India in BRICS: Pushing the right pedals
Pushing the right pedals
India has grown to be one of the stronger players amongst BRICS economies, with exports being steered by a robust manufacturing base and imports being driven by an expanding consumer base. Still, bilateral trade with other BRICS economies, barring China, continues to be weak. Industry experts explain why the situation exists and the advantages that a greater investment in building these relationships will bring.
India has climbed 23 points to the 77th rank, becoming the top-ranked country in South Asia for the first time and third among BRICS economies in World Bank’s Ease of Doing Business Index for the year 2018. India is also leading container trade growth within these economies, according to a 2018 analysis by Maersk Line. digs deeper to uncover the driving force behind India’s position of power among BRICS economies, and how this association of emerging national economies can further strengthen its position in the world.
Sharing his point of view, Satish Lakkaraju, Chief Commercial Officer, Agility Logistics, says, “Among the BRICS nations, India has been growing steadily because of a large consumer growth. It is also the fastest growing BRICS economy, driven primarily by the confidence the industry has in the country.”
“As per Maersk, India registered a 14 per cent y-o-y growth in its export-import trade with member countries of BRICS during the first quarter of the 2018 calendar year. One reason for India to stand out this way are the dynamically improving economic reforms. The current size of the Indian logistics sector of around $160 billion is predicted to touch $250 billion in the next couple of years,” explains Ashish Asaf, MD & CEO, SA Consultant & Forwarders. “One of the biggest turning points India has seen in the upward transition of its logistics sector is the implementation of the Goods and Services Tax (GST). GST has replaced seven indirect tax heads, negating the requirement of warehouse hubs across states and enabling turnaround time of goods carriers by reducing waiting time at check-posts. This has subsequently increased productivity and lowered logistics costs in the supply chain. The stereotypical notion of Indian logistics players being mere contractors or transporters is fast changing, with manufacturers and exporters seeking
optimisation through outsourcing value-additions by logistics players. Also, there is an advancement in digitisation and use of technology by logistics players post the GST,” he continues.
Sharing some key facts, Bharat J Thakkar, Past President and Permanent Member - Board of Adviser, ACAAI and Co-founder & Joint Managing Director, Zeus Air Services, says, “Amongst 190 countries, India stood at 142nd rank in 2014 and 130th in 201516. Amongst SAARC nations, the ranking improved to 100 in 2017 and 77th in 2018. With regards to BRICS nations, we were ranked 142 in 2014 and are now 77th, while China went from the 19th to 46th position and South Africa went from 43rd to 82nd. The initiatives taken by the government have helped the industry achieve such a growth.”
Asaf adds that with the government creating a new division in the commerce ministry for ensuring development and best practices in the logistics industry is another big leap. “One of the major aims is to bring down the country’s logistics cost from a whopping 14 per cent to less than 10 per cent, on a par with that of advanced nations. India’s liberalised cabotage policy, announced in May 2018, ought to create new transhipment opportunities for Indian ports by driving competition among ocean carriers. Infrastructural development by the Indian government (like the Bharatmala project), strengthening the countrywide road connectivity, the Sagarmala initiative, the dedicated freight corridor project to reduce transit time, are all initiatives worth apprising,” he says.
N Ramakrishna, Vice President (Sales & Marketing), Kribhco Infrastructure, explains that with the growth of internet and global capital flows, India’s ties with BRICS have blossomed. “Even though the ‘Make in India’ campaign seeks to change the dynamics, presently, almost every smartphone bought in India is manufactured in China. Chinese exports of products, ranging from steel to firecrackers, at ultra-cheap rates are a cause of major concern for Indian policymakers and corporates,” he says. Ramakrishna goes on to add that with Indian multinationals such as Infosys, Wipro, Mahindra, Birla Corp, Reliance Industries, etc., setting up base in Brazil, we are now gaining confidence that we can do business in Latin America.
According to Aditya Vazirani, Director, Robinsons Global Logistics Solutions, “Today, India is a booming manufacturing economy. Government initiatives like Make in India and Digital India are playing a crucial role in the growth of the sector. Accordingly, there has been a shift in exports, which has moved from garments to more complicated goods like pharmaceuticals and processed items. Countries like Bangladesh, Pakistan, and Vietnam are now being regarded as low-cost manufacturing centres for garments, while India, with its supportive policies, has gained an edge over other BRICS economies in ease of doing business. Furthermore, positive developmental initiatives like conferring infrastructure status to logistics as an industry and other technology-enabled enhancements, including modernisation of ports, development of smarter supply chains, automation in logistics and warehousing, have all contributed to the rise of India as a recognised leader in container trade among BRICS nations. Against the backdrop of a trade war between China and the United States, dual sourcing opportunities have also arisen, which we have been able to leverage to our advantage.” Vazirani feels that Brazil’s exports, with its economy under pressure, are being hugely impacted, and with customs being overprotective, imports are being impacted as well.
