Indian exports

At USD 19.1 Billion, India’s Merchandise Trade Deficit Rose to Four-Month High in April

The deficit was driven by a surge in gold and oil imports, and a marginal increase in exports in comparison to the corresponding period in the previous year.

New Delhi: At $19.1 billion, India’s merchandise trade deficit was at a four-month high in April this year, owing to a surge in gold and oil imports, and a marginal increase in exports in comparison to the corresponding period in the previous year.

The goods trade deficit had gone up to $19.1 billion in April from $15.6 billion in March. In April 2023, it had stood at $14.4 billion.

The deficit figures for April this year fell short of the expectations of economists, who had said the deficit would be down to $17.23 billion.

Exports in April this year marginally rose to $34.99 billion compared to $34.62 billion recorded last year during the same period. In fact, the exports in April this year dropped from the previous months, when they stood at $41.68 billion.

According to a senior official from the commerce ministry quoted by Livemint, said both exports and imports have had seasonal impacts, doing well in some months and staying relatively muted during others. He said April saw such a seasonal impact on exports.

Indian exports are being impacted due to a slowdown in global growth, in turn, impacted by the tightening of interest rates resulting out of persistent inflation, particularly in Western economics. Consequently, there has been a slowdown in global business, investment and trade.

Following a contraction in global trade in 2023, there has been a slow pace of pickup in 2024, which is directly resulting from high energy prices and inflation. The ongoing crisis in West Asia, Ukraine, and the Red Sea has also had an impact on world trade.

At $54.09 billion in April, the total value of merchandise imports in the case of India were higher than the $49.06 billion imports recorded during the same period of the previous year. In March 2024, merchandise imports stood at $57.28 billion.

Even gold imports doubled to $3.11 in comparison to $1.53 billion in March and $1.01 billion in April 2023. As the world’s third-biggest consumer of oil, India imported $16.46 billion of oil in April compared with $17.23 billion in March and $13.69 billion in April 2023.

Due to Record High Oil Purchases, Russia Emerges as India’s Second Largest Source of Imports

Russia’s exports to India shot up from $22.13 billion during April-October in fiscal 2023 to $36.27 during the same period in the current financial year.

New Delhi: Russia has been India’s second largest source of imports for the last seven months in the current financial year due to increased oil purchases from Moscow, Economic Times reported citing government data.

This is a marked difference from the situation that had existed during the same period last year. Before Russia, it was the United Arab Emirates which was in second place. The UAE is now India’s third largest source of imports. Meanwhile, China continues to be in the top spot.

The five largest exporters to India currently are China, Russia, the United Emirates, the United States, and Saudi Arabia.

Russia’s exports to India shot up from $ 22.13 billion during April-October in fiscal 2023 to $36.27 during the same period in the current financial year. India’s imports from Russia had risen by about 67% to $ 30.42 billion during the April-September period this fiscal on higher shipments of crude oil and fertiliser, according to the commerce ministry data.

Meanwhile, China’s exports to India remained almost the same during the same period (April-October 2023), with a marginal decrease, from $ 60.26 billion to $ 60.02 billion. On the other hand, UAE’s exports to India fell from $ 31.67 billion to $ 24.91 billion in the same period.

Meanwhile, India’s trade deficit is at a record high of $31.46 billion as imports have shot up by 12.3%. The trade deficit widened to $31.46 billion last month, much higher than economists’ expectation of $20.50 billion. The expectation was as measured earlier by a Reuters poll.

The top five India export destinations are the US, UAE, Netherlands, China, and the UK, which have remained unchanged since the last fiscal.

Watch | ‘Without a Full Trade Partnership, You Don’t Have the Ballast for a Strategic Partnership’

Retired Indian diplomat and professor Mohan Kumar explains how international trade is becoming more preferential, strategic, and reciprocal in nature.

In this episode of National Security Conversations, Dr Happymon Jacob speaks with Dr Mohan Kumar, retired Indian diplomat and professor of international affairs at O.P. Jindal Global University, about the recently concluded free trade agreement between India and Australia.

The discussion dwells on India’s foreign trade policy more generally. Kumar explains why India opted out of the RCEP negotiations and highlights that India’s approach now is to have Free Trade Agreements with individual countries tailor-made to suit its exports.

He also highlights that migration issues in the trade flow can be reduced by the ‘Labour Mobility and Partnership’ Agreement between the countries.

Kumar also stresses the importance of foreign trade in the growth of India’s GDP. While addressing the lack of competitiveness in the Indian markets, he discusses the lack of political will that has allowed India to be held hostage to vested interests in terms of foreign trade agreements.

He points out how India is moving from the Act East policy to entirely acting West in FTA negotiations. He is critical of India for not promoting regional trade agreements with its South Asian neighbours. While he believes that trade partnerships with Japan, Australia and South Korea can help reduce India’s dependency on China, he is concerned about India’s trade with ASEAN.

India’s exports face higher tariffs in the ASEAN market than the Chinese exports to ASEAN. Alerting us to the significance of Vietnam’s foreign trade agreements with the European Union, he makes a case for India and the EU to conclude an FTA or Indian products will lose out to Vietnamese products.

In summary, Kumar explains how international trade is becoming more preferential, strategic, and reciprocal in nature, opposite to what the WTO-regulated MFN-based trade had to offer.

How India and its South Asian Neighbours Fared During the US-China Trade War

Contrary to expectations, India’s gains from trade diversion in manufactures over 2017-19 were only $1.2 billion, while Bangladesh’s were only $390 million.

