Tea Industry in West Bengal

Tea Industry in India and West Bengal

Indian tea production for 2016 (Jan-Dec) was marginally up by 2.5% to 1239.15 million kg as compare to 1208.66 million kg in 2015. In 2016, Assam had produced 642.18 million kg in comparison to 631.22 million kg in 2015. In West Bengal too, production has gone up to 357.47 million kg in comparison to 324.5 million kg in 2015. South Indian tea production was also up from 212.21 million kg in 2015 to 227.57 million kg in 2016.

Although, production of tea in India has risen, exports have taken a hit. Exports have dropped by 2.46% in the period January to November 2016, according to Tea Board data. In the first 11 months India has exported 197.01 million kg of tea in comparison to 202.12 million kg in the same period last year. Indian tea has been facing stiff competition in the world market from Kenyan tea in 2016. Kenya had produced 73 million kg more teas in 2016.

West Bengal comes at the second position in the list of tea producing states with 329.70 million kilograms of tea production in the year 2015-16, which is roughly 26% of the national produce. Districts of Darjeeling, Jalpaiguri and Coochbehar are the major tea producers of the state.

Global Tea Industry Scenario

World tea production (black, green, instant and other) increased by 4.4 percent annually over the last decade to reach 5.73 million tonnes in 2016. China was responsible for the accelerated growth in global tea output, as production in the country more than doubled from 1.17 million tonnes in 2007 to 2.44 million tonnes in 2016. China accounted for 42.6 percent of world tea production, with an output of 2.44 million tonnes in 2016; production in India, the second largest producer, increased to a record high of 1.27 million tonnes, due to favourable weather conditions. Output in the two largest exporting countries, Kenya and Sri Lanka, reached 475 300 tonnes and 295 300 tonnes, respectively. Production in Kenya increased by 18.0 percent, while in Sri Lanka it declined by 11.0 percent.

World tea exports increased annually by 1.4 percent over the last decade to reach 1.75 million tonnes in 2016, underpinned by larger shipments from Kenya, with exports reaching a record level of 436 924 tonnes in 2016, a 16.0 percent increase from 2015, as well as a strong annual growth of 3.4 percent in green tea exports (compared to the annual growth of black tea exports of 1.0 percent). Lower annual growth in exports was recorded by China and India, as larger portions of tea were consumed domestically.

The main determinant for growth of the global tea economy is demand for the commodity. Several factors influence the demand for tea, including the traditional price and income variables and demographics such as age, education, occupation and cultural background. Other main drivers of international tea prices are market access, the potential effects of pests, diseases and weather conditions on production and changing dynamics among retailers, wholesalers and multinationals.

Challenges faced by West Bengal Tea Sector

Small tea growers (STG) of Terai and Duars have certain internal and external issues to deal with. Some of the major ones are:

  • Low price of green leaf– There is absence of fair price of the green leaves produced by the small growers. The STGs do not possess their own processing unit; and have to sell their production to the big tea estates or BLFs where price is entirely decided by the large grower or BLF.
  • Highly perishable- Green leaf is a perishable product which needs to be processed within twelve hours of plucking. Therefore, the STGs compel to take the price whatever offer by the factory owners.
  • Financial problems– Entire cultivation is dependent on private initiative of individual owners. Institutional finance to this sector is very less. Due to lack of ownership of land, non-registration of tea gardens, etc. the institutional finance and help from Government authorities and agencies is not enjoyed by this sector and therefore growth is hindered.
  • Lack of technical knowledge and marketing– It was noted that most of the small tea growers are not technically sound and having lack of proper knowledge in the field of tea cultivation. These unskilled cultivators are facing problem in certain areas like- pest management, menu ring, drainage system etc. that are most essential for the growth and development of this sector. Alongside, In the absence of proper marketing channel of green leaf, the small tea sector has to depend on the buyers, like large tea garden owners, BLFs, etc. Due to asymmetric market information, absence of proper storage facilities and transportation, price of green leaf drops.
  • Policy recommendations– STG are a major economic force within the tea industry. This industry could build the socio-economic structure of the rural people. Sincere effort is needed from the Government side and look these small tea gardens a new development initiative for the state.

Certain other problem areas include workers unrest due to hiking of wages, political and social hindrances. Of late, daily wage hike have been drawing much attention with protests from tea garden workers on increasing daily wages by Rs. 17.50 from Rs. 132.50 to Rs. 150. They are also striving for a minimum pay to be settled by the State government. This issue has led to several strikes and protests causing unrest in the tea plantations. Another important focus area is working conditions for women in the plantations. Women face many social, economic and health related problems like poor health care facility, maternal mortality, problems of epidemics of various diseases, scarcity of drinking water, illiteracy, superstition belief and alike.

Markets for Indian and West Bengal Tea

Indian tea industry has recorded the highest ever production as well as exports in FY 2018. The total tea production was 1325.05 million kgs, an increase of 74.56 million kgs as compared to 2016-17. In percentage terms the increase is around 6%.  Similarly, the total quantity of tea exported during the financial year 2017-18 stood at 256.57 million kgs, while the foreign exchange realized from exports of Indian tea was $ 785.92 million. The growth in exports was majorly driven by the following countries: Egypt (increased by 7.49 million kgs), Iran (increased by 6.95 million kgs), Pakistan (increased by 4.96 million kgs), China (increased by 2.91 million kgs) and Russia (increased by 2.89 million kgs). In this respect, around 8 million kg of this premium agricultural produce is grown on the slopes of the eastern Himalayas in some 87 gardens spread over 17,500 acres. Apart from EU nations like Germany, Japan and US are the important export markets for Darjeeling tea. According to Tea Board of India, production of high-value orthodox tea and green tea increased during 2017-18. These teas are in great demand in high value markets such as Iran, Germany and Japan.

