Indo-Thai FTA numbers leave India Inc worried
The Financial Express, Monday 21 February 2005
Trade surplus of 400:1 on 82 FTA items in first three months favours thailand
Indo-Thai FTA numbers leave India Inc worried
RAVI KRISHNAN & PUMMY KAUL
New Delhi, Feb 20 - India Inc’s worst fears are coming true with early reports indicating a 400:1 trade surplus favouring Thailand in the 82 items of the Early Harvest Scheme during the first three months since the Indo-Thai Free Trade Agreement (FTA) came into effect from September 1, 2004.
Under the FTA, Thailand exported goods worth 2 billion baht (approximately $50 million) at concessional rates to India during September-November 2004, according to the Department of Foreign Trade, Thailand.
Top exports from Thailand included colour TV sets, polycarbonate and car parts. During the same period, India exported goods worth just 5 million baht (approximately $ 125,000), mainly gear lever, picture tubes, and jewellery parts.
For long, Indian corporates have feared that MNCs, more importantly, the Japanese majors, will leverage the Indo-Thai FTA to their advantage since the Japanese companies have huge manufacturing bases in Thailand. Given the statistics available for the first quarter post FTA, the opponents of the FTA are being proved right with the threat of growing imports potentially skewing the $1.44 billion (in 2003-04) bilateral trade in favour of Thailand. Currently, India enjoys a minor trade surplus. In the first five months of this fiscal, India has exported $ 292.61 million worth of goods and imported $280.21 million from Thailand.
Industry bodies like Ficci, however, warned that Thailand or importers of Thai products must not be seen as villains. Ficci’s secretary general Amit Mitra said, “There have been rumblings in the Indian industry for the past 2-3 weeks. We have to first check whether they have violated any rules of origin or value addition norms. If they have not, then we need to look inwards and see whether the surge has occurred in industries where we have core competencies but the industry is not able to exploit them since reform has not progressed fast enough.”
The Thai industry is much more competitive than India in infrastructure, transaction cost, interest rates, indirect taxes and flexible labour laws, he pointed out.
Under the Early Harvest Scheme, entrepreneurs from both the countries can import and export 82 items freely subject to duties which will be eliminated by 2006. These 82 items cover 7% of the Indo-Thai trade.
While these statistics may not give the true picture of the complete fallout of the FTA, firms are actively exploring procurement opportunities from Thailand for components and completely built units.
Though a break-up of trade under different sectors is not available, experts said consumer durables account for maximum imports now.
Electrolux India is currently sourcing almost 50% of its split ACs and large refrigerators from Thailand. “High end products which do not justify local manufacturing because of limited volumes currently form a major chunk of imports from Thailand,” said Electrolux CMD Rajeev Karwal.
Imports from Thailand currently account for 7-8% of the total 1.1 million units AC market. KJ Jawa of Voltas, however, underplayed the trend. “It is insignificant as yet,” he said, but did not rule out an upward trend when duties are nil.
Companies like Toshiba, Carrier, Daikin, Sony and Hitachi have already bid goodbye to manufacturing in India and are now sourcing from Thailand.The automobile industry is, however, reticent about revealing the quantum of imports.
“Yes, imports have increased, but only to the extent of the planned increase in our output. It would be wrong to say that the FTA is the cause of the surge,” said a passenger vehicle major.
The impact of globalisation could be more pronounced with India’s FTAs with six Asean countries becoming operational by 2011 and with Myanmar, Cambodia, Laos and Vietnam by 2016.
