After the militant organization Taliban overthrew the government of Afghanistan for the second time in the past 25 years – closing borders, the financial ecosystem in Afghanistan collapsed, sending shock waves through the markets Indians. As the holiday season approaches in India, the trade halt has posed multiple challenges for exporters, who are considering the possibility of defaults in Afghanistan, and for buyers who are considering the possibility of a sharp rise. prices of commodities exported from Afghanistan to India due to the mismatch between supply and demand.
For clarification on the overall trade situation between India and Afghanistan, News18.com spoke with Dr Ajay Sahai, Managing Director and CEO of the Federation of Indian Export Organizations (FIEO) , a trade promotion body created by the Union Ministry of Commerce and the private business sector.
Here are the edited excerpts from the conversation:
How do you see the implication of a commercial shutdown on India and Afghanistan?
Let me give you an indirect answer to the question. When you look at India’s trade with Afghanistan, in the last fiscal year we exported goods for about $ 825 million and imported goods for about $ 510 million, which was about 0.02%. of Indian exports and 0.015% of Indian imports, which shows that when it comes to trade, Afghanistan is not an extremely important market for us. But on the contrary, when I see Afghanistan trading with India, we are one of the biggest partners. One important thing is that 45 percent of Afghan exports go to India. And for some products like dried fruits, we represent 45 to 50% of their total exports, for spices about 45% and for raisins 90%. So I think it’s in the best interests of Afghanistan, and only Afghanistan when trade picks up slowly and steadily.
Since the end of trade, dried fruits are the only widely debated product in India. Is this the only product that will be impacted in India or are there several others?
Let me tell you that of the $ 510 million that we import, a good chunk, about 70% is 100 or more are dried fruits. This is why it is quite obvious that people are talking about its impact on the Indian market. But please consider the fact that the domestic consumption of India is also satisfied by the domestic production. We also import from a wide range of countries such as the United States and Chile. The only advantage Afghanistan has in dried fruits is proximity and some of these dried fruits are imported at preferential tariffs because India has a preferential trade agreement with Afghanistan. So I think when I look at the amount of imports and total domestic consumption, I don’t think there is any need to panic and think that the prices will go up. Personally I think prices may go down in some time to come and the fact that prices may go up has a lot to do with speculation because once an import source doesn’t work the general trend is that in this speculation, the price goes up, but I’m pretty sure that in the times to come the prices should go down because if it is not possible to import from Afghanistan, which I think at this point, one should not think about it, there will be other countries that will be able to fill the void.
With the upcoming festivals, the media report that the price of dried fruits is expected to increase between Rs200 and Rs.250 per kg. What is your assessment of the reports?
No, I totally agree with you. But I don’t think it should translate into such a price hike. Please keep in mind that there are also other countries that are able to supply and if the prices are so high, the government always has the option of reducing the prices during festival season to mitigate the effects of the price increase. So I think there will be other countries that will help provide that. If there is no return to normal in Afghanistan, I think the government has adequate instruments to check the size and the prices as well, at this point I say if the prices continue to rise and as the government believes that prices will affect the holiday, there are instruments available with the government to ease prices.
Could one be the reduction of duties on dried fruits, so that the landed price of their product becomes cheaper? I’m just saying that at this point, since the disruption just happened for four or five days, I see no reason why the prices are getting so high. So there is a lot of speculation in business when these kinds of developments occur. Personally, I have the impression that after a week or so the situation could return to normal. And if it does not normalize, other countries will be able to fill the void created by the disruption of supplies from Afghanistan. And if prices continue to be high, despite this, I think our government has enough instruments to examine how prices can be softened in such situations.
It’s not that we just depend on one source of supply, if one source of supply dries up, then other sources will certainly try to fill the void. And even after that, if the prices continue to be high, there are adequate instruments available with the government, and of course, it will depend on what situation the government is planning at that time to take a call on this.
After the fall of Kabul to the Taliban, the financial institutions and system collapsed and now Indian exporters who have exported to Afghanistan are considering the possibility of default on their part, how will you handle or deal with this?
No, in fact many exporters who export have credit insurance coverage. , they are able to recoup losses, but the important issue is also the movement of the currency. We have seen that over the past week the Afghan currency has experienced a sharp depreciation of around 7% in one week, which certainly makes imports into Afghanistan more expensive. Therefore, many importers in Afghanistan are also re-examining the contract they made earlier, we were made to understand that Afghanistan’s foreign exchange reserve has also decreased a lot and some of the exporters have been informed by their buyers that they were little worried that the Central Bank of Afghanistan will be able to provide foreign currency to the local bank. So these are questions that concern us at the moment.
But I think all these questions can be definitely debated. In short, although Afghanistan is extremely important to us and we have a historic relationship with the country, it has been a very friendly country for us. But to do business with India, I think the responsibility will fall more on Afghanistan, as they are more dependent on India for export.
So, since you talked about credit insurance whereby exporters can mitigate damage to them, what is the coverage limit of that for exporters?
It depends, for small businesses it covers about 90 percent of the total amount involved because not all insurance covers 100 percent. But even if 90 percent of the defect is recoverable. I think that’s better than completely eliminating remittances from exporters. This is for small businesses, otherwise it varies and depends on if you have a global turnover policy or if you have a specific shipping policy. So it varies from category to category, but I think in most categories it will be between 70% and 90%.
Are you in touch with exporters based in Afghanistan and what they tell you about the situation, do you see a positive development on the trade front?
Yes, we are in contact with the exporter in Afghanistan and they provide us with the feedback that we update everyone on. The positive development they told us about is that probably the border at Chaman, which is a transit point between Afghanistan and Pakistan, has been opened for people to cross. And perhaps slowly, they anticipate that goods may also be allowed to leave the same transit point. If this happens. It is certainly a positive development.
How are you going to deal with the commercial uncertainty resulting from the Taliban takeover of Kabul?
No, right now everyone is concerned about the uncertainty that has definitely impacted trade. I don’t know what the future position of the new government will be and what type of policy it will follow, a lot will depend on the type of policy it pursues. And at this point, depending on the policy, trade will take shape, so I wouldn’t be able to say that trade will be affected due to the change of government. I think it’s too early to tell, a lot will depend on how or where the government stands.
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