import duty

India Considers Sharp Import Tax Cuts on EVs After Tesla Lobbying: Sources

For EVs valued at more than $40,000, India is looking at cutting the rate to 60% from 100%, two senior government officials told Reuters.

New Delhi: India is considering slashing import duties on electric cars to as low as 40%, two senior government officials told Reuters, days after Tesla Inc’s appeals for a cut polarised the country’s auto industry.

For imported electric vehicles (EVs) with a value of less than $40,000 – including the car’s cost, insurance and freight – the government is discussing slashing the tax rate to 40% from 60% presently, the officials told Reuters.

For EVs valued at more than $40,000, it is looking at cutting the rate to 60% from 100%, they said.

“We haven’t firmed up the reduction in duties yet, but there are discussions that are ongoing,” one of the officials said.

India is the world’s fifth-largest car market with annual sales of about 3 million vehicles but the majority of cars sold are priced below $20,000. EVs make up a fraction of the total and luxury EV sales are negligible, according to industry estimates.

Tesla, in its pitch to the government – first reported by Reuters in July, argued that lowering import duties on EVs to 40% would make them more affordable and boost sales. This triggered a rare public debate among automakers over whether such a move would contradict India‘s push to increase domestic manufacturing.

Even so, the government is in favour of a cut if it can see companies such as Tesla providing some benefit to the domestic economy – manufacture locally, for example, or give a firm timeline on when it would be able to, one of the officials said.

Also read: A Twist in the Tale: Electric Vehicles Will Worsen India’s Pollution Crisis

“Reducing import duties is not a problem as not many EVs are imported in the country. But we need some economic gain out of that. We also have to balance the concerns of the domestic players,” the official said.

Tesla CEO Elon Musk said on Twitter last month that a local factory in India was “quite likely” if the company was successful with vehicle imports but taxes on them are high.

The second official said that since the duty cut is being considered only for EVs and not other categories of imported cars, it should not be a concern for domestic automakers – that mainly manufacture affordable gasoline-powered cars.

India‘s finance and commerce ministries, as well as its federal think tank Niti Aayog, chaired by Prime Minister Narendra Modi, are discussing the proposal and all stakeholders will be consulted, the person added.

Both sources did not want to be identified as the discussions are still private.

India‘s commerce and finance ministries as well as Niti Aayog did not immediately provide comment.

Automakers including Daimler’s Mercedes-Benz and Audi have for years lobbied for lower import duties on luxury cars but faced strong resistance mainly from domestic companies. As a result, India‘s luxury car market has remained small with average sales of around 35,000 vehicles a year.

Tesla’s cars would fall into the high-end EV category, which are mainly imported into India and account for a much smaller percentage of sales. Mercedes, Jaguar Land Rover and Audi sell imported luxury EVs in the country.

This time Tesla’s demands have found support from Mercedes as well as South Korean automaker Hyundai Motor, which has around an 18% share of India‘s car market.

Opposing the proposed cut are Tata Motors, which produces affordable electric cars in the country, and Softbank Group-backed Ola, which is making electric scooters in India.

A third source familiar with the government’s thinking said there was awareness that a brand such as Tesla can make electric cars more penetrable in India, which is lagging other major auto markets in EV sales.

The government is thinking about the best way to approach this and they want to see some benefit even if that only means Tesla pledges to source parts domestically, the person said.

(Reuters)

Edible Oil Prices Rise in India as Demand Recovers, But Production Weakens in Other Nations

A reduction in production of palm oil in Malaysia is one of the reasons why prices of other edible oils are also increasing.

New Delhi: Edible oil prices such as groundnut, soybean, sunflower and palm oil have risen by 20-30% over the last one year in India, due to recovery in demand in the country and labour shortage in producing countries due to the coronavirus pandemic, said reports.

According to the Times of India, reduction in production of palm oil in Malaysia is one of the reasons why prices of other edible oils are also increasing. The production decline is also reported to be one of the main reasons for firmness in the prices of crude palm oil in the global market.

