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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Hike in EU customs duty to hit Indian exports

New Delhi will ask Brussels to reconsider the decision by the European Commission (EC) to end a preferential tariff system for imports from India and other developing nations. Should the current regime of low customs duties end, it would make Indian goods more expensive with exporters paying anywhere between 6% and 12%. “We have a month’s time before the new GSP (generalised system of preferences) regime to convince the EU,” an official familiar with the development told FE.

The EU has decided to “graduate” exports of several items including textiles, chemicals, minerals, leather goods and motor vehicles from India out of its GSP scheme with effect from January. Preferential or nil customs duty to exports from developing nations under GSP is an exception to the World Trade Organisation obligation of member states to give every other member equal and non-discriminatory treatment under the ‘Most Favoured Nation’ status. Other products to be excluded from the preferential import tariff include bicycles, aircraft, spacecraft, ships and boats. India’s exports to the European Union, which accounted for 17% of the country’s total exports, shrank by over 4% in 2012-13 to $50 billion.

According to official sources, India’s commerce ministry will also protest the EU’s move to simultaneously grant zero customs duty on textile imports from Pakistan from January. This, according to New Delhi, will affect the regional competitiveness of India’s textile industry, its second largest employment creator after agriculture.

“We will take it up with Brussels because for textiles, it is a double whammy. The EU has removed Indian textiles exports from GSP, which means higher duty at EU borders, and they are in the process of giving textile exports from Pakistan GSP Plus status, which means zero duty,” an official confirmed to a news agency.

The move gives clothing, apparel and accessories exports from Pakistan a 10% duty advantage over those from India. The official explained that the EU Parliamentary Committee’s vote on November 5 to give GSP Plus status to textiles from Pakistan will have to be ratified by the European Parliament, which it is expected to do in early December. The EC’s decision to graduate the Indian textile industry out of GSP from January 1 already has the approval of the European Parliament.

The EU’s move to deny India the GSP benefit for certain goods is part of its plan to redesign the scheme. The idea is to exclude advanced developing economies that have integrated into the world trade and to focus on the needs of those that are lagging. Textile exports from India are being phased out of GSP as they exceed 14.5% in value of textile imports into the EU from all beneficiary countries, going by a three-year average up to 2012. For other products the threshold for exclusion is 14.5% as per the EU regulation.
The European parliamentary committee’s vote to grant for GSP Plus status to textile imports from Pakistan and nine other countries is aimed at promoting international conventions on core human and labour rights, environment and good governance. According to overseas reports, a GSP Plus tag for Pakistan would help it create a million new jobs, boost its exports to EU by $500 million and facilitate capital flow to the sector because of the competitive edge from tariff removal.

Ajay Sahai, director general and CEO, Federation of Indian Export Organisations, said the EC’s decision would affect the competitiveness of the country’s exports. “Even though the EC has suspended this preference for both India and China, we would be hit more since China is more competitive," Sahai said.

Indian officials are also worried about the prospect of a decline in forex inflows in a year in which they had to take harsh steps like curbing gold imports to contain the current account deficit to below $70 billion or 3.8% of GDP. "It is important for affected industries to prepare themselves for the change. The cost of specified Indian exports to the EU shall, as a result of the proposed changes, increase and accordingly will impact their competitiveness," said Saloni Roy, senior director, Deloitte in India.

"The US has already given many advantages to Pakistan due to various political reasons and with this suspension from the EU, we might see a shortfall of 2-5% in exports," said Vishwanath, joint managing director of Nath Brothers Exim International, a Noida-based firm exporting garments.

To get broader preferential access to the EU market, India is now negotiating a free trade pact with the EU, which already has such arrangements with about 34 other countries. Talks on the proposed India-EU pact are progressing slowly due to a lack of agreement on areas of market access and its extent.

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India's imports gained while exports grew negligibly from FTAs: ASSOCHAM study

In the aftermath of signing 15 regional and bilateral free trade agreements (FTAs), while India's imports from these countries and regions increased significantly but our exports to these partner countries either stagnated or registered minimal growth, according to a just-concluded study undertaken by apex industry body The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

India has signed as many as 15 FTAs including preferential trade pacts, while 19 are under negotiations and eight are in the pipeline but India is still grappling with slow growth of exports and sluggish foreign direct investment (FDI) flows from its FTA partners, said Mr D.S. Rawat, secretary general of ASSOCHAM.

