Kochi calling- Winds of change?

A unifying theme will be the tension between two values; that of being scientific (scientificity) and that of relevance. These need not- and should not- be in conflict; an important goal for economics in the future is to bring them into better harmony. Circulating of the wagons was the creation of an outer circle of critics and dissidents: economists who thought of themselves as alternatives or heterodox. The outer circle, which contains many serious and creative thinkers, has continued to grow and pose serious challenges to the mainstream emphasis, assumptions, methods and conclusions.



Indian economy was opened up to the World 18 years ago. Tariffs were reduced, trade restrictions went down, and investment flows were allowed. This was the economic paradigm of 1991. India moved to progressive, transparent trade regime which stimulated strong increase in trade and investment.

Addressing a CII meeting, Mr Suresh Krishna, well known industrialist, recalled a visit to Wall-mart to know which are the Indian made items were on the shelf. He moved from rows to rows. He could find nothing. At last, in one of the rows, he found a Door mat costing$2 .40 cents (when 1$= Rs 13/-). That was the only Indian product that was sold in Wal-mart in the 90s. We can conclude, even ere liberalization, Coir Door Mats were popular in the United States. In the MBA syllabus, Door mat syndrome was a popular expression. In the entrance to any house, there was a door mat which was vividly used by the visitor, to dust his shoes, and then after entering, the services rendered by the door mat were forgotten. Many people use, but no recognition, that was door mat syndrome. In Kerala, almost 153 years ago, the coir industry took its formative birth, and grew itself as a traditional industry, and it did not mature as a vibrant modern industry. It is still traditional with obsolete machines.

India’s rates of taxation was the highest with each Finance Minister priding himself as an expert whose tally of taxation of different items should be higher than that of his predecessor. You have Personal Income Tax, Services Tax, professional Tax, property Tax, Motor Vehicles Tax, indirect taxes, and what not. The Central Excise tariff is difficult to comprehend, because the Finance Minister imposes Central Excise levy, but it becomes 0% because of a notification which has been issued by the Commissionrate of CE. There are some rates which are reduced by notification. There are certain items out of the tax net, but suddenly brought in. It is very difficult for the trader, to be a master of Central Excise formalities, procedures, and taxation. The Central Excise tariff codes are aligned to the ITC (HS) Codes at the six digit level, and Customs Tariff codes are aligned at the 4 digit level. In the 8 digit level ITC(HS) Code which is used by the shippers for shipping the goods, there are for some items, no entries, so they use the ‘Others’ category or the residuary category. Customs officials, do not part with the incentives meant for that product, because, ‘Others’ are not defined. The legal text of the Tariff consists of Sections, Chapters, Headings, Subheadings, subheading notes and the General Interpretative Rules (GIR). The Indian Customs Tariff has 21 sections and 99 chapters. A Section is a grouping together of a number of Chapters which codify a particular class of goods. The Section notes explain the scope of chapters / headings, etc. The Chapters consist of chapter notes, brief description of commodities arranged at four digit and six digit levels. Every four digit code is called a ‘heading’ and every six digit code is called a ‘subheading’. The 4 digit and 6 digit tariffs are approved by the World Customs Organization which meets in Brussels periodically, and there is an overhaul once in five years. All amendments are carried out by consensus. Product, sub product, spin off product, which are known by different names in different areas come under some other description which makes the shipper write a different product name which is universally accepted. When Customs goes for random checking, they give some other name to describe the product which is not in the Tariff, Harmonized Code of Nomenclature, nor in the ITC (HS) Codes. If these products are ‘Plant exports’, then lot of problems arise in the Port of Entry. The customs asks for innumerable identification documents. Transaction cost on account of delay increases making Indian goods uncompetitative due to higher prices.
Kochi Port grew by 17% in the first quarter of the current fiscal (2010-11) while overall cargo traffic went up 23% of the first quarter of the previous year. Container traffic at Kochi was 2.90 lakh TEUs for the whole of 2009-10. Inspite of the dip in the world economy’s growth, mostly contributed by America’s recession, Indian business was slightly affected and container trade grew by 4.5% over the figures of 2008-9. The Country’s container trade volumes have been growing at a steady 16.73 per cent in the first quarter. Volume for the first quarter of the previous year was movement of 1.8 million TEUs. The impetus for the container volume trade has been largely due to the fact that Kerala state was the only export state that achieved positive growth at 9.2%. Haryana came a poor second with 0.1% growth. In 2008-9, there has been 100% growth, with spices, cashew, marine products, engineering goods, coir, coconut, and exports from CSEZ registering impressive growth. It is a matter of great pride, they were able to continue the same impressive trend into 2009-10. The fist quarter has seen spectacular growth in spices exports to touch Rs 1025.30 Cr (against Rs 788 Cr) registering 30% in Rupee terms and 42% in dollar terms. Against last year’s figures of 81,950 tonnes, the volume exported was 1, 06,315 tonnes, a straight forward growth of 30%. The Port authorities have been requesting the Commerce Ministry to allow at least 10 lakh tonnes of import of palm oil to be routed through Kochi, so that the movement of containers would grow at a higher pace.

