Reform spurs hard drive for exports

16 February 1996

INDIA'S international trade is booming, in a striking sign that the government's programme of economic liberalisation is working. Exports are up for the second year in succession, while imports are rising on the back of a strong industrial recovery in 1995.

The improved performance has been encouraged by sweeping measures to remove many of the remnants of the command economy. These include slashing import duties, full convertibility of the rupee and the simplification of importexport procedures. 'After four years of liberalisation, the foreign trade sector has become the high growth sector, crucial for overall development including the balance of payments position and rapid integration with the global economy,' says the Ministry of Commerce.

The six months to the end of March are expected to see a growth in exports in excess of 26 per cent, far outstripping the 20 per cent overall rise in exports during 1995. This has encouraged some traders to predict an increase in exports from around $26,000 million in 1994-95 to $75,000100,000 million by the year 2000.

Indian exports to the Middle East were up by around 31 per cent in the six months to September at $1,380 million, up from $1,050 million in the same period of the previous year. Over 62 per cent of these sales went to Saudi Arabia and the UAE.

Indeed, the Federation of Indian Export Organisations (FIEO) believes that sales to the UAE will rise by 240 per cent within the next three years to around $3,000 million.

As a mark of its confidence it has opened a warehouse and exhibition centre in Dubai in co-ordination with Mikkai International to store and show Indian goods.

The other main markets in the Middle East for Indian exporters are Egypt, Iran, Kuwait and Turkey.

One blemish on the otherwise encouraging outlook is the continued restriction of Indian pharmaceutical sales. Despite a vigorous campaign India has failed to secure a relaxation of regulations imposed in 1994 which prevent its pharrhaceutical producers from selling in the UAE until their products are registered in the EU, the US or Japan. At the same time Indian meat and fish products face restrictions in Saudi Arabia and elsewhere in the Middle East on health grounds.

Promotion project

Despite these obstacles, Saudi Arabia and the UAE are two of the countries included in the short-term export promotion strategy announced by the government in December. This will concentrate on 15 products in 15 countries which together account for over 65 per cent of India's total exports. To back this initiative the India Brand Equity Fund was launched in January with joint finance provided by industry and the government. With a projected annual expenditure of around $20 million, the fund is designed to promote Indian products abroad, ranging from gems and garments to metals and machinery.

Indian exports to the Middle East have long consisted mainly of agricultural products and engineering items. This pattern has changed little despite the increase in exports to the region. A breakthrough of sorts was achieved recently when Bombay-based Padmini Automobile sold 250 Premier Padmini cars to Dubai. Padmini launched a joint venture in India with Peugeot of France in August and is preparing to export the Peugeot 309 to Dubai in the future. Indian imports from the Middle East also follow a familiar pattern and are dominated by oil, gas and fertilisers.

Indian trade with its nearest neighbour Pakistan is still fraught with difficulty. Pakistan has refused to grant India Most Favoured Nation status, and is reluctant to grant free access for Indian goods which could undermine local producers and destroy Pakistani jobs. Indian imports are restricted to 578 specific items, and visiting Indian businessmen have made few inroads. The frustration on both sides was expressed by Mohammed Naeem, President of the Lahore Chamber of Commerce, on a visit to India in December: 'We should have long-term, multiple-entry visas, not requiring police reporting. We should not be made to beg for visas. That is ridiculous.' Not surprisingly, India's labyrinthine bureaucracy also stands in the way of its own trade, being slow to adapt to the increasing international competition resulting from economic liberalisation.

The lack of co-ordination between government agencies hampers the implementation of decisions designed to facilitate exports.

The difficulties created by India's inadequate infrastructure are even more striking.

The country's main ports are congested, with the cargo handling capacity growing at only 7-8 per cent while exports are growing at a rate of over 20 per cent. 'The present state of the ports is pathetic,' says the FIEO.

'They perform at one third of the efficiency of other ports like Singapore and Hong Kong.' Problems at the ports are exacerbated by the low standard of the road and railway network, the poor quality of the power supply and the lack of adequate telecommunications.

Price regulation

These constraints have had little effect on India's rice exporters as shipments to the Middle East grow dramatically. But, government regulation has remained an influence on the trade. Export sales in 1995 were estimated at almost 487,000 tonnes, and are set to reach almost 235,000 tonnes in the six months to the end of March. The increase is attributed to rising local production and problems affecting supplies from Thailand and Vietnam, the two other leading rice exporters in Asia.

Low domestic rice prices have also stimulated the exports, and attracted the attention of the state-owned Food Corporation of India (FCI). The FCI has raised the price of non-Basmati rice twice since last August, eroding the profit margins of exporters who had taken orders on the basis of old prices.

Despite such arbitrary decisions, which can cause turmoil among exporters, the government remains firmly committed to export promotion, all the more so in the light of the recent strong sales performance. One sign of the commitment is the willingness of the authorities to allow the rupee to depreciate against the dollar. In the last two months it has fallen by around 11 per cent after a period of remarkable stability at $1=Rs 31.37 since August 1993.

Armed with a highly competitive currency, Indian exporters mean business as never before.


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