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Business News/ Industry / Manufacturing/  Rio Olympics fails to give a boost to Indian exporters
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Rio Olympics fails to give a boost to Indian exporters

With Brazil's economy in disarray, the expected increase in sales has not happened for Indian exporters

Mahindra and Mahindra has stopped selling its vehicles in Brazil, as the country’s weakening currency and new rules mandating local production make it unprofitable to do business there. Photo: BloombergPremium
Mahindra and Mahindra has stopped selling its vehicles in Brazil, as the country’s weakening currency and new rules mandating local production make it unprofitable to do business there. Photo: Bloomberg

Mumbai: The Rio Olympics has disappointed Indian companies.

With Brazil’s economy in disarray, the expected increase in sales has not happened for Indian exporters.

India’s exports to Brazil were $5,96 million in 2014-15, up 7.41% from the previous year, data from the Federation of Indian Export Organisations shows. In a sharp contrast, exports to China ahead of the 2008 Olympics was at $10,87 million in 2007-08, up 30.64% from the previous year. “While exports to China rose significantly just before the Beijing Olympics, driven by exports of raw material and machinery, a similar trend is not visible in Brazil where exports grew moderately driven by petroleum products," said Ajay Sahai, director general of Federation of Indian Export Organisations (FIEO).

Many Indian firms such as Aditya Birla Group’s overseas unit Novelis Inc., Reliance Industries Ltd and Mahindra and Mahindra Ltd have been suppliers to Brazil in addition to other firms in the sectors of petroleum, auto, auto components, textiles, chemicals and fertilizers.

The companies named above declined to comment for the story, but have, through their acts, demonstrated their disappointment with the Brazil that also hosted the football World Cup last year.

Novelis’ Brazilian unit has decided to concentrate more on export markets, in an attempt to offset declining demand growth in the domestic market, a report on the website metal.com dated 30 June said, attributing the statement to Tadeu Nardocci, president-south American operations, Novelis.

The company plans to expand its presence in the export markets of South America and Africa, where it already exports aluminium sheet and coils, the report added.

On 1 April, Mahindra and Mahindra said it has stopped selling its vehicles in Brazil, as the country’s weakening currency and new rules mandating local production make it unprofitable to do business there.

“We have been contemplating the move for quite some time and have now decided to not sell vehicles in that market," Pravin Shah, president and chief executive, automotive sector at Mahindra and Mahindra, said in an interview.

And in the petroleum sector, where India exports crude products, the demand is not very high as evident from data—Brazil’s petroleum consumption is projected this year at 3.2 million barrels per day, said an oil analyst who could not be named.

“Typically, any Olympics would lead to heightened activity especially in the construction segment which provides a boost to the economy. This is one reason as to why countries bid for the Olympics as it gets them on to a higher growth path," said Madan Sabnavis, chief economist at CARE Ratings.

“But (India’s) exports to Brazil have remained in the region of $6 billion—it has not quite fallen though we have not seen any increase as such," Sabnavis added.

Tariffs and currency

The faraway country attracts higher freight charges, but the local taxation system and the value of the currency has not gone in favour of Indian exporters.

“The depreciation of Brazilian real versus Indian rupee by 24% year-on-year in the last 12 months, and 27% against the US dollar have made exports from India costlier," said Tanu Sharma, associate director-corporates at India Ratings & Research, a Fitch Group firm.

“Hence exports of textiles to Brazil are likely to be adversely impacted in 2015 and 2016. Also Indian garment exports to Brazil attract ad valorem tariff of 35% making them uncompetitive against the exports from countries which have Free Trade Agreements with the Latin American markets, which attract no tariff," Sharma added.

Textiles and auto components are the sunrise sectors for India’s exports to Brazil, and the Olympics would have been a good ground to break into new markets under normal conditions, FIEO’s Sahai said.

Exports to Brazil constitute less than 2% of India’s total exports which shows there is potential to increase influence in the country, Sahai added.

Meanwhile, auto components exports to the country, too, have been far and few between, said a top official at an auto component firm who declined to be identified, adding that the company’s firm ships some engine parts to the country but the volumes have been small.

“Brazil levies import duty on auto parts and only imports those parts which are an absolute must which they cannot do without," he said, adding that he does not see export orders from Brazil picking up on account of the Olympics.

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Published: 27 Jul 2015, 12:06 AM IST
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