Poshan

Home »  Magazine »  Business  » Cover Stories  »  Playin` Ketchup With the World

Playin` Ketchup With the World

It's the era of free imports but prices will still stay high even as local industry takes a knocking

Playin` Ketchup With the World
Playin` Ketchup With the World
outlookindia.com
-0001-11-30T00:00:00+0553
Picture this. You wake up in the morning and savour some Tang orange juice. There's Kraft cheese on toast for breakfast with some steaming Maxwell House coffee for company. Let the missus pack some luscious, blood-red Washington apples—'red, delicious', says the sticker on the fruit—to munch on during lunchtime. Before you slip into your Bally shoes and step on the gas in your three-year-old Toyota Corolla you got from a seconds car bay, your kid reminds you to bring home some Toblerone chocolates. Oh well, you also pick up a bottle of Carlo Rossi wine, in case friends drop in later in the evening.

Pure fantasy? Not really. There's no need to feel shy to eat, drink, dress and drive phoren any more. For long, a tangled skein of licensing and inspection requirements, tariffs and import quotas had kept out the world's goodies from India. In return, what you got, among other things, was an antediluvian sedan like the Ambassador car, or rusty, knife-edged, dangerous toys. Last week, all that changed, perhaps irrevocably: India finally removed import-licensing quotas, more commonly known as quantitative restrictions (QRs), on a final batch of 715 items. This was part of the country's accession to the World Trade Organisation (wto). The bottomline: a mind-boggling array of products, ranging from cars to coconuts, pencils to exercise books and lingerie to lamps can be imported now. "Imports are a critical benchmark for efficiency. We have to learn to live with them," says T.K. Bhaumik, senior advisor (policy), cii.

Indians have been learning to live with imports for some time now. Rs 100-a-kg American apples, Rs 350-a-kg New Zealand plums and Rs 250-a-kg Thai sweet tamarind pods have flooded city malls and smalltown mandis. The neighbourhood grocers have been stocking Australia's Berri orange juice, a mixed fruit juice from China called Chin Chin, and After Eight chocolate mints. There's some Russian butter too, if you are interested. The panwallah has been gently pushing smuggled Benson and Hedges Lights and stocking third-rate Indonesian gum and even an orange drink for children called Boo Bee. And, of course, the bustling electronics bazaars of Delhi can't stop selling more of embarrassingly cheap telephones, hand-held portable stereo cassette players and radios—all imported from the brutally efficient production lines of the People's Republic of China. Whether through restricted imports or via the shadowy grey market, imported goods had been around. There have been a few hits—like the cheap and cheerful Chinese electronic gizmos—and lots of misses and India has not been swamped by consumer goods imports.

So what's new about this deluge of foreign stuff? The good news is that exactly 10 years after reforms began, imported goods have finally become legit. So far, in the run-up to a full-blown 'free-import' regime, QRs meant an importer could bring in only a set quantity of a certain item. Now he can import an unlimited quantity. So there should be global goodies galore in the markets. So you don't have to cajole your 'foreign-going' friends and relatives to bring you some Bic ballpoint pens and Feroro Roche chocolates from nice price plazas on Singapore's Serangoon Road or London's Tescos stores. So you don't

have to guilt-trip on buying a smuggled music system. "Even if I have to pay extra, I will go for foreign brands," says Delhi-based homemaker Shelly Arvind, who shops at an upscale neighbourhood market. "Their range and quality is far superior." If you have deep pockets,the world is your market—and you don't have to go far to seek its pleasures either.

Halt the celebrations for a moment, there's a catch. The bad news is that most of these goods will remain out of reach for the average Indian for some time to come. For example: consumer goods, food products and textiles—which comprises nearly a third of all freed items—will attract the present peak basic customs duty of 35 per cent at the minimum. That's not all. When you buy your imported goody, you pay other levies as well—an additional duty on several imports, excise duty, sales tax. Add to this the depreciation of the skittish rupee at an annual average rate of 7 per cent, and the price at which your imported Bally shoes and Kraft cheese is going to retail becomes almost prohibitive. There are wto bound rates—maximum import duties—for many products the importing nations will have to stick to but for manufactured consumer goods, there are no bound rates at all. Ergo, the Indian government can fix any amount of duties to protect local industry. "By making foreign goods prohibitively expensive for the average consumer, the government is actually increasing the divide between the upper classes and the masses," says Bhaumik.