These engagements have achieved limited results in terms of increasing trade volumes with member countries and thus main objective of these market opening pacts is only partially being met, said Mr Rawat. There is an urgent need for the government to revisit its strategy of FTAs, bring greater transparency and involve more effective administrative process in their design and implementation to make FTAs more beneficial for India.

Out of the seven major trading partners viz., ASEAN (Association of South-East Asian Nations), Indonesia, Japan, Malaysia, Singapore, South Korea and Sri Lanka with whom India has operationalised FTAs, it has trade surplus with only Sri Lanka and Singapore, highlighted the study prepared by the ASSOCHAM Economic Research Bureau (AERB).

Even on the investment front these free trade pacts have not given any extra edge to India so far as during April 2000-June 2013, India received FDI worth $1.25 billion (bn) and $14.75 bn from South Korea and Japan respectively and this year during April-June, India attracted only $224 million worth FDI from Japan while the figure was $2.23 bn in 2012-13 and $2.97 bn in 2011-12.

Considering the negative impact of these agreements on India's manufacturing sector, ASSOCHAM has suggested that trade agreements should be 'self-regulatory' to evade scope of 'safeguard measures' and the advanced partners must not be allowed to salvage Surplus capacities through exports and exploiting concessional duty rates under trade agreements.

Besides, it should be seen that trade agreements do not become a means to fill the country's short-term supply-deficit through exports made at concessional duty rates as it adds an anti-competitive element vis-vis imports from other countries. Therefore, it needs to be complemented with Specific & Time-bound commitment for inflow of Investment, otherwise the purpose of a Trade Agreement gets defeated, highlighted the ASSOCHAM study.

Considering that India's negotiations for comprehensive FTA with European Union (EU) are at an advance stage, ASSOCHAM has suggested the Ministry of Commerce and Industry to from a special team of experts to negotiate FTAs, besides the government should organize FTA outreach programmes to create awareness amid various stakeholders.

As the feasibility/joint studies conducted by the government before commencing talks for any FTA form the basis of negotiations, ASSOCHAM has also suggested for broadening the base of such studies and inviting participation from various stakeholders like academicians, representatives of the marginal, small and medium enterprises (MSMEs) and state government officials. Besides, Indian embassies in these countries should also be engaged to gather sensitive information while conducting such studies.

Other significant points suggested by ASSOCHAM include - constant updation of publically accessible information, consultation with governments at state level before finalizing the pacts, emphasis should be laid on sectors lucrative for domestic players and tariff rates of specific sectors where Indian traders can penetrate aggressively must be looked at.

So far, India has concluded 10 Free Trade Agreements, 5 Limited scope Preferential Trade Agreements and is in the process of negotiating or expanding 17 more Agreements. Besides, at least 9 more proposals for FTAs are under consideration and when completed, these Agreements would cover over 100 countries spread across 5 continents.

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Exports at 2-year high of 12.47%, trade gap widens

New Delhi : Recovery in global markets pushed the country’s exports to a two year high of 13.47% to $27.2 bn in October even as trade deficit worsened on account of rise in gold imports.

Commerce Secretary S R Rao said improvement in western markets have helped in pushing the exports. “Exports have shown a significant increase and imports fell significantly…All the regions are doing well. We see no concerns. Only South Asia and Latin America are marginally low,” Rao added.

In April-October, exports grew by 6.32% to $179.38 bn, while imports during the period contracted by 3.8% to $270.06 bn. Rao expressed confidence that the country would achieve the $325 bn target for the current fiscal.

“All the major sectors (engineering, textiles and gems and jewellery) having significant contribution have shown a positive growth trend,” he added. Engineering exports grew by 36% to $5.6 bn in October.
Rao said that gold and silver imports in October grew due to the clearing of air on a RBI norm for gold imports.

The RBI’s 80:20 scheme for gold imports had left many confused, leading to imports being held up at customs. Gold and silver imports increased to $1.3 bn in the month under review from $0.8 bn in September, 2013.

Reacting to the export numbers, India Inc urged the Government to restore duty drawback rates to bring down the trade deficit. “CII strongly recommends restoration of Duty Drawback Rates which have been reduced drastically last month. This will further help in gaining and maintaining India’s share in the global market,” Sanjay Budhia, Chairman, National Committee on Exports and Imports of CII saidsaid.
Duty drawback is the refund of duties on inputs imported for export items.

The government had recently rationalised the duty drawback and brought more items under the scheme for tax refund to exporters. It had reduced the rates for different engineering items.
Trade deficit jumps to $10.55 bn.