Latest Developments in the Indian Tea Industry

In line with Government’s stated policy of laying emphasis on sustained export promotion in order to maintain supply-demand balance as well as earn higher price realization for the Indian tea industry five targeted highly potential markets have been identified. The programme ‘Project 5-5-5’ would cover five strategically important markets viz. U.S.A., Russia, Kazakhstan, Iran and Egypt for extensive & intensive promotional intervention through implementation of five specific activities over five years through dedicated funding. The above countries were selected based on the parameters of “Market Attractiveness & Potentiality” and “Ability to compete by the Indian Tea Industry”. The foremost objective of the entire exercise is to position “Indian Tea” as an over-arching umbrella brand under which five identified promotional activities would be designed, coordinated and implemented through reinforcing “Brand India” connect amongst the target trade and consumers.

The schemes under this include:

  • Scheme for participation in International fairs and exhibitions with Tea Board
  • Scheme for promotional support to Tea Associations
  • Promotion Scheme for Packaged Teas of Indian Origin (Brand Support)

The broad framework of envisaged five activities is given below:

  • Extensive promotion of India Tea Logo (familiarization/creating awareness) through
    • hosting seminars/conferences
    • publicity in print media (articles, stories, editorials etc.)
    • billboards/hoardings at strategic locations
    • road shows
  • Engagement with the local trading community
    • Participation in Trade fairs/Tea festivals
    • Exchange of business delegations
    • Sponsorship of national/regional trade events
  • Consumer-oriented promotion
    • In-store promotion at point-of-purchase (free sampling with free merchandising)
    • Tea contests
  • Utilisation of Social Media
    • Connect with the consumers (Online fora/communities, Social networks like Facebook, Twitter, Blogs, Viral videos, Multimedia sharing etc) for online conversations through continuous engagement
    • Feedback from them (Viral videos, Twitter, Blogs)
  • Focus on export of value-added teas
    • Equipment & Machineries
    • Technical skills to impart

Also, under overseas promotion scheme, it is proposed to promote Darjeeling, Assam, Nilgiri & Kangra teas and the respective logos among consumers with a view to building equity for Indian tea in international markets. Promotion would be undertaken with inputs and advice from the Industry.  Promotion of India teas are proposed to be undertaken in the overseas markets through road shows, participation in trade fairs & exhibitions, generic as well as speciality tea campaign through Tea Council in U.S.A., participation in fairs & exhibitions, trade facilitation through arranging Buyer- Seller Meets, exchange of trade delegations (inbound & outbound), information dissemination through gathering of market intelligence, protection and promotion of various intellectual properties of the Board (Darjeeling GI, Assam (Orthodox) GI, Nilgiri (Orthodox) GI etc). Membership through Tea Councils in USA and Canada also contribute to promotion of Indian tea in the respective markets.

In another latest development on trade between India and China amidst the looming US-China trade war, The Tea Board has pitched for a preferential trade agreement between China and India to boost exports of black tea and imports of green tea. The duties at present were extremely prohibitive which was restricting exports from both the countries and hence needs to be lowered. 80% of China’s annual tea production is green tea and 18% Oolong variety, while 98% of the beverage produced in India annually is black tea. China’s annual production was 2600 million kilograms, while India’s was half of that. India exports around 7-8 million kg of tea to China, while the latter’s exports of green tea to India was not significant. About non-tariff barriers in both the sides, there should be harmonisation of maximum residue limit for different pesticides by both the countries. Consensus on this is yet to be reached.

by Antara Mukherjee, Head of Research, Intueri Consulting LLP

South Asia Trade with emphasis on Intra-regional Trade Integration

South Asia region comprising of India, Afghanistan, Nepal, Bhutan, Bangladesh, Maldives, Pakistan and Sri Lanka (member countries of SAARC and falling under the SAFTA agreement) continues to exhibit strong growth despite some slowdown in 2016 (6.7%) and 2017 (6.5%). The outlook remains robust primarily backed by healthy domestic demand. In 2018, growth is estimated to accelerate (7.1%)[i], except in Nepal, reflecting continued strength in consumption and investment supported by favourable financial conditions and improving external demand. Short-term risks are largely balanced however, medium term downside risks of other macroeconomic vulnerabilities continue to weigh on the region. Fiscal deficit and public debt are on the higher side than most comparator regions. Alongside, policy uncertainties and potential geopolitical tensions globally could also hurt foreign investments and trade thereby deterring pace of economic activity and growth. Global trade volume grew at the fastest pace in six years in 2017 at 4.7%. The next couple of years are expected to see strong merchandise trade growth but is largely dependent on suitable monetary and fiscal policies by the countries.

Global trade has been expanding rapidly on stronger economic growth across regions, led by increased investment and fiscal expansion. But the escalating trade tensions are likely to moderate trade growth in the near future. WTO anticipates trade growth at 4.0% in 2019. Trade amongst the major economies of the world namely, US, China, EU are facing competition on tariffs and this could lead to a cascading effect on other countries and market players. The mounting tightness in the international market would invite developing countries to derive benefits out of the stiff competition between the two super powers of the world. Today, India is also imposing tariffs on US imports. Retaliation of tariff imposition between nations could eventually lead to deviation in trade dynamics across the globe. In such a scenario, higher reliance on neighbouring and nations within a bloc or region is likely to gain importance creating integration among them. The shift in focus from Trump’s protectionism policies would throw light on the other emerging bloc of the world-South or Southeast Asia. Due to several factors on the domestic, external as well as uncertainties in the developed nations, this part of Asia is gaining significance. Another crucial development is the efforts towards cross border infrastructure development through various initiatives such as BBIN MVA, BIMSTEC and alike.

