The idea of state trading enterprises is not dead
Adani is therefore not omnipotent after all. When only two bids were submitted for the first-ever global tender from Coal India Ltd, a state-owned coal miner, to import 6 million tonnes of coal, split between the east and west coasts India’s fastest growing conglomerate was expected to be a shoo-in. It turned out that an Indonesian company seems to have propelled Adani into the L1 spot (lowest price), although there could still be a lot of bureaucratic slippage between the cup and the lip.
But what’s interesting about CIL’s bidding isn’t the fact that Adani won’t win yet another government contract. What is interesting is the import tender itself and what it could mean for India’s future import strategy.
Not that India or CIL are in danger of running out of coal reserves. The emergency imports were ordered to help overcome the acute shortage of coal facing power generators as they struggled to cope with record increases in demand amid soaring temperatures in the during a hot Indian summer.
CIL was chosen because it is already the primary — if not the only — supplier of coal to most domestic coal-fired power plants and would have the logistical capacity to ensure that imported stocks, when they arrive on Indian shores , would be quickly and efficiently distributed to end users.
The government had also simultaneously allowed other bulk users to import coal directly, but bundling requirements into one large order and one large buyer gives much more clout with potential suppliers.
In fact, this was the idea behind the establishment of state trading enterprises in India and the long period of “pipelined” imports from India, when imports of specific items were only authorized only through specified entities (usually state-owned), which then redistribute to end users. Thus were born, for example, the State Trading Corporation and the Minerals and Metals Trading Corporation.
Pipelining was largely removed with the first round of trade reforms which launched the reform process in India in the 1990s. for some unfathomable reason, coconuts and copra – the era of state trading enterprise in India is largely over. As Sanjay Chaddha, former deputy secretary of the Ministry of Commerce, put it in a recent article, they are the “dinosaurs” of India’s business landscape.
Conceptually, they may be dinosaurs – state trading enterprises now only exist in controlled economies, with China leading the pack – but, as recent developments have shown, they are by no means case irrelevant as an idea. In fact, the spectacular success of the major Japanese trading houses – at one point the top nine ‘ Sogo Shosha‘ controlled half of Japan’s bilateral foreign trade – demonstrates that the concentration of demand in a few branches or a single branch – provided that the product is a general item or a commodity that does not require customer-specific tailoring (the why engineering goods are rarely channeled) — helps increase bargaining and pricing power.
The reason the STE experiment in India went wrong is not because the idea was conceptually wrong. In fact, just last month the government was working to get all oil refiners together to import crude to offset some of the spike in crude prices after the Russian-Ukrainian conflict.
It effectively failed due to inefficiency, lack of proper market information resulting in inability to wrest potential price advantage from suppliers, bureaucracy and bureaucracy in the process import, which often led to intentions being telegraphed well in advance to suppliers and thus unfavorable prices. and the lack of logistical capacity to efficiently channel imported products to small MSME buyers at a decent price and in a timely manner. Even though the share of state-owned enterprises in Chinese imports has fallen from more than 50% twenty years ago to about 20% today, China continues to use wholesale purchases through trading companies. of State for strategic imports of energy, certain food products, as well as rare earths and minerals, civil aircraft, aircraft engines and other high-tech manufactured articles.
India has the option of opting for a channeled or bulk import strategy on many of its major imports. Crude is a given (currently only refined petroleum products are piped), fertilizers other than urea, edible oil (we are the largest importers in the world), coal, even gold, pearls and rough gemstones which fuel India’s gemstone and jewelry exports. .
What we need is to integrate private sector efficiency into the process, especially to gain market insights regarding current and future supplies and price movements, logistics and distribution capacity and quick decision making to take advantage of rapid market changes. All of these problems can be solved, requiring more political will to empower these entities than anything else. One can also consider strategic public-private partnerships for these imports and, more importantly, their pricing and distribution in the domestic market after importation, especially for small disaggregated MSMEs.
Or, we could take a look at the Japanese-Korean model that allows the large private sector Sogo Shoshas Where chaebol to operate in India. Big Indian conglomerates like Tatas, Reliance, Adani etc can – provided adequate safeguards against cartelization and price/supply manipulation are in place – are pretty much ready candidates for it.
It can also work the other way around – exports, especially for agricultural products, where cutting out the many middlemen will alone help Indian farmers earn more. Far from being dinosaurs, in the post-Ukrainian world, ECEs are an idea whose time has come – again.
The author is a seasoned journalist
July 13, 2022