Final Report SCDL

4 CASE STUDIES
SAURABH SHUKLA
PGDIB, 200701356
SYMBIOSIS CENTRE FOR DISTANCE LEARNING

(SCDL), PUNE
saurabhshukla@zapak.com Page 1
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ORIGINALITY
This is to declare that I have carried out this project work myself in part
fulfillment of the Post Graduate Diploma in International Business (PGDIB)
Program of SCDL.
The work is original, has not been copied from anywhere else and has not been
submitted to any other University/Institute for an award of any degree/diploma.
Date: Signature:
Place: Name:
CERTIFICATE OF SUPERVISOR (GUIDE)
Certified that the work incorporated in this Case Study Report submitted by
Saurabh Shukla is his original work and completed under my supervision.
Material obtained from other sources has been duly acknowledged in the Case
Study Report.
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CASE STUDY
INDIAN PETROLEUM PRODUCTS EXPORTS

CHALLENGES & OPPORTUNITIES
TABLE OF CONTENT
S/No. TITLE PAGE

NUMBER
INDIAN PETROLEUM PRODUCTS EXPORTS
1. INTRODUCTION 6
2. OBJECTIVES 8
3. METHODOLOGY 8
4. PETROLEUM INDUSTRY AND PRODUCTS 8
5. GLOBAL SCENARIO 9
6. PETROLEUM INDUSTRY IN INDIA 10
7. CHALLENGES IN THE PETROLEUM INDUSTRY 12
8. PROSPECTS OF INDIAN PETROLEUM INDUSTRY 12
9. RECOMMENDATIONS 13
10. CONCLUSION 14
11. REFERENCES 15
CASE STATEMENT:
There is a huge demand for the refined petroleum products worldwide, especially the middle
distillates like gasoline, jet fuel and diesel but capacity to deliver the refined products has been
lacking behind demand. Recent demand-supply projections reveal that India's refining
capacity is expected to reach 218 MMT by 2012 and a whopping 286 MMT by 2018. The
demand is expected to range 160-179 MMT by 2012 and the excess refining capacity will be
of the order of 83-92 MMTPA by 2012. Does this mean that India will transform itself into a
major export hub of Petroleum products in the coming years? To answer this question a
detailed analysis of Indian Petroleum Industry is required.
1. INTRODUCTION
India enjoys an advantage of its proximity with emerging markets. Being geographically and
strategically located closer to the markets, particularly in Asia and Africa, India could take the
lead and strive to become a major exporter of petroleum products. Hemmed in by sea on three
sides, the Indian peninsula offers thousands of miles of coastlines for setting up export-
oriented refineries to feed the market as far as the US.
Besides, India is very near to major producers of crude oil countries in Middle East region
endowed with vast and long lasting reserves. India is considered the natural market for oil and
gas produced by the Middle East countries. As oil reserves decline precipitously in Europe and
the US and get increasingly concentrated in fewer regions, the Middle East is projected to
account for increasing share of oil reserves in the world in 2030 and beyond. Hence, the
sourcing of crude oil for refineries from the Middle East would not be a constraint.
While US and Europe are likely to face a shortage of skilled manpower, India has developed a
vast pool of technical skills and know-how in the oil sector. India has two options to utilise the
skilled manpower; (i) Export skilled manpower and/or (ii) Utilise the skilled manpower. A
combination of both would lead to optimal utilisation of manpower and value addition.
The Petroleum Ministry has made a strong pitch for developing India as a refining hub. The
sub-group on refining for formulation of the 11th Plan has assessed the supply-demand
positions of petroleum products in the country up to 2011-12, along with prospects of product
exports and projected a total refining capacity of 242 million tonne (mt) by 2011-12.
Considering the projected growth of consumption of petroleum products during the 11th plan
period, the surplus products available for exports was derived to be over 90 mt in 2012. With
most of the refining capacity projected in developing countries, specifically in Asia, the
petroleum ministry is of the view that India cannot ignore this opportunity.
The Petroleum Ministry noted that addition in refining capacity enhances energy security by
building greater flexibility in meeting the energy needs of the country in a cost-effective
manner. For an energy-importing country like India, importing crude rather than product is a
better option. This is so because crude markets are generally larger and more stable in contrast
to product markets, which are significantly smaller, lack depth and therefore more volatile.
According to the projections of the International Energy Agency (IEA), OECD, Paris, in order
to meet the rising demand, world crude oil distillation capacity would need to rise to 93
millions of barrels per day (mb/d) in 2010, approximately 10mb/d higher than that in 2004.
Percentage of Global Refining
USA (20%)
Russia & CIS (10%)
Canada (2%)
UK (2%)
France (2%)
Italy (3%)
Korea (3%)
Japan (6%)
China (7%)
Germany (3%)
Others (42%)
Fig1.1. Global Refining Capacity (85.6 million barrels per day)

Source: Key Energy Statistics, 2008, IEA
Capacity additions over the projection period will be concentrated in developing countries,
because of the difficulties in building new refineries or expanding the capacity at existing ones
in the OECD. The producing countries of the Middle East, in particular, would play an
increasingly important role in meeting global demand for refined products.
Energy security concerns of the country would be better served by ensuring self-reliance in
refining. Self-reliance means not only import substitution but also export competitiveness.
Both private and public sector refineries have been successful in exporting products to
regional market worldwide. A sales strategy containing domestic sale and exports would drive
the public sector oil companies to optimise cost and revenues through economies of scale and
maximum capacity utilisation. Meeting domestic demand and selling in export market have
enabled the Indian companies to operate at above 100% capacity utilisation in the recent years
and reap higher profits.
2. OBJECTIVES
The objectives of this study are to find out:
1) Export Potential of Indian Petroleum Products.
2) Contribution of Petroleum Products export in India‘s Foreign Trade and GDP.
3) Challenges & opportunities for Indian Petroleum Products export.
3. METHODOLOGY
Data on International Oil production, refining and revenue have been collected from literature,
country reports and internet. Further information on Indian Petroleum Products export, GDP
and total exports have been gathered from publications and official websites of Ministry of Oil
and Natural Gas, Ministry of Commerce, Director General of Foreign Trade and Director
General of Commercial Intelligence and Statistics. The collected National and International
data is manipulated by using simple mathematics and statistics to get an overview about
export potential of Indian Petroleum Products.
4. PETROLEUM INDUSTRY AND PRODUCTS

Petroleum is a natural mixture of hydrocarbons in gaseous, liquid or solid state. Petroleum
products fall into three major categories:
Fuels such as motor gasoline and distillates fuel oil;
Finished non-fuel products such as solvents and lubricating oils; and
Feedstock for the petrochemical industry such as naphtha and various refinery gases.
The products are mainly used for transportation, agriculture, domestic and industrial purposes.
The Petroleum Industry can be classified into two sectors. These are:
a) Upstream sector, which is involved in the process of exploring oil, developing oil fields,
and producing oil from the oil fields;
b) Downstream sector, which encapsulates all of the linked businesses, which refine and
market petroleum, including pipeline systems, refineries, gas distribution, and petrochemical
companies.
The importance of petroleum industry can be gauged from the fact that it contributes in a huge
manner to the total energy requirement of the world. Over 55% of world primary energy
consumption is met by oil and gas industry.
5. GLOBAL SCENARIO
Globally the petroleum crude production is undertaken in oil rich countries and the refining is
mainly done in countries with high demand for petroleum products. A cartel of oil producing
countries named OPEC (Organisation of Petroleum Exporting Countries) holds 897 billion
barrels of oil reserves, around 78% of the world‘s proven reserves of 1.14 trillion barrels.
Saudi Arabia is top producer as well as top exporter of crude oil. USA is the largest importer
of oil with a share of 27% in world imports of oil.
Over 90% of the world‘s 83 million barrels per day of refining capacity was located in non-
OPEC countries. A type of correlation could be established between production of petroleum
products and crude distillation capacity of a country.
The high demand for petroleum products can be gauged from the fact that many large
producers thereof are large importers also. Apart from USA, other major importers, who are
also large producers, include China, Japan, Germany and Italy. India, though with a low
refining capacity in comparison to world, produced 150 million metric tonnes of petroleum
products in 2008-09. There are several countries (e.g. Singapore) that are important to world
trade in refined petroleum products despite very low (or nonexistent) level of crude oil
production and low refining capacity.
The product pattern of refineries has undergone significant changes with additions and
modernization of secondary processing facilities and the availability of light and sweet crude.
At present, middle distillates account for more than 50% of refinery production by products.
6. PETROLEUM INDUSTRY IN INDIA

As of Dec 2009, there were a total of 20 refineries in India with a total installed capacity of
160 million metric tonnes per annum. Data for production of petroleum products for the year
2008-09 was placed at 152.67 million metric tonnes, an increase of 3.87% as compared to the
production of 146.99 million metric tonnes in 2007-08. Middle distillates accounted for the
largest chunk of total production followed by light distillates.
Petroleum products sector has seen upsurge in exports since 2001-02. In the year 2000-01,
India was a net importer of petroleum products. However, since 2001-02, India has become a
net exporter of petroleum products. This could happen mainly due to increase in refining
capacity. Figures of exports of petroleum products in 2008-09 stood at US $ 26.8 billion. The
exports of petroleum products have risen by more than 6% in 2008-09, over the previous year
in value terms.
Light Distillates
(26.34%)
LPG (1.41%)
Heavy Ends (19.64 %)
Middle Distillates
(52.61%)
Fig1.2. Product-wise Share of Production of Petroleum Products (%)
From a level of 4.29% in 2000-01, the share of Petroleum Products in total exports has
increased to 14.7% in 2008-09. As a result, petroleum products improved their ranking in
India‘s exports from eighth position in 2000-01 to second position in 2008-09 which is close
to Gems & Jewellery exports.
Major destinations of India‘s exports of petroleum products include Singapore (25.5%), Iran
(9.8%), UAE (7.4%), The Netherlands (5.1%), Sri Lanka (4.5%), Indonesia (4.4%), Brazil
(4.3%), Nepal (3.1%), South Africa (3.1%), and Togo (3%). These 10 countries together
account for over 70% of India‘s total petroleum products exports.
High-speed diesel (39.4%), light oils and preparations (19.5%), aviation turbine oil (13.8%)
and fuel oil (8%) are the major petroleum products being exported from India.
India holds more than 1% share in major petroleum products import markets, such as
Singapore, Japan, United Kingdom, Belgium and Korea. The share of India in Singapore
market is high at 10%. Top three importers from the point of view of India‘s exports of
petroleum products are Singapore, Iran and UAE. Of these three markets, India is the leading
supplier in UAE and Iran.
India ranks third in the Singapore market, next to Saudi Arabia and Kuwait. Another major
competitor in Singapore market is China. Pakistan is emerging as a major competitor in UAE
market, while Singapore and China are emerging as competitors in Iran. It appears that
Singapore and Pakistan are largely re-exporting the petroleum imports, sourced from other
countries, including India.
2.65
2.6
2.55
2.5
2.45
2.4 % in GDP
2.35
2.3
2.25
2.2
2004-05 2005-06 2006-07 2007-08
Fig1.3. Percentage Share of Petroleum Products in GDP
7. CHALLENGES IN THE PETROLEUM INDUSTRY
a) Price Volatility: Crude oil prices touched a record high of US $ 90 per barrel in 2006-07
and a record low of US $ 45 per barrel in 2008-09. While the fall in oil prices would affect the
viability of the projects in the upstream sector, the rise in oil prices would affect the viability
of the projects in the downstream sector. In addition, post-APM, oil companies involved in the
downstream marketing will have to deal with risks including price risk for crude oil, refining
margins and foreign currency risks.
b) Supply disruptions: OPEC producers account for a major portion of world‘s crude oil
production India‘s dependence on these countries as primary source for crude oil imports is
also very high. Thus, any supply disruptions in the Middle East could lead to volatility in oil
prices and more importantly, affect supply to India, adversely.
c) Technology: Most of the public sector refineries, in India, are more than two decades old
and need up-gradation and modernisation. Commercial vehicles shifting from Bharat Stage
(BS) I to BS II and BS II to BS III require specific quality products and refineries are already
working out strategies to provide fuels conforming to these environmental measures.
Refineries also have to meet product specifications in order to conform to international
environment specifications, particularly the EURO – III emission norms.
d) Competition: Indian companies have had to pursue opportunities in various countries on
the basis of global energy margins. However, tough competition exists in international
markets, especially from China National Petroleum Corporation (CNPC), who is also securing
exploration rights to improve China‘s energy security.
8. PROSPECTS OF INDIAN PETROLEUM INDUSTRY

