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Chairman

Mr. Mahesh Desai

 

This meeting delivered some results and the RBI caution listing date was postponed to 31 March 2019; the ‘pre-import’ condition was dropped vide DGFT Notification No.53 dated 10 January 2019 and efforts are now being made to educate the exporters with respect to using the UCO Bank mode for exports to Iran. I hope to continue this dialogue further during my meetings in the month of February 2019 when, among others, the Board of Trade Meeting is also scheduled.

 

As I write, the Interim Budget 2019-20 has been presented by the Union Finance Minister, MrPiyush Goyal. The fiscal deficit is expected to be around 3.4 percent of the GDP while the first step towards a Universal Basic Income (UBI) Scheme for smaller farmers has been initiated. Similarly, income tax exemption has been provided for incomes up to Rs5 lakh per annum. I understand that all the tax-related proposals are likely to be ratified when a full budget is presented by the newly-elected government in July 2019.

 

There is no doubt now that the pace of engineering exports growth has slowed down considerably and the third quarter has shown negative growth. While detailed analysis of the trend is provided in the following pages, three critical segments have held back the potential that is there: primary iron and steel exports; copper and copper products exports; and zinc and zinc products exports. Of the three, the first two are the result of market imperfections and an exogenous factor respectively. EEPC India has been continuously hammering the point that while most segments of engineering face the vagaries of the market, domestic steel prices are not ‘market determined,’ resulting in higher prices making downstream value added uncompetitive in global markets. The other impact, now that the international steel prices have fallen, is that the Indian steel majors are catering only to the domestic sector, cutting back on their exports.

 

With respect to copper products exports, the closure of the Tuticorin plant has led to 40 percent drop in production of copper products while imports of refined products have increased. From a net exporter of refined copper, we have now become a net importer. With respect to zinc, there was a fall in domestic production, which hopefully is a short-term phenomenon. Clearly, we need to work out alternatives and some of the suggestions that we have been making to the government, if implemented, can help to some extent in the promotion of the rest of the engineering products. These are products where domestic production and external conditions do not face such negative externalities.

 

On our part, we will continue to promote engineering goods and the eighth edition of the International Engineering Sourcing Show, IESS VIII, scheduled over 14-16 March 2019, will be one such effort to give a major thrust to the promotion of sourcing of engineering products from India, showcasing technological advancement and future technologies, especially for our MSME units.

 

Malaysia is the Partner Country in IESS VIII being held in Chennai. Malaysia, with Asia’s eighth best and the world’s 25th best overall infrastructure, Southeast Asia’s fourth-largest and world’s 38th-largest economy, has one of the best economic records in Asia since its independence with its GDP growing at an average of 6.5 percent per annum for almost 50 years.

 

As both Malaysia and India are moving towards a technology-driven automotive industry equipped with shared mobility, connectivity, electrification, and autonomous driving, this is the most appropriate time for Malaysia Automotive, Robotics and IoT Institute (MARii) to play a lead role to participate in a global forum like IESS.

 

Malaysia’s participation is expected to be a major game changer at IESS 2019, anticipating greater collaborations between MARii and Indian companies and the creation of a technology ecosystem between the two countries.

 

I urge our readers to join us in IESS VIII and benefit from the bouquet of the programmes we are going to present at this mega show.

The first month of the new financial year 2020-21 exhibited a sharp decline in both India’s manufacturing as well as engineering exports. While India’s merchandise exports for the month of April 2020 fell by around 60 percent when compared to April 2019, the fall in engineering exports was to the tune of 63.5 percent for the same period. While this is very disappointing for the industry, it is clearly not a one-off case. The impact of the COVID19 pandemic has been disastrous on global trade. Since its inception in China in the late 2019, the disease has rapidly spread across the world compelling world leaders to come up with unprecedented solutions such as quarantine and strict lockdown across various major countries. These measures have impacted global manufacturing capability significantly by destroying major global supply chains and shutting down large markets. With slim chances for the discovery of any vaccine or cure for the pandemic in the near future, a full global recovery seems far off. Therefore, the situation remains grim for both global and Indian exporting community.

After the stellar performance in 2018-19, Indian engineering exports already faced trouble in 2019- 20 due to various global issues such as the US-China trade war and heavy protectionism across Europe. However, the pandemic has been the most severe blow to India’s entire manufacturing industry due to extensive lockdown and reverse migration of labourers, non-availability of key raw materials and slowing demand. Now as India gradually moves towards partial withdrawal of lockdown measures, several industries are starting to get back to operations and engineering export is not an exception.

While the pandemic still remains a huge challenge to the whole world, it also imparts important lessons for all countries including India. The biggest learning from the pandemic perhaps has been to cut down overdependence on any one source of input. As it happened before the pandemic, China was the fulcrum of all major global value chains. China is also the biggest sourcing partner for India like many others. Hence, as the disease first broke out in China, it adversely affected its manufacturing. This directly impacted China’s ability to remain in the global supply chains. Also for countries majorly depending on China for raw materials, it was the end of their manufacturing activities, too. Other learnings which emanated from this situation are the need for self-reliance and diversification of business.

In fact, to tackle the current situation I feel a three-pronged approach can be adopted which will influence our decision on sourcing partners and raw materials, export destinations, and product diversification. Indian engineering industry needs to look for other sourcing partners beyond China to reduce any supply-side risks in the future. At the same time enhancing indigenous domestic production capacity is very essential. Both the government and the industry have to come forward and develop India’s own engineering clusters such that a significant part of the sourcing can be done domestically and in a cost-effective way. Not only sourcing destination, Indian engineering exporters must also contemplate improving the quality of their products and moving up the value chain by investing in technology and R&D. Another interesting perspective is that our top 25 export destinations account for more than 70 percent of our engineering exports. In this context, diversification of sourcing partners may also not be enough; Indian exporters need to explore new export destinations in potential non-traditional market of Africa, South America, etc. The government can go for more trade agreements in these areas to forge strong commercial bonds.

Furthermore, repurposing of manufacturing is the key. I believe that after the pandemic, there will be noticeable behavioural changes in the global trade discourse. Indian engineering exporters need to exhibit dynamism and prepare themselves to repurpose their manufacturing as per the need of the hour. Only with such concerted effort from both government and the industry, will we be able to navigate and survive in the post-COVID scenario.

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