The South China Sea presents a unique challenge for several countries due to contested claims to access to various economic zones in the region. The South China Sea’s geographical location makes it a prime region for strategic trade initiatives and economic value, which has consequently spurred tensions among China, its Southeast Asian neighbors, and the US. According to statistics from the US Energy Information Agency, approximately 11 billion barrels of oil and 190 trillion cubic feet of natural gas deposits lie underwater. In addition, there are several viable fisheries that combined, could account for up to 10% of the world’s total supply of fish. Finally, a 2015 report released from the US Department of Defense found that roughly $5.3 trillion USD worth of goods are shuttled through the South China Sea annually ($1.2 trillion of this involves the US).

As of late, China has increased its military presence in the area by stationing military bases on artificial islands it has created and by deploying warships in waters that were previously considered to be unclaimed or already under jurisdiction. Thus, neighboring countries as well as the United States have viewed this growing activity as a potential security threat and remain wary of Beijing’s compliance with international regulations regarding maritime activity.The South China Sea is a vital conduit for global trade and attempts to restrict access to it could prove to have significant negative consequences on the global economy. American officials fervently maintain that they are not trying to limit the rise of China, but rather, are taking steps to ensure Beijing’s cooperation with established legal frameworks.

As a result of these sentiments, the US has upped its naval activity as well. Early this year, President Trump authorized a ninth freedom of navigation naval operation in the area. However, according to a recent ASEAN poll, two-thirds of ASEAN members believe that US engagement with the area has decreased, and a third do not believe that the US has the capacity to serve as a viable strategic partner and security enforcer.Thus, despite the Trump administration’s commitment to preserving open waters and compelling China to abide by international laws, ASEAN members have expressed their suspicions regarding American presence in the region.


The United States, Philippines, and China

 Further complicating tensions was a recent announcement by the US Secretary of State Mike Pompeo that reaffirmed the country’s commitment to protecting the Philippines from Chinese “armed attack,” which was construed by many as a rebuttal of Chinese activity. This statement is particularly relevant in light of a 2016 legal battle between China and the Philippines over Chinese claims to most of the region’s waters.However, even though the Hague deemed Chinese activity as in violation of international rules, Beijing ignored the ruling and pressed forward with its aggressive initiatives. Pompeo’s statement marked the first time that a US official had explicitly expressed a commitment to Filipino sovereignty in the area and is indicative of an increasingly complicated power dynamic.

A key focal point in the United States, Philippines, China relationship triangle is how Filipino president Rodrigo Duterte positions the country from a foreign policy perspective. As of late, the president has been fickle in his approach towards China. Upon becoming president, Duterte immediately sought to improve economic relations with the country despite the arbitration ruling; for example, he improved access to Chinese investments and migrant workers. Furthermore, both countries mutually agreed to pursue joint ventures for energy extraction in the South China Sea. Nevertheless, despite this easing of tensions, Filipino citizens have criticized Duterte’s softer stance and have expressed concerns regarding growing Chinese activity (such as how over 200 Chinese ships have been spotted in proximity to Thitu Island, which is home to Filipino military bases and citizens). A recent poll found that 87% of Filipino citizens would favor more assertive claims to disputed areas, and the Filipino Department of Foreign Affairs declared the presence of Chinese vessels near Thitu Island to be illegal. Duterte issued a statement in response telling China to withdraw its ships and even threatened the use of military forces as necessary. This proposal stands in stark contrast to his otherwise conciliatory approach towards China and comes at a significant juncture between Duterte’s traditionally soft relations with China and an increase in American commitment towards protecting the Philippines.

However, the US’ presence may not be well-received. Defense Minister of the Philippines Delfin Lorenzana expressed concerns regarding the sixty-sevenyearold Philippines-US Mutual Defense Treaty (MDT), which promises mutual defense should either one of the countries be attacked by a foreign body. However, much of the treaty’s language is vague and according to Lorenzana, may further jeopardize the Philippines given the US’ growing military presence in the South China Sea. Thus, this piece of legislation could further exacerbate already high tensions in the area.

Current Situation and Looking Ahead

Presently, the military presence of various countries continues to escalate. On April 23rd, China commemorated the 70th anniversary of its navy by sailing a fleet of ships near its port at Qingdao, in order to reaffirm its commitment to “peaceful development.” In response, the US Coast Guard and Navy also deployed ships in contested waters. Thus, currently, the South China Sea has evolved into an arena for power projection and geopolitical rivalry between the United States and China. Analysts and leaders fear that both sides are slowly inching towards war with one another, which will embroil other neighboring countries with diverse agendas; however, it is essential to note that armed conflict is not desirable for any party. There is a fine line between power projection and open conflict, and it appears that both the US and China are tip-toeing the boundary but not crossing it.

It was also recently confirmed that a French warship was spotted sailing through the Taiwan Strait earlier this month. As an important ally of the United States, this move was supported by Washington as an exercise of freedom of navigation and demonstrates that the US has allies to support its stance. France’s precedent may inspire other American allies like Japan and Australia to up their presence in the already tense South China Sea. Overall, the South China Sea remains a hotly contested region, and it will be essential to closely monitor how these tensions play out in the near future.

Aside from the US-China rivalry, other nations in the region also play an important role in shaping the power play. In January 2019, Vietnam made a push to curtail Chinese activity by advocating for a pact that will ban activities such as constructing artificial islands, blockading strategic points, and deploying weapons such as missiles.Thus, Vietnam could set a precedent for other smaller ASEAN countries in the region to follow, especially considering that as of late, China has been the predominant power. While the 2016 Philippines arbitration case put a cap on Chinese expansionism, the ruling ultimately did not change the status quo. However,Vietnam is now expressing its opposition to Chinese hegemony in the South China Sea, which could lend a voice to smaller countries looking to assert themselves geopolitically in this critical region. In addition, American foreign policy will favor these pushbacks against Beijing’s influence.It remains to be seen, though, how this dynamic play out in the near future. There is a careful balance between assertion of power and tactful diplomacy that has beenobserved among actors on all sides, as armed conflict is not desirable for any party involved. However, this polarity has become increasingly difficult to navigate given the growing tensions in the region. It is important to also keep in mind that the South China Sea is not simply a proxy battleground for the US-China rivalry; rather, smaller countries in the region also have a stake in the region, and it is essential to also account for their agendas as well. This smattering of different perspectives and priorities will increasingly contribute to an uncertain situation that needs to be traversed with caution.


The South China Sea is a critical hub for trade, and growing animosities in the region have the potential to seriously impact global economic activity. It will be essential to observe the interplay between Chinese aggression and American containment responses over the near future, as well as consider how neighboring countries assert their own unique agendas and respond to these tensions. The South China Sea is a vital geopolitical and economic region, and closely observing how complicated power dynamics play out in it will be critical for governing bodies, businesses, and political figures worldwide.


Firms should be working out their strategy in today’s world keeping in mind the geopolitical changes which keeps on affecting the world  economy and social behaviour which  influences the consumption behaviour of the world or a region comprising of group of countries  or a country.  That, therefore, to a great extent affects a firm’s operations within a country or outside as it goes cross border or if their global value chain goes beyond one single country’s border. The management of the firm now need to focus on macro variables around politics, economics, and international relations to define their corporate strategy and do their corporate planning. They cannot stay oblivious to the happenings induced by any bilateral political relationships between countries or multilateral relationships or between communities or any such geo strategic factors that has a potential to affect the equilibrium of a business environment. Intueri, therefore, considers that management consulting to create a business plan or a strategy plan should factor in appropriate hedges or mitigation strategy to combat  the risk or uncertainties induced by such political turbulence and maintain a sustainable growth strategy against all changes. The blog is one in a series that Intueri will keep on publishing on world affairs, country relationships, and more—those  they feel management consultants need to be aware of and to give appropriate consideration while working with clients

Increasing geopolitical fluidity and intensifying strong-state policies increase the risks associated with economic interactions between states. States have always used tools of economic policy and diplomacy to pursue their geopolitical goals. While globalization was ascendant, many believed that economic connectedness—Western companies and consumers benefiting from low-cost manufacturing, which simultaneously pushed forward emerging-economy development—would contribute to a gradual convergence of states’ outlooks and goals, reducing the likelihood of geopolitical tensions. However, confidence in the mutuality of benefits has weakened. This is particularly true among Western countries, where the strongest geo-economic trend of recent years has been the erosion of support for globalization and growing support for protectionist policies. It is notable that two of the states that have traditionally been among the firmest advocates of global economic integration, the United Kingdom and the United States, have seen the most dramatic uncertainties emerge around their trade-related policies.