Meanwhile, the government data showed that the country’s trade deficit rose to $10.55 bn in October after narrowing to two-and-a-half-year low of $6.7 bn in the previous month as purchases of gold and silver picked up ahead of the festive season.

The value of gold imports jumped to $1.37 bn in October as compared to $800 mn in the previous month.

“Curbs on gold and silver imports have worked,” Rao said adding there were positive trend in India’s foreign trade as exports growth was consistent.

Cumulative trade deficit for April-October period of the current financial year is recorded at $90.68 billion, sharply lower than $112.03 billion registered in the corresponding period of last year.

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Government likely to double export target to $1 trillion

NEW DELHI: The government is expected to double the export target to $1 trillion in the next five-year foreign trade policy even though the current policy that runs until March 2014 is all set to miss the $500-billion target set for exports.

A senior commerce department official told that the government has begun work on the foreign trade policy for 2014-2019, which will aim at doubling India's share in global trade from the current 3%. The policy is, however, expected to be announced only after the new government assumes office after the general elections next year.

"After the very successful 2009-14 foreign trade policy, we have started working towards the policy for the next five years," the commerce department official said. "Consultation process has started for that. We want to focus on the high-value exports and import substitution, such as engineering, aeronautics, cars, where value addition is the highest."

The proposed 2014-19 policy would include measures to make the country's outbound shipments more competitive by boosting productivity and generating exportable surplus.

"It will require support from the government to provide support for marketing, export infrastructure including improved logistics, keeping in mind the current situation of CAD (current account deficit)," said an inter-ministerial note moved for consultation on the new policy.

People aware of the consultations said the government is likely to set the export target for the new policy at around $1,000 billion.

The inter-ministerial note also explains the proposed policy would include a long term and a medium-term strategy to enhance trade competitiveness and overall growth of India's foreign trade.

Since 2009, India's exports have nearly doubled from $178 billion in 2009-10 to about $325 billion. The foreign trade policy for 2009-14 provided fiscal incentives to traditional sectors in the form of interest subvention and other duty neutralisation schemes to provide refund of indirect taxes and levies.

It focused on export promotion of capital goods and market diversification and product diversification. Incentives were provided under focus product and focus market schemes to encourage exporters to explore markets like Latin America and Africa.

The share of exports to Latin America has gone up from 2.9% in 2008-09 to 4.5% in 2012-13. India's rising current account deficit has prompted the government to promote import substitution through the new policy. India's CAD widened to a record high of 4.8% of the GDP in 2012-13 and 4.9% of the GDP in the first quarter of the fiscal.

After remaining muted for a year, India's exports grew in double-digits in the three months starting July, expanding by 11.2% in September.

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Analysts happy with fall in imports by India, growing exports

India’s exports kept up the pace for the fourth straight month by expanding at 13.5% -a 24 month high. Imports too declined in Oct’13, though the pace slowed down a little. Non-oil imports declined by 22.8%, with oil imports posting a marginal pick-up in growth. Cumulative trade balance was at $90.7 billion during Apr-Oct’13.

"The good thing is that gold imports did not show a significant turnaround in Oct’13, though on a sequential basis such imported jumped by 71.3%. Also, India has gained in market share in apparel exports to USA in current fiscal, an encouraging development," said State Bank of India in a note.

India’s exports registered a growth of 13.5% in Oct’13 to $27. 3 billion from $24. 0 billion in corresponding month of last year. This is the fourth straight month of double-digit growth in exports and pace of growth in Oct’13 is the highest in last 24 months. Cumulative value of exports for the first seven months of FY 14 (Apr-Oct) were valued at $179. 4 billion as against $138. 7 billion, registering a year on year growth of 6.3%.

If Oct’12 export figures were not revised, export growth would have been lower at 9.5%.

Imports during Oct’13 were valued at $37.8 billion, a negative growth of 14.5% over the level of imports valued at $44. 2 billion in Oct’12. Oil imports in Oct’13 were valued at $15. 2 billion, 1.7% higher than $15. 0 billion in the corresponding period last year. Provisional data showed that gold import increased to $1.4 billion in Oct’13 from unrevised $800 million a month earlier, a growth of 71%. However, the good thing is that Oct’13 gold import is still 80% lower in value terms against the gold import of the same period last year.

"We continue to maintain a trade deficit at $170 billion for FY14, with a CAD at $55 billion / 3. 1% of GDP, with downside," it added.

