25-30% increase in bilateral trade in sight: C. Sarat ChandranC. Sarat Chandran, Director, Indo-Australian Chamber of Commerce (Chennai) shares his views on bilateral trade between the two countries with BE

Q) Apart from coal, gold and copper, which sectors are being emphasised by Australia for export to India?

A) The main sectors are food and wine. Under food there are products such as confectionery and bakery items, as well as, dairy products. Wine is an area where Australia is looking to increase exports as it believes that the wine market has good potential for growth in India. Apart from finished goods, Australian technology is also being exported and this is an area that India can vastly benefit from.

Q) What about emerging export areas from India to Australia?

A) The largest areas are of course Information Technology (IT) and Business Process Outsourcing (BPO). Another major area is automobile components, in which India is doing good business. India’s twin advantages of skilled labour, as well as, low cost labour have led to booming exports in these two industries. An export industry, which is slowly building up is textiles, especially home furnishings. These are industries in which India excels and does the largest amount of trade, not only with Australia, but other foreign countries.

Q) Bilateral trade between India and Australia grew by 55 % last year. What is the target for 2010-11?

A) Last year, the bilateral trade amounted to about USD 15 billion - USD17 billion. This is not very high and therefore I think that this can definitely increase. I expect that this year it may increase by about 25-30%. However, this bilateral trade relationship is a bit skewed as Australian exports to India are higher than Indian exports. There has been growth in trade between the two countries because of investment and not because of increase in the quantities of goods and services traded. The focus is now more on exchanging services such as IT, BPO and educational consultancy rather than goods. India has also been investing in copper mines, automobile components and food in Australia and this is where there is an immense scope for expansion.

Q) Rajeev Ranjan, Principal Secretary, Industries Department, said that a new mineral policy would soon be announced. How will this affect imports to Australia?

A) I think rather than a new mineral policy, what will be more helpful for the mining industry in the long run is the opening up of the Indian mining and financial services. The change in FDI will enable Australia to invest in India, which will be useful for us as Australian technology can help to modernise the Indian mining industry. Thus, in the long run, instead of focusing on increasing exports, India will gain by first importing foreign technology, learning to apply this technology, eventually developing its own and then exporting superior quality products to other countries.

Q) Peter Varghese, the High Commissioner of Australia, was hopeful that a Free Trade Agreement between the two countries would soon be agreed upon. Which are the sectors that can benefit from such an agreement?

A) As Australian imports from India are low now, India will not gain significantly. However, in the long run, the Indian market will become more open because of such an agreement, thus encouraging investments from Australia. For example, many major Australian banks already have a presence in India – ANZ, National Bank of Australia and others. Their Indian branches can, and some have, started supporting their Australian offices. Thus, foreign skill and expertise will eventually help us boost export.

Q) In your opinion, how will the present decision of the Indian government to allow foreign universities in India benefit Australian educational institutions and vice versa?

A) Some Australian universities are world-class and would certainly like to open campuses in India. They will want to take advantage of the large student populations in countries such as India and China. Only a small percentage of the total student body can afford to study abroad. However, by opening campuses here, Australian universities can capture a larger market. Their established reputation will help them attract students here. I also think there is a huge potential in the area of vocational training. The service industry is rapidly growing in India and young people will need vocational training to supplement their theoretical learning to become employable. Australia specialises in various areas of vocational education such as fashion designing, hospitality, mining and construction, among others.

Q) Has tourism to Australia been affected after the series of racial attacks on Indian students?

A)This has adversely affected the number of Indian students going to Australia for education as families are obviously worried and there are other options such as Singapore, Canada, Britain and USA. This has not affected trade and tourism as the problem has largely been restricted to Indian students and not those Indians who have settled there. This is a passing phase and our bilateral relationship will continue to grow. Australia will take measures to prevent future attacks as it has a huge stake in India. At the end of the day, Indian and Chinese students make up a large proportion of Australia’s lucrative foreign students.

