FALLING POUND TO MAKE IMPORTS FROM THE UK CHEAPER
With currency volatility continuing to hit the pound sterling, imports from Britain are expected to be cheaper in the medium to long term, say experts.
Earlier this month, the pound dived below ~80 (it is now at ~82.86). The currency has dropped about 20 per cent against the rupee in less than a year, forcing UKbased exporters and manufacturers to cut prices of raw materials and finished goods shipped to India, in spite of a hit in earnings.
“The uncertainty over Brexit (the British vote to leave the European Union) means the pound will continue to weaken. If raw material import prices from the UK haven’t gone down till now, it’s because of a firming up in commodity prices globally,” said D K Joshi, chief economist at ratings agency CRISIL.
Merchandise goods worth $5.1 billion were imported from there in 2015-16; our exports to Britain were $8.8 billion. This translated to a trade surplus of nearly $3.7 billion. After reducing for three straight years, imports from the UK had risen by nearly 3.5 per cent in FY16, a trend that experts say will be here to stay if Britain manages to exit the EU.
While much of that will depend on what kind of negotiation Britain works out with the EU within the two-year window available to replace the terms of EU membership, prices for crucial imports here are set to fall.
Foremost among these will be raw or semi-processed silver, the largest item imported from the UK, worth over a billion dollars in 2015-16.
“While silver is mostly transacted in dollars, we are expecting a slight fall in import prices from the UK,” said Ram Babu Gupta, convenor of the silver committee of Gems and Jewellery Export Promotion Council. Re-export of finished silver jewellery might also improve, he said.
Sophisticated electrical machinery parts, including those used in aircraft such as turbo propellors and gas turbines, will also become cheaper. Since most aircraft makers are based abroad, a fall in these prices will be significant for both smaller aircraft manufacturers like Mahindra Aerospace and for domestic airlines.
The UK is also the third largest source of scrap iron into India, at nearly 35 per cent of inbound shipment. The type of ferrous scrap mainly imported from the UK goes into the making of ingots and billets by iron foundries, mostly in the micro, small and medium enterprises sector. A fall in prices will significantly increase their earnings, as well as pass on the benefits to smaller rolling mills, industry insiders said.
“Indian importers generally tend to favour the Dubai market, due to the small transit time. However, the UK might become an important new market in the near future,” said Amit Agrawal, chief executive at Garti Corporation, a major scrap importer.
Scrap from aluminium is also a major import and its prices might fall. All these items have implications for industrial generation and export. That apart, a slide in prices in one of Britain’s most famous exports might be of even more importance to many Indian consumers — of Scotch whisky.
Of the $124-million worth of whisky imported into the country, 90 per cent is from Britain. The Scotch Whisky Association (SWA), based in Edinburgh, Scotland, said last year the amount of Scotch whisky sold abroad had increased for the first time since 2013, largely due to India registering a massive jump in shipment value. India has established itself as the third biggest market for Scotch, importing 41 million bottles in 2016, a 41 per cent increase in volumes. Only France (90.9 mn bottles) and America (53.1 mn) import more.
Interestingly, reducing the high tariff in India on Scotch whisky, apart from those on automobiles, is one of the top priorities of the UK government in the free trade agreement (FTA) the Theresa May government hopes to sign with India after Brexit.