ROLE OF STATE TRADING CORPORATION IN INDIA S TRADE PERFORMANCE IN THE ERA OF GLOBALIZATION AND ECONOMIC LIBERALIZATION

Transcription

1 International ROLE Journal OF STATE of Information TRADING CORPORATION Systems and E-Business IN INDIA S TRADE Management PERFORMANCE IN / 53 Vol. 4, Nos. 1-2, January-December 2015: ROLE OF STATE TRADING CORPORATION IN INDIA S TRADE PERFORMANCE IN THE ERA OF GLOBALIZATION AND ECONOMIC LIBERALIZATION A. R. DUBEY Professor, Skyline University College, Sharjah, UAE The Indian economy has emerged as one of the fastest growing economies of the world. The major contributors of growth are spurt in exports, resurgence of the manufacturing sector, and substantial flow of foreign direct investment that has complemented the domestic investment. There has been significant improvement in macro-economic stability which is result of economic reforms introduced in 1990s in the context of globalization, and revival of Indian economy from crisis, and meeting out challenges in the liberalized economy. India has also managed foreign trade and balance of payment due to introduction of external sector reforms in 1990s. State Trading Corporation was setup in 1956 with the aim of facilitating India s foreign trade. Ever since its establishment, it is functioning as a premier international trading house in public sector. There has been remarkable trade performance of State Trading Corporation Ltd. However, the share of STC in India s total trade is reported to be less than 1 per cent. There has been increasing trend of trade by STC in post-reform period. State Trading Corporation of India not only contributes significantly in promotion of international trade but it is equally active in promoting domestic sales. There has been increasing trend of internal trade of STC during post-reform period. In view of the significant role and contribution of STC in trade performance of India, the present paper is an attempt to examine the role of STC in India s trade performance. INTRODUCTION The State Trading Corporation of India Limited is an international trading house and has been a key trading arm of the Government of India. STC was set up in 1956 with the aim of enhancing trade primarily with East European countries and also to supplement the efforts of private trade and industry in developing exports from the country. STC is registered as an autonomous company under the Companies Act 1956 and functions under the administrative control of the Ministry of Commerce & Industry, Government of India. The Government of India holds per cent of the equity of the Company. Over the last four decades STC has been able to build a strong reputation both internationally and domestically as a trustworthy buyer and supplier. Over the years the Company has developed expertise in bulk trade handling. STC also owns brand names in the export market. The primary business activities of STC are exporting, importing and domestic trading.

2 54 / INTERNATIONAL JOURNAL OF INFORMATION SYSTEMS AND E-BUSINESS MANAGEMENT In view of Corporation s in depth knowledge about the Indian market, STC is able to supply quality products at most competitive prices and ensure that the goods reach the foreign buyer within the prescribed delivery schedule. It also imports bulk commodities for Indian consumer as per demand in the domestic market at most competitive prices making use of its global strengths. The eventful track record of more than 55 years has helped STC to gear itself to face the fierce competitive challenges, seize business initiatives and build on its core competencies. With a global vision in effective management, result oriented approach, strong belief in productivity and accountability, STC is future ready to take advantage of the opportunities in the 21st century and help propel India towards the new frontiers in world trade. There has been paradigm shift in Indian economy and international trade in the era of globalization and economic liberalization. Though, the role of State Trading Corporation Ltd. in India s trade performance was significant in the old economic environment however, the role of STC is diminishing in India s trade performance in the changed business environment. It is therefore imperative to examine the role of STC in India s trade performance and suggesting the measures for improving performance of Corporation. As on 30 th June, 2011, 60 million shares were held by STC. Most of them were belonging to promoters holding shares. Non-promoting holding shares accounted only 1.26 per cent. The shares of private corporate bodies, Indian public and non-resident Indians accounted for 7.72 per cent. Thus, less than 6 per cent shares were held from Indian public by STC. As on 31 st March, 2010, most of the shareholders were found belonging to less than 500 equity shares. However, percentage of shareholding was found mainly in favour of above 5000 equity shares. There has been only nominal change in the shareholding patterns during Share price of STC has shown a fluctuating trend during various months in The profit of the corporation was going up along with the tax paid to the national exchequer, till , from its commencement then after that there can be seen a fluctuation in the profit earned by the STC while the STC earned a profit of Rs crore (after tax), in , it went up as high as Rs crore in STC earned the highest profit of Rs crore in , while it was bearing the loss in worth Rs crore. In and , loss of the corporation were of Rs crores and Rs crore respectively. However, the corporation earned a project (after tax) worth Rs crore in the year The profitability of STC in recent period is shown in Table 2.5. There has been increase of profit earned by STC over the period of to Profit before tax was reported Rs crores during which increase to Rs crores during Similarly, profit after tax has increased by four times. Profit after tax was reported Rs crores during which increased to Rs crores during Though, it appears that profitability of STC is significant however, the profit of STC against its turnover is reported to be less than 1 per cent. Percentage of profit before tax against total turnover was recorded only 0.79 per cent during it was as low as 0.50 per cent in case of profit after tax against total turnover. The total turnover as on 31 st March, 2010 was reported US $ 4791 million while profit after tax during was reported US$ 24 million. The net worth of STC as on 31 st March, 2010 was reported to be $143 million. The main function of the organization is international trading. Though,