Thus, the rising focus of South and/or Southeast Asia is drawing attention of investors and market players to enhance its trade, infrastructure, economic fundamentals and overall cooperation and homogenization. Studies are being held on the various aspects of this region’s development and intra-regional trade and its growth opportunities is a prime concern, especially in the current situation of trade and tariffs all over the world.

South Asia trade with the world-

Trade Deficit

Bangladesh Bhutan Nepal Pakistan Sri Lanka Maldives Afghanistan India South Asia
2010 -8.63 -0.21 -4.28 -16.40 -4.91 -0.89 -4.77 -123.88 -163.96
2011 -11.77 -0.37 -4.85 -18.63 -10.03 -1.12 -6.14 -161.56 -214.48
2012 -9.05 -0.46 -5.15 -19.54 -9.81 -1.24 -8.64 -192.87 -246.75
2013 -7.97 -0.37 -5.69 -19.53 -7.79 -1.40 -8.04 -150.55 -201.34
2014 -10.71 -0.35 -6.67 -22.73 -8.12 -1.69 -7.13 -140.22 -197.62
2015 -9.67 -0.51 -5.93 -21.71 -8.39 -1.66 -7.15 -125.42 -180.44
2016 -9.94 -0.48 -8.24 -26.47 -8.87 -1.87 -5.94 -97.06 -158.87
2017 -16.87 -0.41 -9.75 -36.18 -9.53 -2.04 -6.92 -148.86 -230.57

(Source: World Bank WDI. Note: Data is in current prices, US$ billions)

Total Trade

Bangladesh Bhutan Nepal Pakistan Sri Lanka Maldives Afghanistan India South Asia
2010 47.02 1.50 5.99 59.22 22.11 1.29 5.54 576.58 719.25
2011 60.65 1.72 6.69 69.39 30.51 1.81 6.89 767.37 945.03
2012 59.30 1.53 6.98 68.67 28.57 1.87 9.50 786.52 962.93
2013 66.20 1.45 7.45 69.77 28.21 2.06 9.07 780.24 964.46
2014 71.52 1.52 8.45 72.14 30.71 2.29 8.27 785.60 980.51
2015 74.43 1.61 7.37 65.88 29.48 2.14 8.29 660.31 849.51
2016 79.73 1.53 9.63 67.22 29.49 2.38 7.13 625.35 822.46
2017 88.80 1.59 11.25 79.32 32.19 2.69 8.48 745.62 969.93

(Source: World Bank WDI. Note: Data is in current prices, US$ billions)

World exports in 2017 stood at around US$ 17.8 trillion, rising from around $ 16.1 trillion in the previous year. Imports also increased to US$ 18.1 trillion from US$ 16.2 trillion in 2016. Trade deficit therefore came in at US$ 0.3 trillion (US$ 253.1 billion) while total trade expanded to US$ 36 trillion in 2017.  South Asian total trade is about 2.7% of the world’s total trade. With a strong economic outlook and stable macroeconomic fundamentals, historical political tensions, trust deficit, cross-border conflicts and security concerns contribute to a low-level equilibrium. At present, intra-regional trade contributes only 5% of South Asia’s total trade compared to 25% in ASEAN. For instance, it is 20% cheaper for India to trade with Brazil than Pakistan. In this situation, greater regional economic integration could reduce trade frictions and enable significant gains for the countries.

 Intra-regional trade

South Asia lacks regional integration and requires major investment push along with boost to travel and tourism. Economic growth in the region is being deterred due to this. It is one of the least integrated regions of the world. Trade between the SAARC countries is also limited as compared to the developed nations. In fact, SAARC nations trade more with other countries like the US and Europe than their neighbouring countries. For instance, we consider India’s trade pattern. Major trading partners of India are given below which shows that among the top 10 trading partners only Indonesia features in 8th position from the south east region. None of the SAARC nations are in the list.

India’s trade with its major partners

Rank Country Export Import Total Trade Trade Balance
1 CHINA P RP 13.33 76.38 89.71 -63.05
2 U S A 47.88 26.61 74.49 21.27
3 U ARAB EMTS 28.15 21.74 49.89 6.41
4 SAUDI ARAB 5.41 22.07 27.48 -16.66
5 HONG KONG 14.69 10.68 25.37 4.01
6 GERMANY 8.69 13.30 21.98 -4.61
7 KOREA RP 4.46 16.36 20.82 -11.90
8 INDONESIA 3.96 16.44 20.40 -12.48
9 SWITZERLAND 1.08 18.92 20.01 -17.84
10 IRAQ 1.46 17.62 19.08 -16.15
Total of Top countries 129.12 240.11 369.23 -110.99
India’s Total 303.53 465.58 769.06 -162.05

(Source: Ministry of Commerce, Government of India. Note: Data is in US$ billions for 2017-18)

The table above represents top trading partners of India in terms of total trade. China tops the list,

followed by USA and UAE. However, highest exports go to the USA and imports is from China. India’s AAGR between 2007-2017 is 7.4%.