"A significant decline in gold imports and weak capital and consumption goods’ imports, due to subdued domestic demand, will help lower growth in non-oil imports during rest of this year," predicted CRISIL Research. "Improvement in exports due to a weak rupee, low base and improved global demand, will also aid in lowering trade deficit in 2013-14. Lower merchandise trade deficit, along with a healthy growth in IT/ITes exports, create downside to our forecast of current account deficit at 3.9 per cent of GDP for 2013-14," it said.

"We expect the current account deficit to moderate to USD 54bn in FY14 (year ending March 2014) from USD 88.2bn in FY13 due to better exports, weak domestic demand and a policy-driven reduction in gold imports," said brokerage Nomura. "Large inflows under the FCNR(B) deposit scheme and the delayed QE taper have led to a surge in capital inflows since September. However, with the FCNR (B) deposit window to close soon (by end-November), oil marketing companies’ demand gradually being shifted back to the market and changing expectations around the US QE taper (our US economists now assign a higher probability to a taper in January 2014 relative to March 2014), financing may remain a challenge," it added.

“The EXIM Trade Data released today reaffirmed the reversal of negativity," said Sanjay Budhia, Chairman of CII's National Committee on Exports & Imports. "Exports since last 3 months, from August , September and October 2013, have come to positive growth trajectory due to stability in the global market, particularly with our large trading partners like US and Europe.

"Also the timely Intervention by the Commerce Ministry in terms of expanding Focus Product and Focus Market Scheme have helped Indian Exporters to withstand the vagaries of tough competition. CII strongly recommends restoration of Duty Drawback Rates which have been reduced drastically last month. This will further help in gaining and maintaining India’s Share in Global Market," he added.

SBI noted that the incremental share of price sensitive items in Indian exports has been higher in current fiscal, though the pace has slowed down a bit in recent months.

The bank's research team has an export target of $320 billion for this year, nearly matching the Government target.

"In principle, coming festive season would further boost export demand in the developed economies aiding trade deficit to narrow down to a comfortable zone," it said.

However, cumulative oil imports in Apr-Oct FY14 were $98. 1 billion, 3.3% higher than the oil imports of the corresponding period last year. Meanwhile, non-oil imports contracted for the fifth consecutive month in row to $22.6 billion at 22.8% lower compare to Oct’12. H owever, tracking the trade deficit on a month on month basis, trade deficit increased in Oct’13 after having declined to a two-and-a-half-year low the previous month.

The deficit widened to $10.6 billion from $6.8 billion in Sep’13. A year earlier, the gap was $20.2 billion. Widening trade deficit in Oct’13 was aided by higher oil and gold demand. India’s share in the US textile import has remained promising. In the first eight months of 2013 (Jan- Aug) , India’s share has increased to 6.2% f rom 5.8% in 2012 and 5.9% in 2011. Further recovery in the US would add to the domestic export revenue.

"Imports contracted 14.5% y-o-y in October compared with a decline of 18.1% in September, which reflects continued weakness in domestic demand.Overall, global demand is improving, but higher imports (of oil, gold and others) have led to the deterioration in the trade deficit. The rise in imports is due to seasonality, as imports tend to rise ahead of the festival season. On a seasonally adjusted basis, we estimate that the trade deficit narrowed to USD7.3bn in October from USD7.5bn in September," Nomura said.

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Indian garment exporters eat into share of China and Bangladesh

India's garment exports to EU increased 5.9% year-on-year in January-May 2013, whereas those of China and Bangladesh declined.

India’s apparel exports are rising, primarily because the country is eating into the shares of neighbouring China and Bangladesh. Exports from India are being driven by demand from major textile importing regions such as the US and Euro zone.

Currently, China is facing high labour costs, and this is working in India's favor. Also, the yuan has risen against the dollar, and this has reduced its competitive edge. In September, Bangladesh saw a protest by labourers, who demanded higher wages. Also, the collapse of Rana Plaza,  a huge garment factory in Bangladesh on April 24 2013, has caused concern on safety and working conditions in that country.

Exports from India, on the other hand, have been aided by the falling rupee. India's garment exports to the European Union increased 5.9 per cent year-on-year in January-May 2013, while those of China and Bangladesh declined 9.7 per cent and 1.8 per cent year-on-year, respectively, according to data from the Apparel Export Promotion Council (AEPC).

