Trade boost

New Delhi, Aug. 10: Indian companies will find setting up production facilities in Bhutan, Nepal, Maldives and Bangladesh an attractive proposition following the government’s decision to reduce the import tariff on over 250 items from these countries.

“Indian companies could take advantage of the duty structure and set up manufacturing units there, if they can produce competitively,” said Nagesh Kumar, director-general of Research and Information System for Developing Countries, a think-tank.

He said it would be a win-win situation for both India and her four neighbours as the zero duty would help the Centre to reduce the trade imbalance, while the four nations will benefit from greater market access.

Kumar said India’s exports to Bangladesh were over $1.6 billion, while imports from Bangladesh were only $300 million.

However, analysts fear that the duty relief can affect firms based in India if the experience of palm oil import from Sri Lanka is an indication.

While crude palm oil attracts duty, the import of the final product — vanaspati — was allowed at zero duty under free trade agreements with Nepal and Sri Lanka.

This had made the industry uncompetitive. The cost for Indian producers was Rs 880 for a 15-kg pack, while for Sri Lankan producers it was Rs 810, industry sources said.

Tariff impact

According to the analysts, the recent tariff reduction to the four countries, considered least-developed within the Saarc region, for the forward movement of the South Asian Free Trade Agreement (Safta), can result in Infian firms shifting base or becoming uncompetitive.

Some of the items which India has been unilaterally removed from the sensitive list include electronic products, such as air conditioners and fans, construction materials such as tiles and food items such as frozen hilsa, tomato concentrate and cane sugar.

India has pruned the sensitive list to 480 by deleting 264 items. The Centre had announced its intention at the recent Saarc summit to reduce the sensitive list and opening up the market to her neighbours without insisting on reciprocity.

India, Pakistan, Sri Lanka, Bhutan, Nepal, Maldives, Afghanistan and Bangladesh form the South Asian Association of Regional Cooperation (Saarc). Trade relations among the them are based on the principles of Safta.

Safta, aimed at achieving zero tariffs on almost all products by 2012, was signed in January 2004 and came into effect in July 2006.

However, the agreement has failed to take off and bring the promised economic benefits. Regional trade remains low because of disputes over tariff concessions, especially between India and Pakistan.

At present, trade among the Saarc countries stands at $20 billion, and the members have decided to take it up to about $40 billion by 2013, officials said.