a) Growing demand for petroleum products: The last three years witnessed India
converting itself into a product surplus nation, due to the additional refining capacities created
in this sector. In the domestic market, supply of petroleum products will be more than their
demand in the coming years and hence refineries should resort to export markets.
b) Market potential in neighbouring countries: India needs to take advantage of its strategic
leadership in refining and increase its refining capacity, as demand for petroleum products is
high in Asia. India‘s close neighbours themselves are energy deficient countries and there is a
huge potential for exports of petroleum products to Pakistan, Myanmar and China. Besides,
the huge demand that exists in Japan can also be captured.
c) Integration of operations: Indian companies have realised the potential of integration
(upstream and downstream) and are also planning to integrate themselves. While HPCL, IOC
and BPCL plan to enter into exploration, ONGC plans to enter in the refining and marketing
segment and IOC is also planning to enter the petrochemicals segment.
d) Securing overseas energy resources: India is in the process of securing overseas energy
resources, and is keen to secure more resources in order to meet its accelerating energy
demands. As a result, Indian energy corporations have emerged as significant threats to
established multinational energy companies in the overseas oil and gas markets.
9. RECOMMENDATIONS
a) Strategic Reserves: India is a growing economy and thus needs to improve its oil security
and avoid any supply disruptions. Creation of strategic reserve of crude oil and petroleum
products is necessary to improve oil security in India.
b) Integration of refineries: Indian refineries have low integration with petrochemical sector.
It is attractive, in refiners‘ interest, to move towards integration with petrochemicals to capture
full synergies with refineries. This will also help use the optimal refining capacities of
respective refineries within the country.
c) Infrastructure creation: The demand for petroleum products in India is high in north and
north-western region and coastal locations are appropriate for refinery construction because of
effective supply and transportation facility. Strategic location of inland refineries with more
effective supply and evacuation system through pipelines nearer to the consumer market
would add strength to this sector.
d) Capacity addition through debottlenecking: De-bottlenecking in refinery means
increasing the capacity of the refinery without much capital expenditure. De-bottlenecking is
relatively a different concept than capacity expansion, where the capital expenditure and
modifications in the plants are relatively high. Debottlenecking of existing facilities always
has been an attractive option to enhance a plant‘s capacity and profitability. Many Indian
refineries, both public and private sector have increased the capacity through debottlenecking.
e) Research and Development: Typically, research and development (R&D) spend of oil and
gas companies, as a percentage of sales, is relatively low in India. However, the enormous size
of Indian oil and gas companies means that considerable sums are being spent in R&D. Such
expenses have also paid dividends in the past. Research has provided the industry with tools to
discover and produce oil and gas efficiently. Thus, thrust should be given for more R&D
spends in Indian petroleum sector. Industry players have proposed setting up of Petroleum
Economic Zone, where international service providers could be encouraged to set up Research
and Development Centres, which would help India to become a major service provider in this
sector.
f) Technology: Oil and gas industry is technology intensive. Indeed, technology plays a key
role in the entire value chain from exploration to refining to marketing and final consumption.
New technologies such as 3-D seismic interpretation and advanced reservoir simulation
techniques are taking the guesswork and risk out of exploration. Production and marketing of
petroleum products in India should also be leveraged with new techniques and technologies.
g) Strengthening energy diplomacy: The solution for India‘s energy problems lies overseas
and can only be tackled through energy diplomacy. India is a member of International Energy
Forum (IEF), which provides a biennial meeting of the Ministers from the energy producing
and consuming nations. India being a big consumer of oil will have to ensure its oil security
by strengthening the dialogue process in such meetings. Further such forums do provide
plethora of opportunities to forge ahead with individual oil- surplus countries.
10. CONCLUSION
India is amongst the fast emerging export markets for petroleum products. The liberalisation
and its effect of high growth in all economic sectors would increase the export of petroleum
products from India. The Eleventh Five Year Plan has projected the demand for petroleum
products to reach 160 million metric tonnes by 2011-12, in India. High Speed Diesel, one of
the middle distillates, will dominate the projected demand and product availability. The
prospects for export of petroleum products to our neighbours, viz. Pakistan, China and
Myanmar are very bright. Pakistan mainly imports petroleum products from Saudi Arabia,
Kuwait and UAE. Petroleum products from India would definitely be cheaper in comparison
to the current sources due to proximity. Indian refineries in the western and north-western
region are suitable for this purpose. Some of the Indian refining companies have begun
finalising both sea and land transport routes for export of Petroleum products to Pakistan and
other neighbouring countries.
Although India possesses the potential to emerge as an export hub, it would require a
concerted effort by the industry and the government to realise this potential. While the
government has to provide the initial momentum by creating an empowered policy
environment for the growth of export-oriented refining capacity, the industry has to carry this
momentum forward by building refineries which can compete with the best in the world, not
only on cost considerations, but also in terms of product quality.
REFERENCES
1) www.petroleum.nic.in
2) www.indiastat.com
3) www.commerce.nic.in
4) www.dgciskol.nic.in
5) www.eia.doe.gov
6) www.hindustanpetroleum.com
7) www.iea.org
8) www.opec.org
9) www.financialexpress.com
10) www.google.com
CASE STUDY
TRADE BARRIERS AND THEIR EFFECT ON

INTERNATIONAL TRADE OF BIOFUELS
TABLE OF CONTENT
S/No. TITLE PAGE

NUMBER
TRADE BARRIERS AND THEIR EFFECT ON
INTERNATIONAL TRADE OF BIOFUELS
1. INTRODUCTION 18
2. OBJECTIVES 19
3. METHOD 19
4. STUDIED FACTORS 20
5. FUEL CATEGORIES 20
6. DIRECT AND INDIRECT TRADE 20
7. FACTORS THAT INFLUENCE THE DEVELOPMENT OF 21

BIOFUELS
8. TRADE BARRIERS FOR INTERNATIONAL TRADE OF 28

BIOFUELS
9. FUTURE OF BIOFUELS TRADE 32
10. CONCLUSION 32
11. REFERENCES 33
CASE STATEMENT: Bioenergy is playing an increasingly important role as an alternative
and renewable source of energy. Bioenergy includes solid biomass, biogas, and liquid
biofuels. Biofuels, made from biomass, are attracting growing interest worldwide, driven by
concerns about energy security, climate change, and local environmental considerations and a
desire to support domestic agriculture. The global demand of biofuels is likely to be much
more intensified in a near future and the fundamental factors indicating a global demand for
biofuels are the fact that conventional energy resources are running dry and growing demand
of energy.
A prerequisite for an extensive global increased consumption of biofuels is that
biofuels should be supplied at competitive costs. In order to do so, foreign trade is needed
from the regions with good conditions for production to the regions in need of energy.
Although the international trade of biofuels is not that extensive yet it is increasing rapidly.
But the international trade of biofuels is restricted by the trade barriers and obstacles. Hence a
market research is required to find out these trade barriers and their effects which restrict
possible trade and use of biofuels.
1. INTRODUCTION
The energy world is changing with an increased global demand of energy, especially
renewable energy. The demand of energy has increased due to the global economic growth
particularly in countries like Brazil, Mexico, Korea, China and India. This together with a
growing environmentalism has created a need of renewable energy sources. A major
international action is the Kyoto protocol signed by a majority of the world‘s countries, in
which countries have agreed to reduce and control their emissions of green house gases
(GHG).
The growing need for renewable energy sources implies great possibilities for an increased use
of Biofuels. Biofuel is defined as a fuel produced directly or indirectly from biomass.
Resources of biomass and possibilities to effectively produce biomass differ around the world
due to several factors, including labour costs, land productivity and access to land. In order to
achieve a competitive supply of Biofuels all over the world, international trade is needed from
regions with surpluses of biomass resources and/or from regions with good conditions to
produce Biofuels to regions with less possibility and in need for energy.
International trade differs from local and regional trade in various ways because the
international trade consists of the factors like longer distances of transportation and influence
of trade barriers. These factors have caused a development where new solutions and
techniques have been identified in order to develop cost-effective trade of Biofuels. An
example is reduced cost for shipping Biofuels, which has been achieved partly through
shipping larger quantities.
The international flow of Biofuels is affected by various factors and the most fundamental
factor is that there are differences in supply and demand between countries. The supply and
demand determine the conditions within countries and the examples of such conditions are
governmental regulations for consumption & production of biomass and factors that influence
the overall costs for production like use of alternative energy sources, experiences,
infrastructure, knowledge, transportation system and tax incentives.
2. OBJECTIVES
The main objective is to study, compile and explain the factors influencing the international
trade of biofuels and existing trade barriers & obstacles in the international trade of biofuels
and a short analysis has been done on the basis of available data. The study of the trade
barriers and their examples are based on the information taken from different countries reports
on biofuels trade. The other objective is to make a rough estimation of how the trade and use
of Biofuels will develop in the future.
3. METHOD
The study has been performed through collecting and analyzing information taken from
different countries trade reports. Some crucial information has been presented, which include:
• An overview of world‘s international trade of biofuels.
• Driving forces and the factors behind existing consumption, production and international
trade of Biofuels.
• Barriers that restrict international trade of Biofuels.
• Key issues for a further development of international trade of Biofuels.
The presented report is based on the accessible information. The main flows and factors have
been presented and therefore it gives a significant picture of the Biofuel situation in world.
Information has also been collected from literature.
4. STUDIED FACTORS
We have presented some definitions of important factors used in the study.
1) A driving force for International Biofuel trade is defined as an incentive for trade.
2) A trade barrier is an obstacle that restricts international trade.
3) A key issue for further development is a factor of great importance for the
development of international trade of biofuels.
5. FUEL CATEGORIES
Different Biofuels have been divided into groups, as shown in Table 2.1. The division is
mainly based on the fuels quality, field of application & the fuel is used in, and from where
the fuel originate.
Fuel Category Examples of Biofuels

Motor fuels Ethanol, Methanol
Other liquid fuels Bio-Oil, Black liquor, Tall oil and Vegetable oil
Unrefined by-products from agriculture and Straw, Grains
food industry
Unrefined Biofuels Chips, Round wood, Wood residues
Densified Biofuels Briquettes and Pellets
Biofuels from dedicated energy plantations and crops Poplar, Salix, Sugar canes, Willow Fuel crops
Table 2.1 Classification of Biofuels
6. DIRECT AND INDIRECT TRADE

Trade of Biofuels can be direct or indirect. The difference is that in direct trade, the primary
purpose for the biomass is to be used as biofuel, while in indirect trade the biomass has
another primary purpose. In indirect trade, the biomass usually has the main purpose to be
used as pulp or round wood in the process industry. Byproducts from the industries can later
be used as biofuels, either internally or be sold on the market. By-products that can be used
and traded as Biofuels are black liquor, tall oil, sawdust and residues from the food industry.
7. FACTORS THAT INFLUENCE THE DEVELOPMENT OF BIOFUELS

