Tsunami may shake up merchandise trade.

As Japan shifts focus on reconstruction after Friday’s devastating earthquake followed by a tsunami, the merchandise trade between India and Japan is likely to get affected in the coming months.

While exports of apparel, carpets, precious stones and natural pearls, iron ore and organic chemicals will see some decline, imports of electrical machinery, nuclear reactors, electrical vehicles and organic chemicals into India are likely to take a significant hit as India is a net importer of goods from Japan.

Bilateral trade between India and Japan stood at $ 10.2 billion in 2009-10 with exports to Japan at $ 3.6 billion while imports from Japan stood at $ 6.7 billion. In the first quarter (April-June) of 2010-11, India’s export to Japan stood at $ 1.4 billion while imports from Japan was $ 1.7 billion.

“Japan needs to spend huge money on reconstruction. It has a public debt to the order of 180 per cent of its GDP and hence, there will be a shift from consumer spending to rehabilitation over next six-eight months,” Ajay Dua, former industry secretary told Financial Chronicle. Apparel is one of few items that India exports to Japan, which is estimated to see a loss of Rs 50 crore over next three months.

“While there have been no cancellation of orders so far, the overall consumer sentiments are bound to go down and we may incur export losses of Rs 50 crore to Japan in next three months because of slowdown in demand,” HKL Magu, vice chairman of Apparel Export Promotion Council said.

According to Rahul Mehta, president of Clothing Manufacturers’ Association of India, the trade between India and Japan in the textile sector is very miniscule and only few firms based in Jaipur export to Japan.

According to Industry experts, Japan buys high quality iron ore from India and a disruption of supplies to that country could, therefore, have a disproportionate impact on their profit.

Sesa Goa, which exports 5-10 per cent of its production to Japan says it’s too early to comment on the impact. However, Sanjay Jain who is an analyst with Motilal Oswal says there will certainly be some impact on Sesa Goa’s exports but that will not be huge.”

Federation of Indian Exports Organisation (FIEO) feels that despite all this, the target of $12.5 billion of bilateral trade for 2010-11 between the two countries will be achieved as commitments have been made much in advance.

“There will be a slowdown in merchandise trade with Japan but the implications will known in next few months. This means lower trade in the first quarter of next year,” Ramu Deora, president of FIEO added.

Source : mydigitalfc.com