In today’s increasingly interconnected world, geostrategic risks find themselves at the heart ofshaping corporate decisions. Geostrategic risks can be broadly classified as spanning geopolitical, political, and macroeconomic uncertainties, and these can certainly affect profits for companies. In a May 2016 survey conducted by McKinsey, 84% of executives believed that geopolitical instability will significantly impact global business over the next five years by reducing profitability. Nonetheless, these concerns vary by industry: while financial services reported the highest levels of fears, healthcare and pharma companies voiced the least concerns.

However, despite these growing uncertainties, less than a third of executives believed that their organizations have effectively factored in these risks into their strategies and around 13% have taken concrete actions towards addressing these concerns. These numbers pale in comparison to results regarding cybersecurity and big data; thus, while technology hasmoved to the forefront for companies, geopolitical risks have been largely neglected. A large reason for this is that organizations have not developed effective frameworks for assessing such risks; most steps taken are ad hoc. Furthermore, the majority ofexecutives believe that the methods used are limited in scope (as they remain largely qualitative as opposed to quantitative in nature). From a company’s perspective, it will be increasingly imperative to utilize research to identify global trends, formulate decision-making protocols, and pursue initiatives that avert risk and capitalize on opportunities. As globalization brings the world closer together, organizations need to adapt to a rapidly changing global climate or face the consequences of not responding to current trends.

These geostrategic risks are also relevant to national economies. A Clingendael study from 2015 evaluated the interconnectedness of the Dutch economy and conclusively found that its integration left it particularly vulnerable to shocks from geopolitical developments. The report specifically identified sanctions, national economic policies (such as China’s One Belt, One Road initiative), and political instabilities in East Asia, the Middle East, North Africa, and Eastern Europe as especially pressing for the Dutch. However, the conclusions from this project are applicable to other nations as well. Decision-making processes must incorporate elements of geostrategic analysis in order to be well-informed and comprehensive; while predicting the future may be out of reach, countries can nonetheless (and ought to) identify trends and prepare contingency plans that adequately account for different possibilities. From this perspective, countries are like companies (albeit much larger), in that they both must consider geostrategic risks as increasingly imperative parts of navigating the global economy.

On looking ahead, here are the four biggest developments that could disrupt strategies in the years to come: 

1. The Rise of Nationalist Movements:

As the political scene becomes increasingly jumbled, governments and citizens alike have found it comforting to re-assert the state as a beacon of power and certainty. The resurgence of nationalist movements ranging from Modi’s Hindutva to Trump’s “Make America Great Again” campaign has become a global movement. While the means of re-establishing identity differ from place to place, nonetheless, these movements share an emphasis on establishing group mentalities. However, as a result, non-state actors have suffered as in- and out-groups have been created; prominent examples include the Rohingya in Myanmar. In addition, another concern that arises is the risk of states intervening in the affairs of others in order to advance their agendas or support groups that they believe to be marginalized or mistreated as a result of this consolidation of identity.

2. Superpower Rivalries:

As state-centered politics move to the forefront,previous norms of diplomacy and mutual respect have eroded. The United Nations has found it increasingly difficult to manage relations; thus, nations feel emboldened to transgress previously established rules without fear of reprehension. Especially given the growth of cyberspace as a new sphere of communication and power projection, there are more opportunities for dysregulation. The China-U.S. and Russia-U.S. rivalries have gained prominence as of late, and aggressive pushes for territorial domination have become increasingly common (such as China’s One Belt, One Road movement). In addition, nations like India and Japan have forged strategic partnerships to bolster economic and political agendas. Thus, superpower rivalries have become a reality, and these relationships must be closely monitored in the years to come.

3. Smaller States Gaining Importance:

These rivalries between major powers have in turn generated instabilities that impact smaller states, which also factor into geostrategic risks. Typically, smaller states have turned to the precedent set by rule-based order; however, as previous alliances become more tenuous, they now risk falling under the hegemony of more established powers. Thus, these states now face a difficult decision: to behave like the small states they are “supposed” toproject their own autonomy in the face of adversity. In addition, smaller states oftentimes face the consequences of regional conflicts in neighboring countries. For example, it is estimated that Jordan’s population grew about 25% from 2011 to 2015 due to fleeing from Syrian refugees.

However, smaller states are not just subject to the conditions imposed upon them by larger states. They also occupy influential positions. For example, instability in Libya has spread to neighboring countries in the form of refugees and weapon transactions.

4. The Sphere of Politics and Economics seem to be Merging:

Finally, the geopolitical climate has also shaped the nature of economic interaction, and this in of itself is a source of risk. Economic policy has consistently remained a tool for states to pursue their agendas. However, the means of accomplishing these goals differ for each country. For example, the United States under Trump has looked to protectionism, while China through its previously described One Belt, One Road program has sought to deepen its ties with neighbors. This Chinese push for infrastructure, some critics argue, will exacerbate regional tensions by increasing domestic reliance on a foreign source and perpetuating indebtedness. Furthermore, the spheres of politics and economics are not separate, and it remains highly plausible that domestic tensions could ultimately influence economic policy. In addition, countries ultimately are self-interested actors, and this can lead to conflicts of interest.


Impacts on Global Economy


US-China Rivalry

Growing trade tensions are feared to have a drag effect on other global economies. The US-China rivalry is particularly pressing for 2019. Economists fear that US tariffs on over $250 billion USD of various Chinese goods could damage other industries, because of the global nature of their supply chains. In addition, they will suppress investment amid trade uncertainty. Asides from these economic concerns, US-China relations have also grown tenser on the political front, with the United States expressing support for Taiwan, as well as condemning China’s record over cybersecurity and human rights (such as with the suppression of the Uighurs). In addition, the US hopes to limit Chinese access to dual-use technologies, such as artificial intelligence and high-performance chips, by encouraging countries such as Japan and South Korea to reduce ties with large Chinese tech companies like Huawei. The advent of 5G technologies, where data can be transmitted as much as twenty times faster than in the current 4G system), has also created a new battleground for the United States and China.

Syrian Civil War

In addition, the conflict in Syria has had and will continue to have significant geostrategic implications for the foreseeable future. Turkey, Russia, Iran, the US, and Israel all have significant stakes in the civil war. Russia has firmly backed the regime of Bashar al Assad as a means of extending its influence in the Middle East; however, the Kremlin seeks to avoid direct conflict with Turkey, the US, and Israel. On the other hand, Iran has been more vocal of its support for the President, and will use the Syrian conflict to bolster Hezbollah, its ally in Lebanon, as well as counteract Israel.

On the other hand, while the US and Turkey are both NATO members, they have differing agendas to pursue. The United States is looking to close out its fight against the Islamic State and more broadly, limit Iranian influence in the region (however, this has sparked tensions with Russia). Meanwhile, Turkey will continue to discourage Kurdish action in Syria. Ankara views the Kurdish People’s Protection Units (YPG) as a terrorist organization, while Washington has relied on the YPG for anti-ISIS backing and leverage against Iran. Overall, the situation in Syria is complex, and the messy linkages between various parties could lead to conflict escalating in 2019.


In a situation like Brexit where firms were facing challenging social-political situations in their home markets, adopting corporate strategy to extreme political uncertainty first requires evaluation of the nature and the scope of uncertainty.When firms perceive a limited level of uncertainty, or uncertainty around economic conditions, they can adopt a hedging strategy. The portfolio of activities will be rebalanced toward those that can survive the political turmoil – whether those are productive activities or transversal functions of a multinational firm, such as human resources or internal control. The firm can reduce the cost of those functions and put up with a drop-in sale. For example, in response to Brexit, Sony decided to maintain a strong presence in the UK but moved its EU headquarters to the neighboring Netherlands.

If business continuity is at risk in fast-growing markets, firms have to consider a shifting strategy: quickly moving a significant part of their activities abroad, starting with those functions that can be shifted at minimal costs. This strategy also implies a reallocation of resources to more secure and stable markets.

Paradoxically, the businesses that will survive and ultimately stand out are those that create certainty for themselves, forging a path depending on how the situation unfolds. In the case of Brexit, a no-deal scenario will almost surely threaten business continuity, and we could expect numerous firms to engage in salvaging or shifting strategies.

Global Outlook

According to the IMF’s Davos report released in January 2019, global growth is predicted to slow for 2018-2019 fiscal year from 3.8% to 3.5%.


This trend can be attributed to various factors.


    • For example, due to rising interest rates, a stronger USD, and greater volatility in financial markets, additional pressure has been placed on emerging-market countries and has contributed to capital outflows. These rising interest rates have stung emerging-market organizations that borrowed from the United States during the financial crisis of 2007-2009 at low rates and led to refinancing of previous debts. These complications have only been furthered due to a stronger USD.


