Good Morning. India is putting up a brave front at the tariff war, but it’s also easing pain for Indian manufacturers. Fulfilling a long-standing request, it withdrew Quality Control Orders (QCOs) for a few industrial products, forcing many to meet global competitive standards.

In other news, Indian companies are moving ahead of artificial intelligence (AI) pilots to actual deployment. Meanwhile, NTPC is firming up its plans to play a large role in nuclear power addition.

THE TAKE

India Sans Non-Trade Barriers: Reliance And More To Be More Competitive

By Govindraj Ethiraj

The government of India  last week withdrew Quality Control Orders (QCOs) on key industrial outputs spanning textiles, plastics and mining applicable on their imports into the country.

QCOs are mandatory Bureau of Indian Standards (BIS) certifications for these products.

Which means each category or sub-category of product or importable commodity has to be certified as meeting Indian quality standards at source, a highly expensive and cumbersome process.

The Non-Tariff Barriers? 

In effect, they are non-tariff barriers on imports and are a millstone around India’s downstream manufacturers — essentially millions of small firms making the goods that most of us eventually buy and use at home.

Such QCOs exist in many countries but there was a certain recklessness with which they were issued, if nothing else. Their numbers ballooned from 70 to 790 QCOs in the last decade.

The QCOs are also a good indicator of how policy capture by business, whether intended or unintended, has evidently led to some companies benefiting at the cost of others.

Gainers: Reliance, Indian Oil & GAIL

Leading the pack is Reliance Industries.

A report put out over the weekend by Delhi-based trade policy tracker Global Trade Research Initiative (GTRI) says the Mumbai-based oil-to-chemicals giant dominates Terephthalic Acid (PTA), Mono Ethylene Glycol (MEG), polypropylene (PP), polyethylene (PE) and the wider polyester value chain.

In the case of Reliance Industries, many of these QCOs are believed to have been in effect since 2023.

There are other companies which benefited too, like state-owned Indian Oil and GAIL who are polymer manufacturers.

Likewise, Finolex Industries and Chemplast Samnar lead in PVC while Indo Rama, Filatex, JBF Industries and Vardhman are prominent makers of polyester yarns, the GTRI report says.

There are other examples in metals as well.

There are import duties or tariffs on all these products too which keep raw material prices high for downstream industries here.  But that is a different battle, as QCOs were ensuring that raw materials could not be imported easily.

Pushback From User Industries

The withdrawal of the QCOs comes on the back of considerable pushback by user industries and more recently, recommendations of a high level committee headed by the Government’s NITI Aayog member Rajiv Gauba. 

The Confederation of Indian Textile Industry (CITI) described the government’s decision as a ‘pro-growth measure’ and a longstanding demand of user industries. 

The Business Standard quoted CITI’s chairman Ashwin Chandran saying polyester fibre and polyester yarn form most of the man-made fibre products. And hence, this measure by the authorities would contribute to the growth of the man-made fibre segment in India. 

The body also said that removing QCOs would improve the cost competitiveness of Indian textile and apparel products. It makes it easier to obtain raw materials at internationally competitive prices, Chandran added. 

Interestingly, even GTRI does not argue for a full ban on QCOs, acknowledging that they are needed but says that they must be exhaustively researched, as other countries do, before imposing them.

It also points out that major economies do not impose mandatory national certification on industrial inputs like polymers or metals.

All The Barriers

Looking back, it is a little unfortunate that India managed to erect and raise so many non-tariff barriers at a time when it should have been dropping both tariff and non-tariff barriers.

While India, like other countries, face dumping of excess capacity by Chinese industry and possibly poor quality exports, that is unlikely to have been the case all the time. 

Importantly, a competitive domestic manufacturing industry whether in raw material or final goods manufacturing would be better placed to take on international competition, particularly in a post-Trump world.

The Trump-tariff wars may ease off soon, going by the most recent moves to bring down tariffs on food items and fresh deals with countries like Switzerland.

There is no doubt that tariffs are now beginning to hurt American consumer wallets; and the ruling Republican Party’s electoral prospects.

But India must continue to draw the right lessons from the new trade wars, in reducing barriers and making the domestic industry truly competitive and world class. 

Indian industry can surely supply the bulk of the raw materials downstream industry needs, whether in stainless steel or plastics as it has been.

It must do so at prices that are globally competitive and make the nation more competitive and agile as well.

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CORE NUMBER

Rs 2.05 lakh crore

This is how much combined market value eight of India’s top-10 most valuable companies gained last week. The stock markets made a sharp rebound last week as benchmark index Sensex gained 1,346 points or 1.6%; after an extended stretch of weakness. Index heavyweights Reliance Industries and Bharti Airtel led the gains.

Market value gained last week:

The valuation of Bajaj Finance and LIC dropped during the week.

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FROM THE PERIPHERY

AI Moves Up The Ladder

Nearly half of Indian enterprises moved beyond artificial intelligence (AI) pilots to active deployment, as per a joint report by Ernst & Young and Confederation of Indian Industry (CII) report. As many as 47% surveyed report multiple Generative AI use cases now live in production, marking a decisive shift.

Flashpoint: Despite the strong promise, investment into AI has remained conservative. As many as 95% of companies surveyed said that AI and machine learning (ML) budgets are below 20% of overall IT spending.

The Shift: Most companies tend to partner with startups and original equipment manufacturers for the same. Hybrid deployment models dominate, with 78% organisations adopting a blend of internal and external resources.

Coal Imports Surge In Sep

Coal imports surged by 13.5% in September to 22 million tonnes, driven by festival demand boost. Both non-coking coal used by the power sector, as well as coking coal used by the steel sector went up during the month.

Outcome: Between April to September, non-coking coal imports declined while coking coal imports went up. Imports surged in September as buyers took fresh positions ahead of festivals. Winter restocking by steel mills is expected to aid coking coal sales going forward

Implications: The government is trying to become self-reliant and reduce energy imports, by boosting domestic coal output. Yet, the country continues to import coal for specific needs such as high-grade thermal and coking coal, which are still in short supply domestically.

NTPC Scouts Nuclear Plant Locations

State-owned power generator NTPC is firming up plans to set-up nuclear power plants, and is currently evaluating land options in several states, a senior official told PTI. It plans to set-up plants of 700 MW, 1,000 MW and 1,600 MW capacity.

Fast Facts: The Atomic Energy Regulatory Board (AERB) approves the sites for nuclear power plants. As per estimates, a 1 GW nuclear plant requires an investment of Rs 15,000-20,000 crore.

Backdrop: The thermal power producer, who has been setting-up green capacities, is also targeting a 30% share in of India's proposed 100 GW nuclear capacity by 2047. It also started work on the raw material front, and exploring possible acquisition of overseas uranium assets.

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