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8/6/2019 Trade Winds - Volume 2 Issue 1
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Indian generics to be safe from seizure
while passing through EU
Pharmaceutical exporters can breathe easy as the European Union
has finally agreed to Indias demand to amend its Customs
regulations to stop confiscation of drugs en route to African and
Latin American countries. Till the amendment is brought about, the
European Commission has promised that no further seizures would
take place at any European port.
Case History
India's generic exports rising at afast clip to Africa & Latin America
MNC companies holding patents to
these drugs in Europe complain of
violation Customs authorities in
some countries seize consignments
from India. India says drugs do not
have patents in India or destination
countries Approaches WTO for
discussion on the issue
Textile companies gung ho on Indo-Japan
FTA
As India and Japan get closer to signing a free trade pact, textile and
clothing majors from both the countries are exploring opportunities
News SnippetsAnkush Mehta, MBA(IB), 1st year
Contents
News Snippets 1
WTO 2010:
A Recap 5
The Rise & Rise in Gold
Prices 6
Siliguri: A Trade Center
Bigger than Delhi 8
Editorial Team
Oojwal Manglik
Abhijith Vasudevan
Ankush Mehta
Shiv Kumar Gupta
IIFTs Monthly Newsletter on
National & International Trade
February 2011 Volume II, Issue I
mailto:mailto:[email protected]?subject=Reg:%20Vyapar%20Magazinemailto:mailto:[email protected]?subject=Reg:%20Vyapar%20Magazinemailto:mailto:[email protected]?subject=Reg:%20Vyapar%20Magazinemailto:mailto:[email protected]?subject=Reg:%20Vyapar%20Magazinemailto:mailto:[email protected]?subject=Reg:%20Vyapar%20Magazinemailto:mailto:[email protected]?subject=Reg:%20Vyapar%20Magazine8/6/2019 Trade Winds - Volume 2 Issue 1
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Top Japanese industrialists are slated to meetIndian companies such as Future Group,
Raymond, Alok Industries, Arvind Mills,
Mafatlal and S Kumars. Encouraged by the
prospect of duty free trade between Asia's
second and third largest economies, Indian
companies are also eyeing Japan as a new, large
destination for their products and for importing
high-end fabrics into the local market
India and Japan have already announced that theComprehensive Economic Partnership
Agreement will come into effect soon after
being signed and the completion of necessary
procedures. The free trade agreement is likely to
significantly boost trade, which stood at around
$11 billion in 2009-10, between the two
countries. India, one of the largest producers and
consumers of textile products, exports more than
70% of total textile exports worth $25 billion to
the US and European markets. On the other
hand, Japan, one of the most technically
advanced countries with high end luxury
consumer market, imports more than $31 billion
of textile products, of which over 90% comes
from China, according to Japan Textile Import
& Export Association.
Banks seek higher interest to
control arbitrage by exporters
Banks want an increase in the rate of interest on
foreign currency loans to exporters for packag-
ing and export to prevent interest rate arbitrage.
The Reserve Bank of India has capped the rate
of interest on pre-shipment credit to ensure ex- porters get funds at internationally competitive
rates.
One banker pointed out that there is a lag of
50-100 days before the exporter has to make
payment towards pre-shipment purchase. The
cheap money borrowed is lent out at higher
rates, getting them a good interest margin or
arbitrage. Pre-shipment credit is largely made
available as packing credit to enable him to
finance purchase/import of raw materials,
processing and packing of the goods meant for
exports.
Under the existing mechanism, an exporter can
avail a loan facility in most currencies including
US Dollar, Pound Sterling, Yen and Euro. The
packing credit loan can be extended for a period
of one year and the credit limit is decided on the
basis of the exporters performance and track
record.
As per RBI guidelines, banks are required to
lend around 12% of their net bank credit
towards exports.