IMF is of the view that India’s growth in 2010-11 is predicted at 9.4% though our Finance Ministry and Planning Commission are more cautious and predict an economic growth of 8.5%. The opening of Vallarpadam Container will give greater impetus to the Cochin port in increasing the level of its operations. The optimum capacity of the Vallarpadam Container terminal is expected to be 30, 00,000 TEUs, when the birth length will be 1800 meters and dwarft will be 14.5 meters enabling ships having up to 8,000 TEUs to call at the terminal. The first phase is conceived to have a handling capacity of 1.4 million TEUs.

The terminal project cannot rest on its oars as the Cochin channel needs more dredging, taking care that the dredging do not create any Sea erosion and soil erosion. The land at Fort Kochi, Wellingdon Island, Vallarpadam, are susceptible to coastal erosion as the natural break waters off Cochin sea coast do not have resistance to the sea pressure.

It has been a dream for many Cochinites that mother ships call here, rather than feeder vessels. The Cochin Port was devised to receive passenger traffic as well. Apart for independent oil terminal, Cochin port can be a vantage Port, if more attention is bestowed to it by the authorities concerned. South India’s cargo business is slated to be nearly 2 million TEUs a year, which represents 25% of India’s trade.

With the heralding of Vallarpadam Container terminal, Cochin people believe that they have never to look back. The old days of aroma, pepper, spices, coconut, marine products will again beseech Kochi along with the winds of change.

Kochi Port, harbinger for Progress

We talk about Imports and Exports. We talk about shipping capacities. We also talk about containerization. Seldom is break bulk cargo shipped, as the modern ships are not built to carry break bulk cargo. Mother ships call at various Ports. There are voyages to Europe and United States once in a week. As transshipment Ports were not available, the Indian cargo bound for Europe/America had to go through hub Ports like Sri Lanka and/or Dubai, and then they are dispatched to Europe/USA. What happens in such situations is, the turn round time for cargo diversion is more, making shipping costs high, and the time schedule in respect of receipt of Cargo also about a month. The feeder vessels who make journey to and fro Colombo and/or Dubai, will be costlier compared to the shipping cost, if the merchandise is conveyed through a mother vessel. There is also no break off time at the hub Port.

Cochin Port is one of the best ports, an all-weather Port in India. With the fact that there were regular visitors through sea to Kerala from time in memorial, sea routes have been designed, mapped, and virtually available. Yet, in terms of income from cargo, why is Kochi lagging behind other Ports like Tuticorin, which was set up in 1985 only. People attribute it to the labour strife. But the fact of the matter is, labour strife is prevalent but the more important aspect is political apathy to the development of Cochin Port. The Port authorities are vexed that around 60 lakh tones of Palmoil is imported into India; but its import through Cochin port is banned. Inspite of the territorial ban, palm oil is abundantly available in Kerala. Why to deprieve revenue for the Cochin Port only. On what basis or logic? What is Cochin’s loss is Mangalore, Chennai and Tuticorin Ports gain.

