India Inc study shows perils of Thai FTA
Financial Express, India
India Inc study shows perils of Thai FTA
Corporates seek addressal of issues like high cost of production, higher import duties and interest rate differential
OUR CORPORATE BUREAU
8 June 2005
NEW DELHI, JUNE 7: Fearing a further surge in imports from Thailand under the Indo-Thai free trade agreement (FTA), India Inc has brought into sharp focus the urgent need to look internally and address the disabilities suffered by Indian companies in terms of high cost of production, higher import duties, infrastructure service cost and huge interest rate differential compared with the neighbouring country.
In a survey carried out by the Federation of Indian Chambers of Commerce and Industry (Ficci), majority of the respondents echoed the view that the anomalies in duty structure itself would see more and more Indian companies resorting to outsourcing of products from Thailand and a surge in imports.
As per the government data, India’s exports to Thailand during April-December period of fiscal 2004-05 declined by 61.78% to $24.54 million, while imports surged 24.15% to $104.84 in case of 82 early harvest items.
An earlier report, compiled by the department of foreign trade in Thailand for the first three months since the Indo-Thai FTA came into effect from September 1, 2004, presented an even darker picture with a 400:1 trade surplus favouring Thailand in the 82 items of the early harvest scheme
According to the survey, the import duties on certain raw materials in India and Thailand reveal that major inputs like glass parts and chemicals (used in CPT industry) can be imported duty-free into Thailand, but attract a 15% import duty in India. Similarly, alloy steel and stainless steel (used in transmission assembly) attract a 5% higher import duty in India compared to Thailand.
Also, the inverted duty structure which certain sectors like colour picture tube, electric fans and transmission assembly are facing may lead to Indian companies outsourcing products from Thailand (48%) or setting up their manufacturing bases in Thailand (21%) in the FTA regime.
Citing the example of the colour picture tubes, the survey noted that while the import duty on colour picture tube is 12.5%, its raw material glass parts attract an import duty of 15%. Similarly in the case of electric fans, iron alloy coils attract a duty of 20% as against 15% in case of the final product.
On a positive note, while the survey said that FTA is expected to help Indian companies gain access to the East Asian and other major markets with whom Thailand has signed an FTA, there are apprehensions amongst certain sections of the industry that a complete opening up of the Indian market without first addressing the internal shortcomings would prove detrimental to their interests.
While asking the government to to look more seriously at issues concerning FTA, the survey showed that India Inc has also started preparations to face the challenges. While 32% of the respondents said that they were focusing on improving productivity to compete with imports form Thailand, a further 28% of the respondents said they have implemented cost cutting measures to hold down the cost of production and increase their cost competitiveness vis-à-vis Thai products.