The Trump era was tumultuous in many ways, not least for the US trade policy during 2017-19. In particular, the prevailing trade spats between the US and China broke out into a full-scale trade war during 2018.

The US raised import tariffs from an average of 3.8% in mid-2018, to a peak average of 21% in mid-2019. China retaliated by raising average tariffs on US imports from 7.2% to almost 22% during the same period. These tariffs have largely remained in place on both sides. Besides tariff actions, an additional 200 Chinese companies such as Huawei were slapped with US export controls.

The Biden administration, which took office in January 2021, not only retained the high tariffs, but imposed further trade restrictions against China by adding to the “Chinese entities list” with whom the US persons and firms cannot have business dealings without a license. It also prohibited US investments in 59 Chinese entities that are involved in “defence and surveillance technology.”

The trade war provides a “natural experiment” (in this case, a dramatic change in economic policy targeted at one country) to gauge the readiness of next-in-line countries to become global manufacturing powerhouses. The trade war was expected to divert trade from China to other exporting countries, especially those that competed strongly with China for the US market.

Countries competing with China include some of its East Asian neighbours like Vietnam and Indonesia, South Asian countries like Bangladesh and India, and some Latin American countries, especially Mexico. What transpired? How did emerging market exports to the US market fare during this trade war? How ready are other countries, especially the leading exporters of South Asia, to replace China in the long-term?

Also read: Heavy Reliance on High-Value Chinese Imports Indicates We Need an ‘Atmanirbhar Bharat’ Review

Impact on India and Bangladesh

In South Asia, the two biggest exporting nations are India and Bangladesh. India is among the top ten exporters to the US, and aspires to triple its global exports of goods to $1 trillion by 2028. Given its size and stage of development, vast endowment of labour (unskilled and skilled), diversified industrial base and a large and expanding domestic market to hone product innovations, India is sometimes seen as the natural country to replace China as the world’s factory.

Bangladesh, endowed with low-cost labour and enjoying extraordinary success in apparel exports, has significant unrealized potential to emulate Vietnam’s success in diversifying away from apparel exports and thereby sustain its export growth. Pakistan, for long the second biggest exporter in South Asia, has seen its exports stagnate over the last decade; Bangladesh became a bigger exporter in 2014, and the gap between the two countries has only grown larger since then.

To document the impact of the trade war, we compare the data for imports of manufactured goods in 2017, before the trade war started, to 2019, the year in which the full impact of the war was felt. We do not include 2020 data, since this is complicated by the impact of the pandemic. Moreover, there was a truce of sorts in February 2021, when the US and China brokered a phase one trade deal, even though the tariffs on imports from China were “agreed” at six times higher than before the trade war.

Between 2017 and 2019, US imports of manufactures from China fell by a hefty $53 billion, but this was dwarfed by a $209 billion surge in imports from other countries. Clearly, not all the increase can be attributed to the diversion in imports from China. Other factors that need to be taken into account include pre-existing trends in competitiveness of different countries, rise in overall US import demand and any other country and sector-specific demand-supply shocks that could confound the calculations of trade diversion away from China. This can be done via simple counter-factual analysis, which we have done in a forthcoming paper at the Centre for Policy Research.

Trade diversion is estimated at six-digit product levels, and focuses on products where imports from China fell at least by $50 million. For each product the total trade diversion is equal to the decline in imports from China; it is allocated across countries in proportion to the actual increase in their export of the product between 2017 and 2019. The benefits of trade diversion are reaped only when a country is a significant exporter of the products seriously affected by the trade war. For example, Mexico, the top gainer in overall exports, exported $39 billion more between 2019 and 2019, but its trade diversion gains were only $6.6 billion, the third highest among all countries.

Our results show that, contrary to expectations, India’s gains from trade diversion in manufactures over 2017-19 were only $1.2 billion, while Bangladesh’s were only $390 million. Pakistan’s gains were as low as $80 million. Vietnam, on the other hand, gained a much larger $8.5 billion. Vietnam’s market share in the US had already been rising prior to 2018, and accelerated further after the trade war.

However, India has more diversified exports than Vietnam’s, and a much greater overlap than Vietnam with the Chinese export basket to the US – hence, the prior was that India should have gained more than Vietnam from trade diversion in manufactures. Finally, apart from Vietnam, Cambodia also outperformed both Bangladesh and Pakistan.

Overall, South Asian countries did not match the trade diversion gains of their East Asian counterparts. The evidence is clear. Unless a country was already a strong competitor in 2017 in critical products which witnessed the sharpest decline in imports from China, there was less likelihood that it could scale up its supply to take sufficient advantage.

Also read: Boris Johnson Wants a Trade Deal With India. But Will the UK Accept Looser Immigration Rules?

The path ahead

Even prior to the trade wars, China was gradually giving some market space to other countries, especially in labour-intensive products. This trend is being accelerated by the US-China trade war and the pandemic, as importing countries try to diversify their sourcing away from over-reliance on China. There may also be opportunities in higher technology goods, as the US has stated its intention to diversify the sources of such goods. But the contest to prise away market shares from China will be tough, with many countries in the fray – including East Asian countries such as Vietnam and Cambodia, and Latin American countries such as Mexico. In higher technology products, while countries such as South Korea and Taiwan will be formidable competitors, they could also be partners in technological upgrading and global value chains.

The natural experiment in the form of the US-China trade war enabled us to enhance our understanding of competitive capabilities of some of the leading countries exporting to the US market. The results were not flattering to India and Bangladesh, the biggest South Asian exporters.

