already lost or left their jobs, on lack of new orders from July last, Shaktivel said.

Due to the weak order position, compared to other years when there are 7-8 months pending orders, there was the possibility of about 50,000 people losing jobs by March 2008, he claimed.

Moreover, exporters were also not going in for expansion, because buyers wanted garments at cheaper rates, which they were getting from Pakistan, Bangladesh and other countries, Shaktivel said.

Appealing to the Government to intervene immediately and bail out the industry and exporters, he said the Centre should bring down bank interest rates to six per cent, discourage Foreign Investments and promote only FDIs.

Nearly 76 per cent of India's exports were in dollar, of which garments contribute a major share. The government should take some steps to weaken rupee at least marginally as was done some time ago, Shaktivel said. PTI

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Ban on milk powder export expires

NEW DELHI: The ban on milk powder exports has expired as the government has earlier taken a decision against extending the ban beyond September 30.

"We have not extended the ban beyond September 30, 2007. This means it has naturally been lifted," Department of Animal Husbandry and Dairy Development Joint Secretary S Rawla told PTI.

She said the government took the decision after reviewing the availability of milk powder and milk prices in the country.

When asked about apprehensions by consumer activists and industry body CII, which favoured continuance of the ban, Rawla said there are other measures under the Milk and Milk Products Order (MMPO) to check the prices if they rise again on the back of permission for exports.

She noted that there was abundant availability of milk powder in the country at the moment and there was no reason for concern.

The move should enthuse milk powder producers as the prices of the commodity has fallen significantly after the ban was imposed in February to contain inflation. The manufacturers had to cut utilisation of their capacity due to fall in prices.

India produces about 100 million tons of milk annually out of which only six per cent is used for producing milk powder. Milk powder export stood at 50,510 tonnes in 2005-06.

"Removal of ban and allowing exports freely is bound to cause shortage of milk during the upcoming long festival season starting with Dussehra, Diwali and Eid. Prices can escalate once again," consumer activist Bejon Misra said.

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India now demands enhanced mkt access to Asean members

NEW DELHI: India has demanded that Asean countries should provide improved market access to 783 items including key manufactured goods like auto parts. The enhanced market access sought by India is not only in the form of tariff reductions, but also involves removal of non-tariff barriers. A number of agriculture products are also part of the list which has been submitted to Asean, government sources said.

It is felt that the move will prove a level-playing field to India which has been facing internal resistance over the Asean FTA from various sections, including Congress president Sonia Gandhi who wants the government to be cautious on the impact of liberal imports on farmers. Indian auto industry has also been raising concerns over impact of duty concessions to Asean countries under the FTA.

Sources said that while the FTA envisages elimination of duties on most goods over a period of time, imports could be still impeded by non-tariff barriers like stringent standards and conditions attached to imports. For instance, conditions like compulsory use of indigenous components could serve as a big disincentive for the automobile industry.

The Indian side has also said that negotiations on trade in services should be started this year itself and completed by the middle of 2008. Asean has been saying that negotiations on services and investment could be started only after concluding the FTA negotiations on trade in goods.

There is strong political pressure to negotiate a balanced agreement with Asean, the sources indicated. The feeling within the government and political circles is that too much market access is being given to Asean without reciprocal benefits for India. The argument in favour of strategic geo-political reasons should not overtake pure economic considerations, they feel.

Asean has been demanding that duty reduction under the FTA should be speeded up, moving faster than the initial milestones.

However, many of the Asean members have not met the stipulations laid down so far in terms of limiting the exclusion lists to 489 tariff lines and 5% of import value, the sources added. Thailand, Vietnam, the Philippines, Myanmar and Cambodia have not fulfilled this criteria so far. India has already met both stipulations in the revised offer that has been finalised.

Malaysia, Thailand and Laos have not even submitted their revised lists so far. Similar is the case with trade and tariff date which was submitted by India on August 7, 2007. These details have not been provided by Asean members, except Malaysia.

Some Asean countries have retained a large number of products in their sensitive and highly-sensitive lists, the sources said. As compared to 542 tariff lines in sensitive list by India, Indonesia has 601, Laos 611 and the Philippines 935. India has only 5 items on the highly-sensitive list as compared to 354 in the case of Vietnam and 20 in the case of Indonesia.

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520 items to get tariff shield under India-EU trade pact

NEW DELHI: The commerce department is on a drive to identify 520 items that would be shielded from tariff cuts planned under the proposed India-EU bilateral trade and investment agreement. Tariffs on all other items will have to be reduced to zero in 10 years from the date of implementation of the agreement.

Speaking to ET, sources said as per the mandate of the agreement, India can protect just 520 lines from tariff cuts out of more than 5,000 product lines covered under the agreement. The import value of the protected products cannot be more than $2.6 billion. “Whatever protection is extended to our industry and agriculture has to fall within this range,” an official said.

Unlike India’s sensitive list with the Asean countries (of about 490 items), which includes as many farm products as industrial products, the sensitive list with the EU is likely to have lesser number of agricultural goods. Since EU is not perceived as a threat for many of India’s sensitive agro products like rubber, there would be more scope to protect a larger number of industrial products.

Although agriculture is a sensitive area, there are a large number of commodities which are not produced in the EU and, therefore, don’t pose a threat. “While rubber is a sensitive item and has to be protected against competition from Asean countries, there is no apparent threat from the EU countries. It might not affect the industry if it is excluded from the sensitive list. We, therefore, want the industry to work closely with the government to help identify the potential threats and opportunities,” the official said.

According to FICCI Senior Director Manab Majumdar, who has conducted workshops in some parts of the country to get inputs from various sectors, industries like automobiles, both completely-built units (CBU) and components, plastic items and equipment & machinery were most concerned about tariff cuts. “We have suggested that the sectors should be included in the sensitive list,” he said.

UNCTAD is the nodal agency helping the commerce department in finalising the list of sensitive items by holding consultations with stakeholders.

Officials from the EU and India are engaged in a meeting to take ahead the bilateral trade and investment agreement. Negotiations on the agreement envisaging liberalisation of trade in goods, investment and services, began in June this year. The two sides are hopeful of concluding talks by 2008 end following which implementation of the agreement would begin.

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Exporters offload dollars in forward mkt

MUMBAI: Following the subprime crisis in the US, Indian firms are feeling the heat of a crunch in dollar-denominated credit lines, at least in the near term.

This has led to a sharp decline in dollar funds in the Indian banking system, although, concidentally, rupee liquidity is high. In this scenario, several exporters have been forced to buy dollars in the spot market, where the rupee is trading at 39.60 levels against the dollar, and then sell the dollars in the forward market.

This had led to a decline in yields on forward contracts. However, it has also resulted in the dollar posting small gains against the pound sterling and the euro in the past few days.

However, the marginal rise of the dollar against such currencies cannot be attributed to economic factors or cannot be perceived to be a longer-term phenomenon, as this is due to the surfeit of dollars being sold in the forward market.

Typically, domestic exporters receive post-shipment credit denominated in foreign currency from banks in India, which receive dollar credit from banks abroad. However, the rate of interest on credit lines for a period of one to three months have risen sharply, as compared to credit lines for a tenor exceeding three months.

A senior treasury manager said that “many banks in India have exhausted their dollar borrowing limits, following a cap fixed by the Reserve Bank of India. That is why most of them prefer lending post-shipment credit in rupee terms rather than in dollar terms, as they prefer to retain the latter within their hands, in anticipation of a dollar shortage. Hence, it is seen that funds are borrowed in dollar terms and swapped into rupees, which is then used for lending to clients.”

Standard Chartered Bank MD & corporate sales head (global markets) Hemant Mishr pointed out that “despite the measures undertaken by the US Federal Reserve and the Bank of England, the tightness in monetary conditions continues. This is exemplified by the fact that the the three-month repo rate is quoting at at 5.25%, a premium of 50 basis points ovber the Fed funds target rate.”

Treasury officials feel that even as overnight rates have been cut, rates in the money market have not fallen. This is only indicative of a dollar squeeze in the near term.

Market sources said that this is also to do with the fact that dollar interest rates are expected to dip further over the longer term. Within India, rupee flows have been abundant, due to two main reasons, one being the excessive intervention by the Reserve Bank of India, to prevent the rupee from rising too much and secondly because of government spending, in the wake of the advance tax outflows in mid-September.

Further, traders in the local forex market expect the liquidity to swell up further, given that there are some coupon payments likely to happen within this week.

With more and more traders selling the greenback on the forward market, the forward premia have dipped sharply in the local market. The premia on near-term contracts have remained below the 1% mark for a while now. In the short-term forward market, the cash-spot, cash-tom and tom-next are all trading at a discount.

Hinduja group group CFO Prabal Banerji said, “Exporters are facing a double-whammy situation. On one hand, the dollar-credits are getting increasingly restricted due to the subprime crisis and on the other hand, the rupee is showing no signs of weakening.

Selling dollars in the forward market is the only option they have at the moment, but given the extremely low premia on forward contracts, it is unlikely to make any significant difference to their profit levels.”

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