    • In the United States, real GDP growth for the year 2019 has been predicted to drop to 2.5% as a result of its trade war with China, geopolitical tension, and rising oil prices. Similarly, growth predictions for the EU have fallen to 1.9% in 2019 from 2.9% in 2018, mainly due to Britain’s difficulties with Brexit as well as a slowing Italian economy. In China, growth predictions have fallen from 6.8% in 2018 to 6.2% in 2019. (forecasted Chinese growth is at its lowest in 30 years). However, due to rising oil prices, economic activity in the Middle East is expected to rise slightly to 2% from 1.8%. Nonetheless, because of regional conflicts as well as the volatility of the oil market, investors are cautious about their optimism.


    • Key sources of risk to the global outlook are the outcome of trade negotiations and the direction financial conditions will take in months ahead. If countries resolve their differences without raising distortive trade barriers further and market sentiment recovers, then improved confidence and easier financial conditions could reinforce each other to lift growth above the baseline forecast. However, the balance of risks remains skewed to the downside.


    • With momentum past its peak, risks to global growth skewed to the downside, and policy space limited in many countries, multilateral and domestic policies urgently need to focus on preventing additional deceleration and strengthening resilience. A shared priority is to raise medium-term growth prospects while enhancing economic inclusion.


  • In other parts of the world, plans to extend and deepen networks of economic corridors are spurring huge investments in infrastructure. By far the most ambitious is China’s Belt and Road Initiative (BRI): launched in 2013, it spans more than 60 countries and involves investment plans totalling a reported US$900 billion. However, there are numerous other such corridors, most of which connect Asia and Europe. They include the China Pakistan Economic Corridor (CPEC); the Bangladesh-China-India-Myanmar Economic Corridor (BCIM-EC); the International North-South Transport Corridor (INSTC), which links India, Iran and Russia; and the Asia-Africa Growth Corridor (AAGC), a joint initiative by India and Japan.

Proponents of these infrastructure plans argue that they will foster peaceful relations by creating new links and patterns of cooperation. However, the ambitiousness of some of these plans has raised concerns that they might exacerbate rather than prevent tension. The geostrategic interdependence they create—both through the physical presence of assets and people on the ground and through patterns of increased indebtedness, which is a potential source of vulnerability for lower-income countries in particular—are more durable and difficult to unwind than mere trade agreements. This raises questions about potential implications if relationships between corridor partners were to sour in the future. 

The geostrategic climate of the modern world has become increasingly difficult to navigate through. However, it is imperative that companies and countries alike factor in modern trends into their decision-making processes. Politics, economics, and society are all intimately intertwined, and these connections will only further manifest themselves in unexpected ways in the years to come.


2018 proved to be a tumultuous year for the region. Some ASEAN countries faced major challenges. For example, Indonesia was struck by disasters multiple times from earthquakes to a tragic plane crash to a devastating tsunami. Elsewhere, countries were navigating their respective democratic paths. Cambodia and Thailand saw its institutions challenged with Hun Sen winning an allegedly rigged election in Cambodia while Thailand’s junta continued to delay elections it promised to hold. While in Malaysia, democracy flourished as its 60-year-old ruling party was surprisingly defeated in the country’s 14th general elections.

As a region, ASEAN has undeniably grown in importance. Southeast Asia is quickly establishing itself as an Industry 4.0 hub. Geopolitically, it has become a valuable site of contention with major powers such as the United States (US) and China looking to establish their influence over the region.

In 2018, trade dominated the political discourse. Largely responsible for this was US President Donald Trump who led the chorus against multilateralism and free trade and called for more insular policies. Earlier in 2018, he implemented tariffs against China and the European Union (EU).

The US remains an important trading partner of the region, with the country being the third largest trading partner with a two-way trade worth US$235.2 billion in 2017. In a statement released after the summit, it was noted that ASEAN was looking forward to improving trade between the two in the coming years.

Meanwhile, ASEAN is leading the charge against such challenges by proposing a trade agreement of its own, the Regional Comprehensive Economic Partnership (RCEP). If the RCEP does go through, it will be one of the biggest trade deals in history as it will encompass 25 percent of global gross domestic product (GDP), 45 percent of the total population, 30 percent of global income and 30 percent global trade. Other countries involved in this trade agreement are India, China, Japan, South Korea, Australia and New Zealand.

However, passing the agreement is a challenge on its own too. Last year, ASEAN and the countries involved missed its fourth deadline to sign the deal despite having negotiations for more than a year.

Thus, as the ASEAN-5 emerge from a difficult 2018, we see a divided growth outlook in 2019. Indonesia and the Philippines, in our view, will be bucking the global trend with accelerated GDP growth, while Malaysia, Singapore, and Thailand, will all be slowing due to weaker exports and structural constraints.

A key wedge driving the divergence of these two camps is slower external demand and the downcycle in the tech sector which we expect to deepen in H1 2019, hurting the second group of countries more. Structural issues such as deteriorating demographics and high household debt will also leave Singapore and Thailand even more susceptible to a slowdown. In Malaysia, we expect the spillover effects from a weak export sector to be relatively high at a time without policy buffers and commodity prices are falling, posing a potential negative terms-of-trade shock.

In contrast, we expect domestic demand in Indonesia and the Philippines to strengthen, receiving a near-term boost from election-related spending along with an expansionary fiscal stance. For both countries, we also see a continued uptrend in investment spending that is bolstering productivity growth.

Here, we take a look at ASEAN unfolding in 2019 with its international ties with major economies of the world and its outlook for the year ahead.


ASEAN (The Association of Southeast Asian Nations) consists of ten members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. ASEAN-5 includes Indonesia, Philippines, Malaysia, Thailand and Singapore. Founded to facilitate economic and political exchange in the region, ASEANfeatures the ASEAN Free Trade Area (AFTA) between members. In addition, the bloc has established FTAs with other major economic players in Asia and Oceania including Australia and New Zealand (AANZFTA), China (ACFTA), Korea (AKFTA), Japan (AJCEP), and India (AIFTA). Through these FTAs, enterprises can trade regionally with ease, export to new markets, and engage in more simplified import and export protocols. Below, bilateral relations (and general political happenings) between the bloc and specific countries of interest will be detailed more fully:

ASEAN and New Zealand – AANZFTA:

The AANZFTA deal was established in 2010 and offers comprehensive coverage on a variety of topics ranging from trade to intellectual property rights. By the year 2020, up to 99% of Australia-New Zealand trade with Indonesia, Malaysia, the Philippines, and Vietnam will be exempt from duties, and ideally by 2025, nearly all trade will be tariff-exempt, which will promote large savings from businesses and encourage activity. In addition, customs protocols shall be simplified,and foreign investments further protected potentially through investor-state dispute settlement proceedings. Combined, ASEAN nations, Australia, and New Zealand account for a total of $4 trillion USD in GDP and represent over 600 million people.

ASEAN and China – ACFTA:

This free trade agreement was established in 2002 and ever since, China has benefited greatly from the deal. Under the Agreement on Trade and Goods, all ten bloc members of ASEAN removed 90% of tariffs on products by 2015.China has remained ASEAN’s biggest trading partner since the establishment of ACFTA, accounting for $346.5 billion USD in merchandise trade (15.2% of total trade volume) in 2015. By 2020, both parties aspire to account for a combined $1 trillion USD in trade and $150 billion USD in foreign direct investment (FDI).

ASEAN will play an increasingly critical role in Chinese geopolitical affairs in the region. In 2017, the U.S. announced the establishment of a so-called “Free and Open Indo-Pacific” (FOIP), which promotes freedom for enterprises and navigation, respect for sovereign rights, and protection of the rule of law. The U.S. is joined by three other major democratic players in the area to comprise a “quad”: Australia, India, and Japan. While this initiative was not explicitly announced with the intention of curbing Chinese presence in the region, it seems plausible that it was partially motivated by such. China has increased its military activity in the Indian Ocean recently as well as placed missiles on contested islands in the South China Sea, which has concerned regional bodies.

ASEAN finds itself in a unique situation, as its members must leverage both sociopolitical and economic interests. Given that ASEAN does not explicitly enforce relations between member and non-member states, it is more likely that individual bloc members will pursue their own agendas when dealing with China and its FOIP rivals. Nonetheless, both sides will continue to vie for ASEAN member support. For example, in May 2018, Prime Minister Modi of India and President Widodo of Indonesia openly discussed the need for transparency and peace in the Indo-Pacific region amidst growing Chinese military activity. Ironically, three months later in August, China and all ten members of ASEAN held a joint maritime military exercise (the first of its kind). Thus, as China and its rivals vie for power in the region, ASEAN will become increasingly important in channeling both sides’ interests. The bloc is notable for its commitment to consensus. However, the China issue could prove to be a point of contention for its members in the upcoming near future.