Moving forward, South Asian countries will need to do some dispassionate analysis of their trade and investment regimes. A common affliction in South Asia is high and rising protection, which hurts its capacity to become a core part of global value chains, even more so in a world in which reciprocity is getting to be the dominant mantra.

Apart from addressing its growing protection, India would benefit from a strategic review of its industrial promotion policies that is more consistent with a forward-looking trade agenda. In the case of Bangladesh, its impending graduation out of its “least developed country” status poses a formidable challenge to the sustainability of its export boom, and it needs an urgent and serious review of its trade and investment policies, including a roadmap for tariff reform.

Finally, for South Asia as a whole, one unexploited development opportunity lies in deeper regional economic integration – in the context of the current discussion, for example, developing regional value chains and intra-regional foreign direct investment as a springboard for export growth, within South Asia and beyond.

Sanjay Kathuria is senior visiting fellow at the Centre for Policy Research, India; fellow at the Wilson Center, Washington, D.C; non-resident senior fellow at the Institute of South Asian Studies, Singapore, and visiting professor at Georgetown University and Ashoka University. He tweets @Sanjay_1818.

T.G. Srinivasan is senior visiting fellow at the Centre for Policy Research, India.

India’s Big Promises on ASEAN-Focused Projects – How Have They Fared?

The Wire’s update on the status of India’s high-profile assurances to ASEAN in sectors ranging from trade to connectivity.

New Delhi: On October 28, when Prime Minister Narendra Modi took part virtually in the annual ASEAN-India summit for the ninth time, it was part of the yearly stock-taking exercise by the regional group of 10 South-East Asian states to review and plan its engagement with its dialogue partners.

With the centre of gravity of geo-politics moving consistently towards Asia, there is intense competition among major powers to woo the ASEAN economies with investment, soft loans and projects.

Within six months of his electoral victory, Modi officially renamed India’s ‘Look East’ policy into an ‘Act East’ strategy to project a more proactive commitment to the region. In 2018, he hosted the leaders of the 10 countries to mark 25 years of ASEAN-India relations. Next year, both sides will mark the 30-year milestone as ‘ASEAN India Friendship Year.’

Here is The Wire’s update on the status of the high-profile assurances to ASEAN in sectors ranging from trade to connectivity.

FTA review yet to start, RCEP withdrawal continues to cast a shadow

In November 2014, Modi assured a “major improvement in our trade policy and environment” during his first speech to ASEAN leaders. He called for a review of the India-ASEAN free trade on goods and urged the Free Trade Agreement (FTA) on services and investment to be brought into force.

He also said that the then under-negotiation Regional Comprehensive Economic Partnership (RCEP) agreement could be a “springboard for economic integration and prosperity” if it were a “balanced agreement”.

Seven years later, RCEP is now in force, but India dropped out at the last minute before the text was finalised in Bangkok in 2019.

Two months earlier, both sides had agreed to “initiate the review” for the FTA agreement on goods.

But frustration over the eleventh-hour withdrawal from RCEP, negotiation fatigue among ASEAN and the COVID-19 pandemic has meant that the review has not even begun.

Swaraj India President Yogendra Yadav and members of All India Kisan Sangharsh Coordination Committee (AIKSCC) raise slogans against the possibility of India joining the RCEP in New Delhi. Photo: PTI/File

“There was a feeling among certain ASEAN members that India led them up the garden path on RCEP,” said a diplomatic source, who had access to the ASEAN-India channels during negotiations. There is also a perception in South-East Asian capitals that India is not ready to open up its economy, and therefore, any further negotiation for review of the FTA will not be mutually advantageous.

Also read: ASEAN-india Summit: Land Reclamation in South China Sea, Violence in Myanmar Discussed

Obviously, Raisina Hill has a different perception. Speaking at a seminar earlier this month, commerce and industry minister Piyush Goyal stated that India had witnessed exponential growth in imports from ASEAN. At the same time, Indian exports were impeded by “non-reciprocity in FTA concessions, non-tariff barriers, import regulations, quotas and export taxes from ASEAN countries”.

In his remarks at the 2021 summit, Modi again called for an “early review” of the FTA on goods. The ASEAN chair also replied that they to the review”, but no specific deadline was mentioned. He also added that given India’s role in regional value chains, ASEAN “looked forward to India’s participation in the Regional Comprehensive Economic Partnership (RCEP) whenever it is ready to do so”.

Meanwhile, the ASEAN FTA agreement on services has come into force, while FTA on investment has been ratified but not operationalised.

A thousand fellowships in IITs

At the January 2018 commemorative summit, the announcement of 1,000 doctorates for ASEAN citizens in India’s prestigious Indian Institutes of Technology (IITs) was highlighted as a significant announcement by India. The programme was jointly inaugurated in September 2019 by external affairs minister S. Jaishankar and then human resources development minister Ramesh Pokhriyal Nishank.

With a budget of Rs 300 crore, it was described as the “single largest capacity development initiative of India in its partnership with ASEAN”. IIT-Delhi was designated as the coordinator for the project, and admissions were to be staggered over three years from 2019 to 2021.

As per the website, an average of 20 candidates were selected in the three annual rounds of application for the doctoral fellowship.

Three years after the launch, there are 35 students enrolled in 15 IITs under this programme.

A massive fully-funded PhD fellowship programme at IITs for students from ASEAN countries was launched on September 16, 2019 by Extremal Affairs Minister S Jaishankar. Photo: Twitter

At an international webinar on India-ASEAN cultural linkages on October 8, the project coordinator, IIT-Delhi’s professor Nomesh Bolia, stated that the timing of the launch of the project had led to many challenges.

