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TDB July 2014 Magazine Issue

Cover Story - A Key brick in BRICS<br>Why despite having the lowest import/GDP ratio among all major economies, Brazil offers $56 billion worth of low hanging fruits to Indian exporters... read more at https://www.thedollarbusiness.com/magazine/archives

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TDB July 2014 Magazine Issue

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  1. www.thedollarbusiness.com Vol.1 Issue 7 July 2014 100 $5 EXCLUSIVE INSIDE COLUMN: Arthur C. Wheaton Director, WNY Labour and Env. Programs, Cornell University INTERVIEWS: Dr. Alok Bharadwaj Executive Vice President, Canon India R. Ramesh Kumar Executive Director, Council for Leather Exports Yaduvendra Mathur Chairman & Managing Director, EXIM Bank FOREIGN TRADE DECODED Marie-Josée Charbonneau Counsellor & Head, High Commission of Canada in India DESTINATION BRAZIL Is this booming Latin American market a delight for Indian exporters? Pectin – bet you haven’t heard about it A great example of the direct correlation between information asymmetry and rate of return Is India’s darling port losing its sheen? Many claim that all is not well at Kandla, India’s No.1 major port. Can it silence its critics? For Indian brides & foreign buyers With 80% of the world’s total turmeric being produced in India, this spice can work wonders for exporters How SFIS ‘almost’ became famous The objective of the “Served From India Scheme” was to boost exports of services from India. But has it, really?

  2. Your LETTER FROM THE EDITOR–IN–CHIEF though, it means millions of dollars of consignements. And a lifetime of trust. Cruising on a cargo ship and weighing in with the freight can be fun. For us There is no fun without safety. Not in this lifetime. diamond Brand Your Airline Brand Diamonds can’t be priceless. Your celebrations A STRATEGY SANS POLICY WON’T DO are. A Your logistics brand diamond can’t sparkle. Your relationship Your bank brand can. Enjoy the most secure banking I able however is the fact that the very purpose of this divine design was to serve a trader-nation’s ‘beyond the pond’ motive in the 21st century. Not to say India isn’t living up to expectations. In the past decade-and-a-half, our exports have increasingly moved away from developed economies, towards emerging markets. ‘Diversification’ is the word. Digest the following numbers. The world’s largest economy’s contribution (USA) to our exports stood at 21.7% fifteen years back. Today, it’s down to just 12.5%. Similarly, that of EU (the world’s largest trading bloc) has fallen from 29.2% to 16.45%. The tale of First World Order’s com- promise is well explained by the generosity that is being shown to developing nations. Definitely a stark contrast. To its east, exports to ASEAN in the decade-and-a-half leading to FY2014 (that mostly consists of developing nations), have risen from 4.9% to 10.7%. To its West, India’s exports to Africa’s 55 nations have risen from 6.3% to 10.0%, and those to Latin America have risen from 1.5% to 3.5%. It would have been unimaginable for an Indian foreign trade data scientist living in the 20th cen- tury to imagine that fifteen years hence, the-then much ignored and politically unstable African continent, recession-struck Latin America and a predominantly still-emerging ASEAN group (with half of this group mired in a severe economic crisis) would create demand for almost the same percentage of ‘Made in India’ products as the two big daddies of global trade – US and EU. What’s most encouraging about this change in trade flow is that it clearly shows how Africa, Latin America and developing Asian economies have become the big bulls in India’s shop. It depicts a change in perspective of our export community, one that has moved away from Uncle Sam and royal Europe. As it appears, India’s export community has the right outreach plan in place. It is reading the radar right. But the flight control is in the hands of our policymakers. The new Foreign Trade Policy (2014-19) that is expected to be announced in August this year will determine whether this run along the right path of diversification will culminate into good tidings for India’s august group of exporters. Will amendments to Special Focus Initiatives make incentives (FMS and MLFPS) sub- stantially generous, and exemption schemes (EPCG, DFIA and Advance Authorisation) more at- tractive? Will the EPCs be made more accountable? Will labour-intensive and high-tech industries – both – get the desired fillip? Will more ‘Niryat Bandhu’ schemes (that was conceptualized for mentoring and encouraging first-gen entrepreneurs in the last FTP) be launched? Will the MAI and MDA schemes be expanded and extended? Will more direct tax incentives be introduced to make India a manufacturing hub? Will services sector-related schemes be introduced and polished to offer real time advantage (like the SFIS) and will this contributor to India’s GDP be given a more motherly treatment by including it in FMS? Will duty credit script value be raised from the current 10% (under the Agri Infrastructure Incentive Scrip scheme) – a move that could potentially solve the infrastructure mystery for exporters and importers? Will the new FTP help us get closer to the $400 billion in exports mark this fiscal? Yes, our exporters have hit the right chord. They have a clear strategy in mind – diversify beyond the First World and re-route to Africa and Latin America and other lucrative regions. But without the right policy throttle, our export craft-loaded-with-strategies will be incapable of a liftoff! And if the diversification strategy meets the right policy, guess who will win... [Join the first alphabets of each of the previous paras to know.] The banker to evry Indian makes a prom- ise it doesn’t break. The people depicted in this advertisement are Your Bank’s genuine customers. You may be next. won’t classify this a case of “missing the woods for the trees”. Nothing unusual. Just plain geography with a dash of foreign trade – spare a glance at the world map. Spot where India sits, after centuries of continental drifting. It’s a sweet sight for any exporter willing to trade by the skin of his teeth. As snugly as pegs settled into holes in a pegboard, India finds its curves perfectly placed on the map. With markets like Africa and the Middle-East on one side (West) and an already rapidly advancing battery of South East Asian consumer and production economies on another (East), the arrangement bears the appearance of a cartographer’s foul play. More believ- Enjoy food. Fine dine. World-class service. Feel pampered. You’re worth every second you spend with us. Be our guest. www.your_airline_brand.com www.your_bank_brand.in Your PSU Brand Your denim brand try’s foreign trade with the overall economic growth. We are there with you from the very WE HELP YOU MAKE YOUR PLAN OF GOING OVERSEAS A SUCCESS! We have a mandate to not just enhance exports from India, but also to integrate the coun- moment you think of setting up a shop outside the country. We are your trusted partner. LOVE. NEED. WANT. You wanted to see the change. We only gave you the power of innovation. With a touch of technology. It’s your idea! Your technology Brand Some sell denims by using half-nude female first grade. It’s the power of Ima‘jean’ation! models dancing in the dead wake of a night. We do it by using shapes you learnt in your Give wings to your dreams with... Let’s pull together and get it done. YOUR SHOE BRAND Walk in style this summer. Footwear for the diva in you... “As snugly as pegs settled into holes in a pegboard, India finds its curves perfectly placed on the map. And as it appears, India’s export community has the right outreach plan in place. It is reading the radar right.” It’s not for everyone. It’s for the YOU in you. Express Yourself! GO CASHLESS WITH... Your Eyewear Brand Hit that Wimble- don winning back- hand winner three seconds before noon on a rainy Sunday YOUR BANK mWALLET Your Bag Brand No more going to a cash machine. Now you don’t have to pay those extra bucks at an expensive bureau de change. No more waiting or standing in a queue. It’s the end of cash! Power up your life with ‘Your Bank’ card. It’s freedom, it’s safety... it’s power in your hands. Go cash- less. Go places. Carry your world in style! Coz you want to etch those moments forever IF YOUR MORNING TEA IS INCOMPLETE WITHOUT Your TV Brand THAT VIEW Steven Philip Warner Editor-in-Chief, The Dollar Business steven@thedollarbusiness.com For that life changing TRIPSTER journey LETTING YOU ON THE SECRET BEHIND THE WAUGHS, THE CHAPPELS AND THE WOODIES Smart TV has way you see “Your Brand” change the time you to arrived. It’s generation the world. The new @SPWarner www.thedollarbusiness/blogs/steven A blissful marriage of health and taste JULY 2014 II THE DOLLAR BUSINESS 1

  3. Volume: 01 Issue: 07 July 2014 www.thedollarbusiness.com facebook.com/tdbIndia twitter.com/TheDollarBiz in.linkedin.com/in/thedollarbusiness/ EDITORIAL & RESEARCH Editor-in-Chief: Steven Philip Warner Editor: Manish K. Pandey Executive Editor: Shakti Shankar Patra Deputy Editor (Online): Bidhu Bhushan Palo Senior Editors: Jayashankar Menon, Satyapal Menon Assistant Editor: Sisir Kumar Pradhan Special Correspondent: Neha Dewan Principal Correspondent: Sachin Manawaria Senior Correspondent: Purba Das Editorial Coordinatior: Sayyada Shama Unissa EDITORIAL CONSULTING BOARD Founder & Editor: Anil Goyal Publisher: Avnish Goyal Chief Consulting Editor: Dr. A. K. Sengupta (Former Dean, IIFT) OVERSEAS TALK INDO-CANADA TRADE Top Canadian diplomats discuss the India-Canada bilateral trade 20 BRAND ACTIVATION & RESPONSE Vice-President (North and East): Aninda Mondal Vice-President (West and South): Jayanand Nayak Manager (West and South): Manish Y. Naik 16 ART & PHOTOGRAPHY Art Director: Sujesh Kumar G. Senior Designer: Sonia Kholgade EXCLUSIVE COLUMN ARTHUR WHEATON, ILR SCHOOL, CORNELL Decline of the Detroit biggies, rise of the Japanese giants and where Indian auto exporters stand DOCKYARD KANDLA PORT Still holding on to No. 1 status, but for how long? 66 THE DOLLAR BUSINESS ONLINE Senior Web Developer: Bhanu Prakash Web Developer: K. Naveen, Web Designer: S. Vamshi Krishna Associate (Web & Network): C. Dileep Reddy COVER STORY 56 CIRCULATION & DISTRIBUTION General Manager: S.S. Sudesh Asst. Manager: M. Vinay Kumar, Buddhisagar Pandey, Sanjeev Jain Senior Executive: G. Madhan Rao GLOBAL MANAGER DR. ALOK BHARADWAJ, EVP, CANON INDIA Challenge to making India a manufacturing powerhouse 30 EXCLUSIVE INTERVIEW A KEY BRICK IN BRICS Why despite having the lowest import/GDP ratio among all major economies, Brazil offers $56 billion worth of low hanging fruits to Indian exporters... FINANCE & LOGISTICS Manager: Parchuri Jhansi Associate: Raj Jarikote 77 SUBHASH GOYAL, CHAIRMAN – SERVICES, FIEO Why India’s policymak- PRINTER Kala Jyothi Process Pvt. Ltd., 1-1-60/5, RTC Cross Road, Musheerabad, Hyderabad, Telangana 500020, IN CHARTERED TERRITORY HJF - 2014 A visa to Hyderabad’s pearls? 34 MONOLOUGE PEOPLE SPEAK A new government in India, Cold War 2.0 and Iraq on the boil means, opinions are pouring in GLOBAL TRADE - THIS MONTH News and analyses of everything you need to know about global trade in the month of June BESTSELLER WINE High duties have never deterred its lovers 05 06 52 PUBLISHED AT 5-2-198/4, Distillery Road, Ranigunj, Secunderabad, Telangana 500003, IN ers need to reconsider their stance on the services sector © Copyright 2014 No part of this magazine may be reproduced in whole or in part without an ex- pressed permission of the publisher. The information on this magazine is for infor- mation purpose only. The Editor-in-Chief & Editor are responsible for the selection of news and content under PRB Act. Vimbri Media Pvt. Ltd. assumes no liability or responsibility for any inaccurate, delayed or incomplete information, or for any actions taken in reliance thereon. The information contained about each individual, event or organisation has been provided by such individual, event organisers or or- ganisation without verification by us. All disputes are subject to exclusive jurisdiction of competent courts and forums in Hyderabad, Telangana. Printed and published by Avnish Goyal for Vimbri Media Pvt. Ltd. Published at 5-2- 198/4, Distillery Road, Ranigunj, Secunderabad - 500 003, Telangana. SECRET INGREDIENT TURMERIC Rising awareness & zero duties in US - what more can one ask for? 36 INSIDE OUT SFIS No place for compromises while building brand India 74 90 INDIA TRADE - THIS MONTH With the Union Budget and FTP just days away, demands are flying thick and fast for the newly elected government SPOTLIGHT USA Is the dollar’s reserve currency status the only thing that’s going for the land of the free and home of the brave? 10 14 YADUVENDRA MATHUR, CMD, EXIM BANK Empowering MIDAS TOUCH BICYCLES Keeping health and exporters happy 42 POLICY FOCUS INDIA’S POWER EXPORTS When policymakers misunderstand social service 78 Indian the environment, exporters without compromising on asset quality Printed at: Kala Jyothi Process Pvt. Ltd., 1-1-60/5, RTC Cross Roads, Musheerabad, Hyderabad - 500 020, Telangana. INFOGRAPHIC WATCHES & CLOCKS Of Chinese volume, Swiss quality and a coma-struck Indian exports GLOBETROTTER STATE BANK OF INDIA Why the bank’s global aspirations seem to be out of sync with that of its shareholders 26 24 FOR EDITORIAL/CONTENT QUERIES Email: editorial@thedollarbusiness.com . Tel: +91-40-6677 0766 IMPORT’ONOMICS PECTIN Not having heard is no excuse to not make dough 48 PRIME FOCUS TRIPS Protecting innovation UNLOCKING CASH Trying to make the job of Indian exporters easy 84 94 FOR ADVERTISEMENT QUERIES Email: ads@thedollarbusiness.com . Tel: +91-40-6677 0765 FOR SUBSCRIPTION QUERIES Email:subscription@thedollarbusiness.com . Tel: +91-40-6677 0765 2 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 3

  4. monologue inbox “With the collapse of the rupee, it’s been both wise and prudent on the part of Indians to own gold. To 1.2 billion people, gold represents savings and security. My guess is there’s more gold in India than anywhere else.” MONEY MORNING RESOURCE SPECIALIST PETER KRAUTH “I hope the poorest of the poor will see better days, and I hope our exports will increase. I hope doing business in India will become easier. I hope they will create lots of jobs.” INFOSYS FOUNDER N. R. NARAYANA MURTHY, IN A PHILOSOPHICAL MOOD ABOUT HIS EXPECTATIONS FROM THE NEW GOVERNMENT editorial@thedollarbusiness.com WE VALUE YOUR FEEDBACK, WHETHER CRITICISM OR APPRECIATION. AND HERE ARE A FEW THAT HIT OUR MAILBOXES IN JUNE 2014 100 Vol.1 Issue 6 June 2014 T from other magazines/newspapers and is a welcome sign. I hope The Dollar Business will be useful for new entrepreneurs who are venturing into exports. Existing exporters can also be immensely benefitted by your analytical reporting. I wish grand success to the publication. D. K. SINGH Additional Director General of Foreign Trade, Ministry of Commerce & Industry, GoI T production value. There is no magazine in the market dedicated to exporters. Con- gratulations on bringing out a much needed product. AJAY SRIVASTAVA Joint Director General of Foreign Trade, Ministry of Commerce & Industry, GoI Ethiopia – a land of promises How the $13 billion-plus import market is Who moved your cheese? mathematically profitable business www.thedollarbusiness.com he focus of your magazine on Foreign Trade is very different he Dollar Business magazine is superb in all accounts: coverage, topicality and for Indian exporters? a compellingly attractive shipment destination Why importing Cheese into India makes for a PRE-INAUGURAL ISSUE WHEELING & DEALING IN COMPONENTS FOREIGN TRADE DECODED AUTO The Dollar Business presents insights into the world of auto component exports “The new sanctions will continue to increase economic pressure on those responsible for the crisis in Ukraine.” CANADIAN PRIME MINISTER STEPHEN HARPER AFTER ANNOUNCING FRESH SANCTIONS AND TRAVEL BANS AGAINST RUSSIAN AND UKRAINIAN INDIVIDUALS EXCLUSIVE INTERVIEWS Ajay Sahai DG & CEO, FIEO Why the focus of the new policy should be on exports of services G.V. L. Satya Kumar Deputy Chairman, VPT better choice over other ports on the East Coast Kishore Tanna Chairman, IOPEPC How MEP reduction could oil exporters What really makes Vizag a be a game changer for edible A fter going through the pages of The Dollar Business I must state that such a magazine focusing on foreign trade is the need of the hour. The data and the content pub- lished are very useful to exporters. Let the new Minister of Commerce, Ms. Nirmala Sitaraman get a copy of this magazine while finalising the new Foreign Trade Policy of India. Do maintain the standard. RAMESH P. KOATH Joint Director, Fed. of Indian Export Organisations (FIEO) “Over the six months to May, G-20 members have continued to introduce trade restrictions – albeit at a slightly slower rate than before. While some liberalising measures have also been introduced, it is clear that the coat of trade restrictions has grown a bit thicker over this period.” WTO,DG ROBERTO AZEVEDO, ON RECENT TRADE DEVELOPMENTS C depth of issues covered in the pre-inaugural issue. I wish you all the best for the new venture. K. C. ROUT Additional Director General of Foreign Trade, Ministry of Commerce & Industry, GoI ongratulations to The Dollar Business for the excellent layout, range of subjects and the “We are creating a powerful and attractive centre of economic development, a major regional market bringing together over 170 million people.” RUSSIAN PRESIDENT VLADIMIR PUTIN AFTER THE ANNOUNCEMENT OF AN ECONOMIC UNION BETWEEN RUSSIA, BELARUS AND KAZAKHSTAN I magazine with great interest. PROF. JEEMOL UNNI Director, Institute of Rural Management, Anand (Guj.) found the content of The Dollar Business very in- formative and useful. I look forward to reading the I an excellent magazine, The Dollar Business, the Bible for the imports and exports industry. I read the articles and interviews, which are to the point and relevant in today’s international trade environment. I think The Dollar Business will be a great motiva- tor for the exporter community, especially new en- trepreneurs who need a little extra push. I strongly believe, in future, The Dollar Business will be a us- er-friendly and educational tool for the entire export- er community for identifying new export markets. SUMAN KUMAR MUKHOPADHYAY Chapter Head – Jharkhand and Bihar, Fed. of Indian Export Organisations (FIEO) take this opportunity to express my congratula- tions to all members of Vimbri Media for publishing “Exports have driven one-third of the economic growth in our recovery and now support over 11 million US jobs. Last year, we exported $2.3 trillion in goods and services, which was an all-time high.” US PRESIDENT BARACK OBAMA, AT EXPORT COUNCIL MEETING T business within and beyond India. I believe it will be of great value to the management students of LIBA. PROF. R. MARIA SALETH Director, LIBA, Loyola College, Chennai he Dollar Business magazine is highly infor- mative on currently relevant issues related to 4 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 5

  5. GLOBAL TRADE THIS MONTH News & Analysis News & Analysis JAPAN BUTTER IMPORTS For that one perfect toast LATVIA-CHINA TRADE DAIRY AND MEAT PRODUCTS Beyond the Great Wall Latvian farmers and food manufacturers have expressed in- terest in exporting dairy and meat products to China. Lat- vian Minister of Agriculture Janis Duklavas shared this with Zhi Shuping, the Chinese Minister of State Administration of Quality Supervision, Inspection and Quarantine, who was on a brief visit to this Baltic nation recently. Duklavas also assured the Chinese minister that Latvian State Food & Veterinary Services periodically undertakes inspections in order to ensure that all dairy and other agriculture products meet safety requirements and are suitable for the domestic market as well as ex- port destinations. Shuping indicated that China is interested in Latvian dairy and meat prod- ucts and expressed his satisfaction that Latvian institutions were capable of monitoring food production in order to ensure that consumers receive safe and qualitative products. For re- cords, Latvia’s export of dairy and meat prod- ucts to foreign countries have been rising over the last few years. During the meeting, the ministers inked protocols on quarantine and veterinary requirements needed for mutton and beef exports from Latvia to China. Porters loading sacks of rice on a ship, docked at Chao Phraya River in Bangkok, Thailand. Thailand’s rice ex- ports are recovering after the government scrapped the contro- versial rice pledging programme Janis Duklavas Minister of Agriculture, Latvia Japan’s Ministry of Agriculture, For- estry & Fisheries (MAFF) has an- nounced an emergency import of 7,000 tonnes of butter this year for industrial use, making it the coun- try’s biggest-ever emergency butter import. This is in addition to the 3,000 tonnes, which Japan had al- ready committed to import this year. Japan’s milk production has slumped by 2-4% since 2013 due to extreme weather conditions. This has resulted in a drop in butter produc- tion by 23.5% (in February, 2014). Official sources claim that shortage of fodder and a decline in the num- ber of dairy farmers are also reasons for the decline. On the other hand, per capita milk consumption is growing in Japan due to a rise in the popularity of bakery products. At the same time, higher demand for cream and natural cheese has reduced the availability of fluid milk for the pro- duction of butter. Who gains from this? Of course, New Zealand – the main exporter of butter to Japan. Apart from New Zea- land, EU and USA are also rushing in to supply dairy products to Japan where the demand for these products is likely to keep on increasing due to changing food habits. government rice stocks swelling to up to 18 million tonnes – almost half of total global rice trade. India’s return to the export market in late 2011, after a three-year ban on non-basmati rice exports, made matters worse for Thai rice exports. This led to the interim Thai government scrapping the controversial rice pledging programme and aggressively sell- ing rice this year. Thailand is also eyeing to increase exports to Iran and other countries in the Middle East in order to improve sales. TREA expects Thailand’s full year rice ex- ports to reach 9 million tonnes in FY2014, which is in line with the United States Department of Agriculture (USDA) predictions. In fact, delayed monsoon in India, and Iran’s con- cerns over the quality of Indian rice might help Thailand ship even more. That’s what we call a comeback! THAILAND RICE EXPORTS Feeding the world Thailand claims that it has regained its position as the world’s largest rice exporter after three years, mainly due to low pric- es. According to the Thai Rice Exporters Association (TREA), Thailand exported about 3.93 million tonnes of rice between January 1 and May 20, 2014, slightly more than India’s 3.74 million tonnes. Thailand used to be the world’s top rice ex- porter for over two decades until 2011, when the government increased the rice purchase support price to almost double the market price under the rice pledging programme. This result- ed in Thai rice millers and exporters reducing purchases and COLD WAR 2.0 TIGHTENING THE NOOSE More than what meets the eye US has tightened export regulations against five Russian firms and added them to the list of ‘un- checked’ partners. According to the official jour- nal of the federal government of the United States i.e. Federal Register, the Russian firms included in the list are Fryazino branch of the Russian Acad- emy of Sciences’ Institute of Radio-Engineering & Electronics, JSC Voentelecom, Business Security Academy, Pumps Ampika Ltd. and Nuklin Ltd. Although export supplies to these firms have not been banned, they now require licensing, negoti- ation and registration on special stringent rules. However, supplies on preferential terms are not permitted anymore. The decision of the Bureau of Industry & Security to put these firms on the controlled list comes by the fact that the Bureau failed to carry out a detailed check of these firms to find an end user of products they buy. Interest- ingly, US had earlier zeroed in on 29 firms from China, Russia, Hong Kong and UAE to be labelled as ‘unchecked’. World’s top rice exporters (by value) India and Thailand account for more than half of global rice exports 9,000.0 India 8,000.0 7,000.0 Thailand 6,000.0 The Herbert C. Hoover Building in Washington, D.C. The building serves as the headquarters for the United States Department of Commerce USA 5,000.0 4,000.0 Pakistan 3,000.0 2,000.0 Vietnam 1,000.0 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: International Trade Centre ($ million) 6 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 7

  6. GLOBAL TRADE THIS MONTH News & Analysis News & Analysis MALAWI EXPORT PUSH No more of living beyond one’s means BRAZIL-ARGENTINA BILATERAL PACT A barter beyond the border carrying out much needed regulatory and institutional reforms, aimed at ad- dressing bottlenecks that are impact- ing enterprise development in Malawi. Further, the government is also looking at improving the country’s rank on the World Bank’s “Ease of Doing Business” Index. Mutharika plans to place the pri- vate sector at the core of this drive to enhance competitiveness of Malawian products in the international markets. The two Latin American neighbours Argentina and Brazil have signed a new bi- lateral car trade pact giving the former more favourable terms. The one-year pact, which allows Brazil to export $150 worth of automobiles for each $100 worth of the same product it imports from Argentina (without paying tarriffs), has been designed to restore trade volumes and fill in the widening gaps in their external accounts. Reason: Automotive industry accounts for more than half of the $36 billion trade between the two countries which have been involved in several in- dustrial disputes over the last few years. “The key issue is the volume of trade, and the ratio agreed certainly favours the free flow of commerce between both coun- tries,” Brazilian Trade Minister Mauro Borges told reporters at a news conference in Buenos Aires after signing the pact. The previous accord that favoured Brazil at a ratio of 1.95:1, had come to an end last year after a dispute over its terms. Under the new pact, both countries will freeze their current share in each other’s market. This means Brazilian cars cannot account for more than 44% of sales in Argentina, while Argentine cars cannot be more than 11% of sales in Brazil. The revival of the accord will help in restoring the bilateral trade relation between the two nations. After all, it’s a win- win situation for both! Malawi President Arthur Peter Muthari- ka recently announced that his govern- ment will double the country’s export base in the next five years. The President made this announcement while opening the 26th Malawi International Trade Fair in Blantyre, Malawi’s centre of finance and commerce. As per him, the target will be achieved through a persistent implementation of the National Export Strategy, which has a set roadmap for developing the country’s manufacturing base and ensure both export competi- tiveness & economic empowerment. Mutharika also acknowledged that business environment in Malawi had deteriorated in recent years due to macro-economic, security & structur- al challenges. This has eventually led to several economic problems such as low foreign direct investment, anaemic industrial output and unsustainable structural trade deficit. Mutharika says his government would go that extra mile to overcome these challenges by Peter Mutharika President, Republic of Malawi Malawi’s exports, imports & deficit In 2012 and 2013, Malawi’s trade deficit was bigger than its total exports 3,000 0 - 200 - 400 - 600 - 800 -1,000 -1,200 -1,400 -1,600 -1,800 2,500 2,000 Aerial view of an oil tanker: US approved 13 crude oil export and re-export licenses in the month of May 2014 alone 1,500 Brazil-Argentina car trade Over 87% of Brazil’s total car exports in 2013 went to Argentina 1,000 USA CRUDE OIL RE-EXPORT From Washington, with Love! The US Department of Commerce ap- proved 13 crude oil export and re-export licenses in May 2014. As such, the coun- try has approved 52 oil export licens- es in the last six months. The approved permits include, one license each for re-exports of foreign origin oil to Chi- na, Spain, South Korea, the Netherlands and UK, seven licenses for exports of US oil to Canada, and one re-export license that could be issued to any of the follow- ing countries (US has not yet specified the name) – Argentina, Belgium, Brazil, Canada, Chile, Finland, France, Ger- many, Greece, Israel, Italy, Japan, Korea, Malaysia, Morocco, Netherlands, Nor- way, Poland, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey and UK. It’s worth noting that US does not allow export of its own oil (except to Canada). It allows the re-export of for- eign oil. All licenses are valid for only one year and exports under the exemp- tion need to be approved by the depart- ment’s Bureau of Industry and Security. 500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Export Value (L-axis) Import Value (L-axis) Trade Deficit (R-axis) Source: International Trade Centre ($ million) USA TRADE DEFICIT Blame it on the Polar Vortex US trade deficit has widened to $174 bil- lion in the January-April period, due to rising imports. According to the Depart- ment of Commerce, US exported goods and services worth $767.3 billion in Jan- uary-April 2014, up about 2% (y-o-y), while imports stood at around $941.4 billion, up about 3.3% (y-o-y). Total trade deficit for the period stood at $174 billion, up around 8% (y-o-y). In April 2014, the deficit stood at $47.2 billion (exports of $193.3 billion and imports of $240.6 billion), up from $44.2 billion in March. Some claim the deficit grew due to the unusually cold weather that ham- pered exports, while others claim USA’s import of automobiles, capital goods and consumer goods reached record highs in April. Well, you decide! PAKISTAN-TAJIKISTAN TRADE TEXTILE DEVELOPMENT Every penny counts The governments of Pakistan and Tajikistan have signed a memorandum of understanding (MoU) on collaboration in textiles development, during a recent visit of Pakistani Prime Minister Nawaz Sharif to the Central Asian nation. As per the MoU, both nations will exchange information on cotton, organise training programmes, exchange visits of experts and trade dele- gations, and establish joint enterprises. The memorandum also mentions that Pakistan’s National Textile Univer- sity and Tajik Technological University would facilitate research in fibre devel- opment and textile related technolo- gies. During the visit, Pakistani Prime Minister Sharif and Tajikistan’s Presi- dent Emomali Rahmon also agreed to set a target of bilateral trade to $500 million over the next three years and to work towards a Preferential Trade Agreement (PTA). 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Brazil’s exports to Argentina Argentina’s exports to Brazil Source: International Trade Centre ($ million) Nawaz Sharif Prime Minister, Pakistan Cars waiting to be exported at the Port of Santos, São Paulo, Brazil 8 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 9