Kerala historically is a neglected state. There have been top political bosses in Kerala who had a hand in running the Government of the day. Shri R K Shanmugham Shetty, the last Diwan of Cochin was India’s first Finance Minister. Another great name was that of Shri V K Krishna Menon, who was left and right hand of Mr Nehru.. Kerala had surplus electricity, which it sold to neighbouring states. The income from sale of electricity was a revenue head in the State budget. Kerala has 44 rivers, and water everywhere. Today, in terms of per capita consumption of water, it is in the 20th place, lower down to Rajasthan. The National Highway stretch is very bad compared to the stretches elsewhere.

Kerala’s more than 1.5 million educated have migrated to West Asia, Europe, America, etc. Around 0.7 million are working in different parts of India. According to Government’s statistics, of 20 million expats from India, 8 million are in West Asia (most of them from Kerala). The remittances from West Asia are higher in volume (no of transactions) while United States NRIs lead in absolute value. It is also a fact that India account for about 20% of remittances to developed countries. A recent phenomenon noticed is that the people abroad do not use the money in share market operations and real estate deals, though valuation are at such amazing levels, but invest in risk free capital guaranteed deposits in banks. That is why, despite the low interest rates offered, the Deposits in Banks are swelling. AP (IT) accounts for 22% of the remittance, Maharashtra has 15%. Kerala constitute the highest 55%. RBI acknowledges that $ 40.296 billion is the inward remittance which in value is higher than the Foreign Direct Investment in India.

New generation ships are not coming to India, least of all to Kerala. Newer ships coming on-line are able to hold 2/3 times as many TEUs as ships as old as a decade. New ships are faster, undertaking more voyages than the older ships. The number of containers sucked up by new ships is manifold compared to the older ones.

There are destination wise Ports. Ports which have imports and exports in tandem. Some are only Ports having export consignments. There are some other Ports which have import priority. There are Internal Container Depots and Container Freight stations. ICDs are beyond 100 Kms of a Port while CFS is set up adjoining the port also to avoid congestion. Now, if the two ways (Import/Export) from a Port is brisk, then the problem of availability of Containers is not a problem. Otherwise, the container gone, or the container that has been off loaded, has to be transferred in an empty state, for which railways charge freight, if by Road transport it is uneconomical. Ages of the containers are also going down. So, there can be a compartitative cost only if the net imported container trade in volume compares well with net export portion.

The problem of Ports is compounded by the interpretation of tertiary policing agency like the Customs, Central Excise, DGFT, etc. Indian government publishes tariffs and import tax rates, but they are not transparent. There is no single official publication that includes all necessary information. Importers must consult separate tariff and excise tax schedules as well as any applicable additional public notifications and notices to determine current tariff and tax rates. Furthermore, different classification nomenclatures for tariffs and excise taxes cause confusion, even though they are aligned at the 4 digit and 6 digit levels. . India continues to maintain a negative import list. The negative list is currently divided into three categories: (1) banned or prohibited items; (2) restricted items which require an import license; and (3) "canalized*" items, importable only by government trading monopolies subject to cabinet approval regarding timing and quantity. India has liberalized many restrictions on the importation of capital goods. The government allows imports of second-hand capital goods by actual users without license, provided the goods have a residual life.

The laws governing customs duties are the Customs Act, 1962 and the Customs Tariff Act, 1975. The Customs Act, 1962 is the basic Statute which empowers, under Section 12, duties to be levied on goods imported into or exported from India. The categories of items and the rates of duties which are leviable have been specified in two schedules in the Customs Tariff Act, 1975. The first Schedule to the said Act specifies the various categories of import items in a systematic and well considered manner, in accordance with an international scheme of classification of internationally traded goods – termed ‘harmonized system of commodity classification’. Different rates of duties are prescribed by the legislature on different commodities/group of commodities mentioned in the first Schedule. The duties are levied both on specific and ad-valorem basis, while there are few cases where at times both specific and ad-valorem duties are also collected on imported items.