To describe and explain international trade of biofuels, different factors and aspects have been
used. Important factors for the development of biofuel trade have been identified and these
factors are macroeconomic factors, geographical conditions, industrial structure, technical
development, and governmental incentives. The description of these factors and their effect on
international biofuel trade has been given below.
Factors Affecting the Trade and Development of Biofuels
Macroeconomic Geographical Industrial Technical Policy

Factors Factors Structure Aspects and Measures on
Development the Energy
Market
1) Gross Domestic 1) Land

Product (GDP) Productivity 1) Economical
Incentives
2) The Oil Prices 2) Density of the
Population 2) Agreements
3) Transportation
Cost 3) Access to 3) Legislation
Infrastructure and
4) Trade Transportation
Restrictions
Fig2.2 Factors influencing the International Trade of Biofuels

7.1. Macroeconomic factors: Macroeconomic factors affect a country‘s development and
purchasing power, which influence the possibilities for use and trade of Biofuels. The
macroeconomic factors studied are: GDP-growth, the oil price, transportation price, and trade
restrictions. There are also other macroeconomic factors like inflation and the situation of the
labour market but these factors are assumed to have limited affect on the biofuel development.
7.1.1. Gross Domestic Product (GDP): A country‘s GDP describes the value of all the final
goods and services produced in a country‘s economy during one year. The GDP measure is
used to give information about fluctuation in the economic activity. A growth in GDP is the
result of an increased purchasing, which consequently also increases a countries possibility to
trade and use biofuels. A measure closely related is GDP per capita, which describes GDP per
inhabitant. There is a close link between the energy demand and the GDP. An increased GDP
means an increased demand of energy. There are four reasons that make the real GDP grow:
• Growing population
• Population acquires more human capital
• Growing stock of capital equipment
• Advance in technology
A high GDP per capita implies that a country has an extensive need of energy because the
close relationship between energy consumption and GDP per capita. It also implies that the
country has a strong purchasing power. These conditions together create possibilities and
incentive for biofuels trade, especially import. A low GDP per capita implies that the cost of
production is relative low because of low labour costs. It also implies a relative low demand of
energy. These conditions together are most suited for production and export of biofuels. But it
should be noted that developing countries with a low GDP, in general consume large amount
of biofuels, which may reduce their future export.
7.1.2. The Oil Prices: Oil is a very important raw material for the world‘s population and
societies. In fact it is the most important energy source in the world. The price of oil has a
great influence on energy markets around the world because the oil price determines the
marginal cost for energy. The oil price also has an effect on the whole world economy and a
high price can block the economical growth. A reduced economical growth implies lower
GDPs and thereby less consumption of energy, which can reduce future use and trade of
biofuels. On the other side, a high price can stimulate technical development of alternative
energy sources or technical equipment. The world-market price of oil is dependent on several
factors like the markets trade cycle, the political situation in the Middle East, conflicts in the
oil producing regions, threats of terrorist attacks and the development of the dollar rate. The
oil price has fluctuated heavily in the last few years because of the uncertainty in above
mentioned factors and production limitations imposed by OPEC. The price of oil affects both
markets and trade of biofuels. A high price makes it more advantageously to use and trade
with biofuels because oil is a competing energy source. It also stimulates a technical
development on alternative sources, thus development of biofuels techniques. Accordingly, a
low price is acting as a restricting factor for biofuels consumption and trade.
Fig2.3 Oil Prices and Important Events
7.1.3. Transportation Cost: The cost of transporting biofuels is another significant

macroeconomic factor. In order to stimulate a positive development it is important to increase
the efficiency and the effectiveness and thereby reduce the costs of transportation. At the
moment the expenses of transporting biofuels correspond to a significant share of the total cost
of traded biofuels. For example only the shipping corresponds to approximately 20-25% of the
total cost of traded biofuels. Operations that are a part of the overall transportation cost are
packing, loading, transportation, unloading and storage. There are three major means for
transportation of biofuels and these are ship, train and trucks. Sea shipping is the most
competitive alternative over long distances, followed by trains and trucks. In order to show the
relation between different means of transportation a rough estimation has been done.
Assumptions that have been made are that large quantities are transported i.e. the transports
are fully loaded and occurs in a well functional logistical system. The estimation can be seen
below and shows how far it is possible to transport one unit of biofuels to the cost of €20 with
the different means of transportation.
• Trucks – 200 km
• Railroad – 600 km
• Sea shipping 10.000 km
7.1.4. Trade Restriction: Governments restrict international trade in order to protect domestic
industries from foreign competition. There are two main methods used by governments. These
are tariffs and non–tariffs barriers. Tariffs are a tax imposed on goods by the importing
country when goods cross the international border. It can be advantageously for a government
to impose tariffs because, tariffs provide revenues to the country and because it is possible to
satisfy domestic interest groups in import competing industries. There are five different types
of non-tariffs barriers; quotas, voluntary export restraints, product standards regulation, public
sector procurement bias and frontier delays and administrative burdens on international trade.
It is however mainly quotas that restrict international trade of biofuels. A quota is a
quantitative restriction on import of particular goods. It specifies the maximum amount of
goods that may be imported in a given period of time. Quotas are common on agriculture
products and thereby certain biofuels that originate from the agriculture industry comes under
quota restrictions.
There are benefits for governments to employ free international trade i.e. international trade
without trade restriction. Benefits from free trade are economic growth, increased competition
etc. This was observed already 1947, when the free trade General Agreement on Tariffs and
Trade (GATT) first was signed by 23 countries. The agreement was designed to encourage
free trade between member states, by regulating and reducing tariffs on traded goods and by
providing a common mechanism for resolving trade disputes. Since 1947 several new
countries has joined the agreements and today are 148 countries in the collaboration. The
collaboration has now changed name to World Trade.
7.2. Geographical Factors: Geographical conditions influence a country‘s need of energy and
possibilities to effectively produce and trade biofuels. The conditions differ heavily between
the world‘s countries due to several factors like where the country is located and the size of
that country. In the study the following factors related to a country‘s geographical conditions
are land productivity, population density, area and the access to infrastructure/transportation.
These factors are assumed to have biggest impact on the future biofuel development. There are
also others but they are assumed to have a limited impact.
7.2.1. Land productivity: Land productivity refers to the capacity of the soil to produce biomass.
The productivity is a combination of several factors including solar radiation, moisture
content, soil conditions, length of the growing season etc. The productivity differs in different
geographical regions depending on above mentioned factors. It also depends upon the type of
crop cultivated. For example, the average yield of sugar cane is 35 dry tonnes (dt) per hectare
annually, while it is 10 dry tonnes of corn.
High land productivity implies good conditions for production and export of biofuels.
Consequently, countries with high land productivity are suited for production and export.
While countries with less productive land in general is more suited for import.
7.2.2. Density of the population: The density of the population in a country influences the
conditions for production of biofuels. Humans are distributed varying over the world‘s
countries. The most crowded country in the world is Monaco with a density of 16620
inhabitants per square km. and the country with least people per area is Mongolia with 1
inhabitant per square km. The average density on earth is 43 inhabitants per square km.
Density of population can be used as a measure of available land for production of biofuels. A
low population density implies a low competition of available land and thereby better
prerequisites for production of Biofuels. While a high density imply harder competition of
land and thereby less available land for production of Bioenergy. It can also be used as a
measure for energy consumption. Accordingly a high density implies a high need of energy
and vice versa.
7.2.3. Access to infrastructure and transportation: In order to provide Biofuels to competitive
costs an efficient logistic chain is needed from the source to the consumer. A prerequisite for
an efficient logistic system are access to transportation and infrastructure that are adapted for
biofuel transportation. In general international transports of Biofuels are transported with
ships, because it is the most cost-effective mean of transportation over long distances. It is
therefore advantageously from a Biofuel trade perspective if both the sources and consumer
have access to sea or oceans. It is also important that the ports are easy accessed and have
equipments and space to handle biofuels efficiently. In some cases this can be problematic
because biofuels are a relative new commodity. It is of great importance that infrastructure is
adapted for Biofuel purposes.
7.3. Industrial structure: The industrial structure influences both the need and the capacity to
produce energy. A high level of industrialization implies a high demand for energy, especially
if the structure consists of industries that consume large amounts of energy. Examples of such
industries are the forest product industries and the steel industries. There are certain industrial
structures that are favourable for bioenergy because they produce by-products that can be used
as biofuels. The industrial structures are especially the forest, the farming and the food
industry.
A well-developed agriculture industry creates possibilities for a cost-effective production of
biofuels, because the industry can transfer reliable techniques, infrastructure for farming,
machines, equipments etc. The industries consequentially create possibilities for an increased
production of biofuels. Agriculture products that are suitable for international trade are
especially those produced directly for energy purposes and refined products like ethanol and
vegetable oils. Examples of the products that not are suited for trade are Biogas and straw due
to a relative low energy density.
7.4. Technical aspects and Development: There is an ongoing technical development in the
society and in the industry, as well as in the Bioenergy sector. Development can be seen as
tearing down barriers and creating incentives or driving forces for international use and trade.
However, new technology does not become a driving force until it is implemented. There are
two different types of development. These are adjustments or improvements of existing
activities and innovations. Adjustments and improvements of existing activity result in an
increased efficiency and thereby reduced costs. Elements and operations that are of interest of
adjustment and improvement are combustion techniques, equipment for handling Biofuels,
shipping fleet etc. Innovations are creating something new, which results in alternative
solutions. Innovations related to biofuels can be new types of Biofuels and new techniques for
production of Biofuels.
7.5. Policy measures on the energy market: Policy measures set the conditions for the
energy structure in a country. There are several measures that influence the production and use
of renewable energy and biofuels. These measures are supporting incentives for production of
renewable energy and environmental legislation. Policy measures are divided into the
following groups:
a) Economical incentives,
b) Agreement
c) Legislation.
7.5.1. Economical incentives: Taxes, subsidies and contributions have traditionally been the
main policy incentives on production and use of energy. Besides controlling the development,
they have also been used for fiscal reasons. Taxes have the purposes to influence the
development and also contribute to the state finances. Subsidies are used to support production
and construction of plants that would not take place without the support. The motivation for
this type of support is to support domestic industry or any form of energy, generally renewable
energy sources. There are two main types of subsidies used. These are direct capital subsidies
and subsidized loans. Distributions of capital through fees to contributions between producers
and consumers are another way to control the market. No net balance contributes to the state
finances with this type of measures. When the environment and the climate issue became
important, new measures have to be taken, which have to work independently of every
country‘s rules and energy polices i.e. on the markets conditions. Market based measures
differs from conventional incentives, in the way that it do not generate revenues to the state,
and do not create expenditures. Emissions trading are an example of market based measures
with the purpose to regulate the emissions of greenhouse gases. There are also other measures
like the electricity certificate in Sweden, which imply that the consumers need to consume a
certain amount of renewable electricity.
7.5.2. Agreements: Agreements between countries influence both the need of renewable energy,
and supply of energy. The main international environmental agreement is the Kyoto protocol,
which will increase the demand of renewable energy, and thereby also Bioenergy. The Kyoto
protocol is an international agreement between several countries with the purpose to decrease
the global emissions of green house gases (GHG). According to the agreement, countries are
allowed to reduce their emissions of GHG in different ways. This can be done not only by
reducing their emissions of GHG, but also through three flexible mechanisms. The
mechanisms enable opportunities to reduce emissions cost effectively in other parts of the
world. This is possible because the benefit for the atmosphere is the same, wherever the action
is taken. The three mechanisms are Joint Implementation (JI), Clean Development Mechanism
(CDM) and Emissions Trading (United Nations, 2003).
7.5.3. Legislation: The policy measure legislation also influences the use and trade of biofuels,
through restriction of certain activities. An example of legislation that has affected the biofuel
sector is the biomass flows from the waste sector in EU, which has increased rapidly in recent
years, mainly due the EU‘s waste regulation. Other type of legislation that affects the use of
biofuels is propitiation and limited values of emissions that have affect on the environment.
8. TRADE BARRIERS FOR INTERNATIONAL TRADE OF BIOFUELS