  7. INDIA TRADE THIS MONTH News & Analysis News & Analysis Linseed oil and flax seeds. Indian oilseeds imports are expected to surge this SUGAR SUBSIDY TURNAROUND HOPES Good days are coming? With the Centre recently extending the export incentive scheme on raw sugar till September 2015, there is optimism in the industry about a turnaround this financial year. Accord- ing to the scheme, the government offers Rs.3,300 subsidy for every tonne of raw sugar exported. Although the intention of these subsidies is to bail out the domestic sugar industry, it’s already become a conentious issue at WTO, with Brazil and Australia raising serious concerns on Indian subsidies. The subsidies are expected to help increase the sugar indus- try’s cash flow by Rs.13,200 crore during the entire 18 month period ending September 2015. Of this, a sum of Rs.1,200 crore is expected to go to farmers directly while the remaining will be allocated for subsidy refund to sugar mills. According to ISMA, India’s sugar industry will turnaround this year provided mills are able to export the entire allocated quantity of 4 million tonnes at a price higher than that prevailing in India. year Chevrolet Beat on display at an auto show OILSEEDS IMPORT WEAK MONSOON FEARS Tryst with another drought? Deficient monsoon could adversely impact India’s oilseeds output this year resulting in more dependence on imports. According to a paper released by ASSOCHAM, India’s oil- seeds import bill is likely to shoot up to $14 billion in the current financial year from $9.3 billion in FY2014 as produc- tion of oilseeds is expected to be hit by as much as 8.3% due to insufficient rainfall. As per initial indications, rainfall in the edible oil growing states of Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Karnataka, Tamil Nadu, West Bengal and Andhra Pradesh would be deficient due to El Nino reducing output, which in turn will result in higher import dependence. ASSOCHAM Secretary General, D. S. Rawat recently pointed out that demand for edible oil will continue to grow by 15% per annum due to increasing income levels and fast changing eat- ing habits in rural India. The demand for edible oil is likely to touch 203.54 lakh MT during FY2015, resulting in an import bill of $14 billion. The ASSOCHAM paper titled “India’s likely tryst with Ed- ible Oil: Impact of El Nino factor” reveals that the country imported edible oils worth $9.3 billion in FY2014, a substan- tial fall from $11.2 billion during FY2013. Despite increase in production, close to half of India’s domestic demand is met by imports. The paper also points out that India faces drought prospects every fifth year, the last one being in 2009, indicating a possible drought in 2014. AUTO EXPORT GM INDIA’S EXPORT TO CHILE Latino attraction General Motors India will begin exporting vehicles next year, with Chile slated to be its first overseas market. The company will initially export left-hand-drive Chevrolet Beat, the pro- duction of which will commence at its Talegaon plant in the second half of 2014. The first batch of exports have been sched- uled for the first quarter of 2015. Commenting on the move, GM India President and Man- aging Director Arvind Saxena said, “The start of Beat exports underlines GM’s commitment to India and demonstrates the quality of the country’s growing supplier base.” He further said, “The exports will create more employment opportunities with- in GM India and the supplier community while helping im- prove capacity utilisation at the Talegaon Plant.” It’s worth noting that the company has been struggling to maintain its sales momentum in the domestic market due to a slump in demand. In May 2014, the company’s sales declined by 42.76% to just 4,865 units (including 1,716 units of Beat) as against 8,500 units in the same month last year. Alan Mulally, CEO of Ford Motor Company, at the North American International Auto Show 2014 in Detroit, US India’s sugar & sugar confectionery exports Sugar exports from India dance to the tunes of policymakers FORD MOTOR COMPANY EXPORT HUB INDIA Ford’s next bet: India? Ford Motor Company has decided to make India its export hub. Revealing this information, Ford Motor Company President and CEO Alan Mulally said, “We have decided that India will be an export hub for Ford. We are exporting to over 50 countries from here and are increasing it all the time.” He further added that the de- cision was taken keeping in view India’s position as one of the fastest growing markets. “It is because our oper- ations are great, our quality is great and our efficiency is great. It’s just that the location of India is great for us,” Mulally added. Ford India has two manufacturing plants in India – one in Gujarat and another at Mara- imalai Nagar in Tamil Nadu. Responding to a question on whether Ford India has lived up to expectations, Mulally said, “Remem- ber Ford was in trouble in September eight years ago. We had the worst report in 2006. I will remind you that there was $17 billion loss to the company. If you are in business, you are going to have brack- ets around your numbers. We grew decisively. Not only have we survived but are also prospering now.” Mulally pointed out that as soon as Ford attained prof- itability, the company turned its’ attention to Asia Pa- cific. “Our investments have been tremendous in India and China. These are the fastest growing markets in the world,” he added. The Detroit giant is now focussing on delivering bet- ter quality and fuel efficient vehicles and is operating as one global company. 2,500 2,000 1,500 1,000 500 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Source: Ministry of Commerce; figures in $ million PRECIOUS METALS: GOLD AND SILVER TARIFF VALUE HIKE All for the sake of reducing CAD? The Indian government has once again hiked import tariff on gold and silver to $411/10 gram and $632/kg respectively in response to rising global prices in the wake of escalating violence in Iraq. During the first fortnight of June, tariff value on imported gold stood at $408/10 gram and silver at $617/kg. The changes have been notified by the Central Board of Excise and Customs. The import tariff value – base price at which customs duty is determined to prevent under-invoicing – is re- vised on a fortnightly basis, taking into account global prices. In the last two weeks, global gold prices have increased due to rising violence in Iraq that has spurred safe haven demand for precious metal. India’s gold imports declined by over 74% in April (y-o-y) to $1.75 billion due to restrictions imposed by the government on inbound ship- ments in an attempt to narrow the current account deficit (CAD). Gold is India’s second largest import item after petroleum. Due to several curbs, India’s total gold and silver imports dropped by 40% to $33.46 billion in FY2014 as compared to $55.79 billion in FY2013.  India’s oilseeds imports India imported over $350 million worth of oilseeds in FY2014 400 350 300 250 200 150 100 50 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Source: Ministry of Commerce; figures in $ million Indian government continues to curb gold imports 10 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 11

  8. INDIA TRADE THIS MONTH News & Analysis News & Analysis LIQUEFIED NATURAL GAS DUTY EXEMPTION Get this gas off-duty. Now. A high-level government panel, headed by former Planning Commission Member Saumitra Chaudhuri, has proposed that the government should exempt liquefied natural gas (LNG) from the existing 5% import duty. The panel has been institut- ed to develop India’s Auto Fuel Vision. According to a report released by the panel, for many years now, import duty on crude petroleum has been nil, while pre- viously it was 5% and before that 10%. However, the import duty on LNG – except when directly imported for power gen- eration – continues to be 5%. “There is no logic for the separate treatment to petroleum and LNG. They go towards similar uses and LNG is in many ways a preferable substitute for liquid fu- els,” the report added. The panel also has proposed sharing the burden of stricter green fuel norms with consumers by imposing a special fuel up-gradation cess of 75 paise/liter of diesel and petrol. India plans to introduce the stricter Bharat Stage V emission norms by 2020 to curb growing air pollution. In addition, the commit- tee has recommended closing the 75 paisa price gap between IRON ORE DUTY WITHDRAWAL For greater efficiency Leading industry body, Federation of Indian Mineral Indus- tries (FIMI) has urged the Union Government to completely withdraw export duty on iron ore as it feels unless this is done, achieving zero-waste mining is not possible. FIMI members recently had a lengthy meeting with Union Steel and Mines Minister Narendra Singh Tomar, during which they told the minister that if India wants to fully utilise its resources, without impacting the domestic steel industry, it should make Indian exports competitive by withdrawing the export duty completely. Currently, there is a 30% export duty on iron ore in India. A conveyor belt carrying iron ore from the warehouse to the production facility MYSORE EXPORT PUSH More than just a helping hand With an eye to facilitate exports from Mysore, Mandya and Chamarajanagar districts, the Mysore Industries Association (MIA) is going to set up the Mysore Export Centre in Hebbal Industrial Area. According to P. Vishwanath, President of MIA, the up- coming Centre, when it becomes operational, will help more than 40,000 industries in the area tap global markets. With 45% of the businesses in the area belonging to small and medium enterprises (SMEs), the Centre is expected to become a game changer. It will have all necessary facilities to organise seminars, workshops and will also have provisions to showcase products on a permanent basis. Suresh Kumar Jain, Secretary General of MIA, added that currently annual exports from the Mysore re- gion is around Rs.7,000 crore and MIA is determined to achieve Rs.17,000 crore in the next five years. While there’s no duty on crude oil, LNG imports attract a 5% duty Stage III and IV fuel by imposing a high sulphur cess. Going forward, the plan is to implement Bharat Stage VI standards by 2024, which will require automobile manufacturers to put in place technological improvements. TEXTILE EXPORTS ZERO DUTY Dressing up the world Tirupur Exporters Association (TEA) has urged the Centre to remove duty on man-made fibres and special machinery used for the manufacturing of synthetic garments. In a mem- orandum submitted to Commerce and Industry Minister Nirmala Sitharaman and Textiles Minister Santhosh Kumar Gangwar, TEA President A. Shaktivel said zero duty on man- made fibres will not only increase its usage and production of garments but also help exports of man-made fibre garments. He said the import of special machinery on zero duty will attract more investment in the manufacturing of synthetic garments, a trend that is picking up globally. He also urged the Centre to introduce Goods and Services Tax in the up- coming Union Budget, which would enhance India’s com- petitiveness in the global market. The memorandum also urged for an early signing of the proposed Free Trade Agreement with the European Union (EU) – the main destination for Indian knitwear. This would enable importing of value added fabrics under zero duty basis and re-exporting to EU as garments. The association also requested the textile minister to reduce customs duty on import of synthetic/blended and specialty fabric of cotton. In order to protect the industry from high interest rates, a separate chapter is required in the monetary policy, Shaktivel added. The Nandi bull on Chamundi Hill is a notable statue that dates from 1659 and is one of the main identities of Mysore city in Karnataka ONION MINIMUM EXPORT PRICE Prevention is better than cure In an endeavour to contain rising prices of onion, the Cen- tre has set a minimum export price (MEP) of $300/MT. The introduction of MEP is expected to improve local supplies in the coming months. According to officials, India has enough stock to cope with domestic demand till September 2014, when kharif crop enters the market. But the reason why the govern- ment is introducing MEP is that it wants to ensure that only high value exports take place and local supplies are not disrupt- ed. Earlier in March, the government had removed MEP on onion as prices had crashed to Rs.6-7 per kg. In December last year, the Ministry of Commerce had brought down MEP from $350/MT to $150/MT in order to scale up exports and eventu- ally arrest drastic dip in domestic prices. The government had set MEP last year after retail prices shot up to Rs.80-100 per kg in major cities and towns. It’s worth noting that India had exported around 1.3 million MT of onion in FY2014, out of a total production of 19.2 million MT. Imposition of MEP on onion export will help in stabilising its prices in the domestic market India is increasingly losing out to Bangla- deshi textile exports 12 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 13

  9. SPOTLIGHT USA BIG DADDY, STILL Over $17 trillion in debt and a gaping trade deficit running for decades is something that no nation can afford. But then Uncle Sam has. And for years. The only reason why the US hegemony continues is the dollar’s reserve currency status. And it will, till the time the greenback is in vogue C 4.2% 8.8% 20.0% Indo-American trade INDIAN EXPORTS TO USA (% SHARE OF PRODUCT) A 40,000 35,000 30,000 42.7% 25,000 10.2% 14.1% 20,000 15,000 10,000 5,000 $39.2 BILLION 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Exports (India) Imports (India) Gems & Jewellery Lac, Gums, Resins Minerals fuels and Mineral oils Pharmaceutical products Textile, Apparel & Clothing Others Source: Commerce Ministry, GoI; $ million US’ major trading partners B Source: Commerce Ministry; Breakup for FY2014 CANADA D 9.5% 12.2% 6.2% MEXICO INDIAN IMPORTS FROM USA (% SHARE OF PRODUCT) CHINA JAPAN GERMANY 8.0% 6.9% 57.2% 32 NUMBER OF METROS WITH OVER 10 BILLION IN EXPORTS 153 NUMBER OF METROS WITH OVER $1 BILLION IN EXPORTS $110.3BN EXPORTS FROM HOUSTON, US’ TOP EXPORTING METRO UK BRAZIL S. ARABIA $22.3 BILLION $265.0BN EXPORTS FROM TEXAS, US’ TOP EXPORTING STATE $426.4BN EXPORTS FROM SOUTH CENTRAL, US’ TOP EXPORTING REGION S. KOREA Natural and Cultured pearls Electrical machinery & equipment Minerals fuels and Mineral oils Nuclear reactors, Boilers, Equipment Aircraft and Spacecraft Others FRANCE Source: Commerce Ministry; Breakup for FY2014 0 50 100 150 200 250 300 350 400 450 Exports Imports Source: US Department of Commerce; All figures for CY2013 (in $ billion) While exports from India to USA have been rising steadily for the last four years, imports have mostly remained flat because of a weak rupee and a fragile domestic demand. A US trade in goods & services E CANADA 3,000 USA’s main trading partners are those with whom it has FTAs. China of course is not only its biggest exporter but also a primary lender. B 2,500 SOUTH KOREA 2,000 JORDAN ISRAEL THE UNITED STATES HAS SIGNED FREE TRADE AGREEMENTS WITH 20 NATIONS AROUND THE WORLD MOROCCO 1,500 MEXICO BAHRAIN India’s main exports to USA are non-industrial diamonds, pharmaceutical products, articles of jewellery, mucilages and thickeners derived from locust beans and guargum. *CAFTA-DR OMAN C 1,000 PANAMA 500 COLOMBIA 0 SINGAPORE PERU India’s top imports categories from USA in 2013 were Precious stones, Aircraft, Nuclear reactors, Boilers, Electrical machinery, and Mineral fuels & oils. A 70% share of consumer spending in GDP means that USA has been running a trade deficit for over two decades – something possible only because of the dollar’s reserve currency status. D -500 -1,000 AUSTRALIA ‘90 ‘92 ‘94 ‘96 ‘98 ‘00 ‘02 ‘04 ‘06 ‘08 ‘10 ‘12 CHILE Imports of goods and services Balance of trade in goods and services Exports of goods and services E *CAFTA-DR INCLUDES SEVEN SIGNATORIES: USA, COSTA RICA, DOMINICAN REPUBLIC, EL SALVADOR, GUATEMALA, HONDURAS AND NICARAGUA. Source: U.S. Bureau of Economic Analysis (NIPAs); $ billion 14 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 15

  10. EXCLUSIVE COLUMN ARTHUR C. WHEATON, CORNELL UNIVERSITY ILR SCHOOL CHINESE & US AUTO MARKETS: OPPORTUNITIES FOR INDIAN EXPORTERS manufacturer. Automotive assembly is a significant multiplier industry. For ev- ery assembly plant job in an auto plant can create from 8-10 additional jobs in automotive suppliers and related indus- tries. While Original Equipment Man- ufacturers and vehicle sales are clearly important, their impact is magnified by the hundreds of automotive parts manufacturers required to supply key components. World class auto suppliers currently have expanded their operations in In- dia with additional investments on the way. According to the Automotive Com- ponents Manufacturing Association in India investment in India is increasing. Japanese component manufacturers Ai- sin Seiki, Denso, Yazaki, Toyoda Gosei and many others have plants in India. European companies include Faurecia, Robert Bosch, ZF and Valeo. American companies include Borg Warner, Delphi, Eaton, Honeywell and Visteon. There are certainly opportunities for manufactur- ers in India to provide parts for both the domestic and export markets. India is fast growing into a global exports hub for automobiles and auto parts. What are the prospects for Indian auto exporters in the two largest automobile buying markets? And are there easier options? W Three: GM, Ford and Chrysler. Signif- icant time was spent on the-then up- and-coming Japanese companies Toy- ota, Honda and Nissan, with their new production systems. The remaining in- ternational content revolved around the engineering and social progress made by Western European brands: Volkswagen, Mercedes-Benz, BMW, PSA Peugeot Citroen, with casual reference to Renault and Fiat. While there were many other auto companies, those three geographic regions comprised the majority of pro- duction, sales and conversation. Thank- fully today, the global auto industry has moved away from US, Japan and West- ern European domination. over a million units in the past but fell below that threshold in 2013. Argentina and Turkey appear likely to join the club in the near future with 2013 sales over 890,000. According to the International Orga- nization of Motor Vehicle Manufactur- ers, India sold about 1.4 million vehicles in 2005 and rapidly increased sales to over 3 million units by 2010. More than doubling its sales totals in less than 5 years established India as a major player. India at 3.2 million in sales is currently ARTHUR C. WHEATON, DIRECTOR, WESTERN NY LABOUR & ENVIRONMENTAL PROGRAMME, CORNELL UNIVERSITY ILR SCHOOL hen I began teaching about the global auto- motive industry in the 1990s, it usually involved new international brands. China placed restrictions on ownership of automotive production demanding 50% ownership by a Chinese JV partner. China surpassed US to become the largest market with new vehicle sales over 20 million units in 2013, (including buses and trucks). Korea has grown with Hyundai and Kia. Recently, India has made significant progress in this highly competitive and expensive industry. Though comparing vehicle sales across countries can be problematic with varying definitions and classifications of vehicles, one fact that is clear is that sales are no longer classified as US, Western Europe and other. Eighteen different countries reported sales of at least one million vehicles be- tween 2005 and 2013. According to data from OICA, both Spain and Iran sold the sixth largest automotive market trail- ing only China, US, Japan, Germany, and Brazil for vehicle sales in 2013. Tata Motors acquiring Land Rover and Jaguar put the spotlight back on India. Small cars have been manufactured in In- dia for decades with the Maruti Alto sell- ing more than 2.5 million units in India and hundreds of thousands more export- ed to other markets. These very success- ful world class vehicles based on Suzuki and Maruti technology raise awareness of Indian automotive expertise and help change the image of Ambassador taxi cabs and antiquated technologies of 1950s-based British platforms. ...AND ITS CAPACITY AS AN EXPORTER NATION Automotive sales are not just a great source of economic profits for the long discussions about the Detroit Big OPPORTUNITIES AND RISKS FOR AUTO MANU- FACTURERS IN INDIA While the automotive industry can lead to many opportunities it can often be cyclical. There are frequently dramatic swings in supply and demand for auto- mobiles leading to variable employment security. [The U.S. lost 43.1% of auto manufacturing jobs from 2003-2009. The deterioration of profits by GM, Ford and Chrysler and the Great Recession in 2008-2009 resulted in the loss of more than half a million auto workers.] Main- taining profits in the auto industry is not easy. There are many failures and work- ers end up losing a great deal when poor decisions are made. There are opportunities and risks for Indian manufacturing for the US and Chinese markets. According to Business- in-Asia.com, India is the largest produc- er of tractor and three-wheeled vehicles. India is the second-largest producer of two-wheel vehicles and fourth-larg- est commercial vehicle producer. All of those markets are relevant in both China and the United States. Indian exporters GLOBAL AUTO SUPPLIERS HAVE EXPANDED THEIR OPERATIONS IN INDIA. THERE ARE OPPORTUNITIES AND RISKS FOR INDIAN MANUFACTURING FOR US AND CHINA INDIA’S IMPRESSIVE AUTO DOMESTIC MART... Significantly, for exporters from low- cost manufacturing nations like India, situations changing across markets have mattered too. Each destination, coun- try or region developed their preferred brands and vehicle preferences. Some markets placed very high barriers for new entrants to compete. Japan and Ko- rea were incredibly difficult to establish Arthur C. Wheaton Director, Western NY Labour and Environmental Programs and Expert – Automotive, Healthcare & Labour management, Cornell University ILR School 16 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 17

  11. EXCLUSIVE COLUMN ARTHUR C. WHEATON, CORNELL UNIVERSITY ILR SCHOOL Pasadena Freeway into downtown LA, California: Morning rush hour traffic is a headache for commuters and a joyful sight for exporters across emerging markets like India Cab of car in welding assembly line in Samutprakarn, Thailand: Thailand’s exports of auto and auto parts is 1.9 times that of India’s Chrysler’s Jefferson North factory, Detroit: With over $133 billion in exports in 2013, USA is the industry’s third-largest exporter nation Beijing’s Central Business District, Oct 25, 2010: Sights of clogged roads like the one shown makes China an attractive market. The nation’s protective policies play the repellent of three wheelers could stand a chance of grabbing some market share from some new automotive companies in the US market that are trying to establish new or under-represented vehicles. For instance, Elio Motors is building a new three-wheel vehicle in an effort to create or expand the market for alternatives to the passenger car. [These three-wheeled vehicles are being built in a former GM auto plant.] hindra, Bajaj and Hero MotoCorp are well-established brands in many parts of the world but have limited name recog- nition in the United States. Again, in this respect, Elio Motors is a brand new com- pany trying to establish a new market. So there could be opportunities for new auto brands emerging from India and or may be even smaller suppliers from In- dia waiting to tap potential of the three- wheeled market in US. Indian brands could also go the inor- ganic way. Fiat established a significant presence in the agricultural implement (tractor) sector through mergers and acquisitions of well-known brands Case and New Holland. This path to success is also underway for Mahindra as it partners with Spanish automotive parts company CIE and another Japanese company. [Though as a note of caution it is important to state that global merg- ers and joint-ventures have been tried by many multinational companies with varying degrees of success. Daimler- Chrysler and Fiat-GM were failures. Fiat Chrysler Automotive successfully saved both companies.] JVs could be a strategy too. Two of the largest Indian automotive compa- nies have opportunities through joint ventures such as Mahindra CIE or Tata Motors strategy of acquiring Jaguar and Land Rover. Both Mahindra and Tata make SUVs for one of the faster growing segments in both China and US. Beijing,China, Apr.14, 2011: China is the world’s largest consumer market for cars and car parts. 20 million units of cars (and buses & trucks) were sold in China in 2013 June 26, 2013, Chicago: USA is the world’s largest importer of automobile and auto parts. Its imports in 2013 were 161% more than that of the #2 importer (Germany) BLUE OCEAN FOR INDIAN AUTO EXPORTERS Indian auto and auto component ex- porters may have a potential entry to the US market given that three-wheeled ve- hicles in the United States are not very common and are governed by motorcy- cle laws. Any vehicle with less than four wheels in the United States is considered a motorcycle and is exempt from many of the highly regulated crash and emis- sions standards for passenger cars. Ma- CHINA: TOUGH GAME Hero MotoCorp and Bajaj have opportu- nities in motorcycles and three-wheeled markets in China and US as well. The opportunities for profits and growth are easy to identify. The risks associated with those mar- kets are also easy to identify. Establishing new nameplates in China is no easy task. Almost every large automotive manu- facturer is drawn to the billion potential drivers in China. Barriers for entry are made difficult due to China’s high tariffs for imported vehicles and the require- ment that automotive manufacturing for sales in China must have 50% ownership by a Chinese company. GM and VW have made billions in in- vestment in China and have battled for market leadership for decades. An ex- ception is Ford that is making significant progress in China through its One Ford Policy. [The Ford Focus claims to be the #1 selling vehicle in the world in the past two years since its introduction to the Chinese market.] Risks in China are high. Toyota has faced obstacles in China due to a terri- torial dispute. The multiplier effect of auto production encourages nearly every country to somehow capture those mag- ical jobs. India has made great strides in the past decade and shows signs of be- coming a major player. There are a great many benefits to gain from a successful launch in China. There are also a number of companies that were unable to survive in the brutally competitive market. than China. UBS determined that Delhi net hourly pay rates were $2.10 per hr, Mumbai $2.30, Beijing $4.50, Shanghai $5.40, Chicago $20.30 & NY $25.20. Having the lowest international wage rates are never a guarantee for success. Wages go up and tend to increase at different rates over time. According the most recent AON Hewitt study, wages in India increased 10% – the lowest increase in a decade with the automotive segment lagging industry average at 9.5%. What is impressive about the Indian industry is its embrace of world-class business and work practices. According to ACMA India has 576 auto suppliers that are ISO 9001 certified. India also has 12 Deming Award (quality-related) win- ners, the most outside of Japan. Global OEMs do not like to take risks with qual- ity. The intense focus on quality in India will place increasing pressure on suppli- ers across other low-cost manufacturing nations and establish India as a major ex- port hub for automobiles and auto parts. That the global auto industry has moved away from US, Japan and West- ern European domination is good news for Indian exporters. At the same time however, both Indian auto and auto component makers have to be careful to choose the right markets to move into. Think beyond China and US if entry barriers and saturation is a headache. Talk about opportunities in markets like Brazil and Russia is common today. Per- haps Indian exporters could begin with the ASEAN markets. This is particularly a relatively safer bet for small-to-medium- sized exporters in the auto industry. Written in coordination with: Steven Philip Warner, Editor-in-Chief, The Dollar Business India’s total exports of automobiles (2-wheeled & 2w+) Exports of vehicles other than railway or tramway and parts have risen BEYOND CHINA: ASEAN... Indian companies could seek to boost exports into ASEAN countries and smaller but expanding markets. Both Ford and GM have announced in recent weeks that they will utilise their Indian based plants as a major export hub. GM will export the Chevrolet Beat from the Talegaon Plant. Ford will export the Eco- Sport from the Maraimalainagar facility. 14,000 1,800,000 1,600,000 12,000 About the author: Art Wheaton is a Work- place and Industry Education Specialist for the Institute for Industry Studies at Cornell Univeristy ILR School. His expertise includes industry education and workplace training, high performance work systems, negotiations and conflict resolution, and auto & aerospace industrial relations. Prior to joining the ILR fac- ulty in 1999, Art was with MIT’s Labour Aero- space Research Agenda. Art has also served as executive board member for the American Federation of State, County and Municipal Employees, AFL-CIO in Michigan in the past. 1,400,000 10,000 1,200,000 8,000 1,000,000 800,000 6,000 600,000 ...AND WAGE ADVANTAGE The relative lower wage rates in India helps to make Indian companies an in- triguing business case. According to a September 2012 UBS Prices and Earn- ings report, India has lower wage rates 4,000 400,000 2,000 200,000 0 0 FY08-09 FY09-10 Value ($ million; L-axis) FY10-11 FY11-12 Volume (‘000 units; R-axis) FY12-13 FY13-14 Source: Export Import Data Bank, DoC, GoI 18 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 19

  12. OVERSEAS TALK MARIE-JOSÉE CHARBONNEAU & ROSALINE KWAN, HIGH COMMISSION OF CANADA “TRADE CAN PROSPER ONLY IF YOU EMPOWER EVEN THE SMALLEST OF COMPANIES” In recent years, bilateral trade between Canada and India has not grown as expected. To make sense of what’s playing spoilsport and to understand thoughts in the Canadian camp on the prevailing issue, The Dollar Business sat down with two of Canada’s senior diplomats in India – Marie Josee Charbonneau and Rosaline Kwan. Excerpts: BY NEHA DEWAN TDB: In the four years leading to FY2014, Canada accounted for under 0.7% of India’s merchandise exports and imports. The $3 billion mark has never been breached in either exports or imports. Where lies the concern? Rosaline Kwan (RK): Let’s focus on the trend. Not absolute numbers. Since 2010, trade between India and Canada has been growing at a CAGR of 30%. That’s promising. Even at a micro level, activity is increasing. I am sure, trade numbers will look much better in future. to India and Indian exporters to Canada feel they have that safety net. So, I think there are no real worries – all we need is work on to build that framework. RK: Just to reinforce the point of having a framework for bilateral trade, Canada is very keen to work with the new gov- ernment in India. And I am sure, trade between the two countries will grow ex- ponentially in the near term. TDB: A study by the Canada-India Business Council stated that CEPA will give Canadian goods and services the opportunity to have improved access to India’s market and boost Canadian economy. At the same time, for India, the dividends will be high. How will CEPA impact export communities at both ends? RK: Agreements and frameworks always offer something for both sides. 85-90% of Canada’s economy is driven by small or medium-sized businesses. So, we are perfectly in sync with the needs of TDB: But do you not agree that trade between Canada and India is lower than what it could potentially be? Marie Josee Charbonneau (MJ): I don’t think so. Maybe I can start with the Comprehensive Economic Partnership Agreement (CEPA). We have completed eight rounds of negotiations and there are two or three chapters that are still under negotiations. We need to build a framework so that Canadian exporters (L) Rosaline Kwan Senior Trade Commissioner, High Commission of Canada in India Marie-Josée Charbonneau Counsellor & Head – Advocacy Programme, High Commission of Canada in India 20 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 21

