S C Ralhan

Biz@India

September 2015

Scheme to Push Dismal Exports

S C RALHAN, President, Federation of Indian Export Organisations (FIEO)

Expressing his concern over the declining status of exports, S C Ralhan talks about the role of Federation of Indian Export Organisations (FIEO) in its escalation and competitiveness. He stresses on the challenges and the much needed government’s intervention.

How has exports from India performed during 2014-15 fiscal? What are the prospects for the current fiscal? How is FIEO working towards promoting exports from India?

Indian exports touched USD 310 billion in 2014-15 much below the target fixed for the year. The contraction in global demand impacted India’s exports as well. However, the slowdown in domestic manufacturing in no less way contributed to the decline. So far, exports were in the negative zone in the first four months of the current fiscal for which trade data has been released. The decline in April-July 2015 is close to 15 pc. Going by the current trend, we may not touch the target of USD 325 billion in 2015-16.

The main task of FIEO is to provide competitiveness to India’s exports by flagging factors which impinge on competitiveness. We have already asked the government to provide interest subvention for exports, reduce transaction time and cost by effective EDI (electronic data exchange) and creation of a corpus for an export development fund to support marketing of small and medium companies.

Which sectors have driven the growth? Which are the key countries to trade with and in which commodities?

In the current year, exports of apparel, chemical and pharmaceuticals are positive, while most of the other sectors so far are exhibiting negative growth. There has been a sharp decline in exports of petroleum products, gems & jewellery and engineering goods which are key drivers of India’s exports. While India has been successful in diversifying its exports base in the last few years, the slowdown even in emerging economies has again brought focus on advance economies, particularly of North America.

In the current year, exports of apparel paints a positive image

Exporters are looking at both traditional and new markets with a view not to keep all eggs in one basket. The advanced economies are primarily sourcing the traditional products such as textiles, leather, gems & jewellery, to name a few. The new markets are providing better market access both to traditional and emerging sectors, including pharmaceuticals, auto-components, machinery, cereals and processed foods and plastic & rubber goods.

How has the trade relationship with Europe been? What is the percentage of trade in comparison with key markets such as the US and UAE?

Europe accounts for about 16.3 pc of India’s imports while its share in India’s export is about 18 pc. On the contrary, the US accounts for about 13.7 pc of India’s exports while UAE’s share is 10.67 pc. Most of exports to UAE is not for captive consumption as goods are transferred to other market from UAE. The share of US in India’s import is around 4.8 pc while UAE accounts for around 6 pc of India’s imports.

What are the major issues that Indian exporters have been facing? How can these be solved?

The cost of credit is the main challenge for Indian exports that can be addressed by reducing the bank rate as inflation has come down. Moreover, the government can introduce interest subvention scheme which itself can provide three per cent advantage to exporters particularly of SMEs sector. For reducing the transaction cost, the government should fix a firm date for effective EDI amongst all agencies involved in EXIM (Export- Import) trade. The logistics cost of Indian exports is very high and the government can look for providing transport subsidy to the exporters located in landlocked states.

How do you think government should help exporters develop exports market in the foreign trade policy?

Previously, the scheme of focus market and focus product has helped export sector to diversify both at product and market level. However, in the new FTP (foreign trade policy), these schemes have been replaced by merchandise exports incentive scheme (MEIS) that has curtailed the benefit to a large extent. While we appreciate the reduction in the benefit due to less allocation of funds, the government should have provided a transitional arrangement so that exporters who have already entered into contract by factoring the benefit under the earlier scheme could have continued their exports with those benefits.

There are concerns about free trade agreements creating inverted duty structure, hampering Indian manufacturing sector. What’s your take on this?

Free trade agreements do create inverted duty structure as many times the duty on the inputs could not be reduced as such inputs have wide ranging usages. The government should provide relief to the industry by providing end using exemption so that the domestic industry manufactures a product which is allowed at zero duty can import its inputs at zero duty so as to have level playing field.

How do you look at the situation of India’s exports in the current fiscal and in the next few months?

The world trade in 2015 was initially projected to grow at 5.1 pc that was revised downwardly to four per cent and few months back to 3.3 pc. Going by the current trend in which contraction in demand and high volatility in currency being witnessed, I am not sure whether we will touch even a growth of 3 pc. However, since India’s exports bottomed out in September, 2014, I expect the export growth to start from September 2015 onwards.

The order booking position in some of the sectors has improved but most of the sectors are still in red. I will be happy, if in the current fiscal, we reach the export level what we achieved in 2014-15 as in the first four months we witnessed a decline of 15 per cent.