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India plans to revive trade deal with SACU

India plans to revive trade deal with SACU

Mint | 25th June 2023

By Ravi Dutta Mishra and Shashank Mattoo

Amid declining merchandise exports due to demand slowdown in the west, India is placing renewed focus on striking a trade deal with a union of five countries of Southern Africa that could give a leg up to exports of pharmaceutical products and automobiles, two people aware of the development said.

The resource rich Southern African Customs Union (SACU), a customs union among five countries of Southern Africa : Botswana, Eswatini, Lesotho, Namibia, and South Africa, is one of the largest suppliers of raw primary or semi-processed commodities. According to the ministry of commerce, five rounds of negotiations regarding a potential India-SACU preferential trade agreement have been held thus far. The first round of discussions took place in 2007 and talks stalled in 2010. However, reports indicated that both sides had agreed to revive the talks in 2020. According to persons aware of the matter, talks between both sides have made progress.

This comes as trade experts have pointed out that diversification of exports is crucial as 40% of India’s export orders come from just seven countries and hence are more susceptible to external shocks. Currently, US and Europe form nearly one-third of India’s merchandise exports and have driven outbound shipments in the last decade.

“SACU is a developing country union so it won’t have non-trade issues in the deal such as labor, gender and environment. So it will be relatively easier to complete negotiations. We can sign a FTA with them. There is a lot of complementarity between India and South Africa. We are importing coal, diamonds, gold, and iron ore," first person aware of the development said.

“There are gains to be made in pharma, iron and steel sectors too. Our exports are close to $9bn and imports are about $11-12bn. Trade balance also needs correction. About 38% of the exports are automobiles. There are gains to be made there. Tariffs are as high as 20-25%. South Africa is number one in passenger automobile exports, biggest among our three key markets Mexico, GCC and Spain," the person quoted above stated.

Indian exports declined for the fourth consecutive month. Goods exports slipped 10.30% to $34.98 billion in May 2023 compared to $39 billion in May 2022, imports declined by 6.57% to $57.1 billion in May 2023 compared to $61.12 billion in the same month last year, driving the trade deficit to $22.12 billion, the highest in over five months.

Overall exports are on the decline as global demand slowdown has pushed international crude prices sharply lower and petroleum exports were largely driving petroleum exports during FY23. On a sequential basis petroleum products exports registered a sharp 23% decline in April compared to the previous month.

Notably, a World Bank report pointed out that the growth in South Africa decelerated sharply in early 2023, reflecting policy tightening and the impact of an intensifying energy crisis. The country’s power utility, Eskom, beset by chronic unprofitability and lack of maintenance, has been struggling to meet a post-pandemic rebound in electricity demand.

“Power outages have hit record highs this year and crippled the economy. Headline inflation has receded from its peak, but it has been above the 6 percent upper bound of the central bank’s target range since April 2022, prompting even more policy tightening in the first half of this year," the report further added.

 source: Mint