3 ROLE OF STATE TRADING CORPORATION IN INDIA S TRADE PERFORMANCE IN / 55 it appears that the organization is performing well however, its share in India s trade is still negligible (Table 1). Table 1 Profitability of STC Year Profit Profit Total Turnover Percentage of Percentage of Before Tax After Tax (Rs. Crores) Profit Before Profit After (Rs. Crores) (Rs. Crores) Tax against Tax against Total Turnover Total Turnover (Estimated) Source: STC, New Delhi. TRADE PERFORMANCE OF STC INDIA LTD. The State Trading Corporation of India Ltd. (STC) is a premier international trading house owned by the Government of India. Having been set up in 1956, the Corporation has developed vast expertise in handling bulk international trade. Though dealing largely with the East European countries during the early years of its formation, today it trades with almost all the countries of the world. By virtue of infrastructure and experience possessed by the Corporation, it plays an important role in arranging import of essential items into India and developing exports of a large number of items from India. It exports a large number of items ranging from agricultural commodities to manufactured products from India to all parts of the world (Annual Report STC, ). Total trade of STC was reported Rs crores in while it increased to Rs crores in and further increased to Rs crores in and further increased to Rs crores during There has been fluctuating trend of trade performance by STC over the period of to Significantly percentage of exports against total trade was reported as high as during while it was reported as low as 2.26 during and 6.33 during Percentage of imports against total trade was reported highest in (97.74) and (92.68) while it was reported low in (22.21 per cent). The share of STC in India s total trade is reported to be less than 1 per cent. It was reported 1.02 per cent in while it declined to 0.99 per cent during Even it was reported as low as 0.59 per cent in The share of STC in India s total exports was reported 0.15 per cent in while it declined to 0.06 per cent in The share of STC in India s total import has been reported significant (1.61 per cent) in There has been fluctuating trend in the share of STC in India s total trade performance (Table 2).

