Friday, February 27, 2015


  2. Export of basmati rice and steel plates thrive; third country trade may be strengthened.
  3. India –Russia too can have structured rupee trade.
     FINANCIAL EXPRESS 03.03.2015


Despite economic sanctions of the world powers (P5+1) against Iran, continued  dithering over Iran –US nuclear deal and given the fact that Indo-Iran trade has seen its ups and downs (see chart), there is ample evidence of two countries having maintained its tempo by conceptualizing creative barter  mechanism through “Structured Bilateral Trade”.

The two way commerce has remained around $14-$15 billion despite sanctions. The credit goes to Governments and the bankers/ financial institutions for introduction of rupee trade, dealing with insurance cover of ships, sustaining export of novel variety of Basmati rice, greater emphasis in Iron-Steel items and the latest attempt to undertake third country deals of permissible commodities.

Since 2011-12 Indian exports have climbed up by 90% from $2.4 billion to $4.5 billion while imports are down by 28% from $13.8 billion to $10 billion. Crude oil constitutes 85%-90% of Indian import from Iran.  Pakistan has also been chasing Iran for a similar structured bilateral trade but without any success.  


Source-deptt of commerce

The first notable instrumentality is the agreement of 2011-12 under which import of crude oil to India was conceived for payment in 55:45 ratios of hard currency and Indian rupees respectively. This policy generated substantive rupee reserves with nominated lead bank from Indian side, UCO bank (United Commercial Bank), for the disbursement of export proceeds, free from any fear of financial sanctions. After initial hiccups, payment mechanism is fairly smoothened between the two sides.  


Another novel development that transpired was preference accorded by Iran in selecting the best hybrid variety of  Pusa Basmati 1121 rice developed by IARI (Indian Agriculture Research Institute)   with exceptional grain length of 8.3 mm vs other assortments of basmati and non- basmati rice having grain lengths of 6 to 7.5 mm. Even Thai Hom Mali rice (fragrant rice) cannot match its characteristics. It has very high kernel elongation ratio. On cooking it expands by 2-2.5 times- to about 20mm, does not turn sticky, and is aromatic.  Though developed by IARI in 2005-06, its commercial exploitation bloomed and peaked when Iranian buyers lapped on to it. 

Its export to Iran spiked from 0.6 million tons ( $ 595 million) to 1.44 mill tons  ($1835 million) in preceding three years and Iranian market captured 37% share of total Basmati exports of 2013-14. Per unit value of rice, like all other commodities, is down by about $300/mt this year which will  be reflected in estimates of 2014-15. In the horizon of last 4-5 years, Indian farmers and rice exporters have derived tremendous benefit from the R&D of IARI. 1121 variety and its subsequent up-gradation as 1509 are also getting greater recognition in other traditional markets of Saudi Arabia, Yemen etc.

During visit of a rice delegation to Iran in first week of February2015, , Indian side is further assured of purchase of one million tons  rice in Iranian new year Navroz commencing around 21st March. For ensuring acceptable quality/ quantity of rice, procedure of Good Manufacturing Practices (GMP) notified by APEDA to continue under which counterparties (sellers/Buyers) will be pre-approved by Iranian authorities. So far about 64 such counter parties are operating and further registration is allowed. Per unit value of rice, like all other commodities, is down by about $300/mt this year which will  be reflected in estimates of 2014-15.

There have also been short term profitable opportunities in shipping out soymeal, rapeseed meal and raw sugar etc. which have now disappeared due to disparity in international values.



Export of Iron and steel items has flourished from $203 million in 2011-12 and expected to touch $500 million in 2014-15.  Media reports indicate that this smart deal for supply of steel plates is also uniquely designed between NIOC (National Iranian Oil Corporation), its affiliate IGEDC (Iranian Gas Engineering Development Corporation) on one side, and Essar Steel acting on behalf of Essar Oil by fronting STC as the prime exporter on the other side.

 Essar has approached Indian government to free it from paying its share of oil dues to Iran, and instead offset them against a $2.5 billion deal to supply steel plate to a NIOC affiliate. (Reuters report 28/11/2014 ).  Such barter or counter trade deals may be encouraged specially through public sector trading enterprises of two nations for avoidance of any allegation of proliferation of these plates to non-intended applications.


There is a consensus emerging within Indian Government to facilitate Iran’s long standing demand of merchant trading of buying food stuff, pharma and medical equipment from third countries. These could be paid in dollars/euros to supplier’s country by the Indian side and debit equivalent rupees in the account maintained by UCO bank.

