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Groundnut & despite heavy odds June 2015 June The real flagbearers real The S‘praying’ for profits?S‘praying’ India’s Private Ports Private India’s Time to not hold ground Time page means incredible profits page means incredible Issue 06 Issue Farmer issues back on the front Farmer issues back Though these exports don’t earn exports don’t Though these Shouldering on the responsibility Shouldering on the Agricultural Spray Pumps Agricultural Spray peanuts, they could do much better they could do much peanuts, Vol.2 Vol.2 VIPUL SHAH VIPUL Chairman, Gems & Jewellery EPC CHRIS DEVONSHIRE-ELLIS Chairman, Dezan Shira Associates Asia DR. ANAND DESHPANDE Chairman & MD, Founder, Persistent Systems
& www.thedollarbusiness.com www.thedollarbusiness.com EXCLUSIVE INSIDE EXCLUSIVE SHAIDA SHAIDA MOHAMMAD ABDALI Ambassador of Afghanistan to India GESTRIN MICHAEL ISABELLE JOUMARD Senior Economists, OECD AJIT BANERJEE Chief Investment Officer, General Insurance AXA Bharti IMPORTS .
EXPORTS . & National Convenor, NAPM Convenor, ROY DUTTA SUKANYA Managing Director (CGB), Swarovski India (Indian National Congress) PATKAR MEDHA Social Activist MANI SHANKAR AIYAR Rajya Sabha Member, WHILE SOME OPPOSE IT WHILE SOME OPPOSE COLONIAL DUE TO DUEHANGOVERS, SOME LOVE FOR SOCIALISM,TO OTHERS FIND SIMPLE A REASON PARANOIA ENOUGH
FOREIGN TRADE FDI
www.thedollarbusiness.com Vol.2 Issue 06 June 2015 100 $5 RNI: APENG/2014/54643 LETTER FROM THE EDITOR–IN–CHIEF
KILLING XENOPHOBIA! eng Xiaoping – the name may simply sound “very Chinese” to most. Let’s make this simple – he literally invented Foreign Direct Investment (FDI) in a China immersed in ideologies freely distributed by the old Mao Zedong school of socio-politics and therein intoxicated with anti-Capitalist scriptures floated around during the great proletarian cultural revolution. In short, he reduced Chinese obsession with everything being Chinese from “root-to-fruit”, strictly in Dthe industry sense. Xiaoping is today regarded as the economist-first-politician-second, who masterminded the ‘Made in China’ market weapon that the world is in awe of still, two long decades after he became ‘present’! India needs a Xiaoping – less by heart, more by mind. Left brainers won’t be required to engage themselves in rapt concentration to recall that the second half of May also marks one year of our new Prime Minister having assumed office, with an agitated political war cry of Achhe Din preceding his rather calm victory. Call it a coincidence, but as if in celebration of the calendar, on May 16, Modi appeared brave when he stood tall to declare thus amidst a healthy gathering of Chinese leaders in Shanghai: “We want to make things in India. For the purpose, we have launched a campaign called ‘Make in India’...” [Brave, because you cannot not help but raise a few eyebrows when you add any other proper noun other than ‘China’ after the two words ‘Make in’. And especially when you have any non-Chinese Head of State addressing a public gathering in China’s financial cap- ital!] And nobody better than PM Modi himself will realise that his objective to make fibre from farms and machines from ores will only be met if his masterplan includes one hobby horse of pro-globalisation pundits – FDI. His task however will prove as difficult a wrestle that Xiaoping had with the then-existent agents and state of affairs in his country (during the late 1970s and early 1980s). An area where pro-FDI voices often go wrong is that they subordinate their passions to the larger universe. As we’ve discussed in the cover story this issue, FDI is not the be-all and end- all of a nation’s industrialisation and development story. It never was and never will be. At Nobody better than PM the same time however, a healthy inflow of FDI is a necessary condition, if not sufficient, to Modi himself will realise make a nation a respected manufacturer-exporter. Let us focus squarely on one India-China comparison for some quick understanding. The first official annual record of FDI inflow into that his objective to make China was in 1980 that amounted to $57 million. Thanks to an increased encouragement fibre from farms and ma- from the Chinese government to encourage this positive force in all respects, today, the total FDI stock in China is almost $1 trillion (UNCTAD data). On the other hand, FDI inflow chines from ores will only into India had already reached the $57 million in FDI inflow mark six years ahead of China be met if his masterplan (in 1974). But thanks to consciously undetermined policies and with foreign investors largely being on the horns of a dilemma for most of the past 40 years, our total stock of FDI is less includes one hobby horse than a-fifth of China’s today! And you don’t want me to tell you how the India-China com- of pro-globalisation parison goes in all macroeconomic respects today. The official verdict today is better grounded in data and research. There are some strange pundits – FDI! contradictions in India’s FDI Policy (the latest version was released by the Department of In- dustrial Policy and Promotion – DIPP – on May 12 this year; another co-incidence?). Impos- sible to enumerate all of them in limited space, let me just handpick five issues, industry-wise. Why is it that while in Telecom Services, the equity cap allowed is 100%, while that in a seemingly-related area, Broadcasting Services (including DTH, Teleports, Cable networks) the limit is 74% despite a common condition on entry route limits for both? And if you contest that they aren’t remotely close, why is there this body called Telecom Regulatory Au- thority of India – TRAI – that voices opinions and issues norms for all these business from time to time? Why is there a 49% cap on FDI in Scheduled Air Transport Service (the one that is made Steven Philip Warner available to everyday Indians, aam aadmi as you would like to call), 74% in Non-Scheduled Editor-in-Chief, Air Transport Service, and 100% in Helicopter Service? Because bureaucrats and govern- The Dollar Business ment officials need more efficient and safe modes of flying? (...continued on page 4) [email protected]
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facebook.com/tdbIndia FDI can make the task of achieving manufacturing greatness easier. Only issue is, for that, a heavy inflow of FDI is needed in the first place! twitter.com/TheDollarBiz in.linkedin.com/in/thedollarbusiness/ Talking of airport projects – what’s the logic behind allowing porate Tax Rate database). In India, the rate is 40% (and we are not EDITORIAL & RESEARCH 100% FDI through the automatic route in greenfield projects and talking yet of the complicated indirect tax regime in India)! Compare Editor-in-Chief : Steven Philip Warner Editor : Manish K. Pandey only 74% in existing (brownfield) projects? Going by the poor state that to China’s 25%, and you get the drift. Reduction in bureaucracy, Executive Editor : Shakti Shankar Patra of facilities and security at many Indian airports – which is often regulations and corruption, relaxation in labour laws, a focus on ex- Senior Editor : Satyapal Menon Senior Assistant Editors : Sisir Kumar Pradhan, Shivani Kapoor 28 COVER STORY - FDI cited as a cause of concern for tourism and other business-related port-oriented manufacturing, creation of high-quality SEZs, direct Assistant Editor : Neha Dewan Principal Correspondent : Vanita Peter D'souza sectors, should the policy not be open to 100% investments in both involvement and accountability of state governments in aiding FDI, Correspondent : Aadhira Anandh M. For reasons ranging from colonial hangover Editorial Coordinator : Deepa Pandey areas? And if national security is really the other, why allow more etc., are some other areas that need urgent attention. to an affinity towards socialism, India has than 74% FDI in even new projects? The focus on Exports Focussed FDI (EFDI) is also critical. As EDITORIAL CONSULTING BOARD Founder & Editor : Anil Goyal always been suspicious of FDI. While If 74% FDI is allowed to private bankers, why is there a lower 49% compared to Local Market FDI (LMFDI), the “quality of FDI is bet- Publisher : Avnish Goyal there has been a change in mindset post Chief Consulting Editor : Dr. A. K. Sengupta (Former Dean, IIFT) cap in Insurance? Should Indians entrust their money and life covers ter and much larger” as claimed by a research paper titled, ‘Attracting Editorial Advisors : Dr. N.K. Goyal (CMAI) liberalisation, doubts continue. However, of greater value in the same hands differently? Export-Oriented FDI: Can India Win the Race?’ by scholars Abra- : Atul Kumar Saxena (IIA) criticism notwithstanding, is FDI an answer And if anything needed to be said to prove how our FDI Policy ham and Pradhan of Gujarat Institute of Development Research, BRAND ACTIVATION & RESPONSE to all of India’s economic woes? Vice-President : Aninda Mondal itself is marred with contradictions, one need not look beyond the Ahmedabad. The paper concludes that “One critical component of Senior Manager : Saroj Roy oft-debated multi-brand retail industry. As per our FDI Policy, the ‘quality of FDI’ lies in its extent and intensity of local linkage genera- Deputy Manager (Alliances) : Swati Sinha GLOBAL TRADE cap on FDI in multbrand retail has been maintained at 51%. But tion. EFDI can be expected to generate strong links with local econ- INTERNATIONAL REPRESENTATIVES 10 Seoul (South Korea) : Justin Yoon (+82-2-6241-4256) THIS MONTH leaders of the ruling party claim that this limit is just an on-paper omy compared to LMFDI in the host country...” As such, while on London (UK) : S. Kumar (+44-0-20-7376-2464) From bilateral agreements between policy and that the government’s stand on being opposed to FDI in one hand the possibility of ‘knowledge spillovers’ from EFDI is much ART & PHOTOGRAPHY Russia and China to resumption of multi-brand retail stays. As such no proposal larger than LMFDI, EFDI will ensure that the Art Director : Sujesh Kumar G. South Africa-Iran trade and much more Senior Designers : Sanat Singh, Sonia Kholgade of FDI in multi-brand retail will be approved! ‘crowding-out’ effect is done away with, be- : Gopal Ganesh Reddy Designer INDIA TRADE The focus on Exports Photographer : Dileep Kumar 13 Ironical for a change in rule that was brought cause the market shares of domestic companies THIS MONTH about four long years back. How secure will Focussed FDI (EFDI) is will then not be eroded. There is no doubt that THE DOLLAR BUSINESS ONLINE Duty hike on raw sugar imports, all but Deputy Editor : Jayarama Emani forgotten AEZs, new multi-purpose that make foreign investors feel? critical. As compared to Local India is in an ideal position to boost its exports Senior Editor : Himanshu Vatsa TDB Intelligence Unit findings based on by making the most of FDI, as an OECD report Assistant Editor : D. Sai Nikesh berths at six major ports and much more Market FDI (LMFDI), EFDI Web Developer : K. Naveen World Bank data prove how India’s FDI policy titled, Foreign Direct Investment for Develop- SEO Specialist : Alimoddin Mohd. 18 20 Associate (Web & Network) : C. Dileep Reddy 16 SPOTLIGHT – related to caps and numeric limitations im- offers bigger opportunities ment: Overview’ states: “The clearest exam- SRI LANKA posed – appears out-of-sync with tunes of glo- ples of FDI boosting exports are found where CIRCULATION & DISTRIBUTION End of a two-and-a-half decade long civil and value to the host country General Manager : S. S. Sudesh SHAIDA ABDALI SUKANYA D. ROY balisation. Forget global standards and those inward investment helps host countries that Assistant Manager : Sanjeev Jain, Buddhi Sagar Pandey war means the economic picture of this Senior Executive : K. Chandra Prakash island nation is now brighter than ever In a candid interview, Managing Director followed by developed economies, as compared to even a group had been financially constrained make use either of their resource the Ambassador of (CGB), Swarovski India, SUBSCRIPTIONS Afghanistan to India talks about the compa- of mostly low-developed South-East Asian economies (including endowment or their geographical location.” There is no denying that Manager : M. Vinay Kumar 22 INFOGRAPHICS Afghanistan, Bangladesh, Bhutan, Iran, Maldives, Nepal, Pakistan India is blessed in terms of both resources and geography (take a SPIRITS & LIQUEURS speaks about the ny's journey in India, FINANCE & LOGISTICS Like 'em or hate 'em, they are a reality. post-Taliban era and tariff barriers, 'Make in and Sri Lanka), sector-after-sector, the FDI limits allowed are lower. look at the world map – how high-growth economies are splattered Manager : Parchuri Jhansi Indo-Afghan trade India' and more Associate : Raj Jarikote Despise them or think of them as god's Here are seven broadly defined average FDI caps for comparison: right around India!). If Mexico can be taken as an example, India gift, they represent a massive trade PRINTER Agriculture & forestry (India: 50.0%, South Asia: 90%, Global aver- will have a lot to gain from FDI boosting its global trade linkages. Kala Jyothi Process Pvt. Ltd., age: 95.9%), Light manufacturing (81.5%, 96.3%, 96.6%), Telecom Post the mid-1980s and the birth of The North American Free Trade 1-1-60/5, RTC Cross Road, Musheerabad, Hyderabad, Telangana 500020, IN GLOBETROTTER BESTSELLER 52 PERSISTENT SYSTEMS 74 PHOTOGRAPHIC PAPER (74.0%, 94.8%, 88.0%), Banking (87.0%, 97.2%, 91.0%), Insurance Agreement (NAFTA), FDI inflow into Mexico grew tremendously. It PUBLISHED AT Post silver jubilee celebrations, one of They capture your favourite moments for 5-2-198/4, Distillery Road, Ranigunj, Secunderabad, (26.0%, 75.4%, 91.2%), Transport (59.6%, 79.8%, 78.5%), Media was the largest FDI recipient in Latin America by 2001. With low en- Telangana 500003, IN India's most valued IT products eternity and are profitable to import (63.0%, 68.0%, 68.0%), Construction, tourism & retail (83.7%, try barriers to FDI actively pursued by the Mexican government, the company is gearing up for the future 96.7%, 98.1%). knowledge spillovers and infrastructural development that occurred © Copyright 2014 78 POLICY FOCUS No part of this magazine may be reproduced in whole or in part without an ex- 58 THE MIDAS TOUCH MEIS The unfriendly caps are just the tip of the iceberg that prevents in Mexico, have made it the second-largest trading developing coun- pressed permission of the publisher. The information on this magazine is for infor- COTTON LINTERS With so many structural issues, shouldn't mation purpose only. The Editor-in-Chief & Editor are responsible for the selection many-an-investor ship willing to set up manufacturing plans and try in the world with nearly 67% its exports coming from MNCs! of news and content under PRB Act. Vimbri Media Pvt. Ltd. assumes no liability A byproduct of the cotton oil extraction the government act less miserly? plants in our high-quality manufacturing-starved economy and ini- PM Modi isn’t one who limits himself to being identified as a sin- or responsibility for any inaccurate, delayed or incomplete information, or for any process, these silky fibres have a big, yet actions taken in reliance thereon. The information contained about each individual, volatile demand in China POLICY MONITOR tiate transfer of knowledge and technology into the Indian manufac- gle character. In one year, he has already proved an economic explor- event or organisation has been provided by such individual, event organisers or or- 82 ganisation without verification by us. All disputes are subject to exclusive jurisdiction VIPUL SHAH, CHAIRMAN, GJEPC turing landscape. Straigthforwardly stated – MNC-friendly policies er. Undeniably, what lies within the nation is his prime concern. But of competent courts and forums in Hyderabad, Telangana. THE SECRET INGREDIENT Talks about his efforts to bring back lost Printed and published by Avnish Goyal for Vimbri Media Pvt. Ltd. Published at 62 are to be put in place. You cannot have non-uniform and non-trans- the next question he will need to answer is – what lies within the 5-2-198/4, Distillery Road, Ranigunj, Secunderabad - 500 003, Telangana. GROUNDNUT glory for India's diamond exports parent tax regime in place and expect foreign investors to be delight- nation for those without (foreign investors)? And be it the no.2 ques- While India's groundnut exports are doing Printed at: Kala Jyothi Process Pvt. Ltd., 1-1-60/5, RTC Cross Roads, Musheerabad, great, they can do better, actually PRIME FOCUS ed. Taxation policies in India remain inherently complex – billions tion, its answer will play a significant role in deciding the fate of the Hyderabad - 500 020, Telangana. much better 86 PRIVATE PORTS of dollars of litigations regarding tax payment by foreign companies bold claim he recently made in Shanghai. FOR EDITORIAL/CONTENT Email: [email protected] . Tel: +91-40-6677 0766 The young, yet real flagbearers of India's is one proof. Corporate tax rates in most nations are in the range of It’s time for his cabinet to eradicate from IMPORT'ONOMICS EXIM trade FOR ADVERTISEMENT 70 15 to 25% (as per a TDB Intelligence Unit analysis of KPMG’s Cor- India the fear called xenophobia! Email: [email protected] . Tel: +91-40-6677 0765 AGRICULTURAL SPRAY PUMP FOR SUBSCRIPTION More money in the hands of farmers 94 DATEBOOK Email: [email protected] . 18001030385 (Toll free) means the demand for these sprayers Some trade fairs you shouldn’t miss out on www.thedollarbusiness/blogs/steven @SPWarner SMS your views to +91-888-633-1947 For queries / comments you can send us an SMS at +91-888-633-1947 are rising by the day in India and abroad in June & July
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Source: Media sources e welcome any deal Wthat stops Iran from having a nuclear capability and this is what we have been assured by the US and by the other P5+1 countries, that all pathways to a bomb will be closed to Iran. ADEL AL-JUBEIR SAUDI ARABIA’S FOREIGN he EU and Mexico will hope there can also be COVER FEATURE MINISTER Twant to consolidate I greater cooperation on trade Indian Pharma While extending support to Barack all this new openness in flows between Brazil and Does the M&A buzz mean the sector has put Obama to reach a nuclear deal North America. The closer China. The issue of free trade with Iran the ghosts of USFDA bans behind, and is
Source: The Guardian our modernised deal is to between Brazil and China is ready for the next chapter? those high standards, the very important and must be easier that will be. on the agenda. CECILIA MALMSTRÖM DILMA ROUSSEFF EU TRADE COMMISSIONER BRAZILIAN PRESIDENT On efforts to update the EU-Mexico Speaking on trade ties with China free trade agreement (FTA) in line with the USA-Canada FTA
Source: Yahoo News UK Source: AsiaOne
THE SECRET INGREDIENT IMPORT’ONOMICS ainland China is FDI in multi-brand retail cannot go in direct Coffee Extracts Almonds our largest trading What’s that secret blend that has A commodity that’s not just delicious M route. Every decision has to come to the ensured millions of dollars worth of and nutritious, but also extremely partner, so it is impossible cabinet. We will not allow it. soluble coffee exports from India profitable to import to reduce our trade NIRMALA SITHARAMAN, with mainland China MINISTER OF STATE (INDEPENDENT CHARGE) SUBSCRIBE TODAY TO GET INDIA’S MOST CONTEMPORARY significantly. FOR COMMERCE AND INDUSTRY, MA YING-JEOU Defending the government’s stance to not reduce the FDI limit in BUSINESS MAGAZINE DELIVERED DIRECTLY TO YOUR DOORSTEP. TAIWANESE PRESIDENT multi-brand retail BE UNIQUE. READ DIFFERENT. While arguing for close trade ties with China Source: Media sources Source: The Wall Street Journal The Wall Source: To subscribe, please call us on 18001030385 (Toll free) or write to us directly on FOREIGN TRADE EXPORTS IMPORTS [email protected] or log on to www.thedollarbusiness.com 8 THE DOLLAR BUSINESS II JUNE 2015 GLOBAL TRADE News & Analyses THIS MONTH
MALAWI NORWAY-NORTH KOREA RESTRICTIONS IMPOSED ON FOREIGN RETAILERS SALMON EXPORTS CHINA-RUSSIA BILATERAL AGREEMENTS An unwelcoming Malawi? Having the fish Come July, foreigners won’t be allowed to do business in Malawi. While difficult to digest in today’s globalised and eating it too To challenge the existing world order world, the Malawi government has actually come up with a novel law to keep ‘illicit’ foreign traders at bay and attract n a move signaling its eastward drift, Russia has signed a Russia-China trade only meaningful investors. The law bars foreign retailers from plethora of deals, ranging from energy to transportation Bilateral trade is all set to hit the $100 billion mark this year working in rural areas with effect from July 1, 2015 and allows and infrastructure, with China. The bilateral agreements, them to carry out retail business only in designated urban areas like 60 Iincluding deals on Russian gas supplies to China, opening a Blantyre, Zomba and Lilongwe. The Malawi government has intro- currency swap line to boost bilateral trade, and Chinese in- 50 duced the law in the wake of complaints by Malawian business own- vestment to build a high-speed railway link in Russia, came ers, who have been affected by the invasion of foreign traders in rural on the sidelines of celebrations commemorating the end of 40 growth centers, and Malawi’s citizen who view foreigners as encroachers. World War II, an event which was shunned by most West- Expected to hit Chinese retailers operating in the rural region badly, the ern leaders. The most significant of these deals was Russian 30 new law makes it mandatory for a foreign trader to have a licence, from the gas giant Gazprom signing a MoU with China National Chief Business Licensing Officer by paying a fee of $2,50,000, before starting a Petroleum Corp (CNPC) to build a gas pipeline to China. 20 new business. Local traders are of the view that the fee will attract only meaning- The two sides also signed deals to boost Chinese lending ful investment into the country and help its development. 10 to Russian companies and investment funds, targeting ag- ricultural projects, and a credit line for Russian banks from 0 Norway’s exports of Atlantic salm- China Development Bank. China’s biggest hydropower de- CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 COSTA RICA on to North Korea have got a major veloper also signed an agreement with its Russian counter- Russia’s exports to China China’s exports to Russia AVOCADOS boost as even the country’s foreign part to jointly build a hydropower plant in Russia. Source: International Trade Centre; figures in $ billion ministry has affirmed that they don’t Nothing fruitful here represent a violation of the sanctions There’s bad news for Avocado lovers in Costa Rica as their prices are set to soar, imposed against the dictatorship. thanks to a decision of the government to ban imports from about nine countries. This, because instead of exporting Citing ‘sunblotch’ virus attack affecting the crop across the globe, Costa Rica has salmon fishes, Norwegian exporters halted avocado imports from Mexico – the world’s largest producer and single export salmon fish eggs to North Ko- biggest exporter of avocados to the country – and Spain, South Africa, Australia, rea, which are then raised to full-size USA, Ghana, Israel, Venezuela and Guatemala. The in fish farms. It’s worth noting that move is likely to push up prices of the fruit by 25%, Norway is the fourth biggest frozen since only 20% of the local demand is catered to fish (whole) exporter in the world, by domestic producers, making imports with exports worth over $1.7 billion mandatory. It’s worth noting that in in CY2014 and the third biggest va- CY2014, Costa Rica had import- riety in these exports are Atlantic ed avocados worth $21.1 million, and Danube salmon, a big chunk of mostly from Mexico. which is exported to North Korea.
SOUTH AFRICA-IRAN South Africa-Iran trade OIL IMPORTS Collapsed in 2012, thanks to South Africa buckling to the West 4,000 In damage control mode 3,500 A recent visit by the South African International Relations and 3,000 Cooperation Minister Maite Nkoana Mashabane to Iran has 2,500 brightened the chances of resumption of trade ties between the 2,000 two nations. Referring to Iran as a friend and a strong inter- 1,500 national ally, Mashabane said, “Iran was at the forefront of the 1,000 fight against apartheid, and pledged solidarity to the South Af- 500 rican people.” Terming the economic sanctions against Iran ‘ir- 0 rational and illegal’, she said, “We want to see natural resources CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 being utilised for peaceful means.” Many see the statement as a South Africa’s exports to Iran Iran’s exports to South Africa signal for resumption of trade between the two nations. Source: International Trade Centre; figures in $ million
10 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 11 GLOBAL INDIA TRADE News & Analysis TRADE News & Analyses THIS MONTH THIS MONTH
ISRAEL-GERMANY RUSSIA-UKRAINE NAVY SHIPS ANTI-DUMPING To keep the coastline safe Opening new battlefronts Giving a push to its navy’s defensive capabilities, Israel has signed a deal with German shipmaker to purchase four ad- vanced surface vessels for €430 million to protect its gas drilling rigs. According to the deal – ThyssenKrupp Marine Systems (TKMS) will build the patrol ships and deliver them to Israel within five years – Germany will finance about a third of the deal, with a special grant of €115 million. The announcement of the purchase deal was made on the sidelines of celebrations marking 50 years of diplomatic ties between the two countries. Once delivered, the patrol ships are expected to secure Israel’s Exclusive Economic Zone in the Mediterranean and search ef- forts off the coastline. It’s worth noting that the Jewish state has vast untapped gas fields that face possible sea-borne threats. Russia has approached the World Trade Organisation (WTO) against anti-dumping measures adopted by Israel-Germany trade Ukraine on a few products, including ammonium nitrate, All set to get a boost, thanks to military cooperation originating in the Russian Federation. “The Russian Fed- eration notified the WTO Secretariat of a request for con- 6 sultations regarding anti-dumping measures adopted by 5 Ukraine on imports of ammonium nitrate,” WTO said in a statement. It’s worth noting that in 2008, Ukraine had first 4 imposed anti-dumping duties on Russia’s ammonium ni- 3 trate shipments and extended the protectionist measure in 2 July, 2014. Russia alleges that Ukraine has failed to estab- lish and properly evaluate the relevant facts while deciding 1 the duty increase and extension on ammonium nitrate. 0 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 Going by WTO rules, Ukraine has 60 days for addressing Russia’s concerns and settling the dispute through talks. If Israel’s exports to Germany Germany’s exports to Israel the talks fail to find a resolution, Russia can ask the WTO Source: International Trade Centre; figures in $ billion to adjudicate.
ZIMBABWE France and UAE. The decision has not gone down well with ELEPHANT EXPORTS animal rights groups, which are terming the plan ‘cruel’. How- ever, the Zimbabwe government has shrugged off internation- Desperate measures al pressure and vowed to go ahead with the exports and raise EXPORT INCENTIVES This news is certainly going to upset jumbo lovers. In a move money for the country’s wildlife management that has been hit that has angered the animal welfare community, Zimbabwe has following a slump in the tourism industry. The move is being decided to export over 60 baby elephants to raise badly-needed cited as a fallout of USA’s ban on the imports of elephant ivory. Simpler is not always better funds for conservation and restrain elephant population in the According to the Convention on International Trade in En- country. If reports are to be believed, the cash-strapped Zim- dangered Species (CITES), the African nation can export the ederation of Indian Export Organisations (FIEO) has expressed concerns over the export incentives babwean government will be exporting elephants to China, animal as long as the trade is properly regulated. announced in the new Foreign Trade Policy (FTP) 2015-2020 and has urged the government to re- view the benefits. FIEO President S. C. Ralhan has said the incentives being given to the exports sector Fare less than 1% of India’s total exports, which is a ‘miniscule amount’. The FIEO chief, although appreciative of taking exporters away from subsidies, however, was of the view that the timing for the same was not correct. “There is an urgent need to review the benefits announced, in order to sustain exports growth, at a time when global economies are reeling under intense pressure,” he said. He urged the government to increase the percentages of benefits being given to exporters and if that was not possible, at least restore the benefits that were there in the earlier FTP. It’s worth noting that although the new FTP has simplified things for Indian exporters by merging several of the earlier incentive schemes under just one new scheme, MEIS, several sectors that were earlier entitled to incentives, have now been denied the same.
12 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 13 INDIA TRADE News & Analyses THIS MONTH
VEGETABLES EXPORT BAN To leave the bitter taste behind India has urged the European Union (EU) to lift its ban on the import of four vegetables, MAJOR PORTS Informing this to the Lok Sabha, Minister of State for Road including bitter gourd, from India. The appeal was made by Union Agriculture Minister Rad- NEW BERTHS Transport and Shipping Pon Radhakrishnan said the project ha Mohan Singh during his meeting with Phil Hogan, EU Agriculture Commissioner, on the will also help reducing the pre-berth detention time at Indian sidelines of a G-20 Agriculture Ministers meet at Istanbul. The appeal comes months after EU For smoother sailing ports. With an estimated cost of Rs.1,622.75 crore, the project lifted the ban on the import of Alphanso mangoes in January this year. It’s worth noting that in In a move that could boost India’s cargo handling capacity, will cover six major ports – Paradip, Visakhapatnam, Kamara- May last year, the European Commission had imposed a ban on the import of Alphanso man- the government has decided to develop multi-purpose berths jar (Ennore), Mangalore, Mormugao and Kandla. Of these, the Phil Hogan goes, and followed it by banning bitter gourd and several other vegetables, citing the presence at various major ports in the country. The government’s deci- development of WQ-6 berth for handling multi cargo in the EU Agriculture Commissioner of pesticides. The move had affected exports worth millions. However, after conducting field sion is primarily aimed at reducing the turnaround time for inner harbour of Visakhapatnam Port on DBFOT basis is al- surveys, EU had, in January this year, lifted the ban on Alphonso mangoes. commercial vessels, thereby making the ports more efficient. ready complete.