India’s exports to ASEAN grew 10.5% annually in 2017-18 to US$34.2 billion from US$30.9 billion while imports registered a growth of 16.0% in the same period to US$47.1 billion from US$ 0.6 billion. Total trade between India and ASEAN therefore stood at US$81.3 billion. Despite Indo-ASEAN FTA there is not much progress in terms of full potential trade. RCEP is expected to increase trade between India and ASEAN nations further and explore potential trading opportunities. India trade with RCEP in 2017-18 was at US$226.4 billion with exports at US$ 61.1 billion and imports at US$165.3 billion. With 644 million population and combined GDP of $2.7 trillion, ASEAN is a large economy. Combining India and ASEAN together, it is nearly a US$5 trillion economy, the 3rd largest in the world after the US and China. Given this, both India and ASEAN are very important for each other.

A very significant reason for this is the growing influence of China in international market. China over the years has remained the main driver of trade in Asia. Asia has been contributing much to the global trade with rising trade share with the US and EU. However, a large part of intraregional trade is linked to external demand. This is evident particularly in Southeast Asian region including SAARC nations. China’s dominance in trade hinders volume trade between neighbouring trading partners like India-Bangladesh or India-Pakistan and alike. When we take a look at China’s trade profile, China alone trades around US$ 80.9bn with South Asia depicting that the nation eats up much into other medium to smaller sized countries share of trade in this region. To note an interesting phenomenon here is that Asia’s regional integration remains buoyant with trade share rising (57.3% in 2016 from 56.9% in 2015). For sub-regions of Central Asia, East Asia, South Asia, and the Pacific and Oceania, intra-sub-regional trade rose in 2016 from 2015, while Southeast Asia’s fell. The slight decline in Southeast Asia’s intra-sub regional trade share (from 23.3% to 22.8%) was mainly due to the rise in the share of the People’s Republic of China (China) and the Republic of Korea in the subregion’s trade. The share of the United States (US) and EU also increased slightly. Evidently, South Asia continued to have the lowest share. The top 10 trading partners of China as on 2016 are as follows-

Trading Partners Trade balance (US$ billion)
Hong Kong, China 270.55
United States 250.56
Netherlands 47.64
India 46.63
United Kingdom 36.98
Vietnam 23.92
Mexico 22.03
United Arab Emirates 20.07
Singapore 18.48
Pakistan 15.32

Similarly, looking at South East Asian region which primarily includes ASEAN, Regional Comprehensive Economic Partnership [RCEP] (under negotiations) we observe the falling share in intra-regional (intra-ASEAN) as cited above. The trade figures are given below. RCEP as we know is ASEAN + 6 [ i.e. Australia, China, Japan, Korea and New Zealand].

2017 Total trade in goods Intra-ASEAN (%) Extra-ASEAN (%) Total exports Total imports
Brunei Darussalam 7.9 35.6 64.4 4.8 3.1
Cambodia 26.1 26.6 73.4 11.4 14.7
Indonesia 325.8 24.2 75.8 168.8 157.0
Lao PDR 8.4 62.5 37.5 3.6 4.8
Malaysia 413.0 27.5 72.5 217.8 195.1
Myanmar 33.1 34.6 65.4 13.9 19.2
Philippines 176.1 22.2 77.8 68.3 107.9
Singapore 700.9 25.5 74.5 383.3 317.7
Thailand 459.5 22.7 77.3 236.7 222.8
Viet Nam 424.6 11.7 88.3 213.9 210.6
ASEAN 2575.3 22.9 77.1 1322.4 1252.9

(Source: ASEAN Economic Integration Brief June 2018. Note: Data is in US$ billions)

Trade of the RCEP region with the world would be capturing a significant portion of global trade given its composition. In the current situation, by summing individual country’s export and import, RCEP bloc stands at a total trade of US$ 9639.5bn. Given below is a profile of the same.

2017 Imports Exports Total trade
Australia 221.36 229.74 451.1
China 1840.96 2271.79 4112.75
Japan 671.89 698.13 1370.02
Korea 478.41 573.72 1052.13
New Zealand 40.12 38.05 78.17
Total 3252.74 3811.43 7064.17
ASEAN 1252.9 1322.4 2575.3
RCEP 4505.64 5133.83 9639.47

(Source: UN COMTRADE and author’s calculations. Note: Data is in US$ billions)

Another important cause for lower integration between the SAARC nations is similarity in endowment of the bigger countries in this bloc. For instance, India is the largest economy followed by Pakistan and Bangladesh. If we look at their resources, endowment and their trade basket it would largely be similar given comparative advantage of these nations being mostly identical. Due to this, trade between these countries are more limited as their requirements are broadly same which would be supplied by nations elsewhere. This also leads to lower regional integration in trade in the SAARC bloc.

Thus, as we perceive the changing dynamics of the international trade markets, focus on the eastern part of the world is ever increasing. Geopolitical and trade turmoil on the west are shifting reliance to Asia in particular. Major economies of the South and Southeast Asia have been developing on stronger fundamentals with dependence on external sector demand. Even though, most of the external demand is fulfilled by trade with the US, EU and China but with continuous efforts to strengthen connectivity and cross-border infrastructure integration among the countries in a sub-region or bloc is seen to improve. Also, with several treaties, initiatives and negotiations being undertaken by the policymakers of the different nations it is hopeful that regional cooperation would be enhancing and trade within the region would increase.