Known for its versatility, palm oil is used in food, cosmetics and biofuels. Indonesia and Malaysia account for 90% of global supply.

According to Nikkei Asia, the pandemic has led to a decline in Indonesia’s palm oil exports, which dropped 11% in the first half of the year to 15.5 million tons. However, “the price increases have conversely caused exports to rise 6% in terms of value to $10.1 billion”. Similarly, in Malaysia, palm oil production through August this year slipped 5% compared with the same period last year.

In 2019, India accounted for 19% of global palm oil imports, while China accounted for 13%. As of September 2020, China and India were also the two biggest importers of Malaysian palm oil, according to a report. India imports around $10 billion of edible oil (15 million tonnes) annually, including 9 mt of palm oil and 2.5 mt of each soybean oil and sunflower oil, as per latest data.

Also read: How India Was Stripped of Its Atmanirbharta in the Edible Oil Industry

As per reports, the retail prices of palm oil in Delhi and Mumbai increased to Rs 110 per litre and Rs 109 per litre, respectively, in 2020 from Rs 87 per litre and Rs 75 per litre, respectively, in 2019. Other oils witnessed a similar trend. Mustard oil’s price in Delhi and Mumbai rose to Rs 155 per litre and Rs 162 per litre, respectively, in 2020 from Rs 121 per litre to Rs 144 per litre, respectively, in 2020.

According to the TOI report, citing consumer affairs data from the price monitoring cell, the average price of mustard oil was Rs 120 per litre on Thursday compared to Rs 100 per litre a year ago.

The issue was flagged to home minister Amit Shah at a Group of Ministers meeting last week, said the report. The group discussed that while onion prices have reduced and potato prices stabilised, edible oil prices have seen a spike. The report added that it’s now up to the government to take a call on reducing the import duty on palm oil, since its price hike impacts the prices of other edible oils.

Crude and refined palm oil attract 37.5% and 45%, import tax, respectively. Imports of crude soybean oil and crude sunflower oil attract 35% import duty.

To Support Rupee, India Considers Increasing Steel Import Duty

The proposal is a part of a broader government plan to cut “non-necessary” imports to stop an outflow of dollars that has sent the rupee to record lows.

New Delhi: India’s steel ministry has proposed increasing the effective import duty on some steel products to 15% from current rates ranging from 5% to 12.5%, according to two sources and a government document reviewed by Reuters, as the country looks to support the rupee.

The proposal is a part of a broader government plan to cut “non-necessary” imports to stop an outflow of dollars that has sent the rupee to record lows.

“The broader message is to address the trade balance but we will try to promote ‘Make in India’ by encouraging domestic (steel) production,” said the source, who declined to be named ahead of a possible decision.

The source said there was no certainty that the proposed duty would be imposed.

Steel and trade ministry officials were expected to meet on Wednesday to discuss the proposed import steps but the talks did not take place, one of the sources said, without giving details.

The steel and trade ministries did not respond to requests seeking comment.

Shares of Indian steel companies jumped after the news. In afternoon trading, JSW Steel Ltd was up 3.3%, while Tata Steel Ltd and Jindal Steel and Power Ltd rose by more than 2%. State-run Steel Authority of India Ltd also rose by more than 2%.

The broader Nifty metal index rose as much as 2.2%, its biggest gain in nearly a week.

The government last week announced a slew of steps aimed at stemming a steep decline in the rupee.

The currency hit a record low of 72.99 on Tuesday, making it Asia’s worst performer amid a widening trade deficit and an emerging market selloff. It strengthened slightly on Wednesday on talk of central bank selling of the dollar, but is still down more than 13% this year.

India’s steel imports totalled $6.5 billion in 2017/18, according to official data.

In the three months to end-June, the country became a net steel importer for the first time in two years, with foreign supplies reaching 2.1 million tonnes, up 15% from a year earlier.

Japan and South Korea, with which India has free trade agreements, accounted for 45% of the 8.4 million tonnes of steel imported in the latest financial year to end-March.