Instead of fighting on price for each new business, if we promote it, industries can complement one another, BRICS will grow as a group
Capt Bharat Sabharwal, Vice President – Ocean Freight, Skyways, believes that the growth for BRICS, led by India and followed by China, is due to its growing exports to the world at 13 per cent and five per cent y-o-y, respectively. He says that reforms such as the bank
ruptcy code, the GST, and a keen focus on infrastructure are some of the crucial initiatives that have led to the foundation of an upward trajectory. “India has also managed to strike a balance between low inflation and high growth, and a depreciating rupee has helped India in ensuring competitiveness of its exports, which are expected to record a growth of about 15-20 per cent and touch $350 billion in the current fiscal year 2018-19. A northward movement in petroleum and commodity prices and depreciation of the rupee are supporting a surge in exports,” he adds.
BUSINESS OPPORTUNITIES AHEAD
Stressing on freight opportunities in India and the BRICS, and the scope for increase in trade between the two, Lakkaraju says, “India will continue to remain a strong partner because of two reasons: first, India is starting to emerge as a strong manufacturing or exporting base for global trade due to initiatives like ‘Make in India’, and second, because of a population of 1.3 billion, India continues to be a large consumer base for imported products. To increase the bilateral trade between the BRICS, these countries need to develop a complementary base for each other and not a competitive one. When we realise that instead of fighting on price for each new business, if we promote it in such a way that industries can complement one another, BRICS will grow as a group.” Collectively, he adds, BRICS accounts for almost 50 per cent of the world population but a fraction of the world trade because its member nations are fighting among themselves for the same business rather than growing together.
Speaking of commonalities between all the BRICS nations, Asaf shares that many economic and demographic parameters such as large area and population, increasing economic clout, consumer preferences, comparable per-capita income, etc., make it to the list. BRICS is the new global growth engine compared to the otherwise high-demand EU, US, and Japan markets that witness several ups and downs, he says.
“All BRICS nations are alternate export markets and key sourcing hubs. Facts and figures reveal that India’s merchandise trade is increasing multifold with BRICS counterparts than the traditional trading partners EU and US. India and China dominate the trade between BRICS countries. India’s import basket with China is bigger than its exports, but quite the opposite with Brazil, Russia, and South Africa,” comments Asaf. He goes on to add that while the supply chain integration between India and China seems strong, there needs to be further strengthening of its integration with Brazil, Russia, and South Africa. “India and Brazil have mutual interests in pharma, aviation and aircraft parts, engineering products, ethanol, chemical products, fertilizers, submarines, and automobile parts. India and Russia have focus on oil and gas, pharmaceuticals, engineering goods, defense technology, IT, telecommunications, and hydrocarbons. Bilateral trade between India and China is being further exploited in the fields of textile and apparel, leather, chemicals, dyes, marine, tea, coffee, pharmaceuticals, automotive, plastics, organic chemicals, cotton, steel, and cement. India and South Africa have potential in further developing healthcare and educational products, telecommunication parts, pharmaceuticals, and merchandise goods,” informs Asaf.
There needs to be further strengthening of India’s supply chain integration with Brazil, Russia, and South Africa
Vazirani adds, “China currently is India’s largest non-oil trading partner and that will continue to grow with the vast amount of natural resources available. Traded goods and cheap volume manufacturing in China have flooded the market. Apart from China, imports have also registered a significant surge from the US and Japan in the recent past. Indian exports typically were concentrated in the Middle East, Europe and America, but are now expanding to new regions like Africa, South America, and East Europe. It is now anticipated that exports to these regions will see the maximum growth. With air freight, the consumption in India is growing and hence, trade is also estimated to grow. The emergence of e-commerce has also played a crucial role, having successfully blurred the boundaries of making time to market, etc. Subsequently,
South Africa is considered as a gateway to Africa, with Indian companies such as Marico, Tata, and Mahindra having a large presence there. Now, the question remains, will the trade be equal between these countries and India? That would purely depend on the market dynamics and the customer. However, lenient policies, regulatory measures, and an increase in export volumes have persuaded foreign cargo operators to turn their attention to India. These factors have paved the way for international cargo operators to enhance their capacity.”
