Thursday, April 30, 2015

Sugar import duty hiked to 40 per cent

30th April 2015, New Delhi: The Union Cabinet on Wednesday decided to hike the import duty on sugar to 40 per cent from the current 25 per cent to check the slide in domestic prices of the sweetener and enable the industry to clear cane arrears to the tune of Rs. 20,099 crore. This is in line with the demand raised by the industry, cane growers and state governments with whom the government recently held a series of meetings. However, no decision was announced on the demand to create a buffer stock of sugar on government account and industry body ISMA urged the government to quickly decide on its request to buy out 10 per cent of current year's sugar production amounting to 3.5 million tonnes "to help the industry come out of the crisis in the short run and ensure that a major portion of cane price arrears of farmers are cleared before the start of the next sugar season."

The meeting, chaired by Prime Minister Narendra Modi, also decided to waive off 12.6 per cent excise duty on ethanol blending for the next sugar season. The saving will be passed on to the sugar industry/distilleries. It is mandatory for millers to produce five per cent ethanol from molasses for blending with petrol.

At the same time, the government has decided to end duty-free raw sugar imports. Under the Duty Free Import Authorisation (DFIA), exporters of sugar could import duty free, permissible quantities of raw sugar for subsequent processing and disposal. To prevent offloading of sugar made from such duty free imports in the domestic markets, the DFIA scheme for sugar would be withdrawn.

The government has reduced to six months the period for discharging export obligations under the Advanced Authorisation Scheme for Sugar to prevent possibility of any leakage of such sugar in the domestic market. The government steps are to improve the price sentiments relating to sugar, said an official spokesman.

The last few years have witnessed over-production of sugar as compared to domestic requirement. This has depressed sugar prices with the mills having been constrained for liquidity, facing difficulties in clearing cane dues owed to the farmers and impacting incomes of 50 million sugarcane farmers. Similar conditions of subdued prices prevail in the global markets.

Ex-factory prices of sugar have fallen to Rs 22-24/kg in the country, while the cost of production is over Rs 30/kg. Sugar production of India, the world's second largest producer, is estimated to be higher than the domestic consumption for the fifth year in a row this year.

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Wednesday, April 29, 2015

Strong India Rupee Stings PM Modi's Export Ambitions

New Delhi: Ajit Lakha, who runs a mid-sized garment export business in the north Indian textile hub of Ludhiana, prays daily before leaving for work that the rupee will weaken and the euro recover to cut the losses he is taking on his overseas sales.

"Perhaps God is not listening," he says. "Only a year ago, I was getting 80 rupees for each euro on garment exports to France. Now, I am getting just 67 or 68 rupees."

Thousands of garment, leather, handicraft, and gems and jewellery exporters have watched helplessly as the rupee has appreciated by a quarter against Europe's common currency over the past 12 months.

The result has been India's worst export performance since the global slump of 2009, an early setback to Prime Minister Narendra Modi's 'Make in India' campaign to launch an export-led boom as he approaches a year in power.

To counter slack external demand, PM Modi's government plans higher infrastructure spending in the budget now before parliament, but lacks the fiscal firepower for a China-style stimulus. Short of alternatives, New Delhi is starting to lean on the Reserve Bank of India to do more on the currency side to restore India's international competitiveness.

"A case is building for rupee depreciation. Otherwise, all indicators show we are entering another difficult year," a senior trade ministry official told Reuters, adding the government expected help from the central bank besides taking other measures.

Merchandise exports, which make up around 16 per cent of India's $2 trillion economy, shrank for the fourth month in March, with the 21 per cent annual decline the steepest since 2009. In part, that reflects the collapse in oil prices - India's main import is crude but its refiners also export petroleum products.

Exports to Europe shrank by near 2 per cent in the 11 months to February, reducing its share of total exports to 18 per cent and cancelling out gains to the Americas and Africa.

Sales of textiles - a major export to Europe - for instance, have slowed in the current fiscal year after growing 15 per cent in 2013/14 year to $6.38 billion.

Need Oxygen

To be sure, a stronger rupee is not all gloom for Asia's third-biggest economy which imports nearly $450 billion worth of goods a year. But the upshot for PM Modi is that his goal of doubling shipments to $900 billion in four years now looks very ambitious.

"India has become uncompetitive in some markets," said Gaurav Poddar, director at Limtex India, which exports tea to the oil-dependent economies of the Middle East and former Soviet Union. "The rouble has really hit us," said Mr Poddar, referring to the Russian currency's collapse last year.

Trade officials say exporters need a helping hand as they are fast losing competitiveness after the rupee appreciated by 11 per cent in real terms against a six-currency basket over the year to March.

"Indian exports are in intensive care and immediately need oxygen," said S.C. Ralhan, president, of the Federation of Indian Exporters Organisation (FIEO).