Iran requires palm oil, soy oil, corn, and raw sugar –the food items-- from third countries, like Indonesia, Malaysia, Brazil, and Argentina etc. The proposal under consideration is to authorize  UCO bank to debit $100 million (Rs 620 crores) per month or Rs 7440 crores per annum out of about $4 billion (Rs 25000 crores) currently lying in Indo-Iran rupee account.

There have been concerns of over invoicing and value addition. These can be taken care of by supervisory frame work, but what is not feasible is the RBI requirement that goods must touch/enter Indian shores first to qualify for re--shipment to Iran. This insistence is totally uncalled for because all food, pharma and medical equipment are not debarred under sanctions by USA/ UN or group of P5+1 and these are freely being imported by them from above mentioned origins. Moreover double freight and port costs will render third country trade absolutely unviable and impractical. For constructive business such conditionality should be totally dispensed.

 A detailed procedure should be notified by RBI/UCO bank as to how a permissible transaction will be monitored and documentation required in the letters of credits—one that is to be opened by the Iranian buyer on the Indian supplier and the other that is to be established by Indian entity on third country counter party.

Like Iran, Russia too is under western sanctions. Should there be continuation of sub-optimal values of crude oil over an extended period, squeeze in their FX reserves and rouble snapping to new lows, Russia too could be willing for a rupee account structure like Iran. Getting defence items and crude oil under rupees from Russia would be a bonanza for India.   Why not be ready for another creative deal??  It will also make rupee a “well traded” currency      

Sunday, February 15, 2015



Duty draw back (DDB) nomenclature has been used by the Govt of India (GOI) to offset impact of local taxes and duties on the exporter because local levies are not meant to be exported as that affects international competitiveness. The easy way out is to notify a flat DDB rate since labyrinth of Indian central and state taxes are too intricate to be calculated.   For agro commodities the latest rates for 2014-15 are—

The above chart shows that rice enjoys Nil DDB. Now The Business Line of 12the February 2015 carries a report of restoration of DDB of unknown percentage linked to the principle of “branding”.  In Basmati rice, India enjoys a monopolistic status, but some exporters have worked hard to build the brand like “India Gate”, Tilda, Kohinoor, Daawat and some more.  They have been pleading with the Government to subsidize their expenses for branding a “made in India” product.  
Since the Govt order has yet to be notified, full details-- whether this is applicable to the entire spectrum of rice exporters (basmati+non-basmati) or will be brand specific, cannot be confirmed. Federation of Indian Export Organisation (FIEO), which falls under the Deptt of commerce, has already stated that DDB should be extended on pan-India basis to all rice exporters rather limiting to a few companies. FIEO’s views are logical as branded rice in any case fetches higher premium than other exporters while local taxes are equally applicable to all shippers.
Another perceived anomaly for large cross-section of rice exporters is that the buyers require their own branding e.g. Tiger Rice or Golden Rice or White Rice etc., rather than the brands registered in India. Should the DDB be defined or limited for Indian registered brands of Basmati rice, the Government order will be discriminatory and discretionary, lacking transparency. It will fail in judicial review if any rice exporter knocks at the door of a High court. It is obligatory upon the authorities for desisting from issue flawed orders.
From the WTO perspective this will be deemed a subsidy, while it is not in the real sense. Since DDB is not likely to exceed 1% of fob value, it will be merely $10-$14 pmt for Basmati and $3-$4 for non-Basmati rice which should not worry WTO of distortion in market prices.
If this bothers WTO then the DDB concept will have to be dispensed across the board for all above listed agro items. It will open a Pandora box on DDB.

Wednesday, February 11, 2015






Tejinder Narang

Can we “Make in India” bulk of edible oil rather than allowing its gargantuan import? Can we have a strategy or an enlightened “Niti” to compress such volumes on short and long term?  Edible oil imports from Indonesia, Malaysia, Brazil, Argentina, USA etc. are moving up to 12 million tons in 2014-15—an escalation of 45% in quantity terms from 8.3 million tons since 2010- 11-- and at current prices they could be $8.5 billion or Rs 53000 crores.