RUSSIA MoUs AEZS NEW INSTITUTIONS STATE VISIT HANNOVER MESSE DATABASE GRIEVANCE REDRESSAL To become friends with Effort showing results All but forgotten To make $900 billion a reality It seems Prime Minister Narendra Modi’s recent visit to Ger- While maintaining database has never been India’s strength, Indian exporters/ importers have a reason to cheer as the gov- benefits many has started to yield a rich harvest for Indian firms. For, the government not having any record of exports from and em- ernment has proposed two institutional mechanisms for ad- This news will surely bring a smile to the faces of traders explor- following Modi’s visit, Indian companies, including Essel ployment generation at any of the 60 agri-export zones (AEZs) dressing their issues. These include constituting a ‘Board of ing opportunities in the Russian market. For, President Pranab Group and HMT, have signed 11 memorandum of under- for the last three years would surprise even the cynics. This was Trade’ and a ‘Council for Trade Development and Promotions’ Mukherjee, during a four-day visit to Russia, has underlined standings (MoUs) with German firms at the world-renowned informed to the Lok Sabha in written reply by Minister of State to facilitate easy and faster redressal of grievances of trade and huge potential to enhance commercial and investment ex- German trade fair Hannover Messe 2015. The MoUs, which (Independent Charge) for Commerce and Industry Nirmala industry. While Board of Trade will offer a platform for con- changes between the two nations. While being optimistic about are being projected to have strengthened the strategic ties be- Sitharaman. Significantly, in the absence of any progress report sultation, the latter will have representatives of the central and the future of India-Russia economic ties, Mukherjee didn’t tween the two countries, are expected to increase FDI flows about these zones, no funds have been allocated to them in the various state governments. A toll-free number and a dedicated hide is disappointment with the current state of affairs and said into India and help the growth of India’s manufacturing sector past three years. It’s worth noting that AEZs were developed email identity for resolving IEC number related issues, and a the total trade between India and Russia doesn’t account for by bringing in new technology. Hailing the MoUs, Minister by the government, starting 2001. However, as on March 2012, web-based complaint monitoring system for resolving EDI re- even 1% of the former’s total trade. Highlighting even the lack of State (Independent Charge) for Commerce and Industry all the 60 AEZs had completed their notified span of five years, lated grievances, are also parts of the proposal. Besides, Griev- of capital flow into India from Russia, Mukherjee said, “Since Nirmala Sitharaman told Rajya Sabha that these pacts will cre- following which state nodal agencies stopped collating infor- ance Committees have been constituted at the DGFT head- April 2000, FDI inflow into India is $46 billion, out of which ate employment opportunities in India, thereby boosting the mation about exports from them. quarter and its ROs to consider individual grievances. only $1 billion has come from Russia.” He also emphasised on economy. fully utilising new opportunities arising in the two economies It’s worth noting that of the 11 MoUs, two of the most prom- and urged the Indian community in Russia to contribute in inent ones are between HMT and FT Machine Tools for flow propelling economic ties between the two countries to a higher forming machines and between Essel Group and FeCon GmbH SUGAR IMPORTS straight years of continued surplus sugar production has re- trajectory. It’s worth noting that despite very strong diplomatic to develop 12,500 MW of solar and 4,000 MW of wind energy DUTY HIKE sulted in a fall in prices in the Indian market, which has badly relationship between India and Russia, trade ties between the projects in India. The agreements are also expected to boost the affected the financials of millers, who, according to estimates, two nations haven’t been a focus area since the fall of USSR. government’s ‘Make in India’ initiative. To protect some of the owe over Rs.20,000 crore to cane farmers. sweetness India’s sugar and sugar confectionery trade India-Russia trade India-Germany trade In what may come as a much needed relief for the cash-strapped The trade has been dancing to the tunes of policymakers The bilateral trade is still just a fraction of its real potential It’s set to get a boost through the new deals sugar sector, the government has hiked the import duty on sug- 1,600 6,000 18 ar to 45% from 25% and has disallowed the import of raw sugar 1,400 16 5,000 1,200 14 under DFIA, which is expected to prevent the leakage of sugar 1,000 4,000 12 made from such duty free imports into the domestic market. 800 10 Experts believe the two moves will prop up falling sugar pric- 3,000 600 8 es in the country and help cash-starved sugar mills clear their 2,000 6 400 4 dues to farmers. Besides, the government has also decided to 200 1,000 2 scrap excise duty on ethanol made from molasses. This deci- 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 0 0 sion is also aimed at improving domestic prices and discour- FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 age cheap imports, which might, in turn, leave more money in Exports Imports India’s exports to Russia Russia’s exports to India India’s exports to Germany Germany’s exports to India the hands of money-losing millers. It’s worth noting that four Source: Ministry of Commerce, GoI; figures in $ million Source: Ministry of Commerce, GoI; figures in $ million Source: Ministry of Commerce, GoI; figures in $ billion
14 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 15 SPOTLIGHT SRI LANKA
SRI LANKA’S TOP SRI LANKA’S TOP EXPORTS TO THE WORLD IMPORTS FROM PEARL OF THE WORLD Tea Electrical apparatus for Women’s suits, 267.4 line telephony jackets, dresses T-shirts, singlets Gloves, mittens, mitts (knitted / crocheted) (knitted / crocheted) Rice 281.8 THE INDIAN Women’s slips, panties, Medicament mixtures bathrobes (knitted / (put in dosage) 295.9 Women’s suits, Retreaded / used tyre, crocheted) jackets, dresses solid tyre, Milk and cream (concentrated (knitted / crocheted) interchangeable tyre or sweetened) 324.7 Brassieres, OCEAN Wheat and meslin 2,000 370.9 girdles, corsets, Men’s suits, Petroleum oils suspenders jackets, Cement, portland, (not crude) aluminous, slag 511.7 trousers One can do nothing but stand and applaud a nation, 1,600 Fabrics (knitted or crocheted) which fights a bloody civil war for two and a half of width > 30 cm 566.6 decades, and still holds its own in terms of economics. Cars 800.7 1,200 While even during its war with the LTTE, the Sri Lankan Crude petroleum oils 1,337.7 Petroleum oils 800 economy had never really stumbled, six years since (not crude) 2,592.0 the end of the war, things are looking brighter than ever 0
500 400 before for India’s teardrop 3,000 2,500 2,000 1,500 1,000
0 Lack of oil reserves and refining capacity 1609.3 552.8 539.7 527.6 497.2 449.7 434.2 356.6 295.4 232.9 SRI LANKA’S 25 means Sri Lanka’s top imports are crude oil, While Sri Lanka is the world’s top exporter of tea and exported over $1.6 billion worth of it 19.7 petrol and diesel last year, it also exports millions of dollars worth of women’s apparels and inner wear MERCHANDISE 20 TRADE Source: International Trade Centre; CY2014 ($ million) Source: International Trade Centre; figures for CY2014 ($ million) 15 11.3
Without much crude oil reserves or refining 10 capacity, Sri Lanka is almost entirely INDIA’S TOP EXPORTS TO SRI LANKA 5 dependent on imports as far as energy Aeroplanes / aircraft High speed Petroleum spirit for Aeroplanes / aircraft of unladen of unladen weight diesel motor vehicle weight exceeding 2,000 kg is concerned and this is one of the main 0 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 exceeding 15,000 kg 344.6 186.1 but not exceeding 15,000 kg reasons why despite being the world’s top 750.5 180.2 tea exporter, the island nation almost always Export Import Refined sugar Dredgers Light vessels, Three wheeled vehicles runs a merchandise trade deficit Source: International Trade Centre; figures in $ billion fire-floats, floating with cylinder capacity not 114.1 103.4 cranes exceeding 1,000 cc 99.7 99.0 SRI LANKA’S TOP TRADING PARTNERS Other goods Ordinary portland vehicles cement (dry) MALAYSIA INDIA-SRI LANKA 70.0 68.5 As one would expect, MERCHANDISE TRADE India has always been a GERMANY 4,534.4 thanks to geographical 5,000 SRI LANKA’S big exporter of high speed 4,500 diesel to Sri Lanka, ITALY proximity and historical TOP EXPORTS 4,000 but in recent years, ties, Sri Lanka’s top trading 3,500 TO INDIA aircraft and aircraft JAPAN partner is India, followed by components 3,000 Crude petroleum Aeroplanes / aircraft China, from where it imports 2,500 oils of unladen weight exports have UK exceeding 15,000 kg surged shiploads of machinery 2,000 101.3 Source: Ministry of Commerce, GoI; fiigures for FY2014 ($ millio n) 39.4 SINGAPORE and electronic items 1,500 1,000 666.9 Compounded Light black Recovered waste animal feed pepper and scrap paper UAE 500 and paperboard 0 35.4 27.6 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 27.2 USA India’s exports to Sri Lanka Sri Lanka’s exports to India Cloves whole fruit Knitted or crocheted Fresh or dried areca (neither crushed fabrics of other nuts (whether or not CHINA nor ground) fibres shelled or peeled) The massive trade deficit that Sri Lanka has with India 16.7 16.6 16.0 INDIA can be attributed to the Sri Lanka-India FTA, which Marble, travertine and many claim benefits the latter more alabastor articles Due to lack of refining capacity, Sri Lanka exports the Import Export 14.8 very little amount of crude oil it produces to India. Source: Ministry of Commerce, GoI; Source: International Trade Centre; figures for CY2014 ($ million) figures in $ million Source: Ministry of Commerce, GoI; figures for FY2014 ($ million)
16 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 17 OVERSEAS TALK SHAIDA MOHAMMAD ABDALI, AMBASSADOR OF AFGHANISTAN TO INDIA “WE HAVE A QUEST FOR CONNECTIVITY WITH INDIA”
Generally, diplomats complain about India and its various walks of life. But Shaida Mohammad Abdali, Ambassador of Afghanistan to India, thinks his three years in the country have been the most impressive and have gone by like months. In a freewheeling interaction with The Dollar Business, Abdali spoke about post-Taliban Afghanistan, India’s role in its reconstruction, trade ties, and of course Pakistan
INTERVIEW BY VANITA PETER D’SOUZA
TDB: Give us a real sense of the journey from the Taliban years to today. of our reconstruction. It has invested post-Taliban Afghan economy. How about $2 billion in Afghanistan. It is one far have things improved? TDB: Has the Afghan central govern- of the largest contributors to Afghanistan’s Shaida Mohammad Abdali (SMA): The ment managed to consolidate all parts reconstruction. It is also the fifth largest situation in Afghanistan has improved in of the economy under its ambit or is donor to Afghanistan. The people of Af- all walks of life and, today, we are focus- the parallel economy still very large? ghanistan are extremely grateful to India ing more on economic development. I’ll SMA: When we came to Kabul in late for this. Indo-Afghan relationship should tell you my personal story about what 2001, Afghanistan barely had anything strengthen further, not just at a bilateral Afghanistan was and what it looks like in its national account. We, probably, had level, but also at the multilateral level. today. When we arrived in Kabul in late less than $200 million. Today, it’s swelled 2001, Taliban had still not fallen. I remem- to more than $5 billion. Barely any rev- TDB: Reports claim that Afghanistan ber the situation in Kabul was very miser- enue was getting generated for the na- is sitting on mineral deposits worth able. People used to be completely hope- tional economy during those years. So, trillions of dollars. There also seems to less, in terms of the life they were living. $5 billion national revenue signifies that be a race between Indian and Chinese Around late 2001 and early 2002, when I revenue collection, today, is good. We companies to develop these mines. would personally walk into Kabul’s streets, have made a lot of progress in various Will this fight be won by economics I would get surrounded by beggars. In fact, sectors. Revenue is being collected na- or geo-politics? at times, I wouldn’t go out because I used tionally. But of course, any conflict-af- SMA: We will not call it a fight. We to get very affected by looking at the con- fected country will take time. We need will call it competition, a constructive dition of the people who surrounded me. time to ensure we make progress in every competition between two constructive Today, the situation is unbelievably direction. The financial system in Afghan- partnerships. No one will win this, if it’s different from those Taliban years. To- istan is doing very well, but certainly, we about fighting. If the competition is in day, despite security challenges, the eco- expect further improvement. an unconstructive manner, someone will nomic life of the people has improved a stumble one day. lot. But yes, we could do better. I would TDB: India and Afghanistan have al- The trillions of dollars of mineral re- never be satisfied with what we have. But most always had cordial relations. Giv- sources in Afghanistan are a fact and we I’m very satisfied with Afghanistan’s long en this, how satisfied is it with India’s expect India and the rest of the region to assistance in its reconstruction? become our partners in extracting these SMA: India has stood by the people of resources and then sharing the wealth WE ARE NOT ONLY A Afghanistan at all times and under all amongst ourselves. So, we welcome all SOUTH ASIAN BUT circumstances, whether good or bad. countries in the region, be it India, Chi- ALSO A CENTRAL Hence, when it comes to reconstruction na, or others, for this collective prosper- activities in Afghanistan, Indo-Afghan ity. Indo-China economic relationships ASIAN NATION relationship is very unique. For the last are also growing and we would like to
few years, India has been at the forefront see this relationship working towards Choudhary Photographs: Varun
18 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 19 OVERSEAS TALK SHAIDA MOHAMMAD ABDALI, AMBASSADOR OF AFGHANISTAN TO INDIA
Afghanistan’s growth. everyone to put aside all other matters, TDB: Other than dry fruits and spices, come and go, but we should strengthen India’s exports to Afghanistan Afghanistan’s exports to India when it comes to economic cooperation. what other Afghan products do you the roots of our relationship and that is Mostly clothes & synthetic fabrics Mostly fruits and dry fruits TDB: India-Afghanistan bilateral trade We don’t deny the fact that there are think Indians can take a liking to? there in people-to-people relationships. is not worth even $1 billion. What do many things that stop our countries SMA: For the last two years, I have been you think are the real roadblocks and from sharing the same platform. But that going around and visiting various Indian TDB: How big is Afghanistan being 35.5% 24.5% the real potential of it? is no reason to create obstacles on what states and as I have said, business with landlocked an impediment to its trade 8.0% 13.9% SMA: This is a very unpleasant news. we think will bring nothing but prosper- Afghanistan means business not just ambitions? With the potential that we have, the pos- ity for everyone. So, we hope the three of with it, but with the entire region. Once SMA: Landlocked does not mean Af- 7.4% 13.0% sibility of this bilateral relationship is us could together work out Afghanistan’s you enter the Afghan market, you have ghanistan is deprived of economic 4.8% humongous. But we are not sitting ideal access to India and Pakistan’s access to the option to do business with any coun- significance. In fact, Afghanistan is a 29.8% and will make it a reality. We have been Central Asia. try bordering us. landlocked bridge for the entire region 39.9% 4.4% 14.2% 4.6% working on upgrading this relationship. Traditionally, Afghanistan is known and has its own significance. It’s a land There are certainly some roadblocks, TDB: Food security is a major concern for fruits that have always been coming bridge. You can’t always depend on oce- particularly regarding our interconnec- in Afghanistan and the country is a big to India, but their volume should rise anic bridges. We hope Afghanistan’s tivity. We are hopeful of sorting this out. importer of wheat, while India is a big much higher than what they are today. location helps connect South Asia with Woven fabrics of synthetic filament yarn Wheat Dates, figs, pineapples, guavas, mangoes (fresh or and meslin Medicaments in packings for retail sale dried) Lac, natural gums, resins Grapes (fresh Hopefully, Afghanistan and others, in- exporter of the cereal. Why hasn’t this Afghanistan has gas, minerals, rare earth Central Asia, which was historically Women’s or girl’s suits, ensembles Other woven or dried) Other nuts (fresh or dried) Other dried cluding Pakistan, will reach a common led to more trade between the two na- materials and precious stones, which are the case. fabrics of synthetic staple fibres Other fruits Other ground for our collective gain. This jour- tions? so much in demand in today’s world. The one thing that is not much dis- Source: Ministry of Commerce, GoI; breakup for FY2014 Source: Ministry of Commerce, GoI; breakup for FY2014 ney should benefit everyone. SMA: We are certainly in need of food There are many other items that Afghan- cussed in South Asia is that Afghanistan’s Pakistan, Afghanistan and India need items. But as I said earlier, we are cre- istan can provide to India and also revive presence or membership in SAARC has to be economically engaged with each ating an environment to facilitate trade the traditional trade, wherein various not been utilised much. Afghanistan is At the same time, there are various alter- Indian tourists to Afghanistan? other. Otherwise, none will be able to through open borders. The Wagah bor- Afghan entrepreneurs used to bring both not only a South Asian, but also a Cen- native routes, which might take time, but SMA: Our people-to-people relationship gain. The governments of Afghanistan, der is currently an issue and we are look- fresh and dry fruits, and various other tral Asian country. So, it has many plus would connect businesses permanently. is extremely pleasant. Indians, in Afghan- India and Pakistan are working together ing for a permanent solution to it. This organic foods, to India. points for both SAARC and Central Afghanistan’s location requires a istan, are very well taken care of, because on certain alternative routes. Afghani- connectivity will solve many problems. In the last three years, I have con- Asia. Both need Afghanistan. number of routes to connect its econo- of millennium old relationships that we stan has a quest for connectivity to India Currently, Afghanistan is highly de- centrated a lot on economic diplomacy For example, India’s policy to look east my with the rest of the world. It needs have. However, tourists should always through Wagah, Punjab, and similar is pendent on imports. But we are, actually, with India. I believe a good economy and connect with Central Asia cannot be to find multiple routes and partners for know where they are going and the kind of the quest of Pakistan for Central Asia. trying to make Afghanistan an export- can drive a country to a better future. It’s materialised without Afghanistan. economic development of the country. people they are interacting with, because ing nation that produces and exports! economic prosperity that drives govern- We are increasing parties in Afghan-Pa- we are not living in a very secure world. If, TDB: The India-Afghanistan road link Unfortunately, the region has not ful- ments because that is what people want TDB: Can Indian ports ever expect kistan Trade and Transit Agreement god forbid, someone harms an Indian, I’m has hit a speed breaker due to Paki- ly realised that Afghanistan is a gift, in and we are, ultimately, democratic na- business from Afghanistan, given its (APTTA), which will include India soon. sure it won’t be a representation of the kind stan’s non-cooperation. By when can terms of the prosperity that will reach tions. Therefore, we should work on get- dependence on Pakistani and Iranian At the same time, we are also working on of relationship we have with India. Earlier, we expect a resolution to this? Is Af- everyone, if its location is utilised prop- ting people to work together at the grass ports? some alternative routes, which would di- other nationals would disguise themselves ghanistan actually going to walk the erly. We connect the entire region. It root level. SMA: We should not be concentrat- versify our economic routes. as Indians in Afghanistan so that people talk and stop Pakistan’s access to Cen- should be used as a road. Politically ing on things that will create divisions. treat them warmly! tral Asia if it doesn’t cooperate? speaking as well, Afghanistan should TDB: How do you plan to get people We should be working on projects that TDB: Afghanistan continues to have a SMA: We don’t want to reach a point, become the centre of cooperation in working at the grass root level? would be win-win for all of us. Afghan- mystical image. Is it safe for the aver- TDB: Bollywood movies have always where we end up confronting one anoth- the region, instead of being the centre SMA: In the last few years, I have done istan’s connectivity to India via Paki- age Indian to visit your country? Are had a large audience in Afghanistan. er on such matters. We advise and urge of concentration. whatever I could. Like I said earlier, I stan has always been very cost effective. you doing anything to attract more Would you consider Bollywood to be have been visiting Indian states. I have India’s top export to your country? India-Afghanistan trade covered half of India until now and will Afghanistan’s top trading partners SMA: Absolutely! Our industry has al- It’s still a long way off from even the $1 billion per annum mark continue to visit other states to create Not surprisingly, there’s hardly any country Afghanistan has a trade surplus with ways tied up with Indian cinema. The 600 business ties between the two countries, visible examples of this are the Khans of such as building sister city relationships Belgium Bollywood. Indian cinema is very pop- 500 that I have been proposing. Although Germany ular in Afghanistan. I have had a great Azerbaijan 400 nothing has been announced yet, princi- time meeting a number of Indian actors, pally things have been agreed upon and Turkey including Amitabh Bachchan, in the last 300 official sanctions are awaited. These are Kazakhstan few years. I had visited him at his resi- 200 called sister cities because of certain sim- China dence to discuss how we should revive the ilarities they share, like how Delhi has a India strong cinema-to-cinema relationship 100 strong history just like Kabul. This ini- USA between the two countries. He is not just a Russia 0 tiative is there because of the need to get champion here in India, but also in people together. Pakistan Afghanistan, because of his movie FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 As I said earlier, we should work at the 0 500 1,000 1,500 2,000 2,500 Khuda Gawah. India’s exports to Afghanistan Afghanistan’s exports to India people-to-people level, especially with a Imports Exports Source: Ministry of Commerce, GoI; figures in $ million country like Afghanistan. Governments Source: International Trade Centre; figures based on mirror data for CY2014 ($ million) [email protected]
20 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 21 INFOGRAPHICS SPIRITS & LIQUEURS
TO KEEP THE UK 28.6% FRANCE 15.8%
SINGAPORE 6.8% S
T SPIRITS HIGH USA 6.8% R
O
GERMANY 5.5% P
M
I Like ‘em or hate ‘em, they are a reality. While some
S TOP R
despise them for religious and social reasons, some U
OTHER 36.5% E
U Q
I AVERAGE
think spirits & liqueurs are one of god’s best gifts to L
D
N
mankind, thereby making them a massive trade It’s absolutely no A
S TARIFF
surprise that UK, the T I R
land of the Scotch, is I
40.0% P
GLOBAL S ON
the world’s top exporter
GLOBAL SPIRITS & N
SPIRITS of spirits & liqueurs and O
LIQUEURS TRADE F is followed by France, F SPIRITS & I the home of the cognac R VODKA A T LIQUEURS E 20.8% TO AG AND P AVER LIQUEURS AND CORDIALS 8.8% 10.7% LIQUEURS 13.1% RUM AND TAFIA 3.5% USA 26.5% IMPORTS WHISKIES GIN AND GENEVA 3.1% GERMANY 6.5% SINGAPORE 5.8% FRANCE 5.3% INDIA’S RUSSIA 4.5% 2,557.3% 258.8% 238.1% EGYPT BELIZE SOLOMON UNDENATURED ETHYL SPIRITS OBTAINED BY ISLANDS SPIRITS ALCOHOL DISTILLING GRAPE WINE OR GRAPE MARC & OTHER 51.4% Maybe because it’s considered a LIQUEURS man’s drink, global spirits & and liqueurs trade is dominated by IMPORTS whiskies and its various forms Centre; breakup for CY2014 Source: International Trade Despite being home Being the world’s to less than 5% of the 197.3% 184.7% 175.4% biggest whiskey TRINIDAD COOK JORDAN INDIA’S SPIRITS & LIQUEURS world’s population, USA & TOBAGO ISLANDS consumer, in accounts for over a absolute terms, EXPORTS quarter of global spirits & almost half of India’s liqueurs imports, thanks spirits & liqueurs to its love for whiskies Centre: breakup for CY2014 Source: International Trade imports are that of 46.0% whiskies, followed WHISKIES by undenatured INDIA’S SPIRITS & LIQUEURS ethyl alcohol 175.4% 154.7% 148.8% TRADE MALAYSIA SRI LANKA INDIA
250 62.4 15.3 11.7 4.7 4.5 1.4 . S 8.2% RT PO LIQUEURS & IM . % % % % % % TS CORDIALS 200 R PO IM S . . RT S PO T EX R TS . O OR 150 P EXP M . I S . RT TS PO R X 8.2% O . E P TS IOMR SPIRITS W L S G R O 100 E .P .