Appendix

Amidst growing trade negotiations and tariff competition across the world with existing tariff barriers and free trade agreements between two or more countries, non-tariff barriers (NTB) have also gained importance. To the extent that significant domestic protection is assured with the help of NTBs including quotas, embargoes, sanctions, levies and other forms of restrictions. With existing tariff impositions on goods under different categories, hidden protectionism has been rising over the years. Post the dramatic collapse of international trade in the wake of the financial crisis in 2007-08, fears developed that governments may respond to domestic economic challenges by increasing tariffs and other trade barriers to protect their economies. Such uncoordinated trade policy would eventually lead to a slow down in economic growth. One big difference in how countries reacted to the recent global financial crisis of the 21st century in contrast to the crises of the last century has been a stronger cooperation in international trade policies under the shelter of the WTO that has successfully prohibited a surge in border tariffs. Under the WTO regime, across countries tariffs have been on the decline even though the levels of Most Preferred Nations (MNF) tariffs differ substantially. The changing dynamics of trade patterns under the influence of decreasing custom duties and rising trade protection being fulfilled not in the form of tariffs but alternative tariff restriction measures were also adopted under the WTO rules.

NTBs since the global financial crash have been increasing with an aim to reduce imports. Since 2009, only 20% of all implemented protectionist interventions can be attributed to an increase in tariffs. In contrast, NTBs accounted for on average 55% of all implemented protectionist interventions. The usage of NTBs increased steadily relative to trade defence measures. While in 2010 only 54% of all protectionist interventions were NTBs the usage of NTBs increased to 61% in 2016.  The usage NTBs is highly correlated with the income level of an economy. High income countries appear to use NTBs more often than low or middle-income countries. The United States implemented by far the largest number of NTBs. The two BRICS economies, India and Russia rank second and third among the countries that implemented the most NTBs. Also, Not only have NTBs been increasingly applied as trade restricting measures, but they also have had a significant import reducing effect. On average bilateral imports decrease in response to the implementation of at least one NTBs by 12%.

However, identification of NTBs remains a major challenge. Contrary to data on NTBs provided by other sources, the GTA database for example records only very few Sanitary and Phytosanitary (SPS) and Technical barriers to trade (TBT) measures. One reason for this pattern may stem from the fact that other sources like the WTO do not distinguish between NTBs and non-tariff measures. Different to NTBs, non-tariff measures do not necessarily have a protectionist character but could also liberalize trade.

Given this, we take note of the SAFTA agreement in the context of Southeast Asian trade and understand the role and significance of NTBs.

Non-tariff and Para-tariff barriers under SAFTA

The SAFTA Agreement, signed in 2004, entered into force on 1 January 2006 and the Trade Liberalization Programme commenced from 1 July 2006. The SAFTA Ministerial Council (SMC) has been established comprising Commerce Ministers of the Member States. To assist the SMC, a SAFTA Committee of Experts (SCOE) has been formed. The total cumulative exports under SAFTA since July 2006 have crossed US$ 3 billion. Data on intra-SAARC Trade flows is not being received from Member States regularly.

The Standing Committee at its Forty-first Session approved that a Special Meeting of SAFTA Committee of Experts be held after the Eighteenth SAARC Summit to consider the proposal put forward by the delegations from Bhutan, India, Maldives and Pakistan that peak tariff on all products may be reduced to 0 to 5% by the year 2020, excluding a small number of about 100 tariff lines which may still remain in the Sensitive Lists of Member States. Accordingly, a Special Meeting was held in Islamabad on 4 July 2015 to consider the above proposal. After discussions, the provisional/confirmed positions with regard to further trade liberalisation and reduction in the sensitive lists emerged as follows:

Member State

 

To Reduce Sensitive Lists up to

 

To reduce Tariff to Positions
Afghanistan 235 by 2030 0 to 5% by 2030 Confirmed
Bangladesh 450 by 2030 0 to 5% by 2030 PROVISIONAL
Bhutan 100 by 2020 0 to 5% by 2020 Confirmed
India 100 by 2020 (for NLDCs) 0 to 5% by 2020 Confirmed
Maldives 100 by 2020 0 to 5% by 2020 Confirmed
Nepal 500 by 2030 0 to 5% by 2030 PROVISIONAL
Pakistan 100 by 2020 0 to 5% by 2020 Confirmed
Sri Lanka To give position by October 2015 after consulting stakeholders

The SCOE at its First Meeting set up a Sub-Group on Non-Tariff Measures (NTMs) to address non-tariff barriers to intra-regional trade. Six meetings of the Sub-Group were held. At its last meeting on 11-12 June 2011 in the Maldives, the Sub Group completed its task of identification of Non-Tariff Measures/Para Tariff Measures (NTMs/PTMs). It was agreed that the remaining task of categorisation of NTMs/PTMs and their possible elimination and to see whether they are compatible with WTO or not would be taken up by the regular Meetings of SCOE.

A Special Meeting of the SCOE on NTMs/PTMs was held at the SAARC Secretariat on 31 July-1 August 2013 in order to go through the Notification of each Member State and to see how those can be eliminated. The Special Meeting of the SCOE examined the Notifications, Responses and Counter-Responses submitted by Bangladesh, India, Nepal, Pakistan and Sri Lanka, and observed that the non-tariff measures and para-tariff measures affecting their exports to other Member States fall into the following broad categories i.e. (a) Procedures; (b) Variations in Standards; (c) Transit, transport and infrastructural difficulties; (d) Para-tariff measures; and (e) Dispute Settlement Mechanism. In view of technical nature of the work involved in categorizing the Non-Tariff Measures and Para-Tariff Measures in appropriate categories as per internationally recognized norms, the Meeting recommended that a Consultant may be appointed by the SAARC Secretariat to examine the notifications on NTMs/PTMs submitted by Member States and to look into all relevant aspects and make suggestions on how to address the trade barriers. The SAARC-Trade Promotion Network (TPN), comprising twenty-eight public and private sector organisations in eight Member States, has also brought out a detailed study on NTMs which was presented to the Ninth Meeting of SCOE (Thimphu, 22-23 July 2014). The Member States have also been requested to give their fresh Notifications on NTMs/PTMs as required under SAFTA Agreement.