ASEAN and India (AIFTA):

India retains great geopolitical and economic interest in South Asia and in the Indian Ocean. Nonetheless, considering that India’s strengths lie in domestic manufacturing coupled with ASEAN’s emphasis on reducing ease of exports, the two bodies appear to have misaligned agendas. This has led to both parties experiencing a sort of disenchantment from previous expectations; India hoped to utilize ASEAN as a means of boosting regional influence to counterbalance China, while ASEAN nations looked to benefit from India’s access to new markets. New Delhi remains particularly interested in Thailand and Myanmar as it looks to promote its presence in southeastern Asia; as part of its Act East policy, the three are currently engaged in constructing a Trilateral Highway, a 1360 km long initiative to boost trade and exchange. Plans are underway to have the highway extend further to Cambodia, Laos, and Vietnam; however, it remains to be seen whether this will fully materialize. Nonetheless, India has focused more on cultivating individual relationships with bloc members as opposed to engaging fully with ASEAN as a collective. Given India’s large resource base and capacities, there is great potential for it to more fully integrate itself into this network for economic and geopolitical benefit. However, given the accelerating pace of China’s influence in the region, effective and methodical decisions must be made soon.

ASEAN and Japan (AJCEP):

Japan remains strongly integrated into the ASEAN community. At the 21st annual ASEAN-Japan Summit in November 2018, Singaporean Prime Minister Lee Hsien Loong noted his support for the Japanese Free and Open Indo-Pacific Strategy, which emphasizes unity across the region, protection of international law, and promotion of free enterprise. At the conference, Japanese Prime Minister Shinzo Abe reiterated his commitment to helping develop ASEAN infrastructure by discussing how Japan has exceeded its goal of providing 2 trillion yen in development over the last five years. Interestingly, the Free and Open Indo-Pacific Strategy, despite increasingly strained relations between the Japanese and Chinese, explicitly extended membership to China. This was seen as an attempt to further foster unity in the region and cautiously regulate Japanese attempts to limit Chinese influence (this development provides an interesting juxtaposition to Japanese membership in the FOIP quad as discussed earlier). Japan thus appears to be more patient in its outlook on Chinese influence and its friendly relations with the ASEAN can serve as a conduit through which to channel its presence in the region.

ASEAN and South Korea (AKFTA):

In 2017, trade volume between South Korea and the ASEAN bloc was valued around $150 billion; in fact, ASEAN is Korea’s second largest trading partner after China. In November of 2018, President Moon-Jae-in reaffirmed his commitment to the so-called “New Southern Policy,” an initiative to reduce Korean economic dependence on the U.S., Japan, and China, and Russia by strengthening relations with southeast Asian nations as well as India. Both ASEAN and Korea aspire to have total trade volume reach $200 billion USD by the year 2020. The reinforcement of these ties is intended to promote economic growth as well as regional stability (particularly with regards to relations across the Korean peninsula). Peace is prioritized on both sides as a means of enabling prosperity.


Both blocs have great potential to set up strong bilateral relations; however, their current relationship can be muddied at times. Several ASEAN members feel belittled by their EU counterparts, which has created tension. For example, Indonesia and Malaysia disapprove of the EU’s standards for agricultural products. Nonetheless, there have been attempts to strengthen ties between the two. On October 19, 2018, the EU-ASEAN Leaders’ Meeting was held in Brussels, which was intended to promote investment, trade, and discuss policy and security issues in the ASEAN fora. In addition, in January 2019, the EU-ASEAN Ministerial Meeting was held with the goal of reinforcing their “strategic partnership.”Nevertheless, no formalized large-scale free trade agreements exist between the two. Recently, there have been increased talks of establishing a Comprehensive Air Transport Agreement (CATA); however, this has yet to be fully implemented. Most of the discussion in ASEAN and EU circles has yet to be proven as substantive.

In addition, the EU and Cambodia remain in dispute over the EBA (“Everything but Arms”) agreement. Under this arrangement, imports from developing countries are exempt from duties and quotas when entering into the EU market; however, given Cambodia’s record with human rights under the leadership of Prime Minister of Hun Sen, this privilege may be revoked. This would be a significant blow to the Cambodian economy, as the EU is the country’s largest market (40% of exports, mainly in the garment industry). Experts predict that this stripping of EBA access would lead to a 12% increase in tariffs in the garment sector and an 8-17% increase for footwear, which would levy an additional $676 million USD in taxes on exports. This would prove to be particularly damaging to the livelihood of rural women, who already face much duress in their home country. The EU’s decision on whether or not to suspend EBA privileges could come by August 2020 and monitoring this situation will be critical in the upcoming months.

ASEAN and the U.S.:

The U.S. partnership with ASEAN emphasizes economic integration, maritime cooperation, strong ASEAN leadership, opportunities for ASEAN women, and transnational challenges. ASEAN is the U.S.’s fourth largest export market; as of 2016, the volume of two-way trade was worth $234 billion USD, and the U.S. had exported $27.1 billion worth of agricultural products to the bloc (mostly soybeans, cotton, and dairy). The U.S. has operated under the framework of the Trade and Investment Framework Agreement (TIFA); however, overall, ties with the region have fallen (particularly under the current Trump administration). In 2016, while U.S.-ASEAN trade volume was $234 billion, China-ASEAN trade volume was valued at over $500 billion USD.

As discussed earlier in the document, China-U.S. increasing rivalriesmay substantially impact bilateral relations with the bloc. ASEAN may potentially serve as a buffer to help mitigate the tension; this hypothesis remains to be tested (Pongsudhirak). However, the bloc has remained receptive to growing Chinese expansion (particularly with regards to the Lancang-Mekong Cooperation agreement, which has led to damming of critical stretches of the Mekong River in the name of infrastructural and economic revitalization). Thus, China has seen its stake in the region grow while the U.S.’s has fallen. To quote the Trump administration, “we need ASEAN to do more for us.” In addition, given its “American First” policy, the U.S. has increasingly sought to negotiate individual bilateral terms with each individual economy in the bloc.

Furthermore, despite the decrease in economic activity, the U.S. has increased its military presence in the region. Military expenditures in Asia and Oceania were valued at almost $500 billion USD. This militarization may further weaken the U.S.’s position and create more tensions.

Commodities/GDP Composition:

Top 10 commodities for the year 2016

Top ten commodities for the year 2017

Percentage of GDP by sector in 2017 per ASEAN member

ASEAN has open access to a large amount of arable land (roughly around 60 million hectacres) in addition to large swaths of rivers and forests. Given this abundant supply of natural resources, major commodities from the bloc include rice, sweet potatoes, corn, sugarcane, rubber. Other plantation crops such as tobacco and oilseeds are also popular. Indonesia, Thailand, and Malaysia combined account for roughly 70% of the world’s rubber production (approximately 3.3 million tons annually). Indonesia and Malaysia also produce around 90% of the world’s supply of palm oil.Finally, aquaculture remains an integral part of the export economy. Thus, overall, given ASEAN’s access to abundant natural reserves, agriculture and food production remain integral to the bloc’s prosperity, particularly for less developed countries such as Cambodia. However, overuse of these resources and concerns with sustainability have become increasingly relevant as of recent, and their effects remain to be seen.

In addition, exports such as electronics, oil, gas, and metals are also significant. More developed countries like Brunei, Indonesia, Singapore, and Malaysia have paved the way for these exports. There is a disparity between the exports of richer and poorer members, but increased connectivity both within the bloc and via bilateral relations may help close the gap.

ASEAN 2019 Outlook:

According to market predictions, growth appears poised to slow for the year 2019 in the Asia-Pacific region, given the United States’ aggressive push for economic isolationism, tighter monetary policies for most countries across the board, and growing government deficits.However, within ASEAN itself for 2019, members appear to be hitting a fork in the road. Experts predict that both Indonesia and the Philippines will experience growth, while Malaysia, Singapore, and Thailand will see slowing due to decreased demand for tech products, increased debt per household, as well as shifting demographics. On the other hand, Indonesia and Philippines are predicted to grow because of higher government spending and expansionary monetary policy.In addition, elections are on the table in Indonesia, Thailand, and the Philippines, which will shape the approaches that these nations take over the course of the year.

Regarding general issues, trade was a strong theme in 2018, particularly given Donald Trump’s crusade against multilateralism and free trade between countries. As a response, ASEAN proposed the Regional Comprehensive Economic Partnership (RCEP), which would encompass over 25% of global GDP and involve various strong trading partners including India, China, and Japan. However, the passage of this legislation has been difficult to pass (missed its fourth deadline last year); nonetheless, a major bill is in the works that could transform the global scene.

Also essential to 2019 will be the topic of the South China Sea. This region remains contested by many, as it is a conduit for global trade and is rich in natural reserves (approximately 11 billion barrels of oil and 190 trillion cubic feet of gas lie beneath its seabed). China has looked to expand its presence in this body of water; however, the United States has disapproved of this and attempted to curb its influence. In response, China has extended cheap lines of credit and glamorous infrastructural projects to win over ASEAN member states, which has directly challenged the bloc’s centrality. Some suspect that China has proposed these options in the hope that the debtor’s default, in which case China would assume command of their resources. At the last ASEAN summit, China and the bloc made progress on a Code of Conduct in the South China Sea; however, the details of this deal remain unclear and more importantly, it remains to be seen if China will abide by its stipulations.