  13. OVERSEAS TALK MARIE-JOSÉE CHARBONNEAU & ROSALINE KWAN, HIGH COMMISSION OF CANADA MJ: Canada has a lot to offer when it comes to education. There are a lot of very good Canadian engineering firms – this makes infrastructure a focus area, as well. Food security is one area where we focus a lot. Canada accounts for 1/3rd of India’s peas, lentils and chickpeas mar- ket. There is also a lot of scope for other agricultural exports from Canada to India. On the energy side, we produce lots of oil from oil sands – something that we are now looking forward to export to India. RK: Canada and India also have a sep- arate framework for energy dialogue. Indian Oil Corporation recently buying a 10% stake in Petronas is a classic ex- ample of how a relationship can move in the energy sector. An Indian delegation also visited the Global Petroleum show in Canada recently. ONGC Videsh Lim- ited (OVL) has an office in Calgary. So, the energy sector has a lot to offer. Top imported Canadian products to India... In FY2014, India imported over $400 million worth of peas from Canada A view of the container terminal at Vancouver Port, Canada during sunset. Port Metro Vancouver is Canada’s largest and most diversified port IN 2013, VALUE OF INDIA’S EXPORTS TO CANADA WAS LESS THAN THOSE TO COUNTRIES LIKE NEPAL, EGYPT AND TANZANIA 800 700 600 500 400 300 200 Indian exporters. We are consistently in touch with CII and FIEO and trying to incorporate as much of their inputs in CEPA as possible. We are currently un- dertaking a special programme called the Canadian Technology Accelerator, focusing on micro-sized startups with good technology. I am sure it will add a lot of value to our bilateral trade. 100 0 1 2 3 4 5 6 7 8 9 10 1..........................Dried Leguminous Vegetables 2........................Copper Ores and Concentrates 3............................................Potassic Fertilisers 4...................Crude Oil and Other Petroleum Oil 5...........................................................Newsprint 6..................................................Coal Briquettes 7................................................ Unwrought Gold 8....................................Diamonds, not mounted 9...............................................Unwrought Silver 10....................................Aircraft and Spacecraft ...and top Indian products exported to Canada Medicines were by far India’s biggest exports to Canada in FY2014 TDB: Canada’s low investments in In- dia’s industries like food processing, energy and education are questioned. What about Canadian investment in India, particularly since the new Indi- an government is pro-FDI and given Canada’s engagement with Gujarat in the past? MJ: In Canada, we have more than a million Indo-Canadians. There are lots of people-to-people links. Many In- do-Canadians come from Gujarat. So, it was natural to engage with Gujarat. Can- ada has built really good relations with the state and we are now looking to take that relationship to the national level. In terms of investments, the future is very promising. Where we, as government representatives can help, is build the environment for Canadian investors to come here and feel at home and have a good sense of how the legal system works and how investments will be protected. RK: Some of our biggest companies have invested heavily in manufacturing plants in India. Companies like Bombardier and McCain are already here in a big way. When it comes to pension funds, we are talking about a different level of investment – with Shapoorji Pallonji, the partnership was worth $350 million, with Piramal it was worth $500 million. TDB: Besides exports of articles of iron and steel, organic chemicals, and pharmaceutical products, which other products in the manufacturing sector hold maximum attractiveness in the Canadian market for Indian exporters? RK: There is a lot of interest in apparel and precious stones – sectors that are in- herent to India. Where we think there is a lot of potential, is IT. That’s an area where I think trade can improve a lot, partic- ularly in terms of back-end support for Canadian financial services firms. 160 140 Bilateral trade between India and Canada (by value) India has continued to run a trade deficit with Canada for the last eight years 120 100 80 3,500 60 40 3,000 20 2,500 0 1 2 3 4 5 6 7 8 9 10 2,000 1.....................................................Medicaments 2......................................................Crustaceans 3.................................Precious Metals Jewellery 4..........................................................Diamonds 5...................................Iron and Steel Structures 6.............................................Furnishing Articles 7..............................................................T-Shirts 8.................................. Heterocyclic Compounds 9................................................................... Rice 10........................................................Bed Linen 1,500 TDB: Are there exclusive products or services that Canada can offer? RK: When you look at the numbers, there is obviously a lot of interest in ma- chinery and aerospace parts from Can- ada. Then you have solar technology and lumber. I do believe more and more builders will use wood in the future and I am sure a lot of it will be Canadian. 1,000 500 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 India’s exports to Canada India’s imports from Canada Source: Commerce Ministry; figures in $ million Source: Commerce Ministry; figures for FY2014 ($ million) TDB: You seem more upbeat about India as a service provider than a man- ufacturer. Is that so? RK: Although India has shown very strong capabilities in the services area, we understand that manufacturing is critical, particularly when it comes to creating jobs. Our perception is that there will be an increased focus in India to create jobs on the manufacturing side going forward. And Canada should be a participant in this respect. TDB: In India, there is not a lot of trac- tion when it comes to high-tech indus- tries. Should India begin focussing on high-tech manufacturing? RK: We have been hearing a lot from the government about framing policies that will encourage electronics manufactur- ing in India. My understanding and per- ception is that it’s already taking place and we have also been communicated about it. In fact, we have communicated this message back to Canadian compa- nies so that while taking decisions they don’t ignore India. MJ: I think such policies should also give a clear signal to foreign investors. The message that should go out is that India is ready for business. Once an investor understands the kind of environment he/she will be operating in, taking deci- sions and putting in those big bucks be- come easy. colleagues have their hands full and ev- ery year we are issuing more and more number of visas. Moreover, with a lot of Indians having friends and relatives in Canada, the numbers are only going to rise going forward. RK: A lot more can actually be done when it comes to tourism. Last year, a group of Canadian tourist operators visited Jaipur and I am sure a lot of pro- motional activities are being planned to attract more tourists from India. TDB: There’s not a lot of talk around Canadian tourism. Why doesn’t Can- ada promote itself much in that sense? MJ: The Canadian Tourism Commission is represented here in New Delhi. We will pass on your message that they should expand their presence. We do want to attract more Indian tourists to Canada and, I think, the trend of Indians visiting Canada is on the rise. My immigration TDB: Which sectors will drive In- dia-Canada trade going forward? neha@thedollarbusiness.com 22 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 23

  14. INFOGRAPHICS WATCHES WHEN ‘TIME’ IS SHORT & STAKES ARE HIGH! 14 12 10 8 6 4 Einstein once said: “Time is that which clocks measure.” Reality though is that watches & clocks are just devices with steady cycles of operation, made to measure something abstract as time. What’s wryly amusing is that man’s desire for fulfilment of an abstract has become a multi-billion dollar indulgence 2 0 CHINA HONG KONG SWITZERLAND FRANCE USA MAJOR IMPORTERS (BY VALUE) E Source: The Federation of the Swiss Watch Industry FH; figures for CY2013 ($ billion); includes components World’s top watchmakers (by value) Indian watches & clock trade F G SWISS WATCH EXPORT MARKETS (SHARE IN %) IMPORTS BY INDIA SOURCE MARKETS (SHARE IN %) SWISS WATCH EXPORT VOLUMES (PRICE-WISE) 350 10 300 S W A T C H 3.3% 250 08 0.5% 200 R I C H E M O N T 06 1.5% 150 65.0%17.0%12.0%6.0% 19.0%10.0%7.0%6.0%6.0%5.0%5.0%4.0%4.0%4.0%28.0% 19.3%23.6%51.9% 100 04 G R O U P R O L E X 50 0 02 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FOSSIL LVMH Exports Imports 0 Source: Ministry of Commerce; ($ million) Hong Kong was the biggest importer of Swiss watches in 2013. E Source: Company reports & The Dollar Business Intelligence Unit; figures for CY2013 ($ billion); Switzerland-based Swatch Group had the highest sales (value) among all watchmakers in 2013. F cross currency rates – EUR/USD of 1.36 and CHF/USD of 1.1 ....UPTO 200 .........201-500 ....501-3,000 ............3,000+ HONG KONG USA CHINA GERMANY ITALY FRANCE JAPAN SINGAPORE UK UAE ROW CHINA HONG KONG SWITZERL’D JAPAN S. KOREA ROW A B C In value terms, Switzerland was the biggest exporter of watches and clocks to India in FY2014. Even for Swiss watches, price elasticity of demand is worth taking a note of. 65% of the total watch volume exported in 2013 were priced below 200 CHF A C Indian watch imports has surged six-fold over the last decade. Source: The Federation of the Swiss Watch Industry FH; prices in Swiss G Source: Ministry of Commerce & Industry, Government of India; figures for FY2014 Source: The Federation of the Swiss Watch Industry FH; figures for CY2013 With an average price of just $3, China exported over 634 million timepieces in 2013. In 2013, exports of watches from Switzerland was worth more than that of the next four exporters combined. H D franc in The top destination for Swiss watches in 2013 was Hong Kong. Switzerland; figures for CY2013 B 35 700 30 600 25 500 20 400 15 300 10 200 5 100 0 0 CHINA HONG KONG SWITZERLAND GERMANY FRANCE CHINA HONG KONG SWITZERLAND GERMANY USA MAJOR EXPORTERS (BY VALUE) MAJOR EXPORTERS (BY VOLUME) D H Source: The Federation of the Swiss Watch Industry FH; figures for CY2013 ($ billion) Source: The Federation of the Swiss Watch Industry FH; figures for CY2013 (million units) 24 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 25

  15. GLOBETROTER STATE BANK OF INDIA Headquartered in Mumbai, State Bank of India operates out of 15,869 branches IN AN EXPENSIVE GLOBAL RACE The respect and benefits that come with being a truly global bank are immense. From making the brand a trustworthy household name, to catapulting the executives to rockstar status, the lures of it are massive. But should the State Bank of India pursue this drean at the cost of profitability BY SHAKTI SHANKAR PATRA T the dot-com bust and 9/11 attacks meant that credit had been allowed to flow into the broader economy at a rate never be- fore seen in human history. Consumer credit had soared, house prices skyrock- eted and bankers had their hands full. But with interest rates near-zero, it was difficult for a bank to make a killing in the traditional way. So, what had fol- lowed was financial engineering of the most bizarre kind and, as always, the epi- center of this was US. From mortgage-backed securities (MBSs) to credit default swaps (CDSs); from collateralised debt obligations (CDOs) to collateralised bond obliga- tions (CBOs) – every penny lent was he year 2008 changed the way the global banking industry functioned. Massive deregula- tion and a very loose interest rate policy to tide over the twin crisis of packaged and repackaged and speculat- ed on. To ensure a steady flow of such products, multi-million dollar loans were given to even those who had the worst possible credit profile – some of these loans colloquially being called no income, no job, no asset (NINJA) loans. Rating agencies also saw this as an op- portunity to make hay and gave AAA ratings to even the most risky debt. As long as the music played, the party con- tinued. But when it stopped, banks had nowhere to hide. While the bursting of the credit bub- ble mostly affected western banks, those in India were not entirely immune. Any kind of exposure to the US and Europe- an housing market was looked at with suspicion and the toughest of questions asked. What helped Indian banks tide over the storm unscathed though was their limited exposure to the western housing market, thanks to strict reg- ulations of the Reserve Bank of India, which was admired all over the world for its role in curbing the animal instincts of Indian bankers. With this backdrop and barely five years since the credit crisis, it must be surprising to many that Indian banks are actually looking outward to fuel growth. And the largest among them – State AT THE END OF FY2014, SBI’S TOTAL CONSOLIDATED ASSETS WERE ABOUT TWICE THE GDP OF PAKISTAN 26 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 27

  16. GLOBETROTER STATE BANK OF INDIA Foreign banking subsidiaries of SBI (with stakes) SBI has a presence in 36 countries and has 190 foreign branches Number of foreign branches / offices SBI’s global expansion has slowed in the last four years AFTER A MINOR EXPANSION IN FY2013, SBI’S RoA DIPPED TO O.65 IN FY2014 AS NET NPA SURGED TO 2.57% 200 100% 100% 95% 180 76% 160 60% 55% 140 120 100 80 years back, the global banking commu- nity understood this. It just couldn’t live with the tiny profits it was making while the businesses it was lending to, were spinning out the big bucks. Hence, it started venturing out into areas – from raising money for businesses to down- right speculation – which never made sense to the purists. While in the short run this meant great margins that made shareholders happy, in the long run it was a disaster waiting to happen. While post several such booms and busts, reg- ulations in the West have been tightened and ‘pure banks’ are not allowed to spec- ulate with depositors’ money there are always ways around such regulations that are brazenly exploited in the West. Is it this lure that is making India’s top bank look elsewhere? STATE BANK OF INDIA (CALIFORNIA) STATE BANK OF INDIA (CANADA) STATE BANK OF INDIA (MAURITIUS) PT BANK SBI INDONESIA NEPAL SBI BANK COMMERCIAL BANK OF INDIA LLC, MOSCOW 60 40 20 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 average of the same for SBI in FY2012, FY2013 and FY2014 stood at 12.52% – al- most 8 percentage points higher. Similarly, in terms of Cost to Income ratios, while the same for North American and European banks in 2012 were 67.8% and 64.2% re- spectively, the three year average for SBI is 48.8% – again 15 to 19 percentage points lower. This basically means that not only are global banks (particularly those in Europe and North America) growing at a much slower rate than SBI, but are also incurring more for every penny worth of income as compared to the Indian behe- moth. If these numbers are not enough to persuade the SBI management to stick to India and dissuade them from ventur- ing out (unless it’s for an ego boost), then a look at the net interest margin for SBI’s own domestic and foreign operations should seal the deal. According to SBI’s FY2014 Annual Report, the bank had a domestic net in- terest margin (NIM) of 3.49% while the same for its foreign offices was just 1.42% – more than 200 bps lower! So, why is SBI trying to expand its global footprint when domestic interest margins are higher and cost of operations are lower? That’s a billion dollar question. iary Banks) Act in 1959, which made eight other banks its subsidiaries. SBI also has a long history of acquir- ing other smaller banks – mostly in bail- outs. The first bank that SBI rescued and acquired was the Bank of Behar in 1969, followed by the National Bank of Lahore, Krishnaram Baldeo Bank, Bank of Co- chin, State Bank of Travancore and sev- eral others. A Fortune 500 company, SBI currently has consolidated assets worth Rs.23.95 lakh crores, 15,869 branches, 190 foreign offices, over 21.9 crore active customers, 43,515 ATMs across India, 1.77 crore Internet banking users, 95 lakh mobile banking users, and of course over 2.2 lakh employees. Source: SBI FY2014 annual report IN FY2014, WHILE SBI’S DOMESTIC NET INTEREST MARGIN WAS 3.49%, THAT FOR ITS FOREIGN OFFICES WAS 1.42% Valley – something that becomes very clear by a single look at the bank’s web- site what with ‘Exchange Rates’ section talking only about remittances to India! One gets the same impression after vis- iting the website of State Bank of India, United States of America. With a slogan like ‘Your Best Link to India’, the bank has made it very clear that it essentially is for Indians in US or for those doing business in India – unlike the Citibanks and Deutsches of the world, who are in India, catering to Indians. Asset growth (made to base 1) SBI’s foreign offices assets have more than doubled in the last five years 2.5 2 1.5 Bank of India – is at the forefront of this. 1 AS OLD AS THE HILLS In its current avatar, the State Bank of India is exactly 59 years old as it came into being on July 1, 1955, after the State Bank of India Act was passed by the Parliament. However, its origins can be traced back to 1806. That’s right; SBI is actually older than the country it is based in! Four years after the State Bank of India Act was passed, the Parliament passed the State Bank of India (Subsid- 0.5 0 FY09 FY10 FY11 FY12 FY13 FY14 THE SECOND HOME While explaining the concept of risk free rate, a renowned professor once told his class, “There’s no investment that is risk free; the closest you have in India is de- posits with SBI.” While the statement was made in jest, it conveys the respect that SBI is given in our country. And maybe the obligation that comes with this kind of respect has forced SBI to cater to the Indian community abroad and also the banking needs of the exporters and im- porters community. While SBI has a presence in 36 coun- tries, a close look at the entire list makes it clear that the focus has been on coun- tries with a large expatriate Indian com- munity, like Bahrain, Singapore, Mauri- tius, Canada, South Africa, and of course US. In fact, one of the main subsidiaries of SBI in the US is State Bank of India (California). Established in 1982, with nine branches in California and one in Washington D.C., SBIC primarily caters to the huge Indian community in Silicon EPILOGUE To be fair to SBI, the rate of growth of its foreign offices have slowed down in the last two years. After a 54% jump in the number of its foreign offices in FY2010, it has added just 17 new foreign offices in the last two years. So, maybe the realisa- tion has sunk in. But a look at the balance sheet, raises eyebrows yet again. In the last five years (since FY2009), growth in the bank’s foreign offices assets has clear- ly outpaced that of its total assets. While the difference is not massive and a lower base in foreign offices could be one of the reasons for this, the question remains as to why would a bank accumulate more and more assets (which means more and more liabilities) if the return on those as- sets (RoA) is progressively lower? As per the earlier mentioned Capgem- ini report, the RoA of Latin American banks, at 1.6%, was the highest in 2012, while the same for banks in Asia-Pacific region was at 1.1%. As compared to this, SBI’s average RoA for FY2012, FY2013 Asset (Foreign Offices) Total Asset AGAINST THE BEST According a Capgemini report on the global banking industry, total assets of the world’s top 1,000 banks grew by 4.9% in 2012 whereas a The Dollar Business Intelligence Unit analysis reveals that the Source: SBI Annual Reports; Foreign office figures in $ billion; Total figures in Rs.crore and FY2014 has been just 0.83%. This obviously means SBI is grossly under- performing its peers in emerging mar- kets, despite witnessing a strong growth in total assets. While an anaemic domes- tic economy and rising NPAs were the main reasons for this, a calmer growth in foreign offices assets, would have re- duced the overall asset size and improved its RoA. If one takes into account the fact that RBI is now handing out new banking licenses (since the penetration of banks in India is very low), it makes even more sense for SBI to stop looking elsewhere and concentrate on the domestic econ- omy. Of course, if alpha returns from foreign lands in the years to come, you’ll find us writing otherwise. Growth in total assets (%) SBI’s assets are growing in double digits Cost to income ratio SBI’s expenses are lower than global peers 14 80% 70% 12 LURE OF FOREIGN SHORES In the traditional sense, banking is a mo- notonous business. A banker accepts de- posits at X% and lends at Y%. The only way it makes a profit is in terms of the difference between Y and X. And when things go wrong, one bad loan can wipe all the gains made by virtue of the dif- ference between Y and X. About 60-70 60% 10 50% 8 40% 6 30% 4 20% 2 10% 0 0% World’s top 1,000 banks State Bank of India Europe State Bank of India North America Source: 2012 figures for world’s top 1,000 banks; Average of FY12, FY13 and FY14 for SBI Source: 2012 figures for world’s top 1,000 banks; Average of FY12, FY13 and FY14 for SBI shakti@thedollarbusiness.com 28 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 29

  17. GLOBAL MANAGER DR. ALOK BHARADWAJ, EXEC. VICE-PRESIDENT, CANON INDIA TDB: You previously led the Indian IT hardware industry body MAIT as its President, and have been a part of many-a-discussion on India’s manu- facturing capabilities in the technolo- gy sector. Where does India stand as a manufacturing and exports hub in the realm of IT hardware? Dr. Alok Bharadwaj (DAB): I think India has lost a lot of time. There is no doubt that in time, manufacturing will continue to get a fillip. Problem is, that value creation has been eluding India. And the last decade or so, the advantage has gravitated towards China. And after Thailand, Malaysia and other South East Asian economies some time in the past, the advantage is now moving to Viet- nam. All this while, there has been a lot of discussion at the policymaker-level, industry body-level and company-level on the need and urgency to boost manu- facturing in India. I think we have been doing a bad service to the nation. India’s manufacturing sector’s output growth vis-a-vis China’s With right, long-term policies, India’s manufacturing sector should shine brighter With questions still being asked whether India can ever become a manufacturing hub, The Dollar Business caught up with Dr. Alok Bharadwaj, EVP, Canon India (and Chairman of CII’s Office Automation and Imaging Division) to learn his views on the subject. “India can’t fix its manufacturing overnight, but it can fix its manufacturing policy,” believes Dr. Bharadwaj. We couldn’t agree more 20 20 18 15 16 10 14 5 12 0 10 -5 8 -10 FY10 FY11 FY12 FY13 FY14 India’s Manufacturing Production (L-Axis) China’s Manufacturing Production (R-Axis) Source: India’s data – Central Statistical Organisation (CSO); China’s data – National Bureau of Statistics of China, quantity in % the IT hardware business today? DAB: The first and prime aspect is India’s domestic consumption. Unlike in other smaller countries like Vietnam, where manufacturing is only for global supply, India consumes too. And if we continue to have a GDP growth of 7% every year, we will be able to create a reasonably strong domestic consumption market. That is one of the most compelling rea- sons for foreign companies to invest in India. If adopt an inside-out perspective, we see equal opportunities for both do- mestic and foreign, and small and large players. The large manufacturers can take the higher end of the value chain, while the smaller domestic players can become an integral part of the ecosystem by adding value at somewhat lower end of the value chain to begin with. And over time they can climb up the value chain by adding differential value. Ministry of IT discussed was that, by 2020 almost $500 billion worth of IT and electronic goods would be consumed by India. That would be more than the fuel bill. Meaning that India would be im- porting more electronic hardware than fuel. And if that is the case, given that fuel is something that we can’t manufac- ture, if we do not think about manufac- turing electronic items in India, it will be a disservice to the nation. TDB: What surprises you most about the fact that despite a pool of engineers, India still lags in manufacturing? DAB: Building a manufacturing base is no rocket science. All the countries I mentioned before have done it – they have found the economies of scale, the cost advantage and all other advantages required to create a global supply chain. India has succeeded in making itself a manufacturing hub in some businesses like auto parts, but in electronics and IT hardware, the whole discussion has always revolved around policies that are not encouraging manufacturing at a global scale. The ecosystem that is re- quired for electronics manufacturing is not easy to create. In this business, you do not set up a manufacturing centre for one company or two companies. Setting up a facility for an ecosystem is a differ- ent ballgame altogether. So the starting point is government policies to make In- dia to be a big electronic manufacturing base and I think that’s quite possible. The more consumption we create, the more problems we will create in our im- ports. Because that would mean that we would need to import more electronic goods to India. It’s about the quality of life today. The latest number that our TDB: Turning to Canon. At present, this world’s largest maker of cameras imports all its products sold in India. Do we expect this supply-side strategy to change in the near future? DAB: Manufacturing is a different game than selling. So many companies – and Canon is no exception to this rule – have their sales offices in India, with R&D being treated as a separate vertical. And that list includes Canon. Decisions on manufacturing are taken after deciding on which zone is most conducive. For manufacturing, we look at supply chain, costs of manufacturing and policy. Go- ing by this, if India does become a manu- facturing destination, then surely, Canon will invest in setting up manufacturing unit here. From a logistics angle, India has a very long coastline and geograph- ically, with Africa on one side and Asia on the other, it is a prime location for to- and-fro movement of goods. “WE NEED A NON-INDIA WITHIN INDIA TO MAKE IT A MANUFACTURING AND EXPORTS HUB” TDB: What can the government do to encourage innovation so that we begin on a strong note to establish India as a manufacturing and exports hub? DAB: Firstly, I think our educational system needs to be reconfigured. We cannot feel that we can build a strong R&D and innovation culture based on just one dozen IITs and some science institutes. We need a large number of in- stitutes to make a big investment in the education curriculum that is focussed on creating research opportunities for Indi- an students. Secondly, we have to look at retaining talent in India to prevent brain drainage. So the private sector comes in TDB: India’s domestic market – how compelling is that for growth of both small and big-sized manufacturers in INTERVIEW BY STEVEN PHILIP WARNER, EDITOR-IN-CHIEF, THE DOLLAR BUSINESS 30 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 31

  18. GLOBAL MANAGER DR. ALOK BHARADWAJ, EXEC. VICE-PRESIDENT, CANON INDIA SUBSCRIBE NOW! The Dollar Business magazine Read this exclusive platform on foreign trade and get an unbeatable edge in the business of exports-imports. Welcome to globalisation! SUBSCRIBE TO E-MAGAZINE PRINT & GET FREE VERSION ACCESS TO OUR Print version No. of Issues Cover Price Discount You pay 12 1,200 10% 1,080 INR 24 2,400 20% 1,920 36 3,600 30% 2,520 12 60 10% 54* USD 24 120 20% 96* 36 180 30% 126* No additional delivery charges apply to India-based subscribers. *Rates exclusive of airmail charges for all international subscribers. [Applicable annual additional charges: $80 for SAARC nations; $120 for other countries.] Rates valid during the issue month only. NOTE: All subscription requests are to be made for the Print version only. All approved subscriptions include both Print and e-Magazine offers. No request for standalone e-Magazine subscription(s) shall be entertained. e-Magazine No. of Issues Cover Price You pay 12 1,200 FREE WITH THE PRINT VERSION INR 24 2,400 36 3,600 12 60 FREE WITH THE PRINT VERSION USD 24 120 36 180 TDB: So has the rupee movement im- pacted Canon in recent months as well? DAB: Yes. It impacts all importers. Can- on as a company, whenever we import, we get supply credit. So a devaluing currency syndrome brings in this basic problem that we always have to pay more than the cost of imported products. For many companies, if we talk about long- term government contracts, when the rupee devalues, the contract transforms into a death trap for many companies in the IT industry. A volatile rupee is a big pain for the industry. here. Government alone cannot help the cause of making India an R&D-rich na- tion. Thirdly, we are not giving high pri- ority to patent-filing. India will have to build very strong patent protection laws. and processes to make India a real man- ufacturing hub and a net exports market. Anything short of that won’t do. We need to create a non-India within India. And that will only be possible when the rules of the land and infrastructure are made different from what they currently are. We have to invest in ports and highways. TERMS & CONDITIONS 1. This is a limited period offer. 2. The Dollar Business and Vimbri Media Pvt. Ltd. will not be held responsible in case of any postal / courier delay in delivery of any issue of the magazine. 3. The Dollar Business and Vimbri Media Pvt. Ltd. will not be held responsible in case of any production delay that leads to late delivery of any issue to its subscriber(s). 4. If for any reason, a certain issue of The Dollar Business is not published, the subscription will automatically be extended by a month. 5. The Dollar Business and Vimbri Media Pvt. 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It is the sole responsibility of the subscriber(s) to report non-receipt of any issue of the magazine to the subscription department of The Dollar Business within 30 of the issue release date. 11. Terms and conditions may be altered without notice to the subscribers. 12. For Delivery, Return and Refund Policies, and for more information on Subscriptions, please log on to www.thedollarbusiness.com TDB: For players in the IT and elec- tronics business, rupee devaluation has been a big concern. You think so? DAB: More the consumption, more the vulnerability. And we are in a Catch 22 situation today. The more India devel- ops, more will be its dependence on IT and electronic imports, therefore there will be a greater exposure to movements in the rupee value. Rupee exchange rate is a very big concern for the IT industry because of two reasons. One is that it is very unpredictable and suddenly renders a profitable business unprofitable. TDB: So is that the complete solution? DAB: No. It’s only one part of the solu- tion to make India a world-class man- ufacturing centre and net exporter. The policies and tax laws should be abso- lutely immune to change. We make laws and change them in no time. This only increases the factor of unpredictabili- ty. Whenever a new state government takes charge, it changes laws. We must announce policies that are immune to change. Even if we adopt a bad policy and realise that after ten years India has lost because of that policy, we should re- tain it. Long-term planning & stability can as such come to pass. Concrete formation policies is important. is critical that big foreign investors. Stable policies will add to India becoming a manufacturing hub. For subscription-related queries, please write to us at subscription@thedollarbusiness.com or call us on +91 40 66770765. We’d love to hear from you! You can also write to us at: The Dollar Business, Vimbri Media Pvt. 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  19. CHARTED TERRITORY HJF 2014 GEMS, GLITZ AND GLITTER “Cut duty from 10% to 2%” G. V. Sridhar, Regional Director (South), All India Gems & Jewellery Federation (GJF), has huge expec- tations from the new government. On the sidelines of HJF-2014, he spoke to The Dollar Business on a whole host of issues concerning the gems and jewellery in- dustry in India. Excerpts: The 7th edition of the Hyderabad Jewellery Pearl and Gem Fair (HJF) was a marvellous showcase of skills that go into designing an aesthetic and splendorous array of jewellery. The fabulous range of gems and pearls on display were a feast for the eyes and attracted the Who’s Who of the business TDB: What promotional activities are you conducting in South India? GVS: Our primary goal is to bring the entire industry on one platform to maintain unity and integrity. The second objective is to educate jewellers, craftsmen, designers and help them move to the next level. We want to ensure that jewellery is sold as a product and not a commodity. Now that the new government is in power, we have a lot of expectations from it. In fact, now things are starting to look up. As far as southern region is con- cerned, it’s witnessing a boom. Right from Kerala to Tamil Nadu, from Andhra to Karnataka, the demand for gems and jewellery is increasing like never before. Now that awareness about compliance is spreading, it is good for the industry. GJF is confident that India is going to be the number one in the world in production of jewellery, given the proactive approach of the new government. BY JAYASHANKAR MENON TDB: Have you made any recommendations to the government? GVS: Yes. We have requested the government to withdraw the 80:20 rule and cut customs duty from 10% to 2%. Apart from this, we are also sup- porting the government on every issue. We are with the government to solve all outstanding issues. TDB: You were talking about making Hyderabad a hub for manufac- turing jewellery. Can you elaborate? GVS: Basically, Hyderabad specialises in ruby, flat diamond and Chakri diamond jewellery. This has been restricted only to the South India. It has not really made inroads into the North. Through these kind of events, we are trying to increase awareness. Footfalls are certainly increasing year after year. This is a serious business meet, where buyer-seller interactions also happen. T exhibitions of its kind in India. This year’s edition not only ensured participation of over 120 manufacturers, wholesalers, retailers, importers, exporters, suppliers and representatives of various trade bod- ies, but also felicitated those who have been paying heed to the growth of the in- dustry. Joji George, Managing Director, UBM India, inaugurated the three-day B2B event. Speaking to The Dollar Busi- ness, George said, “UBM hosts in excess of 20 large scale exhibitions and 40 con- ferences across the country every year, thereby enabling trade across multiple he seventh edition of Hyder- abad Jewellery, Pearl & Gem Fair (HJF), held at the HITEX exhibition centre between June 7 and June 9, 2014, was one of the biggest tic and international markets. And this year wasn’t different. Many prominent players in the jewellery business includ- ing Emrals from Coimbatore; Krizz from Chennai; Peeyar Manufacturers, Sanghi Jewellers and P. Mangatram from Hyder- abad; and Hari Krishna Exports, Mukti Gold and Shanti Gold from Mumbai among others, showcased their designs. “Despite having a global footprint, the Indian gems & jewellery industry has so far been a laggard when it comes to the use of technology,” a participant told The Dollar Business. Well, it is discrepancies like this that trade fairs like HJF should now start addressing. “It’s time we take that next big leap.” he added. industry verticals. And 2014 edition of HJF has only taken things to the next level of commitment offering excellent business opportunities to all stakeholders.” A gateway to the Indian jewellery market, HJF 2014 provided an excellent platform for buyers and suppliers to con- nect, network, exchange ideas, discover upcoming trends and generate business opportunities. At the trade fair, exhibi- tors presented a wide spectrum of mer- chandise including diamonds, pearls, gemstones, exquisite gold jewellery and the latest machinery and equipment used in the manufacturing process. The exhibition, since its debut in 2008, has created right business opportunities for the industry and has been attracting exhibitors and buyers from both domes- TDB: What about training local jewellers? GVS: GJF is trying to educate the entire industry, especially jewellers from the hinterlands to observe compliance. If that happens, the entire jewellery industry will become transparent. And once it becomes trans- parent, we will go to the next level. Now we have the hallmarking system, which is a value added service. This gives lot of confidence to jewellers. TDB: Could you shed more light on skill counselling? GVS: We have various training modules. A few years ago, a worker used to work under extreme conditions in a highly disorganised way. Today things have changed. Now proper infrastructure, convenience, clean en- vironment and more are provided. So, even youngsters are opting for jobs in this industry. In fact, it is more like a laboratory and they are treated like metallurgists unlike a menial in the past. Glimpses of seventh edition of Hyder- abad Jewellery, Pearl and Gem Fair (HJF) held at HITEX exhibition centre between June 7 and June 9, 2014 jay@thedollarbusiness.com 34 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 35

