Skip to comments.India banks on Canada to skirt US gas export ban
Posted on 07/23/2012 10:13:16 PM PDT by James C. Bennett
NEW DELHI: India is trying to include Canada into the supply equation as it prepares to become an importer of energy from the US. But the plan may meet with only a limited success because of third-country pricing economics.
New Delhi has been lobbying Washington for a special dispensation to ship liquid gas from the US. Washington does not allow energy exports to countries that do not have a free trade agreement (FTA) with it.
Because of this ban, India's state-run gas utility is feeling hamstrung in its efforts to strike big deals for importing liquid gas from the US. The company in December signed a contract to import shale gas from Cheniere Energy's Sabine Pass facility and is close to clinching another such deal worth $12 billion.
While the political process to break the logjam over the US energy export ban to non-FTA countries continues, India is trying to work its way around the problem by roping in Canada that has a pipeline network with the US east coast.
India is hoping that it can route US gas and later, perhaps, shale oil through Canada. As an FTA partner of the US, Canada will be free of the constraints that currently keeps US energy a difficult draw for India.
But industry executives said the plan may have limited applicability which would depend on from where in the US the gas is coming. Government sources also admit that routing supplies through Canada could involve additional carrying cost, and that could push up the final price.
But politically at least, the Canadian option looks viable. India and Canada are wooing each other as strategic partners waiting for lift-off. Prime Minster Manmohan Singh met his Canadian counterpart Stephen Harper on the sidelines of the G-20 summit in Mexico in June.
Foreign minister S M Krishna followed up that summit by meeting his counterpart John Baird in Toronto. Canada has been supportive of India's bid to join the four non-proliferation regimes at the recent NSG plenary in the US. Harper is expected to visit India in November on a state visit.
India and the US are expected to hold the next round of an annual energy dialogue in September, where New Delhi is expected to follow up on issues blocking energy imports.
The consequences of no FTA with India are just what besides this?
It’s crazy to be waltzing around with China while leaving our dot-Indian friends in the lurch.
Yeah, they want a one way good deal. I say NO, and that means Bambi will fold and throw in the towel I am sure.
I suspect part of the consequences is that India can continue to impose stratospherically-high customs duties on imports (automobiles are charged at 111%, and motorcycles are 104%). With a FTA in place, they’d probably be required to drop those duties significantly, as part of opening the Indian market to US imports.
Since domestically-produced vehicles are pretty shoddy compared to vehicles from more developed nations, dropping the import duties (which would have the effect of dropping those vehicles’ prices to nearer their Indian counterparts) would essentially push the Indian manufacturers into crisis as no one would buy their product anymore. They’d be facing huge revenue drops from loss of sales, at the same time that they faced steep investment costs to bring their product quality up to international standards.
They would also probably have to retool many production lines to produce more modern designs: The Hindustan Motors Ambassador is essentially a 1950s Austin, still in production (though admittedly, it’s much-loved and has a market all its own). More “modern” cars in India still have many areas for improvement in reliability, materials, and features. Most Indian-market motorcycles still use drum brakes front and rear, and have old-style twin rear shock absorbers.
You hit the nail right on the head.. Cars, bikes of similar quality/make etc are incredibly expensive in India compared to other countries (Singapore’s an exception.. there its even more expensive)
It might be tempting to wonder why we don’t tax India’s information technology like India taxes our cars.
Most of India’s cars are made by Suzuki, Ford,GM, Hyundai , VW etc. Honda. BMW,Audi, Mercedes, Volvo etc have assembly plants. The only Indian automakers are Tata and to a very small extent Mahindra. The duties are to encourage local manufacture and not imports. Still, BMW, Audi and Merc sell more than they anticipated, enough to get Bentley, Lamborghini, Ferrari and Porsche to set up shop.
I would hardly say “most”; at least half of the cars I see on the road here are Tata, Mahindra, or HM (Hindustan Motors). Suzuki is probably third.
Suzuki is actually Maruti Suzuki, and has quite a few plants in India. Chevy, Ford, Nissan, Skoda, Mitsubishi, Hyundai, and many of the others you mentioned also have plants here, though they do not have the in-country partnership Maruti does.
Also, Mahindra is not a small player. Their line is quite large, and sales are very strong (their vehicles are actually a little more upscale than the Tata ones). Only the really upscale manufacturers import rather than build locally, and that includes Volvo (which is a tiny presence here for cars; buses are a different matter).
The 104% import duties is only for fully assembled vehicles not for individual parts. Its meant to encourage local assembly/manufacturing. India even has US made Harleys assembled in India.
Dropping the tariffs would definitely spawn fierce competition but it not going to bring any huge advantage for western manufacturers. In fact the bigger threat would be cheaper Chinese motorcycles not US made motorbikes.
Maruti Suzuki is under complete Suzuki control. They command almost 45% of the market. Ford is constructing its second plant. GM has 2 operational. Hyundai and Toyota are expanding theirs....
Hindustan Motors makes about 2800 cars a year. Tata and Mahindra totally command about a fourth of the market in passenger vehicles as of today. Mahindras XUV is the only upscale car they make - the Xylo, Bolero and the Verito (ugh) are nowhere near being upscale.
Wiki, for all its faults, has an interesting page on the Automotive industry in India. some figures are outdated.