The Sixth Meeting of the SMC (Islamabad, 16 February 2012) established a Working Group to further reduce the number of products in the Sensitive Lists under SAFTA. In its Second Meeting (SAARC Secretariat, 30 July 2013), the Working Group on Reduction in the Sensitive Lists under SAFTA (Phase-III) reviewed the progress of implementation of decisions relating to reduction in the Sensitive Lists as agreed during Phase-II. The current status of the number of products covered in the Sensitive Lists of Member States before and after the 20% or more reduction is as given below.

Member

State

Number of Products in the original Sensitive Lists Number of Products in the Revised Sensitive Lists (Phase-II) Status of Receipt of Revised Sensitive Lists as per HS-2012
(1) (2) (3) (4)
Afghanistan 1072 850 Not received
Bangladesh 1233 (LDCs)

1241 (NLDCs)

987 (LDCs)

993 (NLDCs)

Received
Bhutan 150 156 Received
India 480 (LDCs)

868 (NLDCs)

25 (LDCs)

614 (NLDCs)

Received
Maldives 681 154

 

Received
Nepal 1257 (LDCs)

1295 (NLDCs)

998 (LDCs)

1036 (NLDCs)

Received
Pakistan 1169 936 Received
Sri Lanka 1042 837 (LDCs)

963 (NLDCs)

Received

The Phase-II reduction in the Sensitive Lists has already been implemented by all Member States. The Third Meeting of Working Group on Reduction in the Sensitive Lists under SAFTA (Phase-III) was held in Islamabad on 6 July 2015. It considered the matter relating to further reduction in the Sensitive Lists under SAFTA (Phase-III). The delegations from Member States agreed to the following reduction in the products covered in their Sensitive Lists under Phase-III as given below. The delegation of Sri Lanka agreed to discuss the matter further with their stakeholders so that they could also agree to go beyond 10% reduction.

Member State Percentage Reduction
(1) (2)
Afghanistan 20 %
Bangladesh 20 %
Bhutan Not Applicable
India 20 % for NLDCs only
Maldives Not Applicable
Nepal 20 %
Pakistan 20 %
Sri Lanka 10 %

 

 

 

 

 

 

 [i] IMF WEO estimates

 

by Antara Mukherjee, Head of Research, Intueri Consulting LLP

ASEAN and Major Countries Economic Snapshot-Focusing on Economic Growth and Inflation

Global economy has been facing many challenges underpinned by risks related to trading environment. Tariff imposition by the US and retaliation by other major nations is likely impact global trade deteriorating the situation further for international trading markets. The other significant risk is policy normalization in advanced countries effecting capital flows mainly. Central banks are normalizing monetary policies on strong macroeconomic incoming data while credit conditions are tightening leading to short-term capital outflows from emerging economies. In this region, ASEAN economies are under pressure to adjust their monetary policies on accelerating capital outflows. However, given their strong fundamentals despite these emerging risks, the region is seen to remain resilient with steady growth driven by private consumption, strong investments in public infrastructure and robust exports.

Off recent times, rising geopolitical and international trade turmoil in the West is shifting focus on to the East of the globe. Economies of this side of the world are gaining importance based on their changing reform policies and strengthening domestic economy. To name a few, China, India, Japan, Singapore are standing on stable macroeconomic fundamentals. ASEAN member states have been adopting accommodative monetary policies coupled with fiscal initiatives which have strengthened the region’s economic credentials making it one of the rapid growing regions of the world. Developed economies are increasing relying on this region for investment and consumption markets. International policymakers are also eyeing growing dynamics of this part of the globe while prescribing policies and making decisions. In the light of these deliberations, it is crucial to take a look at the macroeconomic situation of the ASEAN region at present.

ASEAN GDP growth suggests that the region is losing momentum led by weakening external sector. The region grew by 5.2% on annual basis. The slowdown was primarily due to sluggish growth in Malaysia and Philippines. Net exports dragged growth in both economies offsetting stronger domestic demand. Thailand also lost some momentum on the back of slower government growth while Singapore economy dipped in Q2 on decelerating services sector although manufacturing sector continued its resilience. On the other hand, region’s heavy weight Indonesia, gained stem in Q2 negating much of the regional downturn. Firm domestic demand and healthy private consumption contributed to the improvement.

In this backdrop, we discuss the macroeconomic scenario of major countries of this region and their risks and outlook going forward.