In this section trade barriers and the restricting factors for international trade of biofuels have
been identified and analyzed. Some important trade barriers are:
• Insufficient spreading of existing technique, which causes lack of technical skills.
• Institutional obstacles and problems.
• Lack of knowledge and uncertainty.
• The absence of entrepreneurs.
• Resistance from other interested parties, both through direct and indirect resistance.
• Lack of global professional logistics.
8.1. Insufficient spreading of existing technique, which causes lack of technical skills
Biofuel has the capacity to be a competitive and favourable fuel or resource in several
countries. This is however limited due that the most competitive technique is not used in
different processes, which cause a low profitability and thereby less investments and use of
biofuels. The insufficient spreading of existing techniques both limits possible exports and
import.
8.2. Institutional obstacles and problems

There are several institutional barriers for biofuel trade and use. Institutional obstacles can be
divided into barriers that restrict trade directly and indirect barriers, which restrict production
and consumption of biofuels. Identified factors that restrict trade directly are the trade
restrictions like tariffs and quotas due the costs of trade increase. Biofuels that are especially
influenced by these restrictions are those which come under the agricultural rule systems. The
restrictions do however differ from country to country and depends upon the type of products.
Examples from country reports of direct trade restrictions are quotas on import of ethanol to
Sweden/EU and import of biofuel residues that contain starch to the EU. Another example is
the export of ethanol to USA from Brazil, which is limited in order to protect the interest of
corn producers and related ethanol producers of USA.
Indirect institutional obstacles and problems are measures that affect the production or
consumption of biofuels, and thereby possible trade. There are several examples of these
measures in the country reports. Some of them are legislation, permissions, government
support for utilisation of domestic biomass resources, protecting of competing industries and
existing jobs or lack of strategic investments in biofuel facilities. An example of indirect
barriers is experienced by Canada with regard to export to certain areas of Europe. For
example export from Canada to UK where the support systems in reality discriminate large-
scale import of biofuels.
8.3. Lack of knowledge and uncertainty
Lack of knowledge and information about biofuel trade and use cause an uncertainty, which
restrict possible trade. There is an uncertainty in several fields like measured & described
quality and energy content, handling contaminated residues and effects of combustion. Biofuel
is defined as a fuel produced directly or indirectly from biomass (Swedish Standards Institute,
2004). But within this definition there is a room for several fuels with different properties and
chemical structure. Further, all biofuels are not homogeneous and specific biofuels are not
identical. For example various pellets can have different moisture and ash contents. The
various biofuels with various properties need different knowledge of combustion, handling,
storage etc. and comprehensive and new information & data are needed. Extreme examples of
a biofuel with different properties are municipal solid waste which contains various amounts
of biomass and other substances. Other factors that cause uncertainty are related to the fact
that biofuels are relative new products in the international market. In the country reports
Netherlands and Sweden have identified lack of knowledge and uncertainty as a barrier for
trade and use of biofuels. Power producers in Netherlands are reluctant to experiment with
new types of biofuels like. bagasse and husks. The main reason is that these fuels do not have
the required physical and chemical properties. There is also an experienced uncertainty
because that the market for biofuels is immature and unstable due to the small size of the
biomass market and the fact that biomass waste fuels are relative new products.
In Sweden technical barriers have been identified, which have to do with problems to describe
and measure quality and energy content in an efficient way. In some cases it can be
problematic to obtain a product of high quality. The experienced uncertainty will probably
decrease with additional experience and knowledge of new types of fuels. It is of great
importance that information should be exchanged between countries in order to decrease the
uncertainty rapidly. An action to decrease uncertainty for biofuels can be developed with
international standards.
8.4. The absence of entrepreneurs
The need of new alternative energy sources is increasing, especially renewable. Therefore, the
potential in the global increased consumption of biofuels is great, as biofuels are an
economical competitive and environmental friendly alternative. But as mentioned earlier in
this study, being a new and vulnerable industry, bio-energy generally suffers from lack of
institutions required for financing, education and logistics especially for international trade.
Entrepreneurs and small & medium sized enterprises often lack resources to overcome these
deficiencies, which may restrict their possibilities to grow and to exploit their specific
opportunities. This may harm and slow down a sound global development of bio-energy.
8.5. Resistance from other interested parties, both through direct and indirect resistance
There are stakeholders who have an interest in limiting the use and trade of biofuels,
especially competitors of the raw material and companies that produce and use other types of
energy sources. Few NGOs also resist bio-energy trade claiming that the risks for negative
social and environmental effects are not fully controlled. There are also a few countries that
resist trade indirectly through protecting domestic production of biomass and other natural
resources. The resistance can be practiced in different ways like lobbying, support and
strategic investment in other energy sources. Biomass is mainly used as a raw material in the
industrial sectors agriculture, energy, food and forest. A global increased use of biomass for
energy would imply a higher demand and thereby more expensive biomass. Therefore
competing industries of biomass resources is likely to make resistance. Examples of resources
used for several purposes besides biofuels are by-products from the sawmill industry, which is
also used by pulp mills and the particle board industry. Another example is fodder, which is
used in the agriculture as food and in the food industry as grain. Companies that are in a direct
competition with biofuels are mainly energy companies that have made investments in a
certain technology and supplier of alternative fuels. Some of the examples are companies that
use and trade with coal and gasoline likely to make resistance because their fuels can be
substituted by biofuels easily.
8.6. Lack of global professional logistics
In order to stimulate international trade the total logistics system need to become more
effective. An increased efficiency and effectiveness would imply that new biomass sources
would be profitable for production and trade. The logistics costs are closely related to
infrastructure and transportation systems. The most favourable mean of transportation are
ships, therefore it is an advantage if the biofuel sources and consumers have access to sea and
ports. If it is not possible to ship biomass, the second most favourable mean of transportation
are trains followed by trucks. An adaptation of infrastructure for trade can be problematic it
requires very large investments over a long period of time. Investments from government can
be limited because of short term goals and other priorities especially in developing countries.
While private investment opportunities are often restricted by institutional rules and by
reluctance to commit capital into long-term investment in projects in which projects are partly
or fully controlled by political decision makers. Nevertheless long-term investments in
infrastructure of governments would be an interesting support measure and an incentive for an
increased international trade of biofuel. Netherlands and Sweden have experienced that lack of
professional logistics are restricting international trade of biofuels. Netherlands experiences
that in order to lower the logistics cost, larger volumes need to be shipped on more regular
basis. Lower logistics cost would imply that there are investments on the supply side in
Netherlands. In Sweden, several cost driving aspects for shipping biofuels have been
identified. Port facilities are often not equipped in fashion that enables cost efficient handling
of the biofuels and biomass. In addition there is no real shipping fleet ready and designed to
take on the shipping of biomass for energy.
9. FUTURE OF BIOFUELS TRADE

It is clear by above mentioned study that the global demand, production and trade of biofuels
will increase rapidly in future. The development will depend upon the innovative techniques
and cost-effective methods for production and transportation respectively. Besides these
factors, driving factors will play an important role in the development of Biofuels trade. Some
of them are as following:
• Raw material/biomass push
• Market pull
• Utilization the new logistics facilities
• Incentives and support institutions
• Technical Developments and innovations
• Entrepreneurs and innovators
• Unexpected opportunities
These driving forces have been derived from the different countries‘ report. It is not necessary
that every country involved in Biofuels trade will have all the above mentioned driving
factors. These driving factors will be distributed in non-uniform fashion among Biofuels
trading countries and each country may have one or combination of some driving factors
which will help the country in developing an efficient model of international trade of Biofuels.
10. CONCLUSION
Thus, in the study it has been concluded that the global demand and international trade of
biofuels will continue to grow in the upcoming years. However, it has not been possible to
predict the development and future trend of Biofuels trade exactly due to the lack of
information and unexpected occurrences. In the study, a few crucial factors and trade barriers
have been studied, which are assumed to have a great impact on the development of
Bioenergy. But in reality, production and use of biofuels are affected by a huge amount of
factors. It is not possible to study and analyze all those factors and trade barriers. For example,
the development of Biofuels trade is affected by the global economic growth and that itself is
dependent upon a number of factors. The crucial factors that have been studied are enough to
indicate the direction of the development.
The positive development of biofuels is assumed to continue, which will develop biofuels into
an important commodity in the world. But still there are some requirements that need to be
fulfilled because biofuels are seen as sustainable fuel. In order to achieve this, fair and free
trade is needed. Fair trade refers to the trade in products produced under conditions that are
socially, environmentally and economically responsible, and free trade refers to the trade that
is not affected of tariffs and other trade barriers.
REFERENCES
1) www.fairbiotrade.org (For country Reports)
2) www.iied.org
3) www.unctad.org
4) www.reilproject.org
5) www.bioenergywiki.net
6) www.un.org
7) www.usclimatechange.com
8) www.unfccc.int
9) www.jatrophabiodiesel.org
10) www.ebb-eu.org
11) www.oilgae.com
12) www.vancebioenergy.com
13) www.biodieselmagazine.com
14) www.google.com
CASE STUDY
EXPORT POTENTIAL OF GEMS & JEWELLERY
TABLE OF CONTENT
S/No. TITLE PAGE

NUMBER
EXPORT POTENTIAL OF GEMS & JEWELLERY
1. INTRODUCTION 36
2. OBJECTIVES 37
3. CLASSIFICATION 37
4. METHODLOGY 38
5. GEMS & JEWELLERY SECTOR IN INDIA 38
6. GOVERNMENT INITIATIVES FOR THE PROMOTION OF 42

GEMS & JEWELLERY INDUSTRY
7. ANALYSIS OF GEMS & JEWELLERY EXPORTS FROM 43

INDIA
8. SWOT ANALYSIS OF INDIAN GEMS & JEWELLERY 45

INDUSTRY
9. FUTURE PROSPECTIVES 46
10. CONCLUSION 47
11. RECOMMENDATIONS 47
12. REFERENCES 49
CASE STATEMENT: India is one of the most important countries for the production of
Gems & Jewellery. One of the highlights is the production of Studded Jewllery. Studded
Jewellery trading in India is age old as it is established by the fact that in 1650 A.D., sources
report the employment of more than 60,000 workers in the Eluru mines (Andhra Pradesh),
where they dug and washed the precious stones. Today though India has almost no raw
Studded Jewllery left within her own soil still India produce 70% of the World gems in terms
of quantity and 45% in terms of value. India is the original country which discovered gems
and initiated gem craft. The gems produced here gave birth to a fabulous industry and global
trade.
Indian Gems & Jewellery Industry has achieved a premier position in the International market.
Today India has been recognized as a significant manufacturing / exporting center apart from
its traditional strengths in handmade Jewellery, the country has niche for itself in machine
made commercial Jewellery arena. The export industry has come of age and is now entering a
new phase of development. Gearing up to achieve further growth, the industry has already
captured a 55% share of world market by the turn of this century.
India is a primary source of imports for the developed countries, mainly because of abundant
availability of skilled and cheap labor, but now this no longer remains the competitive edge
for India as heavy competition is faced by various countries like China, Thailand and Sri
Lanka. But at the same time, India has managed to keep its position healthy and have brighter
prospects ahead.
The basic purpose here is to study in detail about the Gems & Jewellery industry in India and
also to assess the export potential of India in terms of Gems & Jewellery export taking World
as the target market.
1. INTRODUCTION
Diamonds, Gems and Jewellery have been a part of the Indian civilization since its recorded
history. The significance of the Gems and Jewellery industry in the Indian economic scenario
is a development of the last three or four decades. In 1966-67, the export turnover of the Gems
& Jewellery industry was just Rs 220 million representing a 3 per cent of total merchandise
exports. However, it has now grown to become one of the leading export oriented industries in
India recording an export turnover of around Rs 875 billion during 2006-07 and contributing
16 per cent of total exports, making it a significant foreign exchange earner for the country.
2. OBJECTIVES
1. To review the present status of the Indian Gems & Jewellery Sector and analyze
its contribution to the economy.
2. To critically evaluate the export performance of Indian Gems And Jewellery
sector over the years and its share in the global trade in Gems & Jewellery
3. To do a SWOT analysis for the Gems & Jewellery Industry and India‘s current
performance in the global market.
3. CLASSIFICATION
Gems & Jewellery

