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Mr. Ravi Sehgal is the 24th Chairman of EEPC India

 

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.

As we usher in the New Year, 2020, it may be worthwhile to briefly look back at how things unveiled in 2019. Post the historic high of $81 billion in 2018-19, engineering exports fell in the first six months of 2019-20 mainly due to repressed global demand and protective stances adopted by many of India’s key export partners. Then, the trend reversed in the last two months with October 2019 engineering exports growing by 1.66 percent, followed by 6.30 percent growth in November 2019. This is despite any discernible change in global demand conditions. The WTO continued to reduce its global trade growth forecast; the current forecast being 1.2 percent from the earlier 2.6 percent due to trade tensions and a sluggish global economy.

The response from the government was fast and energetic led by India’s Commerce and Industry Minister, Piyush Goyal, together with his able colleagues. Periodic reviews, an appreciation of the problems faced by exporters, and reorienting the trade policy framework were the broad objectives of these interactions. 2020 is likely to hasten this process with a new Foreign Trade Policy expected from the next fiscal year. The broad contours are well known and at present is work in process: a shift from non-WTO compliant schemes to a long term sustainable level playing field for Indian exporters vis-à-vis their global counterparts with respect to cost of credit, credit guarantees, refund of taxes which remain embedded in the production chain as well as boosting export marketing efforts and facilitation of export capabilities through WTO compatible policy instruments.

India’s engineering exports face a major challenge to remain competitive globally. This relates to domestic raw material prices, especially that of steel, which are much higher than global prices. This is an input handicap, primarily, for MSME engineering exporters, as they do not have the funds to import in bulk. EEPC India has been urging the government to devise a mechanism within the existing foreign trade policy framework to provide the major categories of steel to MSME exporters at the ‘Export Parity price.’ I am glad to inform that due to the active intervention of Mr Goyal, we have taken the first step towards such a scheme. We are in the process of fine-tuning the scheme with the major primary steel producers and do hope that this will eventually help to make MSME exports even more competitive.

What then is the prognosis for 2020? Keeping in mind the sage counsel that predicting the future is a hazardous business, let me, however, stick my neck out and state that, perhaps, the worst will come to an end later this year and the global trade order may stabilise to some extent, once the US elections are over. Engineering exports in the current fiscal will, perhaps, hover around the $81 billion figure, achieved last fiscal.

There is, however, no doubt that unless the present ‘wave of protectionism’ dies down completely, a full revival of the trade cycle may not yet be on the anvil. Given the increasing focus of the media, in particular, on climate change and the rising income inequality, the antidote for protectionism may lie in countries across the globe, collectively, pursuing a ‘reverse incomes policy’ to boost consumption in social classes and groups with high marginal propensity to consume.

What message can one pass to our valiant member exporters? Let me borrow a metaphor from the world of cricket, given that we are a madly crazy superstar cricketing nation: be like the opening batsmen and be aware of your off-stump – do not fish outside the off-stump and play with a straight bat in the corridor between mid-off and mid-on!

Our Focus story this month is Malaysia, the Partner Country in our flagship annual programme IESS IX, to be held over 4-6 March 2019 at Coimbatore in Tamil Nadu. Malaysia’s political and economic stability, prudent and pragmatic investor-friendly business policies, cost-productive workforce, developed infrastructure comparable to that of any western country, and a host of other amenities makes it a very attractive place for investors. I hope to see all of you in Coimbatore in March!

I wish all my readers a very Happy and Prosperous 2020.

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