  20. THE SECRET INGREDIENT TURMERIC THE SECRET INGREDIENT TURMERIC Profit estimate for turmeric exports Zero customs duty for Turmeric in USA makes exports to that country extremely lucrative Cost of Turmeric (INR/MT) * Cost of Turmeric (USD/MT) ** Freight & Insurance (USD/MT) *** General and Administrative Costs (USD) Final Cost (USD/MT) Price in USA (USD/MT) # Profit (USD/MT) Profit Margin 1,20,000.00 2,000.00 680.00 125.00 2,805.00 3,630.00 825.00 29.41% Turmeric curcuma root and powder: Curcum- in, an ingredient found in turmeric, has long been used to prevent many chronic diseas- es including obesity, type II diabetes and liver diseases Note: Turmeric attracts no import duties in USA *Wholesale Price of Alleppey Finger in Cochin ** Assuming USD/INR of 60 *** Shipping and Insurance Cost for 1 MT Turmeric from Cochin to New York # Spices Board of India and The Dollar Business Intelligence Unit India’s turmeric exports – by value and volume Average export price has increased from Rs.35.39/ kg in FY05 to Rs.83.26/kg in FY14 200 120,000 180 100,000 160 140 80,000 120 100 60,000 80 40,000 Dry turmeric curcuma root at a wholesale spice shop at APMC Market in Mumbai. Indian turmeric exports are dominated by dry turmeric, which accounted for over 43% of total exports in FY2014 60 40 20,000 20 0 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Export (Value; R-axis) Exports (Quantity; L-axis) Source: Ministry of Commerce; Quantity in metric tonne; value in $ million F inations around the world – as a pana- cea and a palliative for a wide range of ailments. So much so that it has been granted “Generally Recognised as Safe” (GRAS) status by the USFDA. The world’s love affair with this co- lourful agent is also evident from the extensive research being carried out on its medicinal values and extracts. For in- stance, curcumin, an ingredient found in it, has long been used to prevent many chronic diseases including obesity, type II diabetes and liver diseases. Recent studies show that this dietary supple- FOR INDIAN BRIDES & FOREIGN BUYERS As wisdom dawns upon the globe about the amazing array of India’s herbal resources, the international science and medical fraternities (besides just culinary connoisseurs) are waking up to the potential of a product native to India – turmeric. What’s better is the fact that with 80% of the world’s total turmeric being produced in India, this spice has the potential to work wonders for exporters. Actually, we’re talking about Rs.650 crore in exports-a-year already! or over 5,000 years, turmeric has been used throughout India, China and Indonesia as a spice and medicinal agent. But only recently has it started capturing imag- ment possesses potent anti-oxidant, an- ti-carcinogenic, anti-inflammatory and hypoglycemic properties. In India, tur- meric is an omnipresent ingredient in a majority of delicacies. A dash of turmer- ic is enough to spice up the flavour and play a gastronomic delight. Plus, there is also a curative within. Although exports are just above the $100 million mark – not significantly high considering its potential – the focus of international attention is slowly shift- ing to turmeric and its extracts. Going by the growing interest, turmeric trade is all poised for a quantum leap in terms of number of international takers in the near future. And being the only bulk producer of turmeric (India accounts for about 80% of world turmeric produc- tion), India holds a near monopoly over its exports. If you step back in time, you will re- alise that turmeric has been an import- ant ingredient of Indian tradition and wisdom since the Vedic era. Owing to its therapeutic characteristics, it is wide- ly used in Ayurvedic as well as Unani systems of medicine. Spiritually, it rep- resents a gesture of good omen and is widely associated with fertility in India. No religious/spiritual occasion is com- plete without turmeric in over 80% of Indian homes – such is the importance of this humble yellow spice. In fact, these medicinal characteris- tics of turmeric are now gradually being acknowledged across the globe too. This is evident by a 13.4% CAGR reported by BY SACHIN MANAWARIA 36 THE DOLLAR BUSINESS II JULY2014 JULY 2014 II THE DOLLAR BUSINESS 37

  21. THE SECRET INGREDIENT TURMERIC traded in the Erode market, which is one of the biggest trading centers of turmeric in India. These mustard yellow coloured rhizomes – underground root of thick mass – comprise nearly 3-3.5% of cur- cumin. Madras Turmeric is generally preferred in Europe and UK and is ex- ported in polished and raw form. Similarly, Andhra Pradesh, the big- gest turmeric producing state in India, is known for Nizamabad Turmeric grown in Nizamabad, Guntur, Karimnagar and Kadapa districts of the state. This type of turmeric is pale yellow and the curcum- in level is not more than 2%. The Middle East is one of the major markets for this variety of turmeric. Another variety Rajapuri Turmeric is largely grown in Maharashtra and is marketed through Sangli and Mumbai trading centers. It is slightly superior to the Madras variety with curcumin con- tent of 3.5-4.0%. This type of turmeric is mostly exported to the Japanese market in polished form. Some of the other well know varieties are Duggirala Turmer- ic grown in Guntur district of Andhra Pradesh, Dehradun local, Daghi and Lakadong produced in the North East region with high curcumin content, and a few other commercially grown variet- ies like Krishna, Suroma, Rasmi, Suvar- na, IISR Prabha and IISR Pratibha. Surprisingly, the productivity of tur- meric in India has been on a decline over the last few years due to a couple of fac- tors. According to estimates of the Spices Board of India, the total area under tur- meric cultivation went down to 1,92,916 hectares in FY2013 with an output of 9,73,098 tonnes from 2,37,720 hect- ares under cultivation with an output of 12,46,220 tonnes in FY2012. Two major cyclones, coupled with unseasonal rains in Andhra Pradesh and surrounding coastal areas during last couple of years, have lowered the yield of turmeric in these belts. But then experts believe it to be a temporary factor affecting business. Top export destinations for Indian turmeric Over 13% of India’s total turmeric exports in FY2014 was to Iran Leading turmeric producing states in India Andhra Pradesh accounts for over 35% of the total turmeric produced in India INDIA ACCOUNTED FOR OVER 76% OF THE GLOBAL TURMERIC EXPORTS IN 2013, FOLLOWED BY MYANMAR 14% 13% 5% 37% 5% 8% 39% 7% 7% mar, India accounts for 70-80% of glob- al turmeric trade. It consumes nearly 80-85% of its own produce and exports less than 10%. In terms of competition, there’s nothing that comes close to In- dian turmeric given its high curcumin content, bright colour and aroma. 4% 4% 4% 3% 35 9% 16% 22% India accounts for about 80% of the world’s total turmeric production Andhra Pradesh Tamil Nadu Odisha Karnataka Maharashtra Others Iran Japan Malaysia UAE USA UK Sri Lanka Saudi Arabia South Africa Spain ROW Breakup of India’s turmeric exports (FY2005) 10 years ago, exports from India was dominated by fresh turmeric... Breakup of India’s turmeric exports (FY2014) ...currently, dry and powder turmeric lead India’s exports SPICING UP THE WORLD Over the past few years, Indian turmer- ic exports has shown an encouraging trend. In dollar terms, Indian exports have grown at a CAGR of 10% between FY2009 and 2013, while volume-wise it has surged at a CAGR of 13.5% during the same period. Going by past trends, UAE, Iran, USA, Malaysia and Japan happen to be the top markets for high quality Indian turmeric. Apart from these, UK, France and Germany too are now emerging as new markets. Turmeric is usually exported in four different forms. Amongst these forms, fresh turmeric is losing sheen as an ex- port commodity. Exports of this variety has fallen by 76% in the past decade. Oleoresins from turmeric are in high demand globally in the present times. This highly processed liquid of turmeric is of brownish dark-yellow appearance and finds usage in pharmaceutical and food industry all over the world. This is the reason for turmeric oleoresins ex- ports witnessing a CAGR of 24% in the last five years. Categories of dry turmeric and powder turmeric exports have also grown at a CAGR of 11% and 16% re- spectively in the past five. The reason for such increase can be attributed to factors like rise in use of turmeric in curry pow- der and spice mixes globally (due to its therapeutic properties), and a shift away from synthetic colour. During the ten-year period leading to FY2014, the share of fresh turmeric in overall turmeric exports has come down Source: Ministry of Commerce; All values for FY2014 Source: Spices Board of India; Provisional Figures for FY2011 4% 4% 12% 39% 43% 31% 42% 26% Fresh Dry Powder Other Turmeric Fresh Dry Powder Other Turmeric Source: Ministry of Commerce Source: Ministry of Commerce 25-30% are easily available to Indian ex- porters post shipping and other admin- istrative costs (see table). While large parts of the globe are yet to wake up to turmeric and its thera- peutic values, things are headed in the right direction for exporters of this crop. Further, a large expatriate Indian com- munity is only helping raise awareness about this wonder spice globally. With not much existing or expected compe- tition and a gentle cap on production volumes, even a marginal rise in demand will send prices soaring. And rejoice will the hordes of Indian exporters. This product, as it appears, has a co- lourful personality, yet is just...turmeric! Now, did you imagine its business worth the last time you saw it on the kitchen shelf? Seriously, it deserves attention! from over 38.5% to just 2.7%, while that of dry turmeric has increased from a lit- tle over 26.1% to 43.6%. Similarly, shares of powder and other varieties of turmer- ic have also increased from 31.06% and 4.25% to 42.02% and 11.5% respectively. A farmer harvesting turmeric. Exports of fresh turmeric has nosedived over the last decade exports of turmeric from India in the last five years. Since India is the only major producer, consumer and exporter of tur- meric still, future prospects of this Indi- an spice appear, well... quite spicy. India produces a wide variety of tur- meric, each unique in itself for its innate properties and values. The Alleppey Tur- meric grown in Kerala is popular for its rich content of curcumin – around 6 to 6.5%. It usually varies from deep yellow to orange yellow in colour. This type of turmeric finger is usually the preferred variety of turmeric exported to USA in an unpolished form. On the other hand, Madras Turmeric is widely grown in districts like Salem, Erode, Coimbatore, Dharampuri areas of Tamil Nadu. This variety is usually GOLD DUST. LITERALLY! Prices of the best grades of turmeric fingers such as Duggirala, Kadapa and Salem are currently hovering between Rs.60-70/kg and are being sold in the Middle East at Rs.90-120/kg. Similarly, premium grades of Alleppey Fingers – with high curcumin content of 5-6% – are currently trading in the Rs.110-120/ kg price range in India but is being sold at about $1.65/lb (~Rs.218.25/kg) in USA. Since there are no duties on tur- meric imports in USA, profit margins of AS DIVERSE AS INDIA Turmeric is widely grown in the south- ern peninsular region of India. Andhra Pradesh and Tamil Nadu are the two ma- jor turmeric producing states contrib- uting nearly 70% to the total produce, followed by Odisha, West Bengal, Maha- rashtra, Karnataka and Kerala. THE INDIA ADVANTAGE India is by far the largest producer, con- sumer as well as exporter of turmeric (to all major destinations across the globe). Although it is grown in few pockets of China, Pakistan, Bangladesh and Myan- 38 THE DOLLAR BUSINESS II JULY2014 JULY 2014 II THE DOLLAR BUSINESS 39

  22. EXCLUSIVE INTERVIEW “IRAN COULD BE THE NEXT BIG MARKET FOR INDIAN TURMERIC” Going by the attention turmeric is enjoying in recent times, the future looks promising for this wonder spice. The challenge, however, is to expand awareness about its usage and medicinal values. In an exclusive interaction with The Dollar Business, Bhaskar Shah, Managing Director, JABS International, gives a 360-degree view of India’s turmeric trade BHASKAR SHAH, MANAGING DIRECTOR, JABS INTERNATIONAL About us The vision behind ‘The Dollar Business’ is to become the most desired destination of information on foreign trade in the country! Description The journey of The Dollar Business has wonderfully begun. It belongs to the house of Vimbri Media Pvt. Ltd., a media company headquartered in Hyderabad. The Dollar Business is an India-based magazine for India-based exporters and importers – and the so-called, multinational giants – that believe in the magic of trade beyond borders. There are many business magazines in the country that claim to be ‘essential’ reads. They have many-a-claim to fame – usually without much reason or proof, like being number one in India across many dimensions. How uninteresting. The Dollar Business doesn’t claim to be number one. It’s the only one in India. And it doesn’t know many dimensions. Just one – global trade! From an industry that records a turnover of close to 10 times of India’s GDP each year, there is much to be learnt. Actually, there much to earn too! The Dollar Business™ has a focused reach. We don’t cater to the everyday Toms who want to flip pages to catch a glimpse of Marilyn Monroe or read what a novice has heard through the grapevine about some business going bust. Our content isn’t priceless in that respect. Our readers desire serious information that either supports their case or gives them an understanding that can be priced. Our readers are either stakeholders in the business of export-import, or have a keen interest in what this indus- try has to offer. Like we say, we just know one dimension – global trade, and most definitely, all our readers have a serious interest in both our articles and the advertisers. there any, considering that India is the biggest producer of turmeric globally? SS: Worldwide, there are very few coun- tries that cultivate turmeric. Even among them, very few can match the quality of Indian turmeric. Hence, we don’t even consider them as competition. The chal- lenge for us is to expand the awareness about turmeric. INTERVIEW BY SACHIN MANAWARIA TDB: Apart from Andhra Pradesh [the largest producer of turmeric], which are the other key trading and process- ing centers to procure good quality tur- meric in India? SS: The key varieties come from Erode in Tamil Nadu and Kadapa, Dugirala and Nizamabad in Andhra Pradesh. How- ever, all such volumes of turmeric go to Sangli in Maharashtra as it is one of the biggest centers for processing and pol- ishing turmeric in India. Although good quality turmeric is grown in Sangli, it is more famous for processing and that has been in vogue for generations. In fact, Sangli accounts for almost 40-50% of In- dia’s total turmeric processing. ty less as compared to other spices like coriander and chilly because of low global awareness. But it will surely catch up in years to come as more and more people across the world are becoming health-conscious. I expect it to, slowly but steadily, become an essential com- modity even in other parts of the world. To cater to such a focused reader group, we don’t just do with everyday content creators and field reporters who know little about the vast subject of foreign trade. We have content specialists on board who have dealt with foreign trade as a platform for decades. This expert editorial panel functions pan-India – from the financial capital of India (Mumbai) to the political capital (Delhi), from the Silicon Valley of India (Hyderabad) to the former capital of British India (Kolkata). In fact, the next time you sit sipping Darjeeling tea, there is a chance that we actu- ally would have a fat-glassed analyst roaming the sloped hills where tender apical tea shoots are being plucked. His task – to make our reader something more than just a tea-sipper. How about…a tea exporter with a turnover of a few crore rupees? Excited? TDB: The price of turmeric has been continuously rising over the last few months? At what level do you see it sta- bilising in near future? SS: Prices are now stable and I expect them to remain stable going forward. The entry of speculators in the turmeric business should be a very positive thing for Indian farmers. In fact, the forward market commission (FMC) has played a very crucial role as far as all spices are concerned. Earlier, the market was solely driven by demand and supply. But now, the market is driven by three factors – demand, supply and the speculators. Due to this speculative element, Indian farm- ers have gained a lot during the last five years. In the case of most spices, prices have at least doubled and in some cases, they have risen threefold. TDB: Which are the key markets for Indian turmeric? SS: We mainly export to USA and Ger- many. The tanning industry in Iran is also maturing and hence, use of turmer- ic in that industry is on an upswing. So, exports to Iran are also on a rise. In fact, Iran is one market that all turmeric ex- porters should watch out for in the near term. Other places where turmeric is tra- ditionally exported from India are Saudi Arabia, Malaysia, Japan, Indonesia and the whole of Europe. TDB: India is already the biggest ex- porter of turmeric in the world. But are India’s exporters really realising the crop’s full potential? Isn’t there a scope for further improvement? SS: Turmeric export from India is pret- sachin@thedollarbusiness.com TDB: What about competition? Is 40 THE DOLLAR BUSINESS II JULY2014

  23. THE MIDAS TOUCH CYCLES I women, children and corporate execu- tives alike – shown in the commercial is a beaming owner of the ‘humble bicycle.’ But in reality, are cycles – usually dubbed as the ‘poor man’s vehicle’ in India – finding universal acceptance? And has India really got the potential to emerge as a leading exporter of cycles to international markets? n the latest Hero Cycles’ TVC, people are seen pedaling their way around rocky terrains in Indian and foreign locales and breeze past rough weather. And, almost everyone – BY NEHA DEWAN With rising green awareness, health consciousness, and soaring fuel prices, the global bicycle industry is witnessing a boom. Although India’s share in global bicycle exports is less than 1%, Africa seems to have taken a special liking to our cycles. Last year alone, India exported $31.5 million worth of bicycles to Africa, about 18.3% of the continent’s total imports of the product. And if trade analysts are to be believed, this number will only rise going forward. It’s time Indian bicycle exporters pedal their way faster to Africa PEDAL YOUR WAY TO HEALTH AND FORTUNE PART OF US A study by industry body Assocham on the ‘Future of Indian Bicycle Industry’ pegs India as the world’s second largest bicycle producer after China, account- ing for about 10% of global bicycle pro- duction. With an estimated market size worth $1.5 billion, the Indian bicycle industry produces about 15 million fin- ished cycles annually. According to All India Cycle Manu- facturers Association (AICMA), most bicycle components and bicycle spare parts in India, except for free wheels, are manufactured by small scale industries (SSIs), while large scale units manufac- ture bicycle frames, chains and rims for captive consumption. The organised sector, on the other hand, dominates the Indian cycles: top destinations Africa is the top market for Indian cycles Profit estimate for bicycle exports Bicycle exports to Africa are mostly done at par; the profit is made thanks to duty drawbacks Cost of Cycle (INR/Unit) * Cost of Cycle (USD/unit)** Transportation cost from Ludhiana to Mumbai (USD/Unit) *** Freight & Insurance (USD/Unit) # Final Cost (USD/unit) Price in Mozambique (USD/unit) *** Profit ## Profit Margin (%) ## 19% 2,500.00 41.67 1.35 21% 16% 3% 10 5% 53.02 52.00 (-3.02) 11.00 5% 9% 5% 5% 7% 6% * Price of Hero Jet in India ** At a USD/INR rate of 60 *** The Dollar Business Intelligence Unit # Cost of Shipping from Nhava Sheva in Mumbai to Beirat in Mozambique ## Indian cycle exporters essentially owe their profits to export incentives of 16.7% (11.7% duty drawback and up to 5% under FPS) provided by the government Mozambique Zambia Nigeria Uganda Nepal Malawi Congo Other UK Bangladesh Germany In CY2013, China exported over $3 billion worth of bicycles – more than a third of total global cycle exports Source: Commerce Ministry; Breakup for FY2014 42 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 43

  24. THE MIDAS TOUCH CYCLES “Profit margins on bicycle exports can range anywhere between 10-12%” and volume. However, they also pose the ultimate challenge to a bicycle manufac- turer, in terms of the use of high technol- ogy and quality. TDB: What kind of profit margins are available to Indian bicycle exporters? GDK: Profit margins can range any- where between 10-12%. While export- ing to developed countries the tangible benefits may appear to be less, but other factors such as exposure to latest tech- nology, designs and systems act as a great value adds. To get a real sense of India’s bicycle market and how our ex- ports are doing, The Dollar Business caught up G. D. Kapoor, Executive Director – Sales & Marketing, Hero Cycles. He not only spoke at length about issues pertaining to the industry, but also explained the need for a higher duty drawback TDB: You have entered the luxury market with Urban Trail. You have also recently launched the Disney range of cycles. What has been the response to these two offerings? GDK: The premium market is growing at almost 40% within India. Urban Trail has been accepted very well in the mar- ket. Urban Trail currently offers prod- ucts for kids in Rs.4,000-8,000 range and for adults in Rs.10,000-35,000 range. We will soon also be launching cycles priced at Rs.1 lakh and even higher, giving stiff competition to all international brands. what are your expectations from the new government? GDK: There is a definite need for setting up world-class design & testing centers. At present, our exports are serious- ly hampered due to non-availability of these facilities. An Indian cycle manu- facturer depends heavily on China and Taiwan for design and testing facilities, which I think is really hampering our business. The price difference in raw materials is also enormous. Steel, which accounts for roughly 65% of the cost of a bicycle, has become dearer in India by approximately Rs.7,000-8,000/MT. This, along with other cost differences and incentives, makes a Chinese exporter significantly competitive. As far as du- ties are concerned, there needs to be a higher duty drawback  and  transport subsidies should also be made available for factories upcountry. New bicycles kept outside a factory before being shipped away. In FY2014, India exported close to 1.3 million bicycles, a majority of them to African nations manufacturing of complete bicycles. The bicycle industry is currently in the middle of endeavours to enhance bicycle exports since the potential for Indian bicycles in the international market is significant. In FY2014, India exported close to 1.3 million bicycles, a majority of them to African countries. In compar- ison, China is estimated to have export- ed over 50 million bicycles in CY2013. In India, companies like Hero Cycles, TI Cycles, Avon Cycles and Atlas Cycles ac- count for a majority of total bicycle sales. Hero Cycles is by far the leading player exports, the government provides 11.7 paise as Duty Drawback (Refer Customs Notification No.98/2013; dated 14th September, 2013) and 5 paise under Fo- cus Product Scheme (Chapter 3 of FTP 2009-14; Appendix 37D of HoP Vol. I). This obviously means that even if one sells bicycles abroad at a breakeven price, a 16.7% profit is guaranteed – something that not many products can boast of! Although overall numbers look prof- itable for India’s bicycle exports, which is growing at a CAGR of 17%, there are serious concerns, with cost disadvantage acting as a primary deterrent for export- ers. “We are outpriced by 20-30% by our Chinese peers,” G. D. Kapoor, President – Sales & Marketing at Hero Cycles, tells The Dollar Business. In a nutshell, this explains one of the biggest hurdles that Indian bicycle companies looking at ex- ports have to contend with. On an aver- age Chinese cycle prices are at least 15% lower than Indian ones, if not more. in the segment with almost 35% market share. Among export destinations, India cycles are gaining traction on African roads, along with other destinations like Bangladesh and UK. TDB: What are the main challenges when it comes to exporting to your big- gest market, Africa? GDK: Presently, most African econo- mies  are where India was 25-30 years ago. They are going through the build- ing processes which we have already experienced. They are convinced that Indian products and technology are best suited for their development. Africa is a continent of opportunities where Indi- ans have been doing business for over 150 years now. This has certainly helped in building an atmosphere of mutual trust and reliability. G. D. Kapoor Executive Director, Sales & Marketing, Hero Cycles SHOW ME THE MONEY India’s cycle exports business has unique nuances of its own. While high value cycles exported to developed markets like UK offer handsome margins, the entry level ones exported to Africa offer margins in term of duty drawback. For example, for every rupee worth of cycle TDB: Hero Cycles is the country’s lead- ing manufacturer of cycles. What ex- actly is your market share? GDK: The overall size of the bicycle in- dustry in India is approximately 15.5 million units per annum. Hero Cycles commands a 35% market share. TDB: Which are Hero Cycles’ major export destinations? On an average, how many units do you export annual- ly and what is the growth rate? GDK: Mozambique, Nigeria, Bangla- desh, United Kingdom, Poland and Fiji are the major markets for our cycles. We exported about 1,00,000 units in FY2014 and have set an ambitious target of 5,00,000 units for this fiscal. Top bicycle exporters China towers over every other exporter Top bicycle importers US is the biggest importer of bicycles TDB: What are the main differences between the Indian and the interna- tional cycle market? GDK: The differences are wide ranging in the two markets. As is known, mar- kets in the West are far more engaging and mature. For example, people do not mind cycling to work – a trend nowhere to be seen in India. Even in terms of organising sporting events, the West is definitely far ahead of us. 3,500 1,600 1,400 3,000 1,200 2,500 INDIANS HAVE BEEN DOING BUSINESS WITH AFRICANS FOR OVER 150 YEARS NOW AND THERE IS AN ATMOSPHERE OF TRUST FOR US 1,000 2,000 800 1,500 600 1,000 400 THE HUB Several manufacturing units in Lud- hiana, which is the epicenter of bicycle manufacturing in India and accounts for 90% of India’s bicycle and bicycle parts production, have shut down in the last TDB: Which are the new markets that you have set your eyes on? GDK: Europe and USA. With a 45 mil- lion unit per annum market, these two are the largest, both in terms of value 5,00 200 0 0 China Netherlands Cambodia Chinese Taipei Germany USA Germany Netherlands Japan UK TDB: As a leading exporter of bicycles, Source: International Trade Centre; figures for CY2013 ($ million) Source: International Trade Centre; figures for CY2013 ($ million) 44 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 45

  25. THE MIDAS TOUCH CYCLES Our Vision THE AVERAGE PRICE OF A BICYCLE THAT INDIA EXPORTED IN FY14 WAS JUST RS.2,432 WHILE THE SAME FOR IMPORTS WAS RS.3,544 We intend to become the foremost authority on foreign trade in the country by giving its readers an unbeatable package of knowledge and business edge in the field of foreign trade. Our aim is not just to educate readers the way commoners do, but to empower them to evolve. That’s why we were born. And that’s why we breathe. The 4’E’s that define our 5th ‘E’ – Existence are: A group of cyclists at Tour de France. Cycling equipment has improved tremen- dously over the last few years. Indian man- ufacturers need to keep pace to remain globally competitive EXPERTISE: Who creates content at The Dollar Business We have veterans in the realm of foreign trade to do that. We have experts who analyse the outcome of a choice of product or place for export or import or the impact of a certain policy change. Each member of our editorial team has been carefully handpicked so that we create what can be priced as a product that is respected by all and one who understands or wants to understand the business of export-import. few years due to rising imports of cheap cycle parts from China. In addition to this, a 2% central excise duty on cycles and high cost of steel – which rough- ly accounts for 65% of the total cost of production of a cycle – act as a double whammy. Agrees Nalin Sinha, Found- er of Delhi Cycling Club, when he tells The Dollar Business, “The entire frame of a cycle is made of steel. However, ris- ing steel prices are causing a big dent in the pockets of cycle manufacturers. Be- sides this, the cost of bicycles need to be brought down, especially good quality high-end bicycles...” Prices of branded cycles in India start from about Rs.2,000 and go up to as high as Rs.15,000 for the high-end varieties, while the top-end varieties can put one back by a few lakhs. To appeal to a wider set, brands are innovating across catego- ries and trying to capture a larger share of the international and domestic mar- kets via premium customised offerings. India’s bicycle exports In volume terms, Indian bicycle exports have barely grown in the last decade 60 1.4 EDUCATION: We are not in love with Friedman, but we completely admire his idea of a ‘flat world’. Globalisa- tion of capitalism – is there a bigger need to educate India on why beyond borders is the next playfield to discuss and explore? From pinpointing constraints in cross-border opportunities to identifying market and product-specific tactical gambits…why leave it all to just plain luck? 1.2 50 1 40 Volume Value 0.8 30 0.6 20 0.4 EMPOWERMENT: To think and not to act, is sin. Precisely why we believe in empowering while educating. The minefield of treasures that ‘The Dollar Business’ is, will not only change the way oracles in the world of foreign trade think, but also how they act, while importing, while exporting. 10 0.2 0 0 FY05 Export volume FY06 FY07 FY08 Export value FY09 FY10 FY11 FY12 FY13 FY14 Source: Commerce Ministry; value in $ million; quantity in million units EVOLUTION: We communicate. We empower. We change lives – for businesses, entrepreneurs and the mil- lions of hopefuls who make claims of good news beyond borders. With ‘The Dollar Business’, evolution will occur. Not only how information in the world of foreign trade is shared, but why it is sought and how it is exploited. tive to motorised modes of transport. Bicycle manufacturers in India need to reach out to this segment more aggres- sively by promoting their range of bulk offerings for such platforms,” he tells The Dollar Business. Although the road ahead may yet seem a bumpy track, small steps can help in creating bigger volumes for the industry. Reimbursing inland freight to reduce the cost burden for exporters is another suggestion that has been float- ed by industry bigwigs. Needless to say, besides government support, upgrading bike technology by manufacturers and positioning Indian cycles as superior in quality for use in international markets can spur growth of exports to varying degrees. Together, it can all add up to beating the odds and positioning the Indian cycle brand prominently on the global terrain. Are you game? schemes and insurance schemes on bi- cycles. A comprehensive analysis and promotion by the government can help facilitate exports to lucrative destina- tions,” adds Sinha of the Delhi Cycling Club. Newer opportunity areas such as cycle sharing systems in advanced econ- omies, which mainly serve as a platform for short-term bicycle rental systems, also need to be tapped. Across the world, this is a popular practice, with the system also making a recent entry to India. THE ROAD AHEAD Kumar Manish, co-founder of Centre for Green Mobility, an organisation promot- ing walking, cycling and public transpor- tation facilities in India says that there is a huge potential for Indian bike manu- facturers to cater to this demand. “Cycle sharing systems act as a perfect mode of transport for last mile connectivity and are a well-accepted practice in developed countries. They offer a healthy alterna- IT’S TIME FOR AFRICA Data from the Commerce Ministry also validates this trend. In FY2014, Mo- zambique was the top destination for Indian bicycles, accounting for close to 20% of total exports. Nepal was the sec- ond in line at about 16%. Even in terms of growth, while Mozambique saw a 27.71% growth (in terms of volume) in FY2014 as compared to the previous year, number of cycles exported to Nepal actually saw a small de-growth. A distant third was UK, again followed by the Af- rican duo of Zambia and Malawi. Experts believe that appropriate mea- sures can facilitate trade better and boost exports for the industry. “More tax in- centives need to be doled out by the gov- ernment to give a push to the industry. There is also a need for specific financial neha@thedollarbusiness.com 46 THE DOLLAR BUSINESS II JULY 2014