ASEAN remains a strongly integrated bloc that maintains a complex array of bilateral relations with a host of countries across the globe. Given the accelerated pace of global trade along with growing rivalries and conflicting geopolitical interests, it is difficult to make comprehensive predictions about what the future holds. Nevertheless, it seems likely that ASEAN will come to play an increasingly important role in maintaining balance of power in the region and leveraging various parties’ agendas.


IMF chief Christine Lagarde recently irked the consultancy firms worldwide as she suggested that the low-income and emerging-market economies should desist from hiring global consultancy firms to build their strategic plans. She recommended the adoption of seven development goals set by the UN, instead.

“I see many, many low-income countries and emerging-market economies spend millions of dollars commissioning consultants to build their strategy plan. I would recommend some saving be made by taking the 17 principles, the actionable items, and start with that. From there, the consultants can actually do their job of putting it into reality. But don’t reinvent it — it’s right there. So much is wasted. That’s part of the inefficient spending that can actually be saved,” the former French government minister commented at the World Economic Forum (WEF) in Davos, Switzerland, generally putting the consultancy fraternity at unease.

Can economically struggling nations save big time by cutting their use of global consultancy firms?  Team Intueri tries to find an answer.

Management Consulting Industry and Technology Disruption

From its inception years, management consultants as professionals have sought to differentiate themselves by transcending their assigned scope and embedding themselves deep into their clients’ operations. The usual “Where to play? How to win? What to do next?” pitch, coupled with an ability to think in a structured manner, did succeed in yielding the movers and shakers of consulting sustained profits for more than a century.

It would be prudent to note that most corporate strategy arms extensively poach consultants from the major consulting firms. Further, the concentration of business-oriented MBA hires has impaired their ability to keep up with the curve of the rapidly changing business environment. Thus, these same companies are facing the risk of disruption owing to Big Data becoming an omnipresent reality.

Building a Strategy Consulting Model Tuned to the Emerging Economies

What should our next bet be, and how should we scale up our operations? How can we reskill our employees to keep abreast with the changing realities? What can be the next breakthrough product that we ought to focus our attention upon?

These are some of the pressing, complex questions that keep today’s CEOs awake at night. These warrant the adoption of rich data as  equally (if not more) important business insight as raw intuition and/or allied experience. In this regard, it is imperative that consultants re-think their value propositions and tune themselves to undertaking data-driven decisions. Further, the limited success met by major developing economies in effecting serious reforms and/or structural adjustments does indicate that consultants need to re-evaluate the very precepts of globalization which underpin their very existence. More specifically, today’s global milieu represents an inflexion point wherein advisors can succeed only if they change their modus operandi from trying to force-fit the best operating practices of benchmark institutions to a “glocalized” model, rooted in operating-level realities.

While it is true that global consultancy firms are expensive; it is also true that in many ways, they can make it easy for poorer nations to find a route to prosperity. Above all, to be effective, strategies should be followed by a flawless execution plan. Therefore, eliminating the multinational consultancy firms entirely from the equation will never be a sensible option for struggling economies. Instead, they should focus on the apposite, bias-free execution of the blueprint laid out by these esteemed consultancies.


The annual World Economic Forum (WEF) concluded this past Friday in Davos. From discussing the ways to deal with climate changes to pondering over the future of Venezuela, the world’s High and Mighty have made headlines with their rhetoric amid an atmosphere of unprecedented uncertainty, fragility and controversy. The Team Intueri loved to keep sharing updates on everything that were going on over the past few days at the picturesque ski resort of Davos. As the mega event draws to a close, we make a summary of key themes that we think, would play a role in shaping the global, regional and industry agendas in the coming months.

Structural issues like U.S.-China trade tensions and climate change could trigger a catastrophe which could, in turn, affect the growth of emerging countries like India and China. There is a reason for profound pessimism which we have to adjust to a distinct possibility of a catastrophic outcome due to these structural issues. India is a “bright spot” despite challenges to growth in the U.S. and Europe. India continues to have a growth in excess of 7 percent. She seems to remain immune from this (pressure) and benefited from the low oil prices.

world eco forum 2

1. A Weakening World Economy

Global economic weakness remains a concern although the offing of recession is not much in the radar. Growth looks better than in the previous years. Advanced economies are doing better than anticipated especially Euro Area and Japan. The UK has ended 2016 as the fastest growing of the developed economies but the forecast for 2017 will be lower. International Monetary Fund’s, which expect global economic growth to decelerate to 3.5 percent this year.

2. Brexit Bedlam

Concerns over Brexit are growing, the key challenge remaining the time frame. After Theresa May stated that Brexit would mean the the exit from a single market, the agreement between UK and EU in a mutually beneficial manner to remove uncertainty which may hurt business and economy on both sides. A 2-year time frame looks hard to complete the Brexit process. ‘As to whether Brexit can happen within two years, Hammond is cautiously optimistic’.

3. Crying over Climate Change

The World Economic Forum’s Global Risk Report 2019 shows only too clearly, environmental crises – notably a failure to tackle climate change – are among the likeliest and highest-impact risks that the world faces over the next decade. Indeed, 2018 saw record levels of costs due to extreme weather events.  Warnings of a climate change catastrophe have been put forward by scientists unless urgent action is taken to “bend the curve” on rising greenhouse gas emissions.

4. The Geopolitical Recession and a New Global Order

Geopolitical Recession poses a bigger risk than the slowdown in the U.S and China. The playout of domestic factors of any country in terms of growth, jobs and prosperity are of higher concern amidst the geopolitical characteristics of the world is important to note.

5. Getting Into the Era of Globalization 4.0

It is the onset of globalization 4.0, however, the world is vastly unprepared for it. Clinging to an outdated mindset and tinkering with the existing processes and institutions will not do. Rather, redesigning them from the ground up is the need, so that we can capitalize on the new opportunities avoiding the kind of disruptions that are witnessing today. The challenges associated with the Fourth Industrial Revolution (4IR) are coinciding with the rapid emergence of ecological constraints, the advent of an increasingly multipolar international order, and rising inequality. These integrated developments are ushering in a new era of globalization.

6. Two Schools of Thoughts Taking the Center Stage

The WEF theme ‘shaping a global architecture in the age of the fourth industrial revolution enabled many loosely related strands of discussion, to come to one location. Two schools of thought were displayed this year. The ‘incrementalists’ pointed to the fact that AI is not a new phenomenon and has, in fact, been around since the 1950s. This technology is increasingly advanced, but it is useful to think of current breakthroughs, in areas such as deep learning. Then there were the ‘radicals’, who told the gathered crowd that the world is experiencing the fastest adoption of new technology ever – with exciting and scary consequences just around the corner. The radicals also highlighted the fact that a small group of mostly American and Chinese companies completely dominate the field of AI research.

We noted these as the main key areas of discussion in the WEF 2019. Global leaders have been deliberating these issues taking cues from developments in the global economy. India has been a focus, drawing much attention from the trade tensions occurring in the West. Alongside, The WEF also brought leaders together to discuss “key global faultlines” including the western Balkans and Syria. Summing up, the WEF lacked buzz without Donald Trump as unease over Brexit and global recession dominated the summit.


It’s always good to take time to reflect on the past year before you look ahead to set your goals for the new one. Intueri looks back at the year that was and shares its analysis of the key events of 2018 that may have an enduring impact upon global value chains and shape the way forward in 2019. Look ahead by looking back.

The US and China Story: Global Giants at Odds

In retrospect, 2018 did appear to finally put paid to any lingering macroeconomic fragility ushered in by the Lehman Crisis, with the IMF setting its global economic growth forecast at approximately 3.7% for both 2018 & 2019 (in line with the 50-year average). This feeling seemed especially pronounced in the early stages with the then newly-instated Fed chief, Jerome Powell, expressing an unambiguous commitment to a bullish Fed rate hike cycle in synchrony with strong US earnings growth and historically low unemployment rates.

Closer home, the Monetary Policy Committee (under the aegis of the RBI) displayed an enduring commitment towards its inflation targeting framework by hiking India’s key policy rate twice in successive bi-monthly policy deliberations. However, tell-tales signs indicative of fault-lines in the global financial armory had become quite evident by the time the latter of these policy meets was held. For starters, trade tensions as a theme perpetuated throughout the year and climaxed with the US-China trade war reaching a melting point in the second half of 2018. The contingent impact on the global markets was especially heightened as this diplomatic “Armageddon” per se emerged close on the heels of Kim Jong-Un’s successive parleys with Donald Trump and Xi Jin-Ping. Back then, the apparent bonhomie shared by the leaders seemed to convey more sanguine prospects for a truce, thereby affecting a sharp reduction in macroeconomic volatility. The elaborating effects of the US-China trade war continue to loom on the global economy as negotiations are due to continue till the March 2 deadline.