I m p l i e d v o l a t i l i t y i n
commodities trade
Export populism in commodities is a
phenomenon which is directly connected to the
countrys backwardness profile. A mandi
operator claims higher place among his peer
group for being a supplier to an exporter and
exporter demands highest place of pride than his
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domestic counterpart in social forums. These areall ingrained in a false vanity that is often
attached to international trade.
In the controlled regime, the successful exporter
had to manage the babudom to leverage the
incentives and subsidies of the government.
However, market orientation brought about a
change in the profile of the exporters. The
established players have moved out and the less
established players have moved in. The mootpoint is whether one makes money by exporting
commodities?
Free play of the market can be seen nowhere
more dominantly than in exportable
commodities like soybean de-oiled cake (DOC)
and coffee market. In both these commodities,
one rarely finds a back to back parity. So, how
does one make money thru positional calls?
lower interest & logistical cost or by sheer luck?
Coffee and soybean are the largest traded
commodities in international exchanges. Implied
volatilities for these commodities have been
creeping up steadily over the course of past two
decades and now appear a more permanent
feature in their markets than was the case in the
past. A detailed examination of the past
underscores just how volatile these markets havebecome and how volatility has persisted.
Since the beginning of 2006, implied volatility
have frequently spiked to levels well beyond
30% in these commodities, reaching well over
60% at times. The more divergent are traders
expectations about future prices: the higher theunderlying uncertainty and hence the implied
volatility of the underlying commodity.
Does volatility matter? Prices of derivative
commodities that are observed today of
commodities which are traded in the major
global exchanges are determined by underlying
expectations and uncertainties about such
expectations, pertinent to the market and the
commodity. Hence, implied volatility, asreflected or inferred by the prices of derivative
contracts, is an important component of the
price discovery process and is a barometer as to
where markets might be headed.
Markets are failing under the pressure of
oligopolistic powers. The companies that
process and ship agricultural commodities are
growing in size as they decrease in numbers.
Empirical evidence shows that a growing
disconnect between prices paid by the
consumers and prices received by the producers.
International Commodity Agreements, Buffer
Stocking and government intervention have
failed in past.
In addition to seeking ways to increase stability
in commodities market the government needs to
re-think that in a market oriented economy, howcan one limit the exposure to commodity price
volatility and mitigate the detrimental effects of
commodity wild price swings. To quote
Friedman, governments never learn. Only
people learn.
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Indias exports at 33-mth high,surges 36% in Dec
INDIAS exports posted a 36% growth in
December 2010, the highest in 33 months,
riding on successful forays by exporters into
new markets and demand revival in both the US
and EU. A dip in oil imports contracted overall
imports by 11% bringing down trade deficit to a
three year low and relieving worries on current
account deficit.
Strong growth in exports was recorded across
sectors in December particularly in engineering,
electronics, man made fibres, yarns and drugs
pushing exports to $22.5 billion. During the
April-December 2010 period, exports rose
29.5% to $164.7 billion. Diversification of
Indias export markets to countries in Latin
America, Africa and South East Asia is one bigreason for the encouraging figures.
Despite the rosy export numbers, it may be too
soon to withdraw support given to exporters as
the world economy, especially the European
Union, still remain unstable said K T Chacko,
director, Indian Institute of Foreign Trade
(IIFT).
The economic crisis is not over. It is not yet
time to withdraw sops, he said.Imports declined by 11.1% in December 2010
to $25.1 billion with oil imports going down by
16% during the month. Other sectors that posted
a decline include gold, fertiliser, vegetable oil,
coal, chemicals and electronics. In the April-
December 2010 period, imports rose by 19% to$ 247.1 billion.
Normally a decline in imports could mean a
reduction in industrial activity, but if import of
capital goods are up, then there is no reason to
worry. But one must find out why oil imports
are down, Mr Chacko said.
Maritime Agenda 2010-2020
Launched
The Minister of Shipping Shri G.K. Vasan
launched the Maritime Agenda 2010-2020, a
perspective plan of the Shipping Ministry for the
present decade. Launching the Maritime
Agenda, the Minister talked about the goals set
for the sector.