Within six months of the launch, the coronavirus pandemic started to shut down national borders.

“We would have wanted much, much more. There are provisions for a lot more, but the pandemic has hit us badly,” he said.

Along with COVID-19, there were other challenges such as English language skills and even internet connectivity to interview candidates.

“There were all kinds of issues… everything starting from the candidate not having good connectivity during the interview round to panels having to do phone interviews as the internet was not available. Even after selection, candidates could not join for a whole lot of issues at their end,” he said. However, Bolia expressed optimism that admissions would pick up as the impact of the pandemic subsides, and international travel returns to normal.

Following the summit on Thursday, ASEAN asked India to look at “possible expansion of the programmes for Bachelor’s and Master’s Degrees”.

No MoU signed for ASEAN-India Centre

At the 2012 commemorative summit, the vision statement announced the setting up of an ASEAN-India Centre that would be a resource destination for promoting trade, investment, tourism and people-to-people exchanges. Next year, it was opened as a division within the MEA’s economic think-tank, Research and Information System (RIS) for Developing Countries.

It had been originally envisioned on the lines of resources centres that ASEAN had collaborated to open with other dialogue partners. The centres hosted by different countries were based on an inter-governmental memorandum of understanding signed with the ASEAN secretariat and included staff from ASEAN member states.

The discussions over the governance and operation of the centre spilled over into the NDA period. It had been part of the ‘Plan of Action’ for 2016-20 under the ‘political cooperation’ section.

At the 2016 and 2017 ASEAN-India summits, the ASEAN side brought it up. The chair’s statement at the 2017 summit pushed India for an “early signing” of the MoU.

According to sources, the text of the MoU had been nearly finalised and ready to be signed when it was shelved by the Indian side unwilling to give up control over the centre. “ASEAN countries were rather upset as the MoU had been negotiated and ready. They raised it multiple times,” said a diplomatic source.

Also read: How the Tablighi Jamaat Issue Spilled Over Into India-Indonesia Relations

ASEAN studies centre in North-Eastern Hill University

During his visit to Kuala Lumpur in 2015, Modi said at the opening of the ASEAN-India summit that he deeply valued “collective efforts to revive the cultural pillar of our relations”. “An international conference on ASEAN-India cultural links was held in New Delhi in July. We are proposing to open an ASEAN Studies Centre in our North-Eastern Hill University (NEHU) in Shillong,” he announced.

It was officially launched eight months later on ASEAN’s foundation day in 2016.

Five years on, the study centre doesn’t exist anymore.

Speaking to The Wire, C. Joshua Thomas, former coordinator for the centre and deputy director of Indian Council for Social Science Research (ICSSR) till last year, confirmed that the ASEAN studies centre is no longer functional. The previous website of the centre is not available on NEHU’s portal. During his last visit to Shillong, he observed that the signboard for the centre had also been taken down.

Thomas, who superannuated last year, had hoped to model the centre on the Asian studies centre in Thailand’s Chulalongkorn University. “Ultimately, I didn’t get the support that was required. The centre became a victim of the tussle between the host university and ICSSR.”

There had also been several delays in releasing funds from the MEA. In the first year, the money came in August. But during the next two years, the funds were available only in the last few months of the financial year.

India’s lines of credits

There is no indication that there has been any substantive utilisation of the line of credit for $1 billion for connectivity projects in ASEAN, announced by Modi in 2015.

In January 2018, then MEA’s secretary (east) Preeti Saran had noted, in an answer to a question on the utilisation of the line of credit, that it “takes time” for countries to finalise projects. “There have been some discussions that offer stays on the table, and we hope that by the time that summit takes place, there would be some request for concrete proposals which itself would be a good development,” she stated.

An Indian Express report of March 2018 also observed that none of the countries had come forward to utilise the soft loan. It quoted unnamed Department of Telecom officials saying that EXIM bank procedures were extremely “cumbersome”.

In the latest 2021 ASEAN-India summit, the chairman’s statement had a bland reference to the long-standing line of credit. “We also looked forward to concrete cooperation in sustainable infrastructure, including through capacity building activities and enhancement of investment and business environments. In this regard, we welcomed India’s proposal to utilise its line of credit of $1 billion for supporting physical and digital connectivity projects,” said Brunei Darussalam’s Sultan Haji Hassanal Bolkiah.

The Indian prime minister’s statement also has no reference to the line of credit of $1 billion, even though it had been part of his remarks at the same platform last year.

Sources have indicated that there still has not been any major pick-up in utilising the lines of credit. They point out that the region gets offers from multiple countries and financial institutions, so the Indian loan has to have exceptionally attractive terms.

There is also hesitation among the targeted countries to sign the sovereign guarantee required to avail the line of credit from Exim bank, added diplomatic sources.

The Highway of Hope, paved with delayed deadlines

First greenlighted in 2002, the India–Myanmar–Thailand Trilateral Highway is the proposal for a 1,360 kilometres-long road connecting Moreh in Manipur to Mae Sot in Thailand via Bagan in Myanmar. The road component of the highway would finally be completed in 2022-23, a delay of eight years from the initial deadline.

However, it may not be enough. A report published this month by the ASEAN-India Centre at RIS noted that the work on the 69 bridges on the route are yet to start after it was delayed due to litigation at Manipur high court. “Without the completion of the bridges, the Trilateral Highway cannot be made operational for cargo vehicles and passenger bus services between India and Myanmar,” it said.

