EEPC India urges supportive measures to engineering industry

Mumbai (PTI): EEPC India, the apex body of engineering exporters from India, has urged the government to provide supportive measures for Micro, Small and Medium Enterprises (MSMEs) sector, a top industry official said here.

"In the present uncertain market scenario, engineering exporters require support measures, specially the MSME state in order to survive in these hostile times," EEPC India Chairman Aman Chadha said on the occasion of EEPC India's Western region Award Presentation Function for 2006-07 here.

He elaborated that the hostility in the global trading environment is now affecting engineering sector too which is now facing considerable demand problem in global markets and are under acute distress.

Mr. Chadha noted that certain segments of Indian engineering industry such as nand tools, bicycle and parts, castings, auto components, and similar other low value added engineering units are in no way different from the textile and leather sector, in terms of their shrinkage in demand leading to loss of output and employment.

However, the government has consciously refrained from supporting the engineering sector as there is a belief that engineering exports will pull through, Mr. Chadha said.

Mr. Chadha said that demand for engineering products has decreased drastically, thus considerably affecting Indian engineering exporting community. The extension of Focus Market Scheme will help exporters in maintaining their traditional markets to some extent, he noted.

With the $10.6 billion engineering exports, the western region of the country had a share of almost 40 per cent of India's total engineering exports of $26.49 billion in the fiscal 2007.

Its a matter of joy that this share has gone up to 41 per cent in FY'08 with exports of $13.6 billion in FY'08 out of total engineering exports of $33.15 billion in the year.

Mr. Chadha also pointed out that circumstances in 2006-07 were more conducive for exports. The exchange rate was far more benign than in the year FY'08 and in early part of FY'09. Further, the raw material prices and freight rates were less volatile as compared to subsequent fiscal years.

Thus, the remarkable growth in engineering exports witnessed during the fiscal year FY'07 is an indicator that an "enabling environment" can do immense good to boost the export capabilities especially of those belonging to micro, small and medium scale sector.

On the occasion, 85 companies from the region were awarded for their excellent export performance.

The list included some of the leading names like Bharat Forge, Uttam Galva, KEC International, Bajaj Auto, Hilton Metal Forging, Jyoti Steel Industries, Aeroflex Industries and Finolex Cables.

On the occasion, Governor of Maharashtra S C Jamir highlighted the efforts made by the government to simplify the process of exports and improve the infrastructure for the same purpose.

He hoped and expressed confidence that "we will soon tide over the present crisis." He also requested the industry captains to continue to play their national role of creating employment in the country by enhancing productivity and efficiency and venturing out to new markets.

In his welcome speech, Nayan Shah, Regional Chairman, EEPC INDIA (Western Region) highlighted the key role played by EEPC India in promoting export and the cause of the exporting community by hosting overseas exhibitions, fielding trade delegations and organising buyer seller meets.

He said that world-wide recession and decrease in demand has badly affected Indian exporting community. Shah noted that Governments stimulus package is taking time to impact the economy and more such packages are required on consistent basis. The Council has also urged the Government for granting of Focus Market Scheme benefit to EU and North America, which so far attracted 40 per cent of India's engineering exports but are facing severe crisis at present.

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Slowdown-hit India Inc has wish list ready for next government

NEW DELHI: Hit by a demand slowdown and meltdown in the global economy, India Inc has its wish list ready for the next government, with
Industry sector-specific policy reforms and tax sops on top of the agenda to tide over the crisis.

The ailing export sector, which in October witnessed a decline for the first time in a decade due to the contraction in global trade, has sought an exemption from paying income tax for some five years to deal with the turmoil.

"Since the export sector is an employment-oriented industry, we should be exempted from paying income tax for five years," said A. Sakthivel, president of the Federation of Indian Export Organisations (FIEO).

"We want a separate policy for the export sector that can be drafted after the government analyses what the global market situation is. The policy should take into consideration what other competing countries are doing," Sakthivel told reporters.

According to the federation, promoted by the commerce ministry, the export sector lost about 500,000 jobs during the third quarter of this fiscal and it was imperative to formulate a separate policy to help arrest this ominous trend.

Another sector that has been a significant contributor both for fresh jobs and exports in the past, the information technology industry, wants the service tax schemes to be simplified and an extension of sops available on exports to spur growth.

Section 10A of the Income Tax Act exempts payment of tax on incomes from any newly established firm in a free trade zone, while section 10B extends a similar sop on income from any newly established 100 percent export-oriented undertaking.

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Department Commerce backs tax exemption for SEZ services

NEW DELHI: The finance ministry should exempt companies in special economic zones (SEZ) from paying tax on the services they consume instead of making them seek refunds, according to the commerce department. Earlier this month, the finance ministry had notified that instead of being exempt, companies within SEZs would have to claim refunds for the tax they pay on services.

“We have written to the revenue department asking it to allow SEZs exemption on service tax within the zone as was being done earlier. For services outside the zone, developers and units could be given reimbursements on the taxes paid,” said a commerce department official.