INDONESIA | Stronger domestic demand to spur growth in 2018

Indonesian economy sustained its gradual growth momentum with GDP coming in at 5.3% y/y in Q2 2018. The rise was driven by sharp acceleration in government spending, while household spending rose moderately, and fixed investments grew slowly. Manufacturing PMI fell from a 26-month high of 51.9 in August to 50.7 in September on slower rise in output and new business. Industrial production growth increased to 4.9% y/y in August from 3.9% y/y in the month before. Business confidence data jumped to the highest since Q3 2009, at 112.8 in Q2 2018 from 106.3 in the previous quarter led by strong usage of production capacity and income expectations while consumer confidence rose to 122.4 in September from 121.6 in August. Production activity in the third quarter has started off on a positive note while consumption demand is moderate. Headline and core inflation moderated to 2.9% y/y and 2.8% y/y respectively in September from 3.2% y/y and 2.9%y/y in the previous month. The Central Bank raised key policy rates by 25bps to 5.50% to maintain stability in domestic financial markets and control current account deficit (CAD) within a desirable limit. The Government has been taking measurable steps to reduce the CAD by encouraging exports and lowering imports. Indonesia’s CAD in 2017 was 1.7% of its GDP which is expected to widen to 2.2% in the current year (ADB estimates).  To reduce imports and strengthen currency, the Government announced a fiscal prudent 2019 budget in mid-August.

Growth is projected to gradually strengthen as government spending and investment pick up pace. Key risks to the country’s outlook stem from rising political noise ahead of the 2019 election or rising tensions on US-China trade. The ADB estimated GDP growth to rise by 5.3% in 2018 and 2019 respectively while inflation is forecasted at 3.8% in 2018 and 4.0% in 2019.

THAILAND | Domestic demand supports growth, external sector a drag

Economic growth eased to 4.6% y/y in Q2 2018, due to slagging external sector. Net exports contracted in the second quarter (0.4% y/y). Domestic demand continues to fuel growth with Private consumption expenditure rising by 4.5% y/y in Q2. Drag in government consumption and weaker inventories slower growth in the quarter. One of the key driving sectors, tourism, slowed to 9.1% in the quarter as compared to 15.4% in the previous one. Inflation remains modest at 1.3% y/y in September 2018 along with core inflation easing to 0.5% y/y. The accommodative monetary policy stance remains conducive to continued economic growth and targeted inflation of 2.5% average with a band of ± 1.5%. The policy rate has been left unchanged at 1.5% since 2015. Industrial production data suggests manufacturing activity is picking up although at the slow pace (1.5% y/y in August v/s 4.8% in July 2018). Manufacturing PMI soft data however remains stagnant at 50 in September reflecting fractional rise from 49.9 in August led by fall in output while new orders rose slightly along with deflationary pressures on prices. Business sentiment for September marginally increased to 51.5 from 51.4 in the previous month mainly due to slight rise in investment and cost sub-indices, others remaining largely unchanged from the previous month. Q3 has started on a muted note with soft and hard data both reflecting moderation in economic activity.

Growth is, expected to moderate as external demand slows; softening of exports and rising oil prices amidst growing trade tensions between the US and China pose downside risks on the economy. Domestic economy will continue to be resilient with private investment supporting growth and inflation remaining under control of the Bank of Thailand’s target. The large current account surplus (10.8% of GDP in 2017) is also seen to slightly ease at 8.0% of GDP in 2018 giving a breather to exchange rate devaluation and helping garner foreign reserves. Finally, the upcoming elections in February 2019 after over 4-years of military government rule is the key event to be watched for to further interpret the economic growth momentum. The Asian Development Bank (ADB) projects GDP growth at 4.0% and 4.1% in 2018 and 2019 respectively. Inflation is forecasted at 1.3% and 1.2% respectively for the same period.

MALAYSIA | Strong employment and investment drives growth

Malaysian economy decelerates with 4.5% y/y growth in Q2 2018 led by drop in exports while imports rebounded. Domestic demand remained strong owing to private consumption growth at 7.9% y/y and fixed investments recovering to 1.2%. Sentiments data suggest pick-up in economic activity with manufacturing PMI increasing to a 10-month high of 51.5 in September, for the first time since January 2018, driven by strongest rise in employment since July 2012. Consumer confidence rose to an all-time high of 132.9 in Q2 2018 from 91 in the previous quarter. Inflation eased to 0.2% y/y in August however the impact of consumption tax policy on headline inflation is expected to be transitory in nature and lapse towards the end of 2019.  Core inflation fell 0.2% y/y the same pace as in July.  Factory output rose 1.6% y/y in August, easing from 2.4% y/y in the previous month. The Central Bank’s monetary policy stance accommodativeness remains consistent and the MPC continues to monitor and assess the balance of risks around the outlook for domestic growth and inflation. In this respect, overnight policy rate remained unchanged at 3.25% in the latest meeting.

The external sector growth moderated in August with imports outpacing exports. Exports shrunk to 0.3% y/y while imports grew at a faster pace of 11.2% (v/s 10.3% in July) narrowing trade surplus to 1.6bn from 8.3bn previously. Economic growth should broaden as contributions from the external sector gain traction amidst downside risks to exports, while domestic demand is expected to be propelled by vibrant private consumption and higher investment spending. Nonetheless, the economy is susceptible to external shocks and downside risks of global trade tensions or regional geopolitical tensions.

PHILIPPINES | GDP growth outlook robust, investments the key driver

Philippines economic activity slowed in Q2 2018 with GDP growth at 5.9% y/y compared to 6.7% in the previous quarter. Imports grew faster than exports, rising by 19.7% y/y and 13.0% y/y respectively decelerating overall growth. Household and government expenditure eased to 5.6% y/y and 11.9% y/y respectively. Manufacturing PMI improved further to 52.0 in September signaling robust demand and upbeat business confidence. Industrial production growth moderated coming in at 9.3% y/y in August compared to 12.5% y/y in July. Inflation rose sharply by 6.7% y/y in September, hitting another 9-year high, after increasing by 6.4% y/y in the previous month. Core inflation fractionally eased to 4.7% y/y in September from 4.8% y/y in the month before. The Central Bank’s target of 2% inflation has been further exceeded while the policy rate was hiked 50bps in the latest meeting citing upside risks on inflation outlook and rising core inflation broadening price pressures amidst resilient demand conditions.