By and large, local manufacturers need not despair. Apart from the high tariffs, imported goods will face tough conditions and standards. A standing committee of secretaries will comprise a "war room" for monitoring the import of 300 "sensitive items of public importance". They include, to the tippler's dismay, wine, whiskies, rum, gin, vodka and liqueurs. Such items as wheat, rice, maize, petrol, diesel, aviation fuel and urea will be permitted only through state-run trading corporations. All primary products of plant and animal origin will be given import permits on the basis of hygiene and sanitary standards to be fixed by the agriculture ministry. But in India, regulations have only meant laxity and red tape. "We have so many laws and standards. But the more serious issue is will they be enforced at all. There is lot of difference between intentions and actual ground implementation," says Bibek Debroy, director of the Rajiv Gandhi Foundation.

But for quality-starved Indian consumers, there are some glad tidings—imported goods which will not possibly thin your wallet by much. Conversely, some of our manufacturers—the bulk of them are small enterprises—will be drowned by such relatively cheap imports. Consider this:

  • Foreign cheese could make a dent in the Rs 400-crore local market. A kilo of imported cheese, say industry sources, should be available at not more than Rs 150 after factoring in all duties and taxes. In comparison, market-leader Amul cheese retails for Rs 110 a kilo. "When the price difference is slim, the consumer could easily opt for a good foreign competitor," says an official.

  • Will Indian consumers opt for cheaper imported margarine and shun local butter? That's what dairies fear. Indian butter, made out of milk fat, retails at an average of Rs 60 a kg, while imported margarine, made out of vegetable fat, after paying all duties and taxes, should sell at not over Rs 45 a kilo. So will attractively-packaged cheaper foreign margarine kill Indian butter? Keep your fingers crossed.

  • Lower-end Chinese electronic products and hi-tech toys will continue to flourish. With their quality often higher than Indian products, expect an army of salesmen at your doorstep test-marketing a slew of new Chinese brands.

  • For fresh, chilled and frozen meat, expect competition. Imported chicken legs, for example, should retail at around Rs 80-85 a kg, 10 to 15 per cent cheaper than the Indian variety. Domestic industry hopes Indian consumers will pay a little more for their produce as a premium for 'freshness'. "Whole chicken is good for a year and poultry parts for nine months," says Anuradha Desai, chairperson of the Pune-based Venkateshwara Hatcheries. wto's bound rate and India's applicable rate of customs duty is the same at 35 per cent. Indigenous poultry could be badly affected. Watch out.

  • Cheaper clocks, watches, candles, toys, video games, toothbrushes, shaving brushes, hairbrushes, pens, sports shoes and combs are likely to clog store shelves. The usual suspect: China. Incidentally, China produces over 200 lakh tonnes of apples annually, against India's 15 lakh tonnes. No wonder local farmers are worried.

    What happened to the imported second-hand car you planned on buying? It can now be imported sans licence but with a whopping import duty of 105 per cent plus special customs and countervailing duties, all adding up to 180 per cent of levies. To add to your woes, there are some really tough import conditions attached too—single port of entry (Mumbai), right-hand drive, a five-year minimum life. The upshot: a three-year-old Toyota Corolla can set you back by Rs 13 lakh. By the way, the new model costs Rs 11 lakh. The message: keep away from imported cars. There is some hope: the tariffs would have to be cut to at least present asean levels of 10-12 per cent in four years and to 5-6 per cent by 2009-10.

    Don't expect a flood of cheaper imported colour TV (ctv) sets either. "Indian ctv prices are quite low and globally competitive," insists Ajay Bajpai, senior vice-president and head of the entertainment electronics business group of bpl. "It'll be difficult for importers to compete with the local players after paying almost 65 per cent central duty. Add to this the various margins and sales taxes." Says Ajay Kapila, VP (sales and marketing), LG Electronics: "Brands can't be built solely on an import model in consumer durables. There's also the question of after-sales service."