X X S PORTS . E . IMPTORTS . IM TS 31.3% TS R POR O OBTAINED OR P UNDENATURED P EX While Egypt imposing an over 2,500% . IM . S TS BY DISTILLING ORT OR AND 50 IMP XP S . . E duty on the imports of alcohol is ETHYL ALCOHOL PORT XPORTS GRAPE WINE OR TAFIA IM TS . E 122.1% . EXPOR OTHER understandable because of it being an SEYCHELLES GRAPE MARC SPIRITS GENEVA GIN AND
RUM AND RUM 0 WHISKIES CORDIALS LIQUEURS Islamic country, just what could be the DISTILLING FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
GRAPE MARC reason for India imposing close to 150%
LIQUEURS & CORDIALS BY OBTAINED 5.6% Source: Ministry of Commerce, GoI: breakup for FY2014; figures in $ million duty? Protectionism, social stigma, GIN & GENEVA GRAPE WINE OR SPIRITS OBTAINED religious factor, or just...lobbying and BY DISTILLING GRAPE WINE The ‘imported’ tag is more sought after when it comes to spirits Whiskies dominate exports of India’s spirits & liqueurs even & liqueurs than almost anything else. Hence, India has almost cartelism? Reasons could be many GIN & GENEVA 0.7% more than imports, thanks to the presence of several large but always had a deficit in the trade
Source: Ministry of Commerce, GoI; breakup for FY2014 OTHER OTHER comparatively inexpensive distilling companies in the country Source: Ministry of Commerce, GoI; breakup for FY2014 Source: International Trade Centre
22 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 23 GLOBAL MANAGER SUKANYA DUTTA ROY, MD (CONSUMER GOODS BUSINESS), SWAROVSKI INDIA “ALL PEARLS THAT ARE REQUIRED BY US GLOBALLY ARE COATED IN PUNE” Adorning Indians with crystals isn’t an easy job. But that’s something Sukanya Dutta Roy, Managing Director (CGB), Swarovski India, thrives doing. In an exclusive interaction with The Dollar Business, Roy spoke about the country’s high tariff barriers and all that is to know about this sparkling business
INTERVIEW BY NEHA DEWAN
TDB: The luxury products market – be time to really understand and accept it for German cars, French wine or Ital- the availability of our products in their ian leather bags – is booming in India. own market. ON PAPER, WE HAVE Given this, tell us how has Swarovski’s The journey from then to now has NO EXPORTS. WE experience been in the country. been quite a leap. Now, we have over 40 JUST VALUE ADD. WE Sukanya Dutta Roy (SDR): The journey points of sale just as exclusive boutiques ARE NOT EXPORTING for Swarovski has been fantastic. We were and over 20 points as shop in shops. So, one of the earliest entrants into the Indi- in terms of distribution, we are quite well an market, coming in as early as 1994, placed on a pan-India basis. We have old money – they don’t need a brand when we had a joint venture agreement. covered most of the main cities in the showing upfront to give them their stat- Then in 2000, the company came in on its country and have got acceptance in de- ure. We have the aspiring rich, who want own, as a 100% subsidiary of the parent. partment stores. So, I think it has been the brand upfront. So, they want the So, our interactions with and investments a great journey, moving from the luxury blue box. They want the logo. They carry in India have been quite long – almost 15 hotel format that we started off with, to the bag. years now. When we came in, we realised mainstream premium malls. In India, it is a mixed bag. Hence, it is it’s a medium-term market. We realised Our target profile has also evolved interesting. We get people who buy just there were lots of growth opportuni- over the years. 20 years back, we used for the beauty of the product. It is the ties, but it needs patience. It had its own to predominantly focus on home décor craftsmanship that attracts them. For special trademark challenges. The mar- and collectibles, which were priced at them, it is not about the ‘imported’ tag. ket was evolving. The country itself was Rs.10,000 onwards. About 15 years back, I think, we have moved a lot away from evolving in terms of infrastructure and the company got into fashion jewellery. that ‘imported’ tag. Now, one can look consumerism. We were prepared to work That has opened up the doors for a much and discern a brand and its history and with it and we have done that. It has been wider audience, which is young females, heritage. That’s why, it takes more time a fantastic journey. aged 25 and above. The width that we for international brands to come and es- The initial challenge was the brand can attract now is higher, since the price tablish themselves here. Brands that have itself. Fixing the price points were a points are Rs.3,000-4,000 onwards. To- sustained and consistently performed in challenge, since very few luxury brands day, we have something for everyone the market have evolved beyond the fact were available. At that time, there was no who likes crystals. that they are imported and hence, must organised market for luxury items. We be good. They are good because of posi- came in as one of the first entrants into TDB: How different is the Indian lux- tioning, perception and more important- the organised trade for luxury markets ury product buyer from those in other ly, because the core product is good. and fixed the prices for our products in countries? Do you think Indians still the same range as they were available have a fetish for the ‘imported’ tag? TDB: What percentage of your sales globally. I think the customers took some SDR: We get a mixed bag. We have the in India is accounted for by imported
24 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 25 GLOBAL MANAGER SUKANYA DUTTA ROY, MD (CONSUMER GOODS BUSINESS), SWAROVSKI INDIA products and what percentage by those It’s 12% on crystal figuratives. So, it is a TDB: What percentages of your sales manufactured at your Pune plant? double whammy. When we do our pric- are accounted for by your own online SDR: 100% of our products sold in India ing, we keep these factors in mind. If the store, e-retailers and franchise stores? LOCATED IN AN SEZ, are imported. The Pune plant is a spe- duties are eased, we will pass on the ben- Which of these three platforms are you IMPORTS TO OUR cial unit in the SEZ area, only for value efits to the consumer. But at the moment, more bullish on going forward? PUNE FACTORY ARE addition as an intermitted process. So, we manage it within a structure – absorb SDR: We are not available online at the DUTY FREE there are no local transactions. The Pune a bit and pass on the rest. Despite this, we moment in India, since we are a little factory is very specialised and does coat- are more or less in line with our interna- skeptical of e-commerce here, particular- ing of pearls. All pearls that are required tional pricing. ly the communication part of it. We are Indian consumer. In terms of innova- by Swarovski globally, in their various only available in exclusive brick and mor- tion, we are looking at getting Swarovski designs, as an end product, are coated TDB: Swarovski imports a lot of prod- tar dealer boutiques and shop in shops. crystals into various products. So, a lot of in Pune. ucts from Austria, only to re-export Maybe, in the future, we will go more research is being done to figure out mul- The pearls come from Austria. We do them from India after value addition. aggressively with swarovski.com, which tiple uses for our crystals, because that’s value addition at Pune and send them Can you tell us a bit more about the is our own company-owned e-commerce what builds the market. back. The factory is exclusively set up value addition that you do in India? venture. It is not operational in India yet. We do such product customisations for this. It does a particular process for SDR: Swarovski is a brand out of Austria. We are looking at it and hopefully, we will only for main markets where we feel we all global products. Its production ca- The core product of Swarovski – crys- be able to structure it soon. We will not have the potential to develop something pacity is 100% for pearls. It is a raw ma- tals – are made in Austria. This will not go online with e-retailers at the moment. unique and also make it a commer- terial provider. It’s there in Pune, but is change, because this is the basic philoso- We will only have our own online web cial success. The India collection is an managed and controlled only for global phy of the brand. What we do as a busi- shop and our franchise stores. example of this. production. ness is that we put together these crystals At present, the e-commerce part is Currently, there are no plans for a local into finished products, be it a watch or a very small for us. It is available only in TDB: The government has been aggres- production setup. We believe India is a jewellery item, at our manufacturing fa- 12 countries, not because the channel sively focusing on the ‘Make in India’ very important market that will grow. We cilities located in several countries. So, does not have potential, but because we initiative. What policy changes would are looking at it for design development, the factories that we have around the are preparing our back-end to get into it. Swarovski like to see to shift more of its and innovation. We will see how produc- The interiors of world are only for creating products by Very soon, we should be able to leverage production to India? tion goes depending on how facilities in Sheikh Zayed value addition. this opportunity. There is a lot of interest SDR: The ‘Make in India’ initiative is the country develop. It is something that Grand Mosque In Pune, our pearls get coated. Since in online, especially in smaller cities. But very new. I don’t think anyone has re- in Abu Dhabi has we will consider, if we feel that the envi- several unique pearls are in different crystal colours, the we have not addressed it yet. Hopefully, by ally worked out the details of it yet as ronment in the country is conducive to elements, one Pune factory just colours them and sends next year, we should be there. We know to what does it really mean. I think, its investment for production. of the prime them back to Austria. So, our core busi- we are little late off the block on this, but focus is really on employment genera- ones being a 12 MT chandelier, ness, as a brand, sits in Austria. the fact that our brand is so well known tion and large labour intensive indus- TDB: In India, the import duty on glass which is covered We are a very niche and premium means we have to be very careful in de- tries and infrastructure that can cre- and crystal products seems to be a bit with gold and product. We are not going to rush into ciding where we go. The biggest challenge ate jobs. Or is it ‘Make in India’ with a Swarovski unjustified. While that for glass beads crystals making our products in 20 locations. If has been to show consistency on a global branding of India? Now, neither apply is 14.712%, the same for glass statues demand increases, we will see how a par- platform and that can be possible only via to Swarovski. Even if we make in India, and figurines is 28.852%. Is this a big ticular production facility can be built our own internal website swarovski.com. it is the Swarovski brand that stays. Sec- disabling factor for Swarovski? into the overall change, in order to meet ondly, ours is a very niche industry. So, SDR: It hurts! But the fact is that it was the demand. Our hub will always remain TDB: During his tour last year, your Ex- unless we have a clear idea as to how re- not hidden. So, one works it into one’s in Europe. ecutive Board Member Markus-Langes ally does this policy benefit us, or what business plan. If it improves, it’ll be fan- Our core focus is not to export and Swarovski had termed India as one the benefits are being offered, it would be tastic, if it doesn’t, then it is the law of the make money on trading. Our core focus three most important markets. Are you too niche for us to explore. land and we will continue to follow it. is to make money as a retail brand. We looking at India as a global production Like most brands, we absorb a part of it, might have requirements to increase pro- hub as well? TDB: Being a luxury product, adver- so that we achieve some parity in pricing. duction, but the location will be decided SDR: We are investing to develop our de- tising is a key aspect of your business. We make sure that we don’t pass on the based on which country gives us the best sign capabilities. Markus heads the B2B Tell us a bit about your advertising entire burden to the consumer. return on investment. division that deals with Swarovski crys- strategy. For collectibles, even VAT is very high. Pune is a SEZ. Hence, when we bring tals that go into other products. So, they SDR: We went big on advertising in in all these products, we don’t pay import have a lot of collaborations with design- FY2010. We stick to our niche. We have duty. When we get the pearls in, we don’t ers in different industries, such as inte- recently started focussing on billboards HIGH DUTIES HURT, pay import duty. We do value addition riors, weddings and garments etc. These and airport advertising. We use more of BUT WE HAVE and send the same thing back. So, on are initiatives by Swarovski to develop the traditional formats, supported by dig- paper, we have no exports. We just value market for them as co-partners. We also ital layouts and consumer engagement WORKED THEM INTO add. We are not exporting. We don’t have have an exclusive India range. These are events. OUR BUSINESS PLAN an export turnover in the country. All we small initiatives that we are all plugging have in India is retail turnover. into. We want more engagement with the [email protected]
26 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 27 COVER STORY FDI
FDI Panacea?IS IT A For reasons ranging from colonial hangover to an affinity towards socialism, India has always been suspicious of foreign investment. While there has been a change in mindset post liberalisation in 1991, doubts continue to stay put. And, for obvious reasons, these doubts are more about Foreign Direct Investment (FDI) than Foreign Portfolio Investment. While some feel all foreign investors want is exploit India’s resources, others claim foreign investment kills the entrepreneurial spirit among Indians. Successive governments have only strengthened such public opinion by dishing out step-motherly treatment to FDI. But aren’t such views myopic? Could India have attained what it has with zero FDI? On the other end of the spectrum, is FDI an answer to all of India’s economic woes? Presenting to you a detailed The Dollar Business analysis
BY SISIR PRADHAN
28 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 29 COVER STORY FDI
ill the late 1990s, Kedar- Michael Gestrin nath Mantry, a betel leaf “THE COMPLEXITY Senior Economist, OECD trader of Jagatsinghpur district in the eastern OF THE INDIAN TAX of development. For one country, government investment in in- Indian state of Odisha SYSTEM HAS frastructure might be the most important factor in encouraging (erstwhile Orissa), used more FDI, whereas for another country, ensuring broader access to make a handsome living. His busi- DISCOURAGED BOTH to primary education might be the key to unlocking fu- Tness involved buying betel leaves from ture FDI inflows. A successful FDI promotion strate- local farmers, cutting them into different DOMESTIC & FOREIGN gy combines the basics (e.g. sound legal and regulatory sizes, packing them in bamboo baskets, frameworks) with policies that are targeted at areas where weak- and sending them off to his clients in INVESTMENT” nesses don’t allow for fully leveraging a country’s comparative ad- Mumbai by train. Speaking to The Dol- vantages for attracting foreign investment. lar Business, Mantry recalls, “Betel leaves TDB: Which OECD members have you found to be the most are perishable goods. On their way to FDI friendly? Which of the members discriminate between TDB: Why do you think there has not been a big surge in Mumbai, they used to go through many domestic and foreign investment? FDI in the last five-six years, despite almost the entire de- hands, but the entire delivery mecha- Michael Gestrin (MG): Investment regimes across the OECD veloped world being flushed with liquidity because of ul- nism was so meticulous and coordinated have largely harmonised and converged over the decades as dif- tra-loose monetary policies? that I never had to travel to Mumbai my- ferences in views among governments over what constitutes ‘good MG: FDI flows in the past five-six years have been very uneven. At self, neither to ensure timely delivery nor investment policy’ have narrowed. This process has arguably ad- the global level, we remain around 40% below the peaks reached receive payment.” Due to vanced even further between OECD and non-OECD countries in 2007. However, two things need to be kept in mind. First, 2007 But with the turn of the millennium, difficulties as many non-OECD countries have become important sources was not a normal year. This FDI peak was fuelled by a financial Mantry’s fortunes started nose-diving. in land (home countries) for FDI. Apart from issues related to national se- bubble, which then collapsed. Second, in the aftermath of the 2008 acquisition, Not that Mumbaikars had suddenly foreign curity and a handful of sectoral exceptions (e.g. agriculture), most financial crisis, Europe was the main region unable to recover stopped chewing paan, but because Bei- investors governments do not discriminate on the basis of nationality. from the collapse in global FDI flows. When one looks at the rest jing had won the bid to host the Sum- have pulled of the world outside of Europe, FDI recovered quite quickly and out of mer Olympics in 2008 and the US had two mega TDB: How would you respond to critics who say FDI leads to discourages domestic firms from expanding into formal &R D for some countries, especially a number of emerging economies, just bombed Afghanistan into the Stone steel plant monopolies and inhibits entrepreneurship? – although India is also deservingly well-known for its jugaad the post crisis period saw very significant increase in FDI inflows. Age. What’s the connection? Well, both projects in MG: It is true that in some circumstances, such as the privatisation (frugal) innovation. In pharma, in particular, Indian companies India Olympics-related construction activities of utilities, the arrival of foreign companies in developing coun- show low R&D intensity and new drug discovery; on the contrary, TDB: Foreigners have preferred portfolio investment over in Beijing and re-construction activities tries has given rise to problems with safeguarding competition. flows of pharmaceutical FDI to India has been highly responsive FDI as far as investing in India is concerned. What do you When enterprises enjoy monopolistic market power, at least with- to IPR improvements and enforcement in the country. think are the reasons for this? in segments of the local economy, prices rise, quality does not im- IJ: Net FDI to India were particularly low between 2008 and prove, access is not increased and entrepreneurship is stifled. The TDB: What does OECD think of India’s tax policy vis-à-vis 2013. More recently, however, solution, however, is not to curtail FDI. On the contrary, first-best FDI? Do you think the regular tax related flip-flops have they have increased as a share strategy (particularly, in the context of state divestiture) is argu- been a major roadblock in India attracting more FDI? of GDP and are almost at par ably to link privatisation, with an opening of markets to greater IJ: The complexity of the Indian tax system and frequent changes with portfolio investment. This competition. In any case, there is a need for strong, independent in tax laws have discouraged both domestic and foreign invest- partly reflects recent FDI dereg- domestic regulatory oversight. ment in the country. Costs and time needed to comply with the ulation measures and improve- tax system are relatively high in India. Predictability and efficiency ment in the ease of doing busi- TDB: What do you think are the main reasons for a high in the resolution of tax disputes are key features of a tax environ- ness in the country. growth economy like India not attracting as much FDI as ment conducive to attracting and keeping FDI. one would have expected? TDB: Why has the manufac- Isabelle Joumard (IJ): FDI regulations in India have long TDB: Your own data claims that OECD members have at- turing sector attracted more been relatively stringent, particularly in services sectors. Also tracted over 80% of the total FDI in the world, with even FDI than the services sector reducing India’s attractiveness for FDI are a number of structur- non-OECD G20 members accounting for less than 10% of it. in India, despite the latter al bottlenecks, which have weighed on the manufacturing sec- What do you think should non-OECD members like India doing much better than the tor, including poor infrastructure, stringent labour regulations, learn from OECD members in order to attract more FDI? former? uncertainties surrounding land acquisition and complex tax MG: Historically, OECD countries attracted the lion’s share of IJ: The OECD FDI Regulatory regulations. In fact, the OECD Economic Survey of India 2014 FDI. In more recent years, however, the situation has changed Restrictiveness Index reveals has a full chapter named "Challenges and Opportunities of the dramatically. Since 2012, emerging economies have account- that in India, restrictions on ser- Manufacturing Sector." ed for over 50% of global FDI inflows. The general lessons from vices were more stringent than OECD countries on attracting FDI relate to the importance of on the manufacturing sector in TDB: How big a concern is the protection of intellectual principles of predictability, openness, transparency and rule of 2013. property as far as FDI in India is concerned? law. In addition, more recent thinking has emphasised the im- MG: Despite improvements, India affords less protection to IPR portance of understanding specific challenges and opportunities Isabelle Joumard than other emerging economies. This limits inward FDI and for investors in individual economies that are at different levels Senior Economist, OECD
30 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 31 COVER STORY FDI
in Afghanistan had seen the demand Chris Devonshire-Ellis for metals and minerals going through “TAX TERRORISM Chairman, Dezan Shira & Associates Asia the roof. And to meet this demand, lot of eyes turned towards Mantry’s state, TOWARDS FOREIGN sular and backward or progress like China. Tax terrorism towards which is home to massive amounts of INVESTORS SHOULD foreign investors has to stop or India will remain static, consuming high quality iron ore and bauxite re- locally made products that no one really want. serves. What followed was nothing STOP IN INDIA, but chaos. TDB: How fairly is FDI generally treated around the world? IMMEDIATELY" When it comes to taxation, does FDI get the same treatment LANDING IN SOUP as domestic investment? Eyeing Odisha’s natural gifts, South Ko- CD: It varies across countries. Tax can be a moving target, in or- rean steel major POSCO signed a Mem- der to get FDI flowing in. In fact, in China, tax rates for foreign orandum of Understanding (MoU) with TDB: What role do tax policies of a country play in attract- companies used to be lower than that for domestic ones! But at the state government and promised to ing or dissuading an investor from investing in that country? the same time, foreign companies were encouraged to give IP and bring in $12 billion – the largest ever Chris Devonshire-Ellis (CD): Tax policy has a major effect. technical know-how to the Chinese industry. That was a good FDI into India – to setup a 12 MMT- Taxes affect competitiveness of nations and have a direct impact trade, because it helped Chinese companies develop their skill sets PA steel plant in the state. On its part, on not only the cost of the finished product, but also on the manu- and ultimately compete with foreign investors on a technical level. the state government promised to hand facturer and ultimately the consumer. If the product can be made When that was accomplished – which took about 15 years – Chi- over 6,000 acres of land to the compa- more cost-effectively in a lower tax jurisdiction than India, then na equalised tax rates. That was a great strategy to encourage for- Other than ny, which included government as well land the consumer is going to buy the lower cost item. However, tax eign investment and help upgrade local skills and knowhow. It has as private land. “Acquisition of private acquisition isn’t the only variable in the manufacturing equation, but is among worked, so India need not worry about Indian companies being land will be taken up on priority,” the related the few that a government can exert immediate control over. left behind if it adopts such a policy. problems, MoU still reads. But this wasn’t going to not getting be easy. Till then, when it came to land clearances TDB: How big a factor is having a stable and predictable tax TDB: In the world of free floating currencies, isn’t deprecia- acquisition, India was governed by a from regime when it comes to attracting FDI? tion of the currency of the country in which investments are th environment 19 century British law, which had more bodies has CD: Companies need to have certainty in their business models. made a big concern? holes than a mosquito net. So, when ac- also held up That way, all aspects of production costs can be accurately factored CD: I don’t think you can hedge FDI. If you do, it would be a form quiring all of the required land started a lot of FDI in and profit margins and consumer targets assessed. If sustain- of currency manipulation. Larger manufacturers can take care of looking difficult, primarily because local in India ability and costings are uncertain, companies will ultimately cease Singapore is more important as it offers India a gateway into hedging currencies anywhere. Having a treasury department is villagers were not willing to be uprooted to invest and will look for a more predictable and stable tax regime. ASEAN. As a member of ASEAN, Singapore, anyway, has a free becoming normal. Companies are used to having currency devi- trade agreement with India. Indian businesses are in danger of be- ations, and as long as these deviations are within normal trading TDB: What’s your view on FDI related tax policies in three coming too pre-occupied and small minded to be using Mauritius bands it’s not really an issue. of the major economies of Asia, i.e., China, India and Sin- to avoid Indian domestic taxes. They are not looking at the bigger gapore? What is there in their taxation systems that makes picture on their doorstep of selling to ASEAN and China. Forget TDB: The new Indian government has started ‘Make in In- these countries attractive or unattractive FDI destinations? Mauritius. That’s not FDI. Singapore represents inbound FDI and dia’ campaign to boost domestic manufacturing by attract- CD: Singapore is completely different from China and India. So, the ability for Indian companies to sell overseas in Asia. CFOs ing FDI. What do you think it should do to attract more for- it is not possible to make a comparison. The dynamics are total- need to ask themselves which is a better use of resources and pa- eign capital into the country? ly different. However, between China and India, there are many triotic development: nickel and diming the Indian tax bureau or CD: Stop retrospective actions on taxes. Lower the tax rate to 30%. comparisons. China became successful due, in part, to its tax re- having an export sales strategy for Asia? Offer additional incentives to foreign companies that are willing gime and the ability to offer predictable and stable tax policies and to engage in technology transfer with their Indian partners. And incentives. For example, China scrapped inter-state taxes on the TDB: While investing in a foreign country, what are the once these policies are in place, just leave them alone for a decade internal movement of goods decades ago, India still hasn’t. China main concerns of an investor? Please share with us instanc- or so, and don’t interfere. introduced a lower tax rate and gave nation-wide incentives, India es, if any, of foreign investors not being allowed to repatriate hasn’t. China created a national tax system that was relatively con- their investments from a country. TDB: How big a concern is the protection of intellectual sistent throughout the country, India hasn’t. So, until India does all CD: A country has to have a sustainable, consistent and attractive property rights (IPRs) when it comes to FDI? Are India’s this, it will remain behind. tax policies in place. It needs to have a young, dynamic and large poor IP track record and slow judicial process also strong workforce. It also needs to have policies in place to allow those impediments in attracting FDI into the country? TDB: Given that Mauritius and Singapore are India’s top people to work, and to have a long-term commitment to infra- CD: Companies can live with these impediments. Most investors sources of FDI because of double taxation avoidance trea- structure. The main issue with India is that it has not yet managed don’t want to get tangled up in courts. They run legal business- ties, shouldn’t India sign similar treaties with other coun- to work out how to combine all of these on a national basis. es and operate properly. And most are well aware of IP risks in tries that are open to such deals? As for an inability to repatriate investments, the retrospective Asia. The investors India wants are all those foreign companies CD: Mauritius offers tax benefits that is only really applicable to arguments concerning tax bills being put forward by the Indian that have setups in China. They know how to deal with emerging Indian companies round tripping investments into India, in or- tax bureau are essentially an attempt to deny foreign investors their countries and are used to it and familiar with the risks. India just der to avoid capital gains tax. 99.99% of all Mauritian investment profits and any ability to repatriate them. Even Communist China needs to emulate what China did, which is great news as there is in India are by Indian companies that are trying to avoid Indian never tried this! The Chinese knew that if they did this, foreign a blueprint that has been seen to work. Just follow that and India taxes. They have nothing to do with FDI. companies would not invest. So, India has a choice – remain in- won’t go far wrong.
32 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 33 COVER STORY FDI
from their forefathers’ lands in exchange Dr. Niti Bhasin of money, the state government resorted “EXCEPT INDIA, Assistant Professor (Department of Commerce), to force, and what ensued was an all-out Delhi School of Economics uprising against it. “In Mumbai, yellow MOST EMERGING betel leaves used to fetch more mon- ECONOMIES HAVE environment and encourages FDI into the country. In addition, ey than the green ones,” Mantry rues, because of the long-term nature of FDI, it is generally expected while explaining the destruction to life, UNIFORM TAX that there would be some amount of reinvestment as well. The ar- property and farms, including betel leaf gument against repatriation might not be very valid as FDI cannot farms, which followed POSCO’s arrival RATES FOR be evaluated on the basis of capital alone. Once FDI comes into a in the state. country, there are spill over effects in terms of technology trans- What happened with POSCO in Odi- DOMESTIC & FOREIGN fer, improvement in export competitiveness of domestic products, sha is not an isolated case. Many mega COMPANIES” employment generation, and benefits to consumers. And these industrial projects in India are, today, spill over effects are more profound in case of green field invest- facing inordinate delays or have been ments than mergers & acquisitions. shelved altogether due to such delays. TDB: With every change in government, tax laws in India An example of one such project was change. Do you think that this has had a negative impact on TDB: Most of India’s FDI is routed via Mauritius and Singa- a proposed $12 billion investment by the country’s ambitions of attracting FDI? pore, since India has double taxation avoidance agreements ArcelorMittal to build an integrated steel Niti Bhasin (NB): Taxation has become an important consider- with these countries. However, in most cases, investments plant and captive power plant in Odis- ation in FDI decisions in recent times. Frequent changes in tax that come from Mauritius are by Indian companies trying ha, which the steel major pulled out of With laws are indeed a disabling factor in the fiscal environment of a to avoid taxes in India. Is this model sustainable in the long two years back citing delays. So, is it that massive country and can adversely affect FDI. There are a number of issues run or is it high time India reforms its market and does there’s an aversion to foreign investment reserves that need to be addressed here. First, there is a lot of ambivalence something to avoid double taxation? of iron ore, in India? Why then was Tata Motors states like in many tax laws. The Vodafone tax row is a case in point. The NB: While India has signed double taxation avoidance treaties forced to pull out of Singur? Odisha decision of the then Finance Minster to impose a retrospective with a number of countries, its treaties with countries like Mau- can attract amendment to tax Vodafone-Hutch like deals sent wrong signals ritius and Singapore are of special importance in view of the PERMANENCY a lot of FDI, if land to foreign investors and created an environment of fiscal uncer- concessional provisions. In particular, the India-Mauritius treaty Many claim the world changed forever acquisition tainty. The provision was later subjected to a review. Another issue specifies that capital gains made on the sale of shares of Indian after World War II. But as they say, the issues are that needs to be addressed is the rate of statutory corporate tax. companies by investors resident in Mauritius would be taxed only more things change, the more they stay resolved India’s corporate tax rates are one of the highest amongst emerg- made significant contributions to these economies in terms of in Mauritius and not in India. This has led to the establishment of the same. For, while World War II saw ing market economies. Then there is a huge differential of 10% employment, exports and capital formation. Hong Kong and Sin- conduit companies in Mauritius through which investors of third between the statutory corporate tax rate for domestic companies gapore are the top two countries of the world in terms of Index of countries route their investments to India. By doing so, they avoid and foreign companies. If we look at most other emerging mar- Economic Freedom. This is attributable to an efficient and trans- paying capital gains tax altogether and also enjoy low rates of div- kets or developing Asian economies, the rate of corporate tax is parent regulatory framework, low rates of taxation, a simple tax idend and income taxes in Mauritius. A part of FDI coming from uniform for domestic and foreign companies. Thus, prima facie, system and sophisticated capital markets. Starting a business and Mauritius is also round-tripped investment by Indian investors it appears that the cost of doing business in India is high and that associated procedures are simple and straight forward. Their FDI taking capital out of the country, and reinvesting through Mauri- might be negatively impacting FDI. The implementation of Di- presence, when compared with their GDP levels, is much higher tius to take advantage of tax concessions of the treaty. rect Tax Code (DTC) and Goods and Services Tax (GST), which than that of India. India still scores quite low in terms of ease of The question that has been challenging the basis of India’s treaty are significant reforms required in the area of direct and indirect doing business. Our legal and regulatory framework is weak and with Mauritius is whether India is giving away much more in tax taxes, has also lingered on. uncompetitive when compared with other economies that attract exemptions than it is getting in FDI. This question has been debat- large amounts of FDI. While a vibrant private sector is emerging, ed threadbare at numerous platforms in the last many years. India TDB: Would you say a lot of potential foreign investors its importance is being undermined by bureaucratic controls and simply can’t scrap such tax treaties altogether, as it will have a very might have refrained from investing in the country due to procedures, outmoded labour laws and state obstacles. drastic impact on investments coming into the country. Hence, the lack of clarity and uniformity in tax laws and the way India can also be compared with China in view of the similari- India needs to take steps in a phased manner to prevent such tax various governments play around with these laws? ties between the two countries in terms of high growth rates, large avoidance as well as to eliminate round-tripping of investments. NB: Yes, I would say that. Some investments might have been sizes and huge populations. While neither of the countries fare In case of China also, although FDI is very large in gross terms, driven away due to the introduction of retrospective amendments well in terms of regulatory framework, China attracts much more a significant part of them are round-tripped investments. In this and laxity in implementation of some important tax reforms like FDI than India. Apart from China’s advantage in terms of its sheer direction, India has introduced provisions such as limitation of DTC and GST. Any investor would look for some sort of fiscal market size and low-cost manufacturing, statutory tax in China is benefits clause (LOB) in a number of treaties, such as the ones with certainty before investing in a country. If tax related inconsistency comparatively lower than that in India. Moreover, the number and Singapore and UAE. As per the LOB clause, concessional benefits continue, it is going to drive away investors to a certain extent. variety of fiscal incentives that China offers to investors are also of tax treaty will be extended only to bona fide investors having a more than what India offers. business purpose. The LOB clause limits treaty benefits to those TDB: Can you give some examples of countries that have who meet certain conditions, including those related to business, really benefitted from FDI and a comparison of their laws TDB: In India, profit made from FDI is fully repatriable residency and investment commitments of the entity seeking ben- vis-à-vis Indian laws? and critics claim that this helps MNCs drain the country’s efit of the treaty. In addition, there are other reforms underway like NB: Malaysia, Thailand, Hong Kong and Singapore are some resources. Do you agree with this criticism? general anti-avoidance rules (GAAR), which would be in place countries, which have benefitted immensely from FDI. FDI has NB: Allowing full repatriation of profits signals a less restrictive once the DTC is implemented.
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the political map of the world getting redrawn, the West continued to be the “INVESTORS DON’T centre of power. The war couldn’t bring to an end the powers that the West had TRUST MR. MODI AS been wielding for centuries. It couldn’t MUCH AS MR. MODI change the fact that the real generals were not the ones in uniforms, but the TRUSTS HIMSELF” General Motors and General Electrics of the world. Realising this and the fact that attaining independence was one TDB: You have been very critical of the way the Modi thing, but making something out of it government has been dealing with foreign direct investment were entirely different ball games, many (FDI). What do you think is the real perception of India, newly independent nations started woo- right now, among foreign investors? ing MNCs from the same countries that Mani Shankar Aiyar (MSA): Well, the figures speak for them- they had fought for centuries. For, these selves. Since the Modi government came to power, there has been Mani Shankar Aiyar countries were not only dry of resources, lot of rhetoric and a lot of Rs.10 lakh suits, but where is the FDI? Member, Rajya Sabha It seems as if India is not regarded as a favoured destination. The (Indian National Congress) chairman of one of our nationalised banks has said the normal IF INDIA WANTS ratio between GDP growth rate and bank credit growth rate is TO ATTRACT 2.5. So, if the GDP growth is 7.5%, bank credit should be expand- FDI, IT NEEDS ing at nearly 18%. The actual fact, however, is that bank credit is TO UNDERTAKE growing at just 12%. Hence, I don’t think the statistics of the gov- of number of other factors, of which land acquisition is a small MASSIVE REFORMS ernment are being trusted by the investor community and I don’t part. And in any case, just in order to facilitate investment, wheth- think any of the moves that have been made by the government er it’s domestic or foreign, if you are going to dislodge Indians from is going to boost business in India. There’s a lot of talk, but very their own homes, then it is not just wrong, but is criminal. but also technical knowhow. little action. India, on the other hand, was chart- TDB: What about the complications in taxation? There’s still ing an entirely different course for itself. TDB: You mean to say all these foreign trips that the Prime not 100% clarity on MAT, isn’t it? With USSR as an ally, and Nehruvian Minister is making hasn’t brought in any major investment MSA: That is why I say there is nothing that is clear. There is no Socialism as the core economic prin- into the country… substance to their (government’s) words. That’s why the investors ciple, for most of the first half-century MSA: That’s right. Show me where the investment is and I will community, whether in India or abroad, simply doesn’t trust Mr. of its independent existence, India kept be happy to change my views. In any case, we need to understand Modi as much as Mr. Modi trusts himself. shooing away foreign investment and that for a continental economy like that of ours, FDI will not have in fact, took great pride in doing it. The as much importance as in case of other countries. But since the TDB: Recently, some large institutional investors have said way the Moraji Desai government drove government is committed to have a huge amount of foreign in- they are really disappointed with the Modi government’s Coca-Cola and IBM out of the country, vestment and one doesn’t see that investment, in fact we don’t even first year in office. When you travel abroad, do you get the in the late 1970s, continue to be part of see domestic investment, what are we talking about? same view from even foreign direct investors? the nation’s economic and political folk- MSA: Well, I don’t travel abroad to meet businessmen, so I can’t lore. So, for decades, while most Asian TDB: The government has made some moves like bringing claim to speak on their behalf. But I am going by the evidence on nations were leaving no stone unturned in the land acquisition ordinance, hasn’t it? the ground, which is that irrespective of whatever is being said by to attract foreign investment and were Japan's Suzuki Motors signing a joint venture with India's Maruti Udyog Ltd. in 1982 was MSA: I think that’s a load of rubbish. Land acquisition has not Mr. Modi, the fact is that investment is not taking place – neither reaping its benefits with both hands, one of the first instances of serious FDI coming into India been holding up investment. Investment has been held up because within the country, nor from outside. India was suspiciously looking at every- thing ‘foreign’ and trying all tricks in the book, and many beyond it, to block the closed economy like China was already to share revenue and technical knowl- group comprises nations that have ment. And then in the third category are tic investment equally, India continues flow of any kind of foreign investment taking giant steps towards becoming the edge. These incentives, clubbed with an reaped immense benefits of globalisation countries like North Korea. to act cagey. Speaking about such differ- into the country. And then the Berlin top FDI destination in the world. With opportunity to tap a huge market, were and hence, have become champions of With absolutely no controversies sur- ential treatment to FDI in India, Dr. Niti Wall fell! Deng Xiaoping at the helm of affairs, generating lots of interest among foreign FDI. Most of the West and countries like rounding FDI in the countries that be- Bhasin, Assistant Professor, Delhi School China was in the midst of massive eco- investors, who poured in money as if Singapore fall in this category. The sec- long to the first category, and no ques- of Economics, says, “In India, there is WELCOMING DRAGON nomic reforms that laid the foundation there was no tomorrow. The result? Con- ond group comprises countries that have tion of any serious FDI into the countries a huge differential of 10% between the In the 1970s, when India was putting in of the economic behemoth that it is to- sistent double-digit GDP growth for the missed the bus due to archaic ideology, that belong to the third category, most statutory corporate tax rate for domes- all its might to shoo away FDI and the day. Particularly, in its southern regions following couple of decades. but despite this, consider globalisation debates about the pros and cons of it are, tic companies and foreign companies. If 1980s, when it was taking the first tenta- of Xiamen, Shantou, Shenzhen, Zhuhai to be, at best, a necessary evil. Countries essentially, restricted to countries that we look at most other emerging market tive steps towards inviting FDI into the and Hainan, the People’s Republic was ECONOMIC CASTEISM like India, which belong to this category, belong to the second category. But even economies or developing Asian econo- country and the first Maruti cars were creating special tax concession and tax- Today, all nation states can be clubbed want FDI, but are not willing to give it here, while most developing countries mies, the rate of corporate tax is uniform rolling out of Gurgaon, a traditionally free zones for investors who were ready under either of three groups. The first the same treatment as domestic invest- are starting to treat foreign and domes- for domestic and foreign companies.”