4 56 / INTERNATIONAL JOURNAL OF INFORMATION SYSTEMS AND E-BUSINESS MANAGEMENT Table 2 Share of STC in India s Total Trade (Figure in Rs. Crores) Share of STC in India s Total Trade Year Export Import Total Trade Export Import Total Trade (Estimated) Source: STC, New Delhi. Compound annual growth rate of trade by STC is shown in Table 3. There has been phenomenon growth of trade by STC during post-reform period particularly during to (41.68 per cent). Except in the period of to in which there was negative growth rate of trade by STC, in other periods, there has been significant growth rate of trade by STC. During the post-reform period, trade by STC grew by per cent per annum. During the 1950s and 1970s, the growth rate of trade by STC was also recorded significantly high. There has been slower growth rate in exports by STC as compared to the growth rate of imports by STC. Exports by STC grew only by 4.98 per cent per annum during the reform period while it was reported high during to (21.48 per cent per annum). The growth rate of imports by STC was reported phenomenon during to (52.27 per cent per annum). Even, the growth rates of imports by STC were recorded significantly high during 1960, and 1970s. Table 3 Growth of Trade by STC Period Export Import Total Trade to to to to to to Source: STC, New Delhi. External trade performance suffered a setback in different countries due to tumultuous recession ridden years during 2008 and However, India s trade growth has been robust at 20 per cent plus since while India s trade growth has a strong correlation with world trade growth, it has been significantly higher than world trade growth particularly in two time periods, first just following the 1990 reforms and second after The trade policy reforms have also promoted India s trade

5 ROLE OF STATE TRADING CORPORATION IN INDIA S TRADE PERFORMANCE IN / 57 performance. The role of STC in India s trade performance is gaining importance however; its share in India s total trade is negligible though the trade performance by STC is gradually improving during the reform period. There has been declining trend in the share of exports in total trade of STC. The share of exports in total trade of STC was recorded highest per cent during while it declined to 7.32 per cent in The low share (less than 20 per cent) of exports in total trade of STC was recorded in many years (Table 4). Table 4 Shares of Exports, Imports and Internal Trade (In Per cent) Year Share of Exports Share of Imports Share of Internal Trade Source: STC Annual Reports. In spite of number of factors hampering exports, the Corporation continued making persistent efforts to increase exports. As a result, STC was able to revive overseas steel operations in Philippines and effected exports of steel raw materials amounting to Rs. 623 crore during , which were 39% higher than the previous year. STC has also exported Rs. 409 crore worth of steel raw material to other countries. Exports of jewellery amounted to Rs. 272 crore. During , STC found new buyers of castor oil and made exports worth Rs 89 crore to France, U.K., Netherlands and Thailand. Total exports during amounted to Rs. 1,504 crore. During Apr.-Nov. 2010, the Corporation was able to export iron & steel items worth Rs. 148 crore. It also exported castor oil worth Rs. 92 crore as against Rs. 59 crore during Apr.-Nov. 09. Other major items of exports were maize (Rs. 31 crore) and iron ore (Rs. 35 crore). However, due to deliberate stoppage of overseas steel operations, which used to form major share in Corporation s exports, total exports during April-November, 2010 amounted to only Rs. 317 crore. STC had to adopt a cautious approach and deliberately reduce the scale of operations in some areas due to the global slowdown leading to liquidity crunch and consequential delays in receipt of export proceeds. During , STC was able to augment its sugar business and effected exports worth Rs. 213 crore 11 per cent higher than the previous year. Exports of maize/rice also rose to Rs. 442 crore about 2.4 times the exports of these items in the previous year. Having revived exports of castor oil in the previous year after a gap of many years, STC exported castor oil worth Rs. 166 crore as against only Rs. 14 crore in the previous year. However, overseas steel operations suffered