The Government of India applies discretionary customs valuation criteria to import transactions. U.S. exporters have reported that India’s customs valuation methodologies do not reflect actual transaction values and effectively raise tariff rates. Indian Customs requires extensive documentation. Processing delays often occur. In large part the delays are a consequence of India’s complex tariff structure and multiple exemptions, which may vary according to product, user, or specific Indian export promotion programme. The Government of India fixes minimum import prices for certain imported products.

The exporter/importer may have to study a lot of theory to do foreign trade. Our government, even though the export value had quadrupled from $ 44 billion in 2003-4 to US $ 185 billion in 2009-10, fails to give importance neither to the export sector nor improving its logistics and infrastructure.

Coconut Export Manual

Shipment and documentation forms an important layer of Exports. What are the basic requirements required. How do you fill in the Bill of Lading the description of your product, and correct the Correct eight digit code which is mandatory, as the 4 digit and 6 digit codes are expressions of tariff vocabulary used by both Customs and Central Excise, even though ITC(HS) CODES are approved by the World Customs Organizations at Brussels, which meets often to approve the new codes in the 6 digit level. Any proposal emnating from ny country is put to vote.

The eight digit Codes are often called as Harmonized Code of Nomenclature. In the ITC(HS) Codes published by the Director Gneral of Foreign Trade, you have two Schedules; Schedule 1 refer to 'imports' and Schedule II to 'Exports'. If your product is prohibited for Import/Export, then you have to get a temporary permit from GDFT, and some times he partially waives the ban. Unless written orders are obtained from DGFT, the shipments will not be allowed by the Port authorities.

Toady, there is hardly any break bulk cargo. All the Cargo meant for shipment are despatched through Containers. Normally, often the 20 foot TUF and 40' TUF are used for consigning merchandise. The freight for a container whether it is volume laden or value laden, is one and the same. That is why, exporters say, unit value realization is low, when volume dominate the product exports; if it is value based, then the unit value realization will be high.

Stuffing is done indoors and within the factories only. The Exporter gives a self declaration about the product. Some items come under the Central Excise levy, and some other items come under the Customs levy. Self declarations are accepted. However, Customs make random checks on some of the Containers and if any discrepancy is noticed, imposes penality as the Case may be.

There are benefits given by Customs like Duty Drawback. Certain goods are exported under Export Obligation(for goods already improted under EPCG, advance licence, etc). DEPB, other fiscal benefits of FTP need to be applied to the DGFT after realization of the BILLS. These procedures are noted in the FTP and HBP, Vol I, II, III respectively.

Coconut Development Board has brought out a compilation, on Coconut Export procedures. That will give a broadside on the various Export formalities, concessions, benefits, policy, procedure of Coconut export/import formalities.

Coconut Oil industry in perilous state

Coconut Oil industry is in a perilous situation due to various economic reasons and compelling circumstances. Any change in circumstances in the trade off of this Commodity is going to hurt Kerala’s economic prosperity and livelihood of Coconut farmers.

I would like to refer to one of the issues which is a major item of contention which stifles growth and demand of Coconut Oil including its exports.