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India not allowing 100% “MODI GOVERNMENT FDI in multi-brand retail has been SEEMS TO BE one of the most DISENTANGLING controversial issues in the REGULATORY last few years HURDLES TO FDI”
TDB: Which countries have benefitted the most from FDI? Are there also instances of FDI ruining a domestic economy by creating monopolies or other such situations? Sean Laughlin (SL): Most countries that have received FDI Sean Laughlin, would regard it as beneficial. It is widely recommended by multi- Executive Director, Global FDIA lateral agencies as a means of boosting the economy of emerging markets. FDI does not create monopolies. Rather, the reverse is true as FDI provides competition to incumbent national cham- pions and/or create new industries that were not present earlier. While the word ‘ruin’ is a little strong, there are cases of countries ation of the currency of the country in which investments Isabelle Joumard, Senior Economist and are relatively high in India. Predictabil- in. So, while as a foreign investor, you are that have been so successful in attracting FDI that the local econo- are made a big concern? Do you think FDI should also be Head of India Desk, OECD's Economics ity and efficiency in the resolution of tax allowed to hold 100% stake if you are a my has become over-dependent on it. Wales is an example of this. hedged as is the case with portfolio investments? Department also believes that the Indian disputes are key features of a tax environ- bank, you are allowed to hold only 49% SL: FDI is a long-term commitment to and partnership with a lo- tax system is the biggest impediment in ment conducive to attracting and keep- stake if you are an insurance company, TDB: While investing in a foreign country, what are the cation. It is not comparable with speculative portfolio investment the country attracting more FDI. “The ing FDI,” she tells The Dollar Business. thereby giving up management control! main concerns of an investor? Please share with us instanc- and currency fluctuations should be of minimal concern unless complexity of the Indian tax system and India’s step-motherly treatment to FDI And if you are into operating retail malls, es, if any, of investors not being allowed to repatriate their the corporate headquarters is dependent upon annual dividends frequent changes in tax laws have dis- doesn’t end with just taxation. The coun- well, you are not welcome! investments. from the subsidiary. couraged both domestic and foreign in- try’s laws impose restrictions on the stake SL: Concerns vary from country to country and from investor to vestment in the country. Costs and time a foreign investor can have in a company, FRIENDS FOREVER investor. In some countries, patent or intellectual property protec- TDB: The new Indian government has started ‘Make in In- needed to comply with the tax system depending on which sector it operates Foreign investment can come into a tion may be the principal concern. In others, the health or safety dia’ campaign to boost domestic manufacturing by attract- country in two forms – Foreign Port- of staff might be a concern. In some, risk of earthquakes, flooding ing FDI. What do you think the government should do to folio Investment (FPI) and Foreign Di- or other forms of force majeure are concerns. Political instability, attract more foreign capital into the country? ncrease in FDI limit from 26% to 49% in rect Investment. While in the first case, regulatory changes and lack of transparency are further sources SL: Foreign capital flows to markets with demand for products the defence sector is a step in the right di- a foreign investor invests in an Indian of potential anxiety. There are numerous examples of socialist and/or services. The government of Narendra Modi seems to be rection. This step broadens the envelope for company, in the second case, a foreign regimes that have expropriated the assets of foreign investors. moving swiftly to disentangle regulatory hurdles to FDI. However, IIndia’s vibrant private industry to tie-up with investor directly sets up its business in One example is Argentina’s seizure of YPF from its Spanish owner whether there is demand for foreign goods and services is not nec- international original equipment manufac- India. For example, if British Petroleum Repsol. essarily something that the government can affect via legislation. turers (OEMs) for opportunities where con- buys a stake in Reliance Industries, it is trolling stake is not central to the business case, considered FPI, while if British Petro- TDB: How fairly is FDI generally treated around the world? TDB: Have zero/ near-zero interest rate policies adopted by especially in light of ‘Buy & Make (Indian)’ leum sets up its own refinery in India, it Does it get the same treatment as domestic investment or are central banks in the developed world seen any surge in FDI focus on defence procurement. However, just is considered FDI. While both FPI and discriminations rampant? in the developing world? changing the cap from 26% to 49% does not FDI bring in capital into a country, and SL: In some countries, foreign investors receive more favourable SL: We are not convinced that it is wise to assume too great a change the control in the venture; therefore, are ultimately seeking returns, the for- treatment than domestic ones. In others, the reverse is the case. connection between the two. cases where the controlling stake is essential for mer brings in only capital and can exit at the business case, such as where cost of devel- the drop of a hat, while the latter brings TDB: How big a factor is having a stable and predictable tax TDB: How big a concern is the protection of IPRs when it oping technology is not sufficiently liquidated in capital as well as technical knowhow regime when it comes to attracting FDI? What’s your take on comes to FDI? Are India’s poor IP track record and a slow or where control of IPRs is crucial, this change and is more permanent in nature. For ex- the repeated taxation related flip-flops that successive gov- judicial process also strong impediments in attracting FDI Pratyush Kumar may not be sufficient to unleash a new wave ample, if British Petroleum buys $1 bil- ernments have done in India? into the country? President, Boeing India of FDI. As defence manufacturing industry is lion worth of Reliance Industries' shares, SL: All forms of regulatory stability are key to a successful FDI SL: Intellectual Property protection is a considerable concern for complex and requires significant investment all India gets is those $1 billion. Neither attraction programme. Tax is very important to all profit-making certain sectors. Many companies operate a policy of retaining all in R&D, quality systems, and manufacturing the company, nor the country, get Brit- enterprises, so a competitive, stable and transparent tax regime is R&D activity in the home market, regardless of the compelling technologies, many manufacturers may not ish Petroleum’s technology. And British obviously a powerful element in a location’s basket of benefits on case that might be made by a well-regulated lower cost location, risk the loss of control in a venture by holding Petroleum can sell its shares in Reliance offer to foreign investors. with a good supply of appropriately qualified staff. But if a judi- less than 51% equity. Industries to a willing buyer and exit cial process exists, no matter how slow, that is still better than no the country any moment. On the other TDB: In the world of free floating currencies, isn’t depreci- judicial process at all.
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It's almost inexplicable and surprising “26% FDI LIMIT IN for a power hungry INSURANCE WAS country like India to set a JUST TOO LOW” cap of 49% on FDI in power exchanges TDB: What do you think are the main concerns of the gov- ernment that are stopping it from fully opening up the in- surance sector to foreign investment? Ajit Banerjee (AB): Since insurance is linked to the common masses, the government, naturally, has to be very careful and sensitive while dealing with it. However, successive governments, over time, have been taking steps towards opening up the sector and one such move was the creation of Insurance Regulatory Ajit Banerjee and Development Authority of India (IRDA), which is an auton- Chief Investment Officer, omous apex statutory body, created to regulate and develop the Bharti AXA General Insurance insurance industry in the country. It was a major step, since be- fore opening up the sector, the insurance industry needs to be in line with the requirements of the international market. I am sure, once India reaches that level, the market will gradually open up. Once the government and the market reaches a comfort level hand, if it sets up a refinery in India by ance companies, and even banks, which prefer to invest in an Indian company, and realise that foreign insurance companies are not fly by night investing the same $1 billion, not only essentially are financial investors and instead of dirtying their hands in the dif- operators, but serious players looking at a long-term market, does India get those $1 billion, but also have absolutely nothing to do with the ficult business environment in India. the cap on FDI will gradually increase. a lot of downstream companies, which technological upgradation of an econo- Secondly, given the regular flip-flops would supply goods and services to the my. On the other hand, since FDI comes that successive governments in India TDB: What could be the motivation for a major multina- about foreign investment in insurance? British Petroleum refinery, get a chance, from only existing businesses, from have done in tax laws, foreign investors, tional insurance company to enter the Indian market unless AB: I don’t think the AIG crisis has any way affected FDI related to a certain extent, to understand and some of the world’s best companies, they probably, want to come in via the finan- it has management control? Isn’t it just returns that they are policies in India. If that would have been the case, we wouldn’t use British Petroleum’s technology. At bring in a lot of technological knowhow cial markets, and have the option to eas- chasing as minority shareholders? have seen the government increasing the FDI limit in insurance the same time, having set up a refinery to an economy. Hence, most countries, ily exit, than being saddled with billions AB: Today, India is one of the most promising markets for in- to 49%. in India, it won’t be easy for British Pe- generally, prefer FDI over FPI. of dollars of retrospective taxes. surance. With most developed markets quite saturated, India troleum to wind up its operations and Although even India prefers FDI over Thirdly, since India is not really known provides an opportunity to multinational insurance companies TDB: After FDI limit in insurance was increased to 49%, completely exit the country, if and when FPI, for several reasons, it has been more for being a protector of intellectual prop- to expand. As India grows as an economy, the awareness about what kind of interest have you seen among potential inves- it wants. successful in attracting the latter. The erty rights, many potential investors are insurance will also grow. We need to keep one fact in mind that tors? Do you think Indian companies have been able to fully Moreover, since FPI involves just reasons for this are many. Firstly, given wary of transferring their technology to insurance is an obligatory instrument. Hence, foreign companies utilise this? capital, it generally comes from mutual where India ranks in the Ease of Doing an Indian subsidiary. are quite sure that in the next few years, insurance penetration in AB: In general, since the potential for growth in India is pretty funds, hedge funds, trust funds, insur- Business Index, most foreign investors India will only grow. good, the Indian market interests a lot of investors. The earlier 26% NAIL IN THE COFFIN limit was just too low. However, increasing FDI in a company is In May 2007, Hutchison, which is a TDB: You said since insurance is a sector in which the com- entirely upon individual boards and shareholders. nward FDI into India remains very low (at Hong Kong-based group and had setup mon man is involved, the government is very cautious about around 2% of GDP) as compared to other a holding company in India through a opening it up for foreign investors. But if you look at the TDB: Do you think the decision to increase the FDI limit in in- peer countries. While India has gradually listed company in Hong Kong (which in banking sector, foreign portfolio investment is allowed well surance was based on proper analysis and/ or repatriation data? Iopened up and removed restrictions on FDI, turn held shares in downstream compa- above 50% in several Indian banks. Isn’t this an anomaly? AB: I am not sure to what extent the government maintains data a number of sectors still remain subject to ap- nies in the Cayman Islands, which held AB: Although both banks and insurance are part of the finan- on FDI repatriation, but certainly by analysing market informa- provals and limits on ownership. Recently, In- shares in downstream companies based cial sector, their nature of business is completely different. Insur- tion, which is available publicly and is much more dynamic in dian authorities have taken several steps to fur- in Mauritius), sold its stake to UK’s ance companies operate with an underlying risk assumption. If nature based on debt-equity, one can find who are the investors ther liberalise the FDI regime, in particular in Vodafone. Since India has a double tax a bank grows in terms of its topline, there’s a fair chance that it coming in and who are the investors taking money out of India. railways, infrastructure, construction, defence avoidance treaty (DTAA) with Mauri- would be growing even in terms of its bottom line. But this doesn’t and insurance sectors. Despite these positive tius, this deal shouldn’t have attracted apply to an insurance company. Topline growth in insurance TDB: What’s your general take on the environment for FDI moves, for India to become a major recipient capital gains tax in the country. But in needn’t translate into bottom line growth. Since the dynamics of in the country? of FDI and reap the benefits of it, significant 2012, the then Finance Minister Pranab the two businesses are not the same, you cannot apply the same AB: While FDI is more about investment, portfolio investment improvements in business environment, infra- Mukherjee proposed amendments to methodology to them. is more about trading and short-term gains. Hence, the govern- Paul Cashin structure and connectivity, as well as further the Income Tax Act, with retrospective ment has been consistently saying that it welcomes FDI, since it is IMF Mission Chief to India structural reforms are needed. effect, in order to assert the Indian gov- TDB: Would you say the financial crisis and what happened supposed to more permanent in nature, as compared to portfolio ernment’s right to levy tax on mergers with AIG made the Indian government even more cautious investment.
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and acquisition (M&A) deals involving overseas companies with business assets hile India has a somewhat formi- “DEMOCRATIC in India. Although Pranab Mukherjee, dable household savings rate of now President of India, went out of his 30%, most of this domestic capital STRUCTURES AND ways to convince foreign investors that Whas historically failed to enter into the finan- PROCESSES HAVE the move was not Hutchison-Vodafone cial system. Hence, financial sector reforms deal specific (the tax claims of the gov- encouraging more active use of bank accounts NO SPACE ONCE FDI ernment were later struck down by the by consumers and more efficient allocation Supreme Court of India), the decision of financial capital will be an essential part of BASED PROJECTS to bring in retrospective amendments to this growth story. However, the scale of invest- tax laws dealt a death blow to whatever ments that will be required to enhance India’s ARE PUSHED” little credibility India had to attract seri- human capital, physical infrastructure and ous FDI into the country. digital infrastructure, necessitates the need TDB: Are you against FDI per se, or against the way it is im- While damages to India’s chances of for injection of capital from foreign investors plemented in India? attracting FDI has already been done, Shashank Tripathi besides investments from private domestic and Medha Patkar (MP): We, the National Alliance of People’s Chris Devonshire Ellis, Chairman, De- Strategy Consulting Leader, PwC government sources. Movements, are against most of the FDI in India. With FDI, no zan Shira & Associates Asia, has some doubt the country is getting investment from abroad, from differ- simple advice for Indian policymakers ent sectors, in different manners, by corporates, as well as bilateral if they really want to gain lost credibil- trying to pass on his message to the In- as well as further structural reforms are agencies, but our question is regarding what all is involved in the ity and attract serious amounts of FDI. dian government. needed,” he tells The Dollar Business. process. For example, in the Delhi-Mumbai Industrial Corridor “Stop retrospective actions on taxes. Similarly, Paul Cashin, IMF Mission (DMIC) project, Japanese Bank for International Cooperation Lower the tax rate to 30%. Offer addi- Chief to India, although not as blunt as WHY THE FUSS? (JBIC) is involved, but all it is trying to do is bring in investments tional incentives to foreign companies Devonshire, thinks India needs to do a Having made a case for the argument from specific corporations. It’s not like they are here for our devel- that are willing to engage in technology lot if it really wants to benefit from FDI. that if India wants to attract serious opment, but for their gains. They use labour and natural resources Medha Patkar transfer with their Indian partners. And “For India to become a major recipient amounts of FDI, it needs to undertake here, but there is very little, almost nil, control of the operations Social Activist and National Convener, once these policies are in place, just leave of FDI and reap the benefits of it, signifi- massive reforms, let’s go back to the ba- with the state. That’s how these things are, invariably, planned. National Alliance of People’s Movements them alone for a decade or so, and don’t cant improvements in business environ- sics. How important is FDI for India? Is Let’s take the case of the proposed Vizhinjam Internation- interfere,” he tells The Dollar Business, ment, infrastructure and connectivity it absolutely mandatory if India wants al Seaport in Kerala. It is financially unviable, and hence, none, other than the Adani Group, is bidding for it. So, even financial- ly non-viable projects are being pushed ahead and approved and accepted in the name of increasing investment. If this is the case with powerful Indian companies, things can only be worse when it comes to foreign companies.
TDB: Irrespective of which political party is in power, it is argued that FDI is required for growth and employment small percentage of the total investment for the project, it pushed generation. Do you think enough analysis has been done on it through without environmental clearances. Democratic struc- what the country is gaining from FDI or what its socio-eco- tures and processes have absolutely no space once FDI projects nomic impact is? are pushed. MP: Now-a-days, anything and everything is development. When an economic activity takes place, none looks at the economic or TDB: What’s your take on the new land acquisition ordi- the environ-economic aspect of it. This is very unfortunate. In fact, nance to amend the Land Acquisition Act, 2013? the politicisation of development has broken all connections with MP: We are fighting the ordinance because it is against the in- the proper concept of development. Instead, what we have today is terests of the people. Overlooking all dialogues and debate, the just a superfluous understanding of development. government has brought in the ordinance, without following con- Growth and development can never be sustainable and equi- sultative processes either with us or with other parliamentarians. table when FDI is involved, because under it, the pressures are We object this. We are going to oppose even the second ordinance different and the agreements are influenced by these pressures. through a mass rally in New Delhi. It is very clear that the amend- Then there are indirect benefits for the decisionmakers and pol- ment that has been proposed by the government after the first -or iticians. With public-private partnerships, even the government dinance is just an eye wash. The government is saying everyone is now joining hands with corporates and foreign investors, and who loses his/ her land will be given a job. But this clause was also there’s absolutely no care or respect for laws of the land. Even when there in the 2013 Act, but it’s never been implemented. World Bank provides money for a project, and even if the invest- The government is pushing this bill, since huge tracts of land ment amount is very little, it exerts a lot of influence, and laws are need to be acquired for projects like the DMIC. The government Proponents of FDI argue that it's not only capital that foreign investors bring into a country, but also technological knowhow, which is compromised to push the projects. The Narmada Dam project is a is pushing us back to the British era, but even the British never said essential for sustainable growth great example of this. Although the World Bank had put in a very that land can be forcefully acquired even for private projects!
42 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 43 COVER STORY FDI
With one of the highest household savings rates in the world, it's technolog- ical knowhow that India should seek via FDI, and not necessarily just capital to achieve higher levels of economic FDI lead to higher growth? Of course fraction of what the country was receiv- growth? And there’s nothing better than it should, but for a $2 trillion economy ing in the sub-5% growth years! analysing empirical evidence in order to like India, a few single-digit billion dol- So, is FDI irrelevant to India? Well, arrive at an answer to these two ques- lars of FDI are just a drop in the ocean senior Congress leader Mani Shankar tions. Let’s do that. The highest amount and can do almost nothing to change the Aiyar thinks so. “We need to understand of FDI that India has ever received in one country’s growth trajectory, particularly that for a continental economy like that single year is $23.5 billion in FY2012. Did when India’s Gross Capital Formation, of ours, FDI will not have as much im- it lead to high growth? Of course not, as with or without FDI, is one of the highest portance as in case of other countries,” THE CABINET MINISTERS READ IT. the year saw the country’s GDP growth among all major world economies, only he tells The Dollar Business. On similar THE DGFT READS IT. slump from 8.9% in the previous year to below that of China and Indonesia, and lines, Social Activist Medha Patkar be- just 6.7% – the same as the GFC year of India's household savings rate is one of lieves growth and development can nev- THE MINISTRY OF COMMERCE READS IT. FY2009. And for those who argue that the highest in the world. er be sustainable and equitable when FDI FDI, or any investment for that matter, Similarly, the go go years between is involved. “Under FDI, the pressures CEOs AND COMPANY HEADS READ IT. has a lag effect, the following couple of FY2005 and FY2008, when India are different and the agreements are in- BOSSES OF EXPORT–IMPORT FIRMS READ IT. years’ GDP growth rates of sub-5% don’t achieved some of its highest rates of fluenced by these pressures. Foreign in- really make the case for FDI any bet- growth, the flow of FDI into the country vestors exert a lot of influence, and laws ter. But cēterīs paribus, shouldn’t more was in single-digit billion dollars – just a are compromised to push the projects,” Patkar tells The Dollar Business, explain- Join the VVIPs who are unique FDI flow into India versus GDP growth ing why she and the National Alliance of because they read different! There seems to be hardly any correlation between FDI inflows and GDP growth People’s Movements are against most of 25 12 the foreign direct investments in India.
10 20 ONLY MONEY, NO HONEY The leading voice of For the proponents of FDI, however, 8 India’s foreign trade fraternity! 15 the arguments of Aiyar and Patkar hold 6 no ground. They believe FDI is not just
www.thedollarbusiness.com Vol.2 Issue 04 April 2015 100 $5
EXCLUSIVE INSIDE about capital, but about technology as DR. MAHESH SHARMA Minister of State for Tourism (Independent 10 Charge), Culture (Independent Charge) and Civil Aviation, GoI OOMMEN CHANDY Chief Minister, Kerala FOREIGN TRADE EXPORTS IMPORTS FOREIGN TRADE . EXPORTS . IMPORTS www.thedollarbusiness.com | Vol.1 | Issue 31 | Saturday, February 7, 2015 | For subscribers only MÓNICA LANZETTA MUTIS 4 Colombia’s Ambassador to India The BSE benchmark Sensex YoY increase in export of Engineering LALIT KUMAR GUPTA fell by 0.46 %, marking its sixth goods from India during Dec. 2014, as MD CEO, Essar Oil Ltd. & consecutive day of losses per the Ministry of Commerce , GoI well. And having missed out the indus- www.thedollarbusiness.com MANISH SHARMA 28,717.91 20.49% President, Panasonic India & South Asia News update SUNEETA REDDY Managing Director, Apollo Hospitals TELECOM SECTOR BATS FOR DOMESTIC Enterprise Ltd. MANUFACTURING OF EQUIPMENT FOREIGN TRADE . EXPORTS . IMPORTS th th ...AND MORE! trial revolution of the 19 and the 20 Vol.2 5 Issue 04 The Government to cut export duties on low-grade iron ore produced by Goa to boost shipments to China
2 April 2015 EXPERT HAILS EXPORT DUTY CUT ON GOA IRON ORE
WILL IT LEAD BY SAI NIKESH BY THE DOLLAR BUSINESS BUREAU
The Government of India is mulling to cut the export duties on low-grade iron ore produced by Goa The Ministry of Information technology and Communications, in its recommendations to the
TO ACCHE (MAKE and this move is expected to boost the shipments to China, the largest iron ore importer for India. upcoming budget, has pitched more for the domestic manufacturing of telecom equipment. 100 According to sources, the Union Minister of Mines and Steel Narendra Singh Tomar on Thursday The Minister has said the recommendations made would help in curbing the widening trade said, “India is considering implementing a separate duty structure for exports of iron ore from Goa, deficit in the Telecom Sector, say the sources. The Ministry has also asked the Finance Ministry to IN INDIA) DIN AND the country’s top exporting State, and will look at raising import duties to stop dumping of steel.” provide tax incentives to manufacturers of the telecom equipment and for setting up the basic infra- century, India has no option but invite $ The Minister was quoted to have said that the Mines Ministry has asked the Finance Ministry to structure such as mobile transmission towers.
5 consider a separate export duty structure only for Goa owing to the lesser domestic demand for the It said in its recommendations that this tax incentives would help in lowering the costs and facili-
IS THERE ENOUGH State’s low-quality ore. tate the affordable services. The Ministry further asked for the postponement of the excise duties to
The sources say that most of the Indian steel companies lack technology... the domestic manufacturers to seven years, say the sources.
RNI: APENG/2014/54643 Read the full story... Earlier in January, the Cellular Operators Association of India (COAI), in its pre-budget recom- IN IT FOR INDIAN mendations, had also said that the telecom goods manufactured in Special Economic Zones be ex- empted from Customs Duty. It said that these manufacturers, including foreign companies would SAARC MOTOR VEHICLE AGREEMENT TO meet the Make in Policy requirements... EXPORTERS AND EASE CROSS-BORDER TRADE Read the full story... IMPORTERS? PM MODI INTERACTS WITH ECONOMISTS TO FDI if it doesn’t want to remain an also ATTRACT INVESTORS THROUGH BUDGET 0 0 A BALANCING
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 BY THE DOLLAR BUSINESS BUREAU According to an official release from Ministry of Road Transport & Highways, four countries be- longing to South Asian Association for Regional Cooperation (SAARC) on Thursday finalized an ACT? agreement that would facilitate their cross-border trade. India, Bangladesh, Bhutan and Nepal, in a meeting from between February 2-3, 2015, at Raichak near Kolkata, discussed Motor Vehicle Agreement (MAV), under which the countries agreed for a Isabgol APM Terminals Mumbai Leather Goods seamless transit of passenger and cargo vehicles between their countries and draw up plans for its ran in the world. Proponents of FDI also speedy implementation. It’s a treasure chest! All weather profits This agreement, which has been prevalent in European countries, would allow... The Gateway (Terminal) of India BY THE DOLLAR BUSINESS BUREAU An Indian monopoly with exports What makes this terminal the Low value imports from China Read the full story... worth over $100 million numero uno in India? ensure profits during all seasons Prime Minister Narendra Modi set the tone for Budget consultations through the newly created INDIAN ACCOUNTING STANDARDS TO BE NITI Aayog meeting in which he sought feedback from eminent economists on how to churn out a growth-oriented Budget and bring back investors. MADE VIABLE GLOBALLY With a favourable global economic outlook and with falling prices of crude and oil, Modi spent about three hours with the economists on the state of the economy and steps required to be incorpo- rated to boost investment and growth in Union Budget 2015. At the meeting of the newly created NITI Aayog, Modi asked for their views on the state of econ- omy, ways to perk up revenue mobilisation, expenditure rationalisation and suggestions to put India A BIG WORLD. A SMALL SCREEN. back on high growth path. “India must develop fast, taking advantage of current global environment, to meet the aspirations of the people,” an official release quoting Modi said. Sharply falling crude oil prices in the international market are likely to help India... FDI (L-axis, $ billion) Real GDP growth at factor cost (R-axis, %) cite that there’s barely any country that Read the full story... Circulars & Notifications EXCHANGE RATE OF CONVERSION OF FOREIGN CURRENCY FEBRUARY 2015 BY THE DOLLAR BUSINESS BUREAU S.O. (E). – In exercise of the powers conferred by section 14 of the Customs Act, 1962 (52 of 1962), and in super session of the notification of the Government of India in the India is planning a new accounting standard that will bring it at par with more than 105 countries Ministry of Finance (Department of Revenue) No.09/2015-CUSTOMS (N.T.), dated the AND THEN, THERE’S YOU! where International Financial Reporting Standards are mandatorily followed in a month’s time. 15th January, 2015 vide number S.O.167 (E), dated the 15th January, 2015, except as The standards to be implemented voluntarily to the companies of financial year 2015-16 and on a respects things done or omitted to be done before such super session, the Central Board mandatory basis from 2016-17 for all listed entities of over Rs 500 crore have been given in principle of Excise and Customs hereby determines that the rate of exchange of conversion of each approval by The National Advisory Committee on Accounting Standards. of the foreign currency specified in column... Print Magazine “The notification for Ind-AS is going to happene-Daily in a month,” Ministry of Corporate... Read more... Mobility Website Mobile App Source: Reserve Bank of India; FDI figures for FY2012, FY2013 and FY2014 are provisional Read the full story... Movements: Numbers that matter Quote of the day has not benefitted from FDI and most of Currency movement Brent $58.22 We’re framing rules and procedures with March 5.2488% against INR regard to auction, and preparing necessary $1,263.80 USD Rs.61.7234 0.0770 Gold GBP Rs.94.6042 1.7017 documents to kick-start auctioning of mines February 0.1505% EUR Rs.70.7010 0.1403 & * e-Magazine JPY Rs.52.6290 0.0379 Narendra Singh Tomar Devices Silver $17.23 RMB Rs.9.8877 0.0788 UNION MINISTER OF STEEL AND MINES
March All prices as of 1700 IST 0.5250% All prices as of 1800 IST Source: RBI, XE.com, *Per 100 Yen SMS “TDB” to 56161 E-mail: [email protected] to download The Dollar Business App 44 THE DOLLAR BUSINESS II JUNE 2015 on your iOS and Android device(s) Five platforms that make The Dollar Business omnipresent! COVER STORY FDI
India’s concerns regarding it are nothing efits of FDI definitely outweigh its nega- While in DTH but paranoia. “Most countries that have tive effects, let’s take a look at the current and mobile TV received FDI would regard it as benefi- state of affairs. India has set cial. It is widely recommended by mul- Today, one of Government of India’s an FDI cap of 74%, when it tilateral agencies as a means of boosting stated intents and objectives is “to attract comes to cable the economy of emerging markets. FDI and promote foreign direct investment networks the provides competition to incumbent na- in order to supplement domestic capi- FDI cap has been reduced tional champions and/or create new tal, technology and skills, for accelerat- further to 49% industries that were not present earli- ed economic growth.” To enable this, all er, Sean Laughlin, Executive Director, non-Indian entities, except those from Global FDIA, tells The Dollar Business, Pakistan and Bangladesh, are allowed to explaining the benefits of FDI. Making invest and own 100% stake in Indian enti- a similar point, Dr. Bhasin says, “Once ties, except in lottery business, including FDI comes into a country, there are spill- government/private lottery and online over effects in terms of technology trans- lotteries; gambling and betting, includ- fer, improvement in export competitive- ing casinos; chit funds; nidhi companies; ness of domestic products, employment trading in Transferable Development generation, and benefits to consumers.” Rights (TDRs); real estate and construc- Let’s take the example of some bene- tion; manufacturing of cigars, cheroots, fits that India has reaped, thanks to such cigarillos and cigarettes, of tobacco or of technology transfers. Brahmos, India’s tobacco substitutes; and activities/sec- supersonic ‘fire and forget’ cruise missile, tors like atomic energy and railway oper- wouldn’t have become a reality if India’s ations that are not open to private sector Defence Research and Development Or- investment. On the other hand, certain sectors have a cap on FDI investment. These sectors include defence (49%); A LARGE CHUNK teleports, DTH and mobile TV (74%); OF FDI INTO cable networks (49%); news & current INDIA COME VIA affairs TV channels (26%); newspapers MAURITIUS & and periodicals (26%); domestic airlines SINGAPORE (49%); private security agencies (49%); multi-brand retail (51%); banking (74%); commodity exchanges (49%); credit in- ganisation (DRDO) and Russia’s NPO formation companies (74%); securities
Mashinostroyenia had not entered into a market infrastructure (49%); insurance A cap of 49% (50.5:49.5) partnership in 1998. Similar- (49%); and power exchanges (49%). At on FDI has ly, had India not opened up to FDI in the the same time, while investing in some been a major impediment in 1980s, although in a limited way, millions of these companies with caps need pri- the growth of 13.6% of middle class Indians wouldn’t have or government approval, in some oth- India's been able to drive a car in their lifetimes. ers, a foreign investor can invest without cash-strapped, 27.5% loss-making More importantly, had India not invited any prior government approval as is the civil aviation FDI from Nauru – a small Pacific island case with all sectors in which 100% FDI sector 1.5% nation and a major supplier of phosphate is permitted. 3.4% to India in the 1970s – and setup a joint The question that then arises is just 1.4% 3.4% SOURCES venture to manufacture phosphate fer- what is the logic for having investment tilisers in the country, Green Revolution caps in sectors like insurance, airlines 3.8% OF FDI FLOW would have never taken place, and the and multi-brand retail? If the govern- INTO INDIA country would have neither been able ment can trust multinational banks han- 4.0% to eradicate hunger, nor attain self-suffi- dling Indians’ savings, why can’t it trust ciency in food, within just three decades multinational insurers underwriting an Singapore Mauritius 7.2% of attaining independence. Indian’s insurance? Do Indians really Japan Netherlands 23.0% care who owns the plane they are flying Germany USA CLIPPING WINGS in as long as they can fly cheap& safe? Cyprus Luxembourg 11.2% Now that we have proved that despite a [Actually, safe & cheap.] And of course, UAE France Other lot of lacunae and not being the answer if an MNC can own 10 different single to all of India’s economic woes, the ben- brand stores in one shopping mall, just Source: Reserve Bank of India; breakup for FY2014 (Provisional)
46 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 47 COVER STORY FDI
A 49% cap on FDI in defence has kept foreign players away from India, since it's a sector where “AT YOUR DOORSTEP” IS HISTORY... investors don't want to lose “ON YOUR FINGERTIPS” IS NOW! management control YOU NEVER WOULD HAVE IMAGINED THAT THE WORLD OF FOREIGN TRADE COULD ACTUALLY FIND A PLACE ON YOUR PALM. EXPERIENCE WHAT OTHERS DEEMED IMPOSSIBLE; LIVE WHAT WE CALL AMAZING – THE CROSS-CONTINENTAL WORLD OF EXPORTS-IMPORTS...