6 58 / INTERNATIONAL JOURNAL OF INFORMATION SYSTEMS AND E-BUSINESS MANAGEMENT a setback because of stoppage of operations in Bulgaria due to insolvency proceedings against STC s associate and deliberate decision of STC to go slow in exports to Philippines steel plant due to volatility of overseas steel market. As such, exports of steel raw materials fell from Rs crore in the previous year to Rs. 439 crore. Total exports during the year amounted to about Rs crore. Exports continued to be under strain in due to volatile market conditions and temporary stoppage of overseas steel operations, which used to be a major activity of the Corporation on export front. During the period, exports of jewellery went up by 42% and reached Rs. 272 crore. Other major items of exports were metals (Rs. 113 crore), castor oil/seed (Rs. 49 crore) and rice/ maize (Rs. 33 crore). Total exports during April-October stood at Rs. 590 crore which is 64% less than exports of Rs crore achieved during the corresponding period of previous year. For the whole year, the Corporation expected to achieve an export turnover of Rs crore, about 44% less than that in The analysis simply demonstrates that trade performance of STC is improving gradually. The trade by STC has been diversified as new commodities of exports have been included in the export baskets while STC is exploring new global markets for export of agricultural, manufactured and other consumer goods. Even there has been increasing trend of exports of services. Though, it appears that the role and contribution of STC in export promotion is of paramount importance however, there has been declining trend of share of exports in trade of STC. It was reported only 7.32 per cent during Interestingly, the share of STC in India s total exports is reported to be less than 1 per cent which was 0.18 per cent during Thus, it is imperative to improve the export efficiency of STC through exploiting the emerging business opportunities at the global level. There has been gradual increase of imports by STC. During to , the imports by STC have increased by manifolds (44.92 times). There has been comparatively higher growth rate in imports as compared to the growth rates of exports by STC during the post-reform period. During to , the imports by STC grew by per cent per annum while imports by STC grew by per cent during post-reform period i.e to During the 60s and 70s, the growth rate of imports by STC was recorded significantly high. It is also to be noted that the share of STC in India s total imports has been found significantly high during (1.61 per cent). The share of STC in India s total imports was also reported significantly high during (1.68 per cent). Thus, the role of STC in India s imports is gaining importance. State Trading Corporation of India not only contributes significantly in promotion of international trade but it is equally active in promoting domestic sales. It has signed MoUs with several trade partners in India and abroad for promoting domestic sales. STC has played an important role in the country s economy by arranging quality goods to the governments, public and private institutions besides serving consumers. As it is amongst the various objectives of the Corporation to undertake internal trade as and when situation warrants, the Corporation undertakes some internal trade, which has a bearing on foreign trade. Though, the bulk of the trading activities of the Corporation comprises mainly of exports and imports. In the first two years of the working of the Corporation, there was no internal trade carried on by the Corporation, since then the Corporation is undertaking a little amount of internal trade every year. Table 5 provides trend of the internal trade carried out by the Corporation.

7 Year ROLE OF STATE TRADING CORPORATION IN INDIA S TRADE PERFORMANCE IN / 59 Table 5 Imports of the State Trading Corporation of India Internal/Domestic Trade (Rs. in Cr.) (Estimated) Source: Handbook of Statistics and STC Annual Reports, New Delhi. The analysis reveals that in the first two years of its inception, the Corporation was unable to handle the domestic trade. The Corporation first time introduced the internal trade in In the first three years of its introduction, the trade increased but in the forth year, it dropped. Again in next two years, the internal trade inflated and in , it shot down. After having increased in and , it again decreased in The next five years witnessed that the internal trade increased particularly in and , there was significant increase in internal trade. Again in the next two years, according to the tradition, the internal trade declined, this was followed by minor increases in the next four years and a minor decline in In the decade of 1980s, the highest internal trade figure was achieved in for Rs crore. As a regular feature, the internal trade increased upto Rs crore in , and further declined in next two years. Since to , it increased regularly in significant manner, and the highest internal trade figure till the date was achieved in worth Rs crore. For the first time internal trade achieved more than Rs. 100 crore in this year. In the current LPG era, after introduction of the New Economic Policy, the internal trade of the Corporation first time crossed the border of 50 crore in It was Rs crore which increased in next two years and declined again in There can be seen an increase in the domestic trade in and in next year, it again declined. In the next two years, it again increased and reached the height of Rs crore in It was the highest internal trade achieved by the Corporation in the 20th century. According to its tradition, the internal trade again declined the in next two years and it was of Rs crore in But in the year , the internal trade was almost double of the previous year and reached up to ever highest figure worth Rs crore. Thus, it can be said that the internal trade figure depicts an increasing but fluctuating picture throughout the working years of the Corporation. The share of internal trade increased in and , this followed a minor decline in the next year. The next two years, saw significant increase, in the year , the share of internal trade was 5.7 per cent. The share in the next four years,

