India's higher taxes on imports of refined palm oil likely to hit incomes of M'sian refiners

PETALING JAYA: India's move to raise taxes on its imports of refined palm oil products is likely to put a dent in the earnings of Malaysian and Indonesian refiners of the commodity, analysts said.

The decision, however, is neutral for crude palm oil (CPO) producers as India's CPO imports remain duty-free.

India, the world's biggest importer of palm oil, effectively doubled import taxes last Thursday when it ended a six-year freeze on the base import price of processed palm olein, increasing the cost of imports from Malaysia and Indonesia.

The country currently imports close to half its edible oil needs, and palm oil takes pole position with a 43% share of the edible oil market.


Employees fill plastic bottles with edible oil at an oil refinery plant of Adani Wilmar Ltd, a leading edible oil maker, in Mundra, 375 km from the western Indian city of Ahmedabad. The new tax policy by India is aimed at placating disgruntled refiners in India, who were doubly hit by both the low tariff and cheaper processed palm oil products from Indonesia. — Reuters
The new tax policy, which lifts the base price of refined palm oil imports to market prices from US$484 (RM1,535) per tonne, is aimed at placating disgruntled refiners in India, who were doubly hit by both the low tariff and cheaper processed palm oil products from Indonesia.

Since Indonesia slashed its export taxes on refined palm oil last October, India's imports have doubled to 1.2 million tonnes for the first eight months of this year over 2011.

CPO futures closed lower yesterday at RM2,990.

Indonesia and Malaysia, the world's top two producers of palm oil, account for 90% of global output of some 50 million tonnes.

Indonesia supplies 74% of India's palm oil requirements while Malaysia makes up the balance 26%.

Malaysia exported 1.66 million tonnes of palm oil products, or 9% of its total exports, to India last year. In the first half of the year, Malaysia shipped 1.07 million tonnes there, which was 82% more than in the same period in 2011.

CIMB Research said in a client note that the higher tax was estimated to widen the margin advantage of palm oil refiners in India to 7.73% from 3.5%.

“This will allow them to compete better with the Indonesian refiners, which we estimate enjoy a profit margin of 5% to 10% due to the favourable export tax for refined palm products in Indonesia,” it said.

The research unit also pointed out that the levies could make CPO imports more competitive versus processed palm oil, resulting in higher imports of the former to India. “Players that will benefit include all the upstream producers as this will boost demand for CPO over refined palm products from India.

“Refiners like Mewah and Wilmar's refineries in Malaysia and Indonesia could face stiffer competition from India's refiners and this could crimp their refining margins.”

Maybank IB Research reckons the situation could pressure Malaysian policymakers to revisit the current export tax structure as palm oil inventory is expected to pile up in the upcoming seasonally high production months.

“The change further dilutes the competitiveness of Malaysian refined palm oil while Indonesia's refiners' margins could be compressed (for sale to India).

“Malaysia imposes a high export duty on CPO of 23% and consequently, the bulk of its CPO production flows downstream to its refineries. However, there is an over-capacity of refineries in Malaysia, and margins are already negative for some,” it said in a client note.

The brokerage sees two options for policymakers - they could either increase the quota for duty-free CPO exports as an interim measure on top of the approximately three million tonnes awarded earlier this year, or reduce Malaysia's high export duty tax on CPO to a maximum tax rate of 10% from 23% now to mirror Indonesia's tax differential between refined and crude palm oil.

Maybank IB Research is cognisant, however, that a larger quota of duty-free CPO exports may irk refiners, while revamping Malaysia's export tax structure now could prove unpopular coming just ahead of the national polls. “After all, 39% of Malaysia's oil palm planted areas are owned by smallholders and government agencies, while the bulk of Malaysia's refining capacity are owned by the large listed entities.”

It added that as policy makers continued to deliberate, market forces are “taking their own course”, with millers in Sabah and Sarawak sharing the burden of refiners by giving them discounts in the first half of 2012.

“And effective July, we understand Wilmar (Malaysia's largest refiner with a capacity of some five million tonnes) has discontinued all forward purchases agreements in Malaysia, opting for spot purchases.

“We believe this will give Wilmar stronger bargaining position to demand for even higher discounts especially when CPO tanks (of millers) “overflow” in the coming months.

“Should this happen, purer Malaysian upstream players will suffer' from lower revenue as a result of heavy discounting (vis-vis CPO spot prices) to clear their CPO stocks.”