In September, apparel exports from India rose 14.95 per cent to $1.11 billion. In the first half of this financial year, India exported apparel worth $7.9 billion, a rise of 13 per cent over the year-ago period, according to data collected by AEPC. For this financial year, Union textile minister K S Rao has pegged apparel exports at $20 billion. Last year, apparel and garment exports stood at $14 billion.

“In the last few months, our garment orders have gone up due to issues in Bangladesh. Importers now prefer to import from India, rather than Bangladesh due to safety-compliance issues there,” said M Shivkumar, chief financial officer, Raymond.

Orders from the Euro zone have risen 15 per cent compared to last year. Orders from the US, too, have increased. Exporters are also seeing good demand from West Asia and Japan. India has also started exporting apparel to Latin America, Russia and Australia.

Owing to the good export demand and the fall in the rupee, stocks of textile companies have risen in the last two months. During this period, shares of textile companies outperformed the S&P BSE Sensex, which rose 10.25 per cent. By comparison, the Raymond stock rose 40 per cent, Arvind 33 per cent and Alok Industries 18 per cent.

India Ratings & Research, a Fitch Group research agency, expects this trend to continue in the short to medium term. “Strong revenue growth and earnings in FY14 are likely to improve the credit metrics of garment exporters. However, exporters may find it challenging to manage liquidity amid increasing volumes, a long working capital cycle and the consequent higher use of working capital limits—a characteristic of the textile export business,” India Ratings & Research said in a report.

Most exporters are running on full capacity and outsourcing manufacturing, as order books are increasing ahead of the peak festive season (December). “This year, growth in the number of orders is very strong and the rupee’s current levels are working in our favor. No, India has become a preferred nation for apparel exports, which is also working well for the Indian apparel industry,” said Premal Udani, ex-chairman of AEPC.

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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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Exporters get Rs 900 crore relief package

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

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

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

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

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

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

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

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

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DEPB Scheme to go on 30th September

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

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

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

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

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

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

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

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

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

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

The committee recently submitted its report.

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

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

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

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

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

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Exports up 27 % in November

With exports registering a healthy growth of 26.5 per cent during November 2010 at $18.8 billion, the Commerce Ministry officials were confident that the overall exports would easily breach the $200 billion target set for this fiscal.


With the Western economies showing signs of revival and the formula to look out for new areas and markets for Indian products paying rich dividends, India's exports grew by 26.5 per cent year-on-year to $18.8 billion in November from $14.9 billion in the same month in the previous year.

On the other hand, imports rose by 11.2 per cent to $27.7 billion, leaving a trade gap of $8.9 billion, according to data released by the Commerce and Industry Ministry on Monday.

Oil imports increased by 2.31 per cent to $7.7 billion from $7.5 billion. Non-oil imports during the month grew by 15 per cent to $20.07 billion from $17.44 billion in November 2009.

During April-November 2010, shipments increased by 26.7 per cent to $140.2 billion from $110.6 billion in the year-ago period. Imports were higher by 23.9 per cent at $221.9 billion against $179 billion in the corresponding period last year. The trade deficit stood at $81.6 billion and is expected to be in the range of $120-125 billion.

During April-November, oil imports rose by 21.4 per cent to $64.8 billion from $53.4 billion in the year ago period. Non-oil imports too went up by 25 per cent to $157.11 billion from $125.64 billion. Sectors which performed well during April-November include engineering goods, petroleum and refinery items and cotton yarn.

The Federation of Indian Export Organisations (FIEO) predicted that exports could touch $220 billion, sharing the optimism of the Commerce Ministry. “Exports may reach the new milestone of $220 billion this fiscal,” FIEO President Ramu Deora said.

The government had fixed an export target of $200 billion for 2010-11. In 2009-10, shipments had declined by 4.7 per cent to $176.5 billion under the impact of global slowdown.

“The continuous increase in trade deficit is a worrying issue. The government should devise a strategy to reduce the trade deficit,” Mr. Deora said.

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Dissatisfied with China on Indian exports, govt issues strong demarche

For the first time ever, India has issued a demarche to China on an economic issue. The stern diplomatic protest follows the dissatisfaction over the lack of specific commitments offered by the Chinese government to facilitate export of Indian goods and services to the latter, which are increasingly coming under various restrictions.

The unusual move was taken by India at the conclusion of the meeting of the Joint Economic Group of the two countries in Beijing on Tuesday. The Indian commerce ministry handed the demarche to its counterpart in China listing specific items on which India expects China to take urgent action soon.

Unlike official negotiations where documents are exchanged in advance, the contents of a demarche are unknown to the other side, until it is delivered.