Sabharwal highlights, “Leaving aside the robust trend in bilateral trade between India and other BRICS nations, there has been a rising trade deficit in India with BRICS countries. To further enhance India’s trade with BRICS countries, it would be prudent for Government of India to devise important strategies to focus on India’s export potential to these countries. Such a strategy would also contribute to overall efforts to enhance India’s trade with BRICS. While India’s global capability could be matched with the import demand of BRICS countries leading to enhanced exports from India, it is also important to promote bilateral trade relations through a strategy of increasing domestic production in India to cater to the large demand existing in other BRICS countries.”
Explaining what can be done to further strengthen bilateral ties resulting in a mutually rewarding long-term partnership, Ramakrishna says, “With India’s expertise in several manufactured products and technology which is affordable and adaptable, other BRICS countries also stand to gain through increased imports of such items from India. Moreover, matching India’s capability in high value-added production and manufacturing with an increasing import demand for such products and technology could prove to be a win-win situation for both India and other BRICS countries.”
ROADBLOCKS
Speaking of challenges faced when moving cargo between India and other BRICS nations, Lakkaraju says, “Transit time for movement to LATAM (Latin America) is a geographical challenge which cannot be overcome, however, infrastructure development can help in overcoming further delays in reaching the LATAM markets. Free trade is still not as free, primarily due to duties and protectionist measures taken by economies globally, which further hinder the development of specialty industries and economies. The FTA between India and South Africa has been under discussion for ages but is yet to see the light of day. Customs in India has made significant advances in adopting simplicity and technology while other countries like Brazil continue to work the old way.”
Ramakrishna feels that the most important factor hampering IndiaBRICS trade is poor infrastructure and trade facilitation regimes that add to the cost of transactions. “Cumbersome documentation and customs clearance (India and Russia), poor inland transportation and terminal handling (Brazil, Russia, and South Africa) reduce net realisation from trade and often drive out a business operating on thinner margins,” he explains. “India can explore more export sectors by improving ties with member countries,
The initiatives taken by the government have helped the industry achieve growth Matching India’s capability would be good for both India and other BRICS countries
which would rejuvenate schemes such as ‘Make in India’ and startup India. BRICS would help India to ascertain its stronghold over Indian Ocean both in trade and diplomacy,” he continues.
Adding to that, Vazirani says, “The longer hold times for air cargo and a largely unorganised supply chain and logistics sector are some of the key challenges that are plaguing India’s international cargo movement. Additionally, rising fuel costs and the lack of uniform digitised processes including e-way bills, customs clearance processes, and well-trained manpower are contributing to the challenges.”
According to Sabharwal, a major challenge for India with BRICS is the rising trade deficit. “Barring China, none of the other BRICS economies top the list of 20 countries that lead in exports from India, however, in the case of imports, China stands at the number one position and contributes almost 31 per cent of total imports into India. Russia has been the preferred choice for importing paper material, while Brazil contributes to food products imported into India. Another reason for imports from BRICS is the low cost of labour and input raw material, which makes landing in India still competitive for domestic consumption within the country.”
Asaf lists some key challenges with the countries:
Brazil: It has a protectionist government with internal political laws protecting its own industries, thereby restricting expansion. It has stringent customs regulations, an informal economy, and macroeconomic barriers causing hurdles to smooth trade movement.
Russia: While the defense and technical cooperation between the two countries is growing swiftly, trade and economic ties are yet to be nurtured, some of the major factors being rupee debt payment as well as cheaper and better-quality goods imported in India from China and Europe as compared to Russia.
China: Although India and China officially consider no security threat, issues keep creeping into the Sino-Indian relationship due to lack of trust and contradictory economic ties. Both countries need to work closely, avoiding any point of conflict, as together they account for 40 per cent of the world’s population and 19 per cent of the global economy in terms of purchasing power parity. India’s reluctance to a Regional Trade Agreement (RTA) with China and to grant a Market Economy Status (MES) to China are a few areas of concern, yet, trade between both countries is the most profitable among other BRICS nations.
South Africa: There exist multiple competing interests at present. USA is already predominant in exports and trading, and lack of emphasis on bilateral relationships with South Africa has further weakened trade.
In contrast, Thakkar says that there exist no such challenges. “Forwarders have grown and improved with changing times. Earlier, goods were flown to Europe and moved by surface under guarded trucks to Moscow to overcome extreme winter conditions, making transportation by ocean difficult.”
South Africa is considered as a gateway to Africa, with Indian companies having a large presence there
It is important to promote bilateral trade relations through a strategy of increasing domestic production in India