  26. IMPORT’ONOMICS PECTIN PECTIN – HAVE YOU HEARD ABOUT IT? PECTIN: MANUFACTURING PROCESS THERE ARE FOUR MAIN STAGES IN PECTIN PRODUCTION: HYDROLYSIS, PURIFICATION, SEPARATION, AND STANDARDIZATION USFDA HAS GIVEN THE “GENERALLY RECOGNISED AS SAFE” STATUS TO PECTIN FOR USE IN NON-STANDARDISED FOODS Apple pomace or citrus peel Raw materials It’s an integral part of the processed food industry and while you might be consuming it on a daily basis, odds are that you would have never heard about Pectin. While very little domestic production have seen India’s pectin imports rising, lack of awareness ensures that it offers lucrative margins to an importer Hydrolysis of protopectin with acid in hot conditions Depectinized dry residues (pomace/peels) Extraction Separation ening and stabilising attributes make it an essential additive in the production of many food products. Traditionally, pec- tin was primarily used in the production of jams and fruit jellies – industrially as well as at home – and in products with high sugar content. Reason: Pectin se- cures the desired texture, limits the cre- ation of water/juice on top of the surface, and ensures an even distribution of fruit in the product. With changes in lifestyles, pectin is now being primarily sold for industri- al use. In some European markets, it is still sold to consumers as an integrated component in  gelling sugar. Pectin is generally regarded as an extremely safe food additive and its composition and use is regulated under various food ad- ditive laws. It is also recognised under the International Codex Alimentarius, recognised by FAO and WHO. The Unit- ed States Food and Drug Administra- tion (USFDA) too recognises pectin as a GRAS (Generally Recognised as Safe) for the use in all non-standardised foods.  As far as the business viability of the product is concerned, the IPPA is of the view that at present, good quality organ- ically produced pectin raw materials are not available in large quantities and the situation is not likely to change within the next five years. Good news for those who want to enter the business with seri- ous long-term commitment. Filtration Separation BY JAYASHANKAR MENON Concentration Precipitation in alcohol Alcohol recovery and distillation Coagulation Washing Drying / Milling Ground pectins Batch control Final product LM Pectins HM Pectins Demethylation Washing Batch control Blending for standardization purposes Blending for standardization purposes Controls on the final products Shipping Pre-shipping controls Strawberry and strawberry jam bottles on display. Jam manufacturers are amongst the biggest consumers of pectin Shipping W uct that is most sought after by FMCG majors like Hindustan Unilever, Nestle, GlaxoSmithKline, Kellogg’s and innu- merable food processing companies? And which is that product that perhaps has no substitute? Chances are that you wouldn’t have heard about it. million, Japan with $45.1 million, France with $29.10 million and Russia with $27.20 million were the major import- ers of pectin during FY2013. According to information contained in Chemical & Engineering News, a magazine pub- lished by the American Chemical Soci- ety, around $850 million worth of pectin is sold annually across the world. Import of pectin to India is on the rise for the last few years. According to the Ministry of Commerce (GoI), In- dia’s pectin imports almost doubled from $4.84 million in FY2012 to $8.15 million in FY2013. This trend contin- ued in FY2014 with imports valued at $10.14 million. Multinational players such as Hindustan Unilever, Nestle, GlaxoSmithKline, Kellogg’s and many others import pectin from various global markets. All major food product makers and diary product producers also use imported pectin. When it comes to Indian food prod- uct manufacturers they rely on China and Brazil as these countries offer pec- hat is that unique ingre- dient that helps jams & jellies, marshmallows, marmalades and a host of Well, if you are still wondering, let’s make your task easier. This magical ingredient is called Pectin. It’s a natu- ral compound extracted from differ- ent sources of vegetative origin. It is produced from lime, orange peels and apple. While the level of pectin in an apple is only 1-1.5%, in citrus peel it’s around 30%. The key raw materials for pectin production are dried citrus peels and apple pomace, both by-products of juice production. Pectin is a gelling and thickening agent and is also a stabiliser in food. Pectin gives the jelly-like con- sistency to jams and marmalades, which would otherwise be just sweet juices. Pectin is also being increasingly used to stabilise acidic protein drinks including drinking yogurt, besides being a fat sub- stitute in baked food products. According to Switzerland based Inter- national Pectin Producers Association (IPPA), pectin is one of the most versa- tile stabilisers available. It’s gelling, thick- THE PROTAGONISTS Germany with exports valued at $186.70 million, Mexico with $69.13 million, Brazil with $46.70 million, Czech Re- public with $42.60 million and China with $27.40 million were the top export- ers of pectin during CY2013. On the other hand, USA with imports valued at $89.60 million, Germany with $74.80 other delicacies gel? Which is that prod- 48 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 49

  27. IMPORT’ONOMICS PECTIN Profit estimate for pectin imports Reduction in customs duty for pectin to 15% in 2012 has expanded margins India’s pectin imports India’s pectin imports have grown over five-fold in the last 10 years While the level of pectin in an apple is just 1-1.5%, in citrus peel it’s about 30%. Inter- estingly, research is on to extract pectin from mango. Mango peel, which consti- tutes 20–25% of the mango processing waste, has been found to be a good source for the extraction of good quality pectin, suitable for the preparation of jam and jelly 1,200 12 Source of India’s pectin imports More than 50% of India’s pectin imports come from Brazil 1,000 10 Cost of Pectin (USD/MT) * Freight & Insurance (USD/MT) ** 210.00 CIF Landing Charge LC (1%) CIF + LC Import Duty ID (15%) CIF + LC +ID Cess (0.45%) CIF + LC + ID + Cess ACD (4%) Final Cost Final Cost (INR) *** Retail Price in India # Profit Profit Margin (%) 9,800.00 800 8 10,010.00 100.10 10,110.10 1,516.52 11,626.62 68.24 11,694.86 467.79 12,162.65 7,29,759.15 9,25,000.00 1,95,240.85 6 600 4 400 11% 5% 2 200 6% 0 0 51% FY05 Import Volume (L-axis) FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 8% Import Value (R-axis) Source: Ministry of Commerce, GoI; Value in $ million; Volume in metric tonnes 20% However, shipping time from China is much less. While we import citrus pectin from Brazil, we source apple pectin from China. In fact, our company accounts for about 15-20% of India’s total pectin imports,” he tells the magazine. Despite the presence of domestic sup- pliers, major manufacturers like Mapro seem to entirely rely on imports. Asked about the reason for this reliance on im- ports, Vora explained that the total do- mestic supply is just about 5-10% of the total demand. “So, if we want large quan- tities, there are no suppliers in the do- mestic market. The only alternative is to import from China and Brazil,” he adds. Pectin Factoids Pectin occurs in terrestrial plants and is abundant in most vegetables and fruits. Pectin was first isolated in the 1820s but production started on an industrial basis only in the 20th century. Prior to the introduction of commer- cial pectin, home-made jam was gelled by natural pectin in the fruit. The first commercial production of a liquid pectin extract was recorded in 1908 in Germany, and the process spread rapidly to US, where a classic patent was obtained by a person named Douglas (US Pat. 1.082,682, 1913). Pectin was first sold as a liquid extract, but is now most often used as dried powder, which is easier to store and handle than liquid. Pectin for use in food is defined as a polymer containing at least 65% galac- turonic acid units. Drugs are encapsulated with a pectin film to protect the gastric mucosa and to allow sustained release of the active substance into the blood circulation. In the cosmetics industry, pectin is used as a natural texture provider on plant basis for pastes, ointments, oils and creams. In deodorants and tooth pastes, pectin coats special flavour substances, but it is also used as a thickener and stabilizer in hair tonics, body lotions and shampoos. 26.75 Brazil China Czech Republic Germany Denmark Other * Genu Pectin in Brazil ** Freight and Insurance cost for shipping from Santos in Brazil to Mumbai *** Assuming exchange rate of USDINR 60 # The Dollar Business Intelligence Unit Source: Ministry of Commerce, GoI; Breakup for FY2014 ALL THE SAME Mapro Foods, the Mahabaleshwar-based manufacturer of jams and other food products, is a major importer of citrus pectin. Speaking to The Dollar Business, Mayur Vora, Managing Director of Ma- pro Foods, says, “India’s imports during FY2014 was around 1,000-1,200 tonnes valued at $10.14 million. About 70-80% of the imported pectin is consumed by the food industry.” When enquired about the qualitative difference between Brazilian and Chi- nese pectin, Vora said there is hardly any difference. And he is right. Price wise, China used to be much more competi- tive. But with the renminbi appreciating and the real depreciating over the last two years, there’s hardly any difference in prices for an importer. “It’s all the same. tin at around $10 per kilogram, whereas pectin produced by Germany, the Czech Republic, and Denmark are a tad expen- sive. Prices of pectin vary a lot, as the bulk of imports go through intermediar- ies, who usually offer pectin in the range of $6-$13/kg. Depending on the type and brand, inferior varieties of pectin are available even at $0.5- $2/kg. But the 4% ACD is refundable only to food processors and other end users who use imported pectin for value addition to their products, instead of selling it out in its original state. When it comes to India, pectin ex- tracted from apple and citrus fruits are in great demand. While high density pectin is used by the confectionery industry, medium and low density pectin is in great demand for the production of yo- gurt and fruit juice. Despite abundance of raw materials, domestic production of pectin in India is still too low to meet the burgeoning demand. And that’s the reason why most food processors in In- dia either import pectin directly or buy it from importers. Since pectin is an indigestible soluble fiber therefore its content in most pro- cessed foods is restricted between 0.5% and 1.0%. In medicine, pectin increases viscosity and volume of stool. It is used against both constipation and diarrhoea, besides being used in throat lozenges as a demulcent. Apart from that pectin is used in cosmetic products, where it acts as a stabiliser. It is also used in wound healing preparations and specialty med- icine adhesives like colostomy devices. AND MORE The total duty on pectin imports in In- dia work out to 20.068%, which includes 15% effective customs duty, 4% addition- al customs duty (ACD) and a 0.45% cess. GOOD TO LAST Despite abundant resources, India doesn’t produce sufficient pectin to ca- ter to the domestic demand. World over, industrial waste of both apple and citrus processing industries is used as an input for pectin. However, India doesn’t have large apple or citrus processing indus- tries. Most of the citrus fruit consump- tion in India happen at homes. Collect- ing the waste can often turn out to be costlier than the product itself. This ob- viously means great news for importers. At current prices, profit margins of over 25% are there for the taking for those importing top quality pectin from Bra- zil. With demand expected to move only northwards, margins are bound to ex- pand. Sounds lucrative, doesn’t it? Top pectin exporters In 2013, Germany exported over $430 million worth of pectin Top pectin importers USA was the biggest pectin importer in the world in 2013 100 500 90 450 80 400 THE RENMINBI’S RECENT STRENGTH HAS PUSHED THE PRICE OF CHINESE PECTIN TO ALMOST AT PAR WITH THE BRAZILIAN VARIETY 70 350 60 300 50 250 40 200 30 150 20 100 10 50 0 0 GERMANY MEXICO BRAZIL CZECH REPUBLIC CHINA USA GERMANY JAPAN FRANCE RUSSIA jay@thedollarbusiness.com Source: International Trade Centre; figures for CY2013 ($ million) Source: International Trade Centre; figures for CY2013 ($ million) 50 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 51

  28. BESTSELLER WINE T mesmerise you with the beauty that sur- rounds such fluty poetry! And, if you are a wine aficionado, your wine cellar prob- ably tells more about you than even your library. Statistics on imported wine in In- dia narrate the story quite vividly. As per a report by consulting firm Technopak Advisors, imported wine accounts for 30% of the total wine market in India and is growing at a steady rate of 25-30% y-o-y. In addition to leading hospitality chains, several swish and fine dining restaurants have sprung up across the country serving the choicest wines sourced from across the world. hey say that “wine is poetry in a bottle”. The dry, sweet notes – ranging from plum, tea leaf, black cherry, raspberry, et al, – emanating from classy-glassy flutes Market estimates peg the current size of the wine market in India at 1.2 mil- lion cases. According to projections, the market will scale up to 10 million cases by 2017, of which imported wines will account for 2 million cases. The im- ported wine category branches itself out into the ‘Old World’ and the ‘New World’. Countries like France and Italy make up the former. The other group consists of South Africa, Australia and New Zealand. [Australia has increased its exports (by value) of wine to India by over 170% over the last five years. However, value-wise France is still by far the biggest exporter of wine to India.] Research findings also indicate a greater propensity among In- dians towards red wine than white, with over 61% of the wine consumed in India being red. According to Sukhbir Singh, Food & Beverage Service Manager at Hilton Gar- den Inn’s multi-cuisine restaurant India Grill, demand is on an enthusiastic up- swing. “For wine importers, the business dynamics convert to good profitability, with margins at least in the range of 20- 30%. Although the wine market in India is being mainly fuelled by the strong growth in domestic wine production, imported wine plays a crucial role in cre- ating awareness and increasing demand,” he tells The Dollar Business. About 80% of India Grill’s clients are expatriates, and to cater to them it stocks FOR WINE IMPORTERS IN INDIA, DESPITE A TOUGH TARRIF STRUCTURE, MARGINS RANGE BETWEEN 20-30% both classic and new world wines from countries like France, Italy, Chile, Argen- tina, South Africa and Australia. DEVELOPING THE TASTE According to a study by Vinexpo, an ex- hibition portal created by the Bordeaux Chamber of Commerce and Industry (for international operators in the wine and spirits sector), wine consumption in India grew by 16.3% in CY2013, up from 11.8% in CY2012. The study also revealed that a quarter of the beverage consumed in India is from the import- ed stable, with Australia leading the list. ON A HIGH India’s Commerce Ministry data sub- stantiates the rising demand for ‘fine wine’ sourced from some of the top wine producers in the world. Not surprising- ly, France was no. 1 in terms of quantum of sparkling wine imported in FY2014, followed by UK and Germany. For Port France is by far the biggest exporter of wine in the world, having exported over $10.4 billion worth of the bever- age in CY2013 An intriguing sense of respect overpowers you when a connoisseur torpedoes you with a battery of rare wine variety proper nouns. A sparkle in the eye escorts the vocal demonstration; a sign that the beverage is a close-to- the-heavens sign of celebration. And what pairs well with a ritual glass of this beverage (for any importer) is the fact that it’s already a multi-million dollar industry in India with potential margins that call for a refill Profit estimate: Wine imports Despite a draconian duty structure, wine imports offer lucrative margins Cost of Wine (USD/case)* Freight & Insurance (USD/case)** Landed Value (CIF; USD) Landing Charge (1% of CIF; USD) Assessable value (CIF + LC; USD) 56.86 Import Duty ID (150%; USD) Additional Duty (USD)*** Final Cost (USD) Final Cost (INR)**** Retail Price in India (INR)# Profit (INR) Profit Margin (%) 53.80 2.50 56.30 0.56 85.29 40.00 182.16 10,929.45 13,476.00 2,546.55 23.30 Note: * Lindemans Shiraz Bin 50 in Australia ** Freight and insurance cost of one case of wine from Darwin to Chennai *** As per CBEC notification no. 32/2003 **** Assuming USD/INR rate of 60 # The Dollar Business Intelligence Unit BY NEHA DEWAN 52 THE DOLLAR BUSINESS II JULY2014 JULY 2014 II THE DOLLAR BUSINESS 53

  29. BESTSELLER WINE Wine exporters to India (by value) France is by far the single-largest wine exporter to India World’s top wine importers (by value) In 2013, USA & UK imported over $10 billion worth of wines GERMANY CANADA JAPAN U.S.A 5.49 U.K REST 4.96 3.37 2.02 1.58 USA 23% UK Source: International Trade Centre; figures for 2013 ($ billion) 42% 6% World’s top wine exporters (by value) France’s dominance in global wine exports continued in 2013 ITALY 7% AUSTRALIA 10% 12% AUSTRALIA FRANCE 10.44 CHILE SPAIN ITALY 6.70 FRANCE 3.42 1.89 1.78 The wine section of a shop in Strasbourg, Alsace in France. Alsace is one of the biggest & most important wine producing regions in France Source: Commerce Ministry; FY2014 Source: International Trade Centre; figures for 2013 ($ billion) wine and other red wines too, France led the way in FY2014 (in terms of value), recording a growth of nearly 24% over FY2013, followed by Italy and Australia. Interestingly, Australian wine Jacob’s Creek has been steadily climbing up the popularity charts in India. Nicola Watkinson, Senior Trade & Investment Commissioner (South Asia), Australian Trade Commission, explained the rea- sons for this trend to The Dollar Business. “We have a very different way of market- ing our wines. We like to tell everything about the wine, including what kind of a grape it is, which region it comes from, as well as other details that keep the con- sumer well informed. Besides this, we also use a lot of new wine-making tech- acidic flavour of vinegar and yogurt – common ingredients in such a cuisine. “Acidic ingredients don’t mix well with wine. Moreover, highly tannic wines taste bitter when confronted with chillies and seasonings as the curries strip the fruit flavours from the wine, leaving it too astringent,” adds Singh. Popular wisdom suggests that while white wine is served best with white meat and fish, red wine pairs better with red meat. Cheese is a good companion for Port & red wine. And exotic dishes prepared with wine taste best with that specific wine. ing on their overall sales. “Heavy taxation and tedious process- es due to which wine cases are locked up in ports for months before they are cleared by authorities, result in inconsis- tent supply and much higher prices. This impacts us as it hits our ability to sell a specific wine consistently. Also, high tax- es result in high costs for us which erode our margins as the consumer does not want to pay more than a certain amount for a glass or bottle of wine,” Ran- deep Bajaj, Promoter, Amour – The Patio Restaurant Cafe & Bar, tells The Dollar Business. Bajaj’s woes are not unfounded. At present, customs duty is a whopping 150% on wine, with additional duty sometimes as high as 75%. Other add- ons such as insurance and freight cost, storage cost, State taxes, unsystematic logistics, and needless to mention, mar- keting expenses, push up the price of a bottle of wine to the sky. Despite challenges, the market for fine wine continues to grow at a robust 30% y-o-y. With more Indians preferring wine over other spirits for consumption during social occasions, the future for this segment looks brighter, profitable and more sparkling. Wine is profitably special if you are an importer. But even this beverage – you can’t drink and drive. niques, blends and approaches that can work better for an international palate,” she told the magazine. In fact, the growing potential of inter- national wine brands in India has led to importers like Brindco, Pernod Ricard, Aspri and Moet & Hennessy, aspiring for a larger share of the pie. Others are fol- lowing suit. Fratelli Wines, an Indo-Ital- ian joint venture, which positions itself as the second most distributed domestic wine brand with 18 different labels, will now be expanding its portfolio to in- clude imported cases as well. The com- pany recently tied up with leading wine merchant Hallgarten Druitt, part of the worldwide German WIV Group, for im- porting an array of fine wines. “We have started with 2,000 cases and our target is to reach about 4,000 cases in FY2015. We currently have six different varieties of wine, which we have sourced. Delhi, Mumbai, Goa and Bangalore will be our main target markets. We are opti- mistic about this venture,” Kapil Sekhri, Director, Fratelli Wines tells The Dollar Business. Although Sekhri terms the lo- gistics of wine importing a ‘tough mar- ket’, he labels it as ‘diverse’ in its varied offerings and opportunities. VIGNETTES ON WINE The earliest remnants of wine were discovered in Iran, dating back to the Neolithic period (8,500 – 4,000 B.C.). The oldest evidence of cultivated vineyards were found in Georgia, dat- ing from 7,000 – 5,000 B.C. KNOW THY WINE Besides just the business dynamics, di- versity is also an inherent characteristic of the wine business. Essentially, there are four types of wines – Table wine, which harmonises well with food – pri- marily red, white and rose wines; spar- kling wine, which implies Champagne and other ‘bubblies’; fruits & plants make up the aromatic wine type. Then there are the fortified wines, which include an added distilled beverage – usually bran- dy – in them. They are frequently used even in cooking. Table wines tend to be the most preferred, due to their flavour complementing meals quite well. They also go a tad easy on the pocket and tend to be the wine of choice for most social occasions. However, wine experts insist that ap- propriate food is extremely necessary to suit the taste of the wine. The problem with teaming a wine with curry is the The Chinese drank their way to a re- cord 155 million 9-litre cases of red wine in 2013, thereby surpassing the French whose consumption de- creased by 18% to 150 million cases. The increasing popularity of red wine in China is largely due to the fact that red is considered to be a lucky colour. UNCORKING AIN’T EASY Although wine importing is an extreme- ly lucrative business, it has its own set of challenges that act as a stumbling block for importers. At one of the fine dining restaurants in the capital, Amour –The Patio Restaurant Café & Bar, interna- tional wine labels command a significant share of the product portfolio, approxi- mately 60% in value terms. The restau- rant’s Indian clientele mostly tend to favour the New World wines, as these are easy on the palate. Its international clients, however, tend to be a bit more experimental with other grape varieties and usually prefer Old World wines. Further, there are a lot of other factors that play spoilsport, even though they are not directly involved in the process of importing themselves, and have a bear- India’s wine imports (by value) India’s wine imports have surged by almost 400% over the last decade Which country drinks the most wine per capita? Answer: The Vatican. Vol- ume? 74 liters per capita in 2013. 6,000 30 5,000 25 4,000 20 One of the world’s most famous Champagnes Dom Pérignon was named after a monk. Dom Pierre Péri- gnon (1638 – 1715), an early advocate of organic wine-making, experiment- ed with new methods and successful- ly improved the winemaking process. Interestingly, his practices and tech- niques are still used today. 15 3,000 10 2,000 5 1,000 0 0 FY05 FY06 FY07 FY08 FY09 FY10 Import (Value; $ million; R-axis) FY11 FY12 FY13 FY14* Import (Volume; ‘000 units; L-axis) neha@thedollarbusiness.com Source: Ministry of Commerce 54 THE DOLLAR BUSINESS II JULY2014 JULY 2014 II THE DOLLAR BUSINESS 55

  30. COVER FEATURE BRAZIL COVER FEATURE BRAZIL BOOMING BRIC, BLESSED BRAZIL? The fact that Brazil has the lowest import-to-GDP ratio among the world’s top 35 economies is reason enough to believe that this Latin American nation, famed for being the world’s largest exporter of footballers, is also a prime destination for the wonderboys of India’s exporting community. Translation: Brazil is a lucrative BRIC wall, but one that could take some serious breaking. Are you game? T host the Summer Olympics in 2016, Bra- zil is making all the right noises about its arrival as a sporting and economic su- perpower. Not that it had to ever prove anything to anyone. Home to over 200 million people (which makes it the 5th most populated country in the world) and spread over 8.5 million square ki- lometers (which makes it the 5th biggest nation), it’s a $2.5 trillion GDP – the 7th of a republic by the military in 1889. Bra- BY DR. A. K. SENGUPTA, CHIEF CONSULTING EDITOR, THE DOLLAR BUSINESS he land of soccer and samba is sizzling and how. Currently hosting the biggest sporting spectacle in the world – the FIFA World Cup 2014 – and all set to largest economy in the world. Brazil has long been a modern, vibrant and cos- mopolitan republic. But unprecedented growth in the 2000s, thanks to a global commodity boom, all of a sudden, has catapulted it to rock star status. zilian coffee exporters politically dom- inated the country until populist leader Getúlio Vargas rose to power in 1930. By far the largest and most populous country in South America, Brazil under- went more than half-a-century of popu- list and military governments until 1985, when the military regime peacefully ceded power to civilian rulers, which continues without hiccups. Exploiting its vast natural resources and a large labour pool, Brazil today continues to pursue industrial and agricultural growth and is not only a regional powerhouse, but also a global leader. RECALLING MEMORIES Following more than three centuries of Portuguese rule, Brazil gained its inde- pendence in 1822. The country main- tained a monarchical system of govern- ment until the abolition of slavery in 1888 and the subsequent proclamation Tourists enjoying the sunset on the Corcovado hill in Rio de Janeiro, Brazil. It is known worldwide for the 125 feet statue of Jesus atop its peak, entitled Cristo Reden- tor or “Christ the Redeemer” 56 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 57

  31. COVER FEATURE BRAZIL A NEIGHBOUR’S ENVY With abundant natural and human re- sources, Brazil is today one of the most promising emerging markets in the world. It is the seventh-largest economy both in terms of nominal GDP and pur- chasing power parity. Characterised by moderately free markets, the Brazilian economy grew at a brisk pace during the first decade of the current century but has been plagued by a bit of a slowdown since 2010. However, it has steadily out- paced many other countries in terms of GDP growth and might soon be ranked the fifth largest economy in the world. The Brazilian labour force is estimat- ed at 100.77 million, 16% of which is involved in agriculture, 13% in industry and 71% in the services sector. This pres- ents a far more balanced picture than In- dia where agriculture contributes about down well with the masses (and media). There have been widespread protests against the event – something unthink- able in the football-hungry nation. But as the World Cup progresses, football mag- ic is in the air again, and not in Brazil but all across the globe. on an economy that is nowhere close to its glory days yet. Brazil bid for the 2014 FIFA World Cup in 2007 – a time when the econo- my was growing at a rate of knots. Then the global financial crisis struck and Bra- zil’s economy went into a tailspin. While there was an immediate rebound in 2010 and Brazil’s GDP (at current pric- es) crossed the $2 trillion mark for the first time, it has been a laboured progress since then, with several quarters of neg- ative growth. But since then, matters have worsened so much that the Brazilian real (its cur- rency) has lost half its value in the last three years and Standard & Poor’s has cut Brazil’s sovereign rating to BBB mi- nus – the lowest investment grade. In this kind of an environment, the lavish spending on the World Cup has not gone 13-14% to the GDP, while its share in employment is almost 50%. Top imports by Brazil from India Diesel is by far Brazil’s biggest import from India SPLIT AND DOUBLE The only time a country hosted a soc- cer World Cup and Summer Olympics back to back earlier, like Brazil is doing now, was USA in 1994 and 1996. But those were the roaring 90s. Then, the US economy was on a roll, it had neces- sary infrastructure already in place, and hence, the cost of hosting the two events was just $30 million and $1.8 billion for the World Cup and the Summer Olym- pics respectively. As compared to that, Brazil has already spent $11 billion on just the FIFA World Cup, with multiple cost overruns that are likely to continue. While the twin events will do their bit for the Brazilian GDP, with tourism getting a boost, they are likely to be a major drain 400 350 300 250 THE NUMBERS Brazilian merchandise trade has grown more than three-fold over the last 10 years. Although it has maintained a trade surplus right through this period, flat to negative exports growth coupled with continuously rising imports in the last four years mean that a surplus of close to $34 billion in 2004 has now been re- duced to just $3 billion. Being the two pillars of the BRIC, India and Brazil have engaged increas- ingly in bilateral trade. The numbers 200 150 100 50 0 A* B C D E F G H I J K L M N O P Q R S T FY2013 FY2014 A) Mineral Fuels, Oils, Waxes; B) Organic Chemicals; C) Miscellaneous Chemicals; D) Man Made Filaments; E) Auto & Auto Ancillary; F) Nuclear Reactors, Boilers & Machinery; G) Pharmaceutical Products; H) Apparel & Clothing (not knitted); I) Electrical Machinery & Equipment; J) Plastic & Plastic Articles; K) Tanning or Dyeing Extracts; L) Rubber & Rubber Articles; M) Articles of Iron or Steel; N) Iron & Steel; O) Cotton; P) Article, Photographic Instrument; Q) Aluminium & Aluminium Articles; R) Man Made Staple Fibres; S) Apparel & Clothing (knitted); T) Glass & Glassware * Imports of $3.3 billion in FY2013 vs. $2.7 billion in FY2014; Other figures in $ million; Source: Ministry of Commerce Traffic on Avenida Paulista, one of the most important avenues in São Paulo, Brazil. The 2.8 kilometre thoroughfare is known for headquartering a large number of financial and cultural institutions People walking on Santa Efigenia Viaduct in São Paulo, Brazil. The downtown area offers a valuable history lesson of the city Panorama of the Copan Building in São Paulo. Copan is one of the largest buildings in Brazil and has the largest floor area of any residential building in the world 58 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 59