Illegal mining in the world

Not only India, illegal mining hurts other big economies too.
China:
China is the world's largest producer of coal, copper and bauxite. But the Chinese mining industry has a poor safety record with thousands of deaths every year, mostly in illegal mines, reported BBC.
The Chinese ministry of mining has detected 65,313 unlicensed mines, 4,509 unauthorised excavations, 960 unauthorised prospects and 1,365 illegal transfers of mining rights. The government closed almost 11, 155 illegal coalmines between 2005 and 2008 with 8,000 in 2006.
Miners, working in these mines, are 350 times more likely to die than their Indian counterparts. There are 7.29 deaths in China per million tonnes coal produced, as compared to 0.47 deaths in India per year.
In 2007, the Chinese authorities decided to take long -term actions and allocated USD 60 million to eradicate illegal mines. But in 2008, Xinhua reported more than 4,000 accidents, mostly in the illegal mines of Shanxi Yunnan, Guangxi and Hunan states.
USA:
Mountaintop mining, especially in coal, is a major illegal practice mainly in West Virginia, eastern Kentucky, south-western Virginia and Tennessee. In West Virginia, the state fined National Coal USD 170,000 in 2006 for illegal mining near an MTR site.
The illegal miners use almost 4 million pounds of explosives to blast the tops of mountains to take 600-800 feet off to get coal, causing severe damage to the Appalachians. However, in 2009, the Mountaintop Removal Coal Mining Bill was introduced to make it illegal. “The Obama administration has now taken several useful steps to limit future damage. But these are stopgap measures, well short of the permanent protections needed,” reported the New York Times.

South Africa:

The South African court announced illegal mining as organised crime only last year, while billions of Rands were lost as revenue due to illegal mining in the gold, platinum and diamond sectors. According to the South African Press Association (SAPA), the government loses ZAR 5.7 billion (USD 30 million) annually in the gold sector only. Previously, illegal miners were charged only with trespassing.
According to the Department of Mineral Resources (DMR), illegal miners not only deprive the government of revenue but also cause a huge loss of the concerned company’s prime products and assets such as explosives, machinery and equipment, and copper cables. Further business risks for the company include the threat of mine closure.
Select Committee on Economic Development (SCED) report stated that, between January 2007 and May 2008, an amount of ZAR 133, 123 (USD 17,199) was recovered from illegal miners, and an amount of ZAR 96 340 (USD 12,447) was recovered from the mine employees.
The DMR and SCED said that both the companies and the state had to take action against the illegal miners. “Without coordination in local and national levels, we will go nowhere,” said Jan Nelson, CEO, Pan African Resources.
Companies are requested to improve access controls to their underground workings by strengthening security measures; and warn mineworkers against involvement in illegal mining. SCED recommended that the state should undertake regular inspections and check attendance records; audit explosives and amend the Mine Health and Safety Act 2008 to increase fines from ZAR 200 000 to ZAR 1million for noncompliance with safety regulations.
“The objective is to eliminate illegal mining through close coordination between all relevant stakeholders,” said DMR spokesperson Jeremy Michaels.
Brazil:
Illegal mining is rampant in Brazil especially in the Amazon area. Gold is the major mineral excavated from the area. Across Brazil, people in search of gold are flocking to these mines. Apart from that, illegal miners operate on iron, copper, manganese, aluminium, nickel, tin, diamond and uranium mines. They consist of 30% of all mining production of the area.
Venezuela:
The Venezuelan government launched a massive operation last year to eradicate mining and deforestation in the south-eastern part of the country. According to the Central Bank (BCV) figures, illegal mining accounts for 60% of the total gold production in the country.
In addition to closing down illegal mining operations that smuggle resources out of the country, the government is considering revoking mining concessions of national and multinational companies that destroy the environment and exploit workers.

Tables turned on Paris Club

The Paris Club, formed by the world’s richest creditors, is now a group battling heavy public indebtedness. An International Monitory Fund (IMF) report on world economic and financial survey says, “The debt increase is largest in Britain and the United States, two countries strongly affected by the crisis, but is also significant in countries where growth prospects are weaker, such as Japan and some advanced European economies.”