8 60 / INTERNATIONAL JOURNAL OF INFORMATION SYSTEMS AND E-BUSINESS MANAGEMENT shot down, in the subsequent three years the share remained more or less constant. In the next two years, the share of internal trade inflated. Since then, the share of internal trade has been fluctuating with minor changes in either direction, from to , the share has remained just below or above the 1 per cent mark. In next four years, the share in internal trade increased significantly and in in the LPG regime after introducing of the New Economic Policy, the international trade of the Corporation reached the highest figure of the 20th century, i.e per cent. Then it again declined in the next four years. In , the internal trade increased but in the next two years. It again decreased, but the Corporation welcomed the new millennium by achieving the ever highest share of internal trade in i.e per cent of its total turnover. But according to the feature, the internal trade declined again in the next years. And in the year , it was just 2.14 per cent of the total turnover. Thus, it can be said that the share of internal trade in the total turnover of the Corporation has never been significant excluding two or three years. The significance of domestic trade of the Corporation can be further revealed by comparing its share with the share of the exports and imports of the Corporation in its total turnover. It is evident that the share of internal trade of the Corporation is negligible in comparison to exports and imports. It has never been more than 70 per cent of the total turnover except in (13.6 per cent) and (14.7 per cent). In , major exporters were Maharashtra followed by Gujarat, Tamil Nadu and Karnataka. In terms of export growth rate, the top states were Orissa followed by Madhya Pradesh, Gujarat, West Bengal and Andhra Pradesh. In April-December, 2008, export growth was the highest in Punjab, followed by Andhra Pradesh and Orissa (Table 6). Table 6 Major Exporting States (US$ million) (April - December) Growth rate Sl. State Share No (Apr-Dec.) 1. Maharashtra Gujarat Tamil Nadu Karnataka Andhra Pradesh West Bengal Delhi Haryana Uttar Pradesh Orissa Rajasthan Punjab Madhya Pradesh Kerala Goa Total Exports Source: DGCI&S Data.

9 ROLE OF STATE TRADING CORPORATION IN INDIA S TRADE PERFORMANCE IN / 61 India has well recognized the effectiveness of the export processing zones in promoting exports. Special Economic Zones Policy was announced in SEZs are becoming increasingly important in India s exports. The performance of SEZ is mainly in three areas, exports, employment and investment. A total of 130 SEZs are already exporting. Out of this, 75 are information technology enabled services, 16 multi-product and 39 other sector specific SEZs. The total number of units in these SEZs is The physical exports from the SEZs have increased by 121 per cent to Rs crore in with a compound annual growth rate of 58.6 per cent during to compared to the compound annual growth rate of 19.3 per cent for total mercantile exports of the country for the same period. The share SEZs export in total exports has increased from 4.7 per cent in to per cent during (Table 7). Table 7 SEZs Exports and India s Total Exports Exports from SEZs Exports from India Year Value Growth Value Growth Share of SEZs (Rs. Crore) (%) (Rs. Crore) (%) Exports in Total Exports (Apr.Dec.) Source: STC, New Delhi. Domestic sales performance of STC is shown in Table 8. There has been significant growth of per cent in domestic sales of STC during to Even the Table 8 Domestic Sales Performance of STC Year Domestic Total Percentage of Total Trade Percentage of Sales Turnover Domestic (Rs. Crore) Total Trade (Rs. Crore) (Rs. Crore) Sales against against Total Total Turnover Turnover (Rs. Crore) (Estimated) Growth Rate ( to ) Source: STC, New Delhi.