  32. COVER FEATURE BRAZIL in Paraguay. The aim of this framework agreement was to create conditions and mechanisms for negotiations by grant- ing reciprocal tariff preferences and ne- gotiate a free trade area between the two parties in conformity with the rules of the WTO. As a follow up to the agreement, a Preferential Trade Agreement (PTA) was signed in New Delhi on January 25, 2004. The aim of this PTA is to expand and strengthen existing relations between MERCOSUR and India and promote the expansion of trade by granting reciprocal fixed tariff preferences. The PTA consists of a list of 452 Indian products, which get tariff concessions in MERCOSUR (a list of 450 MERCOSUR products get tariff concession in India; the PTA comprises rules, safeguards and dispute settlement procedures). The ma- jor products covered in the Indian offer list are meat and meat products, organic & inorganic chemicals, dyes & pigments, raw hides & skins, leather articles, wool, AVERAGE DISTANCE OF COUNTRIES EXPORTING TO BRAZIL IS DOUBLE THE WORLD AVERAGE have grown exponentially over the last decade. Less than $1.5 billion worth of merchandise trade in FY2005, had sky- rocketed to over $10 billion by FY2013, before mildly dropping in FY2014. India almost always has had a trade surplus with Brazil, except for FY2010, when a three-fold surge in imports (because of a 24x surge in import of mineral fuels), temporarily turned the tables against In- dia. At the same time, India has managed to end FY2014 with an all-time high trade surplus of over $1.7 billion with Brazil. While the Indo-Brazil trade has grown manifold over the last decade, it remains abysmally low in absolute terms. For example, trade between Brazil and Chi- na was worth over $83 billion in 2013 – 800% more than that between Brazil and India. Similarly, of the 20 top items that Brazil imports, India’s name (as the ori- gin of the import) is virtually non-exis- tent in half of the items on the list. A case in point is cars. Brazil import- ed over $9 billion worth of cars in 2013, most of them from Argentina, Mexico and Germany. But India didn’t cater to even 0.01% of this demand. While Indian automakers have been talking about tapping the Brazilian mar- Nelore cattle being herd through a field in a farm in Magda county of São Paulo. Nelore cat- tle originated from Ongole cattle brought to Brazil from Nellore in Andhra Pradesh, India of safeguards, common tariffs and in- centives provided under the pact, Brazil traditionally has had very strong trade relationships with other member states of the bloc, particularly Argentina. While there is still no Free Trade Agree- ment (FTA) between India and MER- COSUR, in 2003, a framework agreement was signed between the two at Asuncion ket for a long time, not much has ma- terialised yet. The scenario is not much different when it comes to some of the other top Brazilian imports as well, be it electronics & electrical equipment or medicaments. In fact, the only major Brazilian import, which India caters to in a significant way is mineral fuels like diesel oil; all thanks to a company popu- larly known as Reliance Industries. Brazilian fans during the 2014 FIFA World Cup opening ceremony at São Paulo. According to E&Y, the event may result in an increase of 79% in the tourist inflow to Brazil in 2014 Demand-supply gap analysis: Indian exports – Brazilian imports Broad summary of Brazil’s top 20 imports show that Indian exports are non-existent in 12 of them HS Code Product Total Imports From India Potential Potential for Indian exports THE NEXT BEST THING Brazil is the most important member of MERCOSUR – South America’s leading trading bloc formed by Brazil, Argenti- na, Paraguay, Uruguay and Venezuela, with Bolivia recently becoming an ac- ceding member. While it has never got the kind of attention it deserves, partic- ularly in India, MERCOSUR currently is the third largest such bloc, after the EU and NAFTA. As a result of a plethora Imports (%) Enhancement Factor # 2710 2709 8703 8708 2711 8517 8542 3004 8529 3104 8704 3002 3808 3105 2701 1001 8411 3102 2933 8473 Petroleum Oils (not Crude) Crude Petroleum Oils Cars (including station wagons) Parts & Access. of Motor Vehicles Petroleum Gases Electric App. for Line Telephony Electronic Integrated Circuits Medicament Mixtures (put in dosage) Parts suitable for use in televisions Mineral or Chemical Fertilizers Motor Vehicles (for transport of goods) Human & Animal Blood, Toxins Insecticides, Fungicides, Herbicides Nitrogen, Phosphorous Fertilizers Coal; Briquettes, Ovoids Wheat and Meslin Turbo-jets, Turbo-propellers Mineral or Chemical Fertilizers Heterocyclic Compounds Parts & Accessories of computers 17,756,951 16,319,993 9,081,176 8,296,706 7,997,946 5,036,185 4,748,725 3,734,309 3,565,667 3,356,145 3,340,644 3,187,046 2,999,751 2,628,785 2,453,571 2,414,821 2,323,109 2,242,837 2,240,626 2,203,783 3,364,061 14,392,890 0 16,319,993 119 179,816 0 13,554 990 126,648 199 0 188 17,740 171,447 1 0 0 17 1 159,409 2,897 81.05 100.00 100.00 97.83 100.00 99.73 99.98 96.61 99.99 100.00 99.99 99.44 94.28 100.00 100.00 100.00 100.00 100.00 92.89 99.87 4.28 NA 9,081,057 8,116,890 7,997,946 5,022,631 4,747,735 3,607,661 3,565,468 3,356,145 3,340,456 3,169,306 2,828,304 2,628,784 2,453,571 2,414,821 2,323,092 2,242,836 2,081,217 2,200,886 76311.40 45.14 NA 370.56 4795.69 28.49 17916.92 Itaipú hydroelectric power plant located on the Brazil-Paraguay border NA Brazilian global trade Brazil’s trade surplus is slowly shrinking due to rising imports Indo-Brazilian trade India has mostly managed a trade surplus with Brazil 17768.38 178.65 16.50 2628784.00 350 7,000 300 6,000 NA NA 250 5,000 200 4,000 136652.47 2242836.00 150 3,000 13.06 759.71 100 2,000 50 1,000 Source: International Trade Centre; all figures in $ thousands (for CY2013) # Enhancement factor is the number of times Indian export value has to be raised, in the absence of policy restrictions and latent demand, from the current levels to meet total demand of the destination market (Brazil) 0 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Exports Source: International Trade Centre; figures in $ billion Imports Exports Source: Commerce Ministry, Govt. of India; figures in $ million Imports 60 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 61

  33. COVER FEATURE BRAZIL “Brazil is neither too far, nor too different from India” Containers and cranes at the Port of Montevideo, Uruguay. It is one of the largest ports of South America and an important transit area for goods of MERCOSUR members In an exclusive interaction with The Dollar Business, Chloe Rocha Young, Secretary, Economic & Commercial Section, at the Embassy of Brazil in India, talks at length about India- Brazil trade relations and explains why there is enough room for both quantitative and qualitative expansion. Excerpts: TDB: Indo-Brazilian trade is today about 10 times of what it was a decade ago. Are you satisfied? CY: Trade between Brazil and India has grown tremendously in the last few years – from $828 million in 2001 to $9.48 bil- lion in 2013. India already is one of the main trade partners of Brazil, but there is still plenty of room for bilateral trade to grow. One of the issues of our bilateral trade, however, is that it is highly concen- trated on oil and its derivatives. In 2013, around 50.69% of Brazilian exports to India consisted of crude oil and 52.60% of Brazilian imports from India were of diesel. Any change in the oil market will significantly affect our bilateral trade. 1) Food, Beverage & Agribusiness; 2) Home & Construction; 3) Machinery & Equipment; 4) Fashion & Personal Care; and 5) Multi-Sector & Other. Opportu- nities in agribusiness seem particularly attractive, due to rising population and incomes in India, all within limited ex- pansion of local production. Among mechanisms established to boost bilateral trade, it is worth noting three: the Bilateral Trade Monitoring Mechanism, the CEO Forum, and the India-MERCOSUR Preferential Trade Agreement, whose scope gives margin for further expansion. beaches to business. In this sense, the 2014 FIFA World Cup as well as the Olympic and Paralympic Games in 2016 in Rio de Janeiro, will be milestones for Brazilian tourism. For this year’s World Cup, visa requests from Indians have been almost double the usual number. This speaks for itself in terms of the in- terest Brazil is generating in this country. ed a penny worth of these two products to any other country either! This means Brazil essentially gives preferential treatment in terms of duties to an item produced in India, which has never been exported by India! What’s worse is the fact that this is not limited to just the two products men- tioned above, but a host of other prod- ucts mentioned in MERCOSUR’s offer list to India. cotton yarn, glass and glassware, arti- cles of iron and steel, machinery items, electrical machinery & equipment and optical, photographic & cinematograph- ic apparatus. The major product groups covered in the offer list of MERCOSUR are food preparations, organic chemi- cals, pharmaceuticals, and electrical ma- chinery & equipment. The India-MER- COSUR PTA came into effect in 2009 and has just completed five years. While the India-MERCOSUR PTA is, no doubt, a great initiative to boost trade ties between India and Brazil, if one takes a closer look at the list of items in which Indian products get a margin of prefer- ence in MERCOSUR member countries, one can’t help but feel disappointed. For instance, two items included in the offer list of MERCOSUR are instru- ment panels (HS Code: 87082995) and steering boxes (HS Code: 87089493). Therefore, when an Indian manufac- turer exports either of these two items to Brazil, it gets a 10% margin of pref- erence. So far so good. The trouble starts when one tries to find out what value of these two items were exported from India in the recent past. For, not only has India never ever exported a single penny worth of these two prod- ucts to Brazil, it has never ever export- TDB: Does Brazilian government have any plans to issue visa-on-arrival to In- dia tourists? CY: Brazil is being promoted as a great destination among Indian travel agen- cies and tour operators together with workshops to train Indian operators on Brazilian sights and features. Moreover, Brazil has signed a bilateral Air Service Agreement with India, with a strategy to establish direct flights between the two countries. As far as visa-on-arrival is concerned, Brazil does not have such arrangements with any country. Exist- ing procedures, however, are clear and straightforward. TDB: Do you think Brazil not having a large Indian community has affected trade between the two countries? CY: The fact that there is only a small Indian community in Brazil might have contributed to the perspective that ‘Bra- zil is too far’ or ‘too different.’ However, during the last few years, as developing countries gained greater political and economic space, a different concept has developed. As large developing coun- tries, Brazil and India are more similar in political, economic and social aspects than first looks may reveal. TDB: Indo-Brazilian trade is lesser in value than that of even Indo-Venezue- lan trade. What do you think is the pri- mary reason for such state of affairs? CY: India is a country with significant energy demands, resulting in consider- able imports of oil. Venezuela is a major oil exporter. It is therefore natural that an increase in Indian demand for oil would impact the amount of trade between the two countries. As mentioned before, al- though Brazil-India trade has enjoyed strong growth in the last decade, there is still room for both quantitative and qualitative expansion. This means we can have more trade in the traditional products, as well as diversify. A recent study concluded by APEX (the Brazilian Trade & Investment Pro- motion Agency) gives a detailed profile of economic, political and commercial landscape of India, as well as a set of business opportunities for Brazilian ex- porters in the Indian market. These are: LOW HANGING FRUITS While Indian exports may be negligible in half of Brazil’s top 20 imports, The Dollar Business Intelligence Unit analysis shows there are 14 items, where at least a billion dollar worth of exports are there for the taking for Indian exporters. To arrive at this list, we analysed all items (broken down to 4-digit HS codes) with three necessary prerequisites: (i) Items that Brazil imported in excess of $1 Brazil’s major trade partners Brazil is one of the rare examples of a country having a trade surplus with China TDB: Brazil’s exports to India are mostly raw materials. Do you have any strategy to increase the export of fin- ished goods and hi-tech products? CY: Brazilian raw materials are very competitive in international trade and, as a result, play a large role in its exports. The bilateral trade between India and Brazil is still concentrated on few prod- ucts, mainly oil, whose price variations significantly impact numbers. Diversi- fication is therefore a major challenge which is being tackled through mea- sures such as profiling opportunities for Brazilian exporters in the Indian market. 50 45 40 TDB: What has been Brazil’s strategy to attract Indian football fans for the ongoing FIFA World Cup? CY: The Brazilian government is com- mitted to promoting tourism in Brazil, especially through Embratur – a gov- ernment agency entirely devoted to the promotion of tourist destinations in the country. Every year, Brazil reaches new record numbers of foreign visitors, all searching for great experiences – from 35 BRAZIL IMPORTS AND INDIA EXPORTS LARGE QUANTITIES OF AUTO PARTS, WHEAT AND MEDICINES. BUT NOT MUCH BILATERALLY 30 25 20 15 10 5 0 China USA Argentina Germany Netherlands India Exports Imports Source: International Trade Centre; figures for CY2013 ($ billion) 62 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 63

  34. COVER FEATURE BRAZIL billion in 2013; (ii) Items that India ex- ported in excess of $1 billion in the same year, and (iii) Items that presented an opportunity of over $1 billion for Indian exporters. At the top of this list is petroleum oils (HS code 2710), $17.75 billion of which was imported by Brazil and $67.07 bil- lion of which was exported by India in 2013. But India’s exports to Brazil were just $3.36 billion, thereby presenting a potential of $14.39 for Indian export- ers. At the second spot in this list is cars (HS code 8703) – $9.08 billion worth of imports by Brazil in 2013, $5.55 billion worth of exports by India in 2013, but virtually no exports from India to Brazil. Other such billion-dollar ideas in- clude wheat and meslin, medicament mixtures, insecticides (including fungi- cides & herbicides), pneumatic rubber tyres, refined copper & related alloys, taps (including cocks, valves for pipes, and tanks), electrical transformers, stat- ic converters, electrical apparatuses for line telephony, auto parts, and aircrafts and spacecrafts (and related parts). Add potential export opportunities for In- dian exporters in just these 14 product categories and you end up with a figure in excess of $56 billion – nearly 20% of India’s total exports to the world in FY2014! To imagine that serving a single overseas market can be so lucrative an exercise – and in just about a dozen-odd product categories – is eye-opening. It’s a “pop” sound you can’t miss if you have your eyes and attention on the business of foreign trade. Bottomline – don’t take your eyes off Brazil even after the FIFA jamboree gets silent. [We’ve left the soccer balls for Pakistan to export anyway.] There is a massive market to tap and we’ve only scratched the surface. There’s a Sum- mer Olympics scheduled for 2016. And things are just warming up. If you’re an exporter, make Brazil count. It’s a $2 tril- lion economy, mind you! And one with the hallowed ‘BRICS’ tag. “Brazil has a lot to offer for India’s Services exporters” Ajay Sahai, Director General & CEO, FIEO TDB: India still seems to be ignoring Brazil as a market. What’s Brazil’s true potential as an export destination? AS: Brazil is one of the most important markets in Latin America. Unfortunate- ly, the past year wasn’t good for Indian exports to Brazil, due to the softening of commodity and metal prices. Many other countries like Venezuela and Argentina also put restrictions on both current and capital goods transfers. Some of them also introduced automatic licensing to restrict imports. Hence, 2013 wasn’t great for Indian exports to Latin Amer- ica. But barring last year, I think Latin America has been one of the biggest success stories of Indian exports. In fact, we have been able to double our share of exports to Latin America in the last ten years. Indian government is serious about the Brazilian market? AS: The Programme – one that was launched in 1997 – has been re-extended until March 2019. Most of the countries mentioned therein are a part of the Fo- cus Market and Special Focus Market Schemes, which shows that the govern- ment of India realises the potential of these countries. And Brazil is a part of the BRICS, a country with whom we are even considering developing a common currency for trade. Once that happens, transaction costs will reduce substantial- ly and trade between the two countries will get a major boost. ticals and chemicals, textile and precious & semi-precious gems and jewellery as thrust products in the Latin American market, particularly in Brazil. The Gov- ernment of India is also keen to have some concessional or free trade agree- ment with Brazil. TDB: How about exporting Services from India? AS: When it comes to Services, many Indian companies who are/were looking to tap the North American market, have already set up their bases in Brazil. In terms of proximity to US and visa policy, Brazil is better than most other countries in the region. Other than IT, medical and health tourism, financial services, en- vironmental services, architecture and consulting are some areas where we can look to increase our market share in Brazil, which anyways is one of the biggest importer of Services and runs a huge trade deficit in it. TDB: Which are the thrust products as far as market penetration and growth in Brazil are concerned? AS: The Ministry of Commerce through its study of increasing India’s econom- ic engagement with Latin America, has identified auto components, pharmaceu- TDB: The Ministry of Commerce re- cently re-extended the ‘FOCUS LAC Programme’. Is that any proof that the Low hanging fruits Items imported by Brazil in large numbers, exported by India in large numbers but still offering billion dollar opportunities HS Code Product Brazil’s imports from the world India’s exports India’s exports Opportunity to the world to Brazil Wheat & Meslin Petroleum Oils (not Crude) Heterocyclic Compounds Medicament Mixtures (put in dosage) Insecticides, Fungicides, Herbicides Pneumatic Tires of Rubber Refined Copper & Copper Alloys Tap, Cock, Valve for Pipe, Tank Electrical Transformer, Static Converter Electrical Apparatus for Line Telephony Cars (including Station Wagons) Parts & Accessories of Motor Vehicles Aircraft & Spacecraft Aircraft Parts 1001 2710 2933 3004 3808 4011 7403 8481 8504 8517 8703 8708 8802 8803 2,414.8 17,756.9 2,240.6 3,734.3 2,999.7 1,641.6 1,823.8 1,468.8 1,111.0 5,036.2 9,081.2 8,296.7 1,525.4 1,333.2 1,260.3 67,075.2 1,575.2 10,313.9 2,133.2 1,778.6 2,354.2 1,213.1 1,006.3 3,444.6 5,556.5 3,912.8 2,590.3 1,527.0 0.0 2,414.8 14,392.9 2,081.2 3,607.7 2,828.3 1,589.4 1,821.3 1,454.4 1,102.0 5,022.7 9,081.1 8,116.9 1,525.3 1,333.2 3,364.0 159.4 126.6 171.4 52.2 2.5 14.4 9.0 13.5 0.1 179.8 0.1 0.0 Port of Rio de Janeiro in Brazil – a major cargo destination for freight from overseas editorial@thedollarbusiness.com Dr. A. K. Sengupta Chief Consulting Editor, The Dollar Business; Former Dean of The Indian Institute of Foreign Trade (IIFT), New Delhi Source: International Trade Centre; figures for 2013 ($ million) # Criteria: Brazilian imports of more than $1 billion, Indian exports of more than $1 billion, opportunity of more than $1 billion 64 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 65

  35. DOCKYARD KANDLA PORT IS INDIA’S DARLING PORT LOSING ITS SHEEN? Born out of necessity to replace Karachi Port, which went to Pakistan at the time of partition, and ease the load on Mumbai Port, Kandla went on to become India’s No.1 port really fast. And it well deserved the honour. From a safe geographical location to the proximity to a commercially vibrant region, from “Priority” status to a state-of-the-art infrastructure, it has all what it requires to stay on top. Despite all this, critics claim that all’s not well at Kandla. Its biggest competition lies just 60 km south west – Mundra Port, which has recently overtaken it as India’s biggest commercial port. Can Kandla reclaim its lost glory? BY SISIR KUMAR PRADHAN A view of Kandla Port’s entry gates: Despite recent problems, Kandla is still India’s No.1 ‘major port’ in terms of cargo-handling 66 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 67

  36. DOCKYARD KANDLA PORT G partition of India to accommodate refu- gees from Sindh, Pakistan. The extreme climatic conditions of the region can be gauged from the fact that its population density is just 46 per sq km as compared to 416 per sq km for India as a whole. However, the region is commercially very vibrant and is one of the top investment destinations in Gujarat. With Kandla Port – one of the country’s biggest cargo ports – next door, the city has become a testimony to the kind of impact a port can have on a region. No wonder, most major businesses in the town are related to the shipping trade. andhidham, a small town lo- cated in the Kutch district of Gujarat, about 810 km from the country’s financial cap- ital Mumbai was created soon after the A state-of-the-art 103 tonne capacity crane commissioned via PPP at Kandla Port. PPP projects have not been as successful in Kandla as they have been elsewhere SINCE KANDLA DOESN’T HAVE A DEEPER DRAFT IT’S NOT ABLE TO BRING IN BIGGER VESSELS sons this. “The timber business requires a lot of storage space. In the late 70s, timber importers in India tried ports like Kolkata and Mumbai. But Kandla Port turned out to be the most cost effective and also convenient because of the avail- ability of a lot of vacant land,” Garg tells The Dollar Business. He proudly adds that about 70% of India’s total timber im- ports are handled by Kandla. Moreover, the 4,000 MW ultra-mega imported coal and super-critical tech- nology based power plant by Coastal Gujarat Power Ltd. also uses the port to import coal. Indian Farmers Fertiliser Cooperative Ltd. too uses Kandla as a gateway port. However, the main rea- son why Kandla continues to be India’s preferred port is the ‘Priority Port’ status that has been accorded to it for LNG, coal, petroleum and fertiliser imports. Containers being loaded on Bulk Monaco, a 39,737 gross tonnage ship registered in Panama, at Kandla Port. KPT has floated a tender and invited bids to operate the container terminal success stories in port-related trades. quake, the Centre announced the ‘In- centive Scheme 2001’ to attract new industries and large investments to the district. Recalling the devastating quake, Ranuj Yadav, who owns a small saloon in Gandhidham, tells The Dollar Busi- ness, “There was little left in the region. Most buildings which had more than two floors collapsed.” Adds Nandu Bhai, a tour operator, as he tells the magazine, “We suffered a lot due to the quake. But with the government declaring a tax hol- iday to help the rebuilding exercise, mas- sive investment poured in.” Kutch is also home to Asia’s first Spe- cial Economic Zone (SEZ). Established in 1965, the The Port of Kandla SEZ is the biggest multiple-product SEZ in the country and was benefitted in a massive way when the new SEZ scheme was in- troduced in the Export & Import Policy 2000. Stressing on the importance of the Port on the socio-economic growth of the region, The Gandhidham Chamber of Commerce and Industry Joint Sec- retary Aashish S. Joshi tells The Dollar Business, “All economic activities in the region are directly or indirectly associat- ed with Kandla Port. Apart from giving a boost to heavy and small industries, the Port has also spearheaded export orient- ed businesses in the region. It has helped the local salt, mineral, timber, hotel and fertiliser industry flourish.” In fact, Kandla is the epicentre of In- dia’s timber trade. Kandla Timber Asso- ciation Vice-President Sameer Garg rea- IT’S IN THE GENES Another major strength of the town is its large Sindhi population. Founder and owner of Rishi Shipping, a shipping company with an annual turnover of Rs.300 crore, B. K. Mansukhani is one proud member of this enterprising com- munity. Speaking to The Dollar Business this 70-year old shipping industry vet- eran says, “I was three years old when my family migrated to Ajmer from Pa- kistan. I came here to earn a living and took up my first job as a teacher at a salary of Rs.100 per month.” In 1976 his life took a turn for the better when one of his student’s father, who was Traffic Manager at Kandla Port, advised him to trade leftover scrap of cargo ships. One day, he casually approached the captain of a ship and bought some metal drums. “I earned a profit of Rs.21,000 – close to 20 years’ salary – after selling them to a scrap dealer,” he chuckles. In fact, like Mansukhani, there are several first generation entrepreneurs in the region who have scripted their own PARTITION PANG The history of Kandla Port goes back to the pre-independence era. The ruler of the princely state of Kutch, Maharao Khengarji III, in 1930, initiated the con- struction of a deep draft port for his king- dom and the port was commissioned in 1931. However, Kandla Port’s real glory days started post independence. Follow- ing partition, Karachi Port that used to serve the vast hinterlands of North and West India, went to Pakistan. Hence, the Indian government constituted the West Coast Major Port Development Com- mittee, on February 17, 1948, to scout for locations to construct a deep sea port, which could act as a replacement to the Karachi Port. As a result of the com- mittee’s recommendations, the Kandla Port was developed and inaugurated in 1964. The Port is situated in the Kandla creek, 90 km from the mouth of the Gulf of Kutch. This makes it one of the safest during cyclones and tidal disturbances. ROADBLOCKS Despite necessary ecosystem being in place, all is not well at KPT. Its biggest competition lies just 60 km south west. Adani group-controlled Mundra Port has now overtaken KPT and has be- come India’s largest port in terms of car- go handling. The flagship port of Adani Ports and SEZ (APSEZL), Mundra be- Traffic handled by Kandla Cargo traffic registered a de-growth of 7.1% in FY2014 over FY2013 700 NEVER DETERRED The Kandla Port Trust (KPT) caters to a vast hinterland of 11 states, spread across 1 million square kilometre. The region attracts people from all over the country, giving it a cosmopolitan look – the primary reason why there has never been a major labour unrest at the port. However, the deadly earthquake of 2001 disrupted its smooth journey. Post the 600 500 400 KPT CATERS TO A VAST HINTERLAND OF 11 STATES, SPREAD ACROSS 1 MILLION SQ. KM. 300 200 100 0 FY2012 FY2013 FY2014 Traffic handled (imports) Traffic handled (exports) Source: Ministry of Shipping; figures in lakh tonnes 68 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 69

  37. DOCKYARD KANDLA PORT Breakup of cargo handled Petroleum, oil and lubricants account for 60% of the total cargo at Kandla 1.0% 0.8% 25.0% 58.0% 9.0% 1.2% 4.0% 1.0% POL Fertiliser raw materials Thermal coal Iron ore Finished fertiliser Coking coal Other Container Source: Ministry of Shipping; Breakup for H1, FY2014 private ports like Mundra have a faster project conceptualisation and realisation process, KPT officials have to get approv- als from the trustees and the Centre for even basic administrative issues. Despite all such issues, KPT, due to its strategic location, vast hinterland and ‘Priority Port’ status, has managed to retain its No.1 rank among all major ports in India. Congestion at Mumbai Port and JNPT has also contributed to the diversion of traffic to Kandla. How- ever, KPT shouldn’t take this for granted and needs to develop infrastructure at a much faster rate if it wants to hold on to its No.1 major port rank. “There are some people with vested interests who don’t want the Port to grow. The Port’s dependence on the Centre to make deci- sions has also affected its performance,” says Mansukhani of Rishi Shipping. It’s worth noting that in 2007, a report by the then KPT Chief Vigilance Officer to A wide-angle view of state-of-the-art heavy duty ELL wharf cranes commissioned at Kandla Port came the first Indian port to handle 100 million metric tonnes (MMT) in a year after it crossed the mark in FY2014. As compared to this, KPT handled about 87 MMT during the period. At the same time, of the 87 MMT that KPT claims to have handled, a significant share was accounted for by KPT’s satellite port Va- dinar. It’s worth mentioning that Vadinar handles liquid petroleum products and is managed by Essar Ports. According to a Ministry of Shipping report, Kandla not only missed its tar- get of 95 MMT but also recorded a fall of 7.1% in cargo handled in FY2014. The reason why KPT officials and other stakeholders should be very worried is the mushrooming of minor and inter- mediate ports all over Gujarat’s coast, which are growing at a frantic pace. For instance, in FY1999, while KPT handled 40.6 MMT cargo, all intermediate and minor ports in Gujarat, put together, handled just 25.1 MMT. This ratio has turned upside down in the last 15 years. Interestingly, in FY2014, minor and in- termediate ports in Gujarat handled close to four times of what Kandla han- dled during the year! Limited draft is another obstacle to the Port’s growth. KPT is a tidal port and ship movement is possible only during high tide. The Port has a draft of about 12.5 meter, which limits the entry of big- ger vessels. On the other hand, Mundra, being a deep sea port, has no such issues. Mansukhani blames slow decision mak- ing, lack of pro-activeness, and faulty PPP (public-private-partnership) and BOT (build–operate–transfer) models for the Port’s recent poor show. Another Kandla stakeholder Gyan Singhvi, Director of Singhvi Tradelink, a company that uses Kandla Port for exporting its products tells The Dollar Business, “The major problem with KPT is that its Chairman is rarely available since he also heads the Mumbai Port. This delays decision-making.” [In fact, the day our team reached the KPT’s administrative office, most cabins were vacant. Piles of files scattered all over, made a mockery of the government’s claim of making transactions in public sector organisations paperless.] “The Port has become an orphan. Neither the trustees, nor the government is bothered about the Port’s development. Out of 15 berths, six remain idle most of the time,” laments Singhvi. IN FY2014, MINOR AND INTERMEDIATE PORTS IN GUJARAT HANDLED CLOSE TO FOUR TIMES OF WHAT KANDLA HANDLED DURING THE YEAR NEWBIES HAVE ARRIVED Gujarat Maritime Board (GMB), which was created in 1982 to manage non-ma- jor ports in the state, currently manages 41 minor ports along Gujarat’s 1,600 km long coastline and is doing an excellent job. This has resulted in competition for Kandla and is only growing fast. While Wheat being loaded onto a vessel with the help of ELL wharf cranes at Kandla Port. Kandla has been accorded the status of ‘Priority Port’ when it comes to grain exports 70 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 71

  38. DOCKYARD KANDLA PORT of failing to handle minimum guaran- teed volumes of container, while ABG accused KPT of failing to meet its obli- gation to provide adequate draft, night navigation and rail connectivity. Finally, in 2013, KPT took over the as- sets of ABG in exchange for Rs.110 crore. In its FY2013 annual report, ABG Infral- ogistics mentioned, “ABG Kandla Con- tainer Terminal Limited used to operate the container terminal at Kandla Port on BOT basis. It has terminated its contract with Kandla Port Trust vide its letter dat- ed November 9, 2012 due to the failure of Kandla Port Trust in meeting its obliga- tions as per the license agreement.” When The Dollar Business asked KPT Chief Mechanical Engineer K. C. Kuncheria to give KPT’s side of the sto- ry, he says, “AGB had some management issues, hence the agreement was termi- nated.” On questioning why KPT did not conduct enough background check before allocating the project to ABG, Kuncheria was evasive. “I took over charge just two months back and hence I am not aware about the technicalities of the MoU. However, KPT has floated a fresh tender and has invited new private players to operate a container terminal of 0.6 MTU capacity,” he defends. to the interests of the port. Three years later, P&O Ports acquired 100% stake in Mundra International Container Termi- nal, which is now the second largest con- tainer terminal in India. Hilarious! In 2006, KPT once again ventured out on the container terminal mission and selected Mumbai-based ABG Infralogis- tics to build and operate it on BOT basis for a period of 30 years. ABG Infralogis- tics’ subsidiary ABG Kandla Container Terminal Limited signed a MoU with KPT on an annual revenue sharing mod- el. However, this deal too turned sour as KPT officials accused ABG Infralogistics the Ministry of Shipping had confirmed allegations that 16,000 acres of KPT’s land had been leased away to salt manu- facturers at throwaway prices. BACK AND FORTH In year 2000, KPT floated a global ten- der and invited bids from private players to develop a container terminal on BOT basis. Post the bidding, Australian com- pany P&O Ports got the letter of intent (LoI) since it quoted the highest bid of Rs.300 crore. However, KPT trustees rejected the offer giving a vague reason that the company’s offer was detrimental A view of Kandla’s harbour tug. A tug is a boat that maneuvers big vessels by pushing or towing them in a crowded harbour or a narrow canal revenue sharing model, our berth has become 5 times more expensive than KPT-managed berths. If KPT officials want the Port’s growth, they have to pro- vide much more support than what they do now,” Rana tells The Dollar Business. V. G. Sivadas, Assistant Manager of shipping agency ULA, feels congestion is the biggest issue for KPT. “Port authori- ties need to upgrade traffic handling ca- pacities if they want to stop traffic mov- ing to other ports,” he says. of exporters and importers. “Mundra Port is 60 km from our depots in Gand- hidham. This increases transportation cost by Rs.100-150/cubic metre,” reasons Garg of Kandla Timber Association. A full-time Chairman on deck should be the right start to mending Kand- la’s wrongs that have resulted in rising popularity of competitor-port Mundra amongst the trader community. Having spent a few days in Gand- hidham, despite criticisms, one cannot escape the feeling of love and respect that its residents have for Kandla. It made Gandhidham. [Know what we mean?] You can almost hear their silent prayers. If only the right gods were listening. it is foolish to write off Kandla. “There is a nexus between customs house agents, shipping agencies and container freight stations (CFS) at Mundra Port. Shipping agencies force customers to off-load car- go at a specific CFS. If the importer off- loads the cargo at his/her preferred CFS, he/she is forced to pay a rent for the used CFS and also the CFS chosen by the ship liner. This is not the case at KPT. That’s why a lot of users prefer it.” He adds if KPT can get its act together, glory days would be back again. The Bhuj-Kutch region has around 72 large scale and public sector units, of which 12 are located in and around Gandhidham. These units act as cargo feeders to Kandla Port. There is anoth- er reason that makes Kandla the choice People queuing up to take a look at INS Gomati, a frigate of Indian Navy, docked at Kandla THE WAY FORWARD Pained by the poor state of affairs at Kandla Port and disappointed that new private ports are thriving at its cost, solu- tions and advices for KPT are plenty. Singhvi of Singhvi Tradelink reasons why A GLASS HALF-FULL Despite huge challenges, all’s not lost for KPT. The mismanagement of KPT has thrown up great opportunities for private stevedoring and cargo-handling companies, who have come up with in- novative solutions. For example, the issue of Kandla having a shallow draft is now being bypassed with the use of floating cranes to load and off-load cargo from bigger vessels in the mid-sea. Speaking to The Dollar Business about such ini- tiatives, KPT Deputy Traffic Manager P. Suresh Babu says, “We are working on improving infrastructure and the inner channels will be dredged to achieve the required draft.” The PPP model has its own issues though. Yogendrasinh Rana, Senior Ex- ecutive, RAS Infraport, which partnered with KPT to develop berth number 13 on BOT basis, feels port authorities need to be more liberal when it comes to revenue sharing. “Due to the existing sisir@thedollarbusiness.com Cargo handled by India’s major ports Paradip and Ennore were the only two ports that recorded double-digit growth rates in FY2014 60 100,000 50 90,000 A mechanised container loading berth at Kandla Port 40 80,000 30 70,000 20 60,000 10 50,000 0 40,000 Photo Courtesy: Mohan Naik 30,000 -10 20,000 -20 10,000 -30 -40 0 Kolkata Paradip Vizag Chennai Tuticorin Cochin Mangalore Mormugao Mumbai JNPT Ennore Kandla Growth (%) FY2013 FY2014 Coal being loaded onto trucks using a mechanised coal handler at Kandla Port Source: Ministry of Shipping; figures in lakh tonnes 72 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 73

