Trade in items like iron ore, gems, spices, coffee expected to recover over the next month or two.
When India’s Union minister of commerce and industry, Anand Sharma, signed the ambitious Comprehensive Economic Partnership Agreement with Japanese foreign minister Seiji Maehara last month, industrialists and leaders were enthusiastic on taking bilateral trade to a newer height.
The Indian export target was $25 billion by 2014 from $15 billion in 2010, just one per cent of Japan’s global trade. This month’s earthquake and tsunami have, for the time being, blocked those hopes, albeit temporarily. Our major exports to Japan, such as iron ore, oil cake, jewellery, spices, tea and coffee are likely to be hit in the short term. However, demand is expected to resume in a month or two.
“The natural calamity will create a global shortage of auto and electronic parts, of which the affected area in Japan is the major producer. While the impact on consumer products, including industrial commodities, could not be assessed immediately, it is expected to be minimal,” said Dilip Dandekar, chairman of Indian Merchants’ Chamber, the industry body most India’s exporters are registered with.
“The effect of the tsunami in Japan on commodity prices will be negative in the short run as demand declines owing to a halt in Japan’s growth. However, once the reconstruction activity begins, there will be an increase in demand for all metals in particular, which will drive up prices,” said Madan Sabnavis, chief economist, Credit Analysis and Research (CARE), a rating agency.
The data released recently by the Department of Policy and Promotion (DIPP) shows that Japan ranked seventh in terms of cumulative foreign direct investment (FDI) in India, accounting for $3,714 million between April 2000 and March 2010, of which $1,183 million came in during April 2009-March 2010. With the huge growth potential in sight, Japanese investors are now preferring India over China which is evident from increasing number of firms set their feet here. According to the Japanese External Trade Organisation (Jetro), the number of Japanese companies has trebled in the last four years from approximately 100 companies in 2006-07 to 300 in 2009-10.
India is looking at import of organic chemicals, iron and steel, nuclear reactors, photographic or cinematographic goods.
More From This Section
Gems and jewellery
Japan took $300 million, mainly of high end diamond jewellery items, of India’s overall gems and jewellery sales of $28.4 billion in 2009-10. Indian jewellers are yet to get momentum there due to various trade restrictions. Although it is too early to assess the impact, exports here are likely to be hit for a short time, said Rajiv Jain, Chairman of the Gems & Jewellery Export Promotion Council. However, these will recover by the middle of next month, he predicted.
Oil cake
The Rs 1,500-crore Indian oil cake market in Japan has been hit severely. The average monthly consumption of oil cake, mostly soybean meal, was 75,000 tonnes and this has almost stopped. Constituting 15-18 per cent of India’s oil cake exports, Japan has temporarily diverted orders to other need-based areas, says B V Mehta, executive director of the Solvent Extractors’ Association, the apex trade body with 800 registered members. However, he says, the Japanese will not cancel orders, as they require Indian meal for bird and animal feed. According to Satyanarayan Agarwal, chairman of the Central Organisation for Oil Industry & Trade, the Japanese market will regain momentum in three months.
Iron ore
Japan constitutes less than five per cent of India’s total iron ore exports. Last year, Japan imported 5.32 million tonnes of ore from various miners, mainly lumps of over 63 per cent of iron content, of India’s total shipment of 117.6 mt. This has been severely hit However, “it will have a negligible impact on overall iron ore exports from India”, said R K Sharma, secretary general, Federation of Indian Mineral Industries. Demand should pick up gradually, but the process should take at least a month, he added.
Consumables
Last year, India exported 20 tonnes of mangoes to Japan, at Rs 500 a kg. This is the only item in the fruit and vegetable category sent to Japan, so the impact of the quake would be negligible, said S Dave, Director of the Agricultural and Processed Food Products Export Development Authority.
The earthquake has slowed export of spices in general and turmeric in particular; the latter’s price has since softened in the domestic market. However, demand from other European nations is intact, as the availability of turmeric on the international market is limited.
India is expected to export 50-55,000 tonnes of turmeric in 2011-11. A fifth of this goes to Japan. Says Manubhai Shah, an exporter based at Navi Mumbai: “Exports to Japan might get delayed, but orders that are on hold for the past 10 days might start coming up (again) in the next one or two months.”
Coffee exports to the Japanese market from India may be affected in the medium term, due to a fall in consumption, said Suresh Babu, a Hyderabad-based coffee trader.
India exported 1,079 tonnes of coffee in 2009-10 to Japan, worth Rs 1,421 crore. In this financial year to January, around 900 tonnes had been exported, worth Rs 1280 crore. Japan is the third largest coffee consumer in the world.
“Japan is a consumer of premium coffee and India is giving incentives to exporters to export to this market. As far as the impact of Japan crisis is concerned, we are yet to see any adverse effect on coffee exports,” said Jawaid Akhtar, chairman of the Coffee Board.
With contributions from Sharleen Dsouza & Debasis Mahapatra