Sector
Polished Gem Gold & Synthetic

Diamond Stones Jewellery Stones
Fig3.1 Classification of Gems & Jewellery Sector
a) Polished Diamonds: India is one of the best markets in the world in the polished
diamonds for its world-class quality of diamonds as well as exquisite cutting skills. Over
83 per cent of India's Gems & Jewellery cut and polished diamonds account for exports.
Jaipur and Surat are famous as world class polishing and designing centers.
b) Gem Stones: This category refers to the stones other than diamonds. These stones come
under two basic categories that are precious stones and Semi precious stones. There is a
huge demand for these gemstones especially of Sapphire, Emerald and Ruby. India's
exports of gems have crossed 5000000 carats this year.
c) Gold and Jewellery: This category represents the Gold & Jewellery, which is used in the
manufacturing of various ornaments. Indian is the largest consumer of gold in the world
and in the year 2007, gold consumption in India was 850 tons which was 33% up from the
last year.
d) Synthetic Stones: Synthetic stones are diamonds produced through chemical or physical
processes in a laboratory. Like naturally occurring diamond, it is composed of a three-
dimensional carbon crystal. Synthetic diamonds are also called cultured diamonds.
Synthetic diamond is not the same as diamond imitation, which can be made of other
material. This is an upcoming market in India.
4. METHODOLOGY
The appropriate research design formulated is detailed below.
Exploratory research: This kind of research has the primary objective of development of
insights into the problem. It studies the main area where the problem lies and also tries to
evaluate some appropriate courses of action.
The research methodology for the present study has been adopted to reflect these realties
and help reach the logical conclusion in an objective and scientific manner.
The present study contemplated an exploratory research.
5. GEMS & JEWELLERY SECTOR IN INDIA

Gems & Jewellery play a significant role in Indian customs and traditions, making this sector
integral to the economy and one of the fastest growing industries in the country. Worldwide,
the Gems & Jewellery industry has been growing at a good pace and is currently estimated at
over US$ 130 billion. In India, it accounts for nearly 20 per cent of total Indian exports. It
provides employment to 1.3 million people directly and indirectly. Apart from being the
world‘s largest diamond processing (cutting and polishing) country with an 80 per cent share
in world market, India‘s favourable trade policies have made India the hub for Gems &
Jewellery.
Leading Branded Jewellery is the new mantra in the market, having rapidly acquired a niche
over the past few years. Increasing purchasing power and disposable incomes of India‘s
middle class has resulted in consumption growth of this industry by about 11 per cent in the
five-year period preceding 2006-07. Add to that the insatiable Indian craving for Gems &
Jewellery, the demand will skyrocket to US$ 20 billion by 2010 and US$ 30 billion in 2015,
according to the industry experts.
India‘s Gems & Jewellery industry has been allowed 51 per cent foreign direct investments by
the government in single brand retail stores attracting both global and domestic players to this
sector. The burgeoning retail industry in India is instrumental in innovatively marketing and
branding diamonds and traditional Jewellery, making inroads in this sector and contributing to
the nation‘s economy. According to a report released by Technopak Advisors on Changing
Retail Landscape in India, the Jewellery and Watches market is pegged at about US$ 13.52
billion. It is expected to register a 12 per cent growth by 2012, touching US$ 23.54 billion.
India‘s economic boom in the country has translated into a large consumer market for
Jewellery and other luxury products, offering a lucrative opportunity for major brands to make
their foray into the Indian market and establish their presence. Experts believe that by 2013,
India will become the biggest consumer of Jewellery.
The history of the Indian Gems & Jewellery, a $30-billion industry, began and flourished in
the two leading States of Maharashtra and Gujarat. Exports from the industry fetched $17.1
billion in 2006-07 against $16.64 billion in 2005-06, showing a growth of 26 per cent. But in
past 1 year we have seen some decline due to recession.
a) Diamond processing
Today, India houses the worlds‘ largest diamond processing (cutting and polishing) industry
with an estimated 1,000,000 processors. Processing is done on rough diamonds in full range of
sizes and qualities, including stones larger than 10 carats. India processes over 57 per cent of
the world‘s rough diamonds by value. It is said that 11 out of 12 stones (diamonds) set in
Jewellery are cut and polished in India. Surat in Gujarat is home to a majority of these
diamond processors. India‘s exports of cut and polished diamonds in calendar year 2008 stood
at Rs 48,905.57 crore or 349.389 lakh carats.
b) Diamond trading hub
After making its mark in the world diamond processing industry, the industry fraternity has
taken up the motto to make ‗India the diamond trading hub‘. Thus Mumbai, the financial
capital of the country, is said to be Indian Antwerp in the making.
The current format of diamond trade has four different types of channels involved in the
sourcing and trading of diamonds namely, centralised distribution, direct selling, rough trade
and brokerage. Bharat Diamond Bourse, a service oriented non-profit guarantee company, is
an 18 lakh sq. ft. complex in Mumbai. It was set up with the primary objective of establishing
necessary infrastructural facilities for promotion of export of diamonds, including Jewellery
from India and to make India an international trading centre. Instituted to cater to all the needs
of the diamond trade, the bourse is anticipated to deal with over 30,000 people a day. The
facilities here will include offices of diamond traders, strong rooms, lockers, customs
clearance facilities with all the modern facilities required to carry day-to-day business.
c) High-end Jewellery
As the Gem & Jewellery companies are based out of Mumbai, the city is home to various
types of Jewellery from the traditional to the high-end designer fashion Jewellery. It is one of
the largest producers and exporters of Jewellery, which is estimated to be over $13 billion.
Prominently, it accounts for over 15 per cent of the world Jewellery fabrication pie.
Not only this, India is one of the fastest growing markets for Jewellery, growing at the rate of
10.20 % per annum over the last five years. Today, the Indian consumer market for Jewellery
is said to be $13.1 billion, an increase of close to 8 per cent over the previous year. A study by
KPMG says that India is set to realise total Jewellery sales of $21 billion by 2010 and $37
billion by 2015. Currently, out of the eight key world retail markets, the US is number one
accounting for 31 per cent of the Jewellery sales. India and China follow with 8.3 and 8.9 per
cent respectively.
According to the KPMG study, India‘s growing importance in the global Jewellery market is
only expected to increase in the future. The total demand is expected to reach $18.25 billion in
2010 and to $ 28.28 billion in 2015. Diamond Jewellery consumption in India is estimated to
jump by 78 % in 2010.
d) Background of Gems & Jewellery industry in India
The two major segments of the Gems & Jewellery (GJ) business in India are Gold and
Diamond Jewellery. The GJ industry has an important role in the Indian economy. While a
predominant portion of Gold Jewellery manufactured in India is for domestic consumption, a
large portion of rough, uncut diamonds processed in the form of either polished diamonds or
finished Diamond Jewellery is exported. With an estimated consumption of around 800 tonnes
during 2007 (including Jewellery consumption), India is the largest consumer of gold in the
world. India is also estimated to hold nearly 14,000 tonnes of gold, accounting for nearly 9%
of the world‘s cumulative mine production. Apart from its historical religious significance,
gold is valued as an important savings and investment vehicle.
Gold in Indian families remains the Indian bride‘s `Streedhan‘, the wealth she takes with her
when she marries and which remains hers. Gold jewellery is the preferred jewellery worn by
women in India irrespective of their religious beliefs. Gold jewellery is very popular among
farmers, with an upsurge in gold sales after a good agricultural season. Buying of gold is also
an important part of every stage of an Indian citizen‘s life—at birth, marriage, construction of
home, festivals, religious ceremonies, setting up of new business, and death.
e) Structural Characteristics of GJ industry in India
 The Indian Gems & Jewellery industry is highly fragmented with a large number of
domestic private sector companies. The bulk of the GJ industry in India is concentrated in
the unorganised sector.
 The majority of India‘s diamond workforce is employed by small units that process
diamonds on a job-lot basis. The number of Gold Jewellery manufacturing units is put at
0.1 million.
 India is the largest diamond cutting & polishing centre in the world, followed by Israel and
employs an estimated 2 million workers serving over 0.45 million goldsmiths, and around
0.1 million diamond processing units.
 India has several well recognised strengths which have made it a significant force in the
global Gems & Jewellery business, like highly skilled yet low-cost labour and established
manufacturing excellence in jewellery and diamond polishing.
f) Policies for GJ industry in India
 In 1990, the Gold (Control) Act was abolished, which had forbidden the holding of gold in
bar form.
 In 1993, the GOI also permitted non-resident Indians (NRIs) to bring 5 kg of gold into the
country twice yearly on the payment of import tax of Rs. 250 per 10 grams. This
allowance was raised to 10 kg per trip in January 1997. In 1997, the GOI also permitted
import and export of gold under Open General Licence.
 In the trade policy (2004-09) issued in April 2006, the GOI has allowed import of precious
metal scrap and used jewellery for melting, refining and re-export of jewellery for higher
utilisation of melting, refining and jewellery-making production capacity.
 Jewellery is permitted to be exported on a consignment basis, allowing exporters who have
had to deal with the problem of unsold jewellery in foreign markets to now re-import the
unsold pieces. Steps taken include allowing exporters to re-import the rejected precious
metal jewellery subject to refund of duty exemption benefits on the inputs only and not the
duty on jewellery as was being done earlier. Reduction in value addition norms for export
of gold & silver jewellery from 7% to 4.5%.
 100% FDI is permitted in the Gems & Jewellery sector through the automatic route.
 SEZs and Gems & Jewellery Parks have been set up to promote investments in GJ sector.
 Cutting and polishing of Gems & Jewellery treated as manufacturing for the purposes of
exemption under Section 10A of the Income Tax Act.
6. GOVERNMENT INITIATIVES FOR THE PROMOTION OF GEMS &

JEWELLERY INDUSTRY
The Indian government also provided an impetus to the booming Gems & Jewellery industry
with favorable foreign trade policies for this sector:
Lowering import duty on platinum from US$ 13.82 per 10 gm to US$ 5.03. Exempting
rough colored precious gems stones from customs duty at the first stage itself, instead of
claiming reimbursements later.
Rough, Semi-precious stones have already been exempted, a move aimed at further
promoting the exports of studded Jewellery and platinum Jewellery.
Duty-free import of consumables for metals other than gold and platinum up to 2 per cent
of f.o.b. value of exports.
Duty-free import entitlement for rejected Jewellery up to 2 per cent of f.o.b. value of
exports.
Increased duty-free import of commercial samples of Jewellery up to US$ 2.50.
Import of gold of 18 carat and above under the replenishment scheme.
Moreover to reduce the transaction cost for the diamond sector, testing facility at International
Diamond Laboratory (IDL), Dubai, has been incorporated in the list of laboratory/certifying
agencies. Duty free import entitlement of tools, machinery & equipment has been allowed. For
metals other than gold, platinum, it is 2 per cent and for gold and platinum, it is 1 per cent of
FOB value of exports during the previous financial year.
7. ANALYSIS OF GEMS AND JEWELLERY EXPORTS FROM INDIA

