India Export to Bangladesh
Short Description
trade potential between india and bangladesh....
Description
Chapter 6: Bangladesh imports from India: composition, trends and potential under an FTA As discussed in the previous section, there are large discrepancies between the Indian statistics of exports to Bangladesh and the Bangladesh statistics of imports from India, both in the aggregate and even more so at the level of individual commodities. commodities. Disaggregating the Bangladesh import statistics (Table (Table 6.! b" some ma#or commodit" categories shows the following$ %ighl" variable but sometimes large imports of cereals (mainl" wheat and rice! from India. Bangladesh is also importing from other countries, but India has been the main supplier in recent "ears. An apparentl" declining role of India as a supplier of dut" free intermediate goods (mainl" textiles! textiles! for Banglades Bangladesh&s h&s export ') sector. sector. According According to the Banglades Bangladesh h import import data, in *++-+ /Bac01to1bac0 234 imports from India onl" accounted for .5 of its total /Bac01tobac0 234 imports That India is suppl"ing fairl" constant shares of Bangladesh&s imports of basic raw materials, intermediate goods used for domestic production, capital goods and non1cereal final consumer goods The Indian export statistics have been not been sorted into these categories, but a separation into the three catego categorie riess illus illustra trated ted in 7ig 6. (cotto (cotton n and cotton cotton textil textiles, es, cereal cerealss and /all /all other4 other4!! confirm confirmss the the importance and variabilit" of cereal exports, and is consistent with a declining Indian role in the suppl" of inputs to Bangladesh exporters, since this is the main destination of its cotton textile exports. %owever, according to these statistics, /all other4 exports have been growing ver" rapidl", on average at around 5 annuall" since 886-89, with especiall" big increases in *++*-+ and *++-+. This suggests that at least one of the following categories of Indian exports to Bangladesh :basic raw materials, intermediate goods used in domestic production, capital goods, or non1cereal consumer goods, have been growing faster than indicated b" the Bangladesh import statistics. India exports a wide range of products to Bangladesh. According According to the Indian export statistics for *++-+, there were at least some exports in all but of the 8; %< chapters. About a third of total exports were primar" agricultural, fish and livestoc0 products, 6.6 processed foods and drin0s (including animal foods!, and most of the rest manufactured products (Table 6.*!.2eaving aside textile and clothing exports, most of which go dut" free to Bangladesh ') exporters, India was suppl"ing *.5 of Bangladesh&s total imports for use in the domestic mar0et. Table 6. shows the top *5 product chapters were removed in constructing the table, because groups (defined b" *1digit %< dut" free imports for exporters (/bac01to1bac0 234 codes! exported b" India to imports! are not included in the >B' database, and these Bangladesh in *++-+, as are mostl" T=3 products for Bangladesh ') Fig 6.1 recorded in India&s trade statistics. Major components of Indian exports to Bangladesh To improve comparabilit" comparabilit" with 1996/97200/0! "Indian export data# Bangladesh&s Bangladesh&s import data, the textile and clothing (T=3! %< •
•
•
8
S million $U
Cotton & cotton textiles
exporters. India&s principal exports are then compared with Bangladesh&s total imports of the same product groups as recorded in the >B's database for Bangladesh&s fiscal *++-+, and Bangladesh&s average protective tariffs during *++-+ are shown for each product group. The average tariffs allow for para1tariffs and have been calculated on three different bases$ as an unweighted average of all the 7> ;digit tariff lines in each chapter? as an unweighted average including all 7> tariff lines plus reduced /end user4 tariffs plus all reduced preferential tariffs? and finall", as in the second case but weighting b" total imports during the "ear.
Table 6.1: Indian exports to Bangladesh !!"#!$ %fom Indian export statistics& HS code
$ US million
Share %
1
@rimar" agricultural, fish, and livestoc0 products
59
*.;
51*
@rocessed foods and drin0s (including animal foods!
5
6.6
*518
iscl mineral and manufactured goods
;
;.
+
5+16
Textile fibres, textiles and clothing
*68
5.
618;
All other (including machiner" and transport euipment!
6;
*6.8
1)$1
1!!.!