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Indo-China trade has failed to gain momentum

SHIMLA: Indo-China trade through Shikpkila pass of Kinnaur district has failed to gain momentum over the years despite the fact that border trade through this point was resumed following the signing of protocol for extension of border trade to Shipkila pass in September 1993.

While last year around 19 traders had crossed over to China, this year only one trader has applied following the direction of union government to obtain import export code. According to sources, this is for the first time when traders have been directed to apply for the code that would help them to import or export goods without paying custom duty and without having any ceiling on the products.

Right now individual product worth Rs 25000 only could be imported or exported. "So far only one trader from Tashigang village has applied we hope in the coming days others too would apply for the code," added the officials. According to sources, last year around 18-19 traders had crossed over to China with their goods while from China side not even a single trader entered this side. "Indian traders are allowed to go upto Shipki village of China only from there it is Chinese villagers who travelled inside China to 200-250 km to bring the goods listed by Indian traders," sources said.

In past trade through Shipki La has remained very low with import turnover remaining around Rs 10 lakh while export turnover remaining between Rs 7 to 8 lakh. With the introduction of code system officials expect business across the border to rise as goods of large value would be exchanged. This year union government has added five more items in the import list while seven new items have been added in the export list. Kinnaur district industries corporation, general manager, Sarchander Negi said that once code is obtained, traders could import or export goods without any upper limit and without paying any custom duty.

"This would make the trade more lucrative and boost the trade prospect in future as more items have been added in the import and export list," he added. Trade between India and China is conducted through Namgya Shipki-la village in Pooh sub-division of Kinnaur along the Namgya-Shipkila-Shipki Jijubu land route. Traders mostly from border villages of Kinnaur district carry their stocks on mules to China.

While Indian traders carry items like agricultural implements, blankets, copper products, clothes, textiles, cycles, coffee, tea, barley, rice, flour, dry fruit, dry and fresh vegetables, vegetable oil, gur and tobacco, they return with items like jackets, shoes, crockery, flasks, goats and Chumurthi horses. Box: Trade across the border is allowed with prior permission from June 1 to November 30.

As initial three months are consumed in completing the formalities actual trade takes places in the months of September, October and November. Traders had to get border trade pass which is issued only after Special Investigation Bureau scrutinizes the applications.

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Indian drug firms lobby against EU’s new directive

Indian drug companies are lobbying against a move by the European Commission to check the import of counterfeit drugs through a directive that comes into effect in about a year from now.

According to the Pharmaceuticals Export Promotion Council of India (Pharmexcil) lobby group, the country’s drug exports to the European Union (EU) were worth $1.93 billion (around Rs.10,769 crore) in 2010-11. If India fails to get an EU equivalence certificate by 2 July 2013, when the rule is set to go into effect, 30% of this could be affected, the lobby group said.

Industry and government officials say they don’t have the manpower or the resources to be able to comply with the new directive.

Under the EU falsified medicines directive, each shipment of active pharmaceutical ingredient (API) or drug raw materials from India should be accompanied with a written confirmation, vouching that the quality of the exports conforms to EU standards. The legislation was adopted by the EU Council in May 2011 with the objective of preventing the entry of fake drugs.

Failure to provide this “equivalence certificate” would mean loss of business for India, said D.G. Shah, secretary general of the Indian Pharmaceutical Alliance (IPA) lobby group.

“The EU initiative is protectionist and while they are citing safety and public health as reasons, it is clear that they want to protect their domestic pharmaceutical companies from competition,”  he said. “We can only hope that the Indian government will respond appropriately, keeping this in mind.”

The EU and the Indian drug companies have been in conflict before. In 2008, the Netherlands seized Indian drug consignments on the ground of patent infringement, triggering a trade dispute between India and the EU. The incident had prompted the Indian government to approach the World Trade Organization (WTO).

The term “falsified medicinal product” in the European Commission’s directive is of particular concern in India.

“While the directive is pertaining to API, the word ‘falsified’ could be used broadly to apply to generic drugs made in India,” said C.M. Gulati, editor of the Monthly Index of Medical Specialities, a journal on prescription drugs available in India. “If an Indian company makes a generic version of a drug patented by a multinational pharma company, it could come under this directive and be treated as a ‘falsified’ or spurious drug and be confiscated.”

