“Non-tariff barriers not easy to overcome in trade”

An interview with Mr. Lubomir Zaoralek, Minister of Foreign Affairs of the Czech Republic

  1. Trade between India and Czech Republic has been wavering around one billion US dollars since 2012, but it has never crossed the billion mark. What is holding the trade from crossing the billion barrier?

According to the Czech Statistical Office’s latest published figures, the turnover actually exceeded 1,3 billion US dollars in 2016. However you are right there is definitely potential to achieve even better results, hopefully in the near future. Given the geographical distance the best strategy is to focus more on specific products and services, which can succeed on your highly competitive market.

  1. Are there any tariff barriers coming in the way of trade? If yes, what are they and how can they be removed? 

There are certainly examples of tariff barriers that could potentially be removed. However it is important to see every so called barrier from different perspectives. There is sometimes an incorrect perception that the EU is preventing overseas agricultural companies in exporting to our market. That is not correct and in fact India has an active balance of trade in agricultural products to the European market including the Czech market. However, if you look in the other direction, our Czech breweries wish that their beer exports to India would not be penalised with a 100% tariff. However tariff barriers are not the only difficulties faced by exporters. For Czech manufacturers it is not easy to overcome some of the non-tariff barriers such as the administrative and also the local sourcing conditions.

  1. What is the quantum of investment either side -Indian investment in Czech Republic and vice versa?

Statistics on foreign direct investment are very tricky in the globalized world and they often do not reflect the real situation and the source of investment. According to the Czech National Bank’s statistics India is close to 30 biggest sources of foreign direct investment in the Czech Republic, but at the top of this ranking you find Luxembourg as number 4. This would not be possible without one of the biggest investment projects carried out by a foreign company such as Arcellor Mittal. So it depends very much on how you read these statistics and for example whether you consider Arcelor Mittal investment in Czechia to be Luxemburgish or Indian. India could rather be close to top 10 countries investing in Czechia.

So I would suggest not to look at the volumes, but rather at the names of the companies and sectors. Global top Indian brands such as Tata and Infosys or big names such as Lloyd are present in Czechia. Leading Indian exporting sectors such as textile, pharmaceuticals or automotive are represented here by Alok, Glenmark and Varroc respectively. Among the most important Czech investors in India there is first of all the car producer Skoda Auto. Last year the manufacturer of rail wheels and rail sets Bonatrans opened its new manufacturing facility in Maharashtra. In terms of creating new jobs the Home Credit company from Czechia, which is providing microcredits, represents the largest investment project with over 18 000 employees all over India.

  1. In addition to Skoda Auto, Skoda Power and Tatra, which new Czech investments are in the pipeline for India?

The Czech Republic is well known for its automotive, transport equipment, and power engineering industries but it would be not wise if only these kinds of strong sectors of Czech industry were represented in India. We should not omit for instance, Czech financial services, which are present on India’s market through the Home Credit company. However, when I visited your country in December 2016, the business delegation also consisted of other companies in different sectors and of various sizes which were exploring your market. One of them was Ray Service company producing cables and cable harnesses for automotive but also for defence and aerospace. They decided to set up a joint venture with an Indian company Elcomponics in 2017 to manufacture here in line with the “Make-in-India” initiative. I strongly believe that we will hear about such examples of new investment projects sooner rather than later.

  1. Are the Czech investors satisfied with investments in India or do they face administrative problems like land allotment etc?

I think that we need to admit first of all that investment is always a risky undertaking. Therefore it is advisable to start exporting, to know the foreign market as well as business environment better before deciding to invest in manufacturing in the country. We can say that the Czech investors had enough information to know that investing in India would not be easy. We register their problems that they have to face when dealing with public administration and we try to help them and support them through the Czech Embassy in New Delhi for example. At the same time we appreciate the effort of the Government of India and individual states to facilitate doing business here as a part of the „Make-in-India“ campaign. But to answer your question about the satisfaction of the Czech investors in India I would say that in general they believe that they had made the right decision to be present in India and become an integral part of the dynamic economic growth in recent years and in years to come.

  1. Are the Czech investors satisfied with the taxation system in India?

I think that everybody is appreciating the effort to introduce the new goods and services tax (GST) in India. This is definitely a step in right direction and Czech investors are among those who appreciate that. The new system should integrate market in India and bring in more transparency and again it should facilitate ease of doing business in India. As far as the direct taxation is concerned, the tax rates are considered rather high. But even in this area the Government of India is taking steps in the right direction to ease the tax burden and spread the pressure on larger base of the tax payers.

  1. Do the Czech investors find improved ease of doing business in India or there is no change from the past?

As far as I was informed the changes in the business environment are for sure welcome but when looking at the World Bank ranking of economies according to the ease of doing business India was number 130 last year. This is certainly disappointing assessment if we recognize how much attention is the public administration in India paying to the improvement of the business environment in India now. However, at the same time it reflects that even though important government initiatives were started, the road ahead is still very long and it is clear that targets cannot be reached tomorrow.

  1. While there were direct air links between the two countries, of late there is no direct air connection though a bilateral air service agreement was signed way back in 1997. What is holding the direct air link?

We need to understand that the airline business requires huge volumes of capital investment and the competition is fierce more than ever before. To open a new route between Prague and New Delhi requires very costly long-haul aircrafts. Back in nineties the window of opportunity was there but the national carriers did not use it. On the other hand the number of tourists, students and businessmen traveling between Czechia and India increased in recent years steeply and it continues to grow fast. I think it is the high time for airlines to consider it seriously and to make important investment decision to have appropriate aircrafts ready for opening the route between our countries. I am sure that direct air connection will be important turning point for the development of bilateral relations between India and Czechia and the number of passengers will grow even faster as well as the people-to-people contacts.