  39. INSIDE OUT SERVED FROM INDIA SCHEME (SFIS) HOW FALLING AT THE FIRST HURDLE In 2013, when SFIS was still in its infancy and the basic objectives for floating it had barely been achieved, the government dropped a bomb while announcing the annual supplement to the FTP by chang- ing the rules for calculating duty credit scrip entitlement. Post the supplement, a service provider is now entitled for 10% duty credit only on net forex earnings and not gross forex earnings, as was the case earlier. For example, if a service pro- vider earned Rs.10 lakh worth of forex in FY2014 and in order to earn it, it ended up spending Rs.5 lakh worth of forex, then, he/she is entitled to just Rs.50,000 as duty credit instead of Rs.1 lakh, as was the case earlier. This came as a rude shock and end- ed up making SFIS just a forex earning scheme instead of a brand building ex- ercise for the Indian Services sector. For, if the idea is to build a unique, power- ful, recognisable and globally respect- ed brand, as was envisaged in the FTP 2004-2009, just how many dollars one contributes to the economy can never be the criteria for incentivising service pro- viders. And unfortunately, the ones who got hit the hardest were small providers as their ratio of forex spent and forex earned was much higher than that of the bigger players. Agrees Gurgaon-based Pratik Jain, Tax Partner at KPMG, as he tells The Dollar Business, “The rationalisation will have a much bigger impact on small- Global services trade Travel & tourism and transportation account for almost half of services trade 2% 2% 2% LAST YEAR, THE GOVT RATIONALISED DUTY CREDIT SCRIP OFFERED UNDER SFIS IN THE ANNUAL SUPPLEMENT TO THE FTP SERVED FROM INDIA SCHEME ‘ALMOST’ BECAME FAMOUS 1% 1% 7% 27% 7% 7% China’ has become a symbol of cheap but effective manufactured products. In fact, ‘Made in China’ has become such a dominant brand that it is believed to be one of the main reasons for Sinophobia. At the other end of the spectrum is ‘Swiss Made’. A symbol of superior and reliable quality, the brand has helped revive Switzerland’s manufacturing sec- tor, particularly watches and clocks and helped them reclaim their status as the best in the world. Wouldn’t it have been great if India had something like these two to boast about? 20% 24% Travel Other business Transportation Financial Royalties IT Insurance Communication Construction Govt. services Personal, Cultural Source: International Trade Centre Breakup for CY2013; figures in $ billion Known all over the world as a civilization that takes much pride in serving mankind, India has not quite lived up to its potential as a world-class service provider. And while the government is doing its bit with a scheme like ‘Served From India Scheme’ (SFIS), there seems to be a lack of intent in helping Indian service providers become a global force to reckon er service providers because the large players don’t have a huge expenditure as compared to their earnings.” BABY STEPS Realising that Manufacturing was not India’s forte and the only sector where India had a chance to create a global- ly recognisable brand was Services, the government, in the Foreign Trade Poli- cy (FTP) 2004-2009, had introduced the ‘Served From India Scheme’ (SFIS). The objective of the scheme was to accelerate growth in the export of services to create a powerful and unique brand, instantly recognised and respected all over the world. As per the scheme, any service provider, with at least Rs.10 lakh worth of foreign earnings in a financial year, was eligible for duty credit scrip of 10% of total forex earnings that can be used in the following year(s). While in case of Star hotels, the duty credit was 5% of forex earnings, in case of standalone restaurants it was 20%. The duty credit was allowed to be used while importing any capital goods including spares, office equipment, professional equipment, of- fice furniture & consumables and even food items & alcoholic beverages. Later, via a notification dated Janu- ary 18, 2011, the eligibility was brought down to just Rs.5 lakh for individual service providers. BAFFLING Another long standing demand of Indi- an services exporters is to make the duty credit transferable – something that the government has been adamantly reject- ing for years. While fiscal mathematics might have something to do with this, it once again exposes the lack of sincerity to build the ‘Served From India’ brand. For, non-transferable duty credit doesn’t India’s services trade India has almost always maintained a healthy surplus in services trade 180 BY SHAKTI SHANKAR PATRA E around. From the Upper East Side of Manhattan to Burrabazar in Kolkata; from Chatuchak Weekend Market in Bangkok to Chandni Chowk in New Delhi, there is just no escaping Chinese goods. All across the globe, ‘Made in 160 140 ver since China became the fac- tory of the world and Chinese goods started flooding global markets, ‘Made in China’ has become one of the most powerful brands 120 100 80 60 Did you know? The philosophy behind the Indian gesture of greeting another person with folded hands (namah + te = namaste) is ‘I bow to you’! 40 20 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: International Trade Centre; figures in $ billion 74 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 75

  40. INSIDE OUT SERVED FROM INDIA SCHEME (SFIS) “Don’t kill the goose that lays golden eggs!” non-transferable? SG: Let me answer this with an example. Let us talk about physical exporters of items such as gems and jewellery, carpets and garments. We are the largest export- ers of these items. I will start with gems and jewellery. To export $1,000 worth of gems and jewellery, we import $900 or $950 worth of gold and precious stones from abroad. So, the value addition for the country is anywhere between $10 and $100. But the service tax exemption based on the foreign earnings is on that $1,000. Similarly, for every $1,000 worth carpets that we export, nearly 50% of the wool is imported from New Zealand and Australia. This means that the value ad- dition to the country is only 30% to 40% but the carpet exporter also gets service exemption on $1,000 foreign earnings. Same is the case is with garments. But in tourism, out of $1,000 that is earned, $999 is spent in India. The rest 1% is the expenditure that an industry player has to make. But tourism is not given exemption from service tax. So with all services sector schemes, including SFIS, the government is only giving lip service to the services sector. If they really want services sector to compete then they should exempt us from service tax. Indian services exports As expected, information technology dominates India’s services exports Indian services imports At over $127 billion, transportation accounted for half of India’s imports AT OVER $25.2 BILLION, INDIA HAD THE 9TH BIGGEST TRADE SURPLUS GLOBALLY IN SERVICES TRADE IN CY2013 9% 7% 3% 4% In an exclusive interaction with The Dollar Business, Subhash Goyal, Chairman (Services), FIEO, and President, Indian Association of Tour Operators (IATO), reveals what’s wrong with India’s Services exports. Excerpts: 5% 11% 34% 10% 48% 12% give a level playing field to all service providers and definitely not help build the ‘Served From India’ brand. Let’s take hypothetical examples of two service providers – a discotheque and an authentic Marathi food restaurant in South Mumbai. Let’s also assume that both the places are frequented by for- eign tourists, who mostly use their credit cards to pay the bills. So, in FY2014, if foreign tourists used their credit cards to pay Rs.1 crore equivalent at each of the two places, then both of them are enti- tled to duty credit scrips of Rs.10 lakh each. But while the discotheque can use its duty credit while importing foreign liquor the following year, the restau- rant is left high and dry since it sources everything domestically. Isn’t it only fair therefore to allow the restaurant to sell its duty credit to a willing buyer in cash or kind? According to Jain, “SFIS is a post ex- port scheme. A company first exports and only then gets the duty scrip, which is then used for the future imports. Trad- able duty scrip will benefit a number of Subhash Goyal Chairman (Services), FIEO; President, Indian Association of Tour Operators (IATO) 24% 33% IT Other business Travel Transportation Financial Rest Transportation Other business Travel Insurance Financial Rest Source: International Trade Centre; Breakup for CY2013 not only increase India’s equity around the world but also bring in the big bucks – it shouldn’t act miserly while incentiv- ising its service providers. As ‘Made in Japan’, ‘Swiss Made’ and ‘Made in China’ have, if ‘Served From India’ manages to win admirers around the world, the gains will far outweigh all concessions that the Indian government is giving in the name of SFIS. Ten years ago, when it was launched, SFIS ‘almost’ became famous overnight. Chances are, it actually will. How soon? Depends on how soon our policymakers amp up the “namaste” gesture. service providers since it does not make any sense for them to hold on to their duty scrip for several years if they do not have any requirement for imports in the near future.” He goes on to add, “At the end of the day, the aim is to promote the services sector. The government has to be liberal and provide tangible benefits to exporters.” SERVING LOVE FOR A MILLION YEARS Indian history is full of stories about the importance that the country has given to serving others. So, while the Indian government is trying to use this virtue to build a strong Indian brand – which will TDB: What incentives do you think the government should offer the services sector then? SG: My only suggestion is – don’t kill the goose that lays golden eggs. Don’t tax the services sector. Give them a tax holiday for up to five years. And if the govern- ment needs to tax them, then service providers should be charged a tax of 4% to 5% only. shakti@thedollarbusiness.com Top services exporters & importers in the world US was the biggest exporter & importer of services in 2013 TDB: The last foreign trade policy did not have much on offer for the ser- vices sector. For instance, an incen- tive scheme such as the Focus Market Scheme had the services sector exclud- ed in toto. Are we really incentivising the services sector? SG: No, we are not incentivising the ser- vices sector! And this is not a personal issue for me or FIEO. It is an issue for the 300 million people living below the poverty line. Until now, our foreign trade policy was being dictated by lobbyists. What was happening was that Indian goods were being discouraged and for- eign goods were being encouraged. We did not have a nationalist foreign trade policy and it only served vested interests. Our policies have been encouraging peo- ple to become importers instead of man- ufacturers and exporters. 800 TDB: Across which markets can India’s services exports be promoted? SG: Our main markets are USA, UK, Germany and Sri Lanka. But I believe, we should also focus on the Middle East and China too. Today, if we build on China alone, then we can get huge business from the market. Tourists from China are keen to visit India, but lack of Chinese-speaking guides is a deterrent. 700 600 500 400 300 200 TDB: The government has been try- ing to promote ‘Served From India’ (Scheme) both as a brand and a pol- icy. Do you think enough is being done in this regard, especially with the SFIS Duty Credit Scrip being made 100 0 USA China France Germany UK India Russia Spain Japan Singapore purba@thedollarbusiness.com Exports Imports Source: International Trade Centre; figures in $ billion 76 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 77

  41. POLICY FOCUS POWER EXPORTS POWER DIPLOMACY GONE HAYWIRE! If you are being tormented by frequent power cuts this summer, add our government’s generosity to Bangladesh to your curse list. For a country, with more people without power than the entire population of the US, does it really make sense to export power? And that too at subsidised rates? BY SATYAPAL MENON C or not, power deficit India is also a power exporter. Call it misplaced or displaced priorities, or attempts to position India as a regional powerhouse, our policy- makers have, what in their view is dip- lomatic altruism, opened up power lines to Bangladesh. Diplomacy and helping one’s neighbour is unquestionable, but shouldn’t one put one’s house in order first? Sharing what one has in surplus is always welcome, but what is incompre- hensible is the rationale behind export- ing power, when India itself is countering chronic crisis and consistently rationing its power resources. all it serendipitous, but it’s defi- nitely not a coincidence! Even while writing this piece on power exports, there are series of agonising power cuts. Well, believe it will be supplied to Bangladesh. Apart from this commitment, there are also plans to augment the power supply to 1,500 MW within the next few years. The big question here is, can India afford these exports? Scarcity and short- ages of power have impacted the Indian economy and dealt debilitating blows to both the industrial and agriculture sec- tors. If the initial decision exposed a lack of insight, the proposal to increase the quantum reflects policy fallacy . HUNGRY NUMBERS India is the world’s 5th largest producer and consumer of power, accounting for 3.4% of global energy production. It is also a country with shockingly low per capita power consumption – per cap- ita power consumption in India, at 684 units, is about 95% lower than that of USA. About 25% of our populace, i.e., about 300 million people do not have access to power. According to a report titled ‘Shackling India’s Growth Story’ by Federation of Indian Chambers of Commerce and Industry (FICCI), power demand in India has been growing at an annual rate of 3.5% for the last three de- cades and is expected to grow at a much SOUR DEAL Power flow to Bangladesh, through the 125-km Baharampur-Bheramara trans- mission link between the grids of the two countries, became operational last Octo- ber. According to the arrangement, 250 megawatt (MW) of power from Indian central government’s unallocated quota and 250 MW more from a private firm High voltage transmission towers like these carry power across the border to Bangladesh from Indian central government’s unallocated quota. Bangladesh started drawing power from Indian grid on October 1, 2013 through a 125-kilometre high-voltage transmission line between Baharampur in West Bengal (India) and Bheramara in Kushtia (Bangladesh) 78 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 79

  42. POLICY FOCUS POWER EXPORTS Targets & achievements: Apr-Feb FY2014 Robust thermal power production helped achieve the target 12th Plan targets & achievements India plans to produce 90,000 MW power in the 12th Plan In fact, this perpetual story of shortage continues despite a 10% annual growth in installed capacity in recent years. The all-India installed capacity as of Febru- ary 2014 was 1,63,304.99 MW of ther- mal, 4,780.00 MW of nuclear, 40,195.40 MW of hydro and 29,462.55 MW of re- newable power. due to power cuts. The highest cost esca- lation was observed in Andhra Pradesh, Tamil Nadu and Odisha, where cost es- calation extended beyond 30% for a few firms. The study further adds that if the firms do not rely on power backup units to en- sure continuous production, 61% of the firms would experience over 10% short- fall in production. According to the re- port, 21% of the surveyed companies ex- perience more than 30 hours, 16% from 6 to 10 hours and 15% from 1 to 5 hours of power outage every week. In fact, In- dia loses $68 billion in terms of GDP due to electricity shortage. For instance, the Rs.13,000 crore knitwear industry at Tirupur in Tamil Nadu is witnessing an uptick in enquiries and orders, but it is unable to accept all orders. Reason: un- precedented power cuts lasting 8 to 10 hours a day. Power shortage and deficiencies have also adversely impacted the agriculture sector, which has been deprived of even minimal needs. A majority of rural ar- eas across the country are subjected to chronic shortages, affecting the produce IN FY2014, INDIA HAD A SHORTFALL OF 42,428 MUs OF POWER, WHICH IS EXPECTED TO RISE TO 53,515 MUs IN FY2015 16,000 80,000 14,000 70,000 12,000 60,000 10,000 50,000 8,000 40,000 NON SPARED According to a FICCI commissioned survey conducted by Bureau of Research on Industry & Economic Fundamen- tals (BRIEF) on the impact of intermit- tent power cuts and shortages in supply on the industrial sector, 39% of Indian companies were found to be requir- ing 10,001-50,000 KWH, 29% needing 50,001-1,00,000 KWH, 26% requiring 1,00,001-5,00,000 KWH and 6% requir- ing more than 5,00,000 KWH power every month to maximise output and production. To avoid shortfall in pro- duction, companies use power backup units, which ultimately increase their cost of production/operations. The study reveals that 61% of the companies are burdened by over 10% cost escalation 6,000 30,000 faster pace over the coming decades. During FY2014, the demand for pow- er was 10,02,257 million units (MUs) against a supply of 9,59,829 MUs – a shortage of 42,428 MUs. While the peak demand was 1,35,918 MW, the availabili- ty was 1,29,815 MW – a shortage of 6,103 MW. According to Load Generation Bal- ancing Report (LGBR), India is expected to experience a peak shortage of 2% and energy shortage of 5.1% during FY2015. Against requirements of 1,048,672 MUs, the availability would be 9,95,157 MUs, resulting in a shortage of 53,515 MUs. The peak availability would be 1,44,788 MW against a demand of 1,47,815 MW, resulting in a shortage of 3,027 MW. 4,000 20,000 2,000 10,000 0 0 THERMAL Target HYDRO NUCLEAR TOTAL THERMAL HYDRO NUCLEAR Achieved Target Achieved Source: Ministry of Power; figures in megawatt (MW) and productivity. In fact, the installed capacity registered a growth rate of 10% during FY2014. Al- though India is well endowed with coal resources, the country’s coal based plants are not generating power in accordance with the installed capacities. The plant load factor or the actual generation has been consistently between 70-73% of the total thermal installed capacity. Par- adoxically, coal-based plants are being operated with imported coal since coal produced in India does not meet the standards required for power genera- tion. Apart from these factors, India also has had to import natural gas to operate its gas-based plants. The performance of hydro-electric plants are also subjected to the vagaries of monsoon and avail- ability of water. This is where our neighbours can chip in. India can use its thermal power in- frastructure to its full capacity by im- porting natural gas and the right quality of coal from its neighbours. It can also contribute its expertise in constructing infrastructure for power generation, both thermal projects and hydro-elec- tric projects – like in the case of Bhutan. According to a Ministry of Power report, “because of low electricity per capita consumption in India, the country is going to achieve surplus electricity gen- eration during the 12th plan period pro- vided its coal production and transport infrastructure is developed adequate- ly. Surplus electricity can be exported to neighbouring countries in return for natural gas supplies from Pakistan, ACCORDING TO A FICCI REPORT, INDIA LOSES ABOUT $68 BILLION WORTH OF GDP EVERY YEAR DUE TO POWER SHORTAGE WHO’S COMMITMENT? Currently, India is exporting power to Bangladesh at 7 taka or Rs.5.4/unit. The consideration appears neither viable nor profitable. If one looks at power tariffs in India – avg. price of Rs.9.85/unit in Maharashtra, Rs.8.15/unit in Andhra Pradesh, Rs.8/unit in West Bengal, Rs.6.95/unit in Kerala – one can’t help but get the feeling that supplying power to Bangladesh is nothing but extending subsidies across the border. Perhaps, in the long term, if and when India becomes a power surplus country, we can afford such largesse. National Thermal Power Corporation (NTPC), one of India’s largest power producers, which has been asked to meet the pres- ent commitment to Bangladesh, has al- ready expressed its strong reservations about augmenting supplies at the nego- tiated prices. Bangladesh and Myanmar. Bangladesh, Myanmar and Pakistan respectively have proven natural gas reserves of 184 billion cubic meters (BCM), 283 BCM and 754 BCM. There is ample opportunity for mutually beneficial trading in energy re- sources with these countries. India can supply its surplus electricity to Pakistan and Bangladesh in return of natural gas imports by gas pipelines. Similarly, India can explore scope to develop, on BOOT (build–own–operate–transfer) basis, hy- dro power projects in Nepal, Myanmar and Bhutan. Long-term power purchase agree- ments with China for developing the hydro power potential in Brahmaputra basin of Tibet region could prove to be another viable initiative. There is ample trading synergy for India with its neigh- bours in securing its energy require- ments but they have to be explored with proper planning – not in the way Bangla- desh is being provided subsidised power by keeping India in darkness. Breakup of all India installed capacity Power production in India is still dominated by government agencies Electrical substations like the one shown here are used to ration power to Indian households and com- mercial establishments 29% 33% 38% Central State Private THE OTHER ONE There is an alternative and a more feasi- ble plan on the anvil though – a takeoff from the success of Bhutan’s hydro-elec- tric projects. The success of the Bhutan model is a classic case in point under which India had constructed two 2,600 MW capacity hydro-electric projects in Bhutan, which are being used for redi- recting or exporting 4,800 BUs to India after meeting local demand. India has been consistently upgrading and augmenting its generating capacity. Source: Ministry of Power; breakup for FY2014 satyapal@thedollarbusiness.com 80 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 81

  43. POLICY MONITOR R. RAMESH KUMAR, EXECUTIVE DIRECTOR, COUNCIL FOR LEATHER EXPORTS for exporters of hides, skins and leather as well as those for value-added products as they depend on many factors. In the case of hides, skins and leather, we have to look into the type of hides or skins, i.e., whether they are raw, semi-processed or finished. Similarly, the price will dif- fer depending on the origin of the skin/ hide. In case of value-added products, margins depend on whether the product is in the lower range, middle range or is supplied to the higher end of the market. leather and leather products is directed to Europe and USA. Our main competi- tors in these two major markets are Chi- na, Vietnam, Pakistan (particularly for leather garments), Bangladesh (when it comes to footwear), Thailand, and Cam- bodia. While our market share in Europe is about 4.5%, in USA it is about 1.4%. Hence, there is a lot of scope for further increasing our market share even in these traditional markets. “EXTENSION OF EXCISE DUTY EXEMPTION WILL SURELY BOOST LEATHER EXPORTS” WE ARE NOW EXPLORING NEW MARKETS IN THE ASIA-OCEANIA REGION FOR ENHANCING OUR EXPORTS TDB: What kind of incentives do you think are being provided by govern- ments of such competing nations that are exporting to USA and Europe? RK: The governments of competing countries must be providing export in- centives. Bangladesh, for example, ben- efits from the status of “Least Developed Country” because of which it enjoys zero import duty or higher concessional duties. Similarly, it is learnt that the Eu- ropean Union has offered Generalised Scheme of Preferences (GSP) and other benefits to Pakistan, on account of which it might be having an edge. TDB: Hong Kong is the top destination for Indian leather but it doesn’t figure anywhere when it comes to leather goods. Is it a function of demand or are we losing out to competition? RK: Competition is a major factor. Hence, we are also looking at other po- tential markets in the Asia-Oceania re- gion including Japan, Australia and New Zealand for enhancing our exports. In- dian exporters are regularly participat- ing in leather exhibitions (Asia Pacific Leather Fair) organised in Hong Kong. Besides, we had recently organised the visit of one delegation to Australia and New Zealand to tap into those markets. We are also planning to send delegations to countries like Vietnam and South Ko- rea to discover new possibilities. countries in the coming years. TDB: Excise duty on machinery and equipment that the leather industry uses was cut in the last Budget. How has it helped the margins of leather goods manufacturers? Do you expect these measures to be extended further in this year’s Budget? RK: The extension of the excise duty re- duction will definitely help modernisa- tion of the leather industry and in turn boost exports. We hope the government extends it. TDB: What kind of a growth can we ex- pect if the government gives its nod to your other demands like enhancement of duty credit and implementation of 3% interest rate subvention scheme? RK: The industry is targeting 20% export growth this year. If the government gives a go-ahead to our demands, exports will definitely get a further boost. TDB: Asian countries still don’t figure among the top destinations for Indian leather and leather goods. Is it an un- tapped market or is demand in these countries generally low? RK: We are looking at countries like Japan, South Korea as well as the Middle East as future markets for Indian leather products and footwear. We hope that the Indian leather industry is able to consid- erably increase its market share in these Coveting popular attention isn’t always about a vanity play. Not in the business of leather exports. Despite a slowdown in the global economy, leather exports from India have surged in recent times. And at the forefront of this revolution is R. Ramesh Kumar, Executive Director, Council for Leather Exports (CLE). In conversation with The Dollar Business, Ramesh Kumar dwells in depth about factors that enabled the leather industry to weather storms in the last five years TDB: Indian leather goods are most- ly exported to Europe and USA. Who, according to you, are our main com- petitors and what is India’s share in the total imports by these two markets? RK: About 75% of India’s export of INTERVIEW BY JAYASHANKAR MENON jay@thedollarbusiness.com India’s leather & leather goods exports Leather exports has been growing at a CAGR of about 8.54%* Destination for Indian leather goods Germany is the biggest market for Indian leather 7% Breakup of Indian leather goods exports Indian exports are dominated by jackets & jerseys 7% TDB: How would you summarise India’s exports of leather in the last fiscal? Which product categories gave an impetus to exports? RK: The industry achieved an all- time high export value of $6 billion in FY2014 – a growth of about 17.6% as compared to the previous year. This has been achieved despite several challeng- es, particularly high cost of essential raw materials and intense competition in the global market. In fact, all prod- uct segments, except leather garments, achieved an export growth rate of more than 13% in FY2014. In case of leather think has been the reason? RK: As far as exports growth in quan- tity terms is concerned, one has to look into the adverse impact caused by the global economic recession of 2008-09, which significantly reduced the demand for leather products and footwear. This might be one reason for uneven growth rates in quantity terms. garments, the growth was comparatively lower at 5.37%, which can be attributed to competition from the emergence of al- ternate synthetic and PU (Polyurethane) garments. However, the leather garment segment has now adopted combination garments, i.e., garments made of leath- er in combination with synthetic/textile items. This is in tune with market re- quirements and we are hopeful that ex- ports will get a boost in FY2015. 2,500 2,000 17% 16% 1,500 36% 40% 7% 1,000 21% 17% 11% TDB: What kind of margins are avail- able to those who export leather skins and hides as compared to those who export leather goods? RK: It’s difficult to figure out the margins 500 12% 9% Wallets &Purses Other handbags Other France Spain UK Germany USA ROW Ladies handbags Jackets&Jerseys Industrial gloves 0 TDB: Growth of leather exports from India, in volume terms, has been errat- ic over the last five years. What do you FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Raw Hides, Skin and Leather Leather Goods Source: Ministry of Commerce; $ million (*Last five years) Source: Ministry of Commerce; breakup for FY2014 82 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 83