The proposed duties may not apply to those imports, but other steel suppliers such as China, South Africa, Malaysia, Russia and Indonesia could be affected.

The steel ministry has proposed higher duties on various products including high-end steel used in electrical appliances. The duty on that type of steel is recommended to triple to 15%, the steepest jump.

The steel is also used in power transformers and costs more than $2,060 a tonne. India imports 400,000 tonnes of this type of steel every year from countries including Germany and Russia.

File Photo: A worker rides his bicycle past steel rims in a dockyard at Mumbai Port Trust in Mumbai November 17, 2014. Credit: Reuters/Shailesh Andrade/File Photo

Other products eyed

Apart from steel, India is considering raising import duties on some farm commodities, potentially for a few months, although it is wary of the risks of retaliation, said a senior government official with knowledge of inter-ministerial deliberations on proposed restrictions.

The government is also looking at curbs on imports of gold and high-end electronic items, a trade ministry source said last week.

India is the world’s second-biggest gold buyer, and its imports in August rose more than 90% to $3.64 billion.

The World Gold Council, however, warned on Wednesday against any further curbs on the metal which already attracts a 10% tariff, the largest India has imposed.

“Indian demand is down 7% over last year which itself was down over the previous year,” the industry body’s India managing director, Somasundaram PR, said at an industry event.

“There are discussions about non-essential imports, but I still believe and I hope that this does not actually in any sense hit gold this time.”

($1 = 72.7225 rupees)

(Reuters)

Asia May Face Steel, Aluminium Glut With Trump’s Tariff Plan

Trump’s plan to slap hefty tariffs on steel and aluminium imports will likely make Southeast Asia the new hunting ground for global exporters seeking buyers.

Southeast Asia may become the new hunting ground for global exporters, setting off a trade war that could depress prices and prompt some producers to close.

FILE PHOTO: A worker operates a furnace at a steel plant in Hefei, Anhui province August 18, 2013. Credit: Reuters/Stringer/File Photo

Manila/Melbourne: US President Donald Trump’s plan to slap hefty tariffs on steel and aluminium imports will likely make Southeast Asia the new hunting ground for global exporters seeking buyers, creating a glut that could depress prices and prompt some producers to close.

More of China’s steel may find its way into developing countries such as the Philippines and Vietnam, but it could face competition from Russia, Ukraine and Turkey, industry officials and traders said.

Chinese aluminium exporters, which may take a similar tack, could clash with producers in South Korea and Thailand.

Trump said the duties, 25% on steel imports and 10% on aluminium, would be formally announced next week, and believes they will protect American jobs.

Fears of a global trade war dragged down Asian equities with shares of Asian steel producers supplying the US market hit hard.

South Korea is the third-biggest steel supplier to the US after Canada and Brazil and would be the hardest hit by the tariffs. Other Asian suppliers are Japan, Taiwan and India.

China, the world’s biggest steel producer, accounted for only about 2.9% of US steel imports, data compiled by Wood Mackenzie showed. The world’s top steel-buying nation, the US imported a total 35.6 million tonnes last year.

Some of those Chinese products meant for the US would go to Southeast Asia, said Roberto Cola, vice president of the ASEAN Iron and Steel Council.

“There will be excess supply in the region and prices will drop, which will be good for consumers,” Cola said.

With some of the world’s fastest-growing economies including the Philippines and Vietnam, Southeast Asian countries are among the world’s major steel buyers with many of them having limited and costly domestic steel-making capacity.

Southeast Asia accounted for about a quarter of China’s steel exports in 2017, Cola said.

As prices drop, China will face competition from other suppliers such as Russia, Ukraine, the Middle East and Turkey, said CRU analyst Richard Lu.

But strong domestic demand may help China absorb the excess steel, Lu said. Chinese steel shipments have dropped since hitting a record 112.4 million tonnes in 2015.