The industry prefers exemptions over reimbursements as the latter takes time, besides locking up funds with the government for a considerable period. A 10% tax is imposed by the government on 100 services.

Initially, the government exempted companies from tax on services consumed within SEZs. SEZs then demanded that exemption should be extended to authorised services consumed outside the zones such as port-handling, in-land transportation, courier and banking.

Following months of discussions between the commerce and revenue departments, a notification was issued allowing refunds on services availed both outside and inside the zones. But the exemption was short-lived. It was laid down that SEZ developers and units will have to claim reimbursements.

“We have pointed out to the revenue department that this change is unfair especially at a time when the industry is already starved of funds,” the official said. The revenue department has, however, not yet responded to the commerce department’s request.

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India extends zero customs duty, ban on pulses export for a year

NEW DELHI -- India Wednesday extended the import of pulses at zero customs duty and the ban on exports on the products for another fiscal year due to decline of the mass consumption food product in the country.

"The decision today is to extend zero duty on import of pulses for one more year beyond March 31, 2009. Pulses can now be imported at zero duty for one more year till March 31, 2010," Indian Home Minister P. Chidambaram told the media.

The fiscal year starts April 1 and ends March 31 each year in India.

He said the government took the decision to increase the domestic supply of pulses, a popular food product in India.

"The government also decided to extend the distribution of imported pulses through the public distribution system for six more months till Sept. 30 this year," he said.

India banned exports of pulses and exempted them from customs duty since June, 2006.

An earlier report by the Indian government said Tuesday the import of mass consumption goods increased by 33 percent from April to December 2008 over the same period of previous year.

The import of edible oil, automobiles, fruits, vegetables, cotton, silk, rubber, spices, alcoholic beverages, marble, granite, tea, coffee and milk products have increased during the reference period, said the Indian Ministry of Industry and Commerce.

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Outsourcing: China vs. India

Affected by the global economic crisis, China's exports dropped rapidly in the fourth quarter of 2008. In December, China's export growth was -2.8%, bringing the growth rate for 2008 to 17.2%, which is 2.1% lower than the growth in the first 11 months.

However, China's software industry still experienced fast growth in 2008. This year, China's software exports reached US$14.2 billion, up 39% year on year. Service outsourcing grew at an even faster speed of 54.3% to US$1.6 billion by the end of 2008. The growth in the whole year was 6.2% higher than the growth in the first 11 months.

The development of outsourcing has relied on support from both central and local authorities of China. China has been implementing industrial upgrades for a long time. Many Chinese cities and industrial parks consider outsourcing an effective way to achieve industrial upgrading.

During the current global recession, due to the downtown in the manufacturing and export sector, China has selected outsourcing as a new arena for economic growth. In February, 20 major cities, including Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, and Chengdu, were chosen to become demonstration cities for service outsourcing. In these cities, the government will establish preferential policies such as tax cuts to encourage the development of outsourcing.

China is now eager to promote outsourcing, but the question is, can China's outsourcing be competitive with that of India?

Despite the boom in China's service outsourcing, it will be difficult for China to catch up with India, the giant in the international outsourcing industry. India has enjoyed both large market volume and fast growth, achieving an average annual growth of 37% over the past four years. In 2008, India captured nearly 37% of the global outsourcing market, while China took less than 10%.

India's outsourcing industry seemed invincible until one event in 2008 changed the situation. The Mumbai attacks, which reportedly caused 172 deaths, highlighted the potential risks of travel to India. It raised questions regarding the safety and stability of the Indian business environment, which is one of the major factors in the selection of an outsourcing partner.

However, the largest threat to India's outsourcing is not terrorism, but cost. The ratio of wages in India and the U.S. used to be 1:6, but recently it has been closer to 1:3, and can even reach 1:1.5. Indian labor is becoming a less efficient solution for the outsourcing businesses. When the global finnacial crisis came, more clients began to review their spending and cut costs, halting revenue streams and causing upheavals in India's outsourcing industry.

While India’s outsourcing entered difficult times, China saw opportunities, because India's limitations are China’s strengths. China has abundant IT human resources available at low cost. The ratio of wages in China and the U.S. is about 1:7 now, a ratio much more advantageous than that for India. China also provides a safe and stable environment to overseas investors: no terror attacks have ever taken place in Chinese cities.

But China also has its limitations. First, although China has a lot of IT talent, few IT workers are good at foreign languages, and thus few can communicate easily with overseas customers. This is the largest competitive difference between China and India. China also has few inter-disciplinary talents who are not only skilled in technical issues, but also in business process, management and interpersonal communication.

Second, China has poor intellectual property protection. Although the Chinese have been warned against intellectual property violations several times, piracy still flourishes throughout the country. Moreover, many Chinese companies are not even aware of whether their actions constitute piracy or are bringing high risk of intellectual property leakage to their clients. Since intellectual property protection is considered a crucial factor in selecting an outsourcing partner, poor protection is the second largest limitation of China's outsourcing industry.