  44. PRIME FOCUS TRIPS T mia (CML), a cancer of the blood that leads to unregulated production of white blood cells (WBC) in the bone marrow. As days passed, paying for existing drugs was turning out to be an almost impos- sible task. One morning, his mother’s oncologist broke the good news that a better drug – Imatinib Mesylate that had the potential to completely cure her – was available in the market. The bad news: its price was way beyond Gupta’s reach. Gupta felt the kind of empty help- lessness that a typical breadwinner in a middle-class family in the developing world. with a cancer patient experiences. He surrendered everything to fate. Days later, a miracle occurred. Gup- ta recalls that day still. A family mem- ber informed him that a substitute drug from Natco Pharmaceuticals (a generic drug maker) had become available in the market. And that it was ‘the’ solution. The year was 2003. Then, Novartis, the Swiss pharma giant, had just won the exclusive marketing right (EMR) for Imatinib in India under the brand name Gleevec and had priced it at about Rs.1,20,000/month (for a standard dose of 400 mg) – way beyond Gupta’s budget. But then, overnight, Natco started selling a generic version of Imatinib, under the brand name Veenat, at 1/10th the price and Gupta’s mother got a new lease of life. “Thanks to Natco, my mother is alive today,” Gupta tells The Dollar Business. en years ago, Dinesh Gupta, was running from pillar to post to meet the mounting medical bills of his mother who was suffering from chronic myeloid leuke- Medicine tablets being manufactured at Salu- tas Pharma GmbH, the largest production plant of drugmaker Sandoz. The comany produces more than 27 million tablets and capsules every day at its manufacturing plant in Saxony-Anhalt, Germany WHILE DEVELOPED COUNTRIES WERE GIVEN ONE YEAR TO ADHERE TO TRIPS, DEVELOPING COUNTRIES WERE GIVEN FIVE YEARS Assembly line production has significantly improved the speed and cost of making medicines lectual property (IP) experts Anthony F. Baldanza and Charles Todd, “IP laws guarantee an absolute right to the cre- ator and owner of a work. They also prevent the commercial exploitation of someone’s innovation and research. However, this legal monopoly sometime leads to absolute market dominance and monopoly as defined under competi- tion laws.” And when this advantage or dominant position is abused by some- one, it creates a conflict between IPR and competition law. Applications under Patent Cooperation Treaty (PCT) Electrical machinery and apparatus applications were the highest in 2013 Top applicants under Patent Cooperation Treaty (PCT) In 2013, most patent applications came from US and Japan 13% BY SISIR PRADHAN 23% 25% 29% Innovation is at the heart of trade and commerce. And protecting innovations is Trade-Related Aspects of Intellectual Property Rights (TRIPS). While there are contentious issues that need to be sorted out, there is no denying that protecting intellectual property is the only way to encourage innovations 19% THE INDIAN VERSION The Indian Parliament passed the Pat- ents Act in 1970, which restricted prod- uct patents and also reduced the time involved in getting process patents ap- proved. Before the Patents Act, medi- cines in India were among the costliest in the world. But even though India had a proper patent law, Indian companies were not very proactive in protecting their business interest before it signed the WTO agreement in 1995. While joining WTO, India asked for time to amend its patent law in order to comply with the TRIPS (Trade Related Aspects of Intellectual Property Rights) agree- ment in a phased manner. In 1999, India allowed transitional fil- ing of product patent applications, with retrospective effect from 1995. Full prod- uct and process patent protection was re-introduced beginning 2005, when all transitional regulations ended. Big pharma has often criticised Indian patent laws, which it claims don’t protect its IPRs. It is a fact that many domestic pharma companies did brazenly produce generic equivalents of expensive drugs until 2005, when India amended its pat- ent law. The new law (that exists today), 6% 23% 9% 21% 22% 10% SECURING INSECURITIES Electrical machinery Computer technology Digital communication Medical technology Measurement USA Japan China Germany South Korea Rest Source: WIPO; Breakup for CY2013 Source: WIPO; Breakup for CY2013 low WTO members. The WTO has also made provisions to resolve disputes un- der the Dispute Settlement Body. When the WTO agreement came into effect on January 1 1995, developed countries were given one year to ensure that their laws and practices conformed to the TRIPS agreement. Developing countries and (under certain conditions) transi- tion economies were given five years un- til 2000. Least-developed countries, on the other hand, had 11 years until 2006, which was extended to 2013 in general and to 2016 for pharmaceutical patents and undisclosed information. amending India’s Patent Act, ratifies in- novations in all spheres – from machin- ery to software and medicines. However, it allows making and selling of all generic drugs, which had been approved in India before 2005, provided the seller pays li- censing fees to the patent holder. IT’S MONEY, HONEY Gupta’s mother is one of the few thou- sands who have managed to live longer because companies like Natco manu- facture generic versions of anti-cancer drugs and sell them at a fraction of the original drugs’ price. But such emotions do not persuade companies to wash their hands off a potential treasure formula. Novartis is a case in point. After all, the millions of dollars invested in the research of Imatinib cannot be written off with a smile, no matter how human- itarian it might sound. Generic versions are a pureplay nightmare for companies like it. [It’s worth noting that in Novartis’ product portfolio Gleevec is one of the biggest revenue earners, with a contri- bution of $4.69 billion to its total global sales of $57.90 billion in CY2013.] Los- ing patent rights in a country with over 1.2 billion people is in any case bad news for a patent-lover. [The Supreme Court of India ruled in favour of Natco in its war against Novartis through a 2013 rul- ing.] In international trade, a patent holder has the sole right to manufacture a prod- uct and export it to regions where its pat- ents are effective. It also has the power to prevent the import of cheaper versions of its products from outside. It’s worth noting that the Indian pharma industry exported around $11 billion worth of medicines in FY2013. More significantly, emerging markets like Africa, home to the most number of HIV/AIDS affected people, imported $2.7 billion worth of medicines from India in FY2013 – about 17% of the region’s imports of $15.4 bil- lion. [Novartis, in its 2013 Annual Re- port, has forecasted that in 2014, it will lose $3 billion to generic erosions as compared to $2.2 billion in 2013.] According to Toronto-based intel- THE GLOBAL PICTURE The scope of protection and enforce- ment of IPRs vary from country to country. The primary goal of TRIPS is to narrow the gaps in the way these rights are protected around the world and to bring them under common internation- al rules. It establishes minimum levels of protection that each government has to give to the intellectual property of fel- ARE WE THERE YET? In a bid to comply with the WTO agree- 84 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 85

  45. PRIME FOCUS TRIPS Top applicants under PCT (company) Panasonic filed 2,881 patent applications in 2013 3,500 3,000 2,500 2,000 A woman worker picking tea leaves at an estate in Darjeeling. India spends crores of rupees every year to prevent misuse of the ‘Darjeeling’ brand 1,500 1,000 500 0 Panasonic ZTE Huawei Qualcomm Intel Sharp Robert Bosch Toyota Ericsson Philips The production line of a pharmaceutical company. Drug patents have been at the heart of several controversies ment on TRIPS, the then Congress gov- ernment managed to pass the amended patent bill in 2005 despite strong opposi- tion from the main opposition NDA and other international bodies. Following the amendment, India faced criticism both at home and abroad. International non-government organisations like Ox- fam International and Doctors Without Borders said the new law will put an end to the development of generic drugs, the impact of which will be felt globally. Fol- lowing mass opposition to the new law, the then Commerce & Industry Minister Kamal Nath, in a clarification, had said, “I have ensured that all flexibilities that are permissible are taken advantage of. If any upsurge in prices come to notice, the government will deal with it.” Besides, India’s traditional knowledge will be protected as plants cannot come under patents, he added. Following reports of patents being filed for traditional Indian products (USFDA). Under the Drug Price Com- petition & Patent Term Restoration Act (the Hatch-Waxman Act), a company can seek USFDA’s approval to market a generic drug before the expiration of a patent relating to a branded drug. The first company to submit an Abbreviated New Drug Application (ANDA) with the USFDA, gets the exclusive rights to mar- ket the generic drug for 180 days. Dr. Reddy’s also became the first In- dian company to receive a 180-day mar- keting exclusivity in US for Fluoxetine capsules (an antidepressant) on August 2, 2001. “180 days is a good enough time for a generic drug manufacturer to earn a handsome profit in US. As per insurance agreements in US, doctors are bound to prescribe the cheapest available drug in the market, thereby helping the cause of Indian companies,” Dr. V. C. Vivekanan- dan, Intellectual Property Chair Profes- sor at Hyderabad based NALSAR Uni- versity of Law, tells The Dollar Business. and plants with medicinal values, In- dia launched a Traditional Knowledge Digital Library (TKDL) to electronical- ly document its exhaustive list of tradi- tional knowledge such as Ayurveda. The database has 34 million pages of infor- mation in five international languages in searchable formats and has been shared with patent examiners all over the world. Source: WIPO; figures for CY2013 Top Indian applicants under PCT The IITs are at the forefront of filing patent applications 80 70 60 50 40 GENERALLY GENERIC The Indian pharma industry has earned a name for itself all over the world for its expertise in reverse-engineering new processes for manufacturing drugs at low costs. However, over a period of time, companies like Dr. Reddy’s, Ran- baxy, Aurobindo Pharma, Sun Pharma and Natco have worked towards drug innovations as well. The Hyderabad-based Dr. Reddy’s was the first Indian company to file Para- graph IV Drug Product Application with the US Food & Drug Administration 30 20 10 0 CSIR IITs Cadilla Healthcare Lupin Research Foundation Ranbaxy Tejas Networks TCS Ineda Systems Dr. Reddy’s Source: WIPO; figures for CY2013 OTHERS ARE WAKING UP Other sectors in India are also, slowly but surely, realising the importance of investing in R&D and protecting their IPRs. MNCs like TCS that gets a major share of its revenue from international markets, understand the importance of securing their IPRs. For instance, TCS, in 2011, received ISO 27001 certifica- tion, the highest internationally accept- ed standard for Information Security Management Systems (ISMS). TCS was one among just 300 companies to have earned this certification then. In its FY2014 annual report, TCS has men- tioned that it has filed 1,746 patent appli- cations, of which, 114 have been granted. BHEL, which exported goods worth Rs.438.68 crore and gained export in- centives of Rs.24.26 crore for foreign exchange earnings of Rs.12,357 crore in FY2013, has also started investing in subsequently if companies don’t cut their prices down, competitors will find ways to make the product available at a low- er price. The original inventor should always obtain a patent to safeguard the business interest, however no govern- ment will allow the patent holder to gain from creating a monopoly, particularly when people’s lives are at stake.” IP has facets to it. In the developed world, it is used as a medium to gain competitive advantage, generate reve- nue from licensing fee and royalty, swap patents like a trade and/or prevent competition. In the developing world, the jury is still out. But, as competition intensifies, TRIPS will have an ever bigger role to protect interests and provide a level-playing field to all stakeholders. protecting its IPRs. The public sector unit invested Rs.1,252 crore on R&D in FY2013 and filed for 385 patents and copyrights during the year. The Tea Board of India and the Dar- jeeling Planters Association have also been fighting hard to prevent misuse of the word ‘Darjeeling’ for other types of tea. For this, the Tea Board has, since 1998, hired the services of CompuMark, a global trademark research and brand protection solutions provider. Year-wise IP fillings from India Applications from India have grown 300% in the last decade 20,000 18,000 16,000 14,000 NOT THE FINAL WORD “India’s IP laws are still at an evolving stage and we are also learning from ex- perience,” says Dr. Vivekanandan. Similarly, commenting on the post- TRIPs scenario, Pharmexcil Regional Director K. Subbi Reddy tells The Dol- lar Business, “If a product is an essential commodity then volumes will grow and 12,000 10,000 8,000 6,000 4,000 2,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 A fully automatic filling and sealing machine at the manufacturing plant of a pharmaceutical company sisir@thedollarbusiness.com Source: WIPO 86 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 87

  46. latest and the best in industrial automa- tion solutions covering all the aspects of factory, industrial building and produc- tion & process automation for industrial manufacturing as well as engineering & maintenance services from individu- al components to complete automation solutions www.fair.cbd-china.com Asia’s leading trade fair for building deco- ration is expected to attract around 2,600 exhibitors, who will showcase various products related to interior design, deco- ration and household commodities. The organisers are expecting 1.3 lakh visitors during the four-day event this year INNOPROM 2014 July 9 – 12 Ekaterinburg, Russia www.innoprom.com Innoprom is a large-scale internation- al industrial exhibition annually held in Ekaterinburg, Russia. The event is dedi- cated to intelligent technologies, materi- als and solutions. It provides a platform to demonstrate solutions for production modernisation and technologies that increase efficiency, and improve per- formance of manufacturing processes. Representatives from about 30 coun- tries, including commercial enterprises and governmental institutions are ex- pected to attend the expo this year ASEANMACH July 16 – 19 Kuala Lumpur, Malaysia www.oneinternational.com.my Malaysia’s first and only heavy machin- ery and equipment exhibition dedicated to construction, mining and infrastructure sector is expected to attract industry ex- perts, investors, manufacturers, distribu- tors and buyers from around the world A visitor checking out products at last year’s Stainless Steel Housware Show MEDIA EXPO DELHI–2014 Aug 1 – 3 New Delhi www.themediaexpo.com A trade exhibition dedicated to indoor and outdoor advertising and signage solutions. The event provides network- ing opportunity between exhibitors and visitors from all over Asia and other parts of the world less Steel Houseware is dedicated to the domestic stainless steel housewares industry and has turned out to be a re- sounding success, with over 5,000 par- ticipants at the last event Have a product to showcase? Or want to learn what your rivals are up to? Here’s a list of Indian and foreign trade fairs you shouldn’t miss in July and August 2014 [Global] WWD MAGIC August 18 – 20 Las Vegas, USA www.magiconline.com/wwd-magic Founded in 1933, the event is one of the largest fair on apparel and accesso- ry trade in the US. The event provides a platform to connect with international buyers and sellers of men’s, women’s, and children’s apparel and accesso- ries. Every year, thousands of retailers spanning single store boutiques to mass market domestic chains come to the fair to access more than 4,000 manufacturers showcasing over 5,000 brands and private label resources LUXURY CHINA July 4 – 6 Beijing, China www.luxurychina.com Every year, Luxury China attracts over 300 international high-end brands from over 20 countries, including Italy, Swit- zerland, France, the US, Germany, and Spain. The event is slowly emerging as the mecca for sports car, private yacht, jewellery, watches, and luxury furniture, art, and wine enthusiasts from all over the world [India] dia 2014. Last year, the show had seen participation from over 70 exhibitors, 150 delegates and over 4,000 industry pro- fessionals GIFTS WORLD EXPO DELHI - 2014 Aug 1 – 3 New Delhi www.giftsworldexpo.com The Rs.1,000 crore Indian gift industry is highly complex and varied. This niche market is gradually shifting towards a more year round business which is col- laborating corporates, business profes- sionals and retailers. Gifts World Expo is a one-stop solution for gifts, souvenirs, premiums, novelties, mementos and keepsake AGRI INTEX 2014 July 18 – 21 Coimbatore www.agriintex.codissia.com South Asia’s largest international agricul- ture expo, Agri Intex had last year seen participation jump to 1,23,159 people. A unique opportunity to listen to eminent scientists and industry professionals, the event also provides a common platform to retailers, wholesalers, distributors and farmers from the whole of South India. and international An Eicher truck on display at IITLS 2013, which is held concurrently to IWS INDIA WAREHOUSING SHOW 2014 July 8 – 10, New Delhi www.indiatransportlogistics.com An annual opportunity for warehousing, material handling, storage, AIDC, in- tra-logistics, supply chain and transport & logistics industry professionals to meet visitors from various end-user industries, last year, the show had hosted over 160 companies including participants from India and represented companies from China, Italy, Germany, Japan, Middle East, Taiwan and US, together with 8937 trade visitors from all over the world. 16TH CHINA INTERNATIONAL BUILDING DECORATION FAIR July 8 – 11 Guangzhou, China MEDICALL 2014 Aug 1 – 3 Chennai www.medicall.in Medicall is India’s premier hospital needs and equipment exposition and the big- gest of its kind in India and was started with the idea of promoting entrepreneur- ship amongst the medical fraternity. The event brings the latest, appropriate and affordable technologies, for the benefit of all hospitals including smaller hospitals, clinics, nursing homes and physicians setting up group practice FARM PROGRESS SHOW - 2014 August 26 – 28 Boone, United States www.farmprogressshow.com This exhibition on outdoor farm equip- ment aims to provide an interactive ven- ue for North American and international farmers, agribusiness officials and agri- culture companies to network, gain infor- mation, and conduct business. The show hosts around 600 exhibitors and over 1,00,000 attendees during the three-day event. Attendees can obtain information to make well-informed purchasing deci- sions, and explore the latest agriculture products and technologies A conference in progress at lNNOPROM - 2013 in Russia AMTEX 2014 July 25 – 28 New Delhi www.amtex2014.com After a one year hiatus, AMTEX is back to offer a unique platform for all stake- holders in the machine tools industry. In 2012, the fair was inaugurated by the then Corporate Affairs Minister Dr. Veer- appa Moily and had seen participation from over 40,000 business visitors from 14 countries like China, South Korea, USA, Singapore, Israel, Malaysia and Japan. OSH INDIA July 17 – 18 Chennai www.ubmindia.in/osh_india/home Discover the latest technologies, inno- vations, trends and developments in the Indian fire and safety industry at OSH In- INDIAN STAINLESS STEEL HOUSEWARE 2014 Aug 14 – 17 Mumbai www.inoxhousewareshow.com The first of its kind show, Indian Stain- AUTOMATION ASIA-2014 July 25 – 28 New Delhi www.automationasia2014.com The exhibition promises to showcase the Log on to www.thedollarbusiness.com for more events and details. A visitor standing next to a sportbike at Luxury China - 2013, which is slowly emerging as the go to destination for luxury goods enthusiasts all over the world 88 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 89

  47. RENDEZVOUS YADUVENDRA MATHUR, CMD, EXIM BANK “BORROWING LIMIT HIKE WILL HELP US FUND LARGE VALUE PROJECTS OVERSEAS” Commencing operations as a purveyor of export credit, like any other export credit agencies in the world, Export-Import Bank of India (Exim Bank) has come a long way since its inception in 1982. It has not only been a catalyst in the promotion of cross-border trade and investment, but has also managed to integrate the country’s foreign trade with the overall economic growth. In a freewheeling interview with The Dollar Business, Yaduvendra Mathur, Chairman & Managing Director of Exim Bank, talks about how the institution can far better and effectively serve the interests of large Indian projects – spanning railways, roads and power sectors – in neighbouring nations and Africa INTERVIEW BY JAYASHANKAR MENON TDB: Exim Bank has the mandate to support and take for- ward India’s foreign trade. How, according to you, has been the progress so far, and what is your vision for the institu- tion’s role in India’s global leadership? YM: Exim Bank as an institution is well-geared towards ac- commodating the needs of the changing times. The institution has been in business as India’s premier export credit agency for more than three decades and has been conscious in its endeav- our towards promoting development assistance. However, we have realised that current norms restrict Exim Bank’s funding to a single project to up to Rs.1,200 crore because of which it cannot lend to large-value projects, especially those related to railways, roads and power sectors. Such Indian projects are in demand in many neighbouring countries as well as some de- veloping countries in Africa. Exim Bank therefore has asked the government for a 50% increase in the borrowing limit to 15 times of its net owned fund. Besides this, we have also asked for a $10-billion line of credit from forex reserves to support high value project exports from India. We hope that with these changes we will be able to better our mandate. TDB: In FY2013, the Exim Bank’s loan book grew by 20% but net non-performing asset (NPA) was at 0.47%. Last fis- cal, your loan book grew by 16% and net NPA dipped to 0.43%. At the current level of stress in the global economy, what kind of a loan book growth do you think will not im- pact asset quality? YM: Exim Bank’s net NPA as percentage of total advances was 0.29% as on March 31, 2012, which increased to 0.47% as on March 31, 2013. These figures are amongst the best in the in- dustry. Also, Exim Bank has 80% provision coverage, which is EXIM BANK HAS ASKED FOR A $10-BILLION LINE OF CREDIT FROM FOREX RESERVES TO SUPPORT HIGH VALUE PROJECT EXPORTS FROM INDIA 90 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 91

  48. RENDEZVOUS YADUVENDRA MATHUR, CMD, EXIM BANK also one of the best in the industry. Asset quality is a reflection of the problems faced by the industry due to a sharp slowdown in GDP growth and industrial production caused by a host of domestic and international factors, which are well known to all of us. Exim Bank’s clients are externally oriented. Prolonged re- cessionary trend in some of the advanced countries and unrest in the Middle East region, coupled with volatility in forex, had an adverse impact on some of the bank’s exporting customers. Added to this, the bank’s NPA problem has also been aggra- vated due to legal impediments and time consuming nature of asset disposal process. EXIM BANK PLANS TO ACHIEVE A 15% GROWTH IN ITS LOAN BUSINESS DURING FY2015. THIS WOULD BE FACILITATED THROUGH INFUSION OF ADDITIONAL CAPITAL FROM GoI TDB: Apart from Africa, which new locations and business lines do you find attractive? YM: Exim Bank’s Africa focus is largely because there exists opportunities for growth and there are less number of insti- tutions which are ready to participate in this opportunity. The bank is also in the process of designing a new business strategy over a 5-10 year horizon. Through our new strategy, we may consider looking into newer activities in sync with the govern- ment’s policies and vision, including diversifying export mar- kets and destinations. TDB: Which were the main sectors to which Exim Bank dis- bursed loans in FY2014? Are you planning to tap some new sectors this fiscal? YM: The top three sectors and their exposure as on March 31, 2014 were: Rs. 6,706.12 crore to ferrous metals and met- al processing – an exposure of 10.94%; Rs. 5,673.69 crore to EPC services (project exports) – an exposure of 9.25%; and Rs. 4,640.09 crore to textiles and garments – an exposure of 7.57%. Overall, exposures of Exim Bank are fairly well diversified since it finances a wide variety of industries. Notwithstanding this, it has always been Exim Bank’s endeavour to finance emerging enterprises and sectors. Thus, for instance, we were on the van- guard of financing software companies during the 1980s when the Indian software industry was at its infancy. Similarly, we were among the first to finance the film industry when it was granted industry status. So, tapping new and emerging sectors is an ongoing process for us. FOR ADVERTISING +91-40-6677 0765/66 ads@thedollarbusiness.com TDB: What are your targets for FY2015 and how do you plan to achieve them? YM: Exim Bank plans to achieve a 15% growth in its loan busi- ness during FY2015. This would be facilitated through infusion of additional capital from the Government of India (a provi- sion of Rs.1,300 crore has been made towards the bank’s recap- italisation in the Union Budget). This will enable the bank to enhance its headroom for borrowings and a suitable relaxation in the borrowing limit by RBI. www.thedollarbusiness.com TDB: What is your strategy to address issues like high cur- rent account deficit, sustaining inflation and a weak rupee that have been tormenting the Indian economy? YM: I don’t think that all these factors had a serious and sig- nificant bearing on Exim Bank. Rupee volatility has obviously been of concern, impacting both borrowing and lending oper- ations of the bank. Exporters, at the same time, were not able to hedge to that extent during the 2013 volatility cycle, which was triggered by the Fed’s announcement to taper its stimulative quantitative easing policy. As far as the current account deficit is concerned, it has shrunk from 4.8% to 2.3% of GDP because of administrative measures to curb gold imports as well as ro- bust export growth. TDB: What according to you should be the 10-point agenda of the new government to provide the much-needed impe- tus to the Indian economy? YM: The new government has been provided a historic op- portunity and I am confident that it will live up to the people’s mandate. If I have to suggest a 10-point agenda, it will be as fol- lows: 1) Taking immediate measures to boost the manufactur- ing sector in India; 2) Initiating steps to bring inflation under control to give monetary policy the room to support growth; 3) Resolving taxation issues and bringing clarity around tax laws; 4) Taking up implementation of the GST; 5) Giving much needed acceleration to all infrastructure projects; 6) Emphasis- ing on green energy and bringing it under priority sector lend- ing; 7) Focusing on regulatory reforms that will improve the ease of doing business, reduce transaction costs and expedite approval timelines; 8) Leveraging on Information Technology to make administrative governance in India transparent and stakeholders accountable; 9) India has not built a good city since independence. It is time that greater prospects are created in Tier-II and Tier-III cities so that the existing metros are not burdened; and 10) Initiating administrative reforms, particu- larly in police, judiciary, land acquisition and labour laws. TDB: Exim Bank is planning to set up a project development company with the African Development Bank. Can you give us details of the plan? YM: Exim Bank is almost at the final phase of setting up the Project Development Company (PDC) in Africa, in associa- tion with State Bank of India (SBI), IL&FS and African Devel- opment Bank. The new company will essentially look to bring infrastructure projects in Africa to a bankable stage and facil- itate exports from India to Africa. This is the first time Exim Bank is looking to set up a PDC. The PDC will look at large projects that will be built across two-three countries in Africa. jay@thedollarbusiness.com 92 THE DOLLAR BUSINESS II JULY 2014

  49. UNLOCKING CASH MARKET DEVELOPMENT ASSISTANCE FOR THAT HOME RUN India’s sports goods trade The gap has been widening over the last few years 600 500 400 Well known marketer Seth Godin has been famously quoted as saying, “Marketing is a contest for people’s attention.” But garnering people’s attention comes with a price, which at times is beyond the means of an entrepreneur who has just started. Trying to help Indian sports goods manufacturers overcome this hurdle is the Sports Goods Export Promotion Council. And how? By making best use of the Market Development Assistance (MDA) scheme I that can be seen even in 3rd and 4th gener- ation ‘People of Indian Origin’. Let’s take the case of Indian-Americans. A thriving community, it has produced some of the best doctors, lawyers and scientists for US. The dominance of Indian-Amer- icans in the spelling bee competitions in US is a part of folklore. However, the picture is completely different when it comes to American sports like ice hock- ey, basketball, etc which are very physical in nature. But with satellite TV becom- ing an integral part of modern life and liberalisation ensuring money flowing into sports, the mindset is changing. And changing fast. Unfortunately though, 300 200 100 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Exports Imports Source: Ministry of Commerce; figures in $ million BY PURBA DAS ndians have traditionally been known as people, who respect brain more than brawn. They take great pride is saying that theirs is a cul- ture of knowledge seekers – something the same can’t be said about our sports goods manufacturing and exports. WEAK HANDS Sports goods manufacturing in India is essentially dominated by small players – many of them in the unorganised sector based in tier II towns like Jalandhar and Meerut. So, when the seriousness with which Indians looked at sports started rising sharply, the need for high quali- ty sports goods also rose exponentially. And Indian sports goods manufacturers were found wanting to cater to this rising demand for top quality sports goods. The result? Massive rise in imports. So, from being a net exporter of sports goods un- til a decade back, India now runs a huge trade deficit – over $200 million for each of the last three financial years. Although Sports Goods Export Pro- motion Council (SGEPC) was found- ed way back in 1958, the need for it to pull up its socks was felt only recently, thanks to the rising deficit. And on its part, SGEPC has been trying to do its bit to support the sports goods man- ufacturing industry in India, at least in terms of them getting the attention they deserve. A sports goods manufacturing unit in Meerut, Uttar Pradesh. Jalandhar and Meerut account for 80% of India’s total production of sports goods COACH VS. PLAYER India is not a country which is anywhere close to being a sporting powerhouse. So, its but natural that even though compa- nies like the Meerut-based Bhalla Inter- national, which owns the Vinex brand; Sanspareils Greenlands, the popular cricket equipment manufacturer; and the Jalandhar-based Soccer Internation- al, a leading football equipment manu- facturer, are now manufacturing world class sports goods, the fact that they are based out of India weighs against them. And trying to to reverse or remove this handicap is SGEPC. It’s because of such grant provided un- der the MDA, large delegations of Indian and Focus (ASEAN + 2) programmes. (v) Residual essential activities con- nected with marketing promotion efforts abroad. As per the scheme, exporting com- panies with an FOB value of exports of up to Rs.30 crore in the preceding year are eligible for MDA assistance for participation in buyer seller meetings/ fairs/exhibitions abroad to explore new markets for export of their specific pro- duct(s) and commodities from India in the initial phase. This will be subject to the condition that the exporter has com- pleted 12 months membership with the concerned EPC and has filed whatever documents it’s supposed to file, regularly. sports goods manufacturers managed to attend three international sports goods exhibitions in FY2013 – two in Hong Kong and one in New York. Similarly, using MDA grant, a delegation of 12 Indian sports goods manufacturers are scheduled to attend buyer-seller meets in Brazil and Chile, later this year. Thanks to participation in such fairs, Indian sports goods exports increased by 20% in FY2014. And while imports still far outweigh exports, one hopes with SGEPC as a coach, players in the sports goods industry have set their sights on the goal. Will they be able to score? ing in right earnest to push the Market- ing Development Assistance (MDA) scheme of the Ministry of Commerce, which it feels will be of great help to Indi- an sports goods manufacturers. The aim of the scheme is to: (i) Assist exporters for export promo- tion activities abroad. (ii) Assist Export Promotion Councils (EPCs) to undertake export promotion activities. (iii) Assist approved organisations in undertaking exclusive non-recurring in- novative activities. (iv) Assist focus export promotion programmes in specific regions like Fo- cus (LAC), Focus (Africa), Focus (CIS) FROM BEING A NET EXPORTER A DECADE BACK, INDIA IS NOW RUNNING A $200 MILLION DEFICIT WHEN IT COMES TO SPORTS GOODS ALL ABOUT MARKETING In this endeavour, SGEPC has been try- purba@thedollarbusiness.com 94 THE DOLLAR BUSINESS II JULY 2014 JULY 2014 II THE DOLLAR BUSINESS 95

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While for Brussels this was part of its strategy to expedite multilateral trade liber- alization, for India it was more about development. In other words, New Delhi was looking at it (and has always been) as an accord that would help it achieve its developmental objectives through free trade and investments. It has more been than six years and fifteen rounds of talks since then, but the proposed FTA is still far from the finish line. Free movement of professionals, relaxing FDI limits, agricultural trade, protection of intellectual property rights and data security have been some real bones of contention, at times even signaling a collapse. However, both India and EU have failed to bridge the gaps on these critical issues. While EU has been demanding substantial duty cuts and tax reductions on several products (particularly automo- bile, spirits and dairy products) apart from a stronger in- tellectual property regime, India is asking EU to grant it the “Data Secure Nation” status that will have a bearing on IT companies wanting market access. With its combination of rapid growth, complementary trade baskets and growing bilateral trade, India is an obvi- ous partner for an FTA for EU. In fact, the 28-nations bloc has been one of India’s leading trade partners, accounting for over 15% of its total trade in goods and services. It’s not Coz you want to etch those moments forever Manish K. Pandey Editor, IF YOUR MORNING TEA IS INCOMPLETE WITHOUT The Dollar Business Your TV Brand THAT VIEW t was the year 2004 when European Union (EU) and India first realised the need of taking their ties to the next level. Idea was to forge a strategic partnership that would ensure mutual cooperation on a range of issues – from enhancing trade to free movement of professionals in the region, from government procurement to market access, and to even cultural exchanges. Not to With its combination of rapid growth, complementary trade baskets and growing bilateral trade, India is an obvious partner for an FTA for European Union For that life changing TRIPSTER journey LETTING YOU ON THE SECRET BEHIND THE WAUGHS, THE CHAPPELS AND THE WOODIES Smart TV has way you see “Your Brand” change the time you to arrived. It’s generation the world. The new A blissful marriage of health and taste only an important market for India’s exports of IT, textiles, pharmaceuticals, gems and jewellery, but also the biggest source of FDI flows into India, nearly 25% of the total. The value of EU-India trade has doubled in the last 10 years, from €28.6 billion in 2003 to €72.7 billion in 2013. The opportunities are alike for EU. India can offer a lot to European companies when it comes to multi-brand retail and insurance, and currently closed sectors like accountan- cy and legal services. If concluded, BTIA has the potential to increase the services (which has already quadrupled in the past decade, from €5.2 billion in 2002 to €22.5 billion in 2013) trade between the two manifolds. A trade agreement is always about give and take. And there is a constant arm wrestle. But then negotiations can’t go on forever. There has to be some re-balancing that the two do in order to arrive at an agreement. Indecisiveness would mean a big opportunity loss, for both India and EU, and that too at a time when trade agreements such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are moving glob- al trade away from MFN routes toward regional routes. Once concluded, EU-India BTIA will be the biggest free trade accord involving India, surpassing its FTA with the ASEAN countries. 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