The Ministry envisages an estimated traffic of
2495 MMT in all ports including the non-metro
ones. The total capacity of all these ports is
expected to be 3280 MMT. The total proposed
investments in major and non-major ports by
2020 is expected to be approximately 287000
crores and the total proposed investments in the
shipping sector by 2020Rs. 165000 crores.
The Maritime Agenda projects a total traffic of
2494.95 million tonnes for all major and
non-major ports taken together and a capacity of
3280.04 million tonnes. The proposed
investments in ports by 2020 is expected to be
119449.41 crore and in non-major ports it is
167930.84 crore.
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programme to finish the Doha Round by theend of next year.
The number of regional trade agreements
(RTAs) continues to rise rapidly. By end of
2010, almost 200 RTAs that are in force had
been notified to the WTO and about 100 more
are being negotiated. Since 2008, East Asia has
been the most active region notifying new
RTAs, with 19 agreements entering into force.
Europe is also active, with 15 new agreements,as is South America with nine new agreements.
North and Central America have notified four
and six new agreements, respectively, and
Africa three new agreements since 2008.
The business environment for trade finance has
continued to improve since the middle of 2009.
Nevertheless, traders in low-income countries,
especially Africa, are still confronted with
significant difficulties in accessing trade finance
at affordable prices.
Three potential dangers to WTO members in
2011
The first is that the last few months have
seen an increase in protectionist pressures
generated by global imbalances, at a time
when the political consensus in favour of
open trade and investment is already under
strain from stubbornly high levels of
unemployment in many countries.
The second is the danger of a steady
accumulation over time of measures that
restrict or distort trade and investment.Since the end of 2008, new trade
restrictions have built up to cover 1.9% of
total imports.
The third is the challenge of managing the
trade and investment impacts of stimulus
and bail-out measures taken in response to
the crisis. The effects of those measures,
on trade and competition, will be
examined by Members at a SpecialSession of the TPRB scheduled for early
spring 2011.
The rise and rise in gold
prices
Shiv Kumar Gupta
MBA(IB), 1st year
Gold has been used throughout history as money
and has been a relative standard for currency
equivalents specific to economic regions or
countries. Of all the precious metals, gold has
been the most popular as an investment. Today,
like most commodities, the price of gold is
driven by supply and demand as well as
speculation. However unlike most other
commodities, saving and disposal plays a larger
role in affecting its price than its consumption.
Gold prices have been on the rise for two years
now and nobody knows when the rally will end.
Gold is a foul-weather friend. In times of war,
recession, bank failures, fall of the real estate
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market and political turmoil, it always goes up.During such periods, due to the devaluation of
paper currency, people feel comfortable
investing in assets that are very unlikely to lose
their value, and gold most definitely is one of
these assets. The same factors that affect
gold-economic trouble, weak dollar and
inflation- affect silver too. Looking around us, we
can see so many signs of instability right now.
This article will try to bring out the reasons for the
rise in gold prices.
The main reasons behind the bull-run have been
the European Sovereign debt issues and
quantitative easing in the U.S. Also increasing
investment demand in Asia with lacking new
supply has pushed the price to record levels. As
more institutions and hedge funds are starting to
invest in gold the lack of new supply might startcausing problems in the future. Big institutions
are buying from the same market as central
banks and as the IMF can only sell 403.3 tonne
per annum it is likely that some of the big
players have to start using open markets to buy
gold. A weak dollar boosts golds appeal as an
alternative asset and makes dollar priced com-modities cheaper for holder of other currencies.
The economic crisis from late 2008 boosted
gold, which investors bought as a safe haven
asset. Gold is also bought as a hedge against
inflation, which erodes the value of paper assets.
Another common factor influencing rising gold
prices is the success of the real estate market.
When there are low or negative returns on real
estate, the demand for gold and other
commodities typically is expected to increase.