At a meeting with industry representatives on Monday, the department of pharmaceuticals (DoP) sought a response from the Drug Controller General of India (DCGI) about the feasibility of training Indian drug inspectors on EU standards.

“We have sought DCGI’s position on the matter and we are concerned by the use of ‘falsified’. We have also proposed a meeting with representatives from the commerce and health ministries on the matter. We do not want to delay this any further as our exports will be adversely affected,” said Raja Sekhar Vundru, joint secretary, DoP.

The government appears to be convinced that the Indian drug companies have a case.

“We are looking at various alternatives, including approaching WTO...,” said a commerce ministry official who didn’t want to be named.

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CTC tea export to Kenya may exceed last year’s

The country’s export of CTC tea to Kenya, itself a major producer and exporter of CTC tea, may exceed last year’s level if the present trend is any indication.

In 2011, Kenya imported from India a little more than three millon kg (mkg) valued at Rs 20.72 crore. In first six months of the current year (January-June 2012), the Kenyan import was 1.32 mkg valued at Rs 11.38 crore as compared with 1.05 mkg valued at Rs 6. 74 crore in the same period of the last year.

This is not surprising. This year Kenya has been hit by crop loss due to unfavourable weather and the shortfall in production in the first half (January to June) is estimated to be lower by 22 mkg at 127.8 mkg (149.20 mkg). The import from India it is felt might be re-exported to help Kenyan exporters keep their overseas commitments. In the past, Kenya imported from India larger quantities – more than five mkg valued at Rs 32.76 crore in 2010, for example.

Over the years, Kenyan production has been a showing downward trend – from 398 mkg in 2010 to 377 mkg in 2011.The trend so far suggests that the drop this year might be sharper. However, exports exceed domestic production – 441 mkg in 2010 and 421 mkg in 2011. The commitments to overseas buyers were kept presumably with larger imports.

India’s tea export in the first half is estimated at 43.84 mkg as compared with 45.76 mkg in the same period of previous year despite bullish global market largely due to the demand-supply gap with major tea producing countries reporting shortfall in production. The Indian tea exporters would attribute their inability to cash in on booming export market to the drop in production. However, the drop so far has been estimated at 27 mkg, roughly 2.7 per cent of the total production of about 1,000 mkg.

The real reason is the inward looking approach of our tea producers due to the lucrative domestic market. The export market has many challenges — competition, quality and the stiff standards imposed by many European countries about the use of pesticides in tea.

By comparison, the domestic market is free for all, virtually no challenge.

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Import duty on power equipment may not make much difference for domestic manufacturers

COIMBATORE: The government's decision to impose a 21% import duty on power equipment may not mean much for local manufacturers such as Bharat Heavy Electricals (BHEL). With the order inflow presenting a bigger challenge and the threat of Chinese imports fading due to the sharp depreciation of the rupee against the yuan, local makers have more serious issues to contend with than worry about cheap imports, industry observers said.

"Import duty on BTG (boiler turbine generator used in power plants) equipment is a non-issue now for BHEL and L&T (Larsen&Toubro)," analysts at Nomura Equity Research said. The government has approved a 21% import duty on power equipment (comprising 5% basic customs duty, 12% counter-veiling duty and 4% special additional duty). Earlier, equipment for mega power projects (higher than 1000 MW) were exempt from the duty, while coal fired projects of less than 1000 MW attracted a 5% customs duty.

"The order inflow in itself is a much bigger problem for the sector right now and even for the next 2-3 years," analysts said. "The sector first needs to come out of these issues and then look for other catalysts." Moreover, competition from Chinese manufacturers is already on the decline due to the sharp depreciation of the rupee. The rupee has declined 26% against the yuan in the last one year.

While public-sector orders as well as expected UMPP (ultra mega power projects) orders have a mandatory domestic manufacturing clause, the private sector would not bring major orders, observers said. The proposed duty could be prospective in nature and will not affect the already-placed orders, they said.

But even a retrospective implementation of the import duty is unlikely to benefit major players such as BHEL meaningfully since most of these projects have reached an advanced stage of construction. "Project developers are unlikely to cancel their orders to Chinese vendors at this stage," observers said.

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India's higher taxes on imports of refined palm oil likely to hit incomes of M'sian refiners

PETALING JAYA: India's move to raise taxes on its imports of refined palm oil products is likely to put a dent in the earnings of Malaysian and Indonesian refiners of the commodity, analysts said.