Third, the development of China's outsourcing industry lags ten years behind that of India. Chinese outsourcing companies are usually small. India has many outsourcing companies with annual revenue of over US$1 billion, but in China there are few outsourcing companies with annual revenue exceeding US$0.1 billion. Also, Chinese companies are engaged mainly in coding, whereas Indian rivals can provide comprehensive solutions to clients.

Therefore, performance figures such as outsourcing exports and growth are not the only differences between the outsourcing industries of China and India. Like manufacturers, China's outsourcing companies always emphasize low cost to attract clients. Although the global financial crisis highlights such advantages, cost is still not the most important factor for potential clients. Clients pay more attention to service capabilities, including intellectual property protection, language skill, and ability to provide comprehensive solutions. The global economic crisis and the Mumbai attack have temporarily caused some shifting of outsourcing business from India to China, but this trend will not last. Should China return its slice of the outsourcing pie to India when the end comes?

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Indian economy still lags China

The impression that India could do anything China could do, may not be entirely true. (Aijaz Rahi / AP)

John Chambers, the head of Cisco, was a salesman before he was a technologist. So when he found himself in front of a thousand of India’s top software executives giving the keynote speech at the Nasscom annual summit earlier this month, he knew exactly what to tell them to guarantee a good reception.

“I believe that there’s a high probability that you will have the best GDP growth of any major economy next year,” he said boldly.

He could not have better judged the mood of Indian executives. Only days before, Satish Jha, the former chief economist of the Asian Development Bank and a prominent member of prime minister Manmohan Singh’s Economic Advisory Council, began pushing the line that India could take the lead.

“If our public policy continues in the way it is, we are going to head off China,” he said. “I believe it and my prime minister believes it.”

Dr Jha’s optimism is based on the domestic drivers behind India’s economy. China’s 20-year economic miracle has, on the other hand, been built on becoming the workshop of the world. Thirty-five per cent of its GDP relies on the troubled bank balances of consumers in places such as the US and Europe.

But for Robert Prior-Wandesford, the India economist at HSBC, this is just the latest version of the economic triumphalism that reigned during India’s 2007 stock market bubble.

“You got the impression a year ago that anything China can do, India can do,” he says. “That was very much the mentality in India. I was practically thrown out of meetings for daring to mention that there could be some structural constraints.”
Mr Prior-Wandesford was something of an India bear back in 2007. He now ranks as one of the most optimistic forecasters for India. He expects the country to register about 5.9 per cent growth this calendar year.

But even he expects China to grow almost 2 percentage points faster, with 7.8 per cent growth. Perhaps this is why Mr Chambers made sure to qualify his bold prediction. “I may be in the minority on that,” he added, with a smile.

The consensus of economists surveyed by London’s Consensus Economics is for China to grow 7 per cent, and for India to grow just 5.4 per cent. More bearish forecasts see India’s growth slowing to as low as 4.3 per cent.

“They’re still quite a long way behind,” says Mr Prior-Wandesford. “That’s largely a function of the higher rate of structural growth in China and the amount of money the Chinese government can throw at the problem.”

China’s 4 trillion yuan (Dh2.14tn) stimulus package, announced in November, beats that of any other Asian country in its breathtaking scale and boldness. It is equivalent to spending about 15 per cent of its GDP over two years.

That makes India’s packages look quite small in comparison. India’s total stimulus, according to Merrill Lynch, is only equivalent to about 1 per cent of GDP.

The finance minister, Pranab Mukherjee, said at the interim budget announcement last month that the fiscal deficit for the year to March 2009 would be about 6 per cent, one of the world’s largest and the worst since India’s 1991 balance of payments crisis. India risks a downgrade in its sovereign debt ratings.

China’s stimulus package, on the other hand, has only moved the nation US$16.21 billion (Dh59.53bn) into deficit last year, less than 0.5 per cent of GDP.

But it is India that really needs to do the kind of infrastructure spending that China has planned. Already, China dazzles with the speed of its transformation, while India shocks with what its groaning cities have to make do with. HSBC argues that even in perfect economic conditions, India’s crumbling infrastructure limits the growth rate to about 7.5 per cent.

“In India, that infrastructure isn’t coming through at anything near the pace it needs to do,” says Mr Prior-Wandesford. “That’s something they have to do, but it’s not easy to do given the fiscal situation.”

India has no leeway to outspend China, but the problem for India is that its consumers cannot begin to match China’s either.

“Chinese consumers have a lot more discretionary spending capability than their counterparts in India,” says Anil Gupta, a professor of business strategy at the University of Maryland and the co-author of Getting India and China Right. “This is because China’s per-capita income is about 2.5 times that of India while, for most everyday items, the cost structure is about the same.”

That difference is already visible. China’s retail spending still sees double-digit growth. During the week-long Lunar New Year holiday, China’s traditional time for high consumer spending, retail sales rose 13.8 per cent year on year, after a 19 per cent year-on-year growth in December.