10 62 / INTERNATIONAL JOURNAL OF INFORMATION SYSTEMS AND E-BUSINESS MANAGEMENT growth rate for total turnover of STC has been reported significantly higher ( per cent) during the correspondence period. Similar is the case of growth rate for the total trade of STC. The amount of domestic sales by STC was reported Rs. 547 crores during which increased to Rs crore during and Rs. 956 crores during The share of domestic sales against the total turnover of STC constitutes only 4.44 per cent. The share of domestic sales in total turnover of STC has also shown fluctuating trend. The compound annual growth rate of domestic sales of STC is shown in Table 9. During the reform period i.e to , domestic sales of STC grew by per cent per annum while compound annual growth rate of domestic sales of STC was reported significantly high during to (22.03 per cent). Similarly, domestic sales of STC grew by per cent per annum during to Period Table 9 Compound Annual Growth Rate of Domestic Sales of STC Source: STC, New Delhi. The overall analysis shows that the performance of STC in internal trade is improving gradually. There has been significant growth in domestic sales of STC in the reform period and particularly in the recent period. STC has also ventured upon the task of joint venture ship with Indian and global trading houses for promotion of international trade. The recent policy of special economic zones has also boosted the exports of India. CGR SUGGESTIONS The Corporation should have an Internal Trade Department to handle the internal trade in effective way. The Corporation may open at least one overseas branch office in each continent or trade block to control and handle its performance. Moreover, it should open branch offices in the areas where there are no such offices in the country. The Corporation may also take help of professional managers and exporters to improve its performance. A quality control cell in the Corporation to ensure the quality of commodities exported by the Corporation is imperative. The Corporation should involve in joint venture to improve its export performance. The Corporation may also expand its basket of exports for both commodities as well as countries. The Corporation should participate in the international trade fairs and exhibition to create the demand of Indian goods and to explore the new markets. The Corporation should adopt such measures which

11 ROLE OF STATE TRADING CORPORATION IN INDIA S TRADE PERFORMANCE IN / 63 have existing impact on the exports. Proper evaluation of the measures taken to step up exports may be taken. The services of experts and specialists should be taken in formulation of export policies. The Corporation should take export promotion measures to face the challenges of current competitive globalized market. The Corporation should try to promote trade with all the regions of the world; it should make efforts to promote trade with areas where it is in a better position. The Corporation should try to make full use of the export opportunities. Services should be given by the Corporation to small scale producers and manufacturers of India to make them able to increase the Indian exports Details about the internal trade should be given space in the annual reports of the Corporation for public information. References Administrative Reforms Commission (1967), Report of the Study Team on Public Sector Undertakings, Govt. of India. Bhagoliwal, T.N. (1972), Economics of Labour and Social Welfare, Sahitya Bhawan, Agra. Chandra, S. (1993), Training of Public Enterprises Managers: Review of Research & Training Needs in Public Public Enterprises in India: The Focus on Researches/Banker Edited by T.I. Mishra, R.K. and Ravishankar S., Himalaya Publishing, Bombay. Gupta, K.R. (1970), Working of State Trading in India, S. Chand and Co. Pvt. Ltd., New Delhi. Mamoria, C.B. (1994), Personnel Management: Management of Human Resource, 12 th Edition, Himalaya, Bombay. MoCI (1956), Memorandum of Association of STC, Ministry of Commerce and Industry, Government of India, New Delhi. MoCI (2010), Annual Report, STC, Ministry of Commerce and Industry, Government of India, New Delhi. Shukla, M.C. (1959), Administrative Problem of Public Enterprises in India, 1959, S. Chand and Co., New Delhi. Singh, P.N. (1982), Some Aspects of Managerial and Economic Problems of Public Enterprises in India, Janki Prakashan, Patna. Singh, S.K. (Ed.) (1997), Public Sectors in India, Rawat Publication, Jaipur. Spate, T.J. (1944), An Objectives Scrutiny of Personnel Administration, AMA, New York, Personnel Management Series 75. Sujatha, Kumari, T.B. (1997), New Economic Policy: Its Impact on Trade Unions and Workers in Public Sectors in India, Edited by Singh, S.K., Rawat Publication, Jaipur. STC (2010), Annual Report, , STC, Government of India, New Delhi STC (2009 ), Annual Report, , STC, Government of India, New Delhi.

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