Britain:

According to fiscal prediction published by the IMF, Britain’s deficit will be the highest among the Paris Club. The present government faces a deficit of £163 billion (USD 235 billion) in 2009-10, that is, 11.6% of the national income - the highest since the Second World War.

The newly elected government is heading towards austerity. George Osborne, the conservative Chancellor of Exchequer, said that the austerity measures worth £6 billion for 2010-11, would be helpful. As for the other £157 billion, they will go for an ‘emergency’ budget, preceded by a report from the new Office for Budget Responsibility. The OBR is widely expected to paint a bleaker picture than the previous fiscal projections. Among the other European nations, Spain closely follows Britain.

Spain:

The large real estate debt of Spanish banks raised fears about a new crisis. If foreign investors walk away from Spanish bonds, it could cause a sovereign debt crisis for Spain that could spread to the rest of Europe. The present government budget deficit is 10.4% of the national income. To tackle this, the government has decided to cut down €15 billion (USD 18 billion) over two years. Other Euro-zone leaders, anxious to avert a Spanish debt crisis, welcomed it because Spain’s economy, accounting for 12% of the Euro- zone, is four times bigger than that of Greece. Despite austerity measures, the growth rate might slow down from 1.8% last year to 1.3% this year.

France:

Though the IMF head in France said that there was no risk for France and Germany, the reality is different. French public finance is more tilted towards Greece than to Germany. Though the economy has weathered the recession well with growth in four quarters in a row, the budget deficit for this year is expected to be around 8.2%. The public debt (84% of GDP in 2010), though not as bad as that of Greece (133% of GDP in 2010), is worse than Germany's (76.7% the GDP in 2010 ).

France too has adopted austerity measures to lower the deficit by betting on GDP growth, which it thinks will reach 2.5% from 2011, to get the deficit below 3% of GDP by 2013.

Germany:

Germany is the only European country in a better position. The country’s budget deficit is only 5.7%, much less than of the other members of the Club. In the first quarter of 2010, it found a .02% increase in the GDP. According to the Federal Statistics Office, the reason is investment in farm equipments, exports, shrinking construction and private consumption.

Japan:

The Japanese crisis is, of course, different from that in Greece and the rest of Europe. Declining savings rate and the devaluation of the currency resulted in the recent slump.

Last year, about a quarter of Japan's entire government budget was spent on just servicing existing debt. This year’s budget (9.8% budget deficit in 2010) is the first where more than half of the money has been raised by issuing new debt — in the form of government bonds — to make up the shortfall in tax revenue. Japan’s sovereign debt now amounts to about 200% of Japan's GDP, while the figure for Greece is 133 %.

According to a report by Switzerland’s IMD business school, it will take Japan until 2084 to bring its debt down to a manageable 60% of GDP level; Greece will need until 2031, and the US until 2033.

USA:

According to Joseph Stiglitz, Professor of Columbia University, the US debt is different from other countries’ debt because the country promises to pay through dollar which it controls. Therefore, it will always meet the debt obligations. The question is the value of the dollar.

He said that the growth in the US would slow down significantly at the end of 2010. Whether or not it will slide all the way down in the negative territory is uncertain, though there is an increasing possibility that it will.

The US is already struggling with 11% deficit budget (USD 1.56 trillion in fiscal year 2010) including debt problems. The present government deficit has been 11%, only next to Britain’s. The budget forecasts that its public debt would be 71% of GDP by 2013 and will exceed 80% by 2020.

The Way Ahead

Now the question is How to get out of the crisis? Or, at least what measures can be taken to lessen its impact? Most of the European countries of the Paris Club are cost cutting and trying to manage huge public indebtedness.