    The foreign booze blues continues. All the top foreign brands will invite a basic customs duty of 210 per cent. Then there's a three-tier graded additional customs duty ranging from 285 per cent to 360 per cent. On top of that, sales tax. The result: a Johnny Walker Black Label one-litre bottle, that smuggler's favourite, could set you back by about Rs 7,500, five times the grey market rate. In the near future, duty will be cut to 150 per cent but that's little cheer for Scotch lovers. Some cheap rums, wines and vodkas from East Europe may affect the Bacardis and Smirnoffs. "Otherwise, import of foreign liquor is simply unviable," says a Mumbai-based liquor industry manager. Smugglers are surely rejoicing. And local industry is happy. "It (high duties) is a pragmatic move which will give breathing space to locals," says Vijay Rekhi, managing director, McDowell.

    Retailers are a confused lot. Right now, they say, most imported stuff is smuggled in and obviously comes cheap, with no duties. Most fmcg majors also underinvoice their products.But with the lifting of QRs, most players will have to make valid invoices which will possibly lead to an increase in prices.

    The logic behind the high duties is to protect local industry and generate revenue for the government.But India's infamous revenue departments are thoroughly corrupt and avaricious—and such a high tariff regime, many suspect, is an "open invitation", in the words of a cii official, to smuggling and underinvoicing. Smuggling of cigarettes alone, according to an Indian Chamber of Commerce estimate, costs the Indian exchequer Rs 1,000 crore a year. Apart from ludicrously low-priced and downmarket Chinese brands, the QRs withdrawal will hardly affect high-end consumers. Reason: the grey market for imported brands continues to grow at 20 per cent annually. Says Bhaumik, "Soon, the consumer will be able to choose between legal but expensive imports and cheap but smuggled foreign goods." Some retailers like Jimmy Wadhwan of a south Delhi supermarket stocking imported goods differ: "Even with the duties, prices of legal imports won't be that high. The grey market is bound to suffer. Retailers will opt for hassle-free dealings, good deals and incentives."

    That may be too optimistic but there's a sunny side to a QR-free import regime apart from the goodies 'rush'. It forces India's producers to improve quality, become more competitive and, to a certain extent, keep domestic prices under check. (The World Economic Forum ranks India 53rd out of 59 countries analysed for competitiveness.) High tariffs, for example, will possibly not deter imports in the processed food sector. Better-quality imported items in this sector will have a positive effect on Indian manufacturers. Take Kellogg's, which grew the segment for breakfast cereals in India. But local player Mohun benefited by upgrading itself and offering a lower price.

    There will be no price wars in the offing and the Indian consumer's life will not change radically. "Even though retailers will have a wider variety of goods to sell, they aren't going to enjoy margins because of high prices. So it's not time yet to uncork shampoo bottles," says a Delhi-based economist wryly. Adds Debroy: "It's not only the urban consumers with deep pockets who'll gain. The urban-rural divide is getting blurred in many cases. But this is more of a metro phenomenon."

    Clearly, the best thing about this influx is the consumer's freedom of choice. Indians no longer have what V.S. Naipaul once famously called an irrational "craze for phoren". As they globalise, their aspirations rise. Like Delhi homemaker Sharmistha Sengupta, who welcomes foreign imports as she loves trying out exotic recipes. "Our tastebuds are changing, experimenting with new recipes from around the world. Foreign ingredients are a boon." Or take Chennai travel executive T. Ramesh Babu, 33, who has two Swatch watches and indulges himself with foreign shampoo, cologne, talc, gel and goes to a mall to relish hot chocolate and cookies from Oz regularly. "I deserve the best money can buy," he says. Why not?

    with gauri bhatia and arijit barman and Soma Wadhwa
  • Subscribe to Outlook’s Newsletter

    Next Story : The PM's Fatal Choice
    Download the Outlook ​Magazines App. Six magazines, wherever you go! Play Store and App Store
    THE LATEST ISSUE
    CLICK IMAGE FOR CONTENTS
    Online Casino Betway Banner





    Advertisement
    Advertisement