“In China, the emphasis is shifting right now towards consumption,” says Mr Prior-Wandesford. “Retail spending has been remarkably resilient in China. It hasn’t slipped at all. In fact, it’s picked up. They’re very keen to get the consumption motor going.”
India’s urban consumers, on the other hand, are rapidly curbing their spending, to drastic ends for the country’s retail sector. Subiksha, one of India’s largest supermarket groups, defaulted on its debt this month.

Reliance Retail is seeking a foreign investor and RPG group says it will exit the supermarket industry if its Spencer’s chain is not profitable by the end of this year.
The rosier picture in China has not come without a concerted government effort. It has been handing out “consumer coupons” to lower income groups to encourage greater spending, and begun a primitive sort of social security for the very poorest. It has also unveiled a host of tax incentives for consumers.

The tax breaks on new car purchases have helped push sales up by 4 per cent between December and January, which is partly why China overtook the US to become the world’s largest car market. This is the other side of China’s export reliance. It has left the country with huge savings. China’s savings absorbed 49.9 per cent of what its companies and citizens earned in 2007.

India’s savings rate was 30.7 per cent. But only 11 per cent of that was saved in banks and other financial institutions – the rest is locked up in physical assets, like gold, meaning India’s 11.4 per cent deficit mops up all funds needed for investment.

Indian economic optimists such as Mr Jha also like to cite India’s massive untapped rural spending power. More than 60 per cent of India’s income comes from the countryside and small towns, according to the Rural Marketing Association of India (RMAI).

And 66 per cent of this rural income comes from agriculture, which has been insulated from the economic downturn and has benefited in the past year from a generally good harvest, high food prices and a huge write-off of farmers’ loans.

While sales fall in the cities, RMAI says, rural sales of mobile telephones are still growing 8 per cent to 10 per cent a month. Sales of fast-moving consumer goods grew 22 per cent in India’s cities last year compared to 57 per cent in rural areas.
But here, too, China is moving faster and more decisively, piling subsidies and soft loans on to its 737 million rural citizens – offering them, for example, 13 per cent back on any purchases of electrical goods – boosting their incomes by increasing the floor price for wheat and rice, launching new machinery loan schemes and stockpiling agricultural goods to prop up demand.

Even India’s vaunted lower dependence on exports may not be as simple as it seems. More than half of China’s exports consist of products assembled in China for international companies, using components shipped in from elsewhere, Prof Gupta says. So only about a third of the value of the product is made in China.

“In terms of value-added, exports contribute only about 12 per cent to China’s GDP,” he says. “In contrast, India’s exports consist of almost entirely 100 per cent domestic value added. Thus, even though India’s exports are only 14 per cent of GDP, India and China are about equally dependent on exports.”

Not all economists agree that value-added is the best measure. China’s exports are more weighted towards consumer products, and so more vulnerable in a downturn anyway. And India’s successful IT services sector, while it will not be unaffected by the spending cuts of American and European companies, benefited enormously in the recovery from the dotcom crash earlier this decade, and may do so again this time around.

Mr Chambers told India’s software executives to wait until next year’s Nasscom summit for proof of his hunch, or otherwise. There is a good chance that India’s IT industry will be a much less sombre place by then.
But India outgrowing China? That might be harder to accomplish.

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Indian exporters expect 10m job cuts

Indian exporters expect to cut about 10 million jobs by March as the global recession prompts overseas buyers to cancel orders.

"The year 2009 is going to be the worst year in history," A Sakthivel, president of the Federation of Indian Export Organisations, told reporters in New Delhi. "Exporters don't have orders beyond January and if the present trend continues, there will be approximately 10 million job losses." Indian exporters presently employ about 150 million people.

India's exports fell for a second month in November and industrial output contracted for the first time in 15 years in the previous month. That is weakening an economy expected by policy makers to grow at the slowest pace in six years in the 12 months to March.

India will miss its target of $200 billion in exports in the 2009 fiscal year amid weaker demand, Sakthivel said yesterday. "Exporters are now facing new challenges due to the financial crisis," he said. "Fresh orders are drying up due to lower demand and buyers are canceling earlier orders or rescheduling the shipments."

Overseas shipments dropped 9.9 percent to $11.5 billion in November from a year earlier after contracting 12.1 percent in October, the first decline in seven years. Output at factories and utilities also shrank in December, according to a survey done by ABN Amro Bank NV.

"The slowdown phase will continue for some months," said N R Bhanumurthy, an economist at the Institute for Economic Growth in New Delhi. "Recent monetary and fiscal policies might ensure that industry does not enter a recessionary phase."

Demand for made-in-Asia goods has slumped amid the deepening global economic slowdown. To spur slowing growth, India's government on Jan 2 unveiled a second stimulus package in a month to inject capital into banks and allow overseas investors to double purchases of debt. On the same day, the central bank cut interest rates for the fourth time in less than three months.

The measures are intended to steer Asia's third-largest economy through the "worst quarter" of the global slump, Montek Singh Ahluwalia, deputy head of India's planning commission, told Bloomberg News in an interview on Jan 2.