But the policy, according to Joseph Stiglitz, is wrong. He feels, “That will lead to lower tax and the reduction in deficits will be much smaller than hoped. It’s a kind of austerity, which failed in Argentina... If Europe and probably the US go on austerity packages that the financial community is pushing for, the likelihood is even greater.” He has proposed debt redistributing like in Brazil and Argentina. Brazil had a debt crisis, which was helped over by liquidity. “Most of the countries are, I think, in the Brazilian situation. If the interest rate remains relatively low and market remains calm, then they won’t have any difficulties,” he said.

Copyright@ Business Economics June 16-31 2010 page 10-11

REDD: most cost effective way to mitigate climate change

Food and Agricultural Organisation (FAO), an associate of the UN, called for early action on its initiative on Reducing Emissions from Deforestation and Forest Degradation (REDD) in developing countries in their The Global Forest Resources Assessment 2010.

The report of FAO says that though world deforestation, mainly the conversion of tropical forests to agricultural land, has decreased over the past decade (2000-2001) it continues at an alarmingly high rate in many countries. The global loss, owing to conversion or natural disaster has reduced three million hectares annually from that of the 1990’s (16.1 million hectares per year)

Biggest loss in South America, Africa:

The report says that South America and Africa had the highest annual loss of forest during the decad – 4 and 3.4 million hectares respectively. However, Brazil that lost a significant amount of forest during the 1990s, has been able to reduce its deforestation rate.

Asia, on the other hand, has gained 2.2 million hectares annually in the last decade mainly because of large afforestation programmes in China, India, and Vietnam in the last five years. However, conversion of forested lands to other uses continued at high rates in many countries, which have expanded their forest area by a total of close to four million hectares annually.

“We need to look forward because the large tree planting programmes in China, India and Vietnam, accounting for most of the recent gains in forest area, are scheduled to end by 2020.” said Mette Løyche Wilkie, the Coordinator of the Assessment.

Forests and Climate Change and REDD:

The Intergovernmental Panel on Climate Change (IPCC) has estimated that deforestation and forest degradation contribute approximately 17 % of global greenhouse gas emission. REDD was initiated in Bali, Indonesia (Cop 13) and had been intensified in Copenhagen, Denmark (Cop15). During Cop-15, Australia, Britain, France, Japan, Norway and the US jointly announced USD 3.5 billion to support developing countries that produce comprehensive plans to slow and eventually reverse deforestation. Dr Yemi Katerere, Head of the UN-REDD Programme said it was the most cost-effective way to mitigate climate change in the short term. Both the UN Secretary-General Ban Ki Moon and the World Bank president Robert Zoellick defined REDD as an essential element of tackling global climate change.

Through REDD, the developing countries create incentives for them developing countries to protect, and better manage their forest resources, thus contributing to the global fight against climate change. REDD goes beyond reducing deforestation and forest degradation solely for the purpose of emission reductions, and includes the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in REDD strategies. When fully operational, payments for verified emission reductions and removals, either market or fund-based, provide an incentive for REDD countries to pursue climate compatible development.

Copyright@ Business Economics June 1-15 2010 page 31 ( Green earth: can it survive the climate change?)

for reference please visit www.businesseconomics.in

Beverage: Indian Market ripe to explore

The beverage industry in India is yet to grow to its full potential in terms of its size and place in the market, although the industry has been in existence for a considerable time.

At present, India is in the third largest beverage consuming country after the United States and China, with10% share. And it is being looked as a great potential, even more so than China .According to Indian Brand Equity Federation (IBEF), the output value of the Indian beverage market in 2007-08 was USD 155 million and the projected growth was 27%.

RNCOS, a leading market research firm, has asserted in its report “Indian Food and Drinks Market: Emerging Opportunities” that the industry will open new horizons of developments for new players showing willingness to invest in it.

The government has adopted a flexible approach to boost the flow of money in this sector by easing existing policies. Moreover, it (government) has set a target of achieving investment USD 21.08 Billion by 2015 which will enable India to expand its contribution in the global processed food trade from an estimated 1.7% in 2008 to 3% by the end of 2015.

