After the militant organisation Taliban toppled the government of Afghanistan for the second time in the last 25 years-the borders shut down, the financial ecosystem in Afghanistan collapsed, sending a shockwave in the Indian markets. With the coming festive season in India, the trading halt has posed multiple challenges for exporters, who are staring at the possibility of payment defaults in Afghanistan, and buyers who are looking at the possibility of a steep price rise of the commodities exported from Afghanistan to India due to the supply-demand mismatch.
To get clarity on the whole trade situation between India and Afghanistan, News18.com spoke to Dr Ajay Sahai, director general and CEO of the Federation of Indian Export Organisation (FIEO), a trade promotion body set up by the Union Ministry of Commerce and the private trading sector.
Here are the edited excerpts of the conversation:
How do you see the implication of a trading halt on India and Afghanistan?
Let me give you an indirect answer to the question. When you are looking at India’s trade with Afghanistan, in the last fiscal, we exported goods around $825 million and imported goods around $510 million, which was roughly 0.02 per cent of India’s exports and 0.015 per cent of India’s imports, which shows that as far as the trade is concerned, Afghanistan is not an extremely important market for us. But on the contrary, when I am seeing Afghanistan trade with India, we are one of the largest partners. One important thing is that 45 per cent of Afghanistan export comes to India. And in some of the products like dry fruits, we account for 45-50% of their total exports, for spices around 45 per cent, and for raisin 90%. So I think it is in the interest of Afghanistan, and only Afghanistan when the trades resumes slowly and steadily.
Ever since this trading halt happened, dry fruit is the only commodity being discussed widely in India. Is this the only product that is going to be impacted in India or there are several others?
Let me tell you that out of the $510 million which we are importing, a sizable chunk, around 70 per cent or more is dry fruits and fruits. That’s why it is quite obvious that people are talking about its impact on the Indian market. But please look into the fact that India’s domestic consumption is also met from domestic production. We also import from a wide range of countries such as the US and Chile. The only advantage which Afghanistan has in the dry fruit is the proximity and some of these dry fruits are imported at concessional tariffs because India has a preferential trading arrangement with Afghanistan. So I think when I am looking into the quantum of imports and the total domestic consumption, I don’t think there is a need to panic and think that prices will go up. I personally feel that prices may soften in some times to come and the fact that the prices may rise has much to do with the speculation because once a source of import is not functioning, the general tendency is that in this speculation that price goes up, but I’m pretty sure that in times to come, prices should soften because if it is not possible to import from Afghanistan, which I think at this point of time, we should not think of it, there will be other countries who will be able to fill the gap.
With the upcoming festivals, there are media reports that the price of dry fruits are expected to rise somewhere between Rs 200-250 per kg. What is your assessment of the reports?
No, I totally agree with you. But I do not think that this should result in such a hike in the prices. Please bear in mind there are other countries also which are in a position to supply and if the prices are so high, the government still has the option to reduce the prices during the festival season to soften the effects of the price rise. So I think there will be other countries who will chip in to supply this. If there is no normalcy coming back to Afghanistan then I think there are adequate instruments available with the government to check the size and the prices also, at this point of time, I am saying that if prices continue to increase and the government feels that prices will affect the festivity, there are instruments available with the government to soften the prices.
One could be the reduction in the duties on dry fruits, so their product landed price becomes cheaper? I am simply saying that at this point in time since the disruption has just happened for four or five days, I don’t see any reason where the prices become so high. So a lot of speculation do happen in business when these kinds of developments happen. I personally feel that over a week or so, the situation may normalise. And if it is not normalising, the other countries will be able to fill the gap which is being created because of the disruption in supply from Afghanistan. And if the prices continue to be high, despite that, I think our government has sufficient instruments to look into how the prices can be softened in such situations.
It is not that we are solely dependent on one source of supply, if one source of supplies dries up then other sources will definitely try to fill in the gap. 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 government foresee at that point of time to take a call on that.
After Kabul falling to the Taliban, the financial institutions and system have collapsed and now exporters in India who exported to Afghanistan are staring at the possibility of default on the payment from their side, how are you going to manage or cope up with that?
No, in fact, many of the exporters who are exporting have the credit insurance coverage available with them, we have advised exporters who have orders in the pipeline which they want to execute, they should explore the possibility of credit insurance so that if default happens, they are able to recover the losses, but the important issue is also the movement of currency. We have seen that in the last week, the Afghani currency has witnessed a sharp depreciation of around 7 per cent in one week’s time, which definitely makes imports costlier in Afghanistan. Therefore a lot of importers in Afghanistan are also revisiting the contract they have placed earlier, we have been given to understand that the forex reserve of Afghanistan has also dwindled a lot and some of the exporters have been told by their buyers, that they are little apprehensive as to the Central Bank of Afghanistan will be in a position to provide foreign exchange to the local bank. So these are issues of concern for us at this point in time.
But I think all these issues can be definitely deliberated. The short point is that while Afghanistan is extremely important for us, and we have historical relations with the country, it has been a very friendly country for us. But to do business with India, I think the onus will lie more on Afghanistan because they are more dependent on India for export.
So as you talked about credit insurance through which exporters can mitigate the damage done to them, what is the coverage limit of it for the exporters?
It depends, for small businesses, it covers roughly 90 per cent of the total amount involved because any insurance does not cover 100 per cent. But even if 90 per cent of the default is recoverable. I think it’s better than having the complete wipeout of the exporter remittances. That is for small companies, otherwise, it varies and depends on whether you have a whole turnover policy or if you have a specific shipment policy. So it varies from category to category, but I think in most of the categories, it will range between 70 per cent-90 per cent.
Are you in touch with exporters based out of Afghanistan and what they are telling you about the situation, do you see any positive development on the trade front?
Yes, we are in touch with the exporter in Afghanistan and they are providing us with the feedback based on which we are updating everyone. The positive development that they made us familiar with is that probably that the Chaman border, which is a transit point between Afghanistan to Pakistan, has been opened for people to cross over. And maybe slowly, they are anticipating the goods may also be allowed to move from the same transit point. If that happens. It is definitely a positive development.
How are you going to deal with uncertainty in trade emanating from the Taliban’s takeover of Kabul?
No, at this point in time, everybody’s concerned about the uncertainty that has definitely impacted the trade. I don’t know what will be the further stance of the new government what kind of policy they will follow, a lot will depend on what kind of policies they pursue. And at this point in time, depending on the policy, the trade will shape up, so I wouldn’t be able to say that trade will be impacted because of the change of the government. I think it’s too early to say, much will depend on how or what is the stance of the government.
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