The Philippine economy continues to dominate the region as one of the fastest growing economies. The Government’s push for 10-point socioeconomic agenda for continuity in macroeconomic policies, infrastructure push, tax reforms and other structural reforms transformation are well taken at this stage to provide a thrust to further economic development. Current account deficit (CAD) at 0.8% of GDP in 2017 is seen to widen to 1.0% of GDP in 2018 as per ADB estimates. Also, growth is projected at 6.8% and 6.9% in 2018 and 2019 respectively while inflation is forecasted at 4.0% in 2018 and 3.9% in 2019. Major risks include regional slowdown and financial market instability amidst growing trade war like situation.

SINGAPORE | Economic growth remains on steady expansion path

Economic growth eased in Q2 2018 coming in at 4.0% y/y giving up 0.5pp from the previous quarter. Government and private spending decelerated in the quarter while exports stood steady against rising imports. Much of the slag resulted from sluggish domestic and external factors. According to production approach, manufacturing and services sectors slowdown at 8.6% y/y and 3.4% y/y respectively (v/s 9.7% y/y and 4.0% y/y) contributed to moderation in Q2 GDP growth while construction continued to contract for the seventh straight quarter (-4.4% y/y v/s -5.2%y/y). Soft data suggests manufacturing remaining muted with PMI contracting to 49.6 in September. Alongside, industrial production too moderated to 3.6% y/y in August (v/s 6.2% y/y in July). Headline inflation inched up to 0.8% y/y in September while core CPI marginally dipped to 1.8% y/y in the same period. The Monetary Authority of Singapore (MAS) sees upward pressure on core inflation underpinned by improving labor market rising gradually towards upper limit of 1-2% target range in 2018 while headline inflation is projected to be in the upper half of 0-1% forecast range for 2018. Trade surplus moderated to SGD 3.3bn in September compared to SGD 6.3bn in August led by rise in exports (6.2% y/y) against sharp increase in imports (9.5% y/y).

External sector being a significant driver of growth, global trade movements and conflicts led by the US against its key trading partners-China and European Union are posing threats to the economic development. Merchandise exports account for 120% of the country’s GDP and thus protectionism and tariff competition are creating upside risks to economic growth and activity.

Concluding remarks

Thus, from the current macroeconomic scenario of ASEAN and major economies of the region it is evident that for most nations external sector and exports have been on the downside, albeit being early signs in H1 2018. The growing US-China tariff war situation would have repercussion effects on this part of the world. For instance, ASEAN’s trade in iron and steel comprised 3.4% of its total trade in 2016, with exports amounting to US$20.3 billion vis-à-vis imports of US$56.9 billion. At US$3.3 billion, the US’ accounted for 1.5% of ASEAN’s total iron and steel trade in that year; the direct impact of the recent US tariffs on ASEAN is hence expected to be small. More of a concern is the overall impact given the possible repercussion effects, for both exports and imports, from major partners that may be affected by the tariffs. This is particularly true for China, which at US$24.1 billion accounted for 31.2% of ASEAN’s total iron and steel trade. The outturn on global trade is likely to impact emerging markets given China being one of the top trading partners of ASEAN. Largely, the risks surrounding the growth outlook of this region, is attributed to tariff competition and protectionism by the major powers of the globe.

Our estimates point towards slight slowdown in economic activity for most of these major economies in this region over the next couple of quarters in the unlikely event of further stiff competition in global trade negating strengthening domestic demand. Even though the countries are performing well on the domestic front laid on strong foundations, healthy private and public consumption and steady investments growth, overall future economic activity might take a setback, decelerating growth. Inflation too continues to be a concern of the monetary policy authorities and upside risks to headline and core inflation persists. Accommodative monetary policy stance with inflation targeting remains the focus of the Central Banks. On further global economic turmoil and geopolitical uncertainties the region is likely to face financial markets sell-off, exchange rate fluctuations and FII outflow from emerging markets on ripple effect of advanced economies cautious macroeconomic condition. In the ASEAN, government initiatives and fiscal policies would be ensuring sustainability in economic development. Amidst rising to balanced growth in developed countries contributing to expanding world economic growth, we see the ASEAN region growing steadily but with downside risks resulting in below par growth and upsides to inflation. The macroeconomic outlook remains stable and positive for the next two years supported by robust domestic growth with global uncertainties weighing down.

In our view, markets and corporates are watchful of development of incoming data. Manufacturing and investment remain upbeat in most economies and the region therefore continues to be positive on this front. Q2 2018 reflected a slowdown in growth for most nations led by decelerating external sector but it seen to be supported by domestic demand with broadly balanced short-term risks, although downside risks over medium term prevails. However, corrective measures are to be adopted only after further movement of data on growth and inflation is observed. The year is expected to end on a steady note and thus immediate reactions from corporates and investors are on a pause. The stability of manufacturing sentiments translating into growth momentum going forward continues to remain a concern and under increasing cost burdens and weakening currencies, manufacturers remain under pressure and further pickup in industrial activity would alter change in directions. Food manufacturing, basic metals, petroleum products and automotive industries are few sub-sectors under focus.

 

by Antara Mukherjee, Head of Research, Intueri Consulting LLP