The India-Myanmar-Thailand Trilateral Highway will run from Moreh in Manipur to Mae Sot in Thailand via Myanmar. Photo: Reuters

Further, there is no sign that the motor vehicle agreement (MVA), which is supposed to decide the soft infrastructure for the movement of vehicles, will be finalised before the trilateral highway is completed in the first half of next year. “Without the MVA, the Trilateral Highway will be non-operational,” said the report.

It noted that despite the criticality of the agreement, “the reality is that progress in the negotiation of the MVA between India, Myanmar, and Thailand for the Trilateral Highway has been slow”.

In 2018, the Indian government commissioned a study from the Economic Research Institute for ASEAN and East Asia (ERIA) on the extension of the Trilateral Highway to Cambodia, Laos and Vietnam.

Briefing the media after the 18th ASEAN India summit on Thursday, secretary (East) Riva Ganguly Das stated that the “report is also ready and we are waiting for a response from ASEAN on how to proceed further on this”. The ERIA report had been finished before the 2020 summit, as its completion had been acknowledged in the chairman’s statement last November.

Reminding that there are other long-standing connectivity pacts that have yet to come to fruition, the chairman’s statement also affirmed support for efforts towards “initiating discussion on the ASEAN-India Air Transport Agreement (AI-ATA) and the ASEAN-India Maritime Transport Agreement (AI-MTA)”. These agreements have been under negotiations since 2013 and 2011, respectively.

India’s Exports Drop by 6% to $26.13 Billion in August

Imports too declined by 13.45% to $39.58 billion, narrowing the trade deficit to $13.45 billion in August.

New Delhi: India’s exports dropped by 6.05% to $26.13 billion in August compared to the year-ago month, official data released on Friday showed.

Imports too declined by 13.45% to $39.58 billion, narrowing trade deficit to $13.45 billion in August. The deficit was $17.92 billion in August a year ago.

Export sectors that recorded positive growth in the last month include iron ore, electronic goods, spices, and marine products.

Shipments of gems and jewellery, engineering goods, petroleum products recorded negative growth, according to the data.

Also read: Narendra Modi Must Stop Any 11th-Hour Attempt to Erode Fiscal Autonomy of States

Oil imports declined by 8.9% to $10.88 billion, and non-oil imports fell by 15% to $28.71 billion.

Cumulatively, during April-August 2019, exports were down 1.53% to $133.54 billion while imports contracted by 5.68% to $206.39 billion.

Gold imports plunged 62.49% to $1.36 billion in August.

India Contemplates Bartering Basmati Rice with Iran to Bypass Sanctions

Last year, India exported $4.17 billion worth of basmati rice and Iran was the largest buyer.

The payment system with Iran is being relaxed further for basmati rice exports. This comes after the US allowed India to continue importing crude oil from Iran and develop the Chabahar port.

India is now finalising guidelines for exporting basmati rice to its largest importer – Iran – on a rupee payment basis. The move has come as a positive development for exporters who are paying a higher price for procuring basmati.

Last year, India exported $4.17 billion worth of basmati rice and Iran was the largest buyer (at $905 million). In the first five months of 2018-19, exports have already crossed $2 billion and Iran continuous to be the largest buyer for India followed by Saudi Arabia.

When the US announced sanctions against Iran, farmers had already increased area under basmati but exporters were cautious. However, the recent exemption for Iran followed by easing of the payment crisis has lifted the sentiments of basmati exporters.

Also read: India, China Among Eight Countries Allowed to Buy Iranian Oil: Mike Pompeo

“Higher paddy price this season has put some pressure on the retail price, especially if you consider that there is recession in the global market. However, there has been some stabilisation now and we expect a good basmati export cycle this year,” Kohinoor Foods joint managing director Gurnam Arora told Business Standard.

He further said that the ‘Iran issue’ had also been resolved to a large extent and traders have been allowed to barter deals and consignments valued in rupee terms. “The guidelines are being formulated and we are confident that Iranian basmati imports would start soon.”

Iran normally opens its market for basmati import by mid November after taking into account its domestic production and demand matrices.

All-India Rice Exporters Association (AIREA) executive director Vinod Kaul claimed that although some of the basmati crop had been damaged, yet it was not significant and that the final assessment was being done.

“The new basmati crop has started coming to the market and we are confident that Iran would account for about one million tonnes (MT) of exports this season,” he added.

India is also bullish about the prospects of the Chinese market, although it basically imports non-basmati rice varieties now. Recently, a buyer-seller meet was organised in China, where five-six Indian rice exporters had participated even as the country approved 24 domestic rice millers.

However, the Chinese basmati market would still take some years before it ‘matures’ for domestic exporters, Arora added.

China is the world’s largest producer and importer of rice and procures about 5 MT every year. India has estimated a potential sale of one MT of rice to China. The country planned to boost rice and sugar exports to narrow the trade gap with China.

Recently, five new rice mills were cleared for exporting non-basmati rice to China, taking the total to 24 rice mills. In May 2018, Chinese officials had inspected rice mills capable of exporting non-basmati rice.

Meanwhile, basmati exporters have also been exploring other markets like the US, European Union and Latin America. Yet, the results have not been encouraging.

Last year, total basmati exports from India stood at little over 4 MT with almost 80% of the consignment going to West Asian countries, led by Iran. However, exporters are still unsure if last year’s export figures would be matched.

Following better global demand last year, farmers had increased sowing and sown new basmati varieties like 1401, 1509, apart from the 1121 type. “Sowing has increased but quality has been affected. This was because pest attack lowered the yield, resulting in higher market price at a time when Iran hopes have revived,” said Devendr Vora, director of Friendship Traders, a new Bombay-based trader-exporter.