‘They have to shut’

Japan and China are two of the biggest Asian exporters of aluminium to the US, accounting for 11% and 14% of those countries’ total shipments.

As Chinese aluminium producers look for new export markets, they could offer competition to manufacturers in South Korea Indonesia, Vietnam and Thailand, while tighter margins could accelerate their plans to set up units offshore.

“We believe the fabricators are able to divert their exports to other Asian countries if the US situation plays out as they expect,” said a source at a global trading house in Shanghai.

China Hongqiao Group, the world’s biggest aluminium producer, is already looking into the possibility of moving recently shuttered illegal smelting capacity overseas, mainly to Indonesia.

But import duties on semi-manufactured aluminium products in some Asian countries could make it tougher for China to enter them, said a Singapore-based physical aluminium trader.

“China has no choice, they have to shut. But ultimately US consumers will have to bear the brunt of the price increase because the industry needs it. It’s more about politics than aluminium,” the trader said.

“I expect retaliatory moves from other countries,” said Cola from the ASEAN Iron and Steel Council.

“What Trump is doing is an unprecedented move, it’s going back to the old days of protectionism.”

(Reuters)

Gold Imports: How a GST Loophole is Triggering a Game of Whack-a-Mole

The lower cost of gold through an unintended loophole triggered increased imports from South Korea. But banning this will only unravel the point of a free-trade agreement.

Credit: Reuters

Editor’s note: Gold imports from South Korea surged to $339 million between July 1, 2017, and August 3, 2017. In the same period last year, gold imports from the country were only $70.5 million.

So this story is worth a tell.

India has had this major problem with gold imports. So they introduce a 10% import duty on gold. But then, India also has free trade agreements (FTA) with some countries – notably, South Korea. Where they make some refinements to gold, and then export it everywhere.

A free trade agreement means no customs duty. But you can’t have zero import duty from South Korea, and then 10% from everywhere else, because then everyone in India will simply import gold from South Korea.

So, India had to do something. What it did was to introduce a 12.5% excise duty on gold. When you import something that has an excise duty there is a “countervailing duty” (CVD) that applies even if you have no customs duty. This is simple – if you would pay 12.5% to make that gold in India, you will pay that 12.5% on imports from anywhere else as well.

Now, from July 1, India introduced a new tax regime called GST. The goods and services tax removes the entire concept of excise duty. For gold, the GST is 3%.

Guess what happens? Customs duty still applies, so if you import from Dubai, you pay 10% customs duty and then 3% GST.

But what happens if you import from Korea? There cannot be customs duty because of the FTA. The GST is 3% and there is no more excise duty, and thus, no countervailing duty.

So the effective rate for imports from Korea is just 3%.

India and Indians love loopholes. From July 1 to August 21, around 27 tonnes of gold – worth about Rs. 8,000 crore – was imported from Korea. That’s a lot more than it used to – and the lower cost of gold through an unintended loophole triggered the action.

They plugged it, but Indonesia?

On August 25, India removed gold and silver from the list of “free” items from Korean imports. Of course, Korea doesn’t like it. In a free trade agreement, you can’t unilaterally decide that something you import is taxed but other stuff is not. The government’s defense is that the imports from Korea is actually gold from Dubai which is only marginally changed in Korea.

Expect some drama.

Meanwhile, Indonesia – another country which we have an FTA with – is now seeing big gold exports to India.

Until, we guess, the Indian government bans it. Here the Indian government is actually on sticky ground because Indonesia actually mines gold, so it’s not like they have to import it from Dubai or elsewhere. Bans will unwind the FTA and create a bitter taste for anyone with an FTA with India.

Two things we learn: India loves its gold, and it loves to find loopholes in laws. It’s actually admirable – because in all honesty this extra duty on gold is really not a good thing – you can’t increase a price of something that is attractive for its price, in an attempt to decrease demand.

In any case, plugging loopholes is the job of the government; you can’t second guess what is “desirable” and what is not.

This piece was first published on Capitalmind and has been reproduced here with permission.