Registering a steady growth, exports surged from $5,258 million in 1996-97 to $8,905 million
in 2002-03. Experts estimate that the exports may touch $20 billion by 2008.
India today occupies top position in importing, processing and exporting diamonds. In 2002-
03, of the total industry exports, the diamond market contributed $6,742 million.
In 2003-04 the exports of this sector increased by 16.8 % and crossed a level of US$10.5
billion. This is a particularly interesting industry from an Indian standpoint, since it involves
imported raw materials, domestic value added, and global markets and provides skilled
employment. Indian Gems firms are tightly integrated into global production chains.
The total exports of Indian Gem & Jewellery industry during January-December 2004 touched
$14,329.23 million and registered a growth of 37.88%, compared to $10,392.83 million the
previous year.
Since early 90's, the Jewellery has averaged a growth of over 30%, making India the fastest
growing Jewellery exporter in the world and also in the year 2004 the demand for Gold
Jewellery in India increased by 29% in value to become the fastest growing Jewellery market
in the world. Global Gold Jewellery consumption increased 33% in the year 2005. The
buoyant demand in countries like India, the Gulf States, China and Turkey pulled up the
overall figures.
India has made its mark in the global arena in the diamond processing industry progressively
becoming the leading global Gems & Jewellery hub. The industry has shown steady progress
recording a 22.27 % growth, amounting to total exports of US$ 21 billion as against US$ 17
billion in 2006-07. According to the Reserve Bank of India, the rise in the sector's exports is
fuelled by a strong demand from all quarters, especially Hong Kong and the US.
According to India's Gems & Jewellery Export Promotion Council (GJEPC) the country's GJ
exports during 2007-08 rose 22.27 % in value terms with the total exports rising to US$ 20.88
billion. In terms of exports, diamonds made a significant contribution in the overall GJ
exports:
Diamonds accounted for 70.59 % of the total exports.
Gold Jewellery accounted for 26.91%.
Colored Gem Stones and others accounted for 1.32 % and 1.16 % respectively.
Fig3.2 Composition of Exports of Gems & Jewellery
The year 2007-08 has witnessed a growth in all the major segments of the Gem and Jewellery
industry and the total exports stood at Rs.67500 crores, a growth of 29.27% as compared to
the previous year. Exports of diamond have continued to rise and the Jewellery sector has
turned in another record-breaking performance. India‘s share of the world's polished diamond
market is 60 per cent in terms of value, 85 per cent in terms of volume and 92 per cent in
terms of pieces.
The 2008-09 fiscal also started on a positive note, with the Gems & Jewellery exports growing
by 30.99 % to US$ 1.73 billion during April 2008 over the same period last year. Significantly
exports of diamonds grew by a whopping 46.51 % to US$ 1.34 billion.
a) Diamonds
India enjoys domination in the world cut and polished diamond market and smaller diamonds
in particular, which was amply reflected in the export growth of diamond industry with a total
export of US$ 11181.48 million (48000 crores) for the year ended 31st March, 2008 as
compared to US$ 8627.48 million (37000 crores) against the corresponding period in last year.
b) Jewellery
The year 2007-08 was a good year for the global Jewellery sales. Demand was fuelled by good
economic growth and improved demand particularly from Asia and the Middle East. Gold
Jewellery sales in United States of America increased by 4% in 2007 with a total value of
73000 crores. The Jewellery sector recorded a massive growth of 49.23% for the year ended
31st March 2008. The demand for the diamond Jewellery will continue to grow stronger due
to continued marketing support by the industry especially in the U.S., India and China. The
Jewellery has an ever-increasing market abroad and the company with its manufacturing
facility comparable to international standards has been able to capture a reasonable portion of
the same.
8. SWOT ANALYSIS OF INDIAN GEMS & JEWELLERY INDUSTRY

a) Strengths
About one million craftsmen are associated with this industry. Their skills can be utilized
for designing and making modern Jewellery.
Availability of abundance of cheap and skilled labor in India.
Presence of excellent marketing network spread across the world.
Supportive government industrial/ EXIM policy.
b) Weaknesses
Small firms lacking technological/ export information expertise.
Low productivity compared to labor in China, Thailand and Sri Lanka.
As the major raw material requirements need to be imported, companies normally stock
huge quantities of inventory resulting high inventory carrying costs.
c) Opportunities
New markets in Europe & Latin America.
Growing demand in South Asian & Far East countries.
Rupee value depreciating resulting in a windfall increase in the profitability.
Industry moving from a phase of consolidation.
d) Threats
China, Sri Lanka and Thailand's entry in small diamond segment.
Infrastructure bottlenecks, absence of latest technology.
Unusual increase in the prices of gold and rough diamond.
9. FUTURE PROSPECTIVE
With the world economy doing well and increase in the personal disposable income of the
general public, demand for the Gems & Jewellery has increased worldwide. This year
Jewellery sector grew by 49%. Exports contribute 70% of the total sales of the industry.
United States is contributing most (35%) in the export bill. With rupee value depreciating
against the U.S. dollar there may be a windfall increase in the profitability in the coming times
for the industry. Many companies are on the hunt for acquiring subsidiaries Indian companies.
By this they will be able to strengthen their retail network. One of the areas of concern for the
industry is the surge in the prices of rough diamond pieces and India depends upon other
countries but with the proposal of increase in the FDI limit on mining from 74% to 100%,
dependence on the other countries will be reduced. Overall with the economic fundamentals
looking good, favorable government policies and exploration of the newer markets industry
looks all set for a good time ahead.
10. CONCLUSION
Based on the findings, the study estimates that worldwide Jewellery sales will rise from $146
billion in 2005 to $185 billion in 2010 and $230 billion in 2015. However, it stresses that if
the industry as a whole focuses on ―growing demand for Jewellery as a category‖ and
―strengthening industry-level and enterprise-level capabilities‖ in the ―next 12-18 months‖,
sales could reach to $280 billion in 2015, registering a Compounded Annual Growth Rate
(CAGR) of 6.7 percent.
The data has been collected up to May 2008 for study & analysis and year 2008-09 has not
been included in this study because there was a downfall in Gems & Jewellery exports due to
Global Recession. It was a global phenomenon for limited time period and could lead to some
ambiguous results if considered for study and analysis. Hence, in order to find out a general
interpretation in exports it was necessary to exclude export data of year 2008-09.
On the basis of an assessment of the impact of eight key business trends, it can be projected
that the Growth in global demand for Jewellery may slow from the 5.2 percent Compounded
Annual Growth Rate (CAGR) (base year 2000) to 4.6 percent by 2010 or 2015, unless
appropriate collective action is taken by players in the industry. These trends include: the local
beneficiation in the mining countries, fragmentation of supply sources & an increase in rough
supply, consolidation across the value chain, rise of new centers for Jewellery manufacturing,
growth in the use of synthetics and non-precious metals in Jewellery, a decline in demand for
plain gold Jewellery, organization and consolidation in the emerging markets of India and
China and intense competition from other luxury goods.
11. RECOMMENDATIONS
The action programs outlined by the study include:
a) Develop Demand for Jewellery as a Category: This entails a united promotional effort
across all categories of metals, stones and other raw materials for Jewellery. These efforts
include identifying new product & consumer segments and managing different markets.
b) Strengthen Industry Level Capabilities: The recommendation is to transform the image
of the industry as a traditionally closed one to one that ensures access to modern, low cost
funds.
c) Players to Select Strategic Position and Enhance Individual Capabilities: Individual
players will either have to grow in size and scale, or develop specialty capabilities in niche
segments.
Some of the business models that may emerge are:
‘Big Brother’ companies – with a presence across various segments of the value chain.
Volume Players – companies with depth and large capacity in a single segment whether
mining, diamond manufacturing or retailing
Specialists – companies that develop specialized expertise in niche areas at various points
in the chain
Straddlers – companies who shuffle resources across two segments.
Gems & Jewellery sector is one of the most dynamic export-oriented sectors of the BIMST-
EC countries. There is already a substantial level of ongoing trade and industrial cooperation
among these countries, particularly Thailand, Sri Lanka, and India. With the addition of
Myanmar, the possibilities of trade and industrial cooperation increase immensely. Despite the
fact that BIMST-EC countries are competing exporters of Gems & Jewellery, there is a great
deal of complementarities within the BIMST-EC region in this sector. This is evident from
statistics of intra-regional trade in precious and semiprecious stones, particularly between
Thailand, India and Sri Lanka. Clearly, joint strategies to combat challenges to more rapid
growth of this trade will benefit all participants. Economic (particularly industrial),
cooperation in this sector should be very fruitful.
REFERENCES
1) www.gjepc.org
2) www.economictimes.indiatimes.com
3) www.wto.org
4) www.commerce.nic.in
5) www.ibef.org
6) www.iigj.org
7) www.dmcc.ae
8) www.gujexim.com
9) www.ficci.com
10) www.in.kpmg.com
11) www.eximpolicy.com
12) www.google.com
CASE STUDY
INTERNATIONAL TRADE OF WASTE

AN ANALYSIS FOR WIN-WIN SITUATION
TABLE OF CONTENT
S/No. TITLE PAGE

NUMBER
INTERNATIONAL TRADE OF WASTE
1. INTRODUCTION 52
2. OBJECTIVES 52
3. METHOD 53
4. GLOBAL WASTE TRADE 53
5. THEORIES IN INTERNATIONAL TRADE OF WASTE 57
6. INDIA AND WASTE TRADE 61
7. DISCUSSION AND CONCLUSION 63
8. REFERENCES 65
CASE STATEMENT: Globalization today implies increased trade between countries and
also many developing countries begin to join the world market. It is not only ordinary goods
that are imported/exported, but also different kinds of waste are being traded. From harmless
goods such as paper, suitable for recycling, to toxic waste dumped as landfill. Most of the
world‘s trade with waste goes from one developed country to another. But a considerable
amount of waste also goes from developed countries to countries in the third world. There are
three ways for the waste-importing country to deal with waste. These are landfill, incineration
and recycling.
India is a developing country and a key importer of waste from developed countries. Hence, a
study is required for the classification of major imported waste and their effect on Indian
economy and environment.
1. INTRODUCTION
For the past some decades, developing countries and poor African nations have been emerged
as an importers of waste materials coming from developed countries that are out to reduce the
costs of disposing or recycling these by-products of industries. In many household and
production processes, unwanted by-products are generated and these can in themselves be
tradable commodities, such as waste-paper, organic material, electronic waste and so on.
Many developing nations have been attracted by the potential financial gains (which in some
cases have exceeded the GDP of many poor countries), of importing waste from the developed
countries. Developing countries with strong recycling industries are involved in the
International trade of waste. Some of these countries are India, China, Vietnam and other
South East Asian countries. Most of the world‘s trade with waste goes from one developed
country to another. But a considerable amount of waste also goes from developed countries to
countries in the third world. A model of waste movement has been presented in Fig 4.1
2. OBJECTIVES
The objective is to find out the solutions for the following problems:
a) What are the benefits to the developing countries from waste trading?
b) How trade in waste can affect the developing countries?
c) How suitable are the developing countries for the waste-import?
It has been tried to analyze the major waste imports of India to find out the solutions for above
mentioned problems.
Hazardous Waste
Waste Trade E-Waste
Developed Countries
Lead-Acid Batteries
Other Toxic Waste
Third World
Waste Waste Disposal Sector
Trade
Harmless Waste
Developed Countries Paper
Waste Trade Plastic
Iron Scrap etc.
Fig4.1 Flow of waste traded between developed countries and third-world.
3. METHOD
The study is based on the information and data obtained from internet, articles, books and
research papers. The study has been done with emphasis on trade of waste that involves
developing countries, because developing countries are more vulnerable both economically
and environmentally.
4. GLOBAL WASTE TRADE