West Asia, China and Iran may be big importers. As a result of high export demand and lower-than-expected crop (may be due to quality), the market is bullish.

Domestically, Haryana and Punjab account for 40-45% of the total basmati production in India, followed by Uttar Pradesh at 10-15%. India’s net rice exports (including basmati) increased from 10.8 MT to 12.7 MT last year, thus allowing the country to retain the top slot in the commodity’s global trade.

This article was originally published in Business Standard. Read the original article.

India in a Bind as it Considers How to Respond to Trade Skirmishes with the US

In two weeks, India will have to decide whether it wants to impose retaliatory tariffs on US goods. At stake is the GSP scheme, which accounts for 12% of Indian exports to the US.

New Delhi: The Narendra Modi government faces a tough call as its November 2 deadline, which has been deferred more than once already, for imposing retaliatory import duty on 29 US products nears.

If it goes ahead with proposed punitive tariff changes, the Trump administration could respond with tit-for-tat measures, including withdrawal of Generalised System of Preferences (GSP) benefits to Indian exports.

In June, India announced retaliatory action against the US decision to hike tariffs on steel and aluminium imports. However, it has twice extended its imposition deadline to give diplomacy a chance to sort out trade issues with the US.

Also Read: India Retaliates Against Trumps’s Tariffs With Raised Duties on Goods

Apart from retaliatory tariffs, Trump’s demand for a more open market for agriculture products, automobiles and capping of prices for medical devices are the other potential flashpoints in India-US trade ties.

Under the GSP scheme, India exported merchandise worth $5.6 billion to the US at zero or low tariff in 2017-18, which accounted for nearly 12% of its total exports to that country.

If India is shut out of the GSP, its exports to the US could become 5-6% costlier. In that case, India could lose US market share to rivals like Vietnam and Bangladesh, which have duty-free access, warn trade experts.

Engineering, chemical and textile sector are some of the sectors that could be hit hard in case GSP benefits are withdrawn by the US. This is a worrying prospect, considering all these sectors are dominated by small and medium-sized enterprises.

Benefits offered by the US to the developing countries under the GSP scheme are non-reciprocal. However, the US can withhold GSP benefits to a trading partner if it finds that its exports are facing market access hurdles in that country.

Under the GSP scheme, India exported merchandise worth $5.6 billion to the US at zero or low tariff in 2017-18, which accounted for nearly 12% of its total exports to that country. Credit: Reuters

The US Trade Representative is currently conducting a review of India’s eligibility to avail GSP benefits. It is examining two petitions submitted by dairy producers and manufacturers of medical devices.

While the National Milk Producers’ Federation and the US Dairy Export Council have complained about restricted market access for farm products, the Advanced Medical Technology Association has raised the issue of price caps on coronary stents and knee implants.

Trump has publicly attacked India and even called it a “tariff king” and threatened to retaliate. However, there are indications that Indian policymakers have not taken his threat seriously as they feel that the flourishing India-US strategic partnership will prevent Trump from acting unilaterally in trade matters.

Another reason why they think that Trump will desist from carrying out his threat is modest duty gain (nearly $200 million) that will accrue to the US if GSP benefits to Indian exports are withdrawn.

Also Read: Trump’s Trade Wars Are Starting to Backfire

The share of India’s GSP exports to total US has fallen from 30% in 2011-12 to 11.5% in 2017-18, Ajay Sahai, director general, Federation of Indian Export Organisation (FIEO) noted to highlight India’s declining dependence on GSP quota.

But Sahai agreed that even if the GSP may not be that critical for overall Indian exports, individual exporters could be hit if the benefits are withdrawn by the US.

“SMEs exporting to the US think that GSP gives them sufficient cushion,” Sahai told The Wire.

However, experts have warned against taking Trump’s threat lightly given the way he has declared trade war against China and imposed retaliatory tariff on imports from allies like Japan and Korea.

For example, Anwarul Huda, professor at Indian Council for Research on International economic Relations (ICRIER), feels that Trump’s threat, which may be bargaining tactic, should be taken seriously.

Huda fears that selective withdrawal of GSP benefits to Indian exports could dent its competitiveness in the US market, working to the benefit of rivals like Vietnam and Bangladesh.

Trump recently said India has offered negotiations to sort out bilateral trade issue with the US. He exulted at the reported Indian offer, presenting it as victory of his hard-nosed approach on trade relations.

Also Read: At G7, Trump Accuses India of Charging 100% Tariff on Some US Imports

“We have a country, take India. Good relationship. They want to make a deal now because they don’t want me to do what I’m going to do, with I have to. So, they (Indians) call us. They didn’t want to make a deal with anybody else,” Trump had gloated.

The US’s industrial tariffs have fallen to close to zero after several rounds of trade liberalisation. But on the other hand, India still continues to impose high import duty, which riles Trump.

For example, India has kept high tariffs on automobiles and motorcycles (60-75%), alcoholic beverages (150%) and textiles (some ad valorem equivalent rates exceed 300%).

What is even more worrying for the US is that as much as 25% of India’s industrial tariffs remain unbound at the WTO.

According to latest WTO data, in 2015 India’s average bound tariff rate was 48.5%, while its simple ‘most favoured nation’ average applied tariff was 13.4%. The US has expressed concern over this, saying its exporters face tremendous uncertainty as India has considerable flexibility to change tariff rates at any time.

As Modi prepares to seek re-election next year, can he risk alienating these small businesses, which the BJP sees as its key political constituency?

