Seminar on Growth Through Partnership - Doing Business with East Europe
December 11, 2002, New Delhi

Address by Mr Rajiv Pratap Rudy, Hon'ble Minister of State for Commerce and Industry

Excellencies, distinguished members of embassies of East European countries in India, my Indian colleagues, representatives from business and industry and friends.

It is a privilege for me to address this gathering present here for the Seminar on doing business with East European countries.

It gives me immense pleasure to welcome you all for the seminar.

India has traditionally enjoyed close and multi-faceted relations with most of the countries of Eastern Europe.

With the disintegration of the COMECON countries, India's trade with the erstwhile East Europe plummeted to a low level from US$777 million in 1990-91 to US$390 million in 1993-94. There was a brief upswing of trade during 1995-96 (US$646 million), which continuously declined till the year 2000-2001. Trade has, however, improved during the period 2001-2002.

Various factors can be attributed to such a decline in trade between India and the East European countries like collapse of a well established trade arrangement, dismantling of rupee payment system, severe liquidity constraints, internal socio-economic disarray due to rapid shift from command and control economy to liberal and market economy, etc.

During the COMECON period the trade between India and the East European countries was done through Central Clearing Account where the purchase and the sale quantities were ordered in bulk through the intervention of the two governments.

Now, most of the state enterprises in these East European countries have been privatised and smaller and medium level firms are operating on a competitive free market basis.

Hence, the requirement from bulk sale/purchase has shifted to break- bulk.

Now, the East European buyers prefer to purchase and sell smaller quantities from neighboring countries rather than wait for goods to arrive for quick rotation of capital.

Earlier, even the lack of presence and visibility of Indian businessmen in the East European region did not hamper the trade transaction as the decision to purchase and sale of goods was centralised.

Now, there is a need for Indian businessmen to improve their presence and visibility of quality Indian products to recapture the East European market.

With liberalisation and an urge for integration into the West European economy, the East European consumers are exposed to sophisticated consumer items, even though, at slightly higher prices.

The middle and the lower segment of the population buys Chinese, Srilankan, Bangladeshi, Turkish products as a substitute to better quality and priced Indian products.

We are facing tremendous competition even in our traditional consumer items like tea, coffee, tobacco, pharmaceuticals, readymade garments, cotton yarn and processed and unprocessed agricultural commodities.

Poor infrastructure linkages like inadequate and erratic shipping line is partially responsible for our declining percentage in these markets.

However, aggressive marketing by countries like China, Turkey, Indonesia, Srilanka, Bangladesh, Ceylon, Japan, Australia and West European countries through liberal and extensive line of credit has resulted in pushing their commodities to the East European countries, even in areas which are our stronghold.

Unfortunately, India is still recognised as a supplier of raw materials and traditional consumer items in these countries.

During various Joint Committee Meetings, Joint Business Council deliberations, exchange of Ministerial delegations and visits by high-tech sectoral delegations from electronic and software, agriculture, telecommunications, etc. fields, have been made to push high value and frontier technologies to these countries.

Attempts have also been made to familiarise the consumers of East European countries with sophisticated consumer items through participation in specialised trade fairs in their countries.

Exim Bank of India has now forwarded a scheme for providing Lines of Credit for financing exports to Central and East European and Commonwealth of Independent States to be routed through Exim Bank's Export Development Fund (EDF).

The objective of this scheme is to set up a corpus of US$ 100 million for providing line of credit on soft terms, through Exim Bank's Export Development Fund, the countries under consideration with export potential for India, in order to substantially increase Indian exports to the region.

East European markets are well-tested markets for the exports of Indian commodities.

India's share in the trade with the East European countries is even less than India's share in the global trade. While our exports have declined from US$314.60 million in 1990-91 to US$187.24 million in 1996-97. This has increased to US$268.52 million during 2001-2002.

India's Imports from East European countries also declined from US$462.13 million to US$199.99 in 2001-2002.

It is estimated that more than 30 per cent of India's trade takes place through third country and hence it is not reflected in the figures published by DGCI&S as our figures are based on country of destination and not country of origin.

Most of the East European countries are going to be Members of the European Union in the next decade and some of them may become full-fledged Members much before.

By establishing our foot-hold in these markets, we could possibly target a much larger, integrated market with whom we have most of our business transactions.

There is a need to activate efforts to increase India's exports to the East European countries in non-traditional/emerging/niche product groups such as engineering items; software/Information Technology; electro-technic & electronics; plastics; packaging; chemicals; pharmaceuticals; medical equipment and food processing; etc.

One more area where Indian companies can benefit is the privatisation process in East European countries in infrastructure facilities such as development of tourism, constructions of hotels, etc.

Similarly, modernisation of Railways in these countries is another area where our companies like RITES, IRCON and BHEL can consider participation.

There is also scope for mutual cooperation in the information technology/biotechnology sectors. Future Indian business delegations should include leading campanies in these sectors.

Establishment of a warehouse for storage of Indian exports would go a long way in promoting our exports to the entire region of Central and Southeastern Europe.

During the VVIP visit of Croatian President to India, the Port of Rijeka authorities explained advantages of routing our exports to Croatia and the region through Rijeka port which is centrally located on the Adriatic Sea.

In order to help the Indian companies interested in exporting consumer/capital goods to East European countries, it is suggested that a group of interested businessmen/company representatives, in the fields such as textiles, pharmaceutical products, leather & leather goods, coffee/tea, textiles machinery, meat exports, processed food, handicrafts and readymade garments could be formed, who could visit East European countries and interact directly with the prospective buyers so that some real business could be initiated.

"Buyer-Seller Meet", "India Week" or similar projects could be organised with the help of local Chamber of Commerce and Departmental stores for exhibition of Indian Goods brought by Indian businessmen.

Indian Companies should closely pursue investment/takeover proposals in specific sectors, engineering, electronics, glass/crystal.

India should not delay further strengthening its economic presence in this region, which would be costly in terms of missed opportunies.