Figure 4.2 below illustrates a bar chart of transboundary movements of waste in 2000. It
shows that approximately 75 percent of the total volume of waste is traded between developed
countries (i.e. OECD members).
Fig4.2 Transboundary movements of waste (UNEP)
For instance, during 2000, Germany was one of the top importers of waste, bringing in over
1million tons of waste from 38 different countries. Most of the waste was imported from
neighboring countries like the Netherlands, Luxemburg, Belgium and Italy (UNEP, Transport
and Trade). The industry in Germany seems to specialize in processing waste disposal
services. Trade with secondary materials (waste and end-of-life products) has recently begun
to expand, from 4 million tons in 1993 to 16 million tons in 2001, shown in Figure 4.3.
Fig4.3 Evolution of transboundary movements of Waste (UNEP).
But the world largest waste-importer is China, which imported more than 4 billion tons of
plastic, 12 billion tons of waste paper and over 10 billion tons of scrap iron and steel in 2004.
(a) What kind of waste is being traded?
In many household and production processes, unwanted by-products are generated and these
can in themselves be tradable commodities, such as waste-paper, organic material, electronic
waste and so on. Generally waste can be divided into two different groups; harmless and
hazardous. Example of harmless waste are waste-paper, PET bottles and iron-scrap.
Hazardous wastes are materials that contain toxic substances. This kind of waste causes
pollution that can harm the environment and human health. The pollution in this case can be
defined as externalities, i.e. an extra cost for the waste-importing country. Hazardous
electronic waste is continuously exported to China, Pakistan and India, primarily from North
America. The waste contains toxic metals that are harmful for the people handling it and
poison the surrounding environment.
A case of trade with hazardous waste that caused negative externalities happened in 1986
when a British company established a large mercury-reprocessing plant in South Africa and
begun to import mercury waste. In 1988 the World Health Organization (WHO) discovered
contents of mercury in a river 50 kms away from the plant, 1000 times higher than the WHO
standards.
In the late 1980s, stricter environmental regulations dramatically increased the cost of
hazardous waste disposal. In search for cheaper alternatives to get rid of the waste, industries
in developed countries began shipping their hazardous waste to developing countries and to
Eastern Europe. To prevent possible dumping of hazardous waste in the developing countries,
the ―Basel Convention on the Transboundary Movements of Hazardous Waste‖ was created to
protect the developing countries. At first the Basel Convention meant to regulate the trade
with hazardous waste but, nowadays, trade in hazardous waste is totally banned. Currently,
approximately 170 countries have ratified the Convention (Basel Convention 16 th April 2008).
The main problem with the Convention is the lack of distinction between ―waste‖ and
―products‖ which gives the opportunity for trade in hazardous waste in the name of products.
On the other hand, several developing (and developed) countries have considerable recycling
industries that are driven by imported waste, including hazardous waste. These imports of
secondary-raw materials are important to those developing countries and they may experience
serious consequences from the ban on trade with hazardous waste. Industries will be forced to
close which will lead to increased unemployment and decreased living standards for the
country‘s population. One example of this is the import of lead-acid batteries into India and
the Philippines, which are needed in their domestic industries such as batteries in motor
vehicles, telecommunications, and computer equipments. One study has counted that 80
percent of the Philippines refined lead output comes from the secondary lead smelter. The
trade of waste therefore creates a trade-off between the gains from trade and the
hazardousness to the environment and human health.
(b) Waste Disposal Services in Developing Countries
When it comes to waste disposal there are three options to get rid of the waste. These options
are landfilling, incineration and recycling. Landfilling is the cheapest alternative but it can
become problematic in terms of shortage of land and pollution/hazardous waste spreading
from the dumpsites. Incineration is not really suitable for developing countries since their
waste often contains a high level of organic material. The most environmentally friendly and
cost-effective alternative of waste disposal is recycling and, in this field, the informal sector
plays an important role in the developing countries‘ waste disposal services.
Urban areas in developing countries often consist of both formal and informal waste disposal
sectors. The formal sector consists of municipal agencies or private firms responsible for the
waste collecting, transport and disposal. The informal sectors consist of individuals, families,
groups or small enterprises that are making their living through collecting, sorting and selling
the collected material in the market. This market is unregulated and the actors in the market
such as waste-pickers, itinerant buyers, small scrap dealers and wholesalers are unregistered
and do not pay taxes. These activities/individuals are mainly driven by the market forces. The
individuals in the informal sector are often among the poorest and most exposed in a society.
In India, for example, many individuals are born to work in the waste disposal sector. The
informal waste disposal sector is labour intensive and therefore, can create work opportunities,
especially for marginalized individuals. The informal sector also generates values in the forms
of positive externalities. When the waste is being collected, sorted and sold, there is a positive
effect of this in the increased availability of natural resources that supply raw material to the
industries. Another positive effect is created when the alternative to recycling is land-filling
and the informal sector extends the life time for these land-filling sites. And, of course, the
waste pickers are keeping the cities clean from waste. In spite of the importance of the
informal sector, it is often ignored when policies that affect the waste disposal sector are being
formulated. To replace this system with a Western collection system can have devastating
consequences and is a classical example of an attempt to intervene without having full
knowledge about domestic traditions, informal sector and market forces. Third-world
countries have different physical and socioeconomic conditions than developed countries and,
therefore, require different solutions. An example of advanced Western technology transferred
to developing countries is the expensive incinerators that have been built in cities such as
Manila, Mexico City, Lagos, and Istanbul. These incinerators have not operated as expected
and some of them were never even used.
5. THEORIES IN INTERNATIONAL TRADE OF WASTE

Three different theories regarding international trade of waste have been presented in this
study. The three theories explain waste-trade from slightly different points of view. All three
theories explain the cause of trade with waste and how the importing and exporting countries
can be affected by the trade of waste.
These theories help in analyzing the case studies related to the International trade of trade. The
first theory is closely related to the traditional trade theories concerning comparative
advantages but here the tradable goods are causing a negative externality. The second theory
presents the relationship between changes in cost of transportation, prices of land and trade
with waste. The third theory implies that trade with waste can be caused by differences in
pollution regulations between countries.
(a) Theory 1 (When waste is harmless or hazardous)
Basic models of international trade do not include negative externalities, such as pollution or
toxic substances, that possibly arise if the tradable goods are waste. That is why a few new
theories have emerged in the area of international trade with waste.
Copeland (1989) has developed a model of international trade in waste disposal services and
he investigated the welfare effects of restricting such trade. Since waste disposal generates
negative externalities, thus there will be an international transfer of negative externalities,
when waste move from one country to another. This model includes the problem of negative
externalities and also the presence of illegal waste disposal. In the model, a small open
economy is considered with the production factors land, labour and waste. Production of a
good (X) is a function of the production factors, so that X = f (land, labour and waste). The
waste is a byproduct of producing Good (X). The model explains a pattern of trade that
depends on the relative factor intensities and factor abundance similar to the Heckscher-
Ohlin‘s factor-proportions theory that gives the causes for comparative advantages.
If we consider a harmless sort of waste like waste-paper, we do not include negative
externalities from waste and we assume that the waste disposal service is land intensive
relative to producing good X. Then if one country has an abundance of land relative another
country, the land-endowed country has a comparative advantage in waste disposal and
therefore, will process both foreign and domestic waste material under free trade condition.
A waste disposal service can cause negative externalities, when the waste importing country
uses the waste as landfill and toxic substances leak into a nearby river. In this case a free
market will cause overproduction in waste disposal services, because the externality cost will
not be included in the cost of production.
Price (P)
Marginal Social Cost = Private Marginal Cost –External Cost
Cost of Pollution
Private Marginal Cost (Supply)
Demand
Quantity (Q)
0 Q0 Q1
Fig4.4 Negative Externality
Figure 4.4 shows that the quantity produced without considering the external cost will be Q0,
and if we consider the external cost in the graph, the supply curve will be pushed upwards and
the optimal produced quantity will decrease to Q1. The initial supply curve represents the
private marginal cost, so together with the external cost it will represent the marginal social
cost. However, without counting for the external cost, free market will cause an
overproduction in waste disposal services (Q0 - Q1).
To reduce production to the optimal level, an intervention, like a tax on the output of the waste
disposal sector, needs to be implemented to reach the optimal level of production. The tax will
be set with the purpose to reduce the return to the waste disposal industry by an amount equal
to the marginal damage imposed on consumers.
(b) Theory 2 (Cost of Transportation, Land Prices and Waste Trade)
Another explanation to the increased waste-trade can be made by a model that compares the
transport cost and land cost to find the optimal distance to landfill. Almost all waste is
transported somewhere to get rid of, if it can‘t be recycled and used again. A long time ago it
would have been enough to just throw the waste over the city wall, since a further transport of
the waste would be too costly. Today the amount of garbage has grown in most countries,
especially in developed countries, and it is not possible to throw the garbage over the city
wall.
Waste
Disposal Total Cost per Ton of Waste
Cost
Transport Cost per

Ton of Waste
Land Cost per Ton

of Waste
0 DOPT Distance to Landfill (D)
Fig4.5. Optimal Distance to a Landfill
Figure 4.5 shows the relationship between the transport cost and the land cost and the optimal
distance to the landfill. The vertical axis represents the waste disposal cost and the horizontal
axis represents the distance to landfill. The transportation cost curve shows that transportation
cost increases with longer transports. The cost of land curve has got a negative slope showing
that the cost of land will decrease further away from where it was generated, which is usually
highly populated cities. When summing up the costs of both transport and land we get the total
cost of landfilling waste. This cost is represented by the U-shaped curve in Figure 4.5. The
optimal distance to landfill will be at the point where the total cost per ton of waste is
minimized (DOPT) in Figure 4.5.
Anything that increases the cost of land, or decreases the cost of transport, will push the
optimal distance to landfill further away. If we look at the history of transportation we can say
that the costs have decreased with the higher level of international trade. At the same time the
price of land has risen. If we consider falling transportation costs, together with rising land
prices, the distance to the landfill will increase and waste might even be transported out of the
country.
(c) Theory 3 (Differences in Pollution-Regulations between countries)
This theory is based on the ―pollution haven‖ models. A pollution haven is defined as a
region, or a country, with a concentration of pollution-intensive activities and a pollution
policy that is weaker relative to its trading partners. Another assumption in the pollution haven
models is that differences in regulations arise from inequality of the world distribution of
incomes because environmental protection is a normal good. A normal good in economics is
defined as a good that will be positively affected when income increases. The opposite is
called an inferior good, when income level raises the demand for the good will decrease.
However, this means that a country with a relative low income level will demand less
environmental protection than a country with higher income level.
In many cases the traded waste generates some kind of negative externalities for the waste
importing country and, to compensate for these, an intervention is often considered. Policy
problem can be described with different views. One view assumes that the differences in
pollution regulations are a key determinant of the production costs and, therefore, for industry
location, meaning that it could be effective to send hazardous waste to countries with lower
regulation on environmental damages. In other words, trade with waste is driven by the
countries differences in pollution-policies. A second view concerning waste-trade is that, in
the case of free-trade, the waste importing country can correct the externality with domestic
regulations or taxes. This idea is called ―first-best policy‖. But if the country is unwilling to
set domestic regulations or taxes, a restriction on foreign trade with waste can be implemented
to reduce the amount of waste import.
6. INDIA AND WASTE TRADE