The Chinese were, according to sources, taken by surprise by India’s move. At the base of India’s concern is the sharp rise in trade deficit with China from $1.08 billion in 2001-02 to $ 22.05 billion on 2008-09, that both industry and government believe is exacerbated by the barriers the Middle Kingdom has imposed on exports from India. The Indian government’s move shows that it is very serious about correcting the trade imbalance between India and China. The country is India’s top trading partner.

When contacted, commerce secretary Rahul Khullar confirmed that such a demarche had indeed been delivered to the Chinese ministry of commerce. Recently the US has issued a demarche to China on the Google issue, but India has never pursued its trade dispute with any country to this extent.

According to government sources, the following sector specific issues are listed in the demarche. In order of priority, right at the top is the demand to ‘allow immediate market access for all the remaining 14 fruits and vegetables’ whose import from India is still restricted. Next, is a demand to ‘lift the ban on Indian export of de-boned and de-glanded bovine meat’ and to ‘clear the way for Basmati rice exports’ from India.

The demarche also demands “removal of ‘local content requirement’ and recognition of the international IPR registration regime in order to create favourable investment environment in wind/non-conventional energy”. Suzlon in particular has expresses serious concern about barriers in this sector.

India has also requested landing rights and uplinking facilities for Indian TV channels. Zee TV is very keen on access to China. The document also urges greater access for Indian films in the Chinese market.

In pharma, another industry which has repeatedly expressed concern about problems in China, the commerce ministry wants ‘complete removal of procedural bottlenecks which delay introduction of Indian drugs in Chinese market.’ India also wants China to ‘remove tariff and non tariff barriers on import of power plant equipment and allow sufficient export of met-coke every year, without imposing any export duties, to meet requirement of Indian industry.’

In terms of general, non-sectoral action, the government of India wants China to ‘encourage state owned enterprises in that country to source more value added goods from India.’

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India to spend additional $110 mn on export push

India to spend additional $110 mn on export push

NEW DELHI: India will give financial incentives to exports of around 2,000 products including those in engineering, electronics and chemicals, Commerce Minister Anand Sharma said on Tuesday.

A senior trade official said the boost, to support a nascent recovery in India's exports sector, would cost upto an additional Rs 5 billion ($110 million) in the current fiscal year ending March.

"We considered it necessary to provide further support especially to those products for which exports are still not doing well," Sharma said.

India's exports rose an annual 18.2 per cent in November to $13.2 billion, the first rise after 13 straight months of decline. Though Sharma said he was optimistic about export growth in the coming months, some sectors continue to struggle.

Director General of Foreign Trade RS Gujral said the financial implication of the move "will be anywhere between 450 to 500 crores (Rs 4.5-5 billion)", and will come out of the trade ministry's current budget.

India will focus on the Chinese and the Japanese markets for exports, Sharma added. Last week, Sharma said his ministry would recommend additional fiscal stimulus for some exporters in the federal budget in February.

A trade ministry statement released on Tuesday said the finance ministry has yet to decide whether to offer more support to export sectors such as textiles, handicrafts, and gems and jewellery.

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It's a little early to recall help: Commerce secretary Rahul Khullar

After thirteen months of contraction, exports grew strongly in November last year, but a number of sectors are continuing to struggle in the highly competitive world market. In an exclusive interview commerce secretary Rahul Khullar talks about why it is important not to suddenly withdraw the stimulus package given to the industry merely on the basis of numbers and other issues. Excerpts:

Exports are no longer in the negative zone. Can we finally say now that exports are ready to stand on their own?

It is still too early. I am not going by the November numbers. That is history. I don’t want to extrapolate that into the future. But through December, I have had discussions with various exporters and that gives me good reason to believe that things are looking better than they were earlier. I can’t say whether those signals would translate into actual numbers immediately or in a couple of months because there is atime lag between orders, deliveries and payments.

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Is there still a case for continuation of the stimulus package?

We also have to see aggregate numbers. I have maintained that we will not be able to meet last year’s $188 billion. What is the point of saying, November or December numbers are 20% better, if in the aggregate you are not better off. Just because a patient in the hospital was almost dead yesterday but not today, is no reason to pop the champagne. I think you have to retain the stimulus till you see some recovery. After all, if keeping stimulus in place keeps economic activity alive, revenue comes in.

Some economists are of the view that the India-Asean free trade agreement will not fetch much benefit for the Indian industry and all gains will be on the services side. How true is it?