Thus far, both the sides have lost billions of dollars in revenue, hitting sectors such as autos, technology, and agriculture, and crippling the global innovation ecosystem, in general.

The inversion of the US bond yield curve serves as the harbinger of a possible slow-down (if not a drastic recession) in the US economy.

Populism Fuelled Uncertainty in Europe, Latin America, and the Middle East

Additionally, eco-political headwinds continued to bear their ugly head throughout the world. Brexit talks have been stalled time and again in the UK Parliament and several experts now even put the chances of Brexit happening at 50%. This has created several uncertainties about the UK’s precise socio-political standing in the global milieu with a strong shadow of ambiguity lurking over the repatriation of several jobs and global trade linkages.

At the moment, Argentina must bear with the triple whammy of a $ 50 billion IMF credit line, record high interest rates (60%), and a plunging currency. Propped by a US-initiated doubling of metal tariffs, the Turkish lira crisis, wherein the currency plunged 28% versus USD, set the country’s inflation rate soaring to a 15-year high of 25%. Popular journalist and raconteur, Jamal Khashoggi’s death does indicate that a politically-motivated stand-off between the US and Saudi Arabia seems to be in the offing as we head into 2019 with the US-led Iran sanctions serving as a ripe precursor.

Oil Is Still Flowing

As an aftermath, having roiled the financial markets in general, the contingent impact of these events on the commodity markets seems especially pronounced. Globally, oil prices peaked in mid-August with WTI crude oil spots flirting with the mid-70s per barrel. Oil prices have reverted ever since and have closed their divergence with other key macroeconomic indicators, following months of Trump-fuelled pressure to keep oil prices low. However, this relief seems to be short-lived and one can expect oil prices to skirt high levels yet again in mid-2019 with the Russia-OPEC cartel agreeing to cut production in a coordinated effort.

Meanwhile, in India

On the face of it, one might consider that these aforesaid macroeconomic headwinds (especially US-China trade dissonance) would augur well for India’s prospects as it could benefit from import substitution, in the short-run, and could emerge as the go-to manufacturing hub for big-ticket players by virtue of its skilled workforce and political neutrality, in the long-run. However, India has had more than its plate full in terms of the idiosyncratic uncertainties it had to deal with in the past year. The first half of the year witnessed the bad-debt crisis balloon to gigantic proportions with the Nirav Modi / Mehul Choksi drama engulfing the attention of not only India’s financial honchos but also its hoi polloi. This was followed by the IL&FS fiasco which laid bare several scathing deficiencies in the extant institutional risk management practices. While there were several major landmarks in India’s social fabric, headlined by the emergence of the #MeToo movement and the abolition of Section 377 of the Indian Constitution, the same can’t be said as far as its political stability goes. In May, the Karnataka assembly elections proved to be an inflexsion point for India’s political landscape with the post-poll Congress – JDS alliance overcoming anti-incumbency and the Modi wave to retain power in Karnataka. Thereafter, Congress’s recent electoral victories in Chhattisgarh, Madhya Pradesh & Rajasthan prove than the 2019 General Elections are far from a foregone conclusion. Given its prime position among emerging markets, India did exhibit more resilience initially to global risk-off scenarios and the Fed’s tightening cycle. Alas, it had to cave in eventually, due to the unforeseen volatility in crude oil prices, marked by unprecedented FII outflows from Indian equities and the USDINR depreciating to 74.71 in October. Amidst spiking inflation owing to higher oil prices, the credibility of India’s central bank (RBI) was called into question by several market pundits when it was indirectly forced to adhere to several of the ruling dispensations demands (inter alia a higher dividend and cheaper borrowing rates). The then governor, Urjit Patel’s shock exit right after has only aggravated the situation and has proved to be a major jolt to India’s domestic fundamentals.

Opportunity in Pursuit of Certainty

It would be prudent to note at this juncture that the picture isn’t as gloomy as it seems to be. India has for the first time been entrusted with taking the lead in hosting the 13th G-20 summit in 2022, thereby signalling India’s intend to enable its corporate houses to ink several bilateral/multi-lateral trade ties in the near future.  Further, the European Union has formally espoused India’s participation in starting joint connectivity projects, under its proposed 60 billion Euro plan that aims to provide options beyond China’s Belt and Road Initiative. The appointments of Shaktikanta Das and Krishnamurthy Subramanian, as the RBI Governor and the Chief Economic Advisor respectively, have managed to assuage the financial markets to a great extent and portfolio managers shall keep a close watch on RBI’s future policy on growth and economic stability.  Abetted by the Fed Chair’s over-effusive forward guidance on the rate trajectory (implicitly signalling a cessation of the rate hike cycle), the USDINR has stabilized ever since and the pair has reached sub-70 levels after quite a while. The projected slowdown in the US economy as indicated by the inverting bond-yield curve also could be an opportunity in disguise for emerging markets and India in particular.

Given these precepts, 2019 shall prove to be an interesting time for Indian corporate where they can hope to gain windfall business prospects by virtue of strategic positioning and agile execution.


Does the New GDP Evaluation Methodology paint a Truer Picture of India’s Economy?

Last month, the Central Statistical Office (CSO) of India came up with a new set of gross domestic product (GDP) data using the 2011-12 base year. Dubbed by some quarters as a ploy against the previous government just ahead of the next general election, the CSO release triggered controversy and upheaval all over the country. Is it really a ploy of the current government to downgrade the GDP growth figures for the 2006-2012 era? Before you reach a conclusion, we recommend you to delve into the nuances of India’s GDP evaluation methodologies.

GDP Base Year Revision Effects

The GDP back series of 2004-05 with 2011-12 base year was released recently. This year it is largely similar directionally but the new base year figures are higher compared to the old one.

Gross Domestic Product or GDP that measures a nation’s overall economic activity has been a much-debated topic for India. India’s GDP is currently measured on 2011-12 base year for the past 3 years. The revision of base year from 2003-04 to 2011-12 has changed India’s growth figures significantly upwards almost overnight creating a lot of noise amongst economists and statisticians in the market.

Previously, at 2003-04 base year, GDP was computed at factor cost. The new series with the base year 2011-12 is computed at gross value added. The new method takes into account market prices paid by consumers against prices of products received by producers earlier.

Keeping Parity With Global GDP Measuring Standards, India Now Calculates GDP at Market Prices

The headline numbers as released then showed India growing at a pace close to China against the previous methodology which showed expansion at a much slower rate. The revised calculation at market prices also incorporated more comprehensive data on corporate activity and newer surveys of spending by households and informal businesses. The new series had led to about 40 basis points upswing in GDP. However,  it was not actually true that the series has gone up by 2 percent or more.  The growth rates depict some differences, although not significant, and this is largely due to the ‘discrepancy’ variable, which is found to be highly volatile. There is another reason why differences in growth rates are not so critical and that relates to the opportunities being created as a result of the fundamental reorganization that India’s fiscal economy is undergoing at this juncture.

The Rationale Behind the CSO Method

Although initially, other indicators reflected the economy operating at below capacity, the new methodology is globally more comparable as it takes into account a far greater representation of the Indian economy and is more reflective of the real state of Indian economy.Share of industry has gone up while share of services has shrunk.

According to the central statistics office, the primary reason why the new series threw higher estimates of manufacturing sector’s size and growth, was the shift from the Annual Survey of Industries (ASI) to the corporate sector database. ASI data purportedly captures only the value-addition at the factory-level and fails to account for other activities such as sales, and research and development.

However, questions also rose relating the ASI database since corporate activity and consumer prices data sourcing was from firms’ annual accounts filed with the Ministry of Corporate Affairs (MCA) but of course non-availability of data before 2006-07 in the MCA database was an important bottleneck.

Despite controversies, and a lot of criticisms by political players as well as market practitioners, we think that the new series being calculated at market prices captures a better picture of the real economy making it more in line with global standards. Base year revisions usually tend to bring figures closer to the actual, reducing discrepancies and with the back series out now, the data shows fewer disparities in terms of growth rates.

About Intueri

 Intueri is a broad-based strategy and business consulting firm engaged in multi-disciplinary, holistic, and avant-garde business solutions designed to steer growth for enterprises of any size and belonging to any industry. With a world-class team of industry professionals and in-depth business acumen combined with global alliances, Intueri supplies corporate leaders with cutting-edge, research-led business insights, enabling them to streamline their organizational strategies, address the fast-changing market requirements, and boost overall performance improvement in an ever-competitive space.