Will Trump’s Tariff War Help India Deepen Its Trade with China?

While cotton and sugar are the menu, India may not succeed in other avenues such as soybean.

New Delhi: India has seen its trade deficit with China quadruple in the past decade – from $16 billion in 2007-08 to nearly $63 billion in 2017-18 – despite its best efforts to increase exports and reduce the imbalance.

Can India now take advantage of the ongoing US-China trade war to step up exports as Beijing explores the possibility of expanding trade ties with emerging economies to make up for the loss of US market?

The US-China trade war has thrown up export opportunities for India, but there are challenges to harnessing those opportunities, say experts.

Over the last few months, the Donald Trump administration has put up tariff barriers to Chinese exports worth more than $250 billion, provoking the latter to hit back with retaliatory tariffs on key American exports like cotton, soybean, maize, chemicals and petrochemicals.

Experts say India can fill China’s demand-supply gap for products like cotton, sugar, groundnut, groundnut meal, oilmeals, chemicals and petrochemicals where it has exportable surplus.

The Chinese market is now going to be very lucrative for Indian cotton exporters, said M.J. Khan, chairman, Indian Council of Food and Agriculture, a leading farm sector policy think-tank.

India exported goods and commodities worth $10.17 billion to China in 2016-17, and out of this cotton accounted for $1.34 billion, or 13% of total exports.However, cotton exports to China declined to $1 billion in 2017-18, as per data available with the commerce ministry.

China has imposed a 25% tax on US imports of cotton, and shipments from India are consequently expected to see a boost this year.

“India is already world’s largest cotton producer and it can further increase acreage of the commodity if it gets to replace US exports to China,” Khan told The Wire.

India can also increase sugar exports to China. India made a strong pitch to export sugar to China after the Wuhan informal summit between Prime Minister Narendra Modi and China’s President Xi Jinping in April this year.

Indian sugar mills are sitting on a surplus stock of seven million tonnes and they are looking for an opportunity to reduce it.

Following the summit, representatives of 25 Chinese sugar companies attended a close-door meeting with top functionaries of the Indian Sugar Mills Association (ISMA) to explore possibility of importing 1-1.5 million tonnes of sugar.

Soybean conundrum

China has imposed additional tariff of 25% on soybean, chemical products, and medical equipment imported from the US but reduced tariffs on many agricultural products including soybean from its Asia Pacific Trade Agreement partners comprising India, Sri Lanka, Bangladesh, South Korea and Laos.

However, India does not have exportable surplus of soybean and so it is not in a position to take advantage of disruption in US supply of the commodity to China.

That said, Indian industry hopes to export $100 million worth of soybean meal and about $50 million of groundnut to China on the strength of its new competitiveness. Currently, India does not export any soybean oil or flour of soybean but sends negligible amount of oilcake obtained from soybean oil extraction to China. Groundnut exports attract a 15% duty in China.

However, the industry fears non-tariff barriers could spoil their export prospects. The reason is that Chinese are not used to Indian food products. So it would be a challenge for the Indian industry to increase exports of agriculture products like meals to China.

India can also increase its export of oil-meals to China. India exported oil-meals worth Rs 4,758 crore in 2017-18, a 48% jump over the preceding year, according to the Solevent Extractors’ Association (SEA).

This figure is likely to go up this year.

India does not have a big surplus of maize either. For example, Indian maize export in 2016-17 was valued at just $153 million. Major destinations were Nepal, Bangladesh, Sri Lanka, the Philippines and Yemen.

The US is the second-biggest soybean supplier to China after Brazil. Soybean is most important for American farmers as China is the world’s biggest importer. The US is also the world’s biggest maize exporter, though its maize farmers do not rely on the Chinese market in the same way as soybean exporters.

Khan fears that the US could try to divert its surplus output of soybean and maize. If that happens, the Indian poultry sector, which uses soybean and maize as feedstocks, will benefit from cheaper availability of these commodities.

However, farmers could face the brunt of this tactic and might need increased subsidies to survive, warned Khan.

India’s major chemical exports to China are p-Xylene (para-xylene), o-Xylene (ortho-xylene), benzene, ethylene glycol, linear low density polyethylene (LLDPE), dyes and pigments.

Lower tariffs would further consolidate India’s share of the Chinese import market.

India has been pushing China to further open its market for Indian exports like agriculture commodities, IT and pharmaceuticals. During the India-China strategic dialogue in April and the Wuhan informal summit, India made a case for higher export of agriculture commodities and pharmaceuticals to China.

Are India’s Export Subsidies Overstaying Their Welcome?

Our export subsidy regime has provided fertile ground for some creative legal arguments and other not so creative ones. Unfortunately, its termination cannot be postponed any longer.

In May 2018, the World Trade Organisation (WTO) set up a panel to investigate the US’s allegations against certain export subsidy schemes in India.

The US has over the last eight years made two primary allegations – first, India cannot provide export subsidies because it is no longer a low-income developing country. And second, India is required to phase out its export subsidies in the textiles sector, in which it has achieved export competitiveness in 2010.

Do these allegations have merit and what is likely to be the fate of India’s export subsidy regime?

What makes India special?

As a rule, subsidies contingent on export performance have trade-distorting effects and are prohibited under WTO law. At the same time, they play an important role in the economic development programmes of developing countries, especially at the initial stages.

A compromise between these ideas led to the genesis of Article 27 of the Agreement on Subsidies and Countervailing Measures (ASCM), which provides for special and differentiated treatment for developing countries.