The decision, however, is neutral for crude palm oil (CPO) producers as India's CPO imports remain duty-free.

India, the world's biggest importer of palm oil, effectively doubled import taxes last Thursday when it ended a six-year freeze on the base import price of processed palm olein, increasing the cost of imports from Malaysia and Indonesia.

The country currently imports close to half its edible oil needs, and palm oil takes pole position with a 43% share of the edible oil market.

Employees fill plastic bottles with edible oil at an oil refinery plant of Adani Wilmar Ltd, a leading edible oil maker, in Mundra, 375 km from the western Indian city of Ahmedabad. The new tax policy by India is aimed at placating disgruntled refiners in India, who were doubly hit by both the low tariff and cheaper processed palm oil products from Indonesia. — Reuters

The new tax policy, which lifts the base price of refined palm oil imports to market prices from US$484 (RM1,535) per tonne, is aimed at placating disgruntled refiners in India, who were doubly hit by both the low tariff and cheaper processed palm oil products from Indonesia.

Since Indonesia slashed its export taxes on refined palm oil last October, India's imports have doubled to 1.2 million tonnes for the first eight months of this year over 2011.

CPO futures closed lower yesterday at RM2,990.

Indonesia and Malaysia, the world's top two producers of palm oil, account for 90% of global output of some 50 million tonnes.

Indonesia supplies 74% of India's palm oil requirements while Malaysia makes up the balance 26%.

Malaysia exported 1.66 million tonnes of palm oil products, or 9% of its total exports, to India last year. In the first half of the year, Malaysia shipped 1.07 million tonnes there, which was 82% more than in the same period in 2011.

CIMB Research said in a client note that the higher tax was estimated to widen the margin advantage of palm oil refiners in India to 7.73% from 3.5%.

“This will allow them to compete better with the Indonesian refiners, which we estimate enjoy a profit margin of 5% to 10% due to the favourable export tax for refined palm products in Indonesia,” it said.

The research unit also pointed out that the levies could make CPO imports more competitive versus processed palm oil, resulting in higher imports of the former to India. “Players that will benefit include all the upstream producers as this will boost demand for CPO over refined palm products from India.

“Refiners like Mewah and Wilmar's refineries in Malaysia and Indonesia could face stiffer competition from India's refiners and this could crimp their refining margins.”

Maybank IB Research reckons the situation could pressure Malaysian policymakers to revisit the current export tax structure as palm oil inventory is expected to pile up in the upcoming seasonally high production months.

“The change further dilutes the competitiveness of Malaysian refined palm oil while Indonesia's refiners' margins could be compressed (for sale to India).

“Malaysia imposes a high export duty on CPO of 23% and consequently, the bulk of its CPO production flows downstream to its refineries. However, there is an over-capacity of refineries in Malaysia, and margins are already negative for some,” it said in a client note.

The brokerage sees two options for policymakers - they could either increase the quota for duty-free CPO exports as an interim measure on top of the approximately three million tonnes awarded earlier this year, or reduce Malaysia's high export duty tax on CPO to a maximum tax rate of 10% from 23% now to mirror Indonesia's tax differential between refined and crude palm oil.

Maybank IB Research is cognisant, however, that a larger quota of duty-free CPO exports may irk refiners, while revamping Malaysia's export tax structure now could prove unpopular coming just ahead of the national polls. “After all, 39% of Malaysia's oil palm planted areas are owned by smallholders and government agencies, while the bulk of Malaysia's refining capacity are owned by the large listed entities.”

It added that as policy makers continued to deliberate, market forces are “taking their own course”, with millers in Sabah and Sarawak sharing the burden of refiners by giving them discounts in the first half of 2012.

“And effective July, we understand Wilmar (Malaysia's largest refiner with a capacity of some five million tonnes) has discontinued all forward purchases agreements in Malaysia, opting for spot purchases.

“We believe this will give Wilmar stronger bargaining position to demand for even higher discounts especially when CPO tanks (of millers) “overflow” in the coming months.

“Should this happen, purer Malaysian upstream players will suffer' from lower revenue as a result of heavy discounting (vis-vis CPO spot prices) to clear their CPO stocks.”

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Shah panel rules out ban on ore export

PANJIM: Justice M B Shah commission has pointed out that staff available with the State and Central Government agencies is not enough to control the unabated illegal mining happening in the country, including Goa.