That is not fair. We have very strong interests even on the goods side. Laos and Cambodia may be small, but think of Indonesia, Thailand and Malaysia which are huge open economies and heavily import dependent. We have deliberately kept looking at the West. They (Asean countries) are our neighbours. We should make an effort and try to do business with them or else watch China take over those markets. Indian companies are already doing business there. Toyota Kirloskar was exporting stuff to Thailand till recently when they had to stop because of some glitch. Whirlpool, too, is exporting refrigerators there. We have to give it a fair chance.

Why are there still concerns surrounding the FTA?

I will tell you where the problem is. In 2004 we did an early harvest programme with Thailand. That got us a very bad name. On 74 lines, we reduced duties straight to zero. We were inundated with imports of these items. I agree that it was a mistake. But merely because you made a mistake once does not mean that you are going to do it again. Now I have protected my defensive concerns adequately and have pushed my interests.

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'Time not ripe for removing stimulus'

With export decline getting arrested, commerce and industry minister Anand Sharma is now setting his sights higher. In an interview with ET NOW, he explained his vision for rapid economic growth, poverty alleviation, food production, FDI policy and the role of SEZs in the country’s export growth. Excerpts:

Has the Indian economy recovered from the impact of global slowdown?

The slowdown was universal, but not uniform. India started feeling the impact from October 2008. The export sector was among the first to be affected and the negative growth in exports peaked to around 40% in May 2009. There has been a turnaround due to a number of policy initiatives: the stimulus packages, Budget 2009 and the new foreign trade policy. My major concern is labour-intensive sectors like handicrafts and I feel that recovery is not complete yet.

India’s share of global exports is less than 2% and we should close the gap by the middle of 2011 and the aim thereafter is to achieve 25% growth in exports every year. We should double India’s trade by 2010 in terms of volume and by 2020 in terms of India’s share in global trade. The negative growth in exports tapered off in October 2009 to 6% and then we saw 18% growth in November 2009. We are not getting complacent, we know that low base effect has played a role in getting to the positive territory.

Even in December 2009, I hope the growth in exports will be positive. Seen in the context of the global export contraction of 9%, we have tackled the slowdown bravely. If major governments across the globe had not acted in time, in a coordinated manner, the recession could have turned into a depression.

What will be the right time to wind down the stimulus measures?

Recovery so far has been stimulus-led and stimulus-fed. We will end 2009-10 with a GDP of 7.5%, if not more. Industrial growth is in double digits and the core sector is doing well. Domestic demand has played a role in the recovery and generation of jobs as well as income. Our banks did not need any recapitalisation and India’s stimulus has worked the best. Savings rate has grown and that has provided a solid base. We need high growth over a sustained period to bring millions out of poverty. Therefore, we have to be pragmatic and realistic in our approach.

Even if we have done well, we need high level of growth to sustain the momentum, create infrastructure and generate jobs. We have to sustain high growth for at least two decades. Interest subvention and easier availability of credit should continue. Due to high cost of capital, Indian industry was always at a disadvantage. I know that FM has his concerns. Being a seasoned leader, he is well apprised. We would not have growth without the stimulus measures. A few months of good show in the run-up to the Budget should not lead to steps that will hurt us in the long run.

What steps do you have in mind for improving the investment climate?

We have an investment-friendly regime and a regulatory framework to address grievances. India has been ranked as the second most-sought-after investment destination in a survey done in Japan. Previous studies had put India behind China and the US, but the new study places India ahead of the US. Our investment regime provides stability and predictability, but there are state-specific problems.

We have set up a core committee to bring about a uniform regime across the country and the panel’s report should be in by March. We are also expanding e-governance and promoting the country through Invest India. Investment is safe in India, returns are good and foreign investors get a fair deal. Now we are in the process of bringing out a composite document containing the FDI policy for all sectors, replacing the 177 press notes that govern the FDI norms now.

Should India venture into Africa for production of food?

We should look at partnerships between private sector in India and Africa. The partnership could be extended to the government level as well and should be a mutually-beneficial one. The African countries concerned should be in a position to enhance their production and meet domestic demand, while the surplus can be supplied to India. Barring pulses and edible oils, we are not short of food except times when vagaries of nature affect production. However, it’s time we launched a second green revolution and meet our growing demand domestically. Strictly speaking, it is not my domain, but we should reduce our post-harvest losses.

Should we allow FDI in retail?