(Chart 1)
( Source-Solvent Extractor’s Association)

A split- analysis of major oilseeds whose imports spiralled can be seen in chart2



(Source-Solvent Extractor’s Association)

The “value addition” for crushing most of the seeds abroad is irrationally incurred and paid, while there is far in excess processing capacity at home for employment generation and demand satiation.  Against annual consumption of 20 million tons for all types of oils from all varieties of seeds- palm ,soybean, rapeseed (canola), sun flower, rice bran, cotton seed etc., supply side does not exceed 8 million tons. Resorting to massive import of oils is thus projected as a necessity rather than resultant conclusion of flawed policies. Easy imports have veiled domestic supply demand mismatch.  Rational policymakers cannot ignore the fact that with rising GDP and improved life styles, additional demand of edible oil will have to be met which will be minimum 1million tons per annum. At this rate by 2020, imports may be 18-20 million tons or about $14 billion eq. to Rs 88000 crores.

 No reformist action to decelerate import pull has been taken or initiated.  Since futures’ prices of palm oil dipped by $200pmt and soy oil by $400pmt in last two years, Government just tinkered with import duties on the higher side at the behest of local industry.  For example, these days price of locally produced soy oil from Indian oilseeds are $ 180 higher than CBOT futures—about 26% (see chart3). This emboldens inefficient production which is negative for the national food economy.

Chart 3

(Source—Sopa Nov prices &CBOT)

Let us introspect how this situation has evolved. There is a relatively cheaper palm oil imports from Indonesia and Malaysia on which Indian industry and consumers have relied upon. This constitutes 70% of total imports. But now discerning consumers prefer superior variety of oils from beans, canola, and sunflower oil.  These could be crushed from GM (genetically modified) seeds as well. 

The world has moved ahead with GM crops, while politically and officially doubts and confusion on GM varieties prevails in India. Lab tests and field trials are pending. Our yields/ production of oilseeds have not amplified, though agro-economists continue to debate on attaining higher efficiencies with inputs of fertilizer, power and water. Why inherent efficiencies of bio tech revolution cannot be an integral part of the “Niti”—a tactical policy for higher productivity? Let producers/ consumers be offered choices of  all forms of crops—conventional (with fertilizer usage) or organic or GM. Why economies of scale and lower values attainable by end use of advancement of technology are being denied?  The Prime Minister too have repeatedly urged for transferring of abundance of “Lab” research to the “Land” for transformation of Indian agro potential.  Then why the issue is being ducked?

Yet, paradoxically, Indian trade imports edible oil crushed from GM seeds.  Its consumption is allowed freely. We are using GM end products while imprudently excluding and ignoring its intimate relationship with the mother ingredient. This is illogical and smacks of dual standards.

 China is annually importing 74 million tons of soy seed and importing almost negligible volumes of soy oil. Last week EU has given option to member countries to choose usage of biotech crops, which was hitherto a complete prohibition. Inhibitions, even environmental, against bio tech crops are vanishing fast vis-a vis their benefits. Indian isolation in this respect is unwarranted.



Pending a final decision on the seeding of GM crops by the Governments or Courts, the solution lies in permitting import of oilseeds—GM or otherwise- freely by the actual users industry. The industry shall produce edible oil and de-oiled cake (soybean meal etc.) both for domestic and overseas consumption. For example, India needs to import about 11 million tons of soy beans to bridge this current gap of 2 million tons of soy oil (about 18% recovery) to neutralise import that would provide 9 million tons (82%) of soymeal for trading worldwide.  There will be net saving in hard currency by absence of import of expensive oils, export of soymeal and domestic prices of soy oil will also converge with lower international prices –and not reflect a disparity of 26% as explained above.

Solvent extraction industry may set up port based plants for crushing beans with intent to export meal and sell oil domestically—just as some sugar mills process raw sugar into refined sugar at the west and east coast of India for export and local use. Domestic soy seed prices will also align with international market.  Soymeal will find perfect parity with markets in the geographic arch spanning from Japan to EU.  This is a win-win situation.