T'TA(
During *++-+ the *5 product groups accounted for ; of India&s total recorded exports to Bangladesh, and almost 86 of total exports to Bangladesh after excluding T=3 exports. The fiscal "ear difference, the exclusion of T=3 imports and other factors discussed previousl" should be borne in mind in comparing the Indian and Bangladesh statistics, but the data nevertheless provide a useful preliminar" overview of the li0el" conseuences for Bangladesh of free trade with India. In particular note that$ India&s share of Bangladesh&s total imports of each of these product groups is uite high$ more than half for ; product groups, between *+ and + for 9 product groups? between + and *+ for 9 product groups? and in onl " three cases less than +. Average protective tariffs for most of the product groups are high. ven after allowing for and averaging over /end user4 tariff lines, and weighting b" imports, onl" 5 of the *5 product groups (cereals, non1electrical machiner", animal foods, pharmaceuticals and railwa" euipment! have average tariffs of less than + , and the average import weighted tariff of the other *+ product groups is *8 •
•
This means that Indian exporters to Bangladesh are successfull" competing with exporters in the rest of the world ('C! and have achieved substantial shares in Bangladesh&s import mar0ets, while in most cases pa"ing relativel" high tariffs which in principle are the same for all exporters. If Bangladesh&s 7> tariffs for the rest of the world were to remain the same while India received dut" free treatment under evertheless, the results were stri0ing, indicating that prices of *5 of the + products were higher in Bangladesh, and in most cases ver" considerabl" higher1on average for the + products about 6* higher. Number of products with prices %igher in India %igher in Total number Bangladesh of products Agricultural products
8
*
+
Average ratio of Bangladesh price to Indian price .;
@rocessed foods anufactured products T'TA(
1 5
* *5
6 +
*.++ .8 .6*
The >3A' paper also provides information for these products on indirect taxes in the two countries. In Bangladesh, except for exempted products, there is #ust the 5 FAT, but in India (also except for exempted products! there is the central government excise tax :usuall" 61 and at the time of the surve" the central sales and state sales taxes . The paper does not discuss the implications of the indirect taxes for the price comparisons, but a finding of ma#or importance emerges when these are factored in. This is that the combined incidence of the central excise tax and central and state sales taxes in India is in general much higher than the Bangladesh *AT. This means that reported retail price comparisons if an"thing understates the excess of Bangladesh prices over Indian prices after the indirect taxes have been removed. As a rough test of this, for this s"nthesis, using arbitrar" assumptions on retail margins and the indirect taxes reported in the paper, approximate pre1tax ex1factor" prices were derived and compared for the five products which according to the surve"s had lower retail prices in Bangladesh 5. 7or one product, this reversed the comparison, and in the other four it substantiall" reduced the estimated excess of the Indian price. Product
Domestic soap Dr" red chill" 3eiling fan (sweep t"pe 8++1*++ mm! G@< (6++16*5 FA! @aints
Estimated ratio of Bangladesh price to Indian price: retail incl indirect taes
Bangladesh: % of "# to retail price
India: % of indirect taes to retail price
+.;5 +.;8 +.9;
Estimated ratio of Bangladesh price to Indian price: ta free wholesale or efactor! +.8; +.85 +.;5
.; nil *.5
**.; 6.5 ;.
+.88 +.9+
.5 +.;
.8 nil
**.9 .;H
The surveys were not able to obtain adequate data on tax free ex-factory or tax free wholesale prices which could be compared directly, but the higher incidence of indirect taxes in India suggests that the potential for exports from India to Bangladesh is even greater than suggested by the comparisons of tax inclusive prices at retail level, since legal exporters are exempt from these indirect taxes, in addition to which they are exempt from or receive rebates of import duties and indirect taxes on their inputs. Conversely, allowing for the indirect tax dierence-at least for this small sample of products-reduces even further the li!elihood that there would be many exports from Bangladesh to India under free trade. "owever, this has to be interpreted carefully, since the #C$%& sample was of products already being exported by India, so it is unli!ely to include products that would be traded in the other direction '. The incidence of indirect taxes also con(rms suggestions in some of the industry case studies that illegal )bootleg* smuggling from India to Bangladesh in border areas is inhibited by the fact that some if not all of the smugglers on the Indian side 5 6
*
pay tax inclusive prices for the goods that are smuggled. $s pointed out in the case study on sugar, this means that both the Indian central government and the Indian state governments are obtaining part of the smuggling economic rents from the excise tax and the sales taxes on the smuggled goods, which in eect constitute an Indian export tax on products which are smuggled to Bangladesh. The #C$%& survey also as!ed Indian traders who were already exporting to Bangladesh by what percentage they would expect their exports to expand under three dierent hypotheses on Bangladesh tari reductions +, / and 01. 2or the free trade alternative +0 tari reduction1 the average estimated increase for 3 products was 45 , distributed as follows6 !pe of product
Number of products
#erage of epected increases in eports to Bangladesh %
Agricultural
@rocessed food
5
anufactured
8
5
ineral
+
All products
5;
2or only 5 of the 3 products was the expected increase in exports 0 or less +wheat, C.I. sheets, paints, and bauxite1, and not surprisingly three of these products were already facing low Bangladesh protective taris /. The aggregated data on Indian exports to Bangladesh and the #C$%& exporter survey suggest that there is considerable potential for trade diversion with an 2T$ i.e. Indian exporters would be able to undercut &78 suppliers and substantially increase their shares in Bangladesh9s import mar!ets. This in turn would have important economic welfare consequences. 7ne immediate consequence would be lost government revenue from the protective taris that would no longer be applied to imports from India. 2or the product groups for which Indian export data is provided in Table '.:, assuming that under an 2T$ India would not supply crude oil and petroleum products and omitting the mineral fuels and oils "; chapter, a very approximate estimate of the total government revenue from protective taris on :4nder an 2T$ the government revenue loss would therefore at least be =:/ million, and it would be greater than this to the extent that Indian exporters were to increase their shares in these import mar!ets. But increased mar!et share would be the outcome of lower prices andnder the pro?ect, a methodology for doing this !ind of evaluation at the level of individual industries was developed and some industry case studies were underta!en. This wor! is brie@y summarised in section 0.
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