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 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

America, canny Customer

The American meltdown made its presence in 1990 and gradually rose to hit with wild ferocity in 2006-7. That despite the soaring economy, a recovery in housing prices, the dot-com boom, and a bull market in stocks, America was on the verge of one of the worst financial meltdowns the world would ever see. Ask any Indian exporter, he would say his woes of dollar depreciation and Rupee appreciation began to surface slowly in 2001 and reached menacing proportions after 2006.
The Indian exporters and the Government should take this opportunity to diversify their markets from America, slowly and steadily. It is the need of the hour that alternate markets are found, so that the rhythm of exports would be maintained. Given the present circumstances, the green back getting back to its original glory looks very slim and the American economy is on the throes of a crisis which with least turbulence can bubble.
The supremacy of America as a trading nation has sunk. It is no more a mass market for exploitation, even though markets are open and in plenty but there is no money in these markets. The dollar is not strong. In fact, it’s sinking to record levels of weakness, and it’s going to stay that way for at least some time if not for all the time. .
First, the U.S. Federal Reserve is running a zero-interest-rate policy and has announced that it intends to continue doing so. While it does, there’s easy money to be made out of borrowing dollars and lending almost anything else! That will actually make the dollar drop.
Second, the Internet and all the cheap money slashing around have made it attractive for U.S manufacturers to outsource production to emerging markets, more so than ever before. That leads to big U.S. balance-of-payments deficits. This would help emerging-market wage levels rise fast against U.S. wage levels. This is happening so fast that U.S. wage levels will probably have to drop resulting in higher unemployment levels. This unrest would lead to choes and would affect the outsourcing countries. This is not a win-win situation for the suppliers.
The U.S. government is running huge deficits and pretty much everyone in the United States has one or the other debt in his name. A weak dollar will make all those debts get smaller.
There are some very good reasons why the U.S. dollar is weak. This would force sovereign Governments not to go for U.S. Treasury Bonds with the result that the United States would face liquidity crisis. The budget deficit for the 12-month-period that ends next September will be even larger than the $1.4 trillion shortfall recorded for the 12 months that ended in September of this year.
The only way America can get out of the precarious situation is to stop printing money. The stimulus to sectors would not boost real growth. Fed Chief’s zero-interest-rate policy is sending gold through the roof, and will cause huge trouble down the road. Interest rates need to be higher than inflation. Only then, the Savers get benign interest for saving their money. This would propel other spenders to conserve and save money. Today, as it is, with no incentive for saving, people are not encouraged to save.
The U.S. dollar fell to a 15-month low against a basket of currencies as investors questioned U.S. Federal Reserve Chairman’s ability to return it to strength. The dollar declined to an intraday high of $1.48 against the euro even though the Fed is "attentive" to fluctuations in the value of the greenback and "will help to ensure the dollar is strong." Meanwhile, the falling dollar grew investors' appetite for hard assets, which resulted in the price of gold once again rising to a record $1,140 an ounce on the New York Mercantile Exchange (NYMEX).
India, as a Country has to look at enhance bi-lateral trade to emerging markets and other developed markets instead of trying to persist with the US Market which may go for a tail spin. The present economy in the United States and the distress signals emanating from it does not augur well for India to depend upon exclusive American market. Better abandon them slowly and steadily, and try to penetrate into new markets. This is what China is stealthily doing. This is simple arithmetic.