Agro and Food Processing in West Bengal-Sector Analysis

Purpose of this research: We dive into extensive research on different business verticals with the mission to engage general audience and firms with the latest and in-depth overviews of these verticals so as to assist them in steering their businesses through a much knowledge and research-based approach. This research, we feel, connects best to SMEs looking to comprehend the sector details, its schemes, and the existing scenario. We also feel that this in-depth article diving deep into industry size, challenges, and strategic solution outlines of the issues—would also serve best to students, researchers, and other professionals belonging to the agricultural and food processing industry.

India is the world’s largest agrarian economy with 14.35% contribution to GDP. It is also the world’s 3rd largest producer of food. A bumper harvest of winter crops and higher production in livestock and fisheries sectors aided a 5.3% growth in agriculture GDP in the first quarter of 2018-19, up from 3% in the same period last year. Production of rice, wheat, coarse cereals and pulses registered growth rates of 15%, 1.2%, 15.6% and 17.3%, respectively, during the Rabi or winter season in the agricultural crop year of 2018-19. About 45% of the gross value added or GVA in the agriculture sector was contributed by livestock, forestry and fisheries, which registered a combined growth rate of 8.1% in the first quarter of 2018-19. Agriculture GDP grew at 3.4% in 2017-18, lower than 6.3% in the previous year.

Food processing sector is indispensable for the overall development of an economy as it provides a vital linkage and synergy between the agriculture and industry. It helps to diversify and commercialize farming; enhance income of farmers; create markets for export of agro foods as well as generate greater employment opportunities. Through the presence of such industries, a wider range of food products could be sold and distributed to the distant locations. The term ‘food processing’ is mainly defined as a process of value addition to the agricultural or horticultural produce by various methods like grading, sorting and packaging.

The Global Processed Food Industry is valued at US $ 3.2 trillion and accounts for over 3/4th of global food sales. Despite the large size of the industry, only 6% of the processed food is traded the world over as compared to bulk agricultural commodities where 16% of produce is traded. Growth of the sector has been the highest in developed economies, especially across Western Europe, North America, Japan and Australia. USA is the single largest consumer of processed food and accounts for 31% of global sales. The food processing sector has seen substantial growth in developing economies with increase in GDP, per capita income and the resultant changes in lifestyle.

The Indian food processing industry stands at $135 billion and is estimated to grow with a CAGR of 10 per cent to reach $200 billion by 2015. The food processing industry contributed 7% to India‘s GDP. The industry employs around 13 million workers directly and about 35 million indirectly. The industry is segmented into sectors namely, milk and allied products (dairy), meat and poultry, seafood, bakery and confectionery, fruit and vegetables, grain, pulses and oilseeds (staple) products, alcoholic and non-alcoholic products (beverages), and packaged foods. The classification is not distinct as many processed products overlaps different segments.

India has the second largest arable land of 161 million hectares and has the highest acreage under irrigation. Next to China, India ranks second largest food producer in the world and has the potential to immerge the biggest with its food and agricultural sector. India has diverse agro-climatic conditions and has a large and diverse raw material base suitable for food processing companies. Its strategic geographic location (proximity of India to markets in Europe and Far East, South East and West Asia) provides a lot of inherent advantages to the country.

In food and agro processing sector, West Bengal is one of the three front running states in India.Fruits, Vegetables and Cereals grave in abundance in West Bengal.  The state accounts 30% of potatoes, 27% pineapples, 12% of bananas and 16% of India’s rice production. Additionally, fruits like mangoes, papayas, guava and jackfruit and vegetables like tomatoes, cauliflowers cabbage, eggplant and pumpkin are available in plenty.  Thus, West Bengal in terms of agriculture is the largest producer of rice, pineapple, vegetables and fruits in the country, second largest producer of potatoes and lychees.

Agro and food processing industries form a very important part of the state’s economy.  The West Bengal government is setting up a number of policies and plans to focus on the selected areas like vegetables, fruits, fisheries, rice, poultry, dairy and floriculture.  Some of these plans includes more money involvement in agriculture, encourage private entrepreneurship for processing of fruits, vegetables & horticulture items etc.  The State Govt. is encouraging the farmers for mechanization through the use of modern agriculture implements and machines form timely farm operation and reduction in the cost of production.

In the state, the main processed products in the Fruits and vegetables category are jams, jellies, pickles, sauce, canned sliced fruits and squash.

Agro Food parks are being developed in the state with the intention of providing support to small & medium entrepreneurs by assisting them financially in setting up capital intensive facilities like cold storages, warehouses, quality control labs, effluent treatment plants etc.

Challenges faced by the Industry

High level of wastage of agricultural produces is primarily on account of the inherent disadvantages faced by the sector. This sector is characterized by preponderance of small farmers, small scale & tiny processors, outdated technology, poor infrastructure and a maze of middle men. Therefore, this sector needs support in terms of creation and strengthening of infrastructure which individual farmers and processors will not be in a position to create and sustain. Further, there is also a need for strengthening R&D activities in food processing sector for innovation of technology which suits localneeds, popularization of appropriate technology, skill development and creation of an institutional framework supportive of the industry. The major challenges are investments at different points of the supply and value chain, proper research, farm and lab connectivity, upgradation of technology, increase in farm holding, skill and manpower training, backend and front-end integration and cold chain integration.

Agro and Food Processing Clusters

 Pradhan Mantri KisanSampada Yojana is a flagship programme of the Indian Government for boosting investment in food processing. Rs 1313.08 crore has been allocated in the current budget 2018-19. This scheme is expected to benefit two million farmers and generate 530,500 direct and indirect jobs in the country by 2019-20.In 2016, the ministry had introduced an umbrella Scheme Called “Agro-Marine Processing and Development of Agro-Processing Clusters” or SAMPADA, which was proposed to be implemented with an allocation of Rs 6,000 crore for the period of 2016-20.In September 2017, the ministry released a notice on renaming SAMPADA scheme. The schemes that were to be implemented under SAMPADA will now come under “Pradhan Mantri Kisan SAMPADA Yojana”. Under SAMPADA, the general areas would get 50 per cent of the project cost as grant-in-aid and the hilly and remote areas like the north-eastern region would receive 75 per cent of the project cost.

The scheme aims at development of modern infrastructure and common facilities to encourage group of entrepreneurs to set up food processing units based on cluster approach by linking groups of producers/ farmers to the processors and markets through well-equipped supply chain with modern infrastructure. Each agro processing clusters under the scheme have two basic components i.e. Basic Enabling Infrastructure (roads, water supply, power supply, drainage, ETP etc.), Core Infrastructure/ Common facilities (ware houses, cold storages, IQF, tetra pack, sorting, grading etc) and at least 5 food processing units with a minimum investment of Rs. 25 crores. The units are set up simultaneous along with creation of common infrastructure. At least 10 acres of land is required to be arranged either by purchase or on lease for at least 50 years for setting up of Agro Processing Cluster.Agro processing clusters are set up by Project Execution Agency (PEA)/ Organisation such as Govt./ PSUs/ Joint Ventures/ NGOs/ Cooperatives/ SHGs/ FPOs/ Private Sector/ individuals etc. and are eligible for financial assistance and subsidies subject to terms and conditions under the scheme guidelines.

The following schemes will be implemented under PM Kisan SAMPADA Yojana:

  • Mega Food Parks
  • Integrated Cold Chain and Value Addition Infrastructure
  • Creation/ Expansion of Food Processing/ Preservation Capacities (Unit Scheme)
  • Infrastructure for Agro-processing Clusters
  • Creation of Backward and Forward Linkages
  • Food Safety and Quality Assurance Infrastructure
  • Human Resources and Institutions

All states apply for creation of infrastructure under this scheme. West Bengal submitting 6 applications as on August 2018. However, none have been approved. 13 mega food parks have been operationalised in states such as Karnataka (Tumkur), Punjab (Fazilka), West Bengal (Murshidabad), etc. in the last four years. These mega food parks have generated Rs 3,34,854 jobs in four years and benefited 20,725 farmers. Additional 15 mega food parks will be operational by end of the fiscal, creating jobs for around 4 lakh persons. With regard to cold chain and value-added infrastructure, 85 projects have been operationalised during the past four years. However, the mega food park at Jangipur in Murshidabad has encountered operational challenges as a result of the state government’s apathy in investing Rs 1 crore in the project. The unit is facing some issues but intervention by the State can resolve them. Majority of the funds are being taken away by Maharashtra, Gujarat, Andhra Pradesh and Karnataka. Under the scheme we have a quota for each State. There have been so many proposals from Maharashtra, Gujarat, Andhra Pradesh and others, but none has been received from Bengal.

Funding Agro Processing Clusters

 The NBFC, which is likely to be named Agro-Processing Financial Institution would exclusively cater to the needs of the food processing sector and is expected to be operational by the year-end. It would entail an investment of about Rs. 2,000 crores. The government will pick up 20-per cent entity and invest a seed fund of close to Rs. 400 crores. The remaining will come from the private sector. While there is a huge growth potential for the sector, access to bank funds has been difficult. This is primarily because banks fail to understand the risk assessment. Only about 10 per cent of India’s farm produce is currently processed as against 60-70 per cent globally, leading to huge wastages. Other than this, funding support is provided by NABARD.