what is the logic to prohibit it from tor to FDI will be good for consumers the other hand, Pratyush Kumar, Presi- selling the same 10 brands under one and Indian businesses as it will allow dent, Boeing India, feels it’s irrational for roof? While the government perhaps us to partner with local manufacturers the government to expect serious foreign has answers for each of these questions, to source products not carried by other investment in the defence sector with the reality is that such caps are nothing sellers on the marketplace, giving Indian an investment cap of 49%. “As defence but a function of lobbying by domestic consumers unique and wider choices at manufacturing industry is complex and monopolies and myopic vision. lower prices,” he tells The Dollar Business. requires significant investment in &R D, A victim of such caps, Amit Agarwal, Agarwal feels the spillover effect of open- quality systems, and manufacturing VP & Country Manager, Amazon In- ing up the multi-brand retail sector to technologies, many manufacturers may dia, thinks India should urgently fully FDI will be immense. “Allowing FDI will not risk loss of control in a venture by open up the multi-brand retail sector to also positively impact infrastructure de- holding less than 51%,” Kumar tells The FDI. “We believe opening up this sec- velopment in the country,” he adds. On Dollar Business. The government’s policy to impose caps on the FDI in certain sectors, how- SECTOR ever, has a few supporters. For example, WISE FDI Ajit Banerjee, Chief Investment Officer, Bharti AXA General Insurance, a JV FLOW INTO between the Paris-based AXA Group INDIA and India’s Bharti Enterprises, in which the former has recently got the Foreign Investment Promotion Board's (FIPB) approval to hike stake to 49%, feels grad- ually opening up the insurance sector to Retail and wholesale trade 7.1% foreign investors is not a bad idea. “Be- fore opening up the sector, the insurance A BIG WORLD. A SMALL SCREEN... AND THEN, THERE’S YOU! Communication services 7.8% industry needs to be in line with the re- Download The Dollar Business App Construction 7.9% quirements of the international market. I am sure, once India reaches that level, on your iOS and/or Android device(s). Electricity and other energy generation, the market will gradually open up,” says SMS “TDB” to 56161 distribution & transmission 8.0% an optimistic Banerjee. Other 29.5% Manufacturing 39.7% BLACK HOLE While tax related flip-flops, sharehold- Source: Reserve Bank of India; breakup for FY2014 (Provisional) ing caps and painful land acquisition THE DOLLAR BUSINESS APP is available for download for FOREIGN TRADE EXPORTS IMPORTS all smartphone users on the AppStore and Play Store 48 THE DOLLAR BUSINESS II JUNE 2015 COVER STORY FDI
laws, etc., are some of the most import- though the initial burst of foreign capital, ant issues affecting FDI in India, the root as expected, came in via portfolio invest- for it being suspiciously looked at in the ments and pushed the Sensex through country, lies in the tiny Indian Ocean the roof, even potential FDI investors island of Mauritius. For, although India started making their moves. But while has double taxation avoidance agree- initially, the new government made the ments (DTAAs) with 88 countries, a li- right noises by hiking the FDI cap to 49% on’s chunk of the FDI into India is routed in both defence and insurance, things through Mauritius as the island nation started turning sour very quickly. doesn’t apply tax on capital gains. Hence, Firstly, it continued to maintain am- if a foreign investor based out of Mauri- biguity on Minimum Alternative Tax tius invests in India, it need not pay any (MAT). While many foreign investors, particularly portfolio investors, expect- ed it to just completely abolish MAT, FREQUENT the government continued to dilly-dal- CHANGES IN TAX ly, making them anxious. Commenting LAWS HAVE SOURED on this, Congress’ Aiyar says, “There is FOREIGN INVESTOR no substance to their (government’s) SENTIMENT IN INDIA words. That’s why the investors commu- nity, whether in India or abroad, simply doesn’t trust Mr. Modi as much as Mr. tax on its capital gains – neither in India Modi trusts himself.” because of the DTAA, nor in Mauritius, If this was not enough, the govern- because the country doesn’t levy tax on ment committed a cardinal sin by push- capital gains! And many claim that bulk ing the amended land acquisition law, of the FDI that India receives from Mau- not via consultation and debate in the ritius is nothing but Indians rerouting parliament, but via an ordinance. And money into the country, in order to avoid the protests and opposition that have paying capital gains tax, thanks to this followed it have only dented the govern- loophole. “99.99% of all Mauritian in- ment’s image further. Claiming that the vestment in India are by Indian compa- government’s diagnosis of what’s affect- nies that are trying to avoid Indian taxes. ing FDI into the country itself is wrong They have nothing to do with FDI,” Dev- and heavily criticising it for opting for onshire says, not mincing words. Agree- an ordinance for an extremely important ing with Devonshire, Dr. Bhasin says, “A issue like land acquisition, Aiyar adds, Thanks to India's double tax avoidance agreement with Mauritius and the fact that the latter part of the FDI coming from Mauritius “Land acquisition has not been holding doesn't levy any tax on capital gains, a significant chunk of FDI coming into India originate is round-tripped investment by Indian up investment. Investment has been held from the tiny Indian ocean island investors taking capital out of the coun- up because of number of other factors, try, and reinvesting through Mauritius of which land acquisition is a small part. to take advantage of tax concessions of And in any case, just in order to facilitate many factors at play even when it comes FDI is the only answer to all of India’s nomic woes, neither will it derail the capital. FDI offers access to internation- the treaty.” Given this, one cannot real- investment, whether it’s domestic or for- to FDI. While some questions regard- economic woes is nothing but wishful country’s growth trajectory. ally available technologies and man- ly blame if large sections of the Indian eign, if you are going to dislodge Indians ing it may have some basis, a lot of the thinking and living in denial. With one If FDI can't help the Indian economy agement know-how, and may render it society look suspiciously at all FDI. from their own homes, then it is not just suspicion surrounding it, particularly of the highest saving rates in the world, to grow at double digits, it will never easier to penetrate world markets. These wrong, but is criminal.” in India, are either colonial hangover, a capital is not an issue in India. The real push us into a recession. There’s enough indirect effects of FDI are more relevant NO CHANGE Similarly, claiming that the govern- pretext to protect domestic monopolies, issue is channelising this saving into evidence that if anything, the multiplier for developing countries like India. In With the Narendra Modi led BJP sweep- ment’s new land acquisition ordinance or just paranoia. Since it is impossible investments. And in any case, FDI flow effect of FDI can only be higher than that addition, FDI can also stimulate new in- ing General Election 2014 and forming is against the interests of the people and to produce everything that a country into India has never even exceeded of domestic investment. For, technolog- vestment through forward and backward the first single party majority govern- is being pushed since huge tracts of land consumes, an alternative to FDI is in- 2-3% of GDP. So, unless there’s sudden- ical knowhow that FDI will inevitably linkages. Thus, it is advisable to focus on ment at the Centre in over two decades, need to be acquired for projects like creased imports. However, increased de- ly a multifold rise in the flow of it into bring with it, will spur downstream do- attracting FDI to not only supplement thereby putting an end to arm-twisting the Delhi-Mumbai Industrial Corridor pendence on imports not only drains a the country, a few billion dollars more mestic industries. FDI also leads to bet- investment and capital formation, but by smaller regional parties, the mood in (DMIC), Patkar said, “Even the British country of precious forex, but also adds or less, won’t really affect India’s growth ter integration with the rest of the world also to promote economic development.” all sections of the Indian economy was never said that land can be forcefully very little to growth. For, although there’s prospects. But this is no excuse to treat and spurs trade volumes. Agreeing with The bottom line – FDI is not a pan- nothing short of euphoric. Thanks to acquired even for private projects.” nothing bad about consumption driven foreign investment any differently from such arguments in favour of FDI, Dr. acea, not by any stretch of imagination. Modi’s foreign investor friendly image, a growth, it doesn’t have the same multi- domestic investment, particularly by a Bhasin says, “FDI is expected to have But it can only help. It rarely hurts. lot of investment waiting on the sidelines DOESN'T HURT plier effect as investment driven growth. country that preaches Atithi Devo Bhava. relatively strong effects on economic to enter India also turned ecstatic. Al- Like most things in economics, there are On the other hand, the thinking that If FDI can’t solve all of India’s eco- growth, as it provides for more than just [email protected]
50 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 51 GLOBETROTTER PERSISTENT SYSTEMS
he Indian IT sector is a crowd- ed place. Even if you ignore the Big Four – TCS, Infosys, Wipro THE COMPANY HAS THE NAME MIGRATED FROM and HCL Tech – there are sev- Teral other listed players, with over $1 bil- TECHNOLOGY TO lion in market capitalisation. The trouble BUSINESS ORIENTED SAYS is that there is hardly anything to differ- SALES TEAM HIRING entiate them, other than their sizes. Not only do most of them provide similar IT ALL kind of services, but also provide them For, in four out of the last five years, Per- to similar kind of clients, most of them sistent Systems’ topline has grown at an Having just celebrated its 25th anniversary, in the US. And this is where Persistent incredibly consistent rate of 29% (+/- 50 Systems stands out. For, not only is it a bps) y-o-y. That during this period, the Pune-based Persistent Systems isn’t just another IT product company, instead of being Indian rupee has moved all over the IT outsourcer, but a high-technology IT products a run-of-the-mill IT services company place, and the US – its main market – company. Having got into technologies like cloud that most Indian IT outsourcers have be- hasn’t really been an example of consis- come, but it also was one of the first ones tent growth, only makes this even more computing and big data analytics before they were to get into stuff like cloud computing and remarkable. even heard of in India, the company has been big data analytics. Validating this, retail The only year this consistent run has Since its IPO in FY2010, Persistent growing at an astounding rate and is now, all set to Systems’ revenue has grown at a brokerage, ICICIdirect, in a research re- faltered – FY2015 – the company has CAGR of 25.8%, which is the same port earlier this year, wrote, “Persistent more than made up by reporting its make the next 25 years its own as that for market leader TCS Systems had a first mover advantage in highest profit margin since the tax hol- newer technologies as it defined cloud, iday for IT companies came to an end BY SHAKTI SHANKAR PATRA analytics, collaboration and mobility in FY2011. This, despite a 460 bps y-o-y as a category, much ahead of Gartner, jump in employee benefits expense. So, who later defined it as Social, Mobility, how did an IT company manage a jump Analytics and Cloud (SMAC) in 2010.” in the profit margin, despite a surge in What makes Persistent Systems even employee benefits expense, which is its more unique is that it has continuously single biggest expense? Simple. It en- invested in high technology startups and sured its tax rate was at its lowest since in fact, a couple of months back, setup FY2011 and also ensured a close to 3x a $10 million venture capital fund solely jump in its other income. for this purpose. Another great example of Persistent Systems’ consistency is its EBITDA mar- CONSISTENT SYSTEMS gin, which has stayed in a band of just If one takes a look at Persistent Systems’ 220 bps, between 24.8% and 27%, for revenue growth over the last five years, a decade, except for the GFC year of one would recommend its board to FY2009. This, despite its employee ben- change its name to Consistent Systems. efits expense moving all over the place Persistent Systems’ revenue mix Persistent Systems’ revenue mix (segment wise) (geography wise) More than two-third from I&S vertical No different from any other IT player
17.8% 5.3% 12.5%
9.6%
85.1%
69.7%
Telecom and Wireless Life Sciences and North America Europe Healthcare Infrastructure and Systems Asia Pacific Source: Company Annual Report; Source: Company Annual Report; breakup for FY2014 (Consolidated) breakup for FY2014 (Consolidated)
52 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 53 GLOBETROTTER PERSISTENT SYSTEMS
– from a high of 66% of revenue to a At times, Persistent Systems’ shares trade low of 53.5% – during the period. At the Persistent Systems’ revenue and margins at higher price-earnings multiple than that of The company’s margins are as stable as it can get same time, it’s worth noting that despite even Infosys, Wipro and HCL Tech! such high volatility in employee benefits 2,000 30 expense, the company has managed to consistently bring down its attrition rate 25 (which, at 21.2% in FY2008, had forced 1,500 20 the management to cite it as a risk in the red herring prospectus during the IPO) 1,000 15 to just 13.4% in FY2014. 10 500 MISSED CALL 5 Persistent Systems, essentially, works un- 0 0 der three segments – Telecom and Wire- FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 less; Life Sciences and Healthcare; and Net revenue (L-axis; Rs. crore) Infrastructure and Systems. And within EBITDA margin (%, R-axis) these three segments, not only is Infra- EBITDA margin (%, R-axis) structure and Systems’ contribution to Source: Company Annual Report, TDB Intelligence Unit overall revenue the highest, at 69.7% in FY2014, but also it’s growing at an un- Persistent Systems’ employee benefits expense believable rate – 41.8% in FY2014. On It has never exceeded 65% of revenue in the last decade the other hand, the problem area for 1,400 70 the company is the Telecom & Wireless vertical, which saw a drop of 12.2% in 1,200 60 FY2014, and negated some of the fabu- 1,000 50 lous growth shown by the Infrastructure 800 40 and Systems vertical. And Dr. Anand Deshpande, Founder, Chairman and 600 30 Managing Director, Persistent Systems, 400 20 blames this poor performance by the 200 10 Telecom and Wireless vertical on mar- 0 0 ket conditions. “The market situation FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 is such that we cannot expect a larger Employee benefits expense (L-axis; Rs. crore) development or a surge in them,” he tells Employee benefits expense/revenue (R-axis; %) The Dollar Business. Source: Company Annual Report GLASS HALF EMPTY A major issue with Persistent Systems is ing short of a disaster. es that the company has faced in recent has always been ahead of the curve. It On its part, the company hasn’t disap- its overdependence on a few clients. For, To counter this problem of overde- years, Deshpande says, “The challenges spoke about cloud computing, when pointed either. Since listing in FY2010, even while citing risks in its red herring pendence on just a few clients, one of the that we have been facing can be catego- most in India hadn’t even heard about it. its topline has grown at a CAGR of 25.8% 47% OF PERSISTENT prospectus before its IPO, the compa- biggest focus areas for Persistent Systems, rised into to two types. One is that we Just in the last two years, it has acquired – the same as market leader TCS. SYSTEMS’ REVENUE ny had mentioned that its top client today, is sales and marketing. Hence, in started working with partners and small many small but high technology orient- While many would say a company, CAME FROM ITS TOP accounted for 8.25% of its revenue in FY2014, not only did the company rejig number of customers, were we would go ed companies and products like Hoopz, with a lower base, should have grown at 10 CLIENTS FY2008. Since then, this dependence has its marketing team and get a new Head of with the partners and sell our products HPCA, NQ, TNPM, rCloud and LBS. a faster rate, an inherent characteristic IN FY2014 only increased, with it earning 21.2% of Sales – Ranga Puranik – for itself, but also to the customers. This did not work out Speaking about these acquisitions, of the IT sector is that because it is peo- its revenue from its top client in FY2014. changed its sales strategy. Explaining this the way we wanted as there were various Deshpande says, “We have been build- ple-oriented and has nothing to do with Similarly, while its top ten clients had in a research report a couple of months issues, including the leaving of custom- ing some interesting IT portfolios, with capacity, in it, the big keep getting bigger, tential to open up new revenue streams accounted for 38.47% of its revenue in back, brokerage house Prabhudas Lilad- ers as they decided they wanted change. good components, which would help us and the small, only smaller. Hence, any for the company. “Persistent Systems has FY2008, in FY2014 the revenue from the har, which has a ‘Buy’ rating on the Per- The second is that the deployment of stand out in the IT space today.” Because small company, which manages to keep products that can be used by the gov- same had jumped to 47%. sistent Systems stock, wrote, “Persistent the technologies were not up to the levels of such ahead of times thinking, even pace with the market leader, deserves ernment, an upbeat Deshpande tells The Although some would cite this as a Systems has migrated from technology expected.” Dalal Street rates Persistent Systems very more than a bit of applaud. Dollar Business. All it needs to do now is positive, since it means it’s getting re- to business oriented sales team hiring. highly and gives it higher multiples than The bottom line: absolutely every- milk the investments it has made over peat orders from the same clients, it also Moreover, marketing exercise for the suc- VALUED IN SILVER most of its peers. In fact, at times, Per- thing is in place for Persistent Systems. the years on high-end technology, and of means it’s struggling to diversify its client cess of Enterprise Digital Transformation Persistent Systems just celebrated its 25th sistent Systems’ shares trade at higher And the market and its clients are very course, get the sales team going. base. So, just a couple of major clients (EDT) is likely to continue.” anniversary. In these 25 years, it has been price-earnings multiple than that of even aware of this. The new government fo- moving away from it would mean noth- Speaking about some of the challeng- a pioneer in many new technologies and Infosys, Wipro and HCL Tech! cusing on Digital India also has the po- [email protected]
54 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 55 GLOBETROTTER PERSISTENT SYSTEMS
will be happier if all the sectors did well. “IT’S GOOD THAT GoI TDB: There’s a concern that there is, currently, a bubble in technology – be it social media stocks in the US, the entire NASDAQ, or e-commerce IS LARGELY TALKING companies in India. What’s your view on this? AD: We cannot say there is a bubble ABOUT INVESTING IN in technology. It’s largely subjective to companies. In the present scenario, tech- nology is growing on a larger level. The TECHNOLOGY” markets and the products always work on a platform of upgrading to the latest version, with the view to present the best In the company’s 25 years’ journey, from a start-up to the publicly-traded global available version to the customer. company of today (having a mcap of about $1 billion), he has been the man behind the wheel, all the time. In a free-wheeling interaction with The Dollar TDB: The Modi government is focus- ing a lot on Digital India and it is ex- Business, Dr. Anand Deshpande, Founder, Chairman and MD, Persistent pected that government IT spend will Systems, looks back at the last 25 years, and outlines his vision for the future be close to $7 billion this year. Are you positioned to benefit from this? INTERVIEW BY AADHIRA ANANDH M. AD: It’s a very good thing that our gov- ernment has been talking largely on TDB: Since listing in FY2010, Per- in the crowded Indian IT space? ployment of technologies were not up to investing in technology, because if we sistent Systems’ revenue has grown at AD: We largely focus on product devel- the levels expected. compare with others the usage of tech- a CAGR of 25.8%, which has exactly opment. The current scenario is such nology in our country is very minimal. been the growth rate for even indus- that we have newer technologies for ev- TDB: Why Indian IT companies, in- So, if the government can invest more try leader Tata Consultancy Services erything. We see new upgradation in the cluding Persistent Systems, haven’t and bring a change in the way technol- (TCS). How content are you with this? market on a large scale. Our customers been able to reduce their dependence ogy can be accessed in our country, then Anand Deshpande (AD): Markets, to- also know that they will be able to get on the US market? Tell us of your strat- it would be a big development. Persistent day, have become very dynamic and access to new technologies periodically. egy, if any, to change this. Systems has products that can be used by volatile. So, in order to adjust ourselves So, we also make sure we provide them AD: Today, there is hardly any IT com- the government, but I am not very sure and be ahead of these changes, we have with the latest technologies at the time of pany that does not have an office or how we stand benefitting from the same. been moving from one drawing board to them deciding to buy the product. is based in the US. From bigshots like another. In other words, today, we face Google to us, all are based out of the US. TDB: You have always been interested challenges of a different kind. Hence, we TDB: You were ahead of the curve in- We are also largely US centric because in acquiring and investing in startups. have to constantly be on our toes to en- vesting in cloud computing, analytics the use of technology there is on a much You have also set up a $10 million VC sure better results. This shift in approach etc. Are you satisfied with the results? larger front. So, when we base our prod- fund to invest in 40 startups. Can you is the reason for the higher growth rate AD: We are very satisfied with the way ucts there, its reach is also much larger. tell us why you are interested in start- achieved by us over the last few years. our results have turned out and we have ups rather than established companies? also continued to stay current in the TDB: While the infrastructure and sys- AD: The venture capital fund we have TDB: Persistent Systems has always market. We have been building some in- tems segment continue to account for set up for startups is not from a differ- been known as an IT product compa- teresting IT portfolios, with good com- a lion’s share of your revenue, what are ent fund. We have funds with in the ny, which is not something many other ponents, which help us stand out in the your expectations from the telecom, firm, which we show in the company’s Indian IT outsourcers can boast of. Tell IT space today. The challenges that we wireless, life sciences and healthcare financials as investment in startups. As us a bit more about how you stand out have faced in the past can be categorised segments? we were largely interested in investing in into two types. One is that we started op- AD: The infrastructure and system seg- startups, we thought of setting up a fund, erations with partnerships and a small ment has largely been our balancing area. whereby we could concentrate more on WE MAKE SURE number of customers, where we would When we take other areas, they are also them. And as far the choice for startups WE PROVIDE OUR go out with the partners to sell our prod- at par with the infrastructure and system is concerned, startups are almost always CUSTOMERS ucts to the customers. This did not work segment. However, the market situation into innovation, and all of us know that out the way we wanted as there were sev- is such that we cannot expect a larger anything new in technology always Dr. Anand Deshpande WITH THE LATEST eral issues, including some customers, development or a surge in them. They stands out. Founder, Chairman & MD, TECHNOLOGIES leaving just because they wanted change. are quite balanced and our expectations Persistent Systems The second challenge was that the de- from them are also the same. Above all, I [email protected]
56 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 57 THE MIDAS TOUCH COTTON LINTERS
rom the blue denim in your wardrobe to the soft towel in PATIENCE PAYS. your bathroom, from crisp cur- rency notes in your wallet to Fpharmaceutical drugs in your first aid boxes (yes, cotton is used in the pro- BYPRODUCTS duction of currency notes and several drugs), cotton’s omnipresence in our dai- ly lives cannot be ignored. While India’s TOO DO! domination of the world cotton market – the country is the world’s second larg- The immense potential of cotton to clothe is well est producer and exporter of cotton – is pretty well known, not many know that known across the globe. However, a not so popular India is also the world’s second biggest use of it is in the form of linters – a byproduct of the exporter of cotton linters – a byproduct cotton oil extraction process – that has great demand of the cotton oil extraction process. in the international market, particularly in China. And DEVIL & DEEP SEA all an exporter of cotton linters needs is some patience Cotton linters are silky fibres extracted before he can laugh all the way to the bank from the outer coating of cotton seeds through ginning. A 5-6% byproduct of BY HIMANSHU VATSA the cotton oil extraction process, cotton linters are extensively used in the man- ufacturing of stamp papers, currency papers, and as cellulose in the chemical industry. Cotton linters are also used in Profit estimate for cotton the wood, food, chemical, pharmaceuti- linters exports cal and ammunition industries. But the While margins might rise occasionally, issue with them is that neither do they it is reasonable round the year represent a big market – total cotton lin- ters trade has never even hit the half a Cost of Procurement (INR/MT) * 22,250.0 billion per annum mark – nor are there FOB Value (INR/MT) ** 23,000.0 many countries that import them – Chi- Operating Profit 750.0 na has consistently been importing over Operating Margin (%) 3.3 50% of the global cotton linters exports. * 100% cotton linters first cut Hence, India’s cotton linters exports ** FOB Krishnapatnam suffer from the typical issues that one associates with any product that has just one major market. For, not only do In- India's cotton linters exports dia’s cotton linters export volumes dance Despite price volatility, exports of cotton linters has shown a steady growth to the tunes of Chinese policy changes, 90 60 but their price realisation is also very 80 volatile, giving its exporters nightmares. 50 70 For, while FY2010 suddenly saw an over 60 40 4.3x jump in export volumes, it was fol- lowed by two years of flat to negative 50 30 growth. Similarly, although the export 40 price realisation for cotton linters saw 30 20 an over 88% y-o-y jump in FY2011 to 20 10 $1.1 million/thousand MT, the same 10 collapsed in the subsequent years and 0 0 was just $0.4 million/thousand MT in FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY2014. Volume (L-axis, thousand MT) Value (R-axis, $ million) Why doesn’t Indian cotton linters Source: Ministry of Commerce, GoI exporters diversify into other markets then? Well, the answer is simple. Since
58 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 59 THE MIDAS TOUCH COTTON LINTERS
many countries, including the Europe- and its lack of support to producers.“The treatment plants, besides assisting the bill, but also give cotton linters produc- an Union, have banned the imports of government should support us in ex- industry financially.” ers much needed breathing space. genetically modified cotton products, porting these products by extending there’re not many markets where Indian exporting incentives and minimising HOME RUN JUST A PUPPET cotton linters can go. India’s cotton lint- trade restrictions,” P. Koti Rao, Director, At a time, when Chinese demand has Another reason why India’s cotton lint- ers exports are also affected by the Indian Tirumala Cotton and Agro Products Pvt. been all over the place, cotton linters ers exports are faltering is because they government’s stringent trade restrictions Ltd., tells The Dollar Business. producers in India have found some so- are just a byproduct. Hence, unless there Explaining the potential of cotton lace in the domestic market, particularly is a huge demand for them on a stand- linters exports, and citing the steps that in ordnance factories. Similarly, industry alone basis, their production is just a The soft fibre are needed to realise their potential Rao insiders feel if instead of printing a ma- function of the production of cotton oil. Cotton linters are fibres extracted from adds, “The value addition in cotton lin- jority of currency notes abroad, if the In- If the production of cotton oil is high, the the outer coating of cotton seeds through ters can be up to 400%. But a lot needs dian government can print some of them production of cotton linters will auto- ginning process to be done by the government. It should at home, cotton linters producers would matically be high and they would be sold Just a 5-6% byproduct of the cotton oil help in setting up factories, providing get a big and ready market. Not only will off at any price buyers are willing to buy extraction process, linters have great statutory clearances, installing effluent this reduce the country’s overall import at. On the other hand, if there is a dip in demand in the international market the production of cotton oil, the produc- While the longer fibres are used in non-wo- Destination of India's cotton Global cotton linters exporters tion of cotton linters will also dip. Hence, ven products, the shorter ones are put to linters exports A very close race between India & USA for exports of cotton linters to pick up, it Cotton linters are extensively used in the manufacturing of currency notes use in making high-grade stamp papers, Almost everything goes to China is necessary that they have a market of currency papers and as cellulose in the chemical industry their own. Though some markets exist, dia’s cotton linters exports have seen a ton linters exports on a standalone basis the product suffers from frequent policy y-o-y dip in five years! Similarly, each of is not very advisable. For, not only can 23.1% Cotton linters are also used in the wood, 11.6% 0.1% changes in China and a ban on geneti- the last four years, between FY2011 and demand be erratic and bumpy, but so can chemical and ammunition industries 7.0% 26.9% cally modified Indian cotton in several FY2014 (both years included), have also also be price realisation. However, cotton Cotton linters are also used to prepare countries. In fact, just how inferiorly the seen a y-o-y drop in per unit realisation. linters is something that an exporter of ethyl cellulose, which is used in the pharma- 7.4% world treats Indian cotton linters can be Given this, Rao has a word or two of cau- other goods should keep an eye on. For, ceutical and food manufacturing industries 8.9% gauged by the fact that while the average tion and advice for those looking at get- you never know when there can be a 88.3% In the pharmaceutical industry, ethyl 26.7% unit value of USA’s cotton linters exports, ting into the trade. “Remember, linters sudden spike in demand, as it happened cellulose is used as a coating agent, in CY2013, was $577/MT, the same for are just a by-product of the cotton seed, in FY2010, or a sudden spurt in prices, as flavouring fixative, tablet binder and filler India was just $393/MT! i.e., just about 5% of the cotton seed ends it happened the following year! And that In the food industry, cotton linters can be USA India Turkey up as linters. The remaining 95% also needs the patience of a hermit. used as an emulsifier China Japan Hong Kong Malawi Zambia Other WAIT AND WATCH have various uses,” he says. What this Source: Ministry of Commerce, GoI; breakup for FY2014 Source: International Trade Centre; breakup for CY2013 In volume terms, in the last 10 years, In- essentially means is that getting into cot- [email protected]
“VALUE ADDITION IN COTTON and internal. Due to a low shelf life of ment should also set a target to achieve input subsidies to agriculture, instead the seed (40-50 days since the arrival self-sufficiency in vegetable oils and stop of spending money on other public LINTERS CAN BE AS HIGH AS 400%” of the seed from cotton), the operating dependency on other countries. Input schemes. India is facing major challeng- period is seasonal. The industry should subsidies should be given to farmers to es in increasing exports. Hence, the TDB: What do you think are the fu- such value-added products? be provided with interest-free financial cultivate vegetable oil seed crops, so that government must consider more export ture prospects of cotton linters exports PKR: Yes, value addition in cotton lint- assistance to promote the use of silos, they get a workable price for cotton and incentives for agro-based industries. The from India? ers can be as high as 400%. But for that which will extend the shelf life. And this other major oil seeds. Nowadays, farm- government should encourage the sol- P. Koti Rao (PKR): As of now, domes- to happen, a lot of government support will produce a lot of by-products such as ers prefer to cultivate subabul and eu- vent extraction process of cotton seeds. tic consumption of cotton linters is very is needed in setting up factories, getting linters, hulls, cotton and de-oiled cakes. calyptus due to the non-workability of We should not encourage undecorticat- less. Not even 10% of the production is statutory clearances for pollution, setting The government should also support us major crops. ed cotton seed crushing, since it leads to consumed domestically. Hence, large up effluent treatment plants and other fi- by providing export incentives. So far, we Cotton picking is labour intensive. losses of huge quantities of oil. quantities of linters are exported, most- nancial assistances. Today, we import a have not received any support from the Hence, a farmer ends up spending 30% ly to China. Unless more units come up lot of pulp, which can be substituted by government. of his sale proceeds in picking cotton. TDB: What would be your sugges- that are willing to add value, with pro- cotton pulp if prices are reduced. We also New technologies should be encouraged tion(s) to someone trying to enter the active support from the government, need huge quantities of water for bleach- TDB: According to you, what should to pick cotton mechanically. Our cot- cotton linters business? exports will remain the same and will ing linters. the government do to encourage the ton yield is very less, i.e., 4-5 quintal per PKR: Remember, linters are just a depend on the yield of the cotton crop. industry? acre, as compared to a global average of by-product of the cotton seed, i.e., just TDB: What are the main hurdles that PKR: The government should give the 12 quintal per acre. So, the government about 5% of the cotton seed ends up as P. Koti Rao TDB: Instead of exporting linters, can’t those engaged in this business face? cotton industry an agro-based status should help with better quality seeds and linters. The remaining 95% also have DIRECTOR, TIRUMALA COTTON & Indian companies process them and, PKR: Cotton production is subject to a and support operators by providing impart skill training to our farmers. various uses. At present, the industry is AGRO PRODUCTS PVT. LTD. hence, get better prices by exporting lot of economic factors – both external loans at lower interest rates. The govern- The government should also provide not in good shape.