Under this regime, India, along with twenty other low-income developing countries, belongs to a special category of “annex VII(b) countries”.

These countries are permitted to retain their export subsidies so long as their gross national income (“GNI”) per capita at constant 1990 dollars does not exceed $1000 for three consecutive years. Further, if any Indian product achieves export competitiveness, i.e., its exports have a share in world trade of at least 3.25% for two consecutive years, export subsidies for that product must be gradually phased out over an eight-year period.

The year 2017 was a 12-month-period of reckoning for India’s export subsidies – not only did it mark India’s crossing of the $1000 threshold for the third consecutive year, but it also was the end of India’s eight-year phase-out period following its export competitiveness in the textiles sector.

India crossing the $1000 GNI per capita threshold

In 2017, India officially “graduated” from the ‘annex VII(b)’ category. India now must get rid of its export subsidies – a fact that neither India nor US disagrees on. The only disagreement is about when.

India argues that it is entitled to an eight-year phase-out period starting 2017.

According to Article 27(2)(b) of the ASCM, developing countries, whose GNI per capita was above $1000 on the date of entry into force of the WTO Agreement, were given an eight-year period to phase out their export subsidies. It would seem reasonable to also extend this leeway to developing countries that cross the $1000 threshold after entry into force of the WTO Agreement, such as India.

There is only one problem with this claim – it has no basis in the text of the ASCM. Accordingly, US argues that India was required to end its export subsidies immediately upon its graduation from Annex VII(b). India tried to circumvent this requirement in 2011, when, along with five other developing countries, it proposed a clarification to Article 27, ASCM that the eight-year phase out period would apply equally to Annex VII(b) countries, once they graduate. However, other countries viewed this as a substantive amendment to the ASCM, which they were unwilling to accept.

State practice under the ASCM also seems to undermine India’s claim. In 2001, the Committee on Subsidies and Countervailing Measures (“SCM Committee”) allowed Annex VII(b) countries to seek ad-hoc extensions beyond the graduation date, if they reserved this right before 31 December 2001.

Four Annex VII(b) countries – Bolivia, Honduras, Kenya and Sri Lanka – made such a reservation. Arguably, these countries would not have considered such reservation necessary, if they believed they already had an eight-year phase out period. However, three out of the four countries making the reservation also supported the 2011 proposal clarifying that the eight-year phase out period applied to graduating Annex VII(b) countries. Thus, it is likely that their reservations were only taken in abundant caution and do not amount to an implicit acceptance that they had no right to an eight-year phase out period otherwise.

Regardless, the absence of a textual basis is an insurmountable obstacle for India’s claim, especially given the WTO dispute settlement body’s adherence to textualism and its reluctance to add to or diminish the rights of countries through the interpretation of WTO treaties.

In all likelihood, the WTO panel will conclude that India must dismantle its export subsidy regime immediately.

India achieving export competitiveness in the textile sector

In 2010, the WTO secretariat calculated that India’s textile exports had crossed the 3.25% share in world trade for two consecutive years. Based on this, US made two claims – first, that India has taken no concrete action to phase out its export subsidies for textiles over an eight-year period till 2017 and second, that India has violated the standstill obligation in this phase-out period, by introducing new export subsidies, in the form of the Merchandise Exports from India Scheme, in 2015.

As to the first claim, India has an innovative response, hinged on an interpretative difficulty.

For calculating export competitiveness, Article 27.6 of the ASCM provides that “a product is defined as a section heading of the Harmonized System Nomenclature (“HSN”)” (emphasis added). Under the HSN, sections and headings are distinct levels of classification. It is unclear whether Article 27.6, by referring to “section heading”, requires products to be defined at the narrower “heading” level or the broader “section” level of the HSN.

Admittedly, regardless of how “product” is defined in the textiles sector, India has crossed the 3.25% threshold for two years as of 2010. However, the definition of “product” will impact the number of items for which export subsidies will have to be phased out. For instance, in the textiles sector, if there are 60 items under the narrower heading level and 100 items under the broader section level, then India needs to know whether it must phase out subsidies on 60 items or all 100 items. Until this interpretative difficulty about product classification is resolved, India refuses to commence the phasing-out process. Unfortunately, while taking this stance, India did not foresee that in exactly eight years it would graduate from the Annex VII(b) category. Thus, its product classification argument was rendered moot in 2017, since India lost the ability to have any export subsidies whatsoever.

This brings us to the second claim against India. Even if the phase out period started in 2010, India argues that there is no standstill obligation in Article 27.5 or 27.6 of the ASCM that prevents India from introducing new schemes. The only requirement is that these subsidies “be gradually phased out over a period of eight years.” This can be contrasted with Article 27.4, ASCM which calls for the subsidies to be phased out in a “progressive manner”.

The absence of a similar “progressive” requirement means that India does not violate any obligations by introducing new schemes, if all schemes are eventually done away with at the end of the period. Here, a textualist reading of the treaty, while unfavourable to India’s claim for an eight-year phase out period after graduation, could be of some benefit.

Only a matter of time

India’s export subsidy regime has provided fertile ground for some creative legal arguments and other not so creative ones. Unfortunately, its termination cannot be postponed any longer.

Perhaps the best indicator of India’s lack of confidence in the strength of its own position is that it has already started working to replace its existing subsidy schemes with WTO-compliant incentive schemes.

Therefore, the question is not whether India’s export subsidy regime has overstayed its welcome, but rather, what regime should take its place instead.

Ritwik Bhattacharya recently graduated from National Law School of India University, Bangalore and the co-founder of international law blog, crossingtheindus.wordpress.com.