According to NABARD, during the five-year period of 2011-12-2016-17, the ground level credit under the priority sector has grown 3 times from Rs. 28602 crores to Rs. 86045 crores. The outreach of the banking sector has been increasing including credit absorption of the State. The potential estimated for agro and food processing sector is Rs. 2896.76 crores which includes units of grain processing, fruits and vegetables processing, edible oil extraction, dairy products and fish and meat items.

Being a surplus production State for both perishable and non-perishable agricultural produces, adequate storage infrastructure facilities is very important. As of now, 459 cold storages with a combined capacity of 76 lakh MT, of which 54.45 lakh MT storage capacity is only for potatoes (400 potato cold storages and 59 multipurpose cold storage units) are operating in the State. This wide gap in storage infrastructure against the requirement opens up opportunities for both public and private investment to create post-harvest infrastructure for agricultural produces.

The State Government has identified 6 agri-export zones in the State, Malda for Mango and Litchi, Siliguri for Pineapple, Hooghly for Potato, North 24 Parganas for vegetables and Darjeeling for Tea to provide target-oriented boost to production of such crops wherein the State has inherent advantages. 12 food parks are currently being set up in the State. Packing houses and multipurpose cold storages are also being built.

Export of Agricultural Products

West Bengal is a predominantly agrarian state with agriculture contributing 18.8% to the State’s GSDP in 2014-15. It is one of the major producers of food in India having a strong agri-horticultural resource base for a thriving food processing industry. The state is abundant in perennial rivers and large water bodies and coastal areas which is suitable for pisciculture and marine fish production. The state has favourable agro-climatic conditions with six agro-climatic zones conducive for cultivation of a multitude of crops, vegetables and fruits round the year. Paddy, wheat and jute are the major crops produced in West Bengal. The state is a major producer of fruits (such as Mango, Pineapple, Litchi, Mandarin Orange, and Guava) and vegetables (such as Tomato, Cabbage, Cauliflower, Brinjal, Cucurbits and Okra). Major spices produced are Ginger, Chilli, Turmeric, Garlic and Coriander. The state also has a large and vibrant livestock population significantly contributing towards the production of Milk, Eggs, Fish and Meat. As of 2015-16, the State has a total production of 17,776 thousand tonnes of food grains,the total production of fruit stands at 3,517 thousand tonnes. The State is the 2ndlargest producer of vegetables in India with a total production of 22,825.45 thousand tonnes. West Bengal Ranks 1 in production of Brinjal and Cabbage; Ranks 2 in production of Potato. It isthe 2nd largest producer of Fish and Meat, 2ndlargest producer of Tea and the largest producer of Jute in the country.

The major production clusters include-

  • West Medinipur, Bardhaman, Birbhum, Murshidabad-Paddy
  • Nadia, North 24 Parganas, Hooghly, Murshidabad-Banana
  • Murshidabad, Nadia, Birbhum, Malda-Wheat
  • Malda, Murshidabad, North 24 Parganas-Mango
  • Malda, Murshidabad, Nadia, Bankura-Brinjal
  • Darjeeling, North Dinajpur, Jalpaiguri-Pineapple
  • Murshidabad, Nadia, South 24 Parganas-Cabbage
  • North 24 Parganas, South 24 Parganas, Nadia-Papaya
  • West Medinipur, Hooghly, Bardhaman-Potato
  • Murshidabad, Nadia, Malda-Litchi
  • Nadia, North 24 Parganas, Murshidabad-Jute
  • Darjeeling, Jalpaiguri, Coochbehar, North Dinajpur-Tea
  • Bardhaman, Jalpaiguri, Murshidabad-Milk
  • Darjeeling, Birbhum, Murshidabad-Eggs
  • Bardhaman, Jalpaiguri, North 24 Parganas-Meat

As per the Annual Survey of Industries- 2014-15, there are 1, 808 registered food processing units in the state.

Some of the major processing clusters in the state include

  • Bardhaman; Jalpaiguri; Hooghly-Rice Milling
  • Old Malda; Nadia; South 24 Parganas; Howrah-Honey Processing
  • Bijanbari, Darjeeling; Kolkata; Malda; South 24 Parganas-Bee Keeping
  • Dinhata, Coochbehar; Beldanga, Murshidabad; Chapra, Nadia; Kaliagunj, North Dinajpur-Mustard Oil
  • Howrah; Malda; Kolkata; Darjeeling-Food Processing and Preservation
  • Cannel East Road, Kolkata; Kaliagunj, North Dinajpur; Ultadanga, North 24 Parganas-Pulse Milling
  • Hooghly; Kolkata; Nadia; Bardhaman-Dairy

At 5.9 mn tonnes installed capacity, the cold storage capacity in West Bengal is the 2nd largest in India. Further, the state has nine cold chain units under MoFPI, and 15 major clusters.

Thus, being such an agri-producing hub of the nation, much of it is also exported. Recently, mangoes are being considered for export to Europe. Vegetables, Tea, coffee, spices, fish cereals, are some of the exporting items. A lot of this is exported to Bangladesh. West Bengal’s top export destinations are mentioned below which covers both agricultural as well as other products.

(Source: EXIM Bank. Note: Values are in USD Million)

There exists a lot more potential and opportunity for the State to expand its export market. Being an agrarian economy, it thrives in production of food items. Like various other ways, formation of clusters is an important method for enabling better production mechanisms and gathering fund support.  This could further facilitate marketing and reach of the products both domestically and internationally.

Thus, we note that although Bengal has such a diverse and rich cultivation base along with the developing infrastructure for creating processing units and clusters which is a step forward in the food chain, infrastructure development for the same and awareness amongst farmers are yet quite low. The Centre provided scheme for agro-processing industries are not being explored much by West Bengal farmers and processing units. The scheme provides financial support and subsidy to encourage production.  Processing of raw food into packaged ones would enable capturing an even bigger market. In this context, designing a recommendation strategy to suggest how this can be facilitated and what would be the benefits of it would be the focus area. Alongside, an export plan for agricultural produces of the State could also be prepared which would identify and highlight the potential markets and increased volumes of exports in a export earning model.

Potential for Bengal

As described above, it is clear that there exists a huge scope for boosting this sector. Based on our research we identified certain areas, addressing which could help achieve better results in agro production and processing industry.

  • Encourage alternative farming and diversification of agriculture– Growing dependence on potato cultivation and inadequate (55%) storage facilities for the same is diverting attention towards opting production of other items like pulses and lowering reliance on potato. Also, 90% of the potato grown are of table variety. There is a need to allow diverse varieties of potato production. This would lower risk of wastage of potato and generate revenues from another shifting crop production as well.
  • Increase farmer income– Facilitate better credit facility and improve infrastructure including transport, cold storage facilities, irrigation, etc. Around 95% farming households are formed by small, marginal and share cropper farmers. They lack financial support to adopt enhanced farming techniques and market their products.
  • Post-harvest management-One of the biggest challenges that lies with perishable agricultural items is that of wastage and crop loss. This is prevented with the help of suitable post-harvest management techniques which provides enough storage, curing, drying and infrastructural facilities. Suggesting proper measures of post-harvest operations and cold chain infrastructure to ensure minimum loss of fruits and vegetables would be the focus in this section.
  • Enhanced promotion of agri business-With increasing pressure on farmers and agri business to be more profitable and competitive. This requires better management, decision-making, improving the efficiency of resource use, and strong marketing. In order to enable this, specialised agribusinesses such as extension and advisory services, consulting and input services, marketing and trade organisations, and those bringing the benefits of the latest information and communication technology to agriculture and the rural economy is required.
  • Ex-portability of agricultural items– Given the inherent conducive natural soil, climate and terrain, the production is of superior export quality and in surplus quantities. This provides ample scope to explore the overseas market for exporting items. By identifying suitable markets for such commodities expansion in exports could be further facilitated.

Key take away from the article:

The highlight, therefore, remains to increase cultivation, reduce losses, generate revenues and capture a larger market. Alongside, identify means to provide financial assistance and credit facility to help farmers in mechanized farming with the use of infrastructural facilities. Also, look for newer options such as post-harvest management, value chain management and finally exportability of commodities with an aim to increase income utilizing central schemes and receiving input benefits like subsidies for production and cluster formation.

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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.


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.



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)

Bhutan 150 156 Received
India 480 (LDCs)

868 (NLDCs)

25 (LDCs)

614 (NLDCs)

Maldives 681 154


Nepal 1257 (LDCs)

1295 (NLDCs)

998 (LDCs)

1036 (NLDCs)

Pakistan 1169 936 Received
Sri Lanka 1042 837 (LDCs)

963 (NLDCs)


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