The issue with quantitative easing is that the
money is not going where it should be. It should
go down to small and medium size businesses to
help them to get loans more easily and this way
create more new jobs. Currently the money is
just going from central banks to commercial
banks and it is only benefitting stock marketsand other investment institutions. This keeps
investors happy but is not solving any of the
issues which are causing the current situation.
On August 15, 1971, the United States
unilaterally terminated convertibility of the
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dollar to gold. After this event gold became justlike any other commodity which could be traded
and also became subjected to speculation like
other commodities, especially through the use of
futures contracts and derivatives. Since gold has
always been looked upon as a safe investment
people increasingly started to invest in gold to
get good return on their investments. Other
reason that can be attributed to the rise in prices
is the increasing incomes. Higher incomes allow
people to make investments in stocks or gold.
Over the years there has been a negative
correlation between the sensex and the gold
prices. Whenever there was fall in the stock
market people invested in gold to get better
returns. But as we can see from the graph that
after 2008 both price of gold and the sensex
have been rising. The rise in gold prices can be
attributed to increase in demand from the point
of investments. After the sub-prime crises there
has been significant volatility in the stock
market. The sensex had plummeted from 20,873
on January 8, 2008 to 8701 on October 24,
2008. To hedge their risks, investors switched to
gold for stable returns. The demand has led to
the sharp increase in prices of the precious
yellow metal. The stock market has done well in
2010 but analysts say that the prices of gold will
be on the rise as the US dollar is expected toremain weak for some more time. Continuing
concerns about debt problems in Europe will
also fuel prices.
Siliguri: A Trade CenterBigger than Delhi
Ashish Agarwal
MBA(IB), 1st year
Reading the heading would make you wonder
and put you in a dilemma whether this is a hoax
or does this have substance behind it. Well the
news is that it is true. This small city, the gentle
giant of the east is surely a trading hub bigger in
terms of daily trading value and volume when
compared to the capital city Delhi. Going further
ahead Siliguri is now considered as one of the
fastest growing in the country.
Strategic Location
Siliguri is located what is popularly known as
the The Siliguri Corridor, or the Chicken's
Neck, as it is sometimes called, is the onlyland-link between the 7-Sister states (Arunachal
Pradesh, Assam, Meghalaya, Manipur,
Mizoram, Nagaland, and Tripura) of North
Eastern India and the rest of the country. As this
is only piece of land that separates Nepal and
Bangladesh the importance in terms of
international trade also becomes vital. The Silk
Route of India i.e. trade route between India and
China is accessible only after crossing Siliguri Nathula and Jelepla. Thus making it important
for international trade between India and other
countries and also among other countries.
Economy Of Siliguri
Siliguri is described as the gateway to the North
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East of India, Bhutan, Nepal & Bangladesh. The
strategic location of the city makes it a base for
essential supplies to the region. Siliguri has
gradually developed as a profitable centre for a
variety of businesses. As a central hub, manynational companies and organizations have set
up their offices here.
Due to the unprecedented trading boom the city
has seen it has become the second biggest and
impor tan t c i ty o f Wes t Benga l .
The Siliguri corridor accounts for about 59 per
cent of exports from the eastern zone of the
country. It has come up as a strong Platform to
further the growth of the North Eastern states.
Explains TCA Ranganathan, chairman and
managing director, Exim Bank, The region
occupies a share of 5 per cent in the countrys
export that makes up an amount of Rs 42,000
crore.
Industries of Siliguri
The industry of Siliguri is based on the 5 Ts:-
Tea
Timber
Tourism
Transport
Trade
West Bengal's Government has set up an IT
Parksomething like a Special Economic Zone
(SEZ) where one can get huge tracks of land just
set apart for IT industries. Cost of living and
hiring is cheaper and there is plenty of potential
for infrastructure growth and development in
Siliguri.