FDI is permitted in cash-and-carry trade, up to the wholesale point. And corporates are allowed to invest in retail. That should take care of the backend. Once the retailers buy directly from farmers, both consumers as well as the producers will benefit. I don’t think the time has come for us to review the FDI policy. After infrastructure and energy, I consider food processing to be one of the important segments that need investment promotion and FDI is already allowed in that segment.

Are you looking at a review of the policy for FDI through holding companies?

Policies are dynamic, but there is no review now. We are only putting together all the existing policies in a single, composite document. In the case of FDI through holding companies, the new policy is clear. It has been formulated by an empowered group of ministers and approved by the Cabinet.

What role will SEZs play in your long-term export promotion plans?

SEZs are doing well and exports from this segment were around Rs 1 lakh crore during 2008-09. I expect exports from this segment to virtually double this fiscal year. SEZs should also bring in new technology and infrastructure upgradation. I have said that incentives available to SEZs should continue. We are now planning to set up dedicated investment and manufacturing zones that will focus on the manufacturing sector. The share of manufacturing in our GDP should go up to 25% as compared to 16% now. We will identify partner-states that will host these zones. The policy is under discussion and the concept will be finalised soon.

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India Exports Rise to 15-Month High of $14.6 Billion

Jan. 11 (Bloomberg) -- India’s exports increased to a 15- month high in December as recovery in the global economy boosted demand for the South Asian nation’s products.

Overseas shipments surged to $14.6 billion after rising 18.2 percent from a year earlier in the previous month, the first increase in 14 months, Trade Minister Anand Sharma told reporters in Mumbai today. Exports are rebounding after an average 17.4 percent decline in the past year.

A revival in exports may boost production at companies in India and bolster growth in Asia’s third-biggest economy, which expanded 7.9 percent in the three months to Sept. 30 from a year earlier, the quickest pace in six quarters. A separate report yesterday showed China’s exports climbed 17.7 percent in December, the first gain in 14 months, as Asian economies recover from the worst worldwide recession since the 1930s.

“We shall sustain this positive trend” in the current quarter, Sharma said. The government will announce more stimulus measures for some sectors tomorrow, he said.

Stimulus measures worth more than $2 trillion worldwide and record-low interest rates are reviving demand for clothes made by Gokaldas Exports Ltd. and cars produced by Maruti Suzuki India Ltd., which makes half the cars sold in India.

Overseas sales of cars made by Maruti Suzuki, Hyundai Motor India Ltd. and others rose 39.3 percent in December from a year earlier. Total passenger vehicle exports jumped 40.4 percent, compared with a 15.6 percent gain in the previous month, according to the Society of Indian Automobile Manufacturers.

Stimulus Measures

Various stimulus measures announced by India’s government have helped exporters bear the impact of the global demand slump, Sharma said. The government injected fiscal and monetary stimulus worth more than 12 percent of gross domestic product between September 2008 and April last year.

The U.S. returned to growth in the third quarter after a yearlong contraction and France, Germany and Japan have exited recession. The U.S. economy, India’s second-biggest export market, expanded 2.2 percent in the July-September quarter.

India is boosting its efforts to increase overseas sales by developing trade agreements with other countries. The South Asian nation in August signed a free-trade accord with South Korea and the 10-member Association of Southeast Asian Nations as it attempts to reduce its dependence on the U.S. and Europe, which account for about 40 percent of the nation’s exports.

India in August also announced tax refunds for exporters to explore new markets in Africa and Latin America.

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Sharma to announce sops to select export sectors soon

Contrary to what the finance ministry has said about rolling-back of the stimulus packages to industry, the commerce ministry is considering extending sops to select export sectors in the next few days.

Commerce and industry minister Anand Sharma told reporters in New Delhi on Thursday that the ministry would take a decision on the sectoral stimulus within a few days.

Sharma said his ministry had reviewed various export sectors, which were still facing problems even as shipments turned positive in November.

Though Sharma did not name the sectors that would be eligible for government support, sources say these would include labour-intensive segments like gems and jewellery, leather, engineering and carpets may get sops like tradable entitlements for duty-free imports.

Even as exports have turned positive from November after recording over 18 per cent rise, Sharma said there was a need to adopt a cautious approach. India's exports rose an annual 18.2 per cent in November to $13.2 billion, the first time following 13 straight months of decline. He added that recovery was weak...and the pattern was not uniform. He said that the growth had come on a low base last year adding that he had urged caution.

The sops would be extended by the commerce ministry through its budget allocation, he said.

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