Thailand gets the upper hand over India

Top exports from Thailand were colour TV sets, polycarbonate and car parts. During the same period, India exported goods worth just 5 million baht (approximately $125,000), mainly gear lever, picture tubes, and jewellery parts.

For long, Indian corporates have feared that MNCs, more importantly, the Japanese majors, will leverage the Indo-Thai FTA to their advantage since Japanese companies have huge manufacturing bases in Thailand.

Given the statistics available for the first quarter post FTA, the opponents of the Indo-Thai FTA are being proved right as this trend could potentially skew the $1.44 billion (in 2003-04) bilateral trade in favour of Thailand. Currently, India enjoys a minor trade surplus with Thailand. In the first five months of this fiscal, India has exported $292.61 million worth of goods and imported $280.21 million from Thailand.

Industry bodies like Ficci, however, warned that Thailand or importers of Thai products must not been seen as villains. Ficci’s director general Amit Mitra said, ‘‘There have been rumblings in the Indian industry for the past 2-3 weeks. We have to first check whether they have violated any rules of origin or value addition norms. If they have not then we need to look inwards and see whether the surge has occurred in industries where we have core competence and then see whether these industries are suffering because of lack of reforms.’’

Under the Early Harvest Scheme, which came into effect from September 1, 2004, entrepreneurs from both the countries can import and export 82 items freely subject to duties which will come down to zero in the next two years. These 82 items cover 7 per cent of the Indo-Thai trade. While these statistics may not give the true picture of the complete fallout of the FTA, there is no doubt that companies are actively exploring procurement opportunities from Thailand for components and completely built kits, say industry pundits. This could only grow given that the duties would be completely eliminated in 2006.

Though a break-up of trade under different sectors is not available at present, they say consumer durables seem to account for the maximum imports now. Imports from Thailand have indeed surged, more so in air conditioners (ACs) and refrigerators post FTA and the trend will only see an upward swing in the days to come.

Consider this: Electrolux India is currently sourcing almost 50 per cent of its split air conditioners and large size refrigerators from Thailand. ‘‘High end products such as large size refrigerators which do not justify local manufacturing because of limited volumes currently form a major chunk of imports from Thailand. For the consumer, too, it’s a good deal,’’ said Electrolux Chairman and Managing Director Rajeev Karwal.

Imports from Thailand currently account for 7-8 per cent of the total 1.1 million units AC market. However, KJ Jawa of Voltas, underplays the trend. ‘‘It is insignificant as yet,’’ he said but did not rule out an upward trend when the duties will be eliminated in 2006.

Companies like Toshiba, Carrier, Daikin, Sony and Hitachi have already bid goodbye to manufacturing in India and are now instead sourcing from Thailand. The automobile industry, on the other hand, is more reticient about revealing whether imports of parts have surged.

All automobile OEMs took the line that it was too early in the day to comment on the impact of the FTA. Experts indicate that India needs major reforms in six areas if the domestic industry is to compete with foreign economies. These are flexible labour, infrastructure, transaction costs, power, taxes and interest costs. Mitra says Thailand has moved fast in these areas.

The impact of the Thai FTA should force some soul-searching as this is the beginning of how integration to the global economy could impact the Indian industry.