For the oil Year Nov 2008- Sept 2009, around 85 lakh tones of oil (80% of which was Palmoil) were imported into India. The import was at zero duty for Crude and 7.5% for Refined. In the vegetable oil import basket refined oils accounted for 15% and crude oil 85%. It has been reported that the Crude Palm oil imported included Refined Palm oil which found its way straight to the market for distribution. Due to the persistent stand taken by the CDB, imports of plamoil through Kerala Ports were disallowed. Citing “inflation” in the food commodities, the Customs duty for Crude which was 45% was made Zero duty, and Edible @ 52.5% was reduced to 7.5%. As against a nett production of oil seeds of 281.27 lakh tonnes, the net availability of domestic oil from all sources was 80.49 in 2008-9(this was the financial year 2008-9).Now if we compare the aggregate demand against supply of edible oil , the import was in excess of 30% of the demand. In the business cycle of contraction, the Coconut oil production which was around 4.75 lakh tonnes, suffered on the aggregate demand, due to multiplier effect. The Coconut Oil production and its distribution was in Economic parlance an “S” shaped curve. This would mean, a pattern of growth, where market density for a particular product (Coconut Oil ‘A’) is constant, external induced demand for the product having similar characteristics (Palm Oil ‘B’), the density of product A increases slowly, initially in a positive acceleration phase, when Product ‘B’ increases its market hold approaching an exponential growth rate, while Product A declines in a negative acceleration phase until it touches zero growth rate. This slowing of the rate of growth reflects increasing competitive resistance which becomes proportionally more important in higher normal demand situation. Here, pricing holds the Key. Palm Oil has the patronage of low Customs duty nil against 45%, and 7.5% against 52.5%, thereby a saving of around Rs 24,000 Cr, and low prices compared to the Coconut oil prices, both domestic as well as external. The c.i.f prices in Oct, Nov, and December 2008 of Coconut Oil @ Rotterdam was $ 970 while India’s c.i.f price was $ 1287.17. This was one of the predominant reasons why, even though quantitative restrictions on export of Coconut Oil was removed through Kochi Port, only 10,670.07 mt valued Rs 63.24 Cr was consigned(against 9854.58 mt @ Rs 58.41 Cr). Contrast this with export of Copra in 2009-10 which was 20,731.74 mt valued Rs 85.20 Cr against 13,578 mt @ Rs 55.80 a year ago. The outflow of raw material against the final product! With 11,609.2 million nuts in the two adjoining states of Kerala and Tamilnadu together against all-India’s 14,743.56 million nuts, accounting together for a total of 71.96% of total available nuts, is the performance pithy even by sub standards?

Based on the cumulative economic growth for 2009-10 after the announcement of growth rate for Q-4, the agricultural growth which was perceived as (-) 0.2% turned out to be (+) 0.2%. That means, against the economic mathematics, the growth was 0.4% much more than expected and visualized. In terms of demographic dividend, expansion/workforce, the employment elasticity of agriculture and allied sectors stand at a high of 1.52%. If you look at the number of registered exporters, (RCMCs issued) by CDB, it will give you a fair idea of spatial width of geography for exports.

If you take the last 14 weeks, the food inflation has been staggering. But almost at all places, inflation growth was predominant in Cigarette, rice, poultry, fish, vegetable, firewood, saree (synthetics), while, wheat, wheat atta, onion and sugar, inflation has come down. There are no inflationary trends in ‘edible oils’. Consumer Price Index for Industrial workers also shows that there is a lowdown on inflation, and the oil segment is out of the ‘inflationary trends’.

Is it not high time that the Customs duty be re-introduced in respect of Palm oil that is imported into the Country? CDB had made all-out efforts after being notified as an Export promotional Council effective 1 April 2009 to get a host of Scheme and fiscal benefits for the Coconut and Coconut product industry. Even though Coconut (Copra) Oil has been allowed to be exported through Kochi Port, it is in the prohibited list of 2nd Schedule of ITC (HS) Codes, but only exempted partially, that is allowed to bee exported through Kochi port. The causality in such a case is that though Coconut (Copra) Oil which comes under Chapter 15 of the ITC (HS) Code though eligible for Special Focus product Scheme with an initiative of 5% is not given to those sectors where DGFT has clamped ‘Prohibition’ . This is only a technicality that needs to be amended so that exporters can claim benefit and reduce their prices to be on par with the international Coconut oil price. GoM headed by the Agricultural Ministry need to lift the ban. CDB had taken up the matter with Commerce Ministry which has replied stating that they have no problem with the lifting of the ban. This has been communicated to the Board.

If Coconut oil industry needs to survive, Government should intervene sooner or later, and stop unlimited import of edible and/or Crude oil. Just as, countries should not be export centric, as any possible contraction in world trade will make the country’s economy to go for tail’s spin, countries should not be over dependent on import. It is not a proper policy to adopt.

a. Lifting of the prohibition on ‘Coconut(Copra) Oil Exports;
b. Extending export of Coconut Oil through all Ports in India
c. Clamping of Customs duty on import of Palm oil so as to dilute its
demand and provide a level playing field for the indigenous Coconut oil industry