During 2015, Italian exports to India reported a double-digit growth rate reaching 3,4 billion euros (+10,3% against +2,2% of the previous year).
Data for the first half of 2016 (equal to 1,5 billion), however, indicate
a decrease in Italian exports of 5,8% compared to the same period of 2015, attributable to the simultaneous reduction of Indian imports (-14,7%).
The contraction in imports was primarily caused by the depreciation of the Indian rupee, generating a postponement of the investment plans of the private sector which, typically, is what fuels the demand for imported goods. Domestic demand and, in particular, investment, is driven by public spending which favors domestic production. However, if one looks at the fiscal year it can be seen that the share of Italian exports on Indian imports is still growingalbeit marginal: from 0,9% in 2014, to pass to 1,07% last year and reach 2016% in the first half of 1,15. It should also be considered that the performance of Italian exports to India is characterized by a certain sectoral heterogeneity: it is always machinery that drives Italian exports which, in absolute value, are worth almost 600 million, but whose sales have decreased compared to the same period of 2015 (-3,9%); at the same time, the other traditional Made in Italy sectors continue to record positive growth rates.
If we look at the data on machinery in more detail, it can be seen that, within this sector, machinery for general use recorded a decrease while those for special use, which represent 40% of exported machinery and 17% of total Italian exports to India, have grown. This despite the generalized decline in Italian exports and with particular reference to machinery for the mining, food, rubber and plastic industries.
In the light of the strategy that the local government wants to pursue through the
Make in India program to transform the country into the new Asian manufacturing hub, focusing investments in infrastructure, digitization and production processes,
the Italian market share is still relatively limited (around 1%).
Competitive pressure is therefore high, especially from China and South Korea, whose capital goods are experiencing an improvement from a qualitative point of view; while Made in Italy has the highest ratio between exported value added and mechanical engineering export volumes among the top five exporting economies in the sector: USA, China, Germany, Japan and Italy.
The Indian market remains a very price sensitive market with various barriers to entry, resulting in additional costs for exporting companies.
There are numerous barriers in place, while the tax system is complex and there are taxes at different levels. India has consolidated only about 70% of the tariff lines on industrial products and the average level of duties applied for the unconsolidated tariffs is 30%, while for some commodities they reach 150% (such as wines and spirits) to which they go then added a number of other post-clearance taxes. There is also a list of products (about 200) to which an anti-dumping duty is applied and others (such as stones, marble or granite) on which there is an import restriction. Still in the agricultural sector, the phytosanitary legislation requires standards that go far beyond the Community ones: many products are subject to certification tests whose requirements exceed the international ones and whose process is often slow and not very transparent, as are the procedures of issuing some licenses for sale can be lengthy and burdensome.
The country ranks 130/189 in the Doing Business ranking drawn up by the World Bank. Here then is that, so that Italian exports can achieve the desired results, thelatest SACE focus suggests the signing of bilateral agreements capable of overcoming tariff and non-tariff obstacles, as some markets have already done (South Korea, Chile, Japan) or are doing (negotiations for an FTA with Canada and the United Kingdom are underway). The European Union has not yet adopted a clear commercial strategy towards the Indian market: Of all the trade agreements signed by the Indian government, only one concerns the EU. Discussions for a free trade agreement were opened in 2007 and are still ongoing.
However, there is another factor that businesses need to take into account. THE
Indian consumers will hardly follow the path of Chinese ones (search for quality, appetite for Western products, luxury), at least in the short term. India passed from a low-income country to a low-middle income country only in 2007 (while for China this happened in 1999 and since 2010 it has been included in the group of upper-middle income countries). L
he middle class in India amounts to about 15-20% of the population, while in China we are now almost 70% (with an upper middle class equal to 14% of the total). Furthermore,
urbanization still distinguishes development and consumption models: in China more than 55% of the population lives in urban areas, while in India we are around 30%. From this point of view
il McKinsey Global Institute the offer, However,
that by 2025 India will have about 69 cities with one million inhabitants each; and by 2030, consumption in the major urban centers will be able to reach the levels of consumption that today characterize the large cities of middle-income countries, such as Malaysia or Morocco.