India is a key importer of both hazardous and harmless waste. Although government has taken
many steps to check the dumping of hazardous waste in India yet due to the lack of
information regarding environmental, safety and health issues, many importers are still
importing hazardous waste like mica and asbestos.
Two major imported waste based industries of India are ship scrapping and waste paper
recycling. In recent years, India‘s wood based pulp production has decreased while the
demand for paper has increased. This situation has provided a good opportunity for the
development of paper recycling industry in India. Likewise, low wages and abundant
unskilled manpower has caused the shift in ship scrapping industry from developed countries
to India. Hence in this study, two major Indian waste importer industries i.e. ship scrapping
industry and paper recycling industry have been studied and analyzed.
(a) Waste Paper Recycling
One kind of waste that is being traded worldwide is waste paper. It is found that developing
countries are net importers of waste paper and developed countries are net exporters. During
the last two decades a substantial increase in the volume of traded waste paper has been
noticed. India was in 1993 ranked as the 17th largest producer of pulp and the 20th largest
producer of paper in the world. The consumption of paper in India is still low, but the rapid
urbanization and industrial development are expected to increase the consumption of paper
and paper products.
India is a net importer of waste paper, because the country is effective in the utilization of
waste paper. A tropic forest endowment unsuitable for pulp production is one of the reasons
behind the effective utilization of waste paper in India. Because of the low content of wooden
fibers, recycling of waste paper is an alternative. The utilization rate of imported waste paper
is higher than the use of domestically produced pulp, since the longer fibers in the recycled
paper results in higher quality paper. The share of paper with a base of wood pulp declined
from 65 percent in 1985 to 49 percent in 1992. At the same time, the share of waste paper
based paper rose from 13 percent to 22 percent. This change, to use more waste paper than
wood pulp in the Indian paper production has had positive impacts on the environment in the
forms of decreased water consumption and solid waste generated. Furthermore, in most of the
waste paper mills the energy consumption is 3-4 times less.
Some governments and NGOs address the restriction on international trade in waste to force
every nation to take care of its own waste, as some kind of moral obligation. But the case with
waste paper import in India revealed that an import of waste can have several positive effects
on the environment. Waste paper is classified as a secondary raw material, which means that it
can be recycled and used again in production.
Another thought about international trade of waste paper is that the increase in paper
production industries in India will create a higher demand for raw material i.e. wood & pulp.
In such case, the import of secondary raw material will have a positive net effect on the
balance of trade since secondary raw material is usually less expensive than the import of
primary raw materials. The availability of secondary raw material plays an important role in
the development of recycling industries. Moreover, in developing countries, the consumption
levels are governed by domestic supply of raw materials and such problems can be solved by
importing secondary raw materials from developed countries.
From the global environment point of view, recycling of waste paper is less polluting industry
and helps in preserving forests by reducing the dependency over wood and pulp.
(b) Ship Scrapping
Alang, a city in Gujarat is known as the world‘s largest ship scrapping yard. A ship is working
for about 25 to 30 years and when it has reached the end of its lifetime it is scrapped. A ship is
made of 95 % recyclable material, high quality steel worth a lot of money. But, unfortunately
the rest of 5% materials are toxic and hazardous. Large supertankers, car ferries, container
ships, and a dwindling number of ocean liners are beached during high tide, and as the tide
recedes, hundreds of manual laborers dismantle each ship, salvaging what they can and
reducing the rest into scrap. Tens of thousands of jobs are supported by this activity and
millions of tons of steel are recovered.
Ship-scrapping was a capital-intensive industry performed in huge dry-docks in developed
countries. But this kind of recycling has suddenly shifted to developing countries like India.
The reasons behind the shift are:
1) Low wages in India transforms this capital intensive industry into labour intensive
industry.
2) Higher costs of maintaining the increased level of environmental, safety and health
standards in the developed countries. Prior to 1970's ship breaking was done in the docks
Europe. It was a highly mechanised industrial operation. But as European countries grew
more conscious of environmental standards and health & safety measures, costs of
scrapping began to escalate.
3) Lack of information about environment, safety and health standards among unskilled
workers makes it easy for developed countries to dump ships with hazardous waste in
India.
The positive effect for India will be a higher supply of unskilled jobs (40,000 on the beach of
Alang), profit from the business and scrap steel (2.5 million tons a year). But these gains from
this recycling business are at the cost to the environment, safety and health.
7. DISCUSSION AND CONCLUSION

The most common advantage for developing countries is the abundance of the labour which is
an important production factor. This gives developing countries a comparative advantage in
production that needs a relatively large amount of labour. Land is another important
production factor that is relatively cheap in many developing countries.
The theory 1 about trade with harmless or hazardous waste explains that in a world with free
trade, a country should produce those goods that need relatively large amounts of the
production factor; the country has an abundance of. These goods should be exported and
goods that other countries can produce more effectively should be imported. This makes both
exporting and importing countries better off than before trade.
The question addressed in this study is whether handling of waste (Paper and Ships) is suitable
for India? In the case of waste paper coming to India, it is clear that it is cheaper to recycle
waste paper in India than in the developed countries. Moreover trade of waste paper reduces
the cost of paper production thus helps in meeting the increasing demand for paper in India.
Less pollution and less power consumption are some of the factors which create positive
externalities.
The other case explained in the study is of ship scrapping industry which is creating
employment in India on a large scale. But in case of ship scrapping industry, safety and health
norms are not followed properly in India. The toxic substances from ship scrapping industry
create negative externalities. This can be considered as pollution, which has not been included
in the private marginal cost that represents the market supply of waste disposal services. The
negative externality makes the trade with waste a bit more complex than trade with ordinary
goods.
As the theory tells, the first-best policy, when waste is traded and generates a negative
externality, is taxation on the output from waste disposal services. But it might be expected
that government in developing countries do not have the ability or political will to implement
an optimal tax on the waste disposal sector because the governments in developing countries
often face bigger problems to deal with like poverty, starvation, high unemployment rates than
to deal with environmental problems.
To sum up, trade with waste is a complex problem that can affect the importing country in
both positive and negative ways, and it is hard to see if there is a win-win situation or not. But
if the negative externality is controlled with a tax or a regulation to push the production
involving waste to the optimal level, trade with waste can be a win-win situation for the
trading countries. The difficulties will be to measure the negative externalities and, therefore,
to set the optimal tax.
REFERENCES
1. Copeland, B. R. and Taylor, M.S. (2003), Trade and the Environment: Theory and
Evidence, Princeton University Press, Princeton, 143-144.
2. Copeland, B. R. (1989),‖International trade in waste products in the presence of illegal
disposal‖, Journal of Environmental Economics and Management 20, 143-162.
3. Lipman, Z. (2002),‖A dirty dilemma: The hazardous waste trade‖, Harvard International
Review 20020101.
4. Van Beukering, P. and Sharma, V. (1996), International trade and recycling in
developing countries – The case of wastepaper in India, Institute for Environmental Studies,
Amsterdam.
5. Porter, R. C. (2002), The Economics of Waste, Resources for the futures, Washington, 102-
121.
6. Krugman, P. R. (2007), International Trade, Pearson Education Limited, Harlow, 63.
7. www.basel.int
8. www.unep.org
9. www.worldwatch.org
10. www.cppri.org.in
11. www.sriaindia.com
12. www.greenpeace.org
APPENDIX
Figure/ Title Page
Table No. Number
1.1 Global Refining Capacity 7
1.2 Product-wise Share of Production of Petroleum Products (%) 10
1.3 Percentage Share of Petroleum Products in GDP 11
2.1 Classification of Biofuels 20
2.2 Factors influencing the International Trade of Biofuels 21
2.3 Oil Prices and Important Events 23
3.1 Classification of Gems & Jewellery Sector 37
3.2 Composition of Exports of Gems & Jewellery 44
4.1 Flow of waste traded between developed countries and third-world 53
4.2 Transboundary movements of waste (UNEP) 54
4.3 Evolution of transboundary movements of Waste (UNEP) 54
4.4 Negative Externality 58
4.5 Optimal Distance to a Landfill 59

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4 CASE STUDIES

SYMBIOSIS CENTRE FOR DISTANCE LEARNING

INDIAN PETROLEUM PRODUCTS EXPORTS

S/No. TITLE PAGE

4. PETROLEUM INDUSTRY AND PRODUCTS 8

6. PETROLEUM INDUSTRY IN INDIA 10

7. CHALLENGES IN THE PETROLEUM INDUSTRY 12

8. PROSPECTS OF INDIAN PETROLEUM INDUSTRY 12

Percentage of Global Refining

Fig1.1. Global Refining Capacity (85.6 million barrels per day)

4. PETROLEUM INDUSTRY AND PRODUCTS

6. PETROLEUM INDUSTRY IN INDIA

Heavy Ends (19.64 %)

Fig1.2. Product-wise Share of Production of Petroleum Products (%)

Fig1.3. Percentage Share of Petroleum Products in GDP

8. PROSPECTS OF INDIAN PETROLEUM INDUSTRY

TRADE BARRIERS AND THEIR EFFECT ON

S/No. TITLE PAGE

6. DIRECT AND INDIRECT TRADE 20

7. FACTORS THAT INFLUENCE THE DEVELOPMENT OF 21

8. TRADE BARRIERS FOR INTERNATIONAL TRADE OF 28

9. FUTURE OF BIOFUELS TRADE 32

Fuel Category Examples of Biofuels

Table 2.1 Classification of Biofuels

6. DIRECT AND INDIRECT TRADE

7. FACTORS THAT INFLUENCE THE DEVELOPMENT OF BIOFUELS

Factors Affecting the Trade and Development of Biofuels

Macroeconomic Geographical Industrial Technical Policy

1) Gross Domestic 1) Land

Fig2.2 Factors influencing the International Trade of Biofuels

Fig2.3 Oil Prices and Important Events

7.1.3. Transportation Cost: The cost of transporting biofuels is another significant

8. TRADE BARRIERS FOR INTERNATIONAL TRADE OF BIOFUELS

8.2. Institutional obstacles and problems

9. FUTURE OF BIOFUELS TRADE

EXPORT POTENTIAL OF GEMS & JEWELLERY

S/No. TITLE PAGE

5. GEMS & JEWELLERY SECTOR IN INDIA 38

6. GOVERNMENT INITIATIVES FOR THE PROMOTION OF 42

7. ANALYSIS OF GEMS & JEWELLERY EXPORTS FROM 43

8. SWOT ANALYSIS OF INDIAN GEMS & JEWELLERY 45

Gems & Jewellery

Polished Gem Gold & Synthetic

Fig3.1 Classification of Gems & Jewellery Sector

5. GEMS & JEWELLERY SECTOR IN INDIA

6. GOVERNMENT INITIATIVES FOR THE PROMOTION OF GEMS &

7. ANALYSIS OF GEMS AND JEWELLERY EXPORTS FROM INDIA

Fig3.2 Composition of Exports of Gems & Jewellery

8. SWOT ANALYSIS OF INDIAN GEMS & JEWELLERY INDUSTRY

INTERNATIONAL TRADE OF WASTE

S/No. TITLE PAGE

4. GLOBAL WASTE TRADE 53

5. THEORIES IN INTERNATIONAL TRADE OF WASTE 57

6. INDIA AND WASTE TRADE 61

7. DISCUSSION AND CONCLUSION 63

Fig4.1 Flow of waste traded between developed countries and third-world.

4. GLOBAL WASTE TRADE

Fig4.3 Evolution of transboundary movements of Waste (UNEP).

5. THEORIES IN INTERNATIONAL TRADE OF WASTE

Private Marginal Cost (Supply)

Fig4.4 Negative Externality

Transport Cost per

Land Cost per Ton