Economic Times, India
Indo-SAARC Trade: An Ocean Of Opportunities
3 December 2008, ET Bureau
With the major economic superpowers like USA, UK and Japan facing recession and collapse of major iconic banks, the world is now unanimous in its view that India, China and Brazil can no longer be ignored. Indo-SAARC trade relations now have a greater role to play especially in terms of the opportunities it provides to Indian SME’s (Small medium enterprises).
In order to boost trade relations between India and the other SAARC region countries, The Economic Times in association with HSBC, organised a conference on Indo-SAARC Trade (with a special focus on SMEs) in Mumbai.
The moderator for the session Sanjay Chakrabarti, Partner, Ernst & Young got the high profile panel comprising Mr. G K Gupta, President, FIEO, Mr. Bhriguraj Singh, Sr. VP & Head - Trade & Supply Chain, HSBC India, Mr. Prem Malik, Chairman, Bombay Textile Research Association (BTRA), Immediate Past Chairman, TEXPROCIL, Mr. Pradip Dave, Chairman & Managing Director, Aimco Pesticides Ltd & President, Pesticides Manufacturers & Formulators Association of India (PMFAI), Mr. Vikramjit S. Sahney, Executive Member, SAARC Chamber of Commerce & Industry (SCCI) & President, Sungroup, India and Mr. Sudhakar Kasture, Director, Helpline Impex & EXIM Institute to share their views and experiences of doing business with the SAARC region. The discussion also helped the audience to understand the challenges and opportunities involved in conducting trade with SAARC.
Mr Gupta opened the discussion by talking about the recent sops announced by the RBI (Reserve Bank of India) for Indian exporters. Some of the new sops include extending of pre-shipment credit from the existing 180 days to 270 days. However new guidelines for post-shipment credit are still awaited.
Coming back to the SAARC issue, Mr Gupta added that, "Intra-SAARC trade has to be borderless, if we want to help the SME sector." The panelists urged that political willingness along with liberalization of current norms would definitely push trade in the region, similar to how the European Union is conducting hassle-free trade with its member countries. They also felt that if Indo-China border trade can be a huge success, then Indo-SAARC trade also has a realistic chance of development. South Asia has over 500 million middle class population, which is more than that of EU and North America. These figures by themselves speak of the enormous untapped potential that Indo-SAARC trade could benefit from.
Mr Sahney pointed out, "Inter-EU trade is 55%, and Inter-NAFTA trade is 61%, but Inter—SAARC trade stands at a meagre 5%." The first step towards boosting trade in the region is relaxation of visa norms. Unless people can visit each other in the region without impediments, trade cannot progress. He pointed out some of the steps the Indian government has been taking to aid trade in the region.
For instance around 100 prominent businesspersons can travel in the region under a sticker authorised by the FICCI and SAARC Secretariat. The Indian government has set up a customs-free warehouse at the Wagah border. Thanks to this initiative, India could import certain goods like cotton and cement to Pakistan. In the banking sphere, two Pakistani banks will soon be setting up offices in India and vice-versa. In order to keep a tight control on the quality of commodities like cement, there are plans to set up government-accredited testing labs in India, Dhaka and Pakistan under the SAFTA agreement.
India accorded Pakistan with the ’most favoured destination’ status around five years ago. However, Pakistan has not reciprocated India’s move fearing the possibility of Indian companies taking over the Pakistani industries. Hence it is essential to drive home the point that Intra-SAARC trade is all about ’complimenting’ each other and not competing with each other. A cordial relation between the SAARC members is also essential for completion of the Indo-Iran-Pakistan gas pipeline, which is crucial for the region’s economic growth.
How easy or difficult it is to conduct trade within the SAARC region? According to Mr Dave, "If right synergies are put into place, trade in industries like agro-chemicals holds good potential." Talking about SMEs in the region he added that they are the single largest employer in India after agriculture.
Around 40% of exports in the SAARC region is negotiated through SME’s. However due to the current financial crisis, financiers are taking a more cautious view. But HSBC, one of the premier banks in India continues to support the trade finance business. "One of the reasons why India is perceived to be better than the West is because we have a large domestic market. And SAARC is an extension of the same and it can become a bigger regional market," said Mr Singh. HSBC’s large geographical networks help it give a deeper understanding of the trade business across the world.
Mr Malik felt that most of the SAARC countries depend for trade on the US and EU. However the current atmosphere demands that the SAARC should not only depend on its primary trade partners but also look at new markets. And the biggest opportunity is the Intra-SAARC trade. Mr Kasture suggested that Intra-SAARC trade can run on rupee payment instead of convertible foreign exchange. Reacting to rupee-payment based trade; Mr Sahney cited the example of an Asian Clearing Mechanism Unit for exports.
Under this mechanism bills are settled on a weekly basis without hedging on dollars, and paid in the local currency. For many years the Indo-Iran trade worked on this principal.
Mr Kasture stressed on the point that, "If you want to grow together, you need to trust each other. Do we speak in one voice when it comes to SAARC? We need to go beyond just creation of policies and try implementing them." The panelists also pointed out that a lot of counter-trade deals could happen in the SAARC region. For instance India could sell its strong products in other SAARC countries and vice-versa. They also felt that unless there is a confidence between a buyer and seller business cannot take place. A common code of conduct for registration of products across all SAARC countries would also boost trade relations in the region.
The panel discussion drew to a close after an interactive session wherein the audience posed questions to the panel, who addressed their concerns and offered inputs ensuring smooth sailing in the SAARC region.