60 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 61 THE SECRET INGREDIENT GROUNDNUT
BY SATYAPAL MENON TIME TO NOT HOLD
Although India is the GROUND world’s top exporter of raw groundnuts, it exports very little of Forget the clichés and chestnuts that rather value-added processed groundnuts that offer grossly undervalue peanuts. Before you arrive at a higher margins preconceived notion that this must be a product, which fetches, well, peanuts,here is the clincher – global Profit estimate for propensity for Indian peanuts has provided a very groundnut exports Due to high demand in global markets, fertile pasture for exports. In a nutshell, groundnuts India’s groundnuts offer huge margins have come to mean an export item worth hundreds of Cost of Procurement (INR/MT) * 47,000.0 millions of dollars. So, The Dollar Business, zeroed in Processing Cost (INR/MT) 10,000.0 on one of India’s largest groundnut producing hubs – FOB Value (INR/MT) ** 78,000.0 Operating Profit 21,000.0 Anantapur in Andhra Pradesh. We found that we could Operating Margin (%) 26.9 do better. Actually, much better! * Groundnut kernel 50/60 java ** FOB Chennai
62 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 63 THE SECRET INGREDIENT GROUNDNUT
raversing the territory of Anan- from the fact that an exclusive Agricul- four groundnut varieties – Kadiri 9, lack of knowledge of directed produc- tapur (in Andhra Pradesh), one ture Research Station (ARS) has been es- “GROUNDNUT Kadiri Harithandhra, Dharani and Kadi- tion for exports are some of the reasons cannot not help being over- tablished at Kadiri, located at a distance ri Anantha – which are resistant against for poor exports from Anantapur. Eu- whelmed by a strong sense of of about 95 km from Anantapur. The VARIETIES drought, diseases, pests and also aflatox- ropeans and western markets need bold Tconsternation, with many villages re- ARS has been instrumental in develop- DEVELOPED in. These have to be popularised among kernels, weighing at least 60 gm per hun- flecting impecunious state of livelihood. ing a plethora of customised drought farmers. Aflatoxin contamination is hap- dred kernels as is the case with Kadiri 7 It is anything but what you expect of a and disease-resistant groundnut variet- BY ARS KADIRI pening mostly at the post-harvest stage and 8 bold varieties. On the other hand, nerve-centre contributing to a signifi- ies, keeping in view production aspects due to improper processing and drying, ASEAN countries require small-seeded cant share of India’s groundnuts exports. and market demands. ARE PROCURED and trade malpractices. attractive kernels, which is contained in Queries about the lack of affluence -re The Kadiri series – the tag attributed the Kadiri 6 variety. vealed that while farmers sowed, brokers to the location of its genesis – specifical- EVEN TDB: Groundnut varieties developed reaped! While navigating the terrain, ly K6, comprising juicy and big kernels, BY CHINA” by ARS Kadiri are preferred both glob- TDB: Can you provide an estimate of one also gets the feeling of being fro- enjoys iconic status due to its immense ally and across the country. What is the the per acre investment, per acre out- zen in space, time and movement, with popularity in both export and domestic TDB: Per acre groundnut yield in In- USP that makes them so popular? put and current pricing trends in the the landscape presenting a monotonous markets. Its prominence is evident from dia is quite low as compared to other KSSN: Since inception in 1959, ARS groundnuts market? view of dry, arid, hilly spreads bereft of a riveting bronze replica of it, positioned countries. Has there been any attempt Kadiri has developed 12 different KSSN: For a good crop, a farmer needs even a blade of grass, except for some conspicuously at the ARS. “The Kadiri to increase the output, particularly groundnut varieties for different end to invest around Rs.60,000-70,000 per cultivated stretches here and there. It brands have become a preferred choice considering the high demand in both uses. Of these, Kadiri 6, Kadiri 7 Bold, hectare of irrigation crop and half of that does make one wonder, how would any- across the world, with several Indian export and domestic markets? Kadiri 8 Bold, Kadiri Harithandhra and for rain-fed crop. Irrigated fields yield, thing ever grow on such tough, unyield- states taking up its cultivation. Even Chi- Dr. K. S. S. Naik (KSSN): In India, most Kadiri Anantha are very popular. Kadiri on an average, 30 to 35 quintals per hect- ing topography? na, which is one of the largest producers of the groundnut is grown in rain-fed 7 and Kadiri 8 are bold varieties which are, and fetch about Rs.4,000-4,500 per of groundnuts, have sourced them from drylands and is cultivated by small and are popular in the EU market. The va- quintal. There are no functioning regu- AGAINST ODDS India,” Dr. K. S. S. Naik, Principal Scien- marginal farmers. The low yield can rieties developed here have a protein lated markets for groundnuts. Prices of When the going gets tough, the tough tist (Groundnut), Agriculture Research also be attributed to groundnut being a content of 29%, as compared to 24% in distressed sales of dry lands’ produce get going. And Anantapur’s farmers have Station, Kadiri, tells The Dollar Business. rain-fed crop, affected by intermittent other varieties. Their fibre content is 2%, range between Rs.2,500 and Rs.3,500 per demonstrated their resilience in weath- Hence, no wonder, Kadiri varieties con- drought conditions. Pests and diseases as compared to 1% in others. Similarly, quintal, including various deductions for ering the ills of climatic vagaries and soil stitute about 50% of India’s groundnut are also a common problem, which are their soluble sugar composition is 15%, brokerages, commissions, admixtures incompatibility to transform and posi- crop and 60% of the country’s ground- difficult to take care of for want of water. as compared to 10% in others. Apart and other standard deductions. tion this district as one of the top ground- nut exports. Productivity can be enhanced by from being bold, their size is also double There is no MSP for groundnut. nut producing regions in the country. In large scale multiplication and distribu- of that of other varieties. Such is the pop- Groundnut marketing is neither regulat- Dr. K. S. S. Naik Anantapur, groundnut is cultivated on CROCODILE TEARS tion of recently released highly drought ularity of these varieties that even China, ed nor institutionalised in India. They are PRINCIPAL SCIENTIST an area of 7.5 lakh hectare – nearly 10% Strangely, despite prolific production, resistant varieties like Kadiri 9, Kadi- a major producer of groundnuts itself, dominated by millers, traders and polit- (GROUNDNUT) & HEAD, of India’s total area under groundnut pricing parameters and markets for ri Harithandhra, Dharani and Kadiri has been sourcing them from India. ical lobbies. The farmer does not know AGRICULTURE RESEARCH STATION, cultivation – helping Andhra Pradesh groundnuts are barely structured. There Anantha to farmers. Improved technolo- that his produce is exported. Moreover, KADIRI, ANDHRA PRADESH become the third biggest groundnut are only few small time processing units gies like polythene mulching, which has TDB: Can you give us an idea of the exporters/ traders do not want to share producer, after Gujarat and Tamil Nadu. in the district, which means hardly any helped China increase its productivity, share of various varieties developed by their export earnings with the farmers. participatory export production system, The pre-dominance of groundnut as an direct exports takes place from here. also need to be popularised. ARS Kadiri in India’s groundnuts ex- Very often, middlemen, money lend- at Kadiri. This plant will have necessary integral and crucial part of Anantapur’s Most of the milling and processing is ports? ers and brokers lift the produce directly hygienic storage godowns and seed to economy and livelihood can be gauged done in Chelekere in Karnataka, from TDB: Concerns are being raised about KSSN:The manifold increase in In- from the fields of debt-ridden farmers of seed custom hiring machinery. aflatoxin levels in Indian groundnuts, dia’s groundnuts exports over the years, drylands. India's groundnut exports which has seen export consignments mostly through southern ports to ASE- TDB: Last year, APEDA relaxed Haz- If FY2012 is ignored as an outlier, exports have mostly been in an uptrend being rejected and sent back. What is AN countries, can be attributed to the TDB: What’s your view on India’s ard Analysis Critical Control Point ARS Kadiri doing to prevent such in- uniform and attractive kernels of Kadiri groundnut exports’ future? (HACCP) for groundnut. Will this not 9 1,200 festation? 6, which now accounts for 50% of In- KSSN: Groundnuts have an excellent fu- affect exports? 8 KSSN: Aflatoxin contamination can KSSN: Application of HACCP, at var- 1,000 dia’s area under groundnuts cultivation ture, both within India and abroad. They 7 happen during pre or post-harvest stag- and 60% of the country’s groundnuts have many nutritional, anti-oxidant and ious stages of the food chain, from the 6 800 es. During pre-harvest, the produce is exports. Other varieties developed by us therapeutic properties. They are whole- receipt of raw material to their grading, 5 generally free of any such contamina- are also gaining popularity now. some food, loaded with all vitamins, transportation, distribution, handling at 600 4 tion. Water stress during crop growth minerals, proteins, carbohydrates, sat- distribution centres, storage, processing period predisposes the plant to pre-har- TDB: Although Anantapur is a major urated fatty acids and resveratrol (an- and packaging, provides an assurance 3 400 vest aflatoxin contamination. Breed- hub for groundnuts, why is it that we ti-ageing element). But the only way of of safety to the consumer. Any perma- 2 200 ing for drought resistance solves the don’t find many processing units or ex- encashing this opportunity is by opting nent relaxation in its implementation 1 pre-harvest aflatoxin contamination. In porters in the district? for direct production for different end will certainly have a negative effect on 0 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 fact, Acharya N. G. Ranga Agricultur- KSSN: Obsolete mills, unwillingness of uses by maintaining varietal purity. exports. However, if it is on temporary al University (ANGRAU), which ARS millers to modernise their mills, trade ANGRAU is planning to start a model basis, for specific period, it will not have Volume (L-axis, lakh MT) Value (R-axis, $ million) Source: Ministry of Commerce, GoI Kadiri is a part of, has already developed malpractices for short-sighted gains and export processing plant, with a farmers’ much impact.
64 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 65 THE SECRET INGREDIENT GROUNDNUT
where groundnuts are channelled to of the bureaucracy and the ruling clique groundnut output in Anantapur varies export and domestic markets. “Traders have always proved to be a very hard nut between 2 MT to 2.5 MT, depending “GOVERNMENT AGENCIES DISTRIBUTE SEEDS here do not have the financial capacity to to crack. Questions Dr. Naik resentful- on climatic and other factors. At the WITHOUT ENSURING VARIETAL INTEGRITY” enter this business. So, traders, with deep ly, “When manufacturers are allowed farm level, groundnuts are sold in stan- pockets, from Tamil Nadu and Karnata- to fix a price on their products, why dardised 42 kg bags, with the price tag TDB: Why is it that not much exports to be Kadiri 6, turns out to be an amalga- ka, procure the produce through local not farmers?” on each bag hovering between Rs.1,500 take place from Anantapur despite it mation of various varieties. It is difficult brokers,” K. Murugesan, CEO, Dharani, The desperation of the farmers ema- and Rs.2,000, i.e. approximately Rs.35 to being a major producer of groundnuts? to differentiate genuine Kadiri 6 from the FaM Cooperative Ltd., a local coopera- nates from apprehensions and insecuri- 48 per kg. But after processing and grad- K. Murugesan (KM): One major reason rest of the groundnuts in a bag. We once tive body, explains to The Dollar Business. ties about the fate of their crop. While ing, the groundnuts are exported at FOB for this is the lack of sufficient processing faced a big problem when we tried to ex- Not surprisingly, farmers in Anantapur on one hand, the scarcity and unpredict- prices ranging between Rs.64 to Rs.80 capabilities and capacities. The output in port 30 MT of peanuts. We sent a sample resort to distress sales, notwithstanding ability of monsoon spells doom and re- per kg. Given that the per hectare invest- Anantapur is around 1 million bags per to the buyers and they endorsed that it the market demand. “Traders and bro- duce the farmers to tears quite often, on ment on cropping, including all inputs, annum, while the cumulative processing was of good quality. The price was also kers indulge in exploitative methods and the other hand, exporters laugh all the tractor hire and labour, is approximate- capacity of all units here is around 1 lakh good. Later, while testing the sample in deception like under-weighing and un- way to the bank. Such gross inequity is ly Rs.25,000-30,000, means even at the bags, i.e., 10% of the output. Another the lab, they detected Kadiri 6, JL24 and derpricing the produce,” Murugesan re- shocking, to put it euphemistically. higher yield of 2.5 MT per hectare and factor for the lack of exports from Anan- three other varieties mixed together. So, veals. The pathetic plight of local farmers the higher price of Rs.47 per kg, a farm- tapur region is that traders here do not they returned the sample. is symptomatic of a blight that has been BIZARRE er earns about Rs.87,500 per hectare. On have the purchasing power to procure plaguing the system with no remedies To substantiate this point, let us analyse the other hand, an exporter, assuming the produce. Due to this, traders with TDB: How and why is this happening? on offer from the establishment, except the profit differential between farmers he/she exports 2.5 MT, earns a profit of deep pockets, from Tamil Nadu and Kar- Are you not able to identify the differ- crocodile tears. But, anyway, the mindset and exporters. The average per hectare Rs.57,500 per hectare, after accounting nataka, buy groundnuts from here and ent varieties? get them processed in their respective KM: The problem begins at the seed states. Groundnut producing regions of sourcing stage. Farmers don’t get genuine Biggest groundnut exporters A farmer attending to his groundnut crop in a village in Anantapur. Thanks to support Gujarat have plenty of processing units, seeds and this problem originates from of the world from ARS Kadiri, Anantapur region (despite and the traders there have the financial government agencies, which distribute Competition for India getting tougher being dry and arid) has emerged as one of capacity to procure the produce and them. These agencies distribute random- India’s top groundnut hub stock and process them, according to ly, without ensuring varietal integrity, their requirements. i.e., the variety is compromised. Huge 14.2% 27.3% demand for seeds, especially during 8.2% TDB: Is it true that due to the lack of April/May, and inadequate availability of a logical pricing mechanism, Ananta- preferred varieties, is forcing the agen- 10.1% pur’s groundnut farmers continue to cies to pack whatever varieties they have 21.9% be the victims of manipulative practic- and distribute them. Hence, inevitably,
18.3% es by traders? Is there any solution to the output comprise a mixed bag. this in sight? KM: The government should create a K. Murugesan TDB: Is the preferred variety of India Argentina USA Netherlands window for farmers to sell at a certain CEO, groundnut also dependent on what China Other fixed price. If this could be done, every DHARANI FaM COOPERATIVE LTD. purpose it’s being used for? Source: International Trade Centre; breakup for CY2014 (based other problem will be solved. Today, KM: Yes. If the purpose is oil extraction, on mirror data for Argentina) because farmers don’t have an avenue know what to expect from them. So, we the preferred variety is K8. If the purpose to sell, traders dictate prices. They also fix the price and guarantee purchasing is to sell as peanuts, the preferred vari- Destination of India's pack groundnuts in 60 kg bags and tell the committed produce. We not only ety is K6. For instance, TMV variety has groundnut exports farmers that they are the standard 42 kg procure their produce at prices prevail- more oil content, so its markets are oil Mostly to ASEAN member nations bags! The traders also have a network of ing in agri markets, but also give them a refineries and oil expellers. agents, selected from among the inhab- share of the profits from the marketing itants of the village, who persuade and proceeds. In case there is less production TDB: Why is there no focus on market- 19.7% convince the farmers about the veracity due to a drought, we even procure at ing value-added products, despite their of such claims. prices that are Rs.100-200 higher. being a huge market for them? 4.6% 44.6% KM:The reason for this is that there is a 7.3% TDB: How is your cooperative trying TDB: Are the Kadiri varieties a huge unmet demand for raw groundnuts to help the farmers? preferred choice among farmers and in the domestic market itself. In India, 11.7% KM: We have 1,800 farmer members buyers in the region? groundnuts are widely used in cuisine 12.1% from 45 villages in Anantapur district. KM: Agriculture Research Station (ARS) and confectionery. They are in demand Collectively, our cooperative farmers has come out with several good varieties throughout the year. Value addition can Indonesia Philippines Malaysia Vietnam have 10,000 acres of land. Going by the and Kadiri 6 is one of them. Unfortunate- be done only when you have sufficient Thailand Other commitment of the farmers, we plan ly though, what goes to the market is a stock, but here, there is always a gap be- Source: Ministry of Commerce, GoI; breakup for FY2014 how and where to sell the produce. We mixed bag, i.e., what our markets assume tween demand and supply.
66 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 67 THE SECRET INGREDIENT GROUNDNUT
for an average cost of Rs.10 involved example, Gujarat – the biggest produc- presence of high levels of aflatoxins and in per kg processing of groundnut, by er, with a share of 33.3% – has recently infestations are also afflicting the Indian just being a facilitator! That a farmer’s developed a new variety – GJG-31 – that INDIA HAS LOST THE groundnut market dynamics. There have expenses don’t include the cost of land, can improve the yield by 20x! Apart from MORE LUCRATIVE been several instances of Indian ground- while an exporter also gets duty draw- this, many other varieties, with increased PROCESSED nuts being rejected in overseas markets back of 1%, makes the scenario even protein and sugar soluble content and GROUNDNUTS – the most recent being the case of Viet- more bizarre. size values, like the Kadiri series, are al- MARKET TO CHINA nam suspending an Indian groundnut ready making inroads into the market. consignment that had Olivier bugs. SAME OLD STORY If this doesn’t indicate noncha- The irony of India’s groundnut trade is SEA OF IRONY an exporter of just 1 kg of processed lance and indifference by government that the country has ended up becom- Most of the global demand for ground- groundnuts earns more than an export- agencies, nothing does. ing an exporter of low-margin raw ma- nuts is from the confectionery and food er of 3 kg of raw groundnuts. Reality terials and not high margin value-added processing industries. And since Indian check: In FY2014, while India export- IF ONLY products. This, not only because we don’t groundnuts are high in protein content ed 5.1 lakh MT of raw groundnuts, it Spending a couple of days in Ananta- have proper processing facilities, but also and low in oil content, they are a favou- exported just 0.8 lakh MT of processed pur, one cannot but feel it’s high time because the produce is not enough to ca- rite in the international market, particu- groundnuts! the government woke up to ground ter to both the segments. In fact, it won’t larly since not many countries consume Commenting on this irony, Kishore realities and gave the Indian groundnut be an exaggeration to say that not having groundnut oil. Inexplicably though, in Tanna, Chairman, Indian Oilseeds and industry its due. Rational farm pricing proper processing facilities is also a func- India, there does not seem to be much Produce Export Promotion Council policies to ensure security to the cultiva- tion of inadequate production. But why focus on directly exporting value-add- (IOPEPC), tells The Dollar Business, tors during times of distress and climat- don’t we produce enough groundnuts, ed groundnut confectionery products, “There is a large demand for value-added ic vagaries could be the first step. This despite being the World No.1 in area un- which offer much higher margins than groundnut based products in the global would facilitate and motivate them to der cultivation? Simple. India’s per acre kernels. Just how much more lucrative market. This market can be tapped only use high quality seeds and inputs, which yield is one of the lowest in the world! the processed groundnuts market is can if Government of India promotes their would then inevitably translate into high Despite such impediments, there is no be gauged from the fact that while both exports and provides a level playing field quality output. How often have reason why India can’t produce enough processed groundnuts (HS Code 200811) with other competing countries such as you heard this? Maybe, never. But the to satiate both global, as well as local and raw groundnuts (HS Code 1202) are China and Argentina, which provide government has. And many times demand. This, particularly since, there roughly $2.5 billion markets in terms of large incentives to their industries.” Not over! is increased focus on developing high value, the former is less than a third of that issues with the Indian groundnut Kadiri 6 variety accounts for almost 50% of India’s groundnuts production, and close to yielding varieties in recent years. For the latter in terms of volume. This means industry end here. Quality concerns like [email protected] 60% of the country’s total groundnuts exports
way into Vietnam? make further inroads into it, maybe by est exporter of groundnuts, India’s “INCENTIVES WILL HELP PROMOTE THE EXPORT KT: Yes, all quality monitoring processes tapping newer markets, and consoli- groundnut oil and other extracts ex- OF GROUNDNUTS FROM INDIA” and procedures pertaining to phytosan- date its position? ports are insignificant. Do you think itary measures and fumigation must KT: India has huge potential to make this is a function of just high domestic TDB: Last year, APEDA relaxed the stringent norms, the HACCP certifica- definitely be followed, in order to avoid further inroads in newer markets, as demand? Hazard Analysis Critical Control Point tion is still mandatory. Thus, the accep- the kind of situation that was created in well strengthen its position in existing KT: Other than domestic consumption, (HACCP) for groundnuts. Don’t you tance of FSSAI licence, in lieu of HACCP Vietnam or even Russia earlier. markets. India can very well increase its the policy of Government of India to not think this will affect groundnut exports certification, should not be viewed as a market share, particularly in EU, by em- allow the export of edible oils in bulk from India, since importers might neg- relaxation in quality monitoring. Simi- TDB: The gap between India and the phasising on the production of quality also hampers exports to a large extent. atively view this relaxation in quality larly, although, groundnut shelling units world’s second biggest groundnut ex- groundnuts and a consistent and favour- At present, edible oils are allowed to monitoring? have now been exempted from regis- porter – USA – widened considerably in able export policy. be exported in retail packages of up to Kishore Tanna (KT): APEDA had start- tration, for groundnut processing units, FY2015? What do you attribute this to? 5 kg only. ed accepting FSSAI licence, apart from where groundnuts are graded, sorted, KT: During FY2015, India exported TDB: Can you give us an idea of the HACCP certification, as proof of im- handpicked and processed, registration, about 7 lakh MT of groundnuts, as com- domestic consumption to exports ratio TDB: What are the prospects of the plementation of Food Safety System in along with following Food Safety Sys- pared to 5.1 lakh MT during the previ- for groundnuts? groundnut industry from the perspec- groundnut processing units exporting tem, is compulsory. Exports are allowed ous year. A good crop, enforcement of KT: India exports about 8-12% of the to- tive of the new Foreign Trade Policy? to non-EU countries. The point that is from only such registered groundnut quality controls, and good international tal groundnuts produced in the country, Do you have any suggestions or recom- worth noting here is that even for obtain- processing units. demand contributed to this commend- while about 60% is consumed domesti- mendations? ing FSSAI licence, units have to imple- able performance. Lower freight rates cally. This includes seed for sowing and KT: The Foreign Trade Policy 2015- ment Food Safety System. This move was TDB: Don’t you think there should be and a weaker rupee also helped. table nut consumption. The rest, roughly 20 does not envisage incentives for the Kishore Tanna made to avoid duplication and the relax- more focus on stringent quality mon- 28-32%, goes for crushing. exports of raw (in-shell and shelled) CHAIRMAN, INDIAN OILSEEDS AND ation was only for those units that export itoring processes and procedures, spe- TDB: The global market for ground- groundnuts. Incentives will go a long PRODUCE EXPORT PROMOTION to non-EU countries. For units export- cifically viewed from the context of in- nuts is worth about $2.5 billion. Do TDB: Ironically, despite being the way in promoting the export of ground- COUNCIL (IOPEPC) ing to EU countries, which have more fested Indian groundnuts finding their you think India has the potential to second largest producer and the larg- nuts from India.