The second interim report submitted by the Commission, copy of which is available with Herald, has also ruled out ban on the export of iron ore as it will adversely affect the economy of the States. “It is pointed out that at present staff is inadequate to control illegal mining”, the report reads.

“Unless adequate staff is appointed by the State Governments in the Mines and Mineral Department and also adequate supervisory staff is appointed with Indian Bureau of Mines (IBM), it would be absolutely difficult to control illegal mining”, it adds.

The Shah Commission has said that if the controlling machinery is weak and is understaffed, the illegal mining activities would continue unabated. The interim report has also said that considering the specific problems of Goa/Redi region, exports from there will have to be continued.

“The bilateral agreements with countries like Japan and Korea would necessitate that such exports at the existing levels may be continued”, it adds. Exports, thus, cannot be wished away. Exports of iron ore have been undertaken largely by merchant miners in the private sector. Any stoppage to exports could lead to closure of significant mining capacity as the volumes cannot be diverted to domestic use easily, says the report.

The Commission has observed that illegal mining, which runs into thousands of crores, has encouraged huge corruption at all different levels in public life, mafia in society and money power. “It is not only national loot, but also has deleterious effects on the national economy and society. This has to be stopped immediately and effectively”, it adds.

The main cause and incentive for this illegal mining of iron ore and manganese ore is the huge profit in the export market (mainly China), the report says. The prices of these have gone up by about 20 times without any corresponding benefit and increase to the public exchequer, it adds.

 Source:-oheraldo.in

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Major ports may get freedom to set rates

Major ports owned by the Indian government and cargo handlers at these harbours may soon be able to set their own rates like the ports owned by the coastal states, an official panel suggested last week.

“The panel has decided to recommend that the major ports should be given the freedom to set rates based on market forces, with proper checks and balances and to amend the Major Port Trusts Act, 1963, for this purpose,” said an official who attended the Thursday meeting.

If the recommendation is approved and implemented, it will create a level playing field between the ports owned by the central and state governments.

The committee, led by B.K. Chaturvedi, member, Planning Commission, and comprising representatives from the shipping ministry and state governments, concluded its deliberations on 19 July. It will submit its recommendations to the government in the next few days. The group was established earlier this year to decide on port regulation on the basis of the draft Port Regulatory Bill, 2011.

Major ports and private firms said the move was a step in the right direction.

“TAMP (Tariff Authority for Major Ports) was set up at a time when there was no competition,” said a spokesman for the Indian Ports Association (IPA), a body representing the major ports. “There is better free-market play now in the ports sector with the opening of several new ports and private terminals and, hence, lesser chances of monopolization. So the time is right to leave tariff setting to market forces.”

“There is no need to regulate ports, whether major or non-major,” said S.S. Kulkarni, secretary general of the Indian Private Ports and Terminals Association (IPPTA), a private ports lobby. “The port privatization initiatives started by the government in 1997 have paid rich dividends. This is well manifested in the rapid rise in cargo handling. The performance and service levels offered by private ports and terminals compare favourably with the best facilities in the world. Is there, therefore, a need to regulate the sector when the market forces are driving fierce competition, both inter-port as well as intra-port? The fear of monopoly no longer exists. Any further progress in the sector can now only come through less and less legislation.”

Significantly, the panel has overturned a shipping ministry move to bring ports owned by state governments also under regulatory ambit. State governments had opposed the plan, forcing the government to set up an inter-ministerial panel to decide on port regulations. “The panel is not recommending that. It is a closed chapter now,” a second official who attended the meeting said. “We don’t want to take a retrograde step by bringing ports owned by the state governments under a regulatory regime.”

Both officials spoke on condition of anonymity because the recommendations of the panel have not been made public yet.

A shipping ministry spokesman confirmed the development. The spokesman said the 12 major ports have been seeking permission to set their own rates based on prevailing market prices to compete with ports owned by coastal states, which already enjoy the freedom.

Source:-www.livemint.com

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Indian leather industry hit by EU economic crisis

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

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

EXPLORING OTHER POTENTIALS

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

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

PLANS SKILL COUNCIL

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

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

SUPPORTIVE MEASURES

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

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

EXPORT EARNER

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

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

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

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

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Hard times in the west tell on Indian exports

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Indian investment in Bangladesh garment sector to zoom

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

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

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

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

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

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

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

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

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Black money or legitimate export dollars: The big debate

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Countering the theory of export overinvoicing 

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

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

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

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

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