According to the India Food and Drink Report Q3 2008, by research analysis firm Research and Markets, by 2012, India’s processed food output is likely to grow by 44.2% to touch USD 90.1 billion. The packaged food sales will be increased by 67.5 % to reach USD 21.7 billion. On a per capita basis, packaged food spending is expected to grow by 56.5% to USD 18.06 by 2012.

Non-alcoholic Drinks Companies actually see India as a potential market. According to industry experts, the market for carbonated drinks in India is worth USD 1.5 billion while the juice and juice-based drinks market accounts for USD 0.25 billion. Growing at a rate of 25 %, the fruit-drinks category is one of the fastest growing in the beverages market. For example,in the second quarter of 2009,the Coca-Cola Co, reported its profit climbed 43 % getting a boost from double-digit unit case volume growth.


Companies and markets, publishers of global market research reports and analysts, in its recent report “Indian Non-Alcoholic Drinks Forecast to 2012,” said that the Indian non-alcoholic drinks market was estimated at around Rs 216 billion in 2008 and is forecast to grow at a CAGR of around 15% during 2009 to 2012. The research report covers various factors driving the growth of non-alcoholic drinks market in India.

Copyright@Business Economics March 1-15 page26

BRIC 2010: stress on food security and energy crisis

• The second BRIC summit in Brasilia (capital of Brazil), held in the middle of April, upheld a collective assertiveness in world economic matters that is bound to stir western leaders and bankers. The key aspects decided in the meeting were as follows:
  
  Common Vision and Global Governance:
  
  The BRIC countries proclaimed that their common vision was to deepen and broaden dialogue and cooperation of the BRIC countries, not only to serve common interests of emerging market economies and developing countries, but also to build a harmonious world of lasting peace and common prosperity.
  
  Global Economy:
  
  BRIC leaders urged all countries to strengthen macroeconomic cooperation, jointly with the emerging economies to secure world economic recovery, which is still vulnerable, to achieve a strong, sustainable and balanced growth.
  
  With a confidence born of their successful role as a caucus at G-20 meetings over the past years, BRIC leaders demanded the commitment to reform the Bretton Woods financial institutions that the advanced economies made at Pittsburgh during the G-20 summit be completed by this year.
  
  The leaders noted and called for increase in capital base under the principle of fair burden-sharing of the International Bank for Reconstruction and Development and of the International Finance Corporation, in addition to more robust, flexible and agile client-driven support for developing economies from multilateral development banks.
  
  The G-20 members, with a significant contribution from BRIC countries, have greatly increased resources available to the International Monetary Fund (IMF), “The IMF and the World Bank urgently need to address their legitimacy deficits,” the BRIC summit declaration says. “We call for the voting power reform of the World Bank to be fulfilled in the upcoming Spring Meetings, and expect the quota reform of the IMF to be concluded by the G-20 Summit in November this year.”
  
  The summit also called for improving national financial regulations and to push for the reform of the international financial regulatory system and to work closely with international standard setting bodies, including the Financial Stability Board.
  
  International Trade:
  They stressed the importance of the multilateral trading system, embodied in the World Trade Organisation, for providing an open, stable, equitable and non discriminatory approach to enhance International Trade.
  
  Agriculture:
  In the agricultural sector, ways of quadripartite cooperation, with particular attention to family farming were discussed with the Meeting of Ministers of Agriculture. This, they hope, will contribute towards global food production and food security. BRIC would develop a strategy for ensuring access to food for vulnerable population, to reduce the negative impact of climate change on food security, and to enhance agriculture technology cooperation and innovation, based on that.
  
  Energy:
  In the energy sector, the countries would aim to develop cleaner, more affordable and sustainable energy systems, to promote access to energy and energy efficient technologies and practices in all sectors. Apart from that, they would also encourage more efficient use of fossil and bio fuels. In this regard, they would reiterate their support to the international cooperation in the field of energy efficiency.
  
  Copyright@Business Economics page 10 may 1-15 2010