68 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 69 IMPORT’ONOMICS AGRICULTURAL SPRAY PUMP S‘PRAYING’ FOR PROFITS? Going into General Election 2009, the UPA government, in order to woo rural voters, hiked the MSP for most food grains by record levels. While it led to high and sticky food inflation, the big beneficiaries of the move were farmers. Flush with cash, Indian farmers started looking for modern equipment, which meant a surge in the imports of, among other things, agricultural spray pumps Profit Estimate for BY NAVEEN KUMAR Agricultural Spray Pumps Imports ive years ago, Sushil Singh, a Despite being a high volume product, Delhi based knapsack manual sprayer imports offer healthy margins sprayer importer, was in a big IMPORTS OF SPRAY Cost of Agricultural Spray quandary. He just couldn’t fath- PUMPS SEEM TO BE Pump (USD/Unit) * 61.0 Fom what had caused a sudden plunge in CORRELATED TO Freight & Insurance (USD/Unit) ** 2.2 the demand for manual sprayers. A bit of GOVT.-SET MSPs CIF (USD/Unit) 61.8 market research revealed that farmers’ CIF (INR) *** 3,893.4 affordability had suddenly risen, thanks Basic Duty BD (7.5%) 292.0 to the government’s food procurement government offers 7% export incentives CIF + BD 4,185.4 policy, and not many were interested in to local exporters, which makes them Contravailing Duty (CVD) (12.5%) 523.2 manual sprayers anymore. Making mat- very competitive. Hence, buyers from all BD + CVD 815.2 ters worse, battery and petrol/diesel/ ker- over the world attend various Chinese Cess (3%) 24.5 osene operated automatic spray pumps trade fairs and purchase directly from CIF + BD + CVD + Cess 4,733.0 imported from China were flooding the Chinese manufacturers. Because of bulk ACD (4%) 189.3 markets. However, Singh was not sure if production and regular demand from all The government Final Cost 4,922.4 the new trend was sustainable. Assum- over the world, Chinese manufacturers itself is a buyer Selling Price in India # 5,700.0 of agricultural Profit 777.6 ing it to be an aberration, he stuck on to can afford high investments, and hence, spray pumps, importing manual spray pumps. Unfor- enjoy economies of scale as well,” Gupta since it distributes Profit Margin (%) 13.6 tunately for him, the demand for manual tells The Dollar Business. them to small and * Taizhou Luqingting 20L two-stroke sprayer marginal farmers, ** Freight and insurance cost from Ningbo to Mumbai sprayers never recovered and he had to But as is the case with most Chinese under its various *** Assuming USDINR at 63 # TDB Intelligence Unit shut shop two years back. products, even when it comes to pow- programmes er sprayers, quality is always a concern, THE SURGE particularly the quality of the battery FY2009 was a watershed year for In- in battery-operated sprayers, and the trol diseases, insects and weeds in crops. due to low retention of the dust. Similar- India’s agricultural spray pumps imports dia’s agricultural spray pumps imports. quality of motors in fuel-powered spray- While herbicides are applied to reduce ly, within sprayers, although high volume Thanks to record hikes in MSPs, spray pump imports have been rising since FY2009 Until then, their imports had never ers. And many Indian assemblers have weeds; protective fungicides to minimise spraying equipment, like sprinklers, are crossed the 2 lakh units/annum mark. used these concerns to their advantage the effects of fungal diseases; insecticides very effective and reliable, they are way 3,000 60 But thanks to the largesse of UPA II, by by importing Chinese components and to control various kinds of insects and too costly for most Indian farmers. All FY2014, India was consistently import- fitting them with more reliable batteries pests; micro-nutrients like manganese these factors have created a massive mar- 2,500 50
ing over 2 million units/annum! And as and motors. In order to boost credibil- and boron are also applied to boost pro- ket for low volume spraying equipment 2,000 40 you would expect, most of them were ity, these assemblers have also started duce. But since these chemicals are costly that are both affordable and effective. being imported from China. Ravi Gup- offering warranties on their products. and can be applied on plants and/or soil 1,500 30
ta, Director of Indore based Neptune Validating this, Gupta adds, “Today, only as spray, dust or mist, there’s a need WATER BREAKERS 1,000 20 Sprayers, thinks there are several reasons many manufacturers import only bat- for equipment that can help uniform and What sprayers essentially do is break the why not only India, but the entire world, tery pumps from China, and assemble effective application, thereby creating chemical/nutrient in liquid form into 500 10 is making a beeline for ‘Made in China’ the sprayers here in India.” a demand for dusters and sprayers. Al- tiny droplets of effective size and distrib- 0 0 spray pumps. “Thanks to bulk produc- though dusting is a much simpler meth- ute them uniformly. This is very import- FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 tion, China can afford to regularly offer MORE AND BETTER od and can be done using very simple ant since extremely fine droplets of less Volume (L-axis, thousand units) Value (R-axis, $ million) new products and designs. The Chinese Today, chemicals are widely used to con- equipment, it’s not as effective as spraying than 100 micron tend to get diverted by Source: Ministry of Commerce, GoI
70 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 71 IMPORT’ONOMICS AGRICULTURAL SPRAY PUMP
air currents, resulting in wastages. When basis of the quality and quantity of the helping the conservation of the quality ricultural spray pumps were enough sprayers to farmers. Similarly, under have stayed away from the populism it comes to the size of these droplets, the monsoon. “Generally these pumps are in of soil. Similarly, in India, just the four themselves, Government of India has Crop Diversification Programme, Pun- card of UPA II, food grain pricing and optimum size differs from application to great demand during the rainy season. southern states of Tamil Nadu, Kerala, also emerged as an unexpected buyer of jab, Haryana and western Uttar Pradesh agricultural subsidies are extremely sen- application. While fine droplets are re- If the monsoon is uncertain, all crops Andhra Pradesh and Karnataka, put to- them. For, in order to address the con- have been allocated Rs.500 crore each sitive issues in India. Reducing MSPs quired to control insects, pests and dis- require spraying, thereby increasing the gether, produce almost 90% of the coun- straints that are limiting the productivity for the last two years, to help the states’ and cutting subsidies are unthinkable eases, bigger droplets are needed for the demand for spray pumps,” says Gupta. try’s total plantation crop. And planta- of ‘rice based cropping systems’ in east- farmers diversify from water guzzling and are akin to political suicide. Add to efficient application of herbicides. Another reason, at least according to tion crops, generally, require sprayers ern Indian states of Assam, Bihar, Chhat- paddy to pulses, oilseeds, maize and this the fact that farmers’ issues are again Another function of sprayers is to P. David Raja Beula, Assistant Director and that too of high drift, to allow great- tisgarh, Jharkhand, Odisha, West Bengal, agro forestry. This programme has also making front page headlines, and that regulate the quantity of insecticide that of Horticulture, Kadayam, Tamil Nadu, er reach, thereby creating a demand for as well as eastern Uttar Pradesh, a sub seen the distribution of 13,168 knapsack, there are serious question marks over is applied and avoid excesses that might and a leading advocate of sprayers, for powerful and advanced power sprayers scheme of Rashtriya Krishi Vikas Yojana 2,407 power operated and 1,691 battery the upcoming monsoon, and the only prove harmful or wasteful. the rising demand for agricultural spray in South India. named BGREI, was launched in FY2011. operated sprayers in Punjab and 1,383 conclusion one can draw is that the de- An interesting aspect of the agricul- pumps in India is a rise in fruits and veg- At the same time, as per National Cen- And with an allocation of Rs.400 crore power and 1,316 tractor operated spray mand for agricultural spray pumps can tural spray pumps business is that de- etables farming. “Many people are now tre for Organic Farming (NCOF), organ- each in FY2011 and FY2012, and an an- pumps in Haryana in FY2014. only move northwards. Are you willing mand is seasonal and fluctuates on the getting into agriculture as the average ic manures provide all the nutrients that nual allocation of Rs.1,000 crore since to bet on the Indian farmer? wholesale price of vegetables has gone are required by plants, but in limited then, the scheme has ensured the free JAI KISAAN Source of India’s agricultural up to Rs.15/kg. And vegetable farming quantities. NCOF claims they help main- distribution of 28,571 plant protection While the Modi government seems to [email protected] spray pumps imports requires sprayers to maintain the crop by tain the carbon-to-nitrogen ratio in soil; A majority is sourced from China spraying fertilisers and pesticides,” Beula increase its fertility and productivity; tells The Dollar Business. and improve its physical, chemical and biological properties. They help improve had bought a China-made motor operat- ed knapsack sprayer (two-stroke engine) 7.4% EVERYONE’S BLESSINGS both the structure and texture of soil, Factors like ease of handling, less la- apart from increasing its water holding three years ago for Rs.6,000. I have 5.8% I 3.1% bour requirement, and easily mixable capacity. Hence, the Ministry of Agricul- been using it for spraying chemicals on 79.6% 1.1% with herbicides, if required, have made ture body advises and promotes the use the wheat crop in my farm, since we only cultivate wheat crop here because the wa- 3.0% liquid fertilisers like nitrogenous fer- of liquid organic manures, in cropping tilisers, phosphate fertilisers and potash and fruit production – another reason ter is saline. There has been no issue with fertilisers, very popular in India in recent for the high demand for agricultural the sprayer in these last three years. years. This popularity of liquid fertilisers spray pumps. SATBIR SINGH, 65, Resident, Ranikhera China Italy Taiwan USA has only further increased the demand Israel Other for sprayers as the latter help in the con- GOVERNMENT PLAY village, Delhi-Haryana border Source: Ministry of Commerce, GoI; breakup for FY2014 trolled application of the former, thereby While these sources of demand for ag-
TDB: Why have Indian manufactur- states have the maximum demand fact that few Chinese companies have “HONESTLY, WE LACK RESOURCES TO ers not been able to meet the domestic for them? setup their own production units in MANUFACTURE SPRAY PUMPS ECONOMICALLY” demand for agricultural spray pumps, RK: There is a need for these spray Gujarat and Maharashtra. During the which has resulted in millions of dol- pumps in the cultivation of paddy, wheat, last financial year, the total agricultural TDB: What kind of agricultural spray look, and most importantly, the motor lars worth of imports? mustard, cotton, and other vegetative produce in India was also a bit below av- pumps do you manufacture and which that is used in them. We offer sprayers at RK: It is not about domestic manufactur- crops. The states from which most of the erage. This has also impacted the overall varieties do you import? very competitive rates, with full guaran- ers not being able to meet the demand, demand comes from are Punjab, Uttar imports of spray pumps into India. Ramesh Kumar (RK): We deal with tee, as we use motors from only reputed but about cost and time. Basically, we lack Pradesh, Rajasthan, Andhra Pradesh, Portable Sprayer (Electric), Portable manufacturers. resources to manufacture these spray Maharashtra and Assam. TDB: What are the main challenges Sprayer (Knapsack), Power Sprayer, As far as battery-operated agricultural pumps economically. Another reason that your industry is currently facing? Manual Pressure Sprayer, Power Sprayer sprayers are concerned, they are differ- for high imports is the fact that most of TDB: Is rising imports of agricultural What are your demands from the gov- (Diesel), Power Sprayer (Kerosene) and entiated on the basis of the battery that the spare parts used in spray pumps are, spray pumps from China only a func- ernment? HTP-Sprayer varieties of agricultural is used. Hence, their prices and, in turn, anyway, being imported, since those of tion of price differential? RK: The government should work to- pumps. Of these, while a few are manu- efficiency vary a lot. a comparable quality are not available at RK: Yes. China has the ability to manu- wards ‘Make in India’ on a lower scale, factured by us, the rest are imported. On Another differentiating factor is the competitive prices in the country. In In- facture these products at a very low cost, instead of supporting just the big corpo- an average, we sell around 15,000 ma- plastic body of the liquid container used dia, only labour is cheap, everything else, which is not possible in India. rates. Small scale manufacturers should chines in India every year. in spray pumps. These are either made of from casting, forging, electricity, to taxes, be supported with subsidised raw mate- thin sheets (low quality) or thick sheets are much higher than that in China. TDB: What is the reason(s) for the vol- rials, relaxed duties and taxes, and easy TDB: What are the differentiating (high quality). We offer our customers ume of agricultural spray pumps im- availability of other such resources. The factors for agricultural spray pumps? quality products, with full guarantee, TDB: The cultivation of which all ag- ports remaining stagnant for the last government should also set parame- Ramesh Kumar RK: Almost all sprayers are the same. and an option to use them under their ricultural products is dependent on three years? ters and ensure standardisation when it CEO, TECHNOSYS WORLD What differentiates them is the design, own brand names, if they want. these spray pumps? Which Indian RK: One possible reason could be the comes to spray pumps.
72 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 73 BESTSELLER PHOTOGRAPHIC PAPER
widely used to develop images. However, the advent of digital photography and an CAPTURING SMILES ever increasing number of smartphone users in the market, has made the func- tionality of such paper more need-based than mandatory. Yet, India is the world’s AND WALLETS second biggest importer of photographic paper, mainly from countries like Neth- From the one in which you were in your nappies, to the first one with your erlands, US and UK. Why? sweetheart, a photograph can bring back memories like nothing else. It’s an instant Ranjan Sharma, an architectural pho- of life, captured for eternity. And what really gives life to a photograph, other than tographer for the past 28 years, has the answer to this question. “Photo labs have the photographer of course, is the paper in which it is printed. This means the now migrated to digital printing, in order demand for photographic paper is huge and importing them is a lucrative business to suit the needs of the changing times. Moreover, the number of photographers BY NEHA DEWAN has also skyrocketed with a lot of ama- Profit estimate for photographic teur photographers using photographic paper imports hartered Accountant Sur- an instant connect,” he tells The Dollar icance of the quality of paper required paper for prints. In addition, the gift in- Despite a CVD of 12.5%, imports offer jeet Khanna wanted to make Business. Of the several brands of paper for a better photo print and the kind of dustry has also put the product to good double-digit margins his first wedding anniversa- available in the market, Khanna made paper that would enhance his images, use,” he tells The Dollar Business. Shar- Cost of Photographic Paper (USD/MT) * 5,955.0 ry a memorable affair. While sure he used the best. “Several cheaper but most of us are unaware about what ma highlighted that the numbers only Freight & Insurance (USD/Unit) ** 210.0 browsing through the pictures of the versions were available too. But for better difference a paper can make. Simply put, add up, since a lot of printing orders, C CIF (USD/Unit) 6,226.7 last one year, an old school idea struck picture quality and longevity, I ensured photographic paper is essentially a paper especially for wedding albums, from US CIF (INR) *** 392,282.1 him. He decided to gift his wife a collage I do thorough research on the brand of that is coated with light sensitive chemi- are outsourced to India to benefit from Basic Duty BD (10%) 39,228.2 of photos with all the special memories. photographic paper I wanted,” he adds. cals like silver halide and is used for pho- cheaper labour costs in the country. CIF + BD 431,510.3 Khanna was overwhelmed when he saw tographic prints. An increasing interest among people Countervailing Duty (CVD) (12.5%) 53,938.8 the first few printed images. “I knew BLAST FROM THE PAST Long before digital photography to preserve the memories of special oc- BD + CVD 93,167.0 that this was one idea, which will have Khanna might have known the signif- came to light, photographic papers were casions also keep the labs busy and the Cess (3%) 2,795.0 demand for photographic paper high. CIF + BD + CVD + Cess 488,244.1 Validating this, Sandeep Ahluwalia, Di- ACD (4%) 19,529.8 rector, Sandeep International, a solution Final Cost 507,773.9 provider for indoor and outdoor digital Selling Price in India # 570,000.0 media, says, “Photographic paper de- Profit 62,226.1 mand is increasing by 10% y-o-y. This Profit Margin (%) 10.9 is largely due to the fact that people like * CLP CA SUFG 15.2X170.0 Fuji photographic paper to print and display the journey of life ** Freight and insurance cost from Rotterdam to Mumbai via images in their houses. These days, *** Assuming USDINR at 63 # TDB Intelligence Unit framed images are turning out to be the Sources of India's photographic paper imports Almost everything is coming from West
29.2% 0.5% 0.2%
36.1% 34.0%
Netherlands USA UK Fifteen years back, Japan was the source of close to two-thirds of India’s photographic paper imports. Today, thanks to major changes in China Other Photographic paper is differentiated on the basis of factors like thickness, the industry, it accounts for almost nothing! Source: Ministry of Commerce, GoI; breakup for FY2014 texture, surface sheen, base tint and brightening agents
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best showpieces.” termine the way a paper appears on the Optical brightening agents are also some Desmat and Epson and suggest them,” steadiness, one couldn’t have been more surface and its overall touch and feel, is important ingredients of photographic Bhalla tells The Dollar Business. wrong. For, it’s an industry, which, un- FOR LASTING IMAGES also a differentiating factor. Then there’s papers. These special dyes can be used like the photographs it helps produce, is SOURCES OF INDIA’S Photographic papers, typically, come the surface sheen of the paper – rang- to brighten up the white areas of a pic- EVER CHANGING anything but static. For instance, Gopal PHOTOGRAPHIC with a variety of characteristics, an un- ing from matte to high gloss and other ture, though their flip side is that they Being very niche and highly technology Krishnan, CEO, Basis Systems, a compa- PAPER IMPORTS derstanding of which can help in choos- variations – that also needs to be studied can wear off far more easily than regular dependent, the imaging industry had ny dealing in printers, equipment, soft- HAVE CHANGED ing the right kind of paper. There are at carefully, while opting for photographic dyes, thereby making the picture look always been restricted to a handful of ware and photographic paper, feels silver DRAMATICALLY least four or five main aspects that can paper to capture those special moments dull or fade out earlier than you would countries – mostly US and Japan. And halide paper – the staple of the indus- help assess quality levels of a photo- of life. have liked. even within these countries, only a hand- try for decades, is on its way out. “The graphic paper. For instance, the thick- Another characteristic that also makes Given so many differentiating fac- ful of companies like Kodak, Konica and demand for silver halide paper is on its paper import volumes will get a boost,” ness of the paper can make a difference. a big difference to a photograph is base tors in photographic paper, consumer Fuji had almost always ruled the roost. way down and it is being increasingly re- says Ahluwalia. Similarly, its texture, which would de- tint, which can make or mar a its appeal. knowledge is rather limited, or at least But with the advent of digital photog- placed by digital or inkjet paper. We will several retailers, The Dollar Business raphy, the industry saw a tectonic shift. see a steady decline in silver halide con- TO SAY CHEESE India's photographic paper imports spoke to, claimed. “People just ask for While many erstwhile champions had sumption in the coming years, until it There’s neither any meaningful produc- Despite digitalisation, the demand for photographic paper ensures steady imports photographic paper, if they want to print to bite dust, some adopted, evolved and is eventually phased out,” Krishnan tells tion capacity for photographic paper, 30 their images, especially for the purpose survived. Thanks to this, even the sourc- The Dollar Business. nor is anything expected anytime soon, 140 of gifting. Usually, we help them out in es of India’s photographic paper imports in India. This means not only will the 25 120 making a better choice, but the general have changed dramatically. DISTORTING IMAGES country keep depending on imports, 20 awareness regarding this aspect of im- While 15 years back, in FY1999, Japan A very unfortunate aspect of the Indian but given that it’s sought only to capture 100 aging and printing is quite low,” Kartik was the source of 64.1% of India’s pho- photographic paper industry is the fact those special memories, import margins 15 80 Agarwal at Tonerline Ltd., a solution tographic paper imports, in FY2014, it that despite being imported only from will continue to remain high. provider for printers, laser ink and car- accounted for just 0.2%! The reason for market-driven developed economies like As for Khanna, his first anniversary 10 60 tridges in the New Delhi’s Nehru Place this is simple – most Japanese imaging Netherlands, the US and the UK, it’s sub- celebration ended up with some brown- market, tells The Dollar Business. companies have either pulled down their jected to countervailing duty. Ahluwalia ie points for him. His wife’s teary-eyed 5 40 Manish Bhalla, the proprietor of an- shutters, exited the photographic paper thinks imposing countervailing duty on happiness said it all. “The hard work paid 20 0 other retail outlet, Gift Plaza, also feels business, or shifted base elsewhere. photographic paper is not at all justified, off,” chuckled Khanna, giving the collage FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 0 the same. “Most customers have very lit- If one thought the big changes in the particularly since there is hardly any a hearty kiss. [Glad we were there!] Volume (L-axis, thousand MT) Value (R-axis, $ million) tle technical knowledge about the paper imaging industry were a thing of the past manufacturing of it in the country. “If Source: Ministry of Commerce, GoI or the printer. We deal in top brands like and one can now expect some kind of CVD is done away with, photographic [email protected]
image enlargements as well with large ing to so many countries, users have real- TDB: How big is the role of a brand in “IF CVD IS REVOKED, PHOTOGRAPHIC format machines which can print images ised the importance of good and consis- the photographic paper business? How with sizes up to A0 (841*1,189 mm). In tent quality. Hence, imports from the US differentiated the prices of some of the PAPER IMPORTS WILL GET A BOOST” some cases, images as big as 2A0 size can and the UK have increased. leading photographic paper brands are also be printed using photographic pa- China also has many paper mills but from those of lesser known ones? TDB: With the world of images almost premises with paintings and fascinating per. Other uses could be fine art papers lack of consistent quality has been the SA: An established brand normally com- entirely shifting to digital, how has the images from across the globe. for art gallery printing, wedding photog- main reason why the imports from Chi- mands a premium of 50-100% over a demand been for photographic paper raphy, portraits, and posters etc. na have taken a back seat. lesser-known brand. This is across all ap- in the last few years? TDB: What makes India the world’s plications like large size enlargement pho- Sandeep Ahulwalia (SA): Despite the second biggest importer of photo- TDB: Is photographic paper restricted TDB: Do you think imposing counter- tos, wedding photography, fine art digital advent of Picasa, Instagram and Face- graphic paper? Is it because of low to B2B or is there retail demand for it vailing duties on a product that is mostly photo graphic printing, posters etc. book, the demand for photographic domestic production? as well? imported from free-market economies paper is increasing by about 10% ev- SA: Yes, lack of good quality indigenous SA: Photographic paper market is largely like the US and the UK justified? TDB: Give us a sense of the margin in- ery year. This is largely due to the fact paper production could be one of the B2B. Only people who have an installed SA: Firstly, we should understand that volved in the photographic paper import that (a) people like to display images in reasons for sure. In addition to this, the base for large format printers use these countervailing duty is anti-subsidy. Sec- business. Since most of India’s photo- their houses; and (b) people take print- installed base of printers have increased papers. ondly, it should be imposed only if the graphic paper imports are done via Nha- outs and put pictures of their life jour- manifold with companies like Canon, importing country has a lot of domestic va Sheva, do prices escalate a lot by the ney or the best of good times they have HP, Epson, etc. launching a slew of af- TDB: Today, India mostly imports production. In case of photographic pa- time they reach the end users in distant had with their family or friends. These fordable new printers. photographic paper from western pers, we hardly have any major domes- corners of the country? days, framed images are actually the best countries like Netherlands, US and tic manufacturing companies in India. SA: Normally, in a price-sensitive and way to beautify empty walls in mod- TDB: Apart from printing images, are UK. Why have imports from Japan and So, we feel if countervailing duty can be highly competitive market, the importer Sandeep Ahluwalia ern-day houses. Secondly, the trend still there any other uses of photographic China almost collapsed? done away with, photographic paper im- plays on a margin of 10%. Yes, delays and DIRECTOR, SANDEEP INTERNATIONAL continues with corporate houses/large paper? SA: With so many trade shows being port volumes in India will certainly get a the transit time from Mumbai to other businesses/restaurants to beautify their SA: Photographic papers are used for held across the world and Indians travel- tremendous boost. parts of India, do add to the costs.
76 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 77 POLICY FOCUS MEIS STOP BEING A MISER! The new FTP that was unveiled on All Fools’ Day by the Modi government, while simplifying things, pulled a very cruel joke on exporters of several goods and commodities. For, not only were export incentives reduced for many goods, the same were altogether revoked for some others. Though WTO mandate will ensure export incentives ultimately dying in the future, what was the justification for the government to continue bestowing them on some, while treating others miserly?
BY THE DOLLAR BUSINESS BUREAU
Several products, the exports of which were entitled to duty credit scrips under the earlier FTP, have been omitted in the new one
78 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 79 POLICY FOCUS MEIS
ntil the 31st of March, 2015, ports from India Scheme (MEIS). Under to arrest falling exports.” On a similar JUST ON PAPER the Indian government had MEIS, an incentive rate has been fixed note, M. Rafeeque Ahmed, Council for Answering this question, during an five schemes – Focus Product for each product that comes under it, Leather Exports (CLE), says, “As far as exclusive interaction with The Dol- Scheme (FPS), Focus Market depending on the country it is exported the leather and footwear industry is con- lar Business, Pravir Kumar, Director UScheme (FMS), Market Linked Focus to. But while MEIS covers most prod- cerned, the major issue (with the new General, DGFT, says, “Principles like Product Scheme (MLFPS), Agri Infra- ucts that came under one or more of the FTP) is the overall reduction of duty encouraging value addition in the structure Incentive Scheme (AIIS) and erstwhile schemes, the incentive rate has credit scrip under the newly notified country, supporting labour-intensive Vishesh Krishi and Gram Udyog Yoja- either been reduced for some products, MEIS.” In fact, a detailed analysis reveals industries and domestically produced na (VKGUY) – to incentivise exporters. or the same has altogether been revoked that several items, whose exports were products etc., were followed in decid- These schemes, between them, covered a for some others, thereby giving absolute earlier entitled to incentives scrips, par- ing inclusion and exclusion of prod- host of products and countries and had nightmares to their exporters. ticularly under VKGUY, have been left in ucts under MEIS.” Citing an example, variable incentive rates. In case there was the lurch under MEIS. For example, sev- Kumar adds, “In the case of tea, earli- a clash – say, if a product included under NONE SPARED eral agricultural and forest products like er a 5% incentive was granted under FPS was exported to a country that came Commenting on this reduction/ omis- mushroom spawn (HS Code: 06029020), VKGUY. Now, if it is exported in kilo- under FMS – an exporter was allowed sion of incentives under MEIS, partic- orchids (HS Code: 06031300), hazelnuts grams, i.e., in smaller quantities, a 5% the international market, is the high rates to avail scrips under just one of the ularly when it comes to sports goods, (HS Code: 08021200), chestnuts (HS incentive is given, but if it is exported of interest in India. At the time of this schemes. But in the new FTP, all these Raghunath S. Rana, Chairman, Sports Code: 08024100 & 08024200), olive oil in bulk, only 3% incentive is given, be- article going to print, while the US 10- THE NEW FTP five schemes have been merged into one Goods Export Promotion Council, says, and its fractions (HS Code: 1509), as- cause the default logic is that if it is be- year yield was quoting just below 2.2%, DOES NOTHING TO single new scheme call Merchandise Ex- “The items missing in the list will have paragus (HS Code: 20057000), bamboo ing exported in bulk, value addition is the Indian 10-year was quoting at just ADDRESS THE ISSUE negative impact on exports. Moreover, shoots (HS Code: 20059100), orange happening outside the country. So, we below 8%. This means, caeteris paribus, OF HIGH RATES OF the reduction in benefit from 7% to 5% (HS Code: 20083010), pears (HS Code: will still support it, but at a lesser level.” an Indian good is 580 bps costlier than INTEREST IN INDIA will also impact the overall performance 20084000) and homeopathic medicines While Kumar’s explanation sounds fine its American peer. Secondly, given the ALTHOUGH SIMPLE, of the industry.” Rana is not alone, nei- (HS Code: 30049014), which were earli- in theory, in the real world, things work fact that India has one of the highest tax MEIS DOESN’T DO ther are sports goods. T. V. Maruthi, er entitled to duty credit scrips, are com- differently, very differently. rates on fuel, which has always been an Lastly, and most importantly, given that ANYTHING TO HELP Chairman, Indian Silk Export Promo- pletely missing from MEIS. ‘official’ reason to provide export incen- the profit margin for even India Inc., as a THE GROWTH OF tion Council, says, “The new policy has The question then is if this reduction/ TOO MANY HANDICAPS tives, there’s absolutely no way for Indian whole, has mostly hovered between high INDIAN EXPORTS cut down most of the sops and incen- omission is by design and part of a bigger One of the biggest disabler for every sin- goods to be globally competitive in the single digits and early teens, the elimina- tives. Considering this, it will be difficult strategy or is just bureaucratic apathy? gle Indian exporter, trying to compete in international market, without incentives. tion of up to 5% exports incentives for certain goods might mean a death knell to their exporters. THE ONLY OPTION Given the fact that incentives and/or subsidies are illegal under WTO, the Indian government hides them under various cloaks. While most export in- centives are given on the pretext of ne- gating high transportation costs in the country, some others are given on the pretext of employment generation. That none of these reasons will hold ground for long is also an open secret. Given this reality, the government has two choices – either reduce domestic taxes, interest rates and bottlenecks to make Indian goods more competitive in the inter- national market, or continue providing incentives. But since the former would need nothing short of a miracle, at least to achieve them in the short to medium term, the only option left for the govern- ment is to stick to the latter. In that case, the obvious question to ask is: why this miserliness? Most export incentives in India are given under the pretext of negating high transportation costs in the country [email protected]
80 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 81 POLICY MONITOR VIPUL SHAH, CHAIRMAN, GJEPC
coin would help reduce the demand for India's gems & jewellery and precious metals trade coins minted outside India and also help Indians’ love for the yellow metal means the country almost always has a deficit recycle the available gold in the country. “SNZs WILL HELP 100 We duly understand that with an ob- jective to control CAD and restrict the 80 gold imports, the government had hiked ESTABLISH INDIA AS 60 the duty on gold from Rs.300/10 gm to 10% in stages. Thereafter, it introduced 40 the 80:20 scheme, which failed misera- A GLOBAL DIAMOND bly. We fail to understand that when the 20 80:20 scheme has been abolished, why 0 the import duty on gold has still been FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 retained at 10%. TRADING HUB” Exports Imports We fully support the gold monetisa- Source: Ministry of Commerce, GoI; figures in $ billion tion scheme to check CAD and reduce If you are in charge of an EPC, which oversees the top export item of the country, gold imports. However, any measure facilitate India becoming an interna- you are in an enviable position. But what if, during your tenure, the export item affecting the jewellery manufacturing tional diamond trading hub. GJEPC has G&J EXPORTS ARE loses its No.1 status? Vipul Shah, Chairman, Gems & Jewellery Export Promotion industry is highly intolerable, since it also initiated various aggressive promo- will also affect the government’s ‘Make tional and marketing efforts like World SUFFERING DUE TO Council (GJEPC), is facing such a predicament. Shah, in an exclusive interaction in India’ initiative. We are confident that Diamond Conference in New Delhi, the THE NON-REVISION with The Dollar Business, talks about his strategy to reclaim lost glory, and more post the abolition of all such restrictions 3rd Diamond Week at Diamond’s Dealer OF DUTY DRAWBACK and uncertainties on gold imports, the Club in New York, sending a delegation RATES INTERVIEW BY VANITA PETER D’SOUZA export of gems and jewellery items will to Panama and Mexico and attending benefit in the long run. CIBJO meetings. TDB: What do you make of the gov- but to travel and procure their rough ernment’s stance on gold imports? TDB: Diamonds lost the country’s TDB: By when do you think the Special requirements, thus incurring huge trans- How much do you think India’s gems No.1 export product status to high Notified Zone (SNZ) will become a re- action costs. Rough diamonds mostly and jewellery exports will benefit if all speed diesel in FY2014. What do you ality? If it becomes a reality, what kind come indirectly through places like Ant- restrictions and uncertainties on gold think was the primary reason for this? of boost will India’s gems and jewellery werp and Dubai. Ensuring direct supply imports are removed? What is GJEPC doing to reclaim lost industry get? of roughs would reduce transaction costs Vipul Shah (VS): With an objective to glory for India’s diamond exports? VS: The Special Notified Zone has been and commissions being paid by Indian cut smuggling and raise legal shipments VS: The primary reasons for diamonds given a special mention in the recent- diamantaires. I would also like to add of gold into the country, Government of losing the No.1 export product status ly released Foreign Trade Policy 2015- that currently, India’s stringent taxation India scrapped the controversial 80:20 to high speed diesel in FY 2014 are (a) a 2020. A delegation led by senior officials regime and procedural hassles discour- scheme in November, 2014. The scheme slowdown in major markets like Europe, to Dubai and Antwerp, to understand ages overseas miners to auction their had resulted in nearly half of India’s gold China and Middle East, (b) the absence their ecosystem of taxation practices, roughs directly in India. For them, even imports being routed through only six of a turnover taxation system for the In- has already submitted its detailed report opening a sales office is a big hindrance. agencies, thereby raising alarm bells in dian diamond industry, (c) the absence to Government of India. The industry is the government. On the other hand, of suitable regulatory framework facil- expecting a customs notification on the TDB: Despite several restrictions, In- reducing import duty on gold, a long itating diamond trading in the country, initiation of SNZ very soon. This SNZ dia had a trade deficit of $16.8 billion pending demand of the G&J industry (d) stringent taxation framework in the will give the Indian diamond industry a under HS Code 71 in FY2014. Do you and something that can be a significant country as compared to other competing strong competitive advantage over other think we can ever have a surplus under step to curb black money, was complete- countries. diamond trading centres of the world it? Between import restriction and ex- ly overlooked by the government in the With an objective of reclaiming lost and will ensure a steady supply of rough port expansion, which is more likely to Union Budget for FY2016. glory for India’s diamond exports and diamonds in India. The lower cost of work for the gems and jewellery sector? Smuggling of gold plagues the indus- after aggressive representations, Gov- importing roughs through the SNZ is VS: Under HS Code 71, gold imports try and leads to illegal funding. Hence, ernment of India has announced the expected to benefit the Indian &G J in- are also taken into consideration, which duty reduction would have helped us creation of a Special Notified Zone for dustry hugely in the coming years. is the reason for the trade deficit. Out of control the issue to a very large extent. export and import consignments of di- The establishment of SNZ is extreme- the total import of gold by India, only The government has also identified in- amonds, thus facilitating the direct and ly significant for the Indian diamond in- about 10% is utilised by the exporting novative ways to reduce demand for smooth supply of roughs from overseas dustry. In absence of diamond mines in community. The rest 90% is procured by overseas gold and control current ac- diamond mining companies/countries, the country, the industry has to procure the domestic sector. According to cus- count deficit (CAD), by introducing the thereby ending a decade long issue of all its rough requirements from overseas toms data compiled by GJEPC, gross ex- gold monetisation scheme and develop- availability of roughs in the industry. rough diamond mining companies and ports and imports of gems and jewellery ing an Indian gold coin, which will carry This zone will also ensure trading of dia- countries. This means all small and me- items in FY2015 stood at $39.9 billion the Ashok Chakra on its face. Such a gold monds in the country, which will further dium diamond traders have no choice and $31.5 billion respectively, thus indi-