Growth in the $1.2 trillion economy has slowed for two straight quarters, with the 7.6 percent pace of expansion in the three months to Sept. 30 the weakest in four years.

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Fears of protectionism as India's exports dip: World Bank

Washington (IANS): With exports from India declining in October for the first time in a decade due to negative growth in world trade in the last quarter of 2008, fears have surfaced over protectionist backlash, says a new World Bank report.

Fall in global trade has been underway for some time, said the bank in a paper for the meeting of the Group of 20 finance ministers and central bank governors scheduled for Saturday.

"In the last quarter of 2008, trade growth turned negative, raising fears in many corners of a protectionist backlash," said the report - a line that was articulated last week by External Affairs Minister Pranab Mukherjee.

The report said 51 economies reported double-digit declines in nominal exports in the fourth quarter of last year, with many European nations, including the UK and Spain, as well as developing countries, registering a drop of 20 percent or more.

In October, India registered its first decline in merchandise exports in 10 years, with the value shipments down 15 percent, following growth of 35 percent in the previous five months.

Reacting to the developments, Mr. Mukherjee had said on Saturday that in such difficult times, it would be short-sighted for rich nations to go into protectionist mode and this was the message at the summit of G20 leaders in Washington.

"That the biggest economy in the world, the United States, where this global financial Tsunami originated, should be resorting to trade-restrictive practices is particularly disturbing," Mr. Mukherjee had said on Saturday.

The World Bank also said that the economic crisis was seen increasing poverty by around 46 million people in 2009. "While labour markets in the developing world will take a while to experience the full effects of the on-going global contraction, there is already clear evidence of the fall-out."

So far, the most affected sectors appear to be those that had been the most dynamic, typically urban-based exporters, construction, mining and manufacturing.

In India, over 500,000 jobs have been lost in the last 3 months of 2008 in export-oriented sectors like gems and jewellery, autos, and textiles. And the latest estimates from the labour ministry in China show 20 million people out of work.

The International Labour Organisation (ILO) forecasts suggest that global job losses could hit 51 million, and up to 30 million workers could become unemployed.

In response to rapidly deteriorating growth, the bank noted that New Delhi has allowed the India Infrastructure Finance Company Ltd to raise Rs.400 billion, or 0.7 percent of the gross domestic product (GDP).

This will help in funding projects, largely for road and ports, implemented as public-private partnerships. The additional resources will refinance the loans originally provided by commercial banks.

"This will ensure that these projects, which will help address some of the infrastructure bottlenecks that have been a huge constraint on India's long-term growth, are able to proceed, and help support aggregate demand and protect jobs during the economic downturn," the bank said.

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Rice exporters to seek abolition of MEP, want DEPB benefits

New Delhi (PTI): India's rice exporters at an emergency meeting here on Monday decided to approach the government and demand an immediate reduction of the minimum export price to enable them compete with rival Pakistan.

It was decided that the All India Rice Exporters Association (AIREA) would approach the Commerce Ministry to either abolish the Minimum Export Price (MEP) of Basmati rice or cut it to at least $ 800 a tonne level, an exporter said.

The meeting was called to discuss strategy as the ministerial panel on food last week deferred a decision on reducing the MEP from the current level of $ 1,100 a tonne.

Pakistan is currently selling Basmati at USD 1,000 a tonne to lure international buyers, exporters said. Rice exporters also demanded benefits under Duty Enititlement Passbook (DEPB) scheme as they have made losses of Rs 5,000 crore this season.

"If the government did not reduce the MEP, the losses would go up to Rs 7,000 crore," the exporter said, adding this is mainly due to lower export this year.

Under DEPB, exporters get the benefit of duty-free import equivalent to one per cent of their export value. They can sell the benefit to actual users as well since DEPB is transferable.

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In India's gloomy economy, diamond jobs are not forever

SURAT (Reuters) - For Jaysukhbhai Patel, a job cutting diamonds in Surat was the ticket to a better life for him and his family of four.

Last November, Patel's ticket expired when the small factory he worked in was shut like hundreds of others in India's diamond hub, as demand for the gems dipped in the United States and Western Europe, leaving more than 100,000 workers without jobs.

"I have worked in this industry for nearly 30 years, and I have seen many ups and downs," said Patel, father of three children who now works in a local library for less than half his previous wage of about 4,000 rupees ($78) a month.

"But I have never seen factories being shut like this."

The woes of Surat reflect a wider downturn for India's export sector, which accounts for a fifth of Asia's third largest economy. Exports have fallen four months in a row and the latest data available shows a slide of 16 percent in January.

The job losses in one of India's biggest earners come weeks before a general election that is also a potential hot potato for the Congress-led government.

During the boom years, an estimated 800,000 workers, mostly from the Saurashtra region of western Gujarat state, spent 10-12 hours a day in thousands of factories and workshops, cutting and polishing tiny rough diamonds for export.

Now mostly silent and shuttered, the factories are victims of a global financial crisis that has hit demand for the gem that defined this city for decades.

