India
is an important consumer of commodities, ranking fifth in overall energy use,
and third largest consumer of coal. In agriculture, it has a much greater
presence by being the largest consumer of sugar and tea and the second largest
consumer of wheat, rice, palm oil and cotton. India has sharply increased its
edible oil consumption. However, India’s commodity consumption has grown at a
slower rates than China.
The
import dependency of commodity supply remains a cause of concern. Using
indicators, like the country concentration, import dependence and supply risks
for high economic importance commodities, it is apparent that not only the
price but also physical availability and counter party suppliers are some of
the potential areas of concerns.
Country
concentration risks for agricultural products and energy resources are
relatively high in India. The entity concentration risk (dependence on a few
companies for sourcing) is growing as well. Other counties like Korea too are
dependent on four trading companies for its import of grains. China inspite of
its huge international political clout is dependent on only three companies,
like Vale, BHP and Rio, for its iron ore imports.
While
China had been acquiring rights of commodities (through acquisition of mines
and farm lands) around the world to mitigate concentration risk in sourcing,
the Indian acquisition in the natural resources have not followed any
commodity-based structured approach. Barring a few private sector acquisitions,
the investments in commodity resource pooling have been very insignificant
compared to projected surge in demand.
On
the other hand, negotiated price settlement has been the order of the day in
China but in India driven by the fear of CVC and RTI —the same has been
sacrificed in favour of global tendering. This has resulted in India often
having failed to get favourable prices. Unfortunately, the PSU trading houses
& Oil PSUs have been relegated to mere channelising agency as sales
facilitator rather than vehicles for strategic sourcing.China’s
overseas investments in natural resources assets had focused on oil and
minerals.
The
price of food commodities such as rice, wheat and soyabeans had surged in 2008.
Thereafter, state owned China Investment Corporation’s (CIC) purchase of an
$856m stake in Noble Group (the commodities trading company) is the clearest
indication that Beijing wants to secure agricultural commodities supplies.
Since then, countries including Saudi Arabia and South Korea have invested in
overseas farm plots to increase their food security.
India
has also an import dependent model for Energy (Coal from Indonesia & Crude
from West Asia). India’s low self-sufficiency rates for pulses (imported from
Burma & Canada) and edible oil (imported from Indonesia, Malaysia and
Argentina) can do little to blunt the commodity pressure. In fact, the nation’s
already fragile self-sufficiency in food and grains is likely to decline
steadily with the new food security bill despite its good intentions. While
there is nothing wrong in being an import dependent commodity consuming nation
but subjecting the economy to import mismanagement, whims & fancies of
savvier suppliers and arm-twisting by countries (recent coal policy of
Indonesia) is a matter of growing concern. Failure of the government in
economic diplomacy as well as failure to leverage India’s position as a large
consuming nation will be paid by millions of domestic consumers. Government in
the past had remained mute spectators with long term policy starvation often
reactively resorting to non- sustainable price control mechanism.
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