Fruits Of Progress
Opening of shopping and entertainment
malls like COSMOS, ORBIT & City Centre
has affected a change in lifestyle.
Large number of retail jewelers has
opened showrooms in Siliguri: Tanishq, P.C.
Chandra, M. P. Jewellers, Senco Gold,
Damas.
The city recently also witnessed the arrival
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of its first set of multiplexes -CINEMAX,INOX at ORBIT and Big
Cinemas.
The rapidly growing city also has
showrooms of numerous automobile
companies such as Maruti Suzuki, Honda Siel,
Toyota Kirloskar, Ford, Tata, JCB, Mahindra
& Mahindra, Hyundai,Skoda, General Motors,
Fiat, Mahindra Renault, Chevourlet, Eicher,
Ashok Leyland, Sonalika.
Opening of Nathula Pass: Future
Prospects
Nathu La is a mountain pass in the Himalayas. It
is located on the IndoChina border connecting
the Indian state of Sikkim with the TibetAutonomous Region of the People's Republic of
China. The pass, at 4,310 m(14,140 ft)
above mean sea level, forms part of an offshoot
of the ancient Silk Road Sealed by India after
the 1962 Sino-Indian War, it was re-opened in
2006 following numerous bilateral trade
agreements. The opening of the pass is expectedto bolster the economy of the region and play a
key role in the growing Sino-Indian trade.
It is estimated that Sino-Indian trade would
increase by nearly 1520% within two years of
Nathu La's opening. Trade volumes through the
pass are projected to grow to Rs. 206 crore (US$
44.6 million) by 2007, and Rs. 12,203 crore
(US$ 2.6 billion) by 2015. The pass offers
Chinese companies access to the port of Kolkata(Calcutta), situated about 1,100 km (700 mi)
from Lhasa, for transshipments to and from
Tibet. Siliguri due to its strategic position stands
to gain immensely from the opening of the
Nathula pass.
Siliguri Corridor As a Future Free
Trade Zone
It is hoped that if Chickens Neck has to becomea free trade zone it would be able to lift trade
restrictions between Nepal, Bangladesh and
Bhutan. India, however having great trade
relations with Nepal has still got on going issues
with Bangladesh but if this is to become a
reality the region will see huge trade national as
well as international.
With Boons Come the Bane
Siliguris Strategic Location is also the reason
for its set of problems. Chickens Neck, or the
Siliguri Corridor has also been a known area for
criminal activity. It is a popular area for rebels
and insurgents to make illegal crossings and
many people fleeing their dire situations take on
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the Siliguri Corridor in the hope to find a betterlife elsewhere. And together with illegal
crossings, comes smuggling.
Siliguri Corridor has been patrolled by four
recognized military and police forces: The
Assam Rifles, The West Bengal Police, The
Indian Army and the Border Security Force.
With so many countries and factions vying for
control over one tiny area, it is no surprise that
the Siliguri Corridor has become a politicallycharged subject in the region.
Conclusion
Siliguri has all the potential of becoming one of
the best cities in India and is a example for other
North Eastern cities to emulate. The city has
indeed established itself on the map of India and
with the ever growing trade possibly the world
map too.
About IIFT
Indian Institute of Foreign Trade (IIFT) is
Indias nodal institution of excellence in the
field of International Trade and Business. Since
its inception in 1963, IIFT has kept pace with
the extremely dynamic Global business
environment by focusing on International Trade
and Logistics-related issues. The rigorous,
extremely dynamic and up-to-date coursecurriculum stands testimony to this fact.
Supplementing the classroom, IIFT organizes
several events and discussions on currently
relevant issues in the field of Trade and
Logistics, which are graced by pre-eminent
professionals, industry veterans and
academicians, alike. Our students have
maintained and sustained IIFTs rich legacy by
successfully exhibiting their skills time and
again in various Live Projects and Competitions.
The institution has groomed international
business managers for over 40 years and boasts
alumni base spread over geographies and
business verticals