India processes about seven in every 10 of the world's diamonds, mostly cheaper stones less than a carat. Surat is the heart of the industry, built on the skills of its craftsmen, its cheap migrant labour and its legendary entrepreneurial spirit.

"People have worked hard to build this business for the last 30-40 years, but this downturn has made people risk-averse and afraid to trust their own people," said Anoop Mehta, president of Bharat Diamond Bourse, the exchange in Mumbai.

Tighter liquidity and a weaker rupee, which lost 19 percent against the dollar last year and has slipped more than 5 percent this year already, are also weighing on the industry, he said.

"What they'd earned over several years has been lost in a flash. This business runs on trust, so when payments are delayed, when orders are cancelled, it shakes your confidence."

TOO LITTLE

At about $11 billion, India's exports of cut and polished diamonds is down about 3 percent so far this fiscal year from April, the Gem & Jewellery Export Promotion Council (GJEPC) said.

Several diamond units have abandoned their business entirely, installing textile machinery or taking on other work.

"Gujaratis are very entrepreneurial and street-smart; they will quickly adapt to any situation," said Vasant Mehra, chairman of GJEPC, the main industry body.

"But this is an extreme situation, and every industry has been affected. So I do not know how they will fare."

Gujarat's Hindu-nationalist Chief Minister Narendra Modi has criticised the government for not doing enough to help workers.

Leading Congress politician Rahul Gandhi, touted as a potential prime minister, has visited Surat in a sign of the growing political weight of job losses in the export sector ahead of the April-May general election.

It is hard to come by accurate data on the number of factories or workers employed in Surat, as most units are small and do not maintain employee records, paying workers per diamond.

Estimates range from 500,000 to 800,000 workers in 6,000 to 10,000 factories and workshops.

The industry estimates that about 30-40 percent of factories have shut. More than 70 workers have committed suicide since the downturn, welfare organisations said.

Small traders, who do deals sitting on their parked motorbikes in the heart of the city's business district, now have time on their hands to discuss cricket scores.

The industry has appealed to the state and the central bank for assistance, and has also put together an emergency package of about 5 million rupees for workers.

But that has not been of much comfort to Patel.

"For so many years we've worked 12-14 hours every day for our factory owners. Now they are not helping us," he said. "The assistance they are offering is too little. And how can I learn a new trade at this age?"

FAMILY TORN

Surat and its diamond workers are not alone. A Labour Ministry survey has estimated that India's small-business sector, which accounts for more than 60 percent of economic activity, lost about half a million jobs in the October-December quarter.

Lobby group Federation of Indian Export Organisations has said exporters may cut 10 million jobs in the year to March 2009.

Surat, notorious for its opaque dealings, has long been criticised for its sweatshop-like conditions.

Babu Jirawala, leader of the Surat Diamond Workers' Association, hopes the crisis will bring about change.

"These workers have no job security, no insurance, no pension, not even an ID at their workplace," he said in his tiny office, where workers drop by from time to time for updates.

"So far it was like a family, now it's been torn apart, and owners have abandoned the workers. Now, if the central bank helps, then they must lay down conditions on these factories."

Among larger manufacturers, who are stepping up promotional efforts in new markets such as India, China and the Middle East, there is hope the crisis will strengthen the industry.

India's share of the diamond processing industry is forecast to drop to around 49 percent from 57 percent by 2015, according to consultancy KPMG, with growing competition from China and mining countries such as Angola, Namibia and Botswana.

"We will see greater discipline, and some consolidation. There were overcapacities even during the boom," said Agam Sanghavi, a director at Sanghavi Exports, one of the largest manufacturers in Surat, with several overseas offices.

"Business is down now, but the fundamentals of this industry are strong and desire for diamonds is still strong. We will come out of this stronger," he said.

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MPEDA to promote Indian marine products in US, Europe

Kochi (PTI): With global downturn causing a slump in seafood exports from the country, Marine Products Export Development Authority (MPEDA) will be embarking on a campaign to promote Indian marine products in markets abroad, especially in US, Europe, South Africa and South America.

MPEDA Chairman, G Mohan Kumar, has left for promoting Indian seafood products in South African and South American markets and will also attend the International Boston Sea Food Show, MPEDA sources told PTI.

He was likely to hold discussions with Sysco, a US- based company, which had agreed to promote Indian Black Tiger, the sources said.

In order to overcome the challenges posed to marine exports by recession, there were also plans to launch a Brand India campaign, which had been approved by the government.

The Mumbai-based Messers Lintas India had been given the work order in this regard, the sources said.

There is a 'silent transition' in the consumption pattern of seafood in the developed market, especially the US.

Americans earlier spent about 48 per cent of their food budget for eating outside whereas, due to current recession, there had been significant reduction in those visiting restaurants, Mohan Kumar said.

Woman were visiting retail outlets to buy stuff for cooking at home and this would result in the demand pattern for seafood. Indian marine products should reach the retail chains in the developed market, he said.