82 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 83 POLICY MONITOR VIPUL SHAH, CHAIRMAN, GJEPC cating a trade surplus of $8.4 billion. the importance given to the sector in European markets, and the plunge in the the new FTP. Suitable positive amend- Russian rouble. The foresight and agility TDB: How justified do you think duty ments have been made for the sector. of GJEPC and the industry helped sur- drawback rates for gems and jewellery The new FTP has reiterated the proposal vive these trying times, largely due to are? Do they fully compensate for the for Special Notified Zones. It has also ap- significant actions taken towards invest- duty paid on imported components pointed GJEPC as the Nodal Authority ing in USA and UAE. used in export products? for scrutinising the applications for en- One of the thrust areas of GJEPC is VS: At present, gold and silver jewel- listment of laboratories for export of cut to showcase India’s finest in jewellery, lery exports attract drawback rates at and polished diamonds for certification/ be it design or innovation, supported by Rs.219.9/gm and Rs.3,112.5/kg respec- grading and re-import. Modifications top-of-the-line craftsmanship, technolo- tively. But, as per the last notification have also been made under the policy gy and quality to customers around the issued by Government of India on im- for maximum wastage permissible and globe. India, with its ability to create in- port tariff value for gold and foreign minimum value addition in gems and trinsic and inspired jewellery, has made exchange rates, w.e.f. April 1, 2015, the jewellery export items, which are in line bold statements across the globe. total import duty paid by an exporter on with the suggestions of the council. gold is Rs.249.6/gm. It should be noted However, several of our key recom- TDB: Tell us briefly about institutions that both foreign exchange and import mendations like re-initiation of gold like IIGI, IDI, GII and IGI. What kind tariff value for both gold and silver are scrap policy, amendments in SEZ Act of role do they play in boosting gems announced every fortnight by GoI, con- to revive growth, replenishment of gold and jewellery exports from India? sidering exchange rates and gold prices from nominated agencies against ex- VS: The gems and jewellery industry is prevailing in the international market. port from their own stock, amendments highly skill based. Skill is involved right Right now, the duty drawback rates are in courier regulations etc. were not ad- from the identification and assortment way below the actual import duty (10%) dressed in the new FTP. of rough diamonds to the manufactur- on gold. Exports are suffering due to the ing of final jewellery. Skill development, non-revision of duty drawback rates. In TDB: Are you happy with the level training, research and gemmological fact, the hike in the import duty of gold of value addition in India’s gems and services have been on GJEPC’s agenda and non-revision of duty drawback rates jewellery exports? What do you think almost since its inception. Today, there have the potential to destroy the Indian needs to be done to increase it? are seven educational institutes in five jewellery manufacturing industry. VS: Yes, thanks to value addition, the cities; and four gemmological laborato- G&J industry has been a leading for- ries under the GJEPC umbrella. TDB: What’s your take on the new eign exchange earner for the country. In Amongst all the training institutes FTP? Does it have enough for the gems FY2015, it successfully battled several set up by GJEOC, Indian Diamond In- and jewellery industry? crises, including the downturn in China, stitute (IDI), Surat, is one of the oldest VS: The G&J industry has welcomed the unrest in the Middle East, decline of and largest institutes for imparting tech- nical skills. We have also set up various India's gems & jewellery and India's gems & jewellery and grading laboratories like Gem Testing precious metals exports precious metals imports Laboratory in New Delhi and Jaipur. We It’s dominated by polished diamonds Yellow metal is what it imports most are helping premier international labo- ratories like HRD, IGI, IIDGR to either set up their laboratories, or expand their operations in India, so that Indian ex- porters can get their diamonds certified and graded in the country itself. This will 9.4% 45.5% further save transaction cost involved in 5.8% 3.9% 58.7% sending diamonds to overseas accredited 3.6% 7.2% laboratories for certification. 7.2% With the avowed aim of building a 9.8% 28.0% pool of trained manpower for the in- 11.0% 9.9% dustry, GJEPC has set up educational institutes offering courses in gems and jewellery in major centres. All of these Cut or worked diamond, neither mounted nor set Other non-monetary unwrought forms of gold institutes are not-for-profit organisations Gold jewellery (unset) Gold jewellery (set with Unworked diamond (simply sawn cleaved or bruted) and have state-of-the-art equipment and diamond) Other non-monetary unwrought forms Cut or worked diamond, neither mounted nor set of gold Unworked diamond (simply sawn cleaved Unwrought silver Other non-monetary semi- up-to-date facilities. or bruted) Other manufactured forms of gold Other Source: Ministry of Commerce, GoI; breakup for FY2014 Source: Ministry of Commerce, GoI; breakup for FY2014 [email protected]
84 THE DOLLAR BUSINESS II JUNE 2015 PRIME FOCUS PRIVATE PORTS
hen Finance Minis- Board of Trustees to such successor com- km, which is dotted with about 200 ter Arun Jaitley, while pany, as well as defining the scope of the ports, comprising 13 major ports and THE REAL presenting the first full transfer. over 180 non-major ports. These ports, budget of the Modi gov- While praising the efforts of private put together, carry more than 90% of In- Wernment, announced that steps would players in India’s port sector, the Finance dia’s total EXIM trade volume. be taken to corporatise major ports, Minister, in his budget speech, said, “As For a long time, India’s maritime trade TORCHBEARERS OF his message was loud and clear. He just the success of so-called minor ports has was exclusively under the control of gov- wanted to continue from where he had shown, ports can be an attractive invest- ernment-owned major ports. When a left in 2001 as the Minister of Law, Jus- ment possibility for the private sector. consortium led by P&O Australia (now INDIA’S TRADE tice and Company Affairs in the Vajpay- Ports in the public sector need to both DP World) started trial operations of a ee cabinet. Then, in order to enable the attract such investment, as well as lever- container terminal, on BOT basis, at Like how it has shown its prowess in most other fields, the Indian private sector is corporatisation of major ports, Jaitley age the huge land resources lying unused Jawaharlal Nehru Port (JNP) in Mum- had introduced a bill in the Lok Sabha to with them. To enable us to do so, ports in bai, it heralded the dawn of a new era already doing a wonderful job when it comes to ports. Not only does it operate the amend the Major Port Trusts Act, 1963. public sector will be encouraged, to cor- for the country’s port sector. Today, JNP country’s top port in terms of traffic handled, but it also runs India’s top container One of the main features of the bill was poratise, and become companies under – India’s busiest container handling port terminal, despite working with several handicaps like slow environmental clearances, giving powers to the Centre to transfer the Companies Act.” – has three container terminals, of which the undertaking of any major port to two are operated by private players. In absence of a non-administered tariff regime for the entire port sector and a general its successor company, along with the THE BEACON FY2014, JNP handled 62.33 MMT cargo, suspicion towards them transfer of the assets and liabilities of its India has a vast coastline of over 7,500 of which containerised cargo was 55.23
BY SISIR PRADHAN
Finance Minister Arun Jaitley has announced that all the major ports will be encouraged to corporatise and become companies under the Companies Act
86 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 87 PRIME FOCUS PRIVATE PORTS
MMT and liquid cargo was 6.28 MMT, and SEZ Ltd. (APSEZL), which became an inflexible MCA, which makes it dif- the rest being dry bulk and break bulk the first port in India to handle 100 “PRIVATE ficult to review concession agreements; cargo. Interestingly, JNP, which handles MMT cargo in a year in FY2014. Having (c) slow environmental clearances; (d) about 60% of the total container cargo signed its concession agreement as late PLAYERS WILL absence of a non-administered tariff re- in India, has benefitted immensely from as FY2012 and located just 70 km away RUN ALL gime for the entire port sector; (e) lack its private terminals. For, out of the total from Kandla, the success of Mundra is of coordination between various minis- traffic of 4.16 million TEUs that JNP han- nothing short of incredible. This, pri- MAJOR PORTS’ tries, which lead to immense delays; and dled in FY2014, the share of JNP-owned marily because despite having the entire (f) no clarity/uniformity by Customs JNPCT was 1.31 million TEUs, the share government machinery and resources TERMINALS IN with regard to certain procedures that of DP World-operated NSICT was 0.97 at its disposal, Kandla Port has failed to are needed to be followed by private ter- million TEUs, while the remaining 1.88 keep up with the demands and require- THE FUTURE” minal operators at major ports. million TEUs were handled by its third ments of modern day trade. Notably, as and newest terminal Gateway Terminals compared to Kandla, Mundra handled TDB: The role of private ports in In- TDB: Tell us a bit about the average India (GTI), a joint venture between only 87 MMT in FY2014. Even of this dia’s EXIM trade is increasing by the difference in tariff between private APM Terminals and the Container Cor- 87 MMT, a majority of liquid and petro- day. What do you think is the reason and major ports. Should government poration of India Ltd. leum products were handled by Kandla’s for their success in recent years? control over tariffs at major ports be The contribution of private ports to private partner Essar, at its off-shore oil Shashank Kulkarni (SK): Until the removed? India’s EXIM trade is not limited to just terminal facilities at Vadinar. turn of the last century, almost 85-90% SK: After faster clearance of goods, port container cargo. Even in the bulk cargo of India’s EXIM trade passed through tariff is the most important factor in a category, their contribution is growing FROM UNDER THE NOSE the government-controlled major cargo owner choosing his/her gateway by the day. An example of this is Mun- For a very long time, Kandla Port was, by ports. Unfortunately, these ports were point. With so much competition, both dra Port, the flagship port of Adani Ports far, the top port in the country, in terms synonymous for traffic congestion, inter-port as well as intra-port, flexibil- sluggish clearance of cargo, antiquated ity in tariff is going to be the key for the equipment and handling practices, la- survival of any port/terminal. As far as bour issues, slow decision making pro- major ports are concerned, they suffer Shashank Kulkarni cesses etc. Following the liberalisation from high vessel related charges (VRCs), SECRETARY GENERAL, reforms of the early 90s, the central which, at times, are the costliest in this INDIAN PRIVATE PORTS & government took an in-principle de- part of the world. VRCs of major ports TERMINALS ASSOCIATION cision to initiate private participation are high since they take into account the in major ports to take care of some of high dredging expenses, as well as the these ills. At the same time, state gov- pension burden of its vast number of seeing how much decision making free- intends to boost coastal shipping? ernments, led by Gujarat, also took ini- employees. On the other hand, non-ma- dom the present port trusts get and how SK: Coastal shipping, to be a success in In- tiatives to give out the non-major ports jor ports, which are free from any tariff much do they benefit out of it. dia, will depend on how many sailings the under their control for green-field/ regulation, can offer flexi tariff to attract shipping industry is able to offer to trade. brown-field development, through potential customers. One more import- TDB: The government is also encour- Trade must have ample choice to load private investment. And the results are ant aspect that needs to be considered aging PPP at major ports. Do you think on their cargo onto vessels for domestic there to be seen. From 10-15% cargo is that port tariff constitutes less than there is enough interest for this among movement within the country. Good last handling share at the start of the mil- 5% of the overall logistics cost of mov- existing private players? mile connectivity is also very crucial for lennium, private ports, together with ing goods. When more than 95% of the SK: After the initial encouragements to transporters to use coastal shipping. If the the private terminals in major ports, transport chain is outside any tariff reg- private investors, the past 15 years have Indian shipping industry is able to offer are, today, handling more than 50% of ulation, is there any need to regulate the been a sort of learning period for both such frequent sailings, cabotage relaxation the country’s EXIM traffic. balance mere 3-5%? the government, as well as the investors. might not be required. But unfortunate- Investors, being commercial entities, ly, that is not the case and hence, there is TDB: What do you think are the main TDB: Given that the Modi government is have to get a reasonable rate of return a clamour to allow foreign flag vessels on challenges for India’s private ports? Is encouraging the corporatisation of ma- for their shareholders. Unfortunately, the Indian coast. It has become a chicken land acquisition one of them? jor ports, do you think private ports will the tariff policy in major ports has been or egg first issue. SK: While PPP in the port sector has face more competition in the future? a huge disappointment. There have been been the most successful amongst all SK: Corporatisation of major ports has several guidelines till date which them- TDB: What changes can we expect in such partnerships in the country, port been talked about for many years. The selves speak about the confusion pre- the Indian port sector in the foresee- privatisation has been encountering a only major port – Kamarajar Port at En- vailing in the sector. Further, due to the able future? number of challenges. Apart from land nore – formed under the Companies Act several challenges mentioned above, most SK: In the foreseeable future, it is expect- acquisition, which is more pronounced has also not been an exemplary instance of the private players in the port sector are, ed that major ports will become landlord in green-field development, there are of a truly corporatised entity. Thus, today, a disillusioned lot. ports, with all their terminals being run several other issues bogging the sec- whether or not private ports will face by private parties. With more and more Today, India’s biggest port by traffic handled (Mundra Port) and the biggest container tor. Some of these are (a) poor quality formidable competition from corporat- TDB: Don’t you think India needs competition, it is going to be a win-win terminal (GTI) are examples of what the private sector can do to the port sector of DPR and technical information; (b) ised major ports will be known only after to amend its cabotage laws if it really situation for all.
88 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 89 PRIME FOCUS PRIVATE PORTS
of traffic. And one of the primary reasons tition from private ports. Pointing out just 25.1 MMT, in FY2014, Gujarat’s est container terminal in India. Isn’t this develop the Bangalore Airport, Airport very clear that they couldn’t have been for this was that it catered to a vast hin- some of the reasons for major ports los- minor and intermediate ports handled hilarious? Authority of India scrapped the project what they are today without private terland of 11 states, spread across 1 mil- ing out to private ports, S. S. Kulkarni, close to 4x of what Kandla handled! Similarly, the best example of gov- on the grounds that private companies players. So, the question is: if private lion square kilometre and the fact that it Secretary General, Indian Private Ports ernment apathy towards major ports can’t be allowed to build an airport. players can change the face of India’s has been accorded the status of ‘Priority & Terminals Association (IPPTA), said, RUING THE DAY is the fact the top two bulk ports of In- However, today, Bangalore Internation- aviation sector and provide world-class Port’, when it comes to grain exports and “Until the turn of the last century, almost This is not the situation at Kandla, but dia – Kandla and Paradip – don’t even al Airport is one of the finest airports in facilities to users, isn’t it just a matter of LNG, coal, petroleum products, fertiliser 85-90% of India’s EXIM trade passed at most major ports battling with infra- have full time chairmen! While Ravi M. the country only because of private par- time before private seaports replicate the and food commodities. Moreover, Asia’s through the government controlled structure bottlenecks and slow decision Parmar runs the show for Kandla from ticipation. Not only Bangalore, if we take same? As they say, you can delay a revo- first Special Economic Zone (SEZ) is also major ports. Unfortunately these ports processes due to political and bureau- Mumbai, in case of Paradip, M. T. Krish- instances of other world-class airports lution. You can’t stop it. located in its neighbourhood. Despite all were synonymous for traffic congestion, cratic apathy. While the government is na Babu operates from Visakhapatnam! in the country like the ones in Cochin, these advantages, Kandla Port has failed sluggish clearance of cargo, antiquated in now pitching for public-private part- Hyderabad, Mumbai and New Delhi, it’s [email protected] to stay ahead of competition and today, equipment and handling practices, la- nerships (PPPs) for the development INEVITABLE is one of the most congested ports in bour issues, slow decision making pro- of major ports, the reality is that faulty Today, India’s total merchandise trade the country. cess etc. Following the liberalisation PPP and BOT (build–operate–transfer) is way below 50% its GDP, whereas for According to a Ministry of Shipping reforms of the early 90s, the central gov- models are, actually, slowing down many developed countries like Germany, it report, in FY2014, Kandla not only ernment took an in-principle decision to ports-related infrastructure projects. is 75%. Similarly, India has a total sea- missed its target of 95 MMT, but also initiate private participation in the major One fine example of this was the borne traffic of only 950 MMT, with recorded a 7.1% drop in cargo volume. ports to take care of some of these ills. global tender floated by Kandla Port in a total coastline of 7,500 km, whereas This, more than anything else, is an ex- The result of this is that from handling the year 2000 to invite bids from private China’s sea-borne traffic is about 9 bil- ample of how government-owned major just 10-15% of India’s total EXIM cargo players to develop a container terminal lion MT, with a coastline of 15,000 km. ports are losing out big time to compe- at the start of the millennium, private on BOT basis. Post the bidding, Austra- Hence, if India wants to get into the ports, together with the private terminals lian company P&O Ports got the letter of big league, a manifold rise in its trade in the major ports, are, today, handling intent (LoI), since it quoted the highest volume is a given. And considering the MUNDRA PORT IS more than 50% of the traffic.” bid of Rs.300 crore. However, KPT trust- current state of affairs at major ports, this THE FIRST INDIAN The best piece of statistics to prove ees rejected the offer giving a vague rea- additional traffic can only be taken care PORT TO HANDLE how private ports are in an entirely dif- son that the company’s offer was detri- of by existing and new private ports. ferent growth trajectory is that while in mental to the interests of the port. Three 100 MMT CARGO IN FY1999, Kandla Port handled 40.6 MMT years later, P&O Ports acquired 100% MATTER OF TIME A YEAR cargo and all intermediate and minor stake in Mundra International Container Way back in 1995, when the Tata Group ports in Gujarat, put together, handled Terminal, which is now the second larg- and Singapore Airlines joined hands to
The biggest example of government apathy towards major ports is the fact that India’s top two bulk cargo ports – Kandla and Paradip – don’t have full-time chairmen
90 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 91 TDB FORUM TDB FORUM
can ship your product to the buyer. operation between the country erwise. Further, import of metal (all) You can also begin with approach- and the Association of Southeast scrap is allowed only through des- ing your concerned EPC – Agricul- Asian Nations (ASEAN). ignated ports (the name of the port tural and Processed Food Products In case of almonds, the high- should be mentioned on the invoice) Export Development Authority est volume and value of shelled – Chennai, Cochin, Ennore, JNPT, (APEDA) – for assistance or reach almonds is being imported from Kandla, Mormugao, Mumbai, New out to potential buyers by posting USA at prices that range between Mangalore, Paragraphdip, Tuticorin, your product information on B2B Rs.630 to Rs.722 per kilogram. Vishakhapatnam, ICD Loni, (Gha- websites. There are thousands of Importing it from USA would at- ziabad), Pipava, Mundra, Kolkata, e-commerce portals across the tract a basic customs duty of Rs.65 ICD Ludhiana, ICD Dadri (Greater globe. You can choose from them per kg along with a 4% ACD on Noida), ICD Nagpur, ICD Jodhpur, taking into consideration the parts total value of imports. CVD and ICD Jaipur, ICD Udaipur, CFS Mu- Ask a Question of the world you want to export to. cess are exempted in this case. As lund, ICD Kanpur, ICD Ahmedabad, far as pistachios are concerned, the ICD Pitampur and ICD Malanpur - highest volume and value of pis- and no exceptions would be allowed In the world of export-import, Response by: Shakti Shankar Patra, tachios (in shell) is coming from even in case of EOUs and SEZs. You each shipment counts. Executive Editor, The Dollar Business Iran at prices that range between also need to ensure that you have an We are manufacturers and export- And you cannot afford to Rs.340 to Rs.382 and attracts a to- ISRI (Institute of Scrap Recycling ers of electronics products and are make any “uninformed tal import duty of 14.712%. Industries, Inc.) code and the con- registered under Central Excise. investment”. So, if you have What is the import duty on raw ca- Please however note that these signment should meet the guidelines Can we export a product that is not any doubt or a question, shews, pistachios and almonds? (Su- prices are C.I.F. values and do prescribed by ISRI. manufactured by us and avail Cen- has Bhaganagare, Proprietor, Om Exim not include either customs du- ask us. Our team of experts tral Excise and other tax exemp- Enterprises, [email protected]) ties (which have been mentioned Response by: tions? If yes, what procedure do at The Dollar Business Dear Suhas: You have not men- separately for each product) or Steven Philip Warner, Editor-in-Chief, we need to follow? (Malleswara Durga Intelligence Unit will be tioned the countries you want logistics-related costs that will be The Dollar Business Prasad, Senior Vice President, MIC happy to answer your to import these products from. incurred in the process of trans- Electronics Ltd., [email protected]) queries. Your question(s), We assume you are interested in porting these imported products Dear Malleswara: Yes, you can if approved, will also importing from countries which to your godown from the port of We want to import purses, mo- Can you help me out with HS codes export products manufactured are the biggest source of Indian destination. Hence, viability of bile covers and wallets, clothing for Groundnut Kernel Bold 50/60 by others or even procure them be published on www. cashews, pistachios and almonds importing these products can be for kids, and watches from Chi- Count, Tj Mix 50/60 count and from a non-manufacturer for the thedollarbusiness.com, and/ imports. determined only after accounting na. What custom duties and oth- 80/90 count, Java 80/90? What gov- purpose of exports. There is no or in forthcoming issue of When it comes to raw cashews, for these factors. er charges are applicable on these ernment benefits do Groundnut such restriction. In both cases you The Dollar Business the highest volume and value products? (Arpita, Manager - Business Kernel qualify for? (Rohit Chovatia, can not only avail Central Excise (as per latest shipment data) of Response by: Development, Pragya International, Partner, Saurashtra Industries, saurash- Steven Philip Warner, exemption, but you are also eligi- dried cashew nuts in shell are be- Editor-in-Chief, [email protected]) [email protected]) ble for export incentives. Exports ing imported from Tanzania and The Dollar Business Dear Arpita: We assume you want Dear Rohit: Groundnut Kernel Bold made by non-manufacturers are An IEC is a 10-digit number allot- Indonesia at prices that range to import purses, mobile covers and 50/60 Count, Tj Mix 50/60 count and termed as merchant exports. So, all ted to a person that is mandatory between Rs.85 to Rs.92 per kilo- wallets made from leather from Chi- 80/90 count, Java 80/90 fall under ei- you need to ensure is that your Im- for undertaking any export/import gram. While the customs duty on How can I import aluminum scrap na. While import of leather products ther ITC HS Code 12024210 or ITC port Export Code (IEC) mentions activity. Application for obtain- importing them from Tanzania from China? Is it legal? (Avinash, from China attract a total import HS Code 12024220, depending on your status as both manufacturer ing IEC can be filed manually and is 30%, importing them Vietnam Manager, Thirupathi Metals, avinash. duty of 29.441%, importing watches whether they are hand-picked and and merchant exporter. submitting the form in the office of would attract lower customs duty [email protected]) from China would attract an import selected (HPS) or machine selected. Regional Authority (RA) of DGFT. of 12.5% since India has a Trade in Dear Avinash: Yes, you can im- duty of 24.463%. As far as clothing While the HPS category falls un- Response by: Now the facility for IEC in elec- Goods Agreement with Vietnam port aluminium scrap (HS Code: for kids is concerned, we would re- der ITC HS Code 12024210, others Manish K. Pandey, tronic form or e-IEC has also been under the Framework Agreement 76020010) from China. However, quest greater details. For example, we fall under ITC HS Code 12024220. Editor, The Dollar Business operationalised. Once you have on Comprehensive Economic Co- import of any form of metallic waste, would like to know which garments Further, Groundnut Kernel does not obtained the IEC and received an scrap will be subject to the condition are you considering for imports. The qualify for MEIS benefit or any other export order for your product from that it will not contain hazardous, Dollar Business Intelligence Unit such benefit under the new Foreign We want to export rice from India. an overseas market you need to file toxic waste, radioactive contaminat- would like to hear from you. Trade Policy FY2015-2020. How do we start? (Shiva, Owner, Shiva the following mandatory docu- ed waste / scrap containing radioac- Shakti Grains (India) Pvt. Ltd., info@shi- ments required for export of goods tive material, any type of arms, am- Response by: Response by: vashaktigrains.com) from India: (1) Bill of Lading/Air- munition, mines, shells, live or used Dr. A. K. Sengupta, Manish K. Pandey, Chief Consulting Editor, Editor, Dear Shiva: We assume you are a way Bill; (2) Commercial Invoice cartridge or any other explosive ma- The Dollar Business The Dollar Business first-time exporter. First of all you cum Packing List; and (3) Shipping terial in any form either used or oth- need to obtain an Importer-Ex- Bill/Bill of Export. Once you have You can log on to www.thedollarbusiness.com/tdb-forum and submit your foreign trade-related queries, or write across to our experts at porter Code (IEC) from the DGFT. submitted these documents you [email protected]. Every question matters – to your business, to The Dollar Business.
92 THE DOLLAR BUSINESS II JUNE 2015 JUNE 2015 II THE DOLLAR BUSINESS 93 << CUT THE DOTTED LINE >>
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tors to connect with recent product mod- EXPOCAFE 2015 << CUT THE DOTTED LINE >> [Global] ifications and development of the indus- July 1-3 << FOLD HERE >> try. The products and services that are Brazil CTT 2015 showcased at the event come at a rea- www.expocafe.com.br June 2-6 sonable price. Plastec East will include In its 18th edition, Expocafé 2015 is the Moscow participation of a large number of exhibi- biggest event of the coffee business in AFFIX tors from all around the world. The exhib- Brazil. The event is a large gathering of POSTAGE www.ctt-moscow.com STAMP Since its foundation in 2000, CTT has itors will include leading manufacturers, producers, technicians, businessmen HERE rapidly developed into the most import- suppliers, professionals and designers and other interested parties. Expocafé ant trade fair for construction machinery, of plastics processing machinery, aux- offers the very best and most modern construction equipment and technology iliary equipment, raw materials, mold range in the coffee industry – from plant- in Russia and the CIS. Its concept offers makers, and molding and mold-making ing to harvesting. The participants are BUSINESS REPLY MAIL international machinery and equipment components. They will exhibit the latest varied, represented by the different links manufacturers the opportunity of en- technology and product offerings from in the chain, coming from different parts To: The Dollar Business tering the markets of Russia, CIS and leading plastics industry. of Brazil, and Latin America.
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JUNE 2015 II THE DOLLAR BUSINESS 97 BORDERLINE EDITOR’S COLUMN
PAYING TAXES WON’T
GUARANTEE YOU A Manish K. Pandey Editor, SOUND SLEEP! The Dollar Business
ne of the few things that the Modi-led NDA govern- such retrospective tax bills can do to financial markets that thrive ment has been most vocal about, ever since it came on foreign money. When, in 2012, Vodafone was asked to pay to power in New Delhi, is the establishment of a more than Rs.20,000 crore in back taxes for its purchase of Hutchi- pro-business environment in the country. The gov- son Essar Telecom in April 2007, foreign portfolio investments in Oernment has been trying hard to distinguish itself from its prede- India dropped from Rs.1,68,000 crore to Rs.51,000 crore the very cessors by chanting words and phrases that portray it as business same year. friendly. “Make in India”, “Ease of Doing Business”, etc., have be- Although the Modi wave and pro-business agendas propagat- come the modernly-regarded sacred chants of the entire country. ed by NDA have been successful in attracting a net investment Well, at least practically so! But then, what one does is more im- of Rs.2,80,000 crore into the Indian stock and debt markets (the portant than what one says. And the policymakers at the helm of highest ever annual investment India has seen so far) in FY2014- affairs seem to have forgotten this age-old adage! That’s the mes- 15, the euphoria won’t last long if the government does not ensure sage their actions seem to be indicating of late. a stable and logical tax regime in the country. Just two months back, in March 2015, Cairn India was slapped Has the government bowed down to the finance-ministry bu- a tax notice worth $3.3 billion for transactions dating back to reaucrats who are busy bridging the fiscal gap, or are phrases like FY2006-07. Reason, as per tax officials, was simple: Cairn did not “Make in India” and “Ease of Doing Business” nothing but balder- pay tax on the capital gains arising out of the transfer of shares dash? Whatever the case may be, one thing is sure – the tax author- from its erstwhile UK parent (Cairn Energy PLC) to its Indian ities have brought a wrecking ball to Mr. Modi’s business-friendly subsidiary, Cairn India (now a part of the Vedanta Group). It was around the same time when foreign institutional inves- tors (FIIs) also started receiving notices from the tax authorities. In the first two-and-a-half weeks of May, FIIs were asked to cough up something called the Minimum foreign investors withdrew over Rs.16,700 Alternative Tax (MAT), a 20% levy which traditionally applied to domestic firms that would otherwise pay zero corporate tax crore from Indian equities and debts because of various exemptions. In fact, till date, tax authorities have issued notices amounting to over Rs.600 crore (in taxes) to a sarkar. And the damage has been done. But time can heal. In this group of about 70 FIIs. case too. What is needed is a complete overhaul of the Indian tax What’s even more shocking is the fact that they are being taxed system as the real problem is that India’s taxation system is adver- for the profits made by them in FY2012-13. Result: The wildfire sarial and focuses more on implementation instead of compliance. has forced foreign investors to stay away from India. According High rates of corporate taxes (as against its global peers) further to the Securities and Exchange Board of India (SEBI) data, for- complicate the situation. Although the previous governments have eign investors have reduced their portfolio investments in India tried to compensate it through deductions and exemptions, the from Rs.24,564 crore in February 2015 to Rs.15,266 crore in April moves have only lead to more ambiguity with respect to tax laws, 2015. In fact, matters worsened in May. In the first two-and-a-half and in turn bigger, darker loopholes. weeks of the month, foreign investors withdrew over Rs.16,700 If the government really wants to make “Make in India” a suc- crore from Indian equities and debts. cess and improve the ease of doing business in the country, all it Global rating agency Fitch is of the opinion that the ongoing needs to do is stop sending such wrong messages about its taxa- retrospective tax issue will force foreign investors to think twice tion policy. And all policymakers will have to do is go back to the before investing in India. [Obviously! I’m not one of those who drawing board and simplify the system. That’s where they need to loves the feeling of pseudo-safety, with my head buried deep in invest their time, not in holding up foreign investors for what looks the sand!] In fact, the Vodafone case is a classic example of what like extortion!
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