Let Niti Aayog think tank demolish the traditional mind set and start with this transformation in the agro-sector ================================================================================

Sunday, February 8, 2015


Tejinder Narang

President Obama in his “town hall” address of 27th January 2015 at New Delhi shed inhibitions of his Presidency. He shared with audience certain personal experiences of his life and related them with global peace and prosperity. Since I was personally present at the Siri Fort Auditorium, I could sense the positivity of his vibrations. There were moments of introspective emotions, generated by a very articulate and sincere speaker, flowing out from the depths of his inner being. It was perhaps a strategic outspokenness with human touch.
He was not speaking as a politician or as the most powerful person of this planet but as an individual who surmounted ups and downs of his life and compared them to the similarity of social, economic and political milieu in India.  There were no pre –written ideas or texts but an assortment of thoughts that crowd human consciousness and which manifest themselves when a person wishes to speak his mind out with warmth and affection.   
American electorates have rightly chosen twice this President—a great “human being” tremendously gifted in the multiple facets of the Presidency, just as Indians have elected extremely competent, dedicated and visionary Prime Minister in May 2014.  Both are commoners who struggle every moment for guiding destinies of world’s dominant nations, unlike those who are supported by inheritance of family or political lineage.
By random spray of Indian terminology of “Namasate”, “Bahut Dhanvad”, “Bade bade deshon mein”, “Bhangra” ,”Kerala”,” Banks of Ganges” “Dalit” “Jai Hind” etc. and mentioning names of revered personalities like Swami Vivekananda, Mahatma Gandhi –he evoked attention of all and sundry, including thousands of students who were part of the audience. At other time he mentioned about Shah Rukh Khan, Mari-Kom, Milikha singh to descript Indian excellence and diversity. Such utterances and personalised chemistry with Indian public were totally absent during previous visits of Bill Clinton and George Bush. Neither flavour of such an intimacy can be replicated by the Chinese president XI Jinping, or Russia’s Putin, or Australia’s Tony Abbott.    
Obama mentioned of his very modest family roots. His grandfather was a cook in the British army in Kenya and that distant branches of his wife, the first lady, Michelle’s family, belonged to slaves and slaves’ owners. The discrimination against him due to colour of his skin and religion are the issues that concern India too.  He remarked “It is a matter of pride to live in countries where a grandson of a cook can become President and the son of a tea-seller can become PM or a Dalit as a writer of the Indian constitution”.
The President referred to Swami Vivekananda speech in his home town Chicago about 100 years ago where the former addressed the gathering as “sisters and brothers” of America. Obama likewise responded to the listeners as “sisters and brothers” of India. Even if it is political statement, the reference is apt to candidly capture minds of Indian communities. Likewise late, Dr. Martin Luther King Jr. inspiration was Mahatma Gandhi for non –violent struggle against racism, gender/economic inequality and freedom with dignity. He gave added stress to the word Gandhi “Ji”— for endearing reverence to the Father of the Nation.
His respect for women could be inferred from the numerous references he interfaced in the name of his wife. He said “I am married to a strong, talented woman who is not afraid to speak her mind when she thinks I am wrong. If nations want to succeed, they cannot simply ignore the talent of almost half their people”. With these words he implied education, empowerment, employment and dignity of women. Their contribution in Indian context for bringing up cohesive families was another vital point flagged by him.
His family, he explained, is strengthened by Christian faith but some people have questioned his faith and have labelled him with a different religion as if that was a bad thing. “And too often religion has been used to tap into those darker impulses as opposed to the light of God”. Thus he uttered about the universality of respect and tolerance about all religions and faith.
His advice was—“India will succeed so long as it is not splintered along the lines of religious faith -- so long as it's not splintered along any lines -- and is unified as one nation”. Though these remarks are considered controversial in the current Indian context, but do not forget that his next destination was Saudi Arabia where the focus of world’s most violent conflict is between Sunni-Islam and Shia- Islam.  Indeed he was bold enough to convey tangentially his firm conviction even to all Islamic states, which many world leaders dare not. “Are we measured by our efforts -- by what Dr. Martin Luther King called “the content of our character” or the manner in which we worship our God”.
He was forthright in admission that USA was responsible for the higher fossil fuel emissions—but that past must be left behind and that India must co-operate in the present for cleaner climate change for us and future generations. To sum up the deliverable of his visits, he also endorsed bilateralism in economic and educational development, digital technologies, “breakthrough” (though not fully clarified so far) on the issue of civil nuclear energy where the dual use of technology always remains a suspect; collaboration in space, defence, trade and investments, and peace in the region.
He concluded with most poignant words—“Sisters and brothers of India, we are not perfect countries. And we’ve known tragedy and we've known triumph.  We’re home to glittering skyscrapers, but also terrible poverty; and new wealth, but also rising inequality.  But the reason I stand here today that despite our imperfections, our two nations possess the keys to progress in the century ahead”.
Irrespective of geopolitical interests or what transpires in Indo-USA relationships in coming years, Obama is sensitive to the tender impulses of humanity.
 As an Invitee to the event at Siri Fort Auditorium