Yet economists say that the RBI already faces a tough task curbing the rupee, as enthusiasm over PM Modi's business-friendly policies sucks investment dollars into Indian financial markets.

In January and February, the Reserve Bank of India (RBI) bought a net $20 billion in the spot forex market.

Any acceleration in dollar-buying intervention would force the RBI to absorb, or 'sterilise,' more of the rupees that it prints lest they leak into the economy and undermine hard-won gains in cooling inflation.

"India can choose to join the global currency war by cutting interest rates - but that is not an option we have, given we are still fighting inflation," said Sonal Varma, an economist at Nomura in Mumbai.

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Commerce Ministry eases rules for preferential quota sugar sales

The Commerce Ministry on Tuesday liberalised the sales of preferential quota sugar to the European Union (CXL quota) and the US (TRQ quota), effectively allowing all exporters and not just State Trading Enterprises (STEs) to avail of the benefits of the quota.

Sales will be subject to a quantitative ceiling that will be reviewed by the Directorate-General of Foreign Trade (DGFT) periodically, said an official statement.

The quotas essentially allow a quantum of exports to these markets at low tariffs. Additional imports of the sweetener beyond the quota are subject to additional tariffs. The Indian Sugar Exim Corporation (ISEC) had been exporting sugar under this system since 1991.

“The change in the policy of the preferential sugar quota will enable all sugar industries in the country to export sugar subject to a minimal requirement of registration from APEDA or DGFT,” the Ministry said in a statement.

Traders will have to furnish details of exports to the Additional DGFT, Mumbai, as well as Agricultural & Processed Food Products Export Development Authority (Apeda). A certificate of origin, if required, will be issued by the former.

The quota for the EU at present is 10,000 tonnes while that for the US is 8,000 tonnes.

Few to benefit

Ostensibly to aid the struggling millers who owe as much as Rs. 20,000 crore as dues to sugarcane farmers as of last month, the Ministry’s decision has not gone down well with the industry.

“The decision to remove preferential sugar quota exports to the EU and the US from the sugar industry body, the ISEC, will benefit a few petty traders at the cost of the sugar industry,” said Abinash Verma, Director-General, Indian Sugar Mills Association (ISMA).

Verma said that ISEC’s funds have been used for the welfare of the domestic sugar sector and the move will see the profits being pocketed by a few.

“It is all the more surprising to note that this unilateral decision has been taken bypassing recommendations of the Food Ministry…we have already represented before the Prime Minister to investigate the matter and check the move behind the decision and whether it will benefit the country,” he said.

(This article was published in the Business Line print edition dated April 29, 2015)

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Textiles Ministry seeks export sops for yarn, fabric sectors

The Textiles Ministry has demanded sops for the yarn and fabric sectors, which it says were ignored in the five-year Foreign Trade Policy announced early this month.

It has also made a case for inclusion of garments in the interest subvention scheme being finalised by the Commerce Ministry to help the sector compete with Vietnam, Sri Lanka and Bangladesh, which get favourable access to developed markets.

“Officials from the Textiles Ministry have already held preliminary discussions on the matter with officials in the Commerce Ministry and the Directorate General of Foreign Trade. We have forwarded all the complaints that we had received from the industry. The Secretaries from the two ministries are also in touch,” an official told BusinessLine .

Flawed incentives

Man-made fibre yarn as well as woven and knitted fabrics, in addition to garments, have been extended a 2 per cent incentive (in the form of fully transferable duty scrips) in the EU, the US, Canada and Japan. However, sops in these markets do not help yarn and fabric producers as they export very little to these markets. The Merchandise Export Incentive Scheme (MEIS), however, ignores markets such as China, Bangladesh, Sri Lanka, Turkey, Vietnam and South Korea, which are major destinations for yarn and fabric from India.

“By excluding key markets, the policy has virtually ignored fabric and yarn producers, who also need support in the shrinking world market,” the official said.

The Textiles Ministry is also trying to persuade the Commerce Ministry to include garments and other sectors in the new interest subvention scheme being finalised by it. Under the scheme, exporters from select sectors will get credit at a 3 per cent subsidy for the next three years.

“The garments sector is facing a tough time competing with smaller economies such as Vietnam, Sri Lanka and Bangladesh, which get preferable access into the EU and US markets. Interest-rate subvention will give it some relief,” the official said.

The textile sector is the largest employment generating sector in the country, especially for low-skilled workers, and needs to be supported, he added.

The Merchandise Export Incentive Scheme ignores markets such as China, Bangladesh, Sri Lanka, Turkey, Vietnam and South Korea, which are major destinations for yarn and fabric from India.

(This article was published in the Business Line print edition dated April 29, 2015)


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