However, most of the exporters had not made much headway due to lack of marketing skills and efforts on various other fronts.

Due to the present situation, there were fears that exports of shrimp, which accounted for 52 per cent of India's total marine exports, could be affected.

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Nepal asks India for trade treaty with longer shelf life

Kathmandu (IANS): India and Nepal are seeking to update their nearly 60-year-old trade treaty with the new draft expected to be ready before India goes to staggered polls from April 16.

The draft will be signed into a fresh agreement by the new federal government that comes into being in India in June, officials said.

At the end of the two-day bilateral talks in Kathmandu to review the 1950 treaty that has to be renewed in 2012, Nepal is seeking to increase its time span.

"Currently, the Treaty of Trade has to be renewed every five years," Surya Prasad Silwal, joint secretary at Nepal's commerce ministry who headed the Nepali delegations during the talks, told IANS.

"It was last renewed in 2007 and will continue for five years.

"However, Nepali investors feel five years is too short to gauge the investment climate and set up a venture, which takes nearly four years.

"Nepal is asking for the treaty to be extended to 10 years from now on."

The proposal will now be discussed by the commerce secretaries of both countries.

The talks that ended Friday have come up with other major agreements that are expected to boost Nepal's bilateral trade with India, reduce its ballooning deficit and curb the rampant smuggling due to the open border that causes both sides to lose billions of rupees in revenue every year.

The Agreement of Cooperation between India and Nepal signed in 1972 to control unauthorised trade is now poised for a sea change.

Till now, the pact prevented each from re-exporting third country goods imported from each other. But now, except for forbidden items, the curb will be lifted.

India and Nepal have also agreed to open new trade routes. Now India will throw open four air routes via airports at New Delhi, Mumbai, Chennai and Kolkata. In addition, two more land routes via Brahmadandi and Tanakpur in the west are also in the pipeline.

Nepal has won a significant victory with India agreeing to simplify the cumbersome duty refund procedure.

Now Nepal, which trades with India using mostly the Indian and Nepali rupee, will get the same benefits that India gets from its dollar trade with other countries, including zero excise duty and tax rebate.

India has also agreed to review its quota for three Nepali export items. In the past, these included vegetable ghee, acrylic yarn, copper and zinc oxide.

The changes started with vegetable ghee. Earlier, India's State Trading Corporation was fixed as the canalising agency that determined which Indian states would receive how much of the over 100,000 metric tonne of vegetable ghee that Nepal is allowed to export annually.

Now however, the canalising agent's place has been taken by a Nepal government body and exporters are free to choose the Indian states they want. A similar review of the other three products is also to begin.

The next meeting between the commerce secretaries of both countries will be held in Kathmandu, which will finalise the new draft of the revised treaty and forward it for the final assent to the commerce ministers.

India is land-locked Nepal's dominant trading partner, accounting for over 65 percent of Nepal's outside trade. But while the Himalayan republic exports goods worth about NRS 43-44 billion to India, the imports exceed NRS 100 billion.

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China gears up for heavy unemployment as it more than halves export target

BEIJING: China has revealed it is facing a stark employment situation with export oriented factories finding it difficult to survive the
financial crisis. The government has dramatically scaled down its target on foreign trade to eight per cent in 2009 against the 17.6 per cent achieved last year.

India has set an export target of 25 per cent for 2008-2009 and most economists say New Delhi will miss the target by five to 10 per cent. Though India's export base is much lower compared to China, it seems that the leadership is Beijing is much less confident about foreign trade than earlier years.

Export oriented companies employ between 70 million and 80 million people, the National Development and Reform Commission has said. There are indications of large unemployment loss this year on top of the 20 million job losses that has taken place by February.

A favourite theme of Chinese premier Wen Jiabao is to encourage domestic spending in order to support companies losing export orders and consequently shedding jobs.

He has now offered 103.3 billion yuan ($15 billion) to subsidize purchases of home appliances, vehicles, stocks of grain, petroleum, nonferrous metals and specialty steel products by the rural population.

Many Chinese exporters are nervous about taking fresh orders because foreign buyers have stopped paying in time. Uncollected bills from US buyers have gone up two to three times since January as compared to the same period last year.

The government has promised to create nine million new jobs and offered wide ranging sop to counter the political fallout of the economic slowdown. There will be a 20.2 per cent increase in allocation for assisting agriculture and farmers and a 29.9 per cent rise in the allocation on education, medical and health care, the social safety net, employment, low-income housing and culture.

An interesting aspect of the Chinese strategy against the crisis is to help companies equip themselves with the latest technology at a time when equipment and new technology is available in world markets at cheap rates. The government has raised the allocation on science and technology by 25.6 per cent. It is also offering 20 billion Yuan ($3 billion) in interest rate subsidy for companies buying new equipment.

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Education Tax on duty-free: RMG export to India from Bangladesh

(BSS, Dhaka); RMG exporters to India have complained of a number of impediments severely impacting the supply of 8.0 million pieces of duty-free garments started under SAFTA framework from the middle of last year.

