What got shipped out in FY13
We have run a large trade deficit of $41 billion with China and of $29 billion with Switzerland.
We have run a large trade deficit of $41 billion with China and of $29 billion with Switzerland. Even with a country like Iran with whom very few countries trade, we have a deficit of $8.25 billion. (I really wish we could pay Iran in rupees and export all the things that they need to run down that balance).
Compare this with the travel bill for Indians, which is at $11.8 billion. Probably this number does not reflect the real cost as it is getting netted against remittance. Clearly, Kashmir getting replaced by Switzerland in Bollywood has an adverse impact on our current account. This is only one example. There are many things that are getting shipped abroad, but are not reflected in the current account.
Arbitration: A lot of companies are preferring places like London and Singapore for arbitration. This is probably a fallout of our time consuming arbitration process.
Hardware infrastructure: A lot of companies prefer offshore places for website hosting and cloud servers, which is a clear reflection of our inability to create adequate hardware infrastructure.
Infrastructure around ports: Colombo and Dubai are bigger trans-shipment ports for Indian cargo. While we have built ports like Mundra, lack of surrounding infrastructure is an issue. India has failed to leverage its position in the global trade market to develop its port and logistics sector. This is despite having a large coast line and a rich and long maritime history. As per one account, Vasco Da Gama was escorted by much larger Indian Ships from Africa to India a few centuries ago.
Aircraft transit: Most passenger aircrafts are serviced in places like Dubai, Singapore and Malaysia. Despite development of global standard airports like Delhi and Hyderabad, large and expanding domestic customer base and strategic location, India does not boast of transit passengers. In fact, many outbound Indian passengers use Gulf-based airports for transit and contribute to the development of those economies.
Offices abroad: Most offshore fund managers keep their offices in places like Singapore and Mauritius. They spend a minimum number of days abroad to escape Indian tax regulations. There is a vibrant NDF (non-deliverable forward) market for the rupee in places like Singapore and Dubai. Singapore Exchange Ltd (SGX) has more open interest on Nifty index than the National Stock Exchange. Certainly, this is not the way to develop India as a major financial centre.
Parallel activity: A large number of consumers in the Gold Souk of Dubai and casinos of Macau and Singapore are from India. Actual money spent by them in those places is difficult to estimate as it might be netted off from the remittance or havala market. Our moral constraints do not allow us to develop a local casino industry though the size of betting in cricket alone demands that we bring parallel activity under regulation.
Shipping: India had an annual trade of almost $900 billion in FY13. Assuming a freight component at 2% (just an estimate), we are paying an annual freight of $18 billion. On the other hand, the total revenue of listed Indian shipping companies is under $2.5 billion and market capitalization under $1.1 billion. Clearly, India has not leveraged its position in building, financing, operating and repairing ships.
Power equipment: Many power equipment manufacturers are present directly or indirectly through joint ventures in India. Despite their low capacity utilization in FY13, $11 billion worth of power equipment was imported (partly due to cheap financing by Chinese suppliers). No wonder the largest manufacturer of power equipment in India is trading at under six times trailing earning.
Servicing foreign capital: India paid $29.6 billion by way of investment outflows (royalty and dividend included) in FY13. This is the cost of servicing foreign capital. While we welcome FII (foreign institutional investors) flows in the country, we need to remember that they need to be serviced. With more than 24% ownership of India’s free-float market cap held by FIIs, the cost of annual servicing is going to be reasonably large.
Defence equipment: India is one of the largest importers of defence equipment in the world. While the old idea “dependence on foreign supplier is fine but participation by private sector is risky” has changed, it is yet to materially impact the current account.
India has to focus not only on actual import of goods and services but also on activities mentioned above to build a strong current account surplus.
After Mint: Did you know that the Museum of Louvre in Paris attracted more visitors than the whole of India in FY13.
Nilesh Shah is director, Axis Direct.
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Business NewsOpinionWhat got shipped out in FY13
First Published:20 Sep 2013, 07:42 PM IST
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