Some exporters in writing informed the Export Promotion Bureau (EPB) of the snags recently, official sources here said adding the agency in turn has passed the complaints to the Ministry of Commerce seeking solution of the problems.

These exporters said India is collecting VAT and special VAT from what it declared duty free import in addition to education taxes on two counts and wondered how the merchandise remain duty free true to its purpose.

Under the circumstances, the EPB sources said exporters who initially showed great enthusiasm to RMG exports to India have already lost interest while new exporters are coming only in small numbers.

The situation indicates that the annual 8.0 million pieces export quota may thus remain largely unutilized and even come to slow death if the snags continue. The Indian government agreed to offer this special privilege to Bangladesh to help narrow its staggering trade imbalance with India.

RMG export figures from January 1 to February 23 showed that the so-called duty free export to India stood at around 1.56 lakhs during this time compared to 18.53 lakhs over the seven months from June to December.

In fact the snags hit the exports as soon as it started picking up following the Indian government application of internal duties; which altogether stood at 18 percent even minus the 10 percent duty exempted at import stage.

The sources said, last year exporters had applied for duty free quota certificates of 36.5 lakh pieces of garments but in reality collected only half of it as the Indian importers slowly become reluctant to secure supply having high internal duty on them. Sri Lanka witnessed similar snags, said an exporter questioning the Indian inward looking mind-frame. 'If you are not opening your mind, no duty free arrangement will work,' said an exporter explaining the situation.

So the new export initiatives under the scheme is only slowing down as only few new exporters are taking interest to export RMG to India while they have ready market in Europe and America, said a business source.

The Indian government is reportedly saying as information suggest, it has only removed the basic import duty at 10 percent on RMG import from Bangladesh. But other internal duties have remained in place.

Duties which the Indian government is collecting on Bangladesh apparels include central government VAT, Special central government SCVAT, secondary education tax (ETS) and higher secondary education tax (ETHS)- altogether 18 percent, exporters said.

"BGMEA president Anwarul Alam Chowdhury blamed poor negotiating capacity of the Bangladesh for the problem saying it should have made sure that duty free means no duty at all.

Now it appears that most duties have remain in place, he said. .

Exporters have also listed many non-tariff barriers. They alleged that customs officials on the Indian side raise question on the credibility of invoice value relating to export documents and often apply duty several times higher than the real value.

Very often they keep trucks loaded with export consignment stranded at the check post unattended for hours and exporters have to pay additional charges on hourly basis.

Indian government officials handling duty free export moreover, create unnecessary problems looking for small faults with export documents and sending it back to Dhaka for correction if they find some shortcoming.

Consequently the exporters have to pay demurrage charge bringing inconveniences to both exporters and importers, they said. Exporters said buyers at Hariyana, Mumbai, Kolkata and especially in northeastern states of India are taking big interest in knitwear, trousers, ladies shirts and pants made in Bangladesh.

But the question remains whether the Indian buyers can take this opportunity while the exporters are wondering whether the duty free scheme under SAFTA arrangement can over live the troubles.

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Indian Govt. Allows SEZ Units, Developers To Claim Refund Of Service Tax

The Indian Government has allowed special economic zones or SEZ units and developers to claim refund of service tax, irrespective of whether they are consumed inside or outside the zone. However, the benefit would flow in the form of refund of service tax and not through an exemption.

Until now, the government exempted developers from paying a tax on services that were consumed within the zone, while the services consumed outside the SEZ attracted taxes.

The move to refund tax paid on services provided outside the zone comes following a decision in this regard by the empowered group of ministers on SEZs headed by Finance and External Affairs Minister Pranab Mukherjee.

The Government put in place a new mechanism whereby SEZ developers and SEZ units would have to initially pay the tax on the services rendered to them (from inside and outside the zone) and then get a refund from the tax authorities within 6 months from the date of payment of service tax.
The notification clears the ambiguity with regard to eligibility of the service tax exemption in case of input services consumed by SEZ units and developers that were being disputed by the tax officials. The notification will come into effect on or after the date of publication of this notification in the Official Gazette.

Service tax is levied at the rate of 10%. Some of the services used by the units and developers outside the zone include courier service, transport service among others.

While the industry has welcomed the move to refund tax on services consumed outsides the zone, it wants the Government to give a blanket exemption. On the other hand, tax and trade experts opine that though the scope of the relief has been expanded, the procedure has been changed to provide for only refund of service tax rather than an exemption,

Welcoming the Finance Ministry move, L.B. Singhal, Director-General of Export Promotion Council for Export Oriented Units and SEZs, said "SEZ Act provides ab-initio exemption from service tax, whereas the notification has provided exemption from service tax by way of refund of service tax. Hence, service tax has to be paid first and then refund has to be claimed. It would result into unnecessary blockage of funds, paper work and transaction cost. Hence it would be appropriate if ab-initio exemption could be provided".

Click the following to see the Notification:

Notification No. 9/2009-ST dated 3